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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11/c/ or Rule 14a-12
FIRST COMMONWEALTH, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(I)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
(2) Form, Schedule or Registration Statement No.:
N/A
(3) Filing Party:
N/A
(4) Date Filed:
N/A
<PAGE>
LOGO
FIRST COMMONWEALTH, INC.
444 NORTH WELLS STREET
SUITE 600
CHICAGO, ILLINOIS 60610
March 31, 1997
Dear Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of First Commonwealth, Inc., a Delaware corporation, to be held at 10:00 a.m.
(local time) on Wednesday, April 30, 1997 at Chicago Marriott-Downtown, 540
North Michigan Avenue, Chicago, Illinois 60611.
The formal notice of the meeting, Proxy Statement and 1996 Annual Report are
enclosed. The matters to be considered at the meeting are described in the
accompanying Proxy Statement. Regardless of your plans for attending in person,
it is important that your shares be represented at the meeting. Therefore,
please complete, sign, date and return the enclosed proxy card in the enclosed,
post-paid envelope. This will enable you to vote on the business to be
transacted whether or not you attend the meeting.
Sincerely,
/s/ Christopher C. Multhauf
Christopher C. Multhauf
Chairman of the Board and Chief
Executive Officer
<PAGE>
FIRST COMMONWEALTH, INC.
444 NORTH WELLS STREET
SUITE 600
CHICAGO, ILLINOIS 60610
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 30, 1997
To the Stockholders of
FIRST COMMONWEALTH, INC.
The 1997 Annual Meeting of Stockholders of First Commonwealth, Inc. a
Delaware corporation (the "Company"), will be held at Chicago Marriott-
Downtown, 540 N. Michigan Avenue, Chicago, Illinois 60611, on Wednesday, April
30, 1997, at 10:00 a.m., local time, for the following purposes:
1. to elect two Class II directors;
2. to approve an amendment to the Company's 1995 Long-Term Incentive Plan;
and
3. to transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 21, 1997 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting.
Your attention is directed to the accompanying Proxy Statement. Whether or
not you plan to attend the meeting in person, you are urged to complete, sign,
date and return the enclosed proxy card in the enclosed, post-paid envelope. If
you attend the meeting and wish to vote in person, you may withdraw your proxy
and vote your shares personally.
This Notice of Annual Meeting of Stockholders is first being sent to
stockholders on or about March 31, 1997.
By Order of the Board of Directors,
/s/ David W. Mulligan
David W. Mulligan
President, Secretary and Chief
Operating Officer
March 31, 1997
<PAGE>
FIRST COMMONWEALTH, INC.
444 NORTH WELLS STREET
SUITE 600
CHICAGO, ILLINOIS 60610
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 30, 1997
GENERAL INFORMATION
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of First Commonwealth, Inc., a Delaware
corporation (the "Company"), for use at the 1997 Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m. (local time) on
April 30, 1997, at Chicago Marriott-Downtown, 540 N. Michigan Avenue, Chicago,
Illinois 60611.
The Board of Directors has fixed the close of business on March 21, 1997 as
the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting. On February 28, 1997 the Company had
outstanding 3,613,189 shares of common stock, par value $.001 per share
("Common Stock"). A list of stockholders of record entitled to vote at the
Annual Meeting will be available for inspection by any stockholder, for any
purpose germane to the meeting, during normal business hours, for a period of
10 days prior to the meeting, at the office of the Company located at 444
North Wells Street, Suite 600, Chicago, Illinois.
Whether or not you plan to attend the Annual Meeting, please sign, date and
mail your proxy in the enclosed postage prepaid envelope to First
Commonwealth, Inc., c/o First Chicago Trust Company of New York, P.O. Box
8109, Edison, New Jersey 08818-9060. The proxies will vote your shares
according to your instructions. If you return a properly signed and dated
proxy card but do not mark a choice on one or more items, your shares will be
voted in accordance with the recommendation of the Board of Directors as set
forth in this Proxy Statement. The proxy card gives authority to the proxies
to vote your shares in their discretion on any other matter presented at the
Annual Meeting.
You may revoke your proxy at any time prior to voting at the Annual Meeting
by delivering written notice to the Secretary of the Company, by submitting a
subsequently dated proxy or by attending the Annual Meeting and voting in
person at the Annual Meeting.
This Proxy Statement is first being sent or given to stockholders on or
about March 31, 1997.
<PAGE>
VOTING INFORMATION
Each holder of outstanding shares of Common Stock is entitled to one vote
for each such share held in such holder's name with respect to all matters on
which holders of Common Stock are entitled to vote at the Annual Meeting. A
holder of Common Stock may, with respect to the election of the Class II
directors, vote FOR the election of the director nominees or WITHHOLD
authority to vote for such director nominees. If no direction is made on a
proxy, such proxy will be voted FOR the election of the named director
nominees to serve as Class II directors. If a proxy indicates that all or a
portion of the votes represented by such proxy are not being voted with
respect to a particular matter, such non-votes will not be considered present
and entitled to vote on such matter, although such votes may be considered
present and entitled to vote on other matters and will count for purposes of
determining the presence of a quorum. A quorum will be present if a majority
of the shares of Common Stock are represented in person or by proxy at the
Annual Meeting.
The election of the Class II directors requires the affirmative vote of a
plurality of votes cast by holders of Common Stock present in person or
represented by proxy and entitled to vote on such matter at the Annual
Meeting. Accordingly, if a quorum is present at the Annual Meeting, the
persons receiving the greatest number of votes by the holders of Common Stock
will be elected to serve as the Class II directors. Since the election of
directors requires only the affirmative vote of a plurality of the votes cast
by holders of Common Stock present in person or represented by proxy and
entitled to vote with respect to such matter, withholding authority to vote
for a nominee and non-votes with respect to the election of directors will not
affect the outcome of the election of directors.
Assuming a quorum is present at the Annual Meeting, the approval of the
amendment to the Company's 1995 Long-Term Incentive Plan requires the
affirmative vote of a majority of the votes cast by the holders of Common
Stock present in person or represented by proxy and entitled to vote on such
matter at the Annual Meeting. A vote to abstain from voting on such proposal
will be treated as a vote against such proposal. Non-votes with respect to
such proposal will not affect the determination of whether such proposal is
approved.
PROPOSAL 1
ELECTION OF DIRECTORS
The business of the Company is managed under the direction of the Company's
Board of Directors. The Board of Directors is presently composed of five
directors, divided into three classes. At the 1997 Annual Meeting, two Class
II directors will be elected to serve until the Annual Meeting in the year
2000, or until their successors are elected and qualified. The nominees for
election as Class II directors are identified below. In the event any nominee
who has expressed an intention to serve if elected, fails to stand for
election, the persons named in the proxy presently intend to vote for a
substitute nominee designated by the Board of Directors.
NOMINEES
The following persons, if elected at the 1997 Annual Meeting, will serve as
Class II directors until the 2000 Annual Meeting of Stockholders, or until
their successors are elected and qualified.
CLASS II DIRECTORS--TERM TO EXPIRE IN 2000
David W. Mulligan, age 39, is President, Chief Operating Officer and
Secretary of the Company. Mr. Mulligan is one of the founders of the Company
and has been a Director, Chief Operating Officer and Secretary of the Company
since 1986. He has been the Company's President since 1995. Between 1986 and
1995, he was the Executive Vice President of the Company. Mr. Mulligan is a
member of the Executive Committee of the Board of Directors of the Company.
Mr. Mulligan is also past President of the Virginia HMO Association and the
former Chairman of the National Association of Dental Plans. He holds a Master
of Business Administration
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degree from Samuel Johnson Graduate School of Business, Cornell University.
Pursuant to an employment agreement between the Company and David W. Mulligan,
the Company is required to take all reasonable efforts to cause Mr. Mulligan
to continue to be elected to the Board of Directors of the Company. See
"Executive Compensation and Other Information--Employment Agreements."
Jackson W. Smart, Jr., age 66, has been a Director of the Company since
1988. He is Chairman of the Executive Committee and the Compensation Committee
of the Board of Directors of the Company, and is a member of the Audit
Committee of the Board of Directors of the Company. Mr. Smart has been the
Chairman and Chief Executive Officer of MSP Communications, Inc., a radio
broadcasting company, for more than five years. Mr. Smart is a Director of
Federal Express Corporation and Evanston Hospital Corporation, and a Trustee
of the Goldman Sachs Trust, Goldman Sachs Equity Portfolios Inc., and Goldman
Sachs Money Market Trust.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE NOMINEES
FOR CLASS II DIRECTOR.
OTHER DIRECTORS
The following persons are currently directors of the Company whose terms
will continue after the 1997 Annual Meeting.
CLASS III DIRECTORS--TERMS SCHEDULED TO EXPIRE IN 1998
Christopher C. Multhauf, age 42, is one of the Company's founders and has
been the Company's Chairman of the Board of Directors and Chief Executive
Officer since 1986. He was also the President between 1986 and 1995. He is a
member of the Executive Committee of the Board of Directors of the Company.
Mr. Multhauf is a member of the board of directors of the National Association
of Dental Plans. He holds a Master of Business Administration degree from
Samuel Johnson Graduate School of Business, Cornell University. Pursuant to an
employment agreement between the Company and Christopher C. Multhauf, the
Company has agreed to employ Mr. Multhauf as its Chairman of the Board of
Directors and Chief Executive Officer. See "Executive Compensation and Other
Information--Employment Agreements."
Richard M. Burdge, Sr., age 70, is one of the founders of the Company and
has been a Director of the Company since 1987. He is a member of the Audit
Committee and the Compensation Committee, and is the Chairman of the Stock
Option Compensation Committee of the Board of Directors of the Company. Mr.
Burdge has been self-employed as a financial consultant for more than five
years. Mr. Burdge was formerly the Executive Vice President of CIGNA
Corporation. Mr. Burdge is a director of FHP International Corp., a provider
of managed health care and insurance products.
CLASS I DIRECTOR--TERM SCHEDULED TO EXPIRE IN 1999
William J. McBride, age 52, has been retired since December 1995. Between
August 1986 and December 1995, Mr. McBride was President of Value Health,
Inc., a company which provides managed health care services primarily in
pharmacy and mental health. He was first appointed a Director of the Company
in 1996 to fill the vacancy created by the resignation of Mr. David C.
Seidman. He is also Chairman of the Audit Committee and a member of the Stock
Option Compensation Committee of the Board of Directors of the Company.
MEETINGS AND COMMITTEES
The Board of Directors of the Company held five meetings during 1996. Each
director attended at least 75% of the meetings in 1996.
The Board of Directors does not presently have a formal nominating
committee.
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The Audit Committee of the Board of Directors recommends the firm to be
appointed as independent accountants to audit financial statements and to
perform services related to the audit, reviews the scope and results of the
audit with the independent accountants, reviews with management and the
independent accountants the Company's year-end operating results and considers
the adequacy of the internal accounting procedures. The Audit Committee
consists of Messrs. William J. McBride (Chairman), Jackson W. Smart, Jr. and
Richard M. Burdge, Sr. The Audit Committee held two meetings in 1996. Each
member attended at least 75% of the meetings in 1996.
The Compensation Committee, which consists of Messrs. Jackson W. Smart, Jr.
(Chairman) and Richard M. Burdge, Sr., reviews and recommends the compensation
arrangements for all officers, approves such arrangements for other senior
level employees, and currently administers and takes such other action as may
be required in connection with certain compensation plans of the Company and
its subsidiaries, other than plans which are administered by the Stock Option
Compensation Committee. The Compensation Committee held two meetings in 1996,
all of which were attended by both members of the committee.
The Stock Option Compensation Committee of the Board of Directors consists of
Richard M. Burdge, Sr. (Chairman) and William J. McBride, each of whom are
"outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and "Non-Employee Directors" within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended.
The Stock Option Compensation Committee administers and takes such other action
as may be required in connection with certain stock option and long-term
incentive plans of the Company. The Stock Option Compensation Committee held
two meetings in 1996, all of which were attended by both members of the
Committee.
The Executive Committee of the Board of Directors consists of Jackson W.
Smart, Jr. (Chairman), Christopher C. Multhauf and David W. Mulligan. The
Executive Committee may exercise during intervals between the meetings of the
Board of Directors all the powers vested in the Board of Directors, except as
expressly limited by the Delaware General Corporation Law or otherwise
delegated to the other committees described above. The Executive Committee held
three meetings in 1996. Each member attended at least 75% of the meetings in
1996.
COMPENSATION OF DIRECTORS
Non-employee directors receive an annual fee of $10,000 for service as
directors of the Company. In addition, non-employee directors who serve as
chairman of the Executive, Audit and Compensation Committees, respectively,
receive an additional annual fee of $5,000 for service in such capacity.
Directors who are officers or employees of the Company or its subsidiaries
receive no compensation for serving as directors. All directors are reimbursed
for out-of-pocket expenses incurred in connection with attendance at meetings
of the Board of Directors and meetings of committees of the Board of Directors.
Under the Company's 1995 Long-Term Incentive Plan, on the date of each annual
meeting of stockholders of the Company, each person who is a non-employee
director immediately after such annual meeting of stockholders will be granted
a nonqualified option to purchase 1,000 shares of Common Stock and, on the date
on which a person is first elected or begins to serve as a non-employee
director, each such new employee director will be granted a nonqualified option
to purchase 10,000 shares of Common Stock. The per share exercise price of such
options will be equal to the fair market value of the Common Stock on the date
of grant of such option. See "Executive Compensation and Other Information--
1995 Long-Term Incentive Plan."
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PROPOSAL 2
AMENDMENT OF 1995 LONG-TERM INCENTIVE PLAN
The First Commonwealth, Inc. 1995 Long-Term Incentive Plan became effective
upon the commencement of the Company's initial public offering. The
stockholders of the Company approved such plan at the 1996 annual meeting.
Initially, 150,000 shares of the Company's Common Stock were reserved for
issuance under the 1995 Long-Term Incentive Plan. The Company has granted
options with respect to 102,500 shares of Common Stock and 1,865 shares of
bonus stock under such plan and, accordingly, 45,635 shares of Common Stock
remain available for issuance. The Board of Directors believes that it is
desirable to increase the number of shares available for issuance under the
1995 Long-Term Incentive Plan to increase the Company's flexibility in granting
options and other awards when circumstances warrant. In connection therewith,
the Board of Directors has approved an amendment of such plan as of March 14,
1997 to increase the number of shares which may be issued under such plan from
150,000 share to 200,000 shares (the "Amendment") (the Company's 1995 Long-Term
Incentive Plan, as amended, is hereinafter referred to as the "1995 Plan").
Accordingly, the Amendment to the 1995 Plan to increase the number of shares
authorized for issuance from 150,000 to 200,000 is being submitted for approval
by stockholders at the 1997 Annual Meeting. The following is a description of
the 1995 Plan.
DESCRIPTION OF THE 1995 PLAN
General. Under the 1995 Plan, the Company may grant incentive stock options
or nonqualified options, stock appreciation rights ("SARs"), bonus stock awards
which are vested upon grant, stock awards which may be subject to a restriction
period or specified performance measures or both, and performance shares, as
described below. A total of 200,000 shares of Common Stock have been reserved
for issuance under the 1995 Plan, of which 50,000 shares are available for
stock awards, subject to adjustment in the event of a stock split, stock
dividend or other changes in capital structure. No grants may be made under the
1995 Plan after ten years after its effective date. All non-employee directors
and approximately 100 employees are eligible to participate in the 1995 Plan.
The maximum number of shares of Common Stock with respect to which options and
SARs may be granted during any calendar year to any participant in the 1995
Plan is 62,500.
Purposes. The purposes of the 1995 Plan are to align the interests of the
Company's stockholders and the recipients of grants under the 1995 Plan by
increasing the proprietary interest of such recipients in the Company's growth
and success and to advance the interests of the Company by attracting and
retaining officers and other key employees, independent contractors and well-
qualified non-employee directors, and to motivate such employees, independent
contractors and non-employee directors to act in the long-term best interests
of the Company's stockholders.
Administration. The 1995 Plan is administered by the Stock Option
Compensation Committee. Subject to the terms of the 1995 Plan, the Stock Option
Compensation Committee is authorized to select eligible officers and other key
employees and independent contractors for participation in the 1995 Plan and to
determine the number of shares of Common Stock subject to the awards granted
thereunder, the exercise price, if any, the time and conditions of exercise,
and all other terms and conditions of such award.
The Stock Option Compensation Committee may delegate some or all of its power
and authority under the 1995 Plan to the Chairman of the Board and Chief
Executive Officer or other executive officer of the Company as it deems
appropriate; provided, however, that such committee may not delegate its power
and authority with regard to the selection for participation in the 1995 Plan
of an officer or other person subject to Section 16 of the Exchange Act or
decisions concerning the timing, pricing or amount of an option grant to such
an officer or other person, and no delegation may be made with respect to the
grant of an award to a "covered employee" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code").
Effective Date, Termination and Amendment. The 1995 Plan became effective
upon the commencement of the Company's initial public offering in 1995 and will
terminate ten years thereafter, unless terminated earlier by the Board of
Directors. The Board of Directors generally may amend the 1995 Plan at any time
except that,
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without the approval of the stockholders of the Company, no amendment may,
among other things, (i) increase the number of shares of Common Stock available
under the 1995 Plan, (ii) reduce the minimum purchase price of a share of
Common Stock subject to an option or base price of an SAR or (iii) extend the
term of the 1995 Plan.
Employee Stock Options. In the case of options granted under the 1995 Plan,
the purchase price of shares of Common Stock will be determined by the Stock
Option Compensation Committee at the time of grant, but may not be less than
100% of the fair market value of such shares of Common Stock on the date of
grant. The aggregate fair market value (determined as of the date the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by the optionee in any calendar year (under the
1995 Plan and any other incentive stock option plan of the Company) may not
exceed $100,000. Options granted under the 1995 Plan may not be exercised after
ten years from the date of grant. In the case of any eligible employee who owns
or is deemed to own stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company, the exercise price of any
incentive stock options granted under the 1995 Plan may not be less than 110%
of the fair market value of the Common Stock on the date of grant, and the
exercise period may not exceed five years from the date of grant. Options
granted under the 1995 Plan are not transferable by the optionee other than by
will or under the laws of descent and distribution except that, if the optionee
dies prior to exercising his option, the estate of the deceased optionee may
exercise all options in full until the expiration of one year from the date of
death or until the earlier termination of the option. All stock options will
become immediately exercisable upon certain changes of control of the Company.
Non-Employee Director Options. The 1995 Plan provides for the automatic
grants of stock options to non-employee directors. Under the Company's 1995
Long-Term Incentive Plan, on the date of the Company's initial public offering
in 1995, each non-employee director that did not resign shortly following such
offering was granted a nonqualified option to purchase 1,000 shares of Common
Stock at the public offering price of $15.00 per share. In addition, on the
date of each annual meeting of stockholders of the Company, each person who is
a non-employee director immediately after such annual meeting of stockholders
will be granted a nonqualified option to purchase 1,000 shares of Common Stock
and, on the date on which a person is first elected or begins to serve as a
non-employee director, each such new employee director will be granted a
nonqualified option to purchase 10,000 shares of Common Stock. The per share
exercise price of such options will be equal to the fair market value of the
Common Stock on the date of grant of such option.
Stock Appreciation Rights. The period for the exercise of an SAR and the base
price of an SAR will be determined by the Stock Option Compensation Committee.
The exercise of an SAR entitles the holder thereof to receive (subject to
withholding taxes) shares of Common Stock (which may be restricted stock), cash
or a combination thereof with a value equal to the difference between the fair
market value of the Common Stock on the exercise date and the base price of the
SAR.
Bonus Stock and Restricted Stock Awards. The 1995 Plan provides for the grant
of bonus stock awards, which are vested upon grant. The 1995 Plan also provides
for stock awards which may be subject to a restriction period ("restricted
stock"). An award of restricted stock may be subject to specified performance
measures for the applicable restriction period. The terms of restricted stock
and performance goals will be determined by the committee which administers the
1995 Plan. Shares of restricted stock will be non-transferable and subject to
forfeiture if the holder does not remain continuously in the employment of the
Company during the restriction period or, if the restricted stock is subject to
performance measures, if such performance measures are not attained during the
restriction period. Subject to the change in control provisions of the 1995
Plan and unless otherwise specified in the agreement with respect to a
particular restricted stock award, in the event of a termination of employment
for any reason, the portion of a restricted stock award which is then subject
to a restriction period will be forfeited and cancelled. At the present time,
no restricted stock awards have been granted.
Performance Share Awards. The 1995 Plan also provides for the grant of
performance shares. Each performance share is a right, contingent upon the
attainment of performance measures within a specified performance period, to
receive one share of Common Stock, which may be a restricted stock, or the fair
market
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value of such performance share in cash. The terms of performance share awards
and performance goals will be determined by the committee which administers the
1995 Plan. Performance shares will be non-transferable and subject to
forfeiture if the specified performance measures are not attained during the
applicable performance period. Subject to the change in control provisions of
the 1995 Plan and unless otherwise specified in the agreement with respect to a
particular performance share award, in the event of termination of employment
for any reason, the portion of a performance share award which is then subject
to a performance period will generally be forfeited and cancelled. At the
present time, no performance shares have been awarded.
Change in Control. In the event of certain acquisitions of 50% or more of the
Common Stock, a change in the majority of the Board of Directors (subject to
certain exceptions), the approval by stockholders of a reorganization, merger
or consolidation (unless the Company's stockholders receive 50% or more of the
stock and combined voting power of the surviving company) or the approval by
stockholders of a complete liquidation or dissolution, all options will become
immediately exercisable and all awards will be "cashed-out" by the Company,
except, in the case of a merger or similar transaction in which the
stockholders receive publicly traded common stock, outstanding awards will be
substituted for similar rights to acquire a proportionate number of shares of
common stock received in the merger or similar transaction.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the U.S. federal income tax consequences
of awards made under the 1995 Plan.
Stock Options. A participant will not recognize any income upon the grant of
a stock option. A participant will recognize compensation taxable as ordinary
income (and subject to income tax withholding) upon exercise of a nonqualified
stock option equal to the excess of the fair market value of the shares
purchased over their exercise price, and the Company will be entitled to a
corresponding deduction. A participant will not recognize income (except for
purposes of the alternative minimum tax) upon exercise of an incentive stock
option. If the shares acquired by exercise of an incentive stock option are
held for the longer of two years from the date the option was granted or one
year from the date the shares were transferred, any gain or loss arising from a
subsequent disposition of such shares will be taxed as long-term capital gain
or loss, and the Company will not be entitled to any deduction. If, however,
such shares are disposed of within the above-described period, then in the year
of such disposition the participant generally will recognize compensation
taxable as ordinary income equal to the excess of the lesser of (i) the amount
realized upon such disposition and (ii) the fair market value of such shares on
the date of exercise over the exercise price, and the Company will be entitled
to a corresponding deduction.
SARs. A participant will not recognize any taxable income upon the grant of
the SARs. A participant will recognize compensation taxable as ordinary income
(and subject to income tax withholding) upon exercise of an SAR equal to the
fair market value of any shares delivered and the amount of cash paid by the
Company upon such exercise, and the Company will be entitled to a corresponding
deduction.
Bonus Stock. A participant will recognize compensation taxable as ordinary
income (and subject to income tax withholding) in respect of awards of shares
of bonus stock at the time such shares are transferred in an amount equal to
the then fair market value of such shares and the Company will be entitled to a
corresponding deduction, except to the extent the limit of Section 162(m) of
the Code applies.
Restricted Stock. A participant will not recognize taxable income at the time
of the grant of shares of restricted stock, and the Company will not be
entitled to a tax deduction at such time, unless the participant makes an
election to be taxed at the time restricted stock is granted. If such election
is not made, the participant will recognize taxable income at the time the
restrictions lapse in an amount equal to the excess of the fair market value of
the shares at such time over the amount, if any, paid for such shares. The
amount of ordinary income recognized by a participant by making the above-
described election or upon the lapse of the restrictions is deductible by the
Company as compensation expense, except to the extent the limit of Section
162(m) of the
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Code applies. In addition, a participant receiving dividends with respect to
restricted stock for which the above-described election has not been made and
prior to the time the restrictions lapse will recognize taxable compensation
(subject to income tax withholding), rather than dividend income, in an amount
equal to the dividends paid, and the Company will be entitled to a
corresponding deduction, except to the extent the limit of Section 162(m) of
the Code applies.
Performance Shares. A participant will not recognize taxable income upon the
grant of performance shares and the Company will not be entitled to a tax
deduction at such time. Upon the settlement of performance shares, the
participant will recognize compensation taxable as ordinary income (and subject
to income tax withholding) in an amount equal to the fair market value of any
shares delivered and any cash paid by the Company, and the Company will be
entitled to a corresponding deduction, except to the extent the limit of
Section 162(m) of the Code applies.
See "Executive Officer Compensation Report by the Compensation Committee" for
a description of Section 162(m) of the Code.
The following table specifies the number of shares of Common Stock which are
subject to options and shares of bonus stock granted under the 1995 Plan to
named executive, director, employee or group:
AWARDS GRANTED UNDER
1995 LONG-TERM INCENTIVE PLAN
<TABLE>
<CAPTION>
NUMBER OF
NAME AND PRINCIPAL POSITION DOLLAR VALUE COMMON SHARES
--------------------------- ------------ -------------
<S> <C> <C>
OPTIONS
Executive Group
Christopher C. Multhauf (Chairman and CEO)........ -- --
David W. Mulligan (President and COO)............. -- --
Gregory D. Stobbe (Vice President, Operations).... -- 5,000
Mark R. Lundberg (Vice President, Sales).......... -- --
Scott B. Sanders (Chief Financial Officer and
Treasurer)....................................... -- 27,500
Other Executives.................................. -- --
------- -------
Executive Group................................. -- 32,500
------- -------
Non-Executive Director Group
Richard M. Burdge, Sr. (Director)................. -- 2,000
William J. McBride (Director)..................... -- 10,000
Jackson W. Smart, Jr. (Director).................. -- 2,000
------- -------
Non-Executive Director Group.................... -- 14,000
------- -------
Non-Executive Employee Group........................ -- 56,000
------- -------
TOTAL........................................... -- 102,500
======= =======
BONUS STOCK
Non-Executive Employee Group...................... $27,975 1,865
======= =======
</TABLE>
Since the option exercise price of all options was equal to the fair market
value of the shares of Common Stock as of the date of grant, no dollar value
was assigned to the options for purposes of the above table. Since the bonus
stock was awarded in connection with the Company's initial public offering,
such stock has been valued using the initial public offering price of $15.00
per share. Based on the closing price of the Common Stock as reported for
Nasdaq National Market Issues by The Wall Street Journal, the market value of
the Common Stock on March 14, 1997 was $15.00 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT TO
THE COMPANY'S 1995 LONG-TERM INCENTIVE PLAN.
8
<PAGE>
EXECUTIVE OFFICERS
The following sets forth certain information with respect to executive
officers of the Company who are not identified above under "Election of
Directors."
Gregory D. Stobbe, age 42, is Senior Vice President, Operations, of the
Company. He joined the Company in 1989 and is responsible for the Company's key
provider relations, member services and operations and processing departments.
Mr. Stobbe was appointed Senior Vice President, Operations in 1993. Mr. Stobbe
is a graduate of the DePaul University College of Law.
Mark R. Lundberg, age 44, is Vice President, Sales, of the Company. Mr.
Lundberg joined the Company in July 1994. Prior to joining the Company, Mr.
Lundberg was National Accounts Director for HealthCare COMPARE between 1992 and
July 1994. Prior to that time, he was Director of Business Development of
MEDSTAT Systems between 1990 and 1992. Mr. Lundberg holds a Masters in Health
Services Administration degree from the University of Michigan.
Scott B. Sanders, age 36, is Chief Financial Officer and Treasurer of the
Company. He is also Assistant Secretary of the Company. Mr. Sanders joined the
Company in May 1995. Mr. Sanders previously served as the Chief Financial
Officer for Dental Care Plus Management Corp., a managed dental care company,
between 1992 and 1995. Prior to that, Mr. Sanders was a Senior Associate at
ICF/The Smock Quinn Group, a consulting firm, between 1990 and 1992 and a
Senior Associate at Technology Solutions Company, a computer consulting firm,
during 1992. Mr. Sanders holds a Master of Management degree from the J.L.
Kellogg School of Management at Northwestern University.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
Summary Compensation. The following summary compensation table sets forth
certain information concerning compensation for services rendered in all
capacities awarded to, earned by or paid to the Company's Chief Executive
Officer and the other named executive officers during the years ended December
31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- --------------------------- ---- -------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Christopher C.
Multhauf
Chairman and
Chief 1996 $135,000 $35,000 $ 4,800 -- $ 1,188
Executive Of- 1995 118,843 59,421 10,400 -- 793
ficer 1994 116,000 55,000 4,800 35,000 1,100
David W. Mul-
ligan
President,
Secretary and 1996 $130,000 $35,000 $ 4,800 -- $ 3,813
Chief Operat- 1995 115,206 59,421 10,800 -- 3,456
ing Officer 1994 113,500 55,000 4,800 35,000 3,000
Gregory D.
Stobbe
Senior Vice 1996 $ 90,038 $22,000 $ 3,600 -- $ 2,374
President, 1995 84,133 27,740 3,600 5,000 2,213
Operations 1994 80,000 22,000 3,600 13,000 1,931
Mark R. Lund-
berg(2) 1996 $108,251 $13,986 $ 3,600 -- $ 2,392
Vice Presi- 1995 104,500 15,675 3,600 -- 1,045
dent, Sales 1994 50,551 4,000 1,575 10,000 --
Scott B. Sand-
ers(3)
Chief Finan- 1996 $ 95,615 $17,000 $ -- 12,500 $ 2,209
cial Officer 1995 55,436 14,832 -- 15,000 10,110
and Treasurer 1994 -- -- -- -- --
</TABLE>
9
<PAGE>
- --------
(1) Represents the Company contribution with respect to the named executive
officer under the Company's 401(k) salary deferral plan, except for Mr.
Sanders in 1995. The amount for Mr. Sanders in 1995 represents
compensation paid as a consultant before joining the Company in 1995. See
"Executive Compensation and Other Information--Retirement Plan" below.
Does not include the value of any perquisites and other personal benefits,
securities or property, since the aggregate amount of such compensation is
the less than the lesser of either $50,000 or 10% of the total of annual
salary and bonus reported for the named executive officers above.
(2) Mr. Lundberg joined the Company in July 1994.
(3) Mr. Sanders joined the Company in May 1995.
General Information Regarding Options. The following tables show information
regarding stock options held by the executive officers named in the Summary
Compensation Table.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATE OF
NUMBER OF STOCK PRICE APPRECIATION
SECURITIES % OF TOTAL FOR
UNDERLYING OPTIONS OPTION TERMS(2)
OPTIONS GRANTED TO EXERCISE EXPIRATION ---------------------------
NAME GRANTED(1) EMPLOYEES PRICE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Scott B. Sanders........ 10,000 $24.125 7/17/06 $ 151,721 $ 384,490
2,500 $18.75 11/14/06 29,479 74,707
------ ------------- -------------
Total............... 12,500 24% $ 181,200 $ 459,197
====== === ============= =============
</TABLE>
- --------
(1) The exercise price of the options is equal to the fair market value of a
share of Common Stock on the date of grant. The stock options vest with
respect to 25% of the options on the first, second, third and fourth
anniversaries of the date of grant, and are exercisable until the tenth
anniversary of the date of grant. See "Executive Compensation and Other
Information--1995 Long-Term Incentive Plan" below.
(2) According to the requirements of the Securities and Exchange Commission,
represents the hypothetical realizable value of each grant of stock
options, assuming that the market price of the shares underlying the
options appreciates in value from the award date to the end of the option
term at the indicated annualized rates.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AS OF VALUE OF OPTIONS AS OF
1996 DECEMBER 31, 1996 DECEMBER 31, 1996(1)
------------------------ ------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher C. Multhauf
ISO-1987 Plan(2)....... -- -- 35,000 -- $641,200 --
David W. Mulligan
ISO-1987 Plan(2)....... -- -- 35,000 -- $641,200 --
Gregory D. Stobbe
NSO-1987 Plan(2)....... 4,300 $81,590 19,200 6,500 $358,460 $117,325
NSO-1995 Plan(3)....... -- -- 1,250 3,750 $ 5,938 $ 17,813
Mark R. Lundberg
NSO-1987 Plan(2)....... 1,000 $18,425 4,000 5,000 $ 72,200 $ 90,250
Scott B. Sanders
NSO-1995 Plan(3)....... -- -- 3,750 23,750 $ 17,813 $ 55,938
</TABLE>
10
<PAGE>
- --------
(1) Represents the aggregate dollar value of in-the-money, unexercised options
held at the end of the year, based on the difference between the exercise
price and $19.75, the closing price for the Common Stock as of December 31,
1996, as reported for Nasdaq National Market Issues in The Wall Street
Journal.
(2) The exercise price of the above incentive stock options ("ISOs") granted
under the 1987 Plan is equal to 110% of the fair market value of the Common
Stock on the date of grant, and the exercise period is five years from the
date of grant. The exercise price of the above non-qualified options
("NSOs") granted under the 1987 Plan is equal to the fair market value of
such shares of Common Stock on the date of grant. The above NSOs become
exercisable in cumulative increments of one-fourth of the number of shares
granted annually commencing on the date of grant and are exercisable until
the tenth anniversary of the date of grant. All stock options granted under
the 1987 Plan will become immediately exercisable upon certain changes of
control of the Company. See discussion under "1987 Statutory-Nonstatutory
Stock Option Plan" below for a description of the 1987 Plan.
(3) The exercise price of the NSOs granted under the 1995 Plan is equal to the
fair market value of a share of Common Stock on the date of grant. Such
stock options vest with respect to 25% of the options on the first, second,
third and fourth anniversaries of the date of grant, and are exercisable
until the tenth anniversary of the date of grant. All stock options granted
under the 1995 Plan will become immediately exercisable upon certain
changes of control of the Company. See discussion under "1995 Long-Term
Incentive Plan" below for a description of the 1995 Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Christopher
C. Multhauf, Chairman of the Board of Directors and Chief Executive Officer,
David W. Mulligan, President, Secretary and Chief Operating Officer, Gregory D.
Stobbe, Vice President, Operations, Mark R. Lundberg, Vice President, Sales,
and Scott B. Sanders, Chief Financial Officer and Treasurer, as described
below.
Employment Agreement with Christopher C. Multhauf. This agreement, dated
September 21, 1995, provides that Mr. Multhauf will be employed as the
Company's Chairman of the Board and Chief Executive Officer at an annual salary
of $135,000, which will be reviewed annually, plus a performance bonus under
the Company's Management Bonus Plan and a car allowance. The employment
agreement provides for continuation of base salary, bonus and benefits for one
year (i) following termination of employment without cause, (ii) in the event
of a breach by the Company, (iii) death, (iv) long-term disability or (v) upon
termination of employment for any reason at the end of the six-month period
following a change in control of the Company, or earlier with good cause such
as diminution of responsibility or reduction of benefits. The Company may
terminate the employment of Mr. Multhauf for cause at any time. The employment
agreement also includes certain non-competition and confidentiality provisions.
Employment Agreement with David W. Mulligan. This agreement, dated September
21, 1995, provides that Mr. Mulligan will be employed as the Company's
President and Chief Operating Officer at an annual salary of $130,000, which
will be reviewed annually, plus a performance bonus under the Company's
Management Bonus Plan and a car allowance. The employment agreement provides
for continuation of base salary, bonus and benefits for one year (i) following
termination of employment without cause, (ii) in the event of a breach by the
Company, (iii) death, (iv) long-term disability or (v) upon termination of
employment for any reason at the end of the six-month period following a change
in control of the Company, or earlier with good cause such as diminution of
responsibility or reduction of benefits. The Company may terminate the
employment of Mr. Mulligan for cause at any time. The employment agreement also
includes certain non-competition and confidentiality provisions.
Employment Agreement with Gregory D. Stobbe. This agreement dated March 1,
1991, as amended, may be terminated upon the death or total disability of Mr.
Stobbe, for good cause by the Company, without cause by the Company upon six
months' notice and without cause by Mr. Stobbe upon two months' notice. During
the
11
<PAGE>
term of this agreement, as amended, Mr. Stobbe is entitled to an annual gross
base salary of $84,000, subject to annual reviews, and is eligible for an
annual bonus based on the achievement of objectives as approved by the Board of
Directors.
Employment Agreement with Mark R. Lundberg. This agreement dated July 25,
1994, may be terminated upon the death or total disability of Mr. Lundberg, for
good cause by the Company, without cause by the Company upon 180 days' notice
and without cause by Mr. Lundberg upon 180 days' notice. During the term of the
agreement, Mr. Lundberg is entitled to an annual gross base salary of $104,500,
subject to annual reviews, and is eligible for an annual bonus based on the
achievement of objectives as approved by the Board of Directors.
Employment Agreement with Scott B. Sanders. This agreement, dated May 25,
1995, may be terminated upon the death or total disability of Mr. Sanders, for
good cause by the Company, without cause by the Company upon 180 days' notice
and without cause by Mr. Sanders upon 60 days' notice. During the term of the
agreement, Mr. Sanders is entitled to an annual gross base salary of $92,000,
subject to annual reviews, and is eligible for an annual bonus based on the
achievement of objectives as approved by the Board of Directors.
MANAGEMENT BONUS PLAN
The Chief Executive Officer and each of the other executive officers named in
the Summary Compensation Table above are eligible to participate in the
Company's Management Bonus Plan. Under this bonus program each executive
officer is entitled to receive a bonus based on three components (1) Company
performance compared to budget, (2) personal performance and (3) a
discretionary award. Awards are determined by the Compensation Committee.
RETIREMENT PLAN
The Company has a 401(k) salary deferral plan in which all employees of the
Company who have completed at least six months of service are eligible to
participate. Under the plan, the Company provides a matching contribution of
$.50 for every dollar an employee invests in the plan up to an annual maximum
of 2% of the employee's compensation for the year. The Company may make
additional discretionary contributions to the plan.
1995 LONG-TERM INCENTIVE PLAN
Under the Company's 1995 Long-Term Incentive Plan, as amended (the "1995
Plan"), the Company may grant incentive stock options or nonqualified options,
stock appreciation rights, bonus stock awards which are vested upon grant,
stock awards which may be subject to a restriction period or specified
performance measures or both, and performance shares. Subject to the terms of
the 1995 Plan, the Stock Option Compensation Committee is authorized to select
eligible officers and other key employees and independent contractors for
participation in the 1995 Plan and to determine the number of shares of Common
Stock subject to the awards granted thereunder, the exercise price, if any, the
time and conditions of exercise, and all other terms and conditions of such
award. A total of 200,000 shares of Common Stock have been reserved for
issuance under the 1995 Plan, of which 50,000 shares are available for stock
awards, subject to adjustment in the event of a stock split, stock dividend or
other changes in capital structure. No grants may be made under the 1995 Plan
after November 16, 2005. See "Proposal 2--Amendment of 1995 Long-Term Incentive
Plan."
1987 STATUTORY-NONSTATUTORY STOCK OPTION PLAN
Under the Company's 1987 Statutory-Nonstatutory Stock Option Plan, as amended
(the "1987 Plan"), up to 250,000 shares of Common Stock (as adjusted for the
ten-for-one stock split in 1991) were originally authorized for issuance upon
the exercise of stock options granted under the 1987 Plan. These stock options
may be either incentive stock options or nonqualified options. Under the terms
of the 1987 Plan, no stock options which are incentive stock options may be
granted under the 1987 Plan after October 1, 1996. Subject to the terms
12
<PAGE>
of the 1987 Plan, the committee which administers the 1987 Plan is authorized
to select eligible officers and other key employees for participation in the
1987 Plan and to determine the number of shares of Common Stock subject to each
option granted thereunder, the exercise price of such option, the time and
conditions of exercise of such option and all other terms and conditions of
such option. The Stock Option Compensation Committee of the Board of Directors
currently administers the 1987 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
All compensation decisions for the Chief Executive Officer and each of the
other executive officers named in the Summary Compensation Table are currently
made by the Compensation Committee of the Board of Directors and by the Stock
Option Compensation Committee of the Board of Directors. The Compensation
Committee consists of Messrs. Jackson W. Smart, Jr. (Chairman) and Richard M.
Burdge, Sr. Each member of the Compensation Committee is a non-employee
director who has not previously been an officer or employee of the Company. The
Stock Option Compensation Committee of the Board of Directors consists of
Messrs. Richard M. Burdge, Sr. (Chairman) and William J. McBride, each of whom
are "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, and "Non-Employee Directors" within the
meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended.
EXECUTIVE OFFICER COMPENSATION REPORT
This report is submitted by the Compensation Committee and the Stock Option
Compensation Committee of the Board of Directors.
All compensation decisions for the Chief Executive Officer and each of the
other executive officers named in the Summary Compensation Table are made by
the Compensation Committee of the Board of Directors except that the Stock
Option Compensation Committee administers and takes such other action as may be
required in connection with certain stock option and long-term incentive plans
of the Company. The Compensation Committee consists of Messrs. Jackson W.
Smart, Jr. (Chairman) and Richard W. Burdge, Sr. Each member of the
Compensation Committee is a non-employee director who has not previously been
an officer or employee of the Company. The Stock Option Compensation Committee
of the Board of Directors consists of Messrs. Richard M. Burdge, Sr. (Chairman)
and William J. McBride, each of whom are "outside directors" within the meaning
of Section 162(m) of the Code and "Non-Employee Directors" within the meaning
of Section 16(b) of the Securities Exchange Act of 1934, as amended.
Executive compensation consists of both annual and long-term compensation.
Annual compensation consists of a base salary and bonus. Long-term compensation
is generally provided through the 1987 Plan and the 1995 Plan. See "Executive
Compensation and Other Information--1987 Statutory and Nonstatutory Stock
Option Plan" and "--1995 Long-Term Incentive Plan."
The Compensation Committee's approach to annual base salary is to offer
competitive salaries in comparison with market practices. The base salary of
each officer is set at a level considered to be appropriate in the judgment of
the Compensation Committee based on an assessment of the particular
responsibilities and performance of such officer taking into account the
performance of the Company, other comparable companies, the dental care
industry, the economy in general and such other factors as the Compensation
Committee may deem relevant. The comparable companies considered by the
Compensation Committee may include companies included in the peer group index
discussed below and/or other companies in the sole discretion of the
Compensation Committee. No specific measures of Company performance or other
factors are considered determinative in the base salary decisions of the
Compensation Committee. Instead, substantial judgment is used and all of the
facts and circumstances are taken into consideration by the Compensation
Committee in its executive compensation decisions.
The current base salary of the Chairman of the Board and Chief Executive
Officer was determined pursuant to an employment agreement entered into as of
September 21, 1995. This agreement provides that Mr. Multhauf will be employed
as the Company's Chairman of the Board and Chief Executive Officer at an annual
salary of
13
<PAGE>
$135,000, which will be reviewed annually, plus a performance bonus under the
Company's Management Bonus Plan and a car allowance. See "Executive
Compensation and Other Information--Employment Agreements." Pursuant to such
employment agreement, the Compensation Committee may increase (but not
decrease) the base salary of the Chairman of the Board and Chief Executive
Officer. The Compensation Committee reviewed the base salary of the Chairman of
the Board and Chief Executive Officer on January 23, 1997 and determined to
increase his base salary from $135,000 to $137,025 retroactive to January 1,
1997.
The Company has also entered into employment contracts with each of the other
named executives officers. See "Executive Compensation and Other Information--
Employment Agreements."
In addition to base salary, the Chief Executive Officer and each of the other
executive officers named in the Summary Compensation Table above are eligible
to participate in the Company's Management Bonus Plan. Under this bonus program
each executive officer is entitled to receive a bonus based on three components
(1) Company performance compared to budget, (2) personal performance and (3) a
discretionary award. Bonuses are determined in the sole discretion of the
Compensation Committee. The 1996 bonuses approved by the Compensation Committee
for to the Chairman of the Board and the other named executive officers are
reported above under "Summary Compensation Table."
The executive officers are eligible to participate in the Company's 1987 Plan
and 1995 Plan. Such plans are administered by the Stock Option Compensation
Committee. Subject to the terms of such plans, the Stock Option Compensation
Committee is authorized to select eligible officers and other key employees for
participation in the 1995 Plan and to determine the number of shares of Common
Stock subject to the awards granted thereunder, the exercise price, if any, the
time and conditions of exercise, and all other terms and conditions of such
award. The purposes of such plans are to align the interests of the Company's
stockholders and the recipients of grants under such plans by increasing the
proprietary interest of such recipients in the Company's growth and success and
to advance the interests of the Company by attracting and retaining officers
and other key employees. The terms and the size of the option grant to each
executive officer will vary from individual to individual in the Stock Option
Compensation Committee's sole discretion. No specific factors are considered
determinative in the grants of options to executive officers by the Stock
Option Compensation Committee. Instead, all of the facts and circumstances are
taken into consideration by the Stock Option Compensation Committee in its
executive compensation decisions. Grants of options are based on the judgment
of the members of the Stock Option Compensation Committee considering the total
mix of information.
In 1996, the Stock Option Compensation Committee granted options to purchase
shares of Common Stock to one executive officer named in the Summary
Compensation Table as set forth above. See "Option Grants in 1996." Each of the
options has an exercise price equal to the fair market value on the date of
grant, has a ten-year term and will become exercisable with respect to 25% of
the Common Shares subject to the option on each of the first four anniversaries
of the option's date of grant.
Section 162(m) of the Code. Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), generally limits to $1 million the amount that a
publicly held corporation is allowed each year to deduct for the compensation
paid to each of the corporation's chief executive officer and the corporation's
four most highly compensated officers other than the chief executive officer,
subject to certain exceptions. The Company does not believe that the $1 million
deduction limitation should have any material effect on the Company in the near
future. If the $1 million deduction limitation is expected to have any material
effect on the Company in the future, the Company will consider ways to maximize
the deductibility of executive compensation, while retaining the discretion the
Company deems necessary to compensate executive officers in a manner
commensurate with performance and the competitive environment for executive
talent.
This Executive Officer Compensation Report is submitted by the Compensation
Committee of the Board of Directors, Jackson W. Smart, Jr. (Chairman) and
Richard M. Burdge, Sr.; and by the Stock Option Compensation Committee of the
Board of Directors, Richard M. Burdge, Sr. (Chairman) and William J. McBride.
14
<PAGE>
Performance Graph
The rules of the Securities and Exchange Commission ("SEC") require each
public company to include a performance graph comparing the cumulative total
stockholder return on such company's common stock for the five preceding
fiscal years, or such shorter period as the registrant's class of securities
has been registered with the SEC, with the cumulative total returns of a broad
equity market index and a peer group or similar index. The Common Shares began
trading on the Nasdaq Stock Market under the symbol "FCWI" on November 17,
1995. Accordingly, the performance graph included in this Proxy Statement
shows the period from November 17, 1995 through December 31, 1996.
The following chart graphs the performance of the cumulative total return to
stockholders (stock price appreciation plus dividends) between November 17,
1995 and December 31, 1996 in comparison to The Nasdaq Stock Market-U.S. Index
and The Nasdaq Health Services Stock Index.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG FIRST COMMONWEALTH, INC., THE NASDAQ STOCK MARKET-U.S. INDEX AND
THE NASDAQ HEALTH SERVICES STOCK INDEX
[GRAPH OF DATA POINTS]
<TABLE>
<CAPTION>
NOVEMBER 17, DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
First Commonwealth, Inc.................. $100.00 $173.33 $131.67
The Nasdaq Stock Market-U.S. Index....... $100.00 $101.02 $124.26
The Nasdaq Health Service Stock Index.... $100.00 $112.52 $112.67
</TABLE>
Assumes $100 invested on November 17, 1995 in First Commonwealth, Inc.
Common Stock, The Nasdaq Stock Market-U.S. Index and The Nasdaq Health Service
Stock Index. Cumulative total return assumes reinvestment of dividends.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of February 28, 1997, by (i) each
person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the executive officers named in the Summary Compensation Table and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER(1) OWNERSHIP OF CLASS(2)
--------------------------- ---------- ----------
<S> <C> <C>
David W. Mulligan (3)............................. 382,787 10.2%
Christopher C. Multhauf (4)....................... 352,787 9.4
Pilgrim Baxter & Associates, Ltd. (5)............. 307,900 8.2
AIM Management Group, Inc. (6).................... 222,500 5.9
The TCW Group, Inc. (7)........................... 212,200 5.6
Richard M. Burdge, Sr. (8)........................ 60,040 1.6
Jackson W. Smart, Jr. (9)......................... 28,750 *
Gregory D. Stobbe (10)............................ 20,450 *
Mark R. Lundberg (11)............................. 4,000 *
Scott B. Sanders (12)............................. 3,850 *
William J. McBride (13)........................... 2,000 *
All executive officers and directors as a group (8
persons) (14).................................... 854,664 22.7%
</TABLE>
- --------
*Less than 1%.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property laws, the persons named in the table above
have sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Applicable percentage of ownership is based on 3,769,639 shares of Common
Stock outstanding on February 28, 1997, including 156,450 shares of Common
Stock subject to options exercisable within 60 days of February 28, 1997.
(3) Mr. Mulligan is a director and President, Secretary and Chief Operating
Officer of the Company. The business address of Mr. Mulligan is 444 North
Wells Street, Suite 600, Chicago, Illinois 60610. Includes 35,000 shares of
Common Stock, issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days.
(4) Mr. Multhauf is Chairman of the Board of Directors and Chief Executive
Officer of the Company. The business address of Mr. Multhauf is 444 North
Wells Street, Suite 600, Chicago, Illinois 60610. Includes 35,000 shares of
Common Stock, issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days.
(5) Based on a Schedule 13G dated February 14, 1997. This Schedule 13G was
filed by Pilgrim Baxter & Associates, Ltd. on behalf of itself and PBHG
Emerging Growth Fund (collectively, "Pilgrim"). Such Schedule 13G reports
shared voting power and shared dispositive power with respect to 307,900
shares. The business address of Pilgrim is 1255 Drummers Lane, Wayne,
Pennsylvania 19087.
(6) Based on a Schedule 13G (Amendment No. 1) dated February 12, 1997. This
Schedule 13G amendment was filed by AIM Management Group, Inc. on behalf of
itself and its wholly-owned subsidiaries, AIM Advisors, Inc. and AIM
Capital Management, Inc. (collectively, "AIM"). Such Schedule 13G amendment
reports shared voting power and shared dispositive power with respect to
222,500 shares. The business address of AIM is 11 Greenway Plaza, Houston,
Texas 77046.
16
<PAGE>
(7) Based on a Schedule 13G dated February 12, 1997. This Schedule 13G was
filed by the TCW Group, Inc. on behalf of itself and Robert Day
(collectively, "TCW"). Such Schedule 13G reports shared voting power and
shared dispositive power with respect to 212,500 shares. The business
address of TCW is 865 South Figueroa Street, Los Angeles, California 90017.
(8) Mr. Burdge is a director of the Company. Includes 1,000 shares of Common
Stock issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days.
(9) Mr. Smart is a director of the Company. Includes 3,500 shares of Common
Stock, issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days.
(10) Mr. Stobbe is Senior Vice President, Operations, of the Company. Includes
20,450 shares of Common Stock, issuable upon exercise of outstanding stock
options which are currently exercisable or exercisable within 60 days.
(11) Mr. Lundberg is Vice President, Sales, of the Company. Includes 4,000
shares of Common Stock, issuable upon exercise of outstanding stock
options which are currently exercisable or exercisable within 60 days.
(12) Mr. Sanders is Chief Financial Officer and Treasurer of the Company.
Includes 3,750 shares of Common Stock, issuable upon exercise of
outstanding stock options which are currently exercisable or exercisable
within 60 days.
(13) Mr. McBride is a director of the Company. Includes 2,000 shares held by
his children.
(14) Includes 102,700 shares of Common Stock issuable upon exercise of
outstanding stock options which are currently exercisable or exercisable
within 60 days.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder require the Company's
directors and officers and persons who are deemed to own more than ten percent
of the Common Shares (collectively, the "Reporting Persons"), to file certain
reports ("Section 16 Reports") with the SEC with respect to their beneficial
ownership of Common Shares. The Reporting Persons are also required to furnish
the Company with copies of all Section 16 Reports they file. Based on a review
of copies of Section 16 Reports and representations to the Company, the Company
believes that all Section 16 filing requirements applicable to the Reporting
Persons during and with respect to 1996 were complied with on a timely basis.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Arthur Andersen LLP, who served as the Company's
independent public accountants for the last fiscal year, are expected to be
present at the Annual Meeting of Stockholders and will have an opportunity to
make a statement and to respond to appropriate questions raised by stockholders
at the Annual Meeting or submitted in writing prior thereto.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy materials for
the 1998 Annual Meeting of Stockholders, any stockholder proposal must be
addressed to First Commonwealth, Inc., 444 North Wells Street, Suite 600,
Chicago, Illinois 60610, Attention: Secretary, and must be received no later
than November 28, 1997.
EXPENSES OF SOLICITATION
Your proxy is solicited by the Board of Directors and its agents and the cost
of solicitation will be paid by the Company. Officers, directors and regular
employees of the Company, acting on its behalf, may also solicit proxies by
telephone, facsimile transmission or personal interview. The Company will, at
its expense, request brokers and other custodians, nominees and fiduciaries to
forward proxy soliciting material to the beneficial owners of shares of record
by such persons. The Company has retained Corporate Investor Communications,
Inc. to aid in solicitation of proxies for a fee of $900 plus out-of-pocket
expenses.
17
<PAGE>
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1996, INCLUDING THE FINANCIAL STATEMENTS AND
THE SCHEDULES THERETO, UPON THE WRITTEN REQUEST OF ANY STOCKHOLDER AS OF THE
RECORD DATE, AND WILL PROVIDE COPIES OF THE EXHIBITS TO THE REPORT UPON PAYMENT
OF A REASONABLE FEE THAT WILL NOT EXCEED THE COMPANY'S REASONABLE EXPENSES
INCURRED IN CONNECTION THEREWITH. REQUESTS FOR SUCH MATERIALS SHOULD BE
DIRECTED TO FIRST COMMONWEALTH, INC., 444 NORTH WELLS STREET, SUITE 600,
CHICAGO ILLINOIS 60610, TELEPHONE (312) 644-1800, ATTENTION: SCOTT B. SANDERS.
OTHER BUSINESS
It is not anticipated that any matter will be considered by the stockholders
other than those set forth above, but if other matters are properly brought
before the Annual Meeting, the persons named in the proxy will vote in
accordance with their best judgment.
By order of the Board of Directors,
/s/ David W. Mulligan
David W. Mulligan
President, Secretary and Chief
Operating Officer
ALL STOCKHOLDERS ARE URGED TO SIGN, DATE
AND MAIL THEIR PROXIES PROMPTLY.
18
<PAGE>
PROXY ANNEX I
FIRST COMMONWEALTH, INC.
444 NORTH WELLS, SUITE 600
CHICAGO, ILLINOIS 60610
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Christopher C. Multhauf and David W.
Mulligan, or either of them acting in the absence of the other, with power of
substitution, attorneys and proxies for and in the name and place of the
undersigned, to vote the number of shares of Common Stock that the undersigned
would be entitled to vote if then personally present at the 1997 Annual Meeting
of the Stockholders of First Commonwealth, Inc., or at any adjournment thereof,
upon the matters as set forth in the Notice of Annual Meeting and Proxy
Statement, as designated on the reverse side hereof.
(change of address/comments)
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(If you have written in the above
space, please mark the corresponding
box on the reverse side of this card)
SEE REVERSE
SIDE
<PAGE>
Please mark your
/X/ votes as in this
example
This proxy, when properly executed, will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR the nominees in proposal 1
and for proposal 2.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR the nominees in proposal 1 and FOR
proposal 2.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors /_/ /_/
David W. Mulligan
Jackson W. Smart, Jr.
For, except vote withheld from the following nominee:
- -----------------------------------------------------
2. Amendment to 1995 Long-Term Incentive Plan
FOR AGAINST ABSTAIN
/_/ /_/ /_/
Change of Address/Comments on Reverse Side /_/
3. In accordance with their discretion, upon all other matters that may
properly come before said Annual Meeting and any adjournment thereof.
- --------------------------------------------------------------------------------
The signer hereby revokes all proxies
heretofore given by the signer to vote
at said meeting or any adjournments
thereof.
Please sign exactly as name appears
hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
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SIGNATURE(S) DATE
