<PAGE>
----------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 0-27064
FIRST COMMONWEALTH, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2154228
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
444 North Wells Street, Suite 600, Chicago, IL 60610
(Address of principal executive offices)
(312) 644-1800
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has (1) 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value $.001 per share, outstanding as of April 30, 1999:
3,730,135 shares
----------------------------------------------
<PAGE>
First Commonwealth, Inc.
Form 10-Q
For the quarter ended March 31, 1999
INDEX
PART I. FINANCIAL INFORMATION
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998......................................... 3
Consolidated Statements of Income and Comprehensive Income
for the three months ended March 31, 1999 and 1998............ 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 1999 and 1998.......................... 6
Reconciliations of Net Income to Net Cash Provided by
Operating Activities for the three months ended
March 31, 1999 and 1998....................................... 7
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 9
PART II. OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K.............................. 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 13
SIGNATURES.............................................................. 14
</TABLE>
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements included or incorporated by reference in this Form
10-Q under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Form 10-Q constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things,
increased competition in the markets in which the Company operates; changes in
regulation affecting the Company; changes in the utilization of services;
changes in arrangements relating to payments to providers; the level of the
Company's indemnity enrollment and the related indemnity risk of indemnity
plans; the ability to integrate and successfully operate acquired businesses and
the risks associated with such businesses; the possible need for, and ability to
obtain if needed, financing on acceptable terms to finance the Company's growth
strategy; the ability of the Company to operate within the limitations imposed
by any such financing arrangements; and other factors referenced or incorporated
by reference in this Form 10-Q.
2
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1. Financial Statements
<TABLE>
<CAPTION>
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------
(Dollars in Thousands)
ASSETS March 31, 1999 December 31, 1998
- ------ -------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,388 $ 6,189
Short-term investments 7,510 4,824
Accounts receivable, net of allowance
of $414 at March 31, 1999 and $410 at
December 31, 1998 3,683 4,942
Other receivables 471 579
Deposit under reinsurance agreement 2 2
Prepaid expenses 2,145 2,734
Deferred tax asset 1,390 982
------- -------
Total current assets 25,589 20,252
------- -------
PROPERTY AND EQUIPMENT, at cost 5,014 4,778
Less - Accumulated depreciation (3,238) (3,034)
------- -------
Property and equipment, net 1,776 1,744
------- -------
OTHER ASSETS:
Investments 771 3,076
Restricted cash equivalents and government securities
on deposit, at market 2,502 2,967
Deposits and other 36 38
Intangible assets, net 9,933 9,999
------- -------
Total other assets 13,242 16,080
------- -------
TOTAL ASSETS $40,607 $38,076
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - continued
- ------------------------------------------------------------------
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 256 $ 155
Accounts payable - dental service providers 1,138 1,131
Claims liability 1,919 1,669
Accrued payroll and related costs 935 1,129
Other accrued expenses 697 812
Deferred subscriber revenue 5,272 5,089
Payable under reinsurance agreement 60 87
Income taxes payable 1,119 109
Other current liabilities 0 0
------- -------
Total current liabilities 11,396 10,181
DEFERRED TAX LIABILITY - long-term 196 176
------- -------
Total liabilities 11,592 10,357
------- -------
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value; 15,000,000 shares
authorized, 3,727,900 shares at March 31, 1999
and 3,684,525 shares at December 31, 1998 issued
and outstanding) 4 4
Capital in excess of par value 13,418 13,353
Retained earnings 15,284 14,072
Less 735 shares of common stock at March 31, 1999
and at December 31,1998 held in treasury, at cost (16) (16)
Accumulated other comprehensive income 325 306
------- -------
Total stockholders' equity 29,015 27,719
------- -------
Total liabilities and stockholders' equity $40,607 $38,076
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
- -------------------------------------------------------------------
(Dollars in Thousands, except per share data)(Unaudited)
<TABLE>
<CAPTION>
For the three months ended:
------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
SUBSCRIBER REVENUE
Managed Care $12,188 $11,686
Indemnity/PPO 4,231 3,649
Fee Income 319 280
------- -------
Total Subscriber Revenue 16,738 15,615
------- -------
BENEFIT COVERAGE EXPENSES
Managed Care 7,241 7,337
Indemnity/PPO 3,596 3,113
Fee Income -- --
------- -------
Total Benefit Coverage Expenses 10,837 10,450
------- -------
GROSS MARGIN
Managed Care 4,947 4,349
Indemnity/PPO 635 536
Fee Income 319 280
------- -------
Total Gross Margin 5,901 5,165
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 4,136 3,772
------- -------
Operating income 1,765 1,393
INTEREST INCOME, net 182 144
------- -------
Income before income taxes 1,947 1,537
PROVISION FOR INCOME TAXES 735 624
------- -------
NET INCOME $ 1,212 $ 913
------- -------
COMPREHENSIVE INCOME, net of tax:
UNREALIZED GAINS ON SECURITIES:
Unrealized holding gains arising during
period, net of taxes of $10 16 --
STOCK OPTION EXPENSE, recognized only
for tax purposes -- 183
------- -------
Other comprehensive income 16 183
------- -------
COMPREHENSIVE INCOME $ 1,228 $ 1,096
======= =======
BASIC EARNINGS PER SHARE $0.33 $0.25
DILUTED EARNINGS PER SHARE $0.32 $0.24
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
First Commonwealth, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(Dollars in Thousands)(Unaudited)
<TABLE>
<CAPTION>
For the three months ended:
--------------------------------
March 31, 1999 March 31, 1998
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from subscribers $18,310 $15,787
Cash paid to providers of care (6,505) (6,797)
Cash paid to employees, brokers and suppliers (3,812) (3,448)
Claims paid (3,393) (3,098)
Interest paid 0 0
Interest received 212 94
Income taxes paid (112) (181)
Cash transferred from (to) restricted funds 50 0
------- -------
Net cash provided by operating activities 4,750 2,357
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (236) (151)
Purchase of short-term investments (2,677) 0
Proceeds from long-term investments 2,297 0
Acquisition related cost 0 0
------- -------
Net cash used in investing activities (616) (151)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 65 14
Principal payments on capital leases 0 0
Purchase of treasury stock 0 (1)
Payments of preferred dividends 0 0
----- -----
Net cash provided (used) in financing activities 65 13
----- -----
Net change in cash and cash equivalents 4,199 2,219
CASH AND CASH EQUIVALENTS,
beginning of period 6,189 9,047
------ -------
CASH AND CASH EQUIVALENTS,
end of period $10,388 $11,266
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
First Commonwealth, Inc. and Subsidiaries
RECONCILIATIONS OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
- --------------------------------------------------------------------------------
(Dollars in Thousands)(Unaudited)
<TABLE>
<CAPTION>
For the three months ended:
------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Net income $ 1,212 $ 913
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 270 235
(Increase) decrease in assets:
Accounts receivable, net 1,259 (368)
Other receivables 108 (31)
Deposit under reinsurance agreement 0 0
Prepaid expenses 589 155
Deferred tax asset (408) (120)
Restricted cash equivalents and government
securities 465 (5)
Deposits and other 3 14
Increase (decrease) in current liabilities:
Accounts payable - trade 101 (9)
Accounts payable - dental service providers 7 287
Claims liability 250 53
Accrued payroll and related costs (194) 159
Other accrued expenses (115) 104
Deferred subscriber revenue 183 408
Payable under reinsurance agreement (27) 0
Income taxes payable 1,027 413
Increase in long-term liabilities:
Long-term deferred tax liability 20 149
------- -------
Net cash provided by operating activities $ 4,750 $ 2,357
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
FIRST COMMONWEALTH, INC.
Notes to Consolidated Financial Statements
March 31, 1999
1. Interim Financial Statements
The accompanying consolidated financial statements include the accounts of
First Commonwealth, Inc., together with its subsidiaries and an affiliate
(collectively, the "Company"). All material intercompany transactions and
balances have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain notes and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from the interim
financial statements presented in this quarterly report on Form 10-Q in
accordance with such rules and regulations. In the opinion of the Company's
management, the accompanying consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary to state
fairly the financial position of the Company as of March 31, 1999, and the
results of its operations and cash flows for the periods indicated. The results
of operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for the full year. The accompanying
consolidated financial statements should be read in conjunction with the
Company's financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1998.
2. Earnings Per Share
Under SFAS No. 128, primary earnings per share is replaced by "Basic"
earnings per share ("EPS"), which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. "Diluted" EPS, which is computed similarly
to fully diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock.
The following table reconciles the numerators (Net Income) and denominators
(Shares) of the basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 EPS March 31, 1998 EPS
-------------- --------------
<S> <C> <C> <C> <C>
Net Income $1,212,000 $ 913,000
========== ==========
Basic Shares/EPS 3,723,881 $0.33 3,638,953 $0.25
===== =====
Effect of dilutive
common stock options 46,946 98,357
---------- ----------
Diluted Shares/EPS 3,770,827 $0.32 3,737,310 $0.24
========== ===== ========== =====
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Total subscriber revenue increased by $1.1 million, or 7.2%, to $16.7
million in the three months ended March 31, 1999 from $15.6 million in the three
months ended March 31, 1998. The $1.1 million increase was partially
attributable to increased enrollment in the Company's indemnity/PPO dental
plans, as well as price increases that went into effect in 1999. Managed care
revenue increased $502,000, or 4.3% to $12.2 million in the three months ended
March 31, 1999 from $11.7 million in the same period in 1998, primarily due to
price increases. During the quarter ending March 31, 1999, approximately 30,000
members transferred out of a managed care product, which was at a relatively low
per member per month charge, into a fee income product. Indemnity/PPO revenue
increased $582,000 to $4.2 million in 1999 from $3.6 million in 1998, primarily
as a result of adding new indemnity/PPO plan members and price increases.
Total gross margin increased by $736,000, or 14.2%, to $5.9 million in the
three months ended March 31, 1999 from $5.2 million in the three months ended
March 31, 1998. Total gross margin as a percentage of revenue was 35.3% in 1999
as compared to 33.1% in 1998. This percentage increase was the result of
improved gross margins on both the managed care and indemnity/PPO lines of
business. Managed care gross margin as a percentage of managed care revenue was
40.6% in 1999 as compared to 37.2% in 1998. The improved managed care gross
margin percentage was the result of the completion of transitioning the
Company's Illinois membership to the new higher gross margin "template plan"
line of products; the transfer of approximately 30,000 low gross margin members,
mentioned above, out of a managed care product to a fee income product;
transitioning lower gross margin business acquired in Missouri to the Company's
higher gross margin standard products; and price increases. The Company expects
the managed care gross margin percentage to remain fairly consistent with the
current level throughout the balance of 1999. The level of indemnity/PPO gross
margin as a percentage of indemnity/PPO revenue increased to 15.0% in 1999 from
14.7% in 1998. This increase in indemnity/PPO gross margin percentage is mainly
the result of an increase in pricing under the Company's indemnity/PPO
contracts. The Company expects the indemnity/PPO gross margin percentage to
remain fairly consistent with the current level throughout the balance of 1999.
In addition, overall gross margin percentages will vary if the mix of the
Company's managed care and indemnity/PPO business changes from current levels.
SG&A expenses increased by $364,000, or 9.7%, to $4.1 million for the three
months ended March 31, 1999 from $3.8 million in the three months ended March
31, 1998. As a percentage of revenue, SG&A expenses increased to 24.7% for 1998
from 24.2% for 1997. This increase is attributable to new staffing hires,
primarily in sales and marketing, salary adjustments, and the phase-in of
premium taxes that were effective July 1, 1998. The Company expects SG&A as a
percent of revenue to remain relatively constant in 1999 and management expects
it to decline thereafter, as the Company continues to achieve economies of scale
and operating efficiencies. Included in the SG&A total is $66,000, for the three
months ended in March 31, 1999 and 1998, for the amortization of goodwill
associated with the acquisitions.
Operating income increased by $372,000, or 26.7%, to $1.8 million for the
three months ended March 31, 1999 from $1.4 million in the three months ended
March 31, 1998. As a percentage of revenue,
9
<PAGE>
operating income was 10.5% in 1999 and 8.9% in 1998. The Company expects its
operating income percentage to remain relatively constant throughout 1999.
The effective tax rate for the three months ended March 31, 1999 was 37.8%
compared to 40.6% for the three months ended March 31, 1998. The decline in
effective tax rate is primarily due to the purchase of federally tax exempt
municipal bonds purchased during the second half 1998 as well as the purchase of
United States Treasury Notes and Bills which are exempt from state tax. The
Company expects to continue to hold and/or purchase federally tax exempt
municipal bonds throughout 1999.
Net income increased by $299,000, or 32.8%, to $1.2 million for the three
months ended March 31, 1999 from $913,000 for the three months ended March 31,
1998. Diluted earnings per share was $0.33 and $0.25 for the three months ended
March 31, 1998 and 1997, respectively.
Year 2000 Disclosure
Many existing computer systems and applications abbreviate dates using only
two digits ("98") rather than four digits ("1998"). If not corrected, this
shortcut may cause problems when the century date "2000" occurs. On that date,
some computer operating systems and applications and embedded technology may
recognize the date as January 1, 1900 instead of January 1, 2000. If the Company
fails to correct any critical Year 2000 processing problems prior to January 1,
2000, the affected systems may either cease to function or produce erroneous
data, which could have material adverse operational and financial consequences.
Currently, the Company believes that the major risks associated with the
inability of systems and software to process Year 2000 data correctly include a
disruption in the operation of its core enterprise systems, telephony systems,
accounting and financial systems, and desktop and support systems. A failure of
such systems could materially and adversely affect the Company's results of
operations, financial position and cash flows.
Throughout 1998 the Company had been actively working on its plan to
address year 2000 compliance. The plan consists of three phases. Phase 1, which
involved the assessment of the Company's internal systems, is completed. The
Company has found as a result of the assessment process that its core enterprise
systems have always contained the ability to store and process the full four-
digit year. Although this capability exists, several functional points of the
system have not fully utilized the capability. Phase 1 included the
identification of core business areas and processes, analysis of systems and
hardware supporting the core business areas and the prioritization of renovation
or replacement of systems and hardware that are not Year 2000 compliant.
Included in the assessment phase is an analysis of risk management factors such
as contingency plans and legal matters. The internal systems assessment process
of Phase 1 categorized internal systems into 4 functional areas: (1) Core
Enterprise System, (2) Telephony Systems, (3) Accounting and Financial Systems,
and (4) Desktop and Support Systems. The Core Enterprise System includes
computer systems that support key business functions such as billing, finance,
customer service, and network provider payments. Within each of these areas it
has been determined that the main suppliers of the systems utilized by the
Company are able to provide year 2000 compliant releases. The acquisition of the
available releases will be accomplished either through existing support
arrangements or through the purchase of upgraded products. A fifth area that
required additional investigation was the assessment of the Company's major
third party relationships outside of the information technology arena.
10
<PAGE>
Phase 2, scheduled for completion by July 1999, consists of the conversion
or replacement of selected platforms, applications, databases and utilities.
Phase 3, scheduled for the second and third quarters of 1999, includes the
testing, verifying and validating the renovated or replaced platforms,
applications, databases and utilities.
The Company's current schedule is subject to change depending on
developments that may arise through unforeseen circumstances, and through
execution of the Company's compliance efforts. The Company is dependent on its
vendors for compliant hardware, systems and applications and upgrades by
experts, both internal and external, and the availability of critical resources
with the requisite skill sets. The Company's ability to meet its target dates is
dependent upon the timely provision of necessary upgrades and modifications by
its suppliers and internal resources. In addition, the Company cannot guarantee
that third parties on whom it depends for essential services (such as utilities,
telecommunications operators, etc.) will convert their critical systems and
processes in a timely manner. Failure or delay by any of these parties could
significantly disrupt the Company's business. The Company's contingency plans
will address mechanisms for preventing or mitigating interruption caused by such
third parties.
The Company believes that it will cost approximately $80,000 to upgrade and
verify all critical areas identified. This cost includes the purchase of
required software and hardware as well as outside contracting services. The
Company has already secured the necessary resources for the remainder of 1999.
Based on the Company's current schedule for completion of Year 2000 tasks,
the Company believes that its planning is adequate to secure Year 2000 readiness
of its critical systems. Nevertheless, management cannot provide assurance that
its plans to achieve Year 2000 compliance will be successful or that the cost of
its efforts will not differ materially from estimates, as each is subject to
various risks and uncertainties, many of which are described above. Accordingly,
the Company's goal is to develop business continuity and contingency plans in
1999 to address high-risk areas as they are identified. These plans are expected
to assess the potential for business disruption in various scenarios, and to
provide for key operational back-up, recovery and restoration alternatives.
However, if the Company, or third parties with whom it has significant business
relationships, fails to achieve Year 2000 readiness with respect to critical
systems, there could be a material adverse affect on the Company's results of
operations, financial position and cash flows.
The Company's Year 2000 most reasonably likely worst case scenario may
involve interruption of data processing services and telecommunications services
and/or interruption of customer billing, operating and other information
systems. As part of its Year 2000 initiative, the Company is evaluating these
worst-case scenarios and is in the process of developing contingency and
business plans tailored for Year 2000-related occurrences. The contingency and
business contingency plans are expected to assess the potential for business
disruption in various scenarios, and to provide key operational back-up,
recovery and restorational alternatives.
The Company's contingency plan initiatives include the following: personnel
to be on call during the Year 2000 change to monitor critical systems,
telecommunications and other processes and to react promptly to facilitate
repairs; back-up plans in the event of failure of information or
telecommunications systems or other Year 2000 disruptions; identification of
alternate suppliers and implementation of plans to be in place for third-party
products/services that fail to meet Year 2000 compliance commitment schedules;
and data retention and recovery procedures to be in place for customer and
critical business data to provide backups with on-site as well as off-site data
copies. The Company anticipates having these contingency plans in place before
December 31, 1999.
11
<PAGE>
The above information, which contains statements that are "forward-looking"
within the meaning of the Private Securities Litigation Reform Act of 1995, is
based on the Company's current best estimates, which were derived using numerous
assumptions of future events, including the availability and future costs of
certain technological and other resources, third party modification actions and
other factors. Given the complexity of these issues and the possibility of
unidentified risks, actual results may vary materially from those anticipated
and discussed above. Specific factors that might cause such differences include,
among others, the availability and cost of personnel trained in this area, the
ability to locate and correct all affected computer codes, the timing and
success of remedial efforts of third party suppliers and similar uncertainties.
Liquidity and Capital Resources
The Company's operating cash requirements for the three months ended March
31, 1999 have been met principally through operating cash flows. The primary
uses of cash have been for operating activities and capital investments in the
business. The Company believes that cash generated from operations will be
adequate to finance its anticipated operating needs for the foreseeable future.
Cash flows from operating activities were $4.7 million and $2.4 million for
the three months ended March 31, 1999, and 1998, respectively. The Company
primarily receives premium payments in advance of disbursing managed care
dentist capitation payments and indemnity claims payments. Cash balances in
excess of current needs are invested in interest-bearing accounts or cash
equivalents. Cash flows from operations consist primarily of subscriber premiums
and investment income net of capitation payments to network dentists, claims
paid, brokers' commissions, general and administrative expenses and income
taxes.
Cash used in investing activities was $616,000 and $151,000 for the three
months ended March 31, 1999 and 1998, respectively. The first three months of
1999 includes a net of $380,000 used to purchase short term investment grade
securities (securities which mature between 3 months and 12 months). Capital
expenditures were $236,000 for the three months ended March 31, 1999 for
computer hardware, software enhancements, and furniture, and $151,000 for the
three months ended March 31, 1998 for computer software enhancements.
As of March 31, 1999, the Company had cash and cash equivalents of $10.4
million, short-term investments of $7.5 million, long term investments of $0.8
million, restricted cash of $2.5 million, and no long term debt outstanding. In
addition, the Company has a committed unsecured line of credit (the "Credit
Agreement") available which expires June 30, 1999, and to date has not been
executed and utilized. Upon execution of this Credit Agreement, the Company may
borrow up to $5 million at the rate of LIBOR plus one-half percent. To the
extent the Company makes acquisitions, a portion of the purchase price may be
financed through borrowings.
Under applicable insurance laws of the states in which the Company conducts
business, the Company's subsidiaries operating in the particular state are
required to maintain a minimum level of net worth and reserves. The Company may
be required from time to time to invest funds in one or more of its subsidiaries
to meet regulatory requirements, or to expand its operations into new geographic
areas. In addition, applicable laws generally limit the ability of the Company's
subsidiaries to pay dividends to the extent that required regulatory capital or
surplus would be impaired.
Impact of Inflation
The Company does not believe the impact of inflation has significantly
affected the Company's operations.
12
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Forms 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.1 Amended and Restated Employment Agreement between the
Company and Christopher C. Multhauf dated as of
February 12, 1999
10.2 Amended and Restated Employment Agreement between the
Company and David W. Mulligan dated as of February
12, 1999
10.3 Amendment to Employment Agreement between the Company
and Gregory D. Stobbe dated as of February 12, 1999
10.4 Amendment to Employment Agreement between the Company
and Mark R. Lundberg dated as of February 12, 1999
10.5 Amendment to Employment Agreement between the Company
and Scott B. Sanders dated as of February 12, 1999
11 Statement Regarding Computation of Earnings Per Share
(Included as Note 2 in Notes to Consolidated
Financial Statements filed herewith)
27 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1999:
None
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company has determined that its market risk exposures, which arise
primarily from exposures to fluctuations in interest rates, are not material to
its future earnings, fair value and cash flows.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned,
thereunto duly authorized.
FIRST COMMONWEALTH, INC.
(Registrant)
Date: May 17, 1999 By: /s/ Christopher C. Multhauf
-----------------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
Date: May 17, 1999 By: /s/ David W. Mulligan
-----------------------------------
David W. Mulligan
President, Secretary and Chief Operating
Officer
Date: May 17, 1999 By: /s/ Scott B. Sanders
-----------------------------------
Scott B. Sanders
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
10.1 Amended and Restated Employment Agreement between the Company
and Christopher C. Multhauf dated as of February 12, 1999
10.2 Amended and Restated Employment Agreement between the Company
and David W. Mulligan dated as of February 12, 1999
10.3 Amendment to Employment Agreement between the Company and
Gregory D. Stobbe dated as of February 12, 1999
10.4 Amendment to Employment Agreement between the Company and
Mark R. Lundberg dated as of February 12, 1999
10.5 Amendment to Employment Agreement between the Company and
Scott B. Sanders dated as of February 12, 1999
11 Statement Regarding Computation of Earnings Per Share (Included
as Note 2 in Notes to Consolidated Financial Statements filed
herewith)
27 Financial Data Schedule
<PAGE>
Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of February 12, 1999
between Christopher C. Multhauf ("Executive") and First Commonwealth, Inc., a
Delaware corporation (the "Company"), with its principal office at Suite 600,
444 North Wells Street, Chicago, Illinois 60610.
WHEREAS, the Company and Employee are parties to an Employment Agreement
dated September 21, 1995; and
WHEREAS, the Company and Employee desire to amend and restate such
Employment Agreement on the terms and subject to the conditions contained
herein;
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, Executive and the Company hereby agree as follows:
ARTICLE I
EMPLOYMENT
Section 1.1 Position; Term; Responsibilities. The Company hereby employs
Executive as its Chairman of the Board and Chief Executive Officer until this
Agreement is terminated as herein provided, subject to all the covenants and
conditions hereinafter set forth. Subject to the powers, authorities and
responsibilities vested in the Board under the General Corporation Law of the
State of Delaware, and in duly constituted committees of the Board, Executive
shall have the responsibility and authority for the formulation and execution of
the policies relating to the affairs of the Company and the administration of
the Company's operations. Executive shall hold the title of Chairman of the
Board and Chief Executive Officer or such other or additional title as is not
inconsistent with the aforementioned responsibilities. Executive shall also
perform such other executive and administrative duties for the Company and its
subsidiaries (not inconsistent with the position of the Company's Chairman of
the Board and Chief Executive Officer) as Executive may reasonably be expected
to be capable of performing on behalf of the Company, as may from time to time
be authorized or directed by the Board. Executive agrees to be employed by the
Company and its subsidiaries in all such capacities until this Agreement is
terminated as herein provided, subject to all the covenants and conditions
hereinafter set forth.
Section 1.2 Duties. During the term of this Agreement, Executive shall
perform faithfully the duties assigned to him hereunder to the best of his
abilities and devote his full and undivided business time and attention to the
transaction of the Company's business and not engage in any other business
activities except with the approval of the Board.
Section 1.3 Place of Performance. Executive's duties hereunder shall be
performed in the Chicago metropolitan area and Executive shall not be required
to relocate his principal
<PAGE>
residence outside of the Chicago metropolitan area.
ARTICLE II
COMPENSATION
Section 2.1 Basic Compensation. As compensation for his services
hereunder, the Company shall pay to Executive during the term of this Agreement
a minimum annual salary of $160,000 (the "Base Salary"), payable in installments
in accordance with the Company's normal payment schedule for senior management
and executive officers of the Company. On each anniversary of the date hereof
during the term of this Agreement, the Board of Directors or the Compensation
Committee shall review the Base Salary and may increase (but not decrease) the
Base Salary, in its discretion. Executive's annual salary in effect from time
to time under this Section 2.1 is hereinafter called his "Basic Compensation."
Section 2.2 Performance Bonus. In addition to his Basic Compensation,
the Company shall pay to Executive a performance bonus ("Performance Bonus"), in
respect of each fiscal year of the Company during the term of this Agreement, an
amount determined in accordance with the performance bonus plan which is
provided to senior management and executive officers of the Company, and which
shall be similar in structure to the Company's current Management Bonus Plan.
Section 2.3 Other Employee Benefits. Executive shall be entitled to
participate in all employee benefit plans, including group health care plans, to
take time off for vacation or illness in accordance with the Company's policy
for senior management and executive officers, and to receive all other fringe
benefits as are from time to time made generally available to the senior
management and executive officers of the Company; provided, however, that
notwithstanding any contrary policy, Executive shall be entitled to six weeks of
vacation on an annual basis. The Company shall pay to Executive a minimum
annual car allowance of $4,800, payable in accordance with the Company's normal
payment schedule.
Section 2.4 Expense Reimbursements. The Company shall reimburse
Executive for all proper expenses incurred by him in the performance of his
duties hereunder in accordance with the policies and procedures established by
the Board.
ARTICLE III
TERMINATION OF EMPLOYMENT
Section 3.1 Termination.
(a) Executive and the Company acknowledge that, except as may be provided
under applicable law, this Agreement or any other agreement between Executive
and the Company, the employment of Executive by the Company is "at will" and,
prior to the effective date of a Change in Control, may be terminated by either
Executive or the Company at any time, subject
<PAGE>
to applicable law. In the event of a Change in Control, neither the Company nor
Executive shall terminate Executive's employment for a period of six months
following the effective date of the Change in Control, except for Cause by the
Company or Good Reason by Executive. Upon termination of Executive's employment,
there shall be no further rights or obligations under this Agreement except as
expressly provided herein.
(b) In the event of (i) termination of employment of Executive by the
Company without Cause, (ii) termination of employment by Executive due to a
material breach of the terms of this Agreement by the Company (following notice
from Executive and after a reasonable opportunity to cure such breach), (iii)
death of Executive during the term of this Agreement, (iv) termination of
executive in the event of Long-term Disability (as defined below) of Executive
(v) termination of employment by Executive or the Company for any reason (other
than Cause) following the expiration of six months after the effective date of a
Change in Control or (vi) termination of employment by Executive with Good
Reason (following notice from Executive and after a reasonable opportunity to
cure by the Company) during the six month period following a Change in Control,
Executive (or his beneficiaries or estate in the event of Death) shall be
entitled to receive all compensation provided herein under Sections 2.1, 2.2.
and 2.3 and reimbursement for his expenses under Section 2.4 to the date of such
termination, plus compensation equal to two full year's Basic Compensation, as
determined under Section 2.1, plus the product of two and the average of the
amount paid to Executive as a Performance Bonus under Section 2.2 for the two
fiscal years of the Company immediately preceding such termination, and shall be
entitled to continue participation in all other employee benefits under Section
2.3 for a period of two years following such termination. Any amount payable or
benefit to be provided pursuant to the foregoing sentence shall be paid or
provided in accordance with the Company's procedures for senior management and
executive officers and as if Executive's employment by the Company had continued
for one complete year after the date of termination; provided, however, that in
the event that such payments are made due to long-term disability, such payments
shall be reduced by the amount of payments made to the Executive for the same
period pursuant to the Company's long-term disability plan.
(c) In the event the Board terminates the employment of Executive for
Cause, or in the event of voluntary termination of Executive prior to a Change
in Control or without Good Reason during the six-month period following a Change
in Control, Executive shall be entitled to receive all compensation provided
herein under Sections 2.1, 2.2. and 2.3 and reimbursement for his expenses under
Section 2.4 to the date of termination, and all other rights and obligations of
the parties hereunder shall terminate, except as provided in Article IV and
Section 5.4.
Section 3.2 Incapacity. If at any time during the term of this
Agreement Executive is unable to substantially perform his duties hereunder by
reason of illness, accident or other disability ("Disability"), he shall be
entitled to receive his Basic Compensation, Performance Bonus and other employee
benefits to which he would be entitled under Sections 2.1, 2.2 and 2.3 for a
minimum period of six months. To determine the amount of Performance Bonus which
the Executive shall be entitled to receive during such period, the Board shall
prorate the average of the amount paid to Executive as a Performance Bonus under
Section 2.2 for the two fiscal years of the Company immediately preceding such
disability. In the event the Executive's Disability
<PAGE>
continues for a period of six months or more ("Long-term Disability"), the
Company may (i) continue to employ the Executive, in which case the Executive
will continue to be entitled to receive his Basic Compensation, Performance
Bonus and other employee benefits to which he would be entitled under Sections
2.1, 2.2 and 2.3 until the Executive's employment is terminated hereunder or
(ii) terminate Executive's employment at any time, in which case Executive shall
be entitled to receive all compensation provided herein under Sections 2.1, 2.2.
and 2.3 to the date of such termination, plus compensation equal to one full
year's Basic Compensation, as determined under Section 2.1, plus the average of
the amount paid to Executive as a Performance Bonus under Section 2.2 for the
two fiscal years of the Company immediately preceding such termination, and
shall be entitled to continue participation in all other employee benefits under
Section 2.3 for a period of one year following such termination, pursuant to
Section 3.1(a). To determine the amount of Performance Bonus which Executive
shall be entitled to receive during any period of incapacity, the Board shall
prorate such benefit by multiplying the average of the Performance Bonus paid to
Executive for the immediately preceding two fiscal years by a fraction, the
denominator of which is the number of days of incapacity and the denominator of
which is 365.
ARTICLE IV
NONCOMPETITION; CONFIDENTIAL INFORMATION
Section 4.1 Noncompetition. During the term of this Agreement and, in
the event of termination for Cause or voluntary termination by Executive prior
to a Change in Control or for Good Reason during the six-month period following
a Change in Control), for a period of two years thereafter, except with the
prior written consent of the Board, Executive:
(a) shall not engage in any activities whether as employer, proprietor,
partner, stockholder (other than the holder of less than 5% of the stock of a
corporation the securities of which are traded on a national securities exchange
or in the over-the-counter market), director, officer, employee or otherwise, in
competition with (i) the businesses conducted at the date hereof by the Company
or any of its subsidiaries or controlled affiliates (the "Companies"), or (ii)
any business in which the Companies are substantially engaged at any time during
the term of this Agreement;
(b) shall not solicit, in competition with the Companies, any person who is
a customer of the businesses conducted by the Companies at the date hereof or of
any business in which the Companies are substantially engaged at any time during
the term of this Agreement; and
(c) shall not induce or attempt to persuade any employee of the Companies
to terminate his employment relationship in order to enter into competitive
employment.
Section 4.2 Trade Secrets. Executive shall not, at any time during the
term of this
<PAGE>
Agreement or thereafter, make use of any bidding information (or computer
programs thereof) of any of the Companies, nor divulge any trade secrets or
other confidential information of any of the Companies, except to the extent
that such information becomes a matter of public record, is published in a
newspaper, magazine or other periodical available to the general public or as
the Board may so authorize in writing; and when Executive shall cease to be
employed by the Company, Executive shall surrender to the Company all records
and other documents obtained by him or entrusted to him during the course of his
employment hereunder (together with all copies thereof) which pertain
specifically to any of the businesses covered by the covenants in Section 4.1 or
which were paid for by any of the Companies; provided, however, that Executive
may retain copies of such documents as necessary for Executive's personal
records for federal income tax purposes.
Section 4.3 Scope of Covenants; Remedies. The following provisions
shall apply to the covenants of Executive contained in Sections 4.1 and 4.2:
(a) the covenants contained in paragraphs (a) and (b) of Section 5. shall
apply within all territories in which any of the Companies are actively engaged
in the conduct of business during the term of this Agreement, including, without
limitation, the territories in which customers are then being solicited;
(b) without limiting the right of the Company to pursue all other legal and
equitable remedies available for violation by Executive of the covenants
contained in Sections 4.1 and 4.2, it is expressly agreed by Executive and the
Company that such other remedies cannot fully compensate the Company for any
such violation and that the Company shall be entitled to injunctive relief to
prevent any such violation or any continuing violation thereof;
(c) each party intends and agrees that if in any action before any court or
agency legally empowered to enforce the covenants contained in Sections 4.1 and
4.2 any term, restriction, covenant or promise contained therein is found to be
unreasonable and accordingly unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency; and
(d) the covenants contained in Sections 4.1 and 4.2 shall survive the
conclusion of Executive's Employment by the Company.
ARTICLE V
MISCELLANEOUS
Section 5.1 Headings. The Article, Section paragraph and subparagraph
headings are for convenience of reference only and shall not define or limit the
provisions hereof.
Section 5.2 Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or consolidation
of the
<PAGE>
Company whereby the Company is or is not the surviving or resulting corporation
or as a result of any transfer of all or substantially all of the assets of the
Company. In the event of any such merger, consolidation or transfer of assets,
the provisions of this Agreement shall be binding upon the surviving or
resulting corporation or the person or entity to which such assets are
transferred.
(b) The Company agrees that concurrently with any merger, consolidation or
transfer of assets referred to in paragraph (a) of this Section 5.2, it will
cause any successor or transferee unconditionally to assume, by written
instrument delivered to Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a material breach of this Agreement and shall
entitle Executive to compensation and other benefits from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive's employment were terminated by the Company without Cause during the
six-month period following a Change in Control. For purposes of implementing
the foregoing, the date on which any such merger, consolidation or transfer
becomes effective shall be deemed the termination date.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is so
appointed, to Executive's estate.
Section 5.3 Notices.
(a) For purposes of this Agreement, all notices and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered or five days after deposit in the United States
mail, certified and return receipt requested, postage prepaid, addressed (i) if
to Executive, to Christopher C. Multhauf, 365 Iris, Highland Park, Illinois
60035, and if to the Company, to First Commonwealth, Inc., Suite 600, 444 North
Wells Street, Chicago, Illinois 60610, attention: Chairman of the Board of
Directors, with a copy to the Secretary, or (ii) to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
(b) A written notice by the Company or Executive, as the case may be, to
the other, asserting a breach of the terms of this Agreement or any other event
requiring the delivery of notice and providing a reasonable opportunity to cure,
shall (i) indicate the specific provision in this Agreement relied upon, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances being asserted and (iii) specify a date (which date shall be not
less than 15 days after the giving of such notice) by which the receiving party
must cure the deficiency specified in such notice.
<PAGE>
(c) A written notice of Executive's termination by the Company or
Executive, as the case may be, to the other, shall (i) indicate the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the termination date (which date shall be not
less than 15 days after the giving of such notice).
(d) The failure by Executive or the Company to set forth in any notice any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of Executive or the Company hereunder or preclude
Executive or the Company from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
Section 5.4 Full Settlement; Resolution of Disputes; Expenses.
(a) The Company's obligation to make any payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against Executive or others. In no event
shall Executive be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not Executive obtains other employment.
(b) If there shall be any dispute between the Company and Executive
regarding any payments to be made hereunder during the term hereof or in the
event of any termination of Executive's employment, then, unless and until there
is a final, nonappealable judgment by a court of competent jurisdiction
declaring that the Company is not obligated to pay any amount or provide any
benefit to Executive and his dependents or other beneficiaries, as the case may
be, under this Agreement, the Company shall pay all amounts, and provide all
benefits, to Executive and his dependents or other beneficiaries, as the case
may be, that the Company would be required to pay or provide pursuant to this
Agreement as if no dispute with respect to such payments existed; provided,
however, that the Company shall not be required to pay any disputed amounts
pursuant to this paragraph except upon receipt of an undertaking by or on behalf
of Executive to repay all such amounts to which Executive is ultimately adjudged
by such court not to be entitled.
(c) If any contest or dispute shall arise under this Agreement involving
termination of Executive's employment with the Company or involving the failure
or refusal of the Company to perform fully in accordance with the terms hereof,
the Company shall reimburse Executive, on a current basis, for all legal fees
and expenses, if any, incurred by Executive in connection with such contest or
dispute, together with interest in an amount equal to the prime rate of The
First National Bank of Chicago from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives Executive's statement for
such fees and expenses through the date of payment thereof; provided, however,
that in the event the resolution of any such contest or dispute includes a
finding denying, in total, Executive's claims in such contest or dispute,
Executive shall be
<PAGE>
required to reimburse the Company, for all sums advanced to Executive pursuant
to this Section 5.4(c) in connection with such contest or dispute, together with
interest in an amount equal to the corporate base rate of The First National
Bank of Chicago from time to time in effect, but in no event higher than the
maximum legal rate permissible under applicable law, such interest to accrue
from the date the Company made the payment to Executive through the date of
payment by Executive thereof.
Section 5.5 Governing Law; Validity. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to conflicts of laws principle. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which other provisions shall remain in
full force and effect.
Section 5.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
Section 5.7 Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by Executive or the Company to insist upon strict compliance with
any provision of this Agreement or to assert any right Executive or the Company
may have hereunder, including, without limitation, the right of Executive to
terminate employment for Good Reason or the right of the Company to terminate
Executive's employment for Cause, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The
rights of, and benefits payable to, Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, Executive, his estate or his beneficiaries under any other employee benefit
plan or compensation program of the Company.
ARTICLE VI
DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
6.1 "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2, as in effect on the effective date of this
Plan, under the Exchange Act; provided, however, that no director or officer of
the Company shall be deemed an Affiliate or Associate of any other director or
officer of the Company solely as a result of his or her being a director or
officer of the Company.
<PAGE>
6.2 "Beneficial Owner" (including the terms "Beneficially Own" and
"Beneficial Ownership"), when used with respect to any Person, shall be deemed
to include any securities which:
(a) such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly (determined as provided in Rule 13d-3,
as in effect on the effective date of this Plan, under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"));
(b) such Person or any of such Person's Affiliates or Associates, directly
or indirectly, has:
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time or upon the satisfaction of any
conditions, or both) pursuant to any written or oral agreement, arrangement or
understanding (other than customary agreements with and among underwriters and
selling group members with respect to a bona fide public offering of
securities), upon the exercise of any options, warrants, rights or conversion or
exchange privileges or otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or
(ii) the right to vote pursuant to any written or oral agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own, any security otherwise
subject to this item (B) if such agreement, arrangement or understanding to vote
(1) arises solely from a revocable proxy or consent given to such Person or any
of such Person's Affiliates or Associates in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Exchange Act and (2) is not also then reportable
by such Person on Schedule 13D (or any comparable or successor report then in
effect) under the Exchange Act; or
(iii) the right to dispose of pursuant to any written or oral
agreement, arrangement or understanding (other than customary agreements with
and among underwriters and selling group members with respect to a bona fide
public offering of securities); or
(c) are beneficially owned, directly or indirectly, by any other Person
with which such Person or any of such Person's Affiliates or Associates has any
written or oral agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members with respect to
a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to item (ii)
of subparagraph (b) of the first paragraph of this definition) or disposing of
any securities of the Company.
Notwithstanding the first paragraph of this definition, no director or
officer of the Company shall be deemed to be the "Beneficial Owner" of, or to
"Beneficially Own," shares of Common Stock or other securities of the Company
beneficially owned by any other director or
<PAGE>
officer of the Company solely as a result of his or her being a director or
officer of the Company.
6.3 "Board" means the Board of Directors of the Company.
6.4 "Cause" means embezzlement or misappropriation of corporate funds,
other act of dishonesty, significant activities harmful to the reputation of the
Company, willful refusal to perform or substantial disregard of the duties
properly assigned pursuant to Article II of this Agreement (subject to notice
and reasonable opportunity to cure) or significant violation of any statutory or
common law duty of loyalty to the Company (including any material breach by
Executive of Article IV of this Agreement).
6.5 "Change in Control" means:
(a) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of Beneficial
Ownership of 50% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (A) any acquisition directly
from the Company (excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was acquired directly from the Company), (B)
any acquisition by the Company, (C) any acquisition by an employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by an Exempt Person or (E) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 6.5); provided
further, that for purposes of clause (ii), if any Person (other than an Exempt
Person, the Company or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company) shall
become the Beneficial Owner of 50% or more of the Outstanding Company Common
Stock or 50% or more of the Outstanding Company Voting Securities by reason of
an acquisition by the Company, and such Person shall, after such acquisition by
the Company, become the Beneficial Owner of any additional shares of the
Outstanding Company Common Stock or any additional Outstanding Company Voting
Securities and such Beneficial Ownership is publicly announced, such additional
Beneficial Ownership shall constitute a Change in Control;
(b) individuals who, as of the effective date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided that any individual who becomes a director of the
Company subsequent to the effective date hereof whose election, or nomination
for election by the Company's stockholders, was approved by the vote of at least
a majority of the directors then comprising the Incumbent Board shall be deemed
a member of the Incumbent Board; and provided further, that any individual who
was initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on
<PAGE>
behalf of any Person other than the Board shall not be deemed a member of the
Incumbent Board;
(c) approval by the stockholders of the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Corporate Transaction"); excluding, however, a
Corporate Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the Beneficial Owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will Beneficially Own, directly
or indirectly, more than 50% of, respectively, the outstanding shares of common
stock, and the combined voting power of the outstanding securities of such
corporation entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
indirectly) in substantially the same proportions relative to each other as
their Beneficial Ownership, immediately prior to such Corporate Transaction, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (other than an Exempt Person; the
Company; any employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company; the corporation
resulting from such Corporate Transaction; and any Person which Beneficially
Owned, immediately prior to such Corporate Transaction, directly or indirectly,
50% or more of the Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) will Beneficially Own, directly or
indirectly, 50% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation entitled to vote
generally in the election of directors and (iii) individuals who were members of
the Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate Transaction;
or
(d) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
Notwithstanding anything to the contrary herein, no Change of Control shall
be deemed to have taken place as a result of the issuance of shares of Common
Stock by the Company or the sale of shares of Common Stock by its stockholders
in connection with the Company's initial public offering.
6.6 "Exempt Person" shall mean each of Christopher C. Multhauf and David
W. Mulligan and each Affiliate thereof.
6.7 "Good Reason" means, without Executive's express written consent, the
occurrence of any of the following events after a Change in Control:
(a) any of (i) the assignment to Executive of any duties inconsistent in
any material respect with Executive's position(s), duties, responsibilities or
status with the Company
<PAGE>
immediately prior to such Change in Control, (ii) a change in Executive's
reporting responsibilities, titles or offices with the Company as in effect
immediately prior to such Change in Control or (iii) any removal or involuntary
termination of Executive from the Company otherwise than as expressly permitted
by this Agreement or any failure to re-elect Executive to any position with the
Company held by Executive immediately prior to such Change in Control;
(b) a reduction by the Company in Executive's rate of annual base salary as
in effect immediately prior to such Change in Control or as the same may be
increased from time to time thereafter or the failure by the Company to increase
such rate of base salary after such Change in Control by an amount which at
least equals, on a percentage basis, the mean average percentage increase in the
rates of base salary for all officers (within the meaning of Rule 3b-2
promulgated under the Exchange Act) of the Company during the two full fiscal
years of the Company immediately preceding such Change in Control;
(c) any requirement of the Company that Executive (i) be based anywhere
other than at the facility where Executive is located at the time of the Change
in Control or (ii) travel on Company business to an extent substantially more
burdensome than the travel obligations of Executive immediately prior to such
Change in Control;
(d) the failure of the Company to (i) continue in effect any employee
benefit plan or compensation plan in which Executive is participating
immediately prior to such Change in Control, unless Executive is permitted to
participate in other plans providing Executive with substantially comparable
benefits, or the taking of any action by the Company which would adversely
affect Executive's participation in or materially reduce Executive's benefits
under any such plan, (ii) provide Executive and Executive's dependents welfare
benefits (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such Change in
Control or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies, (iii) provide fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such Change in
Control or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies, (iv) provide an office or offices of a size and with
furnishings and other appointments, together with exclusive personal secretarial
and other assistance, at least equal to the most favorable of the foregoing
provided to Executive by the Company and its affiliated companies immediately
prior to such Change in Control or, if more favorable to Executive, as provided
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies, (v) provide Executive with paid vacation
in accordance with the most favorable plans, policies, programs and practices of
the Company and its affiliated companies as in effect for Executive immediately
prior to such Change in Control or, if more favorable to Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies, or (vi) reimburse Executive promptly for
all reasonable employment expenses incurred by Executive in accordance
<PAGE>
with the most favorable policies, practices and procedures of the Company and
its affiliated companies in effect for Executive immediately prior to such
Change in Control, or if more favorable to Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies;
(e) the failure of the Company to obtain the assumption agreement from any
successor as contemplated in Section 5.2; or
(f) a material breach by the Company of any of the terms of this Agreement.
For purposes of this Agreement, any good faith determination of Good Reason
made by Executive shall be conclusive; provided, however, that an isolated,
insubstantial and inadvertent action taken in good faith and which is remedied
by the Company promptly after receipt of notice thereof given by Executive shall
not constitute Good Reason.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officer and Executive has signed this Agreement as of the
day and year first above written.
FIRST COMMONWEALTH, INC.
By: /s/ David W. Mulligan
---------------------
David W. Mulligan
President
EMPLOYEE
By: /s/ Christopher C. Multhauf
---------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
<PAGE>
Exhibit 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of February 12, 1999
between David W.Mulligan("Executive") and First Commonwealth, Inc., a Delaware
corporation (the "Company"), with its principal office at Suite 600, 444 North
Wells Street, Chicago, Illinois 60610.
WHEREAS, the Company and Employee are parties to an Employment Agreement
dated September 21, 1995; and
WHEREAS, the Company and Employee desire to amend and restate such
Employment Agreement on the terms and subject to the conditions contained
herein;
NOW, THEREFORE, in consideration of the agreements and covenants contained
herein, Executive and the Company hereby agree as follows:
ARTICLE I
EMPLOYMENT
Section 1.1 Position; Term; Responsibilities. The Company hereby employs
Executive as its President and Chief Operating Officer until this Agreement is
terminated as herein provided, subject to all the covenants and conditions
hereinafter set forth. Subject to the powers, authorities and responsibilities
vested in the Board under the General Corporation Law of the State of Delaware,
and in duly constituted committees of the Board, and in the Chairman and Chief
Executive Officer of the Company, Executive shall have the responsibility and
authority for the formulation and execution of the policies relating to the
affairs of the Company and the administration of the Company's operations.
Executive shall hold the title of President and Chief Operating Officer or such
other or additional title as is not inconsistent with the aforementioned
responsibilities. Executive shall also perform such other executive and
administrative duties for the Company and its subsidiaries (not inconsistent
with the position of the Company's President and Chief Operating Officer) as
Executive may reasonably be expected to be capable of performing on behalf of
the Company, as may from time to time be authorized or directed by the Board.
Executive agrees to be employed by the Company and its subsidiaries in all such
capacities until this Agreement is terminated as herein provided, subject to all
the covenants and conditions hereinafter set forth.
Section 1.2 Duties. During the term of this Agreement, Executive shall
perform faithfully the duties assigned to him hereunder to the best of his
abilities and devote his full and undivided business time and attention to the
transaction of the Company's business and not engage in any other business
activities except with the approval of the Board.
Section 1.3 Place of Performance. Executive's duties hereunder shall be
performed in the Chicago metropolitan area and Executive shall not be required
to relocate his principal
<PAGE>
residence outside of the Chicago metropolitan area.
Section 1.4 Board of Directors of the Company. During the term of the
Executive's employment herunder, the Company will take all reasonable efforts to
cause the Executive to be elected to the Board of Directors of the Company.
ARTICLE II
COMPENSATION
Section 2.1 Basic Compensation. As compensation for his services
hereunder, the Company shall pay to Executive during the term of this Agreement
a minimum annual salary of $155,000 (the "Base Salary"), payable in installments
in accordance with the Company's normal payment schedule for senior management
and executive officers of the Company. On each anniversary of the date hereof
during the term of this Agreement, the Board of Directors or the Compensation
Committee shall review the Base Salary and may increase (but not decrease) the
Base Salary, in its discretion. Executive's annual salary in effect from time
to time under this Section 2.1 is hereinafter called his "Basic Compensation."
Section 2.2 Performance Bonus. In addition to his Basic Compensation,
the Company shall pay to Executive a performance bonus ("Performance Bonus"), in
respect of each fiscal year of the Company during the term of this Agreement, an
amount determined in accordance with the performance bonus plan which is
provided to senior management and executive officers of the Company, and which
shall be similar in structure to the Company's current Management Bonus Plan.
Section 2.3 Other Employee Benefits. Executive shall be entitled to
participate in all employee benefit plans, including group health care plans, to
take time off for vacation or illness in accordance with the Company's policy
for senior management and executive officers, and to receive all other fringe
benefits as are from time to time made generally available to the senior
management and executive officers of the Company; provided, however, that
notwithstanding any contrary policy, Executive shall be entitled to six weeks of
vacation on an annual basis. The Company shall pay to Executive a minimum
annual car allowance of $4,800, payable in accordance with the Company's normal
payment schedule.
Section 2.4 Expense Reimbursements. The Company shall reimburse
Executive for all proper expenses incurred by him in the performance of his
duties hereunder in accordance with the policies and procedures established by
the Board.
<PAGE>
ARTICLE III
TERMINATION OF EMPLOYMENT
Section 3.1 Termination.
(a) Executive and the Company acknowledge that, except as may be provided
under applicable law, this Agreement or any other agreement between Executive
and the Company, the employment of Executive by the Company is "at will" and,
prior to the effective date of a Change in Control, may be terminated by either
Executive or the Company at any time, subject to applicable law. In the event
of a Change in Control, neither the Company nor Executive shall terminate
Executive's employment for a period of six months following the effective date
of the Change in Control, except for Cause by the Company or Good Reason by
Executive. Upon termination of Executive's employment, there shall be no
further rights or obligations under this Agreement except as expressly provided
herein.
(b) In the event of (i) termination of employment of Executive by the
Company without Cause, (ii) termination of employment by Executive due to a
material breach of the terms of this Agreement by the Company (following notice
from Executive and after a reasonable opportunity to cure such breach), (iii)
death of Executive during the term of this Agreement, (iv) termination of
executive in the event of Long-term Disability (as defined below) of Executive
(v) termination of employment by Executive or the Company for any reason (other
than Cause) following the expiration of six months after the effective date of a
Change in Control or (vi) termination of employment by Executive with Good
Reason (following notice from Executive and after a reasonable opportunity to
cure by the Company) during the six month period following a Change in Control,
Executive (or his beneficiaries or estate in the event of Death) shall be
entitled to receive all compensation provided herein under Sections 2.1, 2.2.
and 2.3 and reimbursement for his expenses under Section 2.4 to the date of such
termination, plus compensation equal to two full year's Basic Compensation, as
determined under Section 2.1, plus the product of two and the average of the
amount paid to Executive as a Performance Bonus under Section 2.2 for the two
fiscal years of the Company immediately preceding such termination, and shall be
entitled to continue participation in all other employee benefits under Section
2.3 for a period of two years following such termination. Any amount payable or
benefit to be provided pursuant to the foregoing sentence shall be paid or
provided in accordance with the Company's procedures for senior management and
executive officers and as if Executive's employment by the Company had continued
for one complete year after the date of termination; provided, however, that in
the event that such payments are made due to long-term disability, such payments
shall be reduced by the amount of payments made to the Executive for the same
period pursuant to the Company's long-term disability plan.
(c) In the event the Board terminates the employment of Executive for
Cause, or in the event of voluntary termination of Executive prior to a Change
in Control or without Good Reason during the six-month period following a Change
in Control, Executive shall be entitled to receive all compensation provided
herein under Sections 2.1, 2.2. and 2.3 and reimbursement for his expenses under
Section 2.4 to the date of termination, and all other rights and obligations of
the parties hereunder shall terminate, except as provided in Article IV and
Section 5.4.
<PAGE>
Section 3.2 Incapacity. If at any time during the term of this
Agreement Executive is unable to substantially perform his duties hereunder by
reason of illness, accident or other disability ("Disability"), he shall be
entitled to receive his Basic Compensation, Performance Bonus and other employee
benefits to which he would be entitled under Sections 2.1, 2.2 and 2.3 for a
minimum period of six months. To determine the amount of Performance Bonus which
the Executive shall be entitled to receive during such period, the Board shall
prorate the average of the amount paid to Executive as a Performance Bonus under
Section 2.2 for the two fiscal years of the Company immediately preceding such
disability. In the event the Executive's Disability continues for a period of
six months or more ("Long-term Disability"), the Company may (i) continue to
employ the Executive, in which case the Executive will continue to be entitled
to receive his Basic Compensation, Performance Bonus and other employee benefits
to which he would be entitled under Sections 2.1, 2.2 and 2.3 until the
Executive's employment is terminated hereunder or (ii) terminate Executive's
employment at any time, in which case Executive shall be entitled to receive
all compensation provided herein under Sections 2.1, 2.2. and 2.3 to the date of
such termination, plus compensation equal to one full year's Basic Compensation,
as determined under Section 2.1, plus the average of the amount paid to
Executive as a Performance Bonus under Section 2.2 for the two fiscal years of
the Company immediately preceding such termination, and shall be entitled to
continue participation in all other employee benefits under Section 2.3 for a
period of one year following such termination, pursuant to Section 3.1(a). To
determine the amount of Performance Bonus which Executive shall be entitled to
receive during any period of incapacity, the Board shall prorate such benefit by
multiplying the average of the Performance Bonus paid to Executive for the
immediately preceding two fiscal years by a fraction, the denominator of which
is the number of days of incapacity and the denominator of which is 365.
ARTICLE IV
NONCOMPETITION; CONFIDENTIAL INFORMATION
Section 4.1 Noncompetition. During the term of this Agreement and, in
the event of termination for Cause or voluntary termination by Executive prior
to a Change in Control or for Good Reason during the six-month period following
a Change in Control), for a period of two years thereafter, except with the
prior written consent of the Board, Executive:
(a) shall not engage in any activities whether as employer, proprietor,
partner, stockholder (other than the holder of less than 5% of the stock of a
corporation the securities of which are traded on a national securities exchange
or in the over-the-counter market), director, officer, employee or otherwise, in
competition with (i) the businesses conducted at the date hereof by the Company
or any of its subsidiaries or controlled affiliates (the "Companies"), or (ii)
any business in which the Companies are substantially engaged at any time during
the term of this Agreement;
(b) shall not solicit, in competition with the Companies, any person who is
a customer of the businesses conducted by the Companies at the date hereof or of
any business in which the Companies are substantially engaged at any time during
the term of this Agreement;
<PAGE>
and
(c) shall not induce or attempt to persuade any employee of the Companies
to termi nate his employment relationship in order to enter into competitive
employment.
Section 4.2 Trade Secrets. Executive shall not, at any time during the
term of this Agreement or thereafter, make use of any bidding information (or
computer programs thereof) of any of the Companies, nor divulge any trade
secrets or other confidential information of any of the Companies, except to the
extent that such information becomes a matter of public record, is published in
a newspaper, magazine or other periodical available to the general public or as
the Board may so authorize in writing; and when Executive shall cease to be
employed by the Company, Executive shall surrender to the Company all records
and other documents obtained by him or entrusted to him during the course of his
employment hereunder (together with all copies thereof) which pertain
specifically to any of the businesses covered by the covenants in Section 4.1 or
which were paid for by any of the Companies; provided, however, that Executive
may retain copies of such documents as necessary for Executive's personal
records for federal income tax purposes.
Section 4.3 Scope of Covenants; Remedies. The following provisions
shall apply to the covenants of Executive contained in Sections 4.1 and 4.2:
(a) the covenants contained in paragraphs (a) and (b) of Section 5. shall
apply within all territories in which any of the Companies are actively engaged
in the conduct of business during the term of this Agreement, including, without
limitation, the territories in which customers are then being solicited;
(b) without limiting the right of the Company to pursue all other legal and
equitable remedies available for violation by Executive of the covenants
contained in Sections 4.1 and 4.2, it is expressly agreed by Executive and the
Company that such other remedies cannot fully compensate the Company for any
such violation and that the Company shall be entitled to injunctive relief to
prevent any such violation or any continuing violation thereof;
(c) each party intends and agrees that if in any action before any court or
agency legally empowered to enforce the covenants contained in Sections 4.1 and
4.2 any term, restriction, covenant or promise contained therein is found to be
unreasonable and accordingly unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to make it
enforceable by such court or agency; and
(d) the covenants contained in Sections 4.1 and 4.2 shall survive the
conclusion of Executive's Employment by the Company.
<PAGE>
ARTICLE V
MISCELLANEOUS
Section 5.1 Headings. The Article, Section paragraph and subparagraph
headings are for convenience of reference only and shall not define or limit the
provisions hereof.
Section 5.2 Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or consolidation
of the Company whereby the Company is or is not the surviving or resulting
corporation or as a result of any transfer of all or substantially all of the
assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger, consolidation or
transfer of assets referred to in paragraph (a) of this Section 5.2, it will
cause any successor or transferee unconditionally to assume, by written
instrument delivered to Executive (or his beneficiary or estate), all of the
obligations of the Company hereunder. Failure of the Company to obtain such
assumption prior to the effectiveness of any such merger, consolidation or
transfer of assets shall be a material breach of this Agreement and shall
entitle Executive to compensation and other benefits from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive's employment were terminated by the Company without Cause during the
six-month period following a Change in Control. For purposes of implementing
the foregoing, the date on which any such merger, consolidation or transfer
becomes effective shall be deemed the termination date.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is so
appointed, to Executive's estate.
Section 5.3 Notices.
(a) For purposes of this Agreement, all notices and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered or five days after deposit in the United States
mail, certified and return receipt requested, postage prepaid, addressed (i) if
to Executive, to Christopher C. Multhauf, 365 Iris, Highland Park, Illinois
60035, and if to the Company, to First Commonwealth, Inc., Suite 600, 444 North
Wells Street, Chicago, Illinois 60610, attention: Chairman of the Board of
Directors, with a copy to the Secretary, or (ii) to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be
<PAGE>
effective only upon receipt.
(b) A written notice by the Company or Executive, as the case may be, to
the other, asserting a breach of the terms of this Agreement or any other event
requiring the delivery of notice and providing a reasonable opportunity to cure,
shall (i) indicate the specific provision in this Agreement relied upon, (ii) to
the extent applicable, set forth in reasonable detail the facts and
circumstances being asserted and (iii) specify a date (which date shall be not
less than 15 days after the giving of such notice) by which the receiving party
must cure the deficiency specified in such notice.
(c) A written notice of Executive's termination by the Company or
Executive, as the case may be, to the other, shall (i) indicate the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated and (iii) specify the termination date (which date shall be not
less than 15 days after the giving of such notice).
(d) The failure by Executive or the Company to set forth in any notice any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of Executive or the Company hereunder or preclude
Executive or the Company from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
Section 5.4 Full Settlement; Resolution of Disputes; Expenses.
(a) The Company's obligation to make any payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against Executive or others. In no event
shall Executive be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to Executive under any of the
provisions of this Agreement and, such amounts shall not be reduced whether or
not Executive obtains other employment.
(b) If there shall be any dispute between the Company and Executive
regarding any payments to be made hereunder during the term hereof or in the
event of any termination of Executive's employment, then, unless and until there
is a final, nonappealable judgment by a court of competent jurisdiction
declaring that the Company is not obligated to pay any amount or provide any
benefit to Executive and his dependents or other beneficiaries, as the case may
be, under this Agreement, the Company shall pay all amounts, and provide all
benefits, to Executive and his dependents or other beneficiaries, as the case
may be, that the Company would be required to pay or provide pursuant to this
Agreement as if no dispute with respect to such payments existed; provided,
however, that the Company shall not be required to pay any disputed amounts
pursuant to this paragraph except upon receipt of an undertaking by or on behalf
of Executive to repay all such amounts to which Executive is ultimately adjudged
by such court not to be entitled.
<PAGE>
(c) If any contest or dispute shall arise under this Agreement involving
termination of Executive's employment with the Company or involving the failure
or refusal of the Company to perform fully in accordance with the terms hereof,
the Company shall reimburse Executive, on a current basis, for all legal fees
and expenses, if any, incurred by Executive in connection with such contest or
dispute, together with interest in an amount equal to the prime rate of The
First National Bank of Chicago from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives Executive's statement for
such fees and expenses through the date of payment thereof; provided, however,
that in the event the resolution of any such contest or dispute includes a
finding denying, in total, Executive's claims in such contest or dispute,
Executive shall be required to reimburse the Company, for all sums advanced to
Executive pursuant to this Section 5.4(c) in connection with such contest or
dispute, together with interest in an amount equal to the corporate base rate of
The First National Bank of Chicago from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company made the payment to Executive
through the date of payment by Executive thereof.
Section 5.5 Governing Law; Validity. The interpretation, construction
and performance of this Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Illinois without
regard to conflicts of laws principle. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which other provisions shall remain in
full force and effect.
Section 5.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
Section 5.7 Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by Executive and by a duly authorized officer of the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. Failure by Executive or the Company to insist upon strict compliance with
any provision of this Agreement or to assert any right Executive or the Company
may have hereunder, including, without limitation, the right of Executive to
terminate employment for Good Reason or the right of the Company to terminate
Executive's employment for Cause, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement. The
rights of, and benefits payable to, Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits payable
to, Executive, his estate or his beneficiaries under any other employee benefit
plan or compensation program of the Company.
<PAGE>
ARTICLE VI
DEFINITIONS
As used in this Agreement, the following terms shall have the respective
meanings set forth below:
6.1 "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2, as in effect on the effective date of this
Plan, under the Exchange Act; provided, however, that no director or officer of
the Company shall be deemed an Affiliate or Associate of any other director or
officer of the Company solely as a result of his or her being a director or
officer of the Company.
6.2 "Beneficial Owner" (including the terms "Beneficially Own" and
"Beneficial Ownership"), when used with respect to any Person, shall be deemed
to include any securities which:
(a) such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly (determined as provided in Rule 13d-3,
as in effect on the effective date of this Plan, under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"));
(b) such Person or any of such Person's Affiliates or Associates, directly
or indirectly, has:
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time or upon the satisfaction of any
conditions, or both) pursuant to any written or oral agreement, arrangement or
understanding (other than customary agreements with and among underwriters and
selling group members with respect to a bona fide public offering of
securities), upon the exercise of any options, warrants, rights or conversion or
exchange privileges or otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or
(ii) the right to vote pursuant to any written or oral agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own, any security otherwise
subject to this item (B) if such agreement, arrangement or understanding to vote
(1) arises solely from a revocable proxy or consent given to such Person or any
of such Person's Affiliates or Associates in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations under the Exchange Act and (2) is not also then reportable
by such Person on Schedule 13D (or any comparable or successor report then in
effect) under the Exchange Act; or
(iii) the right to dispose of pursuant to any written or oral
agreement, arrangement or understanding (other than customary agreements with
and among underwriters and selling group members with respect to a bona fide
public offering of securities); or
<PAGE>
(c) are beneficially owned, directly or indirectly, by any other Person
with which such Person or any of such Person's Affiliates or Associates has any
written or oral agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members with respect to
a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to item (ii)
of subparagraph (b) of the first paragraph of this definition) or disposing of
any securities of the Company.
Notwithstanding the first paragraph of this definition, no director or
officer of the Company shall be deemed to be the "Beneficial Owner" of, or to
"Beneficially Own," shares of Common Stock or other securities of the Company
beneficially owned by any other director or officer of the Company solely as a
result of his or her being a director or officer of the Company.
6.3 "Board" means the Board of Directors of the Company.
6.4 "Cause" means embezzlement or misappropriation of corporate funds,
other act of dishonesty, significant activities harmful to the reputation of the
Company, willful refusal to perform or substantial disregard of the duties
properly assigned pursuant to Article II of this Agreement (subject to notice
and reasonable opportunity to cure) or significant violation of any statutory or
common law duty of loyalty to the Company (including any material breach by
Executive of Article IV of this Agreement).
6.5 "Change in Control" means:
(a) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of Beneficial
Ownership of 50% or more of either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of the then outstanding securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (A) any acquisition directly
from the Company (excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was acquired directly from the Company), (B)
any acquisition by the Company, (C) any acquisition by an employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (D) any acquisition by an Exempt Person or (E) any
acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 6.5); provided
further, that for purposes of clause (ii), if any Person (other than an Exempt
Person, the Company or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company) shall
become the Beneficial Owner of 50% or more of the Outstanding Company Common
Stock or 50% or more of the Outstanding Company Voting Securities by reason of
an acquisition by the Company, and such Person shall, after such acquisition by
the Company, become the Beneficial Owner of any additional shares of the
Outstanding Company Common Stock or any additional Outstanding Company Voting
Securities and such Beneficial Ownership is publicly
<PAGE>
announced, such additional Beneficial Ownership shall constitute a Change in
Control;
(b) individuals who, as of the effective date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of such Board; provided that any individual who becomes a director of the
Company subsequent to the effective date hereof whose election, or nomination
for election by the Company's stockholders, was approved by the vote of at least
a majority of the directors then comprising the Incumbent Board shall be deemed
a member of the Incumbent Board; and provided further, that any individual who
was initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act, or any other actual or threatened
solicitation of proxies or consents by or on behalf of any Person other than the
Board shall not be deemed a member of the Incumbent Board;
(c) approval by the stockholders of the Company of a reorganization, merger
or consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Corporate Transaction"); excluding, however, a
Corporate Transaction pursuant to which (i) all or substantially all of the
individuals or entities who are the Beneficial Owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will Beneficially Own, directly
or indirectly, more than 50% of, respectively, the outstanding shares of common
stock, and the combined voting power of the outstanding securities of such
corporation entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
indirectly) in substantially the same proportions relative to each other as
their Beneficial Ownership, immediately prior to such Corporate Transaction, of
the Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (other than an Exempt Person; the
Company; any employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company; the corporation
resulting from such Corporate Transaction; and any Person which Beneficially
Owned, immediately prior to such Corporate Transaction, directly or indirectly,
50% or more of the Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) will Beneficially Own, directly or
indirectly, 50% or more of, respectively, the outstanding shares of common stock
of the corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation entitled to vote
generally in the election of directors and (iii) individuals who were members of
the Incumbent Board will constitute at least a majority of the members of the
board of directors of the corporation resulting from such Corporate Transaction;
or
(d) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
Notwithstanding anything to the contrary herein, no Change of Control shall
be deemed to have taken place as a result of the issuance of shares of Common
Stock by the Company or the
<PAGE>
sale of shares of Common Stock by its stockholders in connection with the
Company's initial public offering.
6.6 "Exempt Person" shall mean each of Christopher C. Multhauf and David
W. Mulligan and each Affiliate thereof.
6.7 "Good Reason" means, without Executive's express written consent, the
occurrence of any of the following events after a Change in Control:
(a) any of (i) the assignment to Executive of any duties inconsistent in
any material respect with Executive's position(s), duties, responsibilities or
status with the Company immediately prior to such Change in Control, (ii) a
change in Executive's reporting responsibilities, titles or offices with the
Company as in effect immediately prior to such Change in Control or (iii) any
removal or involuntary termination of Executive from the Company otherwise than
as expressly permitted by this Agreement or any failure to re-elect Executive to
any position with the Company held by Executive immediately prior to such Change
in Control;
(b) a reduction by the Company in Executive's rate of annual base salary as
in effect immediately prior to such Change in Control or as the same may be
increased from time to time thereafter or the failure by the Company to increase
such rate of base salary after such Change in Control by an amount which at
least equals, on a percentage basis, the mean average percentage increase in the
rates of base salary for all officers (within the meaning of Rule 3b-2
promulgated under the Exchange Act) of the Company during the two full fiscal
years of the Company immediately preceding such Change in Control;
(c) any requirement of the Company that Executive (i) be based anywhere
other than at the facility where Executive is located at the time of the Change
in Control or (ii) travel on Company business to an extent substantially more
burdensome than the travel obligations of Executive immediately prior to such
Change in Control;
(d) the failure of the Company to (i) continue in effect any employee
benefit plan or compensation plan in which Executive is participating
immediately prior to such Change in Control, unless Executive is permitted to
participate in other plans providing Executive with substantially comparable
benefits, or the taking of any action by the Company which would adversely
affect Executive's participation in or materially reduce Executive's benefits
under any such plan, (ii) provide Executive and Executive's dependents welfare
benefits (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such Change in
Control or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies, (iii) provide fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for Executive immediately prior to such Change in
Control or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of the
<PAGE>
Company and its affiliated companies, (iv) provide an office or offices of a
size and with furnishings and other appointments, together with exclusive
personal secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to Executive by the Company and its affiliated
companies immediately prior to such Change in Control or, if more favorable to
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies, (v) provide
Executive with paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for Executive immediately prior to such Change in Control or, if more
favorable to Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies, or
(vi) reimburse Executive promptly for all reasonable employment expenses
incurred by Executive in accordance with the most favorable policies, practices
and procedures of the Company and its affiliated companies in effect for
Executive immediately prior to such Change in Control, or if more favorable to
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies;
(e) the failure of the Company to obtain the assumption agreement from any
successor as contemplated in Section 5.2; or
(f) a material breach by the Company of any of the terms of this Agreement.
For purposes of this Agreement, any good faith determination of Good Reason
made by Executive shall be conclusive; provided, however, that an isolated,
insubstantial and inadvertent action taken in good faith and which is remedied
by the Company promptly after receipt of notice thereof given by Executive shall
not constitute Good Reason.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its duly authorized officer and Executive has signed this Agreement as of the
day and year first above written.
FIRST COMMONWEALTH, INC.
By: /s/ Christopher C. Multhauf
---------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
EMPLOYEE
By: /s/ David W. Mulligan
---------------------
David W. Mulligan
President and Chief Operating Officer
<PAGE>
Exhibit 10.3
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and
entered into as of the 12th day of February, 1999, by and between First
Commonwealth, Inc., a Delaware corporation (the "Company"), and Greg D. Stobbe,
an individual resident of the State of Illinois ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Employee are parties to an Employment
Agreement dated March 1, 1991 and amended January 23, 1995 (the "Employment
Agreement"); and
WHEREAS, the Company and Employee desire to amend such Employment
Agreement on the terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Amendment, the receipt and sufficiency of which is
acknowledged by the parties, the parties agree as follows:
1. Paragraph 4 of Section 2 of the Agreement is hereby amended to
read in its entirety as follows:
"4. Termination Without Cause. This Agreement may be terminated by
the Company without "good cause," provided that, in such event, the Company
shall continue to pay the Employee his or her then current base salary for
a period of twelve (12) months following such termination as if the
Employee were continuing his/her duties and shall continue employee
benefits then in existence for a period of six (6) months following such
termination."
2. As of the date hereof, the amount of the Base Salary in Paragraph
1 of Section 3 is hereby amended to read "$115,000.08."
3. The first sentence of Paragraph 5 of Section 2 is hereby amended
and restated in its entirety as follows:
"Employee may terminate this Agreement upon sixty (60) days written
notice to Company."
4. Paragraph 3 of Section 5 is hereby amended and restated in its
entirety to read as follows:
<PAGE>
"3. Restrictive covenants. Employee recognizes that the Company's
entering into this Agreement is induced primarily because of the covenants and
assurances made by the Employee, that Employee's covenant not to compete is
necessary to insure the continuation of the business of the Company and its
Affiliates, and that irreparable harm and damage will be done to the Company and
its Affiliates in the event that Employee competes with the Company or its
Affiliates within the geographic area and the time periods described below.
Therefore, Employee agrees as follows:
a. During the term of this Agreement, Employee will not directly or
indirectly own, manage, operate, control, participate in the management or
control of, be employed by, lend his or her name to, or maintain or
continue any financial interest whatsoever in any business or enterprise
having to do with the provision, distribution, marketing, promotion, or
advertising of any services or products similar to those offered by the
Company within the United States or its territories and possessions.
b. For a period of twelve (12) months after the termination of this
Agreement, Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend
his or her name to, or maintain or continue any financial interest
whatsoever in any business or enterprise of the type and character engaged
in and competitive with that of the Company or any of its Affiliates within
any jurisdiction or marketing area in which the Company or any Affiliate is
doing business or is qualified to do business.
c. For a period of one year after the termination of this Agreement,
for any reason, Employee shall not persuade or attempt to persuade any
employee of the Company or its Affiliates, to leave the Company's or such
Affiliate's employ, or to become employed by any person, firm or
corporation other than the Company or such Affiliate.
d. For a period of one year after the termination of this Agreement,
Employee shall not persuade or attempt to persuade any client or
participating dentist providers to hire or affiliate with another company.
e. For a period of one year after the termination of this Agreement,
Employee shall not solicit for himself or herself or any person, firm or
corporation other than the Company or any of its Affiliates the business of
any company or dental provider which is a customer, client of, or party to
a contract with the Company or any of its Affiliates.
f. These restrictions against competition are considered by the
parties to be reasonable for the purposes of protecting the business of the
Company. It is the desire and intent of the parties to this Agreement that
the provisions of this Section 5.3 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. If any particular provision or portion of
this Section 5.3 shall be adjudicated to be invalid or unenforceable, this
Section shall be
<PAGE>
deemed amended to extend only over the maximum period of time, range of
activities, or geographic area as to which it may be enforceable, such
amendment to apply only with respect to the operation of such Section in
the particular jurisdiction in which such adjudication is made.
4. Remedies. The parties recognize that the performance of the
obligations under Sections 5.1, 5.2 and 5.3 by the Employee are special,
unique and extraordinary in character, and that in the event of the breach
by the Employee of the terms and conditions of Section 5.1, 5.2 and/or 5.3
to be performed, the Company shall be entitled, if it so elects, to
institute and prosecute proceedings in any court of competent jurisdiction,
either in law or in equity, to obtain damages for any breach of Section
5.1, 5.2 and/or 5.3 to enforce the specific performance thereof by such
Employee or to enjoin such Employee from performing services for such other
person, firm or corporation."
4. Except as specifically provided in this Amendment to the
Agreement, this Amendment shall not by implication or otherwise alter, modify,
amend or in any such way affect any of the terms, conditions, obligations,
covenants or agreements contained in the Agreement, all of which are ratified
and affirmed in all respects and shall continue in full force and effect. In
the event of any conflict between the terms of this Amendment and the Agreement,
the terms of this Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Agreement to be duly executed, all as of the date and year first above
written.
FIRST COMMONWEALTH, INC.
By: /s/ David W. Mulligan
---------------------
Name: David W. Mulligan
Title: President
EMPLOYEE
By: /s/ Gregory D. Stobbe
---------------------
Name: Gregory D. Stobbe
<PAGE>
Exhibit 10.4
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and entered
into as of the 12th day of February, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and Mark R. Lundberg, an
individual resident of the State of Illinois ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Employee are parties to an Employment Agreement
dated July 25, 1994 (the "Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend such Employment
Agreement on the terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Amendment, the receipt and sufficiency of which is
acknowledged by the parties, the parties agree as follows:
1. Paragraph 4 of Section 2 of the Agreement is hereby amended to read
in its entirety as follows:
"4. Termination Without Cause. This Agreement may be terminated by the
Company without "good cause," provided that, in such event, the Company shall
continue to pay the Employee his or her then current base salary for a period
of twelve (12) months following such termination as if the Employee were
continuing his/her duties and shall continue employee benefits then in
existence for a period of six (6) months following such termination."
2. As of the date hereof, the amount of the Base Salary in Paragraph 1
of Section 3 is hereby amended to read "$118,499.94."
3. The first sentence of Paragraph 5 of Section 2 is hereby amended and
restated in its entirety as follows:
"Employee may terminate this Agreement upon sixty (60) days written
notice to Company."
4. Paragraph 3 of Section 5 is hereby amended and restated in its
entirety to read as follows:
"3. Restrictive covenants. Employee recognizes that the Company's
entering into this Agreement is induced primarily because of the covenants and
assurances made by
<PAGE>
the Employee, that Employee's covenant not to compete is necessary to insure
the continuation of the business of the Company and its Affiliates, and that
irreparable harm and damage will be done to the Company and its Affiliates in
the event that Employee competes with the Company or its Affiliates within the
geographic area and the time periods described below. Therefore, Employee
agrees as follows:
a. During the term of this Agreement, Employee will not directly or
indirectly own, manage, operate, control, participate in the management or
control of, be employed by, lend his or her name to, or maintain or continue
any financial interest whatsoever in any business or enterprise having to do
with the provision, distribution, marketing, promotion, or advertising of any
services or products similar to those offered by the Company within the United
States or its territories and possessions.
b. For a period of twelve (12) months after the termination of this
Agreement, Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend his
or her name to, or maintain or continue any financial interest whatsoever in
any business or enterprise of the type and character engaged in and
competitive with that of the Company or any of its Affiliates within any
jurisdiction or marketing area in which the Company or any Affiliate is doing
business or is qualified to do business.
c. For a period of one year after the termination of this Agreement, for
any reason, Employee shall not persuade or attempt to persuade any employee of
the Company or its Affiliates, to leave the Company's or such Affiliate's
employ, or to become employed by any person, firm or corporation other than
the Company or such Affiliate.
d. For a period of one year after the termination of this Agreement,
Employee shall not persuade or attempt to persuade any client or participating
dentist providers to hire or affiliate with another company.
e. For a period of one year after the termination of this Agreement,
Employee shall not solicit for himself or herself or any person, firm or
corporation other than the Company or any of its Affiliates the business of
any company or dental provider which is a customer, client of, or party to a
contract with the Company or any of its Affiliates.
f. These restrictions against competition are considered by the parties
to be reasonable for the purposes of protecting the business of the Company.
It is the desire and intent of the parties to this Agreement that the
provisions of this Section 5.3 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provision or portion of this
Section 5.3 shall be adjudicated to be invalid or unenforceable, this Section
shall be deemed amended to extend only over the maximum period of time, range
of activities, or geographic area as to which it may be enforceable, such
amendment to apply only with respect to the operation of such Section in the
particular jurisdiction in which such adjudication is made.
<PAGE>
4. Remedies. The parties recognize that the performance of the
obligations under Sections 5.1, 5.2 and 5.3 by the Employee are special,
unique and extraordinary in character, and that in the event of the breach by
the Employee of the terms and conditions of Section 5.1, 5.2 and/or 5.3 to be
performed, the Company shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to obtain damages for any breach of Section 5.1, 5.2 and/or 5.3 to
enforce the specific performance thereof by such Employee or to enjoin such
Employee from performing services for such other person, firm or corporation."
4. Except as specifically provided in this Amendment to the Agreement,
this Amendment shall not by implication or otherwise alter, modify, amend or in
any such way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Agreement, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. In the event of any
conflict between the terms of this Amendment and the Agreement, the terms of
this Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed, all as of the date and year first above written.
FIRST COMMONWEALTH, INC.
By: /s/ David W. Mulligan
---------------------
Name: David W. Mulligan
Title: President
EMPLOYEE
By: /s/ Mark R. Lundberg
--------------------
Name: Mark R. Lundberg
<PAGE>
Exhibit 10.5
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and entered
into as of the 12th day of February, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and Scott B. Sanders, an
individual resident of the State of Illinois ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Employee are parties to an Employment Agreement
dated May 25, 1995 (the "Employment Agreement"); and
WHEREAS, the Company and Employee desire to amend such Employment
Agreement on the terms and subject to the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Amendment, the receipt and sufficiency of which is
acknowledged by the parties, the parties agree as follows:
1. Paragraph 4 of Section 2 of the Agreement is hereby amended to read
in its entirety as follows:
"4. Termination Without Cause. This Agreement may be terminated by the
Company without "good cause," provided that, in such event, the Company shall
continue to pay the Employee his or her then current base salary for a period
of twelve (12) months following such termination as if the Employee were
continuing his/her duties and shall continue employee benefits then in
existence for a period of six (6) months following such termination."
2. As of the date hereof, the amount of the Base Salary in Paragraph 1
of Section 3 is hereby amended to read "$119,999.88."
3. The first sentence of Paragraph 5 of Section 2 is hereby amended and
restated in its entirety as follows:
"Employee may terminate this Agreement upon sixty (60) days written
notice to Company."
4. Paragraph 3 of Section 4 is hereby amended and restated in its
entirety to read as follows:
"3. Restrictive covenants. Employee recognizes that the Company's
entering into this Agreement is induced primarily because of the covenants and
assurances made by
<PAGE>
the Employee, that Employee's covenant not to compete is necessary to insure
the continuation of the business of the Company and its Affiliates, and that
irreparable harm and damage will be done to the Company and its Affiliates in
the event that Employee competes with the Company or its Affiliates within the
geographic area and the time periods described below. Therefore, Employee
agrees as follows:
a. During the term of this Agreement, Employee will not directly or
indirectly own, manage, operate, control, participate in the management or
control of, be employed by, lend his or her name to, or maintain or continue
any financial interest whatsoever in any business or enterprise having to do
with the provision, distribution, marketing, promotion, or advertising of any
services or products similar to those offered by the Company within the United
States or its territories and possessions.
b. For a period of twelve (12) months after the termination of this
Agreement, Employee will not directly or indirectly own, manage, operate,
control, participate in the management or control of, be employed by, lend his
or her name to, or maintain or continue any financial interest whatsoever in
any business or enterprise of the type and character engaged in and
competitive with that of the Company or any of its Affiliates within any
jurisdiction or marketing area in which the Company or any Affiliate is doing
business or is qualified to do business.
c. For a period of one year after the termination of this Agreement, for
any reason, Employee shall not persuade or attempt to persuade any employee of
the Company or its Affiliates, to leave the Company's or such Affiliate's
employ, or to become employed by any person, firm or corporation other than
the Company or such Affiliate.
d. For a period of one year after the termination of this Agreement,
Employee shall not persuade or attempt to persuade any client or participating
dentist providers to hire or affiliate with another company.
e. For a period of one year after the termination of this Agreement,
Employee shall not solicit for himself or herself or any person, firm or
corporation other than the Company or any of its Affiliates the business of
any company or dental provider which is a customer, client of, or party to a
contract with the Company or any of its Affiliates.
f. These restrictions against competition are considered by the parties
to be reasonable for the purposes of protecting the business of the Company.
It is the desire and intent of the parties to this Agreement that the
provisions of this Section 5.3 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. If any particular provision or portion of this
Section 5.3 shall be adjudicated to be invalid or unenforceable, this Section
shall be deemed amended to extend only over the maximum period of time, range
of activities, or geographic area as to which it may be enforceable, such
amendment to apply only with respect to the operation of such Section in the
particular jurisdiction in which such adjudication is made.
<PAGE>
4. Remedies. The parties recognize that the performance of the
obligations under Sections 5.1, 5.2 and 5.3 by the Employee are special,
unique and extraordinary in character, and that in the event of the breach by
the Employee of the terms and conditions of Section 5.1, 5.2 and/or 5.3 to be
performed, the Company shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to obtain damages for any breach of Section 5.1, 5.2 and/or 5.3 to
enforce the specific performance thereof by such Employee or to enjoin such
Employee from performing services for such other person, firm or corporation."
4. Except as specifically provided in this Amendment to the Agreement,
this Amendment shall not by implication or otherwise alter, modify, amend or in
any such way affect any of the terms, conditions, obligations, covenants or
agreements contained in the Agreement, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. In the event of any
conflict between the terms of this Amendment and the Agreement, the terms of
this Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed, all as of the date and year first above written.
FIRST COMMONWEALTH, INC.
By: /s/ David W. Mulligan
---------------------
Name: David W. Mulligan
Title: President
EMPLOYEE
By: /s/ Scott B. Sanders
--------------------
Name: Scott B. Sanders
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF FIRST COMMONWEALTH, INC. AS OF MARCH 31,
1999, AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,388
<SECURITIES> 7,510
<RECEIVABLES> 4,097
<ALLOWANCES> 414
<INVENTORY> 0
<CURRENT-ASSETS> 25,589
<PP&E> 5,014
<DEPRECIATION> 3,238
<TOTAL-ASSETS> 40,607
<CURRENT-LIABILITIES> 11,396
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 29,011
<TOTAL-LIABILITY-AND-EQUITY> 40,607
<SALES> 0
<TOTAL-REVENUES> 16,738
<CGS> 0
<TOTAL-COSTS> 14,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,947
<INCOME-TAX> 735
<INCOME-CONTINUING> 1,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,212
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.32
</TABLE>
