MILBERG WEISS BERSHAD
HYNES & LERACH LLP
WILLIAM S. LERACH (68581)
PATRICK J. COUGHLIN (111070)
HELEN J. HODGES (131674)
AMBER L. ECK (177882)
600 West Broadway, Suite 1800
San Diego, CA 92101
Telephone: 619/231-1058
     - and -
ALISON M. TATTERSALL (149607)
222 Kearny Street, 10th Floor
San Francisco, CA 94108
Telephone: 415/288-4545

ABBEY, GARDY & SQUITIERI, LLP
STEPHEN T. RODD
PETER D. BULL
212 East 39th Street
New York, NY 10016
Telephone: 212/889-3700

Co-Lead Counsel for Plaintiffs
[Additional counsel appear on signature page.]

2. Since its inception, Dignity had been chronically undercapitalized, dependent on loans from its founders and controlling shareholders, loans from others guaranteed by those insiders and was even unable to pay their salaries as officers of the Company in a timely manner. The only solution to this dilemma was a public offering of Dignity stock to raise millions in desperately needed capital. Shortly before Dignity's IPO, Dignity changed its accounting practices, discarding the cash method by which it recorded and reported income from its viatical settlements when the AIDS patient died and Dignity actually received the life insurance proceeds -- to an accrual method, by which it began to immediately record and report income on the purchase of the life insurance policy based on estimates of how long the AIDS victim would live. This change substantially increased Dignity's reported revenues and net income and enabled it to go public as a "profitable" company.

3. Dignity's IPO, in which over 2.7 million shares of Dignity stock were sold at $12 per share, raising $34.2 million for Dignity and its key insiders and controlling shareholders, was accomplished via a Registration Statement and Prospectus ("Prospectus") which represented that Dignity had achieved net income of $594,000/$.31 per share for the nine months ended Sept. 30, 1995, that Dignity's viatical settlement business had been rapidly expanding while adhering to strict underwriting standards which, after the IPO, would be expanded to include terminally ill persons suffering from diseases other than AIDS and that Dignity's IPO proceeds would be used to more rapidly expand Dignity's profitable business by purchasing larger numbers of insurance policies from terminally ill persons. Dignity's IPO greatly benefited Dignity's top insiders and controlling shareholders. Bradley Rotter, Dignity's Chairman, sold 321,144 shares, pocketing $3.8 million. New Echelon LLC, a company owned by Dignity's top insiders and controlling shareholders (Bradley Rotter, Alan Perper and John Rotter) got $2 million of the IPO proceeds to repay a past due loan it had made to Dignity, the Rotters and Perper got $833,000 of the IPO proceeds to pay their past due salaries from Dignity and were also released from millions in personal guarantees on other Dignity borrowings. The IPO provided $25.4 million in net proceeds to Dignity thereby benefiting its controlling shareholders, tripling the book value of the 1.6 million shares still owned by the Rotters and Perper from $2.44 per share to $6.70 per share -- a $6.8 million windfall for them, as they would continue to control Dignity because they owned approximately 37% of its outstanding stock.

4. After the IPO, Dignity's stock quickly advanced to its all-time high of $14-1/2 and traded between $11-$13 through June 26, 1996. On June 26, 1996, Dignity's primary investment banker revealed that Dignity's results from the quarter to end June 30, 1996 -- Dignity's first complete quarter as a public company -- would be lower than earlier forecast due to fewer viatical settlements with AIDS patients and higher operating expenses, causing Dignity's stock to collapse to as low as $6-1/2 on June 26, 1996 from $12 on June 25, 1996. Just three weeks later, July 16, 1996, Dignity revealed it was suspending doing viatical settlements with AIDS patients, i.e., it was suspending its main line of business, causing its stock to further collapse, this time to as low as $1 per share from $7-1/4 the day before. Dignity then revealed a stupendous loss of $10 million for the quarter ended Sept. 30, 1996 -- its second full quarter as a public company -- due to a massive writedown of the value of the life insurance policies Dignity had acquired in viatical settlements, which loss wiped out by eight times over all the $1.2 million in profits Dignity had ever even claimed to have earned. Dignity also revealed it was going to sell off substantially all its assets, was abandoning the accrual method of accounting for its viatical settlements income and return to the cash method, was changing its name to Point West Capital Corporation and was going into a completely different line of business, abandoning viatical settlements altogether. When this suit was originally filed -- Dec. 19, 1996 -- Dignity's stock was still trading at just $2-1/2 and it has never recovered, currently selling for about $4.00. The chart below shows this collapse in Dignity's stock price:

5. By the fall of 1995 Dignity's insiders and controlling shareholders were in a very threatened position. Because Dignity's business had always been chronically undercapitalized, the Rotters and Perper had kept Dignity's business going by making personal financial commitments and concessions to it. As a result, they were (a) owed unpaid and overdue compensation of over $834,000; (b) owed $2.1 million in overdue loans that Dignity could not repay; (c) personally liable for Dignity's existing borrowings of $4.4 million and any future borrowings under its lending facilities with Transamerica and Wells Fargo; and (d) locked into an illiquid position with their Dignity stock, unable to sell it and facing the likely loss of their entire investment, unless Dignity could raise millions in new capital. Thus, in order to raise that capital, Dignity's insiders and controlling shareholders wanted to take Dignity public and raise millions in capital.

6. The need for Dignity's insiders and controlling shareholders to quickly complete an IPO was greatly increased during 1995, when Dignity's viatical settlement business took a serious turn for the worse, largely because due to new drugs and enhanced medical treatments, Dignity's AIDS viators were living much longer than Dignity had earlier estimated. Notwithstanding this adverse development, defendants changed Dignity's revenue recognition policy, discarding its cash-based accounting method where revenue was recognized only upon the death of the insured and receipt of the proceeds of the life insurance policy, to an accrual-based method, where revenue was recognized on a level yield basis over the insureds' estimated life spans, beginning on the policy acquisition date. This change dramatically increased Dignity's reported gross and net income, enabled Dignity to appear to be a profitable company and was inconsistent with Dignity's actual experience during 1995 with its AIDS insureds, which indicated that Dignity's estimates were not reliable enough to justify its accrual accounting practices for income recognition. Dignity's life expectancy estimates and accrual periods for its AIDS insureds and their insurance policies were materially inaccurate by the time of the IPO, as enhanced AIDS treatment regimens, advances in the treatments of opportunistic infections that accompany AIDS and new AIDS drugs were dramatically prolonging the lives of Dignity's own insured AIDS population.

7. By Dec. 31, 1995, a material number of Dignity's insureds were already living well beyond their expected death date. Later, a Center for Disease Control ("CDC") "HIV Surveillance Report" reported that for the first time in the history of the AIDS disease, mortality rates for AIDS victims actually declined in 1995. The Wall Street Journal recently reported that, according to the CDC, "the rate of AIDS-related deaths began flattening . . . early in 1995 -- as more AIDS patients were experimenting with a wide array of previously approved treatments and therapies." In fact, Dignity's own experience with its AIDS viators showed that their life expectancies had materially changed (lengthened) during 1995, due to improved treatments and drugs for the HIV virus and associated illnesses.

8. In addition to the heightened efficacy of existing and enhanced AIDS treatment regimens, drug manufacturers began distributing new protease inhibitor drugs to thousands of late-stage AIDS patients in 1995, after early testing of those drugs showed dramatically positive results in terms of increased life spans. The approval of these very expensive drugs and treatments was particularly threatening to Dignity's business because, while many AIDS patients could not afford these very expensive new drugs and treatments and thus would still die quickly, Dignity's viatical settlements provided its AIDS customers the money to purchase these expensive drugs and treatments and thus Dignity's AIDS victims would live even longer than the "averages," as they were able to afford the most advanced therapies and treatments. This was compounded by the fact that these new AIDS drugs and therapies were most beneficial to later stage AIDS patients, i.e., patients formerly thought to all be terminally ill and expected to die in the next 24 months -- the very group of AIDS patients Dignity targeted for viatical settlements and who made up almost 100% of its existing population of viators.

9. In order to accomplish a large IPO to raise the millions of new capital Dignity desperately needed, it was necessary for Dignity's business to appear profitable and expanding. Thus, before the IPO, Dignity changed its accounting procedures for viatical settlements by discarding the cash accounting method in favor of the accrual accounting method, which enabled Dignity to greatly increase its reported net income and EPS and thus be presented in the Prospectus as a profitable company, which in fact it was not. The Prospectus also presented Dignity as rapidly expanding its profitable viatical settlement business which would use the IPO proceeds to accelerate that profitable expansion. The Prospectus also presented Dignity's management as having significant expertise in accurately estimating the lives of the AIDS victims which it entered into viatical settlements with, as having "strict underwriting standards" which was a key to Dignity being able to operate profitably, while assuring investors that the progression of the AIDS disease was a "relatively predictable" one, which enabled Dignity to accurately estimate life expectancies and that this expertise made Dignity "well-positioned" to compete in the viatical settlement industry and gave it "a competitive advantage."

10. In Dignity's Feb. 1996 IPO, B. Rotter, Dignity's Chairman, sold 321,144 shares of his Dignity stock for $12 per share, pocketing $3.8 million and Dignity sold 2,381,356 shares, pocketing $25.4 million. Dignity used some of the IPO proceeds to pay past due compensation of $834,000 to the Rotters and Perper and repay the overdue $2.1 million loan to their company, New Echelon LLC. Dignity also repaid its millions of indebtedness to Transamerica and Wells Fargo, resulting in the Rotters and Perper being released from their personal guarantees of those borrowings and not being required to guarantee future Dignity borrowings from them. The Rotters and Perper also avoided the complete loss of their investment in Dignity, which they would have suffered without the millions raised by Dignity in the IPO. Not only did the Offering avoid financial disaster for Dignity insiders and controlling shareholders but it greatly benefited them as well, by filling the coffers of Dignity (which they would continue to own 37% of (1.6 million shares)) with millions of dollars, boosting the book value of their shares from $2.44 per share to $6.70 per share -- a $6.8 million windfall for them.

11. After the IPO, the defendants continued to make very positive statements about Dignity. Dignity reported 1995 net income and EPS of $803,000 and $.42, respectively -- large increases over 1994. Defendants continued to represent that Dignity's accurate estimation of the life expectancies of its AIDS affiliated customers was a "major competitive advantage," that it expected a sharp acceleration of its life insurance policy acquisitions and was going to "greatly broaden the size of its policy acquisitions" to include non-AIDS terminally-ill individuals, as Dignity was unable to "as accurately predict" the life expectancy of those non-AIDS patients as well as its highly successful historic experience with AIDS, that the growth in life insurance policies purchased "reflects the implementation of the Company's growth strategy" and that, as a result, Dignity would achieve "an acceleration of . . . earnings growth" and 1996 and 1997 EPS of $.42 and $.80 respectively.

12. The statements made in Dignity's Prospectus and in the aftermarket were each false and misleading when made. The true facts, not disclosed, were:

(a) Dignity was not "well-positioned" in the viatical settlement industry because the core premise underlying its viatical settlement business, i.e., Dignity's ability to accurately estimate the life expectancy of AIDS victims, no longer existed and because Dignity had purchased millions of dollars of insurance policies of AIDS victims based on inaccurate life expectancy estimates, which had caused Dignity millions of dollars of losses it had not recorded or reported;

(b) Dignity did not have a "competitive advantage" in the viatical settlement business due to its claimed ability to relatively accurately estimate the life expectancy of AIDS victims, because, due to advances in AIDS medications and therapies during 1995, the progression of the AIDS disease was no longer relatively predictable and Dignity no longer had any expertise in accurately predicting life expectancy of AIDS victims that would give it any competitive advantage;

(c) Dignity did not have strict underwriting practices to assure its purchasing life insurance policies of AIDS victims on a profitable basis because to generate policy purchase volume in the face of increased competition, Dignity was not adhering to strict underwriting practices but rather was purchasing policies in bulk, at an accelerating rate and Dignity had lost its ability to utilize whatever strict underwriting practices it ever had, because it could no longer accurately estimate the life expectancies of AIDS victims;

(d) Dignity could no longer accurately estimate the life expectancy of AIDS victims because the progression of the AIDS disease was no longer "relatively predictable" due to the success of new drugs and enhanced therapies;

(e) Dignity's business was especially acutely exposed to the success the new AIDS drugs and improved therapies which emerged during 1995 were having on AIDS victims' life spans for two reasons. First, these new drugs and therapies were extremely expensive and could not be afforded by many AIDS patients except those whose insurance policies Dignity purchased were uniquely able to afford these expensive drugs and therapies which dramatically prolonged their lives, exposing Dignity to huge losses. Second, the new drugs and improved therapies that emerged during 1995 were particularly effective in lengthening the lives of the most severely ill AIDS patients who were otherwise in a late phase of the disease, who historically had less than 24 months to live, who were the very AIDS victims which Dignity targeted as potential customers, the AIDS victims who comprised almost all of Dignity's viators and which Dignity's business plan depended on dying relatively quickly;

(f) During 1995 and especially the 4thQ of 1995 Dignity's own AIDS viators were dying at materially slower rates and living much longer than Dignity's estimates, thus causing Dignity huge losses on the insurance policies of AIDS victims it had already purchased;

(g) The number of life insurance policies of AIDS victims Dignity had purchased where the insured had lived longer than Dignity's estimate and thus exposed Dignity to huge, indeed unlimited, losses had skyrocketed dramatically due to improved therapies and new drugs;

(h) Prior to Dignity's IPO Dignity changed its accounting practices from the proper method for accounting for revenue and profits in a viatical settlement business, i.e., the cash basis, to an improper accrual basis, allowing Dignity to report large revenues and profits which it would not have been able to report under the cash method and which it could not properly report under any accounting method since the recognition of income on the policies was the recognition of a contingent gain, which is impermissible under Generally Accepted Accounting Principles ("GAAP");

(i) The gross income, net income and EPS reported by Dignity in the Prospectus and during the Class Period were artificially inflated as detailed in ¶¶46-69, principally because Dignity was using an improper accrual accounting method to record income from its viatical settlement business and was improperly applying the accrual method by not adjusting the accrual periods despite evidence that they were too short and inaccurate and resulted in materially overstated gross income, net income and EPS;

(j) Dignity's assets were materially overstated because the value of the insurance policies it had purchased were worth millions less than they were carried for on Dignity's balance sheet because Dignity was obligated to pay significant amounts of money in premiums for much longer than Dignity had originally expected, due to the increasing portion of the viators whose life insurance policies Dignity had purchased were living well beyond the life expectancies Dignity had estimated for them, meaning that many of the policies would result in losses to Dignity and should have been written down;

(k) Dignity did not have the ability to expand its viatical settlement business for AIDS viators but was going to have to sharply curtail, if not abandon, its viatical settlement business with AIDS victims due to the fundamental changes and the economics underlying that business, i.e., the inability to accurately estimate the life expectancy of AIDS patients and the dramatically lengthened life expectancy of AIDS patients due to expensive new drugs and therapies which Dignity viatical settlements gave them the funds to purchase;

(l) Dignity's business did not have any significant potential to expand into viatical settlements with persons with diseases other than AIDS, and in fact, Dignity had no business plan or strategy to significantly expand its viatical settlement business into diseases other than AIDS, lacked any expertise or ability to accurately estimate the life expectancies of persons with such other diseases in a way to profitably make viatical settlements with them and there existed no significant market of or demand from individuals suffering from terminal illnesses other than AIDS who were seeking viatical settlements; and

(m) By the date of Dignity's IPO, the fundamental economic premise of its viatical settlement business, i.e., the ability to estimate with relative accuracy the life expectancy of AIDS victims whose insurance policies Dignity purchased had disappeared because AIDS was transforming from an inevitably terminal illness to a chronic disease where AIDS victims could live indefinite periods, and thus a viatical settlement business with AIDS victims could not be profitably pursued and was doomed going forward.

13. On June 26, 1996, Dignity's lead underwriter in the IPO revealed that Dignity's financial results would be below prior expectations because of a reduced number of viatical settlements and increased expenses. Dignity's stock immediately collapsed from $12 on June 25, 1996 to as low as $6-1/2 on June 26, 1996, on huge volume of 789,300 shares, by far the largest one-day trading volume in the stock since Dignity had gone public. Then, on July 16, 1996, just three weeks later and only five months after the IPO, Dignity revealed that it had ceased processing applications for viatical settlements. Upon this revelation, Dignity's stock again collapsed, now to as low as $1, again, on huge volume of 648,000 shares. Then, for the quarter ended Sept. 30, 1996, Dignity's second full quarter as a public company, Dignity revealed a loss of $10 million due to a "valuation provision" for purchased life insurance policies -- losses on those policies. This huge loss wiped out every penny of profit Dignity had ever reported -- about $1,290,365 in total -- by almost 8 times over. Dignity revealed it was going to sell all of its assets, that it had changed its method of recognizing income on its policy portfolio from the accrual method back to the cash method -- the same method used before the IPO. Dignity then changed its name to Point West Capital Corporation and abandoned the viatical settlement business, going into another line of business entirely.

14. Thus, within five months of a $34 million IPO at $12 per share, Dignity reported huge losses that wiped out all its previously reported profits, began selling off all its assets, changed its revenue recognition policy back to a cash-based method and discontinued the business which was the basis for selling 2.7 million shares of stock to the public at $12 per share -- stock that collapsed to as low as $1 per share. The chart below demonstrates the catastrophic losses suffered by Dignity investors due to defendants' misrepresentations and concealments and that when compared to an index of similar stocks the collapse of Dignity's stock was due to company-specific information and not induced by market forces:

15. While the public investor victims in this debacle have lost millions, Dignity's insiders and controlling stockholders have done quite well. They personally pocketed over $6 million out of the IPO from stock sales and past due loan and compensation payments. They also eliminated their personal guarantees of millions in Dignity loans. The public company they continue to control (they own 37% (1.6 million shares) of Dignity's stock) avoided insolvency and raised $26.5 million in desperately needed capital, at least $10 million of which it still retains, giving the 1.6 million shares those controlling shareholders still own a book value of $5.28 per share or $8.4 million and a market value of $5.6 million, compared to their cost of $2.23 per share, or $4.2 million.

17. The claims asserted herein arise under (a) §§11 and 15 of the Securities Act, 15 U.S.C. §§77k and 77o, and (b) §§10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and the rules and regulations promulgated thereunder by the Securities and Exchange Commission ("SEC") including SEC Rule 10b-5, 17 C.F.R. §240.10b-5.

18. (a) Venue is proper in this District pursuant to §22 of the Securities Act and §27 of the Exchange Act. The acts and transactions constituting the violations of the law alleged herein occurred in substantial part in this District.

(b) Assignment of this action to the San Francisco Division is appropriate as a substantial part of the events or omissions identified herein occurred in San Francisco County.

19. Defendants used the instrumentalities of interstate commerce, the U.S. mails and the facilities of the national securities markets.

(b) Plaintiff John DeRosa purchased 10,000 shares of the common stock of Dignity on Mar. 14, 1996 at $13.35 per share, and was damaged thereby. The stock purchased was issued and sold in the IPO with and is traceable to the Registration Statement and Prospectus. DeRosa's shares are presumed to have been purchased pursuant to the Registration Statement and Prospectus. None of the shares of common stock held by Dignity insiders immediately after the Offering was eligible for sale pursuant to SEC Rule 144 until Oct. 1997. All of such shares were subject to a lock-up agreement between the underwriters and each of New Echelon LLC and defendants B. Rotter, J. Rotter and Perper, for 180 days following the Feb. 14, 1996 Offering.

(c) Plaintiff Jeffrey Feinman purchased 2,000 shares of the common stock of Dignity on Mar. 14, 1996 at $14 per share, and was damaged thereby. The stock purchased was issued and sold in the IPO with and traceable to the Registration Statement and Prospectus. Feinman's shares are presumed to have been purchased pursuant to the Registration Statement and Prospectus. None of the shares of common stock held by Dignity insiders immediately after the Offering was eligible for sale pursuant to SEC Rule 144 until Oct. 1997. All of such shares were subject to a lock-up agreement between the underwriters and each of New Echelon LLC and defendants B. Rotter, J. Rotter and Perper, for 180 days following the Feb. 14, 1996 Offering.

(d) Plaintiff Charles Steinberg purchased 100 shares of Dignity stock on Feb. 22, 1996 at $14 per share and was damaged thereby. The stock purchased was issued and sold in the IPO with and traceable to the Registration Statement and Prospectus. Steinberg's shares are presumed to have been purchased pursuant to the Registration Statement and Prospectus. None of the shares of common stock held by Dignity insiders immediately after the Offering was eligible for sale pursuant to SEC Rule 144 until Oct. 1997. All of such shares were subject to a lock-up agreement between the underwriters and each of New Echelon LLC and defendants B. Rotter, J. Rotter and Perper, for 180 days following the Feb. 14, 1996 Offering.

21. Defendant Dignity (now Point West Capital Corporation) maintained its executive offices in San Francisco, California.

22. The following defendants (the "Individual Defendants") were directors, director-designees or officers of Dignity, or both. Each of the Individual Defendants below (excepting defendants Bow and Volberding) signed the Registration Statement and Prospectus for the Dignity IPO:

(a) Defendant Bradley N. Rotter ("B. Rotter") is a Director and Chairman of the Board of Dignity, and was a founder of Dignity. Defendant B. Rotter sold 321,144 shares in the IPO for proceeds of $3,853,728.

(b) Defendant Alan B. Perper ("Perper") is a Director and President of Dignity, and was a founder of Dignity.

(c) Defendant John Ward Rotter ("J. Rotter") is a Director, Executive Vice President and Chief Financial Officer of Dignity.

(d) New Echelon LLC (The Echelon Group of Companies, LLC) is wholly owned by B. Rotter, J. Rotter and Perper. It shared two employees with Dignity as well as Dignity's office space at 1700 Montgomery Street in San Francisco.

(e the market that defendants could accurately estimate the life spans of insured persons as Dignity expanded its business to include AIDS patients with longer life spans and persons with terminal illnesses other than AIDS, so that the Offering could be completed.

(g) At the time of the IPO, Bow and Volberding were both director-designees of Dignity and so identified in the Prospectus and were each persons performing the functions of a director.

25. The Prospectus represented that Dignity's method for recognizing income was as follows:

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 . . . and (b) the carrying value of the policy. . . . The length of the Accrual Period is determined by the Company based upon its estimate of the date on which it will collect the face value of the policy. Such estimate is based upon the Company's estimate of the life expectancy of the insured, after review of the medical records of the insured by one or more Consultants, and is also adjusted to reflect the historical accuracy of the life expectancies estimated by the Company's Consultants and the typical period (the "collection period") between the date of an insured's death and the date on which the Company collects the face value of the policy.

The average Accrual Period will change as the composition of policies comprising the Company's portfolio changes. To the extent the Company purchases policies insuring the lives of individuals with longer life expectancies, the average Accrual Period will become longer. The Company has a relatively limited operating history and as it accumulates more experience and data (including the experience and data regarding the timing of actual versus expected collections on policies), it may need to revise the Accrual Periods for existing and newly acquired policies to reflect more accurately such experience and data.

(a) During 1995 and especially the 4thQ of 1995 Dignity's own AIDS viators were dying at materially slower rates and living much longer than Dignity's estimates, thus causing Dignity huge losses on the insurance policies of AIDS victims it had already purchased;

(b) Prior to its IPO, Dignity changed its accounting practice from the proper method for accounting for revenue and profits in a viatical settlement business, i.e., the cash basis, to an improper accrual basis, for the sole purpose of allowing Dignity to report large revenues and profits which it would not have been able to report under the cash method and which it could not properly report under any accounting method since the recognition of income on the policies was the recognition of a contingent gain, which is impermissible under GAAP; and

(c) The statements that Dignity "may need to revise the accrual periods for existing and newly acquired policies to reflect more accurately" its historical and ongoing experience was false as, by the date of the IPO, Dignity's own actuarial experience with the life expectancy of its insured population -- much longer lives than originally estimated -- made Dignity's existing accrual periods inaccurate, unreliable and caused Dignity to report inaccurate financial results.

26. The Prospectus indicated Dignity's profitable viatical settlement business was expanding. It stated that the Company "has achieved significant growth in the number and face value of purchased life insurance policies commencing operations." The Prospectus emphasized Dignity's recent growth:

The aggregate face value of the policies held by the Company grew from $14.8 million on December 31, 1993 to $43.2 million on December 31, 1994, and to $55.1 million on September 30, 1995. This growth reflects the acquisition of 197 policies in 1993 . . . 469 policies in 1994 . . . and 304 policies in the first nine months of 1995 . . . . The expansion of the Company's portfolio of purchased policies resulted in the growth in earned discount [income] from $420,000 for 1993 to $4.2 million for 1994 and from $2.7 million for the nine months ended September 30, 1994 to $5.1 million for the comparable period in 1995. This growth in earned discount has produced growth in net income from a net loss of $347,000 for 1993 to net income of $235,000 for 1994, and from $53,000 for the nine months ended September 30, 1994 to $594,000 for the comparable period in 1995.

The Company's strategy is to increase significantly its portfolio of policies. The Company has historically encountered limitations on its ability to expand its operations due to capital constraints. The Company expects that the net proceeds from this offering, together with the increased borrowing capability resulting therefrom and proceeds of matured policies, will enable the Company to pursue its business strategy. The major components of the Company's strategy include:

T]he Company intends to further pursue the purchase of policies insuring individuals with terminal illnesses (AIDS and other) and with life expectancies longer than 24 months (whether such individuals have AIDS or other terminal illnesses) and to purchase a larger number of certain other types of policies (e.g., certain types of group policies).

(a) Dignity did not have the ability to expand its viatical settlement business for AIDS viators but was going to have to sharply curtail, if not abandon, its viatical settlement business with AIDS victims due to the fundamental changes and the economics underlying that business, i.e., the inability to accurately estimate the life expectancy of AIDS patients and the dramatically lengthened life expectancy of AIDS patients due to expensive new drugs and therapies which Dignity viatical settlements gave them the funds to purchase;

(b) Dignity's business did not have any significant potential to expand into viatical settlements with persons with diseases other than AIDS, and in fact, Dignity had no business plan or strategy to significantly expand its viatical settlement business into diseases other than AIDS, lacked any expertise or ability to accurately estimate the life expectancies of persons with such other diseases in a way to profitably make viatical settlements with them and there existed no significant market of or demand from individuals suffering from terminal illnesses other than AIDS who were seeking viatical settlements; and

(c) By the date of Dignity's IPO the fundamental economic premise of its viatical settlement business, i.e., the ability to estimate with relative accuracy the life expectancy of AIDS victims whose insurance policies Dignity purchased had disappeared because AIDS was transforming from an inevitably terminal illness to a chronic disease where AIDS victims could live indefinite periods, and thus a viatical settlement business with AIDS victims could not be profitably pursued and was doomed going forward.

27. The Prospectus also represented that Dignity was "well-positioned" in its industry to "compete effectively" because its "strict underwriting procedures" gave it a "competitive advantage":

The Company believes it is well-positioned within the viatical settlement industry. . . . In addition, the Company believes its strict underwriting procedures, its pool of experienced Consultants and its proprietary management information system provide it with a competitive advantage. . . . The Company believes these factors will allow it to continue to complete effectively in this industry.

(a) Dignity was not "well-positioned" in the viatical settlement industry because the core premise underlying its viatical settlement business, i.e., Dignity's ability to accurately estimate the life expectancy of AIDS victims, no longer existed and because Dignity had purchased millions of dollars of insurance policies of AIDS victims based on inaccurate life expectancy estimates, which had caused Dignity millions of dollars of losses it had not recorded or reported;

(b) Dignity did not have a "competitive advantage" in the viatical settlement business due to its claimed ability to relatively accurately estimate the life expectancy of AIDS victims, because, due to advances in AIDS medications and therapies during 1995, the progression of the AIDS disease was no longer relatively predictable and Dignity no longer had any expertise in accurately predicting life expectancy of AIDS victims that would give it any competitive advantage; and

(c) Dignity did not have strict underwriting practices to assure its purchasing life insurance policies of AIDS victims on a profitable basis because to generate policy purchase volume in the face of increased competition, Dignity was not adhering to strict underwriting practices but rather was purchasing policies in bulk, at an accelerating rate and Dignity had lost its ability to utilize whatever strict underwriting policies it ever had, because it could no longer accurately estimate the life expectancies of AIDS victims. An example of Dignity's true underwriting practices was its purchase of an insurance policy where the viator had lied on his insurance application and represented he did not have AIDS when in fact he did. Dignity bought his policy knowing he had AIDS. After the viator died, Dignity continued the fight in litigation with the insurance company to retain the proceeds of the policy. These facts and defendant Perper's continuing misrepresentations to the insurance company are chronicled in transcripts and reported cases in Protective Life Ins. Co. v. Sullivan, Civ. No. 94-10728-REK (D. Mass. Nov. 16, 1995), Protective Life Ins. Co. v. Sullivan, 682 N.E.2d 624 (Mass. 1997) and Protective Life Ins. Co. v. Sullivan, 89 F.3d 1 (1st Cir. 1996). The federal district court judge found that defendant Perper "engag[ed] in a deliberate course of conduct by which he hoped to achieve and did achieve an inducement to Protective Life to make a payment on the policy with a misunderstanding of material matters on the part of the persons who acted to cause the payment to be made." Protective Life, (Nov. 16, 1995 transcript at p.9). In the end, Dignity got to keep the insurance proceeds -- despite the viator's and Perper's lies -- because of Massachusetts' statute on incontestability. However, after a trial before the district court judge, an appeal to the First Circuit and a certified question to the Massachusetts Supreme Court, Dignity undoubtedly lost money on the $100,000 face amount of the policy, for which it paid the viator $73,000.

28. The Prospectus emphasized both the "relative predictability" of the progression of the AIDS disease, compared AIDS favorably to the predictability of other terminal illnesses, stressed the accuracy of Dignity's estimates of life expectancy of its AIDS insureds and emphasized the expertise of the Company's medical consultants in estimating these insureds' life expectancies. The Prospectus also emphasized Volberding's AIDS expertise and that of the Company's "independent medical consultants" who monitored "terminally ill" individuals as part of a purportedly medically sound, scientifically accurate life expectancy estimation process. The Prospectus described the progress of the AIDS disease as "relatively predictable," characterized new treatments as "preliminary" and "extremely costly," emphasized the AIDS virus' resistance to new medications leaving viators facing imminent death, and underscored that the dates of their deaths were reasonably estimable:

The natural progression of AIDS is relatively predictable. The causative virus, HIV, can be detected in the blood as soon as two to six weeks after infection. . . . Although drugs such as AZT have been developed that appear to temporarily slow HIV reproduction, the medical community has not yet developed a cure for the disease. The usefulness of existing anti-HIV drugs is limited by the virus' early development of resistance to these medications. The median survival of patients with a new AIDS diagnosis is about two to three years.

Recently announced studies by several drug manufacturers indicate that certain existing medications and medications currently under development may, when used in combination, eliminate or reduce a high percentage of the AIDS virus detectable in persons previously diagnosed with AIDS. Such studies also indicate that combination treatments would be extremely costly. Given the preliminary nature of the studies and the ability of the AIDS virus in the past to develop a resistance to