<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 1994
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED COMPANIES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
LOUISIANA 71-0430414
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
</TABLE>
4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
(504) 924-6007
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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DALE E. REDMAN
CHIEF FINANCIAL OFFICER
4041 ESSEN LANE
BATON ROUGE, LOUISIANA 70809
(504) 924-6007
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPIES TO:
<TABLE>
<S> <C> <C>
REED D. AUERBACH, ESQ. LEE C. KANTROW, ESQ. PETER J. GORDON, ESQ.
STROOCK & STROOCK & LAVAN KANTROW, SPAHT, WEAVER & BLITZER SIMPSON THACHER & BARTLETT
SEVEN HANOVER SQUARE (A PROFESSIONAL LAW CORPORATION) 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10004-2696 POST OFFICE BOX 2997 NEW YORK, NEW YORK 10017-3909
BATON ROUGE, LOUISIANA 70821-2997
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. ( )
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. (X)
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER UNIT (2) OFFERING PRICE (3) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Debt Securities (4);
Preferred Stock; Common
Stock (5)(6) . . . . . . . $200,000,000 N/A $200,000,000 $68,965.52
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</TABLE>
(1) The amount to be registered consists of up to $200,000,000 in U.S.
dollars or the equivalent in foreign currency or currency units
aggregate initial offering price of an indeterminate amount of Debt
Securities and Preferred Stock.
(2) The proposed maximum offering price per unit has been omitted pursuant
to Securities Act Release No. 6964. The registration fee has been
calculated in accordance with Rule 457(o) under the Securities Act of
1933, as amended, and reflects the offering price rather than the
principal amount of any Debt Securities issued at a discount.
(3) Estimated solely for purposes of computing the registration fee.
(4) In addition to any Debt Securities that may be issued directly under
this registration statement, there are being registered hereunder an
indeterminate amount of Debt Securities as may be issued upon conversion
or exchange of Debt Securities or Preferred Stock, as the case may be.
No separate consideration will be received for any Debt Securities so
issued upon such conversion or exchange.
(5) There are being registered hereunder an indeterminate number of shares
of Common Stock as may be issued upon conversion or exchange of Debt
Securities or Preferred Stock, as the case may be. No separate
consideration will be received for any shares of Common Stock so issued
upon such conversion or exchange.
(6) Includes Preferred Stock Purchase Rights ("Rights"). The Rights are
associated with and trade with the Common Stock. The value, if any,
attributable to the Rights is reflected in the market price of the
Common Stock.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE> 2
SUBJECT TO COMPLETION, DATED AUGUST 25, 1994
PROSPECTUS
UNITED COMPANIES FINANCIAL CORPORATION
DEBT SECURITIES AND PREFERRED STOCK
United Companies Financial Corporation ("UCFC" or the "Company") may
offer from time to time, together or separately, (i) its unsecured debt
securities, which may be either senior (the "Senior Debt Securities") or
subordinated (the "Subordinated Debt Securities" and, together with the Senior
Debt Securities, the "Debt Securities"), and (ii) shares of its preferred
stock, par value $2.00 per share (the "Preferred Stock"), (the Debt Securities
and the Preferred Stock are collectively referred to herein as the
"Securities"), in amounts, at prices and on terms to be determined at the time
of the offering thereof. The Securities may be convertible or exchangeable
into other series of Debt Securities or shares of the common stock, par value
$2.00 per share, of the Company (the "Common Stock"). The Securities offered
pursuant to this Prospectus may be issued in one or more series or issuances
the aggregate offering price of which will not exceed $200,000,000 (or the
equivalent thereof if the Debt Securities are denominated in one or more
foreign currencies or foreign currency units).
The specific terms of the Securities in respect of which this Prospectus
is being delivered (the "Offered Securities") will be set forth in an
accompanying supplement to this Prospectus (each, a "Prospectus Supplement"),
including, where applicable (i) in the case of Debt Securities, the specific
designation, aggregate principal amount, ranking as Senior Debt Securities or
Subordinated Debt Securities, authorized denominations, maturity, any premium,
rate or method of calculation of interest, if any, and dates for payment
thereof, any terms for optional or mandatory redemption, any sinking fund
provisions, any terms for conversion or exchange into other series of Debt
Securities or Common Stock and any other special terms, and (ii) in the case of
the Preferred Stock, the specific designation, the aggregate number of shares
offered, the dividend rate (or method of calculation thereof), the dividend
period and dividend payment dates, whether such dividends will be cumulative or
noncumulative, the liquidation preference, voting rights, if any, any terms for
optional or mandatory redemption, any terms for conversion or exchange into
other series of Debt Securities or Common Stock and any other special terms.
If so specified in the applicable Prospectus Supplement, Debt Securities of a
series may be issued in whole or in part in the form of one or more temporary
or permanent global securities.
The Senior Debt Securities will rank equally with all other
unsubordinated and unsecured indebtedness of the Company. The Subordinated
Debt Securities will be subordinate in right of payment to all existing and
future Senior Indebtedness (as defined herein) of the Company.
The Securities may be sold (i) through underwriting syndicates
represented by managing underwriters, or by underwriters without a syndicate,
with such underwriters to be designated at the time of sale; (ii) through
agents designated from time to time; or (iii) directly by the Company. The
names of any underwriters or agents of UCFC involved in the sale of the
Securities, the public offering price or purchase price thereof, any applicable
commissions or discounts, any other terms of the offering of such Securities
and the net proceeds to the Company from such sale, will be set forth in the
applicable Prospectus Supplement.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1994.
<PAGE> 3
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE
OF NORTH CAROLINA (THE "NORTH CAROLINA INSURANCE COMMISSIONER") HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS THE NORTH CAROLINA INSURANCE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
LOUISIANA INSURANCE LAWS AND REGULATIONS PROVIDE THAT NO PERSON MAY
ACQUIRE CONTROL OF THE COMPANY AND THUS INDIRECT CONTROL OF ITS LOUISIANA
DOMICILED INSURANCE SUBSIDIARIES, UNITED COMPANIES LIFE INSURANCE COMPANY AND
UNITED GENERAL TITLE INSURANCE COMPANY, UNLESS SUCH PERSON HAS PROVIDED CERTAIN
REQUIRED INFORMATION TO THE INSURANCE COMMISSIONER OF THE STATE OF LOUISIANA
AND SUCH ACQUISITION HAS BEEN APPROVED BY THE INSURANCE COMMISSIONER OF THE
STATE OF LOUISIANA, AFTER PUBLIC HEARING. UNDER LOUISIANA INSURANCE LAWS AND
REGULATIONS, ANY PERSON WHO OWNS, CONTROLS OR HAS THE POWER TO VOTE 10% OR MORE
OF THE VOTING SECURITIES OF A CORPORATION IS PRESUMED TO HAVE CONTROL OF THAT
CORPORATION AND ITS SUBSIDIARIES. A SECURITY WHICH IS CONVERTIBLE INTO OR
EVIDENCES A RIGHT TO ACQUIRE A VOTING SECURITY IS VIEWED AS A VOTING SECURITY.
CONSEQUENTLY, NO PURCHASER IN THIS OFFERING MAY ACQUIRE, DIRECTLY OR
INDIRECTLY, AN AMOUNT OF VOTING SECURITY WHICH WOULD BRING SUCH PURCHASER'S
TOTAL HOLDINGS TO 10% OR MORE OF THE VOTING SECURITIES OF THE COMPANY, UNLESS
SUCH PURCHASER HAS PROVIDED THE REQUIRED INFORMATION TO THE INSURANCE
COMMISSIONER OF THE STATE OF LOUISIANA AND THE ACQUISITION HAS BEEN APPROVED BY
THE INSURANCE COMMISSIONER OF THE STATE OF LOUISIANA.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Company with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1993;
(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994 and June 30, 1994; and
(c) The description of the Company's Preferred Share Purchase Rights
contained in the Company's Registration Statement on Form 8-A filed on
August 5, 1994.
All reports and any definitive proxy or information statements filed by
the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of the offering of the Securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to he incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
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<PAGE> 4
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A
COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO DALE E. REDMAN, CHIEF FINANCIAL OFFICER, UNITED COMPANIES FINANCIAL
CORPORATION, 4041 ESSEN LANE, BATON ROUGE, LOUISIANA 70809. TELEPHONE REQUESTS
MAY BE DIRECTED TO MR. REDMAN AT (504) 924-6007.
AVAILABLE INFORMATION
UCFC is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the following public reference
facilities maintained by the Commission: Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; Seven World Trade Center, Suite 1300, New
York, New York 10048; and the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may
also be obtained by mail from the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of prescribed rates. In addition, reports, proxy statements and
other information concerning UCFC may be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement filed by
the Company with the Commission on Form S-3 under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits for further information
with respect to the Company and the securities offered hereby. Statements
contained herein concerning the provisions of any document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such
reference. These documents may be inspected without charge at the office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies may be obtained at fees and charges prescribed by the
Commission.
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<PAGE> 5
THE COMPANY
GENERAL
The Company, founded in 1946, is a financial services holding company
having mortgage and insurance operations. The Company's mortgage operations
are focused on the origination, sale and servicing of first mortgage,
non-conventional, home equity loans. The Company's financial performance has
improved in recent years primarily as a result of its increased loan production
and its reduced cost of funding due to the Company-sponsored public mortgage
loan securitization transactions. The Company's strategy for increasing loan
production includes continued geographic expansion, the introduction of new
loan products and wholesale loan originations and acquisitions. Home equity
loan production in 1993, 1992 and 1991 was $540 million, $301 million and $254
million, respectively. Home equity loan production for the first six months of
1994 was $425 million compared to $210 million for the same period of 1993.
The Company believes its securitization strategy improves its access to funding
and thereby provides a distribution outlet capable of purchasing the Company's
expanded home equity loan production. Increased loan production and
securitization are the primary reasons that the operating income before income
taxes of the Company's mortgage operations rose from $4.4 million in 1991 to
$24.0 million in 1992 to $46.3 million in 1993. The Company's insurance
operations sell primarily single premium deferred annuities marketed in 47
states, the District of Columbia and Puerto Rico and underwrite primarily
residential title insurance in 28 states. For additional information regarding
the Company's operations by business segment, see "Selected Financial and Other
Data" herein and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" herein and in the Company's Annual Report on Form
10-K for the year ended December 31, 1993 and the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994.
The Company is incorporated in the State of Louisiana, its headquarters
is located at 4041 Essen Lane, Baton Rouge, Louisiana 70809, and its telephone
number is (504) 924-6007. As of June 30, 1994, the Company had approximately
1,300 employees.
MORTGAGE OPERATIONS
United Companies Lending Corporation ("UC Lending" or "UCLC"), the
Company's wholly owned mortgage subsidiary, originates, sells and services
primarily first mortgage, non-conventional, home equity loans which are
typically not loans for the purchase of homes. These loans are made primarily
to individuals who may not otherwise qualify for conventional loans which are
readily marketable to government-sponsored mortgage agencies or conduits and
available through most commercial banks and many other lending institutions.
The weighted average interest rate and the weighted average loan origination
fee on UC Lending home equity loans originated during 1993 were 11.8% and 7.0%,
respectively, and for such loans originated during the first six months of
1994, were 11.3% and 6.0%, respectively. The Company attributes these loan
terms to its belief that its customers generally place a higher priority on the
amount of the monthly payment and prompt credit approval than on the interest
rate and origination fees associated with the loan. Further, borrowers of
non-conventional loans may present a greater credit risk and generally pay
higher interest rates and loan origination fees. Management of the Company
believes that any greater credit risk arising out of making loans to these
borrowers is compensated by higher fees and interest rates. The average home
equity loan amount at origination was approximately $39,000 during 1993, up
from $28,000 during 1992, and increased to $42,000 during the first six months
of 1994. This increase has been due primarily to an expansion into geographic
areas where home values are higher, a de-emphasis of second mortgage loans, an
expansion of loan product lines and the introduction of a wholesale loan
production program. UC Lending originated $531 million of first mortgage home
equity loans in 1993, up 88% from $283 million in 1992 and originated $419
million of first mortgage home equity loans during the first six months of 1994
compared to $205 million for the same period of 1993. Loan originations are
accomplished primarily through a retail branch network. During the third
quarter of 1992, UC Lending initiated a wholesale loan network of
correspondents and brokers through a division operating under the registered
servicemark UNICOR Mortgage(R) ("UNICOR"). The Company has expanded this
division which, as of June 30, 1994, was operating in 18 states. The Company
plans to further expand UNICOR on a selective basis into other states. UNICOR
offers fixed and adjustable rate home equity loans to borrowers of a credit
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<PAGE> 6
quality comparable to borrowers who typically receive loans through the
Company's branch network. Loans may be secured by one or more single family,
owner-occupied or non-owner occupied, and multi-family properties. A network
of field account executives solicit qualifying loans from mortgage
correspondents and brokers within target markets by employing a combination of
direct solicitation, participation in seminars, trade shows and conventions, as
well as advertising directed at the mortgage lender/broker market. During
late 1993, UC Lending began another wholesale loan network which offers the
same products as the UNICOR program to banks and other financial institutions
through its division operating under the registered servicemark GINGER MAE SM,
application pending for Federal registration, the acronym for the Good Neighbor
Reinvestment Mortgage Assistance Loan Program. This program is intended to
permit participating institutions to originate loans to borrowers who do not
qualify for conventional credit. Loans purchased by UC Lending under this
program are underwritten by UC Lending personnel prior to approval and funding
under the same guidelines as those utilized by UNICOR. As of June 30, 1994,
GINGER MAE SM had 38 financial institutions in 5 states participating in the
GINGER MAE SM program.
Historically, most of the Company's home equity loans were held or sold
to financial institutions. Since the fourth quarter of 1991, however, the
secondary mortgage market's growing acceptance of mortgage-backed securities
based on non-conventional home equity loans has allowed the Company to pool
large numbers of loans for sale as mortgage-backed securities. In late 1991
and in 1992, this was accomplished primarily through private placement
transactions. The weighted average interest spread on loans sold to third
parties (the difference between the stated rate on the loan and the rate paid
to purchasers, less certain recurring fees) ranged from 4.56% in 1992 to 6.06%
in 1993 to 4.88% in the six months ended June 30, 1994. During 1993 and in the
first six months of 1994, UC Lending securitized and sold publicly $451 million
and $440 million of home equity loans, respectively, through a
Company-sponsored shelf registration statement which has been amended to cover
an additional $3 billion principal amount of mortgage-backed securities. The
weighted average interest spread on loans sold is determined without regard to
expected credit losses. Therefore, the spread is not impacted by projected or
actual credit losses. Such securitization transactions are credit enhanced and
have received ratings of "Aaa" from Moody's Investors Service, Inc. and "AAA"
from Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. The
Company presently intends to effect securitization transactions on a quarterly
basis, but the amount and timing of sales of securities under the shelf
registration statement will depend upon market and other conditions affecting
the operations of the Company. Servicing rights are retained on substantially
all loans sold, and as of June 30, 1994, UC Lending serviced approximately
46,000 home equity loans having an aggregate principal balance of approximately
$1.4 billion. The ability of the Company to sell loans and/or mortgage-backed
securities in the secondary market is essential for continuation of the
Company's loan origination operations. A prolonged, substantial reduction in
the size of the secondary market for home equity loans may adversely affect the
Company's ability to sell its loan originations and/or mortgage-backed
securities in the secondary market with consequent adverse impact on the
Company's profitability and future originations. Moreover, market and other
considerations could affect the timing of the Company's securitization
transactions and delays in such sales could reduce the amount of gains
recognized from the sale of loans in a given quarter.
The Company derives a significant portion of its income by realizing
gains upon the sale of loans due to the excess servicing income of such loans.
Excess servicing income represents the excess of the interest rate payable by a
borrower on a loan over the interest rate passed through to the investor
acquiring an interest in such loan, less the Company's normal servicing fee and
other applicable recurring fees. When loans are sold, the Company recognizes
as current income the present value of the excess servicing income expected to
be realized over the anticipated average life of loans sold less future
estimated credit losses relating to the loans sold. At June 30, 1994, the
Company's balance sheet reflected capitalized excess servicing income of
approximately $149 million and an allowance for loss on loans serviced of
approximately $20.5 million. The capitalized excess servicing income is
computed using prepayment, default and interest rate assumptions that the
Company believes market participants would use for similar instruments at the
time of sale. The weighted average discount rate used to determine the present
value of the balance of capitalized excess servicing income on home equity
loans reflected on the Company's balance sheet at June 30, 1994, was
approximately 9.9%. The Company is not aware of an active market for this kind
of receivable. No assurance can be given that this receivable could in fact be
sold at its stated value on the balance sheet.
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<PAGE> 7
Capitalized excess servicing income is amortized over the lesser of the
estimated or actual remaining life of the underlying loans as an offset against
the excess servicing income component of servicing income actually received in
connection with such loans. Although management of the Company believes that
it has made reasonable estimates of the excess servicing income likely to be
realized, it should be recognized that the rate of prepayment and the amount of
defaults utilized by the Company are estimates and actual experience may vary
from these estimates. The Company periodically reviews its prepayment
assumptions in relation to current rates of prepayment and, if necessary,
writes down the remaining asset to the net present value of the estimated
remaining future excess servicing income. Rapid increases in interest rates or
competitive pressures may result in a reduction of excess servicing income,
thereby reducing the gains recognized by the Company upon the sale of loans in
the future.
The gain recognized by the Company upon sale of loans will have been
overstated if the excess servicing income actually received by the Company is
less than originally assumed. An acceleration of future prepayments could
result in capitalized excess servicing income amortization expense exceeding
realized excess servicing income, thereby adversely affecting the Company's
servicing income and resulting in a charge to earnings in the period of
adjustment. Likewise, if delinquencies or liquidations were to occur sooner in
the portfolio of loans sold by the Company and/or with greater frequency than
was initially assumed, capitalized excess servicing income amortization would
occur more quickly than originally anticipated, which would have an adverse
effect on servicing income in the period of such adjustment.
INSURANCE OPERATIONS
United Companies Life Insurance Company ("UC Life" or "UCLIC"), the
Company's wholly-owned life insurance subsidiary domiciled in Louisiana and
organized in 1955, is currently authorized to conduct business in 47 states,
the District of Columbia and Puerto Rico. The primary products of UC Life are
single premium deferred annuities marketed principally through financial
institutions and independent agents. Premiums for these annuities currently
average approximately $20,000 per contract and are generally sold to middle
income customers seeking tax deferred insurance products, primarily to provide
savings for retirement. UC Life produced $208 million, $187 million, $176
million and $116 million in sales of annuity products during the years ended
December 31, 1993, 1992 and 1991 and in the six months ended June 30, 1994,
respectively. At June 30, 1994, total annuity reserves were approximately $1.4
billion. UC Life continues to focus its efforts on improving the quality and
liquidity of its investment portfolio. At June 30, 1994, the weighted average
rating of its publicly traded bond portfolio according to nationally recognized
statistical rating agencies was "AA". At June 30, 1994, the amortized cost of
the assets allocated to investments in investment grade fixed maturity
securities was $279 million or 27.7% of the portfolio and in investment grade
mortgage-backed securities was $711 million or 70.5% of the portfolio. At June
30, 1994, the amortized cost of UC Life's holdings of non-investment grade
publicly traded bonds was $19 million or 1.8% of the portfolio. During the
first six months of 1994, the net interest margin on the Company's annuity
business improved to 2.68% from 2.20% during 1993. Measures taken by UC Life
to stabilize and improve this margin included reducing crediting rates on new
and existing annuity contracts.
Reserves for annuity policies constitute the Company's primary
liabilities. The duration of these liabilities is affected by a number of
factors, including interest rates, surrender penalties, ratings, public
confidence in the insurance industry generally, and in the Company
specifically, governmental regulations and tax laws. Since insurance
commissions incurred at the origination of annuity policies are generally
deferred and recognized over the estimated life of the policies, any unexpected
increase in surrenders of annuity contracts would require more rapid
recognition of these expenses, thereby adversely impacting profitability.
The Company is also engaged in underwriting title insurance through its
subsidiary, United General Title Insurance Company ("UG Title" or "UGTIC"),
which conducts operations in 28 states exclusively through independent agents.
UG Title's revenues in the first six months of 1994 and for the years ended
December 31, 1993 and 1992 totaled $19.8 million, $25.1 million and $11.4
million, respectively.
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<PAGE> 8
BUSINESS STRATEGIES
The Company's strategic plan focuses primarily on its continued emphasis
on its mortgage operations. Management of the Company believes that the
implementation of significant changes in mortgage operations, such as
centralization of collections and other loan servicing functions, institution
of a branch incentive compensation structure, and the addition of the UNICOR
and GINGER MAE SM programs have positioned the Company to be able to continue
the increased loan production in its mortgage operations. The Company's
increased profitability has resulted primarily from its increased loan
origination capacity and its ability to more efficiently pool and sell loans in
the secondary market, principally through securitizations. Management of the
Company intends to continue to pursue the following strategies in its mortgage
operations:
Mortgage Production Strategy
o Continue to focus production on first mortgage non-conventional, home
equity loans.
o Increase the number of retail branches and expand geographically to
become a national lender.
o Continue to expand the product line and distribution channels.
o Continue to centralize and improve customer service and loan servicing
functions to focus the Company's branches on loan originations.
o Continue to grow its wholesale lending operation to complement its
retail network and thereby broaden the market reach of the Company.
Securitization Strategy
o Continue to focus production on selected categories of loans that are
attractive to purchasers of mortgage-backed securities.
o Maintain direct access to the mortgage-backed securities markets through
a Company-sponsored conduit which uses its own shelf registration
statement.
o Continue to maintain the Company's underwriting standards.
o Use standardized loan documentation based upon Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association ("GNMA")
and Federal Home Loan Mortgage Corporation ("FHLMC") forms.
In addition to its mortgage banking strategy, the Company intends to
focus its insurance operations on developing the economies of scale necessary
to compete in the current annuity marketplace while maintaining an operating
philosophy which emphasizes investment grade securities, cost control and
quality customer service.
DISCONTINUED OPERATIONS
On May 7, 1993, the Company decided to divest its subsidiary Foster
Mortgage Corporation ("FMC"). As a result of this decision, the operations of
FMC have been classified as discontinued operations and, accordingly, the
consolidated financial statements and the related notes of the Company
segregate continuing and discontinued operations. In connection with the
decision to dispose of FMC, the Company recorded a $17.6 million after tax loss
in its financial statements as of and for the quarter ended March 31, 1993,
reflecting the operating loss of FMC for the quarter ended March 31, 1993 of
$1.5 million, net of tax benefit and the estimated loss from disposal of FMC of
$16.1 million, net of tax benefit. The Company has not reflected operating
losses incurred by FMC subsequent to that date in the Company's financial
statements.
-7-
<PAGE> 9
As of November 30, 1993, the servicing rights owned by FMC,
which constituted substantially all of its assets, were sold. On December 21,
1993, the institutional lenders under FMC's primary credit facility (the "FMC
Institutional Lenders") filed a petition in the U.S. bankruptcy court to cause
the remaining affairs of FMC to be wound up under the supervision of the
bankruptcy court. FMC, as debtor in possession in the bankruptcy proceeding,
filed a plan of liquidation providing for the disposal of FMC's remaining
assets and distributions to FMC's creditors. The FMC Institutional Lenders
have also filed a plan of liquidation for FMC and allege therein potential
claims of FMC against the Company. FMC and the Company executed, subject to
the approval of the bankruptcy court, a settlement agreement relating to
payments between FMC and the Company in connection with the federal income tax
benefits resulting from FMC's losses and to certain prior intercompany payments
between FMC and the Company. The FMC Institutional Lenders opposed the
proposed settlement agreement. At the conclusion of a hearing on the proposed
settlement on August 18, 1994, the bankruptcy court approved the portion of the
settlement providing for a net payment by the Company of $1.65 million to FMC
in satisfaction of the federal income tax benefits resulting from FMC's losses.
The Company had previously recorded substantially all of the impact of this
portion of the settlement in its prior financial statements. The bankruptcy
court declined to approve the other portion of the proposed settlement relating
to payments received by the Company from FMC within twelve months of the
bankruptcy filing. These matters may be pursued by the trustee under the plan
of liquidation to be approved by the bankruptcy court. If the Company were
required to refund such payments, the Company has estimated the potential
additional loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy cout on the settlement is not final and may be appealed by the FMC
Institutional Lenders. Management of the Company does not believe that any
additional amounts are owed by the Company to FMC and intends to vigorously
contest any claims which may be brought against it for such amounts.
FMC is in payment default under its primary credit facility with the FMC
Institutional Lenders and the outstanding principal balance as of June 30, 1994
of approximately $43.7 million is due. The Company has not guaranteed any debt
of FMC and believes, based upon advice of its counsel, that it has no
responsibility for the obligations of FMC under such credit facility or
(excluding potential consequences of the bankruptcy filing on certain prior
intercompany transactions or potential additional payment for tax benefits as
discussed above) for any other liabilities to FMC's lenders.
GOVERNMENT REGULATION AND LEGISLATION; LEGAL PROCEEDINGS
The Company's mortgage banking and insurance businesses are subject to
extensive regulation, supervision and licensing by federal and state
authorities. Regulated matters include, without limitation, maximum interest
rates and fees which may be charged by the Company, disclosure in connection
with loan originations, credit reporting requirements, servicing requirements,
insurance premium rates and coverage issues, federal and state taxation, and
multiple qualification and licensing requirements for doing business in various
jurisdictions. While the Company believes that it maintains all requisite
licenses, permits and approvals and is in compliance in all material respects
with applicable federal and state regulations, there can be no assurance that
more restrictive laws or regulations will not be adopted which could make
compliance in the future more difficult and/or more expensive. Legislative and
regulatory proposals are frequently advanced which, if adopted, could adversely
affect the Company's profitability or the manner in which the Company conducts
its activities. In particular, legislation was passed in early August 1994 by
both the United States Senate and House of Representatives, and is awaiting
signature by the President, that imposes disclosure requirements and prohibits
prepayment penalty charges, among other requirements, on loans secured by a
borrower's principal residence with a specified level of origination fees or a
specified interest rate level. A significant percentage of the Company's home
equity loans could be subject to the restrictions of this legislation when it
becomes effective. The Company is currently reviewing this legislation in its
final form to determine the impact of its provisions on the Company's business
or results of operations.
The United States Court of Appeals for the Eleventh Circuit held, in
part, that a lender improperly disclosed the collection of the Florida state
intangible tax from the borrower, thereby subjecting the loan to rescission
under the Federal Truth-in-Lending Act (the "TILA") by the borrower for three
years after it was made. Subsequent to the court's initial decision and prior
to its refusal to reconsider its decision, the Florida Legislature amended the
language of the intangible tax to clarify the legislature's previous intention
that the intangible tax be disclosed for purposes of the TILA in the manner
that had been followed by most lenders in Florida, including the Company.
Although the Florida Legislature intended this legislation to apply
retroactively, no judicial determination has yet been made as to the effect of
this legislation on loans
-8-
<PAGE> 10
originated prior to its effective date. This Court decision may also apply to a
similar intangible tax imposed by other states. To its knowledge, as of August
23, 1994, no claims have been filed against the Company under this recent court
decision (other than as a defense to a foreclosure proceeding) and no notice of
a breach of a representation has been received under the Company's loan sale
agreements requesting it to repurchase, cure or substitute other loans for the
loans sold. If the intent of the Florida Legislature is not upheld and if a
substantial number of claims are filed by borrowers against the Company
resulting in rescission or repurchase, the Company's financial statements and
operations will be materially adversely affected. As the financial impact, if
any, of this contingency cannot presently be reasonably estimated, the Company
has made no accrual therefor.
A substantial amount of the Company's annuity policies are marketed
through financial institutions. In August 1993, the United States Court of
Appeals for the Fifth Circuit held that the United States Comptroller of the
Currency's decision to permit national banks to sell annuities in towns with
more than 5,000 inhabitants violated the National Bank Act. In June 1994, the
United States Supreme Court granted certiorari and decided that it will hear
arguments in this action. If the Fifth Circuit ruling is upheld by the Supreme
Court, it will have a material adverse effect on the ability of the Company to
market its annuities. Furthermore, any future regulatory restrictions on the
authority of financial institutions to market annuities could have a material
adverse effect on the ability of the Company to market this product.
COMPETITION
As a marketer of credit and annuity products, the Company faces intense
competition. Traditional competitors in the financial services business
include other mortgage banking companies, commercial banks, credit unions,
thrift institutions, credit card issuers and finance companies. Competitors in
the annuity business include an increasing number of insurance companies which
have recently begun to offer annuity products. Many of these competitors in
the financial services and annuity business are substantially larger and have
more capital and other resources than the Company. Competition can take many
forms including convenience in obtaining a loan or annuity, customer service,
marketing and distribution channels and interest or crediting rates. In
addition, the current level of gains realized by the Company and its existing
competitors on the sale of its and their non- conventional loans could attract
additional competitors into this market with the possible effect of lowering
gains on future loan sales owing to increased loan origination competition.
USE OF PROCEEDS
Except as may otherwise be set forth in the applicable Prospectus
Supplement, the net proceeds from the sale of the Offered Securities will be
used to reduce the Company's revolving bank debt and for general corporate
purposes. At June 30, 1994, the floating interest rate on the Company's
revolving bank debt was 6.00% per annum.
-9-
<PAGE> 11
RATIOS OF EARNINGS
The following tables set forth the ratio of earnings to fixed charges
and the ratio of earnings to combined fixed charges and preferred stock
dividends for the Company for the six months ended June 30, 1994 and for each
of the years in the five-year period ended December 31, 1993.
The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. The ratio of earnings to combined fixed charges and
preferred stock dividends has been computed by dividing earnings by the sum of
fixed charges and preferred stock dividend requirements. Earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest on all indebtedness and the portion of rental expense considered to be
representative of interest.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED JUNE 30, --------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
7.8 4.9 2.7 1.5 1.4 1.6
</TABLE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS DECEMBER 31,
ENDED JUNE 30, --------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
-------------- -------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
7.8 4.7* 2.7 1.5 1.4 1.6
</TABLE>
_______________________
* The Company had no preferred stock outstanding other than for a portion
of the year ended December 31, 1993.The preferred stock dividend
declared during such period has been increased to an amount representing
the pre-tax earnings which would be required to cover such dividend.
-10-
<PAGE> 12
SELECTED FINANCIAL AND OTHER DATA (1)
The selected financial data set forth below are derived from the
Company's audited Consolidated Financial Statements.The Company's Consolidated
Balance Sheets at December 31, 1993 and 1992, and Consolidated Statements of
Income, Stockholders' Equity and Cash Flows for the years ended December 31,
1993, 1992 and 1991 and notes thereto were audited by Deloitte & Touche LLP,
independent certified public accountants, and are incorporated by reference
herein and available as described under "Incorporation of Certain Documents by
Reference" and "Available Information." The Company's audited Consolidated
Financial Statements should be read in conjunction with this table and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein and in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.The financial information and
other data set forth for the six months ended June 30, 1994 and 1993 are
unaudited; however, in the opinion of the Company's management, the
accompanying financial information contains all adjustments, consisting only of
normal accruals, except for discontinued operations, necessary to present
fairly the financial information for such periods.The results of operations for
the six months ended June 30, 1994 may not be indicative of results of
operations to be expected for the full year.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
---------------------- -------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ----------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(2)
Interest, charges and fees on loans . . . $ 57,105 $ 44,534 $ 95,975 $ 92,584 $ 90,169 $ 63,300 $ 56,946
Investment income . . . . . . . . . . . . 39,192 37,021 75,604 62,915 60,223 66,226 64,028
Loan sale gains . . . . . . . . . . . . . 43,346 22,845 59,441 33,475 29,627 18,613 12,193
Net insurance premiums . . . . . . . . . 25,152 18,695 43,119 33,795 42,195 42,745 44,009
Loan servicing income . . . . . . . . . . 7,684 5,654 10,077 10,611 9,492 10,592 10,525
Investment gains (losses) . . . . . . . . 99 68 595 3,110 2,089 (472) 7,392
---------- ---------- ----------- ---------- ---------- ---------- ----------
Total revenues . . . . . . . . . . . . . 172,578 128,817 284,811 236,490 233,795 201,004 195,093
Total expenses . . . . . . . . . . . . . 128,996 118,240 240,439 215,120 225,419 193,737 182,947
---------- ---------- ----------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes . . . . . . . . . . 43,582 10,577 44,372 21,370 8,376 7,267 12,146
Provision for income taxes . . . . . . . 15,173 3,631 15,212 7,865 3,363 2,620 4,087
---------- ---------- ----------- ---------- ---------- ---------- ----------
Income from continuing operations . . . . 28,409 6,946 29,160 13,505 5,013 4,647 8,059
Income (loss) from discontinued
operations(1) . . . . . . . . . . . . . - (17,585) (17,585) (3,259) 6,463 3,660 -
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . $ 28,409 $ (10,639) $ 11,575 $ 10,246 $ 11,476 $ 8,307 $ 8,059
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA - PERIOD END:(2)
Loans - net . . . . . . . . . . . . . . $ 477,168 $ 506,011 $ 519,634 $ 504,503 $ 606,825 $ 362,919 $ 413,634
Bonds and stocks - net(3) . . . . . . . 994,267 854,999 905,999 762,160 379,720 591,150 482,099
Capitalized excess servicing income . . 149,052 86,853 113,192 72,062 53,942 47,153 26,927
Deferred policy acquisition costs . . . 86,242 83,397 83,495 80,007 78,599 77,601 71,984
Total assets . . . . . . . . . . . . . 1,923,445 1,707,212 1,817,544 1,629,387 1,493,706 1,364,610 1,198,195
Annuity reserves . . . . . . . . . . . 1,363,382 1,246,758 1,294,983 1,147,555 1,014,649 875,346 790,786
Notes payable:
Current . . . . . . . . . . . . . . . 2,421 820 500 1,420 25,447 11,524 15,184
Long-term . . . . . . . . . . . . . . 185,000 180,243 155,000 205,430 175,000 205,447 169,332
Total liabilities . . . . . . . . . . . 1,763,664 1,604,011 1,664,176 1,533,129 1,405,272 1,285,180 1,120,347
Stockholders' equity(3) . . . . . . . . 159,781 103,201 153,368 96,258 88,434 79,430 77,848
</TABLE>
-11-
<PAGE> 13
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
---------------------- -------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Mortgage operations
Total loan originations . . . . . . $ 426,412 $210,828 $545,229 $321,198 $328,184 $397,794 $341,049
Home equity loan originations . . . 425,446 209,758 539,868 301,234 253,613 224,783 163,669
Average home equity loan size . . . 42 36 39 28 24 23 21
Home equity loans serviced -
period end. . . . . . . . . . . . 1,388,877 916,629 1,125,139 819,448 703,922 575,282 472,258
Total loans serviced - period end . 1,777,022 1,412,031 1,568,781 1,367,822 1,344,388 1,175,038 951,109
Average coupon on home equity
loans originated. . . . . . . . . 11.3% 12.2% 11.8% 13.4% N/A N/A N/A
Loan origination fees as % of home
equity loans. . . . . . . . . . . 6.0% 7.3% 7.0% 7.9% 8.2% 7.9% 8.0%
Interest spread retained on home
equity loans sold . . . . . . . . 4.88% 6.26% 6.06% 4.56% 4.42% 4.01% 4.32%
Insurance operations
Annuity sales . . . . . . . . . . . $116,322 $120,028 $207,682 $187,050 $175,796 $102,391 $114,023
Net interest spread on
annuities . . . . . . . . . . . . 2.68% 2.04% 2.20% 1.84% 1.88% 2.18% 2.43%
Investment grade bonds as %
of invested assets. . . . . . . . 59.7% 57.5% 59.6% 54.3% 25.1% 45.5% 42.5%
</TABLE>
________________
(1) On May 7, 1993, the Company announced its decision to dispose of the
net assets and operations of FMC.The operations of FMC have been
reclassified as discontinued operations and the prior years' financial
statements of the Company included herewith have been restated
accordingly.
(2) During the first quarter of 1993, the Company implemented the
provisions of Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards Nos. 109 ("SFAS 109") and 113 ("SFAS
113") and, in connection therewith, elected to restate financial
statements subsequent to 1989.Amounts prior to 1990 have not been
restated for SFAS 109 or SFAS 113 and, therefore, the comparability of
these amounts with later years may be affected.See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Accounting Standards" contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
(3) During the first quarter of 1994, the Company implemented the
provisions of FASB Statement of Financial Accounting Standards No. 115
("SFAS 115"), which revised the method of accounting for certain of
the Company's investments.Prior to adoption of SFAS 115, the Company
reported its investments in fixed income investments at amortized
cost, adjusted for declines in value considered to be other than
temporary.SFAS 115 requires the classification of securities in one of
three categories:"available-for-sale", "held-to-maturity" or "trading
securities". Securities classified as held-to-maturity are carried at
amortized cost, whereas securities classified as trading securities or
available-for-sale are recorded at market value.Effective with the
adoption of SFAS 115, the Company determined the appropriate
classification of its investments and, if necessary,adjusted the
carrying value of such securities accordingly as if the unrealized
gains or losses had been realized.The adjustment, net of applicable
income taxes, for investments classified as available-for-sale is
recorded in "Net unrealized loss on securities" and is included in
stockholders' equity.
-12-
<PAGE> 14
<TABLE>
<CAPTION>
SELECTED FINANCIAL INFORMATION BY SEGMENT
Six Months
Ended June 30, Year Ended December 31,
------------------- -------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------ ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE
Income Statement Data:
Interest, charges and fees on loans . . . . . $32,385 $18,362 $44,797 $35,003 $36,174 $33,029 $30,300
Investment income . . . . . . . . . . . . . . 770 400 1,054 696 1,137 - -
Loan sale gains . . . . . . . . . . . . . . . 43,346 22,625 59,220 29,679 15,571 14,636 11,422
Loan servicing income . . . . . . . . . . . . 10,077 8,470 15,568 15,284 12,108 10,289 7,577
------- -------- ------- ------- ------- ------- -------
Total revenues . . . . . . . . . . . . . . . 86,578 49,857 120,639 80,662 64,990 57,954 49,299
Total expenses . . . . . . . . . . . . . . . 44,801 36,244 74,344 56,661 60,592 54,406 41,667
------- -------- ------- ------- ------- ------- -------
Income from continuing operations
before income taxes . . . . . . . . . . . . 41,777 13,613 46,295 24,001 4,398 3,548 7,632
------- -------- ------- ------- ------- ------- -------
INSURANCE
Income Statement Data:
Interest, charges and fees on loans . . . . . 23,056 22.787 45,561 51,396 51,584 32,399 29,108
Investment income . . . . . . . . . . . . . . 39,149 36,938 75,666 64,713 61,318 66,288 63,811
Net insurance premiums . . . . . . . . . . . 25,152 18,695 43,119 33,795 42,195 42,745 44,009
Loan sale gains . . . . . . . . . . . . . . . - - - 3,310 - 3,977 771
Loan servicing income (loss) . . . . . . . . (136) 124 340 673 1,645 2,625 2,949
Investment gains (losses) . . . . . . . . . . 99 72 600 3,051 2,451 (335) 7,286
------- -------- ------- ------- ------- ------- -------
Total revenues . . . . . . . . . . . . . . . 87,320 78,616 165,286 156,938 159,193 147,699 147,934
Total expenses . . . . . . . . . . . . . . . 82,819 79,407 161,340 150,718 156,556 134,115 129,339
------- -------- ------- ------- ------- ------- -------
Income (loss) from continuing
operations before income taxes . . . . . . 4,501 (791) 3,946 6,220 2,637 13,584 18,595
------- -------- ------- ------- ------- ------ ------
OTHER OPERATIONS
Income (loss) from continuing
operations before income taxes . . . . . . (62) (5) (275) (1,339) 13,566 262 3
CORPORATE
Loss from continuing
operations before income taxes . . . . . . (2,576) (2,979) (5,812) (5,958) (10,315) (9,654) (14,084)
ELIMINATIONS . . . . . . . . . . . . . . . . (58) 739 218 (1,554) (1,910) (473) -
------- -------- ------- ------- ------- ------ ------
CONSOLIDATED
Income from continuing operations
before income taxes . . . . . . . . . . . . 43,582 10,577 44,372 21,370 8,376 7,267 12,146
Provision for income taxes . . . . . . . . . 15,173 3,631 15,212 7,865 3,363 2,620 4,087
------- -------- ------- ------- ------- ------ ------
Income from continuing operations . . . . . . 28,409 6,946 29,160 13,505 5,013 4,647 8,059
Income (loss) from discontinued
operations . . . . . . . . . . . . . . . . - (17,585) (17,585) (3,259) 6,463 3,660 -
------- -------- ------- ------- ------- ------ ------
Net income (loss) . . . . . . . . . . . . . . $28,409 $(10,639) $11,575 $10,246 $11,476 $8,307 $8,059
======= ======== ======= ======= ======= ====== ======
</TABLE>
-13-
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the Company's
financial statements and accompanying notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993 and
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.See "Incorporation of Certain Documents by Reference" and "Available
Information."
OVERVIEW
The table below sets forth income from continuing operations before
income taxes for each of the Company's business segments and certain home
equity loan data for the indicated periods:
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
---------------------- --------------------------------------
1994 1993 1993 1992 1991
-------- -------- --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Mortgage operations
UC Lending . . . . . . . . . . $ 41,777 $ 13,613 $ 46,295 $ 24,001 $ 4,398
Insurance operations
UC Life . . . . . . . . . . . . 4,504 (1,370) 2,635 5,465 2,077
UG Title . . . . . . . . . . . (3) 579 1,311 755 560
Other operations . . . . . . . . (62) (5) (275) (1,339) 13,566
Corporate and eliminations . . . (2,634) (2,240) (5,594) (7,512) (12,225)
-------- -------- --------- -------- --------
Total . . . . . . . . . . . . . $ 43,582 $ 10,577 $ 44,372 $ 21,370 $ 8,376
======== ======== ========= ======== ========
Home equity loan originations . . $425,446 $209,758 $ 539,868 $301,234 $253,613
Home equity loans sold . . . . . 460,359 167,889 462,873 271,920 161,680
Interest spread retained on
home equity loans sold . . . . 4.88% 6.26% 6.06% 4.56% 4.42%
</TABLE>
The following summary identifies the major factors which influenced
the results of operations of the Company's primary operating divisions during
the indicated periods.
Mortgage operations
In 1993, the Company began selling its home equity loans in public
securitization transactions through its own shelf registration statement.During
the second quarter of 1994, the size of this shelf registration statement was
increased by $3 billion.The Company believes loan securitizations improve its
access to funding and thereby provides a distribution outlet sufficient to meet
the Company's expanded home equity loan production.Home equity loan production
increased to $540 million in 1993 compared to $301 million in 1992 and for the
first six months of 1994 increased to $425 million compared to $210 million for
the same period of 1993.The Company's strategy for increasing home equity loan
production includes continued geographic expansion, introduction of new loan
products and wholesale loan originations.During the first six months of 1994,
the Company opened offices in ten additional states thereby expanding its
retail operations to 33 states.In addition, brokers and correspondents were
added to the Company's wholesale loan network, which , at June 30, 1994, had
over 650 representatives in 18 states.
-14-
<PAGE> 16
The positive effect on income of the mortgage operations for 1993
resulting from the wider interest margins retained on loans sold and the lower
costs of funding loan originations was partially offset by increases in the
provision for loan losses and by the accrual of a $2.3 million estimated loss
arising from the settlement of litigation.Income from operations before income
taxes of the mortgage division for the six months ended June 30, 1994 increased
approximately $28.2 million compared to the same period of 1993, primarily as
the result of a $292 million increase in the amount of loans sold and an
increase in gains and fees recognized at the time of sale.As the result
primarily of increases in the level of market interest rates, the interest
spread retained on home equity loans sold declined to 4.88% in the first six
months of 1994 from 6.26% during the same period in 1993.
The Company's mortgage operations are interest rate sensitive and,
therefore, fluctuations in and the level of interest rates can have a variety
of effects on the Company's profitability.In particular, significant changes in
interest rates may impact the volume of loan originations, and will influence
the funding costs of such originations and the amount of gain recognized on
loans sold in the secondary market.During periods of declining interest rates,
the mortgage operations will generally experience an increase in profitability
as the interest spread should widen both on loans held by the Company as an
investment and on loans sold in the secondary market.Although historically a
lower interest rate environment has not resulted in a significant increase in
the level of prepayment of loans originated and serviced by the Company, a
significant and sustained reduction in interest rates could cause prepayments
to increase, and thereby result in a contraction of the amount of loans owned
and serviced and an accelerated amortization of capitalized excess servicing
income.Increased prepayments reduce the time period during which the Company
receives excess servicing income and other servicing income with respect to
prepaid loans.Increased amortization of capitalized excess servicing income is
a current charge to earnings.Likewise, if delinquencies or liquidations were to
occur sooner in the portfolio of loans sold by the Company and/or with greater
frequency than was initially assumed, capitalized excess servicing income
amortization would occur more quickly than originally anticipated, which would
have an adverse effect on servicing income in the period of such adjustment.In
contrast, an increase in the level of interest rates for an extended period of
time could adversely affect the ability of the Company to originate loans, as
well as the profitability of the loan origination program, by increasing the
cost of funding and reducing the interest spread on loans retained and loans
sold.If actual prepayments with respect to loans sold occur more slowly than
estimated at the time of sale, total income would exceed previously estimated
amounts; however, no adjustments would be made to capitalized excess servicing
income on the Company's consolidated balance sheet as such income would be
recognized prospectively.The Company began originating adjustable rate mortgage
loans in 1993 and the effects of changes in interest rates discussed above
should be less for such loans than with respect to fixed rate loans.
Insurance operations
Life and annuity products.UC Life has focused its efforts on increased
annuity sales by expanding its distribution network through financial
institutions and independent general agents.In 1993, annuity sales were $208
million, the largest annual production since 1982.During periods of lower
interest rates, UC Life's investment yields tend to decline, thereby reducing
the margin between the interest earned on invested assets and the interest
credited on annuity contracts.The average spread on the annuity business was
1.88% and 1.84% in 1991 and 1992, respectively, and increased to 2.20% during
1993.Measures taken by UC Life to stabilize and improve this margin include the
reduction in interest crediting rates on new and existing annuity
contracts.Reductions in renewal crediting rates have been implemented without
an adverse impact on surrender rates when compared to prior years.Income from
operations before income taxes of UC Life for the first six months of 1994
increased approximately $5.9 million compared to the same period of 1993
primarily as the result of the positive effect of an increase in the interest
margin on the Company's annuity products, which rose from 2.04% for the first
six months of 1993 to 2.68% for the same period of 1994.In addition, an
improvement in the market for commercial real estate resulted in a $.4 million
reduction in the provision for losses on commercial real estate mortgage loans
in the first six months of 1994 compared to the same period of 1993.Income from
operations before income taxes in the first six months of 1993 was reduced by
approximately $1.4 million as the result of an estimated loss in connection
with the termination of an agreement with a third-party administrator of credit
life insurance underwritten by UC Life.
-15-
<PAGE> 17
UC Life has continued its efforts to improve the quality and liquidity
of its investment portfolio.At June 30, 1994, the weighted average rating of
the publicly traded bond portfolio according to nationally recognized
statistical rating agencies was "AA". At June 30, 1994, the amortized cost of
the assets allocated to investments in investment grade fixed maturity
securities was $279 million or 27.7% of the portfolio and in investment grade
mortgage-backed securities was $711 million or 70.5% of the portfolio.At June
30, 1994, the amortized cost of UC Life's holdings of non-investment grade
publicly traded bonds was $19 million or 1.8% of the portfolio.UC Life's
invested assets also include residential and commercial real estate mortgages
originated and serviced by UC Lending; however, the percentage of assets
invested in mortgage loans in recent years has been reduced primarily as the
result of their disfavor with insurance regulatory authorities and rating
agencies.
The annuities sold by UC Life are monetary in nature and therefore
sensitive to changes in the interest rate environment.Profitability of UC Life
is directly affected by its ability to invest annuity premiums at yields above
the interest crediting rates on the related policy liabilities.One of the
primary financial objectives of UC Life is to effectively manage this interest
rate spread over time in changing interest rate environments.This is
accomplished in part by adjusting the interest crediting rate paid on its
existing and new annuity policies.During periods of declining interest rates,
the market value of UC Life's investments, primarily fixed maturity
investments, increases; however, yields earned on investments made during such
periods decline.In contrast, during periods of rising interest rates, the
market value of the investment portfolio declines and the risk of policy
surrenders increases.An unanticipated increase in surrenders would impact the
Company's liquidity, potentially requiring the sale of certain investments
prior to their maturities, which may be at a loss.
Title insurance products.The Company's title insurance unit, UG Title,
has continued to expand its operations and, as of June 30, 1994, operated in 28
states.UG Title increased its premium volume in the first six months of 1994
approximately $11.2 million compared to the same period in 1993.Income from
operations before income taxes of UG Title during the first six months of 1994
was adversely impacted by approximately $.9 million due to losses associated
with a loan broker in California.Although UG Title was originally formed in
1983 to complement the Company's mortgage operation, underwriting of affiliated
transactions currently represents less than 5% of UG Title's business.This unit
operates exclusively through approximately 785 independent agents.In 1993, UG
Title began operations in California, which is the largest title insurance
market in the United States.
DISCONTINUED OPERATIONS
On May 7, 1993, the Company announced its decision to dispose of the
net assets of FMC.As a result of this decision, the operations of FMC have been
classified as discontinued operations, and, accordingly, the consolidated
financial statements and the related notes of the Company segregate continuing
and discontinued operations.
The assets of FMC were acquired by the Company in November of 1990.FMC
was engaged in servicing residential mortgage loans for government and
quasi-government agencies and private investors.Because the operations of FMC
during 1990 cover only a two-month period, the following discussion focuses
primarily on operations during 1992 and 1991.
During late 1991 and throughout 1992, FMC experienced a significant
reduction in its servicing portfolio as the result of mortgage refinancings
caused by a dramatic and sustained decline in mortgage interest
rates.Notwithstanding efforts to downsize operations to reduce expenses and to
develop a correspondent loan origination program to replenish its portfolio,
FMC experienced a net loss from operations of $3.3 million in 1992 compared to
net income of $6.5 million in 1991.
The principal sources of revenue for FMC were servicing fees, which
approximated 0.50% of the average principal balance of loans serviced, and
investment income earned on reinvesting funds borrowed under investment lines
of credit.The average serviced portfolio during 1992 was $6.3 billion compared
to $7.3 billion during 1991, resulting in a decrease of approximately $5.7
million in servicing income during 1992.The lower
-16-
<PAGE> 18
interest rate environment also negatively impacted investment yields causing a
decrease in investment income of $1.3 million during 1992.
The primary expense items of FMC were the amortization of purchased
mortgage servicing rights and interest.The costs of acquiring mortgage
servicing rights are capitalized and amortized in proportion to and over the
period of estimated servicing income.Amortization of purchased mortgage
servicing rights totaled $12.2 million and $9.7 million during 1992 and 1991,
respectively.As a result of the significant increase in the level of
prepayments and the sustained decline in mortgage interest rates, FMC
accelerated the amortization of servicing rights during 1992.FMC was also
required to pass through to the investors interest for the entire month on a
loan which was paid off regardless of the date of payoff of the loan during
such month; therefore, the significant increase in the level of prepayments
experienced by FMC also caused an increase of $1.8 million in pool pass-through
interest during 1992.Interest expense incurred by FMC relates to debt incurred
in connection with the acquisition of its assets.
As of November 30, 1993, the servicing rights owned by FMC, which
constituted substantially all of its assets, were sold. On December 21, 1993,
the FMC Institutional Lenders filed a petition in the U.S. bankruptcy court to
cause the remaining affairs of FMC to be wound up under the supervision of the
bankruptcy court. FMC, as debtor in possession in the bankruptcy proceeding,
filed a plan of liquidation providing for the disposal of FMC's remaining
assets and distributions to FMC's creditors. The FMC Institutional Lenders have
also filed a plan of liquidation for FMC and allege therein potential claims of
FMC against the Company. FMC and the Company executed, subject to the approval
of the bankruptcy court, a settlement agreement relating to payments between
FMC and the Company in connection with the federal income tax benefits
resulting from FMC's losses and to certain prior intercompany payments between
FMC and the Company. The FMC Institutional Lenders opposed the proposed
settlement agreement. At the conclusion of a hearing on the proposed settlement
on August 18, 1994, the bankruptcy court approved the portion of the settlement
providing for a net payment by the Company of $1.65 million to FMC in
satisfaction of the federal income tax benefits resulting from FMC's losses.
The Company had previously recorded substantially all of the impact of this
portion of the settlement in its prior financial statements. The bankruptcy
court declined to approve the other portion of the proposed settlement relating
to payments received by the Company from FMC within twelve months of the
bankruptcy filing. These matters may be pursued by the trustee under the plan
of liquidation to be approved by the bankruptcy court. If the Company were
required to refund such payments, the Company has estimated the potential
additional loss to be $1.9 million, net of tax benefits. The decision of the
bankruptcy court on the settlement is not final and may be appealed by the FMC
Institutional Lenders. Management of the Company does not believe that any
additional amounts are owed by the Company to FMC and intends to vigorously
contest any claims which may be brought against it for such amounts.
FMC is in payment default under its primary credit facility with the
FMC Institutional Lenders and the outstanding principal balance as of June 30,
1994 of approximately $43.7 million is due.The Company has not guaranteed any
debt of FMC and believes, based upon advice of its counsel, that it has no
responsibility for the obligations of FMC under such credit facility or
(excluding potential consequences of the bankruptcy filing or potential
additional payment for tax benefits as discussed above) for any other
liabilities to FMC's lenders.
RESULTS OF OPERATIONS
Prior years' financial statements have been restated to present FMC as
discontinued operations.Discussed below are results of continuing operations
for the periods presented and certain financial data by business segment for
such periods.
-17-
<PAGE> 19
SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS ENDED JUNE 30, 1993
The following table sets forth certain financial data for the periods
indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1994 1993
---------- -----------
(in thousands)
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . $ 172,578 $ 128,817
Total expenses . . . . . . . . . . . . . . . . . 128,996 118,240
Income from continuing operations
before income taxes . . . . . . . . . . . . . . 43,582 10,577
Income from continuing operations . . . . . . . . 28,409 6,946
</TABLE>
Revenues.The following table sets forth information regarding the
components of the Company's revenues for the six months ended June 30, 1994 and
1993.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Interest, charges and fees on loans . . . . . . . $57,105 $44,534
Investment income . . . . . . . . . . . . . . . . 39,192 37,021
Loan sale gains . . . . . . . . . . . . . . . . . 43,346 22,845
Net insurance premiums . . . . . . . . . . . . . . 25,152 18,695
Loan servicing income . . . . . . . . . . . . . . 7,684 5,654
Investment gains . . . . . . . . . . . . . . . . . 99 68
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . $ 172,578 $ 128,817
========= =========
</TABLE>
Interest, charges and fees on loans increased $12.6 million for the
first six months of 1994.This line item includes interest on mortgage loans
owned by the mortgage and insurance divisions and loan origination fees earned
by the mortgage division.Loan origination fees in excess of direct origination
costs on loans held by the Company are recognized over the life of the loan or
earlier at the time of sale on loans sold to third parties.During the six
months ended June 30, 1994 and 1993, the Company sold approximately $460
million and $168 million, respectively, in home equity loans and recognized
approximately $15.6 million and $7.2 million, respectively, in net loan
origination fees in connection with these sales. Other loan income includes
primarily prepayment fees, late charges and insurance commissions.
The following table presents the composition of interest, charges and
fees on loans for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Mortgage loan interest . . . . . . . . . . . . . . $ 25,085 $ 26,070
Loan origination fees . . . . . . . . . . . . . . 27,210 14,523
Other loan income . . . . . . . . . . . . . . . . 4,810 3,941
-------- --------
Total interest, charges and fees on loans. . . . $ 57,105 $ 44,534
======== ========
</TABLE>
The Company estimates that non-accrual loans reduced mortgage loan
interest for the first six months of 1994 and 1993 by approximately $5.1
million and $4.7 million, respectively.During the six months ended June 30,
1994 the average amount of non- accrual loans owned by the Company was $28.2
million compared to approximately $33.5 million during the same period of
1993.In addition, the average balance of loans serviced
-18-
<PAGE> 20
for third parties which were on a non-accrual basis or in foreclosure was $52.4
million and $41.2 million during the first six months of 1994 and 1993,
respectively, representing 4.4% and 4.5%, respectively, of the average amount
of loans serviced for third parties.The Company is generally obligated to
advance interest on delinquent loans to the investor or holder of the
mortgage-backed security, as the case may be, at the pass-through rate until
satisfaction of the note, liquidation of the collateral or charge off of the
delinquent loan.At June 30, 1994, the Company owned approximately $9.8 million
of commercial loans which were on an accrual status, but which the Company
considers as potential problem loans, compared to $11.6 million at June 30,
1993.The Company evaluates each of these commercial loans to estimate its risk
of loss in the investment and provides for such loss through a charge to
earnings.
Investment income totaled $39.2 million on average investments of
approximately $1.0 billion for the first six months of 1994 compared to
investment income of $37.0 million on average investments of approximately $833
million during the same period of 1993.The impact on revenue of the increased
asset base in 1994 was offset by lower weighted average investment yields than
experienced during the first six months of 1993.At June 30, 1994 the amortized
cost of the fixed income portfolio totaled $1.0 billion and was comprised
principally of $713 million in investment grade mortgage-backed securities and
$284 million in investment grade bonds.At June 30, 1994, the weighted average
rating of the publicly traded bond portfolio according to nationally recognized
statistical rating agencies was "AA".
Net insurance premiums increased $6.5 million for the first six months
of 1994 compared with the same period of 1993.Net insurance premiums reflect
revenues associated primarily with sales of title insurance policies
underwritten by UG Title and credit insurance underwritten by UC Life.The
increase in premium income is primarily the result of an increase of $11.2
million in title insurance premiums offset by a reduction in premiums earned on
credit insurance products reflecting the impact of UC Life's decision to
discontinue sales of credit insurance products.
Loan sale gains recognized by the Company's mortgage unit increased
$20.7 million during the first six months of 1994 over the same period in
1993.Loan sale gains approximate the present value over the estimated lives of
the loans of the excess of the contractual rates on the loans sold, over the
sum of the pass through rate paid to the buyer, a normal servicing fee, a
trustee fee, a surety bond fee, if any, in mortgage-backed securitization
transactions, and an estimate of future credit losses.The increase in the
amount of loan sale gains was due primarily to a $292 million increase in the
amount of loans sold which offset a decrease in excess servicing income
retained by the Company (i.e., the stated interest rate on the loan less the
pass through rate and the normal servicing fee and other applicable recurring
fees).Interest spread retained by the Company on loans sold includes the normal
servicing fee.The following table presents information regarding home equity
loan sale transactions by the Company's mortgage division for the periods
indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1994 1993
--------- ---------
(dollars in thousands)
<S> <C> <C>
Home equity loans sold . . . . . . . . . . . . . . $ 460,359 $ 167,889
Average coupon on home equity loans sold . . . . . 11.51% 12.59%
Interest spread retained on home equity loans sold 4.88% 6.26%
Home equity loan sale gains . . . . . . . . . . . $43,346 $22,625
</TABLE>
Historically, the Company originated and sold portfolios of home equity
loans on a whole loan basis (or participations therein) to institutional
investors or government-sponsored mortgage agencies or conduits and, during
1992, with the participation of one of these investors, securitized and
publicly sold home equity loan pass-through certificates.In the second quarter
of 1993, the Company began selling its loans in public securitization
transactions through its own shelf registration statement.In comparison to the
first six months of 1993, market interest rates were higher during the first
half of 1994, and, as a result, the Company experienced a decrease in the
interest spread retained on home equity loans sold from 6.26% in the six months
ended June 30, 1993, to 4.88% in the six months ended June 30,
1994.Fluctuations in and the level of market interest rates will
-19-
<PAGE> 21
impact the interest spread retained by the Company on loans sold, and,
potentially, the amount of its loan sale gains.An increase in the level of
market interest rates will generally adversely affect the interest spread on
loans sold, whereas such interest spread generally widens during a declining
interest rate environment.Although strategic actions can be taken by the
Company during a rising interest rate environment to mitigate the impact on
earnings of fluctuations in market rates, such as increasing the coupon rate
charged on its loan products,the effect of such action will generally lag
behind the impact of market rate fluctuations.As the result of recent increases
in the level of interest rates, the interest spread retained by the Company on
loan sales during the second quarter of 1994 declined to 4.33% from 5.61%
retained on loan sales during the first quarter of 1994.If the current level of
market interest rates is sustained or if such rates continue to increase during
the third quarter of 1994, the interest spread retained on home equity loans
sold during the third quarter of 1994 may be narrower than that received on
sales during the three months ended June 30, 1994.
Loan servicing income increased $2.0 million for the six months ending
June 30, 1994 compared to the same period of 1993, reflecting the impact of an
increased amount of home equity loans serviced for third parties offset by an
increase in the amortization of prior loan sale gains.The following table
reflects the components of loan servicing income for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Servicing fees earned . . . . . . . . . . . . . . $ 25,042 $ 13,407
Amortization of loan sale gains . . . . . . . . . (17,358) (7,753)
-------- --------
Loan servicing income . . . . . . . . . . . . . . $ 7,684 $ 5,654
======== ========
</TABLE>
Expenses.The following table presents the components of the Company's
expenses for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1994 1993
--------- ---------
(in thousands)
<S> <C> <C>
Interest on annuity policies . . . . . . . . . . . $ 35,854 $ 38,190
Personnel . . . . . . . . . . . . . . . . . . . . 28,185 19,601
Insurance commissions . . . . . . . . . . . . . . 23,704 14,374
Insurance benefits . . . . . . . . . . . . . . . . 6,941 9,844
Loan loss provision . . . . . . . . . . . . . . . 6,311 7,825
Interest . . . . . . . . . . . . . . . . . . . . . 5,699 5,429
Other operating . . . . . . . . . . . . . . . . . 22,302 22,977
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . $ 128,996 $ 118,240
========= =========
</TABLE>
Interest on annuity policies declined $2.3 million for the first six
months of 1994 when compared to the same period of 1993 as the result of a
reduction in the average interest crediting rate on the Company's annuity
policies offset by the impact of an increase in annuity reserves.Average
annuity reserves were $1.3 billion during the first six months of 1994, an
increase of approximately $112 million from the same period of 1993.
Personnel expenses increased approximately $8.6 million primarily
because of costs associated with the geographic expansion of the Company's
mortgage subsidiary and an increase in the cost of the Company's employee
benefit and incentive plans.
Insurance commissions for the first six months of 1994 increased by
approximately $9.3 million over commissions for the same period of 1993
primarily as the result of commissions associated with the increase in title
policies written.Commissions paid on issuance of the Company's single premium
deferred annuity products are generally capitalized as deferred policy
acquisition costs ("DPAC") and amortized over the estimated life of the
policy.During the six months ended June 30, 1994, the Company capitalized
approximately $9.4 million
-20-
<PAGE> 22
in commissions paid on sales of annuities compared to $7.9 million during the
same period of 1993.Amortization of commission expense on annuities capitalized
in prior periods was $4.4 million during the six months ended June 30, 1994,
compared to $2.8 million during the same period of 1993.
The Company's loan loss provision was $6.3 million and $7.8 million for
the six months ended June 30, 1994 and 1993, respectively. The decrease in the
provision resulted primarily from a $.4 million decrease by UC Life in the
provision for losses on commercial real estate mortgage loans and a decrease of
$1.1 million in the provision for losses on home equity loans due to a
reduction in the amount of property placed into foreclosure and a lower
incidence of loss per property.
Interest expense for the first six months of 1994 increased
approximately $.3 million from the same period of 1993 primarily as the result
of an increase in the weighted average interest rate charged on the debt offset
by a decrease of $14 million in the average amount of debt outstanding.
Other operating expenses for the six months ended June 30, 1994
declined approximately $.7 million when compared to the same period of
1993.Other operating expenses in the second quarter of 1994 included a $.9
million charge by UG Title in connection with losses associated with a loan
broker in California while other operating expenses in the first six months of
1993 included a $2.3 million accrual for the estimated cost of a legal
settlement and $1.4 million in estimated losses in connection with termination
of a third party administrative contract for credit insurance.
YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992
The following table sets forth certain financial data for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . $ 284,811 $ 236,490
Total expenses . . . . . . . . . . . . . . . . . . 240,439 215,120
Income from continuing operations
before income taxes . . . . . . . . . . . . . . . 44,372 21,370
Income from continuing operations . . . . . . . . 29,160 13,505
</TABLE>
The following table sets forth income from continuing operations
before income taxes for each of the Company's business segments for the year
ended December 31, 1993 and 1992.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1993 1992
--------- --------
(in thousands)
<S> <C> <C>
Mortgage operations . . . . . . . . . . . . . . . $ 46,295 $ 24,001
Insurance operations . . . . . . . . . . . . . . . 3,946 6,220
Other operations . . . . . . . . . . . . . . . . . (275) (1,339)
Corporate . . . . . . . . . . . . . . . . . . . . (5,812) (5,958)
Elimination . . . . . . . . . . . . . . . . . . . 218 (1,554)
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . $ 44,372 $ 21,370
======== ========
</TABLE>
Operating results were positively affected by higher loan sale gains,
an increase in the spread earned on annuity products and lower borrowing costs
and negatively impacted by higher loan loss provisions and the estimated
settlement costs of litigation.By comparison to 1992, income from continuing
operations for the mortgage division was increased by higher loan sale gains in
1993 and reduced by the $2.3 million accrual of legal settlement costs and an
increase in the provision for loan losses.Earnings from insurance operations
were
-21-
<PAGE> 23
positively affected in 1993 by a wider margin between the interest yield on
investments and the interest crediting rates on the annuity products and an
increase in title insurance premiums; however, losses incurred on bond
investments and a probable loss associated with a previously terminated
agreement with a third-party administrator of credit life insurance
underwritten by UC Life offset the impact on earnings of these factors.In
addition, earnings of the insurance division in 1992 were increased by a $3.3
million gain on the sale of loans.
Revenues.The following table sets forth information regarding the
components of the Company's revenues for the years ended December 31, 1993 and
1992.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Interest, charges and fees on loans . . . . . . . $ 95,975 $ 92,584
Investment income . . . . . . . . . . . . . . . . 75,604 62,915
Loan sale gains . . . . . . . . . . . . . . . . . 59,441 33,795
Net insurance premiums . . . . . . . . . . . . . . 43,119 33,475
Loan servicing income . . . . . . . . . . . . . . 10,077 10,611
Investment gains . . . . . . . . . . . . . . . . . 595 3,110
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . $ 284,811 $ 236,490
========= =========
</TABLE>
Interest, charges and fees on loans increased $3.4 million for
1993.This line item includes interest on mortgage loans owned by the mortgage
and insurance divisions and loan origination fees earned by the mortgage
division.Loan origination fees in excess of direct origination costs on loans
held by the Company are recognized over the life of the loan or earlier at the
time of sale on loans sold to third parties.During 1993 and 1992, the Company
sold approximately $463 million and $272 million, respectively, in home equity
loans and recognized approximately $18.9 million and $12.1 million,
respectively, in net loan origination fees in connection with these sales.The
average loan portfolio owned totaled approximately $487 million during 1993
compared to $540 million during 1992, due to an increased level of loan sales
which, in turn, decreased mortgage loan interest.Other loan income includes
primarily prepayment fees, late charges and insurance commissions.
The following table presents the composition of interest, charges and
fees on loans.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Mortgage loan interest . . . . . . . . . . . . . . . $ 51,763 $ 57,467
Loan origination fees . . . . . . . . . . . . . . . 35,987 26,340
Other loan income . . . . . . . . . . . . . . . . . 8,225 8,777
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . $ 95,975 $ 92,584
========= =========
</TABLE>
The Company estimates that non-accrual loans reduced mortgage loan
interest for 1993 and 1992 by approximately $9.5 million and $8.1 million,
respectively.During 1993 the average amount of non-accrual loans owned by the
Company was $31.7 million compared to approximately $31.6 million during
1992.In addition, the average balance of loans serviced for third parties which
were on a non- accrual basis or in foreclosure was $43.4 million and $32.2
million during 1993 and 1992, respectively, representing 4.5% and 3.9%,
respectively, of the average amount of loans serviced for third parties.The
Company is generally obligated to advance interest on delinquent loans to the
investor or holder of the mortgage-backed security, as the case may be, at the
pass-through rate until satisfaction of the note, liquidation of the collateral
or charge off of the delinquent loan.At December 31, 1993, the Company owned
approximately $8.1 million of commercial loans which were on an accrual status,
but which the Company considers as potential problem loans, compared to $13.8
million at December 31, 1992.The Company evaluates each of these commercial
loans to estimate its risk of loss in the investment and provides for such loss
through a charge to earnings.
-22-
<PAGE> 24
Investment income totaled $75.6 million on average investments of
approximately $877 million for 1993 compared to investment income of $62.9
million on average investments of approximately $690 million during 1992.In
addition to the impact on revenue of the increased asset base, investment
income during 1993 was increased as the result of a reduction in the amount of
funds invested in short term maturities when compared to 1992.At December 31,
1993, the fixed income portfolio totaled $906 million and was comprised
principally of $598 million in investment grade mortgage-backed securities and
$238 million in investment grade corporate bonds.At December 31, 1993, the
weighted average rating of the publicly traded bond portfolio according to
nationally recognized statistical rating agencies was "AA".
Net insurance premiums increased $9.3 million during 1993 compared to
1992.The increase in premium income is primarily the result of an increase of
$13.5 million in title insurance premiums offset by a reduction in premiums
earned on credit insurance products.
Loan sale gains recognized by the Company's mortgage unit increased
$29.5 million during 1993 over 1992.The increase in amount of loan sale gains
was due primarily to an increase in the excess servicing income retained by the
Company and a $191 million increase in the amount of home equity loans
sold.Interest spread retained by the Company on loans sold includes the normal
servicing fee.The following table presents information regarding home equity
loan sale transactions by the Company's mortgage division for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992
--------- ---------
(dollars in thousands)
<S> <C> <C>
Home equity loans sold . . . . . . . . . . . . . . $ 462,873 $ 271,920
Average coupon on home equity loans sold . . . . . 12.00% 13.69%
Interest spread retained on
home equity loans sold . . . . . . . . . . . . . 6.06% 4.56%
Home equity loan sale gains . . . . . . . . . . . $ 59,220 $ 29,679
</TABLE>
Historically, the Company has originated and sold portfolios of home
equity loans on a whole loan basis (or participations therein) to institutional
investors or government-sponsored mortgage agencies or conduits and, during
1992, with the participation of one of these investors, securitized and
publicly sold home equity loan pass-through certificates.In 1993, the Company
began selling its loans in public securitization transactions through its own
shelf registration statement.As a primary consequence of this process, the
Company realized an increase in the interest spread retained on home equity
loans sold from 4.56% in 1992 to 6.06% in 1993.
Loan servicing income declined in 1993 compared to 1992 as the
result of higher amortization of prior loan sale gains partially offset by an
increase in the amount of home equity loans serviced.The following table
reflects the components of loan servicing income for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
Servicing fees earned . . . . . . . . . . . . . . $ 31,621 $ 23,021
Amortization of loan sale gains . . . . . . . . . (21,544) (12,410)
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . $ 10,077 $ 10,611
======== ========
</TABLE>
-23-
<PAGE> 25
Expenses.The following table presents the components of the
Company's expenses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Interest on annuity policies . . . . . . . . . . . $ 76,086 $ 77,268
Personnel . . . . . . . . . . . . . . . . . . . . 41,525 35,250
Insurance commissions . . . . . . . . . . . . . . 34,814 24,056
Insurance benefits . . . . . . . . . . . . . . . . 18,920 21,159
Loan loss provision . . . . . . . . . . . . . . . 17,343 10,027
Interest . . . . . . . . . . . . . . . . . . . . . 10,158 12,082
Other operating . . . . . . . . . . . . . . . . . 41,593 35,278
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . . $ 240,439 $ 215,120
========= =========
</TABLE>
Interest on annuity policies declined $1.2 million during 1993
compared to 1992.Due to the sustained lower interest rate environment, the
average interest crediting rate on these annuity policies was reduced which
offset the impact of an increase in average annuity reserves of approximately
$156 million during 1993 compared to 1992.In addition, by comparison with 1992,
annuity surrenders declined during 1993 notwithstanding reductions in renewal
crediting rates on these policies.
Personnel expenses increased approximately $6.3 million primarily
because of the costs associated with the geographic expansion of the Company's
mortgage operations and incentive compensation paid in connection with loan
originations.
Insurance commissions for 1993 increased by approximately $10.8
million over commissions for 1992 primarily as the result of commissions
associated with the increase in titlepolicies written.Commissions paid on
issuance of the Company's single premium deferred annuity products are
generally capitalized as DPAC and amortized over the estimated life of the
policy.During 1993, the Company capitalized approximately $13.7 million in
commissions paid on sales of annuities compared to $11.6 million during
1992.Amortization of commission expense on annuities capitalized in prior
periods was $5.6 million during 1993, compared to $4.1 million during 1992.
The Company's loan loss provision was $17.3 million and $10.0
million for 1993 and 1992, respectively.The increase in the provision resulted
primarily from an increase in the amount of losses incurred in 1993 as the
result of an increase in the number of properties placed in foreclosure and an
increase in the average amount of loss per property sold.
Interest expense for 1993 declined $1.9 million from 1992 primarily
as the result of lower borrowing costs.
Other operating expenses for 1993 were approximately $6.3 million
higher than in 1992.Included in other operating expenses is the $2.3 million
accrual for the settlement of litigation and approximately $1.4 million in
estimated loss recognized in connection with the previously terminated
agreement to administer certain blocks of the Company's credit life business.
ASSET QUALITY AND RESERVES
The quality of the Company's loan and bond portfolios and of the
loan portfolio serviced for third parties significantly affects the
profitability of the Company.The values of and markets for these assets are
dependent on a number of factors, including general economic conditions,
interest rates and governmental regulations.Adverse changes in such factors,
which become more pronounced in periods of economic decline, may affect the
quality of these assets and the Company's resulting ability to sell these
assets for acceptable prices.General economic deterioration can result in
increased delinquencies on existing loans, reductions in
-24-
<PAGE> 26
collateral values and declines in the value of investments resulting from a
reduced capacity of issuers to repay the bonds.
Loans.Substantially all of the loans owned by the Company were
originated by UC Lending through its branch (i.e., retail) network or wholesale
loan programs.The Company's loan portfolio at June 30, 1994 was comprised
primarily of $254 million in home equity loans and $173 million in commercial
loans.In connection with its origination of home equity loans, the Company
relies on thorough underwriting and credit review procedures by UC Lending, a
mortgage on the borrower's residence and, in some cases, other security, and,
in its retail origination program, close personal contact with borrowers
through its branch office system to manage credit risk on its loans.In addition
to servicing the loans owned by the Company, UC Lending serviced approximately
$1.4 billion in loans for third parties at June 30, 1994.The Company is subject
to risk of loss on loans in its owned portfolio and for loans sold under loan
sale agreements that provide limited recourse against the Company or
subordination of cash and excess interest spread relating to the sold loans by
the Company.Such recourse and subordination relate to credit losses which may
occur after the sale of the loans and continues until the earlier of the
payment in full of the loans or termination of the agreement pursuant to which
the loans were sold.The Company is also obligated to repurchase or replace
loans which may be determined after the sale to violate representations and
warranties relating to them and which are made by the Company at the time of
the sale.See "--Recent legal developments related to mortgage loans" below.The
Company regularly evaluates the quality of the loan portfolio and estimates its
risk of loss based upon historical loss experience, prevailing economic
conditions, estimated collateral value and such other factors which, in
management's judgment, are relevant in estimating the credit risk in owned
and/or serviced loans. Estimated losses on the owned portfolio are provided for
by an increase in the allowance for loan losses through a charge to current
operating income.For loans sold with limited recourse or subordination of
certain cash and excess interest spread relating to the sold loans, the Company
reduces the amount of gain recognized on the sale by the estimated amount of
credit losses, subject to the recourse limitation or maximum subordination
amount of the related loan sale agreements, and records such amount on its
balance sheet in the allowance for loss on loans serviced.At June 30, 1994, the
maximum recourse associated with sales of home equity loans according to terms
of the loan sale agreements totaled approximately $195.5 million, of which
amount approximately $179.6 million relates to the subordinated cash and excess
interest spread.However, the Company's estimate of its losses was approximately
$20.5 million at June 30, 1994, and is recorded in the Company's allowance for
loss on loans serviced.Should credit losses on loans sold with limited recourse
or subordination of certain cash and excess interest spread materially exceed
the Company's estimates for such losses, such consequence will have a material
adverse impact on the Company's operations.
At June 30, 1994, the contractual balance of loans serviced by UC
Lending was approximately $1.8 billion comprised of approximately $0.4 billion
serviced for the Company and approximately $1.4 billion serviced for
investors.The geographic distribution of this portfolio by state and by loan
category was as follows at June 30, 1994:
-25-
<PAGE> 27
<TABLE>
<CAPTION>
Percent
State Home Equity Commercial Conventional Consumer Total of Total
----- ----------- ---------- ------------ --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Florida . . . . . . . . $187,750 $86,815 $9,499 $18 $284,082 16.0%
Louisiana . . . . . . . . 134,153 13,192 41,058 21 188,424 10.6
Ohio . . . . . . . . . . 175,585 6,112 1,671 183,368 10.3
Tennessee . . . . . . . . 108,966 19,998 5,312 7 134,283 7.6
Alabama . . . . . . . . . 111,305 12,536 5,340 3 129,184 7.3
North Carolina . . . . . 119,099 15,906 1,877 136,882 7.7
Georgia . . . . . . . . . 73,022 47,097 2,651 11 122,781 6.9
Virginia . . . . . . . . 50,543 23,414 2,766 76,723 4.3
Indiana . . . . . . . . . 68,810 3,469 1,206 73,485 4.1
South Carolina . . . . . 63,440 1,271 1,271 65,982 3.7
Michigan . . . . . . . . 51,597 182 51,779 2.9
Other States . . . . . . 244,607 75,558 9,872 12 330,049 18.6
---------- --------- -------- ---- ----------- -----
Total. . . . . . . . . $1,388,877 $ 305,368 $ 82,705 $ 72 $ 1,777,022 100.0%
========== ========= ======== ==== =========== =====
</TABLE>
The following table provides a summary of loans owned and/or serviced
by UC Lending which are past due 30 days or more, foreclosed properties and
loans charged off as of the dates indicated.
<TABLE>
<CAPTION>
Foreclosed Properties
-----------------------
Contractual Delinquencies Owned Serviced for % of
Balance Contractual % of by the Third Party Net Loans Average
Period Ended of Loans Balance Amount Company Investors Charged Off Loans*
- ------------ -------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1994
- ------------------------------
Home equity . . . $ 1,388,877 $ 103,319 7.44% $ 10,849 $7,056 $ 6,931 1.10%
Commercial . . . 305,368 11,090 3.63% 27,196 10,336 1,133 0.28%
Conventional . . 82,705 2,972 3.59% 35 - 15 0.04%
Consumer . . . . 72 19 - - - (23) -
----------- --------- -------- -------- -------
Total. . . . . $ 1,777,022 $ 117,400 6.61% $ 38,080 $ 17,392 $ 8,056
=========== ========= ======== ======== =======
Year ended December 31, 1993
- ----------------------------
Home equity . . . $ 1,125,139 $ 92,974 8.26% $ 17,014 $ 8,355 $ 8,548 0.88%
Commercial . . . 345,365 19,292 5.59% 20,871 9,275 3,579 0.95%
Conventional . . 98,189 3,730 3.80% 148 - 112 0.09%
Consumer . . . . 88 17 - - - (35) -
----------- ---------- ---------- --------- --------
Total. . . . . $ 1,568,781 $ 116,013 7.40% $ 38,033 $ 17,630 $ 12,204
=========== ========== ========== ========= ========
Year ended December 31, 1992
- ----------------------------
Home equity . . . $ 819,448 $ 71,762 8.76% $ 13,092 $ 7,244 $ 4,498 .59%
Commercial . . . 404,857 29,954 7.40% 20,976 7,338 4,805 1.14%
Conventional . . 143,311 2,933 2.05% 291 - 4 -
Consumer . . . . 206 64 - - - 82 2.86%
----------- ---------- ---------- --------- --------
Total. . . . . $ 1,367,822 $ 104,713 7.66% $ 34,359 $ 14,582 $ 9,389
=========== ========== ========== ========= ========
</TABLE>
*Annualized for the six months ended June 30, 1994
-26-
<PAGE> 28
Management of the Company continues to focus on reducing the level of
non-earning assets owned and/or serviced by focusing on expediting the
foreclosure process.As the result of being more aggressive in liquidating
foreclosed property, the Company's net charge-offs on home equity loans in the
six months ended June 30, 1994 increased to $6.9 million compared to $4.6
million during the same period of 1993.During the first six months of 1994, the
balance of foreclosed home equity loans owned and/or serviced by the Company
was reduced by $7.5 million.The Company will continue to focus resources on
further reductions in the level of foreclosed properties.
The above delinquency and loan loss experience represents the
Company's recent experience.However, the delinquency, foreclosure and net loss
percentages may be affected by the increase in the size and relative lack of
seasoning of the portfolio.As a result, the information in the above tables
should not be considered as a basis for assessing the likelihood, amount or
severity of delinquencies or losses in the future on loans and no assurance can
be given that the delinquency and loss experience presented in the tables will
be indicative of such experience on loans.
A summary analysis of the changes in the Company's allowance for loan
losses for the indicated periods is as follows.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
---------------- --------------------------------
1994 1993 1993 1992 1991
------ ------ --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . . . $21,017 $15,842 $15,842 15,962 $10,472
Loans charged to allowance
Home equity . . . . . . . . . . . (7,367) (4,856) (9,114) (5,511) (3,487)
Commercial . . . . . . . . . . . . (1,141) (1,193) (3,579) (4,805) (2,753)
Conventional . . . . . . . . . . . (17) (49) (128) (4) (6)
Consumer . . . . . . . . . . . . . (1) (12) (14) (154) (321)
------- ------- ------- ------- --------
Total. . . . . . . . . . . . . . (8,526) (6,110) (12,835) (10,474) (6,567)
Recoveries on loans previously
charged to allowance. . . . . . . . 470 293 631 1,085 948
------- ------- ------- ------- --------
Net loans charged off . . . . . . . . (8,056) (5,817) (12,204) ( 9,389) (5,619)
------- ------- ------- ------- --------
Loan loss provisions . . . . . . . . 6,311 7,825 17,343 10,027 9,850
Reserve reclassification . . . . . . (107) (82) 36 ( 758) 1,259
------- ------- ------- ------- --------
Balance at end of period . . . . . . $19,165 $17,768 21,017 15,842 $15,962
======= ======= ======= ======= ========
Specific reserves . . . . . . . . . . $ 8,234 $ 7,750 $8,500 $7,067 $ 7,268
Unallocated reserves . . . . . . . . 10,931 10,018 12,517 8,775 8,694
------- ------- ------- ------- --------
Total reserves . . . . . . . . . . . $19,165 $17,768 21,017 15,842 $15,962
======= ======= ======= ======= ========
</TABLE>
Specific reserves are provided for foreclosures in which the carrying
value of the loan exceeds the market value of the collateral.Unallocated
reserves are provided for loans not in foreclosure and are calculated primarily
using objective measurement techniques.Unallocated reserves also include
reserves for active loans which have been modified or indicate potential
problems as well as reserves for a $32.5 million subordinated position the
Company acquired in connection with the securitization and sale of
approximately $230 million in commercial real estate mortgage loans in 1990.At
June 30, 1994, the Company owned $38.1 million of property acquired in
settlement of loans, excluding the specific reserves attributed to these
properties.These balances are included in the loans owned by the Company.The
specific reserve in the table above is provided to reduce the carrying value of
these properties to their market value.
-27-
<PAGE> 29
A summary of the amounts provided by the Company for future credit
losses on loans and foreclosed properties owned by the Company and loans sold
with recourse as of the dates indicated is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-------------------- -------------------------------
1994 1993 1993 1992 1991
-------- -------- ------- ------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses
(Applicable to loans and foreclosed
properties owned by the Company) $ 19,165 $ 17,768 $21,017 $15,842 $ 15,962
Allowance for loss on loans serviced
(Applicable to loans
sold with recourse) . . . . . . . 20,549 9,041 12,938 7,015 3,737
-------- -------- ------- ------- --------
Total . . . . . . . . . . . . . $ 39,714 $ 26,809 $33,955 $22,857 $ 19,699
======== ======== ======= ======= ========
</TABLE>
As of June 30, 1994, approximately $1.1 billion of home equity loans
sold were serviced by UC Lending under agreements which provide limited
recourse, or subordination of cash and excess interest spread owned by the
Company, for credit losses ("loans sold with recourse").The Company's estimate
of its losses, based on historical loan loss experience, was approximately
$20.5 million at June 30, 1994 and is recorded in the Company's allowance for
loss on loans serviced.Should credit losses on loans sold with limited
recourse, or subordination of cash and excess interest spread owned by the
Company, materially exceed the Company's estimate for such losses, such
consequence will have a material adverse impact on the Company's financial
statements.
Recent legal developments related to mortgage loans.The United States
Court of Appeals for the Eleventh Circuit held, in part, that a lender
improperly disclosed the collection of the Florida state intangible tax from
the borrower, thereby subjecting the loan to rescission under the TILA by the
borrower for three years after it was made.Subsequent to the Court's initial
decision and prior to its refusal to reconsider its decision, the Florida
Legislature amended the language of the intangible tax to clarify the
Legislature's previous intention that the intangible tax be disclosed for
purposes of the TILA in the manner that had been followed by most lenders in
Florida, including the Company.Although the Florida Legislature intended this
legislation to apply retroactively, no judicial determination has yet been made
as to the effect of this legislation on loans originated prior to its effective
date. This court decision may also apply to a similar intangible tax imposed by
other states.To its knowledge, as of August 23, 1994, no claims have been filed
against the Company under this recent court decision (other than as a defense
to a foreclosure proceeding) and no notice of a breach of a representation has
been received under the Company's loan sale agreements requesting it to
repurchase, cure or substitute other loans for the loans sold. If the intent of
the Florida Legislature is not upheld and if a substantial number of claims are
filed by borrowers against the Company resulting in rescission or repurchase,
the Company's financial statements and operations will be materially adversely
affected. As the financial impact, if any, of this contingency cannot presently
be reasonably estimated, the Company has made no accrual therefor.
Bonds.Investment purchases are made with the intention of holding
fixed income securities until maturity.Prior to January 1, 1994 securities were
generally carried at cost adjusted for discount accretion and premium
amortization.At June 30, 1994, the amortized cost of the Company's bond
portfolio was $1.0 billion, consisting primarily of $713 million in
mortgage-backed securities and $258 million in corporate bonds.In connection
with the adoption of SFAS 115 (see note 4 to the consolidated financial
statements contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994), bonds with an amortized cost of approximately
$939 million or 93% of the Company's bond portfolio were classified in an
available-for-sale category and the carrying value adjusted to market value by
means of an adjustment to stockholders' equity.The remainder of the portfolio,
consisting primarily of private placements made either directly or through an
investment partnership, continues to be classified as held-to- maturity and
valued at cost.At June 30, 1994, the Company did not own any securities
classified as trading securities.The net unrealized loss in the bond portfolio
(cost over market value) at June 30, 1994 was $37.5 million compared to an
unrealized gain of $31.5 million at December 31, 1993.
-28-
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements consist of funding loan
originations in its mortgage operations and the payment of policyholder claims
and surrenders incurred in its insurance operations.The Company's mortgage
operations require continued access to short and long-term sources of debt
financing, the sale of loans to UC Life and the sale of loans and asset-backed
securities in the secondary market; whereas liquidity requirements for the
Company's insurance operations are generally met by funds provided from the
sale of annuities and cash flow from its investment in fixed income securities
and mortgage loans.
The following discussion reflects the primary sources of liquidity and
capital for each of the Company's primary operating divisions.
UC Lending.The principal cash requirements of the Company's mortgage
operations arise from loan originations, repayments of inter-company debt
borrowed by the Company under its $200 million revolving credit facility,
payments of operating and interest expenses and deposits to reserve accounts
related to loan sale transactions.Loan originations are initially funded
principally through the Company's $200 million revolving credit facility and
short-term bank facilities pending loan sales to UC Life and in the secondary
market.At June 30, 1994, the Company's debt facilities available to fund
general operating needs totaled $218 million, of which $186.8 million was
outstanding, compared to December 31, 1993 when $208.5 million in such debt
facilities was available with $155.5 million outstanding.Substantially all of
the loans originated by UC Lending are sold.Net cash used by investing
activities of the Company in 1993 and 1992 and for the six months ended June
30, 1994 and 1993, respectively, reflects approximately $600 million, $346
million, $436 million and $230 million, respectively, in cash used for loan
originations.The primary source of funding for loan originations is derived
from the reinvestment of proceeds from the ultimate sale of loans in the
secondary market which totaled approximately $464 million and $344 million in
1993 and 1992, respectively, and $460 million and $168 million in the first six
months of 1994 and 1993, respectively.In connection with the loan sale
transactions in the secondary market, surety bonds and cash deposits were
provided by the Company as credit enhancements.The loan sale transactions
required the subordination of certain cash flows payable to UC Lending to the
payment of scheduled principal and interest due to certificate holders.In
connection with these transaction, UC Lending was required, in some instances,
to fund an initial deposit, and thereafter, in each transaction, a portion of
the amounts receivable by UC Lending and its subsidiary from the excess
interest spread is required to be placed and maintained in a reserve account to
the extent of the subordination requirements.The subordination requirements
generally provide that the excess interest spread is payable to the reserve
account until a specified level of cash, which is less than the maximum
subordination amount, is accumulated therein.The capitalized excess servicing
income of the Company is subject to being utilized first to replenish cash paid
from the reserve account to fund shortfalls in collections from borrowers who
default on the payment of principal or interest on the loans underlying the
pass-through certificates issued until the total of the Company's deposits into
the reserve account equal the maximum subordination amount.In connection with
the issuance and sale of approximately $1.3 billion of pass-through
certificates through June 30, 1994, the aggregate subordination amounts were
initially set at approximately $179.6 million.After the Company's deposits into
the reserve account equal the maximum subordination amount for a transaction,
the subordination of the related excess interest spread for these purposes is
terminated.The excess interest spread required to be deposited and maintained
in the respective reserve accounts will not be available to support the cash
flow requirements of the Company until such amount exceeds the maximum
subordinated amount (other than amounts, if any, in excess of the specified
levels required to be maintained in the reserve accounts, which may be
distributed periodically to the Company).At June 30, 1994, the amounts on
deposit in such reserve accounts totaled $56.2 million.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans in the secondary market and to UC Life,
are essential for the continuation of the Company's loan origination
operations.The Company's available, but unfunded, debt capacity for general
operating needs as of June 30, 1994 was $31.2 million while such capacity as of
December 31, 1993 totaled $53 million.During the second quarter of 1994, peak
borrowings under such credit facilities reached $210.9 million. The Company's
$200 million revolving credit facility has a committed term to December 31,
1995.The interest rate on such credit facility is based upon various floating
rate indices as may be selected by the Company from time to time.There can be
no assurance that the Company's present credit facilities will be available in
the future on terms or in amounts which the Company would consider favorable.
-29-
<PAGE> 31
UC Life.The principal cash requirements of UC Life consist of
contractual obligations to policyholders, principally through policy claims and
surrenders.The primary sources of funding these obligations, in addition to
cash flow from investments, are the sale of annuities.Net cash flow from
underwriting operations is used to build an investment portfolio, which in turn
produces future cash flows from investment income and provides a secondary
source of liquidity for this division.Net cash provided by operating activities
of the insurance division in 1993 and 1992 was approximately $78 million and
$69 million, respectively, and in the six months ended June 30, 1994 and 1993
was approximately $31.7 million and $34.3 million, respectively, resulting
primarily from cash earnings on investments.The Company monitors available cash
and cash equivalents to maintain adequate balances for current payments while
maximizing cash available for longer term investment activities.The Company's
financing activities in 1993 and 1992 reflect approximately $208 million and
$187 million, respectively, and during the six months ended June 30, 1994 and
1993 reflect approximately $116 million and $120 million, respectively, in cash
received primarily from sales by UC Life of its annuity products.As reflected
in the net cash used by investing activities during the same periods,
investment purchases were approximately $293 million, $631 million, $182
million and $147 million, respectively, reflecting the investment of these
funds and the reinvestment of proceeds from maturities of investments.Cash used
by financing activities also reflects payments of $136 million and $131 million
in 1993 and 1992, respectively, and $85 million and $58 million for the six
months ended June 30, 1994 and 1993, respectively, primarily on annuity
products resulting from policyholder surrenders and claims.In response to the
decline in interest rates in 1992 and 1993, the Company reduced the crediting
rates on its annuity policies.At June 30, 1994, the interest margin on the
Company's annuity liabilities was 2.73% compared to 2.46% at December 31, 1993
and 2.24% at June 30, 1993.Notwithstanding reductions in renewal crediting
rates on its policies, the percentages of annuities surrendered has generally
remained stable.UC Life's investments at June 30, 1994, included approximately
$394 million in residential and commercial mortgage loans, $288 million in
corporate and government bonds and private debt placements and $711 million
inmortgage-backed securities.The investment portfolio is also managed to
provide a secondary source of liquidity as investments can be sold, if
necessary, to fund abnormal levels of policy surrenders, claims and expenses.An
unanticipated increase in surrenders would impact the Company's liquidity,
potentially requiring the sale of certain assets, such as bonds and loans prior
to their maturities, which may be at a loss.
As a holding company, the Company's ability to meet debt service
obligations and pay operating expenses and dividends depends on receipt of
sufficient funds from its subsidiaries.The payment of dividends by UC Life to
the Company is subject to restrictions set forth in the insurance laws and
regulations of Louisiana, its domiciliary state.The Louisiana Insurance Code
(the "Code") provides that no Louisiana stock insurer shall declare and pay any
dividends to its stockholders unless (i) its capital is fully paid in cash and
is unimpaired and (ii) it has a surplus beyond its capital stock and the
initial minimum surplus required and all other liabilities equal to 15% of its
capital stock, provided that this restriction shall not apply to an insurer
when its paid- in capital and surplus exceed the minimum required by the Code
by 100% or more.Additional dividend restrictions are imposed by the Louisiana
Insurance Holding Company System Regulatory Law.Specifically, extraordinary
dividends by an insurance company are subject to a prior approval requirement
by the Louisiana Commissioner of Insurance (the "Louisiana Commissioner") and
an insurance company's surplus as regards policyholders following any dividends
or distributions to affiliates must be reasonable in relation to the insurance
company's outstanding liabilities and adequate to its financial needs.An
extraordinary dividend is defined as an amount in excess of the lesser of (a)
10% of surplus as of the preceding December 31, or (b) the net gain from
operations for the preceding calendar year.If insurance regulators determine
that payment of a dividend or any other payment to an affiliate (such as a
payment under a tax allocation agreement or for employee or other services or
pursuant to a surplus debenture) would, because of the financial condition of
the paying insurance company or otherwise, be hazardous to such insurance
company's policyholders or creditors, the regulators may block payment of such
dividend or such other payment to the affiliate that would otherwise be
permitted without prior approval. Under the statutory and regulatory scheme in
Louisiana, UC Life had the capacity to pay dividends of $8.5 million at each of
June 30, 1994 and December 31, 1993 without prior regulatory approval.UC Life
did not pay any dividends to the Company during the first six months of 1994 or
at any time during 1991, 1992 or 1993 in order to retain capital in UC Life.
UG Title.Liquidity requirements for the Company's title insurance
business are generally met from funds provided by the sale of title insurance
policies and cash flow from its investment portfolio.UG Title's investments at
June 30, 1994 included approximately $3.3 million in residential mortgage
loans, $6.9 million in
-30-
<PAGE> 32
U.S. government and agency securities and $1.1 million in temporary
investments, primarily certificates of deposit.An unanticipated increase in
policy claims would impact UG Title's liquidity, potentially requiring the sale
of its investments prior to their maturities, which may be at a loss.The
principal liability of UG Title is the loss reserve established for title
policy claims.
ACCOUNTING STANDARDS
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114 ("SFAS 114") which addresses the accounting by creditors for
impairment of loans and specifies how allowances for credit losses related to
certain loans should be determined.SFAS 114 also addresses the accounting by
creditors for all loans that are restructured in a troubled debt restructuring
involving modification of terms of a receivable.SFAS 114 is effective for
financial statements for fiscal years beginning after December 15, 1994.The
Company is reviewing the provisions of this pronouncement but has not yet
determined the effect of its implementation on the Company's financial
condition or results of operations.
DESCRIPTION OF SECURITIES
GENERAL
The following description of the terms of the Securities sets forth
certain general terms and provisions of the Securities to which any Prospectus
Supplement may relate.The particular terms of the Securities offered by any
Prospectus Supplement and the extent, if any, to which such general provisions
may apply to the Securities so offered will be described in the Prospectus
Supplement relating to such Securities.
DEBT SECURITIES
The Senior Debt Securities are to be issued under an indenture to be
dated as of a date prior to the first issuance of Senior Debt Securities, as
supplemented from time to time (the "Senior Indenture"), between the Company
and _________________, as Trustee (the "Senior Trustee"), and the Subordinated
Debt Securities are to be issued under an indenture to be dated as of a date
prior to the first issuance of Subordinated Debt Securities, as supplemented
from time to time (the "Subordinated Indenture"), between the Company and
________________ , as Trustee (the "Subordinated Trustee").The term "Trustee"
as used herein shall refer to either the Senior Trustee or the Subordinated
Trustee, as appropriate, for Senior Debt Securities or Subordinated Debt
Securities.The form of the Senior Indenture and the form of the Subordinated
Indenture (being referred to herein collectively as the "Indentures" and
individually as an "Indenture") are filed as exhibits to the Registration
Statement.The Indentures are subject to and governed by the Trust Indenture Act
of 1939, as amended (the "TIA").The statements made under this heading relating
to the Debt Securities and the Indentures are summaries of the provisions
thereof, do not purport to be complete and are qualified in their entirety by
reference to the Indentures, including the definitions of certain terms therein
and in the TIA.Certain capitalized terms used below but not defined herein have
the meanings ascribed to them in the applicable Indenture.Unless otherwise
noted below, section references below are to both Indentures.
The particular terms of the Debt Securities being offered (the
"Offered Debt Securities"), any modifications of or additions to the general
terms of the Debt Securities as described herein that may be applicable in the
case of the Offered Debt Securities and any applicable Federal income tax
considerations will be described in the Prospectus Supplement relating to the
Offered Debt Securities.Accordingly, for a description of the terms of the
Offered Debt Securities, reference must be made both to the Prospectus
Supplement relating thereto and the description of Debt Securities set forth in
this Prospectus.
General
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The Debt Securities will be direct, unsecured obligations of the
Company.The indebtedness represented by the Senior Debt Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the
Company.The indebtedness represented by the Subordinated Debt Securities will
be subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company (including the Senior Debt Securities) as described
under "--Subordination" below.The Debt Securities may be issued in one or more
series.
The Company primarily conducts its operations through its
Subsidiaries.The rights of the Company and its creditors, including the Holders
of the Debt Securities, to participate in the assets of any Subsidiary upon the
latter's liquidation or reorganization will be subject to the prior claims of
the Subsidiary's creditors except to the extent that the Company may itself be
a creditor with recognized claims against the Subsidiary.
The accompanying Prospectus Supplement will set forth the terms of the
Offered Debt Securities, which may include the following:
(1) The title of the Offered Debt Securities and whether they
are Senior Debt Securities or Subordinated Debt Securities.
(2) The aggregate principal amount of the Offered Debt
Securities and any limit on the aggregate principal amount of the
Offered Debt Securities.
(3) The percentage of the principal amount at which the Offered
Debt Securities will be issued and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the Maturity thereof or the method by
which such portion shall be determined.
(4) The date or dates on which or periods during which the
Offered Debt Securities may be issued, and the date or dates, or the
method by which such date or dates will be determined, on which the
principal of (and premium, if any, on) the Offered Debt Securities
will be payable.
(5) The rate or rates at which the Offered Debt Securities will
bear interest, if any, or the method by which such rate or rates shall
be determined, the date or dates from which such interest, if any,
shall accrue or the method by which such date or dates shall be
determined, the interest payment dates on which such interest will be
payable and, if the Offered Debt Securities are Registered Securities,
the regular record dates, if any, for the interest payable on such
interest payment dates, and, if the Offered Debt Securities are
floating rate securities, the notice, if any, to Holders regarding the
determination of interest and the manner of giving such notice.
(6) The place or places where the principal of (and premium, if
any) and interest on the Offered Debt Securities shall be payable; the
extent to which, or the manner in which, any interest payable on any
Global Note (as defined below) on an interest payment date will be
paid, and the manner in which any principal of, or premium, if any,
on, any Global Note will be paid.
(7) The obligation, if any, of the Company to redeem, repay or
purchase the Offered Debt Securities pursuant to any mandatory
redemption, sinking fund or analogous provisions or at the option of
the Holder thereof and the period or periods within which, or the
dates on which, the prices at which and the terms and conditions upon
which the Offered Debt Securities shall be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation.
(8) The right, if any, of the Company to redeem the Offered
Debt Securities at its option and the period or periods within which,
or the date or dates on which, the price or prices at which, and the
terms and conditions upon which Offered Debt Securities may be
redeemed, if any, in whole or in part, at the option of the Company or
otherwise.
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(9) If the coin or currency in which the Offered Debt
Securities shall be issuable is U.S. dollars, the denominations of the
Offered Debt Securities if other than denominations of $1,000 and any
integral multiple thereof.
(10) Whether the Offered Debt Securities are to be issued as
original issue discount securities ("Discount Securities") and the
amount of discount at which such Offered Debt Securities may be issued
and, if other than the principal amount thereof, the portion of the
principal amount of Offered Debt Securities which shall be payable
upon declaration of acceleration of the Maturity thereof upon an Event
of Default.
(11) Provisions, if any, for the defeasance of Offered Debt
Securities or certain of the Company's obligations with respect to the
Offered Debt Securities.
(12) Whether the Offered Debt Securities are to be issued as
Registered Securities or Bearer Securities or both, and, if Bearer
Securities are issued, whether any interest coupons appertaining
thereto ("Coupons") will be attached thereto, whether such Bearer
Securities may be exchanged for Registered Securities and the
circumstances under which, and the place or places at which, any such
exchanges, if permitted, may be made.
(13) Whether provisions for payment of additional amounts or
tax redemptions shall apply and, if such provisions shall apply, such
provisions; and, if any of the Offered Debt Securities are to be
issued as Bearer Securities, the applicable procedures and
certificates relating to the exchange of temporary Global Notes for
definitive Bearer Securities.
(14) If other than U.S. dollars, the currency, currencies or
currency units (the term "currency" as used herein will include
currency units) in which the Offered Debt Securities shall be
denominated or in which payment of the principal of (and premium, if
any) and interest on the Offered Debt Securities may be made, and
particular provisions applicable thereto.
(15) If the principal of (and premium, if any) or interest on
the Offered Debt Securities are to be payable, at the election of the
Company or a Holder thereof, in a currency other than that in which
the Debt Securities are denominated or payable without such election,
in addition to or in lieu of the applicable provisions of the
Indentures, the period or periods within which and the terms and
conditions upon which, such election may be made and the time and the
manner of determining the exchange rate or rates between the currency
or currencies in which the Offered Debt Securities are denominated or
payable without such election and the currency or currencies in which
the Offered Debt Securities are to be paid if such election is made.
(16) The date as of which any Offered Debt Securities shall be
dated.
(17) If the amount of payments of principal of (and premium, if
any) or interest on the Offered Debt Securities may be determined with
reference to an index, including, but not limited to, an index based
on a currency or currencies other than that in which the Offered Debt
Securities are denominated or payable, or any other type of index, the
manner in which such amounts shall be determined.
(18) If the Offered Debt Securities are denominated or payable
in foreign currency, any other terms concerning the payment of
principal of (and premium, if any) or any interest on the Offered Debt
Securities (including the currency or currencies of payment thereof).
(19) Any addition to, or modification or deletion of, any
Events of Default or covenants provided for in the applicable
Indenture with respect to the Offered Debt Securities.
(20) If any of the Offered Debt Securities are to be issued as
Bearer Securities, (x) whether interest in respect of any portion of a
temporary Debt Security in global form (representing all of the
Outstanding Bearer Securities of the series) payable in respect of any
interest payment date prior to the exchange of such temporary Offered
Debt Security for definitive Offered Debt Securities shall be
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<PAGE> 35
paid to any clearing organization with respect to the portion of such
temporary Offered Debt Security held for its account and, in such
event, the terms and conditions (including any certification
requirements) upon which any such interest payment received by a
clearing organization will be credited to the Persons entitled to
interest payable on such interest payment date, (y) the terms upon
which interests in such temporary Offered Debt Security in global form
may be exchanged for interests in a permanent Global Note or for
definitive Offered Debt Securities and the terms upon which interests
in a permanent Global Note, if any, may be exchanged for definitive
Offered Debt Securities and (z) the cities in which the Authorized
Newspapers designated for the purposes of giving notices to Holders
are published.
(21) Whether the Offered Debt Securities shall be issued in
whole or in part in the form of one or more Global Notes and, in such
case, the depositary or any common depositary for such Global Notes;
and if the Offered Debt Securities are issuable only as Registered
Securities, the manner in which and the circumstances under which
Global Notes representing Offered Debt Securities may be exchanged for
Registered Securities in definitive form.
(22) The designation, if any, of any depositaries, trustees
(other than the applicable Trustee), paying agents, authenticating
agents, security registrars (other than the Trustee) or other agents
with respect to the Offered Debt Securities.
(23) If the Offered Debt Securities are to be issuable in
definitive form only upon receipt of certain certificates or other
documents or upon satisfaction of certain conditions, the form and
terms of such certificates, documents or conditions.
(24) If the Offered Debt Securities are Subordinated Debt
Securities, whether they will be convertible or exchangeable into
shares of Common Stock and, if so, the terms and conditions, which may
in addition to or in lieu of the provisions contained in the
Subordinated Indenture, upon which such Offered Debt Securities will
be so convertible or exchangeable, including the conversion or
exchange price and the conversion or exchange period.
(25) Any other terms of the Offered Debt Securities not
specified in the Indenture under which such Offered Debt Securities
are to be issued.
Each Indenture provides that the aggregate principal amount of Debt
Securities that may be issued thereunder is unlimited.The Debt Securities may
be issued in one or more series thereunder, in each case as authorized from
time to time by the Board of Directors of the Company, or any committee thereof
or any duly authorized officer.(Section 3.01)
In the event that Discount Securities are issued, the Federal income
tax consequences and other special considerations applicable to such Discount
Securities will be described in the Prospectus Supplement relating thereto.
The general provisions of the Indentures do not contain any provisions
that would limit the ability of the Company or its Subsidiaries to incur
indebtedness or that would afford holders of Debt Securities protection in the
event of a highly leveraged or similar transaction involving the Company or its
Subsidiaries.Reference is made to the accompanying Prospectus Supplement for
information with respect to any deletions from, modifications of or additions,
if any, to the Events of Default or covenants of the Company described below
that are applicable to the Offered Debt Securities, including any addition of
covenants or other provisions providing event risk or similar protection.
All of the Debt Securities of a series need not be issued at the same
time, and may vary as to interest rate, maturity and other provisions and
unless otherwise provided, a series may be reopened for issuance of additional
Debt Securities of such series.(Section 3.01)
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Denominations, Registration and Transfer
Unless specified in the Prospectus Supplement, the Debt Securities of
any series shall be issuable only as Registered Securities in denominations of
$1,000 and any integral multiple thereof and shall be payable only in U.S.
dollars.(Section 3.01)The Indentures also provide that Debt Securities of a
series may be issuable in global form.See "--Book-Entry Debt Securities."Unless
otherwise indicated in the Prospectus Supplement, Bearer Securities (other than
in global form) will have Coupons attached.(Section 2.01)
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of like aggregate principal amount and
of like Stated Maturity and with like terms and conditions.If so specified in
the Prospectus Supplement, at the option of the Holder thereof, to the extent
permitted by law, any Bearer Security of any series which by its terms is
registrable as to principal and interest may be exchanged for a Registered
Security of such series of like aggregate principal amount and of a like Stated
Maturity and with like terms and conditions, upon surrender of such Bearer
Security at the corporate trust office of the applicable Trustee or at any
other office or agency of the Company designated for the purpose of making any
such exchanges.Subject to certain exceptions, any Bearer Security issued with
Coupons surrendered for exchange must be surrendered with all unmatured Coupons
and any matured Coupons in default attached thereto.(Section 3.05)
Notwithstanding the foregoing, the exchange of Bearer Securities for
Registered Securities will be subject to the provisions of United States income
tax laws and regulations applicable to Debt Securities in effect at the time of
such exchange.(Section 3.05)
Except as otherwise specified in the Prospectus Supplement, in no
event may Registered Securities, including Registered Securities received in
exchange for Bearer Securities, be exchanged for Bearer Securities.(Section
3.05)
Upon surrender for registration of transfer of any Registered Security
of any series at the office or agency of the Company maintained for such
purpose, the Company shall deliver, in the name of the designated transferee,
one or more new Registered Securities of the same series of like aggregate
principal amount of such denominations as are authorized for Registered
Securities of such series and of a like Stated Maturity and with like terms and
conditions.No service charge will be made for any transfer or exchange of Debt
Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.(Section
3.05)
The Company shall not be required (i) to register, transfer or
exchange Debt Securities of any series during a period beginning at the opening
of business 15 days before the day of the transmission of a notice of
redemption of Debt Securities of such series selected for redemption and ending
at the close of business on the day of such transmission, or (ii) to register,
transfer or exchange any Debt Security so selected for redemption in whole or
in part, except the unredeemed portion of any Debt Security being redeemed in
part.(Section 3.05)
Events of Default
Under the Indentures, "Event of Default" with respect to the Debt
Securities of any series means any one of the following events (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law, pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):(1) default in the payment of any interest
upon any Debt Security or any payment with respect to the Coupons, if any, of
such series when it becomes due and payable, and continuance of such default
for a period of 30 days; (2) default in the payment of the principal of (and
premium, if any, on) any Debt Security of such series at its Maturity; (3)
default in the deposit of any sinking fund payment, when and as due by the
terms of a Debt Security of such series; (4) default in the performance, or
breach of any covenant or warranty in the applicable Indenture (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in the applicable Indenture specifically dealt with or which
expressly has been included in the applicable Indenture solely for the benefit
of Debt Securities of a series other than such series), and continuance of such
default or breach for a period of 60 days after there has been given to the
Company by the applicable Trustee or to the Company and the applicable
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Trustee by the Holders of at least 25% in principal amount of the Outstanding
Debt Securities of such series, a written notice specifying such default or
breach and requiring it to be remedied; (5) certain events of bankruptcy,
insolvency or reorganization with respect to the Company; or (6) any other
Event of Default provided with respect to Debt Securities of that series
pursuant to the applicable Indenture.(Section 5.01)
Each Indenture requires the Company to file with the applicable
Trustee, annually, an officers' certificate as to the Company's compliance with
all conditions and covenants under the applicable Indenture.(Section 12.02)Each
Indenture provides that the applicable Trustee may withhold notice to the
Holders of a series of Debt Securities of any default (except payment defaults
on such Debt Securities) if it considers such withholding to be in the interest
of the Holders of such series of Debt Securities to do so.(Section 6.02)
If an Event of Default with respect to Debt Securities of any series
at the time Outstanding occurs and is continuing, then in every case the
applicable Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of such series may declare the principal amount
(or, if any Debt Securities of such series are Discount Securities, such
portion of the principal amount of such Discount Securities as may be specified
in the terms of such Discount Securities) of the Debt Securities of such series
to be due and payable immediately, by a notice in writing to the Company (and
to the applicable Trustee if given by Holders), and upon any such declaration
such principal amount (or specified amount), plus accrued and unpaid interest
(and premium, if any) shall become immediately due and payable.Upon payment of
such amount in the currency in which such Debt Securities are denominated
(except as otherwise provided in the applicable Indenture or specified in the
Prospectus Supplement), all obligations of the Company in respect of the
payment of principal of the Debt Securities of such series shall
terminate.(Section 5.02)
Subject to the provisions of each Indenture relating to the duties of
the applicable Trustee, in case an Event of Default with respect to Debt
Securities of a particular series shall occur and be continuing, the applicable
Trustee shall be under no obligation to exercise any of its rights or powers
under such Indenture at the request, order or direction of any of the Holders
of Debt Securities of that series, unless such Holders shall have offered to
the applicable Trustee reasonable indemnity against the expenses and
liabilities which might be incurred by it in compliance with such
request.(Section 5.07) Subject to such provisions for the indemnification of
the applicable Trustee, the Holders of a majority in principal amount of the
Outstanding Debt Securities of such series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the applicable Trustee under such Indenture, or exercising any trust or power
conferred on the applicable Trustee with respect to the Debt Securities of that
series.(Section 5.12)
At any time after such a declaration of acceleration with respect to
Debt Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the applicable Trustee as
provided in the Indentures, the Holders of a majority in principal amount of
the Outstanding Debt Securities of such series, by written notice to the
Company and the applicable Trustee, may rescind and annul such declaration and
its consequences if (1) the Company has paid or deposited with the applicable
Trustee a sum in the currency in which such Debt Securities are denominated
(except as otherwise provided in the applicable Indenture or specified in the
Prospectus Supplement) sufficient to pay (A) all overdue installments of
interest on all Debt Securities or all overdue payments with respect to any
Coupons of such series, (B) the principal of (and premium, if any, on) any Debt
Securities of such series which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate or rates
prescribed therefor in such Debt Securities, (C) to the extent that payment of
such interest is lawful, interest upon overdue installments of interest on each
Debt Security of such series or upon overdue payments on any Coupons of such
series at a rate established for such series, and (D) all sums paid or advanced
by the applicable Trustee and the reasonable compensation, expenses,
disbursements and advances of the applicable Trustee, its agents and counsel;
and (2) all Events of Default with respect to Debt Securities of such series,
other than the nonpayment of the principal of Debt Securities of such series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in the applicable Indenture.No such rescission and
waiver will affect any subsequent default or impair any right consequent
thereon.(Section 5.02)
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Modification or Waiver
Without prior notice to or consent of any Holders, the Company and the
applicable Trustee, at any time and from time to time, may modify the
applicable Indenture for any of the following purposes:(1) to evidence the
succession of another corporation to the rights of the Company and the
assumption by such successor of the covenants and obligations of the Company in
the applicable Indenture and in the Debt Securities and Coupons, if any, issued
thereunder; (2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Debt Securities and the Coupons, if any,
appertaining thereto (and if such covenants are to be for the benefit of less
than all series, stating that such covenants are expressly being included
solely for the benefit of such series), or to surrender any right or power
conferred in the applicable Indenture upon the Company; (3) to add any
additional Events of Default (and if such Events of Default are to be
applicable to less than all series, stating that such Events of Default are
expressly being included solely to be applicable to such series); (4) to add or
change any of the provisions of the applicable Indenture to such extent as
shall be necessary to permit or facilitate the issuance thereunder of Debt
Securities of any series in bearer form, registrable or not registrable, and
with or without Coupons, to permit Bearer Securities to be issued in exchange
for Registered Securities, to permit Bearer Securities to be issued in exchange
for Bearer Securities of other authorized denominations or to permit the
issuance of Debt Securities of any series in uncertificated form, provided that
any such action shall not adversely affect the interests of the Holders of Debt
Securities of any series or any related Coupons in any material respect; (5) to
change or eliminate any of the provisions of the applicable Indenture, provided
that any such change or elimination will become effective only when there is no
Outstanding Debt Security issued thereunder or Coupon of any series created
prior to such modification which is entitled to the benefit of such provision
and as to which such modification would apply; (6) to secure the Debt
Securities issued thereunder or to provide that any of the Company's
obligations under the Debt Securities or the applicable Indenture shall be
guaranteed; (7) to supplement any of the provisions of the applicable Indenture
to such extent as is necessary to permit or facilitate the defeasance and
discharge of any series of Debt Securities, provided that any such action will
not adversely affect the interests of the Holders of Debt Securities of such
series or any other series of Debt Securities issued under such Indenture or
any related Coupons in any material respect; (8) to establish the form or terms
of Debt Securities and Coupons, if any, as permitted by the applicable
Indenture; (9) to evidence and provide for the acceptance of appointment
thereunder by a successor Trustee with respect to one or more series of Debt
Securities and to add to or change any of the provisions of the applicable
Indenture as is necessary to provide for or facilitate the administration of
the trusts thereunder by more than one Trustee; or (10) to cure any ambiguity,
to correct or supplement any provision in the applicable Indenture which may be
defective or inconsistent with any other provision therein, to eliminate any
conflict between the terms of the applicable Indenture and the Debt Securities
issued thereunder and the TIA or to make any other provisions with respect to
matters or questions arising under the applicable Indenture which will not be
inconsistent with any provision of the applicable Indenture; provided such
other provisions shall not adversely affect the interests of the Holders of
Outstanding Debt Securities or Coupons, if any, of any series created
thereunder prior to such modification in any material respect.(Section 11.01)
With the written consent of the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of each series affected by
such modification voting separately, the Company and the applicable Trustee may
modify the applicable Indenture for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the applicable
Indenture or of modifying in any manner the rights of the Holders of Debt
Securities and Coupons, if any, under the applicable Indenture; provided,
however, that no such modification may, without the consent of the Holder of
each Outstanding Debt Security of each such series affected thereby (1) change
the Stated Maturity of the principal of, or any installment of interest on, any
Debt Security, or reduce the principal amount thereof or the interest thereon
or any premium payable upon redemption thereof, or change the Stated Maturity
of or reduce the amount of any payment to be made with respect to any Coupon,
or change the currency or currencies in which the principal of (and premium, if
any) or interest on such Debt Security is denominated or payable, or reduce the
amount of the principal of a Discount Security that would be due and payable
upon a declaration of acceleration of the Maturity thereof, or adversely affect
the right of repayment or repurchase, if any, at the option of the Holder, or
reduce the amount of, or postpone the date fixed for, any payment under any
sinking fund or analogous provisions for any Debt Security, or impair the right
to institute suit for the enforcement of any payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption
Date), or limit the obligation of the Company to maintain a paying agency
outside the United States for payments on Bearer
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Securities, or adversely affect the right to convert any Subordinated Debt
Security into shares of Common Stock as may be set forth in the Prospectus
Supplement; (2) reduce the percentage in principal amount of the Outstanding
Debt Securities of any series, the consent of whose Holders is required for any
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of the applicable Indenture or
certain defaults or Events of Default thereunder and their consequences
provided for in such Indenture; (3) modify any of the provisions of the
applicable Indenture relating to modifications and waivers of defaults and
covenants, except to increase any such percentage or to provide that certain
other provisions of the applicable Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Debt Security of each
series affected thereby; or (4) in the case of the Subordinated Indenture,
modify any of the provisions relating to the subordination of the Subordinated
Debt Securities in a manner adverse to the Holders thereof.(Section 11.02)
A modification which changes or eliminates any covenant or other
provision of the applicable Indenture with respect to one or more particular
series of Debt Securities and Coupons, if any, or which modifies the rights of
the Holders of Debt Securities and Coupons of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under the
applicable Indenture of the Holders of Debt Securities and Coupons, if any, of
any other series.(Section 11.02)
In the case of the Subordinated Indenture, no modification may
adversely affect the rights of any holder of Senior Indebtedness under the
subordination provisions of the Subordinated Indenture without the consent of
such holder.(Section 11.08 of the Subordinated Indenture)
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may on behalf of the Holders of all
the Debt Securities of any such series waive, by notice to the applicable
Trustee and the Company, any past default or Event of Default under the
applicable Indenture with respect to such series and its consequences, except a
default (1) in the payment of the principal of (or premium, if any) or interest
on any Debt Security of such series, or in the payment of any sinking fund
installment or analogous obligation with respect to the Debt Securities of such
series, or (2) in respect of a covenant or provision hereof which pursuant to
the second paragraph under "--Modification and Waiver" cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security of
such series affected.Upon any such waiver, such default will cease to exist,
and any Event of Default arising therefrom will be deemed to have been cured,
for every purpose of the Debt Securities of such series under the applicable
Indenture, but no such waiver will extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.(Section 5.13)
The Company may omit in any particular instance to comply with certain
covenants in the applicable Indenture (including, if so specified in the
Prospectus Supplement, any covenant not set forth in the applicable Indenture
but specified in the Prospectus Supplement to be applicable to the Debt
Securities of any series issued thereunder, except as otherwise specified in
the Prospectus Supplement, and including the covenants relating to the
maintenance by the Company of its existence, rights and franchises, if before
the time for such compliance the Holders of at least a majority in principal
amount of the Outstanding Debt Securities of such series either waive such
compliance in such instance or generally waive compliance with such provisions,
but no such waiver may extend to or affect any term, provision or condition
except to the extent expressly so waived, and, until such waiver becomes
effective, the obligations of the Company and the duties of the applicable
Trustee in respect of any such provision will remain in full force and
effect.(Section 12.09)
Subordination
Upon any distribution of assets of the Company upon the dissolution,
winding up, liquidation or reorganization of the Company, the payment of the
principal of (and premium, if any) and interest on the Subordinated Debt
Securities will be subordinated to the extent provided in the Subordinated
Indenture in right of payment to the prior payment in full of all Senior
Indebtedness, including Senior Debt Securities (Sections 16.01 and 16.02 of the
Subordinated Indenture), but the obligation of the Company to make payment of
principal (and premium if any) or interest on the Subordinated Debt Securities
will not otherwise be affected.(Section 16.02 of the Subordinated Indenture)No
payment on account of principal (or premium, if any), sinking fund or interest
may be made on the Subordinated Debt Securities at any time when there is a
default in the payment
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of principal, premium, if any, sinking fund or interest on Senior
Indebtedness.(Section 16.03 of the Subordinated Indenture)In the event that,
notwithstanding the foregoing, any payment by the Company described in the
foregoing sentence is received by the Trustee under the Subordinated Indenture
or the Holders of any of the Subordinated Debt Securities before all Senior
Indebtedness is paid in full, such payment or distribution shall be paid over
to the holders of such Senior Indebtedness or on their behalf for application
to the payment of all such Senior Indebtedness remaining unpaid until all such
Senior Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution to the holders of such Senior
Indebtedness.Subject to payment in full of Senior Indebtedness, the Holders of
the Subordinated Debt Securities will be subrogated to the rights of the
holders of the Senior Indebtedness to the extent of payments made to the
holders of such Senior Indebtedness out of the distributive share of the
Subordinated Debt Securities.(Section 16.02 of the Subordinated Indenture)
By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain general creditors of the Company may recover
more, ratably, than Holders of the Subordinated Debt Securities.The
Subordinated Indenture provides that the subordination provisions thereof shall
not apply to money and securities held in trust pursuant to the satisfaction
and discharge and the legal defeasance provisions of the Subordinated
Indenture.(Sections 4.02 and 15.02 of the Subordinated Indenture)
If this Prospectus is being delivered in connection with the offering
of a series of Subordinated Debt Securities, the accompanying Prospectus
Supplement or the information incorporated by reference therein will set forth
the approximate amount of Senior Indebtedness outstanding as of a recent date.
Discharge, Legal Defeasance and Covenant Defeasance
The applicable Indenture with respect to the Debt Securities of any
series may be discharged, subject to certain terms and conditions, when (1)
either (A) all Debt Securities and the Coupons, if any, of such series have
been delivered to the applicable Trustee for cancellation, or (B) all Debt
Securities and the Coupons, if any, of such series not theretofore delivered to
the applicable Trustee for cancellation (i) have become due and payable, (ii)
will become due and payable at their Stated Maturity within one year, or (iii)
are to be called for redemption within one year under arrangements satisfactory
to the applicable Trustee for the giving of notice by the applicable Trustee,
and the Company, in the case of (i), (ii) or (iii) of subclause (B), has
irrevocably deposited or caused to be deposited with the applicable Trustee as
trust funds in trust for such purpose an amount in the currency in which such
Debt Securities are denominated sufficient to pay and discharge the entire
indebtedness on such Debt Securities for principal (and premium, if any) and
interest to the date of such deposit (in the case of Debt Securities which have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be, provided, however, in the event a petition for relief under the
applicable Federal or state bankruptcy, insolvency or other similar law is
filed with respect to the Company within 91 days after the deposit and the
applicable Trustee is required to return the deposited money to the Company,
the obligations of the Company under the applicable Indenture with respect to
such Debt Securities will not be deemed terminated or discharged; (2) the
Company has paid or caused to be paid all other sums payable under the
applicable Indenture by the Company; (3) the Company has delivered to the
applicable Trustee an officers' certificate and an opinion of counsel each
stating that all conditions precedent therein provided relating to the
satisfaction and discharge of the applicable Indenture with respect to such
series have been complied with; and (4) the Company has delivered to the
applicable Trustee an opinion of counsel or a ruling of the Internal Revenue
Service to the effect that such deposit and discharge will not cause the
Holders of the Debt Securities of the series to recognize income, gain or loss
for Federal income tax purposes.(Section 4.01)
If provision is made for the defeasance of Debt Securities of a
series, and if the Debt Securities of such series are Registered Securities and
denominated and payable only in U.S. dollars, then the provisions of each
Indenture relating to defeasance shall be applicable except as otherwise
specified in the Prospectus Supplement for Debt Securities of such
series.Defeasance provisions, if any, for Debt Securities denominated in a
foreign currency or currencies or for Bearer Securities may be specified in the
Prospectus Supplement.(Section 15.01)
At the Company's option, either (a) the Company shall be deemed to
have been Discharged (as defined below) from its obligations with respect to
Debt Securities of any series ("legal defeasance option") or (b) the Company
shall cease to be under any obligation to comply with certain restrictive
covenants of the applicable
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Indenture ("covenant defeasance option") at any time after the applicable
conditions set forth below have been satisfied: (1) the Company shall have
deposited or caused to be deposited irrevocably with the applicable Trustee as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of the Debt Securities of such series (i)
money in an amount, or (ii) U.S. Government Obligations which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any payment,
money in an amount, or (iii) a combination of (i) and (ii), sufficient, in the
opinion (with respect to (i) and (ii)) of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the applicable Trustee, to pay and discharge each installment of
principal (including any mandatory sinking fund payments) of and premium, if
any, and interest on, the Outstanding Debt Securities of such series on the
dates such installments of interest or principal and premium are due; (2) such
deposit shall not cause the applicable Trustee with respect to the Debt
Securities of that series to have a conflicting interest with respect to the
Debt Securities of any series; (3) such deposit will not result in a breach or
violation of, or constitute a default under, the applicable Indenture or any
other agreement or instrument to which the Company is a party or by which it is
bound; (4) if the Debt Securities of such series are then listed on any
national securities exchange, the Company shall have delivered to the
applicable Trustee an opinion of counsel or a letter or other document from
such exchange to the effect that the Company's exercise of its legal defeasance
option or the covenant defeasance option, as the case may be, would not cause
such Debt Securities to be delisted; (5) no Event of Default or event
(including such deposit) which, with notice or lapse of time or both, would
become an Event of Default with respect to the Debt Securities of such series
shall have occurred and be continuing on the date of such deposit and, with
respect to the legal defeasance option only, no Event of Default under the
provisions of the applicable Indenture relating to certain events of bankruptcy
or insolvency or event which with the giving of notice or lapse of time, or
both, would become an Event of Default under such bankruptcy or insolvency
provisions shall have occurred and be continuing on the 91st day after such
date; and (6) certain other opinions, officers' certificates and other
documents specified in the applicable Indenture, including an opinion of
counsel or a ruling of the Internal Revenue Service to the effect that such
deposit, defeasance or Discharge will not cause the Holders of the Debt
Securities of such series to recognize income, gain or loss for Federal income
tax purposes.Notwithstanding the foregoing, if the Company exercises its
covenant defeasance option and an Event of Default under the provisions of the
Indentures relating to certain events of bankruptcy or insolvency or event
which with the giving of notice or lapse of time, or both, would become an
Event of Default under such bankruptcy or insolvency provisions shall have
occurred and be continuing on the 91st day after the date of such deposit, the
obligations of the Company referred to under the definition of covenant
defeasance option with respect to such Debt Securities shall be reinstated in
full.(Section 15.02)
Payment and Paying Agents
If Debt Securities of a series are issuable only as Registered
Securities, the Company will maintain in each Place of Payment for such series
an office or agency where Debt Securities of that series may be presented or
surrendered for payment, where Debt Securities of that series may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Debt Securities of that series
and the applicable Indenture may be served.
If Debt Securities of a series are issuable as Bearer Securities, the
Company will maintain or cause to be maintained (A) in the Borough of
Manhattan, The City and State of New York, an office or agency where any
Registered Securities of that series may be presented or surrendered for
payment, where any Registered Securities of that series may be surrendered for
registration of transfer, where Debt Securities of that series may be
surrendered for exchange or redemption and where notices and demands to or upon
the Company in respect of the Debt Securities of that series and the applicable
Indenture may be served and where Bearer Securities of that series and related
Coupons may be presented or surrendered for payment in the circumstances
described in the following paragraph (and not otherwise), (B) subject to any
laws or registration applicable thereto, in a Place of Payment for that series
which is located outside the United States, an office or agency where Debt
Securities of that series and related Coupons may be presented and surrendered
for payment (including payment of any additional amounts payable on Debt
Securities of that series, if so provided in such series; provided, however,
that if the Debt Securities of that series are listed on The Stock Exchange of
the United Kingdom and the Republic of Ireland, the Luxembourg Stock Exchange
or any other stock exchange located outside the United States and such stock
exchange shall so require, the Company will maintain a Paying Agent for the
Debt
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Securities of that series in London, Luxembourg or any other required city
located outside the United States, as the case may be, so long as the Debt
Securities of that series are listed on such exchange, and (C) subject to any
laws or regulations applicable thereto, in a Place of Payment for that series
located outside the United States an office or agency where any Registered
Securities of that series may be surrendered for registration of transfer,
where Debt Securities of that series may be surrendered for exchange or
redemption and where notices and demands to or upon the Company in respect of
the Debt Securities of that series and the applicable Indenture may be
served.The Company will give prompt written notice to the applicable Trustee of
the locations, and any change in the locations, of such offices or agencies.If
at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the applicable Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the corporate trust office of the applicable Trustee, except that
Bearer Securities of that series and the related coupons may be presented and
surrendered for payment at the offices specified in the applicable Debt
Security and the Company has appointed the applicable Trustee (or in the case
of Bearer Securities may appoint such other agent as may be specified in the
applicable Prospectus Supplement) as its agent to receive all presentations,
surrenders, notices and demands.(Section 12.03)
No payment of principal, premium or interest on Bearer Securities
shall be made at any office or agency of the Company in the United States or by
check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, that,
if the Debt Securities of a series are denominated and payable in U.S. dollars,
payment of principal of and any premium and interest on Debt Securities of such
series, if specified in the applicable Prospectus Supplement, shall be made at
the office of the Company's Paying Agent in the Borough of Manhattan, the City
and State of New York, if (but only if) payment in U.S. dollars of the full
amount of such principal, premium, interest or additional amounts, as the case
may be, at all offices or agencies outside the United States maintained for the
purpose by the Company in accordance with the applicable Indenture is illegal
or effectively precluded by exchange controls or other similar
restrictions.(Section 12.03)
Book-Entry Debt Securities
The Debt Securities of a series may be issued in whole or in part in
global form that will be deposited with, or on behalf of, a depositary
identified in the Prospectus Supplement.Global Notes may be issued in either
registered or bearer form and in either temporary or permanent form (each a
"Global Note").Payments of principal of (premium, if any) and interest on Debt
Securities represented by a Global Note will be made by the Company to the
applicable Trustee and then by such Trustee to the depositary.
If specified in the applicable Prospectus Supplement, any Global Notes
will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC"), as depositary, or such other depositary as may be
specified in the applicable Prospectus Supplement.In the event that DTC acts as
depositary with respect to any Global Notes, the Company anticipates that such
Global Notes will be registered in the name of DTC's nominee, and that the
following provisions will apply to the depositary arrangements with respect to
any such Global Notes.Additional or differing terms of the depositary
arrangements, if any, applicable to the Offered Debt Securities, will be
described in the accompanying Prospectus Supplement.
So long as DTC or its nominee is the registered owner of a Global
Note, DTC or its nominee, as the case may be, will be considered the sole
Holder of the Debt Securities represented by such Global Note for all purposes
under the applicable Indenture.Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Debt Securities
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery or Debt Securities in certificated
form and will not be considered the owners or Holders thereof under the
applicable Indenture.The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests in
a Global Note.
If DTC is at any time unwilling or unable to continue as depositary
and a successor depositary is not appointed by the Company within 90 days, the
Company will issue individual Debt Securities in certificated form in exchange
for the Global Notes.In addition, the Company may at any time, and in its sole
discretion, determine not to have any Debt Securities represented by one or
more Global Notes and, in such event, will
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issue individual Debt Securities in certificated form in exchange for the
relevant Global Notes.If Registered Securities of any series shall have been
issued in the form of one or more Global Notes and if an Event of Default with
respect to the Debt Securities of such series shall have occurred and be
continuing, the Company will issue individual Debt Securities in certificated
form in exchange for the relevant Global Notes.(Section 3.04)
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the Banking Law
of the State of New York, a "banking organization" within the meaning of the
Banking Law of the State of New York, a member of the Federal Reserve System, a
clearing corporation within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of section
17A of the Exchange Act.DTC holds securities that its participants
("Participants") deposit with DTC.DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates.Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants").DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc.Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants").The rules applicable to DTC and its Participants are
on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Debt
Securities on DTC's records.The ownership interest of each actual purchaser of
each Debt Security ("Beneficial Owner") is in turn recorded on the Direct and
Indirect Participants' records.A Beneficial Owner does not receive written
confirmation from DTC of its purchase, but such Beneficial Owner is expected to
receive a written confirmation providing details of the transaction, as well as
periodic statements of its holdings, from the Direct or Indirect Participant
through which such Beneficial Owner entered into the transaction.Transfers of
ownership interests in Debt Securities are accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners.Beneficial Owners
do not receive certificates representing their ownership interests in Debt
Securities, except in the event that use of the book entry system for the Debt
Securities is discontinued.
To facilitate subsequent transfers, the Debt Securities are registered
in the name of DTC's partnership nominee, Cede & Co.The deposit of the Debt
Securities with DTC and their registration in the name of Cede & Co. effects no
change in beneficial ownership.DTC has no knowledge of the actual Beneficial
Owners of the Debt Securities; DTC records reflect only the identity of the
Direct Participants to whose accounts Debt Securities are credited, which may
or may not be the Beneficial Owners.The Participants remain responsible for
keeping account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners are governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Debt Securities.Under its usual procedures, DTC mails a proxy (an "Omnibus
Proxy") to the issuer as soon as possible after the record date.The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Debt Securities are credited on the record
date (identified on a list attached to the Omnibus Proxy).
Principal and interest payments on the Debt Securities will be made to
DTC.DTC's practice is to credit Direct Participants' accounts on the payable
date in accordance with their respective holdings as shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the
payable date.Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices,
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as is the case with securities held for the accounts of customers in bearer
form or registered in "street name," and will be the responsibility of such
Participant and not of DTC, the Paying Agent or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to
time.Payment of principal and interest to DTC is the responsibility of the
Company or the Paying Agent, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners will be the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary
with respect to the Debt Securities at any time by giving reasonable notice to
the Company or the Paying Agent.Under such circumstances, in the event that a
successor securities depositary is not appointed, Debt Security certificates
are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary).In that event,
Debt Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources (including DTC) that the Company believes
to be reliable, but the Company takes no responsibility for the accuracy
thereof.
Unless stated otherwise in the applicable Prospectus Supplement, the
underwriters or agents with respects to a series of Debt Securities issued as
Global Notes will be Direct Participants in DTC.
None of the Company, any underwriter or agent, the applicable Trustee
or any applicable Paying Agent will have the responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
interests in a Global Note, or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
Conversion or Exchange Rights
The terms and conditions, if any, upon which Subordinated Debt
Securities being offered are convertible or exchangeable into Common Stock will
be set forth in the Prospectus Supplement relating thereto.Such terms will
include the conversion or exchange price, the conversion or exchange period,
provisions as to whether conversion or exchange will be at the option of the
Holder or the Company, the events requiring an adjustment of the conversion or
exchange price and provisions affecting conversions or exchanges in the event
of the redemption of such Subordinated Debt Securities.
Concerning the Trustees
The Company has from time to time maintained deposit accounts and
conducted other banking transactions with _______________ and
__________________ and their affiliated entities in the ordinary course of
business.
Certain Definitions
Set forth below is summary of certain defined terms used in the
applicable Indenture.Reference is made to the applicable Indenture for the full
definition of all such terms.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Debt Securities of such series and to have satisfied all the obligations under
the applicable Indenture relating to the Debt Securities of such series, except
(i) the right of Holders of Debt Securities of such series to receive, from the
trust fund described under "Discharge, Legal Defeasance and Covenant
Defeasance" above, payment of the principal of (and premium, if any) and
interest on such Debt Securities when such payments are due, (ii) the Company's
obligations with respect to the Debt Securities of such series under the
provisions relating to exchanges, transfers and replacement of Debt Securities,
the maintenance of an office or agency of the Company and the defeasance trust
fund, the provisions relating
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to compensation and reimbursement of the applicable Trustee and (iii) the
rights, powers, trusts, duties and immunities of the applicable Trustee
thereunder.(Section 15.02)
"Indebtedness" means (i) any liability of any Persons (a) for borrowed
money, or (b) evidenced by a bond, note, debenture or similar instrument
(including purchase money obligations but excluding trade payables), or (c) for
the payment of money relating to a lease that is required to be classified as a
capitalized lease obligation in accordance with generally accepted accounting
principles, or (d) preferred or preference stock of a Subsidiary of the Company
held by Persons other than the Company or a Subsidiary of the Company; (ii) any
liability of others described in the preceding clause (i) that the Person has
guaranteed, that is recourse to such Person or that is otherwise its legal
liability; and (iii) any amendment, supplement, modification, deferral,
renewal, extension or refunding of any liability of the types referred to in
clauses (i) and (ii) above.(Section 1.01)
"Senior Indebtedness" means the principal of (and premium, if any) and
unpaid interest on (i) Indebtedness of the Company, whether outstanding on the
date of the Subordinated Indenture or thereafter created, incurred, assumed or
guaranteed, for money borrowed (other than the Indebtedness evidenced by the
Subordinated Debt Securities), unless in the instrument creating or evidencing
the same or pursuant to which the same is outstanding it is provided that such
Indebtedness is not senior or prior in right of payment to the Subordinated
Debt Securities or is pari passu or subordinate by its terms in right of
payment to the Subordinated Debt Securities and (ii) renewals, extensions and
modifications of any such Indebtedness.(Section 1.01 of the Subordinated
Indenture)
"Subsidiary" means any Corporation of which at least a majority of the
outstanding stock having by the terms thereof ordinary voting power to elect a
majority of the directors of such Corporation, irrespective of whether or not
at the time stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency, is at
the time, directly or indirectly, owned or controlled by the Company or by one
or more Subsidiaries thereof, or by the Company and one or more Subsidiaries
thereof.(Section 1.01)
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States for the payment of which its full faith and
credit is pledged, or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States the payment of
which is unconditionally guaranteed as a full faith and credit obligation by
the United States, which, in either case under clauses (i) or (ii), are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian
with respect to any such U.S. Government Obligation or a specific payment of
interest on (or principal of) any such U.S. Government Obligation held by such
custodian for the account of the holder of a depository receipt; provided that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.(Section 15.02)
PREFERRED STOCK
The description of certain provisions of the Preferred Stock set forth
below and in any Prospectus Supplement does not purport to be complete and is
subject to and qualified in its entirety by reference to the Company's Articles
of Incorporation and the Articles of Amendment relating to each such series of
Preferred Stock, which will be filed with the Commission in connection with the
offering of such series of Preferred Stock.
General
Under the Company's Articles of Incorporation, the Board of Directors
may, by resolution, establish series of Preferred Stock having such voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as the Board of Directors may determine.
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The Preferred Stock offered hereby will have the dividend, liquidation
and voting rights set forth below unless otherwise provided in the Prospectus
Supplement relating to a particular series of Preferred Stock.Reference is made
to the Prospectus Supplement relating to the particular series of Preferred
Stock offered thereby for specific terms, including:(1) the designation and
stated value per share of such Preferred Stock and the number of shares
offered; (2) the amount of liquidation preference per share; (3) the price at
which such Preferred Stock will be issued; (4) the dividend rate (or method of
calculation), the dates on which dividends will be payable, whether such
dividends will be cumulative or noncumulative and, if cumulative, the dates
from which dividends will commence to cumulate; (5) any redemption or sinking
fund provisions; (6) any terms by which such series of Preferred Stock may be
convertible into or exchanged for Common Stock or Debt Securities; and (7) any
additional or other rights, preferences, privileges, limitations and
restrictions relating to such series of Preferred Stock.
The Preferred Stock offered hereby will be issued in one or more
series.The holders of Preferred Stock will have no preemptive rights.Preferred
Stock will be fully paid and nonassessable upon issuance against full payment
of the purchase price therefor.Unless otherwise specified in the Prospectus
Supplement relating to a particular series of Preferred Stock, each series of
Preferred Stock will, with respect to dividend rights and rights on
liquidation, dissolution and winding up of the Company, rank prior to the
Common Stock (the "Junior Stock") and on a parity with each other series of
Preferred Stock offered hereby (the "Parity Stock").
Dividend Rights
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor, cash dividends at such rates and on such
dates as are set forth in the Prospectus Supplement relating to such series of
Preferred Stock.Such rate may be fixed or variable or both.Each such dividend
will be payable to the holders of record as they appear on the stock books of
the Company on such record dates as will be fixed by the Board of Directors of
the Company.Dividends on any series of the Preferred Stock may be cumulative or
noncumulative, as provided in the Prospectus Supplement relating thereto.If the
Board of Directors of the Company fails to declare a dividend payable on a
dividend payment date on any series of Preferred Stock for which dividends are
noncumulative, then the right to receive a dividend in respect of the dividend
period ending on such dividend payment date will be lost, and the Company will
have no obligation to pay the dividend accrued for that period, whether or not
dividends are declared for any future period.Dividends on shares of each series
of Preferred Stock for which dividends are cumulative will accrue from the date
set forth in the applicable Prospectus Supplement.
The Preferred Stock of each series will include customary provisions
(1) restricting the payment of dividends or the making of other distributions
on, or the redemption, purchase or other acquisition of, Junior Stock unless
full dividends, including, in the case of cumulative Preferred Stock, accruals,
if any, in respect of prior dividend periods, on the shares of such series of
Preferred Stock have been paid and (2) providing for the pro rata payment of
dividends on such series and other Parity Stock when dividends have not been
paid in full upon such series and other Parity Stock.
Rights Upon Liquidation
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Stock
will be entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of Junior Stock, liquidating distributions in the amount set forth in
the Prospectus Supplement relating to such series of Preferred Stock plus an
amount equal to accrued and unpaid dividends.If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the amounts
payable with respect to the PreferredStock of any series and any Parity Stock
are not paid in full, the holders of the Preferred Stock of such series and of
such Parity Stock will share ratably in any such distribution of assets of the
Company in proportion to the full respective preferential amounts (which may
include accumulated dividends) to which they are entitled.After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of such series of Preferred Stock will have no right or claim to any of
the remaining assets of the Company.Neither the sale of all or a portion
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of the Company's assets nor the merger or consolidation of the Company into or
with any other corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntarily or involuntarily, of the Company.
Voting Rights
The holders of Preferred Stock of a series offered hereby will not be
entitled to vote except as indicated in the Prospectus Supplement relating to
such series of Preferred Stock or as required by applicable law.Unless
otherwise specified in the Prospectus Supplement relating to a particular
series of Preferred Stock, when and if any such series is entitled to vote,
each share in such series will be entitled to one vote.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Set forth below is a description of the material terms and provisions
of the equity securities of the Company.The following description does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Articles of Incorporation, as amended, of the Company (the
"Articles of Incorporation") and the By-Laws, as amended, of the Company (the
"By- Laws") and the Rights Plan of the Company dated as of July 27, 1994
between the Company and Chemical Bank, as Rights Agent (the "Rights Plan").The
Articles of Incorporation and the By-Laws are exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993 and the Rights Plan is
an exhibit to Company's Registration Statement on Form 8-A.
The Company is authorized to issue (i) 100,000,000 shares of Common
Stock, par value $2.00 per share and (ii) 20,000,000 shares of Preferred Stock,
par value $2.00 per share, which may be issued in one or more series with such
voting powers, designations, preferences, rights, qualifications, limitations
and restrictions as shall be specified by the Board of Directors.The Board of
Directors may issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock, and
which could, among other things, have the effect of delaying, deferring or
preventing a change in control of the Company.In connection with the Rights
Plan, the Board of Directors authorized the issuance of 1,000,000 shares of
Series A Junior Participating Preferred Stock to holders of rights issued under
the Rights Plan.See "--Rights Plan" below.
As of July 14, 1994, 12,435,519 shares of Common Stock were issued and
outstanding, excluding 524,207 treasury shares.
COMMON STOCK
Dividends
Holders of the Company's Common Stock are entitled to receive such
dividends as may be legally declared by the Board of Directors.The declaration
and amount of future dividends may depend, in part, on restrictive covenants
contained in certain loan agreements and certain state regulations regarding
minimum capitalization requirements for insurance companies that have the
effect of limiting dividends from UCLIC and UGTIC to the Company.
Under provisions of the Company's revolving credit facility
restricting the payment of dividends, approximately $37.2 million of retained
earnings was available for the payment of dividends at June 30, 1994.In
addition to the state regulatory provisions referenced above requiring minimum
capitalization for insurance companies and limiting the ability of insurance
companies to pay dividends or make other payments to affiliates, the ability of
UCLIC to pay dividends to the Company is restricted under certain circumstances
by the fact that payment of dividends by UCLIC would result in an increase in
UCLIC's federal income taxes.
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Voting Rights
Holders of Common Stock are entitled to one vote for each share held
of record.Except as discussed below, action of the stockholders may generally
be taken by the affirmative vote of a majority of the shares present or
represented at a duly called meeting at which a quorum is present or
represented.
Other Rights
Holders of Common Stock have no preemptive or subscription rights and
have no liability for further calls or assessments.All shares of Common Stock
are entitled to share ratably in the net assets of the Company upon
liquidation.
The transfer agent and registrar for the Common Stock is Chemical
Bank of New York, New York.
SPECIAL CHARTER AND LOUISIANA LAW PROVISIONS
Certain provisions of the Articles of Incorporation of the Company,
Louisiana law, and the Company's Rights Plan, may have the effect of delaying,
deterring or discouraging, among other things, a non-negotiated tender or
exchange offer for the Company's Common Stock or a proxy contest for control of
the Company.
Special Vote Provisions and Takeover Consideration Provisions
in the Company's Articles of Incorporation
The Articles of Incorporation of the Company include certain
provisions (the "Special Vote Provisions") requiring the affirmative vote of
80% of the outstanding shares of the Company's voting stock before the Company
may enter into (i) a merger or consolidation with any other corporation, (ii) a
sale or lease of substantially all of the assets of the Company to any other
corporation, person or entity, or (iii) a sale or lease to the Company by any
other corporation, person or other entity of assets having a value greater than
$1 million in exchange for voting stock of the Company, in each case if such
other corporation, person or other entity, directly or indirectly, owns or
controls 10% or more of the Company's voting stock prior to any such
transaction.The Special Vote Provisions apply only to the above-described
transactions which do not receive prior approval of the Board of Directors.
The Articles of Incorporation of the Company also contain certain
provisions (the "Takeover Consideration Provisions") authorizing the Board of
Directors, in evaluating an offer from a third party to merge with or acquire
the shares or assets of the Company, to give due consideration to certain
factors not directly related either to the price per share offered for or the
then market price of the Company's Common Stock.The factors that the Board of
Directors is authorized to consider under the Takeover Consideration Provisions
include, without limitation:(i) the consideration being offered in the
acquisition proposal as it relates to the then current value of the Company in
a freely negotiated transaction, and to the Board of Directors' then estimate
of the future value of the Company as an independent entity; (ii) the social,
legal and economic effects of the acquisition proposal on the Company and its
subsidiaries, and the franchisees, employees, suppliers, customers, creditors
and business of the Company and its subsidiaries; (iii) the financial condition
and earnings prospects of the potential offeror, including but not limited to,
debt service and other existing or likely financial obligations of the
potential offeror, and the possible effect of such condition upon the Company
and its subsidiaries and other elements of the communities in which the Company
and its subsidiaries operate or are located; and (iv) the competence,
experience and integrity of the potential offeror.
Pursuant to Section 91G of the Louisiana Business Corporation Law (the
"LBCL"), the Board of Directors is also authorized to consider the factors set
forth therein (which are generally comparable to those set forth in the
Takeover Consideration Provisions) and any other factors which it deems
relevant in evaluating a tender offer or an offer to make a tender or exchange
offer or to effect a merger or consolidation.
The Special Vote Provisions and the Takeover Consideration Provisions
may be altered only by the affirmative vote of 80% of the outstanding shares of
the Company's voting stock.
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Directors' and Officers' Exculpation and Indemnification
The Articles of Incorporation provide that no director or officer of
the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director or officer except
for liability (i) for breach of the director's or officer's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 92(D) of the LBCL, which specifies certain corporate
transactions, such as certain dividend declarations and dispositions of assets,
as unlawful, or (iv) for any transaction from which the director or officer
derived an improper personal benefit.With the exception of the items noted in
(i) through (iv) above, the effect of this provision of the Articles of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director or officer for breach of his or her
fiduciary duty as a director or officer.This provision does not limit or
eliminate the rights of the Company or any stockholders to seek non-monetary
relief, such as an injunction or rescission in the event of a breach of a
director's or officer's fiduciary duty.
Pursuant to Section 83 of the LBCL, the Company has adopted provisions
in its Articles of Incorporation which require the Company to indemnify its
directors and officers to the fullest extent permitted by Louisiana law.
Louisiana Fair Price and Control Share Acquisition Statutes
As a Louisiana corporation, the Company is subject to the provisions
of the LBCL which contain "fair price" and "control share acquisition"
provisions.Each of these provisions imposes significant restrictions on the
ability of an acquiror of a large block of voting stock of a Louisiana
corporation to exercise control over the corporation.
The "fair price" provisions are set forth in Sections 132-134 of the
LBCL and are designed to restrict the ability of a Louisiana corporation to
enter into mergers or other extraordinary corporate transactions with certain
stockholders.These provisions require that certain business combinations
between a Louisiana corporation and "interested stockholders" must be approved
by (i) the corporation's Board of Directors, (ii) the affirmative vote of at
least 80% of the voting stock of the corporation, and (iii) the affirmative
vote of two-thirds of the voting stock of the corporation (excluding stock held
by the interested stockholders), unless the business combination satisfies
certain "fair price" tests regarding the payments to be made to stockholders
and meets certain other procedural requirements.An "interested stockholder" is
defined as any person (other than the corporation, any subsidiary of the
corporation or any employee benefit plan of the corporation or any subsidiary)
that is the beneficial owner of 10% or more of the voting stock of the
corporation.In general, the "fair price" tests measure the value stockholders
receive for their stock from an interested stockholder in transactions within a
two year period.
The "control share acquisition" provisions of the LBCL are set forth
in Sections 135-140.2.In general, these provisions provide that persons who,
after May 4, 1987, acquire stock that would normally entitle them to exercise
20% or more of the voting power of the corporation will not be able to vote the
shares acquired by them in excess of 20% of such voting power unless their
ability to vote is reinstated by the stockholders of the corporation at a
meeting held after the acquiring person requests such a vote.A corporation is
required to call such a meeting only if the person proposing to make a control
share acquisition (an "acquiring stockholder") has demonstrated a financial
ability to make a successful acquisition and such proposed acquisition is
lawful.At such a meeting, the voting rights of the acquiring stockholder will
be reinstated for shares held by the acquiring stockholder in excess of 20% of
the Company's voting power if approved by the affirmative vote of (i) a
majority of all shares of the Company then entitled to vote and (ii) a majority
of all shares of the Company then entitled to vote (excluding shares
beneficially owned by the acquiring stockholder, its officers and its directors
who are also its employees).If the voting rights of the acquiring stockholder
are reinstated, such stockholder can acquire additional voting shares within
certain threshold levels, without obtaining additional stockholder
approval.However, if the acquiring stockholder acquires additional shares in an
acquisition that places such stockholder above the threshold ownership levels
of one-third and one-half of all voting shares, the additional shares acquired
in such an acquisition in excess of such ownership levels will not have voting
rights unless reinstated by the stockholders pursuant to the voting procedures
described above.A corporation must call a stockholders'
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meeting within 50 days of the date that both the corporation and the proposed
acquiring stockholder file definitive proxy materials with the Commission.
Louisiana Insurance Code
UCLIC is a Louisiana chartered life insurance company. Section 731 of
the Louisiana Insurance Code (La.R.S. 22:731) provides that a Louisiana insurer
may merge or consolidate with or acquire control of another insurer, or a
person may acquire control of a Louisiana insurance company only if the plan of
merger or consolidation or acquisition of control is submitted to or receives
advance approval from the Louisiana Commissioner of Insurance after a public
hearing thereon. Section 731 provides that the Louisiana Commissioner of
Insurance may disapprove any such merger, consolidation or other acquisition of
control for any of the following reasons: (i) the effect thereof would be
substantially to lessen competition in insurance in Louisiana or tend to create
a monopoly therein; (ii) the financial condition of any acquiring party is such
as might jeopardize the financial stability of the insurer, or prejudice the
interests of its policyholders or the interests of any remaining security
holders who are unaffiliated with such acquiring party; (iii) the terms of the
offer, request, invitation, agreement or acquisition are unfair and
unreasonable to the security holders of the insurer; (iv) the plans or
proposals which the acquiring party has to liquidate the insurer, sell its
assets or consolidate or merge it with any person, or to make any other
material change in its business or corporate structure or management are unfair
and unreasonable to policyholders of the insurer and not in the public
interest; or (v) the competence, experience and integrity of those persons who
would control the operation of the insurer are such that it would not be in the
interest of policyholders of the insurer and of the public to permit the
merger, consolidation or other acquisition of control.
Louisiana's Insurance Holding Company System Regulatory Law,
constituting Part XXI-A of the Louisiana Insurance Code (La.R.S. 22:1001-1015),
requires the filing of periodic registration statements by the Company with the
Louisiana Commissioner of Insurance and regulates transactions among members of
an insurance holding company system such as that of the Company. Any change of
control (10% or more of voting securities is presumed to constitute control for
purposes of this legislation) requires notification to hearing before and
approval of the Louisiana Commissioner of Insurance.
RIGHTS PLAN
On July 27, 1994, the Board of Directors of the Company redeemed the
rights issued under the rights plan adopted in February 1989, adopted the
Rights Plan, declared a dividend of one preferred stock purchase right (a
"Right") for each outstanding share of Common Stock on August 6, 1994, and
authorized the issuance of one Right with respect to each share of Common Stock
issued after August 6, 1994, and before the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined). The Rights have antitakeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired.
Each Right entitles the registered holder upon exercise on and after
the Distribution Date to purchase from the Company one one-hundredth of a share
of Series A Junior Participating Preferred Stock, par value $2.00 per share
(the "Preferred Shares"), of the Company at a price of $240.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights, and the Preferred Shares
into which such Rights are exercisable, are set forth in the Rights Plan.
The "Distribution Date" occurs on the earliest of the close of
business on (i) the tenth day following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired
beneficial ownership of 20% or more of the outstanding shares of Common Stock,
(ii) the tenth day (or such later date as may be determined by action of the
Board of Directors of the Company prior to such time as any person becomes an
Acquiring Person) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 25% or more of
the outstanding shares of Common Stock, or (iii) 10 days after the Board of
Directors shall declare any person to be an "Adverse Person," upon a
determination that such person, alone or together with its affiliates and
associates, has become the beneficial owner of 10% or more of the
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outstanding shares of Common Stock and a determination by at least a majority
of the Board of Directors who are not officers of the Company, after reasonable
inquiry and investigation, including consultation with such persons as such
directors shall deem appropriate, that (a) such beneficial ownership by such
person is intended to cause, is reasonably likely to cause or will cause the
Company to repurchase the shares of Common Stock beneficially owned by such
person or to cause pressure on the Company to take action or enter into a
transaction or series of transactions intended to provide such person with
short-term financial gain under circumstances where the Board of Directors
determines that the best long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions at that time or (b) such beneficial
ownership is causing or is reasonably likely to cause a material adverse impact
(including, but not limited to, impairment of relationships with customers or
impairment of the Company's ability to maintain its competitive position) on
the business or prospects of the Company. However, the Board of Directors may
not declare a person to be an Adverse Person if, prior to the time that the
person acquired 10% or more of the shares of Common Stock then outstanding,
such person provided to the Board of Directors in writing a statement of the
person's purpose and intentions in connection with the proposed acquisition of
Common Stock, together with any other information reasonably requested of the
person by the Board of Directors, and the Board of Directors, based on such
statement and reasonable inquiry and investigation as it deems appropriate,
determines to notify and notifies such person in writing that it will not
declare the person to be an Adverse Person; provided, however, that the Board
of Directors may expressly condition in any manner a determination not to
declare a person an Adverse Person on such conditions as the Board of Directors
may select, including without limitation, such person not acquiring more than a
specified amount of stock and/or such person not taking actions inconsistent
with the purposes and intentions disclosed by such person in the statement
provided to the Board of Directors. In the event that the Board of Directors
should at any time determine, upon reasonable inquiry and investigation, that
such person has not met or complied with any conditions specified by the Board
of Directors, the Board of Directors may at any time thereafter declare the
person to be an Adverse Person. Until the Distribution Date, the Rights will
be transferred with and only with shares of Common Stock. The Rights will
expire on July 31, 2004 (the "Final Expiration Date"), unless the Rights are
earlier redeemed or exchanged by the Company.
The Purchase Price payable, and the number of Preferred Shares or
other securities of property issuable, on exercise of the Rights are subject to
adjustment from time to time to prevent dilution in the event of a stock
dividend on the Preferred Shares or other events described in the Rights Plan.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1.00 per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the Preferred Shares will
be entitled to a minimum preferential liquidation payment of $100.00 per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of Common Stock. Each Preferred Share will have 100 votes, voting
together with the Common Stock. Finally, in the event of merger, consolidation
or other transaction in which shares of Common Stock are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
share of Common Stock. The Rights are protected by customary antidilution
provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one share of Common Stock.
The Rights Plan contains a "flip-over" feature allowing the exercise
of the Rights so that the holder thereof (except those Rights held by the
Acquiring Person) will receive shares of Common Stock of the Acquiring Person
at half price, causing substantial dilution to the Acquiring Person. In
general, this "flip-over" feature provides that in the event that the Company
is acquired by an Acquiring Person in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
to an Acquiring Person, proper provision will be made so that each holder of a
Right, other than Rights that are or were beneficially owned by the Acquiring
Person after the date upon which the Acquiring Person became such (which will
thereafter be void), will thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price, that number of shares of
common stock of the Acquiring Person which at the time of such transaction will
have a market value of two times the Purchase Price.
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The Rights Plan also contains a "flip-in" feature allowing holders of
Rights (except those held by an Acquiring Person) to purchase Common Stock of
the Company at half price, causing substantial dilution to the Acquiring
Person. In general, this "flip- in" feature provides that in the event that
(i) any person becomes the beneficial owner of 25% or more of the outstanding
Common Stock (unless such person first acquires 25% or more of the outstanding
Common Stock by a purchase pursuant to a tender offer for all of the Common
Stock which the independent directors determine to be fair to and otherwise in
the best interests of the Company and its stockholders, employees, customers
and communities in which the Company does business), (ii) any person is
declared by the Board of Directors to be an Adverse Person, (iii) an Acquiring
Person engages in one or more "self-dealing" transactions as set forth in the
Rights Plan, or (iv) during such time as there is an Acquiring Person, there
shall be a reclassification of securities or a recapitalization or
reorganization of the Company or other transaction or series of transactions
involving the Company which has the effect of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity securities
of the Company or any of its subsidiaries beneficially owned by the Acquiring
Person, proper provision shall be made so that each holder of a Right, other
than Rights that are or were beneficially owned by the Acquiring Person after
the date upon which the Acquiring Person became such (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
shares of Common Stock (or, in the event that there are insufficient authorized
shares of Common Stock, substitute consideration such as cash, property, or
other securities of the Company) having a market value of two times the
Purchase Price.
At any time after the acquisition by an Acquiring Person of beneficial
ownership of 20% or more of the outstanding Common Stock and prior to the
acquisition by such person of 25% or more of the outstanding Common Stock, the
Board of Directors of the Company may exchange the Rights (other than Rights
owned by such person which have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, or one one-hundredth of a
Preferred Share (or of a share of a class or series of the Company's preferred
stock having equivalent rights, preferences and privileges), per Right (subject
to adjustment).
At any time prior to the tenth day following a public announcement
that an Acquiring Person has acquired beneficial ownership of 20% or more of
the outstanding Common Stock, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right (the
"Redemption Price"). Immediately upon any redemption of the Rights, the right
to exercise the Rights will terminate and the only right of the holder of the
Rights will be to receive the Redemption Price. The date on which the
redemption of the Rights occurs pursuant to the foregoing provisions is
referred to herein as the "Redemption Date."
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) any percentage greater than the largest percentage of the
outstanding shares of the Common Stock then known to the Company to be
beneficially owned by any Acquiring Person and (ii) 10%, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder of a Right will not, by reason
of being such a holder, have rights as a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends.
PLAN OF DISTRIBUTION
The Company may offer and sell the Offered Securities in one or more
of the following ways: (i) through underwriters or dealers; (ii) through
agents; or (iii) directly by the Company to one or more purchasers. The
Prospectus Supplement with respect to a particular offering of a series of
Offered Securities will set forth the terms of the offering of such Offered
Securities, including the name or names of any underwriters or agents with whom
UCFC has entered into arrangements with respect to the sale of such Offered
Securities, the public offering or purchase price of such Offered Securities
and the proceeds to the Company from such sales, and any underwriting
discounts, agency fees or commissions and other items constituting
underwriters' compensation, the initial public offering price, any discounts or
concessions to be allowed or reallowed or paid to dealers and any securities
exchange, if any, on which such Offered Securities may be listed. UCFC may
also issue Offered
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Securities to one or more persons in exchange for securities of UCFC acquired
by such persons from third parties in open market transactions or in privately
negotiated transactions. The newly issued Offered Securities in such cases may
be offered pursuant to this Prospectus and the applicable Prospectus Supplement
by such persons, acting as a principal for their own accounts, at market prices
prevailing at the time of sale at prices otherwise negotiated or at fixed
prices. Unless otherwise indicated in the applicable Prospectus Supplement,
UCFC will only receive outstanding securities and will not receive cash
proceeds in connection with such exchanges or resales. Dealer trading may take
place in certain of the Offered Securities, including Offered Securities not
listed on any securities exchange.
If underwriters are used in the offer and sale of Offered Securities,
the Offered Securities will be acquired by the underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The Offered Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters, or by underwriters without a syndicate, all of which
underwriters in either case will be designated in the applicable Prospectus
Supplement. Unless otherwise set forth in the applicable Prospectus
Supplement, under the terms of the underwriting agreement, the obligations of
the underwriters to purchase Offered Securities will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all the
Offered Securities if any are purchased. Any initial public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Offered Securities may be offered and sold directly by the Company or
through agents designated by the Company from time to time. Any agent involved
in the offer or sale of the Offered Securities with respect to which this
Prospectus is delivered will be named in, and any commissions payable by the
Company to such agent will be set forth in or calculable from, the applicable
Prospectus Supplement. Unless otherwise indicated in the Prospectus
Supplement, any such agent will be acting on a best-efforts basis for the
period of its appointment.
The Offered Securities will be new issues of securities with no
established trading market. Any underwriters to whom Offered Securities are
sold by the Company for public offering and sale may make a market in such
Offered Securities, but such underwriters will not be obligated to do so and
may discontinue any market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for any Offered Securities.
Any underwriter, dealer or agent participating in the distribution of
the Offered Securities may be deemed to be an underwriter, as that term is
defined in the Securities Act, of the Offered Securities so offered and sold,
and any discounts or commissions received by it from UCFC and any profit
realized by it on the sale or resale of the Offered Securities may be deemed to
be underwriting discounts and commissions under the Securities Act.
Under agreements entered into with the Company, underwriters, dealers
and agents may be entitled to indemnification by the Company against certain
civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters or agents may be
required to make in respect thereof.
Underwriters, dealers and agents also may be customers of, engage in
transactions with, or perform other services for the Company in the ordinary
course of business.
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LEGAL OPINIONS
The legality of the Debt Securities will be passed upon for the
Company by Stroock & Stroock & Lavan, New York, New York. The legality of the
Common Stock and Preferred Stock will be passed upon for the Company by
Kantrow, Spaht, Weaver & Blitzer (A Professional Law Corporation), Baton Rouge,
Louisiana. Certain legal matters in connection with any offering of
Securities involving any underwriters or dealers will be passed upon for such
underwriters or dealers by Simpson Thacher & Bartlett (a partnership which
includes professional corporations), New York, New York. As to matters
governed by the laws of the State of Louisiana, Stroock & Stroock & Lavan and
Simpson Thacher & Bartlett will rely upon Kantrow, Spaht, Weaver & Blitzer (A
Professional Law Corporation). As of June 30, 1994, individual stockholders of
the firm of Kantrow, Spaht, Weaver & Blitzer (A Professional Law Corporation)
owned, directly or indirectly, approximately 23,566 shares of the Company's
Common Stock.
EXPERTS
The consolidated financial statements and the related financial
statement schedules incorporated in this Prospectus by reference from UCFC's
Annual Report on Form 10-K for the year ended December 31, 1993 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the
periods ended March 31, 1994 and 1993 and June 30, 1994 and 1993, which is
incorporated herein by reference, Deloitte & Touche LLP have applied limited
procedures in accordance with professional standards for a review of such
information. However, as stated in their reports included in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June
30, 1994 and incorporated by reference herein, they did not audit and they do
not express an opinion on that interim financial information. Accordingly, the
degree of reliance on their reports on such information should be restricted in
light of the limited nature of the review procedures applied. Deloitte &
Touche LLP are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 for their reports on the unaudited interim financial
information because those reports are not "reports" or a "part" of the
registration statement prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Ratios of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Selected Financial and Other Data . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . 31
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . 46
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
================================================================================
$200,000,000
UNITED COMPANIES
FINANCIAL CORPORATION
DEBT SECURITIES AND PREFERRED STOCK
_____________
PROSPECTUS
_____________
, 1994
================================================================================
<PAGE> 56
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses, other than underwriting or broker-dealer fees,
discounts and commissions, in connection with the offering are as follows:
<TABLE>
<S> <C>
Registration Fee -- Securities and
Exchange Commission . . . . . . . $68,965.52
Printing and Engraving Expenses . . *
Legal Fees and Expenses . . . . . . *
Accounting Fees and Expenses . . . . *
Blue Sky Fees and Expenses . . . . . *
Indenture Trustees Expenses . . . . *
Rating Agency Fees and Expenses . . *
Transfer Agent Fees . . . . . . . . *
Listing Fees . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . *
</TABLE>
_______________________
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 83 of the Louisiana Business Corporation Law (the "LBCL")
provides that a corporation may indemnify any person who was or is a party or
is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or
in the right of the corporation), by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another business, foreign or nonprofit corporation, partnership, joint venture,
or other enterprise. The indemnity may include expenses, including attorney
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Section 83 further provides that a Louisiana corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions except that no indemnification is
permitted without judicial approval if the director or officer shall have been
adjudged to be liable for willful or intentional misconduct in the performance
of his duty to the corporation. Where an officer or director is successful on
the merits or otherwise in any defense of any action referred to above or any
claim therein, the corporation must indemnify him against such expenses that
such officer or director actually incurred. Section 83 permits a corporation
to pay expenses incurred by the officer or director in defending an action,
suit or proceeding in advance of the final disposition thereof if approved by
the board of directors.
Pursuant to Section 83 of the LBCL, the Company has adopted provisions
in its Articles of Incorporation which require the Company to indemnify its
directors and officers to the fullest extent permitted by the LBCL.
II-1
<PAGE> 57
The Articles of Incorporation, as amended, provide that no director or
officer of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director or
officer except for liability (i) for breach of the directors' or officers' duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 92(D) of the LBCL, or (iv) for any transaction from
which the director or officer derived an improper personal benefit. Section
92(D) of the LBCL specifies certain corporate transactions, such as certain
dividend declarations and dispositions of assets, as unlawful. The effect of
this provision of the Articles of Incorporation is to eliminate the rights of
the Company and its stockholders (through stockholders' derivative suits on
behalf of the Company) to recover monetary damages against a director or
officer for breach of fiduciary duty as a director or officer. This provision
does not limit or eliminate the rights of the Company or any stockholders to
seek non-monetary relief, such as an injunction or rescission in the event of a
breach of a director's or officer's fiduciary duty.
ITEM 16. LIST OF EXHIBITS.
Exhibit
Number Description of Document
------- -----------------------
1.1(1) Form of Underwriting Agreement for Securities
4.1(1) Series A Junior Participating Preferred Stock Purchase Rights
4.2(1) Form of Senior Indenture
4.3(1) Form of Senior Note (included in Exhibit 4.2)
4.4(1) Form of Subordinated Indenture
4.5(1) Form of Subordinated Note (included in Exhibit 4.4)
4.6(1) Form of Articles of Amendment for Preferred Stock
4.7(1) Specimen Preferred Stock Certificate
5.1(1) Opinion of Stroock & Stroock & Lavan regarding legality of
securities being registered
5.2(1) Opinion of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) regarding legality of securities being registered
12.1(1) Statement of Computation of Ratio of Earnings to Fixed Charges
12.2(1) Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
15.1(2) Letter of Deloitte & Touche LLP regarding unaudited financial
information
23.1(1) Consent of Stroock & Stroock & Lavan (included in Exhibit 5.1)
23.2(1) Consent of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) (included in Exhibit 5.2)
23.3(2) Consent of Deloitte & Touche LLP
24.1(2) Powers of Attorney (included in Part II of this Registration
Statement)
II-2
<PAGE> 58
Exhibit
Number Description of Document
------- -----------------------
25.1(1) Statement of Eligibility of Senior Trustee on Form T-1
25.2(1) Statement of Eligibility of Subordinated Trustee on Form T-1
_______________
(1) To be filed by amendment.
(2) Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8 and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
II-3
<PAGE> 59
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, (1) for purposes of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as a part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus filed pursuant to
Rules 424 (b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be a part of this Registration Statement at the time it was declared effective,
and (2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment if any that contains a form of prospectus shall
be deemed to be a new registration statement relating to the Securities offered
thereon, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Baton Rouge, State of Louisiana on August 25,
1994.
UNITED COMPANIES FINANCIAL CORPORATION
By: /s/ Sherry E. Anderson
Sherry E. Anderson
Senior Vice President and Secretary
Known all men by these presents, that each person whose signature
appears below constitutes and appoints Sherry E. Anderson, Dale E. Redman and
J. Terrell Brown, acting singly, as his true and lawful attorney-in-fact and
agent, with full power of substitution, and for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments or post-
effective amendments to this Registration Statement, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each of said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Harris J. Chustz Chairman of the Board August 25, 1994
- --------------------------------------------- (Principal Executive Officer)
Harris J. Chustz
/s/ J. Terrell Brown Chief Executive Officer, President and August 25, 1994
- --------------------------------------------- Director (Principal Executive Officer)
J. Terrell Brown
/s/ Dale E. Redman Executive Vice President, Chief Financial August 25, 1994
- --------------------------------------------- Officer and Director
Dale E. Redman (Principal Financial Officer)
/s/ Jesse O. Griffin Senior Vice President and Controller August 25, 1994
- --------------------------------------------- (Principal Accounting Officer)
Jesse O. Griffin
/s/ James J. Bailey, III Director August 25, 1994
- ---------------------------------------------
James J. Bailey, III
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert H. Barrow Director August 23, 1994
- ---------------------------------------------
Robert H. Barrow
Director August 25, 1994
- ---------------------------------------------
Richard A. Campbell
/s/ Robert D. Kilpatrick Director August 25, 1994
- ---------------------------------------------
Robert D. Kilpatrick
/s/ O. Miles Pollard, Jr. Director August 25, 1994
- ---------------------------------------------
O. Miles Pollard, Jr.
/s/ Charles S. Prosser, M.D. Director August 25, 1994
- ---------------------------------------------
Charles S. Prosser, M.D.
/s/ William H. Wright, Jr. Director August 25, 1994
- ---------------------------------------------
William H. Wright, Jr.
</TABLE>
<PAGE> 62
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page Number
------- ----------------------- -----------
<S> <C> <C>
1.1(1) Form of Underwriting Agreement for Securities
4.1(1) Series A Junior Participating Preferred Stock Purchase Rights
4.2(1) Form of Senior Indenture
4.3(1) Form of Senior Note (included in Exhibit 4.2)
4.4(1) Form of Subordinated Indenture
4.5(1) Form of Subordinated Note (included in Exhibit 4.4)
4.6(1) Form of Articles of Amendment for Preferred Stock
4.7(1) Specimen Preferred Stock Certificate
5.1(1) Opinion of Stroock & Stroock & Lavan regarding legality of
securities being registered
5.2(1) Opinion of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) regarding legality of securities being registered
12.1(1) Statement of Computation of Ratio of Earnings to Fixed Charges
12.2(1) Statement of Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
15.1(2) Letter of Deloitte & Touche LLP regarding unaudited financial
information
23.1(1) Consent of Stroock & Stroock & Lavan (included in Exhibit 5.1)
23.2(1) Consent of Kantrow, Spaht, Weaver & Blitzer (A Professional Law
Corporation) (included in Exhibit 5.2)
23.3(2) Consent of Deloitte & Touche LLP
24.1(2) Powers of Attorney (included in Part II of this Registration
Statement)
25.1(1) Statement of Eligibility of Senior Trustee on Form T-1
25.2(1) Statement of Eligibility of Subordinated Trustee on Form T-1
</TABLE>
_______________
(1) To be filed by amendment.
(2) Filed herewith.
<PAGE> 1
EXHIBIT 15.1
August 24, 1994
United Companies Financial Corporation
4041 Essen Lane
Baton Rouge, Louisiana
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of United Companies Financial Corporation
and subsidiaries for the periods ended March 31, 1994 and 1993 and June 30,
1994 and 1993, as indicated in our reports dated April 28, 1994 and July 27,
1994, respectively; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June
30, 1994, are being used in this Registration Statement.
We also are aware that the aforementioned reports, pursuant to Rule 436(c)
under the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
Baton Rouge, Louisiana
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
United Companies Financial Corporation on Form S-3 of the report of Deloitte &
Touche dated February 18, 1994, appearing in and incorporated by reference in
the Annual Report on Form 10- K of United Companies Financial Corporation for
the year ended December 31, 1993, and to the reference to Deloitte & Touche LLP
under the headings "Selected Financial and Other Data" and "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Baton Rouge, Louisiana
August 24, 1994
