SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED) For the transition period from ______
to ______
Commission file number 0-27736
DIGNITY PARTNERS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-3165263
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1700 Montgomery Street, Suite 250
San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 394-9469
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock, $.01 par value,
held by nonaffiliates of the registrant as of February 28, 1997 was
approximately $6,072,500.
The number of shares of the registrant's common stock, $.01 par value,
outstanding as of February 28, 1997 was 4,018,324.
Documents Incorporated by Reference:
-------------------------------------
None.
This Form 10-K/A is being filed for the purpose of including the
information required by Part III of the Form 10-K for the fiscal year ended
December 31, 1996 (the "Original Form 10-K") of Dignity Partners, Inc. (the
"Company"), which information the Company incorporated by reference from its
proxy statement which was intended to be filed with the Securities and Exchange
Commission within 120 days of the end of the Company's fiscal year. All
capitalized terms used in this Form 10-K/A and not defined are used as defined
in the Original Form 10-K.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Directors and Executive Officers
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The name, age and current position(s) of each director and executive
officer of the Company are as follows:
Name Age Positions and Offices with the Company
- ----- --- --------------------------------------
Bradley N. Rotter (1) 41 Director and Chairman of the Board of Directors
Alan B. Perper 38 Director and President
John Ward Rotter (1) 39 Director, Executive Vice President and Chief
Financial Officer
Stephen T. Bow 65 Director
Paul A. Volberding, M.D. 47 Director
- ---------------
<FN>
(1) Bradley Rotter and John Ward Rotter are brothers.
</FN>
Bradley N. Rotter has served as a director and as Chairman of the Board
of Directors since the Company's formation in September 1992. Mr. Rotter is the
managing member of New Echelon LLC, a Delaware limited liability company which
provides investment and financial services. See "Item 12--Security Ownership of
Certain Beneficial Owners and Management." He was the majority stockholder of
Echelon and served as a director and Chairman of the Board of Echelon from 1988
until the Merger. From 1986 to 1988, he was a founding member of Rotter,
Mawhorter & Gruye, Inc., a fixed income trading firm. Prior thereto, Mr. Rotter
served in various positions with a number of financial services firms, including
Merrill Lynch, E.F. Hutton and A.G. Becker. He received an M.B.A. from the
University of Chicago.
Alan B. Perper has served as a director and as President since the
Company's formation. Mr. Perper is a member of New Echelon LLC and was a
stockholder and director of Echelon and its Senior Vice President from 1991
until the Merger. From 1990 to 1991, he was a founding partner in Steinberg &
Perper, a partnership that traded in foreign currencies and stock index futures.
Prior thereto, he was a corporate associate at Jones, Day, Reavis & Pogue (from
1988 to 1990) and Isham, Lincoln & Beale (from 1985 to 1988). He received an
M.B.A. from the University of Chicago and a J.D. from Duke University.
John Ward Rotter has served as a director and as an executive officer
since the Company's formation. He has served as Executive Vice President (since
1994) and Chief Financial Officer (since September 1995). Mr. Rotter is a member
of New Echelon LLC, was a stockholder and director of Echelon and served as
Echelon's President from 1988 until the Merger. From 1987 to 1988, he was an
Administrator Researcher at Rotter, Mawhorter & Gruye, Inc. Prior thereto, Mr.
Rotter served as an officer in the United States Army (Corps of Engineers) after
graduating from the United States Military Academy in 1979. He has a
Professional Engineering license from the Commonwealth of Virginia.
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Stephen T. Bow has served as a director of the Company since March 1996.
Mr. Bow has over 40 years of management experience in the insurance industry. He
has served as Chairman and Chief Executive Officer of Anthem Life Insurance
Companies from October 1995 to December 1996 (served as President and Chief
Executive Officer of Anthem from June 1993 to December 1996) and Community
National Assurance Company since October 1995. He also served as Executive Vice
President and a director of Associated Insurance Companies, Inc. (from June
1993-December 1996) and Chairman of Acordia of San Francisco, a subsidiary of
Acordia, Inc., an insurance broker (October 1993-August 1996). From 1993 to June
1994, Mr. Bow served as Chairman of the Board and Chief Executive Officer of
Southeastern Group, Inc. and Southeastern United Corporation, each of which is a
health insurance company. From 1989 to 1993, he was President and Chief
Executive Officer of Blue Cross and Blue Shield of Kentucky (renamed
Southeastern Mutual in 1990) and President and Chief Executive Officer of Delta
Dental of Kentucky. Prior to 1989, Mr. Bow held a number of management positions
with Metropolitan Life Insurance Company and its affiliated companies.
Paul A. Volberding, M.D. has served as a director of the Company since
March 1996. Dr. Volberding has been a professor or associate professor of
medicine at the University of California, San Francisco since 1987 and the
director of the Center for AIDS Research at that institution since 1988. He has
also served as the chief of the Medical Oncology Division and the AIDS Program
at San Francisco General Hospital for over ten years. Dr. Volberding is a
leading expert on AIDS research whose publications include over 100 articles
related to viral research, most of which relate to HIV or AIDS.
The Board of Directors elects executive officers annually and such
officers serve at the discretion of the Board of Directors.
Classification of the Board of Directors
- ----------------------------------------
The Board of Directors, which presently consists of five members, is
divided into three classes (designated Class 1, Class 2 and Class 3) as nearly
equal in number as possible. Currently, Class 1 consists of Bradley N. Rotter
and Stephen T. Bow, Class 2 consists of Alan B. Perper and Paul A. Volberding,
and Class 3 consists of John Ward Rotter, who serve until the Company's annual
stockholders' meetings to be held in 1999, 1997 and 1998, respectively. At each
annual stockholders' meeting, directors nominated to the class of directors
whose term is expiring at that annual meeting is elected for a term of three
years, and the remaining directors will continue in office until their
respective terms expire. Accordingly, approximately one-third of the Company's
directors will be elected at each annual stockholders' meeting and generally a
director will stand for election only once every three years.
Section 16(a) Beneficial Ownership Reporting Compliance
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Based upon a review of Forms 3, 4 and 5 furnished to the Company by its
directors and executive officers and by persons known to the Company to
beneficially own 10% or more of the outstanding common stock, the Company notes
the following deficiencies in Section 16 reports related to 1996: (i) each of
Mr. Bow and Dr. Volberding filed one day late their Form 3, (ii) each of New
Echelon LLC, Bradley Rotter, John Ward Rotter and Alan Perper reported on a Form
5 four transactions by New Echelon that should have been reported earlier on
Forms 4, (iii) John Ward Rotter reported on a Form 5 one transaction by his
spouse that should have been reported earlier on a Form 4 and (iv) Heartland
Advisors, Inc., which beneficially owns more than 10% of the outstanding Common
Stock did not, to the Company's knowledge, file a Form 3 or report any
transactions on a Form 4 or Form 5.
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ITEM 11--EXECUTIVE COMPENSATION
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Compensation of Directors
The Company pays each non-employee director an annual retainer of
$15,000 and a fee of $750 for each board or committee meeting attended. All
directors are reimbursed for expenses incurred to attend meetings of the Board
of Directors or committees thereof. The Stock Option Plan for Non-Employee
Directors (the "Director Plan") provides for the automatic grant of certain
options to non-employee directors. Any person who becomes a non-employee
director automatically receives at such time a non-qualified option to purchase
10,000 shares of Common Stock at an exercise price equal to fair market value on
the date of grant (i.e. the date of becoming a director). Such options vest 33%,
33% and 34% at the first, second and third annual stockholder's meeting
following the date of grant if the non-employee director serves as such through
such meeting. The Director Plan also provides that at each annual stockholders'
meeting, each non-employee director elected at or continuing his term after such
meeting receives automatically a non-qualified option to purchase 5,000 shares
of Common Stock at an exercise price equal to fair market value on the date of
grant (i.e. the date of the stockholders' meeting). Such options vest 100% after
the non-employee director has served as such until the next annual stockholders'
meeting. All options vest immediately (to the extent they would have vested at
the next annual stockholders' meeting) upon a Change of Control (as defined in
the Director Plan). Each option expires after ten years or earlier upon certain
events. During 1996, each of Mr. Bow and Dr. Volberding received (i) an option
to purchase 10,000 shares with an exercise price of $13.50 upon joining the
Board and (ii) an option to purchase 5,000 shares with an exercise price of
$12.38 at the annual stockholders' meeting.
Summary Compensation Table
- --------------------------
The table below provides information relating to compensation for the
years ended December 31, 1996, 1995 and 1994, for each of the Executive
Officers. The amounts shown below reflect compensation which was earned in the
respective year by the Executive Officers.
Annual Compensation
--------------------
Name and All Other
Principal Position ...... Year Salary($)(1) Bonus($) Compensation ($)(2)
========================= ==== ============ ======== ==================
Bradley N. Rotter ........ 1996 115,000 17,250 16,928
Chairman of the Board ... 1995 115,000 -- 2,629
1994 115,000 -- --
Alan B. Perper ............ 1996 115,000 17,250 16,928
President ............... 1995 115,000 -- 25,638
1994 115,000 -- --
John W. Rotter ............ 1996 115,000 17,250 14,476
Executive Vice President 1995 115,000 -- 19,707
1994 115,000 -- --
<FN>
(1) Prior to October 1, 1995, all executive salaries were earned but were
not actually paid until the Company's initial public offering. See
"Item 13--Certain Relationships and Related Transactions--Accrual of
Salaries."
(2) Represents contributions to the Company's profit sharing plan related
to compensation earned during the indicated year.
</FN>
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Profit-Sharing Plan
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Prior to the Merger, all individuals performing services on behalf of
Dignity Partners were employed by Echelon. Pursuant to the Reorganization, all
but three of the Echelon employees became employees of Dignity Partners. Echelon
maintained a profit sharing plan (the "Plan") for its employees which Dignity
Partners assumed by virtue of the Merger. Each employee on January 1, 1993
became a participant in the Plan. Each employee hired after January 1, 1993 and
who has been employed for at least one year becomes a participant in the Plan.
The Plan provides for discretionary annual contributions by the Company for the
account of each participant. In any year in which the Plan is "top-heavy" within
the meaning of the Internal Revenue Code (the "Code"), the Plan requires,
consistent with the Code, that a minimum contribution be made for non-key
employees. The contribution is allocated among participants based on their
compensation under an allocation formula integrated with Social Security.
Participants vest 20% in their Plan accounts after two years of service
(excluding any service prior to 1993) and an additional 20% after each of the
next four years of service. Upon termination following permanent disability or
on retirement at or after age 65, all amounts credited to a participant's
account are distributable, in a lump sum payment or in installments, as directed
by the participant. Upon death, all amounts credited to a participant's account
become fully vested and are distributed to the participant's surviving spouse or
designated beneficiary.
Option Plan
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The 1995 Stock Option Plan (the "Option Plan") authorizes the granting
of options to purchase shares of Common Stock to employees (including officers)
and consultants of the Company and its subsidiaries. The Compensation Committee
is authorized to grant options with such terms, including price, vesting,
termination and other, as they deem appropriate. During 1996, none of the
Executive Officers was granted stock options under the Option Plan.
Compensation Committee Interlocks and Insider Participation
- ------------------------------------------------------------
From January to March 1996, the Compensation Committee was
comprised of Bradley N. Rotter and Alan B. Perper. During such time, the
Committee did not make any compensation decisions. Mr. Rotter and Mr. Perper
had various transactions with the Company during 1996. See "Item
13--Certain Relationships and Related Transactions." Since March 1996,
the Compensation Committee has been comprised of Mr. Bow and Dr. Volberding.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT
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The following table sets forth, as of December 31, 1996, certain
information with respect to the beneficial ownership of the Company's Common
Stock by: (a) each person owning of record or known by the Company to own
beneficially more than five percent of the outstanding shares of Common Stock;
(b) each director; (c) each of the Executive Officers and (d) all of the
Executive Officers and directors of the Company as a group. All information with
respect to beneficial ownership has been furnished by the respective director,
executive officer or stockholder, as the case may be, or has been derived from
documents filed with the Securities and Exchange Commission. See "Item
10--Directors and Executive
Page 4
Officers of the Registrant" and "Item 13--Certain Relationships and Related
Transactions."
Name Number (1) Percent(1)
- ---- ---------- ---------
The Echelon Group of Companies, LLC (2)------------- 1,589,324 38.3%
Bradley N. Rotter (2)------------------------------- 1,589,324 38.3
Alan B.Perper (2)----------------------------------- 1,589,324 38.3
John Ward Rotter(2)(3)------------------------------ 1,593,324 38.4
Stephen T. Bow(4)----------------------------------- 3,333 0.1
Paul A. Volberding, M.D.(4)------------------------- 3,333 0.1
All directors and executive officers as a group----- 1,599,990 38.9
Heartland Advisors, Inc.(5)------------------------- 595,000 13.9
Fleet Financial Group, Inc.(6)---------------------- 225,000 5.2
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<FN>
(1) Beneficial ownership was determined in accordance with Rule 13d-3 under
the Exchange Act.
(2) The Echelon Group of Companies, LLC (i.e., New Echelon LLC), a limited
liability company, is the record holder of 1,589,324 shares of
Common Stock. Bradley N. Rotter, Alan B. Perper and John Ward Rotter,
who are the only members of New Echelon LLC, share voting and investment
power with respect to these shares. Such individuals disclaim beneficial
ownership of these shares except to the extent of their equity interest
in New Echelon LLC. The address for New Echelon LLC and each of the
Executive Officers is 1700 Montgomery Street, Suite 250, San Francisco,
California 94111.
(3) Includes 4,000 shares of Common Stock subject to a stock option granted
to Mr. Rotter's wife and exercisable within 60 days of December 31,
1996.
(4) Represents shares issuable within 60 days of December 31, 1996
pursuant to the exercise of stock options granted under the Director Plan.
(5) According to its most recently filed Schedule 13G, as of December 31,
1996, Heartland Advisors, Inc. had sole voting and dispositive
power over these shares of Common Stock. Heartland Advisors, Inc.
disclaims beneficial ownership of these shares of Common Stock. Its
address is 790 North Milwaukee Street, Milwaukee, Wisconsin 53202.
(6) According to its most recently filed Schedule 13G, as of December 31,
1996, Fleet Financial Group, Inc. had sole voting and dispositive
power over these shares of Common Stock. Fleet Financial Group, Inc.
disclaims beneficial ownership of these shares of Common Stock. Its
address is One Federal Street, Boston, Massachusetts 02110.
</FN>
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Allocation and Accrual of Expenses
- ----------------------------------
Echelon and the Company shared leased office space and other expenses
prior to the Merger, and the Company currently shares such expenses with New
Echelon LLC. Prior to the Merger, Echelon paid rent, salaries and other expenses
related to the Company's business and lent funds to the Company. Such amounts
were represented by a payable from Dignity Partners sold by Echelon to New
Echelon LLC in connection with the Reorganization. The Company used a portion of
the net proceeds to it in the initial public offering in February 1996 to pay to
New Echelon LLC such payable, which equaled $2,191,007 on the date of such
repayment.
In February 1996, the Company executed an agreement with New Echelon
LLC which governs the allocation of certain shared expenses. The agreement
provides that, so long as New Echelon LLC uses a portion of the space leased by
the Company in San Francisco, New Echelon LLC will pay an amount equal to 35% of
the amount of rent and required liability insurance premiums paid by the Company
in connection with such space. New Echelon LLC's right to use the space will
terminate on the earlier of (i) the date the agreement terminates, (ii) three
days after New Echelon LLC notifies the Company that New Echelon LLC no longer
desires to use any portion of the space, or (iii) three days after the Company
notifies New Echelon LLC that New Echelon LLC may no longer use any portion of
the space. The
Page 5
agreement also acknowledges that the Company currently employs,
and may hereafter hire, individuals who regularly perform functions on behalf of
both the Company and New Echelon LLC ("shared employees"). Pursuant to the
agreement, New Echelon LLC (i) will pay directly to (or on behalf of) each
shared employee a designated percentage of such shared employee's salary and any
contributions to defined benefit plans, and (ii) will reimburse the Company a
specified percentage of the Company's costs of all other benefits paid to (or on
behalf of) such shared employee. Such percentage will be determined by reference
to the percentage of time such shared employee devotes to each entity. Once a
month, the Company and New Echelon LLC will reassess the identity of shared
employees. The provisions regarding shared employees will terminate on the date
the agreement terminates, which will be the earlier of (i) April 1998, subject
to one-year automatic extensions in the absence of 30 days' written notice of
termination by the Company, or (ii) the date the lease for the shared office
space terminates or expires. Under the agreement, each party is responsible for
providing, at its sole cost and expense, all supplies it will need. During 1996,
pursuant to this agreement, New Echelon LLC paid rent and insurance in the
amount of $33,962 and paid $11,887 of compensation for shared employees.
Accrual of Salaries
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Salaries payable to the Executive Officers for the fiscal years ended
December 31, 1993 and 1994 and for the nine months ended September 30, 1995 were
accrued but not paid. Salaries earned by each of the Executive Officers since
October 1, 1995 have been paid in accordance with the Company's standard payroll
arrangements. Salaries were accrued for Alan Perper and John Ward Rotter for the
fiscal year ended December 31, 1993, and for each of the Executive Officers
during the fiscal year ended December 31, 1994 and during the nine months ended
September 30, 1995, at the annual rate of $115,000. The Company paid to the
Executive Officers from the net proceeds of the initial public offering in
February 1996 the amount of accrued salaries through September 30, 1995 related
to their respective services. Such accrued unpaid salaries equaled $316,250 for
each of Alan Perper and John Ward Rotter and $201,250 for Bradley Rotter.
Provision of Working Capital
- -----------------------------
Prior to the Company's initial public offering, New Echelon LLC,
Echelon or the Executive Officers advanced funds to the Company to enable it to
purchase life insurance policies and pay operating expenses. The annual interest
rate on such advances was 8%. Each advance generally was repaid by the end of
the month in which the advance was made through borrowings under the Company's
revolving credit facility. From January 1995 through December 31, 1995, the
largest amount of funds advanced to the Company by Echelon or the Executive
Officers was $1,590,000. Approximately $1.0 million of the net proceeds received
by the Company in its initial public offering in February 1996 were used to
repay to New Echelon LLC funds advanced (and interest thereon) since the
Reorganization to fund policy purchases and operations by New Echelon LLC to the
Company. In October 1995, the Company borrowed $1.2 million under a working
capital facility to repay to Echelon advances made by Echelon which were
outstanding at September 30, 1995. All borrowings under such facility were
repaid in February 1996 with proceeds to the Company in its initial public
offering.
New Echelon LLC and each of the Executive Officers also executed
guarantees under the Company's revolving credit facility pursuant to which each
of them guaranteed the obligations of the Company under such facility. Prior to
the Reorganization, Echelon was also a guarantor of the Company's obligations
under such facility. In March 1996, New Echelon LLC and each of the Executive
Officers were released entirely from the guaranties they previously executed in
favor of the lender under such facility; however, each of the Executive Officers
executed a "validity guaranty." In August 1996, such facility was prepaid in
full and terminated, at which time the validity guaranties were terminated.
In addition, New Echelon LLC also guaranteed the Company's obligations
under its working capital facility. Such guarantee terminated upon the payment
and termination of such facility in February 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated April 29, 1997 DIGNITY PARTNERS, INC.
/s/Alan B. Perper
---------------------------------
Alan B. Perper
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on April 29, 1997:
/s/ Alan B. Perper *
- --------------------------------- ---------------------------------
Alan B. Perper John Ward Rotter
President and Director Executive Vice President,
(Principal Executive Officer) Chief Financial Officer
and Director
(Principal Financial and Accounting
Officer)
* *
- --------------------------------- ---------------------------------
Bradley N. Rotter Stephen T. Bow
Chairman of the Board and Director Director
*
- ---------------------------------
Paul A. Volberding, M.D.
Director
* The undersigned by signing his name hereunto has hereby signed this
report on behalf of the above-named directors, on April 29, 1997,
pursuant to a power of attorney executed on behalf of each such director
and filed with the Securities and Exchange Commission as Exhibit 24.1 to
the Original Form 10-K.
By: /s/ Alan B. Perper
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Alan B. Perper
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