UNITED FINANCIAL GROUP INC/DE, 10-K, 1997-04-14

UNITED FINANCIAL GROUP INC/DE
10-K, 1997-04-14
INVESTORS, NEC

Previous: TOP AIR MANUFACTURING INC, 10QSB, 1997-04-14

Next: HALLWOOD GROUP INC, 8-A12G, 1997-04-14

<PAGE>

=============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D ) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____________________ to ___________________

Commission File Number 0-10443

UNITED FINANCIAL GROUP, INC.
(Exact Name of Registrant as specified in its Charter)

DELAWARE 74-2029669
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)

5847 SAN FELIPE, SUITE 2600 77057
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (713) 267-3781

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

NONE

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

COMMON STOCK, WITHOUT PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [_]

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

State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant (based on the bid price in the over-the-counter market) as of
March 31, 1997: $ 0.

Indicate the number of shares outstanding of the Registrant's Common Stock,
as of March 31, 1997: 8,073,620
=============================================================================
<PAGE>

UNITED FINANCIAL GROUP, INC.
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996

TABLE OF CONTENTS

- -----------------------------------------------------------------------------------------------------
SECTION PAGE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
PART I

Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 8. Financial Statements and Supplementary Data
Independent Auditors' Report 15
Consolidated Financial Statements 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 26

PART III

Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions 30

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 31
Signatures 34

</TABLE>
- --------------------------------------------------------------------------------
<PAGE>

PART I
ITEM 1. BUSINESS

GENERAL

United Financial Group, Inc. (herein referred to, together with its
subsidiaries, as "UFGI" or the "Company", unless the context otherwise
specifies or requires) was organized under the laws of the state of Delaware.
Its executive office is located at 5847 San Felipe, Suite 2600, Houston,
Texas 77057. The telephone number at such executive office is (713) 267-3781.

As set forth below, in accordance with certain agreements entered into by and
among the Company, the Federal Deposit Insurance Corporation, the Office of
Thrift Supervision and others (as defined below), on January 14, 1997, the
Company filed a petition with the Delaware Bankruptcy Court seeking
protection under Chapter 11 of the Bankruptcy Code. A Plan of Reorganization
(the "Plan") including the Disclosure Statement, which embodied substantially
the terms described below, was filed with the Federal Bankruptcy Court
sitting in Delaware at the same time as the Company's petition. A preliminary
hearing before the Delaware Bankruptcy Court was held on February 28, 1997
for the purpose of addressing the Company's Plan and Disclosure Statement. On
March 31, 1997, the Bankruptcy Court confirmed the Plan. For a further
description of the Plan, see "Regulatory Settlement Agreements."

BACKGROUND

Until December 30, 1988, the Company was a savings and loan holding company
owning all of the stock of United Savings Association of Texas ("USAT"), a
Texas state-chartered savings and loan association.

Beginning in the early 1980's, the economy of the State of Texas declined
significantly, initially from a precipitous drop in the price of oil and,
thereafter from a number of factors affecting most segments of the Texas
economy. Because of this regional recession, USAT began to experience
significant operating losses. As a result of these market conditions, by
December 30, 1988, USAT's capital had dropped to approximately negative $309
million, as determined by the Federal Deposit Insurance Corporation ("FDIC",
which term, as used herein, includes its predecessor, the Federal Savings and
Loan Insurance Corporation, "FSLIC"). Under Federal Home Loan Bank Board
("FHLBB") regulations, USAT's financial condition in 1988 gave the FHLBB
statutory authority to place USAT into receivership and thereby deprive the
Company of its principal asset.

On December 30, 1988, USAT was placed into receivership with the FDIC acting
as receiver for USAT. Immediately thereafter, USAT's deposit liabilities were
assumed by, and substantially all of its assets, including all the
subsidiaries of USAT, were transferred to, a new, federally chartered savings
bank organized by an unaffiliated third party. No consideration was received
by the Company as a result of the foregoing transaction. As of December 31,
1988, therefore, the Company no longer conducted savings and loan operations
through any subsidiary.

As a result of the FDIC putting USAT into receivership on December 30, 1988,
the stock of USAT owned by the Company became worthless, and the Company
became entitled to claim a worthless stock deduction in its 1988 tax return.
Such worthless stock deduction is treated under the Internal Revenue Code of
1986, as amended ("IRC"), as a taxable loss (the "Tax Loss"). Based on the
Company's review of certain rulings issued by the Internal Revenue Service
("IRS") in matters unrelated to the Company, the Company believes that the
Tax Loss should be treated as a net operating loss ("NOL"). If so, the Tax
Loss would expire at the end of the fifteenth tax year after the year in
which it was incurred and would be in the amount of approximately $156
million. However, pursuant to IRS policy, the Company cannot rely on rulings
to which the Company is not a party, and the Company has not determined
whether it will seek a ruling in its case. If the Tax Loss is not considered
an NOL, the Tax Loss would be considered a capital loss which expired on
December 31, 1993 without on-going value to the Company. Moreover, as set
forth below under "Regulatory Settlement Agreements", subject to such
settlements being effected, the Company has agreed that, except for limited
purposes, it will not utilize the benefits arising from the Tax Loss.

Following the loss of USAT, the Company's Board of Directors concluded that
the interests of its stockholders and creditors would be best served by a
reorganization of the Company involving the acquisition of a business or
engaging in transactions that could utilize all or part of the Tax Loss while
attempting to settle all outstanding claims against the Company. Accordingly,
the Board of Directors determined not to liquidate but instead to seek
alternatives for effectively utilizing the Company's assets and the Tax Loss.

1
<PAGE>

On January 12, 1989, however, the Company was notified by letter from counsel
for the FDIC, that in the FDIC's view, it had a claim (the "Net Worth Claim")
arising from the alleged breach of a claimed contractual obligation to the
FDIC to maintain USAT's net worth at the prescribed regulatory minimum. This
letter stated that the Company entered into a stipulation in 1983 to maintain
the net worth of USAT at certain regulatory levels and that the Company
failed to maintain these levels in accordance with that stipulation. The
Company was subsequently notified by counsel for the FDIC that they believed
damages were sustained as a result of the Company's alleged breach of its
stipulation and that compensation would be demanded. If required to maintain
USAT's net worth at the regulatory minimum, the FDIC's claim against the
Company would be approximately $534 million. However, the FDIC's letter only
stated that their damages were in excess of $100 million, and the FDIC has
never quantified its alleged damages. The FDIC also asserted that the Company
was obligated to USAT for approximately $14 million as a result of income tax
refunds (the "Tax Sharing Claim") allegedly received by the Company through
utilization in the Company's consolidated tax returns of losses generated by
USAT's operations. As used herein, the Net Worth Claim and the Tax Sharing
Claim are called the "FDIC Claims".

The FDIC's asserted Net Worth Claim against the Company arises from the 1983
merger of the Company with First American Financial of Texas, Inc. (formerly
Houston First Financial Group, Inc. and referred to herein as "First
American"). See "Other Transactions". During this transaction, the Federal
Home Loan Bank Board issued Resolution No. 83-252 purporting to require the
Company to "stipulate" that "for so long as it controls" USAT, the Company
will "cause the net worth of [USAT] to be maintained at a level consistent
with that required by" FDIC regulations. In 1994, the Office of Thrift
Supervision ("OTS") presented the Company with a copy of a letter which
purports to make such stipulation. However, despite such letter, the Company
denies any obligation to maintain USAT's net worth. In addition, among other
things, even if such obligation existed, the Company believes that the FDIC
has no authority to enforce such obligation, or alternatively, that such
obligation no longer applies or has been fully satisfied. In 1989, the
Company notified counsel to the FDIC that it intended to contest this
disputed claim. See "Regulatory Settlement Agreements".

The Tax Sharing Claim relates to the alleged receipt by the Company of tax
refunds from prior utilization of tax benefits incurred while the Company and
USAT were members of a consolidated group for tax purposes. The Company
denies that it was obligated to USAT for the Tax Sharing Claim.

During 1989, the Company endeavored to acquire an operating company or to
engage in other profitable transactions. The Company reviewed proposed
alternatives for the utilization of its assets and Tax Loss. The Company
retained tax counsel to assist in formulating business plans and procedures
for the utilization of these assets and employed, on a best efforts basis, a
national investment banking firm, to assist the Company in identifying
operating businesses which were available for acquisition. However, as a
result of the Company's limited assets, the existence of the FDIC Claims, and
the limitations placed by the IRC upon any acquisition by, or of, the Company
while maintaining the benefits of the Tax Loss, the Company was not in a
position to complete any such acquisition and no discussions were held with
any of the companies identified.

The FDIC's Claims constituted a substantial contingent liability to the
Company and severely hindered the Company's ability to raise capital, to
successfully consummate the acquisition of an operating business, or to
engage in other profitable business transactions. Therefore, beginning in
1989, the Company initiated negotiations with the FDIC legal staff and its
outside counsel to reach a settlement of the FDIC Claims. A tentative
settlement was reached in October 1989. The settlement was subject, however,
to further FDIC approval. During 1990, the Company made numerous attempts to
obtain final approval of the proposed settlement with the FDIC. In December
1990, however, the FDIC informed the Company that, at that time, the FDIC was
terminating negotiations and did not intend to approve the previously
proposed settlement or to pursue settlement of the FDIC Claims with the
Company.

During the first half of 1991, the Company invested substantially all of its
assets in high quality investments consistent with the Company's
representations to the Securities and Exchange Commission, as described
below. See "Other Transactions". In mid-1991 the Company and the FDIC
reopened settlement negotiations as the Company sought to resolve the FDIC
Claims as well as all other possible claims by the FDIC against the Company.
Such negotiations continued through the end of 1991. In November 1991, the
FDIC notified the Company that it would be unable to reach a settlement
resolving all claims against the Company prior to December 30, 1991.
Therefore, the FDIC requested that the Company enter into an agreement (the
"Tolling Agreement") to toll the running of the statute of limitations and
certain other equitable defenses for the period commencing on November 22,
1991 and ending on the earlier of July 31, 1992 or 15 days after the FDIC
provided written notice of the FDIC's intention to terminate the agreement
(the "forbearance period"). At the

2
<PAGE>

same time as the Company executed the initial Tolling Agreement, the FDIC
informed the Company that certain current and former officers, directors and
employees of the Company and USAT and others who had engaged in business
transactions with the Company and USAT (collectively, the "Possible Targets")
were the subject of an investigation which might lead to the FDIC bringing a
lawsuit against some or all of the Possible Targets. The FDIC informed the
Company, however, that the FDIC had not determined whether or not a lawsuit
should be brought, and, therefore, the FDIC requested that along with the
Company, these Possible Targets also enter into similar tolling agreements.
All Possible Targets executed tolling agreements prior to December 30, 1991.
Under the Tolling Agreement, the Company and the Possible Targets denied the
merits of any potential claim alleged by the FDIC but agreed that it would be
beneficial to delay final litigation decisions to allow, among other things,
an opportunity for dialogue, analysis, negotiation and possible settlement of
all potential claims. The Company, the Possible Targets and the FDIC
thereafter entered into subsequent amendments to the Tolling Agreement which
extended the forbearance period to December 31, 1995.

In February 1992, counsel for the FDIC notified the Company and the Possible
Targets that, in such counsel's opinion, the Company and the Possible Targets
were liable to the FDIC for breach of their fiduciary duty towards USAT, for
aiding and abetting others in the breach of duties to USAT, for wrongfully
causing USAT to pay dividends to the Company, for wrongfully failing to
maintain the net worth of USAT, and for failing to remit tax refunds to USAT.
In addition, counsel for the FDIC enumerated certain acts and omissions
which, in their opinion, may have created liability to the FDIC. Such acts
and omissions include, but, according to counsel for the FDIC, may not be
limited to, the FDIC Claims, activities in connection with the acquisition
and disposition of certain equity securities, high yield bonds and mortgage-
backed securities and derivative products, the making of certain loans, the
disposition of certain assets, and the establishment of certain reserves for
USAT (collectively, the "FDIC Allegations").

As set forth below, the Company has entered into agreements with the FDIC and
the Office of Thrift Supervision ("OTS") seeking to resolve the FDIC Claims
and the OTS Claims, defined below, raised by these two agencies, which, among
other things, extends the Tolling Agreement as it relates to the Company,
until such settlement is effected or the settlement agreement is terminated.
See "Regulatory Settlement Agreements". However, in August 1995, one of the
Possible Targets refused to extend the Tolling Agreement as it related to
him, and, thereafter, the FDIC brought an action in the Federal District
Court in Texas alleging certain matters against such Possible Target. The
Company is not a party to such action. In December 1995, all other Possible
Targets refused to enter into any extension of the FDIC's Tolling Agreement.
While the FDIC has notified certain Possible Targets that it has no intention
of commencing an action against them, the FDIC has made no similar
representation to other Possible Targets. However, with the expiration of the
Tolling Agreement, it is possible that, other than the Possible Target
already the object of the FDIC litigation, the FDIC will be prevented from
bringing any regulatory or other action against any Possible Target as a
result of the running and expiration of the statute of limitations. The
Company cannot predict whether or not the FDIC will attempt to bring any
regulatory or other action against any of the Possible Targets, other than
the Possible Target already the object of the FDIC litigation, and, if
brought, the outcome of any such action.

At the time of the initial Tolling Agreement, a number of the Possible
Targets demanded that the Company indemnify them to the extent permitted by
the Company's Bylaws for all expenses, including attorneys' fees, which they
might incur. The Company did not conclude that indemnification would be
appropriate, but agreed, in accordance with its Bylaws, Delaware law, and
other contractual obligations with the Possible Targets, to advance legal
expenses under certain circumstances to those Possible Targets who entered
into stipulations agreeing to reimburse the Company for such expenses to the
extent such persons are ultimately found not entitled to indemnification.
However, as set forth below, in accordance with the proposed regulatory
settlements with the FDIC and the OTS, the Company agreed to discontinue
making any indemnification payment on behalf of the Possible Targets,
including the advancement of legal fees. The Company cannot predict what
actions any of such Possible Targets may take as a result of the Company's
decision. However, in connection with the Company's bankruptcy proceeding,
described below, all parties were to file a proof of claim by March 18, 1997.
One of the Possible Targets filed a proof of claim. See "Regulatory
Settlement Agreements".

During much of 1993-1996, the Company, for itself, and in conjunction with
the Possible Targets, continued negotiations with the FDIC concerning the
possible settlement of the FDIC Claims and the FDIC Allegations. In mid-1994,
settlement discussions relating to the FDIC Claims were joined by the OTS
which was investigating the possibility of certain regulatory violations (the
"OTS Claims") by the Company, its current and former officers and directors,
and certain of the Possible Targets. The Company denied any such violations
and, in September 1994, began negotiations with the OTS concerning possible
settlement of the

3
<PAGE>

OTS Claims. The Company and certain other of the Possible Targets entered
into agreements (the "OTS Tolling Agreements") pursuant to which the OTS
would have additional time to allege certain regulatory violations and seek
regulatory enforcement.

In November 1992, Nu-West Florida, Inc. ("Nu-West"), as the holder of the
Company's Series B Preferred Stock, filed an involuntary petition (the "Nu-
West Petition") against the Company in the Federal Bankruptcy Court for the
State of Delaware, pursuant to Chapter 11 of the Bankruptcy Code. In
connection with the proposed resolution of the FDIC claim and the OTS Claims,
the Nu-West Petition was dismissed in 1996. See "Regulatory Settlement
Agreement."

As set forth below under "Regulatory Settlement Agreements", the Company has
entered into a series of stipulations and consents relating to the possible
settlement of the OTS Claims. In December 1995, the OTS brought an
administrative action (the "OTS Action") against certain of the Possible
Targets, other persons which the OTS alleges controlled the Company and USAT,
and certain other individuals. The OTS Action alleges breach of fiduciary
duty, failure to maintain the net worth of USAT, excessive compensation, and
a number of allegations relating to the conduct of USAT's mortgage-backed
securities operations and lending practices. All parties named in the OTS
Action have denied all of the OTS Claims, and the OTS Action is currently
pending before an administrative law judge. The Company is not party to the
OTS Action and has stipulated with the OTS that it would not pay for any of
the costs or expenses of any Possible Target relating to such OTS Action.

REGULATORY SETTLEMENT AGREEMENTS

As a result of negotiations held among the Company, the FDIC, the OTS, First
Trust of California, National Association, as successor trustee on behalf of
those persons owning the Company's 9% Secured Sinking Fund Debentures (the
"Debenture Trustee"), and Nu-West, the sole holder of the Company's Series B
Preferred Stock, the Company has entered into a Stipulation and Consent to
Issuance of Consent Cease and Desist Order for Affirmative Relief with the
OTS (the "Stipulation") and a Consent Cease and Desist Order for Affirmative
Relief (the "Consent Order"). The Company has also entered into a Settlement
Agreement and Release with the FDIC, as manager of the FSLIC resolution fund
and in its corporate capacity, the Debenture Trustee and Nu-West (the "FDIC
Settlement").

Pursuant to the Stipulation, the Company has neither admitted nor denied any
of the OTS allegations, claims or conclusions. However, pursuant to the
Consent Order, the Company has agreed to pay to the FDIC the sum of
approximately $9.45 million and to proceed with a plan of reorganization or
liquidation in the Delaware bankruptcy court. The sum due to the FDIC would
be paid after the Delaware bankruptcy court has confirmed a final plan of
liquidation or reorganization. The Consent Order also releases from any
action by the OTS certain former and current officers and directors of UFGI.

Pursuant to the FDIC Settlement, the Company has neither admitted nor denied
the FDIC's Claims but has agreed that, conditioned upon the Company obtaining
a final order of the Delaware bankruptcy court, the Company will pay to the
FDIC a minimum of $9.45 million, will pay to the Debenture Trustee a minimum
of $1.36 million, and will pay to Nu-West a minimum of $190,000. Any
additional funds that remain available after the payment of the minimum
amounts and the winding down of the Company's affairs will be distributed to
the FDIC, the Debenture Trustee and Nu-West in the same ratio as the minimum
payments. Since its original execution, the FDIC Settlement was amended on
several occasions to extend certain dates for filing, receipt of payments,
etc. The FDIC Settlement originally provided that such plan of bankruptcy
must be confirmed on or before June 30, 1996 and a disclosure statement must
be filed with the Delaware Bankruptcy Court within 60 days of the effective
date of the FDIC Settlement. The June 30, 1996 deadline was extended by
agreement between parties. The FDIC Settlement further provides that, with
minimum exceptions, any expenditure by the Company in excess of $300,000 from
and after the effective date of the FDIC Settlement is subject to FDIC and
OTS approval. The FDIC Settlement also provides for cross and mutual releases
among the parties as well as releases for certain officers and Directors of
UFGI and certain other persons who are no longer officers or directors of the
Company.

In accordance with the FDIC Settlement, on January 14, 1997, the Company
filed a petition with the Delaware Bankruptcy Court seeking protection under
Chapter 11 of the Bankruptcy Code. A plan of reorganization (the "Plan")
including a disclosure statement which embodied substantially the terms of
the OTS Consent Order and Stipulation and the FDIC Settlement was filed along
with the Company's petition. A preliminary hearing before the Delaware
Bankruptcy Court was held on February 28, 1997 for the purpose of addressing
the Company's Plan and disclosure statement. At such preliminary hearing, the
Bankruptcy Court fixed March 26, 1997 as the date by which holders of Allowed
Claims (as defined in the Company's disclosure

4
<PAGE>

statement) and/or holders of claims that have been timely filed, are
liquidated in amount and are not the subject of an objection filed prior to
the Confirmation Hearing (as hereinafter defined) could vote to accept or
reject the Company's Plan. On March 31, 1997, the Bankruptcy Court considered
and approved the Company's request for confirmation of the Plan. The Company
expects to distribute its assets in accordance with the Plan and take such
further actions in order to effect a complete liquidation, dissolution and
winding up of the Company's business.

In accordance with both the FDIC Settlement and the OTS Consent Order, if an
acceptable plan of reorganization or liquidation, embodying substantially the
terms of the OTS Consent Order and Stipulation and the FDIC Settlement, is
not obtained, the agreements become null and void. The Company has agreed, in
connection with the entering into of the FDIC Settlement, the OTS Stipulation
and the Consent Order, to continue tolling the statute of limitations and not
to utilize, except in limited circumstances, any tax benefits, including
those arising from the Tax Loss, available to it.

Absent the successful implementation of a plan of reorganization or
liquidation, the Company may be required to continue negotiations with the
FDIC, OTS, Debenture Trustee, and Nu-West or be subject to administrative or
judicial action by the regulatory agencies and such other parties.

In view of the Company's potential obligation under the FDIC Claims, the FDIC
Allegations and the OTS Claims, as well as the possible obligation to
indemnify the Possible Targets for losses incurred by them, including fees
for their counsel, the Company cannot determine the effect of such matters on
the Company's financial position if the Regulatory Settlement Agreements
described herein are not consummated.

OTHER TRANSACTIONS

Effective April 29, 1983, First American, a savings and loan holding company,
was merged with and into the Company. Concurrent with such merger, the
principal subsidiary of First American, Houston First American Savings
Association ("Houston First"), was merged with and into USAT. As a result of
the mergers 2,090,000 shares of the Company's Common Stock were issued to
common stockholders of First American. In addition, the Company issued to an
unaffiliated company (the "Debtholders") 100% of its Series A Preferred Stock
(the "Series A Preferred") and two promissory notes in the principal amounts
of $13.4 million and $9.5 million in exchange for First American preferred
stock and notes. On June 30, 1988, the Company paid $10.7 million to the
Debtholders in satisfaction of the two notes totaling $22.9 million, a third
note in the amount of $16.3 million and accrued interest on the notes. In
addition, the Series A Preferred previously held by the Debtholders, having a
liquidation preference of $1,650,000, was surrendered and canceled. One of
the Debtholders, PLIC, guaranteed certain promissory note obligations (the
"22 Seller's Notes") of the Company's subsidiary, PLC Stockholding, Inc.
("PLC"), which obligations were incurred by a predecessor under the terms of
a prior merger. In conjunction with the Debtholders' debt payoff and
preferred stock retirement, described above, the Company placed $6.2 million
into escrow to reimburse PLIC in the event that PLIC was obligated to perform
under the guaranty. In April 1990, the 22 Sellers' Notes were repaid in full,
thereby discharging the contingent claim of PLIC and releasing the escrowed
funds.

In April 1983, the Company issued 58,725 shares of its Series B $13
Cumulative Preferred Stock (the "Series B Preferred") to Nu-West in exchange
for certain real estate. In 1988, as a result of the Company's capital
position, the Board of Directors of the Company determined not to make any
further dividend or sinking fund payments for the benefit of the Series B
Preferred. Pursuant to the terms of the Series B Preferred, from May 1, 1988
to December 31, 1995, dividend payments of approximately $5,917,000 have
accrued but have not been paid. In addition, sinking fund payments of
$4,551,000 for the redemption, commencing May 1, 1989, of certain shares of
the Series B Preferred have not been made. Any dividend not paid accumulates
and the Company is not permitted to pay dividends on or to retire any junior
Preferred Stock or its Common Stock until all dividend and sinking fund
arrearages are paid. Since the Company has failed to make five dividend
payments when due (whether consecutive or not) Nu-West is entitled, at the
annual meeting of Stockholders, to elect one person to the Board of Directors
of the Company. Nu-West has been entitled to elect one director of the
Company since May 1989. However, Nu-West determined not to elect a director
at any of the Company's Annual Meetings of Stockholders since it has been
entitled to elect such director. The Company has no information as to whether
Nu-West will desire to elect a representative to the Board of Directors when
and if the Company holds its next Annual Meeting of Stockholders.

In connection with the acquisition of First American described above, the
Company assumed certain obligations resulting from a prior acquisition by
Houston First, including obligations under the Company's 9% Secured Sinking
Fund Debentures, due 1993 (the "Debentures"). In May 1989, the Company
offered to each unaffiliated Debentureholder the opportunity to receive $250
in cash for each $1,000 of principal amount

5
<PAGE>

of outstanding Debentures. In July 1989, persons holding $1,359,000 principal
amount of Debentures tendered such Debentures and received approximately
$340,000 in cash.

Pursuant to the terms of the Indenture governing the Debentures, the Company
was required to make a sinking fund payment of approximately $1.8 million on
August 1, 1992. The Company elected not to make such sinking fund payment,
and, as a result, the Debenture Trustee notified the Company that it believed
there was an event of default under the terms of the Indenture. Without
admitting that an event of default existed, the Company negotiated an
arrangement whereby the Debenture Trustee would not seek to accelerate the
repayment of the Debentures and the Company would provide security for the
payment of the required sinking fund. Such settlement was not executed prior
to the time the Petition referred to above was filed by Nu-West. As a result
of the filing of the Petition, the Debenture Trustee and the Company were
unable to consummate the agreed-upon settlement proposal.

On August 1, 1993, the full principal amount of the Debentures matured. At
that time, the Company paid all unpaid interest but determined not to repay
any of the principal on such Debentures. The Company has received a letter
from counsel for the Debenture Trustee stating that an event of default, as
defined in the Indenture, has occurred. The Company and counsel for the
Debenture Trustee have been in negotiations since the date of maturity of the
Debentures concerning the effect of the Petition and the FDIC Claims on the
Debentureholders' course of action resulting from the Company's failure to
pay the principal of the Debentures. At the time the Company determined not
to repay any of the principal on such Debentures, it made an independent
determination to continue to pay interest on such Debentures at the rate of
9% and on the dates interest was payable on the Debentures prior to the
maturity date. In January 1995, the Company was informed by the staff of the
OTS and counsel to the FDIC that no additional interest payments should be
made to the Debentureholders. Therefore, effective February 1, 1995, the
Company determined to no longer pay any such interest on the Debentures. To
date, neither the Debenture Trustee nor the Debentureholders have taken any
action as a result of the Company's failure to pay such Debenture principal
or interest, but there can be no assurances that such parties will continue
to forego any such action. Should they determine to pursue their claims for
principal repayment, the Company can make no determination as to the effects
such action might have on the Company's operations or financial position.
However, as set forth above under "Regulatory Settlement Agreements," the
Company has entered into agreements with, among others, the Debenture
Trustee, which, if effected, could provide for certain payments to the
Debentureholders as part of a plan of reorganization or liquidation. See
"Regulatory Settlement Agreements".

While the Company attempted to resolve outstanding claims of creditors, as
set forth above, the Company's assets have, since 1990, consisted primarily
of money market accounts, treasury securities and similar investments. As a
result of maintaining such assets, the Company could be considered an
"investment company" required to register under the Investment Company Act of
1940 (the "1940 Act") and would be subject to the rules and regulations of
the 1940 Act. In May 1990, pursuant to receipt of an exemption from
registration under the 1940 Act, the Company liquidated its previously held
portfolio of equity securities investments. The Company's exemption from
registration under the 1940 Act will expire on December 30, 1997. In 1991,
the Company agreed that its securities investments would be limited to
securities with a remaining maturity of 397 days or less and which are rated
in one of the two highest rating categories by a nationally recognized,
statistical rating organization, as that term is defined in Rule 2a-7(a)(10)
of the Securities and Exchange Commission's rules. As a result of the
limitations on the Company arising from the exemption from the 1940 Act, the
Company is required to make investments that offer a lower return than
otherwise might be obtainable, absent such limitations. If the Company is not
otherwise operating outside the scope of the 1940 Act on December 30, 1997,
it may be required to significantly alter its business operations.

Since January 1989, in addition to negotiating with the FDIC, Nu-West and
other Preferred Stockholders, the Company has also successfully resolved
former employee claims exceeding $4.9 million for approximately $1.3 million;
has concluded a cash tender offer for certain outstanding debt, thereby
reducing its liabilities by over $1 million and has participated in the
settlement of a major contingent claim for approximately $125,000.

In the Company's efforts to reduce expenses, in August 1991, the Chairman of
the Board and President of the Company resigned, and, on October 1, 1991, all
other employees of the Company terminated their employment.

6
<PAGE>

POST-RECEIVERSHIP EVENTS

On November 29, 1990, the "Comprehensive Thrift and Bank Fraud Prosecution
and Taxpayer Recovery Act of 1990" (the "Recovery Act") as part of the "Crime
Control Act of 1990," (the "Control Act") was enacted. The Recovery Act
amends the Bankruptcy Code to provide that unsecured claims based on any
commitment by a debtor to maintain the capital of an insured deposit
institution, such as the Net Worth Claim, are given a priority over all other
non-priority claims of the debtor. The Recovery Act also provides that, in
any case under Chapter 11 of the Bankruptcy Code, the bankruptcy trustee
shall be deemed to have assumed, and shall immediately cure any deficit under
any net worth maintenance obligation of the debtor to the FDIC. The Recovery
Act further provides that a bankruptcy proceeding under Chapter 11 of the
Bankruptcy Code will not discharge a debtor from "malicious or reckless
failure" to fulfill any net worth maintenance obligation unless such
obligation would otherwise be terminated by action of the FDIC.

The Recovery Act prohibits financial institutions from prepaying salary or
any "liability or legal expense" of, among others, directors and officers
when done in anticipation of, or after, a financial institution's insolvency
if such payments are made for the purpose of frustrating the proper payment
of creditors or preferring one creditor over another. The term "liability or
legal expense" includes any legal or professional expense, any settlement
amounts and costs, and any judgment or penalty amount and costs imposed in
connection with any claim, proceeding or action.

The Recovery Act also gives the FDIC the power to restrict, by order or
regulation, in certain circumstances a financial institution from making an
indemnification payment to, among others, any officer or director. The
restriction on indemnification payments is not dependent on the financial
institution's insolvency or troubled financial condition. To date, no
regulations have been adopted by the FDIC.

The "Federal Debt Collection Procedures Act of 1990" was also enacted as part
of the Control Act. It provides, inter alia, that the United States may, in
conjunction with the complaint or any time after the filing of a civil action
on a claim for a debt, make an application for a prejudgment remedy. These
prejudgment remedies include the attachment of any nonexempt property in the
possession, custody or control of the debtor.

It is unclear whether the Company is covered by the Recovery Act. If so, the
FDIC or the OTS may raise in any litigation concerning the Net Worth Claim an
allegation that the Company maliciously and recklessly failed to fulfill its
net worth obligation to USAT. Although the Company believes it has numerous
meritorious defenses to the Net Worth Claim, there can be no assurances that
the Company would prevail in any such litigation. If the FDIC or the OTS were
to prevail, the Net Worth Claim would be treated as a priority claim which
would reduce or eliminate the amount of the Company's assets available to pay
other creditors and stockholders. In addition, if the Company were to seek
protection under the Bankruptcy Code, or if the Petition discussed above were
to be granted, the FDIC or the OTS might attempt to require the bankruptcy
trustee to assume, and immediately cure, the alleged Net Worth Claim. If the
FDIC were to be successful in any such action, the amount of the Company's
assets available to pay its other creditors and stockholders likely would be
completely eliminated.

Finally, the FDIC or the OTS could seek, by means of filing a complaint, to
establish the Company's obligations under the FDIC Claims, and, in connection
with such complaint, seek to attach all of the Company's assets or to enjoin
the wrongful disposition of the Company's assets. If such attachment were
granted, the Company would be precluded from making any further payments to
its creditors or stockholders until the FDIC Claims were resolved. For
descriptions of the execution of a Tolling Agreement between the FDIC and the
Company, the OTS Tolling Agreement, the petition filed by Nu-West and
possible settlements of the FDIC Claims, the OTS Claims and possible claims
of Debentureholders, see "Background," and "Regulatory Settlement
Agreements".

7
<PAGE>

ITEM 2. PROPERTIES

The Company has no properties held in fee or leased which are material to the
general nature of its business.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings, to which the Company is a
party or of which any of its properties is subject other than those set forth
under "Item 1. Business - Background" relating to the FDIC Claims against the
Company and the filing of the Plan with the Delaware Bankruptcy Court by the
Company pursuant to Chapter 11 of the Bankruptcy Code.

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

The Company's Common Stock was traded in the over-the-counter market under
the NASDAQ national market symbol UFGI.C until December 28, 1988, at which
point the stock was no longer quoted on NASDAQ. At that time, the Company was
informed by the National Association of Securities Dealers, Inc. that all of
the market makers in the Company's stock had withdrawn from making a market.
The Company's Common Stock is currently traded in the over-the-counter market
but is not quoted on the NASDAQ system. Since January 1, 1989, the Company's
Common Stock has been traded infrequently in the over-the-counter market
pursuant to prices reported by the National Quotations Bureau, Inc. The
following table sets forth last asked prices reported by such Bureau. All
quotations represent last asked prices between dealers without retail mark-
up, mark-down, or commission and do not reflect actual transactions.

The approximate number of holders of the Company's Common Stock as of March
31, 1997 is 4,621.

The Company has paid no dividends on its Common Stock since its shares were
distributed to the public in December 1981. The Company is prohibited from
paying dividends on its Common Stock at any time that it is in arrears in
paying dividends or making sinking fund payments with respect to the Series B
Preferred Stock. The Company is currently in arrears in making such payments.
See "Business - Other Transactions".

On March 31, 1997, the last closing bid and asked prices per share of the
Common Stock, as reported by National Quotation Bureau, Inc. were as follows:
$0.001 bid and $0.04 asked.

Neither the Series C Preferred Stock nor the Debentures are traded.
Therefore, the Company cannot determine if there is any market value
therefor.

8
<PAGE>

PART II

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

------------------------------------------------------
High Low
------------------------------------------------------
1994 First Quarter $0.04 $0.04
Second Quarter 0.04 0.04
Third Quarter 0.04 0.04
Fourth Quarter 0.04 0.04
------------------------------------------------------
1995 First Quarter $0.04 $0.04
Second Quarter 0.04 0.04
Third Quarter 0.04 0.04
Fourth Quarter 0.04 0.04
------------------------------------------------------
1996 First Quarter $0.04 $0.04
Second Quarter 0.04 0.04
Third Quarter 0.04 0.04
Fourth Quarter 0.04 0.04
------------------------------------------------------

The approximate number of holders of the Company's Common Stock as of March
31, 1997, is 4,621.

On March 31, 1997, the last closing bid and asked prices per share of the
Common Stock, as reported by National Quotation Bureau, Inc. were as follows:
$0.00 bid and $0.04 asked.

Neither the Series C Preferred Stock nor the Debentures are traded.
Therefore, the Company cannot determine if there is any market value
therefor.

9
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The five-year selected financial data should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and
accompanying Notes included in Item 8.

(In Thousands Except Per Share Data)
- ----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Interest income $ 624 747 592 538 648
Other income 189 175 -- 4 10
Total operating expenses 662 836 861 845 953
Interest expense 420 420 420 420 420
Adjustment to increase liabilities as a result of reorganization 4,078 -- -- -- --
Loss before extraordinary item (4,347) (334) (689) (750) (613)
Extraordinary item - reduction of Debenture
liabilities as a result of reorganization 4,326 -- -- -- --

Net loss $ (21) (334) (689) (750) (613)
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================

AT YEAR END:

Total assets $ 11,707 11,663 11,587 12,337 12,938
Notes payable and other borrowings related
to continuing operations 1,360 4,671 4,671 4,671 4,643
Preferred stock dividends in arrears 190 5,917 5,153 4,390 3,626
Redeemable preferred stock 16,404 16,404 16,404 16,387 16,347
Common stockholders' deficit $(16,605)(22,311)(21,214)(19,745)(18,191)
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================

Net loss per common and common equivalent share $ -- (0.14) (0.18) (0.19) (0.18)
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
</TABLE>

10
<PAGE>

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

The following discussion provides information which management believes is
relevant to an assessment and understanding of the Company's operations and
financial condition. This discussion should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes included in Item 8.

As set forth under "Item 1. -- Business," until December 30, 1988, the
Company was a savings and loan holding company, owning all of the stock of
USAT, a Texas state-chartered savings and loan association. On December 30,
1988, USAT was placed into receivership by the FDIC, and substantially all of
its assets and deposit liabilities were sold to an unaffiliated party.

CONSTRAINTS ON OPERATIONS

Since December 30, 1988, the Company has explored the possible reorganization
of the Company or the acquisition of an operating company and/or entering
into other profitable business transactions. Its efforts, however, have been
hindered by the assertion of the FDIC Claims and FDIC Allegations against the
Company. During 1989 and 1990, the efforts of management of the Company were
focused on resolving the claims of the FDIC and others and preparing a
proposed plan of reorganization (the "Prepackaged Plan") which would affect
all of the Company's creditors and stockholders. During 1991 and 1992, the
Company's efforts were focused on resolving the outstanding FDIC Claims. As a
result of the objectives to resolve such claims and implement the Prepackaged
Plan, the Company has limited its business activities since January 1989 to
the management of financial investments. Because settlement of claims was
expected to require prompt cash payments, it was necessary for the Company to
maintain an unusual degree of liquidity. In addition, pursuant to an
exemption from registration under the Investment Company Act of 1940 (the
"1940 Act"), subsequent to May 1990, the Company's temporary investments have
been limited to securities with a remaining maturity of 397 days or less and
rated in one of the two highest rating categories by a nationally recognized
statistical rating organization, as that term is defined in Rule 2a-7(a)(10)
of the Commission's Rules. These considerations limited the maturity of
temporary cash investments and precluded some types of investment options,
resulting in lower rates of return than may otherwise have been possible.

In August 1993, the principal amount of the Company's 9% Secured Sinking Fund
Debentures due 1993 (the "Debentures") became due. The Company's Board of
Directors determined that it would not be in the best interests of the
Company, its creditors and stockholders to make such principal payments in
view of the pending discussions with the FDIC relating to an overall
settlement of the FDIC Claims and FDIC Allegations. The Company did, however,
pay all accrued interest at that time. As a result of the Company's decision
not to make the principal payments, the Debenture Trustee notified the
Company that an event of default had occurred. Subsequent thereto, the
Company and the Debenture Trustee attempted to negotiate an acceptable
resolution to the alleged event of default, but as a result of the filing of
the Nu-West Petition, discussed below, the Company and the Debenture Trustee
were precluded from negotiating an acceptable settlement. At the time the
Company determined not to repay any of the principal on such Debentures, it
made a subsequent and independent determination to continue to pay interest
on such Debentures at the rate of 9% and on the dates interest was payable on
the Debentures prior to the maturity date. In January 1995, the Company was
informed by the staff of the OTS and counsel to the FDIC that no additional
interest payments should be made to the Debentureholders. Therefore, since
August 1, 1994, the Company has not paid interest on the Debentures.

In November 1992, the Company's Series B Preferred Stockholder, Nu-West,
filed an involuntary petition (the "Nu-West Petition") against the Company
pursuant to Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the
State of Delaware. Such Petition claimed that Nu-West was a creditor of the
Company and that the Company had failed to pay Nu-West amounts allegedly due.
In connection with the proposed resolution of the FDIC claim and the OTS
Claims, the Nu-West Petition was dismissed in 1996.

As described under "Item 1. -- Business," in December 1995, the Company
entered into agreements with the OTS, the FDIC, the Debenture Trustee and Nu-
West for the possible settlement of claims against the Company (the "FDIC
Settlement"). Under these agreements, the Company neither admits nor denies
liability in claims by the FDIC and the OTS.

The FDIC Settlement is conditioned upon the Company obtaining a final order
of the Delaware Bankruptcy Court and requires that the Company pay a minimum
of $9,450,000 to the FDIC, a minimum of $1,360,000 to the Debenture Trustee
and a minimum of $190,000 to Nu-West. The FDIC Settlement requires that the
Company proceed with a plan of reorganization or liquidation in the Delaware
Bankruptcy Court, and

11
<PAGE>

payments would be made after the Delaware Bankruptcy Court has confirmed a
final plan. Under the FDIC Settlement, and with some exceptions, expenditures
by the Company in excess of $300,000 from and after the effective date are
subject to approval by FDIC and OTS. Any assets of the Company remaining
after the payments and expenditures described above must be paid to the FDIC,
the Debenture Trustee and Nu-West in proportion to the minimum settlement
payments. The FDIC Settlement also provides that the Company may not, except
in limited circumstances, utilize the benefits of tax losses carried forward
from 1988 and prior years.

On January 14, 1997, the Company filed a petition with the Delaware
Bankruptcy Court seeking protection under Chapter 11 of the Bankruptcy Code.
A Plan of Reorganization (the "Plan") including a disclosure statement which
embodied substantially the terms of the FDIC Settlement was filed along with
the Company's petition. The Plan was confirmed by the Bankruptcy Court on
March 31, 1997. The liabilities and commitments of the Company have been
adjusted to the amounts specified in that Plan.

While the Company, the FDIC, the OTS, and others have been negotiating the
terms of a possible settlement of claims against the Company, there is no
assurance that the Company will be able to consummate such a settlement, nor
can the Company determine when, if ever, any settlement will be effected.

FINANCIAL CONDITION

At December 31, 1996, cash, cash equivalents and short-term investments made
up 98% of the Company's assets. At the end of 1995, such assets made up 95%
of the total. The $8.6 million total for short-term investments at December
31, 1996 represents a managed investments account available for immediate
withdrawals. Short-term investments at December 31, 1995 included
certificates of deposit and U.S. Treasury Bills, as well as the same managed
investments account. Other investments at December 31, 1996 represent
mortgage-backed securities. At December 31, 1995, the Company's other earning
assets included the same mortgage-backed securities, as well as bonds and
notes receivable which were repaid or redeemed in 1996.

The Company's significant liabilities at December 31, 1996 and 1995 included
the Debentures and amounts accrued for contingencies, as discussed in Notes 5
and 6 of Notes to Consolidated Financial Statements, included herein. While
the Company continued to make interest payments when due on the Debentures
through 1994, the Company failed to make a required sinking fund payment in
August 1992 and the final principal payment due in August 1993, as discussed
above and under "Item 1. -- Business" and in Notes 5 and 7 to the
Consolidated Financial Statements, included herein. The Company did not make
interest payments in 1996 or 1995.

The outstanding principal amount of the Debentures was $4,671,000 at December
31, 1996, and interest payable of $1,015,000 had been accrued at that date.
At year end, the liability for the Debentures was adjusted to $1,360,000 and
the accrued interest payable on the Debentures was written off to reflect the
payment proposed in the Plan. These adjustments were made to reflect the
terms of the Plan of Reorganization discussed above and in Note 5 to the
Consolidated Financial Statements. The net effect of the adjustments relating
to the Debentures -- a gain of approximately $4,326,000 -- is reported as an
extraordinary item in the Consolidated Statement of Operations for 1996.

The accrual for contingent liabilities was adjusted to $10,200,000 at the end
of 1996 to reflect the amounts expected to be paid to the FDIC and OTS, as
discussed under "Item 1. -- Business" and in Note 6 to the Consolidated
Financial Statements. The amount of such adjustment -- approximately
$4,078,000 -- is reported as a separate expense item in the Consolidated
Statement of Operations for 1996.

At December 31, 1996, the Company's preferred stock obligations included
$6,680,000 accrued for cumulative dividends in arrears on the Company's
Series B $13 Cumulative Preferred Stock. At the end of 1996, the amount for
such accrued dividends in arrears was adjusted to $190,000 to reflect the
payment proposed in the Plan described above. The adjustment of accrued
dividends was recorded as a reduction in the Company's retained deficit, but
does not represent an amount available to other preferred or common
shareholders.

RESULTS OF OPERATIONS

Interest income and investment income (loss)

Interest income for the year ended December 31, 1996 was $624,000, compared
to $747,000 in 1995 and $592,000 in 1994. Most of the Company's interest
income has been from temporary investments in certificates of deposit,
banker's acceptances, commercial paper, U.S. Treasury securities and other
government agency obligations. The decrease in interest income in 1996 is
attributable primarily to lower interest yields

12
<PAGE>

on the Company's short-term investment balances. Average amounts invested
short-term were slightly higher in 1996 than during 1995, but the average
yield on those investments was approximately 5.4%, compared to nearly 6.0% in
1995. The increase in interest income from 1994 to 1995 was the result of a
significant increase in yields for short-term investments. Amounts invested
short-term in 1995 were slightly lower than in 1994, but yields increased
from an average 4.2% in 1994 to nearly 6.0% during 1995.

Other income

In August 1996, the Company sold all the stock of Southwest Group Agency,
Inc. ("SWGA"), a wholly-owned subsidiary, for $210,000, to an unrelated third
party. SWGA had no operations and no significant assets or liabilities at the
time of the sale, but its Texas license as an insurance agency had
considerable franchise value. A brokers commission of $21,000 was paid in
connection with the sale, and the net gain of $189,000 is reported as "other
income" in 1996.

In December 1995, the Company received full repayment for an installment note
receivable scheduled to mature in 2002. The principal balance of the note at
that time was approximately $1.2 million, and scheduled monthly payments on
that note of approximately $20,000 included interest at 6.5% per annum. A
discount related to that note had been recorded in connection with a 1983
business combination to reflect market interest rates at that time. The
unamortized balance of that discount, approximately $175,000, was written off
when the note was fully repaid, and that amount was recognized as "other
income" in 1995.

Salaries and Related Expenses

From January 1989 until August 1991, the Company had only four employees. In
August 1991, the Chairman of the Board and President of the Company resigned,
and on October 1, 1991, all other employees of the Company terminated their
employment. As a result, no salaries or related expenses have been incurred
by the Company since 1991.

General and Administrative Expenses

General and administrative expenses for the years ended December 31, 1996,
1995 and 1994 were predominantly legal and other professional fees related to
the negotiation of settlements of the FDIC Claims, the FDIC Allegations, the
OTS Claims and other claims by former officers and directors of the Company
and others. In the years ended December 31, 1996, 1995 and 1994, legal fees
were 52%, 66% and 66% respectively, of total general and administrative
expenses.

Other professional services - including accounting, audit and tax services -
represented approximately 21% of total general and administrative expenses in
1996 and approximately 14% of that total in 1995 and 1994. As the Company had
few employees, even prior to 1992, outside consultants have supported the
Company's general and administrative functions since January 1, 1989. The
Company has renewed a contract with a former employee and an accounting firm
to provide for certain of the Company's administrative functions. Corporate
expenses, including such items as franchise taxes and the costs of publishing
required financial statements and other filings, represented approximately
19% of total general and administrative expenses in 1996 and approximately
16% of the total in 1995 and 1994.

Interest expense

Interest expense in the years ended December 31, 1996, 1995 and 1994 related
to the Company's Debentures which were due in 1993, as described above.
Though the sinking fund payments due August 1, 1992 and the principal payment
due August 1, 1993 were not made, as described in Note 5 of Notes to
Consolidated Financial Statements, the Company continued to accrue and pay
interest on the full amount of outstanding Debentures through August 1, 1994.
The Company did not make the 1995 or 1996 interest payments, but continued to
accrue interest expense through the end of 1996. At the end of 1996, the
accrued interest payable on the Debentures was written off to reflect the
terms of the Plan, as discussed above.

All other long-term debt obligations of the Company were repaid during the
first quarter of 1990.

LIQUIDITY AND SOURCES OF CAPITAL

In 1996, 1995 and 1994, cash flow requirements of operations have been met
only partially by interest income. The balance has been funded with proceeds
from sales and maturities of investments. The adequacy of the Company's
liquid assets to meet commitments and operating requirements cannot be
effectively assessed at

13
<PAGE>

this time due to the uncertainties faced by the Company with respect to the
claims of the FDIC, the OTS and others. The Plan filed in connection with a
Chapter 11 petition early in 1997 anticipates that all the Company's assets
will be liquidated in order to make payments to creditors and claimants.

The uncertainties surrounding the claims of the FDIC, the OTS and others, as
well as the limitations placed by the Internal Revenue Code on future
utilization of tax benefits, discussed under "Item 1. -- Business --
Background," have had the effect of precluding any attempt by management to
seek additional debt or equity capital for the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

- --------------------------------------------------------------------------------
Page
- --------------------------------------------------------------------------------
UNITED FINANCIAL GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report 15

Consolidated Statements of Financial Condition as of December 31, 1996
and 1995 16

Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995, and 1994 17

Consolidated Statements of Common Stockholders' Deficit for the Years
Ended December 31, 1996, 1995, and 1994 18

Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995, and 1994 19

Notes to Consolidated Financial Statements 20
- --------------------------------------------------------------------------------

14
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
United Financial Group, Inc.

We have audited the accompanying consolidated statements of financial
condition of United Financial Group, Inc. and subsidiaries (the "Company") as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, common stockholders' deficit and cash flows for each of the years
in the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Financial Group, Inc. and subsidiaries as of December 31, 1996 and 1995 and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that United Financial Group, Inc. will continue as a going concern.
As discussed in Notes 1, 5, 6 and 8 to the consolidated financial statements,
significant claims have been made against the Company by the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision and others.
Furthermore, the Company did not make required principal payments on its 9%
Secured Sinking Fund Debentures Due 1993. Since 1988, the Company has
attempted to negotiate settlements with its creditors and claimants, and, in
1995, the Company entered into agreements with certain of those creditors and
claimants which would require payments to them, subject to bankruptcy
proceedings and the confirmation of a plan of reorganization. On January 14,
1997, the Company filed a petition for protection under Chapter 11 of the
U.S. Bankruptcy Code and submitted a Plan of Reorganization specifying
proposed payments to certain of its creditors and claimants. The Plan was
confirmed on March 31, 1997. The Company is now operating its business as a
debtor-in-possession. The payments outlined in that Plan of Reorganization
exceed total assets of the Company at December 31, 1996. These matters raise
substantial doubt about the Company's ability to continue as a going concern.

KPMG PEAT MARWICK LLP

Houston, Texas
February 14, 1997

15
<PAGE>

UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
(In Thousands Except Share Amounts)

----------------------------------------------------------
December 31, 1996 1995
----------------------------------------------------------
Assets:
Cash and cash equivalents $ 2,930 348
Short-term investments 8,557 10,741
Loans and notes receivable -- 19
Other investments 81 344
Other assets 139 211
----------------------------------------------------------
$ 11,707 11,663
----------------------------------------------------------
==========================================================

Liabilities:

Accounts payable and accrued $ 158 739
liabilities
Notes payable and other borrowings 1,360 4,671
Other liabilities 10,200 6,243
----------------------------------------------------------
Total liabilities $ 11,718 11,653
----------------------------------------------------------

Cumulative preferred dividends in
arrears $ 190 5,917
Redeemable preferred stock, no par
value; 2,000,000 shares authorized 16,404 16,404

Common stockholders' deficit
Common stock, no par value; 12,000,000
shares authorized; issued and
outstanding, 8,073,620 shares at
December 31, 1996 and 1995, net of
115,750 shares in treasury 56,289 56,289
Retained deficit (72,894) (78,600)
----------------------------------------------------------
Total common stockholders' deficit (16,605) (22,311)
----------------------------------------------------------
$ 11,707 11,663
----------------------------------------------------------
==========================================================

See accompanying notes to consolidated financial statements.

16
<PAGE>

UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands Except Per Share Data)

- ---------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------
Interest income $ 624 747 592
Other income 189 175 --
- ---------------------------------------------------------------------
813 922 592

General and administrative expenses 662 836 861
Interest expense 420 420 420
Adjustment of liabilities as a result
of reorganization 4,078 -- --
- ---------------------------------------------------------------------
5,160 1,256 1,281
- ---------------------------------------------------------------------
Net loss before extraordinary item (4,347) (334) (689)
Extraordinary item -- reduction of
Debenture liabilities as a result of
reorganization 4,326 -- --
- ---------------------------------------------------------------------
Net loss $ (21) (334) (689)
- ---------------------------------------------------------------------

Net loss to common shares after
adjustment for preferred stock
dividends and accretion of discount $ (21) (1,097) (1,469)

Net loss per common and common
equivalent share before extraordinary
item (0.54) (0.14) (0.18)
Extraordinary item 0.54 -- --
- ---------------------------------------------------------------------
Net loss $ -- (0.14) (0.18)
- ---------------------------------------------------------------------
=====================================================================

See accompanying notes to consolidated financial statements.

17
<PAGE>

UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMMON
STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In Thousands)

- --------------------------------------------------------------------------
Total
Common
Stock-
Common Retained holders'
Stock Deficit Deficit
- --------------------------------------------------------------------------
Balances at December 31, 1993 $ 56,289 (76,034) (19,745)
- --------------------------------------------------------------------------
Net loss -- (689) (689)
Accumulated dividends on Series B $13
cumulative preferred stock -- (763) (763)
Accretion of redeemable preferred stock
to redemption value -- (17) (17)
- --------------------------------------------------------------------------
Balances at December 31, 1994 $ 56,289 (77,503) (21,214)
Net loss -- (334) (334)
Accumulated dividends on Series B $13
cumulative preferred stock -- (763) (763)
Accretion of redeemable preferred stock
to redemption value -- -- --
- --------------------------------------------------------------------------
Balances at December 31, 1995 $ 56,289 (78,600) (22,311)
- --------------------------------------------------------------------------
Net loss -- (21) (21)
Reversal of accumulated dividends on
Series B $13 cumulative preferred stock -- 5,727 5,727
- --------------------------------------------------------------------------
Balances at December 31, 1996 $ 56,289 (72,894) (16,605)
- --------------------------------------------------------------------------
==========================================================================

See accompanying notes to consolidated financial statements.

18
<PAGE>

UNITED FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands)

- ------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------
Operating Activities:

Net loss $ (21) (334) (689)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization -- (223) (48)
Effects of adjustments to liabilities
as a result of reorganization (248) -- --
Changes in assets and liabilities
related to operations: --
Decrease (increase) in other assets 72 (93) 27
Increase (decrease) in accounts
payable and accrued liabilities 435 428 (41)
- ------------------------------------------------------------------------
Net cash provided by (used in)
operating activities $ 238 (222) (751)
- ------------------------------------------------------------------------
Investing Activities:
Sales and maturities of short-term
investments 43,612 39,585 61,706
Purchase of short-term investments (41,428) (40,664) (61,085)
Repayments of notes receivable and
other investments 282 1,398 183
- ------------------------------------------------------------------------
Net cash provided by investing
activities $ 2,466 319 804
- ------------------------------------------------------------------------
Financing Activities:

Payments to settle claims and liquidate
obligations (122) (18) (21)
- ------------------------------------------------------------------------
Net cash used in financing activities $ (122) (18) (21)
- ------------------------------------------------------------------------
Increase in cash and cash equivalents 2,582 79 32
Cash and cash equivalents, beginning of
year 348 269 237
- ------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,930 348 269
- ------------------------------------------------------------------------
========================================================================

See accompanying notes to consolidated financial statements.

19
<PAGE>

UNITED FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation and presentation

The consolidated financial statements include the accounts of United
Financial Group, Inc. and its subsidiaries ("UFGI" or the "Company"), all of
which are wholly-owned and none of which are actively engaged in business
operations. Prior to December 30, 1988, UFGI was in the business of offering
products and services in the mortgage lending and savings industries and was
engaged in an array of investment activities, primarily through its most
significant subsidiary, United Savings Association of Texas ("USAT"), and
USAT's wholly-owned subsidiaries. On December 30, 1988, USAT was placed into
receivership by the Federal Savings and Loan Insurance Corporation (as
predecessor to the Federal Deposit Insurance Corporation, both of which are
herein referred to as the "FDIC"), and the Company's net liabilities related
to its investment in USAT were written off at that time. Since 1988, the
Company's business activities have been limited to the resolution of
outstanding claims against the Company and the management of investments.

On January 14, 1997, the Company filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The Plan of Reorganization (the "Plan") submitted with
that filing implements the provisions of the FDIC Settlement (described in
Note 6), which specifies amounts to be paid to certain of the Company's
creditors and claimants. The Plan was confirmed by the Bankruptcy Court on
March 31, 1997. The liabilities and commitments of the Company have been
adjusted to the amounts specified in the Plan.

All material intercompany transactions are eliminated in consolidation.
Certain reclassifications have been made to the 1995 and 1994 consolidated
financial statements to conform to the presentation used for 1996.

Investments

The Company's investments, including certificates of deposit, government and
government agency obligations, corporate obligations, mortgage-backed
securities, and notes receivable are reported on the basis of amortized cost
-- purchase or acquisition price, adjusted for the amortization of any
related premium or discount. Because such investments are primarily short-
term, their amortized cost approximates fair value. Effective January 1,
1994, the Company adopted Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities, which
requires that investments in debt and equity securities be classified as
"Held to Maturity," "Available for Sale," or "Trading" securities. Held to
Maturity investments must be reported at amortized cost. Available for Sale
investments must be reported at fair value. Trading investments must be
reported at fair value, and unrealized gains and losses must be included in
earnings. The Company's investments are classified as Available for Sale.
Because there has been little or no difference between the cost and fair
value of the Company's investments during 1994, 1995 and 1996, the adoption
of Statement 115 has had no material effect on the Company's consolidated
financial statements.

Income taxes

The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

The Company and its subsidiaries file consolidated federal income tax
returns. Current and deferred federal income tax expense is allocated to any
subsidiary with current pretax accounting income, using the applicable
statutory tax rate without benefit for individual company credits or net
operating loss deductions. The benefits of any credits and net operating loss
deductions are recorded by the parent company.

Deferred income tax liabilities have not been recognized as a result of the
Company's net operating losses.

Loss per common and common equivalent share

Loss per common and common equivalent share is computed using UFGI's net
loss, adjusted for redeemable preferred stock dividends and accretion of
redeemable preferred stock to its redemption value. The adjusted net

20
<PAGE>

loss is then divided by the weighted average number of common shares
outstanding during the period, including dilutive common stock equivalents,
if any, resulting from common stock options and convertible preferred stock
outstanding. Such average common and common equivalent shares were
approximately 8,074,000, for 1996, 1995, and 1994.

Cash and cash equivalents

For purposes of the statement of cash flows, cash and cash equivalents
include time deposits which have original maturities of less than ninety days
and which may be liquidated promptly to provide cash.

2. SHORT-TERM INVESTMENTS

At December 31, 1996 and 1995, the components of short-term investments were
as follows:

(In Thousands)
------------------------------------------------
At December 31, 1996 1995
------------------------------------------------
Certificates of deposit $ -- 1,159
United States Treasury Bills -- 1,459
Managed investment account 8,557 8,123
------------------------------------------------
$ 8,557 10,741
------------------------------------------------
================================================

The Company's managed investment account represents a portfolio of
government, government agency and corporate obligations managed by an
independent organization. The contract with that organization limits periods
to maturity and specifies liquidity requirements. The Company's certificates
of deposit and U.S. Treasury Bills were purchased with original maturities of
one year or less. There were no significant differences between the amounts
presented for short-term investments on the basis of amortized cost and the
fair values of such assets.

3. LOANS AND NOTES RECEIVABLE

At December 31, 1995, the Company had a note receivable from a former officer
in the approximate amount of $19,000. Such note was repaid during 1996, and,
at the end of the year, the Company had no remaining loans or notes
receivable.

Another promissory note receivable by the Company was repaid in 1995. That
installment loan receivable required monthly payments to the Company of
approximately $20,000 which included interest at a stated rate of 6.5% per
annum. A discount related to the installment loan receivable was recorded in
connection with purchase accounting for the business combination in which the
note was acquired. Amortization of such discount adjusted interest income
from the note to an effective annual rate of approximately 12%, a market rate
at the date of the business combination. The installment loan receivable was
repaid in full in December 1995. The remaining unamortized discount at that
time, approximately $175,000, was written off and recognized as other income.

4. OTHER INVESTMENTS

Other investments are summarized as follows:

(In Thousands)
-----------------------------------------------------------
At December 31, 1996 1995
-----------------------------------------------------------
Mortgage-backed securities $ 81 94
Debt securities of a foreign government -- 250
-----------------------------------------------------------
$ 81 344
-----------------------------------------------------------
===========================================================

The Company's mortgage-backed securities yield approximately 8.5% per annum.
The foreign government bond, which was redeemed during 1996, paid variable
rate interest, with a minimum of 7.5% per annum. The amounts presented for
these investments are based on amortized cost, which approximates fair value.

5. NOTES PAYABLE AND OTHER BORROWINGS

At December 31, 1996 and 1995, the Company's notes payable and other
borrowings consisted of 9% Secured Sinking Fund Debentures due 1993 with an
aggregate principal amount of $4,671,000 (the "Debentures").

21
<PAGE>

The Debentures are secured by a first lien on 51% of the stock of USAT, which
has had no value since December 30, 1988.

Under the terms of the Debentures, a sinking fund payment of approximately
$1,826,000 was due August 1, 1992, and the full principal payment of
$4,671,000 was due August 1, 1993. Those payments were not made by the
Company. As a result, the trustee for the Debentures notified the Company
that there had occurred an event of default under the terms of the Indenture.
The trustee or the beneficial owners of the Debentures may, therefore, be
entitled to take certain actions pursuant to the Indenture. The Company
continued to pay semi-annual interest on the Debentures at the stated rate of
9% and on the payment dates in effect prior to maturity of the Debentures
(February 1 and August 1) through December 31, 1994. In January 1995, the
Company was informed by the staff of the OTS and counsel to the FDIC that no
additional interest payments should be made to the Debentureholders.
Therefore, the Company did not pay interest in 1995 or 1996 and is not
expected to make any future interest payments.

Interest was accrued by the Company on the full amount of the outstanding
principal balance of the Debentures until the end of 1996. No interest was
paid in the years ended December 31, 1995 and 1996. Payments of interest
totaled $420,000 for the year ended December 31, 1994. Included in accounts
payable and accrued liabilities at December 31, 1995 was accrued interest
payable of $596,000.

Under the terms of the FDIC Settlement, the Company would pay a minimum of
$1,360,000 to the Debentureholders. As of December 31, 1996, the liability
for the Debentures has been adjusted to the amount expected to be paid, and
accrued interest payable on the Debentures has been adjusted to zero to
reflect the payment proposed in the FDIC Settlement and the Plan. The FDIC
Settlement and the Plan are discussed further in Note 6.

6. COMMITMENTS AND CONTINGENT LIABILITIES

In connection with its actions placing USAT into receivership on December 30,
1988, the FDIC made claims against the Company for damages in excess of $100
million (the "FDIC Claims"). The FDIC alleged that it was damaged by the
Company's failure to maintain USAT's net worth in accordance with Federal
Home Loan Bank Board regulations. Additionally, the FDIC claimed that, as a
result of the Company's utilization of the benefits of certain tax losses
incurred by USAT, the Company was obligated to USAT for amounts related to
federal income tax refunds allegedly obtained. The Company has denied the
merits of any potential claim alleged by the FDIC. In 1991, the Company
entered an agreement to toll the running of the statute of limitations and
certain other equitable defenses in order to delay final litigation decisions
and to permit additional time for negotiation of a settlement of the FDIC
Claims. Such agreement was amended several times to postpone its expiration.

In mid-1994, settlement discussions relating to the FDIC Claims were joined
by the Office of Thrift Supervision ("OTS"), a separate agency whose
jurisdiction covers areas not included within the scope of the FDIC's
jurisdiction. The OTS is investigating the possibility of certain regulatory
violations (the "OTS Claims") by the Company and others, including current
and former officers and directors of the Company. The Company denies any such
violations and has been in negotiations with the OTS since September 1994
concerning possible settlement of the OTS Claims. The Company entered an
agreement with the OTS to toll the running of the statute of limitations,
subject to the right of the OTS to terminate such agreements with 10 days'
notice. That agreement was amended several times to postpone its expiration.

Effective December 1995, the Company entered into agreements with the OTS and
an agreement with the FDIC, the trustee for the 9% Secured Sinking Fund
Debentures (the "Debenture Trustee") and Nu-West Florida, Inc. ("Nu-West"),
as sole holder of the Company's Series B Preferred Stock (the "FDIC
Settlement"). Under these agreements, the Company neither admits nor denies
liability under claims by the FDIC and the OTS. The terms of the FDIC
Settlement were incorporated in the Plan filed with the U.S. bankruptcy court
sitting in Delaware January 14, 1997. Such Plan was confirmed by the
Bankruptcy Court on March 31, 1997.

The FDIC Settlement requires that the Company pay a minimum of $9,450,000 to
the FDIC, a minimum of $1,360,000 to the Debentureholders and a minimum of
$190,000 to Nu-West. An additional payment to the FDIC of up to $750,000 will
be required should assets remain after the payment of the minimum amounts and
expenses of the Company. Any amount received by the FDIC will be required to
have 12.36% paid to the Debentureholders and 1.72% to Nu-West. Under the FDIC
Settlement, expenses of the Company in excess of $300,000 will require
approval by the FDIC and the OTS.

22
<PAGE>

As of December 31, 1996, the Company's liabilities have been adjusted to
reflect the expected payments described above. The effects of such
adjustments on the Company's financial statements are detailed below:

(In Thousands)
----------------------------------------------------------------------------
Minimum
Recorded Expected
Liability Payment Adjustment
----------------------------------------------------------------------------
9% Secured Sinking Fund Debentures $ 4,671 1,360 3,311
Accrued Interest Payable on the
Debentures 1,015 -- 1,015
FDIC and OTS and additional payments
to creditors and claimants 6,122 10,200 (4,078)
----------------------------------------------------------------------------
Effect of adjustments to liabilities $ 11,808 11,560 248
----------------------------------------------------------------------------

The adjustment to reduce the commitment for Series B Preferred Stock
dividends was recorded as a $5,727,000 decrease in the Company's retained
deficit.

7. REDEEMABLE PREFERRED STOCK

Redeemable preferred stock is summarized as follows:

(In Thousands)
--------------------------------------------------------
At December 31, 1996 1995
--------------------------------------------------------
Series B $13 cumulative, 58,725
shares authorized and outstanding $ 5,873 5,873
Series C, 775,000 shares authorized;
outstanding, 15,711 shares 220 220
Series E, 736,526 shares authorized
and outstanding 10,311 10,311
--------------------------------------------------------
$ 16,404 16,404
--------------------------------------------------------
========================================================

Series B $13 Cumulative Preferred Stock ("Series B Preferred Stock") requires
a $13 per share, per year, cumulative dividend paid on a quarterly basis,
with quarterly sinking fund payments of $146,813 commencing May 1, 1988 and
annual mandatory redemptions commencing May 1, 1989. All such cumulative
dividends and mandatory redemptions must be paid prior to the payment of any
dividends, cancellation, redemption or repurchase of any junior class of
preferred stock or the common stock. Commencing May 1, 1988, payments of
Series B Preferred Stock dividends and mandatory redemptions were suspended.
As of December 31, 1996, $6,680,000 of such dividends had accrued but were
unpaid, representing eighty-three cents per share of common stock
outstanding. Series B Preferred Stock has a preference over the Series C and
Series E preferred stock issues. In November 1992, the holder of the Series B
Preferred Stock, Nu-West Florida, Inc. ("Nu-West") filed an involuntary
petition against the Company under Chapter 11 of the United States Bankruptcy
Code. In 1996, this petition was dismissed with prejudice.

Under the terms of the FDIC Settlement, the Company would pay a minimum of
$190,000 to Nu-West. The amount of accrued Series B Preferred Stock dividends
has been adjusted to that amount as of December 31, 1996. The terms of the
FDIC Settlement are discussed further in Note 6.

Series C Convertible Preferred Stock ("Series C Stock") does not pay
dividends. In the event of liquidation, holders of Series C Stock will be
entitled to receive $14 per share after all amounts due to UFGI's creditors
and holders of Series B preferred have been paid. Since June 15, 1987, each
share of Series C Stock has been convertible, at the shareholder's election,
into two shares of UFGI's common stock. The Series C Stock was not redeemable
by the Company until June 15, 1994, at which time the Company, if financially
able, was obligated to redeem at a price of $14 per share, all outstanding
shares of Series C Stock which had not been converted into common stock. The
Company was not financially able to redeem the Series C Stock at June 15,
1994. The Series C Stock was accreted so that the carrying value at the
mandatory redemption date was equal to the mandatory redemption amount.

Series E Convertible Preferred Stock ("Series E Stock") pays no dividends and
has the same designations, preferences, and rights as the Series C Stock. In
the event of liquidation, holders of Series E Stock will be entitled to
receive $14 per share after all amounts due to UFGI's creditors and holders
of Series B preferred

23
<PAGE>

have been paid. Since July 1, 1989, each share of Series E Stock has been
convertible, at the shareholder's election, into two shares of UFGI's common
stock. The Series E Stock was not redeemable by the Company until June 15,
1994, at which time the Company, if financially able, was obligated to redeem
at a price of $14 per share, all outstanding shares of Series E Stock which
had not been converted into common stock. The Company was not financially
able to redeem the Series E Stock at June 15, 1994. The Series E Stock was
accreted so that the carrying value at the mandatory redemption date was
equal to the mandatory redemption amount.

Under the terms of the Plan, the holders of the Series C Stock or the Series
E Stock will receive no payments in connection with the reorganization of the
Company.

At December 31, 1996, total liquidation preferences of the Company's
redeemable preferred stock were $23,084,000. Of that total, the liquidation
preference and accrued but unpaid dividends on the Series B Stock comprised
$12,553,000. The liquidation preferences for Series C Stock and Series E
Stock were $220,000 and $10,311,000, respectively.

8. COMMON STOCKHOLDERS' DEFICIT

The Company's liabilities and preferred stock redemption obligations,
including accrued but unpaid dividends, exceeded assets by $16.6 million at
December 31, 1996 and by $22.3 million at December 31, 1995. Payment of the
obligations to creditors and claimants under the Plan is expected to require
all of the Company's assets. See Notes 5, 6 and 7 for information on certain
claims made against the Company.

9. STOCK OPTIONS

Prior to 1989, the shareholders of UFGI approved four employee stock option
plans and one non-employee director stock option plan. In connection with the
placing of USAT into receivership in 1988, substantially all of the
outstanding options were terminated; since that time, all other options
except those reserved and outstanding under the 1987 Non-Employee Directors'
Stock Option Plan, have terminated. At December 31, 1996, options for 10,000
shares under the 1987 Non-Employee Directors' Stock Option Plan were
outstanding and exercisable at a price of $3.25 per share. No options were
exercised during 1996, 1995 or 1994.

10. FEDERAL INCOME TAXES

No tax benefits have been recognized in connection with the Company's net
losses in 1996, 1995 and 1994. Differences between the tax basis and
financial reporting basis of the Company's assets and liabilities are
primarily related to contingent liabilities previously accrued but not
deducted for tax purposes. Payments against such liabilities will result in
tax losses which exceed financial statement losses.

The deferred tax liabilities of the Company have been reduced in prior
periods by the recognition of the benefits of net operating loss deductions.
Most of those deferred tax liabilities and net operating losses were
attributable to discontinued operations.

At December 31, 1996, UFGI had a tax net operating loss carryforward of
approximately $6,982,000 which, if not utilized to offset future taxable
income, will expire as follows: 1999 $307,000; 2002 $790,000; 2004 -
$499,000; 2005 - $1,468,000; 2006 -- $627,000; 2007 -- $788,000; 2008 --
$777,000; 2009 -- $759,000; 2010 -- $575,000; 2011 -- $391,000.

Under provisions of the Internal Revenue Code, a parent corporation that
joins in filing a consolidated federal income tax return with its subsidiary
must make certain annual adjustments to the tax basis of stock it owns in
such subsidiary. The required adjustments include, among other things, a
decrease in the tax basis for tax losses of a subsidiary utilized to offset
income of the parent and for dividend payments made by a subsidiary to its
parent corporation. If a parent has a negative tax investment basis (referred
to as an "excess loss account") with respect to the stock of the subsidiary,
the occurrence of certain events, including the determination that the stock
of the subsidiary is "worthless", results in the recognition of the excess
loss account in taxable income. Prior to USAT being placed into receivership,
UFGI had an excess loss account with respect to its investment in USAT of
approximately $75 million.

In connection with the FDIC placing USAT in receivership and the subsequent
sale of USAT's assets, the FDIC provided a note (the "FSLIC Note") in the
approximate amount of $261 million to USAT. A subsequent audit resulted in an
increase of the FSLIC Note to $309 million. UFGI received a ruling from the

24
<PAGE>

Internal Revenue Service that UFGI's tax basis in USAT's stock was increased
by the amount of the FSLIC Note. On December 30, 1988, UFGI's adjusted basis
in USAT's stock was written off. The amount of such basis was either $186
million or $234 million, depending on the treatment the subsequent increase
of the FSLIC Note. As a result, the Company has additional loss carryforward
benefits estimated at $156 million arising from 1988 losses, including the
write-off of basis in the USAT stock. Based on a review of Internal Revenue
Service rulings in matters unrelated to the Company, the Company believes
those carryforward deductions may be characterized as ordinary losses, rather
than capital losses. If so, those carryforward deductions will expire at the
end of the fifteenth tax year after the year in which the loss was incurred.
The Company may not, however, rely on Internal Revenue Service rulings to
which the Company is not a party. If the 1988 losses were characterized as
capital losses, the right to utilize loss carryforward deductions would have
expired in 1993.

Under the terms of the Plan structured to settle claims against the Company
by the FDIC and the OTS, the Company would, except under limited
circumstances, be unable to utilize the tax benefits of any net operating
losses carried over from 1988 and prior years. The Plan is discussed further
in Note 6.

11. RELATED PARTY TRANSACTIONS

A shareholder in a law firm which provides legal services to the Company was
a director of the Company until January 14, 1997. During 1996, 1995, and
1994, billings to the Company for legal services and expenses by that firm
totaled $153,000, $192,000, and $121,000, respectively.

25
<PAGE>

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

During the Company's two most recent fiscal years, there have been no
reported changes in, or disagreements with, the independent accountants of
the Company.

PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

The following table provides information with respect to the officers and
directors of the Company as of December 31, 1996:
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------
Director of Position and Office Presently Held with
Company Company (and Present Principal Occupation
Name Age Since if Different)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>

Arthur S. Berner (d) 53 1988 Attorney
Paul N. Schwartz (b)(c) 51 1988 Chairman of the Board, President, Chief
Executive Officer and Chief Financial Officer
of the Company; Executive Vice President and
Chief Financial Officer of Maxxam, Inc.
("Maxxam")
James R. Whatley (a)(b)(c) 70 1978 Investments
---------------------------------------------------------------------------------------------
</TABLE>

(a) Member of the Audit Committee.
(b) Member of the Executive Committee.
(c) Member of the Nominating Committee.
(d) Mr. Berner resigned in January 1997.

MR. BERNER resigned as a member of the Board of Directors of the Company on
January 14, 1997. Mr. Berner is a shareholder in the law firm of Winstead
Sechrest & Minick P.C. ("WSM") in Houston, Texas. He has been associated with
WSM for more than the past five years.

MR. SCHWARTZ was elected President and Chairman of the Board of the Company
in August 1991. He has served as Vice President of MAXXAM from January 1982
through June 1985 and Vice President-Corporate Development of MAXXAM from
July 1985 until June 1987, when he was elected Senior Vice President-
Corporate Development. On January 1, 1995, he was elected Executive Vice
President and Chief Financial Officer of MAXXAM. He was elected to the Board
of Directors of the Company in February 1988, and served as a member of the
Board of USAT from February until December 1988.

MR. WHATLEY is currently engaged in personal investments. He was Chairman of
the Board of Kaneb Services, Inc. ("Kaneb") from April 1982 until June 1989,
and remains a member of the Kaneb Board of Directors. From February 1982
until April 1982, he also served as Chief Executive Officer of Kaneb.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During 1996, the Board of Directors held two formal meetings. The Board also
held numerous meetings by way of conference telephone. Each Director attended
at least 75% of the meetings of the Board of Directors and committees on
which he served during the period he was a Director. Directors who are not
employees of the Company or its subsidiaries are paid an annual retainer fee
of $6,000. In addition, each Director receives a fee of $1,000 for attendance
at each meeting of the Board of Directors and each member of the Executive,
Audit and Nominating Committees, who is not an employee of the Company, is
paid a fee of $100 per committee meeting for attendance at each such meeting
held in conjunction with a meeting of the Board of Directors of the Company
and $250 per committee meeting for meetings not held in conjunction with such
Board meetings. Commencing January 1, 1992, Mr. Whatley has agreed with the
Company to defer until January 1997 the receipt of any fees attributable to
his services as a Director. In addition, in 1996, Mr. Berner did not receive
any fee for attendance at Board Meetings, such time being billed as part of
Mr. Berner's legal services. For 1995 and 1996, Mr. Schwartz waived all fees
for service as a director. Directors are reimbursed for reasonable expenses
incurred in connection with attendance at Board or Board committee meetings.

26
<PAGE>

EXECUTIVE COMMITTEE The Executive Committee is authorized to exercise all of
the powers of the Board of Directors except those not permitted by the
Delaware General Corporation Law (the "Delaware Corporation Law"). All
business transacted by the Executive Committee is subject to approval by the
Board of Directors at its next regular meeting if required by resolution of
the Board of Directors, by Delaware Corporation Law or by the Certificate or
Bylaws of the Company. To the extent it may lawfully do so, the Executive
Committee may initiate any action which the Board of Directors could initiate
and may oversee and direct the day-to-day operations of the Company. The
Executive Committee is expressly authorized by the Bylaws of the Company to
declare dividends and to issue shares of stock of the Company. The current
members of the Executive Committee are Mr. Schwartz, Chairman, and Mr.
Whatley. During the year ended December 31, 1996, the Executive Committee did
not meet.

AUDIT COMMITTEE Through its review of all audit and examination functions,
the Audit Committee furthers the knowledge of the Board of Directors
concerning the administration of the Company and aids the Board of Directors
in the fulfillment of its fiduciary responsibilities to the Stockholders of
the Company. Audit and examination functions are conducted by KPMG Peat
Marwick, L.L.P., the independent certified public accountants for the
Company. The Committee is currently comprised of Mr. Whatley. during the year
ended December 31, 1996, the Audit Committee did not meet.

NOMINATING COMMITTEE The current Nominating Committee, consisting of Messrs.
Whatley and Schwartz, was appointed for the purpose of nominating director
candidates. The Nominating Committee considers nominees recommended by
Stockholders. During the year ended December 31, 1996, the Nominating
Committee did not meet.

27
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information with respect to the Chief
Executive Officer of the Company for the years ended December 31, 1996, 1995
and 1994. The Company has no executive officers, or other employees, as to
whom the total annual salary and bonuses for the years ended December 31,
1996, 1995 or 1994 exceeded $100,000.

SUMMARY COMPENSATION TABLE

---------------------------------------------------------------------------
Annual Compensation
---------------------------------------------------------------------------
Other Annual
Name and Principal Position Year Salary Bonus Compensation
---------------------------------------------------------------------------
Paul N. Schwartz 1996 $ 0 $ 0 $ 0 (1)
Chairman of the Board, President, Chief 1995 $ 0 $ 0 $ 0 (1)
Executive Officer and Chief Financial
Officer 1994 $ 0 $ 0 $1,000 (1)
---------------------------------------------------------------------------

(1) The Company pays no salary or bonus to Mr. Schwartz as Chairman of the
Board, President, Chief Executive Officer and Chief Financial Officer nor
does Mr. Schwartz receive any perquisites or other benefits from the
Company. Mr. Schwartz's only compensation consists of his Board meeting
fees which in 1994 were $1,000. In 1995 and 1996, Mr. Schwartz elected to
waive his Board meeting fees. The Company has no other employees.
Reference is made to the information contained under the heading "Certain
Relationships and Related Transactions" relating to services provided to
the Company by Mr. Berner, a director of the Company until January 14,
1997.

STOCK OPTION PLANS

The Company currently maintains four plans (the "Option Plans") pursuant to
which options to purchase shares of the Company's Common Stock are
outstanding or available for future grants. The purpose of the Option Plans
is to advance the best interests of the Company by providing those persons
who have substantial responsibility for the management and growth of the
Company with additional incentive by increasing their proprietary interest in
the success of the Company. There are currently no options outstanding under
any of the Option Plans with the exception of 10,000 shares granted in 1987
to Mr. Whatley under the 1987 Non-Employee Director Stock Option Plan. Such
options allow Mr. Whatley to purchase 10,000 shares of Common Stock at a
price of $3.25 per share. The options are not currently "in-the-money", were
fully vested in 1992 and will terminate on May 6, 1997 or such earlier date
upon which Mr. Whatley ceases to be a Director of the Company.

SECTION 16(A) -- BENEFICIAL OWNERSHIP REPORT AND COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers to file reports of ownership
and changes in ownership in the Company's equity securities with the
Securities and Exchange Commission and the Company. Based solely on a review
of the copies of Forms 3,4, and 5 received by the Company, or on written
representations from certain directors and officers that no updated Section
16(a) forms are required to be filed by them, the Company believes that no
director or officer of the Company filed a late report or failed to file a
report required under Section 16(a) of the Exchange Act during or in respect
of the year ended December 31, 1996.

28
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

TABLE I

The following table sets forth information with respect to the shares of
Common Stock (the only class of voting securities of the Company), the Series
B $13 Cumulative Preferred Stock (the "Series B Preferred Stock") and the
Series E Convertible Preferred Stock owned of record and beneficially as of
the Record Date by all persons who own of record or are known by the Company
to own beneficially more than 5% of the outstanding shares of such class of
stock, and by all directors and officers of the Company as a group. The
Company believes that there are no persons who own of record, or
beneficially, more than 5% of the outstanding Series C Convertible Preferred
Stock.

------------------------------------------------------------------------------------
Amount and Nature Percent of
Name and Address of Stockholder of Beneficial Ownership (1) Class (1)
------------------------------------------------------------------------------------
<S> <C> <C> <C>

MAXXAM, INC.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Common Stock 1,404,098 (2)(3)(4)(6) 17.4%
Series E Convertible Preferred Stock 688,824 (2)(3)(4)(6) 93.5%
MCO PROPERTIES, INC.
5847 San Felipe, Suite 2600
Houston, Texas 77057
Common Stock 801,941 (2)(3)(4)(6) 9.8%
Series E Convertible Preferred Stock 47,702 (2)(3)(4)(6) 6.5%
NU-WEST FLORIDA, INC.
4620 North State Road 7
Ft. Lauderdale, Florida 33319
Series B Cumulative Preferred Stock 58,725 100.0%
ALL EXECUTIVE OFFICERS AND DIRECTORS AS
A GROUP (CONSISTING OF 3 PERSONS)
Common Stock 46,369 (2)(5)(6) 0.6%
Series B Cumulative Preferred Stock 0 0.0%
Series E Convertible Preferred Stock 0 (2)(3)(4)(6) 0.0%
-------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise indicated, the holder or holders have sole voting and
investment powers. Unless otherwise stated, the percentage of ownership
is less than one percent.

(2) As of December 31, 1996, MCO Properties, Inc. ("MCO"), a wholly owned
subsidiary of MAXXAM, Inc. ("MAXXAM") and MAXXAM owned an aggregate of
2,206,039 shares of the Company's outstanding Common Stock, constituting
approximately 27.3% of the outstanding shares of such Common Stock.
MAXXAM and MCO have filed a statement on Schedule 13D with the Securities
and Exchange Commission (the "Commission") as a "group" within the
meaning of the Securities Exchange Act of 1934 (the "Exchange Act") in
connection with their ownership of the Company's Common Stock.

(3) Each share of Series E Convertible Preferred Stock is convertible into
two shares of Common Stock. The number of shares shown in the table does
not include shares of Common Stock into which the Series E Convertible
Preferred Stock is convertible. If such shares were included, MCO would
own 897,345 or 9.4% of the then-outstanding shares, and MAXXAM would own
2,781,746 or 29.1% of the then-outstanding shares.

(4) Federated Development Company ("Federated") and various other persons
have filed a statement on Schedule 13D with the Commission as a "group"
(the "Federated Group") within the meaning of the Exchange Act in
connection with their ownership of the MAXXAM Common Stock par value
$0.50 per share (the "MAXXAM Common Stock"). As of December 31, 1996, the
Federated Group beneficially owned, in the aggregate, 2,735,494 shares of
the MAXXAM Common Stock (approximately 31.4% of the outstanding MAXXAM
Common Stock), and 685,074 shares of the MAXXAM Class A Preferred Stock
(approximately 99.1% of the outstanding), or an aggregate of
approximately 61.4% of the total voting power of the MAXXAM capital
stock. Federated disclaims any beneficial ownership in the shares of the
Company's Common Stock owned by MAXXAM and MCO.

29
<PAGE>

(5) Includes 10,000 shares of Common Stock which are not currently
outstanding but are subject to options exercisable within 60 days. See
Table II below. Excludes shares of Common Stock and Series E Convertible
Preferred Stock owned by MAXXAM and MCO.

(6) With respect to the shares of Common Stock and Series E Convertible
Preferred Stock owned by MAXXAM and MCO, Mr. Schwartz may be deemed to
possess, indirectly, shared investment power. Mr. Schwartz disclaims
beneficial ownership with respect to such shares.

TABLE II

The following table sets forth, as December 31, 1996, the beneficial
ownership of Common Stock of each Director and for Officers and Directors of
the Company as a group:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------------
Amount and Nature of Beneficial Ownership
-----------------------------------------------------------------------------------------------------------------------
Options
Exercisable
Sole or Shared Voting and within 60 Percent of Class (1)
Name or Identity of Group Investment Power Days
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arthur S. Berner (2) 2,300 0 0.0%
Paul N. Schwartz 0 (3) 0 0.0%
James R. Whatley 34,069 10,000 0.6%
All Officers and Directors as a Group 36,369
(consisting of 3 persons) (3)(4) 10,000 0.6%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Unless otherwise stated, the percentage of ownership is less than one
percent. In calculating "percent of class" for any given individual or
the group, all options exercisable by such individual or group within 60
days are included.

(2) Mr. Berner resigned as a member of the Board of Directors of the Company
on January 14, 1997.

(3) Excludes 1,404,098 and 801,941 shares of Common Stock held by MAXXAM and
MCO, respectively, and shares of Common Stock to be received upon
conversion of the Series E Convertible Preferred Stock. See Notes (2),
(3), (4), and (6) of Table I, above.

(4) During 1996, certain officers, directors and stockholders were subject to
requirements to timely file reports with the Commission reflecting their
initial ownership of the Company's Common Stock and any change in such
ownership. All persons required to file reports have represented to the
Company that they timely filed required reports, if any, and no further
reports are required to be filed.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

30
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) FINANCIAL STATEMENTS

The following are included herein on the pages noted:

-----------------------------------------------------
Applicable Section Page
-----------------------------------------------------
Independent Auditors' Report 15

Consolidated Statements of Financial
Condition as of December 31, 1996 and 1995 16

Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 17

Consolidated Statements of Common Stockholders'
Deficit for the Years Ended December 31, 1996,
1995 and 1994 18

Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 19

Notes to Consolidated Financial Statements 20
-----------------------------------------------------

(a) (2) FINANCIAL STATEMENT SCHEDULES

Financial statement schedules are omitted because the conditions under which
they are required are absent or because the required information is provided
in the financial statements or notes thereto.

(a) (3) EXHIBITS

-----------------------------------------------------------------------------
Exhibit
Number Description of Exhibits
-----------------------------------------------------------------------------

3.1 Restated Certificate of Incorporation (as amended) of United Financial
Group, Inc. Filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1985, and hereby
incorporated by reference.

3.2 Bylaws of the Company, as amended through December 31, 1987. Filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal
year ending December 31, 1986, and hereby incorporated by reference.

4.2 Agreement and Plan of Reorganization dated August 27, 1982, between
the Company and First American as set forth in Exhibit 2.1 of the
Joint Proxy Statement filed on Form S-14 dated March 24, 1983, and
hereby incorporated by reference.

4.3 First Amendment to the Agreement and Plan of Reorganization dated as
of January 10, 1983, (which amends Exhibit 4.2) as set forth in
Exhibit 2.1.1 of the Joint Proxy Statement filed on Form S-14 and
hereby incorporated by reference.

4.4 Preferred Stock Purchase Agreement dated December 16, 1982, between
the Company and Nu-West Florida, Inc. filed as Exhibit 4.5 to the
Joint Registration and Proxy Statement filed on Form S-14 dated March
24, 1983, and hereby incorporated by reference.

4.5 Land Sale Agreement dated December 16, 1982, between USAT and Nu-West
Florida, Inc., filed as Exhibit 4.6 to the Joint Registration and
Proxy Statement filed on Form S-14 dated March 24, 1983, and hereby
incorporated by reference.

4.6 Loan and Commitment Agreement dated as of February 26, 1982, between
First American and PennCorp filed as Exhibit 4.7 to the Joint
Registration and Proxy Statement filed on Form S-14 dated March 24,
1983, and hereby incorporated by reference.

4.7 Certificate of Designation of the Company's Series A Preferred Stock,
filed as Exhibit 4.8 of the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1983, and hereby incorporated by
reference.

4.8 Provisions of the Certificate of Designation of the Company's Series B
$13 Cumulative Preferred Stock, filed as Exhibit 4.9 of the Company's
Annual Report on Form 10-K for the Fiscal Year Ended December 31,
1983, and hereby incorporated by reference.

4.9 Certificate of Designation Providing for Series C Convertible
Preferred Stock, without par value, filed as Exhibit 4.8 to the
Company's Registration Statement on Form S-1 (Registration Number 2-
89708) and hereby incorporated by reference.

31
<PAGE>

4.10 Certificate of Series C Convertible Preferred Stock. Filed as Exhibit
4.15 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1984, and hereby incorporated by reference.

4.11 Certificate of Designation Providing for Series D Convertible
Preferred Stock, without par value. Filed as Exhibit 4.19 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1987, and hereby incorporated by reference.

4.12 Certificate of Designation Providing for Series E Convertible
Preferred Stock, without par value. Filed as Exhibit 4.12 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988 and incorporated by reference.

10.1 1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit
10.22 to the Company's Registration Statement filed on Form S-1
(Registration No. 2-89768) and hereby incorporated by reference.

10.2 1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit
10.23 to the Company's Registration Statement filed on Form S-1
(Registration No. 2-89768) and hereby incorporated by reference.

10.3 1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit
10.24 to the Company's Registration Statement filed on Form S-1
(Registration No. 2-89768) and hereby incorporated by reference.

10.4 Agreement between the Company and C. E. Bentley dated November 14,
1985. Filed as Exhibit 10.14 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1985, and hereby
incorporated by reference.

10.5 United Financial Group, Inc. 1986 Stock Option Plan filed as Exhibit
A to the Company's Registration Statement filed on Form S-8
(Registration No. 33-5880) and hereby incorporated by reference.

10.6 United Financial Group, Inc. Compensation Deferral Plan as amended.
Filed as Exhibit 10.16 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987, and hereby incorporated
by reference.

10.7 United Financial Group, Inc. 1987 Non-employee Directors' Stock
Option Plan. Filed as Exhibit 10.12 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987, and hereby
incorporated by reference.

10.8 Form of Employment Agreements entered into by and between United
Financial Group, Inc. and certain executive employees. Filed as
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1987, and hereby incorporated by reference.

10.9 Form of agreement entered into between the Company and Messrs. Crow
and Gross relating to guaranteed minimum bonus to repay debt to
Company. Filed as Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987, and hereby
incorporated by reference.

10.10 Agreement entered into between the Company and Mr. Gross relating to
his severance arrangements. Filed as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference.

10.11 Agreement entered into between the Company and Mr. Crow relating to
the cancellation of his Share Note. Filed as Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1988, and hereby incorporated by reference.

10.12 Form of Employment Contract entered into between the Company and
Certain Executive Officers dated as of June 30, 1988. Filed as
Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, and hereby incorporated by reference.

10.13 Agreement between the Company and Bering Corp. relating to
management of the Company's equity securities. Filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988, and hereby incorporated by reference.

10.14 Letter dated January 9, 1989, from Bear Stearns & Co. relating to
USAT receivership. Filed as Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988, and hereby
incorporated by reference.

10.15 Agreement dated as of December 19, 1989, between the Company and Nu-
West Florida, Inc. relating to redemption of Series B Preferred
Stock. Filed as Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1990, and hereby incorporated by
reference.

10.16 Agreement dated August 3, 1989, between the Company and J.J. Gray
relating to settlement of employment matter. Filed as Exhibit 10.16
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

32
<PAGE>

10.17 Agreement dated August 3, 1989, between the Company and James
Jackson relating to settlement of employment matter. Filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

10.18 Agreement dated August 3, 1989, between the Company and James Wolfe
relating to settlement of employment matter. Filed as Exhibit 10.18
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

10.19 Agreement dated August 1, 1989, between the Company and Michael R.
Crow relating to settlement of employment matter. Filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

10.20 Agreement dated August 1, 1989, between the Company and Bruce
Williams relating to settlement of employment matter. Filed as
Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989 and hereby incorporated by reference.

10.21 Agreement dated August 3, 1989, between the Company and Eugene
Stodart relating to settlement of employment matter. Filed as Exhibit
10.21 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

10.22 Agreement dated October 16, 1989, between the Company and Arthur S.
Berner relating to settlement of employment matter. Filed as Exhibit
10.22 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

10.23 Agreement dated December 1, 1989, between the Company and Barry
Munitz relating to settlement of employment matter. Filed as Exhibit
10.23 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1989 and hereby incorporated by reference.

10.24 Agreement entered into by the Company and Mr. Berner relating to his
severance arrangement. Filed as Exhibit 10.1 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1991, and hereby incorporated by reference.

10.25 Form of Tolling Agreement between the Company and the FDIC. Filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, and hereby incorporated by reference.

10.26 Form of Tolling Agreement between the Company and the OTS. Filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and hereby incorporated by reference.

10.27 Form of Stipulation and Consent to Issuance of Consent Cease and
Desist Order for Affirmative Relief with the Office of Thrift
Supervision. Filed as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, and hereby
incorporated by reference.

10.28 Form of Consent Cease and Desist Order for Affirmative Relief by the
Office of Thrift Supervision. Filed as Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and
hereby incorporated by reference.

10.29 Form of Settlement Agreement and Release with the Federal Deposit
Insurance Corporation, First Trust of California, National
Association and Nu-West Florida, Inc. Filed as Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995, and hereby incorporated by reference.

10.30 Form of Plan of Reorganization of United Financial Group, Inc. Filed
as Exhibit 2.1 to the Company's Report on Form 8-K dated January 14,
1997, and hereby incorporated by reference.

10.31 Form of Disclosure Statement of United Financial Group, Inc. Filed
with the Delaware Bankruptcy Court on January 14, 1997. Filed
herewith.

11.1 United Financial Group, Inc. Computation of Net Loss Per Common and
Common Equivalent Share for the Years Ended December 31, 1996, 1995
and 1994. Filed herewith.

21.1 Subsidiaries of United Financial Group, Inc. Filed herewith.

23.1 Consent of KPMG Peat Marwick LLP. Filed herewith.
-----------------------------------------------------------------------------

(b) REPORTS ON FORM 8-K

During the last quarter of 1996, the Registrant filed no reports on Form 8-K.

33
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

UNITED FINANCIAL GROUP, INC.

By: PAUL N. SCHWARTZ
________________________
Paul N. Schwartz
Chairman of the Board,
President, Chief Executive Officer and
Chief Financial Officer

March 31, 1997

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

Signature Capacity Date

<S> <C> <C>
Chairman of the Board of Directors,
President, Chief Executive Officer
Paul N. Schwartz and Chief Financial Officer March 31, 1997
________________________________
(Paul N. Schwartz)

James R. Whatley Director March 31, 1997
________________________________
(James R. Whatley)

</TABLE>

34
<PAGE>

===============================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Fiscal Year Ended DECEMBER 31, 1996

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _________________________ to ____________________

Commission File Number 0-10443

UNITED FINANCIAL GROUP, INC.
(Exact Name of Registrant as specified in its Charter)

DELAWARE 74-2029669
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

5847 SAN FELIPE, SUITE 2600 77057
Houston, Texas (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (713) 267-3781

EXHIBITS
<PAGE>

- --------------------------------------------------------------------------------
Sequentially
Exhibit Numbered
Number Description of Exhibits Page
- --------------------------------------------------------------------------------

3.1 Restated Certificate of Incorporation (as amended) of United Financial
Group, Inc. Filed as Exhibit 3.2 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1985, and hereby incorporated by
reference.

3.2 Bylaws of the Company, as amended through December 31, 1987. Filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year
ending December 31, 1986, and hereby incorporated by reference.

4.2 Agreement and Plan of Reorganization dated August 27, 1982, between the
Company and First American as set forth in Exhibit 2.1 of the Joint Proxy
Statement filed on Form S-14 dated March 24, 1983, and hereby incorporated
by reference.

4.3 First Amendment to the Agreement and Plan of Reorganization dated as of
January 10, 1983, (which amends Exhibit 4.2) as set forth in Exhibit 2.1.1
of the Joint Proxy Statement filed on Form S-14 and hereby incorporated by
reference.

4.4 Preferred Stock Purchase Agreement dated December 16, 1982, between the
Company and Nu-West Florida, Inc. filed as Exhibit 4.5 to the Joint
Registration and Proxy Statement filed on Form S-14 dated March 24, 1983,
and hereby incorporated by reference.

4.5 Land Sale Agreement dated December 16, 1982, between USAT and Nu-West
Florida, Inc., filed as Exhibit 4.6 to the Joint Registration and Proxy
Statement filed on Form S-14 dated March 24, 1983, and hereby incorporated
by reference.

4.6 Loan and Commitment Agreement dated as of February 26, 1982, between First
American and PennCorp filed as Exhibit 4.7 to the Joint Registration and
Proxy Statement filed on Form S-14 dated March 24, 1983, and hereby
incorporated by reference.

4.7 Certificate of Designation of the Company's Series A Preferred Stock, filed
as Exhibit 4.8 of the Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1983, and hereby incorporated by reference.

4.8 Provisions of the Certificate of Designation of the Company's Series B $13
Cumulative Preferred Stock, filed as Exhibit 4.9 of the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 1983, and hereby
incorporated by reference.

4.9 Certificate of Designation Providing for Series C Convertible Preferred
Stock, without par value, filed as Exhibit 4.8 to the Company's
Registration Statement on Form S-1 (Registration Number 2-89708) and hereby
incorporated by reference.

4.10 Certificate of Series C Convertible Preferred Stock. Filed as Exhibit 4.15
to the Company's Annual Report on Form 10-K for the year ended December 31,
1984, and hereby incorporated by reference.

4.11 Certificate of Designation Providing for Series D Convertible Preferred
Stock, without par value. Filed as Exhibit 4.19 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987, and hereby
incorporated by reference.

4.12 Certificate of Designation Providing for Series E Convertible Preferred
Stock, without par value. Filed as Exhibit 4.12 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988 and incorporated
by reference.
<PAGE>

10.1 1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit 10.22
to the Company's Registration Statement filed on Form S-1 (Registration
No. 2-89768) and hereby incorporated by reference.

10.2 1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit 10.23
to the Company's Registration Statement filed on Form S-1 (Registration
No. 2-89768) and hereby incorporated by reference.

10.3 1984 United Financial Group, Inc. Stock Option Plan filed as Exhibit 10.24
to the Company's Registration Statement filed on Form S-1 (Registration
No. 2-89768) and hereby incorporated by reference.

10.4 Agreement between the Company and C. E. Bentley dated November 14, 1985.
Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1985, and hereby incorporated by reference.

10.5 United Financial Group, Inc. 1986 Stock Option Plan filed as Exhibit A to
the Company's Registration Statement filed on Form S-8 (Registration No.
33-5880) and hereby incorporated by reference.

10.6 United Financial Group, Inc. Compensation Deferral Plan as amended. Filed
as Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987, and hereby incorporated by reference.

10.7 United Financial Group, Inc. 1987 Non-employee Directors' Stock Option
Plan. Filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987, and hereby incorporated by
reference.

10.8 Form of Employment Agreements entered into by and between United Financial
Group, Inc. and certain executive employees. Filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1987,
and hereby incorporated by reference.

10.9 Form of agreement entered into between the Company and Messrs. Crow and
Gross relating to guaranteed minimum bonus to repay debt to Company. Filed
as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987, and hereby incorporated by reference.

10.10 Agreement entered into between the Company and Mr. Gross relating to his
severance arrangements. Filed as Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1988, and hereby
incorporated by reference.

10.11 Agreement entered into between the Company and Mr. Crow relating to the
cancellation of his Share Note. Filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference.

10.12 Form of Employment Contract entered into between the Company and Certain
Executive Officers dated as of June 30, 1988. Filed as Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1988, and hereby incorporated by reference.

10.13 Agreement between the Company and Bering Corp. relating to management of
the Company's equity securities. Filed as Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference.

10.14 Letter dated January 9, 1989, from Bear Stearns & Co. relating to USAT
receivership. Filed as Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1988, and hereby incorporated by
reference.
<PAGE>

10.15 Agreement dated as of December 19, 1989, between the Company and Nu-West
Florida, Inc. relating to redemption of Series B Preferred Stock. Filed as
Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990, and hereby incorporated by reference.

10.16 Agreement dated August 3, 1989, between the Company and J.J. Gray relating
to settlement of employment matter. Filed as Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.17 Agreement dated August 3, 1989, between the Company and James Jackson
relating to settlement of employment matter. Filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.18 Agreement dated August 3, 1989, between the Company and James Wolfe
relating to settlement of employment matter. Filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.19 Agreement dated August 1, 1989, between the Company and Michael R. Crow
relating to settlement of employment matter. Filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.20 Agreement dated August 1, 1989, between the Company and Bruce Williams
relating to settlement of employment matter. Filed as Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.21 Agreement dated August 3, 1989, between the Company and Eugene Stodart
relating to settlement of employment matter. Filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.22 Agreement dated October 16, 1989, between the Company and Arthur S. Berner
relating to settlement of employment matter. Filed as Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.23 Agreement dated December 1, 1989, between the Company and Barry Munitz
relating to settlement of employment matter. Filed as Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989
and hereby incorporated by reference.

10.24 Agreement entered into by the Company and Mr. Berner relating to his
severance arrangement. Filed as Exhibit 10.1 to the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 1991, and hereby
incorporated by reference.

10.25 Form of Tolling Agreement between the Company and the FDIC. Filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991 and hereby incorporated by reference.

10.26 Form of Tolling Agreement between the Company and the OTS. Filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 and hereby incorporated by reference.
<PAGE>

10.27 Form of Stipulation and Consent to Issuance of Consent Cease and Desist
Order for Affirmative Relief with the Office of Thrift Supervision. Filed
as Exhibit 10.27 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, and hereby incorporated by reference.

10.29 Form of Settlement Agreement and Release with the Federal Deposit
Insurance Corporation, First Trust of California, National Association
and Nu-West Florida, Inc. Filed as Exhibit 10.29 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, and hereby
incorporated by reference.

10.30 Form of Plan of Reorganization of United Financial Group, Inc. Filed as
Exhibit 2.1 to the Company's Report on Form 8-K dated January 14, 1997,
and hereby incorporated by reference.

10.31 Form of Disclosure Statement of United Financial Group, Inc. Filed with
the Delaware Bankruptcy Court on January 14, 1997. Filed herewith.

11.1 United Financial Group, Inc. Computation of Net Loss Per Common and
Common Equivalent Share for the Years Ended December 31, 1996, 1995 and
1994. Filed herewith.

21.1 Subsidiaries of United Financial Group, Inc. Filed herewith.

23.1 Consent of KPMG Peat Marwick LLP. Filed herewith.

<PAGE>

EXHIBIT 10.31

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: )
) Chapter 11
UNITED FINANCIAL GROUP, INC. )
) Case No. 97-54 (HSB)
Debtor. )

FIRST AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION 1125 OF THE BANKRUPTCY
CODE WITH RESPECT TO THE DEBTOR'S
PLAN OF REORGANIZATION
----------------------

I. INTRODUCTION
------------

A. PRELIMINARY STATEMENT
---------------------

United Financial Group, Inc. ("UFG" or the "Debtor") is filing this
First Amended Disclosure Statement (the "Disclosure Statement") in connection
with the solicitation of acceptances to the Debtor's Plan of Reorganization,
dated January 14, 1997 (the "Plan"), a copy of which is attached hereto as
Exhibit A. All capitalized terms used in this Disclosure Statement and not
otherwise defined herein are defined in the Plan. On February 28, 1997, after
notice and a hearing, the Bankruptcy Court approved this Disclosure Statement.
The approval of this Disclosure Statement means that the Bankruptcy Court has
found that the Disclosure Statement contains adequate information to make a
reasonably informed decision in exercising a creditor's right to vote upon the
Plan attached hereto and described in this Disclosure Statement.

THIS DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE PLAN. ALL
CREDITORS, STOCKHOLDERS AND OTHER INTERESTED PARTIES ARE ENCOURAGED TO REVIEW
THE FULL TEXT OF THE PLAN, AND TO READ CAREFULLY THIS ENTIRE DISCLOSURE
STATEMENT, INCLUDING ALL EXHIBITS TO THE PLAN AND THIS DISCLOSURE STATEMENT,
BEFORE DECIDING TO VOTE (IF SUCH PERSONS ARE ELIGIBLE TO VOTE) EITHER TO ACCEPT
OR REJECT THE PLAN. TO THE EXTENT ANY INCONSISTENCIES EXIST BETWEEN THE PLAN
AND THIS DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING.

B. BACKGROUND
----------

1. The Debtor's Business
---------------------

UFG was organized under the laws of the State of Delaware. Its
executive office is located at 5847 San Felipe, Suite 2600, Houston, Texas
77057. Until December 30, 1988, UFG was a savings and loan holding company
owning all of the stock of United Savings Association of Texas ("USAT"), a Texas
state-chartered savings and loan association. Beginning in the early 1980s, the
economy of the State of Texas declined significantly, initially from a
precipitous drop in the price
<PAGE>

of oil, and thereafter from a number of factors affecting most segments of the
Texas economy. Because of this regional recession, USAT began to experience
significant operating losses. As a result of these market conditions, by
December 30, 1988, USAT's capital had dropped to approximately negative $309
million, as determined by the Federal Savings and Loan Insurance Corporation
("FSLIC"), later succeeded by the Federal Deposit Insurance Corporation
("FDIC").

2. Significant Transactions and Events
-----------------------------------

a. First American Merger
---------------------

Effective April 29, 1983, First American Financial of Texas, Inc.,
Houston Texas ("First American"), a savings and loan holding company formerly
known as Houston First Financial Group, Inc. ("Houston First"), was merged with
and into UFG. In connection with the First American merger UFG assumed certain
obligations resulting from a prior acquisition by Houston First, including
obligations under UFG's 9% Secured Sinking Fund Debentures due 1993 (the
"Debentures"; and the holders thereof, the "Debentureholders"). Pursuant to the
terms of the indenture governing the Debentures (the "Indenture"), UFG was
required to make a sinking fund payment of approximately $1.8 million on August
1, 1992. UFG elected not to make that sinking fund payment and, as a result,
the predecessor to First Trust of California, National Association, as Indenture
Trustee (the current Indenture Trustee in such capacity being hereinafter
referred to as "FTC") notified UFG that it believed there was an event of
default under the terms of the Indenture. Without admitting that an event of
default existed, UFG negotiated an arrangement whereby FTC would not seek to
accelerate the repayment of the Debentures and UFG would provide security for
the payment of the required sinking fund. That settlement was not executed
prior to the time an involuntary chapter 11 petition (the "Involuntary
Petition") was filed by Nu-West Florida, Inc. ("Nu-West") against UFG (described
in greater detail below). As a result of the filing of the involuntary
petition, the FTC and UFG were unable to consummate the proposed settlement.

On August 1, 1993, the full principal amount of the Debentures
matured. At that time, UFG paid all unpaid interest but determined not to repay
any of the principal on those Debentures. UFG received a letter from counsel
for the FTC stating that an event of default, as defined in the Indenture, had
occurred. UFG and counsel for the FTC engaged in negotiations concerning the
effect of the Involuntary Petition, among other things, on the Debentureholders'
course of action resulting from UFG's failure to pay the principal of the
Debentures. At the time UFG determined not to repay any of the principal on the
Debentures, it made an independent determination to continue to pay interest on
those Debentures at the rate of 9% and on the dates interest was payable on the
Debentures prior to their maturity date. In January, 1995, UFG was informed by
the staff of the Office of Thrift Supervision (the "OTS") and counsel for the
FDIC that no additional interest payments should be made to the
Debentureholders. Therefore, effective February 1, 1995, UFG determined no
longer to pay interest on the Debentures. To date, neither the FTC nor the
Debentureholders have instituted any litigation as a result of UFG's failure to
pay the principal or interest on the Debentures.

-2-
<PAGE>

b. Series B $13 Cumulative Preferred Stock -- Nu-West
--------------------------------------------------

In April, 1983, UFG issued 58,725 shares of its Series B $13
Cumulative Preferred Stock (the "Series B Preferred") to Nu-West Florida, Inc.
("Nu-West") in exchange for certain real estate. In 1988, as a result of UFG's
capital position, the Board of Directors of UFG determined not to make any
further dividend or sinking fund payments for the benefit of the Series B
Preferred. Pursuant to the terms of the Series B Preferred, from May 1, 1988 to
December 31, 1996, dividend payments of approximately $6,679,969 accrued but
were not paid. In addition, sinking fund payments of $587,250 per year for the
redemption, commencing May 1, 1989, of certain shares of the Series B Preferred
were not made. Any dividend not paid accumulates and UFG is not permitted to
pay dividends on or to retire any junior Preferred Stock or its common stock
until all dividend and sinking fund arrearages are paid. Since UFG has failed
to make dividend payments when due (whether consecutive or not), Nu-West became
entitled in 1989 to elect one person to the Board of Directors of UFG at UFG's
annual meeting of stockholders. However, Nu-West determined not to elect a
director at any of UFG's annual meetings of Stockholders since Nu-West has been
entitled to elect that director.

c. The USAT Receivership
---------------------

On December 30, 1988, USAT was placed into receivership by the Federal
Home Loan Bank Board ("FHLBB") and FSLIC was appointed as its receiver.
Immediately thereafter, USAT's deposit liabilities were assumed by, and
substantially all of its assets, including all of the subsidiaries of USAT, were
transferred to a new, federally-chartered savings bank organized by an
unaffiliated third party. No consideration was received by UFG as a result of
the foregoing transaction. As of December 31, 1988, therefore, UFG no longer
conducted savings and loan operations through any subsidiary. On August 9,
1989, FHLBB and FSLIC were abolished pursuant to the Financial Institutions
Reform, Recovery and Enforcement Act of 1989. The FDIC succeeded FSLIC as
receiver to the interests of USAT, and the OTS succeeded to FHLBB as the
regulatory agency charged with the supervision of, and enforcement of
regulations with respect to, savings association and savings and loan holding
companies.

As a result of FHLBB putting USAT into receivership on December 30,
1988, the stock of USAT owned by UFG became worthless, and UFG became entitled
to claim a worthless stock deduction in its 1988 tax return. That worthless
stock deduction in the amount of approximately $156 million is treated under the
Internal Revenue Code of 1986, as amended ("IRC"), as a taxable loss (the "Tax
Loss"). Based on UFG's review of certain rulings issued by the Internal Revenue
Service ("IRS") in matters unrelated to UFG, UFG believes that the Tax Loss
could be treated as a net operating loss ("NOL"). If so, the Tax Loss would
expire at the end of the 15th tax year after the year in which it was incurred.
However, pursuant to IRS policy, UFG cannot rely on rulings to which UFG is not
a party, and UFG has not sought a ruling in its case. If the Tax Loss is not
considered an NOL, the Tax Loss would be considered a capital loss which expired
on December 31, 1993 without ongoing value to UFG. Moreover, as set forth below
under "Settlement Agreements," subject to those settlements being effected, UFG
has agreed that, except for limited purposes, it will not use the benefits
arising from the Tax Loss.

-3-
<PAGE>

On January 12, 1989, UFG was notified by letter (the "January Letter")
from counsel for the FDIC that, in the FDIC's view, it had a claim (the "Net
Worth Claim") arising from the First American transaction relating to the
alleged breach of a claimed contractual obligation to the FDIC to maintain
USAT's net worth at a prescribed regulatory minimum. Specifically, during this
transaction, the FHLBB issued Resolution No. 83-252 purporting to require UFG to
"stipulate" that "for so long as it controls" USAT, UFG will "cause the net
worth of [USAT] to be maintained at a level consistent with that required by"
FHLBB regulations. The January Letter stated that UFG failed to maintain these
levels in accordance with that alleged stipulation. UFG was subsequently
notified by counsel for the FDIC that they believed damages were sustained as a
result of UFG's alleged breach of its stipulation and that compensation would be
demanded. If required to maintain USAT's net worth at the regulatory minimum,
the FDIC's claim against UFG would be approximately $534 million. However, the
FDIC's letter only stated that its damages were in excess of $100 million. In
addition, the FDIC has asserted that its Net Worth Claim has priority over the
claims of unsecured creditors of UFG in a Chapter 7 liquidation proceeding under
the United States Bankruptcy Code (the "Bankruptcy Code"), and that the Net
Worth Claim would have to be satisfied in full as a condition precedent to
relief in a Chapter 11 case.

The FDIC also asserted (the "Tax Sharing Claim") that UFG was
obligated to USAT as a result of income tax refunds allegedly received by UFG
through utilization in its consolidated tax returns of losses generated by
USAT's operations. The Tax Sharing Claim related to the period when UFG and
USAT were members of a consolidated group for tax purposes. UFG denied the
allegation that it was obligated to USAT for the Tax Sharing Claim. (As used
herein, the Net Worth Claim and the Tax Sharing Claim are called the "FDIC
Claims.") The FDIC has asserted that the Tax Sharing Claim is approximately $12
million, inclusive of interest. UFG's Board of Directors denied the existence
of and any liability under the FDIC Claims.

Following the loss of USAT, UFG's Board of Directors concluded that
the interests of its stockholders and creditors would be best served by a
reorganization of UFG involving the acquisition of a business or engaging in
transactions that could utilize all or part of the Tax Loss while attempting to
settle all outstanding claims against UFG. Accordingly, the Board of Directors
determined not to liquidate but instead to seek alternative options for
effectively utilizing UFG's assets and the Tax Loss. During 1989, UFG
endeavored to acquire an operating company or to engage in other profitable
transactions. UFG retained tax counsel to assist in formulating business plans
and procedures for the utilization of these assets and employed, on a best
efforts basis, a national investment banking firm to assist UFG in identifying
operating businesses which were available for acquisition. However, as a result
of UFG's limited assets, the existence of the FDIC Claims, and the limitations
placed by the IRS upon any acquisition by, or of, UFG while maintaining the
benefits of the Tax Loss, UFG was not in a position to complete any such
acquisition and no discussions were held with any of the companies identified.

UFG continues to deny any obligation to maintain USAT's net worth.
Nonetheless, the FDIC Claims constitute a substantial contingent liability to
UFG and have severely hindered UFG's ability to raise capital, to consummate
successfully the acquisition of an operating business, or to engage in other
profitable business transactions. Therefore, beginning in 1989, UFG initiated
negotiations with the FDIC legal staff and its outside counsel to reach a
settlement of the FDIC's Claims. Although a settlement was proposed in October,
1989, the settlement was subject to FDIC

-4-
<PAGE>

approval, and, in December, 1990, the FDIC informed UFG that it was terminating
negotiations. Negotiations were reopened in mid-1991 whereby UFG sought to
resolve the FDIC Claims as well as all other possible claims by the FDIC against
UFG. Those negotiations continued through the end of 1995.

In mid-1994, settlement discussions relating to the FDIC Claims were
joined by the OTS, which was investigating the possibility of certain regulatory
violations by UFG (the "OTS Claims"), its current and former officers and
directors, and others who had engaged in business transactions with UFG and
USAT. UFG denied any such violations and, in September 1994, began negotiations
with OTS concerning possible settlement of the OTS Claims.

At all times UFG has continued to deny any obligation that was
breached with respect to the FDIC Claims and has defended vigorously against
them. For example, with respect to the Net Worth Claim, UFG has asserted,
inter alia, that even if such an obligation existed, neither the FDIC nor OTS
had authority to enforce that obligation or, alternatively, that an obligation
no longer applied or had been fully satisfied.

d. The Involuntary Chapter 11 Case
-------------------------------

In November 1992, Nu-West, as holder of the Series B Preferred, filed
the Involuntary Petition against UFG for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). Nu-West sought to impose jurisdiction over
UFG to require it to implement a plan to reorganize its debts and other
obligations. UFG asserted that the involuntary filing was inappropriate and
sought dismissal of the Involuntary Petition. However, by agreement of the
parties and approval of the Bankruptcy Court, a hearing on UFG's request was not
scheduled.

During the pendency of the Involuntary Petition, the OTS and the FDIC
asserted that, in a Chapter 11 case, the Net Worth Claim is governed by section
365(o) of the Bankruptcy Code, which, if applicable, requires UFG to cure the
entire deficit in USAT's net worth as a condition precedent to relief under
Chapter 11, and that under section 365(o) of the Bankruptcy Code, the Net Worth
Claim would have priority over the claims of general, unsecured creditors. See
"The Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act
of 1990," below.

In December, 1995, certain Settlement Agreements (defined below) were
executed which provided a mechanism for settling the claims of the FDIC, the
OTS, FTC and Nu-West. Accordingly, on May 31, 1996, Nu-West filed a motion to
dismiss the Involuntary Petition against UFG with the understanding that UFG
would file thereafter a voluntary Chapter 11 petition and a plan of
reorganization and disclosure statement that contained the basic terms of the
Settlement Agreements. By order dated June 12, 1996, the Honorable Helen S.
Balick, Chief United States Bankruptcy Judge for the District of Delaware,
granted Nu-West's motion and dismissed the Involuntary Petition.

-5-
<PAGE>

e. The Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer
----------------------------------------------------------------
Recovery Act of 1990
--------------------

On November 29, 1990, the "Comprehensive Thrift and Bank Fraud
Prosecution and Taxpayer Recovery Act of 1990" (the "Recovery Act") was enacted
as part of the "Crime Control Act of 1990." The Recovery Act amends the
Bankruptcy Code to provide that unsecured claims based on any commitment by a
debtor to maintain the capital of an insured depository institution, such as the
alleged Net Worth Claim, are given a priority over all other non-priority claims
of the debtor. The Recovery Act also provides that, in any case under Chapter
11 of the Bankruptcy Code, the bankruptcy trustee is deemed to have assumed, and
shall immediately cure, any deficit under any net worth maintenance obligation
of the debtor to the FDIC.

The Recovery Act gives the FDIC the power to restrict, by order or
regulation, in certain circumstances a financial institution from making an
indemnification payment to, among others, any officer or director. The
restriction on indemnification payments is not dependent on the financial
institution's insolvency or troubled financial condition.

It is unclear what the effects would be under the Recovery Act if the
Settlement Agreements (defined below) are not consummated. First, it is not
clear whether UFG is even covered by the Recovery Act. In the event that UFG is
so covered, the FDIC or the OTS may assert that UFG is required to cure
immediately the alleged deficit under the Net Worth Claim and/or that the FDIC
has priority over all other non-priority claims against UFG. Although UFG
believes it has numerous meritorious defenses to the Net Worth Claim, there are
no assurances that UFG would prevail in any such litigation. If the FDIC or the
OTS were to prevail, the Net Worth Claim would be treated as a priority claim
that would substantially reduce or eliminate the amount of UFG's assets
available to pay other creditors and stockholders. In addition, under the
Bankruptcy Code, the FDIC or the OTS might attempt to require UFG to assume, and
immediately cure, the alleged Net Worth Claim. Though any such claim would be
vigorously defended by UFG, if the FDIC were to be successful in any such
action, the amount of UFG's assets available to pay its other creditors and
stockholders likely would be completely eliminated.

Finally, the FDIC or the OTS might seek, by means of filing a
complaint or notice of charges, to establish UFG's obligations under the FDIC
Claims, and, in connection with such a complaint, seek to attach all of UFG's
assets or to enjoin the wrongful disposition of UFG's assets. If such an
attachment were granted, UFG would be precluded from making any further payments
to its creditors or stockholders until the FDIC Claims were resolved.

f. The Indemnity Claims
--------------------

The FDIC has informed UFG that certain current and former officers,
directors and employees of UFG and USAT and others who had engaged in business
transactions with UFG and USAT (collectively, the "Possible Targets") were the
subject of an investigation that might lead to the FDIC bringing a lawsuit
against some or all of the Possible Targets. The FDIC informed UFG that it had
not, however, determined whether or not a lawsuit should be brought. In
February 1992, counsel for the FDIC notified UFG and the Possible Targets that,
in such counsel's opinion, UFG and the Possible Targets were liable to the FDIC
for breach of their fiduciary duty to USAT, for

-6-
<PAGE>

aiding and abetting others in the breach of duties to USAT, for wrongfully
causing USAT to pay dividends to UFG, for wrongfully failing to maintain the net
worth of USAT, and for failing to remit tax refunds to USAT. In addition,
counsel for the FDIC enumerated certain acts and omissions which, in their
opinion, may have created liability to the FDIC. Those acts and omissions
include (but, according to counsel for the FDIC, may not be limited to), the
FDIC Claims, activities in connection with the acquisition and disposition of
certain equity securities, high yield bonds and securities and derivative
products, the making of certain loans, the disposition of certain assets, and
the establishment of certain reserves for USAT (collectively, the "FDIC
Allegations"). However, there is a possibility that the applicable statute of
limitations has expired against the Possible Targets.

A number of the Possible Targets demanded that UFG indemnify them to
the extent permitted by UFG's by-laws, Delaware law and specific contract(s) for
all expenses, including attorneys' fees, which they might incur in connection
with the FDIC Allegations. UFG had not determined whether indemnification
would be appropriate, but agreed, in accordance with its by-laws, Delaware law,
and other contractual obligations with the Possible Targets, to advance certain
legal expenses.

As set forth below under "Settlement Agreements," UFG has entered into
a series of stipulations and consents relating to the possible settlement of the
FDIC Claims and the OTS Claims. In December 1995, the OTS brought an
administrative action (the "OTS Action") against certain of the Possible
Targets, other persons that the OTS alleges controlled UFG and USAT, and certain
individuals, by issuing a notice of charges which sets forth the OTS
allegations. All parties named in the OTS Action have denied all of the OTS
Claims, and the OTS Action is currently pending before an administrative law
judge. UFG is not a party to the OTS Action and has stipulated with the OTS
that after December 1995 it would not voluntarily pay for any of the costs or
expenses of any Possible Target relating to the OTS Action. UFG cannot
determine what action, if any, the Possible Targets who are parties to the OTS
Action will take as a result of UFG's stipulation.

In addition, in August 1995, the FDIC filed suit against one of the
Possible Targets in the United States District Court for the Southern District
of Texas (the "FDIC Action"). In November 1996, the United States District
Court for the Southern District of Texas granted the Possible Target's motion to
join the OTS as a party to the FDIC Action and granted several motions of other
Possible Targets to intervene in the FDIC Action. The FDIC Action is still
pending before the United States District Court for the Southern District of
Texas.

3. The Settlement Agreements
-------------------------

As a result of negotiations held among UFG, the FDIC, the OTS, FTC and
Nu-West, UFG has consented to the issuance of that certain Stipulation and
Consent to Issuance of Consent Cease and Desist Order for Affirmative Relief
with the OTS dated December 13, 1995 and that certain Consent Cease and Desist
Order for Affirmative Relief dated December 13, 1995 (collectively, the "OTS
Settlements") , which attempt to settle the OTS Claims. UFG has also entered
into that certain Settlement Agreement and Release dated as of December 9, 1995
with the FDIC, OTS, FTC and Nu-West (as amended from time to time, the "FDIC
Settlement" and,

-7-
<PAGE>

collectively with the OTS Settlements, the "Settlement Agreements") to resolve
the claims raised by these entities. Copies of the OTS Settlements and the FDIC
Settlement are attached hereto as Exhibits B through D, respectively.
Implementation of the Settlement Agreements is conditioned upon confirmation of
an acceptable Plan and Disclosure Statement containing substantially similar
terms to those contained in the Settlement Agreements. If the Plan or another
acceptable plan of reorganization is not submitted and confirmed within certain
agreed time periods, as those periods may be extended from time to time, the
Settlement Agreements become null and void.

UFG believes that the Plan and Disclosure Statement implement the
basic terms of the Settlement Agreements. The Board of Directors of UFG
considered the fact that, if it were to litigate the OTS Claims and FDIC Claims,
there would be a substantial risk that: (a) if the OTS and/or FDIC prevailed,
FTC, on behalf of the Debentureholders, and Nu-West would receive nothing; (b)
the cost and time involved in litigation could be significant; and (c) the FDIC
or OTS might attempt to impose extraordinary powers that could prevent UFG from
meaningfully defending its position. Therefore, after carefully considering the
nature of the claims and the costs and uncertainty of litigation, the Board of
Directors of UFG, while expressly denying the FDIC and OTS allegations,
concluded in its business judgment that the settlement with the FDIC and OTS
constitutes an inherently fair and reasonable course of action. Pursuant to the
Settlement Agreements and the Plan, UFG has agreed to pay to the FDIC a minimum
sum of $9.45 million and to proceed with a plan of reorganization in the
Bankruptcy Court. The sum due to the FDIC would be paid after the Bankruptcy
Court has confirmed a final plan of reorganization or liquidation. The Consent
Order also releases from any action by the OTS certain former and current
officers and directors of UFG.

Pursuant to the FDIC Settlement, UFG has not admitted any liability
with respect to the FDIC's Claims, but has agreed that, conditioned upon UFG
obtaining a final order of the Bankruptcy Court, the FDIC will receive a minimum
of $9.45 million, FTC will receive a minimum of $1.36 million, and Nu-West will
receive a minimum of $190,000. Any additional funds that remain available after
the payment of the minimum amounts and the winding down of UFG's affairs are
intended to be distributed to the FDIC, FTC and Nu-West in the same ratio as the
minimum payments. The FDIC Settlement initially provided that, inter alia, such
plan and disclosure statement must be filed within 60 days of the effective date
of the FDIC Settlement and confirmed on or before June 30, 1996. The parties,
by mutual agreements and amendments of the FDIC Settlement, agreed to extend
those deadlines through and including January 14, 1997 and April 30, 1997,
respectively.

The FDIC Settlement further provides that, with minimum exceptions,
any expenditure by UFG in excess of $300,000 from and after the date of the FDIC
Settlement was fully executed is subject to FDIC and OTS approval. The FDIC
Settlement also provides for cross and mutual releases among the parties as well
as releases for certain officers and directors of UFG.

In accordance with both the FDIC Settlement and the OTS Settlements,
if an acceptable plan of reorganization or liquidation, embodying substantially
the terms of the OTS Settlements and the FDIC Settlement, is not obtained, the
agreements become null and void. UFG has agreed, in connection with the
entering into of the Settlement Agreements, to continue tolling

-8-
<PAGE>

the statute of limitations and not to utilize, except in limited circumstances,
any tax benefits, including those arising from the Tax Loss, available to it.

4. The Voluntary Chapter 11 Case
-----------------------------

On January 14, 1997, UFG filed with the Court a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code. UFG continues to operate its
businesses and manage its properties as a debtor and debtor-in-possession
pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. UFG filed the
bankruptcy case in order to consummate the Settlement Agreements. The Plan
provides for the orderly distribution of the proceeds of the liquidation of the
Assets (defined below).

5. UFG's Assets
------------

For purposes of the Plan, UFG's assets (the "Assets") consist of all
property of any nature whatsoever, real or personal, tangible or intangible,
previously or now owned by UFG as set forth in 11 U.S.C. (S) 541. The Assets
consist primarily of money market accounts, treasury securities and similar
investments.

As a result of maintaining such Assets, UFG could be considered an
"investment company required to register under the Investment Company Act of
1940 (the "1940 Act") and would be subject to the rules and regulations of the
1940 Act. In May 1990, pursuant to receipt of an exemption from registration
under the 1940 Act, UFG liquidated its previously held portfolio of equity
securities investments. UFG's exemption from registration under the 1940 Act
will expire on December 30, 1997. In 1991, UFG agreed that its securities
investments would be limited to securities with a remaining maturity of 397 days
or less and which are rated in one of the two highest rating categories by a
nationally recognized, statistical rating organization, as that term is defined
in Rule 2a-7(a)(10) of the Securities and Exchange Commission's rules. As a
result of the limitations on UFG arising from the exemption from the 1940 Act,
UFG is required to make investments that offer a lower return than otherwise
might be obtainable, absent such limitations. If UFG is not otherwise operating
outside the scope of the 1940 Act on December 30, 1996, it may be required to
alter significantly its business operations.

II. PURPOSE OF THIS DISCLOSURE STATEMENT
------------------------------------

The purpose of this Disclosure Statement is to provide creditors and
holders of interests with such information as would enable a hypothetical,
reasonable individual or entity typical of the holders of Claims to make
informed judgments on voting on the Plan. This Disclosure Statement does not
purport to be a complete description of the Plan, the financial status of UFG,
applicable provisions of the Bankruptcy Code or of other matters that may be
deemed significant by creditors or other parties in interest. For further
information, you should examine the Plan directly and consult your legal and
financial advisors.

You are urged to read carefully the contents of this Disclosure
Statement before making your decision to accept or reject the Plan. Particular
attention should be directed to the

-9-
<PAGE>

provisions of the Plan affecting or impairing your rights as they existed before
the institution of this Chapter 11 case.

NO REPRESENTATION CONCERNING UFG'S LIQUIDATION VALUE OF PROPERTY IS
AUTHORIZED BY THE DEBTORS EXCEPT AS SET FORTH IN THIS DISCLOSURE STATEMENT. IN
DECIDING TO ACCEPT THE PLAN, YOU SHOULD NOT RELY UPON ANY REPRESENTATIONS OF UFG
OR ANY OTHER PARTY OTHER THAN THOSE CONTAINED EXPLICITLY IN THIS DISCLOSURE
STATEMENT.

A. ACCEPTANCE AND CONFIRMATION
---------------------------

The Bankruptcy Court has fixed March 26, 1997 as the date by which
holders of Allowed Claims (including those parties who are transferees of record
on the docket sheet of the Bankruptcy Court as of that same date, provided that
the time period prescribed in the Bankruptcy Rules for the filing of objections
to such transfers has expired), and/or holders of Claims that have been timely
filed, are liquidated in amount and are not the subject of an objection filed
prior to the commencement of the Confirmation Hearing (unless such claim was
granted temporary allowance), may vote to accept or reject the Plan. Creditors
whose Claims are impaired by the Plan may vote by filling out the enclosed
ballot and sending it in the envelope provided for that purposes to the
following parties:

If by mail, hand delivery or courier service, then to:

Logan and Company
615 Washington Street
Hoboken, NJ 07030.

In order to be counted, ballots must be received by 4:00 p.m. (Delaware Time) on
March 26, 1997.

Creditors whose Claims are not impaired by the Plan may not vote, as
they are conclusively presumed to have accepted the Plan. In order for the Plan
to be accepted by any class of creditors, it must be accepted by creditors who
hold at least two-thirds in dollar amount of the Claims of such class to which
votes are cast and who comprise more than one-half of the voting creditors
holding Claims of that class. THESE CALCULATIONS ARE BASED ONLY ON THE CLAIM
AMOUNTS AND NUMBER OF CREDITORS WHO ACTUALLY VOTE. ANY BALLOT THAT IS VALIDLY
EXECUTED THAT DOES NOT CLEARLY INDICATE REJECTION OF THE PLAN SHALL BE DEEMED TO
CONSTITUTE A VOTE FOR ACCEPTANCE OF THE PLAN. THE VOTE OF EACH CREDITOR IS
IMPORTANT.

The hearing (the "Confirmation Hearing") will be held on March 31,
1997 at 10:00 a.m. (Delaware Time) before the Honorable Helen S. Balick, Chief
Bankruptcy Judge, at the United States Bankruptcy Court for the District of
Delaware, 824 Market Street, Sixth Floor, Wilmington, Delaware 19801, to
consider UFG's request for confirmation of the Plan. The Confirmation Hearing
may be continued from time to time with notice only to those who have filed
timely objections or pertinent responsive pleadings. The Confirmation Hearing
may also be continued from time to time,

-10-
<PAGE>

without further notice, by announcement in open court on the date of the
scheduled hearing or any continuance thereof.

Any creditor or party in interest who wishes to object to confirmation
of the Plan must file an objection with the Clerk of the United States
Bankruptcy Court for the District of Delaware, 824 Market Street, Fifth Floor,
Wilmington, Delaware, 19801 and serve copies on the parties required by Fed. R.
Bankr. P. 3020(b)(1), including, but not limited to: Thomas L. Ambro, Esquire,
Richards, Layton & Finger, One Rodney Square, P.O. Box 551, Wilmington, Delaware
19899. The objections must be filed with the Clerk and served upon and received
by counsel on or before 4:00 p.m. (Delaware Time) on March 26, 1997.

III. CLASSIFICATION AND TREATMENT OF CLAIMS
--------------------------------------

A. ADMINISTRATIVE EXPENSES AND CERTAIN PRIORITY CLAIMS
---------------------------------------------------

1. Aggregate Administrative Claim Distribution
-------------------------------------------

On or before the Distribution Date, a fund in the amount of $100,000
will be established for the purpose of making distributions to holders of
Administrative Claims pursuant to Article III of the Plan (the "Administrative
Claimants' Fund"). The aggregate of distributions made pursuant to sections 3.2
and 3.3 of the Plan (described in sections III.A.2-3 below) will not exceed the
foregoing amount without the prior written approval of FDIC and OTS, which
approval shall not be unreasonably withheld. Pursuant to the FDIC Settlement,
UFG will provide twenty (20) business days prior written notice to FDIC and OTS
of any anticipated disbursement(s) or payment(s) that will cause UFG to exceed
the foregoing amount. If the FDIC or OTS withholds approval for such additional
deposit(s) to the Administrative Claimants' Fund and UFG believes such
withholding(s) of consent is (are) unreasonable, UFG may move before the
Bankruptcy Court for authority to make such additional deposit(s) to the
Administrative Claimants' Fund.

2. Claims and Expenses of Professional Persons
-------------------------------------------

Those Professional Persons and other persons who may be entitled to an
allowance of compensation and reimbursement of expenses pursuant to (S)
503(b)(2) of the Bankruptcy Code will be paid in Cash the amount awarded to
those Professional Persons or other Persons by order of the Bankruptcy Court as
soon as practical (i) in accordance with prior orders of the Bankruptcy Court,
or (ii) after the date on which the Bankruptcy Court enters an order awarding
the compensation or reimbursement of expenses to those Professional Persons or
other Persons.

3. Other Claims
------------

Each holder of an Allowed Administrative Claim (other than a Claim of
a Professional Person) shall be paid in Cash the amount of such Allowed Claim on
the later of (a) the Distribution Date or (b) thirty (30) days after the date
such Claim becomes an Allowed Administrative Claim, whichever is later, unless
the holder shall have agreed to different treatment of such Claim or unless the
ordinary business terms applicable to any such obligation would permit
otherwise, in which event it shall be paid in accordance with such terms. UFG
knows of no claims

-11-
<PAGE>

covered by this paragraph other than those scheduled as such on its Schedules
filed with the Bankruptcy Court.

4. Tax Claims
----------

Each holder of a Tax Claim entitled to priority under (S) 507(a)(8) of
the Bankruptcy Code shall be paid in Cash the amount of such Allowed Claim on
the later of (a) the Distribution Date or (b) thirty (30) days after the date
such Claim becomes an Allowed Tax Claim, as applicable, whichever is later,
unless the holder shall have agreed to different treatment of such Claim or
unless the ordinary business terms applicable to any such obligation would
permit otherwise, in which event it shall be paid in accordance with such terms.
UFG knows of no claims covered by this paragraph other than those scheduled as
such on its Schedules filed with the Bankruptcy Court.

B. CLASS 1 - SECURED CLAIMS
------------------------

Class 1 shall consist of UFG's secured claims. UFG believes that
there are no Secured Claims. However, to the extent that there may be Allowed
Secured Claims, each holder of an Allowed Class 1 Claim will be paid in the full
amount of such Claim, as soon as practical after the Effective Date, either by
(i) payment in Cash, (ii) abandonment of the property securing the Class 1 Claim
to the holder of such Claim, or (iii) such other treatment as agreed between UFG
and the holder of the Class 1 Claim. Persons asserting rights to set off will
be permitted to set off such amounts, without further court order, as UFG agrees
in writing. To the extent that UFG and any person asserting a right to set off
disagree as to the amount subject to set off, the Bankruptcy Court shall
determine the appropriate set off amount upon the request of any party.

C. CLASS 2 - PRIORITY CLAIMS
-------------------------

Class 2 shall consist of priority claims against UFG. Each holder of
an Allowed Class 2 Priority Claim shall receive Cash in the amount of such
Allowed Priority Claim, without interest, on the Distribution Date (defined in
the Plan as the Effective Date referred to below), unless the holder shall have
agreed to different treatment of such Claim. Each holder of a Disputed Class 2
Priority Claim shall receive Cash in the amount of such Claim that is ultimately
Allowed, without interest, as soon as practicable after the date on which the
order allowing such Claim becomes a Final Order (as defined in the Plan) and all
conditions precedent in the Plan have been properly met or waived (the
"Effective Date"). FDIC and OTS have asserted that they have priority claims
pursuant to (S)(S) 507(a)(9) and 365(o) of the Bankruptcy Code, which UFG has
disputed. As part of the FDIC Settlement, and to allow for the filing of the
Plan, FDIC and OTS, without waiving their arguments as to validity and/or
priority of the Claims of the FDIC and/or the OTS, have agreed to combine the
Net Worth Claim portion of the FDIC Claims and the OTS Claim (defined
collectively as the "Government Allowed Priority Claim") and to compromise and
fix the Government Allowed Priority Claim at $11,000,000. Moreover, the FDIC
has agreed to disburse, no later than three (3) business days after the
Distribution Date, from the Distribution it receives on account of the
Government Allowed Priority Claim, to FTC the amount of $1,360,000 and to Nu-
West the amount of $190,000. In exchange for such agreements, the Debtor has,
without waiving its arguments as to the validity and/or priority of the Claims
of the FDIC and/or the OTS, agreed to classify the Government Allowed Priority
Claim pursuant to (S)(S) 507(a)(9) and 365(o) of the Bankruptcy Code.

-12-
<PAGE>

UFG knows of no claims covered by this paragraph other than those scheduled as
such on its Schedules filed with the Bankruptcy Court.

D. CLASS 3 - CLAIMS OF UNSECURED CREDITORS
----------------------------------------

Class 3 shall consist of all Allowed Unsecured Claims. The Unsecured
Creditors' Fund shall be established on or before the Distribution Date and
shall consist of all Assets of the Debtor remaining after (i) establishment of
the Administrative Claimants' Fund, and (ii) distributions to holders of Class 1
Secured Claims and Class 2 Allowed Priority Claims have been made in accordance
with the Plan (including Section 2.1 thereof). Except as set forth below, each
holder of an Allowed Unsecured Claim in Class 3 shall receive a pro rata
Distribution from the Unsecured Creditors' Fund in the proportion that such
creditor's Allowed Unsecured Claim bears to the total amount of all Allowed
Unsecured Claims, until the Unsecured Creditors' Fund is liquidated and the
proceeds thereof are disbursed.

FDIC/OTS, FTC and Nu-West have agreed with the Debtor that any
Distribution received by any of them in excess of the sum of the Government
Allowed Priority Claim will be distributed to the FDIC/OTS, FTC and Nu-West in
the following percentages:

FDIC/OTS 85.90909%
FTC 12.36360%
Nu-West 1.742731%.

The Debtor, FDIC, OTS, FTC and Nu-West agree that for any and all unsecured
claims of FDIC and OTS, as well as the FTC Claim and the Nu-West Claim, they
shall collectively be granted an allowed unsecured Claim compromised and fixed
at $750,000 (the "Government/FTC/Nu-West Allowed Unsecured Claim"), which shall
be distributed by the FDIC/OTS in the pro rata percentages referred to
immediately above.

The distributions to FTC and Nu-West as provided above and in Section
D hereinabove shall be in complete satisfaction of the FTC Claim and the Nu-West
Claim, and FTC and Nu-West shall not be entitled to receive any other or further
Distributions from the Debtor or through FDIC and/or OTS on account of the FTC
Claim and/or the Nu-West Claim.

To be entitled to participate in any distribution on account of a
Class 3 Claim, such Claim must be either: (a) listed in the Schedules as an
undisputed, liquidated and non-contingent claim or (b) asserted in a proof of
claim filed with the Clerk of the Bankruptcy Court on or prior to the last date
set by the Bankruptcy Court for filing Claims in this Bankruptcy Case and either
(i) not be the subject of any objection or (ii) be subject to an objection but
subsequently allowed pursuant to a Final Order of the Bankruptcy Court. Payment
of Allowed Class 3 Claims under this Section shall not include post-petition
interest.

-13-
<PAGE>

E. CLASS 4 - INTERESTS
-------------------

Class 4 consists of UFG's issued and outstanding capital stock. Upon
the Effective Date, all (whether issued or treasury) shares of stock of UFG that
are outstanding immediately prior to the Effective Date will be canceled.

IV. IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND NOT IMPAIRED
---------------------------------------------------------------------------
BY THE PLAN
-----------

A. CLASSES NOT IMPAIRED BY THIS PLAN
---------------------------------

Class 1 is not Impaired. Under section 1126(f) of the Bankruptcy
Code, the holders of Allowed Claims in such classes are conclusively presumed to
have voted to accept the Plan, and, therefore, the votes of such holders will
not be solicited and the Disclosure Statement will not be distributed to such
holders.

B. CLASS OF CLAIMS IMPAIRED BY THIS PLAN AND WHOSE HOLDERS ARE ENTITLED
--------------------------------------------------------------------
TO VOTE
-------

Holders of Claims in Class 2 and Class 3 are Impaired by this Plan,
and the holders of Allowed Claims in these classes are entitled to vote to
accept or reject the Plan.

C. CLASSES OF INTERESTS IMPAIRED, RECEIVING NO DISTRIBUTION, AND,
--------------------------------------------------------------
THEREFORE, NOT ENTITLED TO VOTE
-------------------------------

Holders of Class 4 Interests will receive no distribution under the
Plan. As such, holders of Class 4 interests are deemed to have rejected the
Plan pursuant to section 1126(g) of the Bankruptcy Code and are not entitled to
vote.

V. IMPLEMENTATION OF THE PLAN
--------------------------

The Cash to effect the Distributions under the Plan is generated from
the liquidation of UFG's Assets. On or before the Distribution Date, the
Administrative Claimants' Fund shall be established and UFG shall deposit the
minimum sum of $100,000 into that Fund. In addition, on or before the
Distribution Date, UFG shall reserve the minimum sum of $11,000,000 in Cash from
UFG's estate for disbursement on account of the Government Allowed Priority
Claim. After the establishment of the Administrative Claimants' Fund, payment
of the Claims and expenses otherwise referred to in Section 2.1 of the Plan and
distributions to Priority Claims, UFG shall establish the Unsecured Creditors
Fund. UFG shall deposit the remainder of Cash from the estate into the
Unsecured Creditors' Fund for Distributions to holders of Allowed Class 3 Claims
as soon as practicable after the Effective Date.

-14-
<PAGE>

VI. BAR DATE
--------

The bar date for filing Claims (the "Bar Date") is March 10, 1997 at
4:00 p.m. (Delaware Time).

VII. SELECTED POST CONFIRMATION ISSUES
---------------------------------

A. CONDITION OF EFFECTIVENESS
--------------------------

In order for the Plan to become effective, unless waived by the FDIC,
the FDIC and OTS shall jointly receive by April 30, 1997, a minimum Distribution
on their Government Allowed Priority Claim sufficient for the FDIC/OTS to pay
out the following amounts: $9,450,000 to the FDIC/OTS; $1,360,000 to FTC; and
$190,000 to Nu-West. If the FDIC and OTS do not receive the specified
consideration, they also have the option to cancel the Settlement Agreements as
to all parties.

In order for the Plan to become effective, the Plan shall contain a
Government/FTC/Nu-West Allowed Unsecured Claim of $750,000. The Plan will also
not become effective unless it contains Miscellaneous Tax Provisions as
described below and Release Provisions as described below.

B. MANAGEMENT OF THE REORGANIZED DEBTOR
------------------------------------

The Board of Directors of the Reorganized Debtor will be formed and
constituted on the Effective Date. The sole director of the Reorganized Debtor
will be determined before confirmation of the Plan. The certificate of
incorporation of the Reorganized Debtor will permit the Board of Directors to
appoint persons to act as President, Vice President, Treasurer and Secretary of
Reorganized Debtor, with such Assistant Treasurer(s) and Assistant
Secretary(ies) as the Board of Directors should appoint. The sole director, and
all officers, employees, agents and professional persons employed by him on
behalf of the Reorganized Debtor, shall be indemnified by the Reorganized Debtor
for all acts that any of them must perform or cause to be performed in the
capacity as officer and/or director, which acts shall include the administration
of the Reorganized Debtor's estate and performance of such other services
required by the Plan, except that there shall be no indemnification with respect
to willful misconduct, gross negligence or fraud.

The Reorganized Debtor may retain the services of attorneys,
accountants and other agents necessary to assist and advise the Reorganized
Debtor in the performance of its duties. The fees and expenses of such
professionals and agents shall be paid from the Administrative Claimants' Fund
upon the monthly submission of bills to the Reorganized Debtor within ten (10)
business days of receipt.

C. REVESTING OF PROPERTY AND CAUSES OF ACTION
------------------------------------------

On the Effective Date, pursuant to sections 1141(b) and (c) of the
Bankruptcy Code, the Assets of UFG will automatically vest in the Reorganized
Debtor, free and clear of all claims, liens, charges, interests or other
encumbrances. On the Effective Date, all Causes of Action (except

-15-
<PAGE>

for those Causes of Action that are released under the Plan) shall automatically
be retained and preserved and will revest in the Reorganized Debtor.

D. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
----------------------------------------

Effective as of the Confirmation Date, each executory contract and
unexpired lease that has not been assumed or rejected by UFG prior to the
Confirmation Date with the approval of the Bankruptcy Court shall be deemed
rejected pursuant to (S)(S) 365 and 1123 of the Bankruptcy Code.

E. OBJECTIONS TO CLAIMS AND ADMINISTRATIVE CLAIMS BAR DATE
-------------------------------------------------------

Any Claim not deemed filed pursuant to section 1111(a) of the
Bankruptcy Code or filed on or before the earlier of the Confirmation Date or
the time fixed by the Bankruptcy Court for filing such Claims will not be
Allowed; provided, however, that each person or entity that is a party to an
executory contract or unexpired lease rejected pursuant to the Plan (and only
such persons or entities) shall be entitled to file a proof of claim for damages
alleged to have been suffered due to such rejection not later than thirty (30)
days after the Confirmation Date. Any Claim arising from the rejection of any
executory contract or unexpired lease not filed with the Court within the time
period provided in the immediately preceding sentence shall be deemed discharged
and no distribution may be made under the Plan on account of such Claim.

Other than any Claim deemed allowed under the Plan (i.e., the
Government Allowed Priority Claim and the Government/FTC/Nu-West Allowed
Unsecured Claim), UFG, the Reorganized Debtor (as defined in the Plan) or any
party in interest may object to and contest the allowance of any Claims filed
with the Bankruptcy Court. Objections to Claims shall be filed with the Clerk
of the Bankruptcy Court and served upon each holder of a Claim to which
objection is made within ninety (90) days after the Effective Date or as
otherwise provided by any Final Order entered by the Bankruptcy Court.

Any entity that believes it holds a Claim entitled to administrative
priority under Bankruptcy Code section 503 or section 507 that was incurred
during the period from the Petition Date through the Confirmation Date shall
file, not later than thirty (30) days after the Confirmation Date, that Claim.
If such a filing is not timely made, such claimant will be forever barred and
enjoined from asserting, recovering or otherwise seeking payment on, such Claim.

F. RETENTION OF JURISDICTION
-------------------------

The Bankruptcy Court will retain jurisdiction of the UFG chapter 11
case in order to allow and disallow Claims, to allow professional fees, to
determine applications for assumption or rejection of executory contracts and
unexpired leases and related issues, to enforce the Plan or resolve any disputes
arising under the Plan, to correct any defect, to cure any omission or to
reconcile any inconsistency in the Plan or Confirmation Order, to determine all
applications, motions, adversary proceedings and contested matters in the
Bankruptcy Court, to hear, determine and enforce all Claims and Causes of
Action, to permit the Reorganized Debtor to abandon property

-16-
<PAGE>

of de minimus value to the estate, and to enter a final decree, all as more
fully set out in Section 15.1 of the Plan.

VIII. POST-BANKRUPTCY FINANCIAL INFORMATION
-------------------------------------

UFG has filed a Statement of Financial Affairs and Schedules of Assets
and Liabilities with the Bankruptcy Court as required by the Bankruptcy Code.
As a debtor-in-possession, UFG intends to file (or has filed) monthly operating
reports with the United States Trustee. This financial information may be
examined in the Bankruptcy Court Clerk's Office.

IX. RELEASES AND COVENANTS
-----------------------

A. GENERAL RELEASE
---------------

Except as otherwise set forth below, on the Confirmation Date, but
subject to the occurrence of the Effective Date, each holder of a Claim or
Interest who is not otherwise specifically provided for in another section of
Article 12 of the Plan and (a) who has accepted the Plan, (b) whose Claim or
Interest is in a Class that has accepted the Plan within the meaning of section
1126 of the Bankruptcy Code, or (c) who is entitled to receive a Distribution of
Assets pursuant to the Plan, will be deemed, by virtue of such holder's receipt
of a Distribution of property, acceptance of rights granted under the Plan or
acceptance of the Plan by such holder's Class, to have unconditionally waived,
discharged and released all rights, claims, and causes of action that such
holder had or might have had against UFG, and UFG's current and former officers,
directors, employees, agents, advisors, professional persons and representative,
in respect of UFG and its business affairs prior to the Effective Date;
provided, however, that such waiver, discharge and release will not apply to any
oral or written contractual rights against non-Debtor third parties on
guarantees and letters of credit, whether or not such non-Debtor third parties
hold Claims against or Interests in UFG.

B. SPECIFIC RELEASES BY THE FDIC, THE OTS, FTC, NU-WEST, HOLDERS OF
----------------------------------------------------------------
CLAIMS IN CLASSES 1 AND 2 AND THE HOLDERS OF ADMINISTRATIVE, TAX AND
--------------------------------------------------------------------
PRIORITY CLAIMS
---------------

THE FDIC AND THE OTS. The FDIC, for itself and its successors and
assigns, is releasing UFG, and Clarence Mayer, Paul N. Schwartz and James R.
Whatley (jointly and severally, the "Released Directors") in their capacities as
UFG's directors and/or officers, from any and all claims, demands and causes of
action belonging to the FDIC that arise out of or relate in any way to UFG's or
the Released Directors' relationship with USAT (or its subsidiaries) or the
Released Directors' activities at UFG, USAT or their respective subsidiaries,
except as described in Section 12.3 of the Plan (also described in Section IX.D.
below) which expressly are not released or discharged. Pursuant to the OTS
Settlements, all OTS proceedings against UFG and the Released Directors are
terminated, and the OTS covenants and agrees that no further administrative
proceedings arising out of UFG's or the Released Directors' activities at UFG
shall be commenced by OTS against UFG or the Released Directors.

-17-
<PAGE>

INDENTURE TRUSTEE. FTC, not in its corporate capacity but solely as
Indenture Trustee under the Indenture on behalf of the Debentureholders and the
respective successors and assigns of the foregoing, is releasing and discharging
UFG, its past and present officers, directors and employees, and its successors
and assigns, from any and all claims, demands, obligations, damages, actions and
causes of action, for monetary or non-monetary relief, direct or indirect, in
law or in equity, belonging to FTC, or to the holders of the Debentures, to the
extent permitted by the Indenture.

NU-WEST. Nu-West, for itself and its successors and assigns, is
releasing and discharging UFG, its past and present officers, directors and
employees, and its successors and assigns, from any and all claims, demands,
obligations, damages, actions and causes of action, for monetary or non-monetary
relief, direct or indirect, in law or in equity, belonging to Nu-West.

CLASS 1 AND 2 AND ADMINISTRATIVE AND TAX CLAIMANTS. In consideration
of Distributions to be made to holders of Administrative Claims and Tax Claims,
each such claimant and holder of such Claim (jointly and severally, the
"Releasors") is releasing UFG and UFG's agents, counsel, advisors and
representatives (including current and former officers and directors of UFG)
(jointly and severally, the "Released Parties"), and the Released Parties are
releasing the Releasors (except as otherwise provided in the Plan or any
amendment thereto), from any and all claims, obligations, rights, Causes of
Action, and liabilities (other than UFG's obligations under the Plan), whether
known or unknown, foreseen or unforeseen, now existing or thereafter arising,
and based in whole or in part upon any act, omission, misfeasance or malfeasance
or other occurrence taking place on or prior to the Effective Date, in any way
relating to UFG, the Reorganized Debtor, the Chapter 11 Case, or the Plan
(jointly and severally, the "Released Claims"), and such distribution will be
deemed in full and final satisfaction, settlement and release of and will effect
a waiver of the Released Claim against such persons.

C. RELEASES OF OTHERS BY UFG
-------------------------

UFG, on behalf of itself, the successors and assigns of UFG and the
Released Directors, is deemed to release and discharge FDIC, OTS, and their
respective successors and assigns, from any and all claims, demands,
obligations, damages, actions and causes of action, for monetary or non-monetary
relief, direct or indirect, in law or in equity, belonging to UFG or the
Released Directors. Moreover, UFG, on its own behalf and that of its successors
and assigns, will release and discharge FTC as Indenture Trustee under the
Indenture, Nu-West, and their respective successors and assigns, from any and
all Claims, demands, obligations, damages, actions and causes of action, for
monetary and non-monetary relief, direct or indirect, in law or in equity,
belonging to UFG.

D. OTHER RELEASES AND EXPRESS RESERVATIONS THEREFROM BY THE FDIC AND
-----------------------------------------------------------------
THE OTS
-------

UFG, on its own behalf, and on behalf of all of UFG's stockholders
derivatively, will waive, release and discharge all current and former
directors, officers, employees, agents, advisors, professional persons and UFG
representatives (jointly and severally, the "Releasees"), from all liability
based upon any act or omission relating to past service with or for or on behalf
of UFG or

-18-
<PAGE>

its affiliates. The immediately preceding sentence shall not, however, apply to
any indebtedness of any person to UFG for money borrowed by such person.

Notwithstanding any other provision in the Plan, the FDIC will be
deemed to preserve and will not be deemed to have released, any Claims not
expressly released in the Plan, including, without limitation (i) any Claim by
the FDIC against any person or entity not expressly released by the FDIC in the
Plan, including, but not limited to, Charles E. Hurwitz, any of UFG's present or
former directors or officers (except the Released Directors), Federated
Development Co., MCO Holdings, Inc., Maxxam, Inc. and any and all of UFG's
present or former affiliates provided, however, that the following and current
and former subsidiaries of the Debtor -- PLC Stockholdings, Inc., Group
Investors Trust Company, PennCorp Financial, Inc., and Southwestern Group
Agency, Inc., will enter into separate release agreements with FDIC/OTS in
exchange for a transfer of all of their assets to the Debtor for Distribution
pursuant to the Plan or (ii) any Claim against UFG or any other person or entity
as the maker, endorser or guarantor of any promissory note payable or owed to
FDIC (other than in its capacity with respect TO USAT or UFG), financing
institutions other than USAT, or any other person or entity, including, but not
limited to, any Claims of the FDIC as successor in interest to said other
financial institutions or other persons or entities.

E. MISCELLANEOUS TAX PROVISIONS
----------------------------

UFG, on behalf of itself and any and all successors-in-interest,
agrees not to claim on any tax return filed with, or utilize in connection with
any assessment of tax by, the Internal Revenue Service (i) any net operating
loss deductions, under the provisions of Section 172 of the Internal Revenue
Code, for net operating losses of UFG or USAT for any tax years through and
including December 31, 1988 nor (ii) any carryovers or carrybacks, under the
provisions of Section 1212 of the Internal Revenue Code, for any net capital
losses of UFG or USAT for any tax years through and including December 31, 1988
(collectively, the "Tax Losses"). Notwithstanding the foregoing, UFG shall be
allowed to utilize these Tax Losses only to offset UFG's income attributable to
its tax years ending on or before December 31, 1997, provided that there is no
material increase in the amount of and nature of UFG's assets and liabilities
from those reflected in its report on S.E.C. Form 10-Q for the quarter ended
September 30, 1995 and provided further that there is no material change in the
amount and nature of the business conducted by UFG (including, but not limited
to, any business conducted through subsidiaries, partnerships or joint
ventures), in UFG's corporate structure, and/or in UFG's ownership other than as
contemplated in the Plan. The intent of this section of the Plan is to
extinguish any and all tax deductions and benefits arising out of the Tax Losses
of UFG and USAT except in the limited circumstances set forth in the Plan.

X. THE PLAN CONFIRMATION PROCESS
-----------------------------

A. ACCEPTANCE AND CONFIRMATION
---------------------------

At the Confirmation Hearing, the Bankruptcy Court will confirm the
Plan only if all the requirements of section 1129 of the Bankruptcy Code are
met. Among the requirements for confirmation of the Plan are that the Plan is
(i) accepted by the impaired class of claims or, if rejected by the impaired
class, that the Plan "does not discriminate unfairly" and is "fair and

-19-
<PAGE>

equitable" as to the Class, (ii) feasible, and (iii) in the best interests of
creditors whose claims are impaired under the Plan.

1. Acceptance of the Plan
----------------------

In order for the Plan to be accepted by any class, it must be accepted
by creditors who hold at least two-thirds in dollar amount of the claims in such
impaired class as to which votes are cast, and who comprise more than one-half
of the voting creditors holding claims in such class. A class is impaired if
the legal, equitable or contractual rights attaching to the Claims in that class
are modified, other than by curing defaults and reinstating maturity or payment
in full in cash. Creditors whose claims are not impaired by the Plan may not
vote and are conclusively presumed, pursuant to the Bankruptcy Code, to have
accepted the Plan.

If any impaired Class does not accept the Plan, UFG may nevertheless
seek confirmation of the Plan. To obtain such confirmation, it must demonstrate
to the Bankruptcy Court that the Plan "does not discriminate unfairly" and is
"fair and equitable" with respect to each dissenting class.

2. Feasibility
-----------

As a condition to confirmation of a Plan, section 1129(a) of the
Bankruptcy Code requires that the confirmation of the Plan is not likely to be
followed by the liquidation of the reorganized debtor (unless such liquidation
is proposed in the Plan) or the need for further financial reorganization.
Since liquidation is proposed in the Plan, UFG believes that the Plan meets the
feasibility requirement and that it will be able to make all payments required
by the Plan without the necessity for further financial reorganization.

3. Best Interests Test
-------------------

Confirmation of the Plan also requires that each claimant either (a)
accept the Plan or (b) receive or retain under the Plan property of a value, as
of the Effective Date of the Plan, that is not less than the value such claimant
would receive or retain if UFG was liquidated under Chapter 7 of the Bankruptcy
Code.

To determine what creditors and holders of interest would receive if
UFG was liquidated, the Bankruptcy Court must determine the dollar amount that
would be generated from the liquidation of UFG's assets and properties in the
context of a Chapter 7 liquidation case. UFG believes that creditors would
receive substantially less if the Assets were liquidated under Chapter 7 of the
Bankruptcy Code (see Section XII.A hereunder). Such cash amount would be
further reduced by the cost and expenses of liquidation and by additional
administrative priority claims that would result from, in all likelihood, a
Chapter 7 liquidation.

The cost of liquidation under chapter 7 would include the fees payable
to a trustee, as well as those that might be payable to additional attorneys and
other professionals that the trustee may engage, plus any unpaid expenses
incurred by UFG during the Chapter 11 case, such as compensation for attorneys,
financial advisors and accounts.

-20-
<PAGE>

UFG believes that for all of these reasons, as well as those set forth
in Section XII.A hereunder, unsecured creditors will receive substantially
greater value under the Plan than in a Chapter 7 liquidation and that the Plan
satisfies the "best interest of the creditors" test. In addition, Interest
holders would not be entitled to receive any distributions on account of their
Interests in either a Chapter 7 or Chapter 11 case since unsecured creditors
would not receive payment in full in either scenario.

XI. GENERAL FEDERAL INCOME TAX CONSIDERATIONS
-----------------------------------------

The confirmation and execution of the Plan may have tax consequences
to holders of Claims and Interests. UFG does not offer an opinion as to any
federal, state, local or other tax consequences to holders of claims and
Interests as a result of the confirmation of the Plan. All holders of Claims
and Interests are urged to consult their own tax advisors with respect to the
federal, state, local and foreign tax consequences of the Plan. THIS DISCLOSURE
STATEMENT IS NOT INTENDED, AND SHOULD NOT BE CONSTRUED, AS LEGAL OR TAX ADVICE
TO ANY CREDITOR.

XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
---------------------------------------------------------

If the Plan is not confirmed and consummated, the theoretical
alternatives include (a) liquidation of UFG under Chapter 7 of the Bankruptcy
Code, or (b) an alternative plan of reorganization.

A. LIQUIDATION UNDER CHAPTER 7
---------------------------

If no Plan can be confirmed, the Chapter 11 Case may be converted to a
case under Chapter 7 of the Bankruptcy Code in which a trustee would be elected
or appointed to liquidate the assets of UFG for distribution to its creditors in
accordance with the priorities established by the Bankruptcy Code. In light of
the OTS Claims and the FDIC Claims, UFG believes that conversion to a Chapter 7
case would likely result in substantially lower or no distributions to unsecured
creditors. Specifically, the Settlement Agreements are the culmination of
several years of settlement negotiations between UFG, the FDIC, the OTS, and
others, and form the cornerstone for the Plan. However, the Settlement
Agreements are conditioned expressly upon UFG confirming a plan of
reorganization with acceptable terms following, to the greatest extent possible,
the terms set forth in the Settlement Agreement. Conversion to Chapter 7 would,
most likely, jeopardize the Settlement Agreements and revert the parties back to
their prior positions regarding entitlement to UFG's Assets. Thereafter, UFG
would be forced to litigate, inter alia, complex legal issues surrounding the
Net Worth Claim and whether such claim would, if Allowed, entitle the FDIC
and/or OTS to a priority claim under section 365(o) of the Bankruptcy Code. If
the FDIC and/or the OTS is ultimately successful, the FDIC and/or the OTS
would, as priority creditors, receive distributions on its/their claims ahead of
all other unsecured creditors. Moreover, even if the FDIC and/or the OTS is/are
not successful, any litigation that would ensue would likely be protracted and
expensive. For all of these reasons, UFG submits that conversion to Chapter 7
would likely result in substantially lower returns or none at all for UFG's
unsecured creditors.

-21-
<PAGE>

B. ALTERNATIVE PLAN OF REORGANIZATION
----------------------------------

If the Plan is not confirmed, UFG or any of the parties in interest
could attempt to formulate a different Plan. UFG believes that the Plan
described herein will provide the greatest and most expeditious return to
creditors.

XIII. OTHER INFORMATION
-----------------

Inquiries regarding this Disclosure Statement may be made by
communicating with Thomas L. Ambro or Hillary C. Steinberg at the offices of
Richards, Layton & Finger, One Rodney Square, P.O. Box 551, Wilmington, Delaware
19899.

Dated: February 28, 1997

UNITED FINANCIAL GROUP, INC.

By:/s/ Paul N. Schwartz
--------------------------
Paul N. Schwartz
President

-22-

<PAGE>

UNITED FINANCIAL GROUP, INC. EXHIBIT 11.1
COMPUTATION OF NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
(In Thousands Except Per Share Data)

- --------------------------------------------------------------------------------
Year Ended December 31,1996 1996 1995 1994
- --------------------------------------------------------------------------------

Computation of net income (loss) applicable
to common stock:

Net loss before extraordinary item $ (4,347) (334) (689)
Extraordinary item--reduction of Debenture
liabilities as a result of reorganization 4,326 -- --
Net loss (21) (334) (689)
Redeemable preferred stock dividends -- (763) (763)
Accretion of redeemable preferred stock to
redemption value -- -- (17)
- --------------------------------------------------------------------------------
Net loss to common stock (21) (1,097) (1,469)
- --------------------------------------------------------------------------------
================================================================================

Computation of average common and common
equivalent shares:

Common stock outstanding at beginning and
end of period 8,074 8,074 8,074
- --------------------------------------------------------------------------------
Average common and common equivalent shares 8,074 8,074 8,074
- --------------------------------------------------------------------------------
================================================================================

Per common and common equivalent share:
Net loss before extraordinary item $ (0.54) (0.14) (0.19)
Extraordinary item--reduction of
Debenture liabilities as a result of
reorganization 0.54 (0.00) (0.00)
Net loss $ (0.00) (0.14) (0.19)
- --------------------------------------------------------------------------------
================================================================================

<PAGE>

EXHIBIT 21.1

UNITED FINANCIAL GROUP, INC.
SUBSIDIARIES OF THE REGISTRANT

--------------------------------------------------
State of Incorporation
Name
--------------------------------------------------
PLC Stockholding, Inc. Delaware
Group Investors Trust Company Texas
PennCorp Financial, Inc. Texas
United Savings Association of Texas Texas

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors and Stockholders
United Financial Group, Inc.

We consent to the incorporation by reference in the Registration Statements
(Nos. 2-84691, 2-83131, and 2-91695) on Form S-8 of United Financial Group, Inc.
of our report with explanatory paragraph, dated February 14, 1997, relating to
the consolidated statements of financial condition of United Financial Group,
Inc. and subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, common stockholders' deficit and cash
flows for each of the years in the three year period ended December 31, 1996
which report appears in the December 31, 1996 Annual Report on Form 10-K of
United Financial Group, Inc.

Our report dated February 14, 1997, contains an explanatory paragraph that
states that significant claims have been made against the Company by the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision and others.
Furthermore, the Company did not make required principal payments on its 9%
Secured Sinking Fund Debentures Due 1993. Since 1988, the Company has attempted
to negotiate settlements with its creditors and claimants, and, in 1995, the
Company entered into agreements with certain of those creditors and claimants
which would require payments to them, subject to bankruptcy proceedings and the
confirmation of a plan of reorganization. On January 14, 1997, the Company filed
a petition for protection under Chapter 11 of the U.S. Bankruptcy Code and
submitted a Plan of Reorganization specifying proposed payments to certain of
its creditors and claimants. The Plan was confirmed on March 31, 1997. The
Company is now operating its business as a debtor-in-possession. The payments
outlined in that Plan of Reorganization exceed total assets of the Company at
December 31, 1996. These matters raise substantial doubt about the Company's
ability to continue as a going concern.

KPMG PEAT MARWICK LLP
Houston, Texas
March 31, 1997

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,930
<SECURITIES> 8,557
<RECEIVABLES> 220
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,707
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,707
<CURRENT-LIABILITIES> 11,718
<BONDS> 0
0
16,594
<COMMON> 56,289
<OTHER-SE> (72,894)
<TOTAL-LIABILITY-AND-EQUITY> 11,707
<SALES> 0
<TOTAL-REVENUES> 813
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 662
<LOSS-PROVISION> 4,078
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> (4,347)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,347)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,326
<CHANGES> 0
<NET-INCOME> (21)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> 0

</TABLE>