<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-