<PAGE> 1
Registration No. 33-55227
Filed Pursuant to Rule 424(b)(5)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED OCTOBER 13, 1994
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 29, 1994)
$100,000,000
UNITED COMPANIES FINANCIAL CORPORATION
(LOGO)
% SENIOR NOTES DUE
------------------------
Interest on the % Senior Notes due (the "Notes") of United
Companies Financial Corporation (the "Company") will be payable semiannually on
and of each year, commencing , 199 . The
Notes will mature on and are not redeemable prior to maturity. The
Notes will constitute unsecured and unsubordinated indebtedness of the Company
and will rank on a parity with its other unsecured and unsubordinated
indebtedness. See "Description of the Notes."
------------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
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.
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note..........................
- -------------------------------------------------------------------------------------------------
Total.............................
- -------------------------------------------------------------------------------------------------
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</TABLE>
(1) Plus accrued interest, if any, from , 1994.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $ payable by the Company.
------------------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that the Notes will be
delivered in book-entry form only on or about , 1994 through the
facilities of The Depository Trust Company against payment therefor in
immediately available funds.
------------------------
MERRILL LYNCH & CO.
CHEMICAL SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
------------------------
The date of this Prospectus Supplement is , 1994.
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------------
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA
(THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH CAROLINA
INSURANCE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS.
S-2
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus, this Prospectus Supplement
and the consolidated financial statements, including the notes thereto,
incorporated herein by reference. Capitalized terms used in this Prospectus
Supplement but not defined herein shall have the meanings set forth in the
Prospectus unless otherwise provided herein.
THE COMPANY
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. Loan originations are accomplished primarily
through a retail branch network, which as of June 30, 1994, consisted of 128
offices in 33 states. 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 loan 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 its reduced
cost of funding are the primary reasons that 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" in the Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Prospectus 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.
RECENT DEVELOPMENTS
Recent Home Equity Loan Securitization. On September 30, 1994, the
Company's subsidiary, UCFC Acceptance Corporation, sold in a public offering
$350 million of mortgage-backed pass-through certificates. Primarily first lien,
fixed rate and adjustable rate residential home equity loans originated,
directly or through correspondents or mortgage brokers, by United Companies
Lending Corporation ("UC Lending" or "UCLC") were sold to the trustee under the
pooling and servicing agreement. Under the terms of this transaction, $130.7
million of the proceeds from the sale of these certificates are being held in a
prefunding account by the trustee to purchase fixed rate, first lien home equity
loans originated by UC Lending on or prior to December 10, 1994. Eight classes
of mortgage pass-through certificates were issued in this securitization, seven
of which are fixed rate having pass-through rates from 6.775% to 8.725% and one
of which is a floating rate having an initial pass-through rate of 5.5625%. The
certificates are insured by Municipal Bond Investors Assurance Corporation and
received the highest investment grade ratings from Moody's Investors Service,
Inc. ("Moody's"), and Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc. ("S&P"). This offering was the third sale of mortgage-backed
securities conducted by the Company in 1994 and the sixth securitization
conducted under this subsidiary's shelf registration statement filed with the
Securities and Exchange Commission, initially effective in June 1993 in the
amount of $1 billion and subsequently amended and increased by $3 billion.
Home Equity Loan Production. Through September 30, 1994, UC Lending,
operating through its retail branch and wholesale loan networks, had originated
$658 million of home equity loans, compared to $358 million of home equity loans
originated through September 30, 1993, and $540 million for all of 1993.
S-3
<PAGE> 4
Bank Facility. The Company recently entered into an amendment to its
existing credit agreement, dated as of October 11, 1988 (as amended to date, the
"Bank Facility"), providing for a revolving credit facility of up to $200
million. The amendment to the Bank Facility, which will become effective upon
the consummation of the sale of the Notes, (i) extends the maturity of the Bank
Facility from December 31, 1995 to December 31, 1996, (ii) provides for the
release by the banks of all of their liens on the stock of the Company's
subsidiaries and other collateral, (iii) reduces the amount available under the
Bank Facility from $200 million to $125 million and (iv) permits UC Lending and
other non-insurance subsidiaries of the Company to have one or more warehouse
lines of credit with an aggregate amount outstanding of up to $300 million. See
"Description of the Notes -- Ranking."
S-4
<PAGE> 5
THE OFFERING
Notes...................... $100,000,000 aggregate principal amount of %
Senior Notes due .
Maturity................... .
Interest Payment Dates..... and of each year, commencing
, 199 .
Optional Redemption........ The Notes are not redeemable prior to maturity.
Ranking.................... The Notes will be unsecured obligations and will
rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company. See
"Description of the Notes -- General" and
"-- Ranking."
Covenants.................. The Notes contain certain covenants which, subject
to certain limitations described herein, limit the
Company's ability to incur liens on its assets,
require the Company to maintain a specified level
of net worth and Fixed Charge Coverage Ratio and
restrict certain mergers and consolidations of the
Company with other corporations and the sale of all
or substantially all of the Company's assets. See
"Description of the Notes -- Covenants." The Notes
do not contain any other provisions which will
restrict the Company from incurring, assuming or
becoming liable with respect to any indebtedness or
other obligations, whether secured or unsecured, or
from paying dividends or making other distributions
on its capital stock or purchasing or redeeming its
capital stock. The Notes do not contain any other
financial ratios or specified levels of liquidity
to which the Company must adhere. In addition, the
Notes do not contain any provision which requires
the Company to repurchase, redeem or modify the
terms of the Notes upon a change in control or
other events involving the Company which may
adversely affect the creditworthiness of the Notes.
Use of Proceeds............ All of the net proceeds of the Offering will be
used by the Company to repay a portion of the $185
million principal amount of indebtedness
outstanding as of September 30, 1994 under the
Company's Bank Facility. See "Use of Proceeds."
S-5
<PAGE> 6
SELECTED FINANCIAL AND OTHER DATA(1)
The selected financial data set forth below are derived from the Company's
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" in the Prospectus. The Company's 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 in the
Prospectus 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......................... $ 447,168 $ 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>
S-6
<PAGE> 7
<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 Foster Mortgage Corporation ("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.
S-7
<PAGE> 8
SELECTED FINANCIAL INFORMATION BY SEGMENT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- -------- -------- -------- -------- -------- --------
(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>
S-8
<PAGE> 9
USE OF PROCEEDS
The net proceeds to the Company from this Offering are expected to be
approximately $ million. All of the net proceeds will be used by the Company
to repay a portion of the $185 million principal amount of indebtedness
outstanding as of September 30, 1994 under the Bank Facility. The Bank Facility
bears interest at a floating rate and at September 30, 1994, the weighted
average interest rate of borrowings under the Bank Facility was 6.41% per annum.
Affiliates of Chemical Securities Inc. and NationsBanc Capital Markets, Inc. are
lenders under the Bank Facility and will receive a majority of the net proceeds
as a result of the repayment. See "Underwriting."
S-9
<PAGE> 10
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1994 and as adjusted to give effect to the issuance and
sale of the Notes offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1994
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Notes payable -- current............................................ $ 2,421 $ 2,421
Notes payable -- long term.......................................... 185,000
% Senior Notes due .................................. 0 100,000
Reverse repurchase agreements....................................... 10,000 10,000
-------- ---------
Total debt.................................................. 197,421
-------- ---------
SHAREHOLDERS' EQUITY:
Common stock, par value $2.00; 100,000,000 shares authorized;
12,959,726 shares issued; and 12,435,519 shares
outstanding(1)(2)................................................ 25,919 25,919
Additional paid-in capital.......................................... 81,373 81,373
Net unrealized loss on securities................................... (24,691) (24,691)
Retained earnings................................................... 85,919 85,919
Treasury stock at cost (524,207 shares)............................. (6,663) (6,663)
ESOP debt(3)........................................................ (2,076) (2,076)
-------- ---------
Total shareholders' equity.................................. 159,781 159,781
-------- ---------
Total capitalization........................................ $357,202 $
======== =========
</TABLE>
- ---------------
(1) Does not include 759,260 shares of Common Stock reserved for issuance upon
exercise of options granted under the Company's stock option plans as of
June 30, 1994.
(2) Does not include 160,000 shares of Common Stock reserved for issuance as of
June 30, 1994, upon exercise of a warrant issued in July 1993.
(3) See Note 4 of Notes to Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
S-10
<PAGE> 11
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the pro forma ratio of earnings to fixed
charges for the Company for the six months ended June 30, 1994 and for the year
ended December 31, 1993. The pro forma ratio of earnings to fixed charges is
presented as if the consummation of the offering of the Notes had occurred on
January 1, 1993.
The pro forma ratio of earnings to fixed charges has been computed by
dividing earnings by fixed charges. 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.
For pro forma purposes, the assumed interest rate on the Notes is 9.375% per
annum. Each one-half percentage point change in the rate will impact interest
expense by $500,000 on an annualized basis.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1994 1993
- ------------------ ------------------
<S> <C>
5.7 3.4
</TABLE>
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<PAGE> 12
DESCRIPTION OF THE NOTES
The Notes are to be issued under a Senior Indenture dated as of October 1,
1994 (the "Indenture") entered into by the Company and The First National Bank
of Chicago, as trustee (the "Trustee"), as supplemented. The following summaries
of certain provisions of the Notes and the Indenture, a copy of which is filed
as an exhibit to the Registration Statement of which the Prospectus is a part,
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Notes and the Indenture,
including the definitions therein of certain terms. Capitalized terms used in
"Description of the Notes" have the meanings attributed to them in the Notes or
the Indenture unless otherwise defined herein.
The following description of the particular terms of the Notes offered
hereby supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Debt Securities and the
Indenture set forth in the Prospectus, to which reference is hereby made.
GENERAL
The Notes will be limited to $100 million aggregate principal amount and
will mature on , . The Notes will bear interest at the rate set
forth on the front cover of this Prospectus Supplement from , 199 ,
payable semi-annually on and of each year, commencing
, 199 , to the registered holders at the close of business on the
or preceding such or , whether or not
such day is a business day. Interest on the Notes will be computed on the basis
of a 360-day year of twelve 30-day months.
Principal of and interest on the Notes is payable at the office or agency
of the Company maintained for such purposes (which initially is the Trustee);
provided, however, that payment of interest may also be made at the option of
the Company by check mailed to the Person entitled thereto as shown on the
security register. The Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple thereof.
No service charge will be made for any registration of transfer or exchange of
Notes, except in certain circumstances for any tax or other governmental charge
that may be imposed in connection therewith.
RANKING
The Notes will be general unsecured obligations and will rank pari passu
with all other unsecured and unsubordinated senior indebtedness of the Company.
The Company is a holding company whose principal assets are the stock of UC
Lending and United Companies Life Insurance Company ("UC Life" or "UCLIC").
Since the Company is a holding company, its rights and the rights of its
creditors, including the holders of the Notes, to participate in the assets of
any subsidiary upon the latter's liquidation or recapitalization generally will
be subject to the prior claims of the subsidiary's creditors (including, in the
case of UC Life, its policyholders). Because UC Lending has guaranteed the
Company's obligations under the Bank Facility, claims by the banks under the
Bank Facility against UC Lending are senior to the claims of holders of the
Notes. After giving effect to the offering of the Notes and the application of
the net proceeds thereof, the aggregate amount of the borrowings available and
guaranteed by UC Lending under the Bank Facility will be approximately $125
million. In addition, the Company currently intends to negotiate one or more
warehouse lines of credit which will permit UC Lending and other non-insurance
subsidiaries of the Company to have aggregate borrowings outstanding of up to
$300 million to help finance their mortgage originations and acquisitions and
which may be secured by liens on certain mortgage loans owned by them. In such
event, creditors under the warehouse lines of credit will have claims to UC
Lending's and such other non-insurance subsidiaries' assets that are senior to
the claims of holders of the Notes. Subject to a further amendment or
refinancing of the Bank Facility, such warehouse lines of credit may be for
greater amounts and may be made directly to the Company and/or one or more of
its subsidiaries.
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<PAGE> 13
In addition, 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. There are certain regulatory
limitations of the payment of dividends and on loans and other transfers of
funds to the Company by certain of its subsidiaries. For a discussion of certain
statutory restrictions limiting the ability of UC Life to pay dividends, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- UC Life" in the Prospectus.
OPTIONAL REDEMPTION
The Notes will not be redeemable prior to maturity.
SINKING FUND
There will be no sinking fund payments for the Notes.
COVENANTS
The Notes contain, among others, the following covenants:
Limitation upon Merger or Consolidation. The Company may not consolidate
with or merge into any other corporation, or convey all or substantially all of
its assets as an entirety to any Person, unless (1) the corporation formed by
such consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, all or substantially all of
the assets of the Company as an entirety (the "successor corporation") is a
corporation organized and existing under the laws of the United States or any
State or the District of Columbia and expressly assumes, by a supplemental
indenture, the due and punctual payment of the principal of (and premium, if
any) and interest on all the Notes and the performance of every covenant in the
Indenture on the part of the Company to be performed or observed; (2)
immediately after giving effect to such transaction, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing; and (3) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger, conveyance, transfer or lease and such
supplemental indenture comply with the Indenture provisions and that all
conditions precedent therein provided for relating to such transaction have been
complied with.
For purposes of the preceding paragraph, assets of the Company which did
not account for at least 50% of the consolidated net income of the Company for
its most recent fiscal year shall not in any event be deemed to be all or
substantially all of the assets of the Company.
Limitation upon Mortgages and Liens. The Company may not create or assume,
except in favor of the Company or a Wholly-Owned Subsidiary, any mortgage,
pledge, lien or encumbrance upon any stock of any Subsidiary directly owned by
the Company, any indebtedness of any Subsidiary to the Company or any other
property of the Company, whether now owned or hereafter acquired, without
equally and ratably securing the Notes. This limitation does not apply to
certain permitted encumbrances as described in the Supplemented Indenture,
including (a) purchase money mortgages entered into within specified time
limits; (b) liens existing on acquired assets and certain liens created for the
purpose of extending, renewing or refunding such liens or purchase money
mortgages; (c) certain tax, materialmen's, mechanics', carrier's, workmen's,
repairmen's and judgment liens, certain liens arising by operation of law and
certain other similar liens; (d) liens in connection with certain government
contracts; (e) certain mortgages, pledges, liens or encumbrances in favor of any
state or local government or government agency in connection with certain tax-
exempt financings; (f) liens to secure the cost of construction or improvement
of any asset entered into within specified time limits; and (g) any mortgage,
pledge or other lien or encumbrance not otherwise permitted under this
provision; provided, the aggregate amount of indebtedness secured by all such
mortgages, pledges, liens or encumbrances does not exceed the greater of
$25,000,000 or 10% of the consolidated stockholders' equity of the Company.
S-13
<PAGE> 14
Maintenance of Net Worth. The consolidated stockholders' equity of the
Company at the end of any fiscal quarter may not be less than $50,000,000
(without giving effect to any adjustment to consolidated stockholders' equity
for such fiscal quarter pursuant to SFAS 115); provided that if the foregoing
covenant is not satisfied for a fiscal quarter as a result, in whole or in part,
of a change in generally accepted accounting principles which was implemented by
the Company during such fiscal quarter, the Company shall not be in default of
the foregoing covenant unless and until such covenant is not satisfied as of the
last day of the fourth fiscal quarter following the fiscal quarter in which the
change in generally accepted accounting principles was implemented by the
Company; and provided further that this provision shall cease to be effective
from and after the first date on which the Notes are rated "BBB-" or higher by
S&P and "Baa3" or higher by Moody's.
Maintenance of a Consolidated Fixed Charge Coverage Ratio. The Company must
maintain a Consolidated Fixed Charge Coverage Ratio for the Company of at least
1.75:1.0; provided that if the foregoing covenant is not satisfied for a period
as a result, in whole or in part, of a change in generally accepted accounting
principles which was implemented by the Company during the last fiscal quarter
of such period, the Company shall not be in default of the foregoing covenant
unless and until such covenant is not satisfied at the end of the twelve-month
period ending as of the last day of the fourth fiscal quarter following the
fiscal quarter in which the change in generally accepted accounting principles
was implemented by the Company; and provided further that this provision shall
cease to be effective from and after the first date on which the Notes are rated
"BBB-" or higher by S&P and "Baa3" or higher by Moody's.
"Consolidated Fixed Charge Coverage Ratio" of the Company means, for the
twelve month period ended as of the last day of the most recent fiscal quarter,
the ratio of (a) the sum of consolidated net income, consolidated interest
expense and consolidated income tax expense deducted in computing consolidated
net income (loss), in each case for such period, of the Company and its
consolidated subsidiaries on a consolidated basis, all determined in accordance
with generally accepted accounting principles, to (b) the sum of consolidated
interest expense of the Company for such period and cash dividends paid on any
preferred stock of the Company during such period.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the
outstanding voting stock (other than directors' qualifying shares) is at the
time, directly or indirectly, owned by the Company, or by one or more
Wholly-Owned Subsidiaries of the Company or by the Company and one or more
Wholly-Owned Subsidiaries of the Company.
Neither the Notes nor the Indenture contain any provisions other than the
foregoing which will restrict the Company from incurring, assuming or becoming
liable with respect to any indebtedness or other obligations, whether secured or
unsecured, or from paying dividends or making other distributions on its capital
stock or purchasing or redeeming its capital stock. Except as provided above,
neither the Notes nor the Indenture contain any financial ratios or specified
levels of liquidity to which the Company must adhere. In addition, neither the
Notes nor the Indenture contain any provision which requires the Company to
repurchase, redeem or modify the terms of the Notes upon a change in control or
other events involving the Company which may adversely affect the
creditworthiness of the Notes.
EVENTS OF DEFAULT
The Notes shall be subject to the Events of Default set forth in the
Prospectus.
DEFEASANCE
The Notes are subject to the Company's legal defeasance option and covenant
defeasance option as set forth under "Description of the Securities -- Debt
Securities -- Discharge, Legal Defeasance and Covenant Defeasance" in the
Prospectus.
BOOK-ENTRY, DELIVERY AND FORM
The Notes initially will be represented by one or more Global Notes
deposited with The Depository Trust Company ("DTC") and registered in the name
of a nominee of DTC. Except as described in the Prospectus,
S-14
<PAGE> 15
the Notes will be available for purchase in denominations of $1,000 principal
amount, and integral multiples thereof, in book-entry form only. Unless and
until certificated Notes are issued under the limited circumstances described in
the Prospectus, no beneficial owner of a Note shall be entitled to receive a
definitive certificate representing a Note. So long as the Notes are represented
by the Global Notes, any payments in respect of the Notes will be made to the
Depository or its nominee, as the registered owner of the Global Notes. See
"Description of Securities -- Debt Securities -- Book-Entry Debt Securities" in
the Prospectus.
CONCERNING THE TRUSTEE
The First National Bank of Chicago is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with respect to
the Notes.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Chemical Securities
Inc. and NationsBanc Capital Markets, Inc. (the "Underwriters") have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement Basic Provisions dated September 29, 1994 and the related Terms
Agreement dated October , 1994 (collectively, the "Underwriting Agreement")
among the Company and the Underwriters, to purchase from the Company the
principal amount of Notes set forth below opposite their respective names.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................... $
Chemical Securities Inc. ......................................................
NationsBanc Capital Markets, Inc...............................................
-------------
Total............................................................. $ 100,000,000
=============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the offering price set forth on the cover page
of this Prospectus Supplement, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed. The Notes are offered subject to receipt and acceptance by the
Underwriters and to certain other conditions, including the right to reject
orders in whole or in part. The Underwriters are committed to purchase all of
the Notes if any are purchased.
The Underwriters receive customary fees for ordinary brokerage transactions
with the Company and its affiliates. The Underwriters and their affiliates have
performed investment and commercial banking services in the ordinary course of
their respective businesses for the Company and its affiliates in the past, for
which they have received customary compensation, and may continue to do so in
the future. Affiliates of Chemical Securities Inc. and NationsBanc Capital
Markets, Inc. are lenders under the Company's Bank Facility and will receive a
majority of the net proceeds from this Offering as a result of the repayment of
a portion of the Bank Facility. See "Use of Proceeds." Because more than 10% of
the net proceeds of this Offering will be paid to affiliates of Chemical
Securities Inc. and NationsBanc Capital Markets, Inc., each a member of the
National Association of Securities Dealers, Inc. (the "NASD") and a participant
in the distribution of the Notes, this Offering is being made pursuant to the
provisions of Article III, Section 44(c)(8) of the NASD Rules of Fair Practice.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
S-15
<PAGE> 16
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<PAGE> 17
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
Subordinated Debt Securities and Preferred Stock 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.
---------------------
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.
---------------------
The date of this Prospectus is September 29, 1994.
<PAGE> 18
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: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA
(THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH CAROLINA
INSURANCE COMMISSIONER RULED 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 be 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.
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 REFER-
2
<PAGE> 19
ENCE (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.
3
<PAGE> 20
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. 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 its reduced
cost of funding 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 service mark 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 quality comparable to borrowers who
typically receive loans
4
<PAGE> 21
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 service mark GINGER MAESM,
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 substantially the same guidelines as those utilized by UNICOR. As of June
30, 1994, GINGER MAESM had 38 financial institutions in 5 states participating
in the GINGER MAESM program. The Company has formed two separate subsidiaries
and intends at a future date to operate the UNICOR and GINGER MAESM divisions
through these separate subsidiaries.
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%.
5
<PAGE> 22
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.
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.
6
<PAGE> 23
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 MAESM 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
- Continue to focus production on first mortgage non-conventional, home
equity loans.
- Increase the number of retail branches and expand geographically to
become a national lender.
- Continue to expand the product line and distribution channels.
- Continue to centralize and improve customer service and loan servicing
functions to focus the Company's branches on loan originations.
- Continue to grow its wholesale lending operation to complement its
retail network and thereby broaden the market reach of the Company.
Securitization Strategy
- Continue to focus production on selected categories of loans that are
attractive to purchasers of mortgage-backed securities.
- Maintain direct access to the mortgage-backed securities markets
through a Company-sponsored conduit which uses its own shelf
registration statement.
- Continue to maintain the Company's underwriting standards.
- 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 strategy, the Company intends to focus its
insurance operations on developing the economies of scale and additional
products, including variable annuities, 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.
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. The FMC Institutional Lenders filed and
7
<PAGE> 24
the bankruptcy court has approved a plan of liquidation for FMC providing for
the disposal of FMC's remaining assets and distributions to FMC's creditors, 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 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 has been 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 passed in early August 1994 by the
United States Congress and signed by the President in September 1994 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 originated prior to its effective date. This Court decision may also apply
to a similar intangible tax imposed by other
8
<PAGE> 25
states. To its knowledge, as of September 26, 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. The Company's revolving bank debt bears interest at a floating rate
and at June 30, 1994, the weighted average interest rate on the Company's
revolving bank debt was 6.00% per annum.
9
<PAGE> 26
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>
SIX MONTHS YEAR ENDED 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>
SIX MONTHS YEAR ENDED 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> 27
SELECTED FINANCIAL AND OTHER DATA(1)
The selected financial data set forth below are derived from the Company's
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 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.................... $ 447,168 $ 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
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.
11
<PAGE> 28
SELECTED FINANCIAL INFORMATION BY SEGMENT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- -------- -------- -------- -------- -------- --------
(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>
12
<PAGE> 29
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.
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
13
<PAGE> 30
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.
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
14
<PAGE> 31
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 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,
15
<PAGE> 32
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. The FMC Institutional Lenders filed and the bankruptcy court
has approved a plan of liquidation for FMC providing for the disposal of FMC's
remaining assets and distributions to FMC's creditors, 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 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 has been 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.
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.
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>
16
<PAGE> 33
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 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
17
<PAGE> 34
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
-------- --------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
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 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.
18
<PAGE> 35
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
--------- ----------
<S> <C> <C>
(IN THOUSANDS)
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
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
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 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.
19
<PAGE> 36
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
-------- --------
<S> <C> <C>
(IN THOUSANDS)
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
------- -------
<S> <C> <C>
(IN THOUSANDS)
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
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.
20
<PAGE> 37
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.
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
21
<PAGE> 38
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>
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>
22
<PAGE> 39
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 title policies 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 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
23
<PAGE> 40
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:
<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>
24
<PAGE> 41
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
---------------------
SERVICED
CONTRACTUAL DELINQUENCIES OWNED 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> <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 0.59%
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
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.
25
<PAGE> 42
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.
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
26
<PAGE> 43
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 September 26, 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.
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
27
<PAGE> 44
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 transactions, 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.
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,
28
<PAGE> 45
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 in mortgage-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 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.
29
<PAGE> 46
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
The First National Bank of Chicago, 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 State Street Bank and Trust Company, 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
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.
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(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.
(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.
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(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 and,
if applicable, the amount of Offered Debt Securities which entitles the
Holder of an Offered Debt Security or its proxy to one vote for purposes of
voting at a meeting of Holders of the Offered Debt Securities.
(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) The designation of the original Currency Determination Agent, if
any.
(20) The applicable Overdue Rate, if any.
(21) If the Offered Debt Securities do not bear interest, the
applicable dates upon which the Company will furnish or cause to be
furnished to the Trustee a list of the names and addresses of the
Registered Holders of the Offered Debt Securities.
(22) 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.
(23) 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 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.
(24) 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.
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(25) 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.
(26) 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.
(27) 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.
(28) Any other terms of the Offered Debt Securities not specified in
the Indenture under which such Offered Debt Securities are to be issued
(which other terms shall not be inconsistent with the provisions of such
Indenture).
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 or pursuant to any modification of an Indenture.
(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 denomination, 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)
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 3.02) 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)
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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 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
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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 provided
that such direction does not conflict with law or with the applicable Indenture.
(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)
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
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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; (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 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 such modification, 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; provided, however, that certain of such
modifications may be made without the consent of any Holder of any Debt
Security; 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
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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 of the Senior
Indenture; Section 12.07 of the Subordinated Indenture)
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 funds or interest
may be made on the Subordinated Debt Securities (including, without limitation,
payment of any Coupons) unless full payment of amounts then due for principal,
premium, if any, sinking funds and interest on Senior Indebtedness has been made
or duly provided for. (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,
any Paying Agent 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)
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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 (including, in the case of Subordinated Debt
Securities, the provisions described under "-- Subordination" herein) ("legal
defeasance option") or (b) the Company shall cease to be under any obligation to
comply with any obligation of the Company in the applicable Indenture including
any restrictive covenants described in the accompanying Prospectus Supplement
and any other covenants applicable to the Debt Securities which are subject to
covenant defeasance (including, in the case of Subordinated Debt Securities, the
provisions described under "-- Subordination" herein) ("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
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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. (Section 12.03)
If Debt Securities of a series are issuable as Bearer Securities, the
Company will maintain (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, where Subordinated
Debt Securities of that series that are convertible may be surrendered for
conversion, 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 regulations 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 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,
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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, where Subordinated Debt Securities of
that series that are convertible may be surrendered for conversion 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 Bearer Securities of
such series, if specified in the applicable Prospectus Supplement, shall be made
at the office of the applicable Trustee or 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 (and 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 issue individual Debt Securities in
certificated form in exchange for the relevant Global Notes. If Registered
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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, 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
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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 may from time to time maintain deposit accounts and conduct
other banking transactions with The First National Bank of Chicago or State
Street Bank and Trust Company 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 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
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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 of any series), 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 timely 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.
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;
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(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 Preferred Stock 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 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
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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.
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.
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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.
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
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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' meeting within 50 days of the date that
both the corporation and the proposed acquiring stockholder file definitive
proxy materials with the Commission.
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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 anti-takeover 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 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
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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. Dealer trading
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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.
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.
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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 SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............ S-3
Selected Financial and Other Data........ S-6
Use of Proceeds.......................... S-9
Capitalization........................... S-10
Pro Forma Ratio of Earnings to Fixed
Charges................................ S-11
Description of the Notes................. S-12
Underwriting............................. S-15
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............................. 13
Description of Securities................ 30
Description of Capital Stock............. 45
Plan of Distribution..................... 50
Legal Opinions........................... 51
Experts.................................. 52
</TABLE>
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$100,000,000
UNITED COMPANIES
FINANCIAL CORPORATION
(LOGO)
% SENIOR NOTES DUE
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
CHEMICAL SECURITIES INC.
NATIONSBANC CAPITAL MARKETS, INC.
, 1994
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