SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NUMBER 0-27736
DIGNITY PARTNERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3165263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1700 MONTGOMERY STREET, SUITE 250
SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices) (Zip Code)
(415) 394-9467
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At April 30, 1996, there were 4,291,824 shares of the registrant's Common Stock
outstanding.
DIGNITY PARTNERS, INC.
INDEX
Page #
------
Part I
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 1
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and 1995 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 3
Condensed Notes to Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 11
Part II
Item 4. Submission of Matters to a Vote of Securityholders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
(i)
DIGNITY PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
March 31, December 31,
ASSETS 1996 1995
--------- ------------
Cash and cash equivalents (note 2) $15,539,351 $ 1,056,611
Restricted cash 5,097,437 4,566,845
Marketable securities (note 2) 4,210,229 --
Matured policies receivable 1,831,989 1,652,921
Purchased life insurance policies (note 3) 56,307,028 48,938,098
Furniture and equipment, net of accumulated depreciation of
$64,552 and $61,349, respectively 114,274 130,532
Deferred financing costs, net of accumulated amortization of
$539,755 and $451,961, respectively 965,748 1,043,541
IPO financing costs (note 2) -- 750,000
Other assets 238,951 87,079
----------- -----------
Total assets $84,305,007 $58,225,627
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses $ 330,848 $ 329,827
Accounts payable 198,550 377,204
IPO financing costs payable (note 2) 500,000 306,900
Payable to related party (note 2) -- 1,482,170
Accrued compensation payable (note 2) 50,480 849,148
Unearned income 787,545 715,883
Payable for policies purchased 1,053,691 376,020
Other short term debt (note 2) -- 1,162,170
Long term notes payable (note 4) 44,005,138 39,105,138
Other long term debt (note 2) -- 1,444,270
Deferred income taxes 711,609 531,711
----------- -----------
Total liabilities 47,637,861 46,680,441
----------- -----------
Minority interest of limited partners in investment partnership 6,145,235 6,679,582
----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value; 2,000,000 authorized shares:
Convertible Preferred Stock, 135,000 authorized shares,
0 and 34,880 shares, respectively,
issued and outstanding (note 2) -- 3,488,013
Common stock, $0.01 par value; 15,000,000 authorized shares,
4,291,824 and 1,589,324 shares, respectively,
issued and outstanding (note 2) 42,918 15,893
Additional paid-in-capital 29,493,372 669,594
Retained earnings 985,621 692,104
----------- -----------
Total stockholders' equity 30,521,911 4,865,604
----------- -----------
Total liabilities and stockholders' equity $84,305,007 $58,225,627
=========== ===========
See accompanying condensed notes to consolidated financial statements.
1
DIGNITY PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1996 and 1995
Three Months Ended
March 31,
1996 1995
-------- --------
Income:
Earned discounts on life insurance policies $1,812,601 $1,637,468
Interest income 174,994 41,594
Other 130,726 32,101
---------- ----------
Total income 2,118,321 1,711,163
Expenses:
Interest expense 1,007,753 705,680
Compensation and benefits 319,035 153,569
Other general and administrative expenses 220,376 137,953
Amortization 87,793 61,468
Depreciation 9,949 7,787
Consulting fees -- 9,622
---------- ----------
Total expenses 1,644,906 1,076,079
---------- ----------
Income before income taxes and minority interest 473,415 635,084
Income tax expense (179,898) (134,652)
Minority interest of limited partners in earnings of investment partnership -- (367,299)
---------- ----------
Net income $ 293,517 $ 133,133
========== ==========
Net income per share (note 1) 0.10 0.07
Weighted average number of shares of common stock and
common stock equivalents outstanding (note 1) 3,089,467 1,901,870
See accompanying condensed notes to consolidated financial statements.
2
DIGNITY PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
Three Months Ended
March 31,
1996 1995
-------- --------
Cash flows for operating activities:
Net income $ 293,517 133,133
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 97,742 69,255
Write-off of furniture and equipment 12,303 --
Increase in accounts receivable (28,174) --
Earned discounts on insurance policies (1,812,601) (1,637,468)
Purchase of life insurance policies (9,640,408) (6,169,749)
Collections on life insurance policies 4,610,856 3,060,920
Increase in unearned income 71,662 29,866
Increase in other assets (151,872) (12,732)
Increase in deferred taxes 179,898 134,652
Increase in accrued expenses 1,021 77,152
Increase (decrease) in accounts payable (178,654) 71,635
Increase in IPO financing costs payable 193,100 --
Increase (decrease) in payable to related party (1,482,170) 148,772
Increase (decrease) in accrued compensation payable (798,668) 86,250
Income applicable to minority interest -- 367,299
----------- -----------
Net cash used by operating activities (8,632,448) (3,641,015)
----------- -----------
Cash flows used for investing activities:
Purchase of furniture and equipment (5,994) (3,385)
Additions to restricted cash (530,592) (2,587,723)
Additions to marketable securities (4,210,229) --
----------- -----------
Net cash used for investing activities (4,746,815) (2,591,108)
----------- -----------
Cash flows from financing activities:
Proceeds from long term notes payable 4,900,000 24,317,762
Proceeds from other long term debt 2,065,025 6,685,000
Principal payments on other long term debt (3,509,295) (22,902,345)
Distributions to limited partners (534,347) (882,659)
Principal payment on loan from stockholder (1,162,170) --
Net proceeds from issuances of common stock 25,362,790 --
Increase in financing costs (10,000) (563,591)
Reimbursement of IPO financing costs 750,000 --
----------- -----------
Net cash provided by financing activities 27,862,003 6,654,167
----------- -----------
Net increase in cash and cash equivalents 14,482,740 422,044
Cash and cash equivalents, beginning of period 1,056,611 30,561
----------- -----------
Cash and cash equivalents, end of period $15,539,351 452,605
=========== ===========
Supplemental disclosure of cash flow information:
State taxes paid $ 5,693 $ 2,450
=========== ===========
Cash paid for interest $ 1,006,732 $ 421,631
=========== ===========
See accompanying condensed notes to consolidated financial statements.
3
DIGNITY PARTNERS, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Dignity Partners, Inc.
and its consolidated entities ("Dignity Partners" or the "Company") as of March
31, 1996 and for the three month periods ended March 31, 1996 and 1995 have been
prepared in accordance with generally accepted accounting principles for interim
financial information, in accordance with Rule 10-01 of Regulation S-X.
Accordingly, such statements do not include all of the information and notes
thereto that are included in the annual consolidated financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation, have been included.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the entire 1996
fiscal year. The balance sheet as of December 31, 1995 has been derived from
the audited financial statements of the Company. The statements included herein
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Form 10-K").
Net income per share is calculated on the primary basis using the
average number of common stock and common stock equivalents outstanding. Common
Stock equivalents include employee stock options and shares issuable upon the
conversion into Common Stock of outstanding shares of the Company's Convertible
Cumulative Pay-in-Kind Preferred Stock (the "Convertible Preferred Stock"). The
outstanding shares of Convertible Preferred Stock were not actually converted
into Common Stock until February 1996. See Note 2 of Condensed Notes to
Consolidated Financial Statements.
2. THE INITIAL PUBLIC OFFERING
In February 1996, the Company completed an initial public offering of an
aggregate of 2,702,500 shares of its Common Stock at the public offering price
of $12.00 per share. Of such shares, 2,381,356 shares were issued and sold by
the Company and 321,144 shares (representing all shares issuable and issued
pursuant to the conversion in full of the Convertible Preferred Stock) were sold
by Bradley Rotter, a director and Chairman of the Board of Directors of the
Company. The Company did not receive any proceeds of the shares sold by Bradley
Rotter. The Company received the following proceeds from the offering and such
proceeds were used for the following purposes:
Proceeds:
Proceeds net of underwriters' discount 26,575,933
Estimated offering expenses 1,213,143
----------
Net proceeds 25,362,790
----------
Payments:
Payments to related party 2,191,007
Accrued and unpaid salaries (a) 833,750
Taxes on accrued and unpaid salaries 20,187
Short term debt 1,162,170
Other long term debt 3,234,033
----------
Total payments 7,441,147
----------
- ----------
(a) Represents accrued and unpaid salaries owed to executive officers of the
Company for services rendered during 1993, 1994 and the first nine months
of 1995. See the Form 10-K for further information.
4
The $17,921,643 of remaining proceeds have been and will be used for policy
purchases and to fund working capital requirements. Pending use for such
purposes, remaining proceeds have been invested in short term securities (less
than three months) and marketable securities (less than one year) primarily
consisting of grade BBB or better commercial paper, commercial notes and
government securities. Short term securities (included in cash and cash
equivalents) and marketable securities are stated at cost on the balance sheet.
Market values of these securities approximate cost due to the short maturity
periods.
Changes in stockholders' equity during the first quarter of 1996,
which are due in large part to the initial public offering, reflected the
following:
Stockholders' equity, beginning of period 4,865,604
Conversion of preferred stock (3,488,013)(a)
Issuance of common stock 27,025
Additional paid-in-capital 28,823,778
Net income 293,517
----------
Stockholders' equity, end of period 30,521,911
- ----------
(a) As a result of the conversion, the amount previously attributable to
Convertible Preferred Stock was transferred to common stock and additional-
paid-in capital.
3. PURCHASED LIFE INSURANCE POLICIES
Purchased life insurance policies consist of:
MARCH 31, DECEMBER 31,
----------- ------------
1996 1995
----------- -----------
Capitalized costs of purchased
life insurance policies $47,603,385 $41,235,153
Earned discount 8,703,643 7,702,945
----------- -----------
Purchased life insurance policies $56,307,028 $48,938,098
=========== ===========
Purchased life insurance policies included in the above table, for which
the discount has been fully earned, but for which the Company has not yet
received notification of the insured's death, consist of:
MARCH 31, DECEMBER 31,
----------- ------------
1996 1995
----------- ------------
Capitalized costs of purchased
life insurance policies $ 9,602,390 $ 8,272,836
Earned discount 2,942,925 2,498,404
----------- -----------
Included in purchased life
insurance policies $12,545,315 $10,771,240
=========== ===========
5
At March 31, 1996, the Company had remaining unearned discounts of
$10,353,921, to be recognized as income in future periods, on policies for
which the Accrual Periods (as defined in "Management's Discussion and Analysis
of Financial Condition and Results of Operation") end after March 31, 1996.
Based on remaining Accrual Periods applicable as of March 31, 1996, this income
will be recognized in future periods as follows:
INCOME TO BE
RECOGNIZED FROM
EARNED DISCOUNT
IN THE PERIOD (a)
-----------------
9 month period ending 12/31/96 4,866,651
12 month period ending 12/31/97 3,266,834
12 month period ending 12/31/98 1,285,777
12 month period ending 12/31/99 636,480
12 month period ending 12/31/00 198,888
12 month period ending 12/31/01 97,908
12 month period ending 12/31/02 1,383
-----------
Total $10,353,921
-----------
- ----------
(a) These figures have been calculated using the method described in Note 1(d)
of the Consolidated Financial Statements included in the Form 10-K and will
change if the Accrual Periods or capitalized costs change in future periods.
4. LONG TERM NOTES PAYABLE
The Senior Viatical Settlement Notes, Series 1995-A, Stated Maturity March
10, 2005 (the "Securitized Notes") issued by Dignity Partners Funding Corp. I
("DPFC"), the Company's wholly-owned special purpose subsidiary, provide for a
maximum lending commitment of $50 million. Borrowings under the Securitized
Notes are included on the balance sheet as long term notes payable. The
holders of the Securitized Notes have the right to (i) reduce the maximum
lending commitment to the outstanding principal amount and/or (ii) declare an
early amortization event because the outstanding principal amount of the
Securitized Notes was less than $50 million as of April 1996. The holders of
the Securitized Notes have not reduced the maximum commitment amount or
declared an early amortization event; however, there can be no assurance that
the holders will not take either or both of those actions. Principal payments
on the Securitized Notes is scheduled to begin in September 1996.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the consolidated financial
condition of the Company as of March 31, 1996 and of the results of operations
for the Company for the three months ended March 31, 1996 and 1995, and of
certain factors that may affect the Company's prospective financial condition
and results of operations. The following should be read in conjunction with the
unaudited consolidated financial statements and related notes appearing
elsewhere herein.
OVERVIEW
The Company is a specialty financial services company that provides
viatical settlements for terminally ill persons. A viatical settlement is the
payment of cash in return for an ownership interest in, and the right to receive
the death benefit from, a life insurance policy.
The Company recognizes income ("earned discount") on each purchased
policy by accruing, over the period between the acquisition date of the policy
and the Company's estimated date of collection of the policy's face value (the
"Accrual Period"), the difference (the "unearned discount") between (a) the face
value of the policy less the amount of fees, if any, payable to a referral
source upon collection of the face value, and (b) the carrying value of the
policy. The carrying value for each policy is reflected on the Company's
consolidated balance sheet under "purchased life insurance policies" and
consists of the purchase price, other capitalized costs and the earned discount
on the policy accrued to the balance sheet date. See the Form 10-K for further
information regarding capitalized costs of policies, determination of Accrual
Periods and changes thereto over time.
The Company's financial statements consolidate the assets, liabilities and
operations of DPFC, the Company's wholly-owned special purpose subsidiary
through which the Company issued the Securitized Notes. See Note 4 of Condensed
Notes to Consolidated Financial Statements. In addition, the assets,
liabilities and operations of Dignity Viatical Settlement Partners, L.P.
("Dignity Viatical") are consolidated with those of the Company in the
consolidated financial statements. Dignity Viatical is a closely-held limited
partnership, of which Dignity Partners serves as sole general partner, formed in
1993 to fund purchases of life insurance policies. See the Form 10-K for further
information regarding DPFC and Dignity Viatical.
7
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1995.
Earned Discounts on Life Insurance Policies. Earned discounts on life
insurance policies increased 11% from $1.6 million for the first quarter 1995 to
$1.8 million for the first quarter 1996, primarily as a result of the Company
recognizing income on a larger portfolio of policies. The Company purchased 148
policies with an aggregate face value of $13.0 million during the quarter ended
March 31, 1996 (including 58 policies with a face value of $5.2 million as part
of a portfolio purchase in January 1996) compared to the purchase of 99
policies with an aggregate face value of $7.9 million during 1995. The weighted
average Accrual Period of the policies purchased was 27.5 months and 24.9
months, respectively, for the first quarter of 1996 and 1995.
Despite establishing a quarterly record in the first quarter of 1996 for
the purchase in face value of policies, the growth in earned discounts was
tempered by relatively high prices for policies purchased during the first
quarter of 1996. Competition contributed to the higher prices the Company paid
for policies. In addition, the Company believes that its medical consultants
may be providing relatively longer life expectancy estimates for policies
recently purchased. Because the Company has not decreased its prices fully to
reflect such relatively longer life expectancy estimates, the result is the
appearance of relatively higher prices. Policies which have longer life
expectancy estimates have longer Accrual Periods resulting in a smaller amount
of earned discounts being accrued in any period. The effect of such relative
price differential was that the estimated original yield for policies purchased
by the Company during the first quarter of 1996 was 12.0% compared to 16.5% for
the first quarter of 1995 and 15.4% for the full year 1995.
Interest Income. Interest income increased dramatically for the 1996
quarter as a result of the investment of the initial public offering proceeds in
short term securities and marketable securities. As such funds are used to
purchase life insurance policies and for other working capital requirements,
interest income will decrease. See Note 2 of Condensed Notes to Consolidated
Financial Statements.
Other Income. Elements of other income include the collections on policies
of dividends, interest, paid-up cash values, increases in face value of matured
policies and reimbursements of premiums on matured policies. Other income
increased during the first quarter of 1996 due to collections on a larger
portfolio and a $50,000 increase in face value on one policy.
Interest Expense. Interest expense in the first quarter of 1996 increased
43% relative to the first quarter of 1995 as a result of the higher level of
portfolio purchases and the relative increase in borrowings used to fund those
purchases. Interest rates on the Securitized Notes decreased to 9.2% in the
first quarter of 1996 from 9.5% in the first quarter of 1995. However, average
borrowings under the Securitized Notes were $40.1 million in the first quarter
of 1996 compared to $7.7 million in the first quarter of 1995. Borrowings under
the Company's $20 million secured revolving credit facility (the "TransAmerica
Facility") bore a dollar weighted interest rate of 13.8% and 11.9% in the first
quarter of 1996 and 1995, respectively. However, as a result of repayment of
borrowings under the TransAmerica Facility in February 1996, average borrowings
were $1.1 million in the first quarter of 1996 compared to $13.9 million in the
first quarter of 1995. See the Form 10-K for further descriptions of the terms
of the Securitized Notes and the TransAmerica Facility.
8
Compensation and Benefits. Compensation and benefits increased 107.7% due
to the hiring of additional personnel to handle the administrative tasks
relating to the Company's increased portfolio and non-broker referral business
and to support the Company's past and planned growth. However, first quarter
1996 compensation and related benefits were $319,035 compared to $298,948 in the
fourth quarter of 1995, reflecting an increase of only 6.7%. The Company
anticipates hiring a few additional personnel in 1996 to accommodate its
increased purchasing activity.
Other General and Administrative Expenses. Other general and
administrative expenses increased 59.7% from the 1995 quarter to the 1996
quarter, following generally the 49% growth in the number of policies purchased
by the Company. The first quarter of 1996 includes $30,000 aggregate
increases in expenses for legal, accounting, insurance and advertising, in part
as a result of being a public company. The Company also continues to increase
the amount of policies received through non-broker sources. In connection with
the review of such policies, certain costs traditionally borne by the Company's
sourcing brokers, such as the costs of obtaining medical records and insurance
information, are incurred by the Company. These costs are not capitalized even
if the policy is purchased and are expensed as other general and administrative
expenses.
Income Tax Expense. Income tax expense increased 33.6% from the 1995
quarter to the 1996 quarter. The increase is primarily the result of the
Company's increased profitability after minority interest of limited partners in
earnings of investment partnership. The increase was offset by the decrease in
the effective income tax rate from 50.3% to 38.1% for the 1995 and 1996 period,
respectively, primarily due to the over estimate of taxes in early 1995.
Minority Interest of Limited Partners in Earnings of Investment
Partnership. All earned discounts attributable to the limited partners of
Dignity Viatical had been fully accrued by December 31, 1995 (assuming no
changes to the Accrual Periods applicable to policies purchased by Dignity
Viatical) and, therefore, minority interest of limited partners in earnings of
investment partnership was zero for the first quarter of 1996 compared to
$367,000 for the first quarter of 1995. The Company expects such minority
interest to be zero for all subsequent periods. In February 1996, Dignity
Partners entered into an agreement with the limited partners of Dignity Viatical
to use best efforts to sell on terms reasonably acceptable to the limited
partners, the policies owned by Dignity Viatical. Requests for offers have been
sent out to prospective buyers. Closed bids are to be returned by May 30, 1996.
The Company has not yet decided whether it will bid on such policies.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital has been, and will continue to be
the funding of policy purchases. The purchase of life insurance policies
requires significant capital resources and the Company's future operating
results will be directly related to the availability and cost of its capital
funds for the purchase of policies. Prior to its initial public offering, the
amount of policies that the Company was able to purchase, and the timing of such
purchases, was determined primarily by the availability and cost of external
financing. The major source of funding at present is the net proceeds of the
initial public offering and amounts available under the Securitized Notes. Once
the proceeds of the initial public offering are expended, the major source of
funding is expected to be borrowings under the TransAmerica Facility. The
TransAmerica Facility was repaid in full in February 1996 with the proceeds of
the initial public offering. As of March 31, 1996, the maximum available
borrowings were $6.0 million under the Securitized Notes and $20.0 million under
the TransAmerica Facility.
9
The Securitized Notes currently provide for a maximum lending commitment of
$50 million and, prior to amortization, permit proceeds of collected policies
which serve as collateral for the Securitized Notes to be used to purchase
additional policies. However, because the outstanding principal amount of the
Securitized Notes was less than $50 million in April 1996, the holders thereof
have the right to reduce the commitment amount to the outstanding principal
amount of the Securitized Notes and/or to declare an early amortization event.
Although the holders of the Securitized Notes thus far have not reduced the
commitment amount or declared an early amortization event, there can be no
assurance they will not take either or both of those actions. As of May 13,
1996, the outstanding principal amount of the Securitized Notes was $45.5
million. Therefore, as of such date, the availability of the additional
commitment amount of $4.5 million would not have been available if the lenders
of the Securitized Notes had reduced the commitment amount.
In addition, an early amortization event will occur if, among other things,
the Overcollateralization Percentage (as defined in the Form 10-K) is less than
120% on four consecutive weekly calculation dates. The Company believes it is
likely that the Overcollateralization Percentage will drop below 120% during May
1996 and will remain below 120% for four consecutive weekly calculation dates.
Therefore, the Company believes that an early amortization event will occur in
June 1996, with the result that principal repayments on the Securitized Notes
will begin in July 1996. If no early amortization event occurs, principal
repayments will begin in September 1996. Principal repayments on the
Securitized Notes are made from collections on policies pledged to secure the
payment thereof and would not require the Company to expend cash or obtain
financing to satisfy such principal repayments.
Once amortization of the Securitized Notes begins, the Company will be
unable to borrow additional principal amounts under the Securitized Notes and
will be unable to use proceeds of collected pledged policies to purchase
additional policies. While the timing of future policy collections cannot be
determined, during the first quarter of 1996 proceeds of collected pledged
policies aggregated $3.6 million.
The Company expects that the proceeds of its initial public offering,
proceeds of collected policies and borrowings under the TransAmerica Facility
and the Securitized Notes will be sufficient to fund expansion of the Company's
business through the third quarter of 1996, at which time the Company will
require additional financing to continue to increase its policy purchases. If,
however, an early amortization event under the Securitized Notes occurs, the
Company may need to seek additional financing somewhat earlier. The Company has
no specific plans or arrangements for additional financing.
The Company's cash requirements have been and will continue to be
significant in order to finance its policy purchases. As a result of accruing
income on each purchased policy prior to collecting the face value, the amount
of earned discount recognized is not directly related to the collection of cash
by the Company on the policies. Net cash flows used for operating activities
reflect net income adjusted to reflect purchases of and collections on policies,
depreciation and amortization, earned discounts on life insurance policies,
increases or decreases in unearned income, assets and various expenses and
income applicable to minority interest. The Company's net cash used by
operating activities was $8.6 and $3.6 million for the first quarter of 1996 and
1995, respectively, reflecting the Company's growing net investment in life
insurance policies. Net cash provided by financing activities, which includes
primarily net proceeds generated from the issuance of common stock, along with
the proceeds and repayments of indebtedness, was $27.9 and $6.7 million for the
first quarter of 1996 and 1995, respectively. The increase in 1996 is
attributable to the Company's receipt and partial application of the
10
net proceeds of the initial public offering. Remaining net proceeds of the
offering have been invested in short term securities and marketable securities.
See Note 2 of Condensed Notes to Consolidated Financial Statements.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders
On January 12, 1996, in anticipation of the Company's initial public
offering, the stockholders of the Company, by unanimous written consent
without a meeting, approved an amendment to the Company's Amended and
Restated Certificate of Incorporation which effected a reverse stock split
pursuant to which each outstanding share of Common Stock was converted into
0.7175 of a share of Common Stock.
On February 3, 1996, also in anticipation of the Company's initial public
offering, the stockholders of the Company, by unanimous written consent
without a meeting, approved (i) an amendment and restatement of the Company's
Amended and Restated Certificate of Incorporation and by-laws to provide for,
among other things, a classified board, revised indemnification provisions
and procedures for submission by stockholders of matters at stockholders'
meetings; (ii) the election as directors for specified terms of Bradley N.
Rotter (Class 1, term expiring in 1996), Alan B. Perper (Class 2, term
expiring in 1997) and John Ward Rotter (Class 3, term expiring in 1998); and
(iii) the Company's 1995 Stock Option Plan and Stock Option Plan for Non-
Employee Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K. The Registrant filed the following Reports on
Form 8-K during the quarter ended March 31, 1996:
Date Item Reported Matter Reported
- ---- ------------- ---------------
March 13, 1995 5 Text of Press Release dated March 13, 1996
regarding results of operations for 1995 and
audited financial statements as of December 31,
1994 and 1995 and for the periods ended
December 31, 1993, 1994 and 1995 with an independent
auditor's report dated March 11, 1996.
March 15, 1996 5 Text of Press Release dated March 15, 1996
supplementing the press release dated March 13, 1996.
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SIGNATURES
----------
Pursuant to the requirements 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.
DIGNITY PARTNERS, INC.
DATED: May 14, 1996 S/ ALAN B. PERPER
---------------------------
ALAN B. PERPER
President
(Duly Authorized Officer)
DATED: May 14, 1996 S/ JOHN WARD ROTTER
-------------------------
JOHN WARD ROTTER
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12