10-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)

      [X]                                                      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

or

      [  ]                                                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________

Commission File Number 0-16867

                                                                                                         UTG, INC.                                 

                                                                            (Exact name of registrant as specified in its charter)

ILLINOIS                                                                                                                                           20-2907892

(State or other jurisdiction of                                                                                                          (I.R.S. Employer

incorporation or organization)                                                                                                       Identification No.)

5250 South Sixth Street, Springfield, IL                                                                                                       62703

(Address of principal executive offices)                                                                                                   (Zip code)

Registrant's telephone number, including area code: (217) 241-6300

Securities registered pursuant to Section 12(b) of the Act:

                                                                                                                                     Name of each exchange

Title of each class                                                                                                                  on which registered

None                                                                                                                                                         None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Common Stock, stated value $ .001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10- K. [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).

Yes [  ]  No [X]

As of June 30, 2006, shares of the Registrant’s common stock held by non-affiliates (based upon the price of the last sale of $ 8.50 per share), had an aggregate market value of approximately $ 10,272,894.

At March 1, 2007 the Registrant had 3,862,743 outstanding shares of Common Stock, stated value $ .001 per share.

DOCUMENTS INCORPORATED BY REFERENCE:  None

UTG, INC.

FORM 10-K

YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS

PART I................................................................................................................................................................................................. 3

ITEM 1... BUSINESS.......................................................................................................................................................................... 3

ITEM 1A. BUSINESS RISKS........................................................................................................................................................... 16

ITEM 1B. UNRESOLVED STAFF COMMENTS............................................................................................................................ 17

ITEM 2... PROPERTIES.....................................................................................................................................................................17

ITEM 3... LEGAL PROCEEDINGS....................................................................................................................................................18

ITEM 4... SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................................................ 18

PART II.............................................................................................................................................................................................. 19

ITEM 5... MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND

       ISSUER PURCHASES OF EQUITY SECURITIES.......................................................................................................... 19

ITEM 6... SELECTED FINANCIAL DATA...................................................................................................................................... 21

ITEM 7... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS....................................................................................................................................................................21

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  .....................................................33

ITEM 8... FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................................... 34

ITEM 9... CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL

        DISCLOSURE.................................................................................................................................................................. 67

ITEM 9A. CONTROLS AND PROCEDURES..................................................................................................................................67

ITEM 9B. OTHER INFORMATION..................................................................................................................................................67

PART III............................................................................................................................................................................................ 68

ITEM 10.. DIRECTORS AND EXECUTIVE OFFICERS OF UTG.................................................................................................. 68

ITEM 11.. EXECUTIVE COMPENSATION.................................................................................................................................... 71

ITEM 12.. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND   MANAGEMENT AND RELATED

        STOCKHOLDER MATTERS...........................................................................................................................................76

ITEM 13.. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE....................79

ITEM 14.. PRINCIPAL ACCOUNTING FEES AND SERVICES....................................................................................................81

PART IV.............................................................................................................................................................................................82

ITEM 15.. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................................82

PART I

ITEM 1.  BUSINESS

FORWARD-LOOKING INFORMATION

Any forward-looking statement contained herein or in any other oral or written statement by the Company or any of its officers, directors or employees is qualified by the fact that actual results of the Company may differ materially from those projected in forward-looking statements.  Additional information concerning factors that could cause actual results to differ from those in the forward-looking statements is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

OVERVIEW

UTG, Inc. (the "Registrant" or “UTG”) was originally incorporated in 1984, under the name United Trust, Inc. under the laws of the State of Illinois, to serve as an insurance holding company.  The Registrant and its subsidiaries (the "Company") have only one significant industry segment - insurance.  The current name, UTG, Inc., and state of incorporation, Delaware, were adopted during 2005 through a merger transaction.  The Company's dominant business is individual life insurance, which includes the servicing of existing insurance business in force, the solicitation of new individual life insurance, the acquisition of other companies in the insurance business, and the administration processing of life insurance business for other entities.

At December 31, 2006, significant majority-owned subsidiaries of the Registrant were as depicted on the following organizational chart:

This document at times will refer to the Registrant’s largest shareholder, Mr. Jesse T. Correll and certain companies controlled by Mr. Correll.  Mr. Correll holds a majority ownership of First Southern Funding LLC, a Kentucky corporation, (FSF) and First Southern Bancorp, Inc. (FSBI), a financial services holding company.  FSBI operates through its 100% owned subsidiary bank, First Southern National Bank (FSNB).  Banking activities are conducted through multiple locations within south-central and western Kentucky.  Mr. Correll is Chief Executive Officer and Chairman of the Board of Directors of UTG and is currently UTG’s largest shareholder through his ownership control of FSF, FSBI and affiliates.  At December 31, 2006, Mr. Correll owns or controls directly and indirectly approximately 68% of UTG’s outstanding stock.

UTG is a life insurance holding company.  The focus of UTG is the acquisition of other companies in similar lines of business and management of the insurance subsidiaries.  UTG has no activities outside the life insurance focus. UTG has a history of acquisitions and consolidation in which life insurance companies were involved.

UG is a wholly owned life insurance subsidiary of UTG domiciled in the State of Ohio, which operates in the individual life insurance business.  The primary focus of UG has been the servicing of existing insurance business in force.  In addition, UG provides insurance administrative services for other non-related entities.

ACAP is an insurance holding company that is 64% owned by UG.

AC is a wholly owned life insurance subsidiary of ACAP domiciled in the State of Texas, which operates in the individual life insurance business.  The primary focus of AC has been the servicing of existing insurance business in force.

TI is a wholly owned life insurance subsidiary of AC domiciled in the State of Texas, which operates in the individual life insurance business.  The primary focus of TI has been the servicing of existing insurance business in force with limited new business production.

REC is a wholly owned subsidiary of UTG, which was incorporated under the laws of the State of Delaware on June 1, 1971, as a securities broker dealer.  REC was established as an aid to life insurance sales.  Policyholders could have certain policy benefits such as annual dividends automatically transferred to a mutual fund if they elected.  REC acts as an agent for its customers by placing orders of mutual funds and variable annuity contracts, which are placed in the customers’ names.  The mutual fund shares and variable annuity accumulation units are held by the respective custodians.  The only financial involvement of REC is through receipt of commission (load).  REC functions at a minimum broker-dealer level.  It does not maintain any of its customer accounts nor receives customer funds directly.  Operating activity of REC accounted for approximately $ 19,000 of earnings in the current year.

NP is a wholly owned subsidiary of UG, which owns for investment purposes, various real estate properties including a shopping center in Somerset, Kentucky, approximately 14,000 acres of timberland in Kentucky, and a 50% partnership interest in an additional 11,000 acres of Kentucky timberland.  North Plaza has a total book value of approximately $ 10,630,000.  Operating activity of North Plaza accounted for approximately $ 77,000 of earnings in the current year.

HP is a 67% owned subsidiary of UG, which owned for investment purposes, a property consisting of a 254,228 square foot office tower, and 72,382 square foot attached retail plaza totaling 326,610 square feet along with an attached 349 space parking garage, in Manchester, New Hampshire.  During 2006, the entity sold its interest in the buildings and property for a gain of approximately $ 1,550,000.  Operating activity of Hampshire Plaza accounted for approximately $ 1,466,000 of earnings in the current year.

HPG is a 67% owned subsidiary of UG, which owned for investment purposes, a property consisting of a 578 space parking garage, in New Hampshire.  During 2006, the entity sold its interest in the property for a gain of approximately $ 6,218,000.  Operating activity of HP Garage accounted for approximately $ 6,230,000 of earnings in the current year.  The proceeds from the sale of the property were used to purchase real estate located in Midland, Texas.

HISTORY

UTG was incorporated December 14, 1984, as an Illinois corporation through an intrastate public offering under the name United Trust, Inc. (UTI). Over the years, UTG acquired several additional holding and life insurance companies.  UTG streamlined and simplified the corporate structure following the acquisitions through dissolution of intermediate holding companies and mergers of several life insurance companies.

In March 2005, UTG’s Board of Directors adopted a proposal to change the state of incorporation of UTG from Illinois to Delaware by merging UTG with and into a wholly-owned Delaware subsidiary (the “reincorporation merger”).  The reincorporation merger effected only a change in UTG’s legal domicile and certain other changes of a legal nature.  The Board of Directors submitted the reincorporation proposal to its shareholders for approval at the 2005 annual meeting of shareholders, which was approved subsequently and affected on July 1, 2005.

In December 2006, the Company completed an acquisition transaction whereby it acquired a controlling interest in Acap Corporation, which owns two life insurance subsidiaries.  The acquisition resulted in an increase of approximately $ 90,000,000 in invested assets, $ 160,000,000 in total assets and 200,000 additional policies to administer.  The administration of the acquired entities was moved to Springfield, Illinois during December 2006.  The Company believes this acquisition is a good fit with its existing administration and operations.  Significant expense savings are anticipated as a result of the combining of operations compared to costs of the two entities operating separately.

PRODUCTS

UG’s current product portfolio consists of a limited number of life insurance product offerings.  All of the products are individual life insurance products, with design variations from each other to provide choices to the customer.  These variations generally center around the length of the premium paying period, length of the coverage period and whether the product accumulates cash value or not.  The products are designed to be competitive in the marketplace.

UG offers a universal life policy referred to as the “Legacy” product.  This product was designed for use with several distribution channels including the Company’s own internal agents, bank agent/employees and through personally producing general agents “PPGA”.  This policy is issued for ages 0 – 65, in face amounts with a minimum of $ 25,000.  The Legacy product has a current declared interest rate of 4.0%, which is equal to its guaranteed rate.  After five years the guaranteed rate drops to 3.0%.  During the first five years the policy fee will be $ 6.00 per month on face amounts less than $ 50,000 and $ 5.00 per month for larger amounts.  After the first five years the Company may increase this rate but not more than $ 8.00 per month.  The policy has other loads that vary based upon issue age and risk classification. Partial withdrawals, subject to a minimum $ 500 cash surrender value and a $ 25 fee, are allowed once a year after the first duration.  Policy loans are available at 7.4% interest in advance.  The policy's accumulated fund will be credited the guaranteed interest rate in relation to the amount of the policy loan.  Surrender charges are based on a percentage of target premiums starting at 100% for years 1 and 2 then grading downward to zero in year 5.

Also available are a number of traditional whole life policies.  The Company’s “Ten Pay Whole Life” insurance product has a level face amount.  The level premium is payable for the first ten policy years.  This policy is available for issue ages 0-65, and has a minimum face amount of $10,000.  This policy can be used in conversion situations, where it is available up to age 75 and at a minimum face amount of $5,000.   There is no policy fee.

The “Preferred Whole Life” insurance product also has a level face amount and level premium, although the premiums are payable for life on this product.  Issue ages are 0-65 and the minimum face amount is $25,000.  There is no policy fee.  Unlike the Ten Pay, this product has several optional riders available: Accidental Death rider, Children’s Term Insurance rider, Terminal Illness rider and/or Waiver of Premium rider. 

The “Tradition” is a fixed premium whole life insurance policy.  Premiums are level and payable for life.  Issue ages are 0-80.  The minimum face amount is the greater of $10,000 or the amount of coverage provided by a $100 annual premium.  There is a $30 policy fee.   This product has the same optional riders as the Preferred Whole Life, listed above.

Our newest product is called “Kid Kare”.  This is a single premium level term policy to age 21.   The product is sold in units, with one unit equal to a face amount of $5,000 for a single premium of $250.  The policy is issued from ages 0-15 and has conversion privileges at age 21.  There is no policy fee.

The “Horizon Annuity” completes our product portfolio.  This product is issued for ages 0-80.  The minimum annual premium in the first year is $2,000, with premiums being optional in all other years.  There is a maintenance fee of $18 beginning in the second policy year.  This fee is waived if the annuity value is at least $2,000.  This policy has a decreasing surrender charge for the first five years of the contract.

The Company is currently developing a decreasing term policy and a level term policy.  The decreasing term policy will be convertible to age 65 or the policy anniversary prior to expiry.  Terms of 10, 15, 20 25 and 30 years will be available.  Each term period has its own issue age criteria.   The level term policy will be renewable to age 70 and convertible to age 65.  Issue ages for the level term policy will be 18-60.  Design of these products has been completed.  The products are currently in various stages of filing and approval in the states UG is licensed.

The Company's actual experience for earned interest, persistency and mortality varies from the assumptions applied to pricing and for determining premiums.  Accordingly, differences between the Company's actual experience and those assumptions applied may impact the profitability of the Company. The Company monitors investment yields, and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads.  Credited rates are reviewed and established by the Board of Directors of UG.  Currently, all crediting rates have been reduced to the respective product guaranteed interest rate.

The Company has a variety of policies in force different from those being marketed.  Interest sensitive products, including universal life and excess interest whole life (“fixed premium UL”), account for 60% of the insurance in force.  Approximately 19% of the insurance in force is participating business, which represents policies under which the policy owner shares in the insurance company’s statutory divisible surplus.  The Company's average persistency rate for its policies in force for 2006 and 2005 has been 95.9% and 95.8%, respectively. 

Interest sensitive life insurance products have characteristics similar to annuities with respect to the crediting of a current rate of interest at or above a guaranteed minimum rate and the use of surrender charges to discourage premature withdrawal of cash values.  Universal life insurance policies also involve variable premium charges against the policyholder's account balance for the cost of insurance and administrative expenses.  Interest-sensitive whole-life products generally have fixed premiums.  Interest-sensitive life insurance products are designed with a combination of front-end loads, periodic variable charges, and back-end loads or surrender charges.

Traditional life insurance products have premiums and benefits predetermined at issue; the premiums are set at levels that are designed to exceed expected policyholder benefits and insurance company expenses.  Participating business is traditional life insurance with the added feature that the policyholder may share in the divisible surplus of the insurance company through policyholder dividend.  This dividend is set annually by the Board of Directors of UG and is completely discretionary.

AC and TI market a small volume of final expense insurance and prearranged funeral service contracts in the State of Texas.  These policies are primarily written through independent funeral homes.

MARKETING

The Company has not actively marketed life products in the past several years.  Management currently places little emphasis on new business production, believing resources could be better utilized in other ways.  Current sales primarily represent sales to existing customers through additional insurance needs or conservation efforts.  In 2001, the Company increased its emphasis on policy retention in an attempt to improve current persistency levels.  In this regard, several of the home office staff have become licensed insurance agents enabling them broader abilities when dealing with the customer in regard to his/her existing policies and possible alternatives.  The conservation efforts described above have been generally positive.  Management will continue to monitor these efforts and make adjustments as seen appropriate to enhance the future success of the program.

The Company has introduced new and updated products in recent periods including the Horizon Annuity, the Legacy and Kid Kare.  The Company is currently working on development of a level term and decreasing term product.  Management has no current plans to increase marketing efforts.  New product development is anticipated to be utilized in conservation efforts and sales to existing customers.  Such sales are not expected to be material. 

Excluding licensed home office personnel, UG has 15 general agents.  UG primarily markets its products in the Midwest region with most sales in the states of Ohio, Illinois and West Virginia.  UG is licensed to sell life insurance in Alabama, Arizona, Arkansas, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wisconsin.

AC markets its products primarily in the state of Texas.  AC is licensed to sell life insurance in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming.

TI has 350 general agents.  TI markets its products in the state of Texas, which is the only state that it is licensed.

In 2006, approximately $ 14,529,000 of total direct premium was collected by UG.  Ohio accounted for 27%, Illinois accounted for 17%, and West Virginia accounted for 11% of total direct premiums collected.  No other state accounted for more than 5% of direct premiums collected.

UNDERWRITING

The underwriting procedures of the insurance subsidiary are established by management.  Insurance policies are issued by the Company based upon underwriting practices established for each market in which the Company operates.  Most policies are individually underwritten.  Applications for insurance are reviewed to determine additional information required to make an underwriting decision, which depends on the amount of insurance applied for and the applicant's age and medical history.  Additional information may include inspection reports, medical examinations, and statements from doctors who have treated the applicant in the past and, where indicated, special medical tests.  After reviewing the information collected, the Company either issues the policy as applied for, with an extra premium charge because of unfavorable factors, or rejects the application.  Substandard risks may be referred to reinsurers for full or partial reinsurance of the substandard risk.

The Company requires blood samples to be drawn with individual insurance applications for coverage over $ 45,000 (age 46 and above) or $ 95,000 (ages 16-45).  Blood samples are tested for a wide range of chemical values and are screened for antibodies to the HIV virus.  Applications also contain questions permitted by law regarding the HIV virus, which must be answered by the proposed insureds.

RESERVES

The applicable insurance laws under which the insurance subsidiary operates require that the insurance company report policy reserves as liabilities to meet future obligations on the policies in force.  These reserves are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated in accordance with applicable law to be sufficient to meet the various policy and contract obligations as they mature.  These laws specify that the reserves shall not be less than reserves calculated using certain mortality tables and interest rates.

The liabilities for traditional life insurance and accident and health insurance policy benefits are computed using a net level method.  These liabilities include assumptions as to investment yields, mortality, withdrawals, and other assumptions based on the life insurance subsidiary’s experience adjusted to reflect anticipated trends and to include provisions for possible unfavorable deviations.  The Company makes these assumptions at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date.  Future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from 2% to 6% for life insurance and 3.0% to 9.25% for annuities.  Benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term.  Policy benefit claims are charged to expense in the period that the claims are incurred.  Current mortality rate assumptions are based on 1975-80 select and ultimate tables.  Withdrawal rate assumptions are based upon Linton B or Linton C, which are industry standard actuarial tables for forecasting assumed policy lapse rates.

Benefit reserves for universal life insurance and interest sensitive life insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges.  Policy benefits and claims that are charged to expense include benefit claims in excess of related policy account balances. Interest crediting rates for universal life and interest sensitive products range from 4.0% to 5.5% for the years ended December 31, 2006, 2005 and 2004.

REINSURANCE

As is customary in the insurance industry, the insurance subsidiaries cede insurance to, and assume insurance from, other insurance companies under reinsurance agreements.  Reinsurance agreements are intended to limit a life insurer's maximum loss on a large or unusually hazardous risk or to obtain a greater diversification of risk.  The ceding insurance company remains primarily liable with respect to ceded insurance should any reinsurer be unable to meet the obligations assumed by it.  However, it is the practice of insurers to reduce their exposure to loss to the extent that they have been reinsured with other insurance companies.  The Company sets a limit on the amount of insurance retained on the life of any one person.  The Company will not retain more than $ 125,000, including accidental death benefits, on any one life.  At December 31, 2006, the Company had gross insurance in force of $ 2.270 billion of which approximately $ 591 million was ceded to reinsurers.

The Company's reinsured business is ceded to numerous reinsurers.  The Company monitors the solvency of its reinsurers in seeking to minimize the risk of loss in the event of a failure by one of the parties.  The primary reinsurers of the Company are large, well capitalized entities.

Currently, UG is utilizing reinsurance agreements with Optimum Re Insurance Company, (Optimum) and Swiss Re Life and Health America Incorporated (SWISS RE).  Optimum and SWISS RE currently hold an “A-” (Excellent), and "A+" (Superior) rating, respectively, from A.M. Best, an industry rating company.  The reinsurance agreements were effective December 1, 1993, and covered most new business of UG.  The agreements are a yearly renewable term (YRT) treaty where the Company cedes amounts above its retention limit of $ 100,000 with a minimum cession of $ 25,000.

In addition to the above reinsurance agreements, UG entered into reinsurance agreements with Optimum Re Insurance Company (Optimum) during 2004 to provide reinsurance on new products released for sale in 2004.  The agreements are yearly renewable term (YRT) treaties where UG cedes amounts above its retention limit of $100,000 with a minimum cession of $25,000 as has been a practice for the last several years with its reinsurers.  Also, effective January 1, 2005, Optimum became the reinsurer of 100% of the accidental death benefits (ADB) in force of UG.  This coverage is renewable annually at the Company’s option.  Optimum specializes in reinsurance agreements with small to mid-size carriers such as UG.  Optimum currently holds an “A-” (Excellent) rating from A.M. Best.

UG entered into a coinsurance agreement with Park Avenue Life Insurance Company (PALIC) effective September 30, 1996.  Under the terms of the agreement, UG ceded to PALIC substantially all of its then in-force paid-up life insurance policies.  Paid-up life insurance generally refers to non-premium paying life insurance policies.  PALIC and its ultimate parent  The Guardian Life Insurance Company of America (Guardian), currently holds an "A+" (Superior) rating from A.M. Best.  The PALIC agreement accounts for approximately 67% of UG’s reinsurance reserve credit, as of December 31, 2006.

On September 30, 1998, UG entered into a coinsurance agreement with The Independent Order of Vikings, an Illinois fraternal benefit society (IOV).  Under the terms of the agreement, UG agreed to assume, on a coinsurance basis, 25% of the reserves and liabilities arising from all in-force insurance contracts issued by the IOV to its members.  At December 31, 2006, the IOV insurance in-force assumed by UG was approximately $ 1,670,000, with reserves being held on that amount of approximately $ 391,000.

On June 1, 2000, UG assumed an already existing coinsurance agreement, dated January 1, 1992, between Lancaster Life Reinsurance Company (LLRC), an Arizona corporation and Investors Heritage Life Insurance Company (IHL), a corporation organized under the laws of the Commonwealth of Kentucky.  Under the terms of the agreement, LLRC agreed to assume from IHL a 90% quota share of new issues of credit life and accident and health policies that have been written on or after January 1, 1992 through various branches of the First Southern National Bank.  The maximum amount of credit life insurance that can be assumed on any one individual’s life is $ 15,000.  UG assumed all the rights and obligations formerly held by LLRC as the reinsurer in the agreement.  LLRC liquidated its charter immediately following the transfer.  At December 31, 2006, the IHL agreement has insurance in-force of approximately $ 2,308,000, with reserves being held on that amount of approximately $ 32,000.

At December 31, 1992, AC entered into a reinsurance agreement with Canada Life Assurance Company (“the Canada Life agreement”) that fully reinsured virtually all of its traditional life insurance policies.  The reinsurer’s obligations under the Canada Life agreement were secured by assets withheld by AC representing policy loans and deferred and uncollected premiums related to the reinsured policies.  AC continues to administer the reinsured policies, for which it receives an expense allowance from the reinsurer.  At December 31, 2006, the Canada Life agreement has insurance in-force of approximately $ 86,594,000, with reserves being held on that amount of approximately $ 42,409,000.

During 1997, AC acquired 100% of the policies in force of World Service Life Insurance Company through a combination of assumption reinsurance and coinsurance.  While 91.42% of the acquired policies are coinsured under the Canada Life agreement, AC did not coinsure the balance of the policies.  AC retains the administration of the reinsured policies, for which it receives an expense allowance from the reinsurer.  Canada Life currently holds an "A+" (Superior) rating from A.M. Best.

During 1998, American Capitol closed a coinsurance transaction with Universal Life Insurance Company (“Universal”). Pursuant to the coinsurance agreement, American Capitol coinsured 100% of the individual life insurance policies of Universal in force at January 1, 1998.  At December 31, 2006, the Universal agreement has insurance in-force of approximately $ 15,768,000, with reserves being held on that amount of approximately $ 5,251,000.

The treaty with Canada Life provides that AC is entitled to 85% of the profits (calculated pursuant to a formula contained in the treaty) beginning when the accumulated profits under the treaty reach a specified level.  As of December 31, 2006, there remains $2,247,998 in profits to be generated before AC is entitled to 85% of the profits.  Should future experience under the treaty match the experience of recent years, which cannot reliably be predicted to occur, the accumulated profits would reach the specified level towards the end of 2009.  However, regarding the uncertainty as to when the specified level may be reached, it should be noted that the experience has been erratic from year to year and the number of policies in force that are covered by the treaty diminishes each year.

All reinsurance for TI is with a single, unaffiliated reinsurer, Hannover Life Reassurance (Ireland) Limited ("Hannover"), secured by a trust account containing letters of credit totaling $1,009,981, granted in favor of TI.  TI administers the reinsurance policies, for which it receives an expense allowance from Hannover.  Hannover currently holds an “A” (Excellent) rating by A.M. Best.  At December 31, 2006, the Hannover agreement has insurance in-force of approximately $ 25,913,000, with reserves being held on that amount of approximately $ 502,000.

The Hannover treaty provides that TI may recapture the treaty without a charge to surplus under statutory accounting beginning when the accumulated profits (calculated pursuant to a formula contained in the treaty) reach a specified level.  As of December 31, 2006, there remains $422,010 in profits to be generated before TI can recapture the treaty without a surplus charge.  Should future experience under the treaty match the experience of recent years, which cannot reliably be predicted to occur, the accumulated profits would reach the specified level towards the end of 2007.  However, regarding the uncertainty as to when the specified level may be reached, it should be noted that the experience has been erratic from year to year and the number of policies in force that are covered by the treaty diminishes each year.

On December 31, 2006, AC and TI entered into 100% coinsurance agreements whereby each company ceded all of its A&H business to an unaffiliated reinsurer, Reserve National Insurance Company (Reserve National).  As part of the agreement, the Company remains contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year.  At the end of the one year period, an accounting of these claims shall be produced.  Any difference in the actual claims to the claim reserve liability transferred shall be refunded to / paid by the Company.  Reserve National currently holds an “A-“ (Excellent) rating by A.M. Best.

The Company does not have any short-duration reinsurance contracts.  The effect of the Company's long-duration reinsurance contracts on premiums earned in 2006, 2005 and 2004 were as follows:

			Shown in thousands
			2006 Premiums Earned			2005 Premiums Earned			2004 Premiums Earned
Direct	$	15,450		$	16,357		$	17,238
Assumed		65			42			38
Ceded		(2,655)			(2,672)			(3,135)
Net premiums	$	12,860		$	13,727		$	14,141

INVESTMENTS

Investment income represents a significant portion of the Company's total income.  Investments are subject to applicable state insurance laws and regulations, which limit the concentration of investments in any one category or class and further limit the investment in any one issuer.  Generally, these limitations are imposed as a percentage of statutory assets or percentage of statutory capital and surplus of each company.

The following table reflects net investment income by type of investment.

		December 31,
		2006		2005		2004
Fixed maturities and fixed maturities   held for sale	$	6,838,277	$	6,661,648	$	7,060,761
Equity securities		915,864		771,379		657,609
Mortgage loans		2,739,350		2,033,007		1,209,358
Real estate		5,500,005		7,473,698		5,335,530
Policy loans		580,961		860,240		918,562
Short-term investments		27,620		3,699		80,241
Cash		454,580		171,926		111,986
Total consolidated investment income		17,056,657		17,975,597		15,374,047
Investment expenses		(6,055,492)		(6,924,371)		(4,953,161)
Consolidated net investment income	$	11,001,165	$	11,051,226	$	10,420,886

At December 31, 2006, the Company had a total of $ 3,706,666 in investment real estate, which did not produce income during 2006.

The following table summarizes the Company's fixed maturities distribution at December 31, 2006 and 2005 by ratings category as issued by Standard and Poor's, a leading ratings analyst.

Fixed Maturities
Rating	% of Portfolio
	2006	2005
Investment Grade
AAA	70%	79%
AA	4%	1%
A	18%	15%
BBB	6%	5%
Below investment grade	2%	0%
	100%	100%

The following table summarizes the Company's fixed maturities and fixed maturities held for sale by major classification.

		Carrying Value
			2006		2005
U.S. government and government agencies	$		44,940,220	$	31,235,651
States, municipalities and political subdivisions			4,169,438		1,626,970
Collateralized mortgage obligations			118,743,522		72,351,854
Public utilities			6,097,151		0
Corporate			65,553,711		27,374,215
	$		239,504,042	$	132,588,690

The following table shows the composition, average maturity and yield of the Company's investment portfolio at December 31, 2006.

		Average
		Carrying	Average	Average
Investments		Value	Maturity	Yield
Fixed maturities and fixed    maturities held for sale	$	143,061,000	6 years	4.78%
Equity securities		24,440,000	Not applicable	3.75%
Mortgage Loans		34,358,000	4 years	7.97%
Investment real estate		43,277,000	Not applicable	12.71%
Policy loans		12,235,000	Not applicable	4.75%
Short-term investments		45,000	Not applicable	0.00%
Cash and cash equivalents		8,719,000	On demand	5.39%
Total Investments and Cash    and cash equivalents	$	266,135,000		6.42%

At December 31, 2006, fixed maturities and fixed maturities held for sale have a combined market value of $ 239,473,502.  Fixed maturities held to maturity are carried at amortized cost.  Management has the ability and intent to hold these securities until maturity.  Fixed maturities held for sale are carried at market.

Management monitors its investment maturities, which in their opinion is sufficient to meet the Company's cash requirements.  Fixed maturities of $ 22,362,035 mature in one year and $ 56,317,362 mature in two to five years.

The Company holds $ 32,015,446 in mortgage loans, which represents approximately 7% of the total assets.  All mortgage loans are first position loans.  Before a new loan is issued, the applicant is subject to certain criteria set forth by Company management to ensure quality control.  These criteria include, but are not limited to, a credit report, personal financial information such as outstanding debt, sources of income, and personal equity.  Loans issued are limited to no more than 80% of the appraised value of the property and must be first position against the collateral.

FSNB, an affiliate, services the mortgage loan portfolio of the Company.  FSNB has been able to provide the Company with expertise and experience in underwriting commercial and residential mortgage loans, which provide more attractive yields than the traditional bond market.  During 2006, 2005 and 2004 the Company issued approximately $ 5,359,000, $ 24,576,000 and $ 2,627,000 in new mortgage loans, respectively.  These new loans were originated through FSNB and funded by the Company through participation agreements with FSNB.  FSNB services all the mortgage loans of the Company.  The Company pays FSNB a .25% servicing fee on these loans and a one-time fee at loan origination of .50% of the original loan amount to cover costs incurred by FSNB relating to the processing and establishment of the loan.  UG paid $ 93,288, $ 76,970 and $ 45,468 in servicing fees and $ 23,214, $ 112,109 and $ 0 in origination fees to FSNB during 2006, 2005 and 2004, respectively.

The Company has no mortgage loans in the process of foreclosure and no loans under a repayment plan or restructuring.  Letters are sent to each mortgagee when the loan becomes 30 days or more delinquent.  Loans 90 days or more delinquent are placed on a non-performing status and classified as delinquent loans.  Reserves for loan losses are established based on management's analysis of the loan balances compared to the expected realizable value should foreclosure take place.  Loans are placed on a non-accrual status based on a quarterly analysis of the likelihood of repayment.  All delinquent and troubled loans held by the Company are loans, which were held in portfolios by acquired companies at the time of acquisition.  Management believes the current internal controls surrounding the mortgage loan selection process provide a quality portfolio with minimal risk of foreclosure and/or negative financial impact.

The Company has in place a monitoring system to provide management with information regarding potential troubled loans.  Management is provided with a monthly listing of loans that are 30 days or more past due along with a brief description of what steps are being taken to resolve the delinquency.  Quarterly, coinciding with external financial reporting, the Company determines how each delinquent loan should be classified.  All loans 90 days or more past due are classified as delinquent.  Each delinquent loan is reviewed to determine the classification and status the loan should be given.  Interest accruals are analyzed based on the likelihood of repayment.  In no event will interest continue to accrue when accrued interest along with the outstanding principal exceeds the net realizable value of the property.  The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status.

A mortgage loan reserve is established and adjusted based on management's quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value.  The mortgage loan reserve was $ 33,500 and $36,000 at December 31, 2006 and 2005 respectively.

The following table shows a distribution of the Company’s mortgage loans by type.

Mortgage Loans		Amount	% of Total
Commercial – insured or guaranteed	$	1,261,250	4%
Commercial – all other		25,294,148	79%
Residential – insured or guaranteed		8,556	0%
Residential – all other		5,451,492	17%

The following table shows a geographic distribution of the Company’s mortgage loan portfolio and investment real estate.

	Mortgage Loans	Real Estate
Florida	10%	0%
Georgia	5%	0%
Illinois	0%	3%
Indiana	2%	0%
Kansas	7%	0%
Kentucky	60%	35%
Texas	16%	62%
Total	100%	100%

The following table summarizes delinquent mortgage loan holdings of the Company.

Delinquent 90 days or more		2006		2005		2004
Non-accrual status	$	64,136	$	42,400	$	167,148
Other		0		0		0
Reserve on delinquent Loans		(33,500)		(36,000)		(120,000)
Total delinquent	$	30,636	$	6,400	$	47,148
Interest income past due (delinquent loans)	$	0	$	0	$	0
In process of restructuring	$	0	$	0	$	0
Restructuring on other than market terms		0		0		0
Other potential problem Loans		0		0		0
Total problem loans	$	0	$	0	$	0
Interest income foregone (restructured loans)	$	0	$	0	$	0
In process of foreclosure	$	0	$	0	$	1,401,345
Total foreclosed loans	$	0	$	0	$	1,401,345
Interest income foregone (restructured loans)	$	0	$	0	$	0

See Item 2, Properties, for description of real estate holdings.

COMPETITION

The insurance business is a highly competitive industry and there are a number of other companies, both stock and mutual, doing business in areas where the Company operates.  Many of these competing insurers are larger, have more diversified and established lines of insurance coverage, have substantially greater financial resources and brand recognition, as well as a greater number of agents.  Other significant competitive factors in the insurance industry include policyholder benefits, service to policyholders, and premium rates.

In recent years, the Company has not placed an emphasis on new business production.  Costs associated with supporting new business can be significant.  The insurance industry as a whole has experienced a decline in the total number of agents who sell insurance products; therefore competition has intensified for top producing sales agents.  The relatively small size of the Company, and the resulting limitations, has made it challenging to compete in this area.  The number of agents marketing the Company’s products has reduced to a negligible number.

The Company performs administrative work as a third party administrator (TPA) for unaffiliated life insurance companies.  These TPA revenue fees are included in the line item “other income” on the Company’s consolidated statements of operations.  The Company intends to continue to pursue other TPA arrangements through its alliance with Fiserv Life Insurance Solutions (Fiserv).  Through this alliance, the Company provides TPA services to insurance companies seeking business process outsourcing solutions.  Fiserv is responsible for the marketing and sales function for the alliance, as well as providing the datacenter operations.  UTG staffs the administration effort.  Management believes this alliance with Fiserv positions the Company to generate additional revenues by utilizing the Company’s current excess capacity and administrative services.  Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin.

The Company has considered the feasibility of a marketing opportunity with First Southern National Bank (FSNB) an affiliate of UTG’s largest shareholder.  Management has considered various products including annuity type products, mortgage protection products and existing insurance products, as a possibility to market to all banking customers.  The design and introduction of these products are in the early stages of development and have not been introduced to FSNB.  This marketing opportunity has potential and is believed to be a viable niche.  Existing products along with the introduction of new products is currently not expected to produce significant premium writings.

GOVERNMENT REGULATION

Insurance companies are subject to regulation and supervision in all the states where they do business.  Generally the state supervisory agencies have broad administrative powers relating to granting and revoking licenses to transact business , license agents, approving forms of policies used, regulating trade practices and market conduct, the form and content of required financial statements, reserve requirements, permitted investments, approval of dividends and in general, the conduct of all insurance activities.  Insurance regulation is concerned primarily with the protection of policyholders.  The Company cannot predict the impact of any future proposals, regulations or market conduct investigations.  UG is domiciled in the state of Ohio.  AC and TI are both domiciled in the state of Texas.

Insurance companies must also file detailed annual reports on a statutory accounting basis with the state supervisory agencies where each does business; (see Note 6 to the consolidated financial statements) regarding statutory equity and income from operations.  These agencies may examine the business and accounts at any time.  Under the rules of the National Association of Insurance Commissioners (NAIC) and state laws, the supervisory agencies of one or more states examine a company periodically, usually at three to five year intervals.

Most states also have insurance holding company statutes, which require registration and periodic reporting by insurance companies controlled by other corporations licensed to transact business within their respective jurisdictions.  The insurance subsidiary is subject to such legislation and registered as a controlled insurer in those jurisdictions in which such registration is required.  Statutes vary from state to state but typically require periodic disclosure, concerning the corporation that controls the registered insurers and all subsidiaries of such corporation. In addition, prior notice to, or approval by, the state insurance commission of material transactions with affiliates, including transfers of assets, reinsurance agreements, management agreements (see Note 9 to the consolidated financial statements), and payment of dividends (see Note 2 to the consolidated financial statements) in excess of specified amounts by the insurance subsidiary, within the holding company system, are required.

Risk-based capital requirements and state guaranty fund laws are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

EMPLOYEES

At December 31, 2006, UTG and its subsidiaries had 65 full-time equivalent employees.  UTG’s operations are headquartered in Springfield, Illinois.

ITEM 1A. BUSINESS RISKS

The risks and uncertainties described below are not the only ones that UTG faces.  Additional risks and uncertainties that the Company is unaware of, or currently deemed immaterial, also may become important factors that affect our business.  If any of these risks were to occur, our business, financial condition or results of operations could be materially and adversely affected.

The Company faces significant competition for insurance and third party administration clients.  Competition in the insurance industry may limit our ability to attract and retain customers.  UTG may face competition now and in the future from the following: other insurance and third party administration (TPA) providers, including larger non-insurance related companies which provide TPA services.

In particular, our competitors include insurance companies whose greater resources may afford them a marketplace advantage by enabling them to provide insurance services with lower margins.  Additionally, insurance companies and other institutions with larger capitalization and others not subject to insurance regulatory restrictions have the ability to serve the insurance needs of larger customers.  If the Company is unable to attract and retain insurance clients continued growth, results of operations and financial condition may otherwise be negatively affected.

The main sources of income from operations are premium and net investment income.  Net investment income is equal to the difference between the investment income received from various types of investment securities and other income-producing assets and the related expenses incurred in connection with maintaining these investments.  The primary sources of income can be affected by changes in market interest rates and various economic conditions.  These conditions are highly sensitive to many factors beyond our control, including general economic conditions, both domestic and foreign, and the monetary and fiscal policies of various governmental and regulatory authorities.  The Company has adopted asset and liability management policies to try to minimize the potential adverse effects of changes in interest rates on our net interest income, primarily by altering the mix and maturity of loans, investments and funding sources.  However, even with these policies in place, the Company cannot provide assurance that changes in interest rates will not negatively impact our operating results.

An increase in interest rates also could have a negative impact on business by reducing the demand for insurance products.  Fluctuations in interest rates may result in disintermediation, which is the flow of funds away from insurance companies into direct investments that pay higher rates of return, and may affect the value of investment securities and other interest-earning assets.

Because UTG serves primarily individuals located in three states, the ability of our customers to pay their insurance premiums is impacted by the economic conditions in these areas.  As of December 31, 2006, approximately 55% of our total direct premium was collected from Ohio, Illinois and West Virginia.  Thus, results of operations are heavily dependent upon the strength of these economies.

In addition, a substantial portion of our investment mortgage loans are secured by real estate located primarily in Kentucky and Texas.  Consequently, our ability to continue to originate real estate loans may be impaired by adverse changes in local and regional economic conditions in these real estate markets or by acts of nature.  These events also could have an adverse effect on the value of our collateral and, due to the concentration of our collateral in real estate, on our financial condition.

The Company has traditionally obtained funds principally through premium deposits.  If, as a result of competitive pressures, market interest rates, general economic conditions or other events, the balance of the premium deposits decrease relative to our overall operations, the Company may have to look for ways to further reduce operating costs which could have a negative impact on results of operations or financial condition.

The Company has significant business risks in the amount of policy benefit expenses incurred each year.  The majority of these expenses are related to death claims paid on life insurance contracts.  The Company has no control over these expenses, which have a significant impact on our financial results.

Insurance holding companies operate in a highly regulated environment and are subject to supervision and examination by various federal and state regulatory agencies.  The cost of compliance with regulatory requirements may adversely affect our results of operations or financial condition.  Federal and state laws and regulations govern numerous matters including: changes in the ownership or control, maintenance of adequate capital and the financial condition of an insurance company, permissible types, amounts and terms of investments; permissible non-insurance activities; the level of policyholder reserves; and restrictions on dividend payments.

The Company will continue to consider the acquisition of other businesses.  However, the opportunities to make suitable acquisitions on favorable terms in the future may not be available, which could negatively impact the growth of business.  UTG expects that other insurance and financial companies will compete to acquire compatible businesses.  This competition could increase prices for acquisitions that we would likely pursue, and our competitors may have greater resources.  Also, acquisitions of regulated businesses such as insurance companies are subject to various regulatory approvals.  If appropriate regulatory approvals are not received, an acquisition would not be able to complete that we believe is in our best interests.

UTG has in the past acquired, and will in the future consider the acquisition of, other insurance and related businesses.  If other companies are acquired in the future, our business may be negatively impacted by risks related to those acquisitions.  These risks include the following: the risk that the acquired business will not perform in accordance with management’s expectations; the risk that difficulties will arise in connection with the integration of the operations of the acquired business with our operations; the risk that management will divert its attention from other aspects of our business; the risk that key employees of the acquired business are lost; the risks associated with entering into geographic and product markets in which we have limited or no direct prior experience; and the risks of the acquired company assumed in connection with an acquisition.

As a result of these risks, any given acquisition, if and when consummated, may adversely affect our results of operations or financial condition. In addition, because the consideration for an acquisition may involve cash, debt or the issuance of shares of our common stock and may involve the payment of a premium over book and market values, existing holders of our common stock could experience dilution in connection with the acquisition.

UTG relies heavily on communications and information systems to conduct our business.  Any failure or interruptions or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, or administrative servicing systems. The occurrence of any failures or interruptions could result in a loss of customer business and have a material adverse effect on our results of operations and financial condition.

Under regulatory capital adequacy guidelines and other regulatory requirements, we must meet guidelines that include quantitative measures of assets, liabilities, and certain off-balance sheet items, subject to qualitative judgments by regulators about components, risk weightings and other factors.  If we fail to meet these minimum capital guidelines and other regulatory requirements, our financial condition would be materially and adversely affected.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

The following table shows a breakout of property, net of accumulated depreciation, occupied by the Company and held for investment.

      Property occupied                                        Amount                       % of Total

      Home Office                                             $     1,640,445                          4%

      Investment real estate

      Commercial                                                   25,199,228                         55%

      Residential development                                 18,776,414                         41%

                                                                           43,975,642                         96%

      Grand total                                               $   45,616,087                       100%

Total investment real estate holdings represent approximately 9% of the total assets of the Company, net of accumulated depreciation of $ 593,877 and $ 4,444,729 at year-end 2006 and 2005 respectively. 

The Company owns an office complex in Springfield, Illinois, which houses the primary insurance operations.  The office buildings in this complex contain 57,000 square feet of office and warehouse space, and are carried at $ 1,640,445.  The facilities occupied by the Company are adequate relative to the Company's present operations.

Commercial property mainly consists of North Plaza and Hampshire Plaza Garage.  See Item 1, “Business” for additional information regarding descriptions and operating results of these properties.

Residential development property is primarily located just outside Dallas, Texas and is a development of upscale summer and vacation homes and condominiums with a target market of the Dallas, Texas community.  The project is projected to take five to seven years for complete build-out.  The property contains additional amenities such as a marina, an equestrian center, hiking trails, a teen center and restaurant.

ITEM 3.  LEGAL PROCEEDINGS

In the normal course of business the Company is involved from time to time in various legal actions and other state and federal proceedings.  There were no proceedings pending as of December 31, 2006.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of UTG’s shareholders during the fourth quarter of 2006.

            PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Registrant is a public company whose common stock is traded in the over-the-counter market.  Over-the-counter quotations can be obtained with the UTGN.OB stock symbol.

The following table shows the high and low bid quotations for each quarterly period during the past two years, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.  The quotations below were acquired from the NASDAQ web site, which also provides quotes for over-the-counter traded securities such as UTG.

                                                                                  2006                                    2005

            PERIOD                                                High            Low                  High            Low

            First quarter                                         9.450          7.250                7.000          5.200

            Second quarter                                    9.000          7.900                7.000          5.500

            Third quarter                                        8.750          7.300                6.500          5.500

            Fourth quarter                                      8.980          8.000                8.750          5.750

UTG  has not declared or paid any dividends on its common stock in the past two fiscal years, and has no current plans to pay dividends on its common stock as it intends to retain all earnings for investment in and growth of the Company’s business.  See Note 2 in the accompanying consolidated financial statements for information regarding dividend restrictions, including applicable restrictions on the ability of the Company’s life insurance subsidiaries to pay dividends.

As of March 1, 2007 there were 8,439 record holders of UTG common stock.

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved the UTG, Inc, Inc. Employee and Director Stock Purchase Plan.  The Plan allows for the issuance of up to 400,000 shares of UTG common stock.  The plan’s purpose is to encourage ownership of UTG stock by eligible directors and employees of UTG and its subsidiary by providing them with an opportunity to invest in shares of UTG common stock.  The plan is administered by the Board of Directors of UTG.

A total of 400,000 shares of common stock may be purchased under the plan, subject to appropriate adjustment for stock dividends, stock splits or similar recapitalizations resulting in a change in shares of UTG.  The plan is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.  The Board of Directors of UTG periodically approves offerings under the plan to qualified individuals.  Through March 1, 2007, 19 individuals have purchased a total of 101,494 shares under this program.  Each participant under the plan executed a “stock restriction and buy-sell agreement”, which among other things provides UTG with a right of first refusal on any future sales of the shares acquired by the participant under this plan.

The purchase price of shares repurchased under the stock restriction and buy-sell agreement shall be computed, on a per share basis, equal to the sum of (i) the original purchase price(s) paid to acquire such shares from the Holding Company at the time they were sold pursuant to the Plan and (ii) the consolidated statutory net earnings (loss) per share of such shares during the period from the end of the month next preceding the month in which such shares were acquired pursuant to the plan, to the end of the month next preceding the month in which the closing sale of such shares to UTG occurs.  The consolidated statutory net earnings per Share shall be computed as the net income of the Holding Company and its subsidiaries on a consolidated basis in accordance with statutory accounting principles applicable to insurance companies, as computed by the Holding Company, except that earnings of insurance companies or block of business acquired after the original plan date, November 1, 2002, shall be adjusted to reflect the amortization of intangibles established at the time of acquisition in accordance with generally accepted accounting principles (GAAP), less any dividends paid to shareholders. The calculation of net earnings per Share shall be performed on a monthly basis using the number of common shares of the Holding Company outstanding as of the end of the reporting period. The purchase price for any Shares purchased hereunder shall be paid in cash within 60 days from the date of purchase subject to the receipt of any required regulatory approvals as provided in the Agreement.

The original issue price of shares at the time this program began was established at $12.00 per share.  Through March 1, 2007, UTG had 101,494 shares outstanding that were issued under this program.  At December 31, 2006, shares under this program have a value of $14.29 per share pursuant to the above formula.

The following table reflects the Company’s Employee and Director Stock Purchase Plan Information:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under employee and director stock purchase plans (excluding securities reflected in column (a)) (c)
Employee and Director Stock Purchase plans approved by security holders	0	0	298,506
Employee and Director Stock Purchase plans not approved by security holders	0	0	0
Total	0	0	298,506

Purchases of Equity Securities

The following table provides information with respect to purchases we made of our common stock during the three months ended December 31, 2006 and total repurchases:

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Number of Shares That May Yet Be Purchased Underthe Program	Approximate Dollar Value That May Yet Be Purchased Under the Program
Oct 1 through Oct  31, 2006	4,820	$		8.23		4,820	N/A	$ 599,893
Nov 1 through Nov 30, 2006	3,115			8.14		3,115	N/A	574,525
Dec 1 through Dec 31, 2006	4,550			8.11		4,550	N/A	537,642
Total	12,485	$		8.16		12,485

On June 5, 2001, the Board of Directors of UTG authorized the repurchase in the open market or in privately negotiated transactions of up to $ 1 million of UTG's common stock.  On June 16, 2004, an additional $ 1 million was authorized for repurchasing shares.  Repurchased shares are available for future issuance for general corporate purposes.  This program can be terminated at any time.  Through March 1, 2007, UTG has spent $ 2,485,778 in the acquisition of 365,445 shares under this program.

ITEM 6.  SELECTED FINANCIAL DATA

The following selected historical consolidated financial data should be read in conjunction with “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Item 8 – Financial Statements and Supplementary Data” and other financial information included elsewhere in this Form 10-K.

FINANCIAL HIGHLIGHTS (000's omitted, except per share data)
		2006		2005		2004		2003		2002
Premium income   net of reinsurance	$	12,860	$	13,727	$	14,140	$	15,023	$	15,832
Total revenues	$	37,585	$	27,471	$	25,467	$	26,488	$	30,177
Net income (loss)*	$	3,870	$	1,260	$	(276)	$	(6,396)	$	1,339
Basic income (loss) per share	$	1.00	$	0.32	$	(0.07)	$	(1.67)	$	0.38
Total assets	$	482,732	$	318,832	$	317,868	$	311,557	$	320,494
Total long-term debt	$	22,990	$	0	$	0	$	2,290	$	2,995
Dividends paid per share		NONE		NONE		NONE		NONE		NONE

·         Includes equity earnings of investees.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this section is to discuss and analyze the Company's consolidated results of operations, financial condition and liquidity and capital resources for the three years ended December 31, 2006.  This analysis should be read in conjunction with the consolidated financial statements and related notes, which appear elsewhere in this Form 10-K.  The Company reports financial results on a consolidated basis.  The consolidated financial statements include the accounts of UTG and its subsidiaries at December 31, 2006.

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statement contained herein or in any other oral or written statement by the Company or any of its officers, directors or employees is qualified by the fact that actual results of the Company may differ materially from any such statement due to the following important factors, among other risks and uncertainties inherent in the Company's business:

1.         Prevailing interest rate levels, which may affect the ability of the Company to sell its products, the market value of the Company's investments and the lapse ratio of the Company's policies, notwithstanding product design features intended to enhance persistency of the Company's products.

2.         Changes in the federal income tax laws and regulations which may affect the relative tax advantages of the Company's products.

3.         Changes in the regulation of financial services, including bank sales and underwriting of insurance products, which may affect the competitive environment for the Company's products.

4.         Other factors affecting the performance of the Company, including, but not limited to, market conduct claims, insurance industry insolvencies, insurance regulatory initiatives and developments, stock market performance, an unfavorable outcome in pending litigation, and investment performance.

Critical Accounting Policies

General

We have identified the accounting policies below as critical to the understanding of our results of operations and our financial position.  The application of these critical accounting policies in preparing our financial statement requires management to use significant judgments and estimates concerning future results or other developments including the likelihood, timing or amount of one or more future transactions or amounts.  Actual results may differ from these estimates under different assumptions or conditions.  On an on-going basis, we evaluate our estimates, assumptions and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances.  For a detailed discussion of other significant accounting policies, see Note 1 to the consolidated financial statements.

DAC and Cost of Insurance Acquired

Deferred acquisition costs (DAC) and cost of insurance acquired reflect our expectations about the future experience of the existing business in-force.  The primary assumptions regarding future experience that can affect the carrying value of DAC and cost of insurance acquired balances include mortality, interest spreads and policy lapse rates.  Significant changes in these assumptions can impact amortization of DAC and cost of insurance acquired in both the current and future periods, which is reflected in earnings.

Investments

We regularly monitor our investment portfolio to ensure that investments that may be other than temporarily impaired are identified in a timely manner and properly valued, and that any impairments are charged against earnings in the proper period.

Valuing our investment portfolio involves a variety of assumptions and estimates, particularly for investments that are not actively traded.  We rely on external pricing sources for highly liquid publicly traded securities.  Many judgments are involved in timely identifying and valuing securities, including potentially impaired securities.  Inherently, there are risks and uncertainties involved in making these judgments.  Changes in circumstances and critical assumptions such as a continued weak economy, a more pronounced economic downturn or unforeseen events which affect one or more companies, industry sectors or countries could result in write downs in future periods for impairments that are deemed other than temporary.

Acquisition of company

In December 2006, the Company completed an acquisition transaction whereby it acquired a controlling interest in Acap Corporation, which owns two life insurance subsidiaries.  The acquisition resulted in an increase of approximately $90,000,000 in invested assets, $160,000,000 in total assets and 200,000 additional policies to administer.  The acquisition had a material impact on many of the balance sheet line items.  The income statement at year end 2006 is not materially impacted by the acquisition; however, 2007 results will be materially impacted by the operating results of the acquired entities.  The administration of the acquired entities was moved to the Company’s current operating site in Springfield, Illinois during December 2006.  The Company believes this acquisition is a good fit with its existing administration and operations.  Significant expense savings are anticipated as a result of the combining of operations compared to costs of the two entities operating separately.  These savings come through the advantage of economies of scale of the combined operations of the existing and acquired entities including a larger base over which to spread fixed costs.  See note 15 for additional information relating to this acquisition.

Results of Operations

(a)  Revenues

Premiums and policy fee revenues, net of reinsurance premiums and policy fees, decreased 6% when comparing 2006 to 2005 and 3% from 2005 to 2004.  The Company writes very little new business.  Unless the Company acquires a block of in-force business as it did in December 2006, management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience. The Company’s average persistency rate for all policies in force for 2006, 2005 and 2004 was approximately 95.9%, 95.8%, and 94.6%, respectively. Persistency is a measure of insurance in force retained in relation to the previous year.  The acquisition of Acap Corporation and its subsidiaries at the end of 2006 will result in an increase in premium revenues in 2007 compared to current levels.  The premium revenues of UG, which comprise the historic premium revenues, are expected to continue to decline at levels consistent with recent prior years experience.

The Company’s primary source of new business production comes from internal conservation efforts.  Several of the customer service representatives of the Company are also licensed insurance agents, allowing them to offer other products within the Company’s portfolio to existing customers.  Additionally, efforts continue to be made in policy retention through more personal contact with the customer including telephone calls to discuss alternatives and reasons for a customer’s request to surrender their policy.  Management has no current plans to increase marketing efforts.  New product development is anticipated to be utilized in conservation efforts and sales to existing customers.  Such sales are not expected to be material.

The Company has considered the feasibility of a marketing opportunity with First Southern National Bank (FSNB) an affiliate of UTG’s largest shareholder, Chairman and CEO, Mr. Jesse T. Correll.  Management has considered various products including annuity type products, mortgage protection products and existing insurance products, as potential products that could be marketed to banking customers.  This marketing opportunity has potential and is believed to be a viable niche.  This potential is in the very early states of consideration.  Management will proceed cautiously and may even determine not to proceed.  The introduction of new products is not expected to produce significant premium writings.  The Company is looking at other types of products to compliment the existing offerings.

Net investment income decreased 1% when comparing 2006 to 2005 and increased 6% when comparing 2005 to 2004.  The overall gross investment yields for 2006, 2005 and 2004, are 6.42%, 6.77% and 6.06%, respectively. During 2004, management began to lengthen the Company’s portfolio while maintaining a conservative investment philosophy.  As such, following an analysis of current holdings during the first half of 2004, the Company liquidated approximately $ 64,444,000 of its bond portfolio in order to limit its interest rate and extension risk.  In addition, there were $ 13,322,000 in bonds that matured or were called during the first nine months of 2004.  The result of these transactions caused an excess of cash invested in short-term money market funds during the first nine months of 2004.  Although this hurt investment earnings during 2004, the Company has not had to write off any investment losses due to excessive risk.

During 2005, the Company increased its investment in mortgage loans through its relationship with First Southern National Bank.  The availability of these mortgage loan investments has offset the balance that would have been placed in fixed income securities.  This has allowed the Company to obtain higher yields than available in the bond market, lengthen the overall portfolio average life and still maintain a conservative investment portfolio.  During 2005, the Company issued $ 24,576,000 in new mortgage loans.  These loans had an average loan to value rate of approximately 50% and an average yield of 6.87%.  Also during 2005, the Company saw an improvement in the performance of it’s’ real estate investments over 2004.  Gross income from the Company’s real estate holdings improved more than $ 2,138,000 in comparing 2005 to 2004.  The improvement in real estate investment income is principally due to a higher occupancy lease rate resulting in increased earnings in Hampshire Plaza.

The 2006 investment income results reflected a slight decrease over 2005 results.  This is primarily related to the increased investment earnings from the additional mortgage loan investments made during 2005 combined with an increase in overall bond yields.  The overall bond yields have shown slight improvements as the interest rates on acquired securities during the year exceed the interest rates that were received on the bonds that matured during the year.  If interest rates available in the marketplace going forward remain stable with current market interest rates, the Company will continue to benefit from a higher reinvestment yield than current yield of expected maturities in the bond portfolio over the next couple of years. 

The Company's investments are generally managed to match related insurance and policyholder liabilities.  The comparison of investment return with insurance or investment product crediting rates establishes an interest spread.  The Company monitors investment yields, and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads, ranging from 1% to 2%.  Interest crediting rates on adjustable rate policies have been reduced to their guaranteed minimum rates, and as such, cannot lower them any further.  Policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary.  Therefore, it takes a full year from the time the change was determined for the full impact of such change to be realized.  If interest rates decline in the future, the Company won’t be able to lower rates and both net investment income and net income will be impacted negatively.

Realized investment gains, net of realized losses, were $ 11,446,279, $ 1,431,936 and $ (20,648) in 2006, 2005 and 2004, respectively.  The net realized gains in 2006 are primarily comprised of a gain from the sale of investment real estate held by two 67% owned subsidiaries of the Company.  The real estate was sold for the agreed upon total sales price of $ 25,500,000.  The Company recognized a realized gain of approximately $ 7,768,000.  In addition, the Company had net realized gains of approximately $3,819,000 from the disposal of certain equity securities.

The net realized gains in 2005 were primarily the result of the sale of 2,216,776 shares of common stock owned of BNL Financial Corporation (“BNL”).  These shares represented approximately 10.57% of the then current outstanding shares of BNL and represent all shares owned by UG.  The shares were reacquired by the issuing entity for an agreed upon sales price of $ 2,300,000.  During 2004, the Company sold several of its collateralized mortgage obligation bonds and realized a nominal net loss on these securities.  The sale followed and analysis of bond holdings and was done to reduce exposure to interest rate and extension risk within the portfolio.

On October 2, 2006, UG entered into an agreement for the sale of real estate currently owned for investment purposes consisting of a 107,602 square foot, four-story building and 6,897 square foot attached supporting services building, totaling 114,499 square feet, in Springfield, Illinois.  The sale is expected to close by May 31, 2007 and is contingent upon buyer’s inspection period.  Should the sale be consummated, the Company anticipates a realized gain, net of taxes, of approximately $ 2,100,000.

In recent periods, management focus has been placed on promoting and growing TPA services to unaffiliated life insurance companies.  The Company receives monthly fees based on policy in force counts and certain other activity indicators, such as number of premium collections performed, or services performed.  For the years ended 2006, 2005 and 2004, the Company received $ 1,811,151, $ 1,170,824 and $ 719,053 for this work, respectively.  These TPA revenue fees are included in the line item “other income” on the Company’s consolidated statements of operations.  No new TPA contracts were entered into during 2006, however, the Company intends to continue to pursue other TPA arrangements, through an alliance with Fiservto insurance companies seeking business process outsourcing solutions.  Fiserv is responsible for the marketing and sales function for the alliance, as well as providing the data center operations.  UTG staffs the administration effort.  Management believes this alliance with Fiserv positions the Company to generate additional revenues by utilizing the Company’s current excess capacity and administrative services. Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin.  Management believes this area is a growing market and the Company is well positioned to serve this market.

In summary, the Company’s basis for future revenue growth is expected to come from the following primary sources, expansion of the TPA revenues, conservation of business currently in force, the maximization of investment earnings and the acquisition of other companies or policy blocks in the life insurance business.  Management has placed a significant emphasis on the development of these revenue sources and products offered to enhance these opportunities.

(b)  Expenses

Benefits, claims and settlement expenses net of reinsurance benefits and claims, increased $ 2,209,034 from 2005 to 2006 and decreased $ 889,364 from 2004 to 2005.  The significant fluctuation between the three years relates primarily to changes in the Company’s death claim experience from year to year.  Death claims were approximately $ 1,247,000 more in 2006 as compared to 2005, and $1,339,000 less in 2005 as compared to 2004. There is no single event that caused the mortality variances.  Policy claims vary from year to year and therefore, fluctuations in mortality are to be expected and are not considered unusual by management.

Changes in policyholder reserves, or future policy benefits, also impact this line item.  Reserves are calculated on an individual policy basis and generally increase over the life of the policy as a result of additional premium payments and acknowledgement of increased risk as the insured continues to age.  Policy surrender benefits increased approximately $453,000 during 2006 compared to 2005 and decreased approximately$ 245,000 during the year 2005 compared to the same period in 2004.  As discussed above, efforts continue to be made in policy retention through more personal contact with customers including telephone calls to discuss alternatives and reasons for a request to surrender their policy.  The short-term impact of policy surrenders is negligible since a reserve for future policy benefits payable is held which is, at a minimum, equal to and generally greater than the cash surrender value of a policy.  The benefit of fewer policy surrenders is primarily received over a longer time period through the retention of the Company’s asset base.

Commissions and amortization of deferred policy acquisition costs were comparable in 2006 to 2005 and decreased significantly in 2005 compared to 2004.  The most significant factor in the continuing decrease is attributable to the Company paying fewer commissions, since the Company writes very little new business and renewal premiums on existing business continue to decline.  Most of the Company’s agent agreements contained vesting provisions, which provide for continued compensation payments to agents upon their termination subject to certain minimums and often limited to a specific period of time.  Another factor of the decrease is attributable to normal amortization of the deferred policy acquisition costs asset.  The Company reviews the recoverability of the asset based on current trends and known events compared to the assumptions used in the establishment of the original asset.  No impairments were recorded in any of the three periods reported. 

Net amortization of cost of insurance acquired increased 30% in 2006 compared to 2005 and increased 17% in 2005 compared to 2004.  Cost of insurance acquired is established when an insurance company is acquired.  The Company assigns a portion of its cost to the right to receive future cash flows from insurance contracts existing at the date of the acquisition.  The cost of policies purchased represents the actuarially determined present value of the projected future cash flows from the acquired policies.  Cost of insurance acquired is comprised of individual life insurance products including whole life, interest sensitive whole life and universal life insurance products.  Cost of insurance acquired is amortized with interest in relation to expected future profits, including direct charge-offs for any excess of the unamortized asset over the projected future profits.  The interest rates utilized in the amortization calculation are 9% on approximately 25% of the balance and 15% on the remaining balance.  The interest rates vary due to risk analysis performed at the time of acquisition on the business acquired. The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised.  Amortization of cost of insurance acquired is particularly sensitive to changes in interest rate spreads and persistency of certain blocks of insurance in-force. Persistency is a measure of insurance in force retained in relation to the previous year.  The Company's average persistency rate for all policies in force for 2006, 2005 and 2004 has been approximately 95.9%, 95.8% and 94.6%, respectively.  The Company monitors these projections to determine the adequacy of present values assigned to future cash flows.  No impairments were recorded in any of the three periods reported.  A significant portion of the remaining balance of this asset attributable to policies of UG, $7,703,722, will be amortized over the next three years.  The impact of the decrease in amortization expense will have a positive impact on future earnings.

Operating expenses increased 17% in 2006 compared to 2005 and increased 4% in 2005 compared to 2004.  The increases in expenses during 2006 relate primarily to costs associated with the acquisition of Acap Corporation.  The Company incurred approximately $310,000 in costs relating to due diligence work on the acquisition.  Additionally, costs such as hiring new staff and training in preparation for the transition of work to Springfield were incurred during the fourth quarter of 2006.  The Company also saw an increase in expenses in the current year of approximately $150,000 relating to the completion of a SAS 70 audit.  The SAS 70 audit report is a very valuable item relating to the continued pursuit of TPA work.  A SAS 70 audit is an independent verification the Company has good internal controls and procedures in place for the key areas of operations.  The Company anticipates continuing to annually update the SAS 70 audit report, with expected ongoing costs of approximately one-third of the original audit cost.  The increase in expenses during 2005 is due primarily to an increase in information technology costs and additional personnel costs associated with the increase in TPA work.  Excluding these expense items, expenses declined due to reductions made in the normal course of business, as the Company continually monitors expenditures looking for savings opportunities.  Management places significant emphasis on expense monitoring and cost containment.  Maintaining administrative efficiencies directly impacts net income.

Interest expense increased in 2006 as a result of funds borrowed, of approximately $ 15,700,000, relating to the acquisition of Acap Corporation.  Prior to the acquisition, the Company had no outstanding debt since the retirement of previous debt in 2004.  The Company anticipates aggressively repaying the current debt.  Interest expense declined 100% comparing 2005 to 2004.  The Company repaid the remaining $ 2,289,776 in outside debt in 2004, through operating cash flows and dividends received from its subsidiary UG.  At December 31, 2005 and 2004, UTG had no debt outstanding.  During 2005, UG borrowed against its line of credit for a short period to provide additional operating liquidity.  The line was repaid during 2005.

Deferred taxes are established to recognize future tax effects attributable to temporary differences between the financial statements and the tax return.  As these differences are realized in the financial statement or tax return, the deferred income tax established on the difference is recognized in the financial statements as an income tax expense or credit.

(c)  Net income (loss)

The Company had a net income (loss) of $ 3,869,720, $ 1,260,223 and $ (275,617) in 2006, 2005 and 2004 respectively.  The increase in net income in 2006 is primarily related to the significant increase in realized investment gains from the sale of certain common stock holdings and the sale of real estate holdings.  The net income in 2005 was mainly attributable to the gain from the sale of the common stock of BNL during the second quarter of 2005.

Financial Condition

(a)  Assets

Investments are the largest asset group of the Company.  The Company's insurance subsidiaries are regulated by insurance statutes and regulations as to the type of investments they are permitted to make, and the amount of funds that may be used for any one type of investment.  In light of these statutes and regulations, and the Company's business and investment strategy, the Company generally seeks to invest in United States government and government agency securities and other high quality low risk investments.  Some insurance companies have suffered significant losses in their investment portfolios in the last few years; however, because of the Company’s conservative investment philosophy the Company has avoided such significant losses.

At December 31, 2006, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets or shareholders' equity.  The Company has identified securities it may sell and classified them as "investments held for sale".  Investments held for sale are carried at market, with changes in market value charged directly to shareholders' equity. To provide additional flexibility and liquidity, the Company has categorized almost all fixed maturity investments acquired in recent periods as available for sale.

The following table summarizes the Company's fixed maturities distribution at December 31, 2006 and 2005 by ratings category as issued by Standard and Poor's, a leading ratings analyst.

Fixed Maturities
Rating	% of Portfolio
	2006	2005
Investment Grade
AAA	70%	79%
AA	4%	1%
A	18%	15%
BBB	6%	5%
Below investment grade	2%	0%
	100%	100%

Mortgage loan investments represent 7% and 12% of total assets of the Company at year-end 2006 and 2005, respectively.  The Company’s mortgage loan investments result from opportunities available through FSNB, an affiliate of Mr. Jesse T. Correll.  Mr. Correll is the CEO and Chairman of the Board of Directors of UTG, and directly and indirectly through affiliates, its largest shareholder.  FSNB has been able to provide the Company with additional expertise and experience in underwriting commercial and residential mortgage loans, which provide more attractive yields than the traditional bond market.  During 2006, 2005 and 2004 the Company issued approximately $ 5,359,000, $ 24,576,000 and $ 2,627,000 respectively, in new mortgage loans.  These new loans were originated through FSNB and funded by the Company through participation agreements with FSNB.  FSNB services all of the Company’s mortgage loans including the loans covered by these participation agreements.  The Company pays FSNB a .25% servicing fee on these loans and a one-time fee at loan origination of .50% of the original loan amount to cover costs incurred by FSNB relating to the processing and establishment of the loan.  UG paid $ 93,288, $ 76,970 and $ 45,468 in servicing fees and $ 23,214, $ 112,109 and $ 0 in origination fees to FSNB during 2006, 2005 and 2004, respectively.  The Company anticipates these opportunities to continue to be available and will pursue those investments that provide attractive yields.

Total investment real estate holdings represent approximately 9% and 13% of the total assets of the Company, net of accumulated depreciation, at year-end 2006 and 2005 respectively.  The Company has made several investments in real estate in recent years.  Expected returns on these investments exceed those available in fixed income securities.  However, these returns may not always be as steady or predictable.

Policy loans remained consistent for the periods presented.  Industry experience for policy loans indicates that few policy loans are ever repaid by the policyholder, other than through termination of the policy.  Policy loans are systematically reviewed to ensure that no individual policy loan exceeds the underlying cash value of the policy. 

Deferred policy acquisition costs decreased 16% in 2006 compared to 2005.  Deferred policy acquisition costs, which vary with, and are primarily related to producing new business, are referred to as DAC.  DAC consists primarily of commissions and certain costs of policy issuance and underwriting, net of fees charged to the policy in excess of ultimate fees charged.  To the extent these costs are recoverable from future profits, the Company defers these costs and amortizes them with interest in relation to the present value of expected gross profits from the contracts, discounted using the interest rate credited by the policy.  The Company had $ 0 in policy acquisition costs deferred, $ 7,000 in interest accretion and $ 232,476 in amortization in 2006, and had $ 5,000 in policy acquisition costs deferred, $ 8,000 in interest accretion and $ 283,899 in amortization in 2005.

Cost of insurance acquired reflects a significant increase in 2006 compared to 2005.  This increase is the result of $ 25,104,437 being added from the Acap Corporation acquisition.  When an insurance company is acquired, the Company assigns a portion of its cost to the right to receive future cash flows from insurance contracts existing at the date of the acquisition.  The cost of policies purchased represents the actuarially determined present value of the projected future cash flows from the acquired policies.  Cost of insurance acquired is amortized with interest in relation to expected future profits, including direct charge-offs for any excess of the unamortized asset over the projected future profits.  Excluding the increase to the asset from the acquisition, this line item declined 27% in 2006 as the result of normal amortization of the asset.  In 2006, 2005 and 2004 amortization decreased the asset by $ 2,850,725, $ 2,193,085 and $ 1,869,135, respectively.  No impairments of this asset were recorded for the periods presented.

(b)  Liabilities

Total liabilities increased significantly in 2006 compared to 2005.  Policy liabilities and accruals, which represented 88% and 95% of total liabilities at year end 2006 and 2005, respectively, increased approximately $ 120,000,000 from the Acap Corporation acquisition.  Excluding the increase from the acquisition, policy liabilities and accruals decreased approximately $535,000 during the current year.  This decrease is attributable primarily to a decrease in the total future policy benefits held.  As policies in force terminate, the corresponding reserve liability held for those policies is released. 

At December 31, 2006, the Company has outstanding notes payable of $22,990,081.  Approximately $15,000,000 of this debt is related to the acquisition of Acap Corporation and the remaining is attributable to borrowings of a subsidiary, Harbor Village Partners, relating to a real estate development project.  At December 31, 2005, the Company had no outstanding notes payable.  The Company has four lines of credit available for operating liquidity or acquisitions of additional lines of business.  There are no outstanding balances on any of these lines of credit as of the balance sheet date.  The Company's long-term debt is discussed in more detail in Note 11 to the consolidated financial statements.

(c)  Shareholders' Equity

Total shareholders' equity increased 4% in 2006 compared to 2005.  This increase is primarily due to the current year net income of the Company.  Partially offsetting this increase is a decline in unrealized gains relating to common stock holdings sold during 2006.  Additionally, the Company purchased treasury shares totaling $ 482,030 during the current year.

Each year, the NAIC calculates financial ratio results (commonly referred to as IRIS ratios) for each insurance company.  These ratios compare key financial data pertaining to the statutory balance sheet and income statement.  The results are then compared to pre-established normal ranges determined by the NAIC.  Results outside the range typically require explanation to the domiciliary insurance department.  At year-end 2006, UG had two ratios outside the normal range.  These ratios are discussed in more detail in the Regulatory Environment discussion included in this Item 7.

Liquidity and Capital Resources

The Company has three principal needs for cash - the insurance company’s contractual obligations to policyholders, the payment of operating expenses and servicing its outstanding debt.  Cash and cash equivalents as a percentage of total assets were 2% and 4% as of December 31, 2006 and 2005, respectively.  Fixed maturities as a percentage of total invested assets were 69% and 42% as of December 31, 2006 and 2005, respectively.

The Company's investments are predominantly in fixed maturity investments such as bonds and mortgage loans, which provide sufficient return to cover future obligations. The Company carries certain of its fixed maturity holdings as held to maturity which are reported in the financial statements at their amortized cost.

Many of the Company's products contain surrender charges and other features which reward persistency and penalize the early withdrawal of funds.  With respect to such products, surrender charges are generally sufficient to cover the Company's unamortized deferred policy acquisition costs with respect to the policy being surrendered.

Cash used in operating activities was $ (1,875,494), $ (290,936) and $ (45,950) in 2006, 2005 and 2004, respectively.  Reporting regulations require cash inflows and outflows from universal life insurance products to be shown as financing activities when reporting on cash flows.

Sources of operating cash flows of the Company, as with most insurance entities, is comprised primarily of premiums received on life insurance products and income earned on investments.  Uses of operating cash flows consist primarily of payments of benefits to policyholders and beneficiaries and operating expenses.

Cash provided by (used in) investing activities was $ (8,061,870), $ (1,265,715) and $ 3,776,714 for 2006, 2005 and 2004, respectively.  The most significant aspect of cash provided by (used in) investing activities is the fixed maturity transactions.  Fixed maturities account for 51%, 14% and 82% of the total cost of investments acquired in 2006, 2005 and 2004, respectively.  The decrease in fixed maturity investments in 2005 reflects the Company’s emphasis in the mortgage loan and real estate markets as opportunities presented themselves.  These investments accounted for 76% of the total cost of investments acquired in 2005. 

Net cash provided by (used in) financing activities was $ 6,205,830, $ 1,901,266 and $ (621,019) for 2006, 2005 and 2004, respectively.  The acquisition of Acap Corporation accounted for a majority of the activity in this area during 2006.

Policyholder contract deposits decreased 6% in 2006 compared to 2005 and 6% in 2005 compared to 2004.  The decrease in policyholder contract deposits relates to the declining in force business of the Company.  Management anticipates continued moderate declines in contract deposits.  Policyholder contract withdrawals have increased 3% in 2006 compared to 2005 and decreased 14% in 2005 compared to 2004.  The change in policyholder contract withdrawals is not attributable to any one significant event.  Factors that influence policyholder contract withdrawals are fluctuation of interest rates, competition and other economic factors.

UTG, Inc. borrowed funds in order to complete the Acap Corporation acquisition from First Tennessee Bank National Association through execution of an $18,000,000 promissory note.  At the time of closing on December 8, 2006, UTG, Inc. borrowed $15,700,278 on the promissory note.  The remaining available balance can be drawn any time over the next twelve months and is anticipated to be utilized in the purchase of the stock put option shares of Acap Corporation as they may be presented to UTG, Inc. for purchase.  To secure the note, UTG, Inc. has pledged 100% of the common stock of its subsidiary, Universal Guaranty Life Insurance Company.  The promissory note carries a variable rate of interest based on the 3 month LIBOR rate plus 180 basis points.  The initial rate was 7.15%.  Interest is payable quarterly.  Principal is payable annually beginning at the end of the second year in five installments of $3,600,000.  The loan matures on December 7, 2012.  During December 2006, UTG repaid $700,000 on the note, leaving a balance outstanding at December 31, 2006 of $15,000,278.

First Tennessee Bank National Association also provided UTG, Inc. with a $5,000,000 revolving credit note.  This note is for a one-year term and may be renewed by consent of both parties.  The credit note is to provide operating liquidity for UTG, Inc. and replaces a previous line of credit provided by Southwest Bank.  Interest bears the same terms as the above promissory note.  The collateral held on the above note also secures this credit note.  UTG, Inc. has no borrowings against this note at this time.

UG has a $ 3,300,000 line of credit (LOC) available from the First National Bank of the Cumberlands (FNBC) located in Livingston, Tennessee.  The interest rate on the LOC is variable and indexed to be the lowest of the U.S. prime rates as published in the Wall Street Journal, with any interest rate adjustments to be made monthly.  At December 31, 2006, the Company had no outstanding borrowings attributable to this LOC.  During 2006, the Company had $500,000 in borrowings against this line, which were repaid during the year.  During 2005, the Company had $1,500,000 in borrowings against this line, which were repaid during the year.  During 2004, the Company had no borrowings against this LOC.

AC and TI each have a line of credit in place through Frost National Bank for $210,000 and $160,000, respectively.  These lines have been in place since 2004 and have been left in place following the acquisition.  The lines are for one year terms, interest payable quarterly at a floating interest rate which is the Lender’s prime rate.  Principal is due upon maturity.  The lines are to provide additional short term operating liquidity to the two companies.  At December 31, 2006, there are no outstanding balances on either of these lines of credit.

During 2002, UTG and Fiserv formed an alliance between their respective organizations to provide third party administration (TPA) services to insurance companies seeking business process outsourcing solutions.  Fiserv will be responsible for the marketing and sales function for the alliance, as well as providing the operations processing service for the Company.  The Company will staff the administration effort.  To facilitate the alliance, the Company has converted part of its existing business and all TPA clients to “ID3”, a software system owned by Fiserv to administer an array of life, health and annuity products in the insurance industry. Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin.  In addition, the Company entered into a five-year contract with Fiserv for services related to their purchase of the “ID3” software system.  Under the contract, the Company is required to pay $ 8,333 per month in software maintenance costs and a monthly fee for offsite data center costs, based on the number and type of policies being administered the ID3 software system through mid-2011.

UTG is a holding company that has no day-to-day operations of its own.  Funds required to meet its expenses, generally costs associated with maintaining the Company in good standing with states in which it does business, are primarily provided by its subsidiaries.  On a parent only basis, UTG's cash flow is dependent on management fees received from its insurance subsidiary, stockholder dividends from its subsidiary and earnings received on cash balances.  On December 31, 2006, substantially all of the consolidated shareholders equity represents net assets of its subsidiaries.  The Company's insurance subsidiaries have maintained adequate statutory capital and surplus.  The payment of cash dividends to shareholders by UTG is not legally restricted.  However, the state insurance department regulates insurance company dividend payments where the company is domiciled.

UG is an Ohio domiciled insurance company, which requires five days prior notification to the insurance commissioner for the payment of an ordinary dividend.  Ordinary dividends are defined as the greater of:  a) prior year statutory earnings or b) 10% of statutory capital and surplus.  At December 31, 2006 UG statutory shareholders' equity was $ 31,209,934.  At December 31, 2006, UG statutory net income was $ 5,162,322.  Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation.  UG paid ordinary dividends of $5,100,000 to UTG during 2006. There were no dividends paid during 2005.  UG paid a dividend of $ 2,275,000 to UTG in 2004, of which $ 974,180 was considered to be an extraordinary dividend.

AC and TI are Texas domiciled insurance companies, which requires five days prior notification to the insurance commissioner for the payment of an ordinary dividend.  Ordinary dividends are defined as the greater of:  a) prior year statutory earnings or b) 10% of statutory capital and surplus.  At December 31, 2006 AC and TI statutory shareholders' equity was $ 8,942,786 and $ 2,762,381, respectively.  At December 31, 2006, AC and TI statutory net income was $ 2,154,233 and $ 414,245, respectively.  Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation.  AC paid ordinary dividends of $ 605,000 in 2006.  TI did not pay any stockholder dividend during 2006.

Management believes the overall sources of liquidity available will be sufficient to satisfy its financial obligations.

Regulatory Environment

The Company's current and merged insurance subsidiaries are assessed contributions by life and health guaranty associations in almost all states to indemnify policyholders of failed companies.  In several states the company may reduce premium taxes paid to recover a portion of assessments paid to the states' guaranty fund association.  This right of "offset" may come under review by the various states, and the company cannot predict whether and to what extent legislative initiatives may affect this right to offset.  In addition, some state guaranty associations have adjusted the basis by which they assess the cost of insolvencies to individual companies.  The Company believes that its reserve for future guaranty fund assessments is sufficient to provide for assessments related to known insolvencies.  This reserve is based upon management's current expectation of the availability of this right of offset, known insolvencies and state guaranty fund assessment bases.  However, changes in the basis whereby assessments are charged to individual companies and changes in the availability of the right to offset assessments against premium tax payments could materially affect the company's results.

Currently, the insurance subsidiaries, are subject to government regulation in each of the states in which they conduct business.  Such regulation is vested in state agencies having broad administrative power dealing with all aspects of the insurance business, including the power to:  (i) grant and revoke licenses to transact business;  (ii) regulate and supervise trade practices and market conduct;  (iii) establish guaranty associations;  (iv) license agents;  (v) approve policy forms;  (vi) approve premium rates for some lines of business;  (vii) establish reserve requirements;  (viii) prescribe the form and content of required financial statements and reports;  (ix) determine the reasonableness and adequacy of statutory capital and surplus; and  (x) regulate the type and amount of permitted investments.  Insurance regulation is concerned primarily with the protection of policyholders.  The Company cannot predict the impact of any future proposals, regulations or market conduct investigations.  UG is domiciled in the state of Ohio.  AC and TI are both domiciled in the state of Texas.

The insurance regulatory framework continues to be scrutinized by various states, the federal government and the National Association of Insurance Commissioners (NAIC).  The NAIC is an association whose membership consists of the insurance commissioners or their designees of the various states.  The NAIC has no direct regulatory authority over insurance companies.  However, its primary purpose is to provide a more consistent method of regulation and reporting from state to state.  This is accomplished through the issuance of model regulations, which can be adopted by individual states unmodified, modified to meet the state's own needs or requirements, or dismissed entirely.

Most states also have insurance holding company statutes, which require registration and periodic reporting by insurance companies controlled by other corporations licensed to transact business within their respective jurisdictions.  The insurance subsidiary is subject to such legislation and registered as controlled insurers in those jurisdictions in which such registration is required.  Statutes vary from state to state but typically require periodic disclosure, concerning the corporation that controls the registered insurers and all subsidiaries of such corporation. In addition, prior notice to, or approval by, the state insurance commission of material inter-corporate transfers of assets, reinsurance agreements, management agreements (see Note 9 to the consolidated financial statements), and payment of dividends (see Note 2 to the consolidated financial statements) in excess of specified amounts by the insurance subsidiary, within the holding company system, are required.

Each year, the NAIC calculates financial ratio results (commonly referred to as IRIS ratios) for each company.  These ratios measure various statutory balance sheet and income statement financial information.  The results are then compared to pre-established normal ranges determined by the NAIC.  Results outside the range typically require explanation to the domiciliary insurance department.

At year-end 2006, UG had two ratios outside the normal range.  AC and TI each had one ratio outside the normal range.  Each of the ratios outside the normal range was anticipated by Management, based upon the operating results of the Company.  UG’s first ratio was change in premium.  UG does not write any new products currently, therefore it is anticipated premium receipts will continue to decline from year to year.  The other UG ratio outside the normal range relates to the Company’s affiliated investments.  The Company has made investments in real estate projects, which have been consolidated into these financial statements through limited liability companies.  The limited liability companies were created to provide additional risk protection to the Company.  While this negatively impacts this ratio, the Company believes that this structure is in the best interest of the Company and these investments will have a positive long-term impact on the Company.  Additionally, the newly acquired Acap Corporation is a subsidiary of UG.  AC’s ratio outside the normal range relates to change in premium.  AC, like UG, issues very little new business, therefore it is anticipated that the premium revenues will decline each year as policies terminate or take a paid up option.  TI’s ratio is also change in premium.  However, this ratio outside the range is from an increase in premium revenues.  TI has seen an increase in premium collections in 2006 over previous years as a result of increased marketing efforts of its existing products.  The Company anticipates continuing these efforts in the short term and plans to re-evaluate the effectiveness of the marketing efforts during 2007.

The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula.  The risk-based capital (RBC) formula measures the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, mortality and morbidity, asset and liability matching and other business factors.  The RBC formula is used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized.  In addition, the formula defines new minimum capital standards that supplement the current system of low fixed minimum capital and surplus requirements on a state-by-state basis.  Regulatory compliance is determined by a ratio of the insurance company's regulatory total adjusted capital, as defined by the NAIC, to its authorized control level RBC, as defined by the NAIC.  Insurance companies below specific trigger points or ratios are classified within certain levels, each of which requires specific corrective action.  The levels and ratios are as follows:

                                                                                                Ratio of Total Adjusted Capital to

                                                                                                   Authorized Control Level RBC

            Regulatory Event                                                                   (Less Than or Equal to)

            Company action level                                                                               2*

            Regulatory action level                                                                           1.5

            Authorized control level                                                                            1

            Mandatory control level                                                                         0.7

      * Or, 2.5 with negative trend.

At December 31, 2006, UG has a ratio that is in excess of 5, which is 500% of the authorized control level.  AC and TI have ratios in excess of 8 and 6, which is 800% and 600% of the authorized control level, respectively.  Accordingly, all three companies meet the RBC requirements.

On July 30, 2002, President Bush signed into law the “SARBANES-OXLEY” Act of 2002 (“the Act”).  This Law, enacted in response to several high-profile business failures, was developed to provide meaningful reforms that protect the public interest and restore confidence in the reporting practices of publicly traded companies.  The implications of the Act to public companies, (which includes UTG) are vast, widespread, and evolving.  The Company has implemented requirements affecting the current reporting period, and is continually monitoring, evaluating, and planning implementation of requirements that will need to be taken into account in future reporting periods.  As part of the implementing these requirements, the Company has developed a compliance plan, which includes documentation, evaluation and testing of key financial reporting controls.

The “USA PATRIOT” Act of 2001 (“the Patriot Act”), enacted in response to the terrorist attacks of September 11, 2001, strengthens our Nation’s ability to combat terrorism and prevent and detect money-laundering activities.  Under Section 352 of the Patriot Act, financial institutions (definition includes insurance companies) are required to develop an anti-money laundering program.  The practices and procedures implemented under the program should reflect the risks of money laundering given the entity’s products, methods of distribution, contact with customers and forms of customer payment and deposits.  In addition, Section 326 of the Patriot Act creates minimum standards for financial institutions regarding the identity of their customers in connection with the purchase of a policy or contract of insurance.  The Company has instituted an anti-money laundering program to comply with Section 352, and has communicated this program throughout the organization.  In addition, all new business applications are regularly screened through the Medical Information Bureau.  The Company regularly updates the information provided by the Office of Foreign Asset Control, U.S. Treasury Department in order to remain in compliance with the Patriot Act and will continue to monitor this issue as changes and new proposals are made.

Accounting and Legal Developments

The Financial Accounting Standards Board (“FASB”) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments – An amendment of FASB Statements No. 133 and 140.  The statement improves the financial reporting by eliminating the exemption from applying Statement 133 to interest in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instrument.  The statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.  The Company will account for all qualifying financial instruments in accordance with the requirements of Statement No. 155, should this apply.

The FASB also issued Statement No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140.  The statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if possible.  The statement permits, but does not require, the subsequent measurement of servicing assets and liabilities at fair value.  The statement is effective for fiscal years beginning after September 15, 2006.  The Company will account for all separately recognized servicing assets and servicing liabilities in accordance with the requirements of Statement No. 156, should this apply.

The FASB also issued Statement No. 157, Fair Value Measurements.  The statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  The statement does not require any new fair value measurements; however applies under other pronouncements that require or permit fair value measurements.  The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company will adjust all fair value measurements in accordance with the requirements of Statement No. 157, should this apply.

The FASB also issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).  The statement requires that an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan, the component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as current costs, and disclose additional information in the notes regarding certain effects on net periodic benefit costs for the next fiscal year.  The statement is effective for fiscal years ending after December 15, 2006.  The adoption of Statement 158 does not currently affect the Company’s financial position or results of operations, since the Company does not have any defined benefit pension plans.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk relates, broadly, to changes in the value of financial instruments that arise from adverse movements in interest rates, equity prices and foreign exchange rates.  The Company is exposed principally to changes in interest rates which affect the market prices of its fixed maturities available for sale.  The Company’s exposure to equity prices and foreign currency exchange rates is immaterial.  The information is presented in U.S. Dollars, the Company’s reporting currency.

Interest rate risk

The Company could experience economic losses if it were required to liquidate fixed income securities available for sale during periods of rising and/or volatile interest rates.  The Company attempts to mitigate its exposure to adverse interest rate movements through staggering the maturities of its fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet its obligations and to address reinvestment risk considerations.

Tabular presentation

The Company does not have long-term debt that is sensitive to changes in interest rates or derivative financial instruments or interest rate swap contracts.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Listed below are the financial statements included in this Part of the Annual Report on SEC Form 10-K:

                                                                                                                                   Page No.

UTG, INC. AND CONSOLIDATED SUBSIDIARIES

Report of Brown Smith Wallace LLC, Independent

   Registered Public Accounting Firm for the years ended December 31, 2006 and 2005............ 35

Report of Kerber, Eck & Braeckel LLP, Independent

   Registered Public Accounting Firm for the year ended December 31, 2004............................ 36

Consolidated Balance Sheets.................................................................................................... 37

Consolidated Statements of Operations.................................................................................... 38

Consolidated Statements of Shareholders' Equity...................................................................... 39

Consolidated Statements of Cash Flows................................................................................... 40

Notes to Consolidated Financial Statements........................................................................ 41-66

Report of Brown Smith Wallace LLC

Independent Registered Public Accounting Firm

Board of Directors and Shareholders

UTG, Inc.

            We have audited the accompanying consolidated balance sheets of UTG, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2006.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

            We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

            In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of UTG, Inc. and subsidiaries as of December 31, 2006, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

            We have also audited Schedule I as of December 31, 2006, and Schedules II, IV and V as of December 31, 2006 and 2005, of UTG, Inc. and subsidiaries and Schedules II, IV and V for the years then ended.  In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.

                                                                                    /s/ Brown Smith Wallace, LLC

St. Louis, Missouri

March 21, 2007

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

UTG, Inc.

            We have audited the accompanying consolidated statements of operations, shareholders’ equity and cash flows of UTG, Inc. (a Delaware corporation) and subsidiaries for the year ended December 31, 2004.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.

            We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit providesa reasonable basis for our opinion.

            In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of UTG, Inc. and subsidiaries for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

            We have also audited Schedules IV and V as of December 31, 2004, of UTG, Inc. and subsidiaries and Schedules II, IV and V for the year then ended.  In our opinion, these schedules present fairly, in all material respects, the information required to be set forth therein.

                                                                                    /s/ Kerber, Eck & Braeckel LLP

Springfield, Illinois

March 11, 2005

UTG, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2006 and 2005
ASSETS
		2006		2005
Investments:
Fixed maturities held to maturity, at amortized cost
(market $6,244,373 and $7,500,291)	$	6,274,913	$	7,513,064
Investments held for sale:
Fixed maturities, at market (cost $235,054,655 and $127,000,657)		233,229,129		125,075,626
Equity securities, at market (cost $10,031,148 and $15,098,815)		16,305,591		24,574,259
Mortgage loans on real estate at amortized cost		32,015,446		36,781,293
Investment real estate, at cost, net of accumulated depreciation		43,975,642		42,587,982
Policy loans		15,931,525		12,644,838
Short-term investments		47,879		42,116
		347,780,125		249,219,178
Cash and cash equivalents		8,472,553		12,204,087
Securities of affiliate		4,000,000		4,000,000
Accrued investment income		2,824,975		1,538,972
Reinsurance receivables:
Future policy benefits		73,770,732		31,908,738
Policy claims and other benefits		5,040,219		4,017,833
Cost of insurance acquired		32,808,159		10,554,447
Deferred policy acquisition costs		1,188,888		1,414,364
Property and equipment, net of accumulated depreciation		3,129,331		1,921,841
Income taxes receivable, current		219,956		150,447
Other assets		3,496,856		1,901,594
Total assets	$	482,731,794	$	318,831,501
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits	$	351,587,689	$	234,959,085
Policy claims and benefits payable		3,330,945		1,950,037
Other policyholder funds		1,124,045		1,217,857
Dividend and endowment accumulations		14,091,257		12,638,713
Deferred income taxes		16,480,068		8,100,615
Notes payable		22,990,081		0
Other liabilities		8,587,166		4,738,809
Total liabilities		418,191,251		263,605,116
Minority interests in consolidated subsidiaries		19,514,151		11,908,933
Shareholders' equity:
Common stock - no par value, stated value $.001 per share.
Authorized 7,000,000 shares - 3,842,687 and 3,901,800 shares issued
and outstanding after deducting treasury shares of 360,888 and 303,442		3,843		3,902
Additional paid-in capital		41,813,690		42,295,661
Retained earnings (accumulated deficit)		232,371		(3,637,349)
Accumulated other comprehensive income		2,976,488		4,655,238
Total shareholders' equity		45,026,392		43,317,452
Total liabilities and shareholders' equity	$	482,731,794	$	318,831,501

UTG, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2006
		2006		2005		2004
Revenues:
Premiums and policy fees	$	15,515,567	$	16,399,080	$	17,275,708
Reinsurance premiums and policy fees		(2,655,142)		(2,672,397)		(3,135,279)
Net investment income		11,001,165		11,051,226		10,420,886
Realized investment gains (losses), net		11,446,279		1,431,936		(20,648)
Other income		2,277,350		1,261,495		926,212
		37,585,219		27,471,340		25,466,879
Benefits and other expenses:
Benefits, claims and settlement expenses:
Life		20,108,067		17,589,143		18,942,272
Reinsurance benefits and claims		(2,073,179)		(1,716,499)		(2,268,869)
Annuity		1,117,766		1,064,808		1,111,998
Dividends to policyholders		932,723		938,891		980,306
Commissions and amortization of deferred
policy acquisition costs		(65,908)		(14,267)		309,776
Amortization of cost of insurance acquired		2,850,725		2,193,085		1,869,135
Operating expenses		6,453,648		5,516,566		5,312,747
Interest expense		234,125		0		77,453
		29,557,967		25,571,727		26,334,818
Income (loss) before income taxes
and minority interest		8,027,252		1,899,613		(867,939)
Income tax benefit (expense)		(1,949,607)		(158,408)		797,716
Minority interest in income
of consolidated subsidiaries		(2,207,925)		(480,982)		(205,394)
Net income (loss)	$	3,869,720	$	1,260,223	$	(275,617)
Basic income (loss) per share from continuing
operations and net income (loss)	$	1.00	$	0.32	$	(0.07)
Diluted income (loss) per share from continuing
operations and net income (loss)	$	1.00	$	0.32	$	(0.07)
Basic weighted average shares outstanding		3,872,425		3,938,781		3,986,731
Diluted weighted average shares outstanding		3,872,425		3,938,781		3,986,731

UTG, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 2006
		2006				2005				2004
Common stock
Balance, beginning of year	$	3,902			$	79,315			$	80,008
Issued during year		0				120				289
Treasury shares acquired		(59)				(75)				(1,066)
Change in stated value		0				(75,458)				0
Reclassification under FAS 150		0				0				84
Balance, end of year	$	3,843			$	3,902			$	79,315
Additional paid-in capital
Balance, beginning of year	$	42,295,661			$	42,590,820			$	42,672,189
Issued during year		0				151,200				167,071
Treasury shares acquired		(481,971)				(521,817)				(297,991)
Change in stated value		0				75,458				0
Reclassification under FAS 150		0				0				49,551
Balance, end of year	$	41,813,690			$	42,295,661			$	42,590,820
Retained earnings (accumulated deficit)
Balance, beginning of year	$	(3,637,349)			$	(4,897,572)			$	(4,621,955)
Net income (loss)		3,869,720	$	3,869,720		1,260,223	$	1,260,223		(275,617)	$	(275,617)
Balance, end of year	$	232,371			$	(3,637,349)			$	(4,897,572)
Accumulated other comprehensive income
Balance, beginning of year	$	4,655,238			$	6,678,542			$	1,566,397
Other comprehensive income (loss)
Unrealized holding gain (loss) on securities
net of minority interest and
reclassification adjustment and taxes		(1,678,750)		(1,678,750)		(2,023,304)		(2,023,304)		5,112,145		5,112,145
Comprehensive income (loss)			$	2,190,970			$	(763,081)			$	4,836,528
Balance, end of year	$	2,976,488			$	4,655,238			$	6,678,542
Total shareholders' equity, end of year	$	45,026,392			$	43,317,452			$	44,451,105

UTG, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2006
		2006		2005		2004
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss)	$	3,869,720	$	1,260,223	$	(275,617)
Adjustments to reconcile net income (loss) to net cash
used in operating activities net of changes in assets and liabilities
resulting from the sales and purchases of subsidiaries:
Amortization/accretion of fixed maturities		391,013		606,914		604,608
Realized investment (gains) losses, net		(11,446,279)		(1,459,959)		20,648
Amortization of deferred policy acquisition costs		225,476		278,899		442,380
Amortization of cost of insurance acquired		2,850,725		2,193,085		1,869,135
Depreciation		1,801,507		2,206,023		1,617,116
Minority interest		2,207,925		480,982		205,394
Charges for mortality and administration
of universal life and annuity products		(9,197,484)		(9,097,858)		(9,281,555)
Interest credited to account balances		5,146,917		5,251,303		5,332,145
Policy acquisition costs deferred		0		(8,000)		(5,000)
Change in accrued investment income		(160,506)		139,421		283,159
Change in reinsurance receivables		291,582		455,527		527,926
Change in policy liabilities and accruals		1,976,884		1,017,812		1,073,108
Change in income taxes payable		1,599,104		157,111		(924,815)
Change in other assets and liabilities, net		(1,432,078)		(3,772,419)		(1,534,582)
Net cash used in operating activities		(1,875,494)		(290,936)		(45,950)
Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale		16,577,724		26,182,897		70,893,152
Fixed maturities matured		3,729,019		5,816,061		16,098,477
Equity securities		16,242,400		3,182,055		25,569
Mortgage loans		12,152,376		10,050,792		8,620,093
Real estate		20,984,831		876,594		314,157
Policy loans		3,698,261		3,803,491		2,757,989
Short-term		1,546,907		425,000		350,000
Total proceeds from investments sold and matured		74,931,518		50,336,890		99,059,437
Cost of investments acquired:
Fixed maturities held for sale		(39,037,210)		(6,496,673)		(76,377,916)
Fixed maturities		(2,506,647)		(1,474,140)		(1,513,700)
Equity securities		(7,355,487)		(1,606,543)		(8,033,052)
Mortgage loans		(7,306,094)		(26,109,670)		(2,626,540)
Real estate		(20,883,148)		(11,883,777)		(3,981,568)
Policy loans		(2,878,487)		(3,603,581)		(2,376,338)
Short-term		(1,557,655)		(428,221)		(353,061)
Total cost of investments acquired		(81,524,728)		(51,602,605)		(95,262,175)
Purchase of property and equipment		(1,468,660)		0		(20,548)
Net cash provided by (used in) investing activities		(8,061,870)		(1,265,715)		3,776,714
Cash flows from financing activities:
Policyholder contract deposits		7,940,954		8,481,796		9,015,637
Policyholder contract withdrawals		(6,401,947)		(6,209,958)		(7,215,183)
Proceeds from notes payable		24,190,081		1,500,000		2,275,000
Payments of principal on line of credit		(1,200,000)		(1,500,000)		(4,564,776)
Issuance of common stock		0		151,320		167,360
Purchase of treasury stock		(482,030)		(521,892)		(299,057)
Purchase of subsidiary		(21,079,555)		0		0
Cash of subsidiary at date of acquisition		3,238,327		0		0
Net cash provided by (used in) financing activities		6,205,830		1,901,266		(621,019)
Net increase (decrease) in cash and cash equivalents		(3,731,534)		344,615		3,109,745
Cash and cash equivalents at beginning of year		12,204,087		11,859,472		8,749,727
Cash and cash equivalents at end of year	$	8,472,553	$	12,204,087	$	11,859,472

UTG, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.       ORGANIZATION - At December 31, 2006, the significant majority-owned subsidiaries of UTG, Inc were as depicted on the following organizational chart.

The Company’s significant accounting policies, consistently applied in the preparation of the accompanying consolidated financial statements, are summarized as follows.

    B.      NATURE OF OPERATIONS - UTG, Inc., is an insurance holding company, which sells individual life insurance products through its insurance subsidiaries.  The Company's principal market is the mid-western United States.  The Company’s dominant business is individual life insurance which includes the servicing of existing insurance business in force, the solicitation of new individual life insurance and the acquisition of other companies in the insurance business.

    C.       BUSINESS SEGMENTS - The Company has only one significant business segment – insurance.

    D.      BASIS OF PRESENTATION - The financial statements of UTG, Inc., and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the States of America which differ from statutory accounting practices permitted by insurance regulatory authorities.

    E.      PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of the Registrant and its majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated.

    F.       INVESTMENTS - Investments are shown on the following bases:

              Fixed maturities held to maturity - at cost, adjusted for amortization of premium or discount and other-than-temporary market value declines.  The amortized cost of such investments differs from their market values; however, the Company has the ability and intent to hold these investments to maturity, at which time the full face value is expected to be realized.

              Investments held for sale - at current market value, unrealized appreciation or depreciation is charged directly to shareholders' equity.

              Mortgage loans on real estate - at unpaid balances, adjusted for amortization of premium or discount, less allowance for possible losses.

              Real estate - investment real estate at cost less allowance for depreciation and, as appropriate, provisions for possible losses.  Accumulated depreciation on investment real estate was $ 593,877 and $ 4,444,729 as of December 31, 2006 and 2005, respectively.

              Policy loans - at unpaid balances including accumulated interest but not in excess of the cash surrender value.

              Short-term investments - at cost, which approximates current market value.

              Realized gains and losses on sales of investments are recognized in net income on the specific identification basis.

              Unrealized gains and losses on investments carried at market value are recognized in other comprehensive income on the specific identification basis.

G.           CASH EQUIVALENTS - The Company considers certificates of deposit and other short-term instruments with an original purchased maturity of three months or less cash equivalents.

H.           REINSURANCE - In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts.  The Company retains a maximum of $ 125,000 of coverage per individual life.

              Amounts paid, or deemed to have been paid, for reinsurance contracts are recorded as reinsurance receivables.  Reinsurance receivables are recognized in a manner consistent with the liabilities relating to the underlying reinsured contracts.  The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.

    I.        FUTURE POLICY BENEFITS AND EXPENSES - The liabilities for traditional life insurance and accident and health insurance policy benefits are computed using a net level method.  These liabilities include assumptions as to investment yields, mortality, withdrawals, and other assumptions based on the life insurance subsidiary’s experience adjusted to reflect anticipated trends and to include provisions for possible unfavorable deviations.  The Company makes these assumptions at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date.  Future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from 2% to 6% for life insurance and 3.0% to 9.25% for annuities.  Benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term.  Policy benefit claims are charged to expense in the period that the claims are incurred.  Current mortality rate assumptions are based on 1975-80 select and ultimate tables.  Withdrawal rate assumptions are based upon Linton B or Linton C, which are industry standard actuarial tables for forecasting assumed policy lapse rates.

              Benefit reserves for universal life insurance and interest sensitive life insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges.  Policy benefits and claims that are charged to expense include benefit claims in excess of related policy account balances.  Interest crediting rates for universal life and interest sensitive products range from 4.0% to 5.5% for the years ended December 31, 2006, 2005 and 2004, respectively.

    J.        POLICY AND CONTRACT CLAIMS - Policy and contract claims include provisions for reported claims in process of settlement, valued in accordance with the terms of the policies and contracts, as well as provisions for claims incurred and unreported based on prior experience of the Company.  Incurred but not reported claims were $ 1,242,950 and $ 913,896 as of December 31, 2006 and 2005, respectively.

K.              COST OF INSURANCE ACQUIRED - When an insurance company is acquired, the Company assigns a portion of its cost to the right to receive future cash flows from insurance contracts existing at the date of the acquisition.  The cost of policies purchased represents the actuarially determined present value of the projected future cash flows from the acquired policies.  The Company utilized 9% discount rate on approximately 25% of the business and 15% discount rate on approximately 75% of the business.  Cost of insurance acquired is amortized with interest in relation to expected future profits, including direct charge-offs for any excess of the unamortized asset over the projected future profits.  The interest rates utilized in the amortization calculation are 9% on approximately 25% of the balance and 15% on the remaining balance.  The interest rates vary due to differences in the blocks of business.  The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised.

		2006		2005		2004
Cost of insurance acquired,         beginning of year	$	10,554,447	$	12,747,532	$	14,616,667
Acquired with acquisition of          subsidiary		25,104,437		0		0
Interest accretion		3,426,178		3,739,918		4,002,245
Amortization		(6,276,903)		(5,933,003)		(5,871,380)
Net amortization		(2,850,725)		(2,193,085)		(1,869,135)
Cost of insurance acquired,         end of year	$	32,808,159	$	10,554,447	$	12,747,532

              Cost of insurance acquired was tested for impairment as part of the regular reporting process.  The fair value of the cost of insurance acquired was estimated using the expected present value of future cash flows.  No impairment loss was realized during any of the three years presented.

              Estimated net amortization expense of cost of insurance acquired for the next five years is as follows:

                                                                                           Interest                                     Net

                                                                                         Accretion      Amortization      Amortization

              2007                                                                   6,052,000        10,308,000          4,256,000

              2008                                                                   5,468,000          9,481,000          4,013,000

              2009                                                                   4,919,000          8,879,000          3,960,000

              2010                                                                   2,475,000          4,162,000          1,687,000

              2011                                                                   2,273,000          3,833,000          1,560,000

    L.       DEFERRED POLICY ACQUISITION COSTS - Commissions and other costs (salaries of certain employees involved in the underwriting and policy issue functions and medical and inspection fees) of acquiring life insurance products that vary with and are primarily related to the production of new business have been deferred.  Traditional life insurance acquisition costs are being amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves.

              For universal life insurance and interest sensitive life insurance products, acquisition costs are being amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins.  Under SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments," the Company makes certain assumptions regarding the mortality, persistency, expenses, and interest rates it expects to experience in future periods.  These assumptions are to be best estimates and are to be periodically updated whenever actual experience and/or expectations for the future change from initial assumptions.  The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised.

              The following table summarizes deferred policy acquisition costs and related data for the years shown.

		2006		2005		2004
Deferred, beginning of year	$	1,414,364	$	1,685,263	$	2,122,643
Acquisition costs deferred:
Commissions		0		0		0
Other expenses		0		5,000		5,000
Total		0		5,000		5,000
Interest accretion		7,000		8,000		10,000
Amortization charged to income		(232,476)		(283,899)		(452,380)
Net amortization		(225,476)		(275,899)		(442,380)
Change for the year		(225,476)		(270,899)		(437,380)
Deferred, end of year	$	1,188,888	$	1,414,364	$	1,685,263

              Estimated net amortization expense of deferred policy acquisition costs for the next five years is as follows:

	Interest		Net
	Accretion	Amortization	Amortization
2007	9,000	219,000	210,000
2008	8,000	206,000	198,000
2009	6,000	180,000	174,000
2010	5,000	99,000	94,000
2011	4,000	69,000	65,000

    M.      PROPERTY AND EQUIPMENT - Company-occupied property, data processing equipment and furniture and office equipment are stated at cost less accumulated depreciation of $ 2,542,750 and $ 6,587,036 at December 31, 2006 and 2005, respectively.  Depreciation is computed on a straight-line basis for financial reporting purposes using estimated useful lives of three to thirty years.  Depreciation expense was $ 261,148, $ 250,795, and $ 298,021 for the years ended December 31, 2006, 2005, and 2004, respectively.

N.      INCOME TAXES - Income taxes are reported under Statement of Financial Accounting Standards Number 109.  Deferred income taxes are recorded to reflect the tax consequences on future periods of differences between the tax bases of assets and liabilities and their financial reporting amounts at the end of each such period.

O.      EARNINGS PER SHARE - Earnings per share (EPS) are reported under Statement of Financial Accounting Standards Number 128.  The objective of both basic EPS and diluted EPS is to measure the performance of an entity over the reporting period.  Basic EPS is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period.   Diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  In addition, the numerator also is adjusted for any changes in income or loss that would result from the assumed conversion of those potential common shares.

P.       TREASURY SHARES - The Company holds 360,888 and 303,442 shares of common stock as treasury shares with a cost basis of $ 2,632,910 and $ 2,196,987 at December 31, 2006 and 2005, respectively.

Q.       RECOGNITION OF REVENUES AND RELATED EXPENSES - Premiums for traditional life insurance products, which include those products with fixed and guaranteed premiums and benefits, consist principally of whole life insurance policies, and certain annuities with life contingencies are recognized as revenues when due.  Limited payment life insurance policies defer gross premiums received in excess of net premiums, which is then recognized in income in a constant relationship with insurance in force. Accident and health insurance premiums are recognized as revenue pro rata over the terms of the policies.  Benefits and related expenses associated with the premiums earned are charged to expense proportionately over the lives of the policies through a provision for future policy benefit liabilities and through deferral and amortization of deferred policy acquisition costs.  For universal life and investment products, generally there is no requirement for payment of premium other than to maintain account values at a level sufficient to pay mortality and expense charges. Consequently, premiums for universal life policies and investment products are not reported as revenue, but as deposits.  Policy fee revenue for universal life policies and investment products consists of charges for the cost of insurance and policy administration fees assessed during the period.  Expenses include interest credited to policy account balances and benefit claims incurred in excess of policy account balances.

    R.       PARTICIPATING INSURANCE - Participating business represents 8% and 19% of the ordinary life insurance in force at December 31, 2006 and 2005, respectively.  Premium income from participating business represents 33%, 21%, and 22% of total premiums for the years ended December 31, 2006, 2005 and 2004, respectively.  The amount of dividends to be paid is determined annually by the insurance subsidiary's Board of Directors.  Earnings allocable to participating policyholders are based on legal requirements that vary by state.

    S.       RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the 2006 presentation.  Such reclassifications had no effect on previously reported net income or shareholders' equity.

    T.      USE OF ESTIMATES - In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

    U.      IMPAIRMENT OF LONG LIVED ASSETS - The Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long lived assets may warrant revision or that the remaining balance of an asset may not be recoverable.  The measurement of possible impairment is based on the ability to recover the balance of assets from expected future operating cash flows on an undiscounted basis.  In the opinion of management, no such impairment existed at December 31, 2006.

2. SHAREHOLDER DIVIDEND RESTRICTION

At December 31, 2006, substantially all of consolidated shareholders' equity represents net assets of UTG’s subsidiaries.  The payment of cash dividends to shareholders by UTG is not legally restricted.  However, the state insurance department regulates insurance company dividend payments where the company is domiciled.  UG, AC and TI’s dividend limitations are described below.

Ohio domiciled insurance companies require five days prior notification to the insurance commissioner for the payment of an ordinary dividend.  Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus.  For the year ended December 31, 2006, UG had a statutory gain from operations of $ 5,162,322.  At December 31, 2006, UG's statutory capital and surplus amounted to $ 31,209,934.  Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation.  In 2006 and 2005, UG paid $ 5,100,000 and $ 0, of which $ 0 and $ 0 was considered to be an extraordinary dividend, respectively, to UTG.

AC and TI are Texas domiciled insurance companies, which requires five days prior notification to the insurance commissioner for the payment of an ordinary dividend.  Ordinary dividends are defined as the greater of:  a) prior year statutory earnings or b) 10% of statutory capital and surplus.  At December 31, 2006 AC and TI statutory shareholders' equity was $ 8,942,786 and $ 2,762,381, respectively.  At December 31, 2006, AC and TI statutory net income was $ 2,154,233 and $ 414,245, respectively.  Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation.  AC paid ordinary dividends of $ 605,000 in 2006.  TI did not pay any stockholder dividend during 2006.

3. INCOME TAXES

Until 1984, insurance companies were taxed under the provisions of the Life Insurance Company Income Tax Act of 1959 as amended by the Tax Equity and Fiscal Responsibility Act of 1982.  These laws were superseded by the Deficit Reduction Act of 1984.  All of these laws are based primarily upon statutory results with certain special deductions and other items available only to life insurance companies.  Under the provision of the pre-1984 life insurance company income tax regulations, a portion of “gain from operations” of a life insurance company was not subject to current taxation but was accumulated, for tax purposes, in a special tax memorandum account designated as “policyholders’ surplus account”.  Federal income taxes will become payable on this account at the then current tax rate when and if distributions to shareholders, other than stock dividends and other limited exceptions, are made in excess of the accumulated previously taxed income maintained in the “shareholders surplus account”.   As part of the American Jobs Creation Act of 2004, Congress has authorized a limited opportunity for life insurance companies to recognize the balance in the “policyholders’ surplus account” and not pay any federal income tax.  This window of opportunity expired December 31, 2006.  During 2006, each of the insurance subsidiaries took advantage of this opportunity.  At December 31, 2006, none of the insurance subsidiaries had a balance remaining in the “policyholders’ surplus account”.

The companies of the group file separate federal income tax returns except for Acap Corporation, AC, TI and Imperial Plan, which file a consolidated life/non-life federal income tax return.

Life insurance company taxation is based primarily upon statutory results with certain special deductions and other items available only to life insurance companies.  Income tax expense (benefit) consists of the following components:

		2006		2005		2004
Current tax expense	$	398,268	$	21,368	$	147,358
Deferred tax (benefit) expense		1,551,339		137,040		(945,074)
	$	1,949,607	$	158,408	$	(797,716)

The net operating loss carryforwards for federal income tax purposes of UG were fully utilized in 2006.

The following table shows the reconciliation of net income to taxable income of UTG:

		2006		2005		2004
Net income (loss)	$	3,869,720	$	1,260,223	$	(275,617)
Federal income tax provision		181,070		(24,254)		105,098
Loss (gain) of subsidiaries		(3,616,283)		(1,155,680)		803,662
Taxable income	$	434,507	$	80,289	$	633,143

The expense or (credit) for income differed from the amounts computed by applying the applicable United States statutory rate of 35% before income taxes as a result of the following differences:

		2006		2005		2004
Tax computed at statutory rate	$	2,809,538	$	664,865	$	(303,779)
Changes in taxes due to:
Tax reserve adjustment		0		0		(202,225)
Utilization of AMT credit carryforward		(163,039)		0		0
Utilization of capital loss carryforward		0		(327,467)		0
Dividend received deduction		(224,386)		(188,988)		(161,114)
Depreciation		163,130		0		0
Tax deferred acquisition costs		0		0		(134,324)
Minority interest		(772,774)		(168,344)		0
Utilization of net operating loss carryforward		396,899		0		0
Small company deduction		(293,804)		211,474		0
Other		34,043		(33,132)		3,726
Income tax expense (benefit)	$	1,949,607	$	158,408	$	(797,716)

The following table summarizes the major components that comprise the deferred tax liability as reflected in the balance sheets:

		2006		2005
Investments	$	4,988,293	$	4,721,575
Cost of insurance acquired		11,482,856		3,694,056
Deferred policy acquisition costs		416,111		495,027
Management/consulting fees		(260,715)		(275,434)
Future policy benefits		984,029		(671,161)
Gain on sale of subsidiary		2,312,483		2,312,483
Net operating loss carry forward		0		(1,213,366)
Allowance for uncollectibles		(80,500)		0
Other liabilities		(934,503)		0
Federal tax DAC		(2,427,986)		(962,565)
Deferred tax liability	$	16,480,068	$	8,100,615

4.   ANALYSIS OF INVESTMENTS, INVESTMENT INCOME AND INVESTMENT GAIN

A.   NET INVESTMENT INCOME - The following table reflects net investment income by type of investment:

		December 31,
		2006		2005		2004
Fixed maturities and fixed maturities   held for sale	$	6,838,277	$	6,661,648	$	7,060,761
Equity securities		915,864		771,379		657,609
Mortgage loans		2,739,350		2,033,007		1,209,358
Real estate		5,500,005		7,473,698		5,335,530
Policy loans		580,961		860,240		918,562
Short-term investments		27,620		3,699		80,241
Cash		454,580		171,926		111,986
Total consolidated investment income		17,056,657		17,975,597		15,374,047
Investment expenses		(6,055,492)		(6,924,371)		(4,953,161)
Consolidated net investment income	$	11,001,165	$	11,051,226	$	10,420,886

The following table summarizes the Company's fixed maturity holdings and investments held for sale by major classifications:

		Carrying Value
				2006		2005
Investments held for sale:
	Fixed maturities
	U.S. Government, government agencies and authorities		$	39,455,915	$	25,221,548
	State, municipalities and political subdivisions			3,480,759		173,743
	Collateralized mortgage obligations			118,641,593		72,306,120
	Public utilities			6,097,151		0
	All other corporate bonds			65,553,711		27,374,215
			$	233,229,129	$	125,075,626
	Equity securities
	Banks, trusts and insurance companies		$	3,606,421	$	4,609,529
	Industrial and miscellaneous			12,699,170		19,964,730
			$	16,305,591	$	24,574,259

		Carrying Value
				2006		2005
Fixed maturities held to maturity:
	U.S. Government, government agencies and authorities		$	5,484,304	$	6,014,103
	State, municipalities and political subdivisions			688,679		1,453,227
	Collateralized mortgage obligations			101,930		45,734
	Public utilities			0		0
	All other corporate bonds			0		0
			$	6,274,913	$	7,513,064
Securities of affiliate			$	4,000,000	$	4,000,000

By insurance statute, the majority of the Company's investment portfolio is invested in investment grade securities to provide ample protection for policyholders.

Below investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers.  In addition, the trading market for these securities is usually more limited than for investment grade debt securities.  Debt securities classified as below-investment grade are those that receive a Standard & Poor's rating of BB or below.

The following table summarizes securities held, at amortized cost, that are below investment grade by major classification:

	Below Investment Grade Investments			2006			2005
Public Utilities		$	0		$	0
CMO			1,678,714			11,449
Corporate			2,396,868			1,081,660
Total		$	4,075,582		$	1,093,109

B.   INVESTMENT SECURITIES

      The amortized cost and estimated market values of investments in securities including investments held for sale are as follows:

2006		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Investments held for sale:
Fixed maturities
U.S. Government and govt.     agencies and authorities	$	39,551,437	$	277,642	$	(373,164)	$	39,455,915
States, municipalities and     political subdivisions		3,460,863		25,213		(5,317)		3,480,759
Collateralized mortgage     obligations		120,390,106		90,803		(1,839,315)		118,641,594
Public utilities		6,097,151		0		0		6,097,151
All other corporate bonds		65,555,098		294,100		(295,488)		65,553,710
		235,054,655		687,758		(2,513,284)		233,229,129
Equity securities		10,031,148		6,274,443		0		16,305,591
Total	$	245,085,803	$	6,962,201	$	(2,513,284)	$	249,534,720
Fixed maturities held to maturity:
U.S. Government and govt.     agencies and authorities	$	5,484,304	$	0	$	(72,899)	$	5,411,405
States, municipalities and     political subdivisions		688,679		39,339		0		728,018
Collateralized mortgage     obligations		101,930		3,300		(280)		104,950
Public utilities		0		0		0		0
All other corporate bonds		0		0		0		0
Total	$	6,274,913	$	42,639	$	(73,179)	$	6,244,373
Securities of affiliate	$	4,000,000	$	0	$	0	$	4,000,000

2005		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Market Value
Investments held for sale:
Fixed maturities
U.S. Government and govt.     agencies and authorities	$	25,660,210	$	90,648	$	(529,310)	$	25,221,548
States, municipalities and     political subdivisions		163,886		9,857		0		173,743
Collateralized mortgage     obligations		74,086,345		15,004		(1,795,229)		72,306,120
Public utilities		0		0		0		0
All other corporate bonds		27,090,216		474,346		( 190,347)		27,374,215
		127,000,657		589,855		(2,514,886)		125,075,626
Equity securities		15,098,815		9,475,444		0		24,574,259
Total	$	142,099,472	$	10,065,299	$	(2,514,886)	$	149,649,885
Fixed maturities held to maturity:
U.S. Government and govt.     agencies and authorities	$	6,014,103	$	5,174	$	(58,943)	$	5,960,334
States, municipalities and     political subdivisions		1,453,227		41,700		0		1,494,927
Collateralized mortgage     obligations		45,734		390		(1,094)		45,030
Public utilities		0		0		0		0
All other corporate bonds		0		0		0		0
Total	$	7,513,064	$	47,264	$	(60,037)	$	7,500,291
Securities of affiliate	$	4,000,000	$	0	$	0	$	4,000,000

      The amortized cost and estimated market value of debt securities at December 31, 2006, by contractual maturity, is shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Fixed Maturities Held for Sale December 31, 2006		Amortized Cost		Estimated Market Value
Due in one year or less	$	20,553,537	$	20,632,791
Due after one year through five years		56,164,223		55,952,824
Due after five years through ten years		38,089,668		37,935,371
Due after ten years		28,355,085		28,325,954
Collateralized mortgage obligations		91,892,142		90,382,189
Total	$	235,054,655	$	233,229,129

Fixed Maturities Held to Maturity December 31, 2006		Amortized Cost		Estimated Market Value
Due in one year or less	$	1,729,244	$	1,727,088
Due after one year through five years		364,538		369,839
Due after five years through ten years		4,102,294		4,066,469
Due after ten years		47,592		50,011
Collateralized mortgage obligations		31,245		30,966
Total	$	6,274,913	$	6,244,373

      An analysis of sales, maturities and principal repayments of the Company's fixed maturities portfolio for the years ended December 31, 2006, 2005 and 2004 is as follows:

Year ended December 31, 2006		Cost or Amortized Cost		Gross Realized Gains		Gross Realized Losses		Proceeds From Sale
Scheduled principal repayments,    Calls and tenders:
Held for sale	$	14,214,020	$	0	$	0	$	14,214,020
Held to maturity		3,715,892		0		0		3,715,892
Sales:
Held for sale		2,363,638		11,229		(11,163)		2,363,704
Held to maturity		13,314		0		(187)		13,127
Total	$	20,306,864	$	11,229	$	(11,350)	$	20,306,743

Year ended December 31, 2005		Cost or Amortized Cost		Gross Realized Gains		Gross Realized Losses		Proceeds From Sale
Scheduled principal repayments,    Calls and tenders:
Held for sale	$	15,114,740	$	9,682	$	0	$	15,124,422
Held to maturity		5,801,888		2,300		(9,125)		5,795,063
Sales:
Held for sale		11,124,418		15,077		(60,022)		11,079,473
Held to maturity		0		0		(0)		0
Total	$	32,041,046	$	27,059	$	(69,147)	$	31,998,958

Year ended December 31, 2004		Cost or Amortized Cost		Gross Realized Gains		Gross Realized Losses		Proceeds From Sale
Scheduled principal repayments,    Calls and tenders:
Held for sale	$	25,119,862	$	8,062	$	(2,098)	$	25,125,826
Held to maturity		16,099,278		0		(801)		16,098,477
Sales:
Held for sale		45,840,981		278,896		(352,551)		45,767,326
Held to maturity		0		0		(0)		0
Total	$	87,060,121	$	286,958	$	(355,450)	$	86,991,629

      Annually, the Company completes an analysis of sales of securities held to maturity to further assess the issuer’s creditworthiness of fixed maturity holdings.

C.   INVESTMENTS ON DEPOSIT - At December 31, 2006, investments carried at approximately $ 9,277,000 were on deposit with various state insurance departments.

5.   DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The financial statements include various estimated fair value information at December 31, 2006 and 2005, as required by Statement of Financial Accounting Standards 107, Disclosure about Fair Value of Financial Instruments (SFAS 107).  Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in that Statement and does not purport to represent the aggregate net fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument required to be valued by SFAS 107 for which it is practicable to estimate that value:

(a)  Cash and Cash equivalents

The carrying amount in the financial statements approximates fair value because of the relatively short period of time between the origination of the instruments and their expected realization.

(b)  Fixed maturities and investments held for sale

Quoted market prices, if available, are used to determine the fair value.  If quoted market prices are not available, management estimates the fair value based on the quoted market price of a financial instrument with similar characteristics.

(c)  Mortgage loans on real estate

The fair values of mortgage loans are estimated using discounted cash flow analyses and interest rates being offered for similar loans to borrowers with similar credit ratings.

(d)  Policy loans

It is not practical to estimate the fair value of policy loans as they have no stated maturity and their rates are set at a fixed spread to related policy liability rates.  Policy loans are carried at the aggregate unpaid principal balances in the consolidated balance sheets, and earn interest at rates ranging from 4% to 8%.  Individual policy liabilities in all cases equal or exceed outstanding policy loan balances.

(e)  Short-term investments

Quoted market prices, if available, are used to determine the fair value.  If quoted market prices are not available, management estimates the fair value based on the quoted market price of a financial instrument with similar characteristics.

(f)  Notes payable

For borrowings subject to floating rates of interest, carrying value is a reasonable estimate of fair value.  For fixed rate borrowings fair value is determined based on the borrowing rates currently available to the Company for loans with similar terms and average maturities.

The estimated fair values of the Company's financial instruments required to be valued by SFAS 107 are as follows as of December 31:

		2006					2005
Assets			Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
Fixed maturities	$		6,274,913	$	6,244,373	$		7,513,064	$	7,500,291
Fixed maturities held for sale			233,229,129		233,229,129			125,075,626		125,075,626
Equity securities			16,305,591		16,305,591			24,574,259		24,574,259
Securities of affiliate			4,000,000		4,000,000			4,000,000		4,000,000
Mortgage loans on real estate			32,015,446		32,015,446			36,781,293		36,358,308
Policy loans			15,931,525		15,931,525			12,644,838		12,644,838
Short-term investments			47,879		47,879			42,116		42,116
Liabilities
Notes payable			22,990,081		22,990,081			0		0

6.   STATUTORY EQUITY AND INCOME FROM OPERATIONS

The Company's insurance subsidiaries are domiciled in Ohio and Texas.  The insurance subsidiaries prepare their statutory-based financial statements in accordance with accounting practices prescribed or permitted by the respective insurance department.  These principles differ significantly from accounting principles generally accepted in the United States of America.  "Prescribed" statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC).  "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, from company to company within a state, and may change in the future.  UG's total statutory shareholders' equity was approximately $ 31,210,000 and $ 25,646,000 at December 31, 2006 and 2005, respectively.  UG reported a statutory operating income (loss) before taxes (exclusive of inter-company dividends) of approximately $ 5,162,000, $ 5,114,000 and $ (762,000) for 2006, 2005 and 2004, respectively.  AC's total statutory shareholders' equity was approximately $ 8,943,000 at December 31, 2006. TI's total statutory shareholders' equity was approximately $ 2,762,000 December 31, 2006.

7.       REINSURANCE

As is customary in the insurance industry, the insurance subsidiaries cede insurance to, and assume insurance from, other insurance companies under reinsurance agreements.  Reinsurance agreements are intended to limit a life insurer's maximum loss on a large or unusually hazardous risk or to obtain a greater diversification of risk.  The ceding insurance company remains primarily liable with respect to ceded insurance should any reinsurer be unable to meet the obligations assumed by it.  However, it is the practice of insurers to reduce their exposure to loss to the extent that they have been reinsured with other insurance companies.  The Company sets a limit on the amount of insurance retained on the life of any one person.  The Company will not retain more than $ 125,000, including accidental death benefits, on any one life.  At December 31, 2006, the Company had gross insurance in force of $ 2.270 billion of which approximately $ 591 million was ceded to reinsurers.

The Company's reinsured business is ceded to numerous reinsurers.  The Company monitors the solvency of its reinsurers in seeking to minimize the risk of loss in the event of a failure by one of the parties.  The primary reinsurers of the Company are large, well capitalized entities.

Currently, UG is utilizing reinsurance agreements with Optimum Re Insurance Company, (Optimum) and Swiss Re Life and Health America Incorporated (SWISS RE).  Optimum and SWISS RE currently hold an “A-” (Excellent), and "A+" (Superior) rating, respectively, from A.M. Best, an industry rating company.  The reinsurance agreements were effective December 1, 1993, and covered most new business of UG.  The agreements are a yearly renewable term (YRT) treaty where the Company cedes amounts above its retention limit of $ 100,000 with a minimum cession of $ 25,000.

In addition to the above reinsurance agreements, the UG entered into reinsurance agreements with Optimum Re Insurance Company (Optimum) during 2004 to provide reinsurance on new products released for sale in 2004.  The agreements are yearly renewable term (YRT) treaties where UG cedes amounts above its retention limit of $100,000 with a minimum cession of $25,000 as has been a practice for the last several years with its reinsurers.  Also, effective January 1, 2005, Optimum became the reinsurer of 100% of the accidental death benefits (ADB) in force of UG.  This coverage is renewable annually at the Company’s option.  Optimum specializes in reinsurance agreements with small to mid-size carriers such as UG.  Optimum currently holds an “A-” (Excellent) rating from A.M. Best.

UG entered into a coinsurance agreement with Park Avenue Life Insurance Company (PALIC) effective September 30, 1996.  Under the terms of the agreement, UG ceded to PALIC substantially all of its then in-force paid-up life insurance policies.  Paid-up life insurance generally refers to non-premium paying life insurance policies.  PALIC and its ultimate parent  The Guardian Life Insurance Company of America (Guardian), currently holds an "A+" (Superior) rating from A.M. Best.  The PALIC agreement accounts for approximately 67% of UG’s reinsurance reserve credit, as of December 31, 2006.

On September 30, 1998, UG entered into a coinsurance agreement with The Independent Order of Vikings, an Illinois fraternal benefit society (IOV).  Under the terms of the agreement, UG agreed to assume, on a coinsurance basis, 25% of the reserves and liabilities arising from all in-force insurance contracts issued by the IOV to its members.  At December 31, 2006, the IOV insurance in-force assumed by UG was approximately $ 1,670,000, with reserves being held on that amount of approximately $ 391,000.

On June 1, 2000, UG assumed an already existing coinsurance agreement, dated January 1, 1992, between Lancaster Life Reinsurance Company (LLRC), an Arizona corporation and Investors Heritage Life Insurance Company (IHL), a corporation organized under the laws of the Commonwealth of Kentucky.  Under the terms of the agreement, LLRC agreed to assume from IHL a 90% quota share of new issues of credit life and accident and health policies that have been written on or after January 1, 1992 through various branches of the First Southern National Bank.  The maximum amount of credit life insurance that can be assumed on any one individual’s life is $ 15,000.  UG assumed all the rights and obligations formerly held by LLRC as the reinsurer in the agreement.  LLRC liquidated its charter immediately following the transfer.  At December 31, 2006, the IHL agreement has insurance in-force of approximately $ 2,308,000, with reserves being held on that amount of approximately $ 32,000.

At December 31, 1992, AC entered into a reinsurance agreement with Canada Life Assurance Company (“the Canada Life agreement”) that fully reinsured virtually all of its traditional life insurance policies.  The reinsurer’s obligations under the Canada Life agreement were secured by assets withheld by AC representing policy loans and deferred and uncollected premiums related to the reinsured policies.  AC continues to administer the reinsured policies, for which it receives an expense allowance from the reinsurer.  At December 31, 2006, the Canada Life greement has insurance in-force of approximately $ 86,594,000, with reserves being held on that amount of approximately $ 42,409,000.

During 1997, AC acquired 100% of the policies in force of World Service Life Insurance Company through a combination of assumption reinsurance and coinsurance.  While 91.42% of the acquired policies are coinsured under the Canada Life agreement, AC did not coinsure the balance of the policies.  AC retains the administration of the reinsured policies, for which it receives an expense allowance from the reinsurer.  Canada Life currently holds an "A+" (Superior) rating from A.M. Best.

During 1998, American Capitol closed a coinsurance transaction with Universal Life Insurance Company (“Universal”). Pursuant to the coinsurance agreement, American Capitol coinsured 100% of the individual life insurance policies of Universal in force at January 1, 1998.  At December 31, 2006, the Universal agreement has insurance in-force of approximately $ 15,768,000, with reserves being held on that amount of approximately $ 5,251,000.

All reinsurance for TI is with a single, unaffiliated reinsurer, Hannover Life Reassurance (Ireland) Limited ("Hannover"), secured by a trust account containing letters of credit totaling $1,009,981, granted in favor of TI.  TI administers the reinsurance policies, for which it receives an expense allowance from Hannover.  The aggregate reduction in surplus of termination of this reinsurance agreement, by either party, as of December 31, 2005 is $699,667.  Hannover currently holds an “A” (Excellent) rating by A.M. Best.  At December 31, 2006, the Hannover agreement has insurance in-force of approximately $ 25,913,000, with reserves being held on that amount of approximately $ 502,000.

On December 31, 2006, the AC and TI entered into 100% coinsurance agreements whereby each company ceded all of its A&H business to an unaffiliated reinsurer, Reserve National Insurance Company (Reserve National).  As part of the agreement, the Company remains contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year.  At the end of the one year period, an accounting of these claims shall be produced.  Any difference in the actual claims to the claim reserve liability transferred shall be refunded to / paid by the Company.  Reserve National currently holds an “A-“ (Excellent) rating by A.M. Best.

The Company does not have any short-duration reinsurance contracts.  The effect of the Company's long-duration reinsurance contracts on premiums earned in 2006, 2005 and 2004 were as follows:

			Shown in thousands
			2006 Premiums Earned			2005 Premiums Earned			2004 Premiums Earned
Direct	$	15,450		$	16,357		$	17,238
Assumed		65			42			38
Ceded		(2,655)			(2,672)			(3,036)
Net premiums	$	12,860		$	13,727		$	14,240

8.   COMMITMENTS AND CONTINGENCIES

The insurance industry has experienced a number of civil jury verdicts which have been returned against life and health insurers in the jurisdictions in which the Company does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters.  Some of the lawsuits have resulted in the award of substantial judgments against the insurer, including material amounts of punitive damages.  In some states, juries have substantial discretion in awarding punitive damages in these circumstances.

Under the insurance guaranty fund laws in most states, insurance companies doing business in a participating state can be assessed up to prescribed limits for policyholder losses incurred by insolvent or failed insurance companies.  Although the Company cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer's financial strength.  Mandatory assessments may be partially recovered through a reduction in future premium tax in some states. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements, though the Company has no control over such assessments.

On June 10, 2002 UTG and Fiserv formed an alliance between their respective organizations to provide third party administration (TPA) services to insurance companies seeking business process outsourcing solutions.  Fiserv will be responsible for the marketing and sales function for the alliance, as well as providing the operations processing service for the Company.  The Company will staff the administration effort.  Fiserv is a unit of Fiserv, Inc. (NASDAQ: FISV) which is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin.

In June 2002, the Company entered into a five-year contract with Fiserv for services related to its purchase of the “ID3” software system.  The contract was amended during 2006 for a five year period ended 2011.  Under the contract, the Company is required to pay $ 8,333 per month in software maintenance costs and a per-policy charge in offsite data center costs, with a minimum of $ 14,000 per month, for a five-year period from the date of the agreement.

In December 2006, the Company entered into an agreement with the certain individual shareholders of Acap.  This agreement allows the Company (through a put option arrangement) to buy up to 264 shares of common stock of Acap at any time between the date of the agreement and December 2007.  The price of the share purchase was determined by a pre-set formula, which the Company believes approximates fair value, at the time such shares might be put.

On December 31, 2006, the Company entered into a 100% coinsurance agreement whereby the insurance subsidiaries, AC and TI, ceded all of their A&H business to an unaffiliated third party.  As part of the agreement, AC and TI remain contingently liable for claims incurred prior to the effective date of the agreement, for a period of one year.  At the end of the one year period, an accounting of these claims shall be produced.  Any difference in the actual claims to the claim reserve liability transferred shall be refunded to / paid by AC and TI.

In the normal course of business the Company is involved from time to time in various legal actions and other state and federal proceedings.  There were no proceedings pending or threatened as of December 31, 2006.

9.       RELATED PARTY TRANSACTIONS

On July 1, 2005, United Trust Group, Inc., an Illinois corporation, merged with and into its wholly-owned subsidiary, UTG, Inc. (UTG), a Delaware corporation, for the purpose of effecting a change in the Company’s state of incorporation from Illinois to Delaware.  The merger was effected pursuant to that certain Agreement and Plan of Merger dated as of April 4, 2005, which was approved by the boards of directors of both UTG and United Trust Group, Inc.  The merger was approved by the holders of two-thirds of the outstanding shares of common stock of United Trust Group, Inc. at the 2005 annual meeting of shareholders on June 15, 2005, and by the sole stockholder of UTG, Inc. on June 15, 2005.

On September 1, 2004, UTG contributed the common stock of its wholly-owned subsidiary, North Plaza, to its life insurance subsidiary, UG.  The contribution, which received prior approval by the regulatory authorities, increased the capital of UG by $ 7,857,794.

On February 20, 2003, UG purchased $ 4,000,000 of a trust preferred security offering issued by FSBI.  The security has a mandatory redemption after 30 years with a call provision after 5 years.  The security pays a quarterly dividend at a fixed rate of 6.515%.  The Company received $ 264,219, $ 264,219 and $ 264,842 of dividends in 2006, 2005 and 2004, respectively.

As part of the acquisition of Acap on December 8, 2006, UTG loaned $ 3,357,000 to Acap.  Acap used the proceeds for the repayment of existing debt with an unaffiliated financial institution and to retire all of its outstanding preferred stock.  The terms of the inter-company loan mirror the interest rate and repayment requirements of the debt with First Tennessee Bank National Association.

During June 2003, UG entered into a lease agreement with Bandyco, LLC, an affiliated entity, for a one-sixth interest in an aircraft.  Bandyco, LLC is affiliated with Ward F. Correll, who is a director of the Company.  The lease term is for a period of five years at a total cost of $ 523,831 per year.  The Company is responsible for its share of annual non-operational costs, in addition to the operational costs as are billable for specific use.  In addition, UG has a 27.5% interest in a second plane with Bandyco, LLC.  The Company is responsible for its share of annual non-operational costs, in addition to the operational costs as are billable for specific use.

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved, the UTG, Inc. Employee and Director Stock Purchase Plan (See Note 10.A. to the consolidated financial statements).

On January 1, 1993, UTG entered an agreement with UG pursuant to which UTG provided management services necessary for UG to carry on its business.  UG paid $ 5,875,133, $ 5,054,918 and $ 5,625,451 to UTG in 2006, 2005 and 2004, respectively, under this arrangement.

During December 2006, UTG entered into administrative services and cost sharing agreements with its new subsidiaries, AC and TI.  These agreements will be effective for the year beginning January 1, 2007.

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 accounting principles generally accepted in the United States of America.

UG from time to time acquires mortgage loans through participation agreements with FSNB.  FSNB services UG's mortgage loans including those covered by the participation agreements.  UG pays a .25% servicing fee on these loans and a one time fee at loan        origination of .50% of the original loan amount to cover costs incurred by FSNB relating to the processing and establishment of the loan.  UG paid $ 93,288, $ 76,970 and $ 45,468 in servicing fees and $ 23,214, $ 112,109 and $ 0 in origination fees to FSNB during 2006, 2005 and 2004, respectively.

The Company reimbursed expenses incurred by Mr. Jesse T. Correll and Mr. Randall L. Attkisson relating to travel and other costs incurred on behalf of or relating to the Company.  The Company paid $ 85,576, $ 68,318 and $ 50,098 in 2006, 2005 and 2004, respectively to First Southern Bancorp, Inc. in reimbursement of such costs.  In addition, beginning in 2001, the Company began reimbursing FSBI a portion of salaries and pension costs for Mr. Correll and Mr. Attkisson.  The reimbursement was approved by the UTG Board of Directors and totaled $ 173,863, $ 160,272 and $ 160,440 in 2006, 2005 and 2004, respectively, which included salaries and other benefits.

On October 1, 2005, a partnership investment of HVP was extended a $ 5,000,000 promissory note from First Southern National Bank.  The note is due three-years from the date of issue.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 5,000,000 outstanding borrowings attributable to this note.

On October 1, 2005, a partnership investment of HVP was extended a $ 2,000,000 promissory note from First Southern National Bank.  The note is due three-years from the date of issue.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 2,000,000 outstanding borrowings attributable to this note.

On February 21, 2006, a partnership investment of HVP was extended a $ 1,000,000 promissory note from First Southern National Bank.  The note is due October 31, 2008.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 1,000,000 outstanding borrowings attributable to this note.

10.  CAPITAL STOCK TRANSACTIONS

A.   EMPLOYEE AND DIRECTOR STOCK PURCHASE PROGRAM

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved, the UTG, Inc. Employee and Director Stock Purchase Plan.  The plan’s purpose is to encourage ownership of UTG stock by eligible directors and employees of UTG and its subsidiaries by providing them with an opportunity to invest in shares of UTG common stock.  The plan is administered by the Board of Directors of UTG.  A total of 400,000 shares of common stock may be purchased under the plan, subject to appropriate adjustment for stock dividends, stock splits or similar recapitalizations resulting in a change in shares of UTG.  The plan is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

The purchase price of shares repurchased under the stock restriction and buy-sell agreement shall be computed, on a per share basis, equal to the sum of (i) the original purchase price(s) paid to acquire such shares from the Holding Company at the time they were sold pursuant to the Plan and (ii) the consolidated statutory net earnings (loss) per share of such shares during the period from the end of the month next preceding the month in which such shares were acquired pursuant to the plan, to the end of the month next preceding the month in which the closing sale of such shares to UTG occurs.  The consolidated statutory net earnings per Share shall be computed as the net income of the Holding Company and its subsidiaries on a consolidated basis in accordance with statutory accounting principles applicable to insurance companies, as computed by the Holding Company, except that earnings of insurance companies or block of business acquired after the original plan date, November 1, 2002, shall be adjusted to reflect the amortization of intangibles established at the time of acquisition in accordance with generally accepted accounting principles (GAAP), less any dividends paid to shareholders. The calculation of net earnings per Share shall be performed on a monthly basis using the number of common shares of the Holding Company outstanding as of the end of the reporting period. The purchase price for any Shares purchased hereunder shall be paid in cash within 60 days from the date of purchase subject to the receipt of any required regulatory approvals as provided in the Agreement.

The original issue price of shares at the time this program began was established at $12.00 per share.  Through March 1, 2007, UTG had 101,494 shares outstanding that were issued under this program.  At December 31, 2006, shares under this program have a value of $14.29 per share pursuant to the above formula.

B.   STOCK REPURCHASE PROGRAM

On June 5, 2001, the Board of Directors of UTG authorized the repurchase in the open market or in privately negotiated transactions of up to $ 1 million of UTG's common stock.  On June 16, 2004, an additional $ 1 million was authorized for repurchasing shares.  Repurchased shares are available for future issuance for general corporate purposes.  This program can be terminated at any time.  Open market purchases are generally limited to a maximum per share price of $8.00.  Through March 1, 2007, UTG has spent $ 2,485,778 in the acquisition of 365,445 shares under this program.

C.   EARNINGS PER SHARE CALCULATIONS

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations as presented on the income statement.

	For the year ended December 31, 2006
		Income(Loss)	Shares		Per-Share
		(Numerator)	(Denominator)		Amount
Basic EPS
Income available to common shareholders	$	3,869,720	3,872,425	$	1.00
Effect of Dilutive Securities
Options		0	0
Diluted EPS
Income available to common shareholders and assumed conversions	$	3,869,720	3,872,425	$	1.00

	For the year ended December 31, 2005
		Income (Loss)	Shares		Per-Share
		(Numerator)	(Denominator)		Amount
Basic EPS
Income available to common shareholders	$	1,260,223	3,938,781	$	0.32
Effect of Dilutive Securities
Options		0	0
Diluted EPS
Income available to common shareholders and assumed conversions	$	1,260,223	3,938,781	$	0.32

	For the year ended December 31, 2004
		Income	Shares		Per-Share
		(Numerator)	(Denominator)		Amount
Basic EPS
Income available to common shareholders	$	(275,617)	3,986,731	$	(0.07)
Effect of Dilutive Securities
Options		0	0
Diluted EPS
Income available to common shareholders and assumed conversions	$	(275,617)	3,986,731	$	(0.07)

In accordance with Statement of Financial Accounting Standards No. 128, the computation of diluted earnings per share is the same as basic earnings per share for the years ending December 31, 2006, 2005 and 2004, since any assumed conversion, exercise, or contingent issuance of securities would have an anti-dilutive effect on earnings per share.

11.  NOTES PAYABLE

On December 8, 2006, UTG borrowed funds from First Tennessee Bank National Association through execution of an $ 18,000,000 promissory note.  The note is secured by the pledge of 100% of the common stock of UG.  The promissory note carries a variable rate of interest based on the 3 month LIBOR rate plus 180 basis points.  The initial rate was 7.15%.  Interest is payable quarterly.  Principal is payable annually beginning at the end of the second year in five installments of $ 3,600,000.  The loan matures on December 7, 2012.  The Company borrowed $15,700,278 and repayments of $ 700,000 in 2006.  The remaining available balance can be drawn any time over the next twelve months and is anticipated to be utilized in the purchase of the stock put option shares as they may be presented to UTG, Inc. for purchase.

In addition to the above promissory note, First Tennessee Bank National Association also provided UTG. with a $ 5,000,000 revolving credit note.  This note is for a one-year term and may be renewed by consent of both parties.  The credit note is to provide operating liquidity for UTG, Inc. and replaces a previous line of credit provided by Southwest Bank.  Interest bears the same terms as the above promissory note.  The collateral held on the above note also secures this credit note.  UTG, Inc. has no borrowings against this note at this time.

On June 1, 2005, UG was extended a $ 3,300,000 line of credit from the FNBT.  The LOC is for a one-year term from the date of issue.  The interest rate on the LOC is variable and indexed to be the lowest of the U.S. prime rates as published in the Wall Street Journal, with any interest rate adjustments to be made monthly.  During 2006 and 2005, UG had borrowings from the LOC of $ 500,000 and $ 1,500,000 and repayments of $ 500,000 and $ 1,500,000, respectively.  At December 31, 2006, and 2005 the Company had no outstanding borrowings attributable to this LOC.

On April 1, 2002, UTG was extended a $ 5,000,000 line of credit from Southwest Bank of St. Louis.  The LOC expired one-year from the date of issue and was renewed for additional terms.  As collateral for any draws under the line of credit, UTG pledged 100% of the common stock of its insurance subsidiary, UG.  Borrowings under the LOC bear interest at the rate of .25% in excess of Southwest Bank of St. Louis’ prime rate.  At December 31, 2005, the Company had no outstanding borrowings attributable to this LOC.  During October 2006, the LOC was terminated by the Company and the corresponding collateral was released by Southwest Bank of St. Louis.

AC and TI each have a line of credit in place through Frost National Bank for $210,000 and $160,000, respectively.  These lines have been in place since 2004.  The lines are for one year terms, interest payable quarterly at a floating interest rate which is the Lender’s prime rate.  Principal is due upon maturity.  The lines are to provide additional short term operating liquidity to the two companies.  At December 31, 2006, there are no outstanding balances on either of these lines of credit.

On October 1, 2005, a partnership investment of HVP was extended a $ 5,000,000 promissory note from First Southern National Bank.  The note is due three-years from the date of issue.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 5,000,000 outstanding borrowings attributable to this note.

On October 1, 2005, a partnership investment of HVP was extended a $ 2,000,000 promissory note from First Southern National Bank.  The note is due three-years from the date of issue.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 2,000,000 outstanding borrowings attributable to this note.

On February 21, 2006, a partnership investment of HVP was extended a $ 1,000,000 promissory note from First Southern National Bank.  The note is due October 31, 2008.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 1,000,000 outstanding borrowings attributable to this note.

The consolidated scheduled principal reductions on the notes payable for the next five years are as follows:

                                    Year                                                Amount

                                    2007                                         $               0

                                    2008                                           10,900,000

                                    2009                                             3,600,000

                                    2010                                             3,600,000

                                    2011                                             3,600,000

12.  OTHER CASH FLOW DISCLOSURES

On a cash basis, the Company paid $ 1,469, $13, and $ 77,453 in interest expense for the years 2006, 2005 and 2004, respectively.  The Company paid $ 503,214, $ 0, and $ 110,000 in federal income tax for 2006, 2005 and 2004, respectively.

At December 31, 2005, the Company acquired $ 283,173 in equity investments for which the cash had not yet been paid.  The payable for these securities is included in the line item “Other liabilities” on the consolidated balance sheet.

13.  CONCENTRATIONS

The Company maintains cash balances in financial institutions that at times may exceed federally insured limits.  The Company maintains its primary operating cash accounts with First Southern National Bank, an affiliate of the largest shareholder of UTG, Mr. Jesse T. Correll, the Company’s CEO and Chairman.  In aggregate at December 31, 2006, these accounts hold approximately $ 10,985 for which there are no pledges or guarantees outside FDIC insurance limits.  The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Because UTG serves primarily individuals located in three states, the ability of our customers to pay their insurance premiums is impacted by the economic conditions in these areas.  As of December 31, 2006, approximately 55% of our total direct premium was collected from Ohio, Illinois and West Virginia.  Thus, results of operations are heavily dependent upon the strength of these economies.

14.  NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board (“FASB”) issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments – An amendment of FASB Statements No. 133 and 140.  The statement improves the financial reporting by eliminating the exemption from applying Statement 133 to interest in securitized financial assets so that similar instruments are accounted for similarly regardless of the form of the instrument.  The statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006.  The Company will account for all qualifying financial instruments in accordance with the requirements of Statement No. 155, should this apply.

The FASB also issued Statement No. 156, Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140.  The statement requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if possible.  The statement permits, but does not require, the subsequent measurement of servicing assets and liabilities at fair value.  The statement is effective for fiscal years beginning after September 15, 2006.  The Company will account for all separately recognized servicing assets and servicing liabilities in accordance with the requirements of Statement No. 156, should this apply.

The FASB also issued Statement No. 157, Fair Value Measurements.  The statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  The statement does not require any new fair value measurements; however applies under other pronouncements that require or permit fair value measurements.  The statement is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The Company will adjust all fair value measurements in accordance with the requirements of Statement No. 157, should this apply.

The FASB also issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R).  The statement requires that an employer that is a business entity and sponsors one or more single-employer defined benefit plans to recognize the funded status of a benefit plan, the component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as current costs, and disclose additional information in the notes regarding certain effects on net periodic benefit costs for the next fiscal year.  The statement is effective for fiscal years ending after December 15, 2006.  The adoption of Statement 158 does not currently affect the Company’s financial position or results of operations, since the Company does not have any defined benefit pension plans.

15.  ACQUISITION OF ACAP CORPORATION

Pursuant to the terms of a stock purchase agreement, on December 8, 2006, the Company completed an agreement to purchase a majority of the issued and outstanding common stock of Acap Corporation (“Acap”).  Acap is a Delaware corporation which owns 100% of the issued and outstanding stock of American Capitol Insurance Company (AC), a Texas life insurance company, which in turn owns 100% of the issued and outstanding stock of Texas Imperial Life Insurance Company (TI) and Imperial Plan, Inc (IP).

At the closing of the Agreement, the Company purchased a total of 1,843 shares of common stock of Acap for an aggregate purchase price of $17,593,278.

In addition, the Company entered into stock put option agreements under which certain individuals will have the opportunity to sell to UTG up to 264 shares of common stock of Acap during the period ending December 16, 2007.  The purchase price for shares under the stock put option agreements will be the same as under the Agreement.  In December 2006, eight shares under the stock put option agreements were presented and purchased by the Company.

In addition, the Company loaned Acap $ 3,357,000, which was required to retire certain indebtedness of Acap and to redeem all of Acap’s outstanding preferred stock at the closing of the Agreement.

Assuming the Company purchases all of the shares of Acap common stock that may be purchased under the stock put option agreements, the Company will have acquired 72.8% of the outstanding shares of common stock of Acap, and the total cost of the transaction to the Company (including the loan to Acap for the payment of Acap indebtedness and redemption of Acap preferred stock) was $24 million, which was paid in cash.

The acquisition of Acap is summarized as follows:

Assets acquired:
	Investments	$	5,970,516
	Policy loans		4,106,461
	Cash and cash equivalents		3,238,327
	Reinsurance on future policy benefits		42,250,714
	Cost of insurance acquired		25,104,437
	All other		2,306,434
			162,976,889
	Future policy benefits		116,991,161
	Notes payable		3,357,000
	Deferred taxes		8,160,832
	All Other		6,803,588
	Minority interest		9,994,661
			145,307,242
		$	17,669,647

The following table summarizes certain unaudited operating results of UTG as though the acquisition of Acap had taken place on January 1, 2006 and 2005 respectively.

		2006		2005
Total revenues	$	44,115,000	$	43,255,000
Operating income		4,607,000		2,897,000
Net income		4,607,000		2,897,000
Net income per common share		1.17		.73

16.  COMPREHENSIVE INCOME

				Tax
		Before-Tax		(Expense)		Net of Tax
2006		Amount		or Benefit		Amount
Unrealized holding losses during
period	$	(20,192,352)	$	7,067,323	$	(13,125,029)
Less: reclassification adjustment
for gains realized in net income		17,609,660		6,163,381		11,446,279
Net unrealized losses		(2,582,692)		903,942		(1,678,750)
Other comprehensive deficit	$	(2,582,692)	$	903,942	$	(1,678,750)
				Tax
		Before-Tax		(Expense)		Net of Tax
2005		Amount		or Benefit		Amount
Unrealized holding losses during
period	$	(5,315,754)	$	1,860,514	$	(3,455,240)
Less: reclassification adjustment
for losses realized in net income		2,202,978		(771,042)		1,431,936
Net unrealized losses		(3,112,775)		1,089,471		(2,023,304)
Other comprehensive deficit	$	(3,112,775)	$	1,089,471	$	(2,023,304)
				Tax
		Before-Tax		(Expense)		Net of Tax
2004		Amount		or Benefit		Amount
Unrealized holding gains during
period	$	7,896,605	$	(2,763,812)	$	5,132,793
Less: reclassification adjustment
for gains realized in net income		(31,766)		(11,118)		(20,648)
Net unrealized gains		7,864,838		(2,752,693)		5,112,145
Other comprehensive income	$	7,864,838	$	(2,752,693)	$	5,112,145

In 2006, 2005 and 2004, the Company established a deferred tax liability of $ 1,541,623, $ 2,970,111 and $ 3,555,787 respectively, for the unrealized gains based on the applicable United States statutory rate of 35%.

17.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

	2006
	1st		2nd		3rd		4th
Premiums and policy fees, net	$	3,427,772	$	3,561,728	$	3,170,033	$	2,700,892
Net investment income		2,539,174		2,803,703		2,434,510		3,223,778
Total revenues		9,829,289		6,751,103		13,843,092		7,161,735
Policy benefits including   dividends		5,097,102		6,261,394		4,280,808		4,446,083
Commissions and   amortization of DAC and COI		616,517		617,475		829,880		720,945
Operating expenses		1,724,197		1,385,837		1,848,120		1,495,494
Operating income		2,391,473		(1,513,603)		6,884,284		265,098
Net income		1,679,322		(798,126)		2,033,778		954,746
Basic earnings per share		0.43		(0.21)		0.53		0.25
Diluted earnings per   share		0.43		(0.21)		0.53		0.25
	2005
	1st		2nd		3rd		4th
Premiums and policy fees, net	$	3,512,695	$	3,521,237	$	3,389,342	$	3,303,409
Net investment income		2,433,259		2,356,705		2,587,341		3,673,921
Total revenues		6,196,733		7,419,034		5,354,586		8,500,987
Policy benefits including   dividends		5,091,826		3,777,730		4,769,952		4,236,835
Commissions and  amortization of DAC and COI		482,934		387,478		574,929		733,477
Operating expenses		1,256,884		1,622,680		1,309,983		1,325,404
Operating income (loss)		(634,924)		1,631,146		(1,301,880)		2,205,271
Net income (loss)		(546,568)		1,395,033		(1,248,416)		1,660,174
Basic earnings (loss) per share		(0.14)		0.35		(0.32)		0.43
Diluted earnings (loss) per   share		(0.14)		0.35		(0.32)		0.43
	2004
	1st		2nd		3rd		4th
Premiums and policy fees, net	$	3,874,145	$	3,671,667	$	3,389,672	$	3,204,945
Net investment income		1,831,077		2,734,854		2,865,198		2,989,757
Total revenues		5,833,347		6,607,203		6,429,302		6,597,027
Policy benefits including   dividends		5,172,042		4,923,292		4,467,013		4,203,360
Commissions and   amortization of DAC and COI		493,284		505,872		544,678		635,077
Operating expenses		1,397,448		1,432,013		1,319,472		1,163,814
Operating income		(1,255,061)		(278,683)		71,029		594,776
Net income (loss)		(874,195)		66,841		141,264		390,473
Basic earnings (loss) per share		(0.22)		0.02		0.04		0.09
Diluted earnings (loss) per   share		(0.22)		0.02		0.04		0.09

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.  CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, an evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures.  Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective in alerting them on a timely basis to material information relating to the Company required to be included in the Company’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation.

ITEM 9B.  OTHER INFORMATION

None

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF UTG

The Board of Directors

In accordance with the laws of Delaware 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, 2006, the Board met 5 times.  All directors attended at least 75% of all meetings of the board except Mr. Thomas Darden.

The Board of Directors has an Audit Committee consisting of Messrs. Perry, Albin, and Brinck. The Audit Committee performs such duties as outlined in the Company’s Audit Committee Charter.  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, 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 four timesin 2006.

The Board has reviewed the qualifications of each member of the audit committee and determined no member of the committee meets the definition of a “financial expert”.  The Board concluded however, that each member of the committee has a proven track record as a successful businessman, each operating their own company and their experience as businessmen provide a knowledge base and experience adequate for participation as a member of the committee.

The compensation of UTG's executive officers is determined by the full Board of Directors (see report on Executive Compensation).

Under UTG’s By-Laws, the Board of Directors should be comprised of at least six and no more than eleven directors.  At December 31, 2006, the Board consisted of ten directors.  Shareholders elect Directors to serve for a period of one year at UTG’s Annual Shareholders’ meeting.

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.  During 2006, UTG is not aware of any individuals who filed late.

Audit Committee Report to Shareholders

In connection with the December 31, 2006 financial statements, the audit committee: (1) reviewed and discussed the audited financial statements with management; (2) discussed with the auditors the matters required by Statement on Auditing Standards No. 61; and (3) received and discussed with the auditors the matters required by Independence Standards Board Statement No.1.  Based upon these reviews and discussions, the audit committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K filed with the SEC.

William W. Perry - Committee Chairman

John S. Albin

Joseph A. Brinck, II

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.

Directors

Name, Age                   Position with the Company, Business Experience and Other Directorships

John S. Albin, 78                      Director of UTG since 1984; farmer in Douglas and Edgar counties, Illinois, since 1951; Chairman of the Board of Longview State Bank from 1978 to 2005; President of the Longview Capitol Corporation, a bank holding company, since 1978; Chairman of First National Bank of Ogden, Illinois, from 1987 to 2005; Chairman of the State Bank of Chrisman from 1988 to 2005; Chairman of First National Bank in Georgetown from 1994 to 2005; Director of Illini Community Development Corporation since 1990; Commissioner of Illinois Student Assistance Commission from 1996 to 2002.

Randall L. Attkisson, 61           Director of UTG since 1999; Chief Operating Officer of UTG and Universal Guaranty Life Insurance Company since 2001; President, Secretary and Treasurer of First Southern Holdings, LLC since 2002; Chief Financial Officer, Treasurer, Director of First Southern Bancorp, Inc, a bank holding company, since 1986; Treasurer and Manager of First Southern Funding, LLC since 1992; Advisory Director of Kentucky Christian Foundation since 2002; Director of The River Foundation, Inc. since 1990; 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.

Joseph A. Brinck, II, 51         Director of UTG since 2003; CEO of Stelter & Brinck, LTD, a full service combustion engineering and manufacturing company from 1979 to present; President of Superior Thermal, LTD from 1990 to present.  Currently holds Professional Engineering Licenses in Ohio, Kentucky, Indiana and Illinois.

Jesse T. Correll, 50                 Chairman and CEO of UTG and Universal Guaranty Life Insurance Company since 2000; Director of UTG since 1999; Chairman, President, Director of First Southern Bancorp, Inc. since 1983; President, Director of First Southern Funding, LLC since 1992; President, Director of The River Foundation since 1990; Director of Thomas Nelson, Inc., a premier publisher of Bibles and Christian Books since 2001-2005; Director of Computer Services, Inc., provider of bank technology products and services since 2001.  Jesse Correll is the son of Ward Correll.

Ward F. Correll, 78                 Director of UTG since 2000; President, Director of Tradeway, Inc. of Somerset, KY since 1973; President, Director of Cumberland Lake Shell, Inc. of Somerset, KY since 1971; President, Director of Tradewind Shopping Center, Inc. of Somerset, KY since 1966; Director of First Southern Bancorp since 1988; Director of First Southern Funding, LLC since 1991; Director of The River Foundation since 1990; and Director First Southern Insurance Agency since 1987.  Ward Correll is the father of Jesse Correll.

Thomas F. Darden, 52             Mr. Darden is the Chief Executive Officer of Cherokee Investment Partners, a private equity fund with over $1 billion of capital for investing in brownfields. Cherokee has offices in North Carolina, Colorado, New Jersey, London, Toronto and Montreal. Beginning in 1984, he served for 16 years as the Chairman of Cherokee Sanford Group, a privately-held brick manufacturing company in the United States and previously the Southeast's largest soil remediation company. From 1981 to 1983, Mr. Darden was a consultant with Bain & Company in Boston. From 1977 to 1978, he worked as an environmental planner for the Korea Institute of Science and Technology in Seoul, where he was a Henry Luce Foundation Scholar. Mr. Darden is on the Boards of Shaw University and the University of North Carolina's Environmental Department and Duke University’s Nicholas School of the Environment.  He is on the Board of Directors of the National Brownfield Association and on the Board of Trustees of North Carolina Environmental Defense. Mr. Darden is a director of Winston Hotels, Inc. (NYSE) and serves on the board of governors of Research Triangle Institute in Research Triangle Park, N.C.  He was Chairman of the Research Triangle Transit Authority and served two terms on the N.C. Board of Transportation through appointments by the Governor and the Speaker of the House.  Mr. Darden earned a Masters in Regional Planning from the University of North Carolina at Chapel Hill, a Doctor of Jurisprudence from Yale Law School and a Bachelor of Arts from the University of North Carolina at Chapel Hill, where he was a Morehead Scholar. His 1976 undergraduate thesis analyzed the environmental impact of third world development, and his 1981 Yale thesis addressed interstate acid rain air pollution. Mr. Darden and his wife Jody have three children, ages 19 to 28.

Howard L. Dayton, Jr., 63   Chief Executive Officer of Crown Financial Ministries since 1985, at which time he founded Crown Ministries in Longwood ,FL.  Crown Ministries merged with Christian Financial Concepts in September 2000 to form Crown Financial Ministries, the world’s largest financial ministry.  In 1972 he began his commercial real estate development career, specializing in office development in the Central Florida area.  Mr. Dayton developed The Caboose, a successful railroad-themed restaurant in Orlando, FL in 1969.  He also is the author of Your Money Counts, Free and Clear, and Crown’s Small Group Studies.

Peter L. Ochs, 55                     Mr. Ochs is founder of Capital III, a private investment banking firm located in Wichita, Kansas.  The firm has acted as an intermediary in over 120 transactions since its founding in 1982.  In addition the firm provides valuation services to private companies for such purposes as ESOP’s, estate planning, M & A, buy/sells, and internal planning strategies.  The firm also provides both tactical and strategic planning for privately held companies.  In recent years the firm has focused primarily on providing services to companies in which Mr. Ochs holds an equity interest.  Since 1987, Mr. Ochs has been an active investor and officer of several privately held companies.  In most cases his ownership position has represented a controlling interest in the enterprise.  Companies in which he has held or still holds an investment include a community bank, a medical equipment company, a manufacturer of electrical assemblies, a sports training equipment company, a manufacturer of corporate identification products, a cable TV programming company, and a retail lifestyle clothing store.  Mr. Ochs is also one of the founding members of Trinity Academy; a Christ centered college preparatory high school in Wichita.  Prior to founding Capital III, Mr. Ochs spent 8 years in the commercial banking business.  He graduated from the University of Kansas in 1974 with a degree in business & finance.

William W. Perry, 50                Director of UTG since 2001;  Owner of SES Investments, Ltd., an oil and gas investments company since 1991; President of EGL Resources, Inc., an oil and gas operations company based in Texas and New Mexico since 1992; President of a real estate investment company; Director of Young Life Foundation and involved with Young Life in various capacities; Director of Abel-Hangar Foundation, Director of River Foundation; Director of Millagros Foundation; Director of University of Oklahoma Associates; Director Midland, Texas City Council member since 2002.

James P. Rousey, 48                President since September 2006, Director of UTG and Universal Guaranty Life Insurance Company since September 2001; Regional CEO and Director of First Southern National Bank from 1988 to 2001. Board Member with the Illinois Fellowship of Christian Athletes from 2001-2005.

Executive Officers Of UTG

More detailed information on the following executive officers of UTG appears under "Directors":

Jesse T. Correll              Chairman of the Board and Chief Executive Officer

Randall L. Attkisson       Chief Operating Officer

James P. Rousey          President

Other executive officers of UTG are set forth below:

Name, Age                   Position with UTG and Business Experience

Theodore C. Miller, 44          Corporate Secretary since December 2000, Senior Vice President and Chief Financial Officer since July 1997; Vice Presidentsince October 1992 and Treasurer from October 1992 to December 2003; Vice President and Controller of certain affiliated companies from 1984 to 1992.  Vice President and Treasurer of certain affiliated companies from 1992 to 1997; Senior Vice President and Chief Financial Officer of subsidiary companies since 1997; Corporate Secretary of subsidiary companies since 2000.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics for our directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions) and employees. Our Code of Business Conduct and Ethics is available to our stockholders by requesting a free copy of the Code of Business Conduct and Ethics by writing to us at UTG, Inc, 5250 South Sixth Street, Springfield, Illinois 62703.

ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation Table

The following table sets forth certain information regarding compensation paid to or earned by UTG's Chief Executive Officer and President, and each of the executive officers of UTG whose salary plus bonus exceeded $100,000 during UTG's last fiscal year:

Summary Compensation Table
Name and Principal position	Year	Salary	Bonus	Stock Awards	Option Awards	Non-Equity Incentive Plan Comp	Nonqualified Deferred Comp Earnings	All Other Comp (1)	Total
Jesse T. Correll Chief Executive Officer	2006	75,000	0	0	0	0	0	4,743 (1)	79,743
Randall L. Attkisson Chief Operating Officer	2006	75,000	0	0	0	0	0	4,743 (2)	79,743
James P. Rousey President	2006	137,917	0	0	0	0	0	6,989 (3)	144,906
Theodore C. Miller Secretary/Senior Vice President	2006	102,917	15,000	0	0	0	0	3,808 (4)	121,725
Douglas A. Dockter    (6) Vice President	2006	100,000	5,500	0	0	0	0	3,345 (5)	108,845

(1)     All Other Compensation consists of matching contributions to an Employee Savings Trust 401(k) Plan.

(2)     All Other Compensation consists of matching contributions to an Employee Savings Trust 401(k) Plan.

(3)     All Other Compensation consists of matching contributions to an Employee Savings Trust 401(k) Plan of $2,069, group life insurance premiums of $720 and country club membership fees of $ 4,200.

(4)     All Other Compensation consists of matching contributions to an Employee Savings Trust 401(k) Plan of $3,088 and group life insurance premiums of $720.

(5)     All Other Compensation consists of matching contributions to an Employee Savings Trust 401(k) Plan of $2,625 and group life insurance premiums of $720.

(6)     Mr. Douglas A. Dockter is not considered an executive officer of UTG, but is included in this table pursuant to compensation disclosure requirements.

Option/SAR Grants/Aggregated Option/SAR Exercises in Last Fiscal Year and FY‑End Option/SAR Values

At December 31, 2006 there were no shares of the common stock of UTG subject to unexercised options held by the named executive officers.  There were no options or stock appreciation rights granted to the named executive officers for the past three fiscal years.

Compensation of Directors

UTG's standard arrangement for the compensation of directors provides 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 its affiliates do not receive any compensation for their services as directors except for reimbursement for reasonable travel expenses for attending each meeting.

Director Compensation
Name	Fees Earned or Paid in Cash	Stock Awards	Option Awards	Non-Equity Incentive Plan Compensation	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation	Total
Jesse Thomas Correll Chief Executive Officer	0	0	0	0	0	0	0
Randall Lanier Attkisson Chief Operating Officer	0	0	0	0	0	0	0
James Patrick Rousey President	0	0	0	0	0	0	0
John Sanford Albin Director	3,900	0	0	0	0	0	3,900
Joseph Anthony Brinck, II Director	3,600	0	0	0	0	0	3,600
Ward Forrest Correll Director	3,600	0	0	0	0	0	3,600
William Wesley Perry Director (1)	3,600	0	0	0	0	0	3,600
Thomas Francis Darden, II Director (1)	3,300	0	0	0	0	0	3,300
Peter Loyd Ochs Director	2,700	0	0	0	0	0	2,700
Howard Lape Dayton Director	3,000	0	0	0	0	0	3,000

(1)  Messrs. Darden and Perry have their fees donated to various charitable organizations.

Report on Executive Compensation

Introduction

The Board of Directors does not have a formal compensation committee.  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. 

The Company’s philosophy regarding compensation of executive officers is generally one of executive officers qualify for the same benefits and opportunities as provided to all of the employees of the Company.  Special or unique perquisites to executive officers not provided to all employees amount to less than $10,000 to any one individual.  The Company maintains a membership to a local country club that can only be utilized by the President.  During 2006, the Company paid $4,200 to maintain this membership.

The Company maintains employee benefits such as paid time off, health insurance, dental insurance, group life insurance and long term disability insurance.  These benefits are generally competitive to other entities located in the Midwest where the Company must compete for employees.  Executive officers are entitled to these benefits on the same basis and terms as other employees of the Company.

Executive Compensation Elements

Base Salary. The Board of Directors establishes base salaries 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.  In addition to a base salary, increased compensation of current and future executive officers of the Company will be determined using a “performance based” philosophy.  UTG’s financial results are analyzed and future increases to compensation will be proportionately based on the profitability of the Company.

Incentive Awards.  The Board of Directors from time to time may approve incentive awards for the executive officers.  These incentive awards are generally in the form of a one time cash bonus payment.  Incentive awards are determined based on the overall operations of the Company as well as individual performance considerations.  The Company does not utilize a specific set formula in the determination of incentive awards.

Employee and Director Stock Purchase Plan.  The Company has an employee and director stock purchase plan whereby the Board of Directors periodically approves offerings of stock to qualified individuals under the Plan.  Each participant under the plan executes a “stock restriction and buy-sell agreement”, which among other things provides the Company with a right of first refusal on any future sales of the shares acquired by the participant under the plan.  The plan is intended to provide the individual with a more vested interest in the performance of the Company over the long term.  

Stock Options.  Stock options are granted at the discretion of the Board of Directors. There were no options granted to the named executive officers during the last three fiscal years.

Employment Contracts.  There are no employment agreements or understandings in effect with any executive officers of the Company. 

Deferred Compensation.  The Company has no deferred compensation arrangements with any of its executive officers.

Chief Executive Officer

On March 27, 2000, Jesse T. Correll assumed the position of Chairman of the Board and Chief Executive Officer of UTG and each of its affiliates.  Under Mr. Correll’s leadership, he declined to receive a salary, bonus or other forms of compensation for his duties with UTG and its affiliates in the year 2000.  In March 2001, the Board of Directors approved an annual salary for Mr. Correll of $75,000, payment of which began on April 1, 2001. As a reflection of Mr. Correll’s leadership, the compensation of current and future executive officers of the Company will be determined by the Board of Directors using a “performance based” philosophy. The Board of Directors will consider UTG’s financial results and future compensation decisions will be proportionately based on the profitability of the Company.

Conclusion

The Board of Directors believes this executive compensation plan provides a competitive and motivational compensation package to the executive officer team necessary to produce the results UTG strives to achieve.  The Board of Directors also believes theexecutive compensation plan addresses both the interests of the shareholders and the executive team.

BOARD OF DIRECTORS

                                        John S. Albin                                         Thomas F. Darden

                                        Randall L. Attkisson                               Howard L. Dayton

                                        Joseph A. Brinck, II                                Peter L. Ochs

                                        Jesse T. Correll                                      William W. Perry

                                        Ward F. Correll                                      James P. Rousey

Compensation Committee Interlocks and Insider Participation

UTG does not have a compensation committee and decisions regarding executive officer compensation are made by the full Board of Directors of UTG.  The following persons served as directors of UTG during 2006 and were officers or employees of UTG or its affiliates during 2006: Jesse T. Correll, Randall L. Attkisson and James P. Rousey.  Accordingly, these individuals have participated in decisions related to compensation of executive officers of UTG and its subsidiaries.

During 2006, Jesse T. Correll and Randall L. Attkisson, executive officers of UTG and UG, were also members of the Board of Directors of UG.

Jesse T. Correll and Randall L. Attkisson are each directors and executive officers of FSBI and participate in compensation decisions of FSBI.  FSBI owns or controls directly and indirectly approximately 45.2% of the outstanding common stock of UTG.

Performance Graph

The following graph compares the cumulative total shareholder return on UTG’s Common Stock during the five fiscal years ended December 31, 2006 with the cumulative total return on the NASDAQ Composite Index Performance and the NASDAQ Insurance Index (1).  The graph assumes that $ 100 was invested on December 31, 2000 in each of the Company’s common stock, the NASDAQ Composite Index, and the NASDAQ Insurance Stock Index, and that any dividends were reinvested.

(1)  The Company selected the NASDAQ Composite Index Performance as an appropriate comparison.  UTG was listed on the NASDAQ Small Cap exchange until December 31, 2001.  Furthermore, the Company 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 the Company’s Common Stock is limited, which may be due in part as a result of the Company’s low profile.  The Return Chart is not intended to forecast or be indicative of possible future performance of the Company’s Common Stock.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 March 1, 2007 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                                                                          Amount                                   Percent

    of                  Name and Address                           and Nature of                                    of

  Class              of Beneficial Owner (2)                 Beneficial Ownership                         Class (1)

Common           Jesse T. Correll                                       185,454           (3)                     4.8%

Stock, no          First Southern Bancorp, Inc.                 1,739,072        (3)(4)                  45.0%

par value           First Southern Funding, LLC                    335,453        (3)(4)                   8.6%

                        First Southern Holdings, LLC                1,483,791        (3)(4)                  38.4%

                        First Southern Capital Corp., LLC            237,333        (3)(4)                   6.1%

                        First Southern Investments, LLC                24,086                                     0.6%

                        Ward F. Correll                                       105,523           (5)                     2.7%

                        WCorrell, Limited Partnership                    72,750           (3)                     1.8%

                        Cumberland Lake Shell, Inc.                      98,523           (5)                     2.5%

                        Total (6)                                               2,626,918                                    68.0%

(1)                 The percentage of outstanding shares is based on 3,862,743 shares of Common Stock outstanding as of March 1, 2007.

(2)                 The address for each of Jesse Correll, First Southern Bancorp, Inc. (“FSBI”), First Southern Funding, LLC (“FSF”), First Southern Holdings, LLC (“FSH”), First Southern Capital Corp., LLC (“FSC”), First Southern Investments, LLC (“FSI”), and WCorrell, Limited Partnership (“WCorrell LP”), is P.O. Box 328, 99 Lancaster Street, Stanford, Kentucky 40484.  The address for each of Ward Correll and Cumberland Lake Shell, Inc. (“CLS”) is P.O. Box 430, 150 Railroad Drive, Somerset, Kentucky 42502.

(3)                 The share ownership of Jesse Correll listed includes 112,704 shares of Common Stock owned by him individually.  The share ownership of Mr. Correll also includes 72,750 shares of Common Stock held by WCorrell, Limited Partnership, a limited partnership in which Jesse Correll serves as managing general partner and, as such, has sole voting and dispositive power over the shares held by it.

        In addition, by virtue of his ownership of voting securities of FSF and FSBI, and in turn, their ownership of 100% of the outstanding membership interests of FSH, Jesse Correll may be deemed to beneficially own the total number of shares of Common Stock owned by FSH (as well as the shares owned by FSBI directly), and may be deemed to share with FSH (as well as FSBI) the right to vote and to dispose of such shares.  Mr. Correll owns approximately 82% of the outstanding membership interests of FSF; he owns directly approximately 51%, companies he controls own approximately 12%, and he has the power to vote but does not own an additional 3% of the outstanding voting stock of FSBI.  FSBI and FSF in turn own 99% and 1%, respectively, of the outstanding membership interests of FSH.  Mr. Correll is also a manager of FSC and thereby may also be deemed to beneficially own the total number of shares of Common Stock owned by FSC, and may be deemed to share with it the right to vote and to dispose of such shares.  The aggregate number of shares of Common Stock held by these other entities, as shown in the above table, is 1,976,405 shares.

(4)                 The share ownership of FSBI consists of 255,281 shares of Common Stock held by FSBI directly (which FSBI acquired by virtue of its merger with Dyscim, LLC) and 1,483,791 shares of Common Stock held by FSH of which FSBI is a 99% member and FSF is a 1% member, as further described below.  As a result, FSBI may be deemed to share the voting and dispositive power over the shares held by FSH.

(5)                 Includes 98,523 shares of Common Stock held by CLS, all of the outstanding voting shares of which are owned by Ward F. Correll and his wife. As a result, Ward F. Correll may be deemed to share the voting and dispositive power over these shares.

(6)                 According to the most recent Schedule 13D, as amended, filed jointly by each of the entities and persons listed above, Jesse Correll, FSBI, FSF, FSH, FSC, and FSI, have agreed in principle to act together for the purpose of acquiring or holding equity securities of UTG.  In addition, the Schedule 13D indicates that because of their relationships with Jesse Correll and these other entities, Ward Correll, CLS, and WCorrell, Limited Partnership may also be deemed to be members of this group.  Because the Schedule 13D indicates that for its purposes, each of these entities and persons may be deemed to have acquired beneficial ownership of the equity securities of UTG beneficially owned by the other entities and persons, each has been identified and listed in the above tabulation.

Security Ownership of Management of UTG

The following tabulation shows with respect to each of the directors of UTG, with respect to UTG’s chief executive officer and President, and each of UTG’s executive officers whose salary plus bonus exceeded $100,000 for fiscal 2006, 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 March 1, 2007 and the nature of such ownership; and (ii) the percent of the issued and outstanding shares of stock so owned, and granted stock options available as of the same date.

   Title                   Directors, Named Executive                      Amount                               Percent

     of                      Officers, & All Directors &                    and Nature of                               of

Class                  Executive Officers as a Group                   Ownership                            Class (1)

UTG’s                     John S. Albin                                           10,503   (4)                           *

Common                 Randall L. Attkisson                                          0   (2)                           *

Stock, no                Joseph A. Brinck, II                                   7,500   (6)                           *

par value                 Jesse T. Correll                                   2,497,312   (3)                        64.6%

                              Ward F. Correll                                      105,520   (5)(6)                      2.7%

                              Thomas F. Darden                                    37,095   (6)                           *

                              Howard L. Dayton, Jr.                                2,973   (6)                           *

                              Theodore C. Miller                                   10,500   (6)                           *

                              Peter L. Ochs                                                    0                                  *

                              William W. Perry                                      30,000   (6)                           *

                              James P. Rousey                                                0                                  *

                              All directors and executive officers

                              as a group (eleven in number)               2,701,403                                69.9%

(1)     The percentage of outstanding shares for UTG is based on 3,862,743 shares of Common Stock outstanding as of March 1, 2007.

(2)  Randall L. Attkisson is an associate and business partner of Mr. Jesse T. Correll and holds minority ownership positions in certain of the companies listed as owning UTG Common Stock including First Southern Bancorp, Inc.  Ownership of these shares is reflected in the ownership of Jesse T. Correll.

(3)  The share ownership of Mr. Correll includes 112,704 shares of UTG, Inc common stock owned by him individually, 255,281 shares of UTG, Inc common stock held by First Southern Bancorp, Inc. and 335,453 shares of UTG, Inc common stock owned by First Southern Funding, LLC.  The share ownership of Mr. Correll also includes 72,750 shares of UTG, Inc common stock held by WCorrell, Limited Partnership, a limited partnership in which Mr. Correll serves as managing general partner and, as such, has sole voting and dispositive power over the shares held by it.   In addition, by virtue of his ownership of voting securities of First Southern Funding, LLC and First Southern Bancorp, Inc., and in turn, their ownership of 100% of the outstanding membership interests of First Southern Holdings, LLC (the holder of 1,483,791 shares of UTG, Inc common stock), Mr. Correll may be deemed to beneficially own the total number of shares of UTG, Inc common stock owned by First Southern Holdings, and may be deemed to share with First Southern Holdings the right to vote and to dispose of such shares. Mr. Correll owns approximately 82% of the outstanding membership interests of First Southern Funding; he owns directly approximately 51%, companies he controls own approximately 12%, and he has the power to vote but does not own an additional 3% of the outstanding voting stock of First Southern Bancorp.  First Southern Bancorp and First Southern Funding in turn own 99% and 1%, respectively, of the outstanding membership interests of First Southern Holdings.  Mr. Correll is also a manager of First Southern Capital Corp., LLC, and thereby may also be deemed to beneficially own the 237,333 shares of UTG, Inc common stock held by First Southern Capital, and may be deemed to share with it the right to vote and to dispose of such shares.  Share ownership of Mr. Correll in UTG, Inc common stock does not include 24,086 shares of UTG, Inc common stock held by First Southern Investments, LLC. 

(4)  Includes 392 shares owned directly by Mr. Albin’s spouse.

(5)  Mr. Correll directly owns 6,997 through the UTG Employee and Director Stock Purchase Plan.  Cumberland Lake Shell, Inc. owns 98,523 shares of UTG Common Stock, all of the outstanding voting shares of which are owned by Ward F. Correll and his wife.  As a result Ward F. Correll may be deemed to share the voting and dispositive power over these shares.  Ward F. Correll is the father of Jesse T. Correll.  There are 72,750 shares of UTG Common Stock owned by WCorrell Limited Partnership in which Jesse T. Correll serves as managing general partner and, as such, has sole voting and dispositive power over the shares of Common Stock held by it. The aforementioned 72,750 shares are deemed to be beneficially owned by and listed under Jesse T. Correll in this section. 

(6)     Shares subject to UTG Employee and Director Stock Purchase Plan.

Joseph A. Brinck, II                 7,500

     Ward F. Correll                       6,997

     Thomas F. Darden                 37,095

     Howard L. Dayton, Jr.             2,500

     Theodore C. Miller                10,500

     William W. Perry                   30,000

* Less than 1%.

Except as indicated above, the foregoing persons hold sole voting and investment power.

The following table reflects the Company’s Employee and Director Stock Purchase Plan Information:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under employee and director stock purchase plans (excluding securities reflected in column (a)) (c)
Employee and director stock purchase plans approved by security holders	0	0	298,506
Employee and director stock purchase plans not approved by security holders	0	0	0
Total	0	0	298,506

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved the UTG, Inc, Inc. Employee and Director Stock Purchase Plan.  The Plan allows for the issuance of up to 400,000 shares of UTG common stock.  The plan’s purpose is to encourage ownership of UTG stock by eligible directors and employees of UTG and its subsidiary by providing them with an opportunity to invest in shares of UTG common stock.  The plan is administered by the Board of Directors of UTG.

A total of 400,000 shares of common stock may be purchased under the plan, subject to appropriate adjustment for stock dividends, stock splits or similar recapitalizations resulting in a change in shares of UTG.  The plan is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.  The Board of Directors of UTG periodically approves offerings under the plan to qualified individuals.  Through March 1, 2007, 19 individuals have purchased a total of 101,494 shares under this program.  Each participant under the plan executed a “stock restriction and buy-sell agreement”, which among other things provides UTG with a right of first refusal on any future sales of the shares acquired by the participant under this plan.

The purchase price of shares repurchased under the stock restriction and buy-sell agreement shall be computed, on a per share basis, equal to the sum of (i) the original purchase price(s) paid to acquire such shares from the Holding Company at the time they were sold pursuant to the Plan and (ii) the consolidated statutory net earnings (loss) per share of such shares during the period from the end of the month next preceding the month in which such shares were acquired pursuant to the plan, to the end of the month next preceding the month in which the closing sale of such shares to UTG occurs.  The consolidated statutory net earnings per Share shall be computed as the net income of the Holding Company and its subsidiaries on a consolidated basis in accordance with statutory accounting principles applicable to insurance companies, as computed by the Holding Company, except that earnings of insurance companies or block of business acquired after the original plan date, November 1, 2002, shall be adjusted to reflect the amortization of intangibles established at the time of acquisition in accordance with generally accepted accounting principles (GAAP), less any dividends paid to shareholders. The calculation of net earnings per Share shall be performed on a monthly basis using the number of common shares of the Holding Company outstanding as of the end of the reporting period. The purchase price for any Shares purchased hereunder shall be paid in cash within 60 days from the date of purchase subject to the receipt of any required regulatory approvals as provided in the Agreement.

The original issue price of shares at the time this program began was established at $12.00 per share.  Through March 1, 2007, UTG had 101,494 shares outstanding that were issued under this program.  At December 31, 2006, shares under this program have a value of $14.29 per share pursuant to the above formula.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

On July 1, 2005, United Trust Group, Inc., an Illinois corporation, merged with and into its wholly-owned subsidiary, UTG, Inc. (UTG), a Delaware corporation, for the purpose of effecting a change in the Company’s state of incorporation from Illinois to Delaware.  The merger was effected pursuant to that certain Agreement and Plan of Merger dated as of April 4, 2005, which was approved by the boards of directors of both UTG and United Trust Group, Inc.  The merger was approved by the holders of two-thirds of the outstanding shares of common stock of United Trust Group, Inc. at the 2005 annual meeting of shareholders on June 15, 2005, and by the sole stockholder of UTG, Inc. on June 15, 2005.

On September 1, 2004, UTG contributed the common stock of its wholly-owned subsidiary, North Plaza, to its life insurance subsidiary, UG.  The contribution, which received prior approval by the regulatory authorities, increased the capital of UG by $ 7,857,794.

On February 20, 2003, UG purchased $ 4,000,000 of a trust preferred security offering issued by FSBI.  The security has a mandatory redemption after 30 years with a call provision after 5 years.  The security pays a quarterly dividend at a fixed rate of 6.515%.  The Company received $ 264,219, $ 264,219 and $ 264,842 of dividends in 2006, 2005 and 2004, respectively.

As part of the acquisition of Acap on December 8, 2006, UTG loaned $ 3,357,000 to Acap.  Acap used the proceeds for the repayment of existing debt with an unaffiliated financial institution and to retire all of its outstanding preferred stock.  The terms of the inter-company loan mirror the interest rate and repayment requirements of the debt with First Tennessee Bank National Association.

During June 2003, UG entered into a lease agreement with Bandyco, LLC, an affiliated entity, for a one-sixth interest in an aircraft.  Bandyco, LLC is affiliated with Ward F. Correll, who is a director of the Company.  The lease term is for a period of five years at a total cost of $ 523,831 per year.  The Company is responsible for its share of annual non-operational costs, in addition to the operational costs as are billable for specific use.  In addition, UG has a 27.5% interest in a second plane with Bandyco, LLC.  The Company is responsible for its share of annual non-operational costs, in addition to the operational costs as are billable for specific use.

On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved, the UTG, Inc. Employee and Director Stock Purchase Plan (See Note 10.A. to the consolidated financial statements).

On January 1, 1993, UTG entered an agreement with UG pursuant to which UTG provided management services necessary for UG to carry on its business.  UG paid $ 5,875,133, $ 5,054,918 and $ 5,625,451 to UTG in 2006, 2005 and 2004, respectively, under this arrangement.

During December 2006, UTG entered into administrative services and cost sharing agreements with its new subsidiaries, AC and TI.  These agreements will be effective for the year beginning January 1, 2007.

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 accounting principles generally accepted in the United States of America.

UG from time to time acquires mortgage loans through participation agreements with FSNB.  FSNB services UG's mortgage loans including those covered by the participation agreements.  UG pays a .25% servicing fee on these loans and a one time fee at loan        origination of .50% of the original loan amount to cover costs incurred by FSNB relating to the processing and establishment of the loan.  UG paid $ 93,288, $ 76,970 and $ 45,468 in servicing fees and $ 23,214, $ 112,109 and $ 0 in origination fees to FSNB during 2006, 2005 and 2004, respectively.

The Company reimbursed expenses incurred by Mr. Jesse T. Correll and Mr. Randall L. Attkisson relating to travel and other costs incurred on behalf of or relating to the Company.  The Company paid $ 85,576, $ 68,318 and $ 50,098 in 2006, 2005 and 2004, respectively to First Southern Bancorp, Inc. in reimbursement of such costs.  In addition, beginning in 2001, the Company began reimbursing FSBI a portion of salaries and pension costs for Mr. Correll and Mr. Attkisson.  The reimbursement was approved by the UTG Board of Directors and totaled $ 173,863, $ 160,272 and $ 160,440 in 2006, 2005 and 2004, respectively, which included salaries and other benefits.

On October 1, 2005, a partnership investment of HVP was extended a $ 5,000,000 promissory note from First Southern National Bank.  The note is due three-years from the date of issue.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 5,000,000 outstanding borrowings attributable to this note.

On October 1, 2005, a partnership investment of HVP was extended a $ 2,000,000 promissory note from First Southern National Bank.  The note is due three-years from the date of issue.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 2,000,000 outstanding borrowings attributable to this note.

On February 21, 2006, a partnership investment of HVP was extended a $ 1,000,000 promissory note from First Southern National Bank.  The note is due October 31, 2008.  Borrowings under the note bear interest at the rate of one percent in excess of the prime rate as published in the Wall Street Journal.  At December 31, 2006, the Company had $ 1,000,000 outstanding borrowings attributable to this note.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Brown Smith Wallace LLC (“BSW”) served as UTG’s independent certified public accounting firm for the fiscal years ended December 31, 2006 and 2005.  In serving their primary function as outside auditor for UTG, BSW 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.

Audit Fees.  Audit fees billed for these audit services in the fiscal year ended December 31, 2006 and 2005 totaled $ 88,000 and $ 97,493, respectively and audit fees billed for quarterly reviews of the Company’s financial statements totaled $ 19,279 and $ 18,633 for the year 2006 and 2005, respectively.

Audit Related Fees.  No audit related fees were incurred by the Company from BSW for the fiscal years ended December 31, 2006 and 2005.

Tax Fees.  BSW did not render any services related to tax compliance, tax advice or tax planning for the fiscal years ended December 31, 2006 and 2005.

All Other Fees.  During 2006, the Company paid $8,275 to BSW for services relating to due diligence work on the Acap acquisition.  Additionally, the Company paid $43,678 to BSW for services relating to the SAS 70 audit of the Company.  The audit committee approved the above work and fees of BSW.  During 2005, no other services besides the audit services described above were performed by, and therefore no other fees were billed by, BSW.

The audit committee of the Company appoints the independent certified public accounting firm, with the appointment approved by the entire Board of Directors.  Non-audit related services to be performed by the firm are to be approved by the audit committee prior to engagement.  The Company had no non-audit related services performed by BSW for the fiscal year ended December 31, 2005.

            PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  The following documents are filed as a part of the report:

      (1)        Financial Statements:

                  See Item 8, Index to Financial Statements

      (2)        Financial Statement Schedules

                  Schedule I - Summary of Investments - other than invested in related parties.

                  Schedule II - Condensed financial information of registrant

                  Schedule IV - Reinsurance

                  Schedule V - Valuation and qualifying accounts

                  NOTE:  Schedules other than those listed above are omitted because they are not required or the information is disclosed in the financial statements or footnotes.

      (B)  Exhibits:

                  Index to Exhibits incorporated herein by this reference (See pages 82-83).

INDEX TO EXHIBITS

Exhibit

Number

2.1        (3)       Agreement and Plan of Merger of United Trust Group, Inc., An Illinois Corporation with and into UTG, Inc., A Delaware Corporation dated as of July 1, 2005, including exhibits thereto.

2.2                    Stock Purchase Agreement, dated August 7, 2006, between UTG, Inc. and William F. Guest and John D. Cornett

2.3                    Amendment No. 1, dated September 6, 2006, to the Stock Purchase Agreement, dated August 7, 2007, between UTG, Inc. and William F. Guest and John D. Cornett

2.4                   Amendment No. 2, dated November 22, 2006, to the Stock Purchase Agreement, dated August 7, 2006, as amended, between UTG, Inc. and William F. Guest and John D. Cornett.

3.1        (3)       Certificate of Incorporation of the Registrant and all amendments thereto.

3.2        (3)       By-Laws for the Registrant and all amendments thereto.

4.1        (2)       UTG’s Agreement pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K with respect to long-term debt instruments.

10.1      (1)      Management and Consultant Agreement dated as of January 1, 1993 between First Commonwealth Corporation and Universal  Guaranty  Life Insurance Company.

10.2      (3)       Line of credit agreement dated June 1, 2005, between Universal Guaranty Life Insurance Company and First National Bank of Tennessee.

10.3                 Amended and Restated UTG, Inc. Employee and Director Stock Purchase Plan and form of related Stock Restriction and Buy-Sell  Agreement.

10.4                  Promissory note dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.

10.5                  Revolving credit note dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.

10.6                  Loan Agreement dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.

10.7                  Commercial pledge agreement dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.

10.8                  Negative pledge agreement dated December 8, 2006, between UTG, Inc. and First Tennessee Bank National Association.

10.9                  Coinsurance Agreement between American Capitol Insurance Company and Reserve National Insurance Company.

10.10                Coinsurance Agreement between Texas Imperial Life Insurance Company and Reserve National Insurance Company.

10.11                Administrative Services Agreement between American Capitol Insurance Company and Reserve National Insurance Company.

10.12                Administrative Services Agreement between Texas Imperial Life Insurance Company and Reserve National Insurance Company.

10.13                Administrative Services and Cost Sharing Agreement - American Capital

10.14                Administrative Services and Cost Sharing Agreement - Texas Imperial

14.1      (3)       Code of Ethics and Business Conduct

14.2      (3)       Code of Ethical Conduct for Senior Financial Officers

21.1                  List of Subsidiaries of the Registrant.

31.1                  Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31.2                  Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32.1                 Certificate of Jesse T. Correll, Chief Executive Officer and Chairman of the Board of UTG, as required pursuant to 18 U.S.C. Section 1350.

32.2                 Certificate of Theodore C. Miller, Chief Financial Officer, Senior Vice President and Corporate Secretary of UTG, as required pursuant to 18 U.S.C. Section 1350.

99.1      (3)        Audit Committee Charter.

99.2      (3)       Whistleblower Policy

Footnote:

      (1)    Incorporated by reference from the Company's Annual Report on Form 10-K, File No. 0-5392, as of December 31, 1993.

      (2)    Incorporated by reference from the Company's Annual Report on Form 10-K, File No. 0-5392, as of December 31, 2002.

      (3)    Incorporated by reference from the Company’s Annual Report on Form 10-K, File No. 0-16867, as of December 31, 2005.

UTG, INC.
SUMMARY OF INVESTMENTS - OTHER THAN
INVESTMENTS IN RELATED PARTIES
As of December 31, 2006
						Schedule I
Column A		Column B		Column C		Column D
						Amount at
						Which Shown
						in Balance
		Cost		Value		Sheet
Fixed maturities:
Bonds:
United States Government and
government agencies and authorities	$	5,484,304	$	5,411,405	$	5,484,304
State, municipalities, and political
subdivisions		688,679		728,018		688,679
Collateralized mortgage obligations		101,930		104,950		101,930
Public utilities		0		0		0
All other corporate bonds		0		0		0
Total fixed maturities		6,274,913	$	6,244,373		6,274,913
Investments held for sale:
Fixed maturities:
United States Government and
government agencies and authorities		39,551,437	$	39,455,915		39,455,915
State, municipalities, and political
subdivisions		3,460,863		3,480,759		3,480,759
Collateralized mortgage obligations		120,390,106		118,641,594		118,641,594
Public utilities		6,097,151		6,097,151		6,097,151
All other corporate bonds		65,555,098		65,553,710		65,553,710
		235,054,655	$	233,229,129		233,229,129
Equity securities:
Banks, trusts and insurance companies		3,539,155	$	3,606,421		3,606,421
All other corporate securities		6,491,993		12,699,170		12,699,170
		10,031,148	$	16,305,591		16,305,591
Mortgage loans on real estate		32,015,446				32,015,446
Investment real estate		43,975,642				43,975,642
Real estate acquired in satisfaction of debt		0				0
Policy loans		15,931,525				15,931,525
Other long-term investments		0				0
Short-term investments		47,879				47,879
Total investments	$	343,331,208			$	347,780,125

UTG, Inc.

CONDENSED FINANCIAL INFORMATION OF REGISTRANT                                                                                                   Schedule II

NOTES TO CONDENSED FINANCIAL INFORMATION

(a)  The condensed financial information should be read in conjunction with the consolidated financial statements and notes of UTG, Inc. and Consolidated Subsidiaries.

UTG, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT ONLY BALANCE SHEETS
As of December 31, 2006 and 2005
				Schedule II
		2006		2005
ASSETS
Investment in affiliates	$	59,421,533	$	45,890,740
Cash and cash equivalents		113,258		481,623
FIT recoverable		0		48,747
Accrued interest income		15,125		25,786
Note receivable from affiliate		3,357,000		0
Receivable from affiliates, net		149,395		136,767
Other assets		290,680		261,914
Total assets	$	63,346,991	$	46,845,577
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable	$	15,000,278	$	0
Deferred income taxes		2,051,768		2,037,048
Other liabilities		1,268,553		1,491,077
Total liabilities		18,320,599		3,528,125
Shareholders' equity:
Common stock, net of treasury shares		3,843		3,902
Additional paid-in capital, net of treasury		41,813,690		42,295,661
Retained earnings (accumulated deficit)		232,371		(3,637,349)
Accumulated other comprehensive
income of affiliates		2,976,488		4,655,238
Total shareholders' equity		45,026,392		43,317,452
Total liabilities and shareholders' equity	$	63,346,991	$	46,845,577

PARENT ONLY STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2006
						Schedule II
		2006		2005		2004
Revenues:
Management fees from affiliates	$	5,935,133	$	5,115,533	$	5,685,468
Interest income		34,927		15,978		4,933
Other income		366,237		102,973		105,375
		6,336,297		5,234,484		5,795,776
Expenses:
Interest expense		70,463		0		77,453
Operating expenses		5,831,327		5,154,195		5,085,180
		5,901,790		5,154,195		5,162,633
Operating income		434,507		80,289		633,143
Income tax benefit (expense)		(181,070)		24,254		(105,098)
Equity in income (loss) of subsidiaries		3,616,283		1,155,680		(803,662)
Net income (loss)	$	3,869,720	$	1,260,223	$	(275,617)
Basic income (loss) per share from continuing
operations and net income (loss)	$	1.00	$	0.32	$	(0.07)
Diluted income (loss) per share from continuing
operations and net income (loss)	$	1.00	$	0.32	$	(0.07)
Basic weighted average shares outstanding		3,872,425		3,938,781		3,986,731
Diluted weighted average shares outstanding		3,872,425		3,938,781		3,986,731

UTG, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT ONLY STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2006
						Schedule II
		2006		2005		2004
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss)	$	3,869,720	$	1,260,223	$	(275,617)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Equity in (income) loss of subsidiaries		(3,616,283)		(1,155,680)		803,662
Depreciation		138,149		104,766		104,766
Change in FIT recoverable		48,747		(38,696)		(9,063)
Change in accrued interest income		10,661		965		(693)
Change in indebtedness (to) from affiliates, net		(12,628)		254,927		(373,217)
Change in deferred income taxes		14,720		14,442		14,161
Change in other assets and liabilities		(389,421)		(91,127)		(54,885)
Net cash provided by operating activities		63,665		349,820		209,114
Cash flows from financing activities:
Purchase of treasury stock		(832,030)		(521,892)		(299,057)
Issuance of common stock		0		151,320		167,360
Issuance of note receivable		(3,357,000)		0		0
Proceeds from subsidiary for acquisition		5,250,000		0		0
Purchase of subsidiary		(17,593,278)		0		0
Proceeds from notes payable		15,700,278		0		2,275,000
Payments on notes payable		(700,000)		0		(4,564,776)
Capital contribution to subsidiary		(4,000,000)		0		0
Dividend received from subsidiary		5,100,000		0		2,275,000
Net cash used in financing activities		(432,030)		(370,572)		(146,473)
Net increase (decrease) in cash and cash equivalents		(368,365)		(20,752)		62,641
Cash and cash equivalents at beginning of year		481,623		502,375		439,734
Cash and cash equivalents at end of year	$	113,258	$	481,623	$	502,375

UTG, INC.
REINSURANCE
As of December 31, 2006 and the year ended December 31, 2006
									Schedule IV
Column A		Column B		Column C		Column D		Column E	Column F
									Percentage
				Ceded to		Assumed			of amount
				other		from other			assumed to
		Gross amount		companies		companies		Net amount	net
Life insurance
in force	$	2,250,370,760	$	591,348,000	$	19,746,240	$	1,678,769,000	1.2%
Premiums and policy fees:
Life insurance	$	15,394,809	$	2,635,050	$	63,818	$	12,823,577	0.5%
Accident and health
insurance		55,339		20,092		1,601		36,848	4.3%
	$	15,450,148	$	2,655,142	$	65,419	$	12,860,425	0.5%

UTG, INC.
REINSURANCE
As of December 31, 2005 and the year ended December 31, 2005
									Schedule IV
Column A		Column B		Column C		Column D		Column E	Column F
									Percentage
				Ceded to		Assumed			of amount
				other		from other			assumed to
		Gross amount		companies		companies		Net amount	net
Life insurance
in force	$	2,468,639,000	$	483,884,000	$	952,218,000	$	2,936,973,000	32.4%
Premiums and policy fees:
Life insurance	$	16,286,921	$	2,651,657	$	26,360	$	13,661,624	0.2%
Accident and health
insurance		70,167		20,740		15,632		65,059	24.0%
	$	16,357,088	$	2,672,397	$	41,992	$	13,726,683	0.3%

UTG, INC.
REINSURANCE
As of December 31, 2004 and the year ended December 31, 2004
									Schedule IV
Column A		Column B		Column C		Column D		Column E	Column F
									Percentage
				Ceded to		Assumed			of amount
				other		from other			assumed to
		Gross amount		companies		companies		Net amount	net
Life insurance
in force	$	2,145,096,000	$	531,146,000	$	995,939,000	$	2,609,889,000	38.2%
Premiums and policy fees:
Life insurance	$	17,161,525	$	3,111,559	$	26,273	$	14,076,239	0.2%
Accident and health
insurance		76,595		23,720		11,315		64,190	17.6%
	$	17,238,120	$	3,135,279	$	37,588	$	14,140,429	0.3%

UTG, INC.
VALUATION AND QUALIFYING ACCOUNTS
As of and for the years ended December 31, 2006, 2005, and 2004
								Schedule V
		Balance at		Additions
		Beginning		Charges				Balances at
Description		Of Period		and Expenses		Deductions		End of Period
December 31, 2006
.
Allowance for doubtful accounts -
mortgage loans	$	36,000	$	0	$	2,500	$	33,500
December 31, 2005
Allowance for doubtful accounts -
mortgage loans	$	120,000	$	0	$	84,000	$	36,000
December 31, 2004
Allowance for doubtful accounts -
mortgage loans	$	120,000	$	0	$	0	$	120,000

                                                                          SIGNATURES

   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

                                                                             UTG, Inc.

                                                                            (Registrant)

                                                                                                                                                   March  21, 2007

John S. Albin, Director

/s/  Randall L. Attkisson                                                                                                               March  21, 2007

Randall L. Attkisson, Chief Operating

      Officer and Director

/s/  Joseph A. Brinck                                                                                                                   March  21, 2007

Joseph A. Brinck, Director

/s/  Jesse T. Correll                                                                                                                      March  21, 2007

Jesse T. Correll, Chairman of the Board,

      Chief Executive Officer and Director

/s/  Ward F. Correll                                                                                                                     March  21, 2007

Ward F. Correll, Director

/s/  Thomas F. Darden                                                                                                                 March  21, 2007

Thomas F. Darden, Director

/s/  Howard  L. Dayton Jr.                                                                                                           March  21, 2007

Howard L. Dayton Jr., Director

                                                                                                                                                    March 21, 2007

Peter L. Ochs, Director

/s/  William W. Perry                                                                                                                   March  21, 2007

William W. Perry, Director

/s/  James P. Rousey                                                                                                                    March  21, 2007

James P. Rousey, President and Director

/s/  Theodore C. Miller                                                                                                                March  21, 2007

Theodore C. Miller, Corporate Secretary

      and Chief Financial Officer

EX-31.1

 

Exhibit 31.1

CERTIFICATIONS
I, Jesse T. Correll, Chairman of the Board and Chief Executive Officer of UTG, Inc., certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant, UTG, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b.	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
	c.	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:   March 21, 2007                                                   By  /s/ Jesse T. Correll

                       Chairman of the Board and

                                                                                          Chief Executive Officer

EX-31.2

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Exhibit 31.2

CERTIFICATIONS
I, Theodore C. Miller,  Senior Vice President, Corporate Secretary and Chief Financial Officer of UTG, Inc., certify that:
1.	I have reviewed this annual report on Form 10-K of the registrant, UTG, Inc.;
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4.	The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
	b.	evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
	c.	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6.	The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:   March 21, 2007                                                By  /s/ Theodore C. Miller

Senior Vice President, Corporate Secretary and Chief Financial Officer

EX-32.1

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EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K of UTG, Inc. (the “Company”) for the period ended December 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Jesse T. Correll, Chairman of the Board and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

            (1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

            (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company

                                                               By:    /s/ Jesse T. Correll

                                                                        Jesse T. Correll

                                                               Chairman of the Board and

                                                               Chief Executive Officer

Date: March 21, 2007

EX-32.2

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EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K of UTG, Inc. (the “Company”) for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) I, Theodore C. Miller, Senior Vice President, Corporate Secretary and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

            (1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

            (2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company

                                                               By:    /s/ Theodore C. Miller

                                                                        Theodore C. Miller

                                                                        Senior Vice President, Corporate Secretary and

                                                                        Chief Financial Officer

Date: March 21, 2007

EX-2.2

 

Exhibit 2.2

                                                                                       STOCK PURCHASE AGREEMENT

Effective Date: August 7, 2006

This is an agreement (“Agreement”) between UTG, Inc. (“Purchaser”) and the “Sellers” (defined below) regarding the purchase and sale of shares of common stock of Acap Corporation (“Acap”).

1.                     DEFINITIONS

Unless the context clearly requires otherwise, in addition to certain other defined terms used in this Agreement, the following terms used in this Agreement shall have the following respective meanings:

1.1          “Acap” means Acap Corporation, a Delaware corporation with its principal office in Houston, Texas, which owns 100% of the issued and outstanding stock of American Capitol Insurance Company, which in turn owns 100% of the issued and outstanding stock of Texas Imperial Life Insurance Company and Imperial Plan, Inc.

1.2           “Acap Common Stock” means shares of common stock of Acap, which has 5,000 shares of common stock authorized, $.10 par value per share, of which 2,744 shares are issued and outstanding on the Effective Date and no more than 2,898 shares will be issued and outstanding on the Closing Date.

1.3           “Acap Preferred Stock” means the 74,000 shares of Cumulative Exchangeable Preferred Stock, Series A $2.50 (Adjustable) issued and outstanding which are redeemable at the option of Acap for $27.50 per share plus accumulated dividends to date of redemption.

1.4          “Acap Stock Put Options” means the options granted pursuant to this Agreement by Purchaser to certain individual owners of Acap Common Stock to sell, at their respective elections, their Acap Common Stock to Purchaser during a defined period of time.

1.5          “Agreement” means this Stock Purchase Agreement as the same may be amended or supplemented in accordance with this Agreement.

1.6           “American Capitol Stock Option” means, in each individual case, an option to purchase from American Capitol certain shares of Acap Common Stock which is evidenced by a grant dated May 13, 2002, issued by American Capitol to the affected individual officers and directors of American Capitol.

1.7          “American Capitol” means American Capitol Insurance Company, a Texas life insurance corporation, a wholly-owned subsidiary of Acap, with its principal office in Houston, Texas.

1.8          "Asserted Liability" shall have the meaning ascribed to such term in Section 11 hereof.

1.9          “Business Day” means any day other than a Saturday, Sunday or a nationally observed holiday.

1.10        "Claim Notice" shall have the meaning ascribed to such term in Section 11 hereof.

1.11        “Closing” means the event that consummates the purchase by Purchaser and the sale by Sellers, including the Come-Along Acap Shareholders and the Guest Trust to the extent they become Sellers hereunder, of the Acap Common Stock, and the grant by Purchaser of certain Acap Stock Put Options pursuant to this Agreement, as more specifically set forth in Section 3.

1.12        “Closing Date” means December 8, 2006, or such other date agreed to in writing by the Parties.

1.13        “Come-Along Acap Shareholders” means certain individuals who own Acap Common Stock to whom Guest has a contractual duty to allow to “come along” with any sale that he makes of his Acap Common Stock (that is, if Guest sells his Acap Common Stock, these individuals may elect to sell their Acap Common Stock at the same price and upon the same terms and conditions as the sale by Guest).

1.14        “Cornett” means John D. Cornett, an individual resident of Houston, Texas, one of the two Sellers who are parties to this Agreement.

1.15        “Cornett Shares” means the 120 shares of Acap Common Stock owned by Cornett to be purchased by Purchaser at Closing as set forth herein.

1.16        “Date Hereof” means the Effective Date of this Agreement.

1.17        "Deductible Amount" shall have the meaning ascribed to such term in Subsection 11.4.

1.18        "Documents and Records" means all documents, data and records used or useful in connection with the ownership, operation, administration and servicing of Acap and its subsidiaries, including but not limited to, all documentation and computer-based files and programs relating to processes, systems, files, plans, and active and inactive policyholders, whose policies and contracts are included in the Insurance Contracts; any other files and records for the policyholders described above; all premium, claims and other transaction history files and records; reinsurance records, and relevant records relating to regulatory and corporate matters, correspondence and relevant financial and tax information.

1.19        “Effective Date” means August  7, 2006.

1.20        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.

1.21        "Escrow Agent" means Guest.

1.22        "Escrow Fund" means the amount of $200,000 to be paid to Escrow Agent and disbursed in accordance with this Agreement.

1.23        “Frost Bank” means Frost Bank, a Texas-based banking corporation doing business in Houston, Texas, as well as other locations.

1.24        “Frost Loan” means that certain loan made by Frost Bank to Acap pursuant to a line of credit evidenced by a promissory note dated July 19, 2005, with a balance due by Acap to Frost Bank in the amount of $1,304,050 as of this date, which bears interest at a rate based on Frost Bank’s prime rate.

1.25        “Guest” means William F. Guest, an individual resident of Houston, Texas, one of the two Sellers who are parties to this Agreement.

1.26        “Guest Shares” means the 1,372 shares of Acap Common Stock owned by Guest to be purchased by Purchaser at Closing as set forth herein.

1.27        “Guest Trust” means that certain William F. Guest Life Insurance Trust that owns 44 shares of Acap Common Stock, the Trustee of which is Marion Amy Guest, Guest’s wife.

1.28        “Guest Trust Shares” means the 44 shares of Acap Common Stock owned by the Guest Trust.

1.29        “Individual” means any person, trust, partnership or any other legal entity.

1.30        “Holders of Acap Stock Put Options” means the individual Acap shareholders listed on Exhibit 3.3.1 who are granted the right by Purchaser to sell their Acap Common Stock to Purchaser as set forth in Subsection 3.3.

1.31        “Imperial Plan, Inc.” means that certain Texas-domiciled corporation which is 100% owned by American Capitol and holds a license issued by the Texas Banking Department to market pre-need funeral contracts.

1.32        "Indemnitee" shall have the meaning ascribed to such term in Subsection 11.6 hereof.

1.33        "Indemnitor" shall have the meaning ascribed to such term in Subsection 11.6 hereof.    

1.34        “Insurance Contracts” means the (i) insurance and annuity policies and contracts of American Capitol and Texas Imperial, (ii) contracts and treaties of reinsurance of American Capitol and Texas Imperial and (iii) contracts and treaties of coinsurance of American Capitol and Texas Imperial.

1.35        "Lien" shall mean any mortgage, pledge, assessment, security interest, lease, sublease, lien, adverse claim, levy, charge or other obligation or encumbrance of any kind, or any conditional sale contract, title retention contract, or other contract to give or to refrain from giving any of the foregoing.

1.36        "Loss" and/or "Losses" shall have the meaning ascribed to such term in Section 11.

1.37        “Option Stock” means the Acap Common Stock that is the subject of the related American Capitol Stock Option.

1.38        “Party” means UTG, Inc. or William F. Guest, or John D. Cornett, or, in the plural number, all of them.

1.39        “Purchaser” means UTG, Inc., a Delaware corporation with its principal office in Springfield, Illinois.

1.40        “Sellers” means Guest and Cornett, as well as the Guest Trust and any Come-Along Acap Shareholders who join in this Agreement by executing an Addendum hereto as provided in Subsection 3.2.2.

1.41        “Shares” means the shares of issued and outstanding common stock of Acap owned by Sellers to be purchased by Purchaser at Closing as set forth herein.

1.42        “Stock Purchase Agreement” means this Agreement.

1.43        “Texas Imperial” means Texas Imperial Life Insurance Company, a Texas life insurance corporation, a wholly-owned subsidiary of American Capitol, with its principal office in Houston, Texas.

1.44        "Subsidiary" and "Affiliate" mean the following: "subsidiary" means, with respect to any person any other person that is, directly or indirectly through one or more intermediaries, controlled by such person; "affiliate" means, with respect to any person, any other person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such person;  "control" as used in the preceding sentence means (i) with respect to a person that is a corporation, the right to exercise, directly or indirectly, more than fifty percent of the voting rights attributable to the shares of capital stock of the controlled corporation and (ii) with respect to a person that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled person.

1.45        “UTG, Inc.” means UTG, Inc. a Delaware corporation with its principal office in Springfield, Illinois.

2.                     RECITALS:

2.1          Acap has only two kinds of stock authorized and/or issued: Acap Common Stock and Acap Preferred Stock.

2.2          Acap is authorized to issue a total of 5,000 shares of common stock (being the Acap Common Stock), $.10 par value per share, of which 2,744 shares are issued and outstanding. American Capitol owns 154 shares of Acap Common Stock as a non-admitted asset, which are classified as treasury stock, but upon the exercise of certain American Capitol Stock Options discussed below, if exercised as discussed below, when the subject shares of the Option Stock are transferred to the Holders of the Acap Stock Put Options they will become issued and outstanding shares, thereby increasing the total number of issued and outstanding shares of Acap Common Stock from 2,744 to 2,898.

2.3          Acap is authorized to issue a total of 74,000 shares of Cumulative Exchangeable Preferred Stock, Series A $2.50 (Adjustable) (being the Acap Preferred Stock), of which 74,000 shares are issued and outstanding. By its terms, the Acap Preferred Stock are redeemable by Acap, at its election, at any time upon the payment of $27.50 per share plus accrued but unpaid dividends to date of redemption.

2.4          Certain officers and directors of American Capitol (consisting of seven individuals) own options (being the American Capitol Stock Options) to purchase shares of Acap Common Stock owned by American Capitol. Each American Capitol Stock Option is evidenced by an “Option Grant” dated May 13, 2002 for 45 shares of Acap Common Stock at a price of $400 per share.  As a result of an interim 1-for-2 reverse stock split, each holder of an American Capitol Stock Option is entitled to receive 22 shares (plus an entitlement to a cash payment of $485 in lieu of a fractional share), upon payment at the time of exercise of such American Capitol Stock Option of $800 per share (plus $400 related to the fractional share). Among other provisions, each Option Grant provides that the American Capitol Stock Option may be exercised at any time between the fifth anniversary of the grant and the tenth anniversary of the grant, if certain conditions exist. Assuming that American Capitol’s Board of Directors modifies each grant, it is expected that the affected officers and directors will exercise their American Capitol Stock Options respectively and sell their stock to Purchaser pursuant to the Acap Stock Put Options granted in accordance with this Agreement, although none of them has any obligation to do so. Upon the exercise of all such American Capitol Stock Options, the issued and outstanding common stock of Acap will increase from 2,744 to 2,898, as described in Subsection 2.2 above. Whether or not such American Capitol Stock Options will be exercised depends also on certain steps that must be taken to enable the exercise of the American Capitol Stock Options. If exercised, the Holders of Acap Stock Put Options will, following the Closing, have the election to sell, or not sell, their Acap Common Stock to Purchaser, and therefore the availability of the shares of Option Stock for sale to Purchaser cannot be assured. In addition to the grant of Acap Stock Put Options by Purchaser to the holders of American Capitol Stock Options as aforesaid, Acap Stock Put Options will be granted by Purchaser at Closing to certain officers of American Capitol, including Guest and Cornett, who own shares of Acap Common Stock that are not included in the Shares to be purchased by Purchaser at Closing. The owners of the Acap Common Stock who will receive Acap Stock Put Options from Purchaser at Closing, and the number of shares owned in each case, (or to be owned, if all American Capitol Stock Options are exercised), are listed in an Exhibit 3.3.1.

2.5          Guest was a party to certain shareholder agreements involving former shareholders of InsLife Corporation which was dissolved and liquidated in 2005. Four such shareholders have current agreements to “come along” with any sale that Guest makes of his Acap Common Stock, meaning that if Guest sells his Acap Common Stock, each such shareholder has the right, but not the obligation, to sell his/her Acap Common Stock to the same Purchaser at the same price and upon the same terms and conditions as the sale by Guest. In addition, two former InsLife shareholders who own 16 shares and 3 shares of Acap Common Stock, respectively, may desire to be included in the sale contemplated by this Agreement.  While it is expected that all of said shareholders of Acap Common Stock will elect to sell their stock to Purchaser as contemplated by this Agreement, the availability of the said shares of Acap Common Stock for sale to Purchaser cannot be assured. The individuals referred to in this subsection, along with the number of shares of Acap Common Stock owned by them respectively, are listed in Exhibit 3.2.

2.6          Except as aforesaid, there are no outstanding options to purchase Acap Common Stock or Acap Preferred Stock, and neither Acap nor its subsidiaries has/have any obligation to issue or sell any shares of stock of Acap or its subsidiaries. None of the stock of Acap’s subsidiaries is pledged or otherwise subject to any Lien, except that all of the stock of American Capitol is pledged to Frost Bank to secure the Frost Loan.

2.7          Sellers are acting in their capacities, respectively, as shareholders of Acap Common Stock, and not as officers or directors of Acap or any of its subsidiaries (noting that Guest is a director of Acap and its subsidiaries and Cornett is a director of Acap’s subsidiaries but not Acap).

2.8          Guest is the legal and beneficial owner of all of the Guest Shares and the Guest Trust is the legal owner of the Guest Trust Shares to be purchased from him and the Guest Trust pursuant to this Agreement, free and clear of all Liens and other restrictions of any kind as to transfer, voting or otherwise. There are no outstanding subscriptions, options, warrants, proxies, rights or other agreements, commitments or obligations issued or granted by, or binding upon, either Guest or the Guest Trust with respect to the Guest Shares or the Guest Trust Shares. Guest and the Guest Trust have the power and authority to sell to, and transfer to, Purchaser legal and beneficial ownership of, and good and marketable title to, the Guest Shares and the Guest Trust Shares, respectively, free and clear of all Liens and other restrictions of any kind, as of the Closing Date. In addition, Guest owns 22 shares of Acap Common Stock, to be the subject of a grant by Purchaser of an Acap Stock Put Option at Closing.

2.9          Cornett is the legal and beneficial owner of all of the Cornett Shares to be purchased from him pursuant to this Agreement, free and clear of all Liens and other restrictions of any kind as to transfer, voting or otherwise. There are no outstanding subscriptions, options, warrants, proxies, rights or other agreements, commitments or obligations issued or granted by, or binding upon, Cornett with respect to the Cornett Shares. Cornett has the power and authority to sell to, and transfer to, Purchaser legal and beneficial ownership of, and good and marketable title to, the Cornett Shares, free and clear of all Liens and other restrictions of any kind, as of the Closing Date. In addition, Cornett owns 50 shares of Acap Common Stock, and has an American Capitol Stock Option to purchase 22 shares of Acap Common Stock, and said 72 shares of Acap Common Stock are to be the subject of a grant by Purchaser of an Acap Stock Put Option at Closing.

3.                     GENERAL AGREEMENTS

The Parties hereby agree as follows:

3.1          True and Correct Recitals.  The Sellers represent to the Purchaser that, to the best of their belief and knowledge, all of the above recitals are true and correct in all material respects.

3.2          Purchase and Sale of Shares.  Subject to the fulfillment, satisfaction and performance of all material terms, conditions, and covenants set forth herein, at Closing:

3.2.1       Sellers shall sell, convey, transfer and deliver full legal and beneficial ownership of, and good and marketable title to, the Shares to Purchaser, free and clear of any Liens, and Purchaser shall purchase and accept, 1,372 Shares from Guest and 120 Shares from Cornett; and

3.2.2       if the Come-Along Acap Shareholders and the Guest Trust elect to join in this Agreement and be bound hereby as Sellers, by executing the Addendum hereto and delivering it to Purchaser prior to or at Closing, Purchaser shall purchase and accept from them up to 352 shares of Acap Common Stock in the same manner and at the same price as Purchaser purchases and accepts the Shares from Sellers pursuant to Subsection 3.2.1. Exhibit 3.2 is a list of the Guest Trust and the individuals and the number of shares of Acap Common Stock owned by the Guest Trust and the Come-Along Acap Shareholders respectively that Purchaser can be called upon to purchase and accept at Closing as set forth above.

3.3          Grant of Acap Stock Put Options.        Subject to the fulfillment, satisfaction and performance of all material terms, conditions, and covenants set forth herein, at Closing Purchaser shall grant an Acap Stock Put Option to each of the individuals listed on Exhibit 3.3.1 by executing and delivering a stock option agreement in the form attached in Exhibit 3.3.2  to evidence the Acap Stock Put Option.  Pursuant to the Acap Stock Put Option, each such individual may tender to Purchaser up to the number of shares of Acap Common Stock owned by each individual as shown on said Exhibit, and Purchaser shall purchase and accept all such shares so tendered (up to an aggregate of 266 shares of Acap Common Stock [the “Post Closing Shares”]), on the terms and conditions set out therein.  Purchaser shall not have any obligation hereunder to any Holder of an Acap Stock Put Option who does not execute and deliver to Purchaser a stock option agreement in the form attached in Exhibit 3.3.2 at Closing.

3.4          Closing.  The Closing shall take place at the offices of Acap, 10555 Richmond Avenue, Houston, Texas at 10:00 a.m., local time on the Closing Date.

3.5          Purchase Price and Payment.  The purchase price of each of the shares of Acap Common Stock to be purchased from Sellers and accepted by Purchaser at Closing shall be NINE THOUSAND SEVEN HUNDRED FORTY TWO DOLLARS ($9,742) per share of Acap Common Stock (the “Per Share Purchase Price”).  The purchase price of each of the shares of Acap Common Stock to be purchased and accepted by Purchaser pursuant to the Acap Stock Put Options shall be equal to the Per Share Purchase Price increased for each day between the Closing and the date the respective Post Closing Shares are purchased by an annual rate of 5% compounded daily, all in accordance with said Acap Stock Put Options. All payments to be made by Purchaser shall be in the form of immediately available funds.

3.6          $200,000 Escrow Fund.  Simultaneously with the execution of this Agreement, and in consideration of the agreements by Sellers set forth herein, Purchaser will pay to Guest as Escrow Agent $200,000 in cash as an Escrow Fund, to be held in a segregated interest bearing escrow account at Frost Bank, and disbursed to Sellers or to Purchaser as required by this Agreement. The Escrow Fund, together with all interest and other income thereon, will be returned to Purchaser by Guest immediately upon the first to occur of the following:

3.6.1       The receipt at Closing by Sellers and others entitled to have their Acap Common Stock purchased by Purchaser at Closing as set forth in this Agreement of the Per Share Purchase Price; or

3.6.2       The termination of this Agreement pursuant to Section 13 (other than Subsection 13.1.3 or 13.1.7); or

3.6.3      The termination of this Agreement pursuant to Subsection 13.1.3 or 13.1.7, provided the failure to consummate the Closing by December 8, 2006 is not due to a breach by Purchaser of its obligations under this Agreement.

If, either (i) Purchaser terminates this Agreement other than in accordance with Section 13, or (ii) Sellers terminate this Agreement in accordance with Subsection 13.1.3 or 13.1.7 and, in either case, the failure to consummate the Closing by December 8, 2006 is due to a breach by Purchaser of its obligations under this Agreement, Guest will be entitled to retain the Escrow Fund, together with all interest and other income thereon (for the benefit of Sellers) as the exclusive remedy of Sellers, subject to Subsection 13.2(c) and Subsection 13.2(d).

3.7          Frost Loan.      Subject to the fulfillment, satisfaction and performance of all material terms, conditions, and covenants set forth herein, at Closing Purchaser agrees to make a loan to Acap to pay to Frost Bank the amount required to pay off in full the Frost Loan and obtain the release and return of the American Capitol stock held by Frost Bank as collateral, as follows: Sellers will arrange for Frost Bank (i) to deliver to Purchaser at least five business days prior to Closing a pay-off letter stating the amount required to pay in full the Frost Loan on the Closing Date and (ii) to be present at the Closing with the note evidencing the Frost Loan and the American Capitol stock in hand for the purpose of receiving the payment in full of the Frost Loan amount and delivering the American Capitol stock to Acap.  The Parties acknowledge that Purchaser plans to borrow funds from a third party to finance (at least in part) its obligations hereunder and agree that Purchaser’s loan to Acap will be on the same terms and conditions (including interest rate and payment schedule) as that third party financing and will be contingent on Acap’s due authorization, execution and delivery of loan documentation reasonably acceptable to Purchaser at or prior to Closing.

3.8       Acap Preferred Stock.              At Closing Purchaser agrees to make a loan to Acap to provide the funds required by Acap to redeem all of the outstanding shares of Acap Preferred Stock, as follows:

3.8.1        The Parties’ obligations under this Subsection 3.8 are contingent on the approval of redemption of the Acap Preferred Stock by the Board of Directors of Acap prior to the Closing Date. 

3.8.2       At least five business days before the Closing Date, Sellers will deliver to Purchaser written notice stating the aggregate amount that will be required to consummate the redemption of the Acap Preferred Stock on the Closing Date (being $27.50 per share plus accrued but unpaid dividends thereon).

3.8.3       Sellers will bring to Closing envelopes (to be open for inspection by Purchaser) addressed, in each case, to holders of Acap Preferred Stock (whose identity, address and number of shares of Acap Preferred Stock are listed on Exhibit 3.8). The letters shall be alike except for the identity of the holders, their addresses, number of shares and amount payable for redemption, communicating, in effect, that the subject stock is being redeemed by Acap. Each envelope shall contain a check issued by Acap payable to each such holder of Acap Preferred Stock in the amount required for redeeming such shares in each case. Sellers shall also deliver to Purchaser at Closing certified resolutions of Acap’s Board of Directors, evidencing the taking of the corporate action required to approve and effect, as of the Closing Date, the subject redemption upon consummation of the purchase of Shares as provided in this Agreement.

3.8.4       The Parties acknowledge that Purchaser plans to borrow funds from a third party to finance (at least in part) its obligations hereunder and agree that Purchaser’s loan to Acap will be on the same terms and conditions (including interest rate and payment schedule) as that third party financing and will be contingent on Acap’s due authorization, execution and delivery of loan documentation reasonably acceptable to Purchaser at or prior to Closing.  The parties acknowledge that the loan to Acap will not be made, and therefore the loan documentation will not be effective, until the consummation of the purchase of Shares as provided in this Agreement on the Closing Date.

3.8.5       Subject to the foregoing, at Closing, Purchaser will deposit the proceeds of the loan made to Acap pursuant to this Subsection 3.8 in Acap’s Frost Bank account to pay the aggregate redemption price of the Acap Preferred Stock as aforesaid.  It is the Parties’ intent that said funds will be maintained in said account such that all checks issued to the holders of Acap Preferred Stock to redeem the Acap Preferred Stock will be paid upon presentment, and each of the Parties commit not to take any action to the contrary. 

3.9           Release.  Effective at the Closing, upon consummation of the purchase and sale of the Shares contemplated by this Agreement, each Seller, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, for Seller and his or her heirs, legal representatives, successors and assigns, agrees to and does hereby release and forever discharge Purchaser, Acap and their respective subsidiaries and affiliates (collectively, the "Released Parties"), from any and all rights (including without limitation any indemnification rights), claims, demands, actions and causes of action at law and in equity, known or unknown, contingent or direct, which Seller ever had or has on the Closing Date and that anyone claiming through or under the Seller may have as of the Closing Date or claim to have as of the Closing Date against the Released Parties, except for any claims arising under this Agreement or the Acap Stock Put Options and the transactions contemplated hereby or thereby, and, to the extent the Seller is an employee of a Released Party pursuant to an employment agreement disclosed to Purchaser prior to execution of this Agreement (specifically, Mike Rambo and John Cornett), except for compensation and benefits to which such Seller is entitled under such employment agreement as of the Closing Date, and, to the extent the Seller is an employee of a Released Party but does not have such an employment agreement, except for salary and benefits earned to and including the Closing Date.  Each Seller agrees to reaffirm in writing this release at Closing.

4.                     REPRESENTATIONS AND WARRANTIES OF SELLERS

            The Parties agree and understand that, as a part of the negotiations of all matters leading up to the consummation of this Agreement, Sellers have not made, and do not make in this Agreement, any representations or warranties to Purchaser, express or implied, except as expressly set forth herein. In this connection, the Parties agree that (i) Purchaser is knowledgeable regarding the acquisition of life insurance holding companies and life insurance companies such as Acap and its subsidiaries and the due diligence investigation, assessments and judgments that are appropriate for purposes of such acquisitions, (ii) the Shares have been offered to Purchaser, and (subject to the representations and warranties of the Sellers in this Agreement and the provisions set forth in this Agreement regarding subsequent due diligence investigation, covenants, conditions to Closing and indemnities) Purchaser accepts the Shares “as is,” (iii) Purchaser has elected to rely entirely on its own due diligence investigation, assessments and judgments (to the exclusion of representations and warranties by Sellers not expressly set forth herein) and (iv) there are risks that both beneficial and detrimental developments and events occur in the ordinary course of business of life insurance holding companies and life insurance companies such as Acap and its subsidiaries, which risks are fully assumed by Purchaser (subject to the terms and conditions of this Agreement).  Each Seller and Purchaser acknowledge and agree that this Agreement reflects the agreements reached by the parties through arm’s length negotiations, and that neither Purchaser, on the one hand, nor Sellers, on the other, is relying on any advice, representations, warranties or covenants by the other, other than the representations, warranties and covenants set forth in this Agreement.

Each of the Sellers hereby represents and warrants to Purchaser as follows:

4.1          Title to Shares.  Such Seller will sell and transfer to Purchaser legal and beneficial ownership of and good and marketable title to the Shares to be sold by such Seller at the Closing free and clear of all Liens.  The Shares to be sold constitute all of the shares of capital stock or securities of Acap and its subsidiaries and affiliates which Seller, directly or indirectly, owns or has the right (contingent or otherwise) to acquire, except as disclosed in this Agreement.  Neither such Seller nor the Guest Trust is subject to or bound by any obligation, contractual or otherwise, to sell, assign or otherwise transfer all or any portion of the Shares or the Guest Trust Shares to any person or entity other than the Purchaser pursuant to this Agreement.

4.2          Validity.  This Agreement constitutes the legal, valid and binding obligations of such Seller, enforceable against such Seller in accordance with its terms, except as may be limited by bankruptcy, insolvency, or other similar laws affecting the enforcement of creditors' rights generally and except as enforcement thereof may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

4.3          No Conflicting Agreements.      Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby will (i) conflict with, or result in a violation or breach of the terms, conditions or provisions of, or constitute a default under, any agreement, indenture or other instrument under which such Seller or any of such Seller’s properties is bound or to which any of the Shares to be sold by such Seller are subject, or result in the creation or imposition of any Lien against such Shares, or (ii) violate, conflict with or require any consent under any judgment, injunction, decree, order, statute, rule or regulation of any court or any public, governmental or regulatory agency or body having jurisdiction over such Seller or Acap or any of its subsidiaries or affiliates or any of their respective assets.  To the extent any agreement of a Seller exists in respect of which a consent or waiver is required, such consent or waiver will be obtained or accomplished at or before the Closing.

4.4           Consents and Approvals.          No authorization, consent or approval of, or filing with, any public body or authority is necessary for such Seller or Acap or any subsidiary or affiliate of Acap to obtain for the consummation of the purchase and sale and redemption contemplated by this Agreement, except that such transaction requires the filings, approvals, authorizations and clearances contemplated by Subsection 7.1 hereof.    To the best knowledge of such Seller, except as set forth in Subsection 7.1, no authorization, consent or approval of any other person or entity is necessary for such Seller or Acap or any subsidiary or affiliate of Acap to obtain for the consummation of the purchase and sale contemplated by this Agreement or for any other transaction contemplated hereby.

4.5          Litigation.         As of the date of this Agreement, a final order has been entered in the so called “Brown” case adopting the settlement proposed by the parties thereto, and except for the pending case known as Boissiere-Labat, and except for any lawsuit that has been filed but has not yet been served, and as to which Sellers have no knowledge, there are no other claims, actions, suits, investigations or administrative, arbitration or other proceedings pending against Sellers or Acap or any of its subsidiaries or affiliates, or to the knowledge of Sellers, threatened against Sellers or Acap or any of its subsidiaries or affiliates, that individually or in the aggregate have or reasonably may be expected to have a material adverse effect (a) on Acap or any of its subsidiaries, (b) on the validity or enforceability of this Agreement or (c) on the ability of Acap to redeem the Acap Preferred Stock as contemplated hereby.

4.6          Brokers.             All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Sellers directly with Purchaser, without the intervention of any person engaged by or on behalf of Sellers in such manner as to give rise to any claims by any such person against Purchaser for a finder's fee, brokerage commission or similar payment.

4.7           Disclosure.       As of the Date Hereof, neither this Agreement nor any certificate furnished by Sellers to Purchaser in connection with this Agreement or the transactions contemplated hereby contains any untrue statement of material fact or, to the knowledge of Seller, omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made.

5.                     REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Sellers as follows:

5.1          Organization and Qualification.  Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with corporate power to own and lease its properties and carry on its business as presently conducted.

5.2          Authority Relative to Agreement.           Purchaser has the corporate power and authority to enter into this Agreement and the other agreements contemplated hereby and to carry out its obligations hereunder and thereunder.  The execution and delivery of this Agreement by Purchaser and the execution and delivery of the other agreements contemplated hereby by Purchaser, and the consummation of the transactions contemplated herein and therein have been duly authorized by the Board of Directors of Purchaser and no other corporate proceedings on the part of Purchaser or any subsidiary or affiliate of Purchaser are necessary to authorize this Agreement and such other agreements and the purchase and sale of the Acap Common Stock contemplated hereby.  This Agreement constitutes, and the other agreements contemplated hereby, upon execution and delivery, will constitute, valid and binding obligations of Purchaser enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, or other similar laws affecting the enforcement of creditors' rights generally and except as enforcement thereof may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

5.3          No Conflicting Agreements.      The execution and delivery of this Agreement by Purchaser do not, and the execution and delivery of the other agreements contemplated hereby by Purchaser, the consummation by Purchaser of the purchase and sale contemplated herein and the compliance by Purchaser with the terms and provisions of this Agreement and such other agreements will not:

5.3.1        conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) any of the terms, provisions or conditions of the charter or by-laws of Purchaser or any of its subsidiaries or affiliates;

5.3.2        conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default under, or give to any person or entity the right of or result in termination, cancellation, acceleration under or modification of, any agreement, lease, contract, policy, treaty, commitment, mortgage, indenture, document, instrument, governmental permit or license to which Purchaser or any of its subsidiaries or affiliates is a party or by which any of their respective assets are bound, and as to which any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations or modifications individually or in the aggregate have or may be reasonably expected to have a material adverse effect on the validity or enforceability of this Agreement or on the ability of Purchaser to perform its obligations under this Agreement;

5.3.3        subject to obtaining the approvals, authorizations and clearances contemplated by Subsection 7.1 hereof, violate any law, administrative regulation, arbitration order, writ, injunction, award, judgment, decree, court order, governmental permit or license to which Purchaser or any of its subsidiaries or affiliates is subject; or

5.3.4         result in the creation or imposition of any Lien in favor of any third person or entity with respect to Purchaser, any of Purchaser's subsidiaries or affiliates or any of their respective assets that individually or in the aggregate have or may be reasonably expected to have a material adverse effect on the validity or enforceability of this Agreement or on the ability of Purchaser to perform its obligations under this Agreement.

5.4          Consents and Approvals.          No authorization, consent or approval of, or filing with, any public body or authority is necessary for Purchaser or any subsidiary or affiliate of Purchaser to obtain for the consummation of the purchase and sale contemplated by this Agreement, except that such transaction requires the filings, approvals, authorizations and clearances contemplated by Subsection 7.1 hereof.  Neither Purchaser nor Sellers is/are required to make any filings with the Justice Department or Federal Trade Commission under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, for the consummation of the purchase and sale contemplated by this Agreement.  To the best knowledge of Purchaser, except as set forth in Subsection 7.1, no authorization, consent or approval of any other person or entity is necessary for Purchaser or any subsidiary or affiliate of Purchaser to obtain for the consummation of the purchase and sale contemplated by this Agreement or for any other transaction contemplated hereby.

5.5          Litigation.         There are no claims, actions, suits, investigations or administrative, arbitration or other proceedings pending against Purchaser or any of its subsidiaries or affiliates, or to the knowledge of Purchaser, threatened against Purchaser or any of its subsidiaries or affiliates, that individually or in the aggregate have or reasonably may be expected to have a material adverse effect on the validity or enforceability of this Agreement or on the ability of Purchaser to perform its obligations under this Agreement.

5.6           Brokers.             All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Purchaser directly with Sellers, without the intervention of any person engaged by or on behalf of Purchaser in such manner as to give rise to any claims by any such person against Sellers for a finder's fee, brokerage commission or similar payment.

5.7          Investment Representation.       The shares of Acap Common Stock to be acquired under the terms of this Agreement will be acquired by Purchaser for its own account for the purpose of investment.  Purchaser will not transfer or otherwise dispose of any of such shares, or any interest therein, in such manner as to violate any registration provision of the Securities Act of 1933, as amended, or of any applicable state securities laws regulating the disposition thereof.  Purchaser agrees that the certificates representing the Shares may bear legends to the effect that such Shares have not been registered under the Securities Act of 1933, as amended, or such other state securities laws and that no interest therein may be transferred or otherwise disposed of in violation of the provisions thereof.

5.8          Disclosure.       As of the Date Hereof, neither this Agreement nor any certificate furnished by Purchaser to Sellers in connection with this Agreement or the transactions contemplated hereby contains any untrue statement of material fact or, to the knowledge of Purchaser, omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made.

6.                     COVENANTS OF SELLERS

Sellers covenant and agree with Purchaser that, between the Date Hereof and the Closing Date, except to the extent Purchaser may otherwise consent in writing or to the extent otherwise required or permitted by this Agreement, in addition to the obligations of Guest under Subsection 3.6, Sellers will comply with all covenants and provisions of this Section.

6.1           Regulatory Approvals.  To the best of their ability in their capacity as shareholders of Acap, and in a manner that does not conflict with their duties as directors and officers of Acap and its subsidiaries, Sellers will, and will request Acap and its subsidiaries to, assist Purchaser in its obtaining, as promptly as practicable, all approvals, authorizations and clearances of governmental and regulatory authorities required of them to consummate the transactions contemplated hereby, including without limitation the Texas Department of Insurance, and for that purpose (i) will take all commercially reasonable steps and proceed diligently and in good faith and use all commercially reasonable efforts to assist Purchaser, (ii) will provide such information and communications to such governmental and regulatory authorities as Purchaser or such authorities may reasonably request and (iii) will cooperate with Purchaser in obtaining, as soon as practicable, all approvals, authorizations and clearances of governmental or regulatory authorities required of Purchaser to consummate the transactions contemplated hereby.  Without limiting the foregoing, Sellers will provide Purchaser access to all information it needs about Acap and its subsidiaries in order to complete on a timely basis any regulatory approval process applicable to the transactions contemplated by this Agreement. 

6.2          Conduct of Business.    Except as otherwise expressly agreed in writing by the Purchaser, during the period between the Date Hereof and the Closing, Acap and its subsidiaries will, and the Sellers, to the best of their ability in their individual capacities and in their capacity as shareholders of Acap, and in a manner that does not conflict with their duties as directors and officers of Acap and its subsidiaries, will use their best efforts to cause Acap and its subsidiaries (the “companies”) to be operated in the “ordinary course of business,” the meaning of which is expanded and/or supplemented, as the case may be, as follows:

6.2.1       The companies will be operated in a manner such that Acap’s life insurance company subsidiaries will continue to be in good standing and to be licensed, qualified or admitted to do business in each state or other jurisdiction as they are currently licensed, qualified or admitted to do business.

6.2.2       The insurance business of such subsidiaries will be administered, serviced, conserved and otherwise maintained in the ordinary course of business in a manner consistent with past practices and in compliance in all material respects with all applicable legal and contractual requirements.

6.2.3       The companies will not (i) declare, set aside or pay any dividends on, or make any other distributions in respect to a company’s capital stock, (ii) split, combine or reclassify the capital stock of any company or authorize the issuance of any other securities in respect to their capital stock, (iii) purchase, redeem or otherwise acquire any shares of capital stock of any of the companies (except for the redemption of the Acap Preferred Stock as herein provided), (iv) pay or set aside a “sinking fund” for the payment of any principal amount of outstanding debt (except for the payment of the Frost Loan as herein provided), (v) issue or commit to issue any of its shares or other debt or equity securities, or (vi) recapitalize any of the companies (except that American Capitol may pay quarterly dividends to Acap for the purpose of debt management and to enable Acap to pay quarterly dividends on its Acap Preferred Stock [which Acap may declare and pay in keeping with its Acap Preferred Stock dividend policy, as in effect on the Date Hereof]).

6.2.4       The companies will not incur any indebtedness or make any loans, advances or capital contributions to any other person or individual, provided this restriction shall not prevent a company from making routine advances to its agents in the ordinary course of its insurance business, consistent with past practices, routine intercompany advances, consistent with past practices, or short-term borrowings under existing lines of credit that will be repaid prior to Closing.

6.2.5       The companies will not transfer any Intellectual Property of the companies (except American Capitol may transfer its interest in that certain Pending Patent application dated March 13, 2006).

6.2.6       The companies will not change the employment contracts of any of its employees or contract personnel, or change the compensation of any of its employees (except that American Capitol may change the terms of the American Capitol Stock Options solely for the purpose of advancing the date on which they may be exercised to be a date that is on or before the Closing Date and, with the prior consent of Purchaser, may make routine compensation adjustments for its employees who are not the five most highly paid, provided Purchaser’s prior consent shall not be required for routine annual compensation increases not exceeding 3%).

6.2.7       American Capitol will pursue, in co-operation with Purchaser, policies and practices regarding American Capitol employees designed to maintain the employment of its current employees, subject to ordinary course of business reviews, evaluations, hiring and termination practices, and subject to consultations with Purchaser on matters affected by Purchaser’s announcements to employees regarding Purchaser’s plans for the post-Closing operations of the companies. (The timing and content of any communication to American Capitol employees of severance pay or other inducement offered for the purpose of retaining such employees for the duration needed by Purchaser beyond the Closing Date shall be Purchaser’s responsibility, subject to American Capitol’s cooperation.)

6.2.8       The companies will make and maintain the investments made by the insurance subsidiaries in accordance with the investment plans adopted by each such company’s Board of Directors “in the ordinary course of business” (and changes in the market value of the investments of such companies also shall be deemed to be “in the ordinary course of business.”)

6.2.9       The settlement cost of so-called “Brown” litigation will be limited to an aggregate amount that does not exceed the cost of settlement encompassed in the settlement agreement heretofore entered into between American Capitol and the plaintiffs in said litigation.  Any excess settlement cost will reduce the purchase price for the Shares.

6.2.10    The companies will exercise all commercially reasonable efforts to preserve their business organizations intact and to preserve the goodwill of their customers and others having business relations with them.

6.2.11    The companies will give all notices required to terminate, contingent upon the Closing, all employment agreements to which they are parties effective December 31, 2006, subject to the following two exceptions: the employment agreements with Missey Sylva and John Cornett existing on the Date Hereof, the terms of which have previously been disclosed to Purchaser.

For purposes of this Subsection 6.2, an action shall be deemed to be “in the ordinary course of business” if (i) such action, or failure to take an action, under the circumstances, is consistent with the manner in which the subject company has conducted its business within the past few years, or (ii) such action, or the failure to take an action, is, under the circumstances, reasonable, routine, ordinary, or usual, compared to what a comparable-level manager of a comparable life insurance company or life insurance holding company, as the case may be, would take or fail to take, as the case may be, under like or similar circumstances. Nothing in this Subsection 6.2 shall prevent the Board of Directors of Acap or its subsidiaries from causing Acap or its subsidiaries to take any action or fail to take an action such Board of Directors deems appropriate, in the sole discretion in the exercise of its fiduciary duties that is not in the ordinary course of business for such company, provided that the Sellers will promptly provide written notice to Purchaser of such action (or inaction), so that Purchaser may evaluate the same.  Any action taken, or failure to take an action, by Acap or its subsidiaries that is not in the ordinary course of business (within the meaning used in this Section 6.2) shall be grounds for Purchaser to terminate this Agreement in accordance with Subsection 13.1.6.

In order to resolve contemporaneously any question, if any, regarding whether or not an action, or the failure to take an action, is “in the ordinary course of business,” Sellers, or either of them, may provide written notice to Purchaser of any action taken or to be taken, or decision not to take any action, and Purchaser must provide written notice of its objection, if any, to Sellers within five business days after receiving such notice from Sellers, or either of them, as the case may be. Upon receipt of any such notice, or if Purchaser becomes aware of any information concerning facts that Purchaser deems to be the basis for an objection by Purchaser to an action or failure to take an action that Purchaser deems not to be material but not “in the ordinary course of business,” Purchaser must provide written notice of its objection to Sellers within five business days after receiving such notice from Sellers, or either of them, or promptly after becoming aware of an action or failure to take an action that Purchaser deems to be material but not in the ordinary course of business, as the case may be. Failure to provide such notice of objection to Sellers as aforesaid will constitute waiver by Purchaser of any right to claim that such action was not in the ordinary course of business, and, further, any such objection by Purchaser must not be unreasonably made.

6.3          Due Diligence Investigation by Purchaser.          Until the expiration of four weeks from the Date Hereof or, if earlier, the termination of this Agreement pursuant to Section 13, Purchaser, through its employees and other representatives, will be provided full access to the Documents and Records of Acap and its subsidiaries as well as any other documents, instruments, agreements and other books, records and properties of Acap and its subsidiaries as Purchaser shall from time to time request.  Any investigation shall be conducted in a manner which does not unreasonably interfere with the operation of the business of Acap and its subsidiaries.  Purchaser will also be provided access to the attorneys, accountants or actuaries who, as third-party service providers, have performed services for Acap and its subsidiaries, provided prior arrangements are made for compensation by Purchaser required by such attorneys, accountants or actuaries and the granting of permission to them, as needed, to share with Purchaser the information reasonably requested from them by Purchaser. In the event of termination of this Agreement prior to the consummation of Closing, Purchaser shall deliver to Sellers all documents, work papers and other material obtained by Purchaser from Sellers or Acap and its subsidiaries, and shall not disclose to any third party, and shall not use, directly or indirectly, or through any subsidiary or affiliate, any information so obtained or otherwise obtained in connection herewith, and shall keep all such information confidential except (i) as required by court order or applicable law or any regulatory application or notice filed in connection with this Agreement or the transactions contemplated herein, (ii) as lawfully obtained from others and (iii) to the extent that such information is then in the public domain (provided Purchaser or its representative were not responsible for such information entering the public domain without the consent of Sellers).

6.4          Satisfaction of Conditions.         Sellers shall make all commercially reasonable efforts in good faith to cause all conditions precedent to Sellers’ obligations hereunder to be satisfied on or before the Closing Date and shall exercise all commercially reasonable efforts and cooperate fully with Purchaser in accomplishing the satisfaction of all conditions precedent to Purchaser’s obligations hereunder on or prior to the Closing Date.

6.5          No Negotiations.          From and after the Date Hereof to the termination of this Agreement by Purchaser or the rightful termination of this Agreement by Sellers pursuant to Section 13, Sellers, individually and as shareholders of Acap and, as applicable, holders of American Capitol Stock Options, will not take, directly or indirectly, any action to seek, entertain, discuss or negotiate, or vote any Shares in favor of any offer or proposal from any person or entity to acquire the Shares or any other shares of Acap or any of its subsidiaries or, outside the ordinary course of business, any assets of Acap or any of its subsidiaries (a “Conflicting Transaction”).  Nothing in this Subsection 6.5 shall prevent Sellers, in their capacity as directors of Acap and its subsidiaries, from taking any action required by law in the exercise of their fiduciary duties, provided, however, that if a Conflicting Transaction occurs or there is any offer or proposal regarding a Conflicting Transaction that is accepted and such Conflicting Transaction will or is reasonably likely to materially and adversely affect either Seller’s ability to consummate the sale of the Shares, the consummation of the transactions contemplated by this Agreement or Purchaser’s ability to acquire a majority of the outstanding  shares of Acap, then, at the time of such Conflicting Transaction or acceptance of such proposal or offer (whichever first occurs), Guest, on behalf of Sellers, will pay Purchaser Two Million Dollars ($2,000,000).  The Parties acknowledge and agree that this sum is reasonable in light of the expense and time Purchaser has and will incur in connection with this Agreement and the transactions contemplated hereby and the damages it will sustain.

6.6          Defend, Hold Harmless and Indemnify Purchaser.         Sellers agree to defend Purchaser against, and hold Purchaser harmless from, and to reimburse Purchaser for, any actual financial Loss or Losses (as defined in Subsection 11.1) resulting from or arising out of any claim or claims described in Subsection 11.3.2 hereof. Other shareholders of Acap Common Stock who sell shares of Acap Common Stock to Purchaser pursuant to this Agreement shall make the same agreement as it relates to such shares which they sell to Purchaser pursuant to this Agreement.

6.7          Invitation to Purchaser. After the expiration of four weeks from the Date Hereof and the receipt by Purchaser of all approvals, authorizations and clearances of governmental and regulatory authorities required of it to consummate the transactions contemplated hereby, including without limitation the Texas Department of Insurance and, if required in connection with the acquisition of Imperial Plan, appropriate bank regulatory authorities, provided this Agreement has not been terminated, Sellers will arrange for Purchaser through its designated employees and representatives to visit Acap and its subsidiaries on their premises for the sole purpose of studying operations and planning and preparing for any transition of operations that Purchaser may choose, on the condition that such visitations shall not materially interfere with the normal operations of Acap or its subsidiaries.

6.8          Notification of Certain Matters. 

6.8.1       If, prior to the Closing or termination of this Agreement, Sellers learn that any event or condition has had, or is reasonably expected to have, a material adverse effect on the condition (financial and otherwise), business, assets, liabilities, results of operations or prospects of Acap or any of its subsidiaries, individually or as a whole, which, unless waived by Purchaser, will prevent the condition set out in Subsection 9.11 from being satisfied at Closing, Sellers must, within five business days thereafter, notify Purchaser of such event or condition.

6.8.2       Until the Closing or termination of this Agreement, Sellers will give prompt written notice to Purchaser of (a) the occurrence, or failure to occur, of any event that has caused any representation or warranty of Sellers contained in this Agreement to be untrue or (b) the occurrence of any failure of Sellers to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by Sellers under this Agreement. 

7.                     COVENANTS OF PURCHASER

Purchaser covenants and agrees with Sellers that, between the Date Hereof and the Closing Date, except to the extent Guest, on behalf of Sellers, may otherwise consent in writing or to the extent otherwise required or permitted by this Agreement, Purchaser will comply with all covenants and provisions of this Section 7.

7.1          Regulatory Approvals and Filings.         Purchaser will (i) take all commercially reasonable steps necessary or desirable, and proceed diligently and in good faith and use all commercially reasonable efforts to obtain, as promptly as practicable, all approvals, authorizations and clearances of governmental and regulatory authorities required of it to consummate the transactions contemplated hereby, including without limitation the Texas Department of Insurance and, if required in connection with the acquisition of Imperial Plan, appropriate bank regulatory authorities, (ii) provide such other information and communications to such governmental and regulatory authorities as Sellers or such authorities may reasonably request, (iii) cooperate with Sellers in obtaining, as soon as practicable, all approvals, authorizations and clearances of governmental and regulatory authorities required of Sellers to consummate the transactions contemplated hereby and (iv) satisfy all filing requirements of Purchaser required with respect to the purchase and sale contemplated by this Agreement under the Securities Exchange Act of 1934 and applicable state securities laws.

7.2          Satisfaction of Conditions.         Purchaser shall make all commercially reasonable efforts in good faith to cause all conditions precedent to Purchaser’s obligations hereunder to be satisfied on or before the Closing Date and shall exercise all commercially reasonable efforts and cooperate fully with Sellers in accomplishing the satisfaction of all conditions precedent to Sellers’ obligations hereunder on or prior to the Closing Date.

7.3          Notification of Certain Matters.

7.3.1       If, prior to the Closing or termination of this Agreement, Purchaser learns that any event or condition has had, or is reasonably expected to have, a material adverse effect on the condition (financial and otherwise), business, assets, liabilities, results of operations or prospects of Acap or any of its subsidiaries, individually or as a whole, which will prevent the condition set out in Subsection 9.11 from being satisfied at Closing, Purchaser must, within five business days thereafter, notify Guest and Cornett, on behalf of Sellers, of such event or condition, or else be deemed to accept such event or condition as not objectionable under Subsection 9.11 or under Subsection 13.1.5. 

7.3.2       Until the Closing or termination of this Agreement, Purchaser will give prompt written notice to Sellers of (a) the occurrence, or failure to occur, of any event that has caused any representation or warranty of Purchaser contained in this Agreement to be untrue or (b) the occurrence of any failure of Purchaser to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. 

                                                           8.  CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES

The obligations of each of the Parties hereto to proceed with the Closing are subject to the fulfillment (unless waived by each party in writing), prior to or at the Closing, of each of the following conditions:

8.1       Legal Proceedings.       No suit, action or other judicial or regulatory proceeding shall have been initiated or shall be pending or threatened by any governmental agency in which it is sought to restrain, prohibit, invalidate, modify or condition, or set aside, the transactions contemplated by this Agreement, and no statute, rule or regulation having such effect shall have been promulgated or enacted, nor shall any such suit, action or proceeding have been initiated by any other third party not affiliated with the Parties hereto in which such third party shall have obtained preliminary or permanent injunctive relief or which, in the opinion of counsel to either party, has a reasonable likelihood of success; provided, however, that each party shall use reasonable efforts in good faith to cause such suit, action or proceeding, or the threat thereof, to be dismissed or withdrawn, to cause such injunction to be dissolved or vacated or to cause such statute, rule or regulation to be repealed or rescinded.

8.2       Governmental Approvals.         The purchase and sale of the Shares and the other transactions described in the Form A to be filed with the Texas Department of  Insurance  (i) shall have been approved in all respects by the Texas Department of Insurance and shall be subject to no conditions other than conditions for the protection of policyholders or other purposes as are customarily imposed by insurance regulatory authorities in approving similar transactions and (ii) Purchaser and Sellers shall have been furnished with appropriate evidence, satisfactory to them and their respective counsel, of the granting of such approval; and any other regulatory approvals required to be obtained by Purchaser or Acap for the consummation of the transactions contemplated by this Agreement shall have been obtained on terms and conditions satisfactory to Purchaser, and all applicable regulatory waiting period shall have expired or been terminated.

                                                               9.  CONDITIONS TO THE OBLIGATIONS OF PURCHASER

The obligations of Purchaser hereunder to proceed with the Closing are subject to the fulfillment (unless waived by Purchaser in writing), prior to or at the Closing, of each of the following conditions:

9.1       Performance.                Sellers shall have performed and complied in all material respects with all covenants, agreements, obligations, commitments and conditions required by this Agreement to be performed or complied with by Sellers prior to or at the Closing.

9.2       Sellers’ Certificate.       Sellers shall have delivered to Purchaser a certificate, dated the Closing Date and signed by Sellers, certifying to the fulfillment of the conditions specified in Sections 8 and 9.

9.3       Share Certificates.        Sellers shall have delivered to Purchaser certificates representing the Shares duly endorsed in blank or with stock powers attached, together with such other instruments or documents as Purchaser may reasonably request, to transfer legal and beneficial ownership and control of the Shares to Purchaser upon Purchaser’s payment for such Shares as provided in this Agreement.

9.4       Resignations.                Sellers shall have caused to be delivered to Purchaser at Closing the signed resignation of each of the directors of Acap and its subsidiaries whose resignation has been requested by Purchaser prior to the Closing Date, provided, however, any such resignation in each case shall be the voluntary election by each such director, respectively. (In this connection, such directors who elect to resign as requested by Purchaser as aforesaid are entitled to recognize that, upon acquiring the Shares, Purchaser will be able, as the majority shareholder of Acap, to effect any changes in the composition of the Boards of Directors of Acap and its subsidiaries permitted under applicable law.)

9.5       Releases.          Sellers shall have caused to be delivered to Purchaser at Closing a release agreement of each of the Sellers, the Come-Along Acap Shareholders and the Holders of Acap Stock Put Options in form and substance satisfactory to Purchaser, providing for the release of Purchaser, Acap and their respective subsidiaries from any and all obligations or liabilities, including without limitation any indemnification obligations (other than obligations owed to them to the extent they arise under this Agreement or the Acap Stock Put Options and, to the extent they are employees of Acap or its subsidiaries under any employment agreement disclosed to Purchaser prior to execution of this Agreement (specifically, Mike Rambo and Cornett), compensation and benefits to which they are entitled under such employment agreements as of the Closing Date, or, to the extent they are employees of Acap or its subsidiaries without such an employment agreement, salary and benefits earned to the Closing Date).

9.6       Appointment of Directors.         As of the Closing, Sellers shall cause to be delivered to Purchaser a resolution of the remaining members of the Board of Directors of Acap and its subsidiaries as of the Closing Date, pursuant to which such remaining directors shall elect directors selected by Purchaser prior to the Closing to fill the vacancies in the Board created by the resignations of the directors of Acap and its subsidiaries as of the Closing Date.

9.7       Other Documents.        Sellers shall have delivered to Purchaser at the Closing such other documents as Purchaser may reasonably request.

9.8       Representations.           The recitals contained in this Agreement and the representations and warranties of Sellers contained in Section 4 of this Agreement shall be true and correct in all material respects at and as of the Closing, as if each such recital, representation and warranty had been made as of the Closing.

9.9       Conduct of Business.   Acap and its subsidiaries shall have operated and conducted their businesses in the manner described in Subsection 6.2.

9.10     Litigation.         Except for the Boissiere-Labat case, and except for any lawsuit that has been filed but has not yet been served, and as to which the Parties have no knowledge, as of the Closing Date, there shall be no claims, actions, suits, investigations or administrative, arbitration or other proceedings pending against Seller or Acap or any of its subsidiaries or affiliates, or to the knowledge of the Parties, threatened against Seller or Acap or any of its subsidiaries or affiliates, that individually or in the aggregate have or reasonably may be expected to have a material adverse effect (a) on Acap or any of its subsidiaries, (b) on the validity or enforceability of this Agreement or on the ability of Seller to perform his obligations under this Agreement or (c) on the ability of Acap to redeem the Acap Preferred Stock as contemplated hereby.

9.11     No Material Adverse Change.              After the date of this Agreement, no event or condition shall occur or exist and Purchaser shall not obtain knowledge of any event or condition (whenever it occurred) which  has, or is reasonably expected to have, a material adverse effect on the condition (financial and otherwise), business, assets, liabilities, results of operations or prospects of Acap or any of its subsidiaries, individually or as a whole.   The following events or conditions are excepted from this Subsection 9.11:  (a) any changes in laws, rules or regulations or regulatory accounting principles that apply to both Acap (and its subsidiaries) and Purchaser (and its subsidiaries), (b) any change, circumstance, development, condition, occurrence or effect relating to the United States economy or financial markets in general, and (c) any change, circumstance, development, condition, occurrence or effect relating to the insurance industry in general to the extent not affecting Acap and its subsidiaries to a materially greater extent than it affects others parties in the insurance industry.

10.  CONDITIONS TO THE OBLIGATIONS OF SELLERS

The obligations of Sellers hereunder to proceed with the Closing are subject to the fulfillment (unless waived by Sellers in writing), prior to or at the Closing, of each of the following conditions:

10.1     Representations.           The representations and warranties of Purchaser contained in Section 5 of this Agreement shall be true and correct in all material respects at and as of the Closing, as if each such representation and warranty had been made as of the Closing.

10.2     Performance.                Purchaser shall have performed and complied in all material respects with all covenants, agreements, obligations, commitments and conditions required by this Agreement to be performed or complied with prior to or at the Closing.

10.3     Purchaser’s Certificate.  Purchaser shall have delivered to Sellers a certificate, dated the Closing Date and signed by the president or a vice president of Purchaser, certifying to the fulfillment of the conditions specified in Sections 8 and 10.

10.4     Other Documents.        Purchaser shall have delivered to Sellers at the Closing such other documents as Sellers may reasonably request.

11.  INDEMNIFICATION

            The Parties agree as follows:

11.1     Losses.             As used in this Section 11, "Loss" and/or "Losses" shall mean any loss, liability, claim, damage, expense (including costs of investigation and defense, reasonable attorneys’ fees and expert witness fees), including, without limitation, all expenses reasonably incurred by an Indemnitee as a result of  any actions, lawsuits, proceedings, investigations, claims, demands, assessments, and damages, penalties, interest, judgments or settlements resulting therefrom, including, without limitation, costs and expenses of litigation and reasonable attorneys' fees.  In instances in which the Indemnitee is Purchaser and/or its subsidiaries and affiliates, the term “Loss” and/or “Losses” shall include all Losses sustained by Acap and its subsidiaries.

11.2     Indemnity by Purchaser.            Purchaser shall indemnify, defend and hold harmless Sellers from and against Losses that arise out of:

11.2.1       the non-performance of any covenants, agreements, obligations or commitments contained in this Agreement or in any exhibit, schedule, certificate or other document delivered pursuant hereto required to be performed by Purchaser; or

11.2.2       the fact that any representation or warranty made by Purchaser contained in this Agreement or in any exhibit, schedule, certificate or other document delivered pursuant hereto was untrue as of the Closing Date (determined as if such representation or warranty had been made as of the Closing Date).

11.3     Indemnity by Sellers.                 Sellers, jointly and severally, shall indemnify, defend and hold harmless Purchaser and Purchaser's subsidiaries and affiliates including, without limitation, its officers, directors, employees and shareholders and those of its subsidiaries and affiliates from and against Losses that arise out of:

11.3.1    the non-performance of any covenants, agreements, obligations or commitments contained in this Agreement or in any exhibit, schedule, certificate or other document delivered pursuant hereto required to be performed by Sellers; or

11.3.2    any claim or claims by any current or former Acap shareholder or shareholders or any governmental authority against Purchaser, Acap or any of their subsidiaries or affiliates relating to any action or actions taken by Acap prior to the Closing; or

11.3.3    the fact that any representation or warranty made by Sellers contained in this Agreement or in any exhibit, schedule, certificate or other document delivered pursuant hereto was untrue as of the Closing Date (determined as if such representation or warranty had been made as of the Closing Date), provided that a Seller who has not breached any such representation or warranty is not required to provide indemnification pursuant to this Subsection 11.3 for another Seller’s breach of a such representation or warranty.

In respect to any shares of Acap Common Stock purchased or to be purchased by Purchaser pursuant to this Agreement, Purchaser shall be entitled to require the same agreement to indemnify, defend and hold harmless Purchaser and Purchaser's subsidiaries and affiliates from the shareholder selling the shares of Acap Common Stock (subject to limitations comparable to those set out in Subsection 11.4.2).

11.4  Limitation of Claims and Amount.

11.4.1     Except as hereinafter provided, neither party shall have any right to indemnification hereunder until the Losses suffered or incurred by such party which (except for this Subsection 11.4) would otherwise be indemnifiable pursuant to Subsection 11.1, 11.2 or 11.3, as the case may be, exceed in the aggregate the base amount of $50,000 (the “Base Amount”); provided that at such time as the Losses of a party otherwise indemnifiable pursuant to Subsection 11.1, 11.2 or 11.3, as the case may be, exceed in the aggregate the Base Amount, then such party shall be entitled to indemnification to the extent such Losses in the aggregate exceed the deductible amount of $20,000 (the “Deductible Amount”).

11.4.2     To the extent any indemnification obligation under Section 11.3 relates to Acap Losses [defined as Losses that are suffered by Acap and its subsidiaries, and includes  Losses Purchaser or any of Purchaser's subsidiaries (other than Acap and its subsidiaries) or affiliates elect to incur in the defense of Acap and its subsidiaries], then the liability of Sellers therefor (i) shall be limited to the fraction of such Loss that matches the fractional relationship that the Sellers’ Shares bear to the issued and outstanding shares of Acap at time of Closing (the aggregate number of the Shares being the numerator and the number of issued and outstanding shares of Acap at time of Closing being the denominator) and (ii) shall not exceed the aggregate purchase price paid for such Shares.  However, to the extent any indemnification under Section 11.3 relates to Purchaser or any of Purchaser’s subsidiaries (other than Acap and its subsidiaries) or affiliates, or Purchaser’s officers, directors, employees and shareholders and those of its subsidiaries and affiliates  (apart from Acap Losses as stated in the immediately preceding sentence), then the limitations stated in the immediately preceding sentence do not apply.

11.5     Payment.          Payment required to be made to any party entitled to indemnification hereunder shall be made within ten days after receipt of an invoice therefor from a party seeking indemnification. If any payment is not made within the aforesaid time, the amount thereof shall bear interest, compounded annually, at the prime rate of interest reflected in the Wall Street Journal on the day on which such payment was due, until paid. In the event of any dispute with respect to a party’s obligation to make any such payment, the Parties shall use their best efforts to resolve such dispute as promptly as practicable.

11.6     Notice.             Any person, corporation or other legal entity entitled to indemnification under Subsection 11.2 or 11.3, as the case may be, making a claim under this Section 11 is hereinafter referred to as the “Indemnitee” and the party against whom such claim is asserted under this Section 11 is hereinafter referred to as the “Indemnitor.”  All claims by any Indemnitee under this Section 11 shall be asserted by Indemnitee delivering or causing to be delivered, to Indemnitor, a written notice (the “Claim Notice”) describing in reasonable detail the facts or circumstances which may result in a claim of Loss.  (Such claim of Loss is hereinafter referred to as an “Asserted Liability.”)  Indemnitee shall use reasonable efforts to give the Claim Notice not later than the earlier of:

11.6.1    One month after the time at which Indemnitee is notified in writing, actually becomes aware of or otherwise obtains actual knowledge of any action, proceeding, investigation, demand or claim (whether actual or threatened) or any other circumstance or state of facts which could give rise to an Asserted Liability, or

11.6.2    With respect to any Asserted Liability which has become the subject of proceedings before any court or tribunal or in which Indemnitee has been served with legal process within such time as would allow Indemnitor to timely file responsive pleadings in such proceeding or action.

If a Claim Notice is not given by the Indemnitee as herein provided, the Indemnitee shall nevertheless be entitled to indemnification hereunder to the extent that the Indemnitee can establish that the Indemnitor has not been prejudiced by such time elapsed.

The Parties agree that a Claim Notice may be delivered to Guest and Cornett on behalf of any Indemnitor who is a Seller.

11.7     Defense of Claims.       

11.7.1       Subject to the limitations hereinafter set forth, Indemnitor shall have the right to control the contest of any Asserted Liability and shall defend, at its own expense and by its own counsel, any Asserted Liability.  If Indemnitor does not notify Indemnitee in writing within one month after receipt of the Claim Notice, or within the time period prior to the date on which responsive pleadings must be filed, whichever is less, that it elects to undertake the defense thereof, Indemnitee shall have the right to defend the Asserted Liability with counsel of its choosing reasonably satisfactory to Indemnitor.  Even in the event that Indemnitor does not notify Indemnitee that it elects to undertake the defense of an Asserted Liability within the applicable time periods set forth in this Section 11, Indemnitor shall have the right to assume the defense of such Asserted Liability, and to select counsel reasonably satisfactory to Indemnitee, at any time prior to settlement or final determination thereof; provided, however, that in such event Indemnitor shall be responsible for and shall pay (or reimburse Indemnitee for) the fees and expenses of counsel employed by Indemnitee prior to Indemnitor’s assumption of the defense of any such Asserted Liability.

11.7.2       In the event that Indemnitor commences or thereafter assumes the defense of any Asserted Liability as provided in Section 11, Indemnitee shall have the right to employ separate counsel with respect to such claim and to participate in the defense thereof, provided that the fees and expenses of counsel employed by Indemnitee shall be at the expense of Indemnitee unless the employment of such counsel has been specifically authorized in writing by Indemnitor.

11.7.3       Indemnitor will not compromise or settle any Asserted Liability without the prior written consent of Indemnitee (which consent will not be unreasonably withheld or delayed), unless such settlement or compromise does not subject any Indemnitee to any monetary liability, does not affect the operations of any Indemnitee or Acap, American Capitol, Texas Imperial or Imperial Plan or any of their respective subsidiaries and includes a complete, unconditional release of all Indemnitees from all liability with respect to such Asserted Liability.

11.8     Cooperation.                After the Closing Date, Sellers and Purchaser shall each cooperate fully with the other (including, without limitation, affording the other an opportunity to participate in the defense) as to all Asserted Liabilities, shall make available to the other as reasonably requested all information, records and documents relating thereto and shall preserve all such information, records and documents until the termination of any claim.  Sellers and Purchaser shall each also make available to the other, as reasonably requested, its personnel, agents and other representatives who are responsible for preparing or maintaining information, records or other documents, or who may have particular knowledge with respect to any such Asserted Liability.

11.9     No Insurance.               The indemnifications provided in this Agreement shall not be construed as a form of insurance and shall be binding upon and inure to the benefit of Purchaser, Sellers and their respective affiliates; and the indemnification provisions shall apply with full force and effect notwithstanding the fact the Indemnitee has insurance covering all or a portion of the Losses provided that an Indemnitor shall be subrogated to any right an Indemnitee may have to receive any insurance proceeds payable in respect of any Losses for which indemnification has been provided.

11.10   Single Claims.               It is expressly agreed that, where the provisions of this Section 11entitle more than one entity to indemnification in respect of the same Loss, Indemnitor shall only be liable once under this Section 11 for the full amount of such Loss notwithstanding that more than one Indemnitee might have sought indemnification in respect of that Loss.

                                                                                     12.  SURVIVAL OF OBLIGATIONS

Unless otherwise specifically set forth in this Agreement or in any of the exhibits, schedules, certificates or other agreements delivered pursuant hereto, all representations and warranties and all covenants, agreements, obligations and commitments to be performed on or prior to the Closing Date contained in this Agreement or in any such exhibit, schedule, certificate or other agreement delivered pursuant hereto, shall terminate two years from the Closing Date (without prejudice to any then pending claims) and no party shall be entitled to submit a claim for indemnification with respect to any possible Loss resulting from or arising out of the non-performance of any such covenant, agreement, obligation or commitment or of any representation or warranty being untrue as of the Closing Date unless notice of such claim has been delivered within two years from the Closing Date.  Any obligation resulting from or arising out of the non-performance of any such covenant, agreement, obligation or commitment or of any representation or warranty being untrue as of the Closing Date as to which a written notice of possible Loss shall have been given to the indemnifying party in accordance with the requirements of Section 11 hereof shall survive, as to matters identified in such notice, until the resolution of the matters referred to therein.  Unless otherwise specifically set forth herein or in any of the exhibits, schedules, certificates or other agreements delivered pursuant hereto, in case of any representation or warranty being untrue as of the Closing Date or any non-performance of any covenant, agreement, obligation or commitment contained in this Agreement, or in any exhibit, schedule, certificate or other agreement delivered pursuant hereto, the exclusive remedy therefor shall be indemnification pursuant to Section 11 hereof.

Notwithstanding the foregoing, the obligation of Sellers to provide indemnification under Subsection 11.3.2 shall survive the Closing and continue so long as any claim by any current or former Acap shareholder may be asserted against Purchaser or Acap (or its successor) with respect to any action or actions taken by Acap prior to the Closing, provided the party seeking indemnification hereunder must provide notice of any such indemnification claim within six years of the Closing Date.

13.  TERMINATION OF AGREEMENT

13.1     Termination.     This Agreement may be terminated at any time prior to Closing as follows:

13.1.1     by mutual written consent of Sellers and Purchaser;

13.1.2     by Sellers or Purchaser if the conditions set forth in Section 8 have not been satisfied or waived in writing by Sellers or Purchaser, as the case may be, on or before the Closing Date (other than through the failure of the Party seeking to terminate to comply with its or his obligations under this Agreement);

13.1.3      by Sellers if the conditions set forth in Section 10 have not been satisfied or waived in writing by Sellers on or before the Closing Date (other than through the failure of Party seeking to terminate to comply with its or his obligations under this Agreement);

13.1.4     by Purchaser if the conditions set forth in Section 9 have not been satisfied or waived in writing by Purchaser on or before the Closing Date (other than through the failure of Party seeking to terminate to comply with its or his obligations under this Agreement);

13.1.5      by Purchaser on or before the date that is four weeks from the date hereof, if Purchaser, in the course of its due diligence investigation since June 30, 2006, learns or obtains information that it believes has, will or is reasonably expected to have, a material adverse impact on the condition (financial and otherwise), business, assets, liabilities, results of operations, prospects or value of Acap or any of its subsidiaries, individually or as a whole, or the value of the Shares or otherwise concludes, based on information available to it, that the condition (financial and otherwise), business, assets, liabilities, results of operations, prospects or value of Acap or any of its subsidiaries, individually or as a whole, or the value of the Shares is materially different from what it understands them to be as of the Date Hereof;

13.1.6      by Purchaser by written notice to Sellers if Purchaser reasonably concludes that action was taken or there was a failure to take action that was not “in the ordinary course of business” as set forth in Subsection 6.2 hereof; or

13.1.7     by either Purchaser or Sellers upon written notice to the other Party of Parties, as the case may be, if the Closing is not consummated on or before the Closing Date, unless the failure to consummate the Closing by such date shall be due to the action or failure to act of the Party seeking to terminate this Agreement or the non-satisfaction of any condition to Closing.

13.2          Effect of Termination.        In the event of any rightful termination of this Agreement in accordance with this Section, no party to this Agreement will have any liability to the other, except  (a) Sellers shall be entitled to retain the Escrow Fund as set forth in Section 3.6, (b) Purchaser shall be entitled to payment of the sum of Two Million Dollars as set forth in Section 6.5, (c) if, prior to the expiration of four weeks from the Date Hereof, such rightful termination results from the other Party’s intentional or reckless breach of this Agreement, the terminating Party shall have all remedies available to it at law or in equity, and (d) if, after the expiration of four weeks from the Date Hereof, such rightful termination results from a Party’s breach of this Agreement, the terminating Party shall have all remedies available to it at law or in equity. In the event of any wrongful termination of this Agreement, the Parties shall have all remedies available to them at law or in equity subject, in the case of a termination within four weeks of the Date Hereof, to any limitation set forth in Subsection 3.6. This Subsection (and the subsections referred to herein) shall survive the termination of this Agreement.

                        14.    MISCELLANEOUS

14.1     Applicable Law, Venue and Jurisdiction.           This Agreement shall be construed and enforced in accordance with the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might refer construction of such provisions to the laws of another jurisdiction. The Parties agree that this Agreement was made and entered into in Houston, Harris County, Texas. In the event of a dispute concerning this Agreement, the Parties agree that venue lies in a court of competent jurisdiction in Harris County, Texas.

14.2          Benefit. This Agreement shall be binding upon, and enforceable against, the Parties hereto and shall inure to the exclusive benefit of the Parties hereto, and their successors or permitted assigns, except as enforceability may be limited by applicable bankruptcy laws or similar laws affecting the enforcement of creditors’ rights generally or by equitable principles relating to enforceability. 

14.3          Third Parties.    Except for the Guest Trust, any Come-Along Acap Shareholders who join in this Agreement as Sellers hereunder and Holders of Acap Stock Put Options who execute a stock option agreement as expressly set forth herein, this Agreement is not intended to, and shall not, convey or provide any right or benefit to any person, individual or entity that is not a party hereto.  Nothing in this Agreement is intended to relieve or discharge the obligation or liability of any third person or entity to any Party or give any third person or entity any right of subrogation or action against any party to this Agreement.

14.4          Waiver.            Except as otherwise expressly provided herein, neither the failure nor any delay on the part of any party hereto in exercising any rights, power or remedy hereunder shall operate as a waiver thereof, or of any other right, power or remedy; nor shall any single or partial exercise of any right, power or remedy preclude any further or other exercise thereof, or the exercise of any other right, power or remedy.

14.5          Interpretation.                    It is acknowledged by the Parties that this Agreement has undergone several drafts with the negotiated suggestions of both and, therefore, no presumptions shall arise favoring any party by virtue of the authorship of any of its provisions.

14.6          Gender and Number.         Where appropriate, words that may be gender specific shall apply equally to either the masculine or feminine forms, as the context requires, and words that may be number specific shall apply equally to the singular and plural forms, as the context requires.

14.7          Entire Agreement and Amendment.       This Agreement, the schedules, exhibits and any Addendum hereto, each of which is deemed to be a part hereof, and any certificates or other agreements executed and delivered by the Parties pursuant to this Agreement, constitute the entire agreement and understanding between the Parties hereto, and it is understood and agreed that all undertakings, negotiations and agreements heretofore had between the Parties are merged herein and no longer of any force or effect. This Agreement may not be modified orally, but only by an agreement in writing signed by Purchaser and Sellers, and delivered each to the other. Except as expressly provided herein, no waiver of any of the provisions of this Agreement shall be valid unless it is in writing and signed by the Party against whom it is sought to be enforced, and delivered to the other Party or Parties, as the case may be.

14.8     Notices.           Any notice made pursuant to this Agreement shall be in writing and signed by an authorized representative of the Party giving said notice, and shall be deemed to have been duly given on the date of delivery if delivered personally (including overnight delivery service actually delivered during regular business hours of the Party addressed) or on the date when actually received, or by a completed facsimile transmission to the Party to whom notice is given, or on the third day after mailing if mailed to the Party to whom notice is to be given by certified U. S. mail, return receipt requested, and properly addressed as follows:

            If to Purchaser:

Theodore C. Miller

Senior Vice President

            UTG, Inc.

            5250 South Sixth Street

Springfield, Illinois 62703

FAX:  (217) 241-6578

If to Sellers:

William F. Guest

2243 Stanmore Drive

Houston, Texas 77019

FAX:    (713) 522-1804

         And

      John D. Cornett

      10922 Burgoyne Rd

      Houston, Texas 77042

      FAX:    (713) 784-4845

Each of Guest and Cornett are authorized to receive any notices hereunder on behalf of all Sellers

Any Party to this Agreement may change the address and/or facsimile number to which notice is to be delivered to such Party under this Section by delivering written notice to that effect to the other Party in accordance with this Section.  Any document delivered via facsimile transmission shall be treated as the original for all purposes unless the original is substituted therefor.

14.9           No Assignment.      This Agreement shall be assignable by any Party hereto only with the written consent of the other Party or Parties, as the case may be.

14.10        Severability.             If any provision of this Agreement is invalid, illegal or unenforceable, the balance of this Agreement shall remain in full force and effect and this Agreement shall be construed in all respects as if such invalid, illegal or unenforceable provision were omitted.  If any provision is inapplicable to any person or circumstance, it shall, nevertheless, remain applicable to all other persons and circumstances.

14.11         Headings.               Any paragraph headings in this Agreement are for convenience of reference only, and shall be given no effect in the construction or interpretation of this Agreement or any provisions thereof.

14.12        Counterparts.           This Agreement may be executed simultaneously in two or more counterparts (including execution by facsimile transmission), each of which shall be deemed an original, and which together shall constitute but one and the same instrument.

14.13        Publicity.          To the extent consistent with reporting and disclosure requirements under applicable law, prior to the Closing, all publicity and announcements by the Parties concerning the transactions contemplated hereby shall be jointly planned and coordinated, and no Party shall act unilaterally in this regard without the prior approval of the other Party or Parties, as the case may be, which approval shall not be unreasonably withheld.  Nothing in this Section shall prevent a Party from discharging its legally required obligations regarding announcements and/or disclosures.

14.14        Expenses.         Unless otherwise provided herein, Purchaser and Sellers shall each bear all expenses incurred by it in connection with the preparation, performance and consummation of the transactions contemplated by this Agreement.

14.15        Cooperation After Closing.

14.15.1        Sellers will, at any time and from time to time following the Closing, upon the reasonable request of Purchaser and without further consideration, take such actions and execute and deliver such further documents and instruments as may be reasonably necessary and proper to effectively transfer the Shares to Purchaser and to effectively carry out the other terms and provisions of this Agreement and the other transactions contemplated hereby.

14.15.2        Purchaser will, at any time and from time to time following the Closing, upon the reasonable request of Sellers and, without further consideration, take such actions and execute and deliver, or cause to be executed and delivered, to Sellers such further documents and instruments as may reasonably be necessary and proper to effectively carry out the terms and provisions of this Agreement and the transactions contemplated hereby.

14.15.3       From and after the Closing, (i) Purchaser shall promptly transfer and deliver to Sellers from time to time any cash or other property, including mail, which it may receive which belongs to Sellers, and (ii) Sellers shall promptly transfer and deliver to Purchaser from time to time, any cash or other property, including mail, that Sellers may receive which belong to Purchaser or Acap or its subsidiaries.

14.15.4       Purchaser and Sellers shall cooperate in good faith with one another in connection with the defense or presentation by any of them of each lawsuit or claim against Acap or its subsidiaries arising out of this transaction, if any.  Such cooperation shall include (i) supplying, at the expense of the other, such factual and technical information as it shall possess and the other may reasonably require in connection with any such defense, (ii) making available, at the expense of the other, appropriate persons employed by it to testify as fact or expert witnesses at trial and on deposition in connection with such suit and (iii) providing, at the expense of the other, such information as may be required by it to respond to discovery proceedings in any such lawsuits.  Payment of expenses hereunder shall be limited to reasonable out-of-pocket expenses and reimbursement of salaries or wages for the time of employees.     

14.16   Equitable Remedies.  The Parties recognize that the subject matter of this Agreement is unique and that irreparable harm could result in the event of a breach or threatened breach of this Agreement for which money damages would be inadequate.  In addition to the remedies expressly provided elsewhere in this Agreement, a Party shall be entitled to equitable remedies, including specific performance and injunctive relief, in the event of any breach or threatened breach of this Agreement by another Party hereto.

IN WITNESS WHEREOF, the Parties have duly executed this Agreement, and made delivery thereof, as of the Effective Date.

UTG, Inc., PURCHASER

By:_/s/ Theodore C. Miller____________

                                                                        Theodore C. Miller

Senior Vice President

SELLERS:

By: _/s/ William F. Guest_____________

                   William F. Guest

By:_/s/ John D. Cornett_______________

                   John D. Cornett

ADDENDUM TO STOCK PURCHASE AGREEMENT
dated August 7, 2006

Among UTG, Inc. and Certain Individual Shareholders of Acap Corporation

     The undersigned is a “Come-Along Acap Shareholder” under the above referenced Stock Purchase Agreement (herein so called) and executes this Addendum to join in the Stock Purchase Agreement as a “Seller” thereunder in order to sell the shares of common stock of Acap Corporation owned of record and beneficially by the undersigned and set out below to UTG, Inc. at the Closing of the Stock Purchase Agreement, in accordance with its terms. 

     The undersigned agrees to be bound by the Stock Purchase Agreement as a Seller thereunder, and makes, adopts, assumes and agrees to perform all of the representations, warranties, covenants and indemnities of a Seller thereunder to the same extent as if the undersigned had initially signed the Stock Purchase Agreement as a party thereto.  The Stock Purchase Agreement is incorporated herein by reference.

     IN WITNESS WHEREOF, the undersigned has duly executed this Addendum, and made delivery thereof, as of the date set out below.

Date:                                                                    

Number of shares of Acap Corporation common stock:                            

                                                                                         [Signature]

                                                                                         [Printed name]

EX-2.3

Exhibit 2.3

AMENDMENT NO. 1 TO THE STOCK PURCHASE AGREEMENT BETWEEN UTG, INC. AND CERTAIN INDIVIDUAL SHAREHOLDERS OF ACAP CORPORATION

DATED AUGUST 7, 2006

September 6, 2006

This is an amendment to that Stock Purchase Agreement between UTG, Inc. and certain individual shareholders of Acap Corporation dated August 7, 2006 (“Agreement”).  Terms defined in the Agreement are applicable to this amendment.

For good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, UTG and the Sellers agree as follows:

            Section 3.5 of the Agreement is hereby amended in its entirety to read as follows:

3.5    Purchase Price and Payment.  The purchase price of each of the shares of Acap Common Stock to be purchased from Sellers and accepted by Purchaser at Closing shall be NINE THOUSAND FIVE HUNDRED AND SEVENTY ONE ($9,571) per share of Acap Common Stock (the “Per Share Purchase Price”).    The purchase price of each of the shares of Acap Common Stock to be purchased and accepted by Purchaser pursuant to the Acap Stock Put Options shall be equal to the Per Share Purchase Price, and no more.  All payments to be made by Purchaser shall be in the form of immediately available funds.

            Section 4 of the Acap Stock Put Option is hereby amended to be consistent with the above amendment to Section 3.5 of the Agreement, and the Addendum to the Stock Purchase Agreement is hereby amended to refer to the Stock Purchase Agreement, dated August 7, 2006, as amended by this Amendment No. 1 thereto.

            Purchaser agrees that it has concluded its due diligence investigation as provided in Section 6.3 of the Agreement, that in consideration of the above amendment of Section 3.5, and the Acap Stock Put Option, Purchaser agrees that none of the conditions that have been identified in notices that have been delivered to Sellers pursuant to Section 7.3.1 of the Agreement are objectionable under Section 9.11, and Purchaser has no knowledge at this time of any condition that would prevent the Closing based on a failure to satisfy the condition set forth in Section 9.11 of the Agreement.

IN WITNESS WHEREOF, the Parties have duly executed this Amendment No. 1, and made delivery thereof in the manner permitted by the Agreement, as of September 6, 2006.

UTG, Inc., PURCHASER:                                                SELLERS:

_____________________________                   ___________________________________

     Theodore C. Miller                                                       William F. Guest

Senior Vice President                                                                                

                   ___________________________________

                               John D. Cornett

EX-2.4

Exhibit 2.4

AMENDMENT NO. 2 TO THE STOCK PURCHASE AGREEMENT BETWEEN UTG, INC. AND CERTAIN INDIVIDUAL SHAREHOLDERS OF ACAP CORPORATION

DATED AUGUST 7, 2006

November 22, 2006

This is an amendment to that Stock Purchase Agreement between UTG, Inc. and certain individual shareholders of Acap Corporation dated August 7, 2006, as amended by Amendment #1 thereto (“Agreement”).  Terms defined in the Agreement are applicable to this amendment.

For good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, UTG and the Sellers agree as follows:

            Section 3.5 of the Agreement is hereby amended in its entirety to read as follows:

3.5       Purchase Price and Payment.  The purchase price of each of the shares of Acap Common Stock to be purchased from Sellers and accepted by Purchaser at Closing shall be NINE THOUSAND FIVE HUNDRED FORTY SIX DOLLARS ($9,546) per share of Acap Common Stock (the “Per Share Purchase Price”).  The purchase price of each of the shares of Acap Common Stock to be purchased and accepted by Purchaser pursuant to the Acap Stock Put Options shall be equal to the Per Share Purchase Price, and no more.  All payments to be made by Purchaser shall be in the form of immediately available funds.

            Section 4 of the Acap Stock Put Option is hereby amended to be consistent with the above amendment to Section 3.5 of the Agreement, and the Addendum to the Stock Purchase Agreement is hereby amended to refer to the Stock Purchase Agreement, dated August 7, 2006, as amended by Amendment No. 1 (dated September 6, 2006) and this Amendment No. 2 thereto.

            IN WITNESS WHEREOF, the Parties have duly executed this Amendment No. 2, and made delivery thereof in the manner permitted by the Agreement, as of November 22, 2006.

UTG, Inc., PURCHASER:                                                                   SELLERS:

_/s/ Theodore C. Miller_______________                  _/s/ William F. Guest__________________

            Theodore C. Miller                                                       William F. Guest

            Senior Vice President                                      

                                                                                    _/s/ John D. Cornett___________________

                                                                                                John D. Cornett

EX-10.3

 

Exhibit 10.3

Amended and Restated UTG, Inc. Employee and Director Stock Purchase Plan

COMMON STOCK

(no par value)

Background

The United Trust Group, Inc. Employee and Director Stock Purchase Plan (the “Initial Plan”), was approved by the board of directors of United Trust Group, Inc. (“United”), on March 26, 2002, and was approved by the shareholders of United on June 11, 2002.  On July 1, 2005, United was merged into UTG, Inc., a Delaware corporation.  The purpose of the merger was to effect a reincorporation of United as a Delaware corporation.  The board of directors of UTG, Inc. now desires to adopt this Restated UTG, Inc. Employee and Director Stock Purchase Plan (the “Restated Plan”) in order to reflect UTG, Inc. as the successor by merger to United.  The Restated Plan is set forth in its entirety as follows:

We desire to offer employees and directors of UTG, Inc. and its subsidiaries the opportunity to invest in shares of our common stock.  This document describes the plan we have established under which employees and directors may purchase shares of UTG, Inc. common stock. 

Investing in shares under the plan is not without risks.  The price at which shares are being offered under this plan is not based on market price, and employees and directors investing in shares under the plan will be required to execute a stock restriction agreement.  The stock restriction agreement imposes significant restrictions on the transferability of shares, and fixes the price at which a participant in the plan may be required to sell shares back to UTG, Inc. based on the change in the book value of the shares, not market value.

A note about UTG, Inc.

UTG, Inc. is a publicly-held company that files reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934.  The common stock United Trust Group, Inc., the predecessor of UTG, Inc., was formerly traded on the Nasdaq Small Cap Stock Market.  Effective December 31, 2001, we voluntarily de-listed the shares of United Trust Group, Inc. from Nasdaq.  Shares of UTG, Inc. are now traded sporadically in the over-the-counter market. 

Jesse Correll, and his affiliates and associates own a majority of our outstanding shares of common stock.

How many shares may be issued under the plan

The board of directors has authorized the issuance of a total of 400,000 shares of common stock pursuant to this plan.  The number of shares authorized to be issued under the plan will be subject to adjustment proportionately if there is a stock dividend, stock split or similar recapitalization event resulting in a change in shares of UTG, Inc.

How the plan operates

            Annual offering of shares.  Eligible employees and directors of UTG, Inc. and its subsidiaries may be offered the opportunity to purchase a limited amount of shares of UTG, Inc. under the plan annually.  Each annual offering, if made, will remain open for a period of 30 days, during which directors and eligible employees selected by our board of directors may elect to purchase shares of UTG, Inc. under the plan.  An election to purchase shares will not be valid unless the employee/director meets the eligibility requirements to participate in the plan and, prior to the end of the offering period,

(1)    the employee/director delivers to UTG, Inc. a signed, completed subscription agreement, in the form attached as Exhibit A, together with payment in full of the purchase price of the shares, and

(2)    the employee/director signs and delivers to UTG, Inc. a stock restriction agreement, in the form attached as Exhibit B.

            Limit on number of shares that may be purchased annually.  The board of directors of UTG, Inc. shall have discretion to determine the number of shares to be offered in any annual offering subject to the limitations in this plan and to determine the number of shares, if any, to be offered to each director or eligible employee in an annual offering under the plan.  No fractional shares will be issued, and any fractions will be rounded down to the next whole number. 

            Closing of annual offering.  The closing of an annual offering will occur within 5 business days following the end of the annual offering period.  At that time, certificates representing the shares purchased by a participating employee in an annual offering will be issued, in the name of the participating employee, and, if there has been an oversubscription, any excess funds received will be returned, by check, to participating employees (without interest).  

            Timing of annual offerings.  The board of directors of UTG, Inc. will determine if and when annual offerings of shares under the plan will be made. 

            Price of shares in an annual offering. The price at which shares will be offered in the first annual offering has been arbitrarily set at $12.00 per share. At each annual offering thereafter, the board of directors of UTG, Inc. will fix the price at which shares will be offered under the plan at the time it authorizes the annual offering.  In any case, the price at which shares will be offered under the plan will not be less than 100% of the fair market value of shares of UTG, Inc. at the time the offering is authorized by the UTG, Inc. board of directors.

Eligibility requirements for participants

The board of directors of UTG, Inc. shall have discretion to select the directors and eligible employees who will be extended the opportunity to purchase shares in any annual offering under the plan. Only individual employees of UTG, Inc. or its subsidiaries who either (1) serve as directors of UTG, Inc. or its subsidiaries or (2) have been employed full-time by UTG, Inc. or its subsidiaries for at least 1 year at the time of an offering of shares under the plan are eligible to participate and purchase shares in that offering under the plan.  Any person serving as a director of UTG, Inc. or any of its subsidiaries at the time of an offering of shares under the plan is eligible to participate and purchase shares in that offering under the plan.

The board of directors of UTG, Inc. may refuse to issue any shares to a person if it determines, in good faith, that the foregoing eligibility requirement was not met either during the annual offering period and at the time of the closing of the offering.  Independent contractors and other individuals who are not employees or directors are not eligible to participate in the plan.

The employment relationship will be treated as continuing intact while an employee is on sick leave or other bona fide leave of absence for a period not to exceed 90 days.  Where the period of leave exceeds 90 days, the employment relationship will be deemed terminated on the 91^st day of such leave.

The opportunity to participate in the plan is personal to eligible employees and directors selected by the board of directors.  No right with regard to participation in the plan or right to purchase and receive shares of UTG, Inc. under the plan may be assigned, transferred, pledged or otherwise disposed of in any way by a participating employee or director.  Any such attempted assignment, transfer, pledge, or other disposition will be without effect.  An eligible employee’s or director’s right to purchase shares under the plan may be exercised only during the employee’s or director’s lifetime.

A participating employee or director will have no interest in, or rights to, any shares under the plan until the certificate represented shares purchased by that participating employee has been issued. 

Who administers the plan

The plan is administered by the board of directors of UTG, Inc. The board of directors of UTG, Inc. has full power and authority to construe, interpret and administer the plan and may adopt rules and regulations for carrying out the plan.  The board of directors may make arrangements for individuals or organizations to assist in the administration of the plan.  Decisions made by the board of directors of UTG, Inc. in the administration of the plan are final and binding absent manifest error.

Conditions of the plan

It is a condition of any offer of shares under this plan that the offer and sale of the shares are either exempt from the registration requirements imposed under the Securities Act of 1933 and applicable state securities laws or are duly registered in compliance with such registration requirements, and will be administered accordingly.  UTG, Inc. will not be obligated to offer or issue any shares under this plan if it determines, in good faith, that the offering or issuance of such sale violates any law.

Until the shareholders of UTG, Inc. approve the participation of directors in the plan, directors of UTG, Inc. will not be entitled to participate in the plan, or in any offering under the plan, unless they are otherwise entitled to participate in the plan as eligible employees of UTG, Inc. and its subsidiaries.

Transfer restrictions

Shares issued under the Plan shall be subject to the restrictions on transferability contained in the stock restriction agreement and applicable restrictions under federal and state securities laws. 

Amendment and termination of the plan

The plan may be amended or terminated by the board of directors of UTG, Inc. at any time. 

Construction of plan

This plan shall be governed by the laws of Delaware.

No provision of this plan shall be construed as giving any person any right he would not otherwise have to become or remain an employee of UTG, Inc. or any of its subsidiaries or any other right not expressly created by such provision.

No provision of this plan shall be construed as requiring Jesse Correll or any of his associates or affiliates to acquire or retain ownership of shares of UTG, Inc., or restrict in any way the issuance of shares of UTG, Inc. or the transfer of ownership or control of shares of any of UTG, Inc. or any of its subsidiaries.

This plan is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

Date the Initial Plan was approved by the board of directors of United Trust Group, Inc.: March 26, 2002

Date the Initial Plan was approved by the shareholders of United Trust Group, Inc.: June 11, 2002

Date the Restated Plan was approved by the board of directors of UTG, Inc.: December 6, 2006

         UTG, INC.

       By _____________________________

       Title ___________________________

Exhibit A

Subscription Agreement

This Subscription Agreement is being delivered by the undersigned to UTG, Inc. (the “Company”) to purchase shares of Common Stock of the Company that are being offered to me pursuant to the Restated UTG, Inc. Employee and Director Stock Purchase Plan (the “Plan”).  I accept the Company’s offer and agree to purchase shares of Common Stock of the Company in the offering pursuant to the Plan as follows:

Number of shares being purchased:  ________________________

Price:  $____________ per share ($__________________ in the aggregate)

Manner of payment:   ____________________________________________________________

Please register the shares I am acquiring in my name (as printed below) at the following address:

_____________________________________________________________________________

[insert the address that will be used for the Company’s shareholders’ list]

Accompanying this notice is the Restated Stock Restriction and Buy-Sell Agreement which I have executed and join in as a Shareholder of the Company.

I agree and confirm that:

·         I have received and read the Plan and agree to be bound by the terms and conditions contained in the Plan and in the Restated Stock Restriction and Buy-Sell Agreement.

·         I have received a copy of the Prospectus relating to the shares being offered under the Plan, and the most recent annual report and annual meeting proxy materials of the Company.

·         I understand that the transferability of the shares I am acquiring is subject to restrictions under the Restated Stock Restriction and Buy-Sell Agreement. 

·         I agree that the certificates representing all shares of Common Stock acquired under the Plan will bear a legend providing notice that such shares are restricted and bound by the terms and conditions of the Restated Stock Restriction and Buy-Sell Agreement, as in effect from time to time.

The foregoing agreements, commitments and obligations are being made by and on behalf of and shall be binding on me and my heirs, legatees and legal representatives and any transferee with respect to all shares of Common Stock acquired pursuant to the Plan (or any shares of Common Stock issued pursuant to a stock dividend or stock split thereon or any securities issued in lieu thereof or in substitution or exchange therefor).

This Subscription Agreement is being executed and delivered to the Company on _____________________

          [insert date]

                                                                                    ____________________________________

                                    [signature]

                                                                                    ____________________________________

                                    [printed name]

UTG, Inc.

Amended and Restated Stock Restriction And Buy-Sell Agreement

United Trust Group, Inc. ("United") adopted the United Trust Group, Inc. Stock Restriction and Buy-Sell Agreement (the “Initial Agreement”) effective November 1, 2002.  The Initial Agreement was amended and restated effective September 18, 2003 (the “Amended and Restated Agreement”).  On July 1, 2005, United was merged into UTG, Inc., a Delaware corporation (the “Company”).  The purpose of the merger was to effect a reincorporation of United as a Delaware corporation.  The board of directors of the Company now desires to restate the Amended and Restated Agreement in order to reflect UTG, Inc. as the successor by merger to United.  The Restated Stock Restriction and Buy-Sell Agreement is set forth in its entirety as follows:

This Restated Stock Restriction and Buy-Sell Agreement (“Agreement”), dated January 24, 2007, is made and entered into by and among UTG, Inc., a Delaware corporation (the “Holding Company”), and the undersigned shareholders of the Holding Company (individually a “Shareholder” and, collectively, the “Shareholders”).

Background

The Holding Company has adopted the Restated UTG, Inc. Employee and Director Stock Purchase Plan (the “Plan”) pursuant to which certain employees and directors of the Holding Company and its subsidiaries have been afforded the opportunity to purchase shares of common stock of the Holding Company.  Each of the Shareholders is executing this Agreement concurrently with the purchase of shares pursuant to the Plan.  As a condition to their participation in, and purchase of shares under, the Plan, the Shareholders are obligated to enter into this Agreement imposing certain restrictions and obligations on themselves and any shares of common stock of the Holding Company now or hereafter issued to them pursuant to the Plan (the “Shares”).  As used in this Agreement, the term “participant” refers to an employee or director of the Holding Company who purchases Shares from the Holding Company pursuant to the Plan.

Now, therefore, in consideration of the premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Holding Company and the Shareholders agree as follows:

1.   Restriction on Stock.  Except as otherwise provided in this Agreement, no Shareholder shall sell, transfer or otherwise dispose of (whether voluntarily or involuntarily or by operation of law) or agree or commit to sell, transfer, or otherwise dispose of all or any part of the Shares owned by the Shareholder without complying with the terms of this Agreement.

2.   Permitted Transfers and Sales of Shares.

a.         Any Shareholder may transfer all or any part of the Shares owned by such Shareholder by gift to or for the benefit of the Shareholder, the Shareholder’s spouse, or the Shareholder’s children.  The transferee shall receive, hold, and/or own such Shares subject to the terms of this Agreement and the obligations hereunder of the transferor Shareholder.

b.         Any Shareholder may pledge, mortgage or otherwise encumber the Shares owned by such Shareholder; provided, however, that this Agreement shall be binding upon the person in whose favor the Shareholder pledges, mortgages or otherwise encumbers any or all of such Shares, and the pledgee shall receive, hold, and/or own such Shares subject to the terms of this Agreement and the obligations hereunder of the pledgor Shareholder.  Notwithstanding the provisions of this Paragraph 2.b., any Shareholder may pledge, mortgage or otherwise encumber any or all of the Shares owned by them for the purpose of securing a loan or loans on behalf of the Holding Company or any affiliate of the Holding Company, and the pledgee of any such Shares shall receive, hold, and/or own such Shares free of the terms and restrictions contained in this Agreement and free of any obligations hereunder imposed on any Shareholder or any other person.  For purposes of this Agreement, an “affiliate” shall mean any entity which is controlled by the Holding Company or by Jesse Correll, either individually or collectively.

c.         Any Shareholder may sell, at any time, all or a portion of the Shares owned by such Shareholder in accordance with the provisions of this Paragraph 2.c. or Paragraph 2.d. below. 

i.          Such Shares must first be offered for sale to the Holding Company, and, within ten days of its receipt of such offer, the Holding Company

(or its designee) shall purchase such Shares, at the price and in the manner provided in Paragraph 4; provided, however, that the selling

Shareholder shall sell to the Holding Company not less than the lesser of:

(1)        all of the Shares then owned by such Shareholder; or

(2)        that number of Shares whose fair value as determined in accordance with Paragraph 4 is at least $1,000.

ii.          If the Holding Company (or its designee) is unable to purchase all of the Shares to be sold, then the remaining Shareholders will have a

ten day option to purchase such Shares (or the remainder of such Shares if the Holding Company purchases less than all of the Shares offered for

sale).  All Shareholders who exercise their options to purchase such Shares may purchase an amount of such Shares equal to the percentage of

Shares they own of the total number of Shares owned by all of the Shareholders exercising their options, at the price and in the manner provided

in Paragraph 4.

iii.         If all or any part of the Shares of the selling Shareholder are not purchased by the Holding Company or the remaining Shareholders, or both, in accordance with the provisions of this Paragraph 2.c, then the selling Shareholder shall be free to sell all, but not less than all, of the Shares not purchased by Holding Company or the remaining Shareholders, for a period of 90 days from the expiration of the option of the remaining Shareholders; provided, however, that at the end of such 90-day period, all restrictions imposed by this Agreement shall again be applicable.

d.         Any Shareholder may sell, donate or otherwise transfer, at any time, all or a portion of the Shares owned by such Shareholder with the prior consent and approval of the board of directors of the Holding Company.  In considering any request by a Shareholder pursuant to this Paragraph 2.d., the board of directors shall not be deemed to be under any obligation to consent to or approve of such request and may condition its consent and approval on such terms and conditions as the board of directors of the Holding Company deems appropriate, in the exercise of its discretion.

3.   Events Triggering Holding Company’s Right to Reacquire Shares. 

a.         Upon the death of any Shareholder, or the termination of any Shareholder’s employment with or service as a director of the Holding Company or any affiliate of the Holding Company (whether by reason of retirement, disability or voluntary or involuntary termination of employment, with or without cause), the Holding Company (or its designee) shall, at its option, have the right to purchase, and in the event of the exercise of such option, the Shareholder, or his or her personal representative, spouse and/or children, as the case may be, shall be required to sell, all or any part of such Shares:

i.          then held by such Shareholder; or

ii.          which were transferred by such Shareholder to or for the benefit of such Shareholder or his or her spouse or children in accordance with the terms of Paragraph 2.a of this Agreement; or

iii.         which were transferred to such Shareholder’s spouse in accordance with the terms of a decree of divorce.

b.         Upon a non-employee, non-director Shareholder’s divorce from the participant in the Plan from whom such Shareholder has acquired Shares, the Holding Company shall, at its option, have the right to purchase, and, in the event of the exercise of such option, the Shareholder shall be required to sell, all or any part of such Shares then held by such Shareholder, and, at the discretion of the board of directors of the Holding Company, any Shares which were transferred by such non-employee, non-director Shareholder to his or her children in accordance with Paragraph 2.a.

c.         Such purchase by the Holding Company upon the exercise of its options to purchase granted under Paragraph 3.a or 3.b above shall be at the price and in the manner provided in Paragraph 4 of this Agreement and shall take place within 90 days of such Shareholder’s death or termination of employment or the entry of a decree of divorce.

d          If all or any part of the Shares of the selling Shareholder (or his or her personal representative, spouse and/or children who are obligated to sell such Shares, as the case may be) are not purchased by the Holding Company in accordance with the provisions of this Paragraph 3, then the selling Shareholder (or his or her personal representative, spouse and/or children, as the case may be) shall be free to sell all, but not less than all, of the Shares not purchased by Holding Company for a period of 90 days from the expiration of the 90-day period set forth in Paragraph 3.c; provided, however, that at the end of such 90-day period, all restrictions imposed by this Agreement shall again be applicable.

4.   Purchase Price and Terms of Purchase.  The purchase price for any Shares purchased pursuant to this Agreement shall be, on a per Share basis, equal to the sum of (i) the original purchase price(s) paid to acquire such Shares from the Holding Company at the time they were sold pursuant to the Plan and (ii) the consolidated statutory net earnings (loss) per Share of such Shares during the period from the end of the month next preceding the month in which such Shares were acquired pursuant to the Plan to the end of the month next preceding the month in which the closing of such purchase occurs.  The consolidated statutory net earnings per Share shall be computed as the net income of the Holding Company and its subsidiaries on a consolidated basis in accordance with statutory accounting principles applicable to insurance companies, as computed by the Holding Company, except that earnings of insurance companies or block of business acquired after the original plan date, November 1, 2002, shall be adjusted to reflect the amortization of intangibles established at the time of acquisition in accordance with generally accepted accounting principles (GAAP), less any dividends paid to shareholders. The calculation of net earnings per Share shall be performed on a monthly basis using the number of common shares of the Holding Company outstanding as of the end of the reporting period. The purchase price for any Shares purchased hereunder shall be paid in cash within 60 days from the date of purchase subject to the receipt of any required regulatory approvals as provided in Paragraph 6 of this Agreement.

5.   Tag-along Rights.  If, during the term of this Agreement, Jesse Correll and his affiliates sell, in one or a series of related transactions, more than 50% of the then outstanding shares of common stock of the Holding Company to any third party who is not an affiliate of Jesse Correll, then all of the Shareholders will be given the opportunity to sell their Shares either to such third party or to the Holding Company on the same terms and conditions as Jesse Correll and his affiliates. 

6.   Regulatory Approvals.  Should any regulatory approvals be required in connection with the purchase of any Shares provided for in this Agreement, the Shares and the purchase price therefor shall be escrowed pending receipt of such approvals.  Interest on the purchase price placed in escrow shall accrue to the benefit of the selling Shareholder regardless of whether the sale ultimately takes place.  Notwithstanding the necessity of obtaining any regulatory approval, the sale of any Shares hereunder must close, if at all, within 150 days from the date the Shares were first offered for sale or the date of death, termination of employment or divorce of a selling Shareholder.

7.   Endorsement on Stock Certificates.  All stock certificates representing the Shares of the Holding Company shall contain the following legend:

“The shares represented by this certificate may not be transferred except in accordance with the terms contained in a certain Restated Stock Restriction and Buy-Sell Agreement dated as of January 24, 2007.  Transfers in violation of that Agreement are void.  A copy of that Agreement may be obtained from UTG, Inc.”

8.   Notice. Any notice required or permitted under this Agreement shall be in writing, shall be delivered to the residence or principal place of business of the intended recipient as noted on the stock record books of the Holding Company, by either registered mail, overnight courier service or hand delivery, and shall be deemed received the third business day after such notice is deposited in the U.S. mail, postage prepaid the next business day after deposit with an overnight courier service or the date of hand delivery.

9.   Binding Effect.  This Agreement shall be binding on the parties hereto, their successors, assigns, estates and heirs, and on any transferee of Shares of the Holding Company.  As a condition of any transfer of Shares, including any transfer on the books of the Holding Company and the issuance of certificates representing such Shares, the transfer must be made in accordance with this Agreement and the transferee of such Shares shall execute and become a party to this Agreement.  Any attempt to transfer Shares or to assign rights and obligations under this Agreement, whether voluntarily or by operation of law, shall be void and shall not be binding on the Holding Company or its Shareholders unless done in accordance with the terms of this Agreement.

10. Other Shareholders.  The Holding Company may issue additional Shares pursuant to the Plan for such consideration as may be determined by the Board of Directors of the Holding Company.  The Holding Company agrees that no such Shares shall be issued pursuant to the Plan except upon agreement by the purchaser thereof to become a party to and be bound by the provisions of this Agreement by executing this Agreement in the spaces provided below.  From and after the date of issuance of such Shares, the purchaser thereof shall, for all purposes, be deemed to be a Shareholder as that term is used in this Agreement.

11. Amendments and Waivers.  This Agreement may be amended or modified only by an instrument in writing signed by the Holding Company and the holders of a majority of the outstanding Shares that are subject to this Agreement, and any provision of this Agreement may be waived by the board of directors of the Holding Company; provided, however, that no such amendment, modification or waiver shall, unless by an instrument signed by the Holding Company and all of the Shareholders [i] differ in effect on any Shareholder in a material and adverse manner from the effect of such amendment, modification or waiver on the holders of a majority of the Shares, [ii] create any additional obligation for a Shareholder without creating similar obligations on the other Shareholders without the prior written consent of the Shareholder so affected, or [iii] alter the terms of Paragraph 5 of this Agreement.

12. Termination of Agreement.  This Agreement may be voluntarily terminated by the affirmative vote of at least two-thirds of the outstanding Shares.  This Agreement will automatically terminate if Jesse Correll and his affiliates sell substantially all of their shares of common stock of the Holding Company and all Shareholders have had the same opportunity to sell their Shares as provided for in Paragraph 5.

13. Counterparts.  This Agreement may be executed in counterparts, all of which taken together shall constitute one and the same agreement.

14. Retroactive Effect; Status of Initial Agreement.  This Agreement shall be binding upon each Shareholder who becomes a signatory to this Agreement and shall supersede the Initial Agreement with respect to all shares of common stock of the Holding Company issued to such Shareholder under the Plan.  The Initial Agreement shall remain in full force and effect with respect to any participant who is a signatory to the Initial Agreement who does not become a signatory to this Agreement.  In the event all participants who are signatories to the Initial Agreement become signatories to this Agreement, the Initial Agreement shall terminate and no longer be of any effect.  The failure of any such participant to become a signatory to this Agreement shall not affect the validity or enforceability of this Agreement against any signatory to this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

        UTG, INC.

        By _____________________________

        Title ___________________________

UTG, Inc.

Restated Stock Restriction And Buy-Sell Agreement

The undersigned does hereby execute and become a party to the UTG, Inc. Restated Stock Restriction and Buy-Sell Agreement dated as of ________________, 2007.

_______________________________

Shareholder Signature

Printed

Name:  ________________________

Date:  ________________________

EX-10.4

 

Exhibit 10.4

First Tennessee Bank National Association

PROMISSORY NOTE

$18,000,000.00                                                                                                              December 8, 2006

                                                                                                                                   Memphis, Tennessee

            FOR VALUE RECEIVED, UTG, Inc., a Delaware Corporation, (“Borrower”), promises to pay to the order of FIRST TENNESSEE BANK NATIONAL ASSOCIATION,  Memphis, Tennessee (“Lender”; Lender and any subsequent holder[s] hereof are hereinafter collectively referred to as “Holder”), the principal sum of Eighteen Million and 00/100 DOLLARS ($18,000,000.00), together with interest thereon, on so much thereof as shall remain outstanding from time to time, at the rates hereinafter provided.

            [This is a Master Promissory Note, and it is contemplated that the full principal amount of this Note shall not be advanced on the date hereof and that further advances shall be disbursed subsequent to the date hereof.  Any advance shall be conclusively agreed to have been made to or for the benefit of and at the request of Borrower when deposited or credited to an account of Borrower with Lender.]

            The interest rate on the Note is subject to change from time to time based on changes in an independent index which is the LIBOR Rate (as hereinafter defined), adjusted and determined as of the opening of business on the first date of the month in which the Note is dated (the “Initial Pricing Date”) and on the 1^st day of every third month hereafter (the “Interest Rate Change Date”).  The “LIBOR RATE” shall mean the London Interbank Offered Rate of interest for an interest period of three (3) months, as reported in the Wall Street Journal published on each Interest Rate Change Date.  Each change in the Index which results from a change in the LIBOR Rate shall become effective, without notice to the Borrower, on each Interest Rate Change Date following any change in the LIBOR Rate; provided, however, that if The Wall Street Journal is not published on such date, the LIBOR Rate shall be determined by reference to The Wall Street Journal last published immediately preceding such date (the “Index”).  The Index is not necessarily the lowest rate charged by Lender on its Loans.  If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower.  Lender will tell Borrower the current Index upon Borrower’s request.  The interest rate change will not occur more often than every third month.  Borrower understands the Lender may make loans based on other rates as well.  The Index is currently 5.35% per annum.  The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 1.80 percentage points over the Index, resulting in an initial rate of 7.15% per annum.  Notwithstanding anything else in this instrument to the contrary, in no event shall the maximum rate of interest payable in respect to the indebtedness evidenced hereby exceed the maximum rate of interest allowed to be charged by applicable law.

            Payment Schedule.  Said principal and the accrued interest thereon are payable in the following manner, to-wit:

(i)         Commencing March 8, 2007, and on the same day of each consecutive quarter thereafter until and including December 7, 2007, accrued interest only shall be due and payable.

(ii)        Borrower will pay this loan in 5 principal payments of $3,600,000 each, commencing December 7, 2008, and a like amount due annually on the same day of each year thereafter to and including December 7, 2012, at which time the outstanding principal balance hereof and all accrued and unpaid interest thereon shall be due and payable.  In addition, Borrower will pay regular quarterly payments of accrued unpaid interest due as of each payment date, commencing March 8, 2007, with all subsequent interest payments to be due on the same day of each quarter after that.

            Place of Payment.  All payments in respect of the indebtedness evidenced by this Note shall be payable in lawful money of the United States of America, at the office of Lender, 845 Crossover Lane, Suite 150, Memphis, Tennessee, 38117 or such other place as the Holder of this Note may designate in writing.  Interest shall be calculated on a 365/365 basis; that is, by applying the ratio of the annual interest rate over a year of 365 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.

            Late Charge.  Borrower shall pay a “late charge” equal to the lesser of (i) One Hundred Dollars ($100.00) or (ii) five percent (5%) of any payments of principal and/or interest due when paid more than ten (10) days after the due date thereof (provided that in no event shall said “late charge” result in the payment of interest in excess of the maximum interest permitted by law) to cover the extra expenses involved in handling delinquent payments.

            Prepayments.  The indebtedness evidenced hereby may be prepaid, in whole or in part, at any time without penalty.  Any prepayment shall be applied first to accrued and unpaid interest on the outstanding principal balance, and the remainder, if any, shall be applied to reduce the outstanding principal balance of this Note in the sequential order of its maturity.

            Security.  This Note is secured by, among other things, the lien and provisions of a certain Commercial Pledge Agreement, dated of even date herewith, executed and delivered by Borrower to Lender, covering certain Collateral as described therein.

             Loan Agreement.  The proceeds of this Note are being advanced pursuant to the terms of that certain Loan Agreement (“the Loan Agreement”) of even date herewith by and between Borrower and Lender.  Any default under the terms of said Loan Agreement shall constitute a default hereunder.

In the event that any one or more of the Events of Default specified in the Loan Agreement shall have happened, the Holder of this Note may proceed to protect and enforce its rights either by suit in equity and/or by action at law, or by other appropriate proceedings, whether for the specific performance of any covenant or agreement contained in this Note, the Loan Agreement, the Negative Pledge Agreement, or the Commercial Pledge Agreement or in aid of the exercise of any power or right granted by this Note, the Loan Agreement, the Negative Pledge Agreement,  or the Commercial Pledge Agreement  or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the Holder of this Note. 

Upon the occurrence of any Event of Default as set forth herein, at the option of Holder and without notice to Borrower, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at the lesser of (a) fourteen percent (14%) per annum or (b) the maximum effective contract rate which is it lawful for the holder hereof to charge. (the “Default Rate”)  regardless of whether there has been an acceleration of the payment of principal as set forth herein.  All such interest shall be paid at the time of and as a condition precedent to the curing of any such default (to the extent that any such cure is otherwise expressly permitted under the terms of this Note).

            Limitation of Interest.  Notwithstanding any provision herein to the contrary, it is the intent of the Lender and the Borrower that neither the Lender nor any subsequent Holder shall be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum lawful rate of interest permitted to be charged by applicable law or regulations, as amended or enacted from time to time.  In the event the Note calls for any interest payment that exceeds the maximum lawful rate of interest then applicable, such interest shall not be received, collected, charged, or reserved until such time as the interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest.  In the event Lender, or any subsequent Holder, receives any such interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such, or, if the principal indebtedness evidenced hereby is paid in full, any remaining excess funds shall immediately be paid to Borrower.

            Cumulative Rights.  No delay on the part of the Holder of this Note in the exercise of any power or right under this Note or any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or in the exercise of any other power or right.  Enforcement by the Holder of this Note of any security for the payment hereof shall not constitute any election by it or remedies so as to preclude the exercise of any other remedy available to it.

            Waiver.  Presentment for payment, demand, protest and notice of demand, protest and nonpayment are hereby waived by Borrower and all other parties hereto.  No failure to accelerate the indebtedness evidenced hereby by reason of default hereunder, acceptance of a past-due installment or other indulgences granted from time to time, shall be construed as a novation of this Note or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note or to prevent the exercise of such right of acceleration or any other right granted hereunder or by applicable laws.  Unless otherwise specifically agreed by Holder in writing, the liability of Borrower and all other persons now or hereafter liable for payment of the indebtedness evidenced hereby, or any portion thereof, shall not be affected by (1) any renewal hereof or other extension of the time for payment of the indebtedness evidenced hereby or any amount due in respect thereof, (2) the release of all or any part of any collateral now or hereafter securing the payment of the indebtedness evidenced hereby or any portion thereof, or (3) the release of or resort to any person now or hereafter liable for payment of the indebtedness evidenced hereby or any portion thereof.  This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.  To the extent permitted by applicable law, Borrower hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any appraisement, exception and homestead now provided, or that may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note.

            Attorney’s Fees and Costs.  In the event one or more Events of Default shall occur, and in the event that thereafter this Note is placed in the hands of an attorney for collection, or in the event this Note is collected in whole or in part through legal proceedings of any nature, then, and in any such case, there shall be added to the unpaid principal balance hereof all costs of collection, including, but not limited to, reasonable attorneys’ fees and all expenses incurred in connection with the exercise of any rights under this Note incurred by the Holder hereof on account of such collection, whether or not suit is filed.

            Governing Law.  This Note has been negotiated, executed and delivered in the State of Tennessee and shall be construed in accordance with the laws of the State of Tennessee, except to the extent that Federal law may be applicable to the determination of the Default Rate. 

            Headings.  The headings of the Sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof.

            Successors and Assigns.  As used herein, the terms “Borrower” and “Holder” shall be deemed to include their respective successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law.  In the event that more than one person, firm or entity is a Borrower hereunder, then all references to “Borrower” shall be deemed to refer equally to each of said persons, firms and/or entities, all of whom shall be jointly and severally liable for all of the obligations of Borrower hereunder.

            IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as of the date first set forth above.

 

BORROWER:

UTG, INC.

By:_/s/ Theodore C. Miller_______

Title:_Sr. Vice President_________

EX-10.5

 

Exhibit 10.5

First Tennessee Bank National Association

REVOLVING CREDIT NOTE

$5,000,000.00                                                                                                           December 8, 2006

                                                                                                                                  Memphis, Tennessee

            FOR VALUE RECEIVED, UTG, Inc., a Delaware Corporation, (“Borrower”), promises to pay to the order of FIRST TENNESSEE BANK NATIONAL ASSOCIATION,  Memphis, Tennessee (“Lender”; Lender and any subsequent holder[s] hereof are hereinafter collectively referred to as “Holder”), the principal sum of Five Million and 00/100 DOLLARS ($5,000,000.00), together with interest thereon, on so much thereof as shall remain outstanding from time to time, at the rates hereinafter provided.

            Borrower will pay this loan in one payment of all outstanding principal plus all accrued interest on December 7, 2007.  In addition, Borrower will pay regular quarterly payments of all accrued interest due as of each payment date, beginning March 8, 2007, with all subsequent interest payments to be due on the same day of each quarter after that.  Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs.

            The interest rate on the Note is subject to change from time to time based on changes in an independent index which is the LIBOR Rate (as hereinafter defined), adjusted and determined as of the opening of business on the first date of the month in which the Note is dated (the “Initial Pricing Date”) and on the 1^st day of every third month hereafter (the “Interest Rate Change Date”).  The “LIBOR RATE” shall mean the London Interbank Offered Rate of interest for an interest period of three (3) months, as reported in the Wall Street Journal published on each Interest Rate Change Date.  Each change in the Index which results from a change in the LIBOR Rate shall become effective, without notice to the Borrower, on each Interest Rate Change Date following any change in the LIBOR Rate; provided, however, that if The Wall Street Journal is not published on such date, the LIBOR Rate shall be determined by reference to The Wall Street Journal last published immediately preceding such date (the “Index”).  The Index is not necessarily the lowest rate charged by Lender on its Loans.  If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower.  Lender will tell Borrower the current Index upon Borrower’s request.  The interest rate change will not occur more often than every third month.  Borrower understands the Lender  may make loans based on other rates as well.  The Index is currently 5.35% per annum.  The interest rate  to be applied to the unpaid principal balance of this Note will be at a rate of 1.80 percentage points over the Index, resulting in an initial rate of 7.15% per annum.  Notwithstanding anything else in this instrument to the contrary, in no event shall the maximum rate of interest payable in respect to the indebtedness evidenced hereby exceed the maximum rate of interest allowed to be charged by applicable law.

            Place of Payment.  All payments in respect of the indebtedness evidenced by this Note shall be payable in lawful money of the United States of America, at the office of Lender, 845 Crossover Lane, Suite 150, Memphis, Tennessee, 38117 or such other place as the Holder of this Note may designate in writing.  Interest shall be calculated on a 365/365 basis; that is,  by applying the ratio of the annual interest rate over a year of 365 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding.

            Late Charge.  Borrower shall pay a “late charge” equal to the lesser of (i) One Hundred Dollars ($100.00) or (ii) five percent (5%) of any payments of principal and/or interest due when paid more than ten (10) days after the due date thereof (provided that in no event shall said “late charge” result in the payment of interest in excess of the maximum interest permitted by law) to cover the extra expenses involved in handling delinquent payments.

            Prepayments.  The indebtedness evidenced hereby may be prepaid, in whole or in part, at any time without penalty.  Any prepayment shall be applied first to accrued and unpaid interest on the outstanding principal balance, and the remainder, if any, shall be applied to reduce the outstanding principal balance of this Note in the sequential order of its maturity.

            Security.  This Note is secured by, among other things, the lien and provisions of a certain Commercial Pledge Agreement, dated of even date herewith, executed and delivered by Borrower to Lender, covering certain Collateral as described therein.

            Loan Agreement.  The proceeds of this Note are being advanced pursuant to the terms of that certain Loan Agreement (“the Loan Agreement”) of even date herewith by and between Borrower and Lender.  Any default under the terms of said Loan Agreement shall constitute a default hereunder.

In the event that any one or more of the Events of Default specified in the Loan Agreement shall have happened, the Holder of this Note may proceed to protect and enforce its rights either by suit in equity and/or by action at law, or by other appropriate proceedings, whether for the specific performance of any covenant or agreement contained in this Note, the Loan Agreement, the Negative Pledge Agreement, or the Commercial Pledge Agreement or in aid of the exercise of any power or right granted by this Note, the Loan Agreement, the Negative Pledge Agreement, or the Commercial Pledge Agreement  or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the Holder of this Note. 

Upon the occurrence of any Event of Default as set forth herein, at the option of Holder and without notice to Borrower, all accrued and unpaid interest, if any, shall be added to the outstanding principal balance hereof, and the entire outstanding principal balance, as so adjusted, shall bear interest thereafter until paid at the lesser of (a) fourteen percent (14%) per annum or (b) the maximum effective contract rate which it is lawful for the holder hereof to charge. (the “Default Rate”) regardless of whether there has been an acceleration of the payment of principal as set forth herein.  All such interest shall be paid at the time of and as a condition precedent to the curing of any such default (to the extent that any such cure is otherwise expressly permitted under the terms of this Note).

            Limitation of Interest.  Notwithstanding any provision herein to the contrary, it is the intent of the Lender and the Borrower that neither the Lender nor any subsequent Holder shall be entitled to receive, collect, reserve or apply, as interest, any amount in excess of the maximum lawful rate of interest permitted to be charged by applicable law or regulations, as amended or enacted from time to time.  In the event the Note calls for any interest payment that exceeds the maximum lawful rate of interest then applicable, such interest shall not be received, collected, charged, or reserved until such time as the interest, together with all other interest then payable, falls within the then applicable maximum lawful rate of interest.  In the event Lender, or any subsequent Holder, receives any such interest in excess of the then maximum lawful rate of interest, such amount which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such, or, if the principal indebtedness evidenced hereby is paid in full, any remaining excess funds shall immediately be paid to Borrower.

            Cumulative Rights.  No delay on the part of the Holder of this Note in the exercise of any power or right under this Note, or any other instrument executed pursuant hereto shall operate as a waiver thereof, nor shall a single or partial exercise of any power or right preclude other or further exercise thereof or in the exercise of any other power or right.  Enforcement by the Holder of this Note of any security for the payment hereof shall not constitute any election by it or remedies so as to preclude the exercise of any other remedy available to it.

            Waiver.  Presentment for payment, demand, protest and notice of demand, protest and nonpayment are hereby waived by Borrower and all other parties hereto.  No failure to accelerate the indebtedness evidenced hereby by reason of default hereunder, acceptance of a past-due installment or other indulgences granted from time to time, shall be construed as a novation of this Note or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note or to prevent the exercise of such right of acceleration or any other right granted hereunder or by applicable laws.  Unless otherwise specifically agreed by Holder in writing, the liability of Borrower and all other persons now or hereafter liable for payment of the indebtedness evidenced hereby, or any portion thereof, shall not be affected by (1) any renewal hereof or other extension of the time for payment of the indebtedness evidenced hereby or any amount due in respect thereof, (2) the release of all or any part of any collateral now or hereafter securing the payment of the indebtedness evidenced hereby or any portion thereof, or (3) the release of or resort to any person now or hereafter liable for payment of the indebtedness evidenced hereby or any portion thereof.  This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought.  To the extent permitted by applicable law, Borrower hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any appraisement, exception and homestead now provided, or that may hereafter be provided by the Constitution and laws of the United States of America and of any state thereof in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note.

            Attorney’s Fees and Costs.  In the event one or more Events of Default shall occur, and in the event that thereafter this Note is placed in the hands of an attorney for collection, or in the event this Note is collected in whole or in part through legal proceedings of any nature, then, and in any such case, there shall be added to the unpaid principal balance hereof all costs of collection, including, but not limited to, reasonable attorneys’ fees and all expenses incurred in connection with the exercise of any rights under the Note incurred by the Holder hereof on account of such collection, whether or not suit is filed.

            Revolving Line of Credit.  This Note evidences a revolving line of credit.  Advances under this Note, as well as directions for payment from Borrower’s accounts, may be requested orally or in writing by Borrower or by an authorized person.  Until the Maturity Date, Borrower may reborrow funds available under the Loan.  Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower’s accounts with Lender in accordance with the Loan Agreement.

            Governing Law.  This Note has been negotiated, executed and delivered in the State of Tennessee and shall be construed in accordance with the laws of the State of Tennessee, except to the extent that Federal law may be applicable to the determination of the Default Rate. 

            Headings.  The headings of the Sections of this Note are inserted for convenience only and shall not be deemed to constitute a part hereof.

            Successors and Assigns.  As used herein, the terms “Borrower” and “Holder” shall be deemed to include their respective successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law.  In the event that more than one person, firm or entity is a Borrower hereunder, then all references to “Borrower” shall be deemed to refer equally to each of said persons, firms and/or entities, all of whom shall be jointly and severally liable for all of the obligations of Borrower hereunder.

            IN WITNESS WHEREOF, the undersigned has caused this Note to be executed as of the date first set forth above.

BORROWER:

UTG, INC.

By:_/s/ Theodore C. Miller______

Title:_Sr. Vice President________

EX-10.6

  
    
      Loan Agreement






   

    

EX-10.7

 

Exhibit 10.7

COMMERCIAL PLEDGE AGREEMENT

Principal Amount:  A) $18,000,000.00

                                B) $  5,000,000.00

Grantor:    UTG, Inc.

                  5250 South Sixth St.

                  Springfield, IL 62703

Lender:    First Tennessee Bank National Association

                Financial Institutions

                845 Crossover Lane, Ste. 150

                Memphis, TN 38117

THIS COMMERCIAL PLEDGE AGREEMENT dated December 8, 2006, is made and executed between UTG, Inc. (“Grantor”) and First Tennessee Bank National Association (“Lender”) in connection with Lender’s extension of credit to Grantor in the original principal amount of A) $18,000,000.00 and B) $5,000,000.00 evidenced by the Notes and further evidenced by Loan Agreement between Lender and Grantor (“Loan Agreement”) of even date herewith.  Unless otherwise defined in this Agreement, capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement.

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word “Collateral” as used in the Agreement means Grantor’s present and future rights, title and interests in and to (together with any and all present and future additions thereto, substitutions therefore, and replacements thereof, together with any and all present and future certificates and/or instruments evidencing) the Stock described below, together with all Income and Proceeds as described herein:

One hundred percent (100%) of the issued and outstanding common shares (400,000) of Universal Guaranty Life Insurance Company  (the “Company”), being evidenced by Stock Certificate No. 111.

CROSS-COLLATERALIZATION.  In addition to the Notes, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor  or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Notes, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated whether Borrower may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statue or limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.

 RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor represents and warrants to Lender that:

Ownership. Grantor is the lawful owner of the Collateral free and clear of all security interests, liens, encumbrances and claims of others except as disclosed to and accepted by Lender in writing prior to execution of this Agreement.

Right to Pledge. Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral.

Authority; Binding Effect. Grantor has the full right, power and authority to enter into this Agreement and to grant a security interest in the Collateral to Lender. This Agreement is binding upon Grantor as well as Grantor’s successors and assigns, and is legally enforceable in accordance with its terms. The foregoing representations and warranties, and all other representations and warranties contained in this Agreement are and shall be continuing in nature and shall remain in full force and effect until such time as this Agreement is terminated or cancelled as provided herein.

Valid Issuance of Stock. The Stock has been duly and validly issued and is fully paid and nonassessable.

Ownership of Stock. Unless otherwise previously disclosed to Lender in writing, the shares of Stock subject to this Agreement constitute shares owned by Grantor of the issued and outstanding shares of the capital stock of the Company.

Free Transferability of Stock. Unless otherwise previously disclosed to Lender in writing, and subject to compliance with applicable securities and insurance laws, all of the shares of Stock are freely transferable and subject to sale without being subject to limitations, restriction, stock legends, or prohibitive covenants under any agreements, or otherwise under which Grantor or the issuer of any such Stock may be bound or obligated.

Stock Dividend; Stock Split. In order to prevent Lender’s collateral position from becoming diluted by any stock dividends or stock splits, Grantor agrees to notify Lender immediately when knowledge of any such transaction or transactions becomes known, and to deliver all of the stock certificates to Lender for pledging within five (5) days of receipt of the stock dividend and/or stock split together with appropriately executed stock powers.

No Further Assignment. Grantor has not, and shall not, sell, assign, transfer, encumber or otherwise dispose of any of Grantor’s rights in the Collateral except as provided in this Agreement.

No Defaults. There are no defaults existing under the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly perform each of the terms, conditions, covenants and agreements, if any, contained in the Collateral which are to be performed by Grantor.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender’s security interest. At Lender’s request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender’s security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor’s name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change.

LENDER’S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. Lender may hold the Collateral until all Indebtedness has been paid and satisfied. Thereafter Lender may deliver the Collateral to Grantor or to any other owner of the Collateral. Lender shall have the following rights in addition to all other rights Lender may have by law:

Maintenance and Protection of Collateral. Lender may, but shall not be obligated to, take such steps as it deems necessary or desirable to protect, maintain, insure, store, or care for the Collateral, including paying of any liens or claims against the Collateral. This may include such things as hiring other people, such as attorneys, appraisers or other experts. Lender may charge Grantor for any cost incurred in so doing.

Income and Proceeds from the Collateral. From and after the occurrence of an Event of Default, Lender may receive all Income and Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender immediately upon receipt, in the exact form received and without commingling with other property, all Income and Proceeds from the Collateral which may be received by, paid, or delivered to Grantor or for Grantor’s account, whether as an addition to, in discharge of, in substitution of, or in exchange for any of the Collateral.

Application of Cash. At Lender’s option, Lender may apply any cash, whether included in the Collateral or received as Income and Proceeds or through liquidation, sale, or retirement, of the Collateral, to the satisfaction of the Indebtedness or such portion thereof as Lender shall choose, whether or not matured.

Transactions with Others. Lender may (1) extend time for payment or other performance, (2) grant a renewal or change in terms or conditions, or (3) compromise, compound or release any obligation, with any one or more Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems advisable, without obtaining the prior written consent of Grantor, and no such act or failure to act shall affect Lender’s rights against Grantor or the Collateral.

All Collateral Secures Indebtedness. All Collateral shall be security for the Indebtedness, whether the Collateral is located at one or more offices or branches of Lender.

Collection of Collateral. From and after the occurrence of an Event of Default, Grantor authorizes and directs the Obligors, if Lender decides to collect the income and Proceeds, to pay and deliver to Lender all income and Proceeds from the Collateral and to accept Lender’s receipt for the payments.

Power of Attorney. Grantor irrevocably appoints Lender as Grantor’s attorney-in-fact, with full power of substitution, (a) to demand, collect, receive, receipt for, sue and recover all Income and Proceeds and other sums of money and other property which may now or hereafter become due, owing or payable from the Obligors in accordance with the terms of the Collateral; (b) to execute, sign and endorse any and all instruments, receipts, checks, drafts and warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, execute and deliver Grantor’s release and acquittance for Grantor; (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in Lender’s own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable; and (e) to execute in Grantor’s name and to deliver to the Obligors on Grantor’s behalf, at the time and in the manner specified by the Collateral, any necessary instruments or documents.

Perfection of Security Interest. Upon Lender’s request, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral. When applicable law provides more than one method of perfection of Lender’s security interest, Lender may choose the method(s) to be used. Upon Lender’s request, Grantor will sign and deliver any writings necessary to perfect Lender’s security interest. If any of the Collateral consists of securities for which no certificate has been issued, Grantor agrees, at Lender’s option, either to request issuance of an appropriate certificate or to execute appropriate instructions on Lender’s forms instructing the issuer, transfer agent, mutual fund company, or broker, as the case may be, to record on its books or records, by book-entry or otherwise, Lender’s security interest in the Collateral. Grantor hereby appoints Lender as Grantor’s irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties.

Distributions; Voting Rights.  Unless an Event of Default shall then exist, Grantor shall be permitted to receive distributions paid and to exercise all voting rights with respect to the Collateral, provided that no vote shall be cast which, in Lender’s reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of this Agreement or any of the Related Documents.

LENDER’S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor’s failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Notes from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Notes and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Notes; or (C) be treated as a balloon payment which will be due and payable at the Note’s maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.

LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of the Collateral in Lender’s possession, but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation, Lender shall have no responsibility for (A) any depreciation in value of the Collateral or for the collection or protection of any Income and Proceeds from the Collateral, (B) preservation of rights against parties to the Collateral or against third persons, (C) ascertaining any maturities, calls, conversions, exchanges, offers, tenders, or similar matters relating to any of the Collateral, or (D) informing Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. Except as provided above, Lender shall have no liability for depreciation or deterioration of the Collateral.

Cure Provisions. If an Event of Default, other than a default  in payment or failure to satisfy Lender’s requirement in the Insufficient Market Value of Securities section is curable and if Grantor has not been given a notice of a breach of the same provision of this Agreement within the preceding twelve (12) months,  it may be cured if Grantor, after receiving written notice from Lender demanding cure of such default: (1) cures the default within 30 days; or (2) if the cure requires more than 30 days, immediately initiates steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter so long as the Event of Default continues uncured, Lender may exercise any one or more of the following rights and remedies:

Accelerate Indebtedness. Declare all Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

Collect the Collateral. Collect any of the Collateral and, at Lender’s option and to the extent permitted by applicable law, retain possession of the Collateral while suing on the Indebtedness.

Sell the Collateral. Sell the Collateral, at Lender’s discretion, as a unit or in parcels, at one or more public or private sales. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender shall give or mail to Grantor, and other persons as required by law, notice at least thirty (30) days in advance of the time and place of any public sale, or of the time after which any private sale may be made. However, no notice need be provided to any person who, after an Event of Default occurs, enters into and authenticates an agreement waiving that person’s right to notification of sale. Grantor agrees that any requirement of reasonable notice as to Grantor is satisfied if Lender mails notice by ordinary mail addressed to Grantor at the last address Grantor has given Lender in writing. If a public sale is held, there shall be sufficient compliance with all requirements of notice to the public by a single publication in any newspaper of general circulation in the county where the Collateral is located, setting forth the time and place of sale and a brief description of the property to be sold. Lender may be a purchaser at any public sale.

Sell Securities. Sell any securities included in the Collateral in a manner consistent with applicable federal and state securities and insurance laws. If, because of restrictions under such laws, Lender is unable, or believes Lender is unable, to sell the securities in an open market transaction, Grantor agrees that Lender will have no obligation to delay sale until the securities can be registered. Then Lender may make a private sale to one or more persons or to a restricted group of persons in compliance with such laws, even though such sale may result in a price that is less favorable than might be obtained in an open market transaction. Such a sale will be considered commercially reasonable. If any securities held as Collateral are “restricted securities” as defined in the Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or the rules of state securities departments under state “Blue Sky” laws, or if Grantor or any other owner of the Collateral is an affiliate of the issuer of the securities, Grantor agrees that neither Grantor, nor any member of Grantor’s family, nor any other person signing this Agreement will sell or dispose of any securities of such issuer without obtaining Lender’s prior written consent.

Foreclosure. Maintain a judicial suit for foreclosure and sale of the Collateral.

Specific Performance. Lender may, in addition to or in lieu of the foregoing remedies, in Lender’s sole discretion, commence an appropriate action against Grantor seeking specific performance of any covenant contained in this Agreement or in aid of the execution or enforcement of any power in this Agreement granted.

Transfer Title. Effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as Grantor’s attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable.

Other Rights and Remedies. Have and exercise any or all of the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, at law, in equity, or otherwise.

Application of Proceeds. Apply any cash which is part of the Collateral, or which is received from the collection or sale of the Collateral, to reimbursement of any expenses, including any costs for registration of securities, commissions incurred in connection with a sale, attorneys’ fees and court costs, whether or not there is a lawsuit and including any fees on appeal, incurred by Lender in connection with the collection and sale of such Collateral and to the payment of the Indebtedness of Grantor to Lender, with any excess funds to be paid to Grantor as the interests of Grantor may appear. Grantor agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Collateral to the Indebtedness.

Election of Remedies. Except as may be prohibited by applicable law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor’s failure to perform, shall not affect Lender’s right to declare a default and exercise its remedies.

EXCLUSION FROM INDEBTEDNESS. Excluded from indebtedness shall be any indebtedness governed by the Federal Truth in Lending Act.

MISCELLANEOUS PROVISIONS.  The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys’ Fees; Expenses. Grantor agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings )including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender’s rights or of any of Grantor’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Non-Liability of Lender. The relationship between Grantor and Lender created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between Lender and Grantor. Grantor is exercising Grantor’s own judgement with respect to Grantor’s business. All information supplied to Lender is for Lender’s protection only and no other party is entitled to rely on such information. There is no duty for Lender to review, inspect, supervise or inform Grantor of any matter with respect to Grantor’s business. Lender and Grantor intend that Lender may reasonably rely on all information supplied by Grantor to Lender, together with all representations and warranties given by Grantor to Lender, without investigation or confirmation by Lender and that any investigation or failure to investigate will not diminish Lender’s right to so rely.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor’s current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Sole Discretion of Lender. Whenever Lender’s consent or approval is required under this Agreement. the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender and Lender’s decision shall be final and conclusive.

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor’s interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor’s successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

Time Is of the Essence. Time is of the essence in the performance of this Agreement.

Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action. proceeding. or counterclaim brought by any party against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

Agreement. The word “Agreement” means this Commercial Pledge Agreement, as this Commercial Pledge Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Pledge Agreement from time to time.

Collateral. The word “Collateral” means all of Grantor’s right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

Default. The word “Default” means the Default set forth in this Agreement in the section titled “Default”.

Event of Default. The words “Event of Default” have the meaning set forth in the Loan Agreement..

Grantor. The word “Grantor” means UTG, Inc.

Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Indebtedness, and, in each case, Grantor’s successors, assigns, heirs, personal representatives, executors and administrators of any guarantor, surety, or accommodation party.

Guaranty. The word “Guaranty” means the guaranty from Guarantor, or any other guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.

Income and Proceeds. The words “Income and Proceeds” mean all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights, regulatory dividends, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Grantor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, and general intangibles.

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Notes or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents.

Lender. The word “Lender” means First Tennessee Bank National Association, its successors and assigns.

Notes. The word “Notes” means the Notes executed by UTG, Inc. in the principal amount of A) $18,000,000.00 dated December 8, 2006, and B) $5,000,000.00 dated December 8, 2006, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

Obligor. The word “Obligor” means individually, collectively and interchangeably without limitation any and all persons obligated to pay money or to perform some other act under the Collateral.

Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

Stock. The word “Stock” means individually, collectively and interchangeably Grantor’s stock, and other securities to pledge under this Agreement, together with any and all additions thereto, substitutions therefor or replacements thereof.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL PLEDGE AGREEMENT AND AGREES TO ITS TERMS.

GRANTOR:

UTG, INC.

By:_/s/ Theodore C. Miller___________________________

Title:_Sr. Vice President_____________________________

EX-10.8

 

Exhibit 10.8

NEGATIVE PLEDGE AGREEMENT

Borrower: UTG, INC

                  5250 South Sixth Street

                  Springfield, IL 62703

Lender: First Tennessee Bank National Association

              Financial Institutions

              845 Crossover Lane, Suite 150

              Memphis, TN 38117

THIS NEGATIVE PLEDGE AGREEMENT dated December 8, 2006, is made and executed between UTG, Inc. (“Borrower”) and First Tennessee Bank National Association (“Lender”) on the following terms and conditions and in connection with Lender’s extension of credit to Borrower in the original principal amount of A) 18,000,000.00 and B) $5,000,000.00 evidenced by the Notes and further evidenced by Loan Agreement between Lender and Borrower (“Loan Agreement”) of even date herewith.  Unless otherwise defined in this Agreement, capitalized terms used herein shall have the meanings ascribed to them in the Loan Agreement.  Borrower understands and agrees that: (A) in granting, renewing, or extending any Loans, Lender is relying upon Borrower’s representations, warranties, and agreements as set forth in this Agreement, and (B) all such Loans shall be and remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of December 8, 2006, and shall continue in full force and effect until such time as all of Borrower’s Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys’ fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware. Borrower is duly authorized to transact business in all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains its principal office at 5250 South Sixth Street, Springfield , IL. Unless Borrower has designated otherwise in writing, this is the principal office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower’s state of organization or any change in Borrower’s name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower’s business activities.

Authorization. Borrower’s execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower’s articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower’s properties.

Financial Information. Each of Borrower’s financial statements supplied to Lender truly and completely disclosed Borrower’s financial condition as of the date of the statement in accordance with generally accepted accounting principles, consistently applied (“GAAP”), and there has been no material adverse change in Borrower’s financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations required to be disclosed in accordance with GAAP except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower’s financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower’s properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties as of the date of this Agreement.

NEGATIVE COVENANTS, Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Transfer and Liens. Fail to continue to own all of Borrower’s assets, except for routine transfers, use or depletion in the ordinary course of Borrower’s business. Borrower agrees not to create or grant to any person, except Lender, any lien, security interest, encumbrance, cloud on title, mortgage, pledge or similar interest in any of the common stock of American Capitol Insurance Company owned by Borrower or Borrower’s direct or indirect subsidiaries.

Agreements. Borrower will not enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower’s obligations under this Agreement or in connection herewith.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.

Right to Cure. If an Event of Default, other than a default on Indebtedness, is curable and if Borrower or Grantor, as the case may be, has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured if Borrower or Grantor, as the case may be, after receiving written notice from Lender demanding cure of such default: (l) cure the default within thirty (30) days; or (2) if the cure requires more than thirty (30) days, immediately initiate steps which Lender deems in Lender’s sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Tennessee without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Tennessee.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Shelby County, State of Tennessee.

Attorneys’ Fees; Expenses. Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, shall constitute a waiver of any of Lender’s rights or of any of Borrower’s obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower’s successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower’s rights under this Agreement or any interest therein, without the prior written consent of Lender.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Agreement. The word “Agreement” means this Negative Pledge Agreement, as this Negative Pledge Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Negative Pledge Agreement from time to time.

Borrower. The word “Borrower” means UTG, Inc. and includes all co-signers and co-makers signing the Note.

Collateral. The word “Collateral” means all property and assets granted as collateral security for the Loans, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage,  assignment, pledge, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.

Event of Default. The words “Event of Default” have the meaning set forth in the Loan Agreement.

Grantor. The word “Grantor” means each and all of the persons or entities granting a Security Interest in any Collateral for the Loans, including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word “Guarantor” means any guarantor, surety, or accommodation party of any or all of the Loans.

Indebtedness. The word “Indebtedness” means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Lender. The word “Lender” means First Tennessee Bank National Association, its successors and assigns.

Loans. The word “Loans” means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time.

Related Documents. The words “Related Documents” mean all promissory notes, loan agreements, guaranties, security agreements, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Interest. The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, assignment, pledge, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS NEGATIVE PLEDGE AGREEMENT AND BORROWER AGREES TO ITS TERMS.

BORROWER:

UTG, INC.

By:_/s/ Theodore C. Miller________

Title:_Sr. Vice President__________

LENDER:

FIRST TENNESSE BANK NATIONAL ASSOCIATION

By:_/s/ G. Porter Robinson__________

Title:_Sr. Vice President____________

EX-10.9

  
    
      Coinsurance AC and Reserve






   

    

EX-10.10

 

Exhibit 10.10

COINSURANCE AGREEMENT

Between:        Texas Imperial Life Insurance Company

                        Houston, Texas

                        hereinafter referred to as CEDENT

            and:     Reserve National Insurance Company

                        Oklahoma City, Oklahoma

hereinafter referred to as REINSURER

Effective:        December 31, 2006

TABLE OF CONTENTS

A.	Coinsurance Coverage	4
B.	Representations and Warranties of the CEDENT	4
C.	Representations and Warranties of the REINSURER	6
D.	Offset	6
E.	Payments	6
F.	Terms of Coinsurance	8
G.	Assessments	8
H.	Indemnity	8
I.	Policy Changes	8
J.	Errors and Omissions	9
K.	Audit of Records and Procedures	9
L.	Arbitration	9
M.	Insolvency	10
N.	Parties to Agreement	11
O.	Effective Date	11
P.	Terms Effective Upon Election to Convert to Assumption Reinsurance	11
Q.	Confidentiality	13
R	Entire Agreement	13
S.	Duration of Agreement	14
T.	Severability of Provisions	14
U.	Other Conditions	14
V.	Execution of Agreement	15

SCHEDULE I	Policies Subject to Reinsurance	16
SCHEDULE II	Coinsurance Percentages	17
Exhibit “A”	Administrative Services Agreement
Exhibit “B”	Medicare Supplement Business Activity Indicators Report

A.               Coinsurance Coverage

1.         The policies issued or accepted as insurance by CEDENT as described in Schedule I (the "Policies") shall be reinsured with REINSURER on a coinsurance basis pursuant to this Agreement. The reinsurance shall cover that portion of the risk as specified in Schedule II.

2.         The liability of REINSURER shall begin on the effective date of this Agreement. Notwithstanding the foregoing, the reinsurance provided pursuant to this Agreement shall cover only policies validly issued or assumed by the CEDENT and in force as of the Effective Date or validly reinstated following the Effective Date.

3.         The reinsurance hereunder shall follow the fortunes of the CEDENT, and the REINSURER shall be liable in the same amount and to the same extent as CEDENT except as to extra-contractual liabilities as provided in Subsection H.

4.         The reinsurance under this Agreement with respect to any Policy shall be maintained in force without reduction so long as and to the extent that the liability of CEDENT under such policy reinsured hereunder remains in force without reduction, unless reinsurance is terminated or reduced as provided herein.

5.         The CEDENT shall notify the REINSURER in writing, as soon as CEDENT is notified, of the pendancy of any and all examinations of the CEDENT or its principal officers or shareholders conducted by any federal, state or local governmental or regulatory agency.

6.         The CEDENT and REINSURER agree that REINSURER has the option to convert this Agreement to an assumption reinsurance agreement on a state by state basis as regulatory approvals are obtained at the expense of the REINSURER.  REINSURER shall be responsible for complying with state requirements for filing for approval or the assumption reinsurance agreement. Once such approvals have been obtained, REINSURER will comply with all notice requirements, including mailing or delivery of an assumption certificate to each applicable policyholder of a Policy within 45 days from the date approval is obtained; and including any notification of right of the policyholder’s right to reject, if applicable.   

7.         The CEDENT and REINSURER agree that from and after the Effective Date, REINSURER will serve as Administrator for CEDENT, pursuant to the Administrative Service Agreement attached hereto as Exhibit “A”, to process claims made on the Policies, including claims with dates of service prior to the Effective Date which have not been processed by CEDENT.  REINSURER agrees to make all filings or registrations necessary to serve in this capacity.  CEDENT agrees to transfer to REINSURER all information necessary for REINSURER to serve in the capacity of Administrator.

B.               Representations and Warranties of the CEDENT

1.         The CEDENT has provided the REINSURER copies of all forms, applications, rates and values with respect to the Policies and shall keep the REINSURER promptly informed with respect to any changes or modifications to such forms, applications or rates.  CEDENT has provided all files, claims processing manual(s), electronic records or databases and other documents necessary for REINSURER to serve as Administrator.

2.         The CEDENT has provided the REINSURER with the latest Examination Report of CEDENT by the Texas Department of Insurance, and all examinations performed by any regulatory authority within the last 5 years.

3.         The CEDENT is licensed and in good standing in all jurisdictions in which policies were issued or assumed and all Policies are in full compliance with applicable laws, regulations and rules. The CEDENT has not been placed in, nor does it have any reason to believe that it is about to be placed in supervision, rehabilitation, receivership, suspension or liquidation by any insurance department.

4.         The CEDENT is duly organized, validly existing and in good standing under the laws of the state of Texas, and has all necessary corporate power and authority to entitle it to use its name, to own, lease or otherwise hold its properties and assets, to carry on its business as currently conducted, and to perform its obligations.

5.         The execution, delivery and performance of this Agreement by the CEDENT will not (i) violate or conflict with any provision of its Certificate of Incorporation or by-laws; (ii) violate or result in any breach of or constitute a default under, or give rise to a right of modification, termination or cancellation of, or accelerate the performance required by the terms of, as the case may be, any contract, lease, license, mortgage, note, or any agreement to which the CEDENT is bound; or (iii) violate or conflict with any law, regulation, code, judgment, order, writ, injunction or decree of any court, governmental body, or administrative agency by which the CEDENT may be bound.

6.         The CEDENT has full corporate power and authority to execute, deliver and perform its obligations under this Agreement, and has taken all necessary corporate and other action to authorize the ceding of the Policies under the terms of this Agreement.

7.         This Agreement has been duly executed and delivered by the CEDENT and constitutes the valid and legally binding obligation of the CEDENT, enforceable in accordance with its terms. The Policies are in compliance with all applicable requirements of law and are on forms approved in all material respects by the appropriate governmental authorities except to the extent that failure to be in compliance therewith does not have a material adverse effect.

8.         The assets reflected by CEDENT on its annual statement to the Insurance Department of the State of Texas for the year ended December 31, 2005 are a) substantially unchanged since that time, b) accurately reflected as to value, c) unencumbered, except as reflected on the statement, and d) fully available to the CEDENT to support its obligations to its policyholders.

9.         The disclosures CEDENT has made regarding the premium, claims and reserves, including but not limited to, the loss ratios for the year 2005 and the first nine months of 2006 contained in the Medicare Supplement Business Activity Indicators Report attached hereto as Exhibit “B” and incorporated herein by this reference, fairly and accurately present the information contained therein and contain no material omissions.

C.               Representations and Warranties of the REINSURER

1.         The REINSURER is duly organized, validly existing and in good standing as a licensed insurance company under the laws of the state of Oklahoma, and has all necessary corporate power and authority to entitle it to use its name, to own, lease or otherwise hold its properties and assets, to carry on its business as currently conducted, and to perform its obligations.

2.         The execution, delivery and performance of this Agreement by the REINSURER will not (i) violate or conflict with any provision of its Certificate of Incorporation or by-laws; (ii) violate or result in any breach of or constitute a default under, or give rise to a right of modification, termination or cancellation of, or accelerate the performance required by the terms of, as the case may be, any contract, lease, license, mortgage, note, or any agreement to which the REINSURER is bound; or (iii) violate or conflict with any law, regulation, code, judgment, order, writ, injunction or decree of any court, governmental body, or administrative agency by which the REINSURER may be bound.

3.         The REINSURER has full corporate power and authority to execute, deliver and perform its obligations under this Agreement, and has taken all necessary corporate and other action to authorize the ceding of the Policies under the terms of this Agreement.

4.         This Agreement has been duly executed and delivered by the REINSURER and constitutes the valid and legally binding obligation of the REINSURER, enforceable in accordance with its terms.

D.               Offset

1.         Any debits or credits under this Agreement, matured or unmatured, liquidated or unliquidated, regardless of when they arose or were incurred, between CEDENT and REINSURER are deemed mutual debts or credits, as the case may be, and shall be set off dollar for dollar, and only the balance shall be allowed or paid, regardless of the solvency of either party.

E.               Payments

1.         As of the Valuation Date, REINSURER shall be assigned and entitled to all premiums for the Policies coinsured by it under this Agreement and CEDENT agrees to promptly remit to REINSURER any such premium payments as are received by it.  REINSURER shall be authorized to endorse all checks, drafts, and money orders payable to CEDENT with respect to premium paid on the Policies.  CEDENT assigns, to the extent permitted by law, to REINSURER all its rights and privileges to draft or debit the accounts of any policyholders for premiums due under the Policies pursuant to existing pre-authorized bank draft, credit card or electronic fund transfer arrangements between CEDENT and such policyholders.  CEDENT agrees to fully cooperate and perform all acts necessary to ensure premiums are remitted to the REINSURER, including, but not limited to, the execution of any document necessary for any financial institution to accept the endorsement of the REINSURER or its right to draft or debit the account of an insured, and if permissible, requiring its insureds to remit payment directly to the REINSURER in the REINSURER’s name as Administrator of the Policies.

            Upon receipt of premium payment for the Policies via any bank draft, credit card or electronic fund transfer arrangements after the Effective Date, CEDENT shall remit such payments to REINSURER within thirty days after the receipt together with appropriate detailed policyholder and premium information.  REINSURER has the right to audit and inspect the records related to such payments.

2.         REINSURER agrees to pay CEDENT and CEDENT agrees to accept a single one time commission payment of 45% of the annualized premium of the Policies in force with paid to dates on or after the December 15, 2006 (the “Valuation Date”) (the “Coinsurance Premium”).  The Coinsurance Premium paid shall be the net amount after the following deductions:

a.         Claim Reserve.  Actuaries for REINSURER and CEDENT shall determine an agreed upon reserve, as of the Valuation Date, for incurred and reported and incurred but not reported claims (jointly “Claims”)(“Claim Reserve”).  REINSURER will withhold the Claim Reserve from the Coinsurance Premium and place it in a trust account in a bank chosen by REINSURER for the sole purpose of paying such claims. 

b.         Unearned Premium Reserve.  Actuaries for REINSURER and CEDENT shall determine as of the Valuation Date, on the daily pro-rata basis, the unearned premium reserve (“Unearned Premium Reserve”).  The Unearned Premium Reserve shall be deducted from the Coinsurance Premium. 

c.         Active Life Reserve.  Actuaries for REINSURER and CEDENT shall determine the appropriate amount of active life reserve, as of the Valuation Date, for the Policies (“Active Life Reserve”).  The Active Life Reserve will be deducted from the Coinsurance Premium.

3.         In the event the agreed Claim Reserve exceeds the amount necessary to pay Claims, the difference between these two amounts shall be returned to CEDENTas soon as practicable after the first anniversary of the Effective Date.  Prior to such return, the CEDENT shall have the right to audit the Claims processed by REINSURER. Such election shall be made within 30 days after notice by REINSURER that it will be returning excess Claim Reserve funds.  If CEDENT elects to audit, the audit will be completed within 90 days of its election.  REINSURER shall return excess Claim Reserve funds, as soon as practicable after the conclusion of any audit elected by CEDENT, or in the event no audit is elected, as soon as practicable after the 30 day period to elect to audit has expired.  However, in the event of threatened or pending litigation, the parties may agree to determine a reserve for any threatened or pending litigation and continue the Claim Reserve in that amount.

4.         In the event the Claim Reserve is less than the amount necessary to pay Claims, CEDENT shall transfer the amount necessary to satisfy all Claims to the Claim Reserve trust account within 30 days from receipt of documentation from REINSURER of payment of claims in excess of the original Claim Reserve.

5.         REINSURER shall be liable for all state or territory premium and maintenance taxes arising out of business reinsured hereunder.

F.               Terms of Coinsurance

1.                Expenses

1.1.      REINSURER shall be responsible for the administration of agent’s or broker’s commissions in accordance with the written agent and broker agreements furnished to REINSURER related to the Policies, except as provided in Section (P)(4).

2.               Collateral in Trust.

2.1       In the event that the coinsured premium as of December 31, 2007 exceeds 10% of the Coinsurance Premium (as defined in Subsection (E)(2)),  REINSURER shall establish a trust for the benefit of CEDENT and deposit in said trust collateral in an amount equal to the reserve liabilities of the CEDENT; said trust shall be adjusted quarterly to maintain collateral sufficient to equal all reserve liabilities.  Collateral assets shall be cash, cash equivalents or securities of a quality equivalent to NAIC 1 or 2 rated securities. 

G.              Assessments

1.         REINSURER shall reimburse CEDENT for payment of all guarantee fund or other assessments incurred by CEDENT related to the Policies for calendar years subsequent to 2006.

H.              Indemnity

1.         REINSURER shall not be liable for extra-contractual damages or penalties, including but not limited to punitive, compensatory, statutory, bad faith, or other damages, attorneys fees, fines, or liability in excess of policy limits which may arise from the acts or omissions of CEDENT or its agents and representatives, in its conduct with its own insured, policyholder, beneficiary or assignee of the policy or with other persons.  CEDENT agrees to indemnify and hold harmless REINSURER, its shareholders, directors, officers, agents and assigns from and against all costs and expenses (including interest, penalties, reasonable attorneys’, accountants’ and actuaries’ fees, and any other costs and expenses incident to any suit, action or proceeding), damages, charges, losses, deficiencies, liabilities, obligations, claims and judgments sustained or incurred by, or asserted against, REINSURER by any third-party arising from these extra-contractual damages and penalties.

2.         CEDENT shall not be liable for extra-contractual damages or penalties, including but not limited to punitive, compensatory, statutory, bad faith, or other damages, attorneys fees, fines, or liability in excess of policy limits which may arise from the acts or omissions of REINSURER or its agents and representatives, in its conduct with its own insured, policyholder, beneficiary or assignee of the policy or with other persons.  REINSURER agrees to indemnify and hold harmless CEDENT, its shareholders, directors, officers, agents and assigns from and against all costs and expenses (including interest, penalties, reasonable attorneys’, accountants’ and actuaries’ fees, and any other costs and expenses incident to any suit, action or proceeding), damages, charges, losses, deficiencies, liabilities, obligations, claims and judgments sustained or incurred by, or asserted against, CEDENT by any third-party arising from these extra-contractual damages and penalties.

I.                Policy Changes

1.         The REINSURER shall have the exclusive right to make changes to the terms and conditions of Policies issued or assumed by the CEDENT and reinsured hereunder including, but not limited to, changes in the current premium rates on the Policies. CEDENT will cooperate with REINSURER in any such regulatory filings in connection with the Policies, including without limitation, loss ratio information, request for rate adjustments and the like. If necessary, these filings will be made in the name of CEDENT.  CEDENT will furnish all information reasonably requested by REINSURER in connection with all such filings. 

J.               Errors and Omissions

1.         If either CEDENT or REINSURER shall unintentionally perform an obligation incorrectly under this Agreement or unintentionally fail to perform an obligation required by this Agreement, such error or omission shall be corrected by restoring both CEDENT and REINSURER to the positions they would have occupied had no such error or omission occurred.

2.         This provision shall apply only to misunderstandings, oversights or clerical errors relating to the administration of reinsurance covered by this Agreement.

3.         Any negligent or deliberate acts of commission or omission by CEDENT are the responsibility of CEDENT but not that of REINSURER.

K.              Audit of Records and Procedures

1.                  REINSURER shall have the right to audit all records and procedures relating to business covered under this Agreement. Further, CEDENT agrees to complete, at the reasonable request of REINSURER and in a manner acceptable to REINSURER a process confirming the existence of policies reinsured under this Agreement.

2.                  REINSURER and CEDENT shall have the right to review the Statutory Financial Statements and available State Examination reports of the other party in order to monitor its statutory solvency and general financial condition.

L.               Arbitration

1.         Any dispute or difference between the parties arising out of or relating to this Agreement, including the formation or validity thereof, shall be decided by arbitration. The arbiters are empowered to decide all questions or issues and shall be free to consider this Agreement as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. 

2.         Arbiters shall be selected from the AIDA Reinsurance and Insurance Arbitration Society, ARIAS US. 

3.         To initiate arbitration, a party shall send by facsimile or overnight delivery, to the other party's home office, a notice demanding arbitration.  If the demand is sent by facsimile, a report of successful transmission shall be deemed proof of delivery and shall trigger the time period in which to name an arbiter; if the demand is sent by overnight delivery, a delivery receipt provided by the overnight carrier shall be deemed proof of delivery and shall trigger the time period in which to name an arbiter. 

4.         There shall be three neutral and disinterested arbiters who shall be active or retired officers of health insurance or health reinsurance companies. An arbiter may not be a present or former employee, officer, director or attorney of CEDENT or REINSURER or either's affiliates. The CEDENT and REINSURER shall each appoint one of the arbiters and these two arbiters shall select the third. In the event that either company fails to appoint an arbiter within thirty days after it receives a written request from the other to do so, the other company may choose two arbiters, who shall in turn choose a third arbiter before entering arbitration. If the two arbiters are unable to agree upon the selection of a third arbiter within thirty days of the appointment of the second arbiter, each party shall nominate five qualified candidates, four of whom the other shall decline and the final selection shall be made by any random method agreed to by the arbiters.

5.         Each party shall present is case to the arbiters within 30 days following the appointment of the third arbiter.  The arbiters shall decide by a majority vote and such decision shall be final and binding on both parties.  Judgment upon the final decision may be entered in any court of competent jurisdiction.  There shall be no motion to vacate or amend the arbitration panel’s award, except to the extent permitted by the Federal Arbitration Act.  The cost of arbitration, including the fees of the arbiters, but not including attorneys fees, shall be borne by the losing party unless the arbiters decide otherwise.

M.             Insolvency

1.         In the event of the insolvency of the CEDENT, this reinsurance, with respect to Policies not converted to assumption reinsurance only, shall be payable directly to the CEDENT or to its liquidator, receiver, conservator or statutory successor on the basis of the liability of the CEDENT, without diminution because of the insolvency of CEDENT or because the liquidator, receiver, conservator or statutory successor of the CEDENT has failed to pay all or a portion of any claim. 

2.         The liquidator, receiver, conservator or statutory successor of the CEDENT shall give written notice to the REINSURER of the pendency of a claim against the CEDENT indicating the policy reinsured which claim would involve a possible liability on the part of the REINSURER within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the REINSURER may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses that it may deem available to CEDENT or its liquidator, receiver, conservator or statutory successor.

3.         The expense thus incurred by the REINSURER shall be chargeable, subject to the approval of the Court, against the CEDENT as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to CEDENT solely as a result of the defense undertaken by REINSURER.

4.         In the event of the insolvency of the REINSURER, CEDENT shall have the right to immediately take possession of and exercise control over any and all trust funds established under this agreement, and to apply said funds to pay policy obligations, commissions, fees and any other legal obligations relating to the policies subject to this agreement.

N.              Parties to Agreement

1.         This is an Agreement for indemnity reinsurance solely between CEDENT and REINSURER. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between REINSURER and any original issuing or insuring company (if other than CEDENT), the insured or the beneficiary under any policy reinsured hereunder, and the CEDENT shall be and remain solely liable to such insured or beneficiary under any such policy.

2.         This Agreement may not be assigned by either party without the written permission of the other party.

O.               Effective Date

1.         The effective date of this Agreement is December 31, 2006.

P.               Terms Effective Upon Election to Convert to Assumption Reinsurance

1.         On and after the effective date of any conversion, REINSURER will be responsible for the investigation, payment, denial, settlement or litigation under the Policies of claims with dates of service after the effective date of any conversion (“Post-Conversion Claims”). 

2.         REINSURER agrees that as of the effective date of any conversion, it is responsible for the contractual obligations under the Policies and all liability under the Policies resulting from any actions taken by it on or after the conversion date(s), including liability which may result from the processing of Claims and Post-Conversion Claims.  However, REINSURER does not assume any tort liability under the Policies which may have resulted from the action or inaction of CEDENT prior to or after the effective date of any conversion, or the liability for any extra-contractual damages or penalties arising from such tort liability or otherwise, as set forth in paragraph H(1).  CEDENT’S agreement to indemnify and hold harmless REINSURER in paragraph H(1) extends to all liability not assumed pursuant to this Agreement.  Any liability of the CEDENT under this paragraph expires 24 months from the conversion date(s) of the relevant policies. 

3.        Litigation. 

3.1.      A reasonable time prior to the effective date of any conversion, CEDENT shall provide a schedule setting forth a description of each lawsuit involving a Policy subject to this Agreement and shall disclose any potential litigation for which it has received written notice.  CEDENT shall retain the defense of all litigation pending as of the Effective Date.  In the event any judgment, settlement or compromise of pending litigation contemplates continued coverage under a Policy reinsured by REINSURER, CEDENT shall notify REINSURER and REINSURER will have the right to participate in any proceeding related to the terms of continuation of coverage.

3.2.      For any lawsuit filed after the effective date of any conversion, REINSURER shall have the sole right and shall at its own costs and expense investigate, pay, settle, compromise or defend any demand, threat of litigation or litigation arising from Policies as it deems best; provided, however:

(a)        In the event such demand, threat of litigation or litigation involves liability not assumed by REINSURER under this Agreement, REINSURER shall promptly notify CEDENT of such claim in writing, and CEDENT shall have the sole right to investigate, pay, settle, compromise, defend against, or otherwise deal with such claim as it deems best, and REINSURER shall be obligated to pay only that part of the payment, settlement, compromise or judgment attributable to contract liability.  If such payment, settlement, compromise or judgment arises from Claim(s), REINSURER’s payment will be made from the Claim Reserve.  However, if any such payment, settlement, compromise, or judgment which is attributable, in whole or in part, to contract liability Claims is made after the return of the Claim Reserve (and the parties have not continued the Claim Reserve to address the risk at issue), then CEDENT shall be responsible for any portion attributable to contract liability. 

(b)        In the event a demand, threat of litigation or litigation involves both contract and tort liability, then the expenses of handling such demand, threat of litigation or litigation, shall be borne by REINSURER and CEDENT in the proportion of their respective exposure.

3.3.      In the event service of process or other legal notice is served on CEDENT in any legal action instituted against CEDENT in connection with any Policy reinsured by REINSURER under this Agreement, it will promptly forward such notice to REINSURER at its Home Office.  In the event service of process or other legal notice is served on REINSURER in any legal action instituted against CEDENT and/or REINSURER in connection with a claim under any Policy reinsured by REINSURER under this Agreement, for which CEDENT remains liable hereunder, REINSURER will promptly forward such notice to CEDENT at its Home Office.

4.           A reasonable time prior to the effective date of any conversion, CEDENT shall provide copies of agents or brokers agreements, which agents or brokers may have commissions payable to them on and after the effective date of conversion.  REINSURER assumes only the contractual liability of any written agency or broker agreements solely with respect to the commissions provided in such agent agreements and due after the effective date of the conversion of the Policies subject to all remedies, rights of defense, set off or counterclaim that CEDENT may or might have against agents or brokers.

5.           On or immediately after the effective date of conversion, CEDENT agrees that it will deliver to REINSURER all of its books, files and records, including all electronic files, spreadsheets, databases and records, forms and supplies pertaining to the Policies, the policyholders, and samples of its said policy forms and policy contracts, if any not previously provided. CEDENT agrees to cooperate with REINSURER, including but not limited to, issues related to electronic data transfer and interpretation, software compatibility, transfer of paper records, claims handling practices and procedures and the like.

Q.              Confidentiality

1.         Pursuant to the provisions of the Health Insurance Portability and Accountability Act of 1996 and federal regulations issued pursuant thereto, and/or the Gramm‑Leach‑Bliley Act, the NAIC Insurance Information and Privacy Protection Model Act, the NAIC Privacy of Consumer Financial and Health Information Model Regulation and/or similar laws and regulations as enacted in various states, the parties recognize that, in the performance of their respective obligations under this Agreement, they each may obtain from the other nonpublic personal or privileged information about individuals collected or received in connection with insurance transactions under the Policies. Each of the parties agrees not to disclose such information to third-parties without the individual’s written authorization unless such disclosure is otherwise permitted by law, and each of the parties shall also maintain the confidentiality of all other information related to the Policies and all other information denominated as confidential by the other party provided to it in connection with this Agreement and shall not disclose such information to any third parties without prior written consent of the other party, except as may be required by regulatory authorities, or pursuant to legal process.

R.              Entire Agreement

1.         This Agreement represents the entire contract between CEDENT and REINSURER and supersedes, with respect to its subject, any prior oral or written agreement. There are no understandings between the parties other than those expressed in this Agreement.

2.         Any change or modification to the Agreement shall be null and void unless made by amendment to the Agreement and signed by both parties.       

S.                Duration of Agreement

1.         At the end of any accounting period, this Agreement shall automatically terminate if none of the Policies hereunder are in force, or if they have been assumed by a company other than CEDENT.

T.               Severability of Provisions

1.         If any provisions of this Agreement were declared null and void by a regulatory authority in any jurisdiction within which either party operates, the remaining provisions shall nevertheless continue to have full force and effect.

U.              Other Conditions

1          The obligations of the CEDENT and the REINSURER to consummate the transactions described hereunder are expressly subject to:

(i)         the approvals of the insurance commissioners, directors, or superintendents, as the case may be, of the insurance departments necessary for the consummation of the transactions contemplated by this Agreement, and such approvals shall be in full force and effect, and shall not impose upon either the CEDENT or the REINSURER any material conditions or other requirements that would impose upon either party any material additional costs;

(ii)        the REINSURER having discovered no material errors, omissions or liabilities previously undisclosed to it in the due diligence investigation and documentation provided the REINSURER by the CEDENT prior to the date hereof;

(iii)       the CEDENT and the REINSURER having all requisite corporate power and authority to execute and deliver the Agreement and to consummate the transactions contemplated hereunder; and

(iv)       there being no material change in the amount of the Policy Reserves or the annualized premium in force of the CEDENT from December 15, 2006 to the date of the execution of the Agreement. Notwithstanding the foregoing, a "material change" shall be deemed to have occurred if, on the Effective Date of the Agreement the CEDENT's reserves are less than $88,000, or its annualized premium in force is less than $454,000.

V.              Execution of Agreement

IN WITNESS OF THE AGREEMENT that is detailed in the Provisions and attached Schedules, the PARTIES have had their respective officers execute this Agreement in duplicate below.

TEXAS IMPERIAL LIFE INSURANCE COMPANY

Houston, Texas

By: /s/ Theodore C. Miller______________________

Title: Sr. Vice President________________________

Witness: /s/ Lucinda A. Knight___________________

RESERVE NATIONAL INSURANCE COMPANY
Oklahoma City, Oklahoma

By: /s/ Kempner Joe Cole______________________

Title: President______________________________

Witness: /s/ Orin Crossley______________________

2672

SCHEDULE I

A.        Policies Subject to Reinsurance

1.         The Medicare supplement policies and the hospital indemnity policies, if any, included on the attached Exhibit “A”.

SCHEDULE II

A.        Coinsurance Percentages

Policies                                                                           Quota Share Reinsured

All policies in Schedule I                                                                 100%

EX-10.11

 

Exhibit 10.11

ADMINISTRATIVE SERVICE AGREEMENT

THIS AGREEMENT is made this 31st_____ day of December, 2006 by and between Reserve National Insurance Company (hereinafter referred to as “Administrator”) and American Capitol Insurance Company (hereinafter referred to as “Insurer”).

RECITALS

WHEREAS, Insurer is a legal reserve insurance company licensed pursuant to the Texas Insurance Code (“Code”); and

WHEREAS, Administrator is a capital stock insurance company domiciled in Oklahoma, and has registered or will register as a third party administrator to the extent required by applicable law; and

WHEREAS, Insurer and Administrator are desirous of entering into an agreement reflecting the rights of the parties hereto with respect to the administration of the insurance business of Insurer subject to the Coinsurance Agreement (“Coinsurance Agreement”) which was entered into by and between Administrator and Insurer effective on December 31, 2006.

WITNESSETH

NOW, THEREFORE, for and in consideration of these premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

1.         The Insurer agrees to provide Administrator with the information and support reasonably required by the Administrator to perform its duties pursuant to this Agreement.

2.         The Administrator shall perform the following duties:

A.        Prepare and mail premium notices to the insureds reasonably in advance of the premium due dates in accordance with guidelines established by Insurer and agreed to by Administrator. Billings shall be run and mailed at least once a month.

B.         Prepare and mail past due notices and lapse notices. With the cooperation of Insurer, prepare and send reinstatement applications consistent with policy provisions. Upon receipt of completed reinstatement applications, Administrator will perform appropriate underwriting and Administrator will proceed with policy issuance or denial in accordance with the underwriting guidelines applied by Administrator to its similar business including preparation and issuance of policies and policy certificates.

C.        Receive claims, verify coverage, request and collect proof of claim, review and pay claims in accordance with the Coinsurance Agreement.  Administrator agrees to be current in awareness of and compliance with the applicable prompt payment laws.

D.        Collect and record premiums as provided in the Coinsurance Agreement.  Initial correspondence sent by Administrator to any policyholder shall notify and summarize to said policyholder the relationship among Insurer, Administrator, and the policyholder. The written notice must be approved by Insurer before distribution to policyholders and must state the amount of premium specified. The payment of premiums to the Administrator by or on behalf of an insured is considered to have been received by the Insurer. However, the payment of return premium by the insurer to the Administrator is not considered payment to the insured.

E.         Maintain administrative and statistical records which will determine the insurance status of each insured or certificate holder including, but not limited to, the effective dates, termination dates, nature of coverage, lapse dates, benefit assignments, beneficiary designations (if applicable), and appropriate address of record. This record keeping shall include the posting of premium payments.

F.         Maintain all licenses required by applicable statutes, rules and regulations. Conduct its activities pursuant to this Agreement in compliance with all applicable statutes, rules or regulations or pursuant to an exemption therefrom.

G.        Handle all routine correspondence and other general clerical administration of the insurance plans subject to this Agreement, maintain all files relating to such correspondence and general clerical administration.

H.        Make available to Insurer all information necessary to maintain its general ledger and prepare statutory financial statements.

3.         Insurer hereby agrees to remain solely liable for and covenants to indemnify and hold harmless Administrator against any and all loss, cost, expense, claims, damages, liabilities and expenses including legal fees and costs (“Loss” or “Losses”) assessed against or incurred by Administrator with respect to any action, demand, proceeding, suit, settlement or compromise concerning claims arising out of or related to: (i) the insurance administered under this Agreement pursuant to actions or inactions of the Administrator taken or not taken in reliance upon instructions provided by the Insurer; or (ii) the willful misconduct, negligent or bad faith acts or omissions of the Insurer or the Insurer’s agents, servants or employees. Administrator shall remain solely liable for the willful misconduct, negligent or bad faith acts or omissions of Administrator and shall indemnify and hold harmless Insurer for any loss or losses Insurer may sustain by virtue of such acts.

4.         Administrator shall maintain adequate books and records of all transactions among it, Insurer and the insureds under this Agreement and the business being administered in connection therewith to comply with regulatory examination requirements and statutory retention requirements.

5.         It is understood and agreed that all records in any form including film or electronic media, pertaining to each covered plan hereunder (including but not limited to, all individual applications, files and correspondence related thereto) which are generated by Administrator are the property of Insurer. It is understood and agreed that Insurer shall have access to all records to the extent necessary to fulfill contractual obligations to insureds, comply with its statutory and regulatory obligations, and conduct audits of Administrator.

6.         The initial term of this Agreement shall be for a period of one (1) year and shall commence on the effective date of this Agreement. Either party may terminate the Agreement at any time on or after the expiration of the initial term by giving ninety (90) days prior written notice.  This Agreement will automatically terminate in the event that Administrator’s obligations under the Coinsurance Agreement are converted to assumption reinsurance with respect to those policies which are subject to assumption reinsurance. Unless otherwise terminated, the Agreement shall be automatically renewed for additional one year terms. Notwithstanding anything to the contrary, in the event of fraud, bankruptcy or insolvency of one party, this Agreement may be terminated immediately by the other party upon written notice. Furthermore, in the event of a breach of any of the conditions or promises contained in this Agreement or the failure to perform any of the duties by one party, if the breach or failure is not cured within 30 days after written notice, this Agreement may be terminated immediately by the other party upon written notice.

7.         No rights, interests or obligations arising hereunder shall be subject to assignment by either party, except with written consent of the other party. Any assignment of rights, interests or obligations will be ineffective.

8.         No amendment or modification of, or supplement to, this Agreement shall be binding unless in writing and duly executed and delivered by each party hereto to the other party.

9.         It is understood and agreed that the Administrator shall be considered an independent contractor. Nothing contained herein shall be construed as constituting a partnership, employment relationship, or joint venture between the Administrator and Insurer. This Agreement shall be binding upon the parties hereto and their respective successors and assigns.

10.       Pursuant to the provisions of the Health Insurance Portability and Accountability Act of 1996 and federal regulations issued pursuant thereto, and/or the Gramm‑Leach‑Bliley Act, the NAIC Insurance Information and Privacy Protection Model Act, the NAIC Privacy of Consumer Financial and Health Information Model Regulation and/or similar laws and regulations as enacted in various states, the parties recognize that, in the performance of their respective obligations under this Agreement, they each may obtain from the other nonpublic personal or privileged information about individuals collected or received in connection with insurance transactions under the policies. Each of the parties agrees not to disclose such information to third-parties without the individual’s written authorization unless such disclosure is otherwise permitted by law, and each of the parties shall also maintain the confidentiality of all other information related to the policies and all other information denominated as confidential by the other party provided to it in connection with this Agreement and shall not disclose such information to any third parties except as may be required by regulatory authorities, or pursuant to legal process; provided however, if any state in which policies have been issued have more restrictive confidentiality requirements, the parties will comply with those laws to the extent applicable.  

11.       This Agreement shall be construed in accordance with and governed by the laws of the State of Oklahoma.

12.       This Agreement contains the entire agreement of the parties regarding the subject matter hereof and supersedes any prior or contemporaneous oral or written agreement.

13.       If any clause(s) of this agreement shall be held invalid by a court of law, the remaining clauses shall survive and remain enforceable.

14.       Effectiveness of Notice - Notices mailed by registered or certified mail, return receipt requested are effective three days after mailing. Notices that are mailed hereunder shall be given to the parties at the following addresses, or at such other address for a party as shall be specified by notice:

If to Administrator:

Reserve National Insurance Company

6100 Northwest Grand Blvd.

Oklahoma City, OK 73118

ATTN:  Orin Crossley

If to Insurer:

American Capitol Insurance Company

c/o UTG

5250 South Sixth Street

Springfield, Illinois  62703

ATTN:  Ted Miller

or to such other address as hereafter shall be furnished as provided in this Section 15 by any of the parties hereto to the other parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written.

Reserve National Insurance Company

By:  /s/ Kempner Joe Cole__________________
              Kempner Joe Cole, President

American Capitol Insurance Company

By:  /s/ Theodore C. Miller__________________
           Theodore C. Miller, Senior Vice-President

2618

EX-10.12

Exhibit 10.12

ADMINISTRATIVE SERVICE AGREEMENT

THIS AGREEMENT is made this 31st_____ day of December, 2006 by and between Reserve National Insurance Company (hereinafter referred to as “Administrator”) and Texas Imperial Life Insurance Company (hereinafter referred to as “Insurer”).

RECITALS

WHEREAS, Insurer is a stipulated premium insurance company licensed pursuant to Texas Insurance Code (“Code”); and

WHEREAS, Administrator is a capital stock insurance company domiciled in Oklahoma, and has registered or will register as a third party administrator to the extent required by applicable law; and

WHEREAS, Insurer and Administrator are desirous of entering into an agreement reflecting the rights of the parties hereto with respect to the administration of the insurance business of Insurer subject to the Coinsurance Agreement (“Coinsurance Agreement”) which was entered into by and between Administrator and Insurer effective on December 31, 2006.

WITNESSETH

NOW, THEREFORE, for and in consideration of these premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:

1.         The Insurer agrees to provide Administrator with the information and support reasonably required by the Administrator to perform its duties pursuant to this Agreement.

2.         The Administrator shall perform the following duties:

A.        Prepare and mail premium notices to the insureds reasonably in advance of the premium due dates in accordance with guidelines established by Insurer and agreed to by Administrator. Billings shall be run and mailed at least once a month.

B.         Prepare and mail past due notices and lapse notices. With the cooperation of Insurer, prepare and send reinstatement applications consistent with policy provisions. Upon receipt of completed reinstatement applications, Administrator will perform appropriate underwriting and Administrator will proceed with policy issuance or denial in accordance with the underwriting guidelines applied by Administrator to its similar business including preparation and issuance of policies and policy certificates.

C.        Receive claims, verify coverage, request and collect proof of claim, review and pay claims in accordance with the Coinsurance Agreement.  Administrator agrees to be current in awareness of and compliance with the applicable prompt payment laws.

D.        Collect and record premiums as provided in the Coinsurance Agreement.  Initial correspondence sent by Administrator to any policyholder shall notify and summarize to said policyholder the relationship among Insurer, Administrator, and the policyholder. The written notice must be approved by Insurer before distribution to policyholders and must state the amount of premium specified. The payment of premiums to the Administrator by or on behalf of an insured is considered to have been received by the Insurer. However, the payment of return premium by the insurer to the Administrator is not considered payment to the insured.

E.         Maintain administrative and statistical records which will determine the insurance status of each insured or certificate holder including, but not limited to, the effective dates, termination dates, nature of coverage, lapse dates, benefit assignments, beneficiary designations (if applicable), and appropriate address of record. This record keeping shall include the posting of premium payments.

F.         Maintain all licenses required by applicable statutes, rules and regulations. Conduct its activities pursuant to this Agreement in compliance with all applicable statutes, rules or regulations or pursuant to an exemption therefrom.

G.        Handle all routine correspondence and other general clerical administration of the insurance plans subject to this Agreement, maintain all files relating to such correspondence and general clerical administration.

H.        Make available to Insurer all information necessary to maintain its general ledger and prepare statutory financial statements.

3.         Insurer hereby agrees to remain solely liable for and covenants to indemnify and hold harmless Administrator against any and all loss, cost, expense, claims, damages, liabilities and expenses including legal fees and costs (“Loss” or “Losses”) assessed against or incurred by Administrator with respect to any action, demand, proceeding, suit, settlement or compromise concerning claims arising out of or related to: (i) the insurance administered under this Agreement pursuant to actions or inactions of the Administrator taken or not taken in reliance upon instructions provided by the Insurer; or (ii) the willful misconduct, negligent or bad faith acts or omissions of the Insurer or the Insurer’s agents, servants or employees. Administrator shall remain solely liable for the willful misconduct, negligent or bad faith acts or omissions of Administrator and shall indemnify and hold harmless Insurer for any loss or losses Insurer may sustain by virtue of such acts.

4.         Administrator shall maintain adequate books and records of all transactions among it, Insurer and the insureds under this Agreement and the business being administered in connection therewith to comply with regulatory examination requirements and statutory retention requirements.

5.         It is understood and agreed that all records in any form including film or electronic media, pertaining to each covered plan hereunder (including but not limited to, all individual applications, files and correspondence related thereto) which are generated by Administrator are the property of Insurer. It is understood and agreed that Insurer shall have access to all records to the extent necessary to fulfill contractual obligations to insureds, comply with its statutory and regulatory obligations, and conduct audits of Administrator.

6.         The initial term of this Agreement shall be for a period of one (1) year and shall commence on the effective date of this Agreement. Either party may terminate the Agreement at any time on or after the expiration of the initial term by giving ninety (90) days prior written notice.  This Agreement will automatically terminate in the event that Administrator’s obligations under the Coinsurance Agreement are converted to assumption reinsurance with respect to those policies which are subject to assumption reinsurance. Unless otherwise terminated, the Agreement shall be automatically renewed for additional one year terms. Notwithstanding anything to the contrary, in the event of fraud, bankruptcy or insolvency of one party, this Agreement may be terminated immediately by the other party upon written notice. Furthermore, in the event of a breach of any of the conditions or promises contained in this Agreement or the failure to perform any of the duties by one party, if the breach or failure is not cured within 30 days after written notice, this Agreement may be terminated immediately by the other party upon written notice.

7.         No rights, interests or obligations arising hereunder shall be subject to assignment by either party, except with written consent of the other party. Any assignment of rights, interests or obligations will be ineffective.

8.         No amendment or modification of, or supplement to, this Agreement shall be binding unless in writing and duly executed and delivered by each party hereto to the other party.

9.         It is understood and agreed that the Administrator shall be considered an independent contractor. Nothing contained herein shall be construed as constituting a partnership, employment relationship, or joint venture between the Administrator and Insurer. This Agreement shall be binding upon the parties hereto and their respective successors and assigns.

10.       Pursuant to the provisions of the Health Insurance Portability and Accountability Act of 1996 and federal regulations issued pursuant thereto, and/or the Gramm‑Leach‑Bliley Act, the NAIC Insurance Information and Privacy Protection Model Act, the NAIC Privacy of Consumer Financial and Health Information Model Regulation and/or similar laws and regulations as enacted in various states, the parties recognize that, in the performance of their respective obligations under this Agreement, they each may obtain from the other nonpublic personal or privileged information about individuals collected or received in connection with insurance transactions under the policies. Each of the parties agrees not to disclose such information to third-parties without the individual’s written authorization unless such disclosure is otherwise permitted by law, and each of the parties shall also maintain the confidentiality of all other information related to the policies and all other information denominated as confidential by the other party provided to it in connection with this Agreement and shall not disclose such information to any third parties except as may be required by regulatory authorities, or pursuant to legal process; provided however, if any state in which policies have been issued have more restrictive confidentiality requirements, the parties will comply with those laws to the extent applicable.  

11.       This Agreement shall be construed in accordance with and governed by the laws of the State of Oklahoma.

12.       This Agreement contains the entire agreement of the parties regarding the subject matter hereof and supersedes any prior or contemporaneous oral or written agreement.

13.       If any clause(s) of this agreement shall be held invalid by a court of law, the remaining clauses shall survive and remain enforceable.

14.       Effectiveness of Notice - Notices mailed by registered or certified mail, return receipt requested are effective three days after mailing. Notices that are mailed hereunder shall be given to the parties at the following addresses, or at such other address for a party as shall be specified by notice:

If to Administrator:

Reserve National Insurance Company

6100 Northwest Grand Blvd.

Oklahoma City, OK 73118

ATTN:  Orin Crossley

If to Insurer:

Texas Imperial Life Insurance Company

c/o UTG

5250 South Sixth Street

Springfield, Illinois  62703

ATTN:  Ted Miller

or to such other address as hereafter shall be furnished as provided in this Section 15 by any of the parties hereto to the other parties hereto.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written.

Reserve National Insurance Company

By:  /s/ Kempner Joe Cole__________________
              Kempner Joe Cole, President

Texas Imperial Life Insurance Company

By:  /s/ Theodore C. Miller__________________
           Theodore C. Miller, Senior Vice-President

2673

EX-10.13

 

Exhibit 10.13

ADMINISTRATIVE SERVICES AND COST SHARING AGREEMENT

This Agreement made and entered into this 1st day of January, 2007 by UTG, INC., a Delaware corporation ("UTG") and AMERICAN CAPITOL INSURANCE COMPANY, a Texas life insurance company ("ACIC").

WHEREAS, ACIC is engaged in the general life insurance business;

WHEREAS, ACIC has as one of its primary objectives to operate in the most efficient and profitable manner;

WHEREAS, UTG, through its officers, agents and employees, has extensive experience and expertise in acquiring, managing and operating corporations and other business entities engaged in the general life insurance business as well as other financial and investment activities; and has been successful in reducing the general expenses of such businesses;

WHEREAS, ACIC desires that the experience, expertise, sources of information, advice, counseling and assistance of UTG and its officers and employees be available to ACIC in the future, and to have UTG undertake certain duties and responsibilities and perform certain services on behalf of ACIC, subject to the supervision of the Board of Directors of ACIC, as provided herein; and,

WHEREAS, UTG is willing to undertake to render such services for ACIC, subject to the supervision of the Board of Directors of ACIC, on the terms and conditions herein set forth;

WHEREAS, ACIC is an indirect subsidiary and member of the same holding company structure of UTG.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is mutually agreed between the parties as follows:

1. Services of UTG. During the terms of this Agreement, UTG shall consult with the Board of Directors and executive officers of ACIC in connection with all management and policy decisions to be made by such Board of Directors and executive officers with respect to the management, operations, insurance programs, and acquisition programs of ACIC. UTG shall, in conformity with such directives of the Board of Directors of ACIC, perform and render at UTG's expense (except as otherwise provided herein) all of the services necessary for ACIC to carry on all of the business of ACIC that is currently being conducted including, but not by way of limitation:

1. 1. provide data processing services necessary to process and administer all of the insurance business in force of ACIC;
   2. provide all services and perform all functions necessary to meet regulatory requirements, including, but not by way of limitation, requirements of state insurance departments and requirements of the Internal Revenue Service;
   3. provide all services and perform all functions necessary to process the existing investment portfolio and any addition to or deletion from that portfolio mandated by the Board of Directors of ACIC;
   4. investigate, evaluate and assist in the selection of and participate in consultations and negotiations with accountants, lenders, attorneys, brokers, actuaries, underwriters, corporate fiduciaries, escrow agents, depositories, custodians, banks and other persons acting in any other capacity deemed by the Board of Directors of ACIC necessary or appropriate;
   5. advise, consult and negotiate with respect to purchases, sales, mergers, reorganizations and other acquisitions or dispositions of assets by ACIC;
   6. act as attorney-in-fact or agent in purchase, sales, mergers, reorganizations and other acquisitions or disposition of assets by ACIC;
   7. advise and consult in the agency operations of ACIC including, but not limited to, the design of insurance products to be offered to the public, the structuring of sales programs, conservation programs and training programs and the establishment of commission rate schedules payable to agents and agencies;
   8. perform, advise, consult or assist in the performance of such administrative and management functions necessary or appropriate in the management of ACIC as may be agreed upon by UTG and the Board of Directors of ACIC;
   9. advise and consult with respect to the capital and debt structure of ACIC;
   10. advise, consult and negotiate with respect to any financings by ACIC either on a public or private basis;
   11. advise and consult with respect to proceedings and hearings held and conducted by regulatory agencies, including, but not limited to, insurance regulatory hearings or proceedings; and
   12. attend, if required, meetings of the Board of Directors of ACIC.

2. Information to UTG. ACIC shall, at all times, keep UTG fully informed with regard to (i) the operations of ACIC, (ii) the investments and assets owned by ACIC, (iii) the funds of ACIC available or to become available for investment, and (iv) generally as to the condition of the affairs of ACIC. In particular, ACIC shall notify UTG promptly of any material purchase, sale or other acquisition or disposition of assets by ACIC. ACIC shall furnish UTG with a copy of all financial statements of ACIC, a copy of each report prepared by certified public accountants, and such other information with regard to the affairs of ACIC as UTG may, from time to time, reasonably request.
3. Officers and Employees. Officers and employees of UTG shall serve, if elected, as directors, officers and members of committees of ACIC.
4. Fees.
5. 1. Fees.  As consideration for providing services under this Agreement ACIC agrees to pay UTG, a fee equal to ACIC’s pro rata share of the costs incurred by UTG to provide such services including but not limited to all personnel costs and taxes, costs to maintain UTG as a corporation in good standing and interest costs on borrowings of UTG.
   2. Accountings.  ACIC shall advance to UTG on a monthly basis, the projected estimated share of expenses allocable to ACIC.  Not less than quarterly, UTG shall provide on accounting of the actual expenses allocable to ACIC.  Said accounting shall be in such detail and be accompanied by substantive documentation satisfactory to ACIC.  Any balance due to or from the other party as a result of the actual accounting shall be settled within 90 (ninety)days.
   3. Allocation.  ACIC shall be responsible for the reimbursement of its pro rata share of the above described costs to UTG based on; ACIC’s percentage of the total amount of all life insurance subsidiaries of UTG using the following formula, the actual number of direct policies in force by policy type multiplied by the standard base TPA pricing per policy as used from time to time by UTG and its affiliates with outside third parties.  Said formula and resulting percentage allocations shall be updated as UTG deems reasonable but in no event not less than annually.
   4. The monthly fee to be paid to UTG by ACIC shall be reduced by any and all amounts paid directly by ACIC for services which are to be provided by UTG.
   5. In addition to the above fees, ACIC shall reimburse UTG or pay directly for expenses related to:

                                                               i.      mergers, acquisitions of new companies, or internal ownership restructuring;

                                                             ii.      changes in the products being offered for sale;

                                                            iii.      changes in the manner of soliciting new business, such as using direct mail or other forms of advertising;

                                                           iv.      the moving of administrative offices, such as travel, severance pay, movers, prepayment of existing leases and the like; and

                                                             v.      Legal fees of outside counsel related specifically to ACIC.

5. Expenses.         ACIC hereby agrees that it shall be solely responsible for its expenses of:
6. 1. interest and other costs for borrowed money;
   2. taxes, licenses and fees;
   3. commissions of every kind;
   4. all policy benefits;
   5. all expenses and costs relating to its investment activities;
   6. all income taxes; and
   7. any other expenses not relating to insurance operations.
7. Facilities and Staff. UTG shall provide its officers and employees with adequate office space and adequate office equipment and other furniture, and clerical and secretarial personnel for the performance of the services provided for hereunder, and assume the expenses of same.
8. Responsibility of UTG. UTG shall be responsible to render the services provided for herein in good faith and in a reasonably competent manner. UTG shall use its best efforts to keep itself informed as to the business and affairs of ACIC. UTG shall keep accurate records of all transactions handled for ACIC and make those records available at all times to ACIC. UTG shall use its best efforts to maintain the confidentiality of all matters relating to the business of ACIC. UTG shall indemnify and hold harmless ACIC from any loss, liability or expense occasioned by UTG's failure to perform its obligations hereunder, provided, however, that neither UTG nor any of its officers, directors or employees shall be liable to ACIC or any third person hereunder unless UTG is guilty of bad faith, willful misfeasance or gross negligence. It is expressly understood and agreed that UTG and ACIC are not partners or joint venturers and nothing herein shall be construed so as to make them partners or joint venturers or impose any liability as such on either of them. The relationship between UTG and ACIC shall be that of independent contractors.
9. Freedom of Activity. Nothing in this Agreement shall otherwise limit or restrict the right of UTG or any officer or employee of UTG to engage in any other business or to render services of any kind to any other corporation, firm, individual or association.
10. Term. This agreement shall remain in full force and effect for a period of 24 months from the date hereof and may not be terminated by any party during said term except as otherwise provided herein. Upon the expiration of the term of this Agreement, it shall remain in full force and effect from month to month unless terminated by any party, upon ninety (90) days' prior written notice.
11. Nonassignability. This agreement shall terminate automatically in the event of any assignment hereof by UTG. An assignment by UTG to a corporation or other entity that is a successor to UTG shall not be deemed an assignment for purposes hereof. This Agreement shall not be assignable by ACIC without the consent of UTG, except in the case of an assignment by ACIC to a corporation or other entity that is a successor, in which event such other corporation or entity shall be bound hereunder and by the terms of such assignment in the same manner as ACIC is bound hereunder.
12. Termination. This Agreement shall be and become terminated immediately upon written notice of termination from ACIC to UTG if any of the following events shall occur.
13. 1. UTG shall violate any provisions of this Agreement and shall fail to cure such default within thirty (30) days after receipt of written notice of such violation; or
    2. Without consent of ACIC, UTG shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator or trustee of UTG, or of all or substantially all of its property by reason of the foregoing, or approving any petition filed against UTG for its reorganization, and such adjudication or order shall remain in force or unstayed for a period of ninety (90) days; or
    3. UTG shall institute proceedings of voluntary bankruptcy, or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for the relief of debtor, or shall consent to the appointment of a receiver of UTG or of all or substantially all of its property, or shall make a general assignment for the benefits of its creditor, or shall admit in writing its inability to pay its debts generally as they become due.

If any of the events specified in subparagraphs (b) and (c) of this Section 11 shall occur, UTG shall give written notice thereof to ACIC within fifteen (15) days after the happening of such event.

12. Disclosure of Information.  UTG agrees all information communicated to it by or on behalf of ACIC while this Agreement is in force shall be used by UTG only for the purposes of this Agreement and during the term of this Agreement, and thereafter.  UTG will not disclose such information to any person who is not a Director, Officer, employee or agent of ACIC or of any of its affiliated companies, except to the extent such disclosure is directly or indirectly related to the performance of this Agreement or is otherwise required by any applicable law, rule or regulation.
13. Records and Reports.  Except as provided herein, all forms, records, statements, reports, files and other data and information prepared, maintained or collected by UTG in the performance of this Agreement shall become the sole property of ACIC and shall be furnished to ACIC upon request.
14. Inspection of Books and Records.  UTG shall keep proper books of account and records relating to the services performed hereunder in which full and correct entries will be made.  ACIC or its designated agents shall, upon ten (10) days prior written notice to UTG have the right to inspect the books and records of UTG at the offices of UTG in which said books and records are maintained during normal business hours for any purpose related to administration performance of this Agreement or the collection and determination of the fees required to be paid by ACIC to UTG under this Agreement.
15. Performance. The failure of either party to insist upon strict performance of any provision of this Agreement shall not constitute a waiver of the right to insist upon strict performance or the obligation to strictly perform thereafter.
16. Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing and shall, unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, be given by being mailed by certified mail, postage prepaid, to the following address of the parties thereto:

If to UTG:        UTG, Inc

Attn:  Corporate Secretary

P.O. Box 5147

Springfield, Illinois 62705

If to ACIC:       American Capitol Insurance Company

Attn:  Corporate Secretary

P.O. Box 5147

Springfield, Illinois 62705

Any party may, at any time, give written notice to the other parties, changing its address for the purposes of this Section 16.

17. Entire Agreement. This Agreement contains the entire understanding of the parties hereto and supersedes all prior agreements of the parties with respect to the subject matter contained herein.
18. Modification.    This Agreement shall not be amended, changed, modified, terminated or discharged, in whole or in part, except by an instrument, in writing, duly executed by all parties hereto or their respective successors or assigns.
19. Binding Effect.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors of the parties hereto.
20. Applicable Law. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware as at the time in effect.
21. Severability. If any provisions of this Agreement shall be found to be invalid by any court or competent jurisdiction, such findings shall not affect the remaining provisions of this Agreement and all other provisions herein shall remain in full force and effect.
22. Titles Not to Affect Interpretation. The titles of paragraphs and subparagraphs contained in this Agreement are inserted for convenience of reference only and neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized as of the day and year first above written.

UTG, INC.                                                                  American Capitol Insurance Company

By: _/s/ James P. Rousey__________              By: __/s/ James P. Rousey___________

       James P. Rousey                                                          James P. Rousey

        Executive Vice President                                  Executive Vice President

Attest:                                                                          Attest:

__/s/ Theodore C. Miller__________              __/s/ Theodore C. Miller___________________

Theodore C. Miller                                                       Theodore C. Miller

Secretary                                                                      Secretary

EX-10.14

 

Exhibit 10.14

ADMINISTRATIVE SERVICES AND COST SHARING AGREEMENT

This Agreement made and entered into this 1st day of January, 2007 by UTG, INC., a Delaware corporation ("UTG") and TEXAS IMPERIAL LIFE INSURANCE COMPANY, a Texas life insurance company ("TI").

WHEREAS, TI is engaged in the general life insurance business;

WHEREAS, TI has as one of its primary objectives to operate in the most efficient and profitable manner;

WHEREAS, UTG, through its officers, agents and employees, has extensive experience and expertise in acquiring, managing and operating corporations and other business entities engaged in the general life insurance business as well as other financial and investment activities; and has been successful in reducing the general expenses of such businesses;

WHEREAS, TI desires that the experience, expertise, sources of information, advice, counseling and assistance of UTG and its officers and employees be available to TI in the future, and to have UTG undertake certain duties and responsibilities and perform certain services on behalf of TI, subject to the supervision of the Board of Directors of TI, as provided herein; and,

WHEREAS, UTG is willing to undertake to render such services for TI, subject to the supervision of the Board of Directors of TI, on the terms and conditions herein set forth;

WHEREAS, TI is an indirect subsidiary and member of the same holding company structure of UTG.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is mutually agreed between the parties as follows:

1. Services of UTG. During the terms of this Agreement, UTG shall consult with the Board of Directors and executive officers of TI in connection with all management and policy decisions to be made by such Board of Directors and executive officers with respect to the management, operations, insurance programs, and acquisition programs of TI. UTG shall, in conformity with such directives of the Board of Directors of TI, perform and render at UTG's expense (except as otherwise provided herein) all of the services necessary for TI to carry on all of the business of TI that is currently being conducted including, but not by way of limitation:

1. 1. provide data processing services necessary to process and administer all of the insurance business in force of TI;
   2. provide all services and perform all functions necessary to meet regulatory requirements, including, but not by way of limitation, requirements of state insurance departments and requirements of the Internal Revenue Service;
   3. provide all services and perform all functions necessary to process the existing investment portfolio and any addition to or deletion from that portfolio mandated by the Board of Directors of TI;
   4. investigate, evaluate and assist in the selection of and participate in consultations and negotiations with accountants, lenders, attorneys, brokers, actuaries, underwriters, corporate fiduciaries, escrow agents, depositories, custodians, banks and other persons acting in any other capacity deemed by the Board of Directors of TI necessary or appropriate;
   5. advise, consult and negotiate with respect to purchases, sales, mergers, reorganizations and other acquisitions or dispositions of assets by TI;
   6. act as attorney-in-fact or agent in purchase, sales, mergers, reorganizations and other acquisitions or disposition of assets by TI;
   7. advise and consult in the agency operations of TI including, but not limited to, the design of insurance products to be offered to the public, the structuring of sales programs, conservation programs and training programs and the establishment of commission rate schedules payable to agents and agencies;
   8. perform, advise, consult or assist in the performance of such administrative and management functions necessary or appropriate in the management of TI as may be agreed upon by UTG and the Board of Directors of TI;
   9. advise and consult with respect to the capital and debt structure of TI;
   10. advise, consult and negotiate with respect to any financings by TI either on a public or private basis;
   11. advise and consult with respect to proceedings and hearings held and conducted by regulatory agencies, including, but not limited to, insurance regulatory hearings or proceedings; and
   12. attend, if required, meetings of the Board of Directors of TI.

2. Information to UTG. TI shall, at all times, keep UTG fully informed with regard to (i) the operations of TI, (ii) the investments and assets owned by TI, (iii) the funds of TI available or to become available for investment, and (iv) generally as to the condition of the affairs of TI. In particular, TI shall notify UTG promptly of any material purchase, sale or other acquisition or disposition of assets by TI. TI shall furnish UTG with a copy of all financial statements of TI, a copy of each report prepared by certified public accountants, and such other information with regard to the affairs of TI as UTG may, from time to time, reasonably request.
3. Officers and Employees. Officers and employees of UTG shall serve, if elected, as directors, officers and members of committees of TI.
4. Fees.
5. 1. Fees.  As consideration for providing services under this Agreement TI agrees to pay UTG, a fee equal to TI’s pro rata share of the costs incurred by UTG to provide such services including but not limited to all personnel costs and taxes, costs to maintain UTG as a corporation in good standing and interest costs on borrowings of UTG.
   2. Accountings.  TI shall advance to UTG on a monthly basis, the projected estimated share of expenses allocable to TI.  Not less than quarterly, UTG shall provide on accounting of the actual expenses allocable to TI.  Said accounting shall be in such detail and be accompanied by substantive documentation satisfactory to TI.  Any balance due to or from the other party as a result of the actual accounting shall be settled within 90 (ninety)days.
   3. Allocation.  TI shall be responsible for the reimbursement of its pro rata share of the above described costs to UTG based on; TI’s percentage of the total amount of all life insurance subsidiaries of UTG using the following formula, the actual number of direct policies in force by policy type multiplied by the standard base TPA pricing per policy as used from time to time by UTG and its affiliates with outside third parties.  Said formula and resulting percentage allocations shall be updated as UTG deems reasonable but in no event not less than annually.
   4. The monthly fee to be paid to UTG by TI shall be reduced by any and all amounts paid directly by TI for services which are to be provided by UTG.
   5. In addition to the above fees, TI shall reimburse UTG or pay directly for expenses related to:

                                                               i.      mergers, acquisitions of new companies, or internal ownership restructuring;

                                                             ii.      changes in the products being offered for sale;

                                                            iii.      changes in the manner of soliciting new business, such as using direct mail or other forms of advertising;

                                                           iv.      the moving of administrative offices, such as travel, severance pay, movers, prepayment of existing leases and the like; and

                                                             v.      Legal fees of outside counsel related specifically to TI.

5. Expenses.         TI hereby agrees that it shall be solely responsible for its expenses of:
6. 1. interest and other costs for borrowed money;
   2. taxes, licenses and fees;
   3. commissions of every kind;
   4. all policy benefits;
   5. all expenses and costs relating to its investment activities;
   6. all income taxes; and
   7. any other expenses not relating to insurance operations.
7. Facilities and Staff. UTG shall provide its officers and employees with adequate office space and adequate office equipment and other furniture, and clerical and secretarial personnel for the performance of the services provided for hereunder, and assume the expenses of same.
8. Responsibility of UTG. UTG shall be responsible to render the services provided for herein in good faith and in a reasonably competent manner. UTG shall use its best efforts to keep itself informed as to the business and affairs of TI. UTG shall keep accurate records of all transactions handled for TI and make those records available at all times to TI. UTG shall use its best efforts to maintain the confidentiality of all matters relating to the business of TI. UTG shall indemnify and hold harmless TI from any loss, liability or expense occasioned by UTG's failure to perform its obligations hereunder, provided, however, that neither UTG nor any of its officers, directors or employees shall be liable to TI or any third person hereunder unless UTG is guilty of bad faith, willful misfeasance or gross negligence. It is expressly understood and agreed that UTG and TI are not partners or joint venturers and nothing herein shall be construed so as to make them partners or joint venturers or impose any liability as such on either of them. The relationship between UTG and TI shall be that of independent contractors.
9. Freedom of Activity. Nothing in this Agreement shall otherwise limit or restrict the right of UTG or any officer or employee of UTG to engage in any other business or to render services of any kind to any other corporation, firm, individual or association.
10. Term. This agreement shall remain in full force and effect for a period of 24 months from the date hereof and may not be terminated by any party during said term except as otherwise provided herein. Upon the expiration of the term of this Agreement, it shall remain in full force and effect from month to month unless terminated by any party, upon ninety (90) days' prior written notice.
11. Nonassignability. This agreement shall terminate automatically in the event of any assignment hereof by UTG. An assignment by UTG to a corporation or other entity that is a successor to UTG shall not be deemed an assignment for purposes hereof. This Agreement shall not be assignable by TI without the consent of UTG, except in the case of an assignment by TI to a corporation or other entity that is a successor, in which event such other corporation or entity shall be bound hereunder and by the terms of such assignment in the same manner as TI is bound hereunder.
12. Termination. This Agreement shall be and become terminated immediately upon written notice of termination from TI to UTG if any of the following events shall occur.
13. 1. UTG shall violate any provisions of this Agreement and shall fail to cure such default within thirty (30) days after receipt of written notice of such violation; or
    2. Without consent of TI, UTG shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator or trustee of UTG, or of all or substantially all of its property by reason of the foregoing, or approving any petition filed against UTG for its reorganization, and such adjudication or order shall remain in force or unstayed for a period of ninety (90) days; or
    3. UTG shall institute proceedings of voluntary bankruptcy, or shall file a petition seeking reorganization under the federal bankruptcy laws, or for relief under any law for the relief of debtor, or shall consent to the appointment of a receiver of UTG or of all or substantially all of its property, or shall make a general assignment for the benefits of its creditor, or shall admit in writing its inability to pay its debts generally as they become due.

If any of the events specified in subparagraphs (b) and (c) of this Section 11 shall occur, UTG shall give written notice thereof to TI within fifteen (15) days after the happening of such event.

12. Disclosure of Information.  UTG agrees all information communicated to it by or on behalf of TI while this Agreement is in force shall be used by UTG only for the purposes of this Agreement and during the term of this Agreement, and thereafter.  UTG will not disclose such information to any person who is not a Director, Officer, employee or agent of TI or of any of its affiliated companies, except to the extent such disclosure is directly or indirectly related to the performance of this Agreement or is otherwise required by any applicable law, rule or regulation.
13. Records and Reports.  Except as provided herein, all forms, records, statements, reports, files and other data and information prepared, maintained or collected by UTG in the performance of this Agreement shall become the sole property of TI and shall be furnished to TI upon request.
14. Inspection of Books and Records.  UTG shall keep proper books of account and records relating to the services performed hereunder in which full and correct entries will be made.  TI or its designated agents shall, upon ten (10) days prior written notice to UTG have the right to inspect the books and records of UTG at the offices of UTG in which said books and records are maintained during normal business hours for any purpose related to administration performance of this Agreement or the collection and determination of the fees required to be paid by TI to UTG under this Agreement.
15. Performance. The failure of either party to insist upon strict performance of any provision of this Agreement shall not constitute a waiver of the right to insist upon strict performance or the obligation to strictly perform thereafter.
16. Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing and shall, unless some other method of giving such notice, report or other communication is accepted by the party to whom it is given, be given by being mailed by certified mail, postage prepaid, to the following address of the parties thereto:

If to UTG:        UTG, Inc

Attn:  Corporate Secretary

P.O. Box 5147

Springfield, Illinois 62705

If to TI: Texas Imperial Life Insurance Company

Attn:  Corporate Secretary

P.O. Box 5147

Springfield, Illinois 62705

Any party may, at any time, give written notice to the other parties, changing its address for the purposes of this Section 13.

17. Entire Agreement. This Agreement contains the entire understanding of the parties hereto and supersedes all prior agreements of the parties with respect to the subject matter contained herein.
18. Modification.    This Agreement shall not be amended, changed, modified, terminated or discharged, in whole or in part, except by an instrument, in writing, duly executed by all parties hereto or their respective successors or assigns.
19. Binding Effect.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successors of the parties hereto.
20. Applicable Law. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware as at the time in effect.
21. Severability. If any provisions of this Agreement shall be found to be invalid by any court or competent jurisdiction, such findings shall not affect the remaining provisions of this Agreement and all other provisions herein shall remain in full force and effect.
22. Titles Not to Affect Interpretation. The titles of paragraphs and subparagraphs contained in this Agreement are inserted for convenience of reference only and neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers thereunto duly authorized as of the day and year first above written.

UTG, INC.                                                                  Texas Imperial Life Insurance Company

By: _/s/ James P. Rousey_________                By: __/s/ James P. Rousey_________________

       James P. Rousey                                                          James P. Rousey

        Executive Vice President                                  Executive Vice President

Attest:                                                                          Attest:

__/s/ Theodore C. Miller_________                __/s/ Theodore C. Miller__________________

Theodore C. Miller                                                       Theodore C. Miller

Secretary                                                                      Secretary

EX-21.1

 

                                                                                                                                                          Exhibit 21.1

     LIST OF SUBSIDIARIES

                         Subsidiary Name                                                                      State of Incorporation

North Plaza of Somerset, Inc.                                                                                 Kentucky

Cumberland Woodlands, LLC                                                                                Kentucky

Roosevelt Equity Corporation                                                                            Delaware

UTAG, Inc.                                                                                                            Illinois

Universal Guaranty Life Insurance Company                                                      Ohio

Hampshire Plaza, LLC                                                                                            New Hampshire

Hampshire Plaza Garage, LLC                                                                                New Hampshire

RLF Kennessee, LLC                                                                                             Tennessee

Harbor Village Partners, LLC                                                                                  Texas

ACAP Corporation                                                                                                 Delaware

American Capitol Insurance Company                                                                    Texas

Texas Imperial Life Insurance Company                                                                 Texas

Imperial Plan, Inc.                                                                                                  Texas