UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15( d ) of

the Securities Exchange Act of 1934

 

Date of Report (date of earliest event reported): May 5, 2017

 

GWG Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   001-36615   26-2222607
(State or other jurisdiction
of incorporation) 		  (Commission
File Number) 		  (IRS Employer
Identification No.)

 

220 South Sixth Street, Suite 1200, Minneapolis, MN   55402
(Address of principal executive offices)   (Zip Code)

 

(612) 746-1944

(Registrant's telephone number, including area code)

 

Not applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company          ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

 

 

 

   

 

 

Item 2.02 Results of Operations and Financial Condition.

 

On May 10, 2017, GWG Holdings, Inc. issued a press release reporting the financial results for its first fiscal quarter ended March 31, 2017.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Effective May 5, 2017, GWG Holdings adopted an amendment to the GWG Holdings, Inc. 2013 Stock Incentive Plan that: (i) increases the number of shares of common stock reserved for issuance thereunder by 1,000,000, to a total of 3,000,000, (ii) expands the eligible participants to include to consultants and independent contractors of GWG Holdings, and (iii) increases the number of shares of common stock for which the Chief Executive Officer may grant incentives, on a discretionary basis, in any fiscal year by 200,000, to a total of 400,000.

 

A copy of the 2013 Stock Incentive Plan, as amended, is filed as Exhibit 10.1 to this report. The description of the amendment contained above is qualified in its entirety by the actual text of the amendment.

 

Item 5.07 Submission of Matters to a Vote of Security Holders.

 

GWG Holdings held its annual meeting of stockholders on May 5, 2017. At the meeting, stockholders of GWG Holdings took the following actions:

 

(i)       The stockholders elected seven directors to serve as members of the Board of Directors until the next annual meeting of stockholders. The stockholders present in person or by proxy cast the following numbers of votes in connection with the election of directors, resulting in the election of all director nominees:

 

Nominee   Voted For     Against  
Jon R. Sabes     4,791,590       27,902  
Steven F. Sabes     4,791,590       27,902  
David H. Abramson     4,792,214       27,278  
Charles H. Maguire III     4,792,130       27,362  
Jeffrey L. McGregor     4,792,314       27,178  
Shawn R. Gensch     4,792,214       27,278  
Mark E. Schwarzmann     4,792,314       27,178  

 

(ii)        The stockholders approved an amendment to the GWG Holdings, Inc. 2013 Stock Incentive Plan. The holders of 4,658,764 shares voted for this proposal; the holders of 101,106 shares voted against this proposal; and the holders of 59,622 shares abstained.

 

(iii)       The stockholders ratified the appointment of Baker Tilly Virchow Krause, LLP as the independent registered public accounting firm of GWG Holdings for the year ending December 31, 2017. The holders of 5,442,282 shares voted for this proposal; the holders of 17,720 shares voted against this proposal; and the holders of 37,670 shares abstained.

 

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Item 7.01 Regulation FD Disclosure.

 

As indicated above, on May 10, 2017, GWG Holdings issued a press release.

 

The information in Items 2.02 and 7.01 of this Report on Form 8-K is furnished to, but not filed with, the Securities and Exchange Commission solely under Items 2.02 “Results of Operations and Financial Condition” and 7.01 “Regulation FD Disclosure.” A copy of the press release reporting the information included in Items 2.02 and 7.01 is furnished as Exhibit 99.1 to this report.

 

Item 9.01 Financial Statements and Exhibits.

 

  (d) Exhibits .
     
  10.1 GWG Holdings, Inc. 2013 Stock Incentive Plan, as amended (filed herewith)
  99.1 Press release dated May 10, 2017 (filed herewith)

 

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SIGNATURE

 

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 hereunto duly authorized.

 

  GWG Holdings, Inc.
     
Date: May 10, 2017 By: /s/ William Acheson
    William Acheson
    Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit No.   Description
10.1   GWG Holdings, Inc. 2013 Stock Incentive Plan, as amended (filed herewith)
99.1   Press release dated May 10, 2017 (filed herewith)

 

 

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Exhibit 10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GWG HOLDINGS, INC.

2013 STOCK INCENTIVE PLAN

 

(AMENDED AS OF MARCH 10, 2017

AND APPROVED BY STOCKHOLDERS ON may 5, 2017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GWG HOLDINGS, INC.

 

2013 STOCK INCENTIVE PLAN

 

(including 2017 and 2015 amendments)

 

1.             Purpose . The purpose of the 2013 Stock Incentive Plan (the “ Plan ”) of GWG Holdings, Inc. (the “ Company ”) is to increase stockholder value and to advance the interests of the Company by furnishing a variety of economic incentives (“ Incentives ”) designed to attract, retain and motivate employees, certain key consultants and directors of the Company. Incentives may consist of opportunities to purchase or receive shares of common stock, $0.001 par value per share, of the Company (“ Common Stock ”) or other incentive awards on terms determined under this Plan.

 

2.             Administration .

 

2.1.           Administration by Committee . The Plan shall be administered by the Board of Directors of the Company (the “ Board of Directors ”) or by a stock option or compensation committee (the “ Committee ”) of the Board of Directors. The Committee shall consist of not less than two directors of the Company and shall be appointed from time to time by the Board of Directors. During any time period during which the Company has a class of equity securities registered under Section 12 of the Securities Exchange Act of 1934 (including the regulations thereunder, the “ 1934 Act ”), each member of the Committee shall be (a) a “non-employee director” within the meaning of Rule 16b-3 of the 1934 Act (a “ Non-Employee Director ”), and (b) an “outside director” within the meaning of Section 162(m) under the Internal Revenue Code of 1986 (the “ Code ”) and the regulations promulgated thereunder. The Committee shall have complete authority to award Incentives under the Plan, to interpret the Plan, and to make any other determination which it believes necessary and advisable for the proper administration of the Plan. The Committee’s decisions and matters relating to the Plan shall be final and conclusive on the Company and its participants. If at any time there is no stock option or compensation committee, the term “Committee,” as used in the Plan, shall refer to the Board of Directors.

 

2.2.           Delegation of Authority . The Company’s Chief Executive Officer may, on a discretionary basis and without Committee review or approval, grant Incentives to new employees or consultants or other independent contractors of the Company who are not officers of the Company. Such discretionary grants shall not exceed, in the aggregate, Incentives for more than 400,000 shares in any fiscal year. Subject to the foregoing limitations, the Chief Executive Officer shall determine from time to time (a) the new employees to whom grants will be made, (b) the number of shares to be granted, and (c) the terms and provisions of each option (which need not be identical). The Chief Executive Officer shall report each stock option granted pursuant to this Section 2.2 at the Committee’s first meeting following the date of such grant.

 

3.             Eligible Participants . Officers of the Company, employees of the Company or its subsidiaries, members of the Board of Directors, and consultants or other independent contractors who provide services to the Company or its subsidiaries shall be eligible to receive Incentives under the Plan when designated by the Committee. Participants may be designated individually or by groups or categories (for example, by pay grade) as the Committee deems appropriate. Participation by officers of the Company or its subsidiaries and any performance objectives relating to such officers must be approved by the Committee. Participation by others and any performance objectives relating to others may be approved by groups or categories (for example, by pay grade) and authority to designate participants who are not officers and to set or modify such targets may be delegated.

 

 

 

 

4.             Types of Incentives . Incentives under the Plan may be granted in any one or a combination of the following forms: (a) incentive stock options and non-statutory stock options; (b) stock appreciation rights (“ SARs ”); (c) stock awards; (d) restricted stock; (e) restricted stock units; and (f) performance shares. Subject to the specific limitations provided in this Plan, payment of Incentives may be in the form of cash, Common Stock or combinations thereof as the Committee shall determine, and with such other restrictions as it may impose.

 

5.             Shares Subject to the Plan .

 

5.1.           Number of Shares . Subject to adjustment as provided in Section 9.6, the number of shares of Common Stock issuable under the Plan shall not exceed 3,000,000 shares of Common Stock. Shares of Common Stock that are issued under the Plan or are subject to outstanding Incentives will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock subject to SARs granted under this Plan shall be counted in full against the above-indicated share limit, regardless of the number of shares of Common Stock actually issued upon the exercise of such SARs.

 

5.2.           Cancellation . If any Incentive granted hereunder (including without limitation any stock option, SAR or restricted stock unit) expires or is terminated or canceled unexercised as to any shares of Common Stock, such shares may again be issued under the Plan either pursuant to stock options, SARs, restricted stock units, or otherwise. If shares of Common Stock are issued pursuant to a stock award, as restricted stock, or as performance shares) and thereafter are forfeited or reacquired by the Company pursuant to rights reserved upon issuance thereof, such forfeited and reacquired shares may again be issued under the Plan, either pursuant to a stock award, as restricted stock, as performance shares, or otherwise. The Committee may also determine to cancel, and agree to the cancellation of, Incentives in order to make a participant eligible for the grant of an Incentive at a lower exercise price than the Incentive to be canceled.

 

5.3.           Type of Common Stock . Common Stock issued under the Plan in connection with Incentives may be authorized and unissued shares or, if so designated by the Committee, may be treasury stock.

 

5.4.           Limitation on Certain Grants . No person shall receive grants of stock options and SARs under the Plan that exceed, in the aggregate, 400,000 shares of Common Stock during any one fiscal year of the Company.

 

 

 

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6.             Stock Options . A stock option is a right to purchase shares of Common Stock from the Company. Each stock option granted by the Committee under this Plan shall be subject to the following terms and conditions:

 

6.1.           Price . The option price per share shall be determined by the Committee, subject to adjustment under Section 9.6.

 

6.2.           Number . The number of shares of Common Stock subject to a stock option shall be determined by the Committee, subject to adjustment as provided in Section 9.6. The number of shares of Common Stock subject to a stock option shall be reduced in the same proportion that the holder thereof exercises an SAR if any SAR is granted in conjunction with or related to the stock option.

 

6.3.           Duration and Time for Exercise . Subject to earlier termination as provided in Section 9.3, the term of each stock option shall be determined by the Committee but shall not exceed ten years and one day from the Grant Date, as that term is defined in Section 9.15 below. Each stock option shall become exercisable at such time or times during its term as shall be determined by the Committee at the time of grant. The Committee may accelerate the exercisability of any stock option. Subject to the first sentence of this paragraph, the Committee may extend the term of any stock option to the extent provided in Section 9.4.

 

6.4.           Manner of Exercise . A stock option may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares. The option price shall be payable: (a) in United States dollars upon exercise of the option and may be paid by cash, uncertified or certified check or bank draft; (b) unless otherwise provided in the option agreement, by delivery of shares of Common Stock in payment of all or any part of the option price, which shares shall be valued for this purpose at the Fair Market Value on the date such option is exercised; or (c) unless otherwise provided in the option agreement, by instructing the Company to withhold from the shares of Common Stock issuable upon exercise of the stock option shares of Common Stock in payment of all or any part of the exercise price and/or any related withholding tax obligations consistent with Section 9.8, which shares shall be valued for this purpose at the Fair Market Value or in such other manner as may be authorized from time to time by the Committee. Prior to the issuance of shares of Common Stock upon the exercise of a stock option, a participant shall have no rights as a stockholder.

 

6.5.           Incentive Stock Options . Notwithstanding anything in the Plan to the contrary, the following additional provisions shall apply to the grant of stock options which are intended to qualify as “ Incentive Stock Options ,” as such term is defined in Code Section 422:

 

(a)           The aggregate Fair Market Value (determined as of the time the option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any participant during any calendar year (under all of the Company’s plans) shall not exceed $100,000. The determination will be made by taking Incentive Stock Options into account in the order in which they were granted. If such excess only applies to a portion of an Incentive Stock Option, the Committee, in its discretion, will designate which shares will be treated as shares to be acquired upon exercise of an Incentive Stock Option.

 

(b)           Any option agreement for an Incentive Stock Option under the Plan shall contain such other provisions as the Committee shall deem advisable, but shall in all events be consistent with and contain all provisions required in order to qualify the options as Incentive Stock Options.

 

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(c)           All Incentive Stock Options must be granted within ten years from the earlier of the date on which this Plan was adopted by Board of Directors or the date this Plan was approved by the stockholders.

 

(d)           Unless sooner exercised, all Incentive Stock Options shall expire no later than ten years after the Grant Date.

 

(e)           The option price for Incentive Stock Options shall be not less than the Fair Market Value of the Common Stock subject to the option on the Grant Date.

 

(f)            If Incentive Stock Options are granted to any participant who, at the time such option is granted, would own (within the meaning of Code Section 422) stock possessing more than 10% of the total combined voting power of all classes of stock of the employer corporation or of its parent or subsidiary corporation, (i) the option price for such Incentive Stock Options shall be not less than 110% of the Fair Market Value of the Common Stock subject to the option on the Grant Date and (ii) such Incentive Stock Options shall expire no later than five years after the Grant Date.

 

7.             Stock Appreciation Rights . An SAR is a right to receive, without payment to the Company, a number of shares of Common Stock, the amount of which is determined pursuant to the formula set forth in Section 7.5. An SAR may be granted (a) with respect to any stock option granted under this Plan, either concurrently with the grant of such stock option or at such later time as determined by the Committee (as to all or any portion of the shares of Common Stock subject to the stock option), or (b) alone, without reference to any related stock option. Each SAR granted by the Committee under this Plan shall be subject to the following terms and conditions:

 

7.1.           Price . The exercise price per share of any SAR granted without reference to a stock option shall be determined by the Committee, subject to adjustment under Section 9.6. Notwithstanding the foregoing sentence, except as permitted under Section 9.16, the exercise price per share shall not be less than the Fair Market Value of the Common Stock on the Grant Date unless the SAR satisfies the provisions of Code Section 409A.

 

7.2.           Number . Each SAR granted to any participant shall relate to such number of shares of Common Stock as shall be determined by the Committee, subject to adjustment as provided in Section 9.6. In the case of an SAR granted with respect to a stock option, the number of shares of Common Stock to which the SAR relates shall be reduced in the same proportion that the holder of the option exercises the related stock option. Notwithstanding the foregoing, the limitation on grants under Section 5.4 shall apply to grants of SARs under the Plan

 

7.3.           Duration . Subject to earlier termination as provided in Section 9.3, the term of each SAR shall be determined by the Committee but shall not exceed ten years and one day from the Grant Date. Unless otherwise provided by the Committee, each SAR shall become exercisable at such time or times, to such extent and upon such conditions as the stock option, if any, to which it relates is exercisable. The Committee may in its discretion accelerate the exercisability of any SAR. Subject to the first sentence of this paragraph, the Committee may extend the term of any SAR to the extent provided in Section 9.4.

 

7.4.           Exercise . An SAR may be exercised, in whole or in part, by giving written notice to the Company, specifying the number of SARs which the holder wishes to exercise. Upon receipt of such written notice, the Company shall, within 90 days thereafter, deliver to the exercising holder certificates for the shares of Common Stock or cash or both, as determined by the Committee, to which the holder is entitled pursuant to Section 7.5.

 

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7.5.           Issuance of Shares Upon Exercise . The number of shares of Common Stock which shall be issuable upon the exercise of an SAR shall be determined by dividing:

 

(a)           the number of shares of Common Stock as to which the SAR is exercised multiplied by the amount of the appreciation in such shares (for this purpose, the “appreciation” shall be the amount by which the Fair Market Value of the shares of Common Stock subject to the SAR on the exercise date exceeds (1) in the case of an SAR related to a stock option, the purchase price of the shares of Common Stock under the stock option or (2) in the case of an SAR granted alone, without reference to a related stock option, an amount which shall be determined by the Committee at the time of grant, subject to adjustment under Section 9.6); by

 

(b)           the Fair Market Value of a share of Common Stock on the exercise date.

 

No fractional shares of Common Stock shall be issued upon the exercise of an SAR; instead, the holder of the SAR shall be entitled to receive a cash adjustment equal to the same fraction of the Fair Market Value of a share of Common Stock on the exercise date or to purchase the portion necessary to make a whole share at its Fair Market Value on the date of exercise.

 

8.             Stock Awards and Restricted Stock . A stock award consists of the transfer by the Company to a participant of shares of Common Stock, without other payment therefor, as additional compensation for services to the Company. A share of restricted stock consists of shares of Common Stock which are sold or transferred by the Company to a participant at a price, if any, determined by the Committee and subject to restrictions on their sale or other transfer by the participant. The transfer of Common Stock pursuant to stock awards and the transfer and sale of restricted stock shall be subject to the following terms and conditions:

 

8.1.          Number of Shares . The number of shares to be transferred or sold by the Company to a participant pursuant to a stock award or as restricted stock shall be determined by the Committee.

 

8.2.          Sale Price . The Committee shall determine the price, if any, at which shares of restricted stock shall be sold to a participant, which may vary from time to time and among participants and which may be below the Fair Market Value of such shares of Common Stock at the date of sale.

 

8.3.          Restrictions . All shares of restricted stock transferred or sold by the Company hereunder shall be subject to such restrictions as the Committee may determine, including, without limitation any or all of the following:

 

(a)           a prohibition against the sale, transfer, pledge or other encumbrance of the shares of restricted stock, such prohibition to lapse at such time or times as the Committee shall determine (whether in annual or more frequent installments, at the time of the death, disability or retirement of the holder of such shares, or otherwise);

 

(b)          a requirement that the holder of shares of restricted stock forfeit, or (in the case of shares sold to a participant) re-sell back to the Company at his or her cost, all or a part of such shares in the event of termination of his or her employment or consulting engagement during any period in which such shares are subject to restrictions; and/or

 

(c)           such other conditions or restrictions as the Committee may deem advisable.

 

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8.4.           Restrictions . In order to enforce the restrictions imposed by the Committee pursuant to Section 8.3, the participant receiving restricted stock shall enter into an agreement with the Company setting forth the conditions of the grant. Shares of restricted stock shall be registered in the name of the participant and deposited, together with a stock power endorsed in blank, with the Company. Each such certificate shall bear a legend that refers to the Plan and the restrictions imposed under the applicable agreement. The Committee may provide that no certificates representing restricted stock be issued until the restriction period is completed.

 

8.5.           End of Restrictions . Subject to Section 9.5, at the end of any time period during which the shares of restricted stock are subject to forfeiture and restrictions on transfer, such shares will be delivered free of all restrictions to the participant or to the participant’s legal representative, beneficiary or heir.

 

8.6.           Rights of Holders of Restricted Stock . Subject to the terms and conditions of the Plan and subject further to the terms and conditions of each written agreement evidencing an Incentive, each participant receiving restricted stock shall have all the rights of a stockholder with respect to shares of stock during any period in which such shares are subject to forfeiture and restrictions on transfer, including without limitation, the right to vote such shares.

 

9.             General Provisions .

 

9.1.           Effective Date . The Plan will become effective upon the date of approval by the Board of Directors (the “ Effective Date ”).

 

9.2.           Duration . The Plan shall remain in effect until all Incentives granted under the Plan have either been satisfied by the issuance of shares of Common Stock or the payment of cash or been terminated under the terms of the Plan and all restrictions imposed on shares of Common Stock in connection with their issuance under the Plan have lapsed. No Incentives may be granted under the Plan after the tenth anniversary of the Effective Date of the Plan.

 

9.3.           Non-Transferability of Incentives . No stock option, SAR, restricted stock or stock award may be transferred, pledged or assigned by the holder thereof (except, in the event of the holder’s death, by will or the laws of descent and distribution to the limited extent provided in the Plan or the Incentive, or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder), and the Company shall not be required to recognize any attempted assignment of such rights by any participant. Notwithstanding the preceding sentence, stock options may be transferred by the holder thereof to the holder’s spouse, children, grandchildren or parents (collectively, the “ Family Members ”), to trusts for the benefit of Family Members, to partnerships or limited liability companies in which Family Members are the only partners or shareholders, or to entities exempt from federal income taxation pursuant to Code Section 501(c)(3). During a participant’s lifetime, a stock option may be exercised only by him or her, by his or her guardian or legal representative or by the transferees permitted by this Section 9.3.

 

9.4.           Effect of Termination or Death . If a participant ceases to be an employee of or consultant to the Company for any reason, including death or disability, any Incentives may be exercised or shall expire at such times as may be set forth in the agreement, if any, applicable to the Incentive, or otherwise as determined by the Committee; provided, however, the term of an Incentive may not be extended beyond the term originally prescribed when the Incentive was granted, unless the Incentive satisfies (or is amended to satisfy) the requirements of Code Section 409A; and provided further that the term of an Incentive may not be extended beyond the maximum term permitted under this Plan.

 

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9.5.           Restrictions under Securities Laws . Notwithstanding anything in this Plan to the contrary: (a) the Company may, if it shall determine it necessary or desirable for any reason, at the time of award of any Incentive or the issuance of any shares of Common Stock pursuant to any Incentive, require the recipient of the Incentive, as a condition to the receipt thereof or to the receipt of shares of Common Stock issued pursuant thereto, to deliver to the Company a written representation of present intention to acquire the Incentive or the shares of Common Stock issued pursuant thereto for his or her own account for investment and not for distribution; and (b) if at any time the Company further determines, in its sole discretion, that the listing, registration or qualification (or any updating of any such document) of any Incentive or the shares of Common Stock issuable pursuant thereto is necessary on any securities exchange or under any federal or state securities or blue sky law, or that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with the award of any Incentive, the issuance of shares of Common Stock pursuant thereto, or the removal of any restrictions imposed on such shares, such Incentive shall not be awarded or such shares of Common Stock shall not be issued or such restrictions shall not be removed, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company.

 

9.6.           Adjustment . In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the Common Stock, the number of shares of Common Stock then subject to the Plan, including shares subject to outstanding Incentives, and the other numbers of shares of Common Stock provided in the Plan, shall be adjusted in proportion to the change in outstanding shares of Common Stock. In the event of any such adjustments, the purchase price of any option, the performance objectives of any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted as and to the extent appropriate, in the discretion of the Committee, to provide participants with the same relative rights before and after such adjustment.

 

9.7.           Incentive Plans and Agreements . Except in the case of stock awards, the terms of each Incentive shall be stated in a plan or agreement approved by the Committee. The Committee may also determine to enter into agreements with holders of options to reclassify or convert certain outstanding options, within the terms of the Plan, as Incentive Stock Options or as non-statutory stock options and in order to eliminate SARs with respect to all or part of such options and any other previously issued options. The Committee shall communicate the key terms of each award to the participant promptly after the Committee approves the grant of such award.

 

9.8.           Withholding .

 

(a)           The Company shall have the right to withhold from any payments made under the Plan or to collect as a condition of payment, any taxes required by law to be withheld. At any time when a participant is required to pay to the Company an amount required to be withheld under applicable income tax laws in connection with a distribution of Common Stock or upon exercise of an option or SAR or upon vesting of restricted stock, the participant may satisfy this obligation in whole or in part by electing (the “ Election ”) to have the Company withhold, from the distribution or from such shares of restricted stock, shares of Common Stock having a value up to the minimum amount of withholding taxes required to be collected on the transaction. The value of the shares to be withheld shall be based on the Fair Market Value of the Common Stock on the date that the amount of tax to be withheld shall be determined (“ Tax Date ”).

 

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(b)           Each Election must be made before the Tax Date. The Committee may disapprove of any Election, may suspend or terminate the right to make Elections, or may provide with respect to any Incentive that the right to make Elections shall not apply to such Incentive. An Election is irrevocable.

 

9.9.           No Continued Employment, Engagement or Right to Corporate Assets . No participant under the Plan shall have any right, because of his or her participation, to continue in the employ of the Company for any period of time or to any right to continue his or her present or any other rate of compensation. Nothing contained in the Plan shall be construed as giving an employee, a consultant, such persons’ beneficiaries or any other person any equity or interests of any kind in the assets of the Company or creating a trust of any kind or a fiduciary relationship of any kind between the Company and any such person.

 

9.10.         Payments Under Incentives . Payment of cash or distribution of any shares of Common Stock to which a participant is entitled under any Incentive shall be made as provided in the Incentive. Except as permitted under Section 9.16, payments and distributions may not be deferred under any Incentive unless the deferral complies with the requirements of Code Section 409A.

 

9.11.         Amendment of the Plan . The Board of Directors may amend or discontinue the Plan at any time. Nevertheless, no such amendment or discontinuance shall adversely change or impair, without the consent of the recipient, an Incentive previously granted. Further, no such amendment shall, without approval of the stockholders of the Company, (a) increase the maximum number of shares of Common Stock which may be issued to all participants under the Plan, (b) change or expand the types of Incentives that may be granted under the Plan, (c) change the class of persons eligible to receive Incentives under the Plan, or (d) materially increase the benefits accruing to participants under the Plan.

 

9.12.         Amendment of Agreements for Incentives . Except as otherwise provided in this Section 9.12, the terms of an existing Incentive may be amended by agreement between the Committee and the participant. Notwithstanding the foregoing sentence, in the case of a stock option or SAR, except as permitted under Section 9.16, no such amendment shall: (a) extend the term of the Incentive, except as provided in Section 9.4; nor (b) reduce the exercise price per share below the Fair Market Value of the Common Stock on the date the Incentive was granted, unless, in either case, the amendment complies with the requirements of Code Section 409A.

 

9.13.         Sale, Merger, Exchange or Liquidation . Unless otherwise provided in the agreement for an Incentive, in the event of an acquisition of the Company through the sale of substantially all of the Company’s assets or through a merger, exchange, reorganization or liquidation of the Company or a similar event, all as determined by the Committee in its sole discretion (collectively a “ Sale Transaction ”), the Committee shall be authorized, in its sole discretion, to take any and all action it deems equitable under the circumstances, including but not limited to any one or more of the following:

 

(a)           providing that the Plan and all Incentives shall terminate and the holders of (i) all outstanding vested options shall receive, in lieu of any shares of Common Stock they would be entitled to receive under such options, such stock, securities or assets, including cash, as would have been paid to such participants if their options had been exercised and such participant had received Common Stock immediately before such Sale Transaction (with appropriate adjustment for the exercise price, if any), (ii) SARs that entitle the participant to receive Common Stock shall receive, in lieu of any shares of Common Stock each participant was entitled to receive as of the date of the Sale Transaction pursuant to the terms of such Incentive, if any, such stock, securities or assets, including cash, as would have been paid to such participant if such Common Stock had been issued to and held by the participant immediately before such Sale Transaction, and (iii) any Incentive under this Agreement which does not entitle the participant to receive Common Stock shall be equitably treated as determined by the Committee;

 

  8  

 

 

(b)           providing that participants holding outstanding vested Common Stock-based Incentives shall receive, with respect to each share of Common Stock issuable pursuant to such Incentives as of the effective date of any such Sale Transaction, at the determination of the Committee, cash, securities or other property, or any combination thereof, in an amount equal to the excess, if any, of the Fair Market Value of such Common Stock on a date within ten days before the effective date of such Sale Transaction over the option price or other amount owed by a participant, if any, and that such Incentives shall be cancelled, including the cancellation without consideration of all options that have an exercise price below the per share value of the consideration received by the Company in the Sale Transaction;

 

(c)           providing that the Plan (or replacement plan) shall continue with respect to Incentives not cancelled or terminated as of the effective date of such Sale Transaction and provide to participants holding such Incentives the right to earn their respective Incentives on a substantially equivalent basis (taking into account the Sale Transaction and the number of shares or other equity issued by such successor entity) with respect to the equity of the entity succeeding the Company by reason of such Sale Transaction; or

 

(d)           providing that all unvested, unearned or restricted Incentives, including but not limited to restricted stock for which restrictions have not lapsed as of the effective date of such Sale Transaction, shall be void and deemed terminated, or, in the alternative, for the acceleration or waiver of any vesting, earning or restrictions on any Incentive.

 

The Board of Directors may restrict the rights of participants or the applicability of this Section 9.13 to the extent necessary to comply with Section 16(b) of the 1934 Act, the Code or any other applicable law or regulation. The grant of an Incentive award pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

9.14.        Definition of Fair Market Value . For purposes of this Plan, the “ Fair Market Value ” of a share of Common Stock at a specified date shall, unless otherwise expressly provided in this Plan, be the amount which the Committee determines in good faith to be 100% of the fair market value of such a share as of the date in question. Notwithstanding the foregoing:

 

(a)           If such shares are listed on a U.S. securities exchange, then Fair Market Value shall be determined by reference to the last sale price of a share of Common Stock on such U.S. securities exchange on the applicable date. If such U.S. securities exchange is closed for trading on such date, or if the Common Stock does not trade on such date, then the last sale price used shall be the one on the date the Common Stock last traded on such U.S. securities exchange.

 

(b)           If such shares are publicly traded but are not listed on a U.S. securities exchange, then Fair Market Value shall be determined by reference to the trading price of a share of Common Stock on such date (or, if the applicable market is closed on such date, the last date on which the Common Stock was publicly traded), by a method consistently applied by the Committee.

 

  9  

 

 

(c)           If such shares are not publicly traded, then the Committee’s determination will be based upon a good faith valuation of the Company’s Common Stock as of such date, which shall be based upon such factors as the Committee deems appropriate. The valuation shall be accomplished in a manner that complies with Code Section 409A and shall be consistently applied to Incentives under the Plan.

 

9.15.        Definition of Grant Date . For purposes of this Plan, the “ Grant Date ” of an Incentive shall be the date on which the Committee approved the award (or, if applicable, the date on which the Company’s Chief Executive Officer exercised discretionary authority under this Plan or otherwise granted by the Committee and approved the award) or, if later, the date on which (a) the participant is no longer able to negotiate the terms of the award and (b) it is expected that the key terms of the award will be communicated within a relatively short period of time.

 

9.16.        Compliance with Code Section 409A . The Plan and the agreement for each Incentive shall be interpreted and administered so as to be exempt from the requirements of Code Section 409A or to comply with such requirements. Notwithstanding the foregoing, Incentives may be awarded or amended in a manner that does not comply with Code Section 409A, but only if and to the extent that the Committee specifically provides in written resolutions that the Incentive or amendment is not intended to comply with Code Section 409A.

 

Initially approved by the Board of Directors and stockholders in April 2013.

 

On June 24, 2014, the Company effected a 1-for 2 reverse split of its common stock.

 

Amended by the Board of Directors and the stockholders on April 24, 2015 and June 1, 2015, respectively.

  

Amended by the Board of Directors and the stockholders on March 10, 2017, and May 5, 2017, respectively.

 

 

10

 

Exhibit 99.1

 

 

GWG HOLDINGS ReportS FIRST Quarter

2017 Financial Results

 

MINNEAPOLIS, MN – May 10, 2017 – GWG Holdings, Inc. (Nasdaq: GWGH), the parent company of GWG Life, a financial services company committed to transforming the life insurance industry through disruptive and innovative products and services, today announced its financial results for the quarter ended March 31, 2017.

 

Highlights for the Three Months Ended March 31, 2017

 

● GAAP Financial Information
o Total revenue of $20.1 million, up 12% from the prior year
o Net loss attributable to common shareholders of $1.9 million, or ($0.32) per basic and fully diluted share
● Adjusted Non-GAAP Financial Information 1
o Non-GAAP income attributable to common shareholders of $10.8 million, or $1.83 per basic and fully diluted share 2
● Increased the number of financial advisors able to sell our investment products to 5,309 – the largest network of advisors in the Company’s history
● Raised $56 million of capital from investment product offerings – our second highest quarterly amount on record
● Sold out the $100 million 7% Redeemable Preferred Stock (RPS) offering
● Commenced $150 million 7% Series 2 Redeemable Preferred Stock (RPS2) offering April 3, 2017
● Increased the number of financial advisors and life insurance agents able to source life insurance policies through GWG Life’s Appointed Agent Program to 3,787 – the largest network of insurance agents in the Company’s history
● Purchased $105 million in face value of policy benefits, the fifth consecutive quarter of purchases exceeding $100 million
● 27% of policy purchases were directly through independent financial advisors and life insurance agents, as compared to 13% in the first quarter of 2016
● Recognized $19 million in policy benefits from ten life insurance policies during the quarter, and an additional $9 million in policy benefits from three policies since quarter end
● Reported a portfolio of $1.45 billion in face value of life insurance policy benefits, covering 675 unique lives; representing a net year-over-year growth of $420 million or 41%
● Announced the appointment of Chris Orestis, former Chief Executive Officer of Life Care Funding, as EVP of Life Insurance Secondary Markets .
● Reported a total liquidity position of $107 million at March 31, 2017 3

 

“This was another strong quarter for us, one in which we made significant progress on several important corporate initiatives that we expect will lead to significant growth opportunities almost immediately and in the quarters to come,” said Jon Sabes, Chairman and Chief Executive Officer. “We closed out our $100 million Redeemable Preferred Stock (RPS) offering and introduced a new $150 million Series 2 Redeemable Preferred Stock (RPS2) offering that continues to see growing acceptance as broker-dealers, financial advisors, and investors better understand our business and its potential.”

 

“On the life insurance secondary market front, we hired as Executive Vice President Chris Orestis who brings decades of experience creating innovative long-term care and life insurance products for seniors. With Chris’s leadership, we are participating in a national rollout campaign to develop insurance professionals into Care Funding Specialists who focus on long-term care solutions. And we are supporting this campaign with a new product suite called the LifeCare Exchange that seeks to give seniors more options to exchange their life insurance to meet their long-term care and other post-retirement needs.”

 

 

(1) See non-GAAP Financial Measures below.
(2) We calculate adjusted non-GAAP net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value measurements required by GAAP. We net this actuarial gain against our adjusted costs during the same period to calculate adjusted non-GAAP net income.
(3) Includes cash, restricted cash, policy benefits receivable, if any, and amounts available, if any, on our senior credit facilities.

 

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“On the M-Panel technology front, we completed our exclusive license with UCLA for use of Dr. Horvath’s epigenetic methylation biomarker technology that are a predictive of individual all-cause mortality. In layman’s terms, this technology measures epigenetic methylation changes that occur from a wide range of environmental factors such as smoking and air pollution to diet and exercise, and impact our gene expression. In order to assess and better understand our commercial opportunities with M-Panel technology, we retained a global consultancy firm to assist us in the development of a report to quantify the value of epigenetic methylation technology to the life insurance and annuity industries. We are excited that this report shows us to be at the forefront of an emerging technology whose applications were not even imagined a year ago.”

 

“In the first quarter of 2017, we continued attracting record numbers of independent financial advisors to sell our non-correlated income and growth investment products, which are the primary engine of our growth,” said William Acheson, Chief Financial Officer. “Likewise, we have attracted a record number of independent insurance agents to fuel the growth of our direct policy acquisitions which, we believe will be a key differentiator for us and a source of shareholder value once operating at scale,” Acheson continued. “This progress, combined with the steadily rising cash flows realized from our portfolio of life insurance policies, signals success in the execution of our growth strategy.”

 

First Quarter 2017 Financial Summary

 

Total revenue for the quarter ended March 31, 2017 was $20.1 million, as compared to $17.9 million for the same period in 2016. Realized gain from policy benefits for the first quarter was $16.6 million, as compared to $14.6 million for the same period in 2016. The Company recognized $19.0 million of life insurance policy benefits during the quarter, as compared to $19.2 million for the same period in 2016. Total unrealized gain from policy acquisitions during the first quarter was $10.6 million, as compared to $8.0 million for the same period in 2016.

 

Total expenses for the first quarter of 2017 were $20.1 million, as compared to $15.2 million for the same period in 2016. As in prior quarters, increased expenses versus the prior year period were directly related to our growth in headcount, infrastructure, financing and operating costs as we continue to execute our growth strategy. The rate of increase in our total expenses is declining, however, as evidenced by sequential growth in total expenses of approximately 2% for the first quarter of 2017. We are, however, prepared to continue investing in the resources necessary to support our growth plans and the opportunity we see in the life insurance markets.

 

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Other Financial Information

 

Reconciliation of Gain on Life Insurance Policies

 

    Three Months Ended  
    March 31, 2017     March 31, 2016  
Change in est. probabilistic cash flows   $ 16,543,000     $ 9,394,000  
Premiums and other fees paid     (11,090,000 )     (8,445,000 )
Fair value of matured policies     (11,178,000 )     (6,780,000 )
Change in life expectancy evaluation     (2,083,000 )     722,000  
Change in discount rates     -       177,000  
Unrealized gain on acquisitions     10,602,000       8,019,000  
Realized gain on maturities     16,606,000       14,627,000  
Gain on life insurance policies   $ 19,400,000     $ 17,714,000  

 

Life Insurance Portfolio Summary

 

Total portfolio face value of policy benefits   $ 1,447,558,000  
Average face value per policy   $ 1,922,000  
Average face value per insured life   $ 2,145,000  
Average age of insured (yrs.)     81.5  
Average life expectancy estimate (yrs.)     6.9  
Total number of policies     753  
Number of unique lives     675  
Demographics     73% Males; 27% Females   
Number of smokers     29  
Largest policy as % of total portfolio     0.92 %
Average policy as % of total portfolio     0.13 %
Average annual premium as % of face value     3.28 %

 

Distribution of Policies and Policy Benefits by Current Age of Insured

 

Min Age   Max Age   Policy Benefits    

Weighted Average

Life Expectancy (yrs.)

    Percentage of
Total
Policy Benefits 		 
90   96   $ 141,855,000       2.7       9.8 %
85   89   $ 361,613,000       4.8       25.0 %
80   84   $ 396,772,000       6.3       27.4 %
75   79   $ 263,357,000       9.2       18.2 %
70   74   $ 178,541,000       10.1       12.3 %
60   69   $ 105,420,000       11.1       7.3 %
Total       $ 1,447,558,000       6.9       100.0 %

 

Life Insurance Portfolio Activity

 

    Three Months Ended  
    March 31, 2017     March 31, 2016  
             
Total face value of policy benefits purchased   $ 104,755,000     $ 102,214,000  
Total number of life insurance policies purchased     73       75  
Average face value of policy benefit purchased   $ 1,435,000       1,363,000  
Face value of policy benefits directly purchased   $ 23,504,700       3,409,000  
Number of life insurance policies directly purchased     20       10  

 

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Trailing 12 Month Policy Benefits Recognized and Premiums Paid

 

Quarter End Date  

Portfolio

Face Amount ($)

   

12-Month

Trailing

Benefits Collected
($)

   

12-Month

Trailing Premiums Paid
($)

   

12-Month

Trailing

Benefits/Premium

Coverage Ratio

 
December 31, 2014     779,099,000       18,050,000       23,265,000       77.6 %
March 31, 2015     754,942,000       46,675,000       23,786,000       196.2 %
June 30, 2015     806,274,000       47,125,000       24,348,000       193.5 %
September 30, 2015     878,882,000       44,482,000       25,313,000       175.7 %
December 31, 2015     944,844,000       31,232,000       26,650,000       117.2 %
March 31, 2016     1,027,821,000       21,845,000       28,771,000       75.9 %
June 30, 2016     1,154,798,000       30,924,000       31,891,000       97.0 %
September 30, 2016     1,272,078,000       35,867,000       37,055,000       96.8 %
December 31, 2016     1,361,675,000       48,452,000       40,240,000       120.4 %
March 31, 2017     1,447,558,000       48,189,000       42,753,000       112.7 %

 

Conference Call Details

 

Management will host a conference call today at 4:00 pm Eastern Time to discuss the Company's financial results. The conference call number for U.S. participants is (844) 423-9895 and the conference call number for participants outside the U.S. is (716) 247-5865. The conference ID number for both conference call numbers is 13478244. The call may also be accessed via webcast on the Company’s website at investors.gwglife.com.

 

A replay of the call will be available through May 17, 2017 by dialing (855) 859-2056 (U.S.) or (404) 537-3406 (international), using the passcode 13478244.

 

About GWG Holdings, Inc.

 

GWG Holdings, Inc. (Nasdaq: GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and innovative products and services. Already a recognized disruptor in the life insurance secondary market, GWG Life seeks to further transform the industry by continuing to create innovative products and services. As of March 31, 2017, GWG Life’s growing portfolio consisted of over $1.45 billion in face value of policy benefits. Since 2006, GWG Life has purchased over $2.41 billion in life insurance policy benefits and paid seniors more than $418.4 million for their life insurance.

 

For more information about GWG Holdings, email info@gwglife.com or visit www.gwgh.com .

 

Cautionary Statement Regarding Forward-Looking Statements

 

This press release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this press release regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "would," "target" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about our estimates regarding future revenue and financial performance. We may not actually achieve the expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the expectations disclosed in the forward-looking statements we make. More information about potential factors that could affect our business and financial results is contained in our filings with the Securities and Exchange Commission. Additional information will also be set forth in our future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that we make with the Securities and Exchange Commission. We do not intend, and undertake no duty, to release publicly any updates or revisions to any forward-looking statements contained herein.

 

Media Contacts:

Dan Callahan

Director of Communication

GWG Holdings, Inc.

(612) 746-1935

dcallahan@gwglife.com

 

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GWG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    March 31, 2017     December 31, 2016  
    (unaudited)        
A S S E T S
Cash and cash equivalents   $ 49,933,336     $ 78,486,982  
Restricted cash     48,091,589       37,826,596  
Investment in life insurance policies, at fair value     545,396,546       511,192,354  
Secured MCA advances     5,005,400       5,703,147  
Life insurance policy benefits receivable     8,975,000       5,345,000  
Other assets     3,317,692       4,688,103  
TOTAL ASSETS   $ 660,719,563     $ 643,242,182  
                 

L I A B I L I T I E S & S T O C K H O L D E R S’ E Q U I T Y

LIABILITIES                
Senior credit facilities   $ 153,387,813     $ 156,064,818  
Series I Secured Notes     11,000,368       16,404,836  
L Bonds     383,315,514       381,312,587  
Accounts payable     2,684,919       2,226,712  
Interest and dividends payable     16,287,918       16,160,599  
Other accrued expenses     1,991,281       1,676,761  
Deferred taxes, net     2,096,871       2,097,371  
TOTAL LIABILITIES   $ 570,764,684     $ 575,943,684  
                 
STOCKHOLDERS’ EQUITY                
CONVERTIBLE PREFERRED STOCK – Series A (par value $0.001; shares authorized 40,000,000; shares outstanding 2,651,565 and 2,640,521; liquidation preference of $19,887,000 and $19,804,000 as of March 31, 2017 and December 31, 2016, respectively)     19,771,744       19,701,133  
                 
REDEEMABLE PREFERRED STOCK – RPS (par value $0.001; shares authorized 100,000; shares outstanding 87,131 and 59,183 as of March 31, 2017 and December 31, 2016, respectively)     87,130,977       59,025,164  
                 
COMMON STOCK                
Common stock (par value $0.001: shares authorized 210,000,000; shares issued and outstanding 5,779,745 and 5,980,190 as of March 31, 2017 and December 31, 2016, respectively)     5,780       5,980  
Additional paid-in capital     1,908,774       7,383,515  
Accumulated deficit     (18,862,396 )     (18,817,294 )
TOTAL STOCKHOLDERS’ EQUITY     89,954,879       67,298,498  
                 
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY   $ 660,719,563     $ 643,242,182  

 

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GWG HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    Three Months Ended  
    March 31, 2017     March 31, 2016  
REVENUE            
Gain on life insurance policies, net   $ 19,399,819     $ 17,713,712  
MCA income     246,577       144,961  
Interest and other income     441,949       45,220  
TOTAL REVENUE     20,088,345       17,903,893  
                 
EXPENSES                
Interest expense     13,244,215       9,149,155  
Employee compensation and benefits     3,163,062       2,466,197  
Legal and professional fees     946,348       1,206,128  
Other expenses     2,780,322       2,412,160  
TOTAL EXPENSES     20,133,947       15,233,640  
                 
 INCOME (LOSS) BEFORE INCOME TAXES     (45,602 )     2,670,253  
 Income tax expense (benefit)     (500 )     1,084,717  
                 
NET INCOME (LOSS)     (45,102 )     1,585,536  
Preferred stock dividends     1,867,760       511,231  
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS   $ (1,912,862 )   $ 1,074,305  
                 
NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS                
Basic   $ (0.32 )   $ 0.18  
Diluted   $ (0.32 )   $ 0.18  
                 
WEIGHTED AVERAGE SHARES OUTSTANDING                
Basic     5,912,946       5,942,790  
Diluted     5,912,946       5,942,790  

 

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Non-GAAP Financial Measures

 

The Company uses non-GAAP financial measures for evaluating financial results, planning and forecasting, and maintaining compliance with covenants contained in borrowing agreements. The application of current GAAP standards during a period of significant growth in the Company’s business, in which period the Company is building a large and actuarially diverse portfolio of life insurance, results in current period operating performance that may not be reflective of the Company’s long-term earnings potential. Management believes that the Company’s non-GAAP financial measures permit investors to better focus on this long-term earnings performance without regard to the volatility in GAAP financial results that can occur during this phase of our growth.

 

These Non-GAAP financial measures are disclosed to investors to provide an alternative method for assessing our financial condition and operating results. These non-GAAP financial measures are not in accordance with GAAP and may be different from non-GAAP measures used by other companies, including other companies within our industry. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for comparable amounts prepared in accordance with GAAP. A reconciliation of GAAP to the non-GAAP financial measures described above can be found below.

 

Adjusted Non-GAAP Net Income . Our DZ Bank/Autobahn senior revolving credit facility requires us to maintain a positive net income calculated on an adjusted non-GAAP basis. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our adjusted costs during the same period to calculate our net income on a non-GAAP basis.

 

    Three Months Ended  
    March 31, 2017     March 31, 2016  
GAAP net (loss) income   $ (45,102 )   $ 1,585,536  
Unrealized fair value gain (1)     (13,883,833 )     (11,531,553 )
Adjusted cost basis increase (2)     21,721,077       15,367,047  
Accrual of unrealized actuarial gain (3)     4,910,182       6,065,733  
Total adjusted non-GAAP income (4)   $ 12,702,324     $ 11,486,763  
Preferred stock dividends     (1,867,760 )     (511,231 )
Non-GAAP income attributable to common shareholders     10,834,564       10,975,532  
Non-GAAP net income per share:                
Basic     1.83       1.85  
Diluted     1.25       1.37  
Average shares outstanding:                
Basic     5,912,946       5,942,790  
Diluted     8,689,649       7,987,321  

 

 

(1) Reversal of GAAP unrealized fair value gain of life insurance policies.
(2) Adjusted cost basis is increased to include those acquisition, financing and servicing expenses that are not capitalized under GAAP (non-GAAP Investment Cost Basis)
(3) Accrual of actuarial gain at the expected internal rate of return based on the non-GAAP Investment Cost Basis for the applicable period.
(4) We must maintain an annual positive consolidated adjusted non-GAAP income to maintain compliance with our DZ Bank/Autobahn revolving credit facility.

 

7