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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
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SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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FIRST COMMONWEALTH, INC.
(Name of Subject Company)
FIRST COMMONWEALTH, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $.001 PAR VALUE, INCLUDING ASSOCIATED
PREFERRED STOCK PURCHASE RIGHTS
(Title of Class of Securities)
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319983102
(CUSIP Number of Class of Securities)
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CHRISTOPHER C. MULTHAUF
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
FIRST COMMONWEALTH, INC.
444 NORTH WELLS STREET, SUITE 600
CHICAGO, ILLINOIS 60610
(312) 644-1800
(Name, address, and telephone number of person authorized to receive notices and
communications
on behalf of the person(s) filing statement)
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With copies to:
THOMAS A. COLE AND ALFRED N. SACHA
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
(312) 853-7000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is First Commonwealth, Inc., a Delaware
corporation (the "Company"), and the address of its principal executive offices
is 444 North Wells Street, Suite 600, Chicago, Illinois 60610. The title of the
class of equity securities to which this statement relates is the Company's
Common Stock, $.001 par value per share, together with the associated preferred
stock purchase rights (collectively, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by Floss Acquisition Corp., a
Delaware corporation (the "Offeror") and a wholly owned subsidiary of The
Guardian Life Insurance Company of America, a New York corporation ("Parent"),
to purchase all of the outstanding Shares at $25.00 per Share, or any higher
price that may be paid for each Share pursuant to the Offer (as defined below)
(the "Offer Price"), net to the seller in cash without interest, upon the terms
and subject to the conditions set forth in the Offer to Purchase, dated May 25,
1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together with the Offer to Purchase and any amendments or supplements thereto
constitute the "Offer"). The Offer is disclosed in the Tender Offer Statement on
Schedule 14D-1 dated May 25, 1999 (the "Schedule 14D-1"), as filed by the
Offeror and Parent with the Securities and Exchange Commission (the
"Commission"). The Schedule 14D-1 states that the address of the principal
executive offices of the Offeror and the Parent is 201 Park Avenue South, New
York, New York 10003.
The Offer is being made pursuant to the terms of an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of May 19, 1999, among the Parent, the
Offeror and the Company, which provides that, following completion of the Offer,
the Offeror will be merged with and into the Company upon the terms and subject
to the conditions set forth in the Merger Agreement (the "Merger"). Certain
terms and conditions of the Merger Agreement are described below in Item 3. A
copy of the Merger Agreement is filed as an exhibit to this statement and is
incorporated herein by reference. A copy of the press release issued by the
Company and Parent on May 19, 1999 is filed as an exhibit to this Schedule 14D-9
and incorporated herein by reference.
In connection with the Merger Agreement, Parent entered into Stockholder
Agreements, dated May 19, 1999, with each of Christopher C. Multhauf, the
Chairman and Chief Executive Officer of the Company, and David W. Mulligan, the
President and Chief Operating Officer of the Company, pursuant to which each of
them has agreed to, among other things, tender his Shares pursuant to the Offer
and vote his Shares in favor of approval of the Merger Agreement and against
certain other matters. See "Item 3--Stockholder Agreements" below.
The purpose of the Offer, the Merger, the Merger Agreement, the Stockholder
Agreements and the transactions contemplated thereby is to enable Parent to
acquire control of, and the entire equity interest in, the Company. The Offer is
intended to increase the likelihood that such acquisition will be effected and
to permit Parent to acquire control of the Company at the earliest practicable
date. The purpose of the Merger is to permit Parent to acquire all outstanding
Shares not tendered and purchased pursuant to the Merger Agreement.
The Offer is subject to a number of conditions as set forth in the
accompanying Offer to Purchase.
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ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above, which information is
incorporated herein by reference.
(b) Except as described below in this Item 3(b) or incorporated by reference
herein, to the knowledge of the Company, as of the date hereof, there
exists no material contract, agreement, arrangement or understanding and
no actual or potential conflict of interest between the Company or its
affiliates and (i) the Company's executive officers, directors or
affiliates or (ii) Parent, Offeror or their respective executive
officers, directors or affiliates.
AGREEMENTS BETWEEN THE COMPANY AND ITS DIRECTORS AND OFFICERS.
Certain contracts, agreements, arrangements and understandings between the
Company and certain of its directors and executive officers are described in the
Company's Information Statement pursuant to Section 14(f) of the Securities
Exchange Act of 1934 in Annex B hereto. The sections entitled "Current
Directors--Compensation of Directors," "Executive Compensation and Other
Information" and "Security Ownership of Certain Beneficial Owners and
Management" are incorporated herein by reference.
On February 8, 1999, the Board of Directors authorized the Compensation
Committee of the Board of Directors to award incentive/stay bonuses to executive
officers in connection with the possible sale or merger of the Company. Pursuant
to such authority, on February 24, 1999, the Compensation Committee approved
incentive/stay bonus payments of up to an aggregate of $750,000 to Christopher
C. Multhauf, David W. Mulligan and Scott B. Sanders, the Chief Financial Officer
and Treasurer of the Company. In connection therewith, on May 14, 1999, the
Company entered into Incentive/Stay Bonus Agreements with each of Messrs.
Multhauf, Mulligan and Sanders. Pursuant to these agreements, each of the
aforementioned individuals will be entitled to a bonus as a result of
consummation of the Offer. The actual amount of the bonuses payable pursuant to
such agreements is related to the Offer Price per Share. Under such agreements,
if the Offer Price per Share is below $18.00 per Share, no bonus would be
payable. The agreements provide that if the Offer Price is between $18.00 and
$24.00 per Share, the amount of incentive bonus payments would be pro-rated
based on a range specified in the Incentive/Stay Bonus Agreements and, if the
Offer Price per Share is over $24.00 per Share, the maximum aggregate bonuses of
$750,000 would be payable pursuant to such agreements. Since the Offer Price of
$25.00 per Share is in excess of $24.00 per Share, the maximum aggregate bonuses
of $750,000 will be payable pursuant to such agreements. Under the
Incentive/Stay Bonus Agreements, fifty percent of such bonus will be payable to
the recipient upon the consummation of the Offer and the remainder of such bonus
will be payable 120 days thereafter, unless (i) the individual ceases to be
employed by the Company under circumstances pursuant to which such individual is
entitled to a severance payment under his employment agreement with the Company,
in which case, the remainder of his bonus is payable upon such event, or (ii)
the individual ceases to be employed by the Company under circumstances pursuant
to which such individual is not entitled to a severance payment under his
employment agreement with the Company, in which case no further bonus payment
shall be payable. Assuming that the Offer is consummated and all other
conditions to the payment of such bonuses are satisfied, based on the Offer
Price of $25.00 per Share, Messrs. Multhauf and Mulligan will each receive an
aggregate bonus of $325,000 and Mr. Sanders will receive an aggregate bonus of
$100,000, for a total of $750,000. This summary is qualified in its entirety by
reference to the Incentive/Stay Bonus Agreements which are filed as exhibits to
this Schedule 14D-9 and are incorporated herein by reference.
On February 8, 1999, pursuant to the authority of the Board of Directors,
the Compensation Committee of the Board of Directors authorized the Chairman
and/or President of the Company to approve special payments of up to $200,000 in
the aggregate to approximately 30 key employees (other
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than Messrs. Multhauf, Mulligan and Sanders) as a transitional/stay bonus, to be
paid 120 days following the occurrence of a change in control. The purchase by
the Offeror of a majority of the outstanding Shares pursuant to the Offer will
constitute a "change in control" for purposes of such special payments.
Messrs. Multhauf and Mulligan have employment agreements with the Company.
On February 8, 1999, pursuant to the authorization of the Board of Directors,
the Compensation Committee of the Board of Directors approved an amendment to
the employment agreements of each of Messrs. Multhauf and Mulligan. In
connection therewith, on February 12, 1999, the employment agreements of Messrs.
Multhauf and Mulligan were amended and restated. Pursuant to these amendments,
the base salaries reflected in such agreements were increased to reflect current
salary levels. The base salaries were increased: (i) from $135,000 to $160,000
for Mr. Multhuaf; and (ii) from $130,000 to $155,000 for Mr. Mulligan. Also,
such employment agreements were amended to increase the severance period for
continuation of base salary, bonus and benefits from one to two years and to
increase the period of their respective non-competition and confidentiality
agreements from one to two years. As amended and restated, the employment
agreement of each of Messrs. Multhauf and Mulligan provides for continuation of
base salary, bonus and benefits for two years in the event of (i) termination by
the Company without cause, (ii) breach by the Company, (iii) death, (iv)
long-term disability or (v) termination of employment for any reason at the end
of the six-month period following a change in control of the Company, or during
such six month period if the executive (a) resigns for good reason, such as
diminution of responsibility or reduction of benefits, or (b) is terminated by
the Company without cause. The purchase by the Offeror of a majority of the
outstanding Shares pursuant to the Offer will constitute a "change in control"
for purposes of the employment agreements of Messrs. Multhauf and Mulligan.
Assuming that the Offer and the Merger are consummated and that such officers
are terminated by the Company under circumstances pursuant to which they are
entitled to severance payments pursuant to such employment agreements, they
would receive in the aggregate approximately $830,000, in addition to
continuation of employee benefits. On May 14, 1999, the employment agreements
with Messrs. Multhauf and Mulligan were further amended to provide that payments
to such persons may be reduced in the event such payments result in "excess
parachute payments" under the Internal Revenue Code. This summary is qualified
in its entirety by reference to the Amended and Restated Employment Agreements,
as amended, which are filed as exhibits to this Schedule 14D-9 and incorporated
herein by reference.
Messrs. Gregory Stobbe, Senior Vice President--Operations of the Company,
Mark R. Lundberg, Vice President--Sales of the Company, and Scott B. Sanders
also have employment agreements with the Company. On February 8, 1999, pursuant
to the authorization of the Board of Directors, the Compensation Committee of
the Board of Directors approved amendments to the employment agreements of each
of Messrs. Stobbe, Lundberg and Sanders. In connection therewith, on February
12, 1999, the employment agreements of Messrs. Stobbe, Lundberg and Sanders were
amended. Pursuant to these amendments, the base salaries reflected in such
agreements were increased to reflect current salary levels. The base salaries
were increased: (i) from $84,000 to $115,000 for Mr. Stobbe; (ii) from $104,500
to $118,500 for Mr. Lundberg; and (iii) from $92,000 to $120,000 for Mr.
Sanders. Also, each of the employment agreements of Messrs. Stobbe, Lundberg and
Sanders was amended to, among other things, eliminate a requirement by the
Company to provide a six-month notice of termination and, in lieu thereof, to
provide such executive with a severance arrangement that includes continuation
of base salary for one year in the event of his termination without cause by the
Company. Assuming that the Offer and the Merger are consummated and that all of
the aforementioned officers are terminated by the Company under circumstances
pursuant to which they are entitled to severance payments pursuant to such
employment agreements, they would receive in the aggregate approximately
$353,500.
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In addition to the executive officers discussed above, approximately 30
employees have employment agreements with the Company. In the event of certain
terminations following a change in control, such employees are entitled to the
greater of (i) two weeks of severance pay for every one year of service to the
Company under the Company's Severance Policy (discussed below) or (ii) such
severance as may be specified in the employee's employment contract. The
purchase by the Offeror of a majority of the outstanding Shares pursuant to the
Offer will constitute a "change in control" for such purposes. Assuming that the
Offer and the Merger are consummated and that all of the aforementioned
employees are terminated by the Company under circumstances pursuant to which
they are entitle to severance payments, they would receive in the aggregate
approximately $729,500.
On February 12, 1999, the Company approved an amendment to the Company's
Employee Severance Policy (as amended, the "Severance Policy"). The Severance
Policy applies to any reduction in force terminations whether or not such
reduction in force is related to a change in control in the Company's ownership.
The Severance Policy also covers any of the following events if they occur
within two years following a "change in control" (as such term is defined in the
Severance Policy): (i) termination as a result of the elimination of an
employee's position, (ii) relocation outside the metropolitan area (over 60
miles) in which an employee resides or (iii) an involuntary reduction in base
salary of ten percent (10%) or more. For those employees who do not have
employment agreements with the Company, upon the occurrence of any of the
foregoing within two years following a change in control, such individuals are
each eligible for two weeks of severance pay for every one year of service to
the Company, with the minimum severance payment being two weeks and the maximum
severance amount being 26 weeks. Severance payments are based on such employees'
actual current salary only. The purchase by the Offeror of a majority of the
outstanding Shares pursuant to the Offer will constitute a "change in control"
for purposes of the Severance Policy. Assuming that the Offer and the Merger are
consummated and that all of the eligible employees covered by the Severance
Policy are terminated on such date, eligible employees (not including employees
covered by an employment agreement as discussed above) would receive in the
aggregate approximately $280,000. This summary is qualified in its entirety by
reference to the Severance Policy which is filed as an exhibit to this Schedule
14D-9 and incorporated herein by reference.
In the event of a "change of control" pursuant to the terms of each of the
Company's 1995 Long-Term Incentive Plan and 1987 Statutory-Nonstatutory Stock
Option Plan (the "Stock Option Plans"), all outstanding stock options granted
thereunder, whether or not then fully exercisable or vested, to purchase Shares
(a "Stock Option") heretofore granted under the Stock Option Plans shall become
fully exercisable and vested, and, pursuant to the terms of the Stock Option
Plans, the Stock Options shall be canceled by the Company, and the holders
thereof shall receive a cash payment from the Company in an amount (if any)
equal to the number of Shares subject to such option multiplied by the
difference (if positive) between the exercise price per Share covered by the
option and the highest per share price offered to stockholders of the Company in
the Offer. The purchase by the Offeror of a majority of the outstanding Shares
pursuant to the Offer will constitute a "change in control" for purposes of the
Stock Option Plans. Assuming that the Offer and Merger are consummated, the
aggregate amount payable to employees to cancel all options under the Stock
Option Plans will be approximately $4.4 million.
In connection with the Merger Agreement, Guardian and each of Messrs.
Multhauf and Mulligan have entered into a non-binding letter agreement relating
to the possible terms of employment of Messrs. Multhauf and Mulligan following
the consummation of the Merger. Pursuant to such letter agreements, the existing
Amended and Restated Employment Agreements, as amended, between the Company and
each of Messrs. Multhauf and Mulligan discussed above would be replaced with new
agreements. The new agreements would provide for an annual salary of $225,000 to
each of Messrs. Multhauf and Mulligan, with an annual bonus of up to 100% of
annual salary based on performance (with the first year annual bonus guaranteed
at 100% of annual salary). In addition,
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long-term compensation (which would vest over five years) of up to 100% of the
annual salary (or more based on exceptional performance) could be earned by each
of such officers. The Board of Directors of the Company was advised of these
proposed arrangements prior to its approval of the Merger Agreement. This
summary is qualified in its entirety by reference to such letter agreements
which are filed as exhibits to this Schedule 14D-9 and incorporated herein by
reference.
MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement
which is incorporated herein by reference and a copy of which has been filed
with the Securities and Exchange Commission (the "Commission") as an exhibit to
the Schedule 14D-9. The Merger Agreement may be inspected at, and copies may be
obtained from, the same places and in the manner set forth in Section
7--"Certain Information Concerning the Company" of the Offeror's Offer to
Purchase, which is enclosed with this Schedule 14D-9.
THE OFFER. The Merger Agreement provides that the Offeror will commence the
Offer and that the obligation of the Offeror to consummate the Offer and to
accept for payment and to pay for any Shares tendered pursuant to the Offer
shall be subject to only those conditions set forth herein, which are described
in Section 14--"Conditions of the Offer" in the enclosed Offer to Purchase. The
Offeror may waive any of the conditions set forth in Section 14--"Conditions of
the Offer" of the Offer to Purchase in its sole discretion; PROVIDED, that,
without the prior written consent of the Company, the Offeror shall not (i)
waive the Minimum Condition, as defined in the Offer to Purchase, (ii) reduce
the number of Shares subject to the Offer, (iii) reduce the Offer Price, (iv)
extend the Offer if all of the Offer conditions are satisfied or waived, (v)
change the form of consideration payable in the Offer, or (vi) amend, add or
waive any term or condition of the Offer in any manner that would adversely
affect the Company or its stockholders in any material respect. Notwithstanding
the foregoing sentence, the Offeror may, without the consent of the Company,
extend the Offer (i) if at the then scheduled expiration date of the Offer any
of the conditions to the Offeror's obligation to accept Shares for payment shall
not have been satisfied or waived, until the fifth business day after the date
the Offeror reasonably believes to be the earliest date on which such conditions
will be satisfied, (ii) for any period required by any rule, regulation,
interpretation or position of the Commission or its staff applicable to the
Offers and (iii) for an aggregate period of not more than ten business days (for
all such extensions) notwithstanding the satisfaction of all conditions to the
Offer. The Merger Agreement provides that if at any scheduled expiration date of
the Offer, the Minimum Condition, the Insurance Regulatory Condition or the HSR
Condition (as such terms are defined in the enclosed Offer to Purchase) shall
not have been satisfied, but at such scheduled expiration date each of the other
conditions set forth in the Offer to Purchase shall then be satisfied, at the
request of the Company, the Offeror shall extend the Offer from time to time,
subject to the right of Parent, the Offeror or the Company to terminate the
Merger Agreement pursuant to the terms thereof. Parent and the Offeror have
further agreed that, in the event the Offeror wishes to terminate the Offer
solely by reason of the existence of a banking moratorium or suspension of
payments in respect of banks in the United States in accordance with clause (i)
of the second sentence of Section 14--"Conditions of the Offer" of the Offer to
Purchase, the Offeror shall first extend the Offer for a minimum period of ten
days, it being understood that, if at the end of such ten day period, a banking
moratorium or suspension of payments in respect of banks in the United States
shall be in effect, Offeror shall then be entitled to terminate the Offer under
the provisions of clause (i) of the second sentence of Section 14--"Conditions
of the Offer" of the Offer to Purchase, PROVIDED, that the Offeror shall not be
required to extend the Offer more than once pursuant to this requirement.
Notwithstanding anything to the contrary contained herein or in the Merger
Agreement, Parent, the Offeror and the Company have further agreed that, in the
event that upon any scheduled expiration date of the Offer (or any extension
thereof), (x) all conditions to the Offer set forth in Section 14--"Conditions
of the Offer" of the Offer to Purchase have been satisfied and (y) for
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a period of five consecutive trading days prior to the expiration of the Offer
(or any extension thereof), the average of the daily closing values of the
Standard & Poor's Index of 500 Industrial Companies (the "S&P Index") for such
five trading days shall reflect a decline in excess of 25% as compared to the
closing value of the S&P Index on the close of business on the trading day next
preceding the date of the Merger Agreement, then the Offeror shall be entitled
to extend the Offer for a period not to exceed eight trading days.
Pursuant to the terms of the Merger Agreement, the Company has approved of
and consented to the Offer and has represented (a) that its Board of Directors
has unanimously (i) determined that the terms of the Offer and the Merger are
fair to, and in the best interests of, the Company's stockholders and declared
that the Merger is advisable, (ii) recommended that the Company's stockholders
accept the Offer and approve and adopt the Merger Agreement and approve the
Merger, and (iii) taken all action necessary to render Section 203 of the
Delaware General Corporation Law ("DGCL") and the Rights Agreement (as defined
below) inapplicable to the Offer and the Merger; and (b) William Blair & Company
has delivered to the Board of Directors of the Company its written opinion that
the consideration to be received by the stockholders of the Company in the Offer
and the Merger is fair, from a financial point of view, to such stockholders,
subject to the assumptions and qualifications contained in such opinion.
THE MERGER. The Merger Agreement provides that, subject to the terms and
conditions thereof, and in accordance with the DGCL, the Offeror shall be merged
with and into the Company on the later of the date the Certificate of Merger is
accepted for recording or such later time established by the Certificate of
Merger (such date, the "Effective Time"). The filing of the Certificate of
Merger shall be made as soon as practicable after the satisfaction or waiver of
the conditions to the Merger. Following the Merger, the separate corporate
existence of the Offeror will cease and the Company will continue as the
surviving corporation (the "Surviving Corporation").
At the Effective Time each issued and outstanding Share, including the
associated Rights (as defined below), (other than Shares held by any wholly
owned subsidiary of the Company or in the treasury of the Company, or by Parent,
the Offeror or any other wholly owned subsidiary of Parent, which Shares will
cease to be outstanding and be cancelled and retired and none of which shall
receive any payment with respect thereto, and other than Shares, if any, held by
holders of Shares who perfect their appraisal rights under the DGCL) will by
virtue of the Merger and without any action by the holders thereof, be converted
into the right to receive $25.00 in cash payable to the holder thereof, without
interest thereon (the "Merger Consideration"). In addition, at the Effective
Time, each issued and outstanding share of the capital stock of the Offeror will
be converted into and become one fully paid and nonassessable share of common
stock of the Surviving Corporation.
The Merger Agreement provides that in the event that the Offeror shall
acquire at least 90 percent of the outstanding Shares, the Company, Parent and
the Offeror shall take all necessary action to cause the Merger to become
effective as soon as practicable after the expiration of the Offer, without a
meeting of the stockholders of the Company, in accordance with Section 253 of
the DGCL.
The Merger Agreement provides that the respective obligations of Parent and
the Offeror, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the fulfillment, at or prior to the Effective Time, of
each of the following conditions: (i) if approval of the Merger by the holders
of the Common Stock is required by applicable law, the Merger shall have been
approved by the requisite vote of such holders; (ii) no domestic (federal, state
or local), foreign or supranational court, commission, governmental body,
regulatory or administrative agency, authority or tribunal (each a "Governmental
Entity") or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree or injunction which prohibits or has the effect of prohibiting the
consummation of the Merger; PROVIDED, HOWEVER, that each of the parties to the
Merger Agreement shall use their reasonable best efforts to have any such order,
decree
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or injunction vacated; (iii) the Offeror shall have accepted for payment and
paid for the Shares properly tendered pursuant to the Offer in an amount
sufficient to satisfy the Minimum Condition; PROVIDED, HOWEVER, that this
condition will be deemed waived with respect to the obligations of Parent and
the Offeror if the Offeror fails to accept for payment and pay for any Shares
pursuant to the Offer in violation of the terms of the Merger Agreement or the
Offer; and (iv) the applicable waiting period (and any extension thereof) shall
have expired or been terminated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act").
CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION. The Merger Agreement provides that, at the Effective
Time, the directors and officers of the Offeror immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation.
In addition, the Certificate of Incorporation (as amended to change the name of
Offeror to "First Commonwealth, Inc.") and Bylaws of the Offeror, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law.
COMPANY STOCKHOLDERS' MEETING. Pursuant to the Merger Agreement, promptly
following the purchase of Shares pursuant to the Offer if approval of the Merger
by the stockholders of the Company is required by applicable law, the Company
shall call a meeting of its stockholders (the "Stockholder Meeting") for the
purpose of voting upon the Merger and shall take all action necessary or
advisable to obtain stockholder approval of the Merger. The Stockholder Meeting
shall be held as soon as practicable following the purchase of Shares pursuant
to the Offer and the Company will, through its Board of Directors, subject to
the Merger Agreement, recommend to its stockholders the approval of the Merger.
The record date for the Stockholder Meeting shall be a date subsequent to the
date Parent or the Offeror becomes a record holder of Shares purchased pursuant
to the Offer.
The Company has agreed that, if stockholder approval of the Merger is
required by applicable law, the Company will, as soon as practicable following
the expiration of the Offer, prepare and file a preliminary Proxy Statement with
the Commission and will use its reasonable best efforts to respond to any
comments of the Commission or its staff and to cause the Proxy Statement to be
cleared by the Commission. The Company has agreed to take all such action as may
be necessary or advisable to obtain the necessary approvals by its stockholders
of the Merger, the Merger Agreement and the transactions contemplated thereby.
Parent has agreed to cause all Shares purchased pursuant to the Offer and all
other Shares owned by Parent, the Offeror or any other subsidiary of Parent to
be voted in favor of the approval of the Merger.
BOARD REPRESENTATION. The Merger Agreement provides that promptly upon the
Offeror having acquired a majority of the Shares on a fully diluted basis, the
Offeror shall be entitled to designate such number of directors on the Board of
Directors of the Company as will give the Offeror, subject to compliance with
Section 14(f) of the Exchange Act, a percentage of all directors rounded up to
the nearest whole number equal to the percentage of the outstanding Shares then
owned by the Offeror, and the Company shall, at such time, cause the Offeror's
designees to be so elected by its existing Board of Directors; PROVIDED,
HOWEVER, that in the event that the Offeror's designees are so elected to the
Board of Directors of the Company, until the Effective Time such Board of
Directors shall have at least three directors who are directors on the date of
the Merger Agreement and who are not officers of the Company (the "Independent
Directors"); and PROVIDED, FURTHER, that, in such event, if the number of
Independent Directors shall be reduced below three for any reason whatsoever,
the remaining Independent Directors or Director shall designate a person or
persons to fill such vacancy or vacancies, each of whom shall be deemed to be an
Independent Director for purposes of the Merger Agreement or, if no Independent
Directors then remain, the other directors shall designate three persons to fill
such vacancies who shall not be officers or affiliates of the Company or any of
its subsidiaries, or officers or affiliates of Parent or any of its
subsidiaries, and such persons shall be deemed to be Independent Directors for
purposes of the Merger Agreement. In connection with the foregoing, the
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Company will promptly increase the size of the Company's Board of Directors, or
remove or cause the resignation of sufficient directors to enable the Offeror's
designees to be elected or appointed to, and to constitute a majority of the
directors on, the Company's Board of Directors as provided above.
Subject to applicable law, the Company has agreed to take all action
requested by Parent that is reasonably necessary to effect any such election,
including mailing to its stockholders the Information Statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, and the Company has agreed to make such mailing with the
mailing of the Schedule 14D-9 (provided that the Offeror shall have provided to
the Company on a timely basis all information required to be included in the
Information Statement with respect to the Offeror's designees).
INTERIM OPERATIONS. The Merger Agreement provides that except as otherwise
expressly contemplated by the Merger Agreement or as described in the Company's
disclosure letter (the "Company Disclosure Letter") delivered concurrently with
the delivery of the Merger Agreement, during the period from the date of the
Merger Agreement through the Effective Time, the Company shall, and shall cause
its subsidiaries to, in all material respects carry on their respective
businesses in, and not enter into any material transaction other than in
accordance with, the regular and ordinary course and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact their current
business organizations, keep available the services of their current officers
and employees and preserve their relationships with customers, suppliers and
others having business dealings with them. Without limiting the generality of
the foregoing, and, except as otherwise expressly contemplated by the Merger
Agreement or as described in the Company Disclosure Letter, the Company shall
not, and shall not permit any of its subsidiaries to, without the prior written
consent of Parent: (a) (x) declare, set aside or pay any dividends on, or make
any other actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of the Company in
their capacity as such, other than dividends payable to the Company declared by
any of the Company's subsidiaries, (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of, or in substitution, for shares of its capital stock or
(z) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities; (b)
issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its
capital stock, any other voting securities or equity equivalent or any
securities convertible into or exchangeable or exercisable for, or any rights,
warrants or options to acquire, any such shares, voting securities or
convertible securities or equity equivalent (other than, in the case of the
Company, the issuance of Shares during the period from the date of the Merger
Agreement through the Effective Time upon the exercise of employee stock options
to purchase Shares ("Stock Options") outstanding on May 19, 1999), in accordance
with their current terms or enter into any agreement or contract with respect to
the sale or issuance of any of its securities; (c) amend its charter or bylaws
or the Rights Agreement; (d) acquire or agree to acquire by merging or
consolidating with, or by purchasing assets of or equity in, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets (other than in the ordinary course of business consistent
with past practice); (e) sell, lease or otherwise dispose of or agree to sell,
lease or otherwise dispose of, any of its assets that are material, individually
or in the aggregate, to the Company and its subsidiaries taken as a whole; (f)
incur any indebtedness for borrowed money or guarantee any such indebtedness or
issue or sell any debt securities or guarantee any debt securities of others,
except for borrowings or guarantees incurred in the ordinary course of business
consistent with past practice for working capital purposes, or make any loans,
advances or capital contributions to, or investments in, any other person or
entity, other than to the Company or any wholly owned subsidiary of the Company
and other than in the ordinary course of business consistent with past practice;
(g) alter through merger, liquidation, reorganization, restructuring or in any
other fashion the corporate structure or ownership of any subsidiary of the
Company or adopt any
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plan with respect to any of the foregoing; (h) grant any severance or
termination pay not currently required to be paid under existing severance
plans, enter into or adopt, or amend any existing, severance plan, agreement or
arrangement or, other than in the ordinary course of business, enter into or
amend any employee benefit plan (including without limitation, the Company's
1995 Long-Term Incentive Plan and 1987 Statutory-Nonstatutory Stock Option Plan
(collectively, the "Stock Option Plans")), or enter into or amend any employment
or consulting agreement; (i) enter into any contract or commitment with respect
to capital expenditures with a value in excess of, or requiring expenditures by
the Company and its subsidiaries in excess of, $100,000, individually, or enter
into contracts or commitments with respect to capital expenditures with a value
in excess of, or requiring expenditures by the Company and its subsidiaries in
excess of, $500,000, in the aggregate; (j) except to the extent required under
existing employee and director benefit plans, agreements or arrangements as in
effect on the date of the Merger Agreement, increase the compensation or fringe
benefits of any of its directors, officers or employees provided that, with
respect to employees that are not executive officers or directors, the Company
may increase compensation associated with promotions and regular reviews in the
ordinary course of business consistent with past practice; (k) agree to the
settlement of any material claim or litigation; (l) make or rescind any material
tax election or settle or compromise any material tax liability; (m) except as
required by applicable law or generally accepted accounting principles ("GAAP"),
make any material change in its method of accounting; (n) except as required
under the Stock Option Plans and as otherwise provided in the Merger Agreement,
accelerate the payment, right to payment or vesting of any bonus, severance,
profit sharing, retirement, deferred compensation, stock option, insurance or
other compensation or benefits; (o) pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction (A)
of any such claims, liabilities or obligations in the ordinary course of
business and consistent with past practice or (B) of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) contained in documents
filed with the Commission by the Company; (p) enter into any agreement,
understanding or commitment that restrains, limits or impedes the Company's or
any of its subsidiaries' ability to compete with or conduct any business or line
of business, including, but not limited to, geographic limitations on the
Company's or any of its subsidiaries' activities; (q) materially modify, amend
or terminate any material contract to which it is a party or waive any of its
material rights or claims except in the ordinary course of business consistent
with past practice; or (r) agree, in writing or otherwise, to take any of the
foregoing actions; PROVIDED, HOWEVER, that nothing set forth in the foregoing
clauses (a) through (r) shall be deemed to prohibit the Company from making such
expenditures as it deems reasonably necessary to complete its Year 2000
readiness plan as disclosed to the Parent.
NO SOLICITATION. The Merger Agreement provides as follows:
(a) The Company and its affiliates (as such term is defined under Rule 12b-2
under the Exchange Act) and each of their respective officers, directors,
employees, financial advisors, attorneys and other advisors,
representatives and agents shall immediately cease any discussions or
negotiations which may be ongoing with third parties with respect to any
Takeover Proposal (as defined below). The Company shall not, nor shall it
permit any of its affiliates (as defined under Rule 12b-2 under the
Exchange Act) to, nor shall it authorize or permit any officer, director
or employee of or any financial advisor, attorney or other advisor,
representative or agent of, the Company or any of its affiliates to, (i)
solicit, facilitate, initiate or encourage the submission of, any
Takeover Proposal (including, without limitation, the taking of any
action which would make the Rights Agreement or Section 203 of the DGCL
inapplicable to a Takeover Proposal), (ii) enter into any agreement with
respect to any Takeover Proposal or enter into any arrangement,
understanding or agreement requiring it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by the Merger
Agreement or (iii) participate in any way in any discussions or
negotiations regarding, or
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furnish to any person or legal entity (other than Parent or the Offeror)
any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal; PROVIDED,
HOWEVER, that prior to acceptance for payment of Shares pursuant to the
Offer, in response to an unsolicited Takeover Proposal and in compliance
with its obligations under paragraph (d) below, the Company may
participate in discussions or negotiations with or furnish information
(pursuant to a confidentiality agreement with terms not more favorable to
such third party than the terms of the Confidentiality Agreement
described below) to any third party which makes a Superior Proposal (as
defined below) if the Board of Directors believes (based on the written
advice of independent, outside, nationally-recognized, legal counsel)
that failing to take such action would constitute a breach of its
fiduciary duties.
For purposes of the Merger Agreement, "Takeover Proposal" means (i) any
inquiry, proposal or offer from any person or entity relating to any direct or
indirect acquisition or purchase of a substantial amount of assets of the
Company or any of its subsidiaries or of over 15% of any class of equity
securities of the Company or any of its subsidiaries, (ii) any tender offer or
exchange offer that, if consummated, would result in any person or entity
beneficially owning 15% or more of any class of equity securities of the Company
or any of its subsidiaries or (iii) any merger, consolidation, business
combination, sale of all, or substantially all, of the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its subsidiaries; and "Superior Proposal" means a BONA FIDE proposal made by a
third party to acquire all outstanding Shares pursuant to a tender offer or a
merger or purchase of all of the assets of the Company (w) on terms which a
majority of the disinterested members of the Board of Directors of the Company
determines in its good faith reasonable judgment (based on the written advice of
William Blair & Company and independent, outside, nationally-recognized, legal
advisors) to be more favorable to the Company and its stockholders than the
transactions contemplated by the Merger Agreement, (x) for which financing is
then available (it being understood that financing evidenced by highly confident
letters and similar letters shall not be considered "available"), (y) which is
not subject to any financing or due diligence condition and (z) which, in the
written opinion of William Blair & Company, is more favorable to the Company's
stockholders from a financial point of view than the transactions contemplated
by the Merger Agreement (as they may be modified pursuant to the provisions of
the Merger Agreement described in clause (d)(iii) under "--Termination").
(b) Except as set forth in paragraph (c) below, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent
or the Offeror, the approval or recommendation by such Board of Directors
or such committee of the Offer, the Merger or the Merger Agreement, or
(ii) approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (iii) cause the Company to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") related to any Takeover
Proposal.
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(c) Notwithstanding anything to the contrary in the Merger Agreement, prior
to the acceptance for payment of Shares pursuant to the Offer, the
Company may recommend to its stockholders a Takeover Proposal and in
connection therewith withdraw or modify its approval or recommendation of
the Offer or the Merger if (1) a third party makes a Superior Proposal,
(2) all the conditions to the Company's right to terminate the Merger
Agreement in accordance with the provisions thereof have been satisfied
(including the satisfaction of certain waiting periods and the payment of
certain fees as further described in clause (d)(iii) under
"--Termination") and (3) simultaneously with such withdrawal,
modification or recommendation, the Merger Agreement is terminated in
accordance with the termination provisions thereof.
(d) On the date of receipt thereof, if possible, but no later than 12 hours
after receipt thereof, the Company shall advise Parent in writing of any
request for information or any Takeover Proposal, or any inquiry,
proposal, discussions or negotiation with respect to any Takeover
Proposal, the terms and conditions of such request, Takeover Proposal,
inquiry, proposal, discussion or negotiation and the Company shall
promptly provide to Parent copies of any written materials received by
the Company in connection with any of the foregoing, and the identity of
the person or entity making any such Takeover Proposal or such request,
inquiry or proposal or with whom any discussion or negotiations are
taking place. The Company shall keep Parent fully informed of the status
and details (including amendments or proposed amendments) of any such
request or Takeover Proposal and keep Parent fully informed as to the
details of any information requested of or provided by the Company and as
to the details of all discussions or negotiations with respect to any
such request, takeover proposal or inquiry. The Company shall promptly
provide to Parent any non-public information concerning the Company
provided to any other person or entity in connection with any Takeover
Proposal which was not previously provided to Parent.
(e) Nothing contained in the Merger Agreement shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by
the Exchange Act or from making any disclosure to the Company's
stockholders if, in the good faith judgment of the Board of Directors of
the Company (based upon written advice of independent, outside,
nationally-recognized, legal advisors), such disclosure is required by
applicable state or federal securities laws or is necessary in order to
comply with its fiduciary duties to the Company's stockholders under
applicable law.
(f) The Company shall request each person or entity which, prior to the date
of the Merger Agreement, has executed a confidentiality agreement in
connection with its consideration of acquiring the Company or any portion
thereof to return all confidential information heretofore furnished to
such person or entity by or on behalf of the Company.
THIRD PARTY STANDSTILL AGREEMENTS. The Merger Agreement provides that,
during the period from May 19, 1999, through the Effective Time, (i) the Company
shall not terminate, amend, modify or waive any provision of any confidentiality
or standstill agreement to which the Company or any of its subsidiaries is a
party (other than any involving Parent), and (ii) the Company shall enforce, to
the fullest extent permitted under applicable law, the provisions of any such
agreements, including, but not limited to, obtaining injunctions to prevent any
breaches of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States or any state thereof having
jurisdiction.
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION. The Merger
Agreement provides that, from and after the Effective Time, Parent will, and
will cause the Surviving Corporation to, indemnify and hold harmless all past
and present officers, directors, employees and agents of the Company and of its
subsidiaries to the full extent such persons may be indemnified by the Company
pursuant to the Company's Certificate of Incorporation and Bylaws as in effect
as of the date of the Merger Agreement
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for acts and omissions occurring at or prior to the Effective Time and shall
advance reasonable expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that the
Company receives reasonable affirmations and undertakings from such persons to
repay all amounts advanced if it should be ultimately determined that such
person was not entitled to indemnification.
In addition, Parent has agreed to provide, or cause the Surviving
Corporation to provide, for a period of not less than six years after the
Effective Time, for the benefit of the Company's current directors and officers,
an insurance and indemnification policy that provides coverage for events
occurring at or prior to the Effective Time that is no less favorable than the
existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; PROVIDED, HOWEVER, that Parent and the
Surviving Corporation shall not be required to pay an annual premium for such
insurance in excess of 1.25 times the last annual premium paid prior to the date
of the Merger Agreement, but in such case shall purchase as much of such
coverage as possible for such amount.
OPTIONS. Pursuant to the Merger Agreement, the Company shall (i) terminate
the Stock Option Plans and any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
the Company or any of its subsidiaries (collectively "Stock Incentive Plans"),
immediately prior to the Effective Time without prejudice to the holders of
Stock Options (as hereinafter defined), (ii) grant no additional Stock Options,
and (iii) amend, immediately prior to the Effective Time, the provisions of any
other Company Benefit Plan providing for the issuance, transfer or grant of any
Shares, or any interest in respect of any Shares, to provide no continuing
rights to acquire, hold, transfer, or grant any Shares or any interest in any
Shares.
In addition, immediately upon the consummation of the Offer, provided that a
"Change of Control" has occurred under the terms of the Stock Incentive Plans,
all outstanding Stock Options previously granted under the Stock Incentive Plans
shall become fully exercisable and vested, and the Stock Options shall be
cancelled by the Company, and the holders thereof shall receive a cash payment
(the "Cash Payment") from the Company in an amount (if any) equal to the number
of Shares subject to such option multiplied by the difference (if positive)
between the exercise price per Share covered by the option and the highest per
share price offered to stockholders of the Company in the Offer. The Company
shall request such holders to acknowledge the cancellation of all Stock Options
held by such holders, including any Stock Options as to which the exercise price
equals or exceeds such price per share. The Company shall deliver to Parent
within five business days of the date of the Merger Agreement a true and
complete list of Stock Options which are outstanding as of the date of the
Merger Agreement, together with detailed calculations of the Cash Payments
relating to such Stock Options had the Effective Time occurred on the date of
delivery thereof. The Company shall update such list and such calculations as
of, and deliver such update to Parent on, the date that is two business days
prior to the Effective Time, such updated list and calculations made as if the
Effective Time would occur on such date. Except as otherwise contemplated in the
Merger Agreement, any then-outstanding stock appreciation rights or limited
stock appreciation rights issued by the Company or any subsidiary of the Company
shall be cancelled immediately prior to the Effective Time without any payment
therefor. The Company shall ensure that neither it nor any of its subsidiaries
is or will be bound by any Stock Options, other options, warrants rights or
agreements which would entitle any person or entity, other than Parent or it
subsidiaries, to own any Shares or to receive any payment in respect thereof.
CERTAIN EMPLOYEE BENEFITS. Pursuant to the Merger Agreement, until at least
December 31, 1999, Parent shall maintain employee benefits and programs for
retirees, officers and employees of the Company and its subsidiaries that are no
less favorable in the aggregate than those being provided to such retirees,
officers and employees on the date of the Merger Agreement (it being understood
that Parent will not be obligated to continue any one or more employee benefits
or programs); provided that the Company shall not be obligated to continue any
Stock Incentive Plan or provide any other incentive plan or benefits in lieu
thereof. For purposes of eligibility to participate in and vesting in all
benefits provided to retirees, officers and employees, retirees, officers and
employees of the Company
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and its subsidiaries will be credited with years of service with the Company and
its subsidiaries and years of service with prior employers to the extent service
with prior employers is taken into account under plans of the Company. Amounts
paid before the Effective Time by retirees, officers and employees of the
Company under any medical plans of the Company shall after the Effective Time be
taken into account in calculating balances for deductibles and maximum
out-of-pocket limits applicable under the medical plan of Parent for the plan
year during which the Effective Time occurs as if such amounts had been paid
under such medical plan of Parent.
In addition, the Merger Agreement provides that after the Effective Time,
Parent shall cause the Company to maintain for 1999, without modification or
amendment, except as set forth in the Merger Agreement, its Management Bonus
Plan for all covered employees.
Parent has agreed that it will maintain the Company's standard severance
policy as in effect on the date of the Merger Agreement for a period of at least
two years from the Effective Time and that Parent will honor or cause to be
honored all employment, severance and similar agreements with the Company's
officers and employees to the extent that executed copies of such agreements
have been delivered to Parent or are disclosed in the documents filed by the
Company with Commission or were otherwise disclosed to Parent. Parent and its
subsidiaries have agreed that they will provide reasonable and customary
outplacement services to officers of the Company and its subsidiaries who are
terminated by the Company as a result of, or within two years following, the
Merger, which outplacement services provided to such officer shall include
one-on-one counseling and assistance.
AGREEMENT TO USE REASONABLE BEST EFFORTS. Pursuant to the Merger Agreement
and subject to the terms and conditions thereof, each of the Company, Parent and
the Offeror shall use its reasonable best efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, and to assist and cooperate with
the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Merger, and the other transactions contemplated by the Merger Agreement,
including (a) obtaining all necessary actions or non-actions, waivers, consents
and approvals from all Governmental Entities and the making of all necessary
registrations and filings (including filings with Governmental Entities,
including without limitation, all filings under the HSR Act, and the filing of a
Form A application and/or other documents as may be required with the Arizona,
Illinois, Indiana, Wisconsin, Missouri and Michigan Departments of Insurance and
the approval thereof by the Directors of Insurance of such Departments of
Insurance, and any other required filings with or approvals by state agencies
regulating corporations or insurance companies applicable to the transactions
contemplated thereby, and the taking of all reasonable steps as may be necessary
to obtain an approval or waiver from or to avoid an action or proceeding by any
Governmental Entity, (b) obtaining all necessary consents, approvals or waivers
from third parties, (c) defending any lawsuits or other legal proceedings,
whether judicial or administrative, challenging the Merger Agreement or the
consummation of the transactions contemplated thereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, and (d) executing and delivering any
additional instruments necessary to consummate the transactions contemplated by
the Merger Agreement.
YEAR 2000 COMPLIANCE. The Merger Agreement provides that, prior to the
Effective Time, Parent and its representatives shall have the right, during
normal business hours, and at other reasonable times upon request, to have full
and complete access to the Company's hardware, information systems and all
software material to the business, finances or operations of the Company
("Software") for the purpose of assisting the Company in assessing, developing,
executing and testing the Company's Year 2000 readiness plan. In connection
therewith, the Company agreed to cause its officers, employees and agents to
fully cooperate with the representatives of Parent and to provide them with all
information, data, records, documents and any other material which they may
request relating to the Company's hardware, Software and information systems.
The Company has agreed to seriously consider any and all recommendations made by
Parent or its representatives relating to the Company's Year 2000 readiness plan
and to take full advantage of Parent's resources and expertise in connection
therewith.
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In addition, the Merger Agreement provides that if Parent reasonably
determines that there exists any material deficiency in the Company's Year 2000
readiness plan, the Company shall take such action as Parent reasonably requests
as necessary to cure such deficiency. As part of this process, the Company and
Parent shall establish a joint Year 2000 readiness steering committee which
shall consider and make recommendations relating to the Company's Year 2000
readiness plan (the "Committee"), which shall consist of three representatives
from the Company and up to three representatives designated by Parent. The
Committee shall meet as often as may be necessary for the purpose of ensuring
that the Company is assessing, developing, executing and testing the Company's
Year 2000 readiness plan in a timely and effective manner. If the members of the
Committee do not by majority vote agree on or prior to July 13, 1999 that the
Company's Year 2000 readiness plan is or will be implemented on a timely and
effective manner in all material respects, the Company and Parent shall
designate a third party consultant which is mutually acceptable to both the
Company and Parent to assess and make recommendations with respect to the
Company's Year 2000 readiness plan (the "Consultant"). If the Consultant
identifies any material deficiency in the Company's Year 2000 readiness plan,
the Company agrees to follow the recommendations of Consultant which are
reasonably requested by Parent.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Offeror with
respect to, among other things, its organization, corporate authority, capital
structure, financial statements, public filings, litigation, compliance with
applicable laws, consent and approvals, employee benefit plans, brokers' or
finders' fees, state takeover statutes, voting requirements, taxes, intellectual
property, Year 2000 compliance and the absence of any material adverse changes
in the Company since December 31, 1998.
The Company also represented that the Board of Directors had taken all
necessary action to amend the Rights Agreement to (a) render the Rights
Agreement inapplicable with respect to the Offer, the Merger and the other
transactions contemplated by the Merger Agreement and (b) ensure that (x)
neither Parent nor the Offeror nor any of their Affiliates (as defined in the
Rights Agreement) or Associates (as defined in the Rights Agreement) is
considered to be an Acquiring Person (as defined in the Rights Agreement) and
(y) the provisions of the Rights Agreement, including the occurrence of a
Distribution Date (as defined in the Rights Agreement), are not and shall not be
triggered by reason of the announcement or consummation of the Offer, the Merger
or the consummation of any of the other transactions contemplated by the Merger
Agreement.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after any approval by the stockholders of
the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by Parent or the Offeror:
(i) if, prior to the purchase of Shares pursuant to the Offer, the Company
has breached in any material respect any representation, warranty,
covenant or other agreement contained in the Merger Agreement which (x)
would give rise to the failure of a condition set forth in clause (d) or
(e) of the Offer conditions set forth in the second sentence of Section
14-- "Conditions of the Offer" of the Offer to Purchase, (y) cannot or
has not been cured prior to fifteen (15) days after the giving of
written notice of such breach to the Company and (z) has not been waived
by Parent pursuant to the provisions of the Merger Agreement; or
(ii) if the Offer is terminated or expires in accordance with its terms
without the Offeror having purchased any Shares thereunder due to an
occurrence which results in a failure to satisfy any one or more of the
conditions set forth set forth in Section 14--"Conditions of the Offer"
of the Offer to Purchase, unless any such failure shall have been
caused by or resulted from the breach by Parent or the Offeror in any
material respect of their respective representations and warranties in
the Merger Agreement or the failure of Parent or the Offeror to perform
in any material respect any covenant or agreement of either of them
contained in the Merger Agreement; or
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(iii) it shall have been publicly disclosed, or Parent shall have otherwise
learned, that beneficial ownership (determined for the purposes of this
paragraph (b)(iii) as set forth in Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of the outstanding Shares has been
acquired by any person, entity or group (as defined in Section 13(d)(3)
under the Exchange Act); or
(c) by the Company:
(i) if Parent or the Offeror shall have (x) terminated the Offer or (y)
failed to pay for any Shares pursuant to the Offer on or prior to the
Termination Date, unless, in the case of (x) or (y), such termination or
failure shall have been caused by the failure of the Company to satisfy
the conditions to the Offer set forth in clauses (d) or (e) set forth in
the second sentence of Section 14--"Conditions of the Offer"of the Offer
to Purchase; or
(ii) if the Offer has not been timely commenced in accordance with the terms
of the Merger Agreement; or
(iii) if, prior to the purchase of Shares pursuant to the Offer, Parent or
the Offeror has breached in any material respect any representation,
warranty, covenant or other agreement contained in the Merger Agreement
which cannot be or has not been cured within fifteen (15) days after
the giving of written notice to Parent or the Offeror (other than any
matters that, in the aggregate, would not reasonably be expected to
materially impair the ability of Parent or the Offeror to perform their
respective obligations hereunder); or
(d) by either Parent or the Company:
(i) if the Effective Time has not occurred on or prior to the close of
business on the date which is 120 days after the date of the Merger
Agreement (the "Termination Date"); PROVIDED, HOWEVER, that the
Termination Date shall be the date which is 180 days after the date of
the Merger Agreement if the Regulatory Condition has not been satisfied
but all other conditions set forth in Section 14--"Conditions of the
Offer" of the Offer to Purchase have been satisfied on the date which is
120 days after the date of the Merger Agreement; PROVIDED, FURTHER, that
the right to terminate the Merger Agreement pursuant to this clause
shall not be available (y) to Parent if the Offeror or any affiliate of
the Offeror acquires Shares pursuant to the Offer, or (z) to any party
whose failure to fulfill any material obligation of the Merger Agreement
or other material breach of the Merger Agreement has been the cause of,
or resulted in, the failure of the Effective Time to have occurred on or
prior to the aforesaid date; or
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have
issued an order, decree or ruling or taken any other action permanently
restricting, enjoining, restraining or otherwise prohibiting the
transactions contemplated by the Merger Agreement and such order,
decree, ruling or other action shall have become final and
nonappealable; or
(iii) if a Superior Proposal is received by the Company and the Board of
Directors of the Company believes (based on the written advice of
independent outside nationally recognized legal counsel) that a failure
to terminate the Merger Agreement and enter into an agreement to effect
the Superior Proposal would constitute a breach of its fiduciary
duties; PROVIDED, HOWEVER, that the Company may not terminate the
Merger Agreement pursuant to this paragraph (d)(iii) unless and until
(x) five (5) business days have elapsed following delivery to Parent of
a written notice of such determination by the Board of Directors and
during such five (5) business day period the Company has fully
cooperated with Parent including, without limitation, informing Parent
of the terms and conditions of such Superior Proposal, and the identity
of the person or entity making such Superior Proposal, with the intent
of enabling both parties to agree to a modification of the terms and
conditions of the Merger Agreement so that the transactions
contemplated hereby may be effected; (y) at the end of such five (5)
business day period the Takeover Proposal continues to constitute a
Superior Proposal and
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the Board of Directors of the Company continues to believe (and has
again been advised in writing by independent outside nationally
recognized legal counsel) that a failure to terminate the Merger
Agreement and enter into an agreement to effect the Superior Proposal
would constitute a breach of its fiduciary duties; and (iii) (x) prior
to such termination, Parent has received all fees as set forth in the
Merger Agreement and described below under "--Payment of Certain Fees
and Expenses upon Termination" by wire transfer in same day funds and
(y) simultaneously with such termination the Company enters into a
definitive acquisition, merger or similar agreement to effect the
Superior Proposal.
The Merger Agreement provides that, in the event of termination of the
Merger Agreement by either Parent or the Company pursuant to the provisions
described above, the Merger Agreement will become void and there shall be no
liability thereunder on the part of the Company, Parent or the Offeror or their
respective officers or directors (except for breach of the Merger Agreement and
the survival of certain provisions relating to broker's and finder's fees, fees
and expenses and confidential information).
PAYMENT OF CERTAIN FEES AND EXPENSES UPON TERMINATION. Except as provided
in the next succeeding sentence, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such costs and expenses, except as expressly set
forth in the Merger Agreement. If the Merger Agreement is terminated (i) by
Parent in accordance with paragraph (b)(ii) under the heading "--Termination"
hereof because of the occurrence of any of the events set forth in clauses (d),
(e) or (f) of the second sentence of Section 14-- "Conditions of the Offer" of
the Offer to Purchase; (ii) Parent or the Company, as the case may be, in
accordance with paragraph (b)(i) or paragraph (d)(iii) under the heading
"--Termination"; or (iii) by Parent, pursuant to any provision of the Merger
Agreement other than those described in the preceding clauses (i) and (ii) of
this sentence, or, except to the extent that the termination of the Merger
Agreement is the result of a breach by Parent or the Offeror in any material
respect of its representations, warranties or covenants in the Merger Agreement,
by the Company pursuant to paragraph (d)(i) or paragraph (d)(ii) if, in any such
case described in this clause (iii) of this sentence, (x) a Takeover Proposal
has been made after the date of the Merger Agreement and (y) within twelve (12)
months of the date of such termination, the Company shall enter into an
Acquisition Agreement with any person or entity other than Parent or any of its
affiliates, then the Company shall (except as required to be paid earlier in
accordance with paragraph (d)(iii) set forth under "--Termination") on the
business day next succeeding the date of termination (or in the case of a
termination pursuant to clause (iii) of this sentence, the business day next
succeeding the execution of such agreement), (A) reimburse Parent in immediately
available funds for the Expenses of Parent and the Offeror, not to exceed $1.5
million, and (B) pay to Parent in immediately available funds an amount equal to
$3.9 million.
For the purposes of the Merger Agreement, "Expenses" means the documented
and reasonable out-of-pocket fees and expenses incurred or paid by or on behalf
of Parent or the Offeror in connection with the Offer, the Merger or the
consummation of any of the transactions contemplated by this Agreement,
including, but not limited to, all filing fees, printing fees and reasonable
fees and expenses of law firms, commercial banks, investment banking firms,
accountants, experts and consultants to Parent.
STOCKHOLDER AGREEMENTS
The following is a summary of the material terms of the Stockholder
Agreements. The summary is qualified in its entirety by reference to the
Stockholder Agreements, each of which is incorporated herein by reference and a
copy of which has been filed with the Commission as an exhibit to the Schedule
14D-9. The Stockholder Agreements may be inspected at, and copies may be
obtained from, the same places and in the manner set forth in Section
7--"Certain Information Concerning the Company" of the Offer to Purchase.
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Throughout this section reference to "the Stockholder" shall mean each of
Messrs. Multhauf and Mulligan, each of whom is party to a Stockholder Agreement.
The Stockholder Agreements have identical terms and cover the Shares which each
Stockholder owns beneficially and of record, together with any other shares of
capital stock of the Company of which such Stockholder acquires beneficial
ownership after May 19, 1999 and during the term of the Stockholder Agreement
(the "Subject Shares"). As of May 18, 1999, Mr. Multhauf beneficially owned
329,788 Shares (or approximately 8.1% of the Shares on a fully diluted basis)
and Mr. Mulligan beneficially owned 367,287 Shares (or approximately 9.2% of the
Shares on a fully diluted basis).
THE COVENANTS. Pursuant to the Stockholder Agreement, the Stockholder has
agreed: (i) so long as the Merger Agreement has not been terminated, to tender
pursuant to the Offer, and not withdraw, the Subject Shares; (ii) at any
stockholders meeting (or at any adjournment thereof) or in any other
circumstances upon which a vote, consent or other approval with respect to the
Merger or the Merger Agreement is sought, to vote (or cause to be voted) the
Subject Shares in favor of the Merger, the approval and adoption of the Merger
Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement; (iii) at any meeting of
stockholders of the Company (or at any adjournment thereof) or in any other
circumstances upon which a vote, consent or other approval is sought, other than
with respect to the Merger or Merger Agreement, to vote (or cause to be voted)
the Subject Shares (a) against any merger agreement or merger, consolidation,
combination, sale, lease or transfer of all or substantially all of the assets
of the Company, reorganization, recapitalization, dissolution, liquidation or
winding up of or by the Company or any subsidiary of the Company or any other
Takeover Proposal (as defined in the Merger Agreement); (b) against any action
or agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or the Stockholder Agreement; or (c) against the
following actions (other than the Merger and the transactions contemplated by
the Merger Agreement): (1) any change in a majority of the persons who
constitute the Board of Directors of the Company; (2) any change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation or Bylaws; (3) any other material change in the Company's
corporate structure or business; or (4) any other action involving the Company
or its subsidiaries which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect the
Merger and the transactions contemplated by the Stockholder Agreement and the
Merger Agreement; (iv) except as provided in paragraph (i) above, not to (a)
sell, transfer, pledge, encumber, assign or otherwise dispose of (including by
gift) (collectively, "Transfer"), or enter into any contract, option or other
arrangement (including any profit-sharing arrangement) with respect to any
Transfer of the Subject Shares to any person (other than Parent) or (b) enter
into any voting arrangement, whether by proxy, voting agreement or otherwise, in
relation to the Subject Shares and not to commit or agree to take any of the
foregoing actions; (v) not to, and not to permit any affiliate, director,
officer, employee, investment banker, attorney or other advisor or
representative of the Stockholder to, (a) directly or indirectly solicit,
initiate or encourage the sub-mission of, any Takeover Proposal or (b) directly
or indirectly participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Takeover Proposal; (vi) to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with Parent in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement; (vii) to waive any rights of appraisal or
rights to dissent from the Merger that the Stockholder may have; and (viii) not
to request that the Company register the transfer (book-entry or otherwise) of
any certificate or uncertificated interest representing any of the Subject
Shares, unless such transfer is made in compliance with the Stockholder
Agreement or the Merger Agreement.
Each Stockholder Agreement provides that the Stockholder has made the
covenants and agreements contained therein in the Stockholder's capacity as a
stockholder of the Company and that
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nothing contained therein shall limit the Stockholder's ability, to the extent
the Stockholder is a director of the Company and is acting in such capacity, to
discharge the Stockholder's fiduciary duties as a director of the Company under
applicable law based on the advice of independent, outside, nationally
recognized legal counsel (which may be counsel to the Company).
REPRESENTATIONS AND WARRANTIES. In each Stockholder Agreement, the
Stockholder has made customary representations and warranties to Parent with
respect to, among other things, ownership of, and capacity with respect to the
Subject Shares, legal capacity to enter into the Stockholder Agreement and
absence of liens in respect of the Subject Shares.
TERMINATION. Pursuant to the Stockholder Agreement, the obligations of the
Stockholder under such Stockholder Agreement terminate upon the earlier of (i)
the date which is 180 days after the date of termination of the Merger Agreement
or (ii) the Effective Time.
CONFIDENTIALITY AGREEMENT
The following is a summary of the Confidentiality Agreement, dated as of
March 24, 1999, between the Parent and the Company (the "Confidentiality
Agreement"). The summary is qualified in its entirety by reference to the
Confidentiality Agreement, a copy of which has been filed with the Commission as
an exhibit to the Schedule 14D-9. The Confidentiality Agreement can be inspected
at, and copies may be obtained from, the same places and in the manner set forth
in Section 7--"Certain Information Concerning the Company" of the Offer to
Purchase.
Pursuant to the Confidentiality Agreement, Parent has agreed, among other
things, (i) except as required by law, to keep all information furnished by the
Company or its Representatives (as defined below), whether oral or written and
regardless of the manner in which it is furnished ("Proprietary Information"),
confidential and not to disclose or reveal any Proprietary Information to any
person other than Representatives participating in the evaluation of a potential
transaction, (ii) not to use Proprietary Information for any purpose other than
in connection with its evaluation of a potential transaction or the consummation
of a transaction and (iii) except as required by law or pursuant to a listing
agreement with an exchange or the Nasdaq Stock Market, not to disclose to any
person the fact that the Proprietary Information exists or has been made
available or certain other facts.
"Proprietary Information" does not include information which (i) is or
becomes generally available to the public other than as a result of disclosure
by Parent or its directors, officers, employees, advisors (including financial
advisors, accountants and counsel) and affiliates (collectively,
"Representatives"), (ii) was available to Parent on a nonconfidential basis
prior to its disclosure by the Company or its Representatives or (iii) becomes
available to the Parent on a nonconfidential basis from a person other than the
Company or its Representatives who is not or should not be reasonably known by
the Parent to be bound by a confidentiality agreement with the Company or any of
its Representatives and is otherwise not or should reasonably not be known to be
under an obligation to the Company or any of its Representatives not to transmit
the information to another party.
Parent has also agreed that during any time during the eighteen-month period
following the date of the Confidentiality Agreement, unless specifically
requested in writing by the Company, it will not, among other things, (i)
acquire or seek to acquire beneficial ownership of any of the assets, business
or securities of the Company, or any rights or options to acquire such
ownership, (ii) solicit proxies with respect to any matter from stockholders of
the Company, (iii) initiate, induce or attempt to induce any person to initiate
any stockholder proposal or tender offer for any securities of the Company, any
change of control of the Company or the convening of any stockholders' meeting
of the Company or (iv) seek or propose to influence or control the management of
the Company.
Both Parent and the Company (each, a "Party" and, collectively, the
"Parties") have agreed that for a period of one year from the date of the
Confidentiality Agreement, neither Party will hire or solicit for employment,
consulting or an independent contractor relationship with any of each other's
employees.
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AMENDMENT TO RIGHTS PLAN
The Company has amended its Stockholders Rights Agreement, dated as of
November 1, 1995, with First Chicago Trust Company of New York, as amended by
the First Amendment to the Stockholder Rights Agreement, dated December 15,
1998, to render the Stockholder Rights Agreement inapplicable with respect to
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement. A more detailed discussion of the Rights Agreement as so amended
appears in Item 8 herein.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors.
The Board of Directors of the Company, at a meeting held on May 18, 1999,
unanimously approved the execution and delivery of the Merger Agreement, the
Offer and the Merger, determined that the Merger is advisable and that the terms
of the Offer and the Merger are fair to and in the best interests of the
Company's stockholders and recommended that the Company's stockholders accept
the Offer and (if required by applicable law or otherwise) approve the Merger
Agreement and the Merger. A copy of the Company's letter to stockholders dated
May 25, 1999, is filed as an exhibit to this statement and is incorporated
herein by reference.
(b) Certain Background Information; Reasons for Recommendation.
CERTAIN BACKGROUND INFORMATION
The Company began operations as a provider of managed care dental plans in
Chicago, Illinois in 1988. Between 1988 and 1995, the Company was privately
owned and managed. During this time, the Company grew to become the leading
provider of managed dental care benefits in the Chicago metropolitan area and
expanded its operations to include other areas of Illinois and northwestern
Indiana.
In 1995, the Company effected an initial public offering of its Common Stock
at an initial public offering price of $15.00 per share. At that time, the
Common Stock of the Company was listed for trading on the Nasdaq National
Market. Following the initial public offering, the Company expanded operations
through de novo start-ups and acquisitions. By year end 1996, the Company was
also operating in Detroit, Michigan, Indianapolis, Indiana, Milwaukee, Wisconsin
and St. Louis, Missouri. This expansion increased the Company's available
population base from 8.3 million to 18.0 million.
In addition, since the Company began operations, the Company has expanded
its product line, which now includes managed care plans on a stand-alone basis
or in conjunction with the Company's indemnity and indemnity/PPO plans, as well
as other managed dental benefit products. The Company has grown to become a
leading provider of managed dental benefits in the upper Midwest: from December
1995 to December 1998, the Company's enrollment has increased by 109%, revenue
has increased 93%, net income 99% and earnings per share 60%. During this same
period the Company met or exceeded analyst quarterly earnings per share
estimates.
Notwithstanding such factors, management of the Company has been concerned
that the historical price performance of the Company's Common Stock has not
adequately reflected the value of the Company considering its growth, consistent
financial performance and prospects. Management believes that several factors
have contributed to the undervaluation of the Common Stock by the capital
markets.
At the time of the Company's initial public offering, the Company was one of
four publicly-held companies in the dental benefits industry. Since then, in
1997 and 1998, each of the other three publicly-held dental benefits companies
announced lower than expected earnings which, the Company believes, caused the
market to view the entire dental benefits industry unfavorably. In 1998, two of
these companies announced transactions pursuant to which they would be acquired
and the other
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company announced that it had retained a financial advisor to explore options to
maximize shareholder value. As a result of such events, research coverage of the
dental benefits industry and of the Company has declined to one analyst.
In addition, management believes that other factors such as investor
concerns with managed medical care stocks in general and small cap stocks in
particular have further contributed to the Company's undervaluation.
In the second quarter of 1998, a stockholder of the Company filed a Schedule
13D with respect to the Company in which the stockholder stated that it intended
to hold discussions with management of the Company and other stockholders to
seek an increase in stockholder value through the exploration of all available
alternatives, including a management buyout, a buyout involving a strategic or
financial investor and/or a sale to a third party. Senior management of the
Company listened to the suggestions of this stockholder and other stockholders
relating to the Company's alternatives to increase stockholder value.
The Company also found that its goal as an independent public company of
attaining strong quarterly earnings growth limited its ability to incur the
near-term level of operating expenses required to fully capitalize on the
long-term growth opportunities that the Company foresees in the dental benefits
industry.
Due to these and other factors, during the third quarter of 1998, senior
management of the Company began to consider the strategic alternatives available
to the Company, including the possibility of a business combination transaction
involving the Company. During the next several months, senior management of the
Company explored various alternatives to increase shareholder value and, from
time-to-time, discussed alternatives with the Executive Committee and the Board
of Directors. These alternatives included the possibility of an acquisition of a
significant number of shares of Common Stock by the Company, a leveraged buy-out
of the Company by a financial buyer and/or management, a sale of the Company to
a strategic buyer and other business combination transactions and strategic
initiatives. In exploring these alternatives, the Company came to believe that
an acquisition by a strategic acquiror with national reach and greater human and
economic resources would enable the Company to expand its business at a more
rapid rate and that, as a result, a strategic acquiror which could achieve such
synergies would be able to pay the greatest value for the Company.
In early 1999 the Company was contacted on separate occasions by two
strategic buyers and continued to have contact with the stockholder who filed
the Schedule 13D. These parties indicated interest in acquiring the Company.
Management reported these expressions of interest to the Board.
At a meeting of the Board of Directors on February 8, 1999, the Board
invited representatives of William Blair & Company to make a presentation to the
Board of Directors relating to a possible business combination transaction. At
that meeting, William Blair & Company also presented a form of engagement letter
pursuant to which the Company would engage William Blair & Company to provide
financial advisory services to the Company in connection with a possible
business combination. William Blair & Company was one of the investment banking
firms which provided services to the Company in connection with its initial
public offering in 1995. At the meeting on February 8, legal counsel also
briefed the Board of Directors about its duties in considering various forms of
business combinations. No decision was reached by the Board of Directors about
pursuing a possible business combination transaction or about engaging William
Blair & Company at this meeting. Instead, the Board of Directors authorized the
Executive Committee and management to explore the feasibility of a sale process
and to make a recommendation to the Board of Directors with respect to the
engagement of financial advisors, including the appropriate level of fees. In
addition, at this meeting, the Board of Directors authorized the Compensation
Committee to approve amendments to employment agreements and to adopt severance
and other arrangements for the purpose of retaining and incentivizing employees
in connection with a possible business combination transaction. See "Agreements
between the Company and its Directors and Officers" above.
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Following this meeting, in February and early March, 1999, management of the
Company responded to additional unsolicited expressions of interest from certain
parties and contacted other parties relating to a possible business combination
transaction involving the Company. Following such contacts, one of the parties
verbally expressed an interest in pursuing a business combination transaction
with the Company and advised management of a preliminary price for such a
transaction. Three other parties expressed high levels of interest and requested
further information from the Company. In addition, management of the Company
held discussions with representatives of William Blair & Company relating to the
fees that would be payable to William Blair & Company as a result of a business
combination transaction in the event that the Company engaged William Blair &
Company as its financial advisor.
Management of the Company advised the Executive Committee and the Board of
Directors of the results of their inquiries and discussions. Based on these
results, management and the Executive Committee determined that it would be
advisable for the Company to enter into an engagement letter with William Blair
& Company to provide financial advisory services to the Company in connection
with a possible business combination transaction. Based on the recommendation of
the Executive Committee and management, the Board of Directors determined to
engage William Blair & Company. As a result, on March 17, 1999, the members of
the Board of Directors adopted resolutions which authorized management to enter
into an engagement letter on behalf of the Company with William Blair & Company
pursuant to which such firm would provide financial advisory services to the
Company in connection with a possible business combination.
On March 17, 1999, the Company and William Blair & Company entered into an
engagement letter pursuant to which William Blair & Company was engaged as
financial advisor to the Company and pursuant to which the Company indemnified
William Blair & Company and its representatives from certain liabilities,
including liabilities under securities laws, to the extent such indemnification
is available by law. The services to be provided by William Blair & Company
included the identification and contact by William Blair & Company of possible
parties that might be interested in acquiring the Company, and to determine the
nature and extent of any such interest. Subsequent meetings between senior
management of the Company and William Blair & Company were held in the latter
part of March to identify possible purchasers of the Company.
As agreed upon by the Company, William Blair & Company contacted potential
purchasers by telephone to determine whether such parties would be interested in
pursuing discussions with the Company concerning an acquisition of the Company.
A total of nine potential purchasers were contacted by William Blair & Company
on behalf of the Company during the latter part of March and early April, 1999.
The companies to be contacted were selected by senior management, with the
assistance of William Blair & Company, due primarily to (i) their level of
involvement in the dental benefit business, (ii) their perceived possible
interest in an acquisition of the Company, and (iii) their financial capacity to
effect an acquisition of the Company. The companies contacted included the
potential strategic acquirors which had been in contact with the Company
earlier, as discussed above.
Seven of the nine potential purchasers initially contacted by William Blair
& Company expressed an interest in receiving additional information regarding
the Company and executed a confidentiality agreement. Upon receipt of the
executed confidentiality agreement from a potential purchaser, William Blair &
Company delivered to such potential purchaser a confidential offering memorandum
containing, among other things, financial data regarding the Company. These
seven potential purchasers were invited to make a preliminary, non-binding
indication of interest relating to a business combination transaction involving
the Company. Representatives of William Blair & Company held preliminary
conversations with representatives from each of the seven potential purchasers
during the early part of April, 1999. The seven potential purchasers were asked
to deliver preliminary indications of their interest in pursuing a business
combination transaction with the Company by April 20, 1999.
On April 13, 1999, one of the seven potential purchasers ("Entity One"),
submitted a letter to the Company proposing a purchase of 100% of the Shares at
a price of $20.00 per Share. This letter stated
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that the terms and conditions to the letter were subject to change unless it was
signed and returned by the Company on or before April 23, 1999.
On April 14, 1999, Parent submitted a letter to the Company proposing the
acquisition of all of the outstanding shares of Common Stock of the Company
pursuant to a merger at a price of $20.00 per Share. The letter stated that the
indication of interest expressed in the letter would expire on April 17, 1999 at
5:00 p.m. eastern standard time unless it was signed and returned to Parent by
the Company prior to such time.
Due to the fact that the offer in Parent's letter would expire prior to
April 23, the date of the meeting of the Board of Directors scheduled to
consider the preliminary indications of interest which were due on April 20,
members of management and directors of the Company discussed with
representatives of William Blair & Company whether the Company should sign and
return Parent's letter or whether it should wait until after April 20 to provide
the opportunity to receive and consider other indications of interest. Based on
the advice of the representatives of William Blair & Company and its view that
the Company would receive at least one additional preliminary indication of
interest at or above $20.00 per Share, the Company determined not to accept
Parent's letter and to wait and consider all indications of interest which might
be received by the due date for preliminary bids of April 20, 1999. On April 16,
representatives of William Blair & Company advised Parent of the Company's
decision. On April 22, 1999, representatives of Parent advised the
representatives of William Blair & Company that, notwithstanding the termination
date in its letter, Parent wished to continue to be considered by the Company as
a possible purchaser at the time that the Company selected final bidders on
April 23, 1999.
On April 20, 1999, two of the other seven potential purchasers ("Entity Two"
and "Entity Three") also submitted indications of interest relating to a
business combination transaction involving the Company. Entity Two stated that
it would be willing to pay a price of $18.00 to $22.00 per Share. Management of
the Company and William Blair & Company did not consider the letter from Entity
Three to be a competitive proposal. William Blair & Company prepared and
presented an analysis of these four preliminary indications of interest to the
Company's Board of Directors at a meeting on April 23, 1999. After discussion of
the merits of the four preliminary bids, the Board of Directors determined to
invite Parent, Entity One and Entity Two to conduct due diligence and meet with
the Company's management and make a bid for an acquisition transaction involving
the Company. Such bids would be due to the Company by 5:00 p.m. on May 12, 1999.
Between April 27, 1999 and May 11, 1999, representatives of the Company met
separately with representatives of Parent, Entity One and Entity Two in Chicago,
Illinois and presented the Company's business and financial plans. At the same
time, representatives of Parent, Entity One and Entity Two separately conducted
initial due diligence reviews in Chicago, Illinois and met with the Company's
accountants and legal advisors.
Initial drafts of the merger agreement and related transaction documents
were prepared by the Company's counsel and circulated to Parent, Entity One and
Entity Two on April 30, 1999. The bidders were asked to submit their proposed
changes to such documents along with their final offers.
Late in the afternoon on May 12, 1999, representatives of the Company and
William Blair & Company held conversations with representatives of Entity One
and Entity Two relating to their interest and ability in submitting a final bid
in a timely manner. Each stated that it remained interested in a transaction
with the Company but that it was not in a position to submit a final bid until
it had completed additional due diligence. Entity One requested in writing an
additional two weeks and further information. Entity Two also requested
additional information from the Company before it could proceed further. Both
entities subsequently followed up with the Company with telephone calls in which
they reconfirmed their interest in continuing the process.
On May 12, 1999, Parent submitted an offer to purchase all of the Shares for
$23.50 per Share together with a mark-up of the proposed Merger Agreement.
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On May 14, 1999, the Board of Directors held a special meeting to consider
the status of the bid process. At that meeting, representatives of William Blair
& Company described the offer from Parent and communications with Entity One and
Entity Two. The Board of Directors considered the bid submitted by Parent and
the possibility that the Company might be able to obtain a higher bid from
Entity One or Entity Two by extending the process, continuing conversations and
providing additional information to such entities. The representatives of
William Blair & Company also advised the Board regarding the risk that the
Parent might withdraw from the process if the timeline was extended. After
discussing this with representatives of William Blair & Company, the Board of
Directors determined that it would be willing to forgo additional discussions
with Entity One and Entity Two if Parent was willing to increase its offer by a
sufficient degree. In the event that the Parent was unwilling to increase its
offer sufficiently, the Board directed William Blair & Company and management to
continue to explore discussions with Entity One and Entity Two as well as
Parent.
On May 14, 1999, representatives of William Blair & Company held a telephone
conversation with representatives of Parent to determine whether Parent had
submitted its best and final offer. Subsequent to such conversation, Entity Two
contacted the Company's Chairman and indicated that it remained interested in
pursuing a possible business combination with the Company. Following such
conversations, on May 14, representatives of Parent advised representatives of
William Blair & Company that Parent had increased its offer to $25.00 per Share.
Representatives of William Blair & Company communicated the increased offer to
senior management of the Company, who communicated such information to the
members of the Board of Directors. Based upon William Blair & Company's report,
the members of the Board of Directors concluded that an extension of time to
Entity One and Entity Two might cause Parent to withdraw its final offer.
William Blair & Company and management also expressed the view that, while
Entity One and Entity Two might ultimately make offers competitive with Parent's
offer of $23.50 per Share if the process was delayed, Entity One and Entity Two
were unlikely to deliver a binding offer which would be competitive with
Parent's final offer of $25.00 per Share. The Board authorized management and
its legal advisors to seek to negotiate a merger agreement with Parent, subject
to the Board of Directors' approval of the form of merger agreement and related
transaction documents. Following these discussions, representatives of William
Blair & Company contacted representatives of Parent and advised them that the
Company was prepared to accept Parent's revised offer, subject to the
negotiation of a merger agreement and related transaction documents.
Between May 14, 1999 and May 16, 1999, the Company's counsel revised the
proposed merger agreement and related transaction documents to reflect certain
changes proposed in the mark-up of such agreement delivered by Parent at the
time of its initial offer, and to make certain other changes recommended by the
Company's counsel and other representatives of the Company.
On May 17, 1999, Entity One contacted the Company's Chairman again to
indicate that it remained interested in pursuing a possible business combination
with the Company.
Between May 17 and May 18, 1999, management and the legal and financial
advisors of the Company and the Parent met in Chicago, Illinois to negotiate the
merger agreement and discuss transaction structure issues. The merger agreement
and related transaction documents were revised to reflect such discussions.
On May 18, 1999, the Board of Directors of the Company met with its legal
and financial advisors to consider the proposed Merger Agreement. At that
meeting, William Blair & Company made a financial presentation in respect of the
proposed Offer and Merger and delivered a written opinion to the effect that, in
its opinion, as of such date, the consideration to be paid to the stockholders
of the Company in the Offer and the Merger was fair, from a financial point of
view, to such stockholders. A copy of the opinion of William Blair & Company
appears as Annex A hereto. At this meeting, the Board was also apprised of the
final terms of the Stockholder Agreements. In addition, the Board was presented
with a proposed amendment to the Stockholders Rights Agreement which would
render the Stockholders Rights Agreement inapplicable to the Offer and the
Merger. The terms of the Merger
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Agreement, the Stockholder Agreements and the amendment to the Stockholders
Rights Agreement were reviewed with the Board by legal counsel to the Company.
Following a number of questions from, and discussions among, the directors, the
Board of Directors of the Company (i) approved and adopted the Merger Agreement
and determined that the Offer and the Merger, considered as a whole, are fair to
and in the best interests of the Company and its stockholders, (ii) recommended
that the Company's stockholders tender their Shares in the Offer and approve and
adopt the Merger Agreement and the Merger, (iii) approved the Stockholder
Agreements and (iv) approved the amendment to the Company's Stockholders Rights
Agreement.
Following the meeting of the Board of Directors, on May 19, 1999, the Merger
Agreement and the Stockholder Agreements were executed and delivered by the
parties thereto. The amendment to the Stockholders Rights Agreement was also
executed and delivered to the Rights Agent for execution. An announcement
concerning the Offer and the Merger was made on May 19, 1999 prior to the
commencement of trading on the Nasdaq National Market.
REASONS FOR RECOMMENDATION
In reaching the determinations described in paragraph (a) above, the Board
of Directors of the Company considered a number of factors, including the
following:
(1) The consideration proposed to be paid by Parent pursuant to the
Offer and the Merger relative to the historical financial condition, results
of operations, and cash flows of the Company and the business and strategic
objectives of the Company.
(2) The familiarity of the Board of Directors with the business,
projected financial condition, results of operations and cash flows and
prospects of the Company, as well as the risks involved in achieving those
projections and prospects.
(3) The current economic and market conditions, overall, regionally and
in the dental benefits industry.
(4) The detailed financial and valuation analyses presented to the Board
of Directors by William Blair & Company on May 18, 1999, which included,
among other things, (a) a chronology of events leading to the Merger
Agreement, (b) a summary of William Blair & Company's marketing efforts and
process, (c) a summary of the financial terms of the Merger Agreement, (d) a
review of the Company's historical and projected financial performance and
other data provided to William Blair & Company by the Company, (e) a review
of the historical stock prices and trading volumes of the Shares, (f) a
comparison of the trading performance of the Shares with that of the S&P 500
Index and comparable companies and indices, (g) an analysis of the value of
the Company based on comparable company multiples, (h) an analysis of the
value of the Company based on comparable acquisition transactions in the
dental benefits industry and the health care benefits industry, (i) an
analysis of the value of the Company using a discounted cash flow analysis,
and (j) a dilution analysis of the amount a buyer could pay for the Company
without diluting its earnings per share.
(5) The fact that the $25.00 per Share to be received by the Company's
stockholders in both the Offer and the Merger represents a significant
premium over the closing market price of $18.625 per Share on May 18, 1999
(the day of the Board of Directors meeting referred to above under "Certain
Background Information"), and the fact that such price represents an even
greater premium when considering the market price of the Shares in the weeks
and months prior to such date.
(6) Discussions with other parties and other proceedings and events
relating to the consideration of a possible business combination involving
the Company, as described above under "Certain Background Information."
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(7) Management's views, and William Blair & Company's advice to the
Board of Directors, regarding the likelihood of a superior transaction.
(8) The written opinion dated as of May 18, 1999 of William Blair &
Company that, as of such date and based upon and subject to the various
considerations set forth in its opinion, the consideration to be received by
the holders of Shares pursuant to the Merger Agreement is fair from a
financial point of view to such holders.
(9) The relationship of the Offer Price to the historical market price
of the Shares and to the Company's book value and net asset value per Share.
(10) The terms and conditions of the Merger Agreement and the course of
the negotiations resulting in the execution thereof, including the terms of
the Merger Agreement that permit the Company's Board of Directors, in the
exercise of its fiduciary duties and subject to certain conditions, to
furnish information to or enter into discussions or negotiations with, any
third party that makes a Superior Proposal (although the Company is not
permitted by the Merger Agreement to initiate, solicit or encourage any
third party bids), and under certain circumstances to terminate the Merger
Agreement. The Company's directors noted that the Merger Agreement provides
that, under certain circumstances involving a third party transaction, the
Company would be obligated to pay Parent a termination fee of $3.9 million
(representing approximately 4% of the total consideration) plus reimburse
Parent for up to $1.5 million of expenses. See "Merger Agreement-- Fee and
Expenses."
(11) The likelihood that the proposed acquisition would be consummated,
considering, among other things, the likelihood of satisfaction of the
regulatory approvals required pursuant to, and the other conditions to the
Offer and the Merger contained in, the Merger Agreement, and the risks to
the Company if the acquisition were not consummated.
(12) The financial strength of Parent and the absence of any financing
condition in the Offer or in the Merger Agreement.
(13) The decision by the Selling Stockholders to enter into the
Stockholder Agreements.
(14) The recommendation of the Company's management with respect to the
proposed acquisition.
(15) The alternatives available to the Company, including the alternative
of continuing its status as an independent company considering, among other
things, developments in the dental benefits industry.
(16) The tax treatment of the Merger to the stockholders of the Company.
(17) The experience and judgment of the members of the Board of
Directors.
(18) The fact that the Board of Directors has, over the course of
numerous meetings, carefully considered and deliberated extensively about
all information reasonably available to it and which it believes is relevant
to the Offer and the Merger.
(19) The fact that the Board of Directors has taken an active and direct
role relative to the Offer and the Merger.
The foregoing is not intended to be exhaustive, but is intended to include
many of the material factors considered by the Company's Board of Directors. In
view of the complexity and variety of the issues, the Board did not attempt to
quantify or otherwise attempt to assign any relative or specific weight to the
specific factors considered, and individual directors may have given different
weights to the different factors.
As described above, one of the factors considered by the Board was the
opinion of William Blair & Company that the consideration to be received by the
holders of Shares pursuant to the
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<PAGE>
Merger Agreement is fair from a financial point of view to such holders. The
full text of the written opinion of William Blair & Company, dated as of May 18,
1999, which sets forth assumptions made, procedures followed, matters considered
and limits on the review undertaken, is attached as Annex A to this statement
and incorporated by reference herein. The Company's stockholders are urged to
read this opinion in its entirety. William Blair's opinion is directed only to
the fairness of the consideration to be received by the holders of Shares from a
financial point of view to such holders and does not constitute a recommendation
as to whether or not any holder of Shares should tender his or her shares
pursuant to the Offer.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The only other person or entity employed, retained or compensated by the
Company to make solicitations or recommendations to security holders on its
behalf concerning the Offer is William Blair & Company, L.L.C., the Company's
financial advisor. Pursuant to a letter agreement dated as of March 15, 1999,
William Blair & Company, provided certain financial advisory and investment
banking services to the Company in connection with the exploration of possible
business combinations of the Company with another party. In connection with such
activities, William Blair & Company identified and contacted various potential
purchasers of the Company and assisted the Company during the Merger
negotiations with Parent. See subsection "Item 4--Certain Background
Information" for a more detailed description of the actions taken by William
Blair & Company
Pursuant to the March 15, 1999 letter agreement between the Company and
William Blair & Company, the Company paid William Blair & Company a fee of
$50,000 upon the execution of such letter and an additional fee of $300,000 for
the delivery of the opinion as to the fairness from a financial point of view of
the Offer and Merger. The Company has not yet paid the $300,000 opinion fee. The
Company also agreed to pay William Blair & Company an additional fee upon
consummation of the Offer or Merger, less any fees previously paid. Pursuant to
the engagement letter, if a transaction is consummated at a price below $18.00
per Share, William Blair & Company would be paid 1.1% of the total consideration
received by the Company and its stockholders. Between $18.00 and $24.99 per
Share, the additional fee is based on a sliding scale correlated to the total
consideration received by the Company and its stockholders on a per Share basis.
In the event that the per Share consideration is $25.00 or greater, William
Blair & Company will be paid 1.33% of the total consideration to be received by
the Company and its stockholders. Accordingly, if the Offer or the Merger is
consummated at a price of $25.00 per Share, the total fee payable to William
Blair & Company would be $1,299,032, less the $50,000 retainer fee previously
paid, and less the $300,000 opinion fee, if paid prior to such time.
The Company has also agreed to reimburse William Blair & Company for certain
of its out-of-pocket expenses up to $25,000. In addition, the Company has agreed
to indemnify and hold harmless William Blair & Company and its affiliates and
their respective directors, officers, employees and controlling persons against
certain liabilities and expenses, including liabilities under the federal
securities laws, arising out of or in connection with its rendering of services
under such letter.
William Blair & Company and its affiliates from time to time provide
financial advisory services for the Company and have received fees for the
rendering of these services.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any other person to make solicitations or
recommendations to security holders on its behalf concerning the Offer.
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<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in Shares have
been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company, except that on
April 9, 1999, the Company issued 1,500 Shares to an employee upon the
exercise of stock options and on April 22, 1999, the Company acquired 5
Shares as treasury stock from an employee.
(b) To the best of the Company's knowledge, all of its executive officers
and directors currently intend to tender to the Offeror, pursuant to the
Offer, all Shares which are held of record or beneficially owned by such
persons except for certain Shares purchasable upon exercise of options,
which options will be canceled pursuant to the Merger Agreement in
exchange for the cash payment as described in Item 3 above.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Items 2, 3 and 4 hereof, no negotiation is
underway or is being undertaken by the Company in response to the Offer
which relates to or could result in (i) an extraordinary transaction,
such as a merger or reorganization, involving the Company or any of its
subsidiaries; (ii) a purchase, sale or transfer of a material amount of
assets by the Company or any of its subsidiaries; (iii) a tender offer
for or other acquisition of securities by or of the Company; or (iv) any
material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in Items 3 and 4 hereof, there are no transactions,
board resolutions, agreements in principle or signed contracts in
response to the Offer, which relate to or would result in one or more of
the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
RIGHTS AGREEMENT.
On October 20, 1995, the Board of Directors declared a dividend of one
preferred stock purchase right (a "Right") for each outstanding share of Common
Stock of the Company. The dividend was paid to holders of record of the Common
Stock on November 16, 1995, the effective date of the Company's initial public
offering registration statement (the "Record Date"). Each Right entitles the
holder thereof (except as described below) to purchase from the Company one
one-hundredth of a share of the Series A Junior Participating Preferred Stock,
$.001 par value (the "Preferred Shares"), of the Company at a price (the
"Exercise Price") of $40.00 per one one-hundredth of a Preferred Share, subject
to adjustment. The terms of the Rights are set forth in the Stockholders Rights
Agreement dated as of November 1, 1995, as amended (the "Rights Agreement")
between the Company and First Chicago Trust Company of New York, as Rights Agent
(the "Rights Agent"). The Company has amended the Rights Agreement to render the
Rights Agreement inapplicable with respect to the Offer, the Merger and the
other transactions contemplated by the Merger Agreement.
The following is a general description of the Rights Agreement, as so
amended, and is qualified in its entirety by copies of the Rights Agreement and
amendments thereto which are filed as exhibits hereto and is incorporated herein
by reference. All undefined capitalized terms used in the discussion below are
used as defined in the Rights Agreement.
The Rights associated with the Common Stock outstanding as of the Record
Date currently are evidenced solely by the stock certificates for such Common
Stock. The Rights will separate from the Common Stock upon the earlier to occur
of (i) 10 Business Days after the first public announcement that any Person
(other than an Exempt Person (as hereinafter defined)) has become an Acquiring
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<PAGE>
Person (as hereinafter defined) and (ii) 10 Business Days (or such other
Business Day as may be determined by action of the Board prior to the time that
any Person shall become an Acquiring Person (as hereinafter defined) after the
commencement by any Person (other than an Exempt Person) of, or the first public
announcement of its intention to commence, a tender or exchange offer if, upon
the consummation thereof, such Person would be the Beneficial Owner of 15% or
more of the outstanding shares of Common Stock (the earlier of the dates
specified in clauses (i) and (ii) being hereinafter called the "Distribution
Date"). Notwithstanding the foregoing or any provision to the contrary in the
Rights Agreement, a Distribution Date shall not occur by reason of the execution
of the Merger Agreement, the announcement of the Offer, the consummation of the
Offer, the consummation of the Merger, or any other transaction contemplated by
the Merger Agreement. After the Distribution Date, the Rights will be evidenced
solely by separate certificates and will trade independently from the Common
Stock.
An "Acquiring Person" is any Person who or which, together with its
Affiliates and Associates, has acquired 15% or more of the shares of Common
Stock then outstanding, but does not include (i) the Company, (ii) any
Subsidiary of the Company, (iii) any employee benefit plan or other compensation
program or arrangement of the Company or of any such Subsidiary or (iv) any
Person holding shares of Common Stock for or pursuant to the terms of any such
plan, program or arrangement (the Persons specified in clauses (i) through (iv)
being herein collectively called "Exempt Persons"). Notwithstanding the
foregoing, if the Board of Directors of the Company determines in good faith
that a Person who would otherwise be an "Acquiring Person," has become so
inadvertently, and such Person divests as promptly as practicable a sufficient
number of shares of Common Stock so that such Person would no longer be an
"Acquiring Person," then such Person shall not be deemed to be an "Acquiring
Person." Notwithstanding anything in the Rights Agreement to the contrary,
neither Parent, nor any of its Affiliates or Associates, including but not
limited to, Offeror, is or shall be deemed to be an Acquiring Person as a result
of (i) the execution and delivery of the Merger Agreement, or (ii) any action
taken by Parent, Offeror or any of their Affiliates, Associates or shareholders
in accordance with the provisions of the Merger Agreement, including, without
limitation, the initiation or consummation of the Offer or the consummation of
the Merger in accordance with the provisions of the Merger Agreement.
Notwithstanding the foregoing, upon termination of the Merger Agreement in
accordance with its terms, the preceding sentence shall become null and void and
of no further force or effect.
A "Share Acquisition Date" is the first date on which there is a public
announcement, such as a press release or a filing with the Securities and
Exchange Commission, by the Company or an Acquiring Person that an Acquiring
Person has become such. The Second Amendment to the Rights Agreement provides
that a Share Acquisition Date shall not occur by reason of the execution of the
Merger Agreement, the announcement of the Offer, the consummation of the Offer,
the consummation of the Merger, or any other transaction contemplated by the
Merger Agreement. Notwithstanding the foregoing, upon termination of the Merger
Agreement in accordance with its terms, the preceding sentence shall become null
and void and of no further force or effect.
The Rights Agreement provides that, until the Distribution Date (or the
earlier redemption or expiration of the Rights), the Rights may be transferred
only with the associated shares of Common Stock. Until the Distribution Date (or
the earlier redemption or expiration of the Rights), stock certificates for
Common Stock issued after the Record Date, either upon transfer of outstanding
shares or original issuance of additional shares of Common Stock, will contain a
legend incorporating the Rights Agreement by reference. Until the Distribution
Date (or the earlier redemption or expiration of the Rights), the surrender for
transfer of any stock certificate for shares of Common Stock, with or without
such legend and whether or not a copy of this Summary of Rights is attached
thereto, will also constitute the transfer of the Rights associated with the
shares of Common Stock represented by such stock certificate.
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<PAGE>
As soon as practicable after the Distribution Date, separate certificates
evidencing the Rights ("Rights Certificates") will be mailed to the holders of
record of the Common Stock as of the Close of Business on the Distribution Date,
which thereafter will constitute the sole evidence of the Rights. Each share of
Common Stock issued by the Company after the Record Date and prior to the
earlier redemption or expiration of the Rights, including any shares of Common
Stock issued by reason of the exercise of any option, warrant, right (other than
the Rights) or conversion or exchange privilege (however evidenced) issued by
the Company prior to the Distribution Date, will be accompanied by a Right
(unless the Board expressly provides to the contrary at the time of issuance of
any such option, warrant, right or privilege), and Rights Certificates
evidencing such Rights will be issued at the same time as the stock certificates
for the associated shares of Common Stock.
The Rights are not exercisable until the Distribution Date. Moreover, the
time when the Rights may be exercised is restricted as described in the next
paragraph. The Rights will expire on the tenth anniversary of the Record Date
(the "Final Expiration Date"), unless the Final Expiration Date is extended or
unless the Rights are earlier redeemed or exchanged by the Company, in each case
as described below.
In the event that any Person becomes an Acquiring Person (a "Section
11(a)(ii) Event" as defined in the Rights Agreement), proper provision will be
made so that the registered holder of each Right (other than Rights Beneficially
Owned as described in the next sentence) will thereafter have the right to
receive, upon exercise thereof, the number of shares of Common Stock which, at
the time of the occurrence of such event, will have a market value equal to two
times the then current Exercise Price. After the occurrence of the event
described in the preceding sentence, all Rights which are, or (under certain
circumstances specified in the Rights Agreement) were, Beneficially Owned by a
Restricted Person or specified transferees therefrom will be or become void.
Under no circumstances may a Right be exercised after the occurrence of either
such event unless the Company's right to redeem the Rights (as described below)
has expired. The Second Amendment to the Rights Agreement provides that a
Section 11(a)(ii) Event shall not occur by reason of the execution of the Merger
Agreement, the announcement of the Offer, the consummation of the Offer, the
consummation of the Merger, or any other transaction contemplated by the Merger
Agreement. Notwithstanding the foregoing, upon termination of the Merger
Agreement in accordance with its terms, the preceding sentence shall become null
and void and of no further force or effect.
If, on or after the date on which any Person has become an Acquiring Person,
any of the following transactions (each a "Section 13 Event" as defined in the
Rights Agreement) occur: (i) the Company merges into or consolidates with an
Interested Stockholder (as hereinafter defined) or, unless all holders of the
Company's outstanding shares of Common Stock are treated the same, another
Person (with limited designated exceptions); (ii) an Interested Stockholder or,
unless all holders of the Company's outstanding shares of Common Stock are
treated the same, another Person (with limited designated exceptions) merges
into the Company and either (A) all or part of the outstanding shares of Common
Stock of the Company are converted into capital stock or other securities of any
other Person (or the Company), cash and/or other property or (B) such shares
remain outstanding, unconverted and unchanged; or (iii) the Company sells or
transfers 50% or more of its consolidated assets or earning power to an
Interested Stockholder (as hereinafter defined) or, unless all holders of the
Company's outstanding shares of Common Stock are treated the same, another
Person (with limited designated exceptions); proper provision will be made so
that the registered holder of each Right (other than Rights which have become
void) will thereafter have the right (the "Flip-Over Right") to receive, upon
exercise thereof, the number of common shares of the acquiror (or of another
Person affiliated therewith) which, at the time of consummation of such
transaction, will have a market value equal to two times the then current
Exercise Price. An "Interested Stockholder" is any Restricted Person or any
Affiliate or Associate of any other Person in which such Restricted Person has
an interest, or any Person acting, directly or indirectly, on behalf of or in
concert with any such Restricted Person. The
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Second Amendment to the Rights Agreement provides that a Section 13 Event shall
not occur by reason of the execution of the Merger Agreement, the announcement
of the Offer, the consummation of the Offer, the consummation of the Merger, or
any other transaction contemplated by the Merger Agreement. Notwithstanding the
foregoing, upon termination of the Merger Agreement in accordance with its
terms, the preceding sentence shall become null and void and of no further force
or effect.
The Second Amendment to the Rights Agreement provides that a Triggering
Event (which is defined in the Rights Agreement to be any Section 11(a)(ii)
Event or any Section 13 Event) shall not occur by reason of the execution of the
Merger Agreement, the announcement of the Offer, the consummation of the Offer,
the consummation of the Merger, or any other transaction contemplated by the
Merger Agreement. Notwithstanding the foregoing, upon termination of the Merger
Agreement in accordance with its terms, the preceding sentence shall become null
and void and of no further force or effect.
The Exercise Price payable, the number and kind of shares of capital stock
issuable upon exercise of the Rights and the number of Rights outstanding are
subject to adjustment from time to time to prevent dilution (i) in the event of
a dividend payable in Preferred Shares on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to the holders of
the Preferred Shares of certain options, warrants or rights to subscribe for or
purchase Preferred Shares at a price, or securities convertible into or
exchangeable for Preferred Shares with a conversion or exchange price, less than
the then Fair Market Value of the Preferred Shares or (iii) upon the
distribution to the holders of the Preferred Shares of cash, securities,
evidences of indebtedness or other property (other than a regular quarterly cash
dividend or a dividend payable in Preferred Shares) or options, warrants or
rights (other than those referred to in clause (ii) above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a dividend on the Common Stock payable in shares of
Common Stock or a subdivision, combination or reclassification of the Common
Stock occurring, in any such case, prior to the Distribution Date.
With certain specified exceptions, no adjustment in the Exercise Price will
be made until the cumulative adjustments required equal at least 1% of the
Exercise Price. The Company is not required to issue fractional Preferred Shares
(other than fractions which are multiples of one one-hundredth of a Preferred
Share), but in lieu thereof the Company would be required to make a cash payment
based on the Fair Market Value of the Preferred Shares on the trading day
immediately preceding the date of exercise.
The Preferred Shares receivable upon exercise of the Rights will not be
redeemable. Each Preferred Share will entitle the holder thereof to receive a
preferential quarterly dividend equal to 100 times the aggregate per share
amount of all cash dividends, plus 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends and other distributions (other than
in shares of Common Stock), declared on the Common Stock during such quarter,
adjusted to give effect to any dividend on the Common Stock payable in shares of
Common Stock or any subdivision, combination or reclassification of the Common
Stock (a "Dilution Event"). Each Preferred Share will entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Company, voting together as a single class with the holders of the Common Stock
and the holders of any other class of capital stock having general voting
rights, adjusted to give effect to any Dilution Event. In the event of
liquidation of the Company, the holder of each Preferred Share will be entitled
to receive a preferential liquidation payment equal to 100 times the aggregate
per share amount to be distributed to the holders of the Common Stock, adjusted
to give effect to any Dilution Event, plus an amount equal to accrued and unpaid
dividends and distributions on such Preferred Share, whether or not declared, to
the date of such payment. In the event of any merger, consolidation or other
transaction in which the outstanding shares of Common Stock of the Company are
exchanged for or converted into other
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<PAGE>
capital stock, securities, cash and/or other property, each Preferred Share will
be similarly exchanged or converted into 100 times the per share amount
applicable to the Common Stock, adjusted to give effect to any Dilution Event.
Because of the nature of the dividend, voting, liquidation and other rights
accorded to each Preferred Share, the value of the one one-hundredth of a
Preferred Share receivable upon the exercise of each Right should approximate
the value of one share of Common Stock.
At any time prior to the earliest of (i) 10 Business Days after the first
public announcement that any Person (other than an Exempt Person) has become an
Acquiring Person, (ii) the occurrence of any transaction which permits the
exercise of the Flip-Over Right and (iii) the Final Expiration Date, the Board
may redeem the Rights in whole, but not in part, at the redemption price of $.01
per Right, adjusted to give effect to any Dilution Event (the "Redemption
Price"). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as the Board, in its sole discretion, may
establish. After the redemption period has expired, the Company's right of
redemption may be reinstated, under the circumstances specified in the Rights
Agreement, if either (i) the Person who became an Acquiring Person shall reduce,
in one or a series of related transactions not involving the Company or any
Subsidiary or the occurrence of any transaction which permits the exercise of
the Flip-Over Right, its Beneficial Ownership of the outstanding shares of
Common Stock to less than 10% of such outstanding shares or (ii) in connection
with any transaction which permits the exercise of the Flip-Over Right, which
does not involve an Interested Stockholder and in which all holders of the
Common Stock are treated the same. Immediately after action by the Board
directing the redemption of the Rights, the option to exercise the Rights will
terminate, and thereafter each registered holder of the Rights will only be
entitled to receive the Redemption Price therefor.
At any time after any Person has become an Acquiring Person and prior to the
time that any Person (other than an Exempt Person), together with its Affiliates
and Associates, has become the Beneficial Owner of 50% or more of the
outstanding shares of Common Stock, the Board may direct that all or any part of
the outstanding Rights (other than Rights which have become void) be exchanged
for shares of Common Stock at the exchange rate of one share of Common Stock (or
one one-hundredth of a Preferred Share or of another share of capital stock of
the Company having equivalent rights, preferences and privileges) per Right,
adjusted to give effect to any Dilution Event.
Prior to the Distribution Date, the terms of the Rights and the Rights
Agreement may be supplemented or amended by the Board in any manner. From and
after the Distribution Date, the Rights may be supplemented or amended by the
Board, without the approval of the holders of the Rights, in certain respects
which do not adversely affect, as determined by the Board, the interests of such
holders; provided, however, that the Rights Agreement cannot be amended to
lengthen (i) any time period unless such lengthening is for the benefit of the
holders of the Rights or (ii) any time period relating to when the Rights may be
redeemed if at such time the Rights are not then redeemable.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
1. Agreement and Plan of Merger, dated as of May 19, among the Company, The Guardian Life Insurance
Company of America, a New York corporation ("Parent"), and Floss Acquisition Corp., a Delaware
corporation ("Offeror") and wholly-owned subsidiary of Parent.
2. Agreement relating to Confidentiality, dated March 24, 1999, between Parent and the Company.
3. Stockholder Agreement dated May 19, 1999 between Christopher C. Multhauf and Parent.
4. Stockholder Agreement dated May 19, 1999 between David W. Mulligan and Parent.
5. Press Release of the Company and Parent issued on May 19, 1999.
6. Incentive/Stay Bonus Agreement, dated as of May 14, 1999, between the Company and Christopher C.
Multhauf.
7. Incentive/Stay Bonus Agreement, dated as of May 14, 1999, between the Company and David W.
Mulligan.
8. Incentive/Stay Bonus Agreement, dated as of May 14, 1999, between the Company and Scott B. Sanders.
9. Amended and Restated Employment Agreement, dated February 12, 1999, between the Company and
Christopher C. Multhauf.
10. Amended and Restated Employment Agreement, dated February 12, 1999, between the Company and David
W. Mulligan.
11. Amendment, dated May 14, 1999, to the Amended and Restated Employment Agreement, dated February 12,
1999, between the Company and Christopher C. Multhauf.
12. Amendment, dated May 14, 1999, to the Amended and Restated Employment Agreement, dated February 12,
1999, between the Company and David W. Mulligan.
13. Non-binding letter agreement dated May 18, 1999 between Christopher C. Multhauf and Parent.
14. Non-binding letter agreement dated May 18, 1999 between David W. Mulligan and Parent.
15. Company's Severance Policy.
16. Stockholders Rights Agreement dated November 1, 1995 between the Company and First Chicago Trust
Company of New York.
17. First Amendment to Stockholders Rights Agreement dated December 15, 1998.
18. Second Amendment to Stockholders Rights Agreement, dated May 19, 1999.
19. Letter to Stockholders of the Company, dated May 25, 1999.
20. Opinion of William Blair & Company, L.L.C., dated May 18, 1999*
</TABLE>
- ------------------------
* Included as Annex A in copy mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
FIRST COMMONWEALTH, INC.
By: /s/ CHRISTOPHER C. MULTHAUF
-----------------------------------------
Christopher C. Multhauf
Chairman and Chief Executive Officer
Dated: May 25, 1999
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ANNEX A
OPINION OF WILLIAM BLAIR & COMPANY
LIMITED LIABILITY COMPANY
May 18, 1999
Board of Directors
First Commonwealth, Inc
444 North Wells Street, Suite 600
Chicago, Illinois 60610
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the Shareholders (other than The Guardian Life Insurance Company of
America or any of its affiliates) of First Commonwealth, Inc ("the Company") of
the consideration to be received pursuant to the terms of the Agreement and Plan
of Merger to be dated as of May 19, 1999 (the "Merger Agreement") by and among
The Guardian Life Insurance Company of America ("Guardian"), Floss Acquisition
Corp., a wholly-owned subsidiary of Guardian ("Purchaser"), and the Company.
Pursuant to the terms of, and subject to the conditions of, the Merger
Agreement, Purchaser will make a tender offer (the "Tender Offer") at $25.00 per
share for all of the outstanding shares of the Company (the "Consideration").
Following consummation of the Tender Offer, Purchaser will be merged with and
into the Company in a merger ("Merger") in which all of the outstanding shares
of the Company (other than shares owned by Guardian, Purchaser or the Company or
their subsidiaries) will be converted into the right to receive the
Consideration (the transactions pursuant to the Merger Agreement are
collectively, the "Transaction").
We are familiar with the Company having provided certain investment banking
services for the Company from time to time, including acting as the Company's
lead managing underwriter in the Company's November 1995 initial public offering
of common stock. In the ordinary course of our business, we actively trade in
the equity securities of the Company for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have examined, (a) the Merger Agreement;
(b) audited financial statements of the Company for the four fiscal years ended
December 31, 1998; (c) the unaudited quarterly financial statements of the
Company for the period ended March 31, 1999; (d) certain internal financial
information and forecasts for the Company, prepared by management of the Company
and (e) certain other publicly available information on the Company. We have
also held discussions with members of the senior management of the Company to
discuss the foregoing, and have considered other matters which we have deemed
relevant to our inquiry.
Although we have no reason to believe that any of the financial or other
information on which we have relied is not accurate or complete, we have assumed
the accuracy and completeness of all such information and have not attempted to
verify independently any of such information, nor have we made or obtained an
independent appraisal of the assets of the Company. With respect to financial
forecasts, we have assumed that such forecasts have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. We
express no opinion with respect to the financial forecasts or the estimates and
judgments on which they are based. Our opinion herein is based upon economic,
market, financial and other conditions existing on, and other information
disclosed to us and that can
A-1
<PAGE>
be evaluated as of, the date of this letter. It should be understood that,
although subsequent developments may affect this opinion, we do not have any
obligation to update, revise or reaffirm this opinion. We have relied as to all
legal matters on advice of counsel to the Company. In rendering our opinion, we
have assumed that the Transaction will be consummated on the terms described in
the Merger Agreement, without any waiver of any material terms or conditions by
the Company.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including (a) historical revenues, operating earnings, operating cash flows, net
income and capitalization, as to the Company and certain publicly held companies
in businesses we believe to be comparable to the Company; (b) the current
financial position and results of operations of the Company; (c) the historical
market prices and trading volume of the Common Stock of the Company; (d)
financial information concerning selected actual and proposed business
combinations which we believe to be relevant; and (e) the general condition of
the securities markets.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is not a recommendation to the
Company's shareholders with respect to the Transaction.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of this opinion, the Company will pay us a fee, a significant portion
of which is contingent upon consummation of the Transaction. In addition, the
Company has agreed to indemnify us against certain liabilities arising out of
our engagement.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of date hereof, the Consideration to be paid to the
Shareholders of the Company in the Transaction is fair, from a financial point
of view, to such Shareholders.
Very truly yours,
/s/ Scott Patterson
--------------------------------------
WILLIAM BLAIR & COMPANY, L.L.C.
A-2
<PAGE>
ANNEX B
FIRST COMMONWEALTH, INC.
444 NORTH WELLS, SUITE 600
CHICAGO, ILLINOIS 60610
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about May 25, 1999, as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of First Commonwealth, Inc. (the "Company") with respect to the tender
offer by Floss Acquisition Corp. (the "Offeror"), a wholly-owned subsidiary of
The Guardian Life Insurance Company of America ("Parent") to the holders of
record of the Company's Common Stock, par value $.001 per share, including the
associated preferred stock purchase rights (collectively, the "Shares").
Capitalized terms used and not otherwise defined herein shall have the meaning
set forth in the Schedule 14D-9. You are receiving this Information Statement in
connection with the possible election of persons designated by the Offeror to a
majority of the seats on the Board of Directors of the Company (the "Board").
This Information Statement is required by Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder. The Merger Agreement provides that promptly upon the
Offeror having acquired a majority of the Shares on a fully diluted basis, the
Offeror will be entitled to designate such number of directors on the Board of
Directors of the Company as will give the Offeror, subject to compliance with
Section 14(f) of the Exchange Act of 1934, a percentage of all directors rounded
up to the nearest whole number equal to the percentage of the outstanding Shares
then owned by the Offeror, and the Company will, at such time, cause the
Offeror's designees to be so elected by its existing Board of Directors.
However, in the event that the Offeror's designees are so elected to the Board
of Directors of the Company, until the Effective Time such Board of Directors
must have at least three directors who are directors on the date of the Merger
Agreement and who are not officers of the Company (the "Independent Directors").
In such event, if the number of Independent Directors is reduced below three for
any reason, the remaining Independent Directors or Director will designate a
person or persons to fill such vacancy or vacancies, each of whom will be deemed
to be an Independent Director or, if there are no Independent Directors, the
other directors will designate three persons to fill such vacancies with persons
who are not officers or affiliates of the Company or any of its Subsidiaries, or
officers or affiliates of the Offeror or any of its Subsidiaries, as Independent
Directors. In connection with the foregoing, the Company will promptly, increase
the size of the Company's Board of Directors, or remove or cause the resignation
of sufficient directors to enable the Offeror's designees to be elected or
appointed to, and to constitute a majority of the directors on, the Company's
Board of Directors as provided above.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
The initial expiration date of the Offer is June 23, 1999. The obligation of
the Offeror to commence the Offer and accept for payment, and pay for, any
Shares tendered pursuant to the Offer is subject to the satisfaction or waiver
of certain conditions. The Offeror may, without the consent of the Company,
extend the Offer (i) if at the then scheduled expiration date of the Offer any
of the conditions to the Offeror's obligation to accept for payment and pay for
shares of Common Stock have not been satisfied or waived, until the fifth
business day after the date the Offeror reasonably believes to be the earliest
date on which such conditions will be satisfied; (ii) for any period required by
any rule, regulation, interpretation or position of the Securities and Exchange
Commission or its staff applicable to the Offer; or (iii) for an aggregate
period of not more than ten business days (for all such
B-1
<PAGE>
extensions) notwithstanding the satisfaction of all conditions to the Offer.
Parent and the Offeror have agreed that if at any scheduled expiration date of
the Offer, the Minimum Condition, the Insurance Regulatory Condition or the HSR
Condition (as such terms are defined in the enclosed Offer to Purchase) shall
not have been satisfied, but at such scheduled expiration date each of the other
conditions set forth in the Offer to Purchase shall then be satisfied, at the
request of the Company, Offeror shall extend the Offer from time to time,
subject to the right of Parent, Offeror or the Company to terminate the Merger
Agreement pursuant to the terms thereof.
The information contained in this Information Statement concerning the
Offeror and Parent has been furnished to the Company by Parent, and the Company
assumes no responsibility for the accuracy, completeness or fairness of any such
information.
At the close of business on May 24, 1999, there were 3,730,135 shares of
Common Stock issued and outstanding, which is the only class of securities
outstanding having the right to vote for the election of directors of the
Company, each of which entitles its record holder to one vote.
OFFEROR DESIGNEES
Set forth below are the name, age, current business address, citizenship,
present principal occupation or employment and employment history (covering a
period of not less than five years) of each director designee (the "Offeror
Designees") of the Offeror for the Company's Board or Directors. Unless
otherwise indicated, each such person's business address is 201 Park Avenue
South, New York, New York 10003. All persons listed below are citizens of the
United States of America.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AGE MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ----------------------------------- --- ----------------------------------------------------------------------
<S> <C> <C>
Joseph Anthony Caruso.............. 46 Vice President and Corporate Secretary of Parent since 1996; Second
Vice President and Corporate Secretary of Parent from 1995 to 1996;
Corporate Secretary of Parent from 1992 to 1995; Vice President and
Secretary of the Offeror.
Richard Allan Goren................ 43 National Dental Director and Second Vice President, Group Dental of
Parent since 1996; Director of Parent since 1997; Dental Director of
Parent from 1996 to 1999; Regional Dental Director of Parent from 1994
to 1996.
Frank Joseph Jones................. 60 Executive Vice President and Chief Investment Officer of Parent since
1991.
Gary Bert Lenderink................ 48 President of the Offeror; Senior Vice President, Group Insurance of
Parent since 1998; Vice President, Group Insurance of Parent from June
1997 to December 1997; Vice President, Group Pensions of Parent from
1995 to June 1997; Vice President, Group Marketing of Parent from 1992
to 1995.
Herschel Reich..................... 35 Vice President, Dental Plans of the Offeror; Vice President, Group
Health Care of Parent since 1997; Vice President, Group Dental of
Parent from 1996 to 1997; Second Vice President, Group Dental of
Parent from 1994 to 1996.
Debra R. Smith..................... 45 Vice President, Investment and Real Estate Counsel of Parent since
1996; Second Vice President, Real Estate from 1992 to 1996.
</TABLE>
It is expected that the Offeror Designees may assume office at any time
following the purchase by the Offeror of a specified minimum number of Shares
pursuant to the Offer, which purchase cannot be
B-2
<PAGE>
earlier than June 23, 1999, and that, upon assuming office, the Offeror
Designees will thereafter constitute at least a majority of the Board. This step
will be accomplished at a meeting or by written consent of the Board providing
that the size of the Board will be increased and/or sufficient numbers of
current directors will resign such that, immediately following such action, the
number of vacancies to be filled by the Offeror Designees will constitute at
least a majority of the available positions on the Board. It is currently not
known if or which of the current directors of the Company will resign. The
Offeror has informed the Company that each of the persons listed above has
consented to act as a director of the Company, if so designated.
None of the executive officers and directors of Parent or the Offeror
currently is a director of, or holds any position with, the Company. The Company
has been advised that, to the best knowledge of Parent and the Offeror, none of
Parent's or the Offeror's directors or executive officers beneficially owns any
equity securities, or rights to acquire any equity securities, of the Company
and none has been involved in any transactions with the Company or any of its
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the Securities and Exchange
Commission.
CURRENT DIRECTORS
The Board of Directors is presently composed of five directors, divided into
three classes. The current directors are identified below.
CLASS I DIRECTOR--TERM SCHEDULED TO EXPIRE IN 1999
WILLIAM J. MCBRIDE, age 54, has been the Chairman of Novaeon, Inc., a health
care consulting firm since 1997. Between August 1986 and December 1995, Mr.
McBride was President of Value Health, Inc., a company which provides managed
health care services primarily in pharmacy and mental health. He is also
Chairman of the Audit Committee and a member of the Stock Option Compensation
Committee of the Board of Directors of the Company.
CLASS II DIRECTORS--TERMS SCHEDULED TO EXPIRE IN 2000
DAVID W. MULLIGAN, age 41, is President, Chief Operating Officer and
Secretary of the Company. Mr. Mulligan is one of the founders of the Company and
has been a Director, Chief Operating Officer and Secretary of the Company since
1986. He has been the Company's President since 1995. Between 1986 and 1995, he
was the Executive Vice President of the Company. Mr. Mulligan is a member of the
Executive Committee of the Board of Directors of the Company. Mr. Mulligan is
also past President of the Virginia HMO Association and the former Chairman of
the National Association of Dental Plans. He holds a Master of Business
Administration degree from Samuel Johnson Graduate School of Business, Cornell
University. Pursuant to an employment agreement between the Company and David W.
Mulligan, the Company is required to take all reasonable efforts to cause Mr.
Mulligan to continue to be elected to the Board of Directors of the Company. See
"Executive Compensation and Other Information--Employment Agreements."
JACKSON W. SMART, JR., age 68, has been a Director of the Company since
1988. He is Chairman of the Executive Committee and the Compensation Committee
of the Board of Directors of the Company, and is a member of the Audit Committee
of the Board of Directors of the Company. Between March 1991 and August 1997,
Mr. Smart was the Chairman and Chief Executive Officer of MSP Communications,
Inc., a radio broadcasting company. Mr. Smart is a Director of Federal Express
Corporation and Evanston Northwestern Healthcare Corporation, and a Trustee of
the Goldman Sachs Trust, Goldman Sachs Equity Portfolios Inc., and Goldman Sachs
Money Market Trust.
B-3
<PAGE>
CLASS III DIRECTORS--TERM TO EXPIRE IN 2001
CHRISTOPHER C. MULTHAUF, age 44, is one of the Company's founders and has
been the Company's Chairman of the Board of Directors and Chief Executive
Officer since 1986. He was also the President between 1986 and 1995. He is a
member of the Executive Committee of the Board of Directors of the Company. Mr.
Multhauf is a former member of the board of directors of the National
Association of Dental Plans. He holds a Master of Business Administration degree
from Samuel Johnson Graduate School of Business, Cornell University. Pursuant to
an employment agreement between the Company and Christopher C. Multhauf, the
Company has agreed to employ Mr. Multhauf as its Chairman of the Board of
Directors and Chief Executive Officer. See "Executive Compensation and Other
Information--Employment Agreements."
RICHARD M. BURDGE, SR., age 72, is one of the founders of the Company and
has been a Director of the Company since 1987. He is a member of the
Compensation Committee, and is the Chairman of the Stock Option Compensation
Committee of the Board of Directors of the Company. Mr. Burdge has been
self-employed as a financial consultant for more than six years. Mr. Burdge was
formerly the Executive Vice President of CIGNA Corporation. Mr. Burdge is a
director of Pacificare Health Systems, a provider of managed health care and
insurance products.
MEETINGS AND COMMITTEES
The Board of Directors of the Company held five meetings during 1998. Each
director attended at least 75% of the meetings in 1998.
The Board of Directors does not presently have a formal nominating
committee.
The Audit Committee of the Board of Directors recommends the firm to be
appointed as independent accountants to audit financial statements and to
perform services related to the audit, reviews the scope and results of the
audit with the independent accountants, reviews with management and the
independent accountants the Company's year-end operating results and considers
the adequacy of the internal accounting procedures. The Audit Committee consists
of Messrs. William J. McBride (Chairman) and Jackson W. Smart, Jr. The Audit
Committee held one meeting in 1998, which was attended by both members of the
committee.
The Compensation Committee, which consists of Messrs. Jackson W. Smart, Jr.
(Chairman) and Richard M. Burdge, Sr., reviews and recommends the compensation
arrangements for all officers, approves such arrangements for other senior level
employees, and currently administers and takes such other action as may be
required in connection with certain compensation plans of the Company and its
subsidiaries, other than plans which are administered by the Stock Option
Compensation Committee. The Compensation Committee held one meeting in 1998,
which was attended by both members of the committee.
The Stock Option Compensation Committee of the Board of Directors consists
of Richard M. Burdge, Sr. (Chairman) and William J. McBride, each of whom are
"outside directors" within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended, and "Non-Employee Directors" within the meaning of
Section 16(b) of the Securities Exchange Act of 1934, as amended. The Stock
Option Compensation Committee administers and takes such other action as may be
required in connection with certain stock option and long-term incentive plans
of the Company. The Stock Option Compensation Committee held one meeting in
1998, which was attended by both members of the committee.
The Executive Committee of the Board of Directors consists of Jackson W.
Smart, Jr. (Chairman), Christopher C. Multhauf and David W. Mulligan. The
Executive Committee may exercise during intervals between the meetings of the
Board of Directors all the powers vested in the Board of Directors, except as
expressly limited by the Delaware General Corporation Law or otherwise delegated
B-4
<PAGE>
to the other committees described above. The Executive Committee held two
meetings in 1998, both of which were attended by all members of the committee.
COMPENSATION OF DIRECTORS
Non-employee directors receive an annual fee of $12,000 for service as
directors of the Company. In addition, non-employee directors who serve as
chairmen of the Executive, Audit and Compensation Committees, respectively,
receive an additional annual fee of $6,000 for service in such capacity. The
non-employee director who serves as chairman of the Option Committee receives an
additional annual fee of $2,000, the non-employee directors also receive $2,000
per Board and Executive Committee meeting attended, and the non-employee
directors receive $1,000 per other committee meetings. Directors who are
officers or employees of the Company or its subsidiaries receive no compensation
for serving as directors. All directors receive reimbursement for out-of-pocket
expenses incurred in connection with attendance at meetings of the Board of
Directors and meetings of committees of the Board of Directors.
Under the Company's 1995 Long-Term Incentive Plan, on the date of each
annual meeting of stockholders of the Company, each person who is a non-employee
director immediately after such annual meeting of stockholders will be granted a
nonqualified option to purchase 1,000 shares of Common Stock and, on the date on
which a person is first elected or begins to serve as a non-employee director,
each such new employee director will be granted a nonqualified option to
purchase 10,000 shares of Common Stock. The per share exercise price of such
options will be equal to the fair market value of the Common Stock on the date
of grant of such option. See "Executive Compensation and Other Information--1995
Long-Term Incentive Plan."
EXECUTIVE OFFICERS
The following sets forth certain information with respect to executive
officers of the Company who are not identified above under "Current Directors."
GREGORY D. STOBBE, age 44, is Senior Vice President, Operations, of the
Company. He joined the Company in 1989 and is responsible for the Company's key
provider relations, member services and operations and processing departments.
Mr. Stobbe was appointed Senior Vice President, Operations in 1993. Mr. Stobbe
is a graduate of the DePaul University College of Law.
MARK R. LUNDBERG, age 46, is Vice President, Sales, of the Company. Mr.
Lundberg joined the Company in July 1994. Prior to joining the Company, Mr.
Lundberg was National Accounts Director for HealthCare COMPARE between 1992 and
July 1994. Prior to that time, he was Director of Business Development of
MEDSTAT Systems between 1990 and 1992. Mr. Lundberg holds a Masters in Health
Services Administration degree from the University of Michigan.
SCOTT B. SANDERS, age 38, is Chief Financial Officer and Treasurer of the
Company. He is also Assistant Secretary of the Company. Mr. Sanders joined the
Company in May 1995. Mr. Sanders previously served as the Chief Financial
Officer for Dental Care Plus Management Corp., a managed dental care company,
between 1992 and 1995. Prior to that, Mr. Sanders was a Senior Associate at
ICF/The Smock Quinn Group, a consulting firm, between 1990 and 1992 and a Senior
Associate at Technology Solutions Company, a computer consulting firm, during
1992. Mr. Sanders holds a Master of Management degree from the J.L. Kellogg
School of Management at Northwestern University.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following summary compensation table sets forth
certain information concerning compensation for services rendered in all
capacities awarded to, earned by or
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<PAGE>
paid to the Company's Chief Executive Officer and the other named executive
officers during the years ended December 31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION(1)
- ------------------------------------------ --------- ---------- ---------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Christopher C. Multhauf................... 1998 $ 139,728 $ 100,000 $ 4,800 -- $ 2,795
Chairman and Chief 1997 135,000 -- 4,800 -- 8,563
Executive Officer 1996 135,000 35,000 4,800 -- 1,188
David W. Mulligan......................... 1998 $ 134,544 $ 100,000 $ 4,800 -- $ 2,553
President, Secretary and 1997 130,000 -- 4,800 -- 3,300
Chief Operating Officer 1996 130,000 35,000 4,800 -- 3,813
Gregory D. Stobbe......................... 1998 $ 95,600 $ 32,000 $ 3,600 3,000 $ 1,813
Senior Vice President, 1997 90,000 -- 3,600 2,500 2,240
Operations 1996 90,000 22,000 3,600 -- 2,374
Mark R. Lundberg.......................... 1998 $ 111,700 $ 23,000 $ 3,600 3,000 $ 2,126
Vice President, Sales 1997 107,112 -- 3,600 2,500 2,417
1996 107,112 13,986 3,600 -- 2,392
Scott B. Sanders(2)....................... 1998 $ 102,827 $ 30,000 $ 720 3,000 $ 1,949
Chief Financial Officer 1997 98,000 -- -- 12,500(2) 2,300
and Treasurer 1996 95,615 17,000 -- 12,500(2) 2,209
</TABLE>
- ------------------------
(1) Represents the Company contribution with respect to the named executive
officer under the Company's 401(k) salary deferral plan. See "Executive
Compensation and Other Information-- Retirement Plan" below. Does not
include the value of any perquisites and other personal benefits, securities
or property, since the aggregate amount of such compensation is the less
than the lesser of either $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officers above.
(2) Options with respect to 12,500 shares granted in 1996 were canceled in
exchange for options with respect to 12,500 shares in 1997.
GENERAL INFORMATION REGARDING OPTIONS. The following tables show
information regarding stock options held by the executive officers named in the
Summary Compensation Table.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
---------------------
<S> <C> <C> <C> <C> <C> <C>
VALUE AT ASSUMED
ANNUAL
NUMBER OF RATE OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS OPTION TERMS(2)
OPTIONS GRANTED TO EXERCISE EXPIRATION ---------------------
NAME GRANTED EMPLOYEES PRICE DATE 5% 10%
- -------------------------------------------------- ------------- --------------- ---------- ---------- --------- ----------
Gregory D. Stobbe (1)............................. 3,000 5% $ 11.250 1/12/08 $ 21,225 $ 53,789
Mark Lundberg (1)................................. 3,000 5% $ 11.250 1/12/08 $ 21,225 $ 53,789
Scott B. Sanders (1).............................. 3,000 5% $ 11.250 1/12/08 $ 21,225 $ 53,789
--
----- --------- ----------
Total............................................. 9,000 15% $ 63,675 $ 161,367
--
--
----- --------- ----------
----- --------- ----------
</TABLE>
- ------------------------
(1) The exercise price of the options is equal to the fair market value of a
share of Common Stock on the date of grant. The stock options vest 50% on
the date of grant and with respect to 25% of the options first and second
anniversaries of the date of grant, and are exercisable until the tenth
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<PAGE>
anniversary of the date of grant. See "Executive Compensation and Other
Information--1995 Long-Term Incentive Plan" below.
(2) According to the requirements of the Securities and Exchange Commission,
represents the hypothetical realizable value of each grant of stock options,
assuming that the market price of the shares underlying the options
appreciates in value from the award date to the end of the option term at
the indicated annualized rates.
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR END 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AS OF VALUE OF OPTIONS AS OF
SHARES 1998 DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher C. Multhauf
ISO-1987 Plan (2).............. 35,000 $ 408,231 -- -- -- --
David W. Mulligan
ISO-1987 Plan (2).............. -- -- 35,000(4) -- $ 413,700(4) --
Gregory D. Stobbe
NSO-1987 Plan (2).............. -- -- 24,500 -- $ 293,675 --
NSO-1995 Plan (3)................ -- -- 5,875 4,625 $ 3,938 $ 5,812
Mark R. Lundberg
NSO-1987 Plan (2).............. 500 $ 6,088 8,500 -- $ 65,325 $ 25,125
NSO-1995 Plan (3)................ -- -- 2,125 3,375 $ 3,938 $ 5,812
Scott B. Sanders
NSO-1995 Plan (3).............. -- -- 19,000 11,500 $ 12,375 $ 12,375
</TABLE>
- ------------------------
(1) Represents the aggregate dollar value of in-the-money, unexercised options
held at the end of the year, based on the difference between the exercise
price and $13.25, the closing price for the Common Stock as of December 31,
1998, as reported for Nasdaq National Market issues in THE WALL STREET
JOURNAL.
(2) The exercise price of the above incentive stock options ("ISOs") granted
under the 1987 Plan is equal to 110% of the fair market value of the Common
Stock on the date of grant, and the exercise period is five years from the
date of grant. The exercise price of the above non-qualified options
("NSOs") granted under the 1987 Plan is equal to the fair market value of
such shares of Common Stock on the date of grant. The above NSOs become
exercisable in cumulative increments of one-fourth of the number of shares
granted annually commencing on the date of grant and are exercisable until
the tenth anniversary of the date of grant. All stock options granted under
the 1987 Plan will become immediately exercisable upon certain changes of
control of the Company. See discussion under "1987 Statutory-Nonstatutory
Stock Option Plan" below for a description of the 1987 Plan.
(3) The exercise price of the NSOs granted under the 1995 Plan is equal to the
fair market value of a share of Common Stock on the date of grant.
Typically, such stock options vest with respect to 25% of the options on the
first, second, third and fourth anniversaries of the date of grant or the
assigned anniversary dates, and are exercisable until the tenth anniversary
of the date of grant, however, see "Option Grants in 1998". All stock
options granted under the 1995 Plan will become immediately exercisable upon
certain changes of control of the Company. See discussion under "1995
Long-Term Incentive Plan" below for a description of the 1995 Plan.
B-7
<PAGE>
(4) Exercised on January 5, 1999.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Christopher
C. Multhauf, Chairman of the Board of Directors and Chief Executive Officer,
David W. Mulligan, President, Secretary and Chief Operating Officer, Gregory D.
Stobbe, Vice President, Operations, Mark R. Lundberg, Vice President, Sales, and
Scott B. Sanders, Chief Financial Officer and Treasurer, as described below.
EMPLOYMENT AGREEMENT WITH CHRISTOPHER C. MULTHAUF. This agreement, as
amended, provides that Mr. Multhauf will be employed as the Company's Chairman
of the Board and Chief Executive Officer at an annual salary of $160,000, which
will be reviewed annually, plus a performance bonus under the Company's
Management Bonus Plan and a car allowance. The employment agreement provides for
continuation of base salary, bonus and benefits for two years (i) following
termination of employment without cause, (ii) in the event of a breach by the
Company, (iii) death, (iv) long-term disability or (v) upon termination of
employment for any reason at the end of the six-month period following a change
in control of the Company, or earlier with good cause such as diminution of
responsibility or reduction of benefits. The Company may terminate the
employment of Mr. Multhauf for cause at any time. The employment agreement also
includes certain non-competition and confidentiality provisions.
EMPLOYMENT AGREEMENT WITH DAVID W. MULLIGAN. This agreement, as amended,
provides that Mr. Mulligan will be employed as the Company's President and Chief
Operating Officer at an annual salary of $155,000, which will be reviewed
annually, plus a performance bonus under the Company's Management Bonus Plan and
a car allowance. The employment agreement provides for continuation of base
salary, bonus and benefits for two years (i) following termination of employment
without cause, (ii) in the event of a breach by the Company, (iii) death, (iv)
long-term disability or (v) upon termination of employment for any reason at the
end of the six-month period following a change in control of the Company, or
earlier with good cause such as diminution of responsibility or reduction of
benefits. The Company may terminate the employment of Mr. Mulligan for cause at
any time. The employment agreement also includes certain non-competition and
confidentiality provisions.
EMPLOYMENT AGREEMENT WITH GREGORY D. STOBBE. This agreement, as amended,
may be terminated upon the death or total disability of Mr. Stobbe, for good
cause by the Company, without cause by the Company resulting in continuation of
base salary and without cause by Mr. Stobbe upon 60 days' notice. During the
term of this agreement, as amended, Mr. Stobbe is entitled to an annual gross
base salary of $115,000, subject to annual reviews, and is eligible for an
annual bonus based on the achievement of objectives as approved by the Board of
Directors.
EMPLOYMENT AGREEMENT WITH MARK R. LUNDBERG. This agreement, as amended, may
be terminated upon the death or total disability of Mr. Lundberg, for good cause
by the Company, without cause by the Company resulting in continuation of base
salary and without cause by Mr. Lundberg upon 180 days' notice. During the term
of the agreement, Mr. Lundberg is entitled to an annual gross base salary of
$118,500, subject to annual reviews, and is eligible for an annual bonus based
on the achievement of objectives as approved by the Board of Directors.
EMPLOYMENT AGREEMENT WITH SCOTT B. SANDERS. This agreement, as amended, may
be terminated upon the death or total disability of Mr. Sanders, for good cause
by the Company, without cause by the Company resulting in continuation of base
salary and without cause by Mr. Sanders upon 60 days' notice. During the term of
the agreement, Mr. Sanders is entitled to an annual gross base salary of
$120,000, subject to annual reviews, and is eligible for an annual bonus based
on the achievement of objectives as approved by the Board of Directors.
B-8
<PAGE>
MANAGEMENT BONUS PLAN
The Chief Executive Officer and each of the other executive officers named
in the Summary Compensation Table above are eligible to participate in the
Company's Management Bonus Plan. Under this bonus program each executive officer
is entitled to receive a bonus based on three components (1) Company performance
compared to budget, (2) personal performance and (3) a discretionary award.
Awards are determined by the Compensation Committee.
RETIREMENT PLAN
The Company has a 401(k) salary deferral plan in which all employees of the
Company who have completed at least ninety days of service are eligible to
participate. Under the plan through December 31, 1998, the Company provides a
matching contribution of $.50 for every dollar an employee invests in the plan
up to an annual maximum of 2% (increased to 2 1/2% effective January 1, 1999) of
the employee's compensation for the year. The Company may make additional
discretionary contributions to the plan.
1995 LONG-TERM INCENTIVE PLAN
Under Company's 1995 Long-Term Incentive Plan, as amended (the "1995 Plan"),
the Company may grant incentive stock options or nonqualified options, stock
appreciation rights, bonus stock awards which are vested upon grant, stock
awards which may be subject to a restriction period or specified performance
measures or both, and performance shares. Subject to the terms of the 1995 Plan,
the Stock Option Compensation Committee is authorized to select eligible
officers and other key employees and independent contractors for participation
in the 1995 Plan and to determine the number of shares of Common Stock subject
to the awards granted thereunder, the exercise price, if any, the time and
conditions of exercise, and all other terms and conditions of such award. A
total of 350,000 shares of Common Stock have been reserved for issuance under
the 1995 Plan, of which 50,000 shares are available for stock awards, subject to
adjustment in the event of a stock split, stock dividend or other changes in
capital structure. No grants may be made under the 1995 Plan after November 16,
2005.
1987 STATUTORY-NONSTATUTORY STOCK OPTION PLAN
Under the Company's 1987 Statutory-Nonstatutory Stock Option Plan, as
amended (the "1987 Plan"), up to 250,000 shares of Common Stock (as adjusted for
the ten-for-one stock split in 1991) were originally authorized for issuance
upon the exercise of stock options granted under the 1987 Plan. These stock
options may be either incentive stock options or nonqualified options. Under the
terms of the 1987 Plan, no stock options which are incentive stock options may
be granted under the 1987 Plan after October 1, 1996. Subject to the terms of
the 1987 Plan, the committee which administers the 1987 Plan is authorized to
select eligible officers and other key employees for participation in the 1987
Plan and to determine the number of shares of Common Stock subject to each
option granted thereunder, the exercise price of such option, the time and
conditions of exercise of such option and all other terms and conditions of such
option. The Stock Option Compensation Committee of the Board of Directors
currently administers the 1987 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
All compensation decisions for the Chief Executive Officer and each of the
other executive officers named in the Summary Compensation Table are currently
made by the Compensation Committee of the Board of Directors and by the Stock
Option Compensation Committee of the Board of Directors. The Compensation
Committee consists of Messrs. Jackson W. Smart, Jr. (Chairman) and Richard M.
Burdge, Sr. Each member of the Compensation Committee is a non-employee director
who has not
B-9
<PAGE>
previously been an officer or employee of the Company. The Stock Option
Compensation Committee of the Board of Directors consists of Messrs. Richard M.
Burdge, Sr. (Chairman) and William J. McBride, each of whom are "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended, and "Non-Employee Directors" within the meaning of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 24, 1999 or the latest
practicable date, by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) each of the executive officers named in the
Summary Compensation Table and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER(1) OWNERSHIP OF CLASS(2)
- ----------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
David W. Mulligan (3).................................................................... 367,287 9.4%
Gotham Capital/Joel M. Greenblatt (4).................................................... 336,122 8.6
Christopher C. Multhauf (5).............................................................. 329,788 8.4
Marathon Capital Partners (6)............................................................ 327,300 8.4
Les Daniels (7).......................................................................... 260,345 6.6
Investment Advisors, Inc. (8)............................................................ 259,800 6.6
Cerberus Partners/Stephen Feinberg (9)................................................... 251,300 6.4
Richard M. Burdge, Sr. (10).............................................................. 88,040 2.2
Jackson W. Smart, Jr. (11)............................................................... 38,500 1.0
Gregory D. Stobbe (12)................................................................... 28,250 *
Scott B. Sanders (13).................................................................... 22,350 *
William J. McBride (14).................................................................. 14,000 *
Mark R. Lundberg (15).................................................................... 12,000 *
All executive officers and directors as a group (8 persons) (16)......................... 900,215 22.9%
</TABLE>
- ------------------------
* Less than 1%.
(1) Except as set forth in the footnotes to this table and subject to applicable
community property laws, the persons named in the table above have sole
voting and investment power with respect to all shares shown as beneficially
owned by them.
(2) Applicable percentage of ownership is based on 3,916,635 shares of Common
Stock outstanding on May 24, 1999, including 187,240 shares of Common Stock
subject to options exercisable within 60 days of May 24, 1999.
(3) Mr. Mulligan is a director and President, Secretary and Chief Operating
Officer of the Company. The business address of Mr. Mulligan is 444 North
Wells Street, Suite 600, Chicago, Illinois 60610.
(4) Based on a Schedule 13G dated March 16, 1999. This Schedule 13G was filed on
behalf of Gotham Capital V, L.L.C., Gotham Capital VI, L.L.C., Gotham
Capital VII, L.L.C., and Joel M. Greenblatt (collectively, "Gotham"). Such
Schedule 13G reports shared voting power and shared dispositive power with
respect to 330,066 shares and sole voting power and sole dispositive power
with respect to 6,056 shares. The business address of Gotham is 100 also
Jericho Quadrangle, Suite 212, Jericho, New York 11753.
(5) Mr. Multhauf is Chairman of the Board of Directors and Chief Executive
Officer of the Company. The business address of Mr. Multhauf is 444 North
Wells Street, Suite 600, Chicago, Illinois 60610.
(6) Based on a Schedule 13D (Amendment No. 1) dated March 31, 1998. This
Schedule 13D was filed on behalf of Marathon Capital Partners, L.P.,
Marathon Capital Management Group, LLC and Peter Gardiner (collectively,
"Marathon"). Such Schedule 13D reports shared voting power and
B-10
<PAGE>
shared dispositive power with respect to 327,300 shares. The business
address of Marathon is 9595 Wilshire Boulevard, Suite 700, Beverly Hills,
California 90212.
(7) Based on a Schedule 13D (Amendment No. 1) dated April 21, 1998. This
Schedule 13D amendment was filed by Leslie B. Daniels on behalf of himself
and the Daniels Family Trust; Daniels Family Foundation; Elizabeth L.
Daniels; Paul B. Daniels; Leslie B. Daniels, Co-Trustee, Burdge, Daniels &
Co. Money Purchase Plan; and Leslie B. Daniels, Trustee, Richard and Natasha
Burdge Irrevocable Family Trust (collectively, "Daniels"). Such Schedule 13D
reports shared voting power and shared dispositive power with respect to
177,515 shares and sole voting power and sole dispositive power with respect
to 83,830 shares. The business address of Daniels is 767 Fifth Avenue, 5th
floor, New York, New York 10028.
(8) Based on a Schedule 13G dated January 29, 1999. This Schedule 13G was filed
by Investment Advisers, Inc. on behalf of itself ("IAI"). Such Schedule 13G
reports shared voting power and shared dispositive power with respect to
50,800 shares and sole voting power and sole dispositive power with respect
to 209,000 shares. The business address of IAI is 3700 First Bank Place,
Minneapolis, Minnesota 55440.
(9) Based on a Schedule 13D dated March 16, 1999. This Schedule 13D was filed on
behalf of Cerberus Partners, L.P., Cerberus International, Ltd and Stephen
Feinberg (collectively, "Cerberus"). Such Schedule 13D reports sole voting
power and sole dispositive power with respect to 251,300 shares. The
business address of Cerberus is 450 Park Avenue, 28th Floor, New York, New
York 10022.
(10) Mr. Burdge is a director of the Company. Includes 4,000 shares of Common
Stock, issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days and 5,000 shares held by
his spouse.
(11) Mr. Smart is a director of the Company. Includes 11,500 shares of Common
Stock, issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days.
(12) Mr. Stobbe is Senior Vice President, Operations, of the Company. Includes
24,250 shares of Common Stock, issuable upon exercise of outstanding stock
options which are currently exercisable or exercisable within 60 days.
(13) Mr. Sanders is Chief Financial Officer and Treasurer of the Company.
Includes 22,250 shares of Common Stock, issuable upon exercise of
outstanding stock options which are currently exercisable or exercisable
within 60 days.
(14) Mr. McBride is a director of the Company. Includes 12,000 shares of Common
Stock, issuable upon exercise of outstanding stock options which are
currently exercisable or exercisable within 60 days and 2,000 shares held by
his children.
(15) Mr. Lundberg is Vice President, Sales, of the Company. Includes 12,000
shares of Common Stock, issuable upon exercise of outstanding stock options
which are currently exercisable or exercisable within 60 days.
(16) Includes 83,500 shares of Common Stock issuable upon exercise of
outstanding stock options which are currently exercisable or exercisable
within 60 days.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, and the rules and regulations thereunder
require the Company's directors and officers and persons who are deemed to own
more than ten percent of the Common Shares (collectively, the "Reporting
Persons"), to file certain reports ("Section 16 Reports") with the SEC with
respect to their beneficial ownership of Common Shares. The Reporting Persons
are also required to furnish the Company with copies of all Section 16 Reports
they file. Based on a review of copies of Section 16 Reports and representations
to the Company, the Company believes that all Section 16 filing requirements
applicable to the Reporting Persons during and with respect to 1998 were
complied with on a timely basis, except as disclosed below.
B-11
<PAGE>
During or with respect to 1998, a certain officer was not timely in
reporting the appropriate Form 4 regarding a transaction involving the Company's
stock. The following filing for the following individual was late during or with
respect to 1998. Mark Lundberg filed Form 5 on February 12, 1999 reporting the
following Form 4 transaction: the sale of 500 shares of Common Stock which
should have been filed by September 10, 1998.
B-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1. Agreement and Plan of Merger, dated as of May 19, among the Company, The Guardian Life Insurance
Company of America, a New York corporation ("Parent"), and Floss Acquisition Corp., a Delaware
corporation ("Offeror") and wholly-owned subsidiary of Parent.
2. Agreement relating to Confidentiality, dated March 24, 1999, between Parent and the Company.
3. Stockholder Agreement dated May 19, 1999 between Christopher C. Multhauf and Parent.
4. Stockholder Agreement dated May 19, 1999 between David W. Mulligan and Parent.
5. Press Release of the Company and Parent issued on May 19, 1999.
6. Incentive/Stay Bonus Agreement, dated as of May 14, 1999, between the Company and Christopher C.
Multhauf.
7. Incentive/Stay Bonus Agreement, dated as of May 14, 1999, between the Company and David W. Mulligan.
8. Incentive/Stay Bonus Agreement, dated as of May 14, 1999, between the Company and Scott B. Sanders.
9. Amended and Restated Employment Agreement, dated February 12, 1999, between the Company and
Christopher C. Multhauf.
10. Amended and Restated Employment Agreement, dated February 12, 1999, between the Company and David W.
Mulligan.
11. Amendment, dated May 14, 1999, to the Amended and Restated Employment Agreement, dated February 12,
1999, between the Company and Christopher C. Multhauf.
12. Amendment, dated May 14, 1999, to the Amended and Restated Employment Agreement, dated February 12,
1999, between the Company and David W. Mulligan.
13. Non-binding letter agreement dated May 18, 1999 between Christopher C. Multhauf and Parent.
14. Non-binding letter agreement dated May 18, 1999 between David W. Mulligan and Parent.
15. Company's Severance Policy.
16. Stockholders Rights Agreement dated November 1, 1995 between the Company and First Chicago Trust
Company of New York.
17. First Amendment to Stockholders Rights Agreement dated December 15, 1998.
18. Second Amendment to Stockholders Rights Agreement, dated May 19, 1999.
19. Letter to Stockholders of the Company, dated May 25, 1999.
20. Opinion of William Blair & Company, L.L.C., dated May 18, 1999*
</TABLE>
- ------------------------
* Included as Annex A in copy mailed to stockholders.
<PAGE>
Exhibit 1
AGREEMENT AND PLAN OF MERGER
AMONG
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA,
FLOSS ACQUISITION CORP.
AND
FIRST COMMONWEALTH, INC.
Dated as of May 19, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I THE OFFER
Section 1.1 The Offer........................................................2
Section 1.2 Company Actions..................................................4
ARTICLE II THE MERGER
Section 2.1 The Merger.......................................................6
Section 2.2 Effective Time...................................................6
Section 2.3 Effects of the Merger............................................6
Section 2.4 Certificate of Incorporation and Bylaws; Directors and
Officers........................................................6
Section 2.5 Conversion of Securities.........................................6
Section 2.6 Exchange of Certificates.........................................7
Section 2.7 Dissenting Shares................................................9
Section 2.8 Merger Without Meeting of Stockholders...........................9
Section 2.9 No Further Ownership Rights in Shares; Closing of Company
Transfer Books..................................................9
Section 2.10 Further Assurances..............................................10
Section 2.11 Closing.........................................................10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 3.1 Organization, Standing and Power; Capitalization and
Ownership of Sub...............................................10
Section 3.2 Authority; Non-Contravention....................................11
Section 3.3 Offer Documents and Proxy Statement.............................13
Section 3.4 Financing.......................................................13
Section 3.5 Brokers.........................................................13
Section 3.6 Business of Sub.................................................13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization, Standing and Power................................14
Section 4.2 Capital Structure...............................................14
Section 4.3 Subsidiaries. ..................................................15
Section 4.4 Other Interests. ...............................................15
Section 4.5 Authority; Non-Contravention....................................16
Section 4.6 SEC Documents and Financial Statements..........................17
Section 4.7 Offer Documents and Proxy Statement.............................18
Section 4.8 Absence of Certain Events.......................................18
Section 4.9 Litigation......................................................19
Section 4.10 Compliance with Applicable Law..................................20
Section 4.11 Employee Plans. ................................................20
Section 4.12 Employment Relations and Agreement. ............................22
Section 4.13 Contracts.......................................................23
Section 4.14 Rights Agreement................................................23
Section 4.15 State Takeover Statutes; Certain Charter Provisions.............23
Section 4.16 Taxes...........................................................24
Section 4.17 Intellectual Properties.........................................26
i
<PAGE>
Section 4.18 Voting Requirements.............................................27
Section 4.19 Year 2000.......................................................27
Section 4.20 Brokers.........................................................27
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business by the Company Pending the Merger...........28
Section 5.2 No Solicitation.................................................31
Section 5.3 Third Party Standstill Agreements...............................33
ARTICLE VI ADDITIONAL AGREEMENTS
Section 6.1 Company Stockholder Approval; Proxy Statement...................34
Section 6.2 Access to Information...........................................35
Section 6.3 Fees and Expenses...............................................36
Section 6.4 Stock Options...................................................37
Section 6.5 Reasonable Best Efforts.........................................38
Section 6.6 Public Announcements............................................38
Section 6.7 Indemnification; Directors and Officers Insurance...............38
Section 6.8 Employee Benefits...............................................39
Section 6.9 Employee Agreements, Stay Bonuses, Etc..........................40
Section 6.10 Board Representations...........................................40
Section 6.11 State Takeover Laws.............................................41
Section 6.12 Rights Agreement................................................41
ARTICLE VII CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger......42
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination.....................................................43
Section 8.2 Effect of Termination...........................................45
Section 8.3 Amendment.......................................................45
Section 8.4 Waiver..........................................................46
ARTICLE IX GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties..................46
Section 9.2 Notices.........................................................46
Section 9.3 Interpretation..................................................47
Section 9.4 Counterparts....................................................47
Section 9.5 Entire Agreement; No Third-Party Beneficiaries..................47
Section 9.6 Governing Law...................................................48
Section 9.7 Assignment......................................................48
Section 9.8 Severability....................................................48
Section 9.9 Enforcement of this Agreement...................................48
Section 9.10 Incorporation of Exhibits.......................................48
ii
<PAGE>
EXHIBIT A -- Conditions of the Offer
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 19, 1999 (this
"Agreement"), among The Guardian Life Insurance Company of America, a New York
corporation ("Parent"), Floss Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of Parent ("Sub"), and First Commonwealth, Inc., a
Delaware corporation (the "Company") (Sub and the Company being hereinafter
collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have approved the acquisition of the Company by Parent pursuant to a
tender offer (the "Offer") by Sub for all of the outstanding shares of Common
Stock, par value $.001 per share (the "Common Stock"), together with associated
Rights (as defined below) (the shares of Common Stock and associated Rights are
referred to herein as "Shares"), of the Company at a price of $25.00 per share,
net to the seller in cash, followed by a merger (the "Merger") of Sub with and
into the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has unanimously
adopted resolutions determining that the Offer and the Merger are fair to and in
the best interests of the holders of Shares and declaring the advisability of
the Offer and the Merger and recommending that the Company's stockholders accept
the Offer and approve and adopt this Agreement and approve the Merger and the
other transactions contemplated hereby;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent is entering into a Stockholder Agreement (the "Stockholder
Agreement") with each of Christopher C. Multhauf and David W. Mulligan
(collectively, "Stockholders") pursuant to which Stockholders have agreed, among
other things, (i) to tender all of the Shares that Stockholders now own or
hereafter acquire (the "Stockholder Shares"), and (ii) with respect to certain
questions put to stockholders of the Company for a vote, to vote the Stockholder
Shares, in each case, in accordance with the terms and conditions of the
Stockholder Agreement; and
WHEREAS, pursuant to the Merger, each issued and outstanding Share
not owned directly or indirectly by Parent or the Company will be converted into
the right to receive the per share consideration paid pursuant to the Offer.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer. (a) Subject to the provisions of this
Agreement, as promptly as practicable but in no event later than May 25, 1999,
Sub shall, and Parent shall cause Sub to, commence, within the meaning of Rule
14d-2 under the Exchange Act (as hereinafter defined), the Offer. The initial
expiration date of the Offer shall be June 23, 1999. The obligation of Sub to,
and of Parent to cause Sub to, commence the Offer and accept for payment, and
pay for, any Shares tendered pursuant to the Offer shall be subject to the
conditions set forth in Exhibit A, any of which may be waived by Parent or Sub
in their sole discretion; provided that, without the prior written consent of
the Company, Sub shall not (i) waive the Minimum Condition (as defined in
Exhibit A), (ii) reduce the number of Shares of Common Stock subject to the
Offer, (iii) reduce the price per Share to be paid pursuant to the Offer, (iv)
extend the Offer if all of the Offer conditions are satisfied or waived, (v)
change the form of consideration payable in the Offer, or (vi) amend, add or
waive any term or condition of the Offer (including the conditions set forth on
Exhibit A) in any manner that would adversely affect the Company or its
stockholders in any material respect. Notwithstanding the foregoing, Sub may,
without the consent of the Company, extend the Offer (i) if at the then
scheduled expiration date of the Offer any of the conditions to Sub's obligation
to accept for payment and pay for shares of Common Stock shall not have been
satisfied or waived, until the fifth business day after the date Sub reasonably
believes to be the earliest date on which such conditions will be satisfied;
(ii) for any period required by any rule, regulation, interpretation or position
of the SEC (as hereinafter defined) or its staff applicable to the Offer; or
(iii) for an aggregate period of not more than ten business days (for all such
extensions) notwithstanding the satisfaction of all conditions to the Offer.
Parent and Sub agree that if at any scheduled expiration date of the Offer, the
Minimum Condition or the Regulatory Condition (as defined in Exhibit A) shall
not have been satisfied, but at such scheduled expiration date each of the other
conditions set forth in Exhibit A shall then be satisfied, at the request of the
Company, Sub shall extend the Offer from time to time, subject to the right of
Parent, Sub or the Company to terminate this Agreement pursuant to the terms
hereof. Parent and Sub further agree that in the event Sub wishes to terminate
the Offer solely by reason of the condition described in clause
- 2 -
<PAGE>
(i) of Exhibit A, Sub shall first extend the Offer for a minimum period of ten
days, it being understood that, if at the end of such ten day period, a banking
moratorium or suspension of payments in respect of banks in the United States
shall be in effect, Sub shall then be entitled to terminate the Offer under the
provisions of clause (i) of Exhibit A, provided, that Sub shall not be required
to extend the Offer more than once pursuant to this sentence. Notwithstanding
anything to the contrary contained herein, the parties further agree that, in
the event that upon any scheduled expiration date of the Offer (or any extension
thereof), (x) all conditions to the Offer set forth in Exhibit A to this
Agreement have been satisfied and (y) for a period of five consecutive trading
days prior to the expiration of the Offer (or any extension thereof), the
average of the daily closing values of the Standard & Poor's Index of 500
Industrial Companies (the "S&P Index") for such five trading days shall reflect
a decline in excess of 25% as compared to the closing value of the S&P Index on
the close of business on the trading day next preceding the date of the Merger
Agreement, then Sub shall be entitled to extend the Offer for a period not to
exceed eight trading days. Subject to the terms and conditions of the Offer set
forth in Exhibit A, Sub shall, and Parent shall cause Sub to, pay for all Shares
validly tendered and not withdrawn pursuant to the Offer as soon as practicable
after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the Securities and Exchange Commission (the "SEC") a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer, which shall contain
(included as an Exhibit) or incorporate by reference an offer to purchase and a
related letter of transmittal and summary advertisement (such Schedule 14D-1 and
the documents therein pursuant to which the Offer will be made, together with
any supplements or amendments thereto, the "Offer Documents"). The Company and
its counsel shall be given an opportunity to review and comment upon the Offer
Documents prior to the filing thereof with the SEC. The Offer Documents shall
comply as to form in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (including the rules and regulations
promulgated thereunder, the "Exchange Act"), and on the date filed with the SEC
and on the date first published, sent or given to the Company's stockholders,
the Offer Documents shall not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation is made by Parent
or Sub with respect to information supplied by the Company in writing, expressly
for inclusion in the Offer Documents. Each of Parent, Sub and the Company agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that such information shall have
- 3 -
<PAGE>
become false or misleading in any material respect, and each of Parent and Sub
further agrees to take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to holders of shares
of Common Stock, in each case as and to the extent required by applicable
federal securities laws. Parent and Sub agree to provide the Company and its
counsel in writing with copies of any written comments Parent, Sub or their
counsel may receive from the SEC or its staff with respect to the Offer
Documents.
(c) Prior to or concurrently with the expiration of the Offer,
Parent shall provide or cause to be provided to Sub all of the funds necessary
to purchase any Shares that Sub becomes obligated to purchase pursuant to the
Offer.
Section 1.2 Company Actions. (a) The Company hereby approves of and
consents to the Offer and represents that the Board of Directors of the Company,
by unanimous vote, has (i) duly adopted resolutions approving this Agreement,
the Offer and the Merger, determining that the Merger is advisable and that the
terms of the Offer and Merger are fair to, and in the best interests of, the
Company's stockholders and unanimously recommending that the Company's
stockholders accept the Offer and approve the Merger and approve and adopt this
Agreement and (ii) taken all other applicable action necessary to render (x)
Section 203 of the General Corporation Law of the State of Delaware and other
state takeover statutes and (y) the Stockholders Rights Agreement dated as of
November 1, 1995 between the Company and First Chicago Trust Company of New
York, as amended as of December 15, 1998 (as further amended to date, the
"Rights Agreement") inapplicable to the Offer and the Merger. The Company
represents that its Board of Directors has received the written opinion of
William Blair & Company, L.L.C. that the proposed consideration to be received
by the holders of Shares pursuant to the Offer and the Merger is fair to such
holders from a financial point of view. The Company has been advised that each
of its directors and executive officers intends to tender pursuant to the Offer
all Shares owned of record and beneficially by him or her except to the extent
such tender would violate applicable securities laws.
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/ Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9"), and shall mail the Schedule 14D-9 to the
stockholders of the Company. Subject to the terms of this Agreement, the
Schedule 14D-9 shall contain the recommendation described in paragraph (a) of
this Section 1.2. To the extent practicable, the Company shall cooperate with
Parent and Sub in mailing or otherwise disseminating the Schedule 14D-9 with the
appropriate Offer Documents to the Company's stockholders.
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Parent and Sub and their counsel shall be given an opportunity to review and
comment upon the Schedule 14D-9 prior to the filing thereof with the SEC. The
Schedule 14D-9 shall comply as to form in all material respects with the
requirements of the Exchange Act and, on the date filed with the SEC and on the
date first published, sent or given to the Company's stockholders, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circum stances under which they were made, not
misleading, except that no representation is made by the Company with respect to
infor mation supplied by Parent or Sub in writing expressly for inclusion in the
Schedule 14D-9. Each of the Company, Parent and Sub agrees promptly to correct
any information provided by it for use in the Schedule 14D-9 if and to the
extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to provide
copies thereof to Parent and Sub so that they may be disseminated to the holders
of Shares, in each case as and to the extent required by applicable federal
securities laws. The Company agrees to provide Parent and Sub and their counsel
in writing with any comments the Company or its counsel may receive from the SEC
or its staff with respect to the Schedule 14D-9 promptly after the receipt of
such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to furnish Parent and Sub with mailing labels containing the
names and addresses of the record holders of Shares as of a recent date and of
those persons or entities becoming record holders subsequent to such date,
together with copies of all lists of stockholders, security position listings
and computer files and all other information in the Company's possession or
control regarding the beneficial owners of Shares, and shall furnish to Parent
and Sub such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Parent and Sub
may reasonably request in communicating the Offer to the Company's stockholders.
Subject to the requirements of law, and except for such steps as are necessary
to disseminate the Offer Documents and any other documents necessary to
consummate the Merger, Parent and Sub and each of their affiliates and
associates shall hold in confidence the information contained in any of such
labels, lists and files, will use such information only in connection with the
Offer and the Merger, and, if this Agreement is terminated, will promptly
deliver to the Company all copies of such information then in their possession.
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ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware, as amended (the "DGCL"), Sub shall be merged with and into the Company
at the Effective Time (as hereinafter defined). Following the Merger, the
separate corporate existence of Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation") and shall succeed to
and assume all the rights and obligations of Sub in accordance with the DGCL.
Section 2.2 Effective Time. The Merger shall become effective when
the Certificate of Merger or, if applicable, the Certificate of Ownership and
Merger (each, the "Certificate of Merger"), executed in accordance with the
relevant provisions of the DGCL, are accepted for record by the Secretary of
State of the State of Delaware. When used in this Agreement, the term "Effective
Time" shall mean the later of the date and time at which the Certificate of
Merger is accepted for record or such later time established by the Certificate
of Merger. The filing of the Certificate of Merger shall be made as soon as
practicable after the satisfaction or waiver of the conditions to the Merger set
forth herein.
Section 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the DGCL.
Section 2.4 Certificate of Incorporation and Bylaws; Directors and
Officers. (a) The Certificate of Incorporation, as in effect immediately prior
to the Effective Time, of Sub shall be amended to change the name of Sub to
"First Commonwealth, Inc." and, as so amended, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or applicable law. The Bylaws of Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter changed or amended as provided therein or the
Certificate of Incorporation and applicable law.
(b) The directors and officers of Sub immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation as of the Effective Time.
Section 2.5 Conversion of Securities. As of the Effective Time, by
virtue of the Merger and without any action on the part of any stockholder of
the Company:
(a) All Shares that are held in the treasury of the Company or by
any wholly owned Subsidiary (as hereinafter defined) of the Company and
any Shares
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owned by Parent, Sub or any other wholly owned Subsidiary of Parent shall
be cancelled and no consideration shall be delivered in exchange therefor.
(b) Each Share issued and outstanding immediately prior to the
Effective Time (other than shares to be cancelled in accordance with
Section 2.5(a) and other than Dissenting Shares (as defined in Section
2.7)) shall be converted as of the Effective Time into the right to
receive from the Surviving Corporation in cash, without interest, the per
Share consideration in the Offer (the "Merger Consideration"). All such
Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and each holder of a certificate or
certificates (the "Certificates") representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
Merger Consideration.
(c) Each issued and outstanding share of the capital stock of Sub
shall be converted into and become as of the Effective Time one fully paid
and nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation.
Section 2.6 Exchange of Certificates. (a) Paying Agent. Parent and
the Company shall authorize a commercial bank or trust company having net
capital of not less than $100 million (or one or more other persons or entities
as shall be reasonably acceptable to Parent and the Company) to act as paying
agent hereunder (the "Paying Agent") for the payment of the Merger Con
sideration upon surrender of Certificates. All of the fees and expenses of the
Paying Agent shall be borne by Parent.
(b) Parent and Sub to Provide Funds. Parent shall take all steps
necessary to enable and cause the Sub to deposit in trust with the Paying Agent
concurrently with or prior to the Effective Time cash in an amount necessary to
pay for all of the Shares pursuant to Section 2.5 and the amount required in
connection with the Stock Options pursuant to Section 6.4. Such amount shall
hereinafter be referred to as the "Exchange Fund."
The Exchange Fund shall be invested by the Paying Agent as directed
by Parent in direct obligations of the United States, obligations for which the
full faith and credit of the United States is pledged to provide for the payment
of principal and interest, commercial paper rated of the highest quality by
Moody's Investors Services, Inc. or Standard & Poor's Ratings Group or
certificates of deposit, bank repurchase agreements or bankers' acceptances of a
commercial bank having at least $100,000,000 in assets (collectively "Permitted
Investments") or
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in money market funds which are invested in Permitted Investments, and any net
earnings with respect thereto shall be paid to Parent as and when requested by
Parent. The Paying Agent shall, pursuant to irrevocable instructions, make the
payments referred to in Section 2.5 hereof out of the Exchange Fund. The
Exchange Fund shall not be used for any other purpose except as otherwise agreed
to by Parent.
If the amount of cash in the Exchange Fund is insufficient to pay
all of the amounts required to be paid pursuant to Sections 2.5 or 6.4, Parent
from time to time after the Effective Time shall take all steps necessary to
enable and cause the Surviving Corporation to deposit in trust additional cash
with the Paying Agent sufficient to make all such payments.
(c) Exchange Procedures. As soon as practicable after the Effective
Time, the Paying Agent shall mail to each holder of record of a Certificate,
other than Parent, the Company and any Subsidiary of Parent or the Company, (i)
a letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon actual
delivery of the Certificates to the Paying Agent and shall be in a form and have
such other provisions as Parent may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent or to such other agent or agents as may be appointed by the
Surviving Corporation, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Paying Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
amount of cash into which the Shares theretofore represented by such Certificate
shall have been converted pursuant to Section 2.5, and the Certificates so
surrendered shall forthwith be cancelled. No interest will be paid or will
accrue on the cash payable upon the surrender of any Certificate. If payment is
to be made to a person or entity other than the person or entity in whose name
the Certificate so surrendered is registered, it shall be a condition of payment
that such Certificate shall be properly endorsed or otherwise in proper form for
transfer and that the person or entity requesting such payment shall pay any
transfer or other taxes required by reason of such Certificate or establish to
the satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. Until surrendered as contemplated by this Section 2.6, each
Certificate (other than Certificates representing Dissenting Shares and
Certificates representing any Shares owned by Parent or any Subsidiary of
Parent) shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the amount of cash, without interest,
into which the Shares theretofore represented by such Certificate shall have
been converted pursuant to Section 2.5. Notwithstanding the foregoing, none of
the Paying Agent, the Surviving Corporation or
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any party hereto shall be liable to a former stockholder of the Company for any
cash or interest delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws. Any portion of the Exchange Fund that remains
unclaimed by the stockholders of the Company for six months after the Effective
Time shall be repaid to the Surviving Corporation (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all such funds). Thereafter, persons or entities who prior to the
Merger held Shares shall look only to the Surviving Corporation (subject to the
terms of this Agreement, abandoned property, escheat and other similar laws) as
general creditors thereof with respect to any Merger Consideration that may be
payable upon due surrender of the Certificates held by them, without interest.
Section 2.7 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by holders of such Shares who have
properly exercised appraisal rights with respect thereto in accordance with
Delaware law (the "Dissenting Shares") will not be exchangeable for the right to
receive the Merger Consideration, and holders of such Shares will be entitled to
receive payment of the appraised value of such Shares in accordance with the
provisions of Delaware law unless and until such holders fail to perfect or
effectively withdraw or lose their rights to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such Shares will thereupon be treated
as if they had been converted into and to have become exchangeable for, at the
Effective Time, the right to receive the Merger Consideration, without any
interest thereon. The Company will give Parent and Sub prompt notice of any
demands received by the Company for appraisals of Shares. The Company shall give
Parent and Sub (A) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other related instruments received
by the Company, and (B) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal. The Company will not, except
with the prior written consent of Parent, voluntarily make any payment with
respect to any demands for appraisal or settle or offer to settle any such
demand.
Section 2.8 Merger Without Meeting of Stockholders. Notwithstanding
the foregoing, in the event that Sub, or any other direct or indirect subsidiary
of Parent, shall acquire at least 90 percent of the outstanding Shares, the
parties hereto agree to take all necessary and appropriate action to cause the
Merger to become effective as soon as practicable after the expiration of the
Offer without a meeting of stockholders of the Company, in accordance with
Section 253 of the DGCL.
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Section 2.9 No Further Ownership Rights in Shares; Closing of
Company Transfer Books. At and after the Effective Time, each holder of a
Certificate shall cease to have any rights as a stockholder of the Company,
except for, in the case of a holder of a Certificate (other than shares to be
cancelled pursuant to Section 2.5 hereof and other than Dissenting Shares), the
right to surrender his or her Certificate in exchange for payment of the Merger
Consideration or, in the case of a holder of Dissenting Shares, to perfect his
or her right to receive payment for his or her shares pursuant to Delaware law
if such holder has validly perfected and not withdrawn his or her right to
receive payment for his or her shares, and no transfer of Shares shall be made
on the stock transfer books of the Surviving Corporation. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
Shares shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged as
provided in this Article II.
Section 2.10 Further Assurances. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (b) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations in the Merger,
all such deeds, bills of sale, assignments and assurances and do, in the name
and on behalf of such Constituent Corporations, all such other acts and things
necessary, desirable or proper, consistent with the terms of this Agreement (as
in effect immediately prior to the acceptance of Shares in the Offer, or as
thereafter amended in accordance with Section 8.3), to vest, perfect or confirm
its right, title or interest in, to or under any of the rights, privileges,
powers, franchises, properties or assets of such Constituent Corporation and
otherwise to carry out the purposes of this Agreement.
Section 2.11 Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of White &
Case LLP, 1155 Avenue of the Americas, New York, New York 10036, at 10:00 a.m.,
local time, on the second business day after the day on which the last of the
conditions set forth in Article VII hereof shall have been fulfilled or waived
or at such other time and place as Parent and the Company shall agree.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 3.1 Organization, Standing and Power; Capitalization and
Ownership of Sub. Each of Parent and Sub is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now being conducted. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $.01 per share, all of which
are validly issued and outstanding, fully paid and nonassessable and are owned
by Parent free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, charges or other encumbrances of
any nature or any other limitation or restriction (including any restriction on
the right to vote or sell the same, except as may be provided under applicable
Federal or State securities laws) ("Liens").
Section 3.2 Authority; Non-Contravention. Each of Parent and Sub has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub. This Agreement has been duly
executed and delivered by Parent and Sub and (assuming the valid authorization,
execution and delivery of this Agreement by the Company) constitutes a valid and
binding obligation of Parent and Sub enforceable against Parent and Sub in
accordance with its terms, except that such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditor's rights generally and by general equitable principles.
The execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any Lien upon any of the properties
or assets of Parent or Sub under, any provision of (i) the Certificate of
Incorporation or Bylaws of Parent or Sub, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or Sub or
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(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Sub or any of their respective properties or assets,
other than, in the case of clauses (ii) or (iii), any such conflicts,
violations, defaults, rights, or Liens that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on Parent or
Sub or prevent the consummation of any of the transactions contemplated hereby.
No filing or registration with, or authorization, consent or approval of, any
domestic (federal, state or local), foreign or supranational court, commission,
governmental body, regulatory or administrative agency, authority or tribunal (a
"Governmental Entity") is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by Parent and Sub
or is necessary for the consummation of the Offer, the Merger and the other
transactions contemplated by this Agreement, except for (i) in connection, or in
compliance, with the Exchange Act, (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, (iii) the filing of a Form A Statement Regarding the Acquisition
of Control of a Domestic Insurer and/or other documents as may be required with
the Arizona, Illinois, Indiana, Wisconsin, Missouri and Michigan Departments of
Insurance and the approval thereof by the Directors of Insurance of such
Departments of Insurance ("DOI"), and any other required filings with or
approvals by state agencies regulating corporations or insurance companies
applicable to the transactions contemplated hereby (collectively, such filings
and approvals are referred to as the "Insurance Approvals"), (iv) such filings
and approvals as may be required under the Hart-Scott-Rodino Improvements Act of
1976, as amended (the "HSR Act"), (v) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the corporation, takeover or blue sky laws of various states or the Nasdaq
National Market, and (vi) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent or Sub or prevent the consummation of any of
the transactions contemplated hereby. Except as disclosed by Parent to the
Company in writing prior to the date of this Agreement, to the knowledge of the
Parent, there are no controversies, examinations, actions, suits, proceedings,
investigations, claims, or issues raised by the DOI in the States of Arizona,
Illinois, Indiana, Wisconsin, Missouri or Michigan involving Parent or any of
its Subsidiaries which would reasonably be expected to, directly or indirectly,
prevent the Offer or the Merger or delay the Effective Time beyond 180 days
after the date of this Agreement. For purposes of this Agreement (a) "Material
Adverse Change" or "Material Adverse Effect" means, (i) when used with respect
to the Company, any change or effect,
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either individually or in the aggregate, that is or may be materially adverse to
the business, assets, liabilities, properties, condition (financial or
otherwise), or results of operations of all or any material part of the Company
and its Subsidiaries taken as a whole or (ii) when used with respect to Parent,
Sub or the Company, as the case may be, any change or effect, either
individually or in the aggregate, which would reasonably be expected to
materially impair the ability of Parent, Sub or the Company, as the case may be,
to perform their respective obligations hereunder, and (b) "Subsidiary" means
any corporation, partnership, joint venture or other legal entity of which (i)
Parent or the Company or any of their respective Subsidiaries, as the case may
be, is a general partner or (ii) Parent or the Company, as the case may be
(either alone or through or together with any other Subsidiary), owns, directly
or indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
Section 3.3 Offer Documents and Proxy Statement. The Offer Documents
will comply in all material respects with the Exchange Act and the rules and
regulations thereunder and any other applicable laws. The written information
supplied or to be supplied by Parent and Sub expressly for inclusion in the
Proxy Statement, the Schedule 14D-9 and the information statement filed by the
Company in connection with the offer pursuant to Rule 14f-1 promulgated under
the Exchange Act (the "Information Statement"), together with any amendments or
supplements to any of the foregoing will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made, in light of the circumstances
under which they are made, not misleading. Notwithstanding the foregoing, no
representation or warranty is made with respect to any information with respect
to the Company or its officers, directors and affiliates provided to Parent or
Sub by the Company in writing for inclusion in the Offer Documents or amendments
or supplements thereto. If at any time prior to the purchase of Shares pursuant
to the Offer there shall occur any event with respect to Parent, its officers
and directors or any of its Subsidiaries which is required to be described in
the Offer Documents, such event shall be so described, and an amendment or
supplement shall be promptly filed with the SEC and, to the extent required by
law, disseminated to the stockholders of the Company.
Section 3.4 Financing. Parent has all of the funds necessary to
consummate the Offer and the Merger and the transactions contemplated hereby on
a timely basis and to pay any and all of its related fees and expenses.
Section 3.5 Brokers. No broker, investment banker or
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other person or entity, other than Salomon Smith Barney, the fees and expenses
of which will be paid by Parent, is entitled to any broker's, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or Sub.
Section 3.6 Business of Sub. Sub was organized solely for the
purpose of acquiring the Company and engaging in the transactions contemplated
by this Agreement and has not engaged in any business since it was incorporated
which is not in connection with the acquisition of the Company and this
Agreement. During the period from the date of this Agreement through the date on
which Shares are purchased in accordance with the Offer, Sub shall not engage in
any activities of any nature except as provided in or contemplated by this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 4.1 Organization, Standing and Power. The Company and each
of its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company and
each of its Subsidiaries is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect on
the Company. The Company has made available to Parent and Sub complete and
correct copies of the Second Restated Certificate of Incorporation and By-Laws
of the Company and the comparable governing documents of each of its
Subsidiaries, in each case as amended to the date of this Agreement. Other than
as set forth in Section 4.1 of the Company's disclosure letter (the "Company
Disclosure Letter") delivered concurrently with the delivery of this Agreement,
the respective certificates of incorporation and by-laws or other organizational
documents of the Subsidiaries of the Company do not contain any provision
limiting or otherwise restricting the ability of the Company to control such
Subsidiaries in any material respect.
Section 4.2 Capital Structure. As of the date hereof, the authorized
capital stock of the Company consists of fifteen
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million (15,000,000) shares of Common Stock and one million (1,000,000) shares
of preferred stock, par value $.001 per share ("Preferred Stock"). At the close
of business on May 18, 1999, (i) 3,730,135 shares of Common Stock were issued
and outstanding, all of which were validly issued, fully paid and nonassessable
and free of preemptive rights, (ii) 740 shares of Common Stock were held in the
treasury of the Company or by Subsidiaries of the Company and (iii) 413,389
shares of Common Stock were reserved for future issuance pursuant to the
Company's 1995 Long-Term Incentive Plan and 1987 Statutory-Nonstatutory Stock
Option Plan (collectively, the "Stock Option Plans"). No shares of Preferred
Stock are outstanding. A total of 150,000 shares of Preferred Stock have been
designated as Series A Junior Participating Preferred Stock ("Series A Preferred
Stock"), in connection with the Rights Agreement. As of the date of this
Agreement, except (i) as set forth above, (ii) for the rights to purchase Series
A Preferred Stock ("Rights") pursuant to the Rights Agreement and (iii) as set
forth in the Company SEC Documents (as hereinafter defined), no shares of
capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding. The Company does not have any outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or which are convertible into or exercisable for securities having the
right to vote) with the stockholders of the Company on any matter ("Voting
Debt"). As of the date of this Agreement, except for stock options covering not
in excess of 305,240 shares of Common Stock issued under the Stock Option Plans,
there are no outstanding or authorized options, warrants, calls, rights or
subscriptions, claims of any character, obligations, convertible or exchangeable
securities or other commitments, contingent or otherwise, to which the Company
is a party or by which it is bound obligating the Company or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right or agreement (each an
"Issuance Obligation").
Section 4.3 Subsidiaries. Exhibit 21 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, as filed with the SEC, is a
true, accurate and correct list of all of the Subsidiaries of the Company. All
of the outstanding capital stock of, or ownership interests in, each Subsidiary
of the Company is owned by the Company, directly or indirectly. All of the
shares of capital stock of each Subsidiary are validly existing, fully paid and
non-assessable. Except as set forth in the Company SEC Documents or Section 4.3
of the Company Disclosure Letter, no Subsidiary of the Company has outstanding
Voting Debt and no Subsidiary of the Company is bound by, obligated under, or
party to an Issuance Obligation with respect to any security of the Company or
any Subsidiary of the Company.
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Except as set forth in the Company SEC Documents or Section 4.3 of the Company
Disclosure Letter, all of such capital stock or ownership interest is owned by
the Company, directly or indirectly, free and clear of all Liens.
Section 4.4 Other Interests. Except for the Company's interest in
its Subsidiaries, investments in ordinary course consistent with past practice,
and as set forth in the Company SEC Documents or Section 4.4 of the Company
Disclosure Letter, neither the Company nor its Subsidiaries owns directly or
indirectly any interest or investment (whether equity or debt) in, nor is the
Company or any of its Subsidiaries subject to any obligation or requirement to
provide for or to make any investment (in the form of a loan, capital
contribution or otherwise) to or in, any corporation, partnership, joint
venture, business, trust or entity.
Section 4.5 Authority; Non-Contravention. The Board of Directors of
the Company has unanimously approved the Merger Agreement and the transactions
contemplated thereby (including, but not limited to the Offer and the Merger),
declared the Merger advisable and fair to and in the best interests of the
holders of Shares and the Company has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of the Merger by
the stockholders of the Company (if required), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company, subject to the approval of the Merger by the stockholders of the
Company (if required). This Agreement has been duly executed and delivered by
the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub) constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
that such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights,
generally, and by general equitable principles. Except as set forth in the
Company SEC Documents or Section 4.5 of the Company Disclosure Letter, the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any Lien upon any of the properties
or assets of the Company or any of its Subsidiaries under, any provision of (i)
the Certificate of Incorporation or Bylaws of the Company (true and complete
copies of which as of the date hereof have been delivered to Parent) or any
provision of the comparable
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charter or organization documents of any of its Subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clause (ii) or (iii), any such conflicts, violations, defaults, rights,
or Liens that, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on the Company, or prevent the
consummation of any of the transactions contemplated hereby. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated hereby,
except for (i) in connection or in compliance with the provisions of the
Exchange Act, (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
(iii) the Insurance Approvals, (iv) such filings and approvals as may be
required under the HSR Act, (v) such other consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the corporation, takeover or blue sky laws of various states or the Nasdaq
National Market, and (vi) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company or prevent the consummation of any of
the transactions contemplated hereby. Except as disclosed in Section 4.5 of the
Company Disclosure Letter, to the knowledge of the Company, there are no
controversies, examinations, actions, suits, proceedings, investigations,
claims, or issues raised by the DOI in the States of Arizona, Illinois, Indiana,
Wisconsin, Missouri or Michigan involving the Company or any of its Subsidiaries
which would reasonably be expected to, directly or indirectly, prevent the Offer
or the Merger or delay the Effective Time beyond 180 days after the date of this
Agreement.
Section 4.6 SEC Documents and Financial Statements. (a) Since
November 16, 1995, the Company has filed with the SEC all documents required to
be filed under the Securities Act of 1933, as amended (including the rules and
regulations promulgated thereunder) (the "Securities Act"), and the Exchange Act
(such documents, together with any exhibits, schedules, amendments or
supplements thereto, and any information incorporated by reference therein, the
"Company SEC Documents"). As of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or
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the Exchange Act, as the case may be, and none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by the
rules applicable to Form 10-Q of the SEC) applied on a consistent basis during
the periods involved (except as may be indicated therein or in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated Subsidiaries as at the dates thereof and the consolidated
results of their operations and changes in financial position for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments and to any other adjustments described therein).
(b) Except as set forth in the Company SEC Documents or Section 4.6
the Company Disclosure Letter, neither the Company nor any of its Subsidiaries
has any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise), except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice since December 31,
1998 which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. Neither the Company nor any of its Subsidiaries is in
default in respect of the material terms and conditions of any indebtedness or
other agreement.
Section 4.7 Offer Documents and Proxy Statement. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Offer Documents or the Schedule 14D-9, the
Information Statement, if any, the Proxy Statement, if any, or any amendment or
supplement thereto, will (i) in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times such documents are
filed with the SEC or first published, sent or given to the Company's
stockholders, or (ii) in the case of the Proxy Statement, at the time of the
mailing of the Proxy Statement and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event with respect to the Company, its
officers and directors or any of its Subsidiaries should occur which is required
to be described in an amendment of, or a supplement to, the Proxy Statement, the
Information Statement, the Schedule 14D-9 or the Offer Documents,
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such event shall be so described, and such amendment or supplement shall be
promptly filed with the SEC and, as required by law, disseminated to the
stockholders of the Company. Prior to the filing of such amendment or supplement
with the SEC, a copy thereof shall be delivered to Parent and its counsel, who
shall have the opportunity to comment on such amendment or supplement. The Proxy
Statement and the Schedule 14D-9 will comply as to form in all material respects
with the requirements of the Exchange Act.
Section 4.8 Absence of Certain Events. Since December 31, 1998, the
Company and its Subsidiaries have operated their respective businesses only in
the ordinary course consistent with historical practices and, except as
disclosed in the Company SEC Documents or Section 4.8 of the Company Disclosure
Letter, there has not occurred (i) any event, occurrence or conditions which,
individually or in the aggregate, would be reasonably likely to have, a Material
Adverse Effect on the Company; (ii) any entry into or any commitment or
transaction that, individually or in the aggregate, would be reasonably likely
to have, a Material Adverse Effect on the Company; (iii) any change by the
Company or any of its Subsidiaries in its accounting methods, principles or
practices; (iv) any amendments or changes in the Certificate of Incorporation or
Bylaws of the Company; (v) any revaluation by the Company or any of its
Subsidiaries of any of their respective assets, including, without limitation,
write-offs of accounts receivable, other than in the ordinary course of the
Company's and its Subsidiaries' businesses consistent with past practices; (vi)
any damage, destruction or loss which resulted in or is reasonably likely to
result in a Material Adverse Effect on the Company; (vii) any event pursuant to
which the Company or any of its Subsidiaries has incurred any material
liabilities (direct, contingent or otherwise) or engaged in any material
transaction or entered into any material agreement outside the ordinary course
of business; (viii) any increase in the compensation of any officer of the
Company or any of its Subsidiaries or any general salary or benefits increase to
the employees of the Company or any of its Subsidiaries other than in the
ordinary course of business; or (ix) any declaration, setting aside or payment
of any dividend or other distribution with respect to any shares of capital
stock of the Company, or any repurchase, redemption or other acquisition by the
Company or any of its Subsidiaries of any outstanding shares of capital stock or
other securities of, or other ownership interests in, the Company. Except as set
forth in the Company SEC Documents or Section 4.8 of the Company Disclosure
Letter, since December 31, 1998, neither the Company nor any of its Subsidiaries
has taken any action specified in Section 5.1 of this Agreement.
Section 4.9 Litigation. Except as disclosed in Section 4.9 of the
Company Disclosure Letter, there are no investigations, actions, suits or
proceedings pending against
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the Company or its Subsidiaries or, to the knowledge of the Company, threatened
against the Company or its Subsidiaries (or any of their respective properties,
rights or franchises), at law or in equity, or before or by any federal or state
commission, board, bureau, agency, regulatory or administrative instrumentality
or other Governmental Entity or any arbitrator or arbitration tribunal, that
would be reasonably likely to have a Material Adverse Effect on the Company,
and, to the knowledge of the Company, no development has occurred with respect
to any pending or threatened action, suit or proceeding that would be reasonably
likely to result in a Material Adverse Effect on the Company or would prevent or
delay the consummation of the transactions contemplated hereby. Neither the
Company nor any of its Subsidiaries is subject to any judgment, order or decree
entered in any lawsuit or proceeding which would reasonably be expected to have
a Material Adverse Effect on the Company.
Section 4.10 Compliance with Applicable Law. (a) The Company and its
Subsidiaries hold, and at all required times have held, all permits, licenses,
variances, exceptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the "Company
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. The
Company and its Subsidiaries are, and at all times have been, in compliance with
the terms of the Company Permits, except where the failure so to comply would
not have a Material Adverse Effect on the Company. The businesses of the Company
and its Subsidiaries are not being, and have not been, conducted in violation of
any law, ordinance or regulation of any Governmental Entity except for
violations or possible violations which individually or in the aggregate do not
and would not reasonably be expected to have a Material Adverse Effect on the
Company. Except as set forth in Section 4.10 of the Company Disclosure Letter,
no investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries is pending or, to the knowledge of the
Company, threatened, nor, to the knowledge of the Company, has any Governmental
Entity indicated an intention to conduct the same, other than, in each case,
those which would not reasonably be expected to have a Material Adverse Effect
on the Company.
(b) The Company has made all required filings under applicable
insurance holding company statutes in each jurisdiction where such filings are
required, except for such jurisdictions in which the failure to make such
filings would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
Section 4.11 Employee Plans. (a) Each Company Benefit Plan (as
defined below) (and each related trust agreement or
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insurance contract) is in compliance with its terms and with all contractual
obligations and all obligations under applicable federal, state and local laws,
rules and regulations (domestic and foreign), other than where the failure to so
comply or perform would not be reasonably likely to have, a Material Adverse
Effect on the Company. All contributions and other payments required to be made
by the Company and its Subsidiaries to any Company Benefit Plan or Multiemployer
Plans (as defined below), prior to the date hereof have been made, other than
where the failure to so contribute or make payments would not be reasonably
likely to have, a Material Adverse Effect on the Company, and all accruals or
contributions required to be made under any Company Benefit Plan or
Multiemployer Plan have been made. There is no claim, dispute, grievance,
charge, complaint, restraining or injunctive order, litigation or proceeding
pending, threatened or anticipated (other than routine claims for benefits)
against or relating to any Company Benefit Plan or against the assets of any
Company Benefit Plan, which would be reasonably likely to have, a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
has communicated generally to employees or specifically to any employee
regarding any future increase of benefit levels (or future creations of new
benefits) with respect to any Company Benefit Plan beyond those reflected in the
Company Benefit Plans, which benefit increases or creations, either individually
or in the aggregate, would be reasonably likely to have, a Material Adverse
Effect on the Company. Neither the Company nor any of its Subsidiaries presently
sponsors, maintains, contributes to, nor is the Company or its Subsidiaries
required to contribute to, nor has the Company or any of its Subsidiaries ever
sponsored, maintained, contributed to, or been required to contribute to, any
employee pension benefit plan within the meaning of section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any
multiemployer plan within the meaning of section 3(37) or 4001(a)(3) of ERISA a
("Multiemployer Plan"), other than the Company's 401(k) plan which is qualified
under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code").
No Company Benefit Plan provides for post-employment or retiree welfare
benefits, except to the extent required by Part 6 of Subtitle B of Title I of
ERISA or Section 4980B of the Code. Neither the Company nor any of its
Subsidiaries, nor, to the Company's knowledge, any other "disqualified person"
or "party in interest" (as defined in Section 4975(e)(2) of the Code and Section
3(14) of ERISA, respectively) has engaged in any transactions in connection with
any Company Benefit Plan that would reasonably be expected to result in the
imposition of a penalty pursuant to Section 502 of ERISA, damages pursuant to
Section 409 of ERISA, or a tax pursuant to Section 4975 of the Code, except
where the imposition of such penalties, damages or taxes would not reasonably be
expected to result in a Material Adverse Effect on the Company.
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(b) Neither the Company nor any of its Subsidiaries has incurred,
nor has any event occurred which has imposed or is reasonably likely to impose
upon the Company or any of its Subsidiaries, any withdrawal liability (partial
or complete) in respect of any Multiemployer Plan, which withdrawal liability
has not been satisfied or discharged in full or which, either individually or in
the aggregate, would be reasonably likely to cause, a Material Adverse Effect on
the Company.
(c) The execution, delivery and performance of this Agreement and
the transactions contemplated hereby will not result in the imposition of any
federal excise tax with respect to any Company Benefit Plan.
(d) Except as set forth in Section 4.11 of the Company Disclosure
Letter, no payment or benefit which will or may be made by the Company or any of
its Subsidiaries with respect to any of their employees under any Company
Benefit Plan in effect on the date hereof will be characterized as an "excess
parachute payment" within the meaning of section 280G(b)(1) of the Code.
(e) (i) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of section 3(3) of ERISA and (ii) "Company Benefit
Plan" means any employee pension benefit plan and any Plan, other than a
Multiemployer Plan, established by the Company or any of its Subsidiaries or to
which the Company or any of its Subsidiaries contributes or has contributed
(including any such Plans not now maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries does not now
contribute, but with respect to which the Company or any of its Subsidiaries has
or may have any liability).
Section 4.12 Employment Relations and Agreement. (a) Except as would
not reasonably be expected to have a Material Adverse Effect on the Company or
as disclosed in Section 4.12(a) of the Company Disclosure Letter, (i) each of
the Company and its Subsidiaries is, and at all times has been, in compliance in
all material respects with all federal, state or other applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practice; (ii) no unfair labor practice complaint against the Company or
any of its Subsidiaries is pending before the National Labor Relations Board;
(iii) there is no labor strike, dispute, slowdown or stoppage actually
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pending or threatened against or involving the Company or any of its
Subsidiaries, (iv) no representation question exists respecting the employees of
the Company or any of its Subsidiaries; (v) no grievance exists, no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted; (vi) no collective bargaining
agreement is currently being negotiated by the Company or any of its
Subsidiaries; and (vii) the Company and its Subsidiaries taken as a whole have
not experienced any material labor difficulty during the last three years.
(b) Except for Employment Agreements and similar agreements,
executed copies of which, as amended, have been delivered to Parent, and as set
forth in the Company SEC Documents or Section 4.12(b) of the Company Disclosure
Letter, neither the Company nor any of its Subsidiaries has any written, or, to
the knowledge of the Company, any oral, employment or severance agreement with
any other person. The executed copies of the Employment Agreements and similar
agreements previously delivered to Parent are true and correct and such
agreements have not since been amended, modified or rescinded except to the
extent disclosed to Parent.
Section 4.13 Contracts. Except as filed as Exhibits to Company SEC
Documents or as set forth in Section 4.13 of the Company Disclosure Letter,
neither the Company nor its Subsidiaries is a party to, or has any obligation
under, any contract or agreement which contains any covenant currently or
prospectively limiting the freedom of the Company, any of its Subsidiaries or
any of their respective affiliates to engage in any line of business or to
compete with any entity. Subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity, all contracts and agreements to which the Company or any
of its Subsidiaries is a party or by which any of their respective assets is
bound are valid and binding, in full force and effect and enforceable against
the parties thereto in accordance with their respective terms, other than such
failures to be so valid and binding, in full force and effect or enforceable
which, would not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect on the Company. There is not under any such
contract or agreement any existing default, or event which, after notice or
lapse of time, or both, would constitute a default, by the Company or any of its
Subsidiaries, or to the Company's knowledge, any other party, except to the
extent such default would not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 4.14 Rights Agreement. The Company and the Board of
Directors of the Company have taken all necessary action to amend the Rights
Agreement (subject only to the execution of
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such amendment by the Rights Agent, which execution the Company shall cause to
take place prior to the commencement of the Offer) to (a) render the Rights
Agreement inapplicable with respect to the Offer, the Merger and the other
transactions contemplated by this Agreement and (b) ensure that (x) neither
Parent nor Sub nor any of their Affiliates (as defined in the Rights Agreement)
or Associates (as defined in the Rights Agreement) is considered to be an
Acquiring Person (as defined in the Rights Agreement) and (y) the provisions of
the Rights Agreement, including the occurrence of a Distribution Date (as
defined in the Rights Agreement), are not and shall not be triggered by reason
of the announcement or consummation of the Offer, the Merger or the consummation
of any of the other transactions contemplated by this Agreement. The Company has
delivered to Parent a complete and correct copy of the Rights Agreement as
amended and supplemented to the date of this Agreement.
Section 4.15 State Takeover Statutes; Certain Charter Provisions.
The Board of Directors of the Company has, to the extent such statute is
applicable, taken all action (including appropriate approvals of the Board of
Directors of the Company) necessary to exempt Parent, its Subsidiaries, their
affiliates, the Merger, this Agreement, the Stockholder Agreements and the
transactions contemplated hereby and thereby from Section 203 of the DGCL. No
other state takeover statutes and no charter or bylaw provisions are applicable
to the Merger, this Agreement, the Stockholder Agreements and the transactions
contemplated hereby and thereby.
Section 4.16 Taxes. (a) The Company and each Subsidiary (i) has
timely filed or will timely file all material Tax Returns required to be filed
on or before the Effective Time, which returns are or will be true and complete
in all material respects; (ii) the Company and each Subsidiary has timely paid
or will timely pay, or has adequately disclosed or will adequately disclose, and
has fully provided or will fully provide for as a liability on the financial
statements of the Company and its Subsidiaries in accordance with generally
accepted accounting principles, consistently applied, all material Taxes which
are due and payable with respect to all taxable years or periods that end on or
before the Effective Time and, with respect to any taxable year or period
beginning before and ending after the Effective Time, the portion of such
taxable year or period ending on and including the Effective Time
("Pre-Effective Periods"), and the Company and each Subsidiary has withheld or
collected all material Taxes they were required to withhold and collect, and
have timely paid to the proper authorities such Taxes withheld or collected to
the extent due and payable.
(b) Except as set forth in the Company Disclosure Letter, (i)
neither the Company nor any Subsidiary has waived any statute of limitations in
respect of material Taxes of the
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Company or any Subsidiary; (ii) the Tax Returns referred to in clause (i) of
Section 4.16(a) have been reviewed by the Internal Revenue Service or any other
appropriate taxing authority; and (iii) no issues have been raised by the
relevant taxing authority in connection with such review of the Tax Returns
through a notice or any other correspondence from any taxing authority, and
neither the Company nor any of its Subsidiaries is subject to an audit,
examination, action, suit, proceeding, investigation or claim regarding Taxes
("Tax Controversy") by the appropriate taxing authorities of any nation, state,
province or locality that is currently pending (or scheduled as of the Effective
Time to be conducted) or that has been threatened by any such authority
regarding Taxes; and (iv) all deficiencies asserted or assessments made as a
result of any such Tax Controversy concerning the Tax Returns referred to in
Section 4.16(a) by a taxing authority have been paid in full; and (vii) no liens
or security interests arising in connection with a failure (or alleged failure)
to pay any Taxes have attached to any of the Company's or any of its
Subsidiaries' assets. The Company has delivered to Parent correct and complete
copies of all United States federal, state and all foreign income Tax Returns
(to the extent filed as of the date hereof or, if not filed, correct and
complete copies of extensions thereof), examination reports, statements of
deficiencies assessed against or agreed to by the Company and any of its
Subsidiaries, or any other similar correspondence from a taxing authority,
relating to taxable years 1996, 1997 and 1998.
(c) For purposes of this Agreement (i) "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means any federal, state, local, foreign or
other income, gross receipts, profits, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer, stamp, severance, capital gains, capital stock or
excise tax, or any other tax, levy custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority and shall include any liability
for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity with respect to Taxes, and (ii) "Tax
Return" means any return, form, report or similar statement required to be filed
with respect to any Tax (including any schedules, related or supporting
information), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
(d) Except as set forth in the Company Disclosure Letter, none of
the Company or any of its Subsidiaries has agreed to any extension of time with
respect to Tax assessment or deficiency.
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(e) Except as set forth in the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries has been included in any "consolidated,"
"unitary" or "combined" Tax Return provided for under the law of the United
States, any foreign jurisdiction or any state, province or locality with respect
to Taxes for any taxable period for which the statute of limitations has not
expired.
(f) Except as set forth in the Company Disclosure Letter, there are
no tax sharing, allocation, indemnification or similar agreements in effect as
between the Company or its Subsidiaries or any predecessor or affiliate thereof
and any other party under which Parent or Sub, the Company or its Subsidiaries
could be liable for Taxes or other claims of any party.
(g) No election under Section 341(f) of the Code has been made or
shall be made prior to the Effective Time to treat the Company or its
Subsidiaries as a consenting corporation, as defined in Section 341 of the Code.
(h) Neither the Company nor any of its Subsidiaries is a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(i) Neither the Company nor any of its Subsidiaries has been
required to include in income any adjustments pursuant to section 481 of the
Code by reason of a voluntary change in accounting method initiated by the
Company or any of its Subsidiaries, and the Internal Revenue Service has not
initiated or proposed any such adjustment or change in accounting period.
Section 4.17 Intellectual Properties. (a) The Company exclusively
owns, without restrictions, or is licensed to use, the worldwide rights to all
material patents, trademarks, trade names, service marks, copyrights together
with any registrations and applications therefor, Internet domain names, net
lists, schematics, inventories, technology, trade secrets, proprietary
information, know-how, computer software programs or applications including,
without limitation, all object and source codes and tangible or intangible
proprietary information or material that in any material respect are used in the
business of the Company and any of its Subsidiaries as currently conducted (the
"Company Intellectual Property"). Section 4.17 of the Company Disclosure Letter
sets forth: (i) all material patents, trademarks, trade names, service marks,
registered copyrights, and any applications therefor in any nation included in
the Company Intellectual Property; and (ii) all material licenses and other
agreements to which the Company or any of its Subsidiaries is a party and
pursuant to which the Company or any of its Subsidiaries is authorized to use
any Company Intellectual Property and includes the identities of the parties
thereto, a description of the
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nature and subject matter thereof, the applicable royalty and the term thereof.
Neither the Company nor any of its Subsidiaries is, or as a result of the
execution, delivery or performance of the Company's obligations hereunder will
be, in violation of, or lose any rights pursuant to, any license or agreement
set forth in Section 4.17 of the Company Disclosure Letter, except as would not
reasonably be expected to have a Material Adverse Effect on the Company.
(b) No claims have been asserted or, to the knowledge of the
Company, are threatened by any person or entity nor does the Company or any of
its Subsidiaries know of any valid grounds for any bona fide claims (i) to the
effect that the manufacture, sale, use, offer for sale, reproduction,
distribution or modification, of any product or process by the Company or any of
its Subsidiaries infringes or within the six (6) year period immediately prior
to the date hereof has infringed any copyright, trade secret, trademark, patent
or other intellectual property right of any person or entity, (ii) that, if
sustained, might preclude the use by the Company or any of its Subsidiaries of
any Company Intellectual Property, or (iii) challenging the ownership, validity
or enforceability of any of the Company Intellectual Property, except as would
not reasonably be expected to have a Material Adverse Effect on the Company. All
granted and issued patents and all registered trademarks and service marks set
forth in Section 4.17 of the Company Disclosure Letter and all copyrights held
by the Company or any of its Subsidiaries are valid, enforceable and subsisting,
except as would not reasonably be expected to have a Material Adverse Effect on
the Company. To the Company's best knowledge, there has not been and there is
not any unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property by any person or entity, including, without limitation,
any employee or former employee.
Section 4.18 Voting Requirements. The affirmative vote of the
holders of at least a majority of the outstanding shares of Common Stock (voting
as one class, with each share of Common Stock having one (1) vote) entitled to
be cast approving this Agreement is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated by this Agreement.
Section 4.19 Year 2000. Section 4.19 of the Company Disclosure
Letter sets forth a summary of the status of the Company's Year 2000 readiness
plan (the "Y2K Readiness Plan"). Upon completion of the Y2K Readiness Plan,
except as set forth in Section 4.19 of the Company Disclosure Letter, to the
knowledge of the Company, all software material to the business, finances or
operations of the Company ("Software"):
(i) shall accurately and completely process
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(including but not limited to calculation, comparison and sequencing, and
including without limitation leap year calculations) date-related data for
dates prior to the year 2000, date-related data for dates after the year
1999, and date-related data for dates both before the year 2000 and after
the year 1999; and
(ii) shall not, as a consequence of the change of centuries or
of the fact that date from more than one century is being processed, cause
an abnormal termination of execution, an endless loop, incorrect values or
invalid results, or otherwise fail to perform accurately and completely
those functions set forth in the associated user documentation.
Section 4.20 Brokers. No broker, investment banker or other person
or entity, other than William Blair & Company, L.L.C., the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's or
other similar fee or commission in connection with the transactions contem
plated by this Agreement based upon arrangements made by or on behalf of the
Company. A true and correct copy of the engagement letter of William Blair &
Company, L.L.C., as in effect on the date hereof has been delivered to Parent.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business by the Company Pending the Merger.
Except as otherwise expressly contemplated by this Agreement or as described in
the Company Disclosure Letter, during the period from the date of this Agreement
through the Effective Time, the Company shall, and shall cause its Subsidiaries
to, in all material respects carry on their respective businesses in, and not
enter into any material transaction other than in accordance with, the regular
and ordinary course and, to the extent consistent therewith, use its reasonable
best efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with them. Without limiting the generality of the foregoing, and,
except as otherwise expressly contemplated by this Agreement or as described in
the Company Disclosure Letter, the Company shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent of Parent:
(a) (x) declare, set aside or pay any dividends on, or make any
other actual, constructive or deemed distributions in respect of, any of
its capital stock, or otherwise make
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any payments to stockholders of the Company in their capacity as such,
other than dividends payable to the Company declared by any of the
Company's Subsidiaries, (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock or (z) purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber
any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into or exchangeable or
exercisable for, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or equity equivalent
(other than, in the case of the Company, the issuance of Shares during the
period from the date of this Agreement through the Effective Time upon the
exercise of Stock Options outstanding (as set forth in Section 4.2) on the
date of this Agreement in accordance with their current terms or enter
into any agreement or contract with respect to the sale or issuance of any
of its securities;
(c) amend its charter or bylaws or the Rights Agreement;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing assets of or equity in, or by any other manner, any business
or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets (other than in the ordinary course of business consistent with
past practice);
(e) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets that are material, individually or
in the aggregate, to the Company and its Subsidiaries taken as a whole;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with past practice for working
capital purposes, or make any loans, advances or capital contributions to,
or investments in, any other person or entity, other than to the Company
or any wholly owned Subsidiary of the Company and other than in the
ordinary course of business consistent with past practice;
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(g) alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any
Subsidiary of the Company or adopt any plan with respect to any of the
foregoing;
(h) grant any severance or termination pay not currently required to
be paid under existing severance plans or enter into or adopt, or amend
any existing, severance plan, agreement or arrangement or, other than in
the ordinary course of business, enter into or amend any employee benefit
plan (including without limitation, the Stock Option Plans), or enter into
or amend employment or consulting agreement;
(i) enter into any contract or commitment with respect to capital
expenditures with a value in excess of, or requiring expenditures by the
Company and its Subsidiaries in excess of, $100,000, individually, or
enter into contracts or commitments with respect to capital expenditures
with a value in excess of, or requiring expenditures by the Company and
its Subsidiaries in excess of, $500,000, in the aggregate;
(j) except to the extent required under existing employee and
director benefit plans, agreements or arrangements as in effect on the
date of this Agreement, increase the compensation or fringe benefits of
any of its directors, officers or employees provided that, with respect to
employees that are not executive officers or directors, the Company may
increase compensation associated with promotions and regular reviews in
the ordinary course of business consistent with past practice;
(k) agree to the settlement of any material claim or litigation;
(l) make or rescind any material tax election or settle or
compromise any material tax liability;
(m) except as required by applicable law or GAAP, make any material
change in its method of accounting;
(n) except as required under the Stock Option Plans and as otherwise
provided in this Agreement, accelerate the payment, right to payment or
vesting of any bonus, severance, profit sharing, retirement, deferred
compensation, stock option, insurance or other compensation or benefits;
(o) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted,
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contingent or otherwise), other than the payment, discharge or
satisfaction (A) of any such claims, liabilities or obligations in the
ordinary course of business and consistent with past practice or (B) of
claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes
thereto) contained in the Company SEC Documents;
(p) enter into any agreement, understanding or commitment that
restrains, limits or impedes the Company's or any of its Subsidiaries'
ability to compete with or conduct any business or line of business,
including, but not limited to, geographic limitations on the Company's or
any of its Subsidiaries' activities;
(q) materially modify, amend or terminate any material contract to
which it is a party or waive any of its material rights or claims except
in the ordinary course of business consistent with past practice; or
(r) agree, in writing or otherwise, to take any of the foregoing
actions, provided, however, that nothing in this Section 5.1 shall be
deemed as prohibiting the Company from making such expenditure as it deems
reasonably necessary to complete its Y2K Readiness Plan as set forth in
Schedule 4.19 of the Company Disclosure Schedule.
Section 5.2 No Solicitation. (a) The Company and its affiliates (as
such term is defined under Rule 12b-2 under the Exchange Act) and each of their
respective officers, directors, employees, financial advisors, attorneys and
other advisors, representatives and agents shall immediately cease any
discussions or negotiations which may be ongoing with third parties with respect
to any Takeover Proposal (as defined below). The Company shall not, nor shall it
permit any of its affiliates (as defined under Rule 12b-2 under the Exchange
Act) to, nor shall it authorize or permit any officer, director or employee of
or any financial advisor, attorney or other advisor, representative or agent of,
the Company or any of its affiliates to, (i) solicit, facilitate, initiate or
encourage the submission of, any Takeover Proposal (as hereafter defined)
(including, without limitation, the taking of any action which would make the
Rights Agreement or Section 203 of the Delaware General Corporation inapplicable
to a Takeover Proposal), (ii) enter into any agreement with respect to any
Takeover Proposal or enter into any arrangement, understanding or agreement
requiring it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement or (iii) participate in any way in
any discussions or negotiations regarding, or furnish to any person or legal
entity (other than Parent or Sub) any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
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constitutes, or may reasonably be expected to lead to, any Takeover Proposal;
provided, however, that prior to acceptance for payment of Shares pursuant to
the Offer, in response to an unsolicited Takeover Proposal and in compliance
with its obligations under Section 5.2(d) hereof, the Company may participate in
discussions or negotiations with or furnish information (pursuant to a
confidentiality agreement with terms not more favorable to such third party than
the terms of the Confidentiality Agreement) to any third party which makes a
Superior Proposal (as defined below) if the Board of Directors believes (based
on the written advice of independent, outside, nationally-recognized, legal
counsel) that failing to take such action would constitute a breach of its
fiduciary duties. For purposes of this Agreement, "Takeover Proposal" means (i)
any inquiry, proposal or offer from any person or entity relating to any direct
or indirect acquisition or purchase of a substantial amount of assets of the
Company or any of its Subsidiaries or of over 15% of any class of equity
securities of the Company or any of its Subsidiaries, (ii) any tender offer or
exchange offer that, if consummated, would result in any person or entity
beneficially owning 15% or more of any class of equity securities of the Company
or any of its Subsidiaries or (iii) any merger, consolidation, business
combination, sale of all, or substantially all, of the assets, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries; and "Superior Proposal" means a bona fide proposal made by a
third party to acquire all outstanding Shares pursuant to a tender offer or a
merger or purchase of all of the assets of the Company (w) on terms which a
majority of the disinterested members of the Board of Directors of the Company
determines in its good faith reasonable judgment (based on the written advice of
William Blair & Company L.L.C. and independent, outside, nationally-recognized,
legal advisors) to be more favorable to the Company and its stockholders than
the transactions contemplated hereby, (x) for which financing is then available
(it being understood that financing evidenced by highly confident letters and
similar letters shall not be considered "available" for purposes of this
Section), (y) which is not subject to any financing or due diligence condition
and (z) which, in the written opinion of William Blair & Company L.L.C., is more
favorable to the Company's stockholders from a financial point of view than the
transactions contemplated hereby, as proposed to be modified by Parent in
accordance with Section 8.1(d)(iii).
(b) Except as set forth in Section 5.2(c), neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to Parent or Sub, the
approval or recommendation by such Board of Directors or such committee of the
Offer, the Merger or this Agreement, or (ii) approve or recommend, or propose to
approve or recommend, any Takeover Proposal or
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(iii) cause the Company to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement (each, an
"Acquisition Agreement") related to any Takeover Proposal.
(c) Notwithstanding anything to the contrary herein, prior to the
acceptance for payment of Shares pursuant to the Offer, the Company may
recommend to its stockholders a Takeover Proposal and in connection therewith
withdraw or modify its approval or recommendation of the Offer or the Merger if
(1) a third party makes a Superior Proposal, (2) all the conditions to the
Company's right to terminate this Agreement in accordance with Section
8.1(d)(iii) hereof have been satisfied (including the expiration of the five (5)
business-day period described therein and the payment of all amounts required
pursuant to Section 6.3 hereof) and (3) simultaneously with such withdrawal,
modification or recommendation, this Agreement is terminated in accordance with
Section 8.1(d)(iii) hereof.
(d) In addition to the obligations of the Company set forth in
paragraphs (a), (b) and (c) of this Section 5.2, on the date of receipt thereof,
if possible, but no later than twelve (12) hours after receipt thereof, the
Company shall advise Parent in writing of any request for information or any
Takeover Proposal, or any inquiry, proposal, discussions or negotiation with
respect to any Takeover Proposal, the terms and conditions of such request,
Takeover Proposal, inquiry, proposal, discussion or negotiation and the Company
shall promptly provide to Parent copies of any written materials received by the
Company in connection with any of the foregoing, and the identity of the person
or entity making any such Takeover Proposal or such request, inquiry or proposal
or with whom any discussion or negotiations are taking place. The Company shall
keep Parent fully informed of the status and details (including amendments or
proposed amendments) of any such request or Takeover Proposal and keep Parent
fully informed as to the details of any information requested of or provided by
the Company and as to the details of all discussions or negotiations with
respect to any such request, takeover proposal or inquiry. The Company shall
promptly provide to Parent any non-public information concerning the Company
provided to any other person or entity in connection with any Takeover Proposal
which was not previously provided to Parent.
(e) Nothing contained in this Section 5.2 shall prohibit the Company
from taking and disclosing to its stockholders a position contemplated by the
Exchange Act or from making any disclosure to the Company's stockholders if, in
the good faith judgment of the Board of Directors of the Company (based upon
written advice of independent, outside, nationally-recognized, legal advisors),
such disclosure is required by applicable state or Federal securities laws or is
necessary in order to comply with its fiduciary duties to the
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Company's stockholders under applicable law.
(f) Immediately following the execution of this Agreement, the
Company shall request each person or entity which has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring the
Company or any portion thereof to return all confidential information heretofore
furnished to such person or entity by or on behalf of the Company.
Section 5.3 Third Party Standstill Agreements. During the period
from the date of this Agreement through the Effective Time, (i) the Company
shall not terminate, amend, modify or waive any provision of any confidentiality
or standstill agreement to which the Company or any of its Subsidiaries is a
party (other than any involving Parent), and (ii) the Company shall enforce, to
the fullest extent permitted under applicable law, the provisions of any such
agreements, including, but not limited to, obtaining injunctions to prevent any
breaches of such agreements and to enforce specifically the terms and provisions
thereof in any court of the United States or any state thereof having
jurisdiction.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Company Stockholder Approval; Proxy Statement. (a)
Promptly following the purchase of Shares pursuant to the Offer if approval of
the Merger by the stockholders of the Company is required by applicable law, the
Company shall call a meeting of its stockholders (the "Stockholder Meeting") for
the purpose of voting upon the Merger and shall take all action necessary or
advisable to obtain stock holder approval of the Merger. The Stockholder Meeting
shall be held as soon as practicable following the purchase of Shares pursuant
to the Offer and the Company will, through its Board of Directors, subject to
this Agreement, recommend to its stockholders the approval of the Merger. The
record date for the Stockholder Meeting shall be a date subsequent to the date
Parent or Sub becomes a record holder of Shares purchased pursuant to the Offer.
(b) If stockholder approval of the Merger is required by applicable
law, the Company will, as soon as practicable following the expiration of the
Offer, prepare and file a preliminary Proxy Statement with the SEC and will use
its reasonable best efforts to respond to any comments of the SEC or its staff
and to cause the Proxy Statement to be cleared by the SEC. The Company will
notify Parent of the receipt of any comments from the SEC or its staff and of
any request by the SEC
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or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement prior to its being filed with the SEC and shall give Parent
and its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company and Parent agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement has been cleared by the SEC, the Company shall mail the Proxy
Statement to the stockholders of the Company. If at any time prior to the
approval of this Agreement by the Company's stockholders there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company will prepare and mail to its stockholders such an
amendment or supplement.
(c) The Company shall take all such action as may be necessary or
advisable to obtain the necessary approvals by its stockholders of the Merger,
this Agreement and the transactions contemplated hereby.
(d) Parent agrees to cause all Shares purchased pursuant to the
Offer and all other Shares owned by Parent, Sub or any other Subsidiary of
Parent to be voted in favor of the approval of the Merger.
Section 6.2 Access to Information. (a) The Company shall, and shall
cause each of its Subsidiaries to, afford to Parent, and to Parent's
accountants, counsel, financial advisers and other representatives, reasonable
access and permit them to make such inspections as they may reasonably request
during normal business hours during the period from the date of this Agreement
through the Effective Time to all their respective properties, information
systems, books, contracts, commitments and records and, during such period, the
Company shall, and shall cause each of its Subsidiaries to, furnish promptly to
Parent (i) a copy of each report, schedule, registration statement and other
document filed by it during such period pursuant to the requirements of federal
or state laws and (ii) all other information concerning its business, properties
and personnel as Parent may reasonably request. In no event shall the Company
prior to the purchase of Shares in the Offer, be requested to supply to Parent,
or to Parent's accountants, counsel, financial advisors or other
representatives, any information relating to indications of interest from, or
discussions with, any other
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potential acquirors of the Company which were received or conducted prior to the
date hereof, except to the extent necessary for use in the Offer Documents, the
Schedule 14D-9 and the Proxy Statement. Except as required by law, prior to the
Effective Time Parent will hold, and will cause its affiliates, associates and
representatives to hold, any nonpublic information in confidence in accordance
with the terms of the Confidentiality Agreement dated March 24, 1999. In the
event of termination of this Agreement for any reason, Parent shall promptly
destroy all non-public documents so obtained from the Company or any of its
Subsidiaries and any copies made of such documents for Parent.
(b) The Company agrees that between the date hereof and the
Effective Time, Parent and its representatives shall have the right, during
normal business hours, and at other reasonable times upon request, to have full
and complete access to the Company's hardware, information systems and Software
including without limitation, those identified on Schedule 4.19 for the purpose
of assisting the Company in assessing, developing, executing and testing the
Company's Y2K Readiness Plan. In connection therewith, the Company shall cause
its officers, employees and agents to fully cooperate with the representatives
of Parent and to provide them with all information, data, records, documents and
any other material which they may request relating to the Company's hardware,
Software and information systems. The Company shall seriously consider any and
all recommendations made by Parent or its representatives relating to the
Company's Y2K Readiness Plan and shall take full advantage of the Parent's
resources and expertise in connection therewith. In addition, if the Parent
reasonably determines that there exists any material deficiency in the Company's
Y2K Readiness Plan, the Company shall take such action as the Parent reasonably
requests is necessary to cure such deficiency. As part of this process, the
Company and Parent shall establish a joint Y2K Readiness steering committee
which shall consider and make recommendations relating to the Company's Y2K
Readiness Plan (the "Committee"), which shall consist of three representatives
from the Company and up to three representatives designated by Parent. The
Committee shall meet physically or telephonically as often as may be necessary
for the purpose of ensuring that the Company is assessing, developing, executing
and testing the Company's Y2K Readiness Plan in a timely and effective manner.
If the members of the Committee do not by majority vote agree on or prior to
July 13, 1999 that the Company's Y2K Readiness Plan is or will be implemented on
a timely and effective manner in all material respects, the Company and the
Parent shall designate a third party consultant which is mutually acceptable to
both the Company and Parent to assess and make recommendations with respect to
the Company's Y2K Readiness Plan (the "Consultant"). If the Consultant
identifies any material deficiency in the Company's Y2K Readiness Plan, the
Company agrees to follow the recommendations of Consultant which are reasonably
requested by
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the Parent.
Section 6.3 Fees and Expenses. (a) Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses, except as expressly set forth in this Agreement.
(b) If this Agreement is terminated (i) by Parent in accordance with
Section 8.1(b)(ii) hereof because of the occurrence of any of the events set
forth in clauses (d), (e) or (f) of Exhibit A; (ii) Parent or the Company, as
the case may be, in accordance with Sections 8.1(b)(i) or 8.1(d)(iii) hereof; or
(iii) by Parent, pursuant to any provision herein other than those described in
the preceding clauses (i) and (ii) of this paragraph (b), or, except to the
extent the that the termination of this Agreement is the result of a breach by
Parent or Sub in any material respect its representations, warranties or
covenants in this Agreement, by the Company pursuant to Section 8.1(d)(i) or
8.1(d)(ii) if, in any such case described in this clause (iii) of this paragraph
(b), (x) a Takeover Proposal has been made after the date of this Agreement and
(y) within twelve (12) months of the date of such termination, the Company shall
enter into an Acquisition Agreement with any person or entity other than Parent
or any of its affiliates, then the Company shall (except as required to be paid
earlier in accordance with Section 8.1(d)(iii) hereof) on the business day next
succeeding the date of termination (or in the case of a termination pursuant to
clause (iii) of this paragraph (b), the business day next succeeding the
execution of such agreement), (A) reimburse Parent in immediately available
funds for the Expenses of Parent and Sub, not to exceed $1,500,000, and (B) pay
to Parent in immediately available funds an amount equal to $3.9 million.
"Expenses" shall mean documented and reasonable out-of-pocket fees and expenses
incurred or paid by or on behalf of Parent or Sub in connection with the Offer,
the Merger or the consummation of any of the transactions contemplated by this
Agreement, including, but not limited to, all filing fees, printing fees and
reasonable fees and expenses of law firms, commercial banks, investment banking
firms, accountants, experts and consultants to Parent.
Section 6.4 Stock Options. (a) The Company shall (i) terminate the
Stock Option Plans and any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any of its Subsidiaries (collectively "Stock Incentive Plans"),
immediately prior to the Effective Time without prejudice to the holders of
Stock Options (as hereinafter defined), (ii) grant no additional Stock Options
(as hereinafter defined), and (iii) amend, immediately prior to the Effective
Time, the provisions of
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any other Company Benefit Plan providing for the issuance, transfer or grant of
any Shares, or any interest in respect of any Shares, to provide no continuing
rights to acquire, hold, transfer, or grant any Shares or any interest in any
Shares.
(b) Immediately upon the consummation of the Offer, provided that a
"Change of Control" has occurred under the terms of the Stock Incentive Plans,
all outstanding employee stock options, whether or not then fully exercisable or
vested, to purchase Shares (a "Stock Option") heretofore granted under the Stock
Incentive Plans shall become fully exercisable and vested, and the Stock Options
shall be cancelled by the Company, and the holders thereof shall receive a cash
payment (the "Cash Payment") from the Company in an amount (if any) equal to the
number of Shares subject to such option multiplied by the difference (if
positive) between the exercise price per Share covered by the option and the
highest per share price offered to stockholders of the Company in the Offer. The
Company shall request such holders to acknowledge the cancellation of all Stock
Options held by such holders, including any Stock Options as to which the
exercise price equals or exceeds such price per share. The Company shall deliver
to Parent within five business days of the date hereof a true and complete list
of Stock Options which are outstanding as of the date hereof, together with
detailed calculations of the Cash Payments relating to such Stock Options had
the Effective Time occurred on the date of delivery thereof. The Company shall
update such list and such calculations as of, and deliver such update to Parent
on, the date that is two business days prior to the Effective Time, such updated
list and calculations made as if the Effective Time would occur on such date.
Except as otherwise contemplated herein, any then-outstanding stock appreciation
rights or limited stock appreciation rights issued by the Company or any
Subsidiary of the Company shall be cancelled immediately prior to the Effective
Time without any payment therefor. The Company shall ensure that neither it nor
any of its Subsidiaries is or will be bound by any Stock Options, other options,
warrants rights or agreements which would entitle any person or entity, other
than Parent or it Subsidiaries, to own any Shares or to receive any payment in
respect thereof.
Section 6.5 Reasonable Best Efforts. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger, and the other
transactions contemplated by this Agreement, including (a) obtaining all
necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, including
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without limitation, all filings under the HSR Act, and the Insurance Approvals)
and the taking of all reasonable steps as may be necessary to obtain an approval
or waiver from or to avoid an action or proceeding by any Governmental Entity,
(b) obtaining all necessary consents, approvals or waivers from third parties,
(c) defending any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (d) executing and delivering any additional instruments
necessary to consummate the transactions contemplated by this Agreement.
Section 6.6 Public Announcements. Parent and Sub, on the one hand,
and the Company, on the other hand, will consult with each other before issuing
any press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or regulation or by obligations pursuant to
any listing agreement with any national securities exchange or the Nasdaq
National Market.
Section 6.7 Indemnification; Directors and Officers Insurance. (a)
From and after the Effective Time, Parent agrees to, and to cause the Surviving
Corporation to, indemnify and hold harmless all past and present officers,
directors, employees and agents of the Company and of its Subsidiaries to the
full extent such persons may be indemnified by the Company pursuant to the
Company's Certificate of Incorporation and Bylaws as in effect as of the date
hereof for acts and omissions occurring at or prior to the Effective Time and
shall advance reasonable expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that the
Company receives reasonable affirmations and undertakings from such persons to
repay all amounts advanced if it should be ultimately determined that such
person was not entitled to indemnification.
(b) Parent will provide, or cause the Surviving Corporation to
provide, for a period of not less than six years after the Effective Time, for
the benefit of the Company's current directors and officers, an insurance and
indemnification policy that provides coverage for events occurring at or prior
to the Effective Time that is no less favorable than the existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; provided, however, that Parent and the Surviving Corporation shall not
be required to pay an annual premium for the such insurance in excess of 1.25
times the last annual premium paid prior to the date hereof, but in such case
shall purchase as much such coverage as possible for
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such amount.
Section 6.8 Employee Benefits. (a) Until at least December 31, 1999,
Parent shall maintain employee benefits and programs for retirees, officers and
employees of the Company and its Subsidiaries that are no less favorable in the
aggregate than those being provided to such retirees, officers and employees on
the date hereof (it being understood that Parent will not be obligated to
continue any one or more employee benefits or programs); provided that the
Company shall not be obligated to continue any Stock Incentive Plan or provide
any other incentive plan or benefits in lieu thereof. For purposes of
eligibility to participate in and vesting in all benefits provided to retirees,
officers and employees, retirees, officers and employees of the Company and its
Subsidiaries will be credited with years of service with the Company and its
Subsidiaries and years of service with prior employers to the extent service
with prior employers is taken into account under plans of the Company. Amounts
paid before the Effective Time by retirees, officers and employees of the
Company under any medical plans of the Company shall after the Effective Time be
taken into account in calculating balances for deductibles and maximum
out-of-pocket limits applicable under the medical plan of Parent for the plan
year during which the Effective Time occurs as if such amounts had been paid
under such medical plan of Parent.
(b) After the Effective Time, Parent shall cause the Company to
maintain for 1999, without modification or amendment, its Management Bonus Plan
for all covered employees. Parent agrees that the following principles shall
apply for purposes of determining bonuses for 1999 under the Company's
Management Incentive Plan: (1) only persons who are employees of the Company or
any of its Subsidiaries at December 31, 1999 and who, at such time, are covered
by such plan shall be eligible to receive such bonuses (which shall be paid no
later than March 1, 2000), except that a covered employee whose employment is
terminated prior to December 31, 1999 and meets any of the following conditions
shall be eligible to receive a pro rata portion of the 1999 bonus: (x) those
individuals who are entitled to a severance payment (other than a bonus payment)
under an employment agreement with the Company as a result of such termination;
(y) those individuals who, are entitled to a severance payment under the
Company's severance policy as of May 1, 1999 as a result of such termination;
and (z) those individuals who are entitled to a pro rata portion of the bonus
pursuant to the terms of an employment agreement with the Company, to the extent
provided in such employment agreement; (2) whether any bonuses are payable under
such plan and, if so, the amounts thereof shall be determined as if the
transactions contemplated hereby had not occurred and the Company had remained
an independent, publicly-owned company through December 31, 1999; and (3) the
timing of payment of any bonuses payable pursuant to
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clause (2) above shall be consistent with past practices. Except as otherwise
set forth in an employment agreement, the pro rata portion of an employee's
bonus shall be the amount determined pursuant to the preceding sentence
multiplied by a fraction, the numerator of which shall be the number of days
during 1999 for which such employee was employed by the Company or any of its
Subsidiaries and the denominator of which shall be 365.
Section 6.9 Employee Agreements, Stay Bonuses, Etc. (a) Parent shall
maintain the Company's standard severance policy as in effect on the date hereof
for a period of at least two years from the Effective Time. A true and correct
copy of the Company's severance policy has been provided to the Parent.
(b) Parent shall honor or cause to be honored all employment,
severance and similar agreements with the Company's officers and employees to
the extent that executed copies of such agreements have been delivered to Parent
or are disclosed in the Company SEC Documents or the Company Disclosure Letter.
(c) Parent and its Subsidiaries shall provide reasonable and
customary outplacement services to officers of the Company and its Subsidiaries
who are terminated by the Company as a result of, or within two years following,
the Merger, which outplacement services provided to such officer shall include
one-on-one counseling and assistance.
Section 6.10 Board Representations. Promptly upon Sub having
acquired a majority of the Shares on a fully diluted basis, Sub shall be
entitled to designate such number of directors on the Board of Directors of the
Company as will give Sub, subject to compliance with Section 14(f) of the
Exchange Act, a percentage of all directors rounded up to the nearest whole
number equal to the percentage of the outstanding Shares then owned by Sub, and
the Company shall, at such time, cause Sub's designees to be so elected by its
existing Board of Directors; provided, however, that in the event that Sub's
designees are so elected to the Board of Directors of the Company, until the
Effective Time such Board of Directors shall have at least three directors who
are directors on the date of this Agreement and who are not officers of the
Company (the "Independent Directors"); and provided further that, in such event,
if the number of Independent Directors shall be reduced below three for any
reason whatsoever, the remaining Independent Directors or Director shall
designate a person or persons to fill such vacancy or vacancies, each of whom
shall be deemed to be an Independent Director for purposes of this Agreement or,
if no Independent Directors then remain, the other directors shall designate
three persons to fill such vacancies who shall not be officers or affiliates of
the Company or any of its subsidiaries, or officers or affiliates of Parent or
any of its subsidiaries, and such persons shall be deemed to be Independent
Directors for
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purposes of this Agreement. Subject to applicable law, the Company shall take
all action requested by Parent that is reasonably necessary to effect any such
election, including mailing to its stockholders the Information Statement
containing the information required by Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder, and the Company agrees to make such mailing
with the mailing of the Schedule 14D-9 (provided that Sub shall have provided to
the Company on a timely basis all information required to be included in the
Information Statement with respect to Sub's designees). In connection with the
foregoing, the Company will promptly, increase the size of the Company's Board
of Directors, or remove or cause the resignation of sufficient directors to
enable Sub's designees to be elected or appointed to, and to constitute a
majority of the directors on, the Company's Board of Directors as provided
above.
Section 6.11 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall take all
such action as may be necessary or advisable to obtain such approvals and take
such actions as are necessary or advisable so that the transactions contemplated
hereby and by the Stockholder Agreements may be consummated as promptly as
practicable on the terms contemplated hereby and thereby and otherwise act to
minimize the effects of any such statute or regulation on the transactions
contemplated hereby and thereby.
Section 6.12 Rights Agreement. The Company shall not, unless
required to do so by a court of competent jurisdiction, (i) redeem the Rights
(ii) amend (other than to delay the Distribution Date (as defined therein) or to
render the Rights inapplicable to the Offer and the Merger) or terminate the
Rights Agreement prior to the Effective Time without the consent of Parent, or
(iii) take any action which would allow any Person (as such term is defined in
the Rights Agreement) other than Parent or Sub to be the Beneficial Owner (as
such term is defined in the Rights Agreement) of 15% or more of the Common Stock
without causing a Distribution Date (as such term is defined in the Rights
Agreement) or a Triggering Event (as such term is defined in the Rights
Agreement) to occur.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
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(a) Stockholder Approval. If approval of the Merger by the holders
of the Common Stock is required by applicable law, the Merger shall have
been approved by the requisite vote of such holders.
(b) No Order. No Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree or injunction which
prohibits or has the effect of prohibiting the consummation of the Merger;
provided, however, that the Company, Parent and Sub shall use their
reasonable best efforts to have any such order, decree or injunction
vacated.
(c) Purchase of Shares. Sub shall have accepted for payment and paid
for the Shares properly tendered pursuant to the Offer in an amount
sufficient to satisfy the Minimum Condition; provided, however, that this
condition will be deemed waived with respect to the obligations of Parent
and Sub if Sub fails to accept for payment and pay for any Shares pursuant
to the Offer in violation of the terms of this Agreement or the Offer.
(d) HSR Act Waiting Period. The applicable waiting period (and any
extension thereof) under the HSR Act shall have expired or been
terminated.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after any approval by the
stockholders of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by the Parent or Sub:
(i) if, prior to the purchase of Shares pursuant to the Offer,
the Company has breached in any material respect any representation,
warranty, covenant or other agreement contained in this Agreement
which (i) would give rise to the failure of a condition set forth in
clause (d) or (e) of Exhibit A, (ii) cannot or has not been cured
prior to fifteen (15) days after the giving of written notice of
such breach to the Company and (iii) has not been waived by Parent
pursuant to the provisions hereof; or
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(ii) if the Offer is terminated or expires in accordance with
its terms without Sub having purchased any Shares thereunder due to
an occurrence which results in a failure to satisfy any one or more
of the conditions set forth on Exhibit A hereto, unless any such
failure shall have been caused by or resulted from the breach by
Parent or Sub in any material respect of their respective
representations and warranties in this Agreement or the failure of
Parent or Sub to perform in any material respect any covenant or
agreement of either of them contained in this Agreement; or
(iii) it shall have been publicly disclosed, or the Parent
shall have otherwise learned, that beneficial ownership (determined
for the purposes of this paragraph (b)(iii) as set forth in Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding Shares has been acquired by any person, entity or group
(as defined in Section 13(d)(3) under the Exchange Act).
(c) by the Company:
(i) if Parent or Sub shall have (i) terminated the Offer or
(ii) failed to pay for any Shares pursuant to the Offer on or prior to the
Termination Date, unless, in the case of (i) or (ii), such termination or
failure shall have been caused by the failure of the Company to satisfy
the conditions set forth in clauses (d) or (e) of Exhibit A;
(ii) if the Offer has not been timely commenced in accordance
with Section 1.1(a); or
(iii) if, prior to the purchase of Shares pursuant to the
Offer, Parent or Sub has breached in any material respect any
representation, warranty, covenant or other agreement contained in this
Agreement which cannot be or has not been cured within fifteen (15) days
after the giving of written notice to Parent or Sub (other than any
matters that, in the aggregate, would not reasonably be expected to have a
Material Adverse Effect with respect to Parent or Sub); or
(d) by either Parent or the Company:
(i) if the Effective Time has not occurred on or prior to the
close of business on the date which is 120 days after the date of this
Agreement (the "Termination Date"); provided, however, that the
Termination Date shall be the date which is 180 days after the date of
this Agreement if the Regulatory Condition has not been satisfied but all
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other conditions set forth in Exhibit A have been satisfied on the date
which is 120 days after the date of this Agreement; provided, further,
that the right to terminate this Agreement pursuant to this clause shall
not be available (y) to Parent if Sub or any affiliate of Sub acquires
Shares pursuant to the Offer, or (z) to any party whose failure to fulfill
any material obligation of this Agreement or other material breach of this
Agreement has been the cause of, or resulted in, the failure of the
Effective Time to have occurred on or prior to the aforesaid date;
(ii) if any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency or body shall
have issued an order, decree or ruling or taken any other action
permanently restricting, enjoining, restraining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and nonappealable;
(iii) if a Superior Proposal is received by the Company and
the Board of Directors of the Company believes (based on the written
advice of independent outside nationally recognized legal counsel) that a
failure to terminate this Agreement and enter into an agreement to effect
the Superior Proposal would constitute a breach of its fiduciary duties;
provided, however that the Company may not terminate this Agreement
pursuant to this Section 8.1(d)(iii) unless and until (i) five (5)
business days have elapsed following delivery to Parent of a written
notice of such determination by the Board of Directors and during such
five (5) business day period the Company has fully cooperated with Parent
including, without limitation, informing Parent of the terms and
conditions of such Superior Proposal, and the identity of the person or
entity making such Superior Proposal, with the intent of enabling both
parties to agree to a modification of the terms and conditions of this
Agreement so that the transactions contemplated hereby may be effected;
(ii) at the end of such five (5) business day period the Takeover Proposal
continues to constitute a Superior Proposal and the Board of Directors of
the Company continues to believe (and has again been advised in writing by
independent outside nationally recognized legal counsel) that a failure to
terminate this Agreement and enter into an agreement to effect the
Superior Proposal would constitute a breach of its fiduciary duties; and
(iii) (x) prior to such termination, Parent has received all fees set
forth in Section 6.3 hereof by wire transfer in same day funds and (y)
simultaneously with such termination the Company enters into a definitive
acquisition, merger or similar agreement to effect the Superior Proposal.
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Section 8.2 Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent or Sub or their respective officers or
directors (except as set forth in the last sentence of Section 1.02(c), Section
3.5, Section 4.20, the last two sentences of Section 6.2 and Section 6.3, which
shall survive the termination); provided, however, that nothing contained in
this Section 8.2 shall relieve any party hereto from any liability for any
breach of this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after any approval of the Merger by the stockholders of
the Company but, after the purchase of Shares pursuant to the Offer, no
amendment shall be made which decreases the Merger Consideration or which in any
way materially adversely affects the rights of such stockholders, without the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
Following the election or appointment of the Sub's designees pursuant to Section
6.10 and prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors then in office shall be required by the Company to (i)
amend or terminate this Agreement by the Company, (ii) exercise or waive any of
the Company's rights or remedies under this Agreement, (iii) extend the time for
performance of Parent and Sub's respective obligations under this Agreement or
(iv) take any action to amend or otherwise modify the Company's Certificate of
Incorporation or By-Laws.
Section 8.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. None of
the representations and warranties in this
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Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time; provided however, the Section 9.1 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
Section 9.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, sent by
overnight courier or telecopied (with a confirmatory copy sent by overnight
courier (other than United Parcel Service)) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent, to
c/o The Guardian Life Insurance Company of
America
222 Park Avenue South
New York, NY 10003
Attention: Mr. Herschel Reich
Facsimile No.: (212) 253-8583
with copies to:
The Guardian Life Insurance Company of
America
201 Park Avenue South
New York, NY 10003
Attention: Debra R. Smith, Esq.
Facsimile No.: (212) 677-4240
with further copies to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: Timothy B. Goodell, Esq.
Facsimile No.: (212) 354-8113
(b) if to the Company, to
First Commonwealth, Inc.
444 North Wells Street
Suite 600
Chicago, IL 60610
Attention: Mr. Christopher C. Multhauf and
Mr. David W. Mulligan
Facsimile No.: 312-832-0065
with a copy to:
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Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq. and
Alfred N. Sacha, Esq.
Facsimile No.: (312) 853-7036
Section 9.3 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." When the phrase "knowledge of the
Company" is used herein, it shall refer to the actual knowledge of the
individuals set forth in Section 9.3 of the Company Disclosure Schedule. As used
in this Agreement, "business day" shall have the meaning ascribed thereto in
Rule 14d-1(c)(6) under the Exchange Act.
Section 9.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, including the documents and instruments referred to herein, together
with the Confidentiality Agreement dated March 24, 1999, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) except for the provisions of Sections 2.5, 6.4, 6.7, 6.8, and 6.9 of
this Agreement, is not intended to confer upon any person or entity other than
the parties any rights or remedies hereunder.
Section 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.7 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties, except that Sub
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall
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relieve Parent or Sub of any of its obligations hereunder. Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
Section 9.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions be consummated as originally contemplated to the
fullest extent possible.
Section 9.9 Enforcement of this Agreement. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 9.10 Incorporation of Exhibits. The Company Disclosure
Letter and all Exhibits and annexes attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Herschel Reich
------------------------------
Name: Herschel Reich
Title: Vice President,
Group Health Care
FLOSS ACQUISITION CORP.
By: /s/ Herschel Reich
------------------------------
Name: Herschel Reich
Title: Vice President,
Dental Plans
FIRST COMMONWEALTH, INC.
By: /s/ Christopher C. Multhauf
------------------------------
Name: Christopher C. Multhauf
Title: Chairman
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EXHIBIT A
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or pay for, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) of the
Exchange Act, any Shares not theretofore accepted for payment or paid for and
may terminate or amend the Offer as to such Shares unless (i) there shall have
been validly tendered and not withdrawn prior to the expiration of the Offer
that number of Shares which would represent at least a majority of the
outstanding Shares on a fully diluted basis (the "Minimum Condition"), (ii) any
waiting period under the HSR Act applicable to the purchase of Shares pursuant
to the Offer shall have expired or been terminated (the "HSR Condition") and
(iii) all necessary filings with each DOI shall have been completed and, to the
extent required, each of the DOI shall have issued a final order (which order
shall not have been stayed or enjoined) approving, exempting or otherwise
authorizing consummation of the Offer and the Merger and all other transactions
contemplated by this Agreement (the "Insurance Condition") (the HSR Condition
and the Insurance Condition are collectively referred to as the "Regulatory
Condition"). Furthermore, notwithstanding any other term of the Offer or this
Agreement, Sub shall not be required to commence the Offer or accept for payment
or to pay for any Shares not theretofore accepted for payment or paid for, and
may terminate or amend the Offer if at any time on or after the date of this
Agreement and before the acceptance of such Shares for payment or the payment
therefor, any of the following conditions exist or shall occur and remain in
effect:
(a) there shall be threatened, instituted or pending any action or
proceeding by any Governmental Entity, domestic or foreign, or by any other
person or entity, domestic or foreign, before any court of competent
jurisdiction or Governmental Entity, domestic or foreign, (i) challenging or
seeking to, or which could reasonably be expected to make, illegal, impede or
otherwise directly or indirectly restrain, prohibit the Offer or the Merger or
seeking to obtain material damages in connection therewith, (ii) seeking to
prohibit or materially limit the ownership or operation by Parent or Sub of all
or any material portion of the business or assets of the Company and its
Subsidiaries taken as a whole or to compel Parent or Sub to dispose of or hold
separately all or any material portion of the business or assets of Parent and
its subsidiaries taken as a whole or the Company and its Subsidiaries taken as a
whole, or seeking to impose any limitation on the ability of Parent or Sub to
conduct its business or own such assets, (iii) seeking to impose limitations on
the ability of Parent or Sub effectively to exercise full rights of ownership of
the Shares, including, without limitation, the right to vote any Shares acquired
or owned by Parent or Sub on all matters properly presented to the
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Company's stockholders, (iv) seeking to require divestiture by Parent or Sub of
any Shares or (v) otherwise directly or indirectly relating to the Offer or the
Merger and which would reasonably be expected to have a Material Adverse Effect
on the Company or Parent or the value of the Shares;
(b) there shall be any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction proposed,
enacted, enforced, promulgated, amended or issued and applicable to (i) Parent,
Sub, the Company or any Subsidiary of any of them or (ii) the Offer or the
Merger, by any legislative body, court, government or governmental,
administrative or regulatory authority or agency, domestic or foreign, other
than the routine application of the waiting period provisions of the HSR Act to
the Offer or to the Merger, which would reasonably be expected to directly or
indirectly, result in any of the consequences referred to in clauses (i) through
(v) of paragraph (a) above;
(c) any change shall have occurred that would reasonably be expected
to have a Material Adverse Effect on the Company;
(d) any of the representations or warranties made by the Company in
the Merger Agreement that are qualified as to materiality shall be untrue or
incorrect in any respect or any such representations and warranties that are not
so qualified shall be untrue or incorrect in any material respect, in each case
as of the date of the Merger Agreement and the scheduled expiration date of the
Offer, except (i) for changes specifically permitted by the Merger Agreement and
(ii) that those representations and warranties which address matters only as of
a particular date shall remain true and correct as of such date;
(e) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under this
Agreement;
(f) the Company's Board of Directors or any committee thereof shall
have withdrawn, or shall have modified or amended in a manner adverse to Parent
or Sub, the approval, adoption or recommendation, as the case may be, of the
Offer, the Merger or the Merger Agreement, or approved or recommended, or
announced a neutral position with respect to, any merger, consolidation, other
business combination, sale of material assets, takeover proposal or other
acquisition of Shares other than the Offer and the Merger or upon request by
Parent, shall fail to reaffirm its approval and recommendation of the Offer, the
Merger or the Merger Agreement;
(g) it shall have been publicly disclosed, or Sub
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<PAGE>
shall have otherwise learned, that beneficial ownership (determined for the
purposes of this paragraph (g) as set forth in Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of the Shares has been acquired by any person or
entity or group (as defined in Section 13(d)(3) under the Exchange Act);
(h) the average of the closing values of the S&P Index for the
twelve consecutive trading days immediately preceding the scheduled expiration
of the Offer (or any extension thereof) shall reflect a decline in excess of 25%
from the closing value of the S&P 500 Index on the close of business on the
trading day next preceding the date of the Merger Agreement;
(i) there shall have occurred a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States; or
(j) the Merger Agreement shall have been terminated in accordance
with its terms;
which, in the reasonable judgment of Sub, makes it inadvisable to proceed with
the Offer or with such acceptance for payment or payment.
The foregoing conditions may be waived by Sub, in whole or part, at
any time and from time to time, in the sole discretion of Sub. The failure by
Sub at any time to exercise any of the foregoing rights will not be deemed a
waiver of any right and each right will be deemed an ongoing right which may be
asserted at any time and from time to time.
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Exhibit 2
Agreement
This agreement between First Commonwealth, Inc. ("FC") and The Guardian
Life Insurance Company of America ("Company") is dated as of March 24, 1999. FC
is primarily engaged in the dental benefits business (the "Business"). FC has
engaged William Blair and Company ("Blair") to assist it in evaluating possible
business combinations or other transactions relating to the Business (a
"Transaction") involving all or part of FC.
In order to evaluate a possible Transaction, FC may disclose to the
Company, and the Company may disclose to FC, certain information about their
respective properties, employees, finances, businesses and operations (such
party when disclosing such information being the "Disclosing Party" and any such
party receiving such information being a "Receiving Party"). All such
information furnished by a Disclosing Party or its Representatives (as defined
below), whether furnished before or after the date hereof, whether oral or
written, and regardless of the manner in which it is furnished, is referred to
in this agreement as "Proprietary Information".
Proprietary Information does not include, however, information which (a)
is or becomes generally available to the public other than as a result of a
disclosure by a Receiving Party or its Representatives, (b) was available to a
Receiving Party on a nonconfidential basis prior to its disclosure by the
Disclosing Party or its Representatives or ( c) becomes available to a Receiving
Party on a nonconfidential basis from a person other than the Disclosing Party
or its Representatives who is not or should reasonably not be known by Receiving
Party to be bound by a confidentiality agreement with the Disclosing Party or
any of its Representatives and is otherwise not or should reasonably not be
known to be under an obligation to the Disclosing Party or any of its
Representatives not to transmit the information to a Receiving Party. As used in
this agreement, the term "Representative" means, as to any person, such person's
directors, officers, employees, advisors (including, without limitation,
financial advisors, counsel and accountants) and affiliates. As used in this
agreement, (i) the term "person" shall be broadly interpreted to include,
without limitation, any corporation, company, partnership, other entity or
individual, and (ii) the term "affiliate" with respect to a person (the
"original person") is any person that, directly or indirectly, controls the
original person, is controlled by the original person or is under common control
with the original person.
Subject to the immediately succeeding paragraph, unless otherwise
agreed to in writing by the Disclosing Party, each Receiving Party agrees (a)
except as required by law, to keep all Proprietary Information confidential
and not to disclose or reveal any Proprietary Information to any person other
than its Representatives who are actively and directly participating in the
evaluation of a Transaction or who otherwise need to know the Proprietary
Information for the purpose of evaluating a Transaction and to cause those
persons to observe the terms of this agreement, (b) not to use Proprietary
Information for any purpose other than in connection with its evaluation of a
Transaction or the consummation of a Transaction and (c) except as required
by law or pursuant to a listing agreement with any national securities
exchange or the National Association of Securities Dealers, Inc., not to
disclose to any person (other than those of its Representatives who are
actively and directly participating in the evaluation of a Transaction or who
otherwise need to know for the purpose of evaluating a Transaction and, in
the case of its Representatives, whom it will cause to observe the terms of
this agreement) the fact that the Proprietary Information exists or has been
made available, the fact that a Receiving Party is considering a Transaction
or any other transaction involving the Disclosing Party, or that discussions
or negotiations are taking or have taken place concerning a Transaction or
involving the Disclosing Party or any term, condition or other fact relating
to a Transaction or such discussions or negotiations, including, without
limitation, the status thereof. Each Receiving Party will be responsible for
any breach of the terms of this agreement by such Receiving Party or any of
its Representatives.
<PAGE>
In the event that a Receiving Party is requested pursuant to, or required
by, applicable law, regulation or stock exchange rule or by legal process to
disclose any Proprietary Information or any other information concerning the
Disclosing Party or a Transaction, such Receiving Party agrees that it will
provide the Disclosing Party with prompt notice of such request or requirement
in order to enable the Disclosing Party to seek an appropriate protective order
or other remedy, to consult with a Receiving Party with respect to the
Disclosing Party taking steps to resist or narrow the scope of such request or
legal process, or to waive compliance, in whole or in part, with the terms of
this agreement. In the event that no such protective order or remedy is
obtained, or that the Disclosing Party waives compliance with the terms of this
agreement, a Receiving Party will furnish only that portion of any Proprietary
Information which a Receiving Party is advised by counsel is legally required
and will request that confidential treatment will be accorded any Proprietary
Information.
Each party hereto is aware, and will so advise its respective
Representatives who are informed of the matters that are the subject of this
agreement, of the restrictions imposed by the United States securities laws on
the purchase or sale of securities by any person who has received material,
non-public information from the issuer of such securities and on the
communication of such information to any other person when it is reasonably
foreseeable that such other person is likely to purchase or sell such securities
in reliance upon such information.
Each Receiving Party acknowledges that neither the Disclosing Party nor
any of its Representatives make any express or implied representation or
warranty as to the accuracy or completeness of any Proprietary Information, and
each Receiving Party agrees that none of such persons shall have any liability
to such Receiving Party or any of its Representatives relating to or arising
from the use of any Proprietary Information by such Receiving Party or its
Representatives or for any errors therein or omissions therefrom. Each Receiving
Party also agrees that it is not entitled to rely on the accuracy or
completeness of any Proprietary Information and that it shall be entitled to
rely solely on such representations and warranties regarding Proprietary
Information as may be made to it in any final agreement relating to a
Transaction, subject to the terms and conditions of such agreement.
Company agrees that, without the prior written consent of FC, it will not
knowingly for a period of one year from the date hereof directly or indirectly
solicit for employment or consulting or independent contracting relationship, or
enter into an employment, consulting or independent contractor relationship with
any person who is now employed by FC or is an employee of FC at any time during
such one year period. FC agrees that, without the prior written consent of the
Company, it will not knowingly for a period of one year from the date hereof
directly or indirectly solicit for employment or consulting or independent
contracting relationship, or enter into an employment, consulting or independent
contractor relationship with any person who is now employed by the Company or is
an employee of the Company at any time during such one year period. FC and the
Company agree that any employee or representative who is aware of the possible
transaction shall be deemed to act "knowingly" for purposes of this paragraph.
<PAGE>
Unless specifically requested in writing in advance by FC, Company will
not at any time during the eighteen month period following the date hereof (and
Company will not at any time during such period assist or encourage others to):
1. acquire or agree, offer, seek or propose to acquire (or directly or
indirectly request permission to do so), directly or indirectly, alone or
in concert with any other Person, by purchase or otherwise, any ownership,
including, but not limited to, beneficial ownership as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), of any of the assets, businesses or securities of FC, or any rights
or options to acquire such ownership (including from any third party);
2. solicit proxies (as such terms are defined in Rule 14a-1 under the
Exchange Act), whether or not such solicitation is exempt under Rule 14a-2
under the Exchange Act, with respect to any matter from holders of any
shares of common stock of FC ("Stock") or any securities convertible into
or exchangeable for or exercisable (whether currently or upon the
occurrence of any contingency) for the purchase of Stock (the Stock and
such other securities being hereinafter collectively called the "Voting
Securities"), or make any communication exempted from the definition of
solicitation by Rule 14a-1(l)(2)(iv) under the Exchange Act;
3. initiate, or induce or attempt to induce any other Person, entity or group
(as defined in Section 13(d)(3) of the Exchange Act) to initiate, any
stockholder proposal or tender offer for any securities of FC, any change
of control of FC or the convening of a stockholders' meeting of FC;
4. otherwise seek or propose (or request permission to propose) to influence
or control the management or policies of FC;
5. enter into any discussions, negotiations, arrangements or understandings
with any other person with respect to any matter described in the
foregoing subparagraphs 1 through 4;
6. request FC (or its directors, officers, employees or agents), directly or
indirectly, to amend or waive any provision of this agreement;
7. take any action inconsistent with any of the foregoing subparagraphs 1
through 6; or
8. take any action with respect to any of the matters described in
subparagraphs 1 through 7 that requires public disclosure.
Company agrees that FC may enforce any of the provisions of this
agreement. In the event that any person receiving Proprietary Information for
the purpose of evaluating a possible business combination with FC receives terms
in 1 through 8 of the preceding paragraph which are materially more favorable
than the terms set forth above, then such more favorable terms shall be
applicable to the Company and FC shall promptly advise Company of such more
favorable terms.
If a party hereto determines that it does not wish to proceed with a
Transaction, it will promptly advise the other parties of that decision. In such
case, or if a Transaction is not consummated by the parties, each Receiving
Party will, upon request from the Disclosing Party, promptly return to the
respective Disclosing Party all copies of Proprietary Information in its
possession or in the possession of any of its Representatives and will not
retain any copies or other reproductions in whole or in part of such material.
All other documents, memoranda, notes, summaries, analyses, extracts,
compilations, studies or
<PAGE>
other material whatsoever prepared by it or any of its Representatives based on
the Proprietary Information will be destroyed and such destruction will be
certified in writing to the other party by an authorized officer supervising
such destruction. Any oral Proprietary Information will continue to be subject
to the terms of this agreement.
Without prejudice to the rights and remedies otherwise available to each
of the parties hereto, each such party shall be entitled to equitable relief by
way of specific performance, injunction or otherwise if the other party or any
of its Representatives breach or threaten to breach any of the provisions of
this agreement.
It is further understood and agreed that no failure or delay by either
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any right, power or
privilege hereunder.
This agreement shall be governed by and construed in accordance with the
laws of the State of Illinois applicable to contracts executed in and to be
performed in that state.
This agreement shall not be assigned by either party, by operation of law
or otherwise, without the prior written consent of the other party.
This agreement contains the entire agreement among the parties concerning
the matters covered hereby, and no modification of this agreement or waiver of
the terms and conditions hereof shall be binding upon a party hereto unless
approved in writing by such parties.
The Guardian Life
Insurance Company of America
By: /s/ Sanford Herman
-----------------------------------------
Name: Sanford Herman, FSA, MAAA
-----------------------------------------
Title: Vice President, Group Pricing & Standards
-----------------------------------------
First Commonwealth, Inc.
By: /s/ Christopher C. Multhauf
-----------------------------------------
Name: Christopher C. Multhauf
-----------------------------------------
Title: Chairman
-----------------------------------------
<PAGE>
Exhibit 3
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of May 19, 1999 (this "Agreement")
by the undersigned stockholder (the "Stockholder") of First Commonwealth, Inc.,
a Delaware corporation (the "Company"), for the benefit of The Guardian Life
Insurance Company of America, a New York corporation ("Parent").
WHEREAS, Parent, Floss Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Sub"), and the Company are entering into
an Agreement and Plan of Merger, dated as of May 19, 1999 (the "Merger
Agreement"), providing for a cash tender offer (the "Offer") by Sub for any and
all issued and outstanding shares of the Common Stock, par value $.001 per
share, of the Company ("Company Common Stock") together with associated Rights
(as defined in the Merger Agreement) in consideration of $ 25.00 per share, net
to the seller in cash, payable to the holder thereof, followed by the merger of
the Company and Sub (the "Merger");
WHEREAS, the Stockholder owns beneficially and of record shares of
Company Common Stock (such shares of Company Common Stock, together with any
other shares of capital stock of the Company of which such Stockholder acquires
beneficial ownership after the date hereof and during the term of this
Agreement, being collectively referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has required that the Stockholder agree, and in order to
induce Parent to enter into the Merger Agreement the Stockholder has agreed, to
enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the Stockholder agrees as follows:
1. Capitalized Terms. Capitalized terms used in this Agreement that
are not defined herein shall have such meanings as set forth in the Merger
Agreement.
2. Covenants of Stockholder. Until the termination of this Agreement
in accordance with Section 4, Stockholder agrees as follows:
(a) So long as the Merger Agreement has not been terminated,
the Stockholder shall tender pursuant to the Offer, and not withdraw, the
Subject Shares.
<PAGE>
(b) At any stockholders meeting (or at any adjournment
thereof) or in any other circumstances upon which a vote, consent or other
approval with respect to the Merger or the Merger Agreement is sought, the
Stockholder shall vote (or cause to be voted) the Subject Shares in favor
of the Merger, the approval and adoption of the Merger Agreement and the
approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement.
(c) At any meeting of stockholders of the Company (or at any
adjournment thereof) or in any other circumstances upon which a vote,
consent or other approval is sought, other than with respect to the Merger
or Merger Agreement, the Stockholder shall vote (or cause to be voted) the
Subject Shares (i) against any merger agreement or merger, consolidation,
combination, sale, lease or transfer of all or substantially all of the
assets of the Company, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any Subsidiary of the
Company or any other Takeover Proposal; (ii) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or this Agreement; or (iii) against the
following actions (other than the Merger and the transactions contemplated
by the Merger Agreement); (A) any change in a majority of the persons who
constitute the board of directors of the Company; (B) any change in the
present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or By-laws; (C) any other material change in
the Company's corporate structure or business; or (D) any other action
involving the Company or its subsidiaries which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated
by this Agreement and the Merger Agreement. The Stockholder further agrees
not to commit or agree to take any action inconsistent with the foregoing.
(d) Except as provided in paragraph (a) of this Section 2, the
Stockholder agrees not to (i) sell, transfer, pledge, encumber, assign or
otherwise dispose of (including by gift) (collectively, "Transfer"), or
enter into any contract, option or other arrangement (including any
profit-sharing arrangement) with respect to any Transfer of the Subject
Shares to any person (other than Parent) or (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, in relation
to the Subject Shares, and agrees not to commit or agree to take any of
the foregoing actions.
<PAGE>
(e) The Stockholder shall not, nor shall the Stockholder
permit any affiliate, director, officer, employee, investment banker,
attorney or other advisor or representative of the Stockholder to, (i)
directly or indirectly solicit, initiate or encourage the submission of,
any Takeover Proposal or (ii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Takeover Proposal.
(f) The Stockholder shall use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with Parent in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the
Merger Agreement.
(g) Waiver of Appraisal Rights. Stockholder hereby irrevocably
waives any rights of appraisal or rights to dissent from the Merger that
Stockholder may have.
(h) Stop Transfer. Stockholder agrees with, and covenants to,
Parent that Stockholder shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Subject Shares, unless such transfer is
made in compliance with this Agreement or the Merger Agreement.
Stockholder makes the covenants and agreements contained in this
Agreement in Stockholder's capacity as a stockholder of the Company and nothing
contained in this Agreement shall limit the ability of Stockholder, to the
extent Stockholder is a director of the Company and is acting in such capacity,
to discharge Stockholder's fiduciary duties as a director of the Company under
applicable law based upon the advice of independent, outside, nationally
recognized, legal counsel (which may be counsel to the Company).
3. Representations and Warranties of Stockholder. The Stockholder
represents and warrants to Parent as follows:
(a) (i) the Stockholder is the record and beneficial owner of,
and has good and marketable title to, the Subject Shares, (ii) the
Stockholder does not own, of record or beneficially, any shares of capital
stock of the Company other than the Subject Shares and (iii) the
Stockholder has the sole right to vote, the sole power of disposition with
respect to, and the sole power to demand appraisal rights with respect to,
the Subject Shares, and
<PAGE>
none of the Subject Shares is subject to any voting trust, proxy or other
agreement, arrangement or restriction with respect to the voting or
disposition of such Subject Shares, except as contemplated by this
Agreement.
(b) Power; Binding Agreement. Stockholder has the legal
capacity, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by Stockholder will not violate any
other agreement to which Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement or voting trust.
This Agreement has been duly and validly executed and delivered by
Stockholder and constitutes a valid and binding agreement of Stockholder,
enforceable against Stockholder in accordance with its terms.
(c) No Encumbrances. The Subject Shares and the certificates
representing such Shares are now held by Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests or agreements, understandings or
arrangements or any other encumbrances whatsoever.
(d) Reliance by Parent. Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to enter into,
the Merger Agreement in reliance upon the Stockholder's execution,
delivery and performance of this Agreement.
4. Termination. The obligations of the Stockholder hereunder shall
terminate upon the earlier of (i) the date which is 180 days after the date of
termination of the Merger Agreement pursuant to Section 8.1 thereof or (ii) the
Effective Time.
5. Further Assurances. Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, proxies, documents and other instruments as Parent may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
6. Successors, Assigns and Transferees Bound. Any successor,
assignee or transferee (including a successor, assignee or transferee as a
result of the death of the Stockholder, such as an executor or heir) shall be
bound by the terms hereof, and the Stockholder shall take any and all actions
necessary to obtain the written confirmation from such successor, assignee or
transferee that it is bound by the terms hereof.
7. Remedies. The Stockholder acknowledges that money damages would
be both incalculable and an insufficient remedy for
<PAGE>
any breach of this Agreement by it, and that any such breach would cause Parent
irreparable harm. Accordingly, the Stockholder agrees that in the event of any
breach or threatened breach of this Agreement, Parent, in addition to any other
remedies at law or in equity it may have, shall be entitled, without the
requirement of posting a bond or other security, to equitable relief, including
injunctive relief and specific performance.
8. Submission to Jurisdiction. Each party hereto hereby irrevocably
submits in any suit, action or proceeding arising out of or related to this
Agreement or any of the transactions contemplated hereby or thereby to the
exclusive jurisdiction of the courts of the United States and the jurisdiction
of the courts of the State of Delaware and waive any and all objections to
jurisdiction that they may have under the laws of the State of Delaware or the
United States and any claim or objection that any such court is an inconvenient
forum.
9. Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
10. Amendment. This Agreement may be amended only by means of a
written instrument executed and delivered by each of the Stockholder and Parent.
11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
12. Counterparts. For the convenience of the parties, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
13. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by overnight
courier or telecopied (with a confirmatory copy sent by overnight courier) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent, to
c/o The Guardian Life Insurance Company of
America
222 Park Avenue South
<PAGE>
New York, NY 10003
Attention: Mr. Herschel Reich
Facsimile No.: (212) 253-8583
with a copy to:
The Guardian Life Insurance Company of
America
201 Park Avenue South
New York, NY 10003
Attention: Debra R. Smith, Esq.
Facsimile No.: (212) 677-4240
with further copies to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: Timothy B. Goodell, Esq.
Facsimile No.: 212-354-8113
(b) if to the Stockholder, to
Mr. Christopher C. Multhauf
c/o First Commonwealth, Inc.
444 North Wells Street
Suite 600
Chicago, IL 60610
Facsimile No.: 312-832-0065
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq. and
Alfred N. Sacha, Esq.
Facsimile No.: (312) 853-7036
* * * * * *
<PAGE>
IN WITNESS WHEREOF, Stockholder has signed this Agreement as of the
date noted above.
/s/ Christopher C. Multhauf
-----------------------------
Name: Christopher C. Multhauf
Accepted and Agreed to
as of the date noted above:
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Herschel Reich
------------------------
Name: Herschel Reich
Title: Vice President,
Group Health Care
<PAGE>
Exhibit 4
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of May 19, 1999 (this "Agreement")
by the undersigned stockholder (the "Stockholder") of First Commonwealth, Inc.,
a Delaware corporation (the "Company"), for the benefit of The Guardian Life
Insurance Company of America, a New York corporation ("Parent").
WHEREAS, Parent, Floss Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Sub"), and the Company are entering into
an Agreement and Plan of Merger, dated as of May 19, 1999 (the "Merger
Agreement"), providing for a cash tender offer (the "Offer") by Sub for any and
all issued and outstanding shares of the Common Stock, par value $.001 per
share, of the Company ("Company Common Stock") together with associated Rights
(as defined in the Merger Agreement) in consideration of $ 25.00 per share, net
to the seller in cash, payable to the holder thereof, followed by the merger of
the Company and Sub (the "Merger");
WHEREAS, the Stockholder owns beneficially and of record shares of
Company Common Stock (such shares of Company Common Stock, together with any
other shares of capital stock of the Company of which such Stockholder acquires
beneficial ownership after the date hereof and during the term of this
Agreement, being collectively referred to herein as the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has required that the Stockholder agree, and in order to
induce Parent to enter into the Merger Agreement the Stockholder has agreed, to
enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the Stockholder agrees as follows:
1. Capitalized Terms. Capitalized terms used in this Agreement that
are not defined herein shall have such meanings as set forth in the Merger
Agreement.
2. Covenants of Stockholder. Until the termination of this Agreement
in accordance with Section 4, Stockholder agrees as follows:
(a) So long as the Merger Agreement has not been terminated,
the Stockholder shall tender pursuant to the Offer, and not withdraw, the
Subject Shares.
<PAGE>
(b) At any stockholders meeting (or at any adjournment
thereof) or in any other circumstances upon which a vote, consent or other
approval with respect to the Merger or the Merger Agreement is sought, the
Stockholder shall vote (or cause to be voted) the Subject Shares in favor
of the Merger, the approval and adoption of the Merger Agreement and the
approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement.
(c) At any meeting of stockholders of the Company (or at any
adjournment thereof) or in any other circumstances upon which a vote,
consent or other approval is sought, other than with respect to the Merger
or Merger Agreement, the Stockholder shall vote (or cause to be voted) the
Subject Shares (i) against any merger agreement or merger, consolidation,
combination, sale, lease or transfer of all or substantially all of the
assets of the Company, reorganization, recapitalization, dissolution,
liquidation or winding up of or by the Company or any Subsidiary of the
Company or any other Takeover Proposal; (ii) against any action or
agreement that would result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement or this Agreement; or (iii) against the
following actions (other than the Merger and the transactions contemplated
by the Merger Agreement); (A) any change in a majority of the persons who
constitute the board of directors of the Company; (B) any change in the
present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation or By-laws; (C) any other material change in
the Company's corporate structure or business; or (D) any other action
involving the Company or its subsidiaries which is intended, or could
reasonably be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated
by this Agreement and the Merger Agreement. The Stockholder further agrees
not to commit or agree to take any action inconsistent with the foregoing.
(d) Except as provided in paragraph (a) of this Section 2, the
Stockholder agrees not to (i) sell, transfer, pledge, encumber, assign or
otherwise dispose of (including by gift) (collectively, "Transfer"), or
enter into any contract, option or other arrangement (including any
profit-sharing arrangement) with respect to any Transfer of the Subject
Shares to any person (other than Parent) or (ii) enter into any voting
arrangement, whether by proxy, voting agreement or otherwise, in relation
to the Subject Shares, and agrees not to commit or agree to take any of
the foregoing actions.
<PAGE>
(e) The Stockholder shall not, nor shall the Stockholder
permit any affiliate, director, officer, employee, investment banker,
attorney or other advisor or representative of the Stockholder to, (i)
directly or indirectly solicit, initiate or encourage the submission of,
any Takeover Proposal or (ii) directly or indirectly participate in any
discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Takeover Proposal.
(f) The Stockholder shall use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with Parent in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the
Merger Agreement.
(g) Waiver of Appraisal Rights. Stockholder hereby irrevocably
waives any rights of appraisal or rights to dissent from the Merger that
Stockholder may have.
(h) Stop Transfer. Stockholder agrees with, and covenants to,
Parent that Stockholder shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Subject Shares, unless such transfer is
made in compliance with this Agreement or the Merger Agreement.
Stockholder makes the covenants and agreements contained in this
Agreement in Stockholder's capacity as a stockholder of the Company and nothing
contained in this Agreement shall limit the ability of Stockholder, to the
extent Stockholder is a director of the Company and is acting in such capacity,
to discharge Stockholder's fiduciary duties as a director of the Company under
applicable law based upon the advice of independent, outside, nationally
recognized, legal counsel (which may be counsel to the Company).
3. Representations and Warranties of Stockholder. The Stockholder
represents and warrants to Parent as follows:
(a) (i) the Stockholder is the record and beneficial owner of,
and has good and marketable title to, the Subject Shares, (ii) the
Stockholder does not own, of record or beneficially, any shares of capital
stock of the Company other than the Subject Shares and (iii) the
Stockholder has the sole right to vote, the sole power of disposition with
respect to, and the sole power to demand appraisal rights with respect to,
the Subject Shares, and
<PAGE>
none of the Subject Shares is subject to any voting trust, proxy or other
agreement, arrangement or restriction with respect to the voting or
disposition of such Subject Shares, except as contemplated by this
Agreement.
(b) Power; Binding Agreement. Stockholder has the legal
capacity, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution, delivery
and performance of this Agreement by Stockholder will not violate any
other agreement to which Stockholder is a party including, without
limitation, any voting agreement, stockholders agreement or voting trust.
This Agreement has been duly and validly executed and delivered by
Stockholder and constitutes a valid and binding agreement of Stockholder,
enforceable against Stockholder in accordance with its terms.
(c) No Encumbrances. The Subject Shares and the certificates
representing such Shares are now held by Stockholder, or by a nominee or
custodian for the benefit of such Stockholder, free and clear of all
liens, claims, security interests or agreements, understandings or
arrangements or any other encumbrances whatsoever.
(d) Reliance by Parent. Stockholder understands and
acknowledges that Parent is entering into, and causing Sub to enter into,
the Merger Agreement in reliance upon the Stockholder's execution,
delivery and performance of this Agreement.
4. Termination. The obligations of the Stockholder hereunder shall
terminate upon the earlier of (i) the date which is 180 days after the date of
termination of the Merger Agreement pursuant to Section 8.1 thereof or (ii) the
Effective Time.
5. Further Assurances. Stockholder will, from time to time, execute
and deliver, or cause to be executed and delivered, such additional or further
consents, proxies, documents and other instruments as Parent may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
6. Successors, Assigns and Transferees Bound. Any successor,
assignee or transferee (including a successor, assignee or transferee as a
result of the death of the Stockholder, such as an executor or heir) shall be
bound by the terms hereof, and the Stockholder shall take any and all actions
necessary to obtain the written confirmation from such successor, assignee or
transferee that it is bound by the terms hereof.
7. Remedies. The Stockholder acknowledges that money damages would
be both incalculable and an insufficient remedy for
<PAGE>
any breach of this Agreement by it, and that any such breach would cause Parent
irreparable harm. Accordingly, the Stockholder agrees that in the event of any
breach or threatened breach of this Agreement, Parent, in addition to any other
remedies at law or in equity it may have, shall be entitled, without the
requirement of posting a bond or other security, to equitable relief, including
injunctive relief and specific performance.
8. Submission to Jurisdiction. Each party hereto hereby irrevocably
submits in any suit, action or proceeding arising out of or related to this
Agreement or any of the transactions contemplated hereby or thereby to the
exclusive jurisdiction of the courts of the United States and the jurisdiction
of the courts of the State of Delaware and waive any and all objections to
jurisdiction that they may have under the laws of the State of Delaware or the
United States and any claim or objection that any such court is an inconvenient
forum.
9. Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction.
10. Amendment. This Agreement may be amended only by means of a
written instrument executed and delivered by each of the Stockholder and Parent.
11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
12. Counterparts. For the convenience of the parties, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
13. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by overnight
courier or telecopied (with a confirmatory copy sent by overnight courier) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent, to
c/o The Guardian Life Insurance Company of
America
222 Park Avenue South
<PAGE>
New York, NY 10003
Attention: Mr. Herschel Reich
Facsimile No.: (212) 253-8583
with a copy to:
The Guardian Life Insurance Company of
America
201 Park Avenue South
New York, NY 10003
Attention: Debra R. Smith, Esq.
Facsimile No.: (212) 677-4240
with further copies to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: Timothy B. Goodell, Esq.
Facsimile No.: 212-354-8113
(b) if to the Stockholder, to
Mr. David W. Mulligan
c/o First Commonwealth, Inc.
444 North Wells Street
Suite 600
Chicago, IL 60610
Facsimile No.: 312-832-0065
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole, Esq. and
Alfred N. Sacha, Esq.
Facsimile No.: (312) 853-7036
* * * * * *
<PAGE>
IN WITNESS WHEREOF, Stockholder has signed this Agreement as of the
date noted above.
/s/ David W. Mulligan
-----------------------
Name: David W. Mulligan
Accepted and Agreed to
as of the date noted above:
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By: /s/ Herschel Reich
------------------------
Name: Herschel Reich
Title: Vice President,
Group Health Care
<PAGE>
Exhibit 5
GUARDIAN NEWS
FOR IMMEDIATE RELEASE
WEDNESDAY, MAY 19, 1999
CONTACT: MIKE AZZI AT THE GUARDIAN CONTACT: DAVID MULLIGAN AT
212.598.1523 FIRST COMMONWEALTH
[email protected] 312.832.8611
[email protected]
GUARDIAN AGREES TO ACQUIRE FIRST COMMONWEALTH, INC.
PURCHASE OF MIDWESTERN DENTAL CARRIER TO MAKE GUARDIAN LEADING DENTAL HMO
PROVIDER
NEW YORK, NY - The Guardian Life Insurance Company of America and First
Commonwealth, Inc. (NASDAQ/FCWI) have entered into a definitive merger agreement
under which Guardian has agreed to acquire all of the outstanding shares of
First commonwealth's capital stock for $25.00 per share in cash, announced Gary
Lenderink, Senior Vice President, Group Insurance for Guardian and Christopher
Multhauf, Chairman and Chief Executive Officer of First Commonwealth. Once
completed, the acquisition is expected to accelerate Guardian's plans to extend
its managed dental HMO business nationally.
The agreement, which was unanimously approved by First Commonwealth's Board of
Directors, provides that Guardian's wholly-owned subsidiary, Floss acquisition
Corp., will launch a tender offer for all of First Commonwealth's outstanding
capital stock. Concurrently with the execution and delivery of the merger
agreement, Christopher Multhauf and David Mulligan, the President and Chief
Operating Officer of First Commonwealth, have entered into an agreement to
tender all their shares of common stock into Floss Acquisition Corp.'s tender
offer. Messrs. Multhauf and Mulligan own in the aggregate approximately 18% of
First Commonwealth's outstanding shares.
"This merger is an ideal fit for Guardian," said Lenderink. "Our group insurance
business strategy is to broaden the employee benefits portfolio we offer to
small and midsize employers. The business combination allows us to broaden our
dental benefit product line as well as to strengthen our presence in the
Midwest. First Commonwealth is a highly-regarded firm that shares our emphasis
on first-quality service. We look forward to working with First Commonwealth's
management team, their dedicated employees and especially their network of
dentists."
Christopher Multhauf, Chairman of First Commonwealth said, "We are thrilled to
be associated with Guardian, a well respected brand in the industry, and look
forward to contributing to Guardian's continued success in the dental care
arena." David Mulligan, First Commonwealth's President said, "as a Guardian
subsidiary, we and our employees are excited about the
<PAGE>
GUARDIAN AGREES TO ACQUIRE FIRST COMMONWEALTH, INC.
opportunities to not continue to serve our existing customers in Chicago,
Milwaukee, St. Louis and Detroit, but to speed up our expansion into other
markets;"
Both companies are leaders in their respective industries. Guardian, ranked 202
on THE FORTUNE 500 with $27 billion in consolidated assets, offer a full range
of financial products and serviced in addition to dental benefits, including
individual and group life and disability income insurance health care, pensions,
401 (k) plans and asset-accumulation products. First Commonwealth has been
listed as one of the top 200 small businesses in the United States by FORBES
magazine, and is the Midwest's largest dental managed care organization.
Guardian, headquartered in New York City, is one of the nation's largest
financial services groups with 3.2 million covered employees and dependents
and in excess of $650 million in dental revenues in 1998. Guardian's current
product offerings include both dental indemnity and dental PPO services
worldwide. Its dental PPO network contracts with over 26,000 dentists in 40
states; dental HMO capabilities are available in California and Florida. The
acquisition would permit Guardian to expand its dental products portfolio to
include dental HMOs in five additional states and, with its expansion plans,
make it one of the few carriers who will offer employers a full range of
dental care options nationwide.
Based in Chicago, First Commonwealth is a leading dental managed care carrier,
operating in Illinois, Missouri, Michigan, Wisconsin and Indiana. In additional
to dental managed care plans.
One of the nation's oldest and largest mutual insurers, Guardian employs over
5,000 people nationwide in its New York corporate office and four regional
offices in Bethlehem, PA, Appleton WI, Spokane, WA and Norwell, MA. More than
2,000 Guardian agents distribute Guardian products nationwide. More information
on Guardian can be obtained on the World Wide Web at: WWW.THEGUARDIAN.COM.
Salomon Smith Barney acted as financial advisor to Guardian and William Blair
acted as First Commonwealth's financial advisor.
<PAGE>
Exhibit 6
INCENTIVE/STAY BONUS AGREEMENT
THIS INCENTIVE/STAY BONUS AGREEMENT ("Agreement"), is made and
entered into as of the 14th day of May, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and Christopher C. Multhauf, an
individual resident of the State of Illinois ("Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has approved an
engagement letter with William Blair & Company pursuant to which such firm has
been engaged to render certain financial advisory and investment banking
services to the Company in connection with a possible business combination of
the Company with another party (a "Possible Transaction");
WHEREAS, the Board of Directors of the Company has also approved an
incentive/stay bonus payment to Executive with the purpose of seeking to
maximize the value of any Possible Transaction and to incent Executive to remain
employed through a 120-day transition period following a Change in Control;
WHEREAS, all capitalized terms used but not otherwise defined herein
shall have the meanings set forth in the Amended and Restated Employment
Agreement dated February 12, 1999 between the Company and Executive (the
"Employment Agreement").
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained in this Agreement, the parties agree as follows:
Section 1. Bonus. In the event of a Change in Control, the Company shall
pay to Executive according to the schedule on the attachment hereto (the
"Bonus"). The Bonus shall be paid by the Company to Executive in cash in the
amounts and at the times specified below:
a. 50% of the Bonus shall be paid in cash upon the Change in Control.
b. 50% of the Bonus (the "Deferred Bonus") shall be paid as follows:
i. if the Executive is employed by the Company on the date which
is 120 days after the Change in Control, the Deferred Bonus
shall be paid in cash on such date.
ii. if the Executive ceases to be employed by the Company for any
reason (including death or disability) prior to 120 days after
the Change in Control under circumstances pursuant to which
the Executive (or any of his beneficiaries) is entitled to a
payment of severance benefits under Section 3.1(b) of the
Employment Agreement, the Deferred Bonus shall be paid in cash
upon such event.
iii. if the Executive terminates employment with the Company prior
to 120 days after the Change in Control under circumstances
pursuant to which the Executive is not entitled to a severance
<PAGE>
payment under Section 3.1(b) of the Employment Agreement, no
Deferred Bonus shall be payable by the Company to the
Executive.
Section 2. Headings. The Section, paragraph and subparagraph headings are
for convenience of reference only and shall not define or limit the provisions
hereof.
Section 3. 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
3, 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 not reduce the obligations of the Company or its
successor hereunder.
c. This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators,
<PAGE>
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 4. 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, 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.
Section 5. 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.
<PAGE>
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 to Executive or
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.
Section 6. 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 7. 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.
<PAGE>
Section 8. 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
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 amounts payable to,
Executive, his estate or his beneficiaries pursuant to this Agreement are in
addition to any rights of, or amounts payable to, Executive, his estate or his
beneficiaries under any other agreement, employee benefit plan or compensation
program of the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this 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
By: /s/ Christopher C. Multhauf
-----------------------------
Name: Christopher C. Multhauf
<PAGE>
Exhibit 7
INCENTIVE/STAY BONUS AGREEMENT
THIS INCENTIVE/STAY BONUS AGREEMENT ("Agreement"), is made and
entered into as of the 14th day of May, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and David W. Mulligan, an
individual resident of the State of Illinois ("Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has approved an
engagement letter with William Blair & Company pursuant to which such firm has
been engaged to render certain financial advisory and investment banking
services to the Company in connection with a possible business combination of
the Company with another party (a "Possible Transaction");
WHEREAS, the Board of Directors of the Company has also approved an
incentive/stay bonus payment to Executive with the purpose of seeking to
maximize the value of any Possible Transaction and to incent Executive to remain
employed through a 120-day transition period following a Change in Control;
WHEREAS, all capitalized terms used but not otherwise defined herein
shall have the meanings set forth in the Amended and Restated Employment
Agreement dated February 12, 1999 between
<PAGE>
the Company and Executive (the "Employment Agreement").
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained in this Agreement, the parties agree as follows:
Section 1. Bonus. In the event of a Change in Control, the Company shall
pay to Executive according to the schedule on the attachment hereto (the
"Bonus"). The Bonus shall be paid by the Company to Executive in cash in the
amounts and at the times specified below:
a. 50% of the Bonus shall be paid in cash upon the Change in Control.
b. 50% of the Bonus (the "Deferred Bonus") shall be paid as follows:
i. if the Executive is employed by the Company on the date which
is 120 days after the Change in Control, the Deferred Bonus
shall be paid in cash on such date.
ii. if the Executive ceases to be employed by the Company for any
reason (including death or disability) prior to 120 days after
the Change in Control under circumstances pursuant to which
the
<PAGE>
Executive (or any of his beneficiaries) is entitled to a
payment of severance benefits under Section 3.1(b) of the
Employment Agreement, the Deferred Bonus shall be paid in cash
upon such event.
iii. if the Executive terminates employment with the Company prior
to 120 days after the Change in Control under circumstances
pursuant to which the Executive is not entitled to a severance
payment under Section 3.1(b) of the Employment Agreement, no
Deferred Bonus shall be payable by the Company to the
Executive.
Section 2. Headings. The Section, paragraph and subparagraph headings are
for convenience of reference only and shall not define or limit the provisions
hereof.
Section 3. 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
<PAGE>
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
3, 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 not reduce the obligations of the Company or its
successor hereunder.
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.
<PAGE>
Section 4. 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 David
W. Mulligan, 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.
Section 5. 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.
<PAGE>
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 to Executive or
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.
Section 6. 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
<PAGE>
shall remain in full force and effect.
Section 7. 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 8. 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
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 amounts payable to,
Executive, his estate or his beneficiaries pursuant to this Agreement are in
addition to any rights of, or amounts payable to, Executive, his estate or his
beneficiaries under any other agreement, employee benefit plan or compensation
program of the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the date and year first above written.
FIRST COMMONWEALTH, INC.
By: /s/ Christopher C. Multhauf
------------------------------
Name: Christopher C. Multhauf
Title: Chairman
/s/ David W. Mulligan
------------------------------
Name: David W. Mulligan
<PAGE>
Exhibit 8
INCENTIVE/STAY BONUS AGREEMENT
THIS INCENTIVE/STAY BONUS AGREEMENT ("Agreement"), is made and
entered into as of the 14th day of May, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and Scott B. Sanders, an
individual resident of the State of Illinois ("Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has approved an
engagement letter with William Blair & Company pursuant to which such firm has
been engaged to render certain financial advisory and investment banking
services to the Company in connection with a possible business combination of
the Company with another party (a "Possible Transaction");
WHEREAS, the Board of Directors of the Company has also approved an
incentive/stay bonus payment to Executive with the purpose of seeking to
maximize the value of any Possible Transaction and to incent Executive to remain
employed through a 120-day transition period following a Change in Control;
WHEREAS, all capitalized terms used but not otherwise defined herein
shall have the meanings set forth in the Employment Agreement dated May 25, 1995
between the Company and Executive, as amended on February 12, 1999 (the
"Employment Agreement").
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained in this Agreement, the parties agree as follows:
Section 1. Bonus. In the event of a Change in Control (as defined in the
Company's 1995 Long-Term Incentive Plan), the Company shall pay to Executive
according to the schedule on the attachment hereto (the "Bonus"). The Bonus
shall be paid by the Company to Executive in cash in the amounts and at the
times specified below:
a. 50% of the Bonus shall be paid in cash upon the Change in Control.
b. 50% of the Bonus (the "Deferred Bonus") shall be paid as follows:
i. if the Executive is employed by the Company on the date which
is 120 days after the Change in Control, the Deferred Bonus
shall be paid in cash on such date.
ii. if the Executive ceases to be employed by the Company for any
reason (including death or disability) prior to 120 days after
the Change in Control under circumstances pursuant to which
the Executive (or any of his beneficiaries) is entitled to a
payment of severance benefits under Paragraph 4 of Sections 2
of the Employment Agreement, the Deferred Bonus shall be paid
in cash upon such event.
iii. if the Executive terminates employment with the Company prior
to 120 days after the Change in Control under circumstances
<PAGE>
pursuant to which the Executive is not entitled to a severance
payment under Paragraph 4 of Section 2 of the Employment
Agreement, no Deferred Bonus shall be payable by the Company
to the Executive.
Section 2. Headings. The Section, paragraph and subparagraph headings are
for convenience of reference only and shall not define or limit the provisions
hereof.
Section 3. 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
3, 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 not reduce the obligations of the Company or its
successor hereunder.
<PAGE>
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 4. 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 Scott
B. Sanders, 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.
Section 5. 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
<PAGE>
affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against Executive
or others.
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 to Executive or
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.
Section 6. 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 7. 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
<PAGE>
shall constitute one and the same instrument.
Section 8. 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
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 amounts payable to,
Executive, his estate or his beneficiaries pursuant to this Agreement are in
addition to any rights of, or amounts payable to, Executive, his estate or his
beneficiaries under any other agreement, employee benefit plan or compensation
program of the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this 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
/s/ Scott B. Sanders
------------------------
Name: Scott B. Sanders
<PAGE>
Exhibit 9
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 residence outside of the Chicago metropolitan area.
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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 Sec tion 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 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
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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 continues for a period of six months or
more ("Long-term Disability"), the Company may (i)
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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 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
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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 Company whereby the Company is or is not the surviving or resulting
corporation or as a result
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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.
(c) A written notice of Executive's termination by the Company or
Executive, as the
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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 required to reimburse the Company, for all sums advanced to
Executive pursuant to this Section
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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.
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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 officer of the Company solely as a
result of his or her being a director or officer of the Company.
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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 behalf of any Person other than the
Board shall not be deemed a member of the Incumbent
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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 immediately prior to such Change in Control, (ii) a
change in Executive's reporting
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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 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
<PAGE>
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.
<PAGE>
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
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 residence outside of the Chicago metropolitan area.
<PAGE>
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.
ARTICLE III
TERMINATION OF EMPLOYMENT
Section 3.1 Termination.
<PAGE>
(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.
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
<PAGE>
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; and
(c) shall not induce or attempt to persuade any employee of the Companies
to
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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.
(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
<PAGE>
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.
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
<PAGE>
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
(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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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.
<PAGE>
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 11
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and
entered into as of the 14th day of May, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and Christopher C. Multhauf, an
individual resident of the State of Illinois ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive are parties to an Amended and
Restated Employment Agreement dated February 12th, 1999 (the "Employment
Agreement"); and
WHEREAS, the Company and Executive 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 parties agree as follows:
1. There is hereby added a Section 3.3 to the Employment Agreement
to read as follows:
<PAGE>
"3.3 Reduction of Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company or its
affiliated companies to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any adjustment
required under this Section 3.3) (in the aggregate, the "Total Payments")
would be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), and if it is determined that (A) the amount remaining,
after the Total Payments are reduced by an amount equal to all applicable
federal and state taxes (computed at the highest applicable marginal
rate), including the Excise Tax, is less than (B) the amount remaining,
after taking into account all applicable federal and state taxes (computed
at the highest applicable marginal rate), after payment or distribution to
or for the benefit of the Executive of the maximum amount that may be paid
or distributed to or for the benefit of the Executive without resulting in
the imposition of the Excise Tax, then the payments due hereunder shall be
reduced so that the Total Payments are One Dollar ($1) less than such
maximum amount. All determinations required to be made pursuant to this
Section 3.3 shall be made by a nationally recognized public accounting
firm selected with the mutual agreement of the Company and Executive."
2. 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 WITNESS WHEREOF, the parties hereto have caused this
<PAGE>
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
/s/ Christopher C. Multhauf
-----------------------------
Name: Christopher C. Multhauf
<PAGE>
Exhibit 12
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and
entered into as of the 14th day of May, 1999, by and between First Commonwealth,
Inc., a Delaware corporation (the "Company"), and David W. Mulligan, an
individual resident of the State of Illinois ("Executive").
W I T N E S S E T H:
WHEREAS, the Company and Executive are parties to an Amended and
Restated Employment Agreement dated February 12th, 1999 (the "Employment
Agreement"); and
WHEREAS, the Company and Executive 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 parties agree as follows:
1. There is hereby added a Section 3.3 to the Employment Agreement
to read as follows:
<PAGE>
"3.3 Reduction of Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company or its
affiliated companies to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any adjustment
required under this Section 3.3) (in the aggregate, the "Total Payments")
would be subject to the excise tax imposed by Section 4999 of the Code
(the "Excise Tax"), and if it is determined that (A) the amount remaining,
after the Total Payments are reduced by an amount equal to all applicable
federal and state taxes (computed at the highest applicable marginal
rate), including the Excise Tax, is less than (B) the amount remaining,
after taking into account all applicable federal and state taxes (computed
at the highest applicable marginal rate), after payment or distribution to
or for the benefit of the Executive of the maximum amount that may be paid
or distributed to or for the benefit of the Executive without resulting in
the imposition of the Excise Tax, then the payments due hereunder shall be
reduced so that the Total Payments are One Dollar ($1) less than such
maximum amount. All determinations required to be made pursuant to this
Section 3.3 shall be made by a nationally recognized public accounting
firm selected with the mutual agreement of the Company and Executive."
2. 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 WITNESS WHEREOF, the parties hereto have caused this
<PAGE>
Amendment to the Agreement to be duly executed, all as of the date and year
first above written.
FIRST COMMONWEALTH, INC.
By: /s/ Christopher C. Multhauf
------------------------------
Name: Christopher C. Multhauf
Title: CEO
/s/ David W. Mulligan
----------------------------------
Name: David W. Mulligan
<PAGE>
Exhibit 13
May 18, 1999
Christopher C. Multhauf
Suite 600
444 N. Wells Street
Chicago, IL 60610
Dear Mr. Mulhauf:
Reference is made to that certain Agreement and Plan of Merger dated
as of May 19, 1999, by and among The Guardian Life Insurance Company of America
("Guardian"), Floss Acquisition Corp. and First Commonwealth, Inc. (the "Merger
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed thereto in the Merger Agreement.
Guardian agrees that, effective upon the consummation of the Merger,
it will cause First Commonwealth, Inc. to offer you employment as a senior
officer of First Commonwealth, Inc. on substantially the same terms set forth on
Exhibit A attached hereto. You and Guardian hereby agree that you will use your
reasonable best efforts to negotiate in good faith a definitive Employment
Agreement which will include among other things substantially the terms set
forth in Exhibit A attached hereto. Guardian hereby agrees that, to the extent
that you and Guardian agree upon the terms of such Employment Agreement,
Guardian will use its reasonable best efforts to cause First Commonwealth, Inc.
to enter into such Employment Agreement as promptly as possible and, in no event
later than the date on which the Merger Agreement is consummated.
Unless and until an employment agreement is executed by and between
Guardian and Multhauf, neither party shall be bound by any of the provisions of
this letter.
We look forward to concluding a mutually satisfactory employment
with you.
Very truly yours,
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By /s/ Douglas Kramer
------------------------------
Name: Douglas Kramer
Title: Sr. Vice President Human
Resources
By /s/ Alex Whiteaker
------------------------------
Name: Alex Whiteaker
Title: Assistant Counsel
Acknowledged this Eighteenth
Day of May, 1999
/s/ Christopher C. Multhauf
------------------------------
Christopher C. Multhauf
<PAGE>
Exhibit A
Term Sheet
1. Position: Senior officer of First Commonwealth
2. Base Annual Salary $225,000
3. Annual Bonus: Will vary between $0% - 100% of Base Annual Salary. Target
plan performance shall be 75% Base Annual Salary and shall be based upon
financial performance of First Commonwealth, the components and criteria
for which are subject to further good faith negotiation between the
parties
This Annual Bonus Compensation arrangement will replace upon consummation
of the Merger the existing Management Bonus Plan in effect on the date of
this letter, solely with respect to David W. Mulligan/Christopher C.
Multhauf.
First year Annual Bonus Compensation is guaranteed at 100% without
references to performance criteria.
4. Long Term Incentive Compensation: An award of up to 100% of Base Annual
Salary shall be based upon good performance in relation to criteria and
key indicators to be determined later. Awards in excess of 100% shall be
likewise based upon criteria and measurements which will be in good faith
determined later, but which shall be payable based upon exceptional
performance. Long-Term Compensation shall become vested as follows: 0% in
the first year, 25% in the second year, 50% in the third year, 75% in the
fourth year and 100% in the fifth year, following the award, and shall be
paid in the sixth year.
The Long-Term Compensation payable shall replace the amounts payable to
you under your current employment agreements with First Commonwealth, as
to which you agree not to claim any severance payment(s) prior to the
effective date and time of the Merger, except for the amounts payable to
you under the Incentive/Stay Bonus Agreement dated May 14, 1999 with First
Commonwealth.
It is agreed that the parties shall negotiate in good faith the terms of
the Long-Term Incentive Compensation.
5. Benefits: Employee Benefits currently maintained by First Commonwealth
shall remain in place through 1999, and it is not contemplated that
Benefits will be reduced. In addition, you will be covered by life
insurance with a $500,000 death benefit, and Guardian will match 3% of
your savings against salary. One or more deferred compensation agreement
may be negotiated.
6. Agreement Not to Compete: In the event of a termination of employment,
whether for cause or without cause, you agree not to compete directly or
indirectly with the Guardian,
<PAGE>
First Commonwealth and any of Guardian's affiliates, subsidiaries and
business partners, for a period of three years, with respect to any dental
insurance, dental HMO/PPO indemnity or other dental coverage arrangement,
anywhere in the 50 states of the United States and Puerto Rico. The
non-compete provisions shall extend to any type or form of business in
which you have any interest, directly or indirectly, unless by indirect
ownership of less than 2% of a publicly traded company, limited
partnership or other business entity.
7. Severance. It is agreed that those provisions in your current employment
agreement relating to two years severance pay and benefits shall be
renegotiated and severance pay shall be two years Base Annual Salary,
average of two previous years Bonus and benefits upon termination without
cause.
8. Vacation. It is agreed that you will receive 31 vacation days per year.
9. Disability Insurance. To be negotiated.
<PAGE>
May 18, 1999
David W. Mulligan
Suite 600
444 N. Wells Street
Chicago, IL 60610
Dear Mr. Mulligan:
Reference is made to that certain Agreement and Plan of Merger dated
as of May 19, 1999, by and among The Guardian Life Insurance Company of America
("Guardian"), Floss Acquisition Corp. and First Commonwealth, Inc. (the "Merger
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed thereto in the Merger Agreement.
Guardian agrees that, effective upon the consummation of the Merger,
it will cause First Commonwealth, Inc. to offer you employment as a senior
officer of First Commonwealth, Inc. on substantially the same terms set forth on
Exhibit A attached hereto. You and Guardian hereby agree that you will use your
reasonable best efforts to negotiate in good faith a definitive Employment
Agreement which will include among other things substantially the terms set
forth in Exhibit A attached hereto. Guardian hereby agrees that, to the extent
that you and Guardian agree upon the terms of such Employment Agreement,
Guardian will use its reasonable best efforts to cause First Commonwealth, Inc.
to enter into such Employment Agreement as promptly as possible and, in no event
later than the date on which the Merger Agreement is consummated.
Unless and until an employment agreement is executed by and between
Guardian and Mulligan, neither party shall be bound by any of the provisions of
this letter.
We look forward to concluding a mutually satisfactory employment
with you.
Very truly yours,
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By /s/ Douglas Kramer
----------------------------
Name: Douglas Kramer
Title: Sr. Vice President Human
Resources
By /s/ Alex Whiteaker
----------------------------
Name: Alex Whiteaker
Title: Assistant Counsel
Acknowledged this Eighteenth
Day of May, 1999
/s/ David W. Mulligan
----------------------------
David W. Mulligan
<PAGE>
Exhibit A
Term Sheet
1. Position: Senior officer of First Commonwealth
2. Base Annual Salary $225,000
3. Annual Bonus: Will vary between $0% - 100% of Base Annual Salary. Target
plan performance shall be 75% Base Annual Salary and shall be based upon
financial performance of First Commonwealth, the components and criteria
for which are subject to further good faith negotiation between the
parties
This Annual Bonus Compensation arrangement will replace upon consummation
of the Merger the existing Management Bonus Plan in effect on the date of
this letter, solely with respect to David W. Mulligan/Christopher C.
Multhauf.
First year Annual Bonus Compensation is guaranteed at 100% without
references to performance criteria.
4. Long Term Incentive Compensation: An award of up to 100% of Base Annual
Salary shall be based upon good performance in relation to criteria and
key indicators to be determined later. Awards in excess of 100% shall be
likewise based upon criteria and measurements which will be in good faith
determined later, but which shall be payable based upon exceptional
performance. Long-Term Compensation shall become vested as follows: 0% in
the first year, 25% in the second year, 50% in the third year, 75% in the
fourth year and 100% in the fifth year, following the award, and shall be
paid in the sixth year.
The Long-Term Compensation payable shall replace the amounts payable to
you under your current employment agreements with First Commonwealth, as
to which you agree not to claim any severance payment(s) prior to the
effective date and time of the Merger, except for the amounts payable to
you under the Incentive/Stay Bonus Agreement dated May 14, 1999 with First
Commonwealth.
It is agreed that the parties shall negotiate in good faith the terms of
the Long-Term Incentive Compensation.
5. Benefits: Employee Benefits currently maintained by First Commonwealth
shall remain in place through 1999, and it is not contemplated that
Benefits will be reduced. In addition, you will be covered by life
insurance with a $500,000 death benefit, and Guardian will match 3% of
your savings against salary. One or more deferred compensation agreement
may be negotiated.
6. Agreement Not to Compete: In the event of a termination of employment,
whether for cause or without cause, you agree not to compete directly or
indirectly with the Guardian,
<PAGE>
First Commonwealth and any of Guardian's affiliates, subsidiaries and
business partners, for a period of three years, with respect to any dental
insurance, dental HMO/PPO indemnity or other dental coverage arrangement,
anywhere in the 50 states of the United States and Puerto Rico. The
non-compete provisions shall extend to any type or form of business in
which you have any interest, directly or indirectly, unless by indirect
ownership of less than 2% of a publicly traded company, limited
partnership or other business entity.
7. Severance. It is agreed that those provisions in your current employment
agreement relating to two years severance pay and benefits shall be
renegotiated and severance pay shall be two years Base Annual Salary,
average of two previous years Bonus and benefits upon termination without
cause.
8. Vacation. It is agreed that you will receive 31 vacation days per year.
9. Disability Insurance. To be negotiated.
<PAGE>
Exhibit 15
SEVERANCE POLICY
Policy Overview
This policy applies to all employees who do not otherwise have an employment
agreement with the Company and have more than 90 days service in a full time,
permanent capacity to the company. This policy applies to any reduction in force
terminations whether or not such reduction in force is related to a change in
control in the Company's ownership. This policy covers any of the following
events or effective terminations if they occur within two years following the
change of control:
a. A resultant elimination of positions;
b. A requirement to relocate outside the metropolitan area (over 60 miles) in
which the employee resides;
c. An involuntary reduction in base salary of 10% or more for current
responsibilities.
Severance Payment Guidelines
A. Severance Payment Calculation. Severance payments made to eligible employees
will be calculated based upon length of un-interrupted full time permanent
employment with the Company. Employees who do not have employment agreement will
be eligible for two weeks severance for every one year of service, with the
minimum severance payment being two weeks and the maximum severance amount being
26 weeks. For employees with employment contracts, severance payments will be
the greater of either two weeks severance for every one year of service with the
Company or the severance specified in the employee's contract. Severance
payments will be based on the employee's current salary only (unless otherwise
specified in an employment agreement). Accrued but not used vacation and earned
personal days will be paid to eligible employees. No payment will be made for
accrued but not used sick days.
B. Severance Payment Timing. Severance will be paid during the Company's usual
payroll periods subject to all typical payroll tax withholding, and will not be
paid out in lump sum.
C. Retirement Plan Inclusion. Active participation in the Company's 401(k) plan
will cease as of the employment termination date. Severance pay will not be
contributed to the 401 (k) plan and there will be no Company matching
contribution beyond the employment termination effective date.
D. Medical and Dental Benefit Coverage. Medical and Dental benefit coverage will
continue through the last day of the final month of the employment termination
date. Employees will be eligible for 18 months of COBRA coverage, effective the
first of the month immediately after the termination date, but must complete the
necessary paper work and pay the appropriate premium within the defined time
period.
E. Other Company Provided Insurance Coverage. All other Company provided
coverage (e.g.,
<PAGE>
life insurance, disability, section 125 deduction etc.) will cease as of the
employment termination date. Employees may, on their own, elect to continue
/convert such coverage at their own expense if such option is available.
F. Release. Eligibility for participation in this program is contingent upon the
employee signing the Company's release and severance agreement.
For purposes of this policy, a "change in control" shall be defined as 50.01% or
more of the Company's common stock changing control to a single organization, or
organizations that are affiliated and are under common control, or shareholder.
<PAGE>
STOCKHOLDERS RIGHTS AGREEMENT
DATED AS OF NOVEMBER 1, 1995
BETWEEN
FIRST COMMONWEALTH, INC.
AND
FIRST CHICAGO TRUST COMPANY OF NEW YORK
AS RIGHTS AGENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Certain Definitions...............................................1
Section 2. Appointment of Rights Agent.......................................6
Section 3. Issuance of Rights Certificates...................................7
Section 4. Form of Rights Certificates.......................................9
Section 5. Countersignature and Registration................................10
Section 6. Transfer, Split Up, Combination and
Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen
Rights Certificates...............................11
Section 7. Exercise of Rights; Exercise Price;
Expiration Date of Rights.........................11
Section 8. Cancellation and Destruction of Rights
Certificates......................................14
Section 9. Reservation and Availability of
Preferred Shares..................................14
Section 10. Record Date of Preferred Share Ownership........................15
Section 11. Adjustment of Exercise Price, Number
and Kind of Shares and Number of Rights...........16
Section 12. Certificate of Adjusted Exercise Price or
Number of Shares..................................23
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power........................23
Section 14. Fractional Rights and Fractional Shares.........................27
Section 15. Rights of Action................................................27
Section 16. Agreements of Holders of Rights.................................28
Section 17. Rights Certificate Holder Not Deemed a
Stockholder.......................................29
Section 18. Concerning the Rights Agent.....................................29
Section 19. Merger or Consolidation of the Rights
Agent.............................................29
Section 20. Duties of the Rights Agent......................................30
Section 21. Resignation or Removal of the Rights Agent......................32
Section 22. Issuance of New Rights Certificates.............................33
Section 23. Redemption......................................................33
Section 24. Exchange........................................................35
Section 25. Notice to Holders of Rights Certificates
of Certain Events.................................37
Section 26. Other Notices...................................................38
Section 27. Supplements and Amendments......................................38
Section 28. Successors......................................................39
Section 29. Certain Determinations and Actions by
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
the Board.........................................39
Section 30. Benefits of this Agreement......................................40
Section 31. Severability....................................................40
Section 32. Governing Law...................................................40
Section 33. Counterparts....................................................40
Section 34. Descriptive Headings............................................40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Exhibit A - Form of Certificate of Designations of
Series A Junior Participating Preferred
Stock...................................................A-1
Exhibit B - Form of Rights Certificate..............................B-1
Exhibit C - Summary of Rights to Purchase Shares of
Series A Junior Participating Preferred
Stock...................................................C-1
</TABLE>
iii
<PAGE>
STOCKHOLDERS RIGHTS AGREEMENT
Stockholders Rights Agreement dated as of November 1, 1995
(this "Agreement") between First Commonwealth, Inc., a Delaware corporation (the
"Company"), and First Chicago Trust Company of New York (the "Rights Agent").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to
provide all stockholders of the Company with the opportunity to benefit from the
long-term prospects and value of the Company and to ensure that all such
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company; and
WHEREAS, on October 20, 1995, the Board of Directors of the
Company authorized and declared a dividend of one preferred stock purchase right
(individually a "Right" and collectively the "Rights") for each share of Common
Stock (as hereinafter defined) of the Company outstanding at the Close of
Business on the effective date of the Company's initial public offering
registration statement, file no. 33-97426 (the "Record Date"), each Right
representing the right to purchase one one-hundredth of a Preferred Share (as
hereinafter defined) upon the terms and subject to the conditions herein after
set forth, and contemplates that one Right will be issued with respect to each
share of Common Stock which shall become outstanding after the Record Date and
prior to the earlier of the Redemption Date and the Final Expiration Date (as
such terms are hereinafter defined), including any shares of Common Stock issued
by reason of the exercise of any option, warrant, right (other than the Rights)
or conversion or exchange privilege contained in any option, warrant, right
(other than the Rights) or convertible or exchangeable security issued by the
Company prior to the Distribution Date, unless the Board (as hereinafter
defined) shall expressly provide to the contrary at the time of issuance of any
such option, warrant, right or convertible or exchangeable security.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS. For all purposes of
this Agreement, unless the context otherwise requires, the
following terms shall have the respective meanings set forth below:
(a) "ACQUIRING PERSON" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 15% or more of the shares of Common Stock of the Company
then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of
the Company, (iii) any employee benefit plan or other compensation program or
arrangement of the Company or of any such
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Subsidiary or (iv) any Person holding such shares of Common Stock for or
pursuant to the terms of any such plan, program or arrangement (the Persons
specified in clauses (i) through (iv) being hereinafter collectively called
"Exempt Persons"). Notwithstanding the preceding sentence, no Person shall
become an "Acquiring Person" as the result of an acquisition by the Company of
shares of its Common Stock which, by reason of reducing the number of its then
outstanding shares of Common Stock, increases the percentage of its then
outstanding shares of Common Stock Beneficially Owned by such Person to 15% or
more; PROVIDED, HOWEVER, that if such Person shall, after such purchase by the
Company, become the Beneficial Owner of any additional shares of Common Stock of
the Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purpose of this Agreement.
(b) "AFFILIATE" and "ASSOCIATE" shall have the respective
meanings ascribed to such terms in Rule 12b-2, as in effect on the date of this
Agreement, 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.
(c) "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:
(i) 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 date of this Agreement,
under the Exchange Act);
(ii) such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has:
(A) 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 (other than the 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: (I) securities
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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) securities issuable upon exercise
of the Rights at any time prior to the Distribution Date; or
(B) 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 (I) 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
(II) 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
(C) 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
(iii) 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 (B) of
subparagraph (ii) 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.
(d) "BOARD" shall mean the Board of Directors of the Company.
(e) "BUSINESS DAY" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the State of Illinois are
authorized or obligated by law or executive order to close.
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(f) "CERTIFICATE OF DESIGNATIONS" shall mean the Certificate
of Designations for the Preferred Shares in substantially the form attached
hereto as Exhibit A.
(g) "CLOSE OF BUSINESS" on any given date shall mean 5:00
P.M., Chicago time, on such date or, if such date is not a Business Day, then
5:00 P.M., Chicago time, on the next succeeding Business Day.
(h) "COMMON STOCK," when used with reference to the Company,
shall mean the Common Stock, $.001 par value, of the Company. "Common Stock,"
when used with reference to any Person other than the Company, shall mean the
capital stock with the greatest voting power (or the other equity securities or
equity interests having the power to control or direct management) of such
Person or, if such Person is a Subsidiary of another Person, of the Person which
ultimately controls such first-mentioned Person and which has issued and
outstanding such capital stock, equity securities or equity interests.
(i) "DISINTERESTED DIRECTOR" shall mean (i) any member of the
Board, while such a member, who is not a Restricted Person, or a representative
or nominee of a Restricted Person, and was a member of the Board prior to the
date of this Agreement and (ii) any individual who subsequently becomes a member
of the Board and is not a Restricted Person, or a representative or nominee of a
Restricted Person, if such individual's nomination for election or election to
the Board is recommended or approved by a majority of the Disinterested
Directors then in office.
(j) "DISTRIBUTION DATE" shall have the meaning set forth in
Section 3(a).
(k) "EQUIVALENT PREFERRED SHARES" shall have the meaning set
forth in Section 11(b).
(l) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as in effect on the date of this Agreement.
(m) "EXCHANGE RATE" shall have the meaning set forth in
Section 24(a).
(n) "EXEMPT PERSONS" shall have the meaning set forth in the
definition of "Acquiring Person."
(o) "EXERCISE PRICE" shall have the meaning set forth in
Section 7(b).
(p) "FAIR MARKET VALUE" shall have the meaning and be
determined as set forth in Section 11(d).
(q) "FINAL EXPIRATION DATE" shall have the meaning set forth
in Section 7(a).
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(r) "INTERESTED STOCKHOLDER" shall mean any Restricted Person
or any Affiliate or Associate of any other Person in which such Restricted
Person has an interest, or any Person acting, directly or indirectly, on behalf
of or in concert with any such Restricted Person.
(s) "NASDAQ" shall have the meaning set forth in Section 9(c).
(t) "PERMITTED OFFER" shall mean any tender or exchange offer
for all of the outstanding shares of Common Stock of the Company at a price and
on terms determined, prior to the purchase of shares under such tender or
exchange offer, by at least a majority of the members of the Board who are
Disinterested Directors and who are not officers of the Company to be
appropriate (taking into account all factors which such Disinterested Directors
deem relevant, including, without limitation, prices reasonably obtainable if
the Company or its assets were sold on an orderly basis designed to realize
maximum value) and otherwise in the best interests of the Company and its
stockholders (other than the Person or any Affiliate or Associate thereof on
whose behalf or for whose benefit such tender or exchange offer is being made).
(u) "PERSON" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by merger or
otherwise) of any of the foregoing.
(v) "PREFERRED SHARES" shall mean the Series A Junior
Participating Preferred Stock of the Preferred Stock, which series shall have
the powers, preferences and other rights set forth in the Certificate of
Designations.
(w) "PREFERRED STOCK," when used with reference to the
Company, shall mean the Preferred Stock, $.001 par value, of the Company.
(x) "PRINCIPAL PARTY" shall have the meaning set forth in
Section 13(e).
(y) "RECORD DATE" shall have the meaning set forth in the
second recital clause of this Agreement.
(z) "REDEMPTION DATE" shall have the meaning set forth in
Section 7(a).
(aa) "REDEMPTION PRICE" shall have the meaning set forth
in Section 23(a).
(bb) "RESTRICTED PERSON" shall mean an Acquiring Person
or any Affiliate or Associate of an Acquiring Person.
(cc) "RIGHTS" shall have the meaning set forth in the
second recital clause of this Agreement.
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(dd) "RIGHTS CERTIFICATES" shall mean the certificates
evidencing the Rights after the Distribution Date.
(ee) "SECTION 11(A)(II) EVENT" shall mean any event
described in Section 11(a)(ii).
(ff) "SECTION 13 EVENT" shall mean any transaction
described in Section 13(a).
(gg) "SECURITIES ACT" shall mean the Securities Act of
1933, as amended from time to time.
(hh) "SECURITY" shall have the meaning set forth in
Section 11(d).
(ii) "SHARE ACQUISITION DATE" shall mean the first date on
which there shall be a public announcement (which shall include, without
limitation, any press release or publicly available filing with the Securities
and Exchange Commission or any other federal or state governmental authority or
agency) by the Company or an Acquiring Person that an Acquiring Person has
become such.
(jj) "STOCK" shall have the meaning set forth in Section
11(d).
(kk) "SUBSIDIARY" of any Person shall mean any corporation or
other entity of which a majority of the voting power or the other equity
securities or equity interests having the power to control or direct management)
is owned, directly or indirectly, by such Person.
(ll) "SUMMARY OF RIGHTS" shall mean the Summary of Rights to
Purchase shares of Series A Junior Participating Preferred Stock in
substantially the form attached hereto as Exhibit C.
(mm) "TRADING DAY" shall have the meaning set forth in
Section 11(d)(i).
(nn) "TRIGGERING EVENT" shall mean any Section 11(a)(ii)
Event or any Section 13 Event.
SECTION 2. APPOINTMENT OF RIGHTS AGENT. The Company
hereby appoints the Rights Agent to act as agent for the Company and the holders
of the Rights (which holders, as provided in Section 3, shall, prior to the
Distribution Date, also be the holders of the Common Stock of the Company) in
accordance with the terms and conditions of this Agreement. The Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable. In the event the Company
appoints one or more Co-Rights Agents, the respective obligations and duties of
the Rights Agent and of any Co-Rights Agent shall be as the Company shall
specify in writing. The Rights Agent shall have no duty to supervise, and shall
not be liable for the acts or omissions of, any Co-Rights
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Agent.
SECTION 3. ISSUANCE OF RIGHTS CERTIFICATES.
(a) Until the earliest of (i) the Close of Business on the
10th Business Day after the Share Acquisition Date (or, if the Share Acquisition
Date shall have occurred prior to the Record Date, the Close of Business on the
10th Business Day after the Record Date) or (ii) the Close of Business on the
10th Business Day (or, anything in Section 27 to the contrary notwithstanding,
such other Business Day as may be determined by action of the Board prior to the
occurrence of any Section 11(a)(ii) Event) after the date of the commencement by
any Person (other than an Exempt Person) of, or the first public announcement of
the intention of any Person (other than an Exempt Person) to commence, a tender
or exchange offer if, upon the consummation thereof, such Person would be the
Beneficial Owner of 15% or more of the shares of Common Stock of the Company
then outstanding (the earliest of the dates specified clauses (i) and (ii) being
hereinafter called the "Distribution Date"), the Rights shall be evidenced and
be transferable only as provided in Section 3(b). As soon as practicable after
the Distribution Date or, in the case of any shares of Common Stock of the
Company which are issued or otherwise become outstanding after the Distribution
Date and prior to the earlier of the Redemption Date and the Final Expiration
Date, including any shares of Common Stock issued by reason of the exercise of
any option, warrant, right (other than the Rights) or conversion or exchange
privilege contained in any option, warrant, right (other than the Rights) or
convertible or exchangeable security issued by the Company prior to the
Distribution Date, unless the Board shall have expressly provided to the
contrary at the time of issuance of any such option, warrant, right or
convertible or exchangeable security, simultaneously with the issuance of stock
certificates for such shares of Common Stock, the Company shall prepare and
execute, the Rights Agent shall countersign and the Company shall deliver or
cause to be delivered (or the Rights Agent shall, if requested, deliver), by
first-class mail, postage prepaid, to each record holder of shares of Common
Stock of the Company as of the Close of Business on the Distribution Date or, in
the case of shares of Common Stock issued or otherwise becoming outstanding
after the Distribution Date (unless otherwise provided with respect thereto as
aforesaid), to each record holder of the shares of Common Stock so being issued
or becoming outstanding at the time of such occurrence, at its last address
shown on the registry books of the transfer agent for the Common Stock of the
Company, one or more Rights Certificates evidencing one Right for each share of
Common Stock of the Company so held, issued or becoming outstanding. As of and
after the Distribution Date, the Rights shall be evidenced solely by the Rights
Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Company shall send a copy of the Summary of Rights, by first-class mail,
postage prepaid, to each record holder of shares of Common Stock of the Company
as of the Close of Business on the Record Date, at its last address shown on the
registry books of the transfer agent for the Common Stock of the Company. Until
the Distribution
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<PAGE>
Date: no Rights Certificates shall be issued; each stock certificate for shares
of Common Stock of the Company outstanding as of the Record Date, until the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date, shall be deemed also to constitute a certificate for the Rights associated
with the shares represented thereby, together with a copy of the Summary of
Rights attached thereto; and the registered holder of such shares shall also be
the registered holder of the associated Rights. Until the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date, the
surrender for transfer of any such stock certificate, with or without a copy of
the Summary of Rights attached thereto, shall also constitute the transfer of
the Rights associated with the shares of Common Stock represented thereby.
(c) Any stock certificate for shares of Common Stock of the
Company which shall be delivered by or on behalf of the Company (including,
without limitation, stock certificates for shares of Common Stock which are
reacquired by the Company and then transferred) after the Record Date and prior
to the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date shall have impressed, printed or written thereon, or otherwise
affixed thereto, the following legend:
"This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Stockholders Rights
Agreement dated as of November 1, 1995 (the "Rights Agreement") between
First Commonwealth, Inc. (the "Company") and First Chicago Trust
Company of New York, as Rights Agent, the terms, provisions and
conditions of which are incorporated herein by reference and made a
part hereof. The Rights Agreement is on file at the principal office of
the Company and the principal office of such Rights Agent, and the
Company will mail to the holder of this certificate a copy without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. The Rights (i) may be redeemed at a redemption
price (subject to adjustment) $.01 per Right or (ii) under certain
circumstances, may be exchanged, in whole or in part, for shares of
Common Stock of the Company at an exchange rate (subject to
adjustment) of one share of Common Stock per Right, all as set forth
in the Rights Agreement. Under certain circumstances, as set forth in
the Rights Agreement, Rights Beneficially Owned by a Restricted Person
(as such terms are defined in the Rights Agreement), or by specified
transferees from a Restricted Person, shall be or become void."
Each stock certificate containing the foregoing legend, until
the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date, shall be deemed also to constitute a certificate for the Rights
associated with the shares represented thereby, and the registered holder of
such shares shall also be the registered holder of the associated Rights. Until
the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date, the surrender for transfer of any
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<PAGE>
such stock certificate shall also constitute the transfer of the Rights
associated with the shares of Common Stock represented thereby. The omission of
the foregoing legend shall not in any manner whatsoever affect the application
or interpretation of Section 7(d).
(d) In the event that the Company shall reacquire any shares
of its Common Stock after the Record Date and prior to the Distribution Date,
the Rights associated with such shares shall be deemed cancelled and retired,
the Company not being entitled to exercise any Rights associated with shares of
its Common Stock which are no longer outstanding.
SECTION 4. FORM OF RIGHTS CERTIFICATES.
(a) The Rights Certificates (including the Form of Election to
Purchase and Certification of Status and the Form of Assignment and
Certification of Status to be set forth on the reverse side thereof) shall be in
substantially the form attached hereto as Exhibit B and may have such marks of
identification or designation and such legends, summaries or endorsements set
forth thereon as the Company may deem appropriate and are not inconsistent with
the provisions of this Agreement, or as may be required to conform to customary
practice or to comply with any applicable law or any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed. Subject to Sections 11 and 22, the
Rights Certificates, whenever distributed, shall be dated as of the Record Date
(or, in the case of Rights with respect to shares of Common Stock issued or
becoming outstanding after the Record Date, the same date as the stock
certificate evidencing such shares), shall (if the Company shall so require)
indicate the date of countersignature by the Rights Agent and shall entitle the
holders thereof to purchase such number of one one-hundredths of a Preferred
Share at the Exercise Price as shall be set forth therein, but the number of
such one one-hundredths of a Preferred Share and the Exercise Price shall be
subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 that represents Rights Beneficially Owned by: (i) a Restricted
Person, (ii) a transferee from a Restricted Person who becomes a transferee
after the Acquiring Person becomes such or (iii) a transferee from a Restricted
Person who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from such Acquiring Person (or any Affiliate
or Associate thereof) to holders of equity interests in such Acquiring Person
(or any such Affiliate or Associate) or to any Person with whom such Acquiring
Person (or any such Affiliate or Associate) has any continuing written or oral
agreement, arrangement or understanding regarding the transferred Rights or (B)
a transfer which the Board has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect the avoidance of Section
7(d), and any Rights Certificate issued pursuant to Section 6, 11 or 22 upon the
transfer, exchange, replacement or adjustment of any other Rights Certificate
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referred to in this sentence, shall have deleted therefrom the second sentence
of the legend on the Form of Rights Certificate attached hereto as Exhibit B
and, in lieu thereof, shall contain the following two sentences:
"The Rights represented by this Rights Certificate are or were
Beneficially Owned by a Restricted Person (as such term is defined in
such Agreement). This Rights Certificate and the Rights represented
hereby shall be or become void under the circumstances specified in
Section 7(d) of such Agreement."
The Company shall give prompt written notice to the Rights
Agent after becoming aware of the existence and identity of any Restricted
Person. The failure to insert the foregoing sentences on any such Rights
Certificate or any defect therein shall not in any manner whatsoever affect the
application or interpretation of Section 7(d). The Company shall specify to the
Rights Agent in writing which Rights Certificates are to be so legended.
SECTION 5. COUNTERSIGNATURE AND REGISTRATION.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President, any of its Vice Presidents
or its Treasurer, either manually or by facsimile signature, and shall have
affixed thereto the Company's seal or a facsimile thereof attested by its
Secretary or any of its Assistant Secretaries, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by an
authorized signatory of the Rights Agent and shall not be valid or obligatory
for any purpose unless so countersigned. In case any officer of the Company who
shall have executed any Rights Certificate or who shall have attested the
Company's seal thereon shall cease to be such officer of the Company before such
Rights Certificate shall have been countersigned by an authorized signatory of
the Rights Agent and issued and delivered by or on behalf of the Company, such
Rights Certificate, nevertheless, may be countersigned by the Rights Agent and
issued and delivered by or on behalf of the Company with the same force and
effect as though the individual who executed such Rights Certificate or who
attested the Company's seal thereon had not ceased to be such officer; and any
Rights Certificate may be executed on behalf of the Company and the Company's
seal may be attested by any individual who, at the actual date of such execution
or attestation, shall be a proper officer of the Company, although at the date
of execution of this Rights Agreement such person was not such an officer.
(b) After the Distribution Date, the Rights Agent shall keep
or cause to be kept, at its principal office, books for registration and
transfer of the Rights Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the Rights Certificates, the
number of Rights evidenced on its face by each Rights Certificate, the date of
each Rights Certificate and (if required by the Company) the date of
countersignature by the Rights Agent.
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SECTION 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE
OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS
CERTIFICATES.
(a) Subject to Sections 4(b), 7(d) and 14, at any time after
the Close of Business on the Distribution Date and prior to the Close of
Business on the earlier of the Redemption Date and the Final Expiration Date,
any Rights Certificate (other than any Rights Certificate which shall have been
exchanged pursuant to Section 24) may be transferred, split up, combined or
exchanged for one or more other Rights Certificates, entitling the registered
holder to purchase the same number of one one-hundredths of a Preferred Share
(or after a Triggering Event, the securities, cash and other property
purchasable in lieu thereof) as the Rights Certificate or Rights Certificates
surrendered entitled such registered holder to purchase. Any registered holder
desiring to transfer, split up, combine or exchange one or more Rights
Certificates shall make such request in a writing delivered to the Rights Agent,
and shall surrender the Rights Certificates to be transferred, split up,
combined or exchanged, with the Form of Assignment and Certification of Status
on the reverse side thereof duly executed, together with such signature
guarantees and other documentation as the Rights Agent may reasonably request,
at the principal office of the Rights Agent. Thereupon the Company shall prepare
and execute, the Rights Agent shall countersign and the Company shall deliver or
cause to be delivered (or the Rights Agent shall, if requested, deliver) to the
person entitled thereto one or more Rights Certificates as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Rights Certificates and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them or, in the
case of mutilation, upon surrender to the Rights Agent of the mutilated Rights
Certificate, and, at the Company's request, reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, the Company shall
prepare and execute, the Rights Agent shall countersign and the Company shall
deliver or cause to be delivered (or the Rights Agent shall, if requested,
deliver) to the registered holder thereof a new Rights Certificate of like tenor
in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
SECTION 7. EXERCISE OF RIGHTS; EXERCISE PRICE;
EXPIRATION DATE OF RIGHTS.
(a) Subject to Section 7(d), the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein), in whole or in part, at any time after the
Distribution Date and prior to the earliest of (i) the Close of Business on the
tenth anniversary of the Record Date (the "Final Expiration Date"), (ii) the
time at which the Rights are redeemed as provided in
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Section 23 (the "RedemptionDate") and (iii) the time at which such Rights are
exchanged as provided in Section 24, upon surrender of such Rights Certificate,
with the Form of Election to Purchase and Certification of Status on the reverse
side thereof duly executed, together with such signature guarantees and other
documentation as the Rights Agent may reasonably request, to the Rights Agent at
its principal office, accompanied by payment (as provided in subsection (c) of
this Section 7) of the Exercise Price for each one one-hundredth of a Preferred
Share (or after a Triggering Event, the securities, cash and other property
purchasable in lieu thereof) as to which the surrendered Rights are then being
exercised.
(b) The price (the "Exercise Price") for each one
one-hundredth of a Preferred Share purchased upon exercise of the Rights shall
initially be $40.00, shall be subject to adjustment from time to time as
provided in Sections 11 and 13 and shall be payable in lawful money of the
United States of America in accordance with subsection (c) of this Section 7.
(c) Upon receipt of a Rights Certificate representing then
exercisable Rights, with the Form of Election to Purchase and Certification of
Status on the reverse side thereof duly executed, together with such signature
guarantees and other documentation as the Rights Agent may reasonably request,
accompanied by payment of the Exercise Price for the number of one
one-hundredths of a Preferred Share (or after a Triggering Event, the
securities, cash and other property purchasable in lieu thereof) being
purchased, plus the amount of any applicable transfer tax (as determined by the
Rights Agent) required to be paid by the holder of such Rights Certificate in
accordance with Section 9, by certified or cashier's check or money order
payable to the order of the Company, the Rights Agent shall, subject to the
terms and conditions of this Agreement, thereupon promptly (i) requisition from
any transfer agent for the Preferred Shares (or, if the Rights Agent is such a
transfer agent, make available) stock certificates for the number of one
one-hundredths of a Preferred Share being purchased, the Company hereby
irrevocably authorizing any such transfer agent to comply with all such
requests, (ii) if the Company shall have elected to deposit the Preferred Shares
issuable upon exercise of the Rights with a depository agent, requisition from
the depository agent depository receipts for the number of one one-hundredths of
a Preferred Share being purchased (in which case stock certificates for the
Preferred Shares represented by such depository receipts shall be deposited by
the transfer agent for the Preferred Shares with the depository agent), the
Company hereby irrevocably authorizing any such depository agent to comply with
all such requests, (iii) after a Triggering Event, requisition or obtain from
the appropriate Person or Persons such securities, cash and other property as
may then be purchasable in lieu of Preferred Shares, the Company hereby
irrevocably authorizing all such requests, (iv) when appropriate, requisition
from the Company the amount of cash to be paid in lieu of the issuance of any
fractional share in accordance with Section 14 and (v) promptly after receipt of
such stock certificates, depository receipts, securities, cash and/or other
property, cause the same to be delivered to or upon the order of the registered
holder of such Rights Certificate, registered (when appropriate) in such name
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or names as may be designated by such registered holder.
(d) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of any Section 11(a)(ii) Event,
any Rights Beneficially Owned by: (i) a Restricted Person, (ii) a transferee
from a Restricted Person who becomes a transferee after the Acquiring Person
becomes such or (iii) a transferee from a Restricted Person who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from such Acquiring Person (or any Affiliate or Associate
thereof) to holders of equity interests in such Acquiring Person (or any such
Associate or Affiliate) or to any Person with whom such Acquiring Person (or any
such Associate or Affiliate) has any continuing written or oral agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Board has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(d)
shall be or become void without any further action; and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise, from and after such first
occurrence. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(d) and Section 4(b) are complied with, but shall
have no liability to any holder of the Rights Certificates or to any other
Person as a result of the Company's failure to make any applicable finding or
determination with respect to any Restricted Person, or any transferee
therefrom.
(e) Notwithstanding subsection (a) of this Section 7, a Right
may be exercised by the holder thereof on or after the Distribution Date and
prior to the receipt of the associated Rights Certificate by notifying the
Rights Agent in writing and furnishing to the Rights Agent such information and
evidence as to such election as the Rights Agent may reasonably request;
PROVIDED, HOWEVER, that the Rights Agent shall not be required to take any of
the actions specified in subsection (c) of this Section 7 until such holder
shall have fully satisfied the applicable requirements specified therein.
(f) Neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to any Rights or Rights
Certificate upon the purported exercise or transfer thereof unless the
registered holder thereof shall have (i) completed and signed the Certification
of Status following the Form of Election to Purchase or the Form of Assignment,
as the case may be, set forth on the reverse side of the Rights Certificate
surrendered for such exercise or transfer and (ii) provided such additional
evidence as to the identity of the Beneficial Owner (or former Beneficial Owner)
thereof or the Affiliates or Associates thereof as the Company shall reasonably
request.
(g) In case the registered holder of any Rights Certificate
shall exercise less than all of the Rights evidenced thereby, then, subject to
the provisions of Section 14, a new Rights Certificate evidencing the Rights
remaining unexercised shall be prepared and executed by the Company and
countersigned and delivered by the Rights Agent to the registered holder of such
surrendered Rights Certificate or to such registered holder's duly authorized
assigns.
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SECTION 8. CANCELLATION AND DESTRUCTION OF RIGHTS
CERTIFICATES. All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or to any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form or, if surrendered to the Rights Agent, shall be cancelled by it;
and no Rights Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement. The Company shall deliver to the Rights Agent for
cancellation, and the Rights Agent shall cancel, any other Rights Certificate
purchased or reacquired by the Company otherwise than upon the exercise thereof.
The Rights Agent shall deliver all cancelled Rights Certificates to the Company
or shall, at the written request of the Company, destroy such cancelled Rights
Certificates and deliver a certificate of the destruction thereof to the
Company.
SECTION 9. RESERVATION AND AVAILABILITY OF PREFERRED
SHARES.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred Shares,
or any authorized and issued Preferred Shares held in its treasury, the number
of Preferred Shares required to permit the exercise in full of all outstanding
Rights.
(b) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise of the Rights shall, at the time of delivery of the stock
certificates therefor in accordance with Section 7(c) (including the receipt of
payment of the Exercise Price), be duly and validly authorized and issued and
fully paid and nonassessable.
(c) The Company covenants and agrees that it will use its best
efforts to cause, from and after such time as the Rights shall become
exercisable, all Preferred Shares issued or reserved for issuance to be listed,
upon official notice of issuance, on the principal national securities exchange,
if any, on which its Common Stock is listed or, if the principal market for
Common Stock is not on any national securities exchange, to be eligible for
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any successor thereto or other comparable quotation system.
(d) The Company covenants and agrees that it will use its best
efforts to (i) file, as soon as practicable after the occurrence of any Section
11(a)(ii) Event for which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iv),
or as soon as required by law after the Distribution Date, as the case may be, a
registration statement on an appropriate form under the Securities Act with
respect to the securities purchasable upon exercise of the Rights, (ii) cause
such registration statement to become effective as soon as practicable after
such filing and (iii) cause such registration statement to remain effective
(with a prospectus which at all times meets the requirements of the Securities
Act) until the earliest of (A) the date as of which the Rights are no longer
exercisable for such securities, (B) the Redemption Date and (C) the Final
Expiration
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Date. The Company further covenants and agrees that it will take such
action as may be appropriate under, and which will ensure compliance with, the
securities or "blue sky" laws of such jurisdictions as may be necessary or
appropriate in connection with the exercisability of the Rights. The Company may
temporarily suspend, for not more than 90 days after the applicable date
specified in the first sentence of this subsection (d), the exercisability of
the Rights in order to prepare and file such registration statement and permit
it to become effective and to complete such securities or "blue sky" law action.
Upon such suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, and the Company
shall also issue a public announcement at such time as the suspension shall no
longer be in effect. Failure of the Company to notify the Rights Agent of any
such suspension shall not affect the effectiveness thereof. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction unless the requisite qualification or exemption in such
jurisdiction shall have been effected. Until otherwise notified in writing by
the Company, the Rights Agent may assume that each purported exercise of the
Rights is permitted by this Agreement and by applicable law, and the Rights
Agent shall not be liable for acting in reliance upon such assumption.
(e) The Company covenants and agrees that, subject to Section
6, it will pay when due and payable any and all federal and state original issue
or transfer taxes and charges which may be payable in respect of the issuance or
delivery of the Rights or the Rights Certificates or of any stock certificate
for Preferred Shares issued upon exercise of the Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of any Rights Certificate to a Person other than, or
the issuance of any stock certificate for Preferred Shares upon exercise of any
of the Rights represented by such Rights Certificate in a name other than, the
registered holder of such Rights Certificate or to issue or deliver any Rights
Certificate or stock certificate for Preferred Shares upon such transfer or
exercise until any such tax shall have been paid (any such tax being payable by
the holder of such Rights Certificate at the time of surrender thereof) or until
it has been established to the Company's reasonable satisfaction that no such
tax is due.
(f) After a Triggering Event, the provisions of this Section 9
shall apply, to the extent applicable and appropriate, to all shares of capital
stock and other securities then purchasable upon exercise of the Rights.
SECTION 10. RECORD DATE OF PREFERRED SHARE OWNERSHIP. The
Person in whose name any stock certificate for Preferred Shares is issued upon
exercise of any of the Rights shall for all purposes be deemed to have become
the holder of record of the Preferred Shares represented thereby on, and such
stock certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered to the Rights Agent with proper
payment of the Exercise Price (and all applicable transfer taxes, if any);
PROVIDED, HOWEVER, that if the date of such surrender and payment shall be a
date upon which the registry books of the transfer agent for the
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Preferred Shares are closed, such Person shall be deemed to have become the
record holder of such Preferred Shares on, and such stock certificate shall be
dated, the next succeeding Business Day on which such registry books are open.
SECTION 11. ADJUSTMENT OF EXERCISE PRICE, NUMBER AND KIND OF
SHARES AND NUMBER OF RIGHTS. The Exercise Price, the number and kind of shares
of capital stock for which each Right is exercisable and the number of Rights
outstanding are subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event that the Company shall at any time after
the date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares into
a greater number of Preferred Shares, (C) combine or consolidate the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of capital stock of any class in a reclassification of the Preferred
Shares (including any such reclassification in connection with a combination or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and in Section 7(d), the Exercise
Price in effect at the Close of Business on the record date for such dividend or
at the effective time of such subdivision, combination, consolidation or
reclassification, and the number and kind of shares of capital stock issuable
upon exercise of the Rights at such date or time, shall be proportionately
adjusted so that the registered holder of each Right exercised after such date
or time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date or time and at a time when the registry books of the transfer agent for the
Preferred Shares were open, such registered holder would have been entitled to
receive by reason of such dividend, subdivision, combination, consolidation or
reclassification; PROVIDED, HOWEVER, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon the exercise thereof.
If an event shall occur which would require an adjustment under both this
paragraph (i) and paragraph (ii) of this subsection (a), the adjustment provided
for in this paragraph (i) shall be in addition to, and shall be made prior to,
any adjustment required pursuant to such paragraph (ii).
(ii) Subject to Section 24, in the event that any Person, either
alone or together with its Affiliates and Associates, shall become an
Acquiring Person, then, in such case and promptly following such
occurrence, proper provision shall be made so that the registered
holder of each Right, except as otherwise provided in Section 7(d),
shall thereafter have the right to receive, upon exercise thereof and
payment of an amount equal to the product determined by multiplying the
then current Exercise Price by the number of one one-hundredths of a
Preferred Share for which such Right was exercisable immediately prior
to such occurrence, in accordance with this Agreement, in lieu of
Preferred Shares, the number of shares of Common Stock determined
dividing such product by 50% of the Fair Market Value (determined as
provided in subsection (d) of this Section 11) of one share of Common
Stock on the date of such occurrence.
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(iii) In the event that there shall not be sufficient authorized and
unissued or treasury shares of Common Stock to permit the exercise in
full of the Rights in accordance with paragraph (ii) of this subsection
(a), the Company shall take all necessary action to authorize and
reserve for issuance such number of additional shares of Common Stock
as may from time to time be required to be issued upon the exercise in
full of all outstanding Rights and, if necessary, shall use its best
efforts to obtain stockholder approval thereof. Notwithstanding the
preceding sentence, if at least a majority of the Disinterested
Directors shall determine that such action is necessary or appropriate
and is not contrary to the best interests of the holders of the Rights,
such Disinterested Directors may cause the Company, in lieu of issuing
shares of Common Stock in accordance with such paragraph (ii), to
distribute, or if a sufficient number of shares of Common Stock cannot
be issued for such purpose in accordance with the provisions hereof,
the Company shall distribute, upon the exercise of each Right, cash,
debt securities, Preferred Shares, other shares of Preferred Stock,
other property or any combination thereof having an aggregate Fair
Market Value (determined as provided in subsection (d) of this Section
11) equal to the Fair Market Value (as so determined) of the number of
shares of Common Stock which otherwise would have been issuable
pursuant to such paragraph (ii). Any such decision by a majority of the
Disinterested Directors must be made and publicly announced within 30
days after the occurrence of any Section 11(a)(ii) Event.
(b) In the event that the Company shall fix a record date for
the making of any distribution to all registered holders of Preferred Shares of
options, warrants or rights entitling them (for a period expiring not later than
45 calendar days after such record date) to subscribe for or purchase Preferred
Shares (or shares of capital stock of any class of the Company having the same
(or more favorable) powers, preferences and rights as the Preferred Shares
("Equivalent Preferred Shares"), or securities convertible into or exchangeable
for Preferred Shares or Equivalent Preferred Shares, at a price per Preferred
Share or per Equivalent Preferred Share (or having a conversion or exchange
price per share, in the case of securities convertible into or exchangeable for
Preferred Shares or Equivalent Preferred Shares) less than the Fair Market Value
(determined as provided in subsection (d) of this Section 11) of one Preferred
Share on such record date, the Exercise Price to be in effect after such record
date shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of Preferred Shares outstanding on such record date, plus the number of
Preferred Shares which the aggregate offering price of the total number of
Preferred Shares and/or Equivalent Preferred Shares so to be offered (and/or the
aggregate initial conversion or exchange price, in the case of convertible or
exchangeable securities so to be offered) would purchase at such Fair Market
Value, and the denominator of which shall be the number of Preferred Shares
outstanding on such record date, plus the total number of Preferred Shares
and/or Equivalent Preferred Shares so to be offered (and/or into or for which
the convertible or exchangeable securities so to be offered are
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initially convertible or exchangeable); PROVIDED, HOWEVER, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon the exercise thereof. In case all or part of such subscription price may be
paid in a form other than cash, the value of such non-cash consideration shall
be its Fair Market Value (determined as provided in such subsection (d)).
Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any computation provided for in this
subsection (b). The adjustment required by this subsection (b) shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Exercise Price shall be adjusted to the
Exercise Price which would have been in effect if such record date had not been
fixed.
(c) In the event that the Company shall fix a record date for
the making of any distribution to all registered holders of Preferred Shares
(including any such distribution made in connection with a combination or merger
in which the Company is the continuing or surviving corporation) of cash (other
than a regular quarterly cash dividend), options, warrants, rights (other than
those referred to in subsection (b) of this Section 11), securities, evidences
of indebtedness or other property (excluding any dividend payable in Preferred
Shares, but including any dividend payable in other shares of capital stock),
the Exercise Price to be in effect after such record date shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the Fair Market Value (determined
as provided in subsection (d) of this Section 11) of one one-hundredth of a
Preferred Share on such record date, less the Fair Market Value (as so
determined) of the cash, options, warrants, rights, securities, evidences of
indebtedness or other property so to be distributed and properly attributable to
one one-hundredth of a Preferred Share, and the denominator of which shall be
such Fair Market Value of one one-hundredth of a Preferred Share; PROVIDED,
HOWEVER, that in no event shall the consideration to be paid upon the exercise
of one Right be less than the aggregate par value of the shares of capital stock
of the Company issuable upon the exercise thereof. The adjustment required by
this subsection (c) shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Exercise
Price shall be adjusted to the Exercise Price which would have been in effect if
such record date had not been fixed.
(d) For the purpose of any computation required under this
Agreement, "Fair Market Value," when used with respect to Preferred Shares or
shares of Common Stock or other capital stock of any class (collectively, a
"Stock"), to any option, warrant, right or other security or evidence of
indebtedness (collectively, a "Security") or to any other property, shall be
determined as provided in this subsection (d):
(i) In the case of any Stock or Security which is publicly
traded, the Fair Market Value on any date shall be deemed to be the
average of the daily closing prices per share of such Stock or per unit
of such Security for the 30 consecutive Trading Days immediately prior
to such date; PROVIDED, HOWEVER,
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that in the event that the Fair Market Value per share of any Stock is
determined during a period commencing after the public announcement by
its issuer of (A) a dividend or distribution on such Stock payable in
shares of such Stock or securities convertible into or exchangeable
for shares of such Stock or (B) a subdivision, combination,
consolidation or reclassification of such Stock, and ending prior to
the expiration of the 30 Trading Days after the ex-dividend date for
such dividend or distribution, or the record date for such
subdivision, combination, consolidation or reclassification, then, in
each such case, the Fair Market Value of such Stock shall be properly
adjusted to take into account "ex-dividend" trading. The closing price
for each day shall be the last sale price, regular way, or, in case no
such sale shall take place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange or, if such Stock or Security is not listed or admitted to
trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the principal national securities
exchange on which such Stock or Security is listed or admitted to
trading; or if such Stock or Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or,
if not so quoted, the average of the last quoted high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or
any other similar system then in use; or if on any such day no bid for
such Stock or Security is quoted by any such organization, the average
of the closing bid and asked prices, as furnished by a professional
market maker making a market in such Stock or Security selected by the
Board. If during any relevant period no market maker is making a
market in such Stock or Security, its Fair Market Value on a specified
date shall be determined reasonably and with utmost good faith to the
holders of the Rights by the Board; PROVIDED, HOWEVER, that if at the
time of such determination there shall be an Acquiring Person, the
Fair Market Value of such Stock or Security on such date shall be
determined by a nationally recognized investment banking firm selected
by the Board, which determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Company, the
Rights Agent and the holders of the Rights. The term "Trading Day"
shall mean a day on which the principal national securities exchange
on which such Stock or Security is listed or admitted to trading is
open for the transaction of business or, if such Stock or Security is
not listed or admitted to trading on any national securities exchange,
a Business Day.
(ii) In the case of any Stock or Security which is not publicly
traded, the Fair Market Value on any date shall be the fair value per
share of such Stock or per unit of such Security as determined
reasonably and with utmost good faith to the holders of the Rights by
the Board; PROVIDED, HOWEVER, that if at the time of such determination
there shall be an Acquiring Person, the Fair Market Value of such Stock
or Security on such date shall be determined by a nationally recognized
investment banking firm selected by the Board, which determination
shall be
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described in a statement filed with the Rights Agent and shall
be binding on the Company, the Rights Agent and the holders of the
Rights.
(iii) In the case of any property which is not a Stock or a
Security, the Fair Market Value on any date shall be determined
reasonably and with utmost good faith to the holders of Rights by the
Board; PROVIDED, HOWEVER, that if at the time of such determination
there shall be an Acquiring Person, the Fair Market Value of such
property on such date shall be determined by a nationally recognized
investment banking firm selected by the Board, which determination
shall be described in a statement filed with the Rights Agent and shall
be binding on the Company, the Rights Agent and the holders of the
Rights.
(e) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Exercise Price then in effect; PROVIDED, HOWEVER, that any adjustments which
by reason of this subsection (e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest whole cent, to the nearest
one ten-thousandth of a share of Common Stock or other capital stock of any
class (other than Preferred Shares) or to the nearest one one-millionth of a
Preferred Share, as the case may be. Notwithstanding the first sentence of this
subsection (e), any adjustment required by this Section 11 shall be made no
later than the earliest of (i) three years after the date
of the occurrence requiring such adjustment, (ii) the Redemption Date and (iii)
the Final Expiration Date.
(f) If as a result of an adjustment required by any Triggering
Event the holder of any Rights thereafter exercised shall become entitled to
receive any shares of capital stock of any class of the Company (other than
Preferred Shares), the number of such other shares so receivable upon exercise
of any Rights shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as reasonably possible to the provisions with
respect to the Preferred Shares contained in this Section 11, and the provisions
of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares shall apply
on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised the option
provided in subsection (i) of this Section 11, upon each adjustment of the
Exercise Price as a result of the calculations required by subsection (b) or (c)
of this Section 11, each Right outstanding immediately prior to the making of
such Exercise Price adjustment shall thereafter evidence the right to purchase,
at the adjusted Exercise Price, the number of one one-hundredths of a Preferred
Share (calculated to the nearest one one-millionth)
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determined by (i) multiplying the number of one one-hundredths of a Preferred
Share purchasable upon exercise of such Right immediately prior to such
adjustment by the Exercise Price in effect immediately prior to such adjustment
and (ii) dividing the product so obtained by the Exercise Price in effect
immediately after such adjustment.
(i) The Company may elect, on or after the date on which any
adjustment of the Exercise Price is required to be made hereunder, to adjust the
number of Rights outstanding in substitution for making an adjustment in the
number of one one-hundredths of a Preferred Share purchasable upon exercise of
each Right. Each Right outstanding after such an adjustment in the number of
Rights shall be exercisable for the same number of one one-hundredths of a
Preferred Share as such Right was exercisable for immediately prior to such
adjustment; but each Right held of record prior to such adjustment shall become
the number of Rights (calculated to the nearest one ten-thousandth) determined
by dividing the Exercise Price in effect immediately prior to the occurrence
requiring the adjustment of the Exercise Price by the Exercise Price in effect
immediately after such adjustment of the Exercise Price. The Company shall make
a prompt public announcement of its election to adjust the number of Rights
outstanding, indicating the record date for the adjustment and, if
known at the time of such announcement, the amount of the adjustment to be made.
Such record date may be the date on which the Exercise Price is required to be
adjusted or any day thereafter, unless the Rights Certificates shall have been
issued, in which case such record date shall be at least 10 days after the date
of such public announcement. If the Rights Certificates shall have been issued,
upon each adjustment of the number of Rights outstanding pursuant to this
subsection (i), the Company shall, as promptly as practicable, cause to be
distributed to each registered holder of the Rights Certificates on such record
date Rights Certificates evidencing, subject to Section 14, the additional
Rights to which such registered holder shall be entitled as a result of such
adjustment; or, at its option, the Company shall cause to be distributed to each
such registered holder, in substitution and replacement for the Rights
Certificates held by such registered holder prior to the date of such
adjustment, but only upon surrender thereof (if so required by the Company), new
Rights Certificates evidencing all the Rights to which such registered holder
shall be entitled after such adjustment. Rights Certificates so distributed
shall be executed and countersigned in the manner provided in Section 5 (and may
designate, at the option of the Company, the adjusted Exercise Price) and shall
be registered in the names of the registered holders of the Rights Certificates
on the record date specified in the aforesaid public announcement.
(j) Irrespective of any adjustment or change in the Exercise
Price or the number of one one-hundredths of a Preferred Share issuable upon
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to designate the Exercise Price and the number of one
one-hundredths of a Preferred Share which were designated in the Rights
Certificates originally issued hereunder.
(k) Before taking any action which would cause an adjustment
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reducing the Exercise Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Exercise Price.
(l) In any case in which this Section 11 shall require an
adjustment of the Exercise Price effective as of the record date for a
particular event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Rights exercised after such record date
of the Preferred Shares (and/or the other shares of capital stock, securities or
other property of the Company, if any) issuable upon such exercise in excess of
the Preferred Shares (and/or the other shares of capital stock, securities or
other property of the Company, if any) issuable upon such exercise on the basis
of the Exercise Price in effect immediately prior to such adjustment; PROVIDED,
HOWEVER, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such excess
upon the occurrence of such event.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Board shall be entitled to make reductions in the Exercise
Price, in addition to the adjustments expressly required by this Section 11, as
and to the extent that the Board, in its sole discretion, shall determine to be
advisable in order that any dividend on the Preferred Shares payable in
Preferred Shares, any subdivision, combination or consolidation of the Preferred
Shares (by reclassification or otherwise than by payment of dividends in
Preferred Shares) into a greater or lesser number of Preferred Shares, any
issuance of Preferred Shares solely for cash at less than the Fair Market Value
thereof, any issuance solely for cash of Preferred Shares or securities which by
their terms are convertible into or exchangeable for Preferred Shares or any
issuance of options, warrants, rights, securities, evidences of indebtedness or
other property subject to subsection (b) or (c) of this Section 11, hereafter
made by the Company to the holders of the Preferred Shares, shall not be taxable
to such holders.
(n) In the event that the Company shall at any time after the
date of this Agreement and prior to the Distribution Date (i) declare a dividend
on its outstanding shares of Common Stock payable in shares of Common Stock or
(ii) effect a subdivision, combination or consolidation of its outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
dividends in shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then, in each such case: (i) the number of one one-hundredths
of a Preferred Share purchasable after such event upon proper exercise of each
Right shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event; and (ii)
each share of Common Stock outstanding immediately after such event shall have
issued with respect to it the same number of Rights which each share
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of Common Stock outstanding immediately prior to such event had issued with
respect to it. The adjustment required by this subsection (n) shall be made
successively whenever such a dividend is declared or such a subdivision,
combination or consolidation is effected.
(o) Except as permitted by Sections 23 and 27, the Company
covenants and agrees that, after the Distribution Date, it will not take, or
permit any of its Subsidiaries to take, any action if at the time such action
would be taken it is reasonably foreseeable that such action would eliminate or
substantially diminish the benefits intended to be afforded by the Rights.
SECTION 12. CERTIFICATE OF ADJUSTED EXERCISE PRICE OR NUMBER
OF SHARES. Whenever any adjustment shall be required by Section 11, 13 or 23(g),
the Company shall promptly (a) prepare a certificate setting forth such
adjustment and a brief statement of the facts requiring such adjustment, (b)
file with the Rights Agent and with each transfer agent for the Preferred Shares
or the Common Stock of the Company a copy of such certificate and (c) mail a
brief summary thereof to each registered holder of the Rights in accordance with
Section 26. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment described therein and shall not be deemed to
have knowledge of any such adjustment unless and until it shall have received
such certificate.
SECTION 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF
ASSETS OR EARNING POWER.
(a) In the event that, on or after the occurrence of any
Section 11(a)(ii) Event, directly or indirectly: (i) the Company shall
consolidate with, or merge with and into, any Interested Stockholder or, if in
such consolidation or merger all holders of the Common Stock of the Company are
not treated the same, any other Person (other than a wholly-owned Subsidiary of
the Company in a transaction not prohibited by Section 11(o)), so that the
Company shall not be the continuing or surviving corporation, (ii) any
Interested Stockholder or, if in such merger all holders of the Common Stock of
the Company are not treated the same, any other Person (other than a
wholly-owned Subsidiary of the Company in a transaction not prohibited by
Section 11(o)) shall merge with and into the Company, so that the Company shall
be the continuing or surviving corporation, and in connection with such merger
either (A) all or part of the outstanding shares of Common Stock of the Company
shall be converted or changed into or exchanged for capital stock or other
securities of any other Person (or the Company), cash and/or other property or
(B) such shares of Common Stock shall remain outstanding, unconverted and
unchanged, or (iii) the Company shall sell or otherwise transfer (or one or more
of its Subsidiaries shall sell or otherwise transfer), in one or a series of
related transactions, assets or earning power aggregating 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any Interested Stockholder or, if in such transaction or transactions the
holders of the Common Stock of the Company are not treated the same, any other
Person or Persons (other than the Company or one or more of its wholly-owned
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Subsidiaries in one or more transactions, each of which is not prohibited by
Section 11(o)), then, in each such case, proper provision shall be made so that
(w) the registered holder of each Right, except as otherwise provided in Section
7(d), shall thereafter have the right to receive, upon exercise thereof and
payment of an amount equal to the product determined by multiplying the then
current Exercise Price by the number of one one-hundredths of a Preferred Share
for which such Right is then exercisable, in accordance with this Agreement, in
lieu of Preferred Shares, the number of freely tradable shares (which shall be
duly authorized, validly issued, fully paid and non-assessable) of Common Stock
of the Principal Party or, in the case of a merger described in clause (ii) of
this sentence in which the Common Stock of the Company shall remain outstanding,
unconverted and unchanged, of the Company, free and clear of all rights of call
or first refusal, liens, encumbrances or other adverse claims, determined by
dividing such product by 50% of the Fair Market Value (determined as provided in
Section 11(d)) of the shares of Common Stock of such Principal Party (or, if
appropriate, the Company) on the date of consummation of such Section 13 Event;
(x) such Principal Party shall thereafter be liable for, and shall assume, by
reason of the consummation of such Section 13 Event, all the obligations and
duties of the Company under this Agreement; (y) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 shall apply to such Principal Party;
and (z) such Principal Party shall take such steps (including, but not limited
to, the reservation of a sufficient number of its shares of Common Stock to
permit exercise of all outstanding Rights in accordance with this subsection (a)
and the distribution of cash, debt securities, shares and other property in
accordance with Section 11(a)(iv))in connection with the consummation of such
Section 13 Event as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably possible, in relation to the
shares of Common Stock thereafter deliverable upon exercise of the Rights.
(b) After the Distribution Date, the Company shall not
consolidate or merge with any other Person (other than a wholly-owned Subsidiary
of the Company in a transaction not prohibited by Section 11(o)), or sell or
otherwise transfer (or permit one or more of its Subsidiaries to sell or
otherwise transfer), in one or a series of related transactions, assets or
earning power aggregating 50% or more of the assets or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company or one or more of its wholly-owned Subsidiaries in one
or more transactions, each of which is not prohibited by Section 11(o)), if (i)
at the time of or immediately after the consummation of such transaction there
are any options, warrants, rights, conversion or exchange privileges or
securities outstanding or any written or oral agreements, arrangements or
understandings (including provisions contained in the Company's Certificate of
Incorporation or By-laws) in effect which, as a result of the consummation of
such transaction, would eliminate or substantially diminish the benefits
intended to be afforded by the Rights, or (ii) prior to, at the time of or
immediately after the consummation of such transaction the stockholders of the
Person who constitutes, or would constitute, the Principal Party for the purpose
of subsection (a) of this Section 13 shall have received a distribution of
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Rights previously owned by such Person or any of its Affiliates or Associates.
(c) The Company shall not consummate any Section 13 Event
unless prior thereto (i) the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and (ii) the Company, the Principal Party and each other Person who
may become the Principal Party as a result of the consummation of such Section
13 Event shall have executed and delivered to the Rights Agent a supplemental
agreement providing (x) for the implementation of all the terms and conditions
set forth in this Section 13 and (y) that, as soon as practicable after the date
of such Section 13 Event, the Principal Party, at its own expense, shall:
(A) prepare and file a registration statement on an
appropriate form under the Securities Act with respect to the
Rights and the securities purchasable upon exercise thereof,
and use its best efforts to cause such registration statement
to become effective as soon as practicable after such filing
and to remain effective (with a prospectus which at all times
meets the requirements of the Securities Act) until the
earliest of the date as of which the Rights are no longer
exercisable for such securities, the Redemption Date and the
Final Expiration Date;
(B) use its best efforts to qualify or register the
Rights and the securities purchasable upon exercise thereof
under the securities or "blue sky" laws of such jurisdictions
as may be necessary or appropriate in connection with the
exercisability of the Rights;
(C) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon
exercise thereof on a national securities exchange or to meet
the eligibility requirements for quotation on NASDAQ; and
(D) deliver to the registered holders of the Rights
historical financial statements for the Principal Party and
each of its Affiliates complying in all material respects with
the requirements for registration of securities on Form 10
under the Exchange Act.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not apply to a transaction described in clause (i) or
(ii) of subsection (a) thereof if (i) such transaction is consummated with a
Person or Persons who acquired their shares of Common Stock of the Company
pursuant to a Permitted Offer, (ii) the price per share of Common Stock of the
Company provided in such transaction shall not be less than the price per share
of Common Stock of the Company paid to all holders whose shares were purchased
pursuant to such Permitted Offer and (iii)the form of consideration being
offered to the remaining holders of the Common Stock of the Company pursuant to
such transaction is the same as the form of consideration paid
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pursuant to such Permitted Offer. Upon consummation of any transaction
authorized by this subsection (d), all Rights shall expire.
(e) "Principal Party" shall mean: in the case of any
transaction described in clause (i) or (ii) of subsection (a) of this Section
13, the Person which is the issuer of the securities into which shares of Common
Stock of the Company are being converted or changed in such transaction or, if
there shall be more than one such issuer, the issuer having shares of Common
Stock with the greatest aggregate market value; or if no securities are being
issued in such transaction for shares of Common Stock of the Company, the Person
which is the other party to such transaction or, if there shall be more than one
such Person, the Person having shares of Common Stock with the greatest
aggregate market value; and in the case of any transaction described in clause
(iii) of such subsection (a), the Person which is the party receiving the
greatest portion of the assets or earning power sold or otherwise transferred
pursuant to such transaction or transactions; PROVIDED, HOWEVER, that in any
such case (i) if the shares of Common Stock of such Person shall not at the time
of the consummation of such transaction have been continuously registered under
Section 12 of the Exchange Act during the immediately preceding 12-month period,
and such Person shall be a direct or indirect Subsidiary or Affiliate of another
Person the shares of Common Stock of which shall have been so registered,
"Principal Party" shall mean such other Person; and (ii) if such Person shall be
a direct or indirect Subsidiary or Affiliate of more than one other Person, the
shares of Common Stock of two or more of which shall have been so registered,
"Principal Party" shall mean whichever of such other Persons shall have Common
Stock with the greatest aggregate market value; and (iii) if such Person shall
be owned, directly or indirectly, by a joint venture formed by two or more
Persons which are not owned, directly or indirectly, by the same Person, the
rules set forth in clauses (i) and (ii) of this proviso shall apply to each
chain of ownership of any joint venturer as though such joint venture were a
"Subsidiary" of all of such joint venturers, and the Principal Party in each
such chain shall bear the obligations and duties set forth in this Section 13 in
the same proportion as their direct or indirect ownership interest in such
Person bears to the total of such ownership interests.
(f) If, in the case of any transaction described in clause
(iii) of subsection (a) of this Section 13, the Person or Persons to whom assets
or earning power are sold or otherwise transferred are individuals, then, in
lieu of any other payment or distribution required by this Section 13, and the
Company shall require as a condition to such transaction that, such Person or
Persons shall pay to each holder of a Rights Certificate, upon its surrender to
the Rights Agent and in exchange therefor (without requiring any payment by such
holder), cash in the amount determined by multiplying the then current Exercise
Price by the number of one one-hundredths of a Preferred Share for which a Right
is then exercisable.
(g) In no event shall the Rights Agent have any obligations or
duties in respect of any Section 13 Event, except as expressly set forth in this
Agreement. The Rights Agent may rely, and shall be fully protected in relying
upon, a certificate of the
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Company stating that the provisions of this Section 13 have been fulfilled. The
prior written consent of the Rights Agent shall be required in connection with
any supplemental agreement which alters or impairs the rights, obligations,
duties or immunities of the Rights Agent hereunder.
(h) The provisions of this Section 13 shall similarly apply to
successive consolidations, mergers, sales or other transfers. In the event that
any Section 13 Event shall occur at any time after the occurrence of any Section
11(a)(ii) Event, the Rights which have not been theretofore exercised shall
thereafter be exercisable in the manner described in this Section 13.
SECTION 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES.
(a) The Company shall not be required to issue fractional
Rights or to distribute Rights Certificates which evidence fractional Rights. If
the Company shall determine not to issued fractional Rights, the Company shall
pay, in lieu of issuing fractional Rights, to the registered holders of the
Rights with respect to which fractional Rights would otherwise be issuable an
amount in cash equal to the same fraction of the Fair Market Value (determined
as provided in Section 11(d) for the Trading Day immediately prior to the date
on which such fractional Rights would otherwise have been issued) of one Right.
(b) The Company shall not be required to issue fractional
Preferred Shares (other than fractions which are multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute stock
certificates which evidence fractional Preferred Shares (other than fractions
which are multiples of one one-hundredth of a Preferred Share). If the Company
shall determine not to issue fractional Preferred Shares that are not multiples
of one one-hundredth of a Preferred Share, the Company shall pay to the
registered holders of the Rights Certificates at the time Rights represented
thereby are exercised, in lieu of such fractional Preferred Shares, an amount in
cash equal to the same fraction of the Fair Market Value (determined as provided
in Section 11(d) for the Trading Day immediately prior to the date of such
exercise) of one one-hundredth of a Preferred Share.
(c) Each holder of a Right, by accepting the same, expressly
waives such holder's right to receive or exercise any fractional Right or to
receive any fractional Preferred Share upon the exercise of such Right (except
as provided in this Section 14).
SECTION 15. RIGHTS OF ACTION. All rights of action in respect
of this Agreement, other than rights of action which the Rights Agent may have
under Sections 18 and 20, are vested in the registered holders of the Rights
Certificates (or, prior to the Distribution Date, the registered holders of the
Common Stock of the Company); and the registered holder of any Rights
Certificate (or, prior to the Distribution Date, of any stock certificate for
shares of such Common Stock), without the consent of the Rights Agent or of the
holder of any other Rights Certificate (or, prior
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to the Distribution Date, of any other stock certificate for shares of Common
Stock), may, on such registered holder's own behalf and for such registered
holder's own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
such registered holder's right to exercise the Rights evidenced by such Rights
Certificate (or, prior to the Distribution Date, such stock certificate) in the
manner provided in such Rights Certificate and in this Agreement. Without
limiting the generality of the foregoing or any remedies available to the
holders of the Rights, it is specifically acknowledged that the registered
holders of the Rights would not have an adequate remedy at law for any breach of
this Agreement and will be entitled to specific performance of the obligations
and duties under, and injunctive relief against any actual or threatened
violations of the obligations and duties of any Person subject to, this
Agreement.
SECTION 16. AGREEMENTS OF HOLDERS OF RIGHTS. Each holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights shall be
transferable only simultaneously and together with the transfer of shares of
Common Stock of the Company;
(b) after the Distribution Date, the Rights Certificates shall
be transferable on the registry books of the Rights Agent only if surrendered at
the principal office of the Rights Agent, with the Form of Assignment and
Certification of Status on the reverse side thereof duly executed, together with
such signature guarantees and other documentation as the Rights Agent may
reasonably request;
(c) subject to Sections 6 and 7(d), the Company and the Rights
Agent may deem and treat the Person in whose name any Rights Certificate (or,
prior to the Distribution Date, any stock certificate for Common Stock of the
Company) is registered as the absolute owner thereof and of the Rights
represented thereby (notwithstanding any notations of ownership or other writing
on such Rights Certificate or stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or to any other Person because of its
inability to perform any of its obligations or duties under this Agreement by
reason of any applicable law, any preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission or any rule,
regulation or executive order promulgated or enacted by any such governmental
authority prohibiting or otherwise restraining performance of any such
obligation or duty; PROVIDED, HOWEVER, that the Company shall use its best
efforts to have any such injunction, order, decree or ruling lifted or otherwise
overturned as soon as reasonably possible.
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SECTION 17. RIGHTS CERTIFICATE HOLDER NOT DEEMED A
STOCKHOLDER. No holder, as such, of any Rights Certificate shall be entitled to
vote, to receive dividends or other distributions on or to exercise any
preemptive rights with respect to, or shall be deemed for any other purpose to
be the holder of, the Preferred Shares or other shares of capital stock of any
class of the Company which may at the time be issuable upon exercise of the
Rights represented thereby; nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company, or any right to vote
for the election of directors or upon any other matter submitted to stockholders
at any meeting thereof, to give or withhold consent to any corporate action, to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25) or to receive dividends, subscription rights or other
distributions, until the Rights represented by such Rights Certificate shall
have been exercised, in whole or in part, in accordance with the provisions
hereof.
SECTION 18. CONCERNING THE RIGHTS AGENT.
(a) The Company covenants and agrees to pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time on the written request of the Rights Agent, to reimburse it
for all reasonable expenses and counsel fees incurred in connection with the
acceptance and administration of this Agreement and the performance of its
obligations and duties hereunder. The Company also covenants and agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without negligence, bad faith or willful
misconduct on its part, for any action taken, suffered or omitted by it in
connection with the acceptance and administration of this Agreement and the
performance of its obligations and duties hereunder, including the costs and
expenses of defending against any claim of liability arising therefrom, directly
or indirectly.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of, any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate, stock certificate for Preferred Shares, Common Stock or other
shares of capital stock of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be executed and, where necessary, verified or acknowledged by the proper
Person or Persons.
SECTION 19. MERGER OR CONSOLIDATION OF THE RIGHTS AGENT.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the stockholder services
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or corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as successor Rights Agent under Section 21. In case at the time any successor
Rights Agent shall succeed to the agency created by this Agreement any of the
Rights Certificates countersigned by its predecessor Rights Agent shall not have
been delivered, such successor Rights Agent may adopt the counter signature of
its predecessor Rights Agent and deliver the Rights Certificates so
countersigned; or in case at such time any of the Rights Certificates shall not
have been countersigned, such successor Rights Agent may countersign such Rights
Certificates either in the name of its predecessor Rights Agent or in the name
of such successor Rights Agent; and in all such cases, such Rights Certificates
shall have the full force and effect provided therein and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver the Rights Certificates so countersigned; or in
case at such time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases, such Rights
Certificates shall have the full force and effect provided therein and in this
Agreement.
SECTION 20. DUTIES OF THE RIGHTS AGENT. The Rights
Agent undertakes the obligations and duties imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
the Rights Certificates (or, prior to the Distribution Date, the stock
certificates for Common Stock of the Company), by accepting the same, shall be
bound, and no implied obligations or duties shall be read into this Agreement
against the Rights Agent:
(a) the Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the written opinion of such legal counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken, suffered or omitted by it in good faith and in accordance
with such opinion;
(b) whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking, suffering or
omitting any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate executed by any one of the
Chairman of the Board, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full and complete authorization and protection to the Rights Agent as
to any action taken, suffered or omitted by it in good faith in reliance upon
such certificate;
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(c) the Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct;
(d) the Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereon) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only;
(e) the Rights Agent shall not be responsible for the validity
of this Agreement or the execution and delivery hereof (except for its due
execution hereof) or for the validity or execution of any Rights Certificate
(except for its countersignature thereon); nor shall the Rights Agent be
responsible for any breach by the Company of any covenant or condition contained
in this Agreement or in any Rights Certificate; nor shall the Rights Agent be
responsible for any change in the exercisability of the Rights (including Rights
becoming void pursuant to Section 7(d)), for any adjustment or change (or for
the manner or method of determining same) in the terms of the Rights (including
any adjustment or change in the Exercise Price or in the number or kind of
shares, securities or other property issuable upon the exercise thereof)
required by Section 11, 13, 23 or 24 or for ascertaining the existence of facts
which would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after actual notice, in the
manner provided in Section 12, that such change or adjustment is required); nor
shall the Rights Agent by any act hereunder be deemed to have made any
representation or warranty as to the authorization or reservation of any
Preferred Shares or shares of Common Stock to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any Preferred Shares or
shares of Common Stock will, when issued, be validly authorized and issued and
fully paid and nonassessable;
(f) the Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement;
(g) the Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its obligations and
duties hereunder from any one of the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Company, and to apply to
such officers for advice or instructions in connection with its obligations and
duties; and the Rights Agent shall not be liable for any action taken, suffered
or omitted by it in good faith and in accordance with the written instructions
of any such officer or for any delay in acting while waiting for such
instructions;
(h) the Rights Agent and any stockholder, director, officer or
employee
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of the Rights Agent may buy, sell or deal in the Rights or in any other
securities of the Company (including the Preferred Shares and its Common Stock)
or become pecuniarily interested in any transaction in which the Company (or any
of its Subsidiaries) may be interested, or contract with or lend money to the
Company (or any of its Subsidiaries), and may otherwise act as fully and freely
as though it were not the Rights Agent under this Agreement; and nothing herein
shall preclude the Rights Agent from acting in any other capacity for the
Company, any of its Subsidiaries or any other entity;
(i) the Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any of its obligations or duties
hereunder either directly or by or through its attorneys or agents, and the
Rights Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorney or agent or for any loss to the
Company resulting from any such act, default, neglect or misconduct, provided
the Rights Agent exercised reasonable care in the selection and continued
employment of such attorney or agent;
(j) if, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the Form of Certification of Status
attached to the Form of Election to Purchase or the Form of Assignment, as the
case may be, has either not been completed or indicates an affirmative response
to Question 1 and/or 2 thereof, the Rights Agent shall not take any further
action with respect to the requested exercise or transfer without first
consulting with the Company; and
(k) no provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its obligations or duties or in the exercise of its
rights or powers hereunder if there shall be reasonable grounds for believing
that repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured.
SECTION 21. RESIGNATION OR REMOVAL OF THE RIGHTS AGENT. The
Rights Agent or any successor Rights Agent may resign and be discharged from its
obligations and duties under this Agreement upon 30 days' prior notice to the
Company and to each transfer agent for the Preferred Shares and for the Common
Stock of the Company, sent by registered or certified mail, postage prepaid, and
to each registered holder of the Rights Certificates, sent by first-class mail,
postage prepaid. The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days' prior notice to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent for the Preferred Shares and for
the Common Stock of the Company, sent by registered or certified mail, postage
prepaid, and to each registered holder of the Rights Certificates, sent by
first-class mail, postage prepaid. If the Rights Agent or any successor Rights
Agent shall resign or be removed or shall otherwise become incapable of acting,
the Company shall appoint a successor Rights Agent. If the Company shall fail to
make such appointment within 30 days after giving notice of such removal or
after receiving notice of such resignation or incapacity, either from the
resigning or incapacitated Rights Agent or from the registered holder of any
Rights
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Certificate (who shall, with such notice, submit its Rights Certificate for
inspection by the Company), then the incumbent Rights Agent or the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a successor Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be (a)
a corporation organized and doing business under the laws of the United States
of America, the State of Delaware, the State of New York or the State of
Illinois (or of any other state so long as such corporation is authorized to do
business as a banking institution in the State of Delaware, the State of New
York or the State of Illinois), be in good standing under the laws of the
jurisdiction of its incorporation, have an office in the State of Delaware, the
State of New York or the State of Illinois, be authorized under such laws to
exercise corporate trust or stock transfer powers, be subject to supervision or
examination by federal or state authority and have at the time of its
appointment as Rights Agent a combined capital and surplus of at least
$50,000,000 or (b) an affiliate of a corporation described in clause (a) of this
sentence. After its appointment, the successor Rights Agent shall be vested with
the same rights, powers, obligations, duties and immunities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent for
the Preferred Shares and for the Common Stock of the Company, and mail notice
thereof to the registered holders of the Rights Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or any successor Rights Agent or the appointment of any successor
thereto.
SECTION 22. ISSUANCE OF NEW RIGHTS CERTIFICATES.
Notwithstanding any provision of this Agreement or of the Rights Certificates to
the contrary, the Company may, at its option, issue new Rights Certificates
evidencing the Rights in such form as may be approved by the Board to reflect
any adjustment or change in the Exercise Price or in the number or kind of
shares, securities or other property issuable upon exercise of the Rights in
accordance with the provisions of this Agreement; PROVIDED, HOWEVER, that (a) no
such Rights Certificates shall be issued if, and to the extent that, the Company
shall be advised by counsel that such issuance could create a significant risk
of material adverse tax consequences to the Company or to the Persons to whom
such Rights Certificates would be issued and (b) no such Rights Certificates
shall be issued if, and to the extent that, appropriate adjustment shall
otherwise have been made in lieu of the issuance thereof.
SECTION 23. REDEMPTION.
(a) The Board may, at its option, at any time prior to the
earliest of (i) the Close of Business on the 10th Business Day after the Share
Acquisition Date (or, if the Share Acquisition Date shall have occurred prior to
the Record Date, the Close of
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Business on the 10th Business Day after the Record Date), (ii) the occurrence of
any Section 13 Event and (iii) the Final Expiration Date, redeem all, but not
less than all, of the then outstanding Rights at a redemption price of $.01 per
Right, adjusted as provided in subsection (g) of this Section 23 (such
redemption price being hereinafter called the "Redemption Price"); PROVIDED,
HOWEVER, that if the Board shall authorize the redemption of the Rights in the
circumstances set forth in either clause (A) or (B) below, there must be
Disinterested Directors then in office and such authorization shall require the
concurrence of at least a majority of such Disinterested Directors: (A) such
authorization shall occur on or after the date a Person becomes an Acquiring
Person or (B) such authorization shall occur on or after the date of a change
(resulting from a solicitation of either proxies or one or more written
stockholder consents) in a majority of the directors in office at the
commencement of such solicitation if any Person who shall be a participant in
such solicitation has stated (or, if upon the commencement of such solicitation,
at least a majority of the Disinterested Directors shall have determined in good
faith) that such Person (or any of its Affiliates or Associates) intends to
take, or may consider taking, any action which would result in such Person
becoming an Acquiring Person or which would cause the occurrence of a Triggering
Event.
(b) In addition to the right of redemption reserved in the
first sentence of subsection (a) of this Section 23, if there shall be
Disinterested Directors then in office, the Board may redeem, with the
concurrence of at least a majority of the Disinterested Directors, all, but not
less than all, of the then outstanding Rights at the Redemption Price after the
Share Acquisition Date, but prior to the occurrence of any Section 13 Event, if
either (i) the Person who is an Acquiring Person shall have transferred or
otherwise disposed of (either alone or together with its Affiliates and
Associates) such number of shares of Common Stock of the Company, in one or a
series of related transactions not directly or indirectly involving the Company
or any of its Subsidiaries or the occurrence of any Section 13 Event, as shall
result in such Person thereafter being a Beneficial Owner of less than 10% of
the then outstanding shares of Common Stock of the Company, and after such
transfer or other disposition there is no other Acquiring Person, or (ii) in
connection with any Section 13 Event which shall not involve an Interested
Stockholder and in which all holders of the Common Stock of the Company are
treated the same.
(c) Notwithstanding any other provision of this Agreement, the
Rights shall not be exercisable after the first occurrence of any Section
11(a)(ii) Event until such time as the Company's right of redemption under this
Section 23 shall have expired.
(d) In considering whether to redeem the Rights, the Board and
the Disinterested Directors may consider the best long-term and short-term
interests of the Company and its stockholders, including, without limitation,
the effects of the redemption of the Rights upon employees, creditors, suppliers
and customers of the Company or of its Subsidiaries and upon the communities in
which offices or other establishments of the Company and such Subsidiaries are
located and all other pertinent factors. The redemption of the Rights by the
Board may be made effective at
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such time, on such basis and with such conditions as the Board, in its sole
discretion, may establish.
(e) Immediately after action by the Board directing the
redemption of the Rights pursuant to subsection (a) or (b) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights shall terminate, and thereafter each registered holder of
the Rights shall only be entitled to receive the Redemption Price therefor. The
Company shall give prompt written notice to the Rights Agent and prompt public
notice to the holders of the Rights of any such redemption; PROVIDED, HOWEVER,
that the failure to give, or any defect in, any such notice shall not affect the
validity of such redemption. Within 10 days after action by the Board directing
the redemption of the Rights, the Company shall mail (or cause the Rights Agent
to mail) a notice of redemption to each registered holder of the then
outstanding Rights, at its last address appearing on the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock of the Company. Any notice which is mailed
in the manner provided in this subsection (e) shall be deemed given, whether or
not received by the registered holder to whom sent. Each notice of redemption
shall state the method by which payment of the Redemption Price is to be made.
Neither the Company nor any of its Affiliates or Associates may at any time
redeem, acquire or purchase for value any Rights other than in the manner set
forth in this Section 23 and Section 24 or in connection with any purchase of
outstanding shares of its Common Stock prior to the Distribution Date.
(f) The Company may, at its option, pay the Redemption Price
in cash, shares of Common Stock (based on its Fair Market Value (determined as
provided in Section 11(d)) as of the date of redemption) or any other form of
consideration deemed appropriate by the Board.
(g) In the event that the Company shall at any time after the
date of this Agreement (i) declare a dividend on its outstanding shares of
Common Stock payable in shares of Common Stock or (ii) effect a subdivision,
combination or consolidation of its outstanding shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then, in each
such case, the Redemption Price after such event shall equal the Redemption
Price in effect immediately prior to such event multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event; PROVIDED,
HOWEVER, that such adjustment shall be made only if the amount of the Redemption
Price would be reduced or increased by at least $.001 per Right.
SECTION 24. EXCHANGE.
(a) The Board may, at its option, at any time on or after the
occurrence of any Section 11(a)(ii) Event, exchange all or any part of the then
outstanding and
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<PAGE>
exercisable Rights (which shall not include any Rights which have become
void pursuant to Section 7(d)) for shares of Common Stock of the Company at an
exchange rate of one share of Common Stock per Right, appropriately adjusted to
reflect any event specified in clauses (A) through (D), inclusive, of the first
sentence of Section 11(a)(i) or in Section 11(n) occurring after the date hereof
(such exchange rate being hereinafter called the "Exchange Rate"); PROVIDED,
HOWEVER, that the Board shall not be authorized to effect such an exchange at
any time after any Person (other than an Exempt Person), together with the
Affiliates and Associates of such Person, shall have become the Beneficial Owner
of 50% or more of the then outstanding shares of Common Stock of the Company.
(b) Immediately after action by the Board directing the
exchange of any Rights pursuant to subsection (a) of this Section 24, and
without any further action and without any notice, the right to exercise such
Rights shall terminate, and thereafter each registered holder of such Rights
shall only be entitled to receive the number of shares of Common Stock of the
Company which shall equal the number of such Rights held by such registered
holder multiplied by the Exchange Rate then in effect. The Company shall give
prompt written notice to the Rights Agent and prompt public notice to the
holders of the Rights of any such exchange; PROVIDED, HOWEVER, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
exchange. Within 10 days after action by the Board directing the exchange of any
Rights, the Company shall mail (or cause the Rights Agent to mail) a notice of
exchange to each registered holder of such Rights, at its last address appearing
on the registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Stock of the Company.
Any notice which is mailed in the manner provided in this subsection (b) shall
be deemed given, whether or not received by the registered holder to whom sent.
Each notice of exchange shall state the method by which the exchange of shares
of Common Stock for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
shall be effected pro rata among the registered holders of the Rights based upon
the number of Rights held (excluding Rights which shall have become void
pursuant to Section 7(d)); and, in such case, a new Rights Certificate
evidencing the Rights not being exchanged shall be prepared and executed by the
Company and countersigned and delivered by the Rights Agent to the registered
holder of such Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Preferred Shares (or Equivalent Preferred Shares)
for shares of Common Stock in effecting an exchange for Rights, at the initial
rate of one one-hundredth of a Preferred Share (or Equivalent Preferred Share)
for each share of Common Stock, appropriately adjusted to reflect any
adjustments in the voting rights of the Preferred Shares pursuant to the
Certificate of Designations attached hereto as Exhibit A, so that the fractional
Preferred Share delivered in lieu of each share of Common Stock shall have the
same voting rights as one share of Common Stock.
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<PAGE>
(d) In the event that there shall not be sufficient authorized
and unissued or treasury shares of Common Stock or Preferred Shares (or
Equivalent Preferred Shares) to permit the exchange of Rights directed by the
Board, the Company shall take all necessary action to authorize and reserve for
issuance such number of additional shares of Common Stock or Preferred Shares
(or Equivalent Preferred Shares) as may be required for issuance upon such
exchange and, if necessary, shall use its best efforts to obtain stockholder
approval thereof.
(e) The Company shall not be required to issue fractional
shares of Common Stock in exchange for Rights or to distribute stock
certificates which evidence fractional shares of Common Stock. If the Company
shall determine not to issue fractional shares of Common Stock, the Company
shall pay to the registered holders of the Rights with respect to which such
fractional shares would otherwise be issuable an amount in cash equal to the
same fraction of the Fair Market Value (determined as provided in Section 11(d)
for the Trading Day immediately prior to the date of such exchange) of one share
of Common Stock.
SECTION 25. NOTICE TO HOLDERS OF RIGHTS CERTIFICATES OF
CERTAIN EVENTS.
(a) In the event that at any time after the Distribution Date,
the Company shall propose: (i) to pay any dividend payable in shares of capital
stock of any class of the Company to the holders of Preferred Shares or to make
any other cash distribution to the holders of Preferred Shares (other than a
regular quarterly cash dividend); (ii) to effect any reclassification of the
Preferred Shares (other than a reclassification involving only the subdivision
of the outstanding Preferred Shares); (iii) to make any distribution to the
holders of Preferred Shares described in subsection (b) or (c) of Section 11;
(iv) to effect any Section 13 Event; (v) to pay any dividend on its shares of
Common Stock payable in shares of Common Stock or to effect a subdivision,
combination or consolidation of its outstanding shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock); or (vi) to effect the liquidation, dissolution or winding up of the
Company; then, in each such case, the Company shall give to the Rights Agent and
each registered holder of the Rights, in the manner provided in Section 26,
written notice of such proposed action, which shall specify the record date for
such stock dividend or distribution or the date on which such reclassification,
Section 13 Event, liquidation, dissolution or winding up is expected to occur
(and the date for participation therein by the holders of the Common Stock
and/or Preferred Shares if any such date is to be fixed). Such notice shall be
given, in the case of any action described in clause (i) or (iii) of the
preceding sentence, at least 10 days prior to the record date and, in the case
of any other such action, at least 20 days prior to the date of taking of such
proposed action or the date for participation therein by the holders of
Preferred Shares, whichever shall be the earlier.
(b) In case any Section 11(a)(ii) Event shall occur, the
Company shall, as soon as practicable thereafter, give to the Rights Agent and
each registered holder
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<PAGE>
of the Rights, in the manner provided in Section 26, written notice of the
occurrence thereof, which notice shall describe such occurrence and its
consequences in reasonable detail.
SECTION 26. OTHER NOTICES. Except as otherwise provided
herein, notices or demands authorized by this Agreement to be given or made by
the Rights Agent or by the registered holder of any Rights, Rights Certificate
or stock certificate for shares of Common Stock of the Company to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address shall be filed in writing with the
Rights Agent) as follows:
First Commonwealth, Inc.
444 North Wells Street, Suite 600
Chicago, Illinois 60610
Attention: President
Except as otherwise provided herein, notices or demands
authorized by this Agreement to be given or made by the Company or by the
registered holder of any Rights, Rights Certificate or stock certificate for
shares of Common Stock of the Company to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address shall be filed in writing with the Company) as
follows:
First Chicago Trust Company of New York
525 Washington Boulevard, Suite 4660
Jersey City, New Jersey 07310
Attention: Tenders and Exchanges Administration
Except as otherwise provided herein, notices or demands
authorized by this Agreement to be given or made by the Company or the Rights
Agent to the registered holder of any Rights, Rights Certificate or stock
certificate for shares of Common Stock of the Company shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to such
holder at its last address appearing on the registry books of the Rights Agent
or, prior to the Distribution Date, on the registry books of the transfer agent
for the Common Stock of the Company.
SECTION 27. SUPPLEMENTS AND AMENDMENTS. Prior to the
Distribution Date, but subject to the last sentence of this Section 27, the
Company and the Rights Agent, if so directed in writing by the Company, shall
supplement or amend any term, provision or condition of this Agreement, without
the approval of the registered holders of the stock certificates representing
the Common Stock and the Rights. From and after the Distribution Date, but
subject to the last sentence of this Section 27, the Company and the Rights
Agent, if so directed in writing by the Company, shall supplement or amend this
Agreement, without the approval of the registered holders of the Rights (however
represented), in order: (a) to cure any ambiguity, (b) to correct or supplement
any term, provision or condition of this Agreement which may be defective
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<PAGE>
or inconsistent with any other term, provision or condition hereof, (c) to
shorten or lengthen any time period specified herein (except that after the
first occurrence of an event described in either clause (A) or (B) of the
proviso in the first sentence of Section 23(a), there must be Disinterested
Directors then in office and any such shortening or lengthening shall require
the concurrence of at least a majority of such Disinterested Directors) or (d)
to change or supplement one or more of the terms, provisions or conditions
hereof in any manner which the Company may deem necessary or desirable and which
shall not adversely affect, as determined by the Board (with the concurrence of
at least a majority of the Disinterested Directors), the interests of the
holders (other than any Restricted Person or the transferees therefrom specified
in Section 7(d) of the Rights (however represented); PROVIDED, HOWEVER, that
this Agreement may not be supplemented or amended pursuant to clause (c) of this
sentence (i) to lengthen any time period (except as permitted by Section
3(a)(ii)) unless (A) approved by at least a majority of the Disinterested
Directors and (B) such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders (other than any
Restricted Person or the transferees therefrom specified in Section 7(d)) of the
Rights or (ii) to lengthen any time period relating to when the Rights may be
redeemed if at such time the Rights are not then redeemable. Upon the delivery
of a certificate from an appropriate officer of the Company stating that the
proposed supplement or amendment is in compliance with the terms of this Section
27, the Rights Agent shall execute such supplement or amendment; PROVIDED,
HOWEVER, that the Rights Agent shall not be required to execute any supplement
or amendment which affects any of the Rights Agent's rights, powers,
obligations, duties or immunities under this Agreement without its consent. On
and after the Distribution Date, no supplement or amendment shall be made which
changes the Exercise Price, the number of one one-hundredths of a Preferred
Share for which a Right is exercisable, the Redemption Price or the Final
Expiration Date. Prior to the Distribution Date, the interests of the holders of
the Rights shall be deemed coincident with the interests of the holders of the
Common Stock of the Company.
SECTION 28. SUCCESSORS. All of the terms, provisions
and conditions of this Agreement by or for the benefit of the
Company or the Rights Agent shall bind and inure to the benefit of
their respective successors and assigns.
SECTION 29. CERTAIN DETERMINATIONS AND ACTIONS BY THE BOARD.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including the determination of
the percentage of such outstanding shares of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i), as in effect on the date hereof, under the Exchange Act. The
Board (or, as and when set forth herein, the Disinterested Directors) shall have
the exclusive power and authority to interpret this Agreement and to exercise
all rights and powers specifically granted to the Board or to the Company, or as
may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to make all determinations
deemed necessary or advisable for such administration, including, without
limitation, a
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<PAGE>
determination to redeem or not to redeem the Rights, to exchange or not to
exchange the Rights or to supplement or amend this Agreement. All such
calculations, determinations, interpretations and exercises (including, for
purposes of clause (b) below, all omissions with respect to the foregoing) which
are done or made by the Board (or the Disinterested Directors) in good faith
shall (a) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights and all other Persons and (b) not subject any director
(including any Disinterested Director) to any liability to the holders of the
Rights or to any other Person.
SECTION 30. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, the registered holders of the stock certificates for
the Common Stock of the Company) any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Distribution Date, the registered holders
of the stock certificates for the Common Stock of the Company).
SECTION 31. SEVERABILITY. If any term, provision or condition
of this Agreement shall be held by a court of competent jurisdiction or other
lawful authority to be invalid, void or unenforceable, the remaining terms,
provisions, and conditions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; PROVIDED,
HOWEVER, that if any such term, provision or condition is held by such court or
authority to be invalid, void or unenforceable and the Board (with the
concurrence of at least a majority of the Disinterested Directors then in
office) shall determine in good faith that severing the same from this Agreement
would adversely affect the purposes or effect of this Agreement, the right of
redemption set forth in Section 23 shall be reinstated and shall not expire
until the Close of Business on the 10th day following the date of such
determination by the Board.
SECTION 32. GOVERNING LAW. This Agreement and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
SECTION 33. COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which shall for all
purposes be deemed to be an original, but all such counterparts
shall together constitute one and the same instrument.
SECTION 34. DESCRIPTIVE HEADINGS. Descriptive headings
of the several Sections of this Agreement are inserted for
convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
FIRST COMMONWEALTH, INC.
By: /s/ CHRISTOPHER C. MULTHAUF
----------------------------------
Name: Christopher C. Multhauf
Title: Chairman of the Board
ATTEST:
By: /s/ DAVID W. MULLIGAN
- ----------------------------
Name: David W. Mulligan
Title: Secretary
FIRST CHICAGO TRUST COMPANY OF
NEW YORK
By: /s/ JOANNE GOROSTIOLA
------------------------------
(Corporate Seal) Name: Joanne Gorostiola
Title: Assistant Vice President
Attest:
By: /s/ ALBERT DIORIO
--------------------------
Name: Albert Diorio
Title: Assistant Vice President
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<PAGE>
EXHIBIT A
FORM OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
FIRST COMMONWEALTH, INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-------------------------------
First Commonwealth, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify that, pursuant to authority conferred upon its Board of
Directors by its Certificate of Incorporation, as amended, and by the provisions
of Section 151 of the General Corporation Law of the State of Delaware, the
following resolution was adopted by its Board of Directors at a meeting duly
called and held on October 20, 1995:
RESOLVED, that, pursuant to the authority conferred upon the
Board of Directors of the Corporation (the "Board") by the provisions of the
Certificate of Incorporation, as amended, of the Corporation and by the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, there is hereby created a series of Preferred Stock of the
Corporation, which series shall have the following powers, designations,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations or restrictions thereof, in addition to those
set forth in the Certificate of Incorporation, as amended, of the Corporation:
Section 1. DESIGNATION OF SERIES; NUMBER OF SHARES. The
series of Preferred Stock established hereby shall be designated
the "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the authorized number of shares constituting
the Series A Preferred Stock shall be 150,000. Such number of
authorized shares may be increased or decreased, from time to time,
by resolution of the Board; PROVIDED, HOWEVER, that no such
decrease shall reduce the number of authorized shares of the Series
A Preferred Stock to a number less than the number of shares of the
Series A Preferred Stock then outstanding, plus the number of
shares of the Series A Preferred Stock then reserved for issuance
upon the exercise of any outstanding options, warrants or rights or
the exercise of any conversion or exchange privilege contained in
any outstanding security issued by the Corporation.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
<PAGE>
(a) Subject to the rights of the holders of shares of any
other series of the Preferred Stock (or shares of any other class of capital
stock of the Corporation) ranking senior to the Series A Preferred Stock with
respect to dividends, the holders of shares of the Series A Preferred Stock, in
preference to the holders of shares of Common Stock and of any other class of
capital stock of the Corporation ranking junior to the Series A Preferred Stock
with respect to dividends, shall be entitled to receive, when, as and if
declared by the Board out of funds legally available therefor, quarterly
dividends payable in cash on the first day of March, June, September, and
December in each year (each such date being a "Dividend Payment Date"),
commencing on the first Dividend Payment Date after the initial issuance of a
share or fractional share of the Series A Preferred Stock, in an amount per
share (rounded to the nearest whole cent) equal to 100 times the aggregate per
share amount of all cash dividends, plus 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions (other
than a dividend payable in shares of Common Stock or a distribution in
connection with the subdivision of the outstanding shares of Common Stock, by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Dividend Payment Date or, with respect to the first
Dividend Payment Date, since the initial issuance of a share or fractional share
of the Series A Preferred Stock. The multiple of 100 (the "Dividend Multiple")
set forth in the preceding sentence shall be adjusted from time to time as
hereinafter provided in this paragraph (a). In the event that the Corporation
shall at any time after the effective date of this Certificate of Designations
(i) declare or pay any dividend on the Common Stock payable in shares of Common
Stock or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the Dividend Multiple
thereafter applicable to the determination of the amount of dividends per share
which the holders of shares of the Series A Preferred Stock shall be entitled to
receive shall be the Dividend Multiple in effect immediately prior to such event
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) The Board shall declare, out of funds legally available
therefor, a dividend or distribution on the Series A Preferred Stock, as
provided in paragraph (a) of this Section 2, immediately after it has declared a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock).
(c) Dividends shall begin to accrue and be cumulative on the
outstanding shares of the Series A Preferred Stock from the Dividend Payment
Date next preceding the date of issuance of such shares, unless such date of
issuance shall be prior to the record date for the first Dividend Payment Date,
in which case dividends on such shares shall begin to accrue and be cumulative
from the date of issuance of such shares, or unless such date of issuance shall
be after the close of business on the record date with respect to any Dividend
Payment Date and on or prior to such
<PAGE>
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on shares of the Series A
Preferred Stock in an amount less than the total amount of dividends then
accrued shall be allocated pro rata among such shares. The Board may fix a
record date for the determination of the holders of shares of the Series A
Preferred Stock entitled to receive payment of any dividend or distribution
declared thereon, which record date shall be not more than the number of days
prior to the date fixed for such payment permitted by applicable law.
Section 3. VOTING RIGHTS. In addition to any other voting
rights required by applicable law, the holders of shares of the Series A
Preferred Stock shall have the following voting rights:
(a) Each share of the Series A Preferred Stock shall entitle
the holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. The multiple of 100 (the "Voting Multiple") set
forth in the preceding sentence shall be adjusted from time to time as
hereinafter provided in this paragraph (a). In the event that the Corporation
shall at any time after the effective date of this Certificate of Designations
(i) declare or pay any dividend on the Common Stock payable in shares of Common
Stock or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the Voting Multiple
thereafter applicable to the determination of the number of votes per share to
which the holders of shares of the Series A Preferred Stock shall be entitled
shall be the Voting Multiple in effect immediately prior to such event
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately after such event and the denominator of
which shall be the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) Except as otherwise provided in this Certificate of
Designations, in any other Certificate of Designations establishing another
series of the Preferred Stock (or any series of any other class of capital stock
of the Corporation) or by applicable law, the holders of the Series A Preferred
Stock, the holders of the Common Stock and the holders of any other class of
capital stock of the Corporation having general voting rights shall vote
together as a single class on all matters submitted to a vote of the
stockholders of the Corporation.
(c) Except as otherwise provided in this Certificate of
Designations or by applicable law, the holders of the Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent provided in paragraph (b) of this Section 3) for the
taking of any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(a) Whenever dividends or other distributions payable on the
Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on outstanding shares
<PAGE>
of the Series A Preferred Stock shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of any class of capital stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or
winding up of the Corporation) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of any class of capital stock of the Corporation ranking on
a parity (either as to dividends or upon liquidation, dissolution or
winding up of the Corporation) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are accrued and unpaid in
proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem, purchase or otherwise acquire for consideration any
shares of any class of capital stock of the Corporation ranking junior
(either as to dividends or upon liquidation, dissolution or winding up
of the Corporation) to the Series A Preferred Stock, except that the
Corporation may at any time redeem, purchase or otherwise acquire any
shares of such junior stock in exchange for other shares of any class
of capital stock of the Corporation ranking junior (both as to
dividends and upon dissolution, liquidation or winding up of the
Corporation) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
the Series A Preferred Stock or any shares of any class of capital
stock of the Corporation ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up of the Corporation) with
the Series A Preferred Stock, or redeem any shares of such parity
stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board) to the holders of all such
shares upon such terms and conditions as the Board, after taking into
consideration the respective annual dividend rates and the other
relative powers, preferences and rights of the respective series and
classes of such shares, shall determine in good faith will result in
fair and equitable treatment among the respective holders of shares of
all such series and classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of any
class of capital stock of the Corporation unless the Corporation could, under
paragraph (a) of this Section 4, purchase or otherwise acquire such shares at
such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of the Series A
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after such purchase or
acquisition. All such canceled shares shall thereupon become authorized and
unissued shares of Preferred Stock and may be reissued as part of any new series
of the Preferred Stock, subject to the conditions and restrictions on issuance
set forth in the Certificate of Incorporation of the Corporation, as amended
from time to time, in any other Certificate of Designations
<PAGE>
establishing another series of the Preferred Stock (or any series of any other
class of capital stock of the Corporation) or in any applicable law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon
any liquidation (whether voluntary or otherwise), dissolution or winding up of
the Corporation, no distribution shall be made (a) to the holders of shares of
any class of capital stock of the Corporation ranking junior (either as to
dividends or upon liquidation, dissolution or winding up of the Corporation) to
the Series A Preferred Stock unless, prior thereto, the holder of each
outstanding share of the Series A Preferred Stock shall have received an amount
equal to the accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, plus an amount equal to an aggregate
amount, subject to adjustment as hereinafter provided in this Section 6, equal
to 100 times the aggregate per share amount to be distributed to the holders of
the Common Stock or (b) to the holders of shares of any class of capital stock
of the Corporation ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up of the Corporation) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event that the Corporation shall at any time after the
effective date of this Certificate of Designations (a) declare or pay any
dividend on the Common Stock payable in shares of Common Stock or (b) effect a
subdivision, combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then, in each such case, the aggregate amount per share which the holders of
shares of the Series A Preferred Stock shall thereafter be entitled to receive
pursuant to clause (a)(ii) of the preceding sentence shall be the aggregate
amount per share in effect pursuant to such clause immediately prior to such
event multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In the event that the
Corporation shall be a party to any consolidation, merger, combination or other
transaction in which the outstanding shares of Common Stock are converted or
changed into or exchanged for other capital stock, securities, cash or other
property, or any combination thereof, then, in each such case, each share of the
Series A Preferred Stock shall at the same time be similarly converted or
changed into or exchanged for an aggregate amount, subject to adjustment as
hereinafter provided in this Section 7, equal to 100 times the aggregate amount
of capital stock, securities, cash and/or other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is being
converted or changed or exchanged. In the event that the Corporation shall at
any time after the effective date of this Certificate of Designations (a)
declare or pay any dividend on the Common Stock payable in shares of Common
Stock or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the aggregate amount per
share which the holders of shares of the Series A
<PAGE>
Preferred Stock shall thereafter be entitled to receive pursuant to the
preceding sentence shall be the aggregate amount per share in effect pursuant to
such sentence immediately prior to such event multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of the Series A
Preferred Stock shall not be redeemable at any time.
Section 9. RANK. Unless otherwise provided in the
Certificate of Designations establishing another series of the Preferred Stock
after the effective date of this Certificate of Designations, the Series A
Preferred Stock shall rank, as to the payment of dividends and the making of any
other distribution of assets of the Corporation, senior to the Common Stock, but
junior to all other series of the Preferred Stock.
Section 10. AMENDMENTS. The Certificate of Incorporation of
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences and rights of the Series A Preferred Stock so
as to adversely affect any thereof without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of the Series A Preferred
Stock, voting separately as a single class.
Section 11. FRACTIONAL SHARES. Fractional shares of the Series
A Preferred Stock may be issued, but, unless the Board shall otherwise
determine, only in multiples of one one-hundredth of a share. The holder of any
fractional share of the Series A Preferred Stock shall be entitled to receive
dividends, participate in distributions, exercise voting rights and have the
benefit of all other powers, preferences and rights relating to the Series A
Preferred Stock in the same proportion as such fractional share bears to a whole
share.
IN WITNESS WHEREOF, Corporation has caused this Certificate of
Designations to be executed and attested by its duly authorized officers this
__day of____________, 1995.
FIRST COMMONWEALTH, INC.
By:
-----------------------------
(Corporate Seal) Name:
Title:
Attest:
By:
--------------------------------
Name:
Title:
<PAGE>
Exhibit B
FORM
OF
RIGHTS CERTIFICATE
CERTIFICATE NO. R- _________ RIGHTS
_______ Aggregate Number of
Shares of Series A Junior
Participated Preferred Stock
Initially
Purchasable
NOT EXERCISABLE AFTER _______________, 2005 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF FIRST COMMONWEALTH, INC., AT $.01
PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
STOCKHOLDERS RIGHTS AGREEMENT HEREINAFTER MENTIONED. UNDER
CERTAIN CIRCUMSTANCES DESCRIBED IN SUCH AGREEMENT, RIGHTS
BENEFICIALLY OWNED BY A RESTRICTED PERSON (AS SUCH TERM IS
DEFINED IN SUCH AGREEMENT), OR BY SPECIFIED TRANSFEREES FROM A
RESTRICTED PERSON, SHALL BE OR BECOME VOID.
<PAGE>
RIGHTS CERTIFICATE
FIRST COMMONWEALTH, INC.
This certifies that _________________________, or
registered assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner, subject to the terms, provisions and
conditions of the Stockholders Rights Agreement dated as of November 1, 1995
(the "Rights Agreement") between First Commonwealth, Inc., a Delaware
corporation (the "Company"), and First Chicago Trust Company of New York (the
"Rights Agent"), to purchase from the Company at any time after the Distribution
Date and prior to the Close of Business on November __, 2005, at the principal
office of the Rights Agent or its successor as Rights Agent, one one-hundredth
of a fully paid and nonassessable share of Series A Junior Participating
Preferred Stock, $.001 par value (the "Preferred Shares"), of the Company at a
price (the "Exercise Price") of $40.00 per one one-hundredth of a Preferred
Share, upon presentation and surrender of this Rights Certificate with the Form
of Election to Purchase and the related Form of Certification of Status duly
executed, together with such signature guarantees and other documentation as the
Rights Agent may reasonably request. The number of Rights evidenced by this
Rights Certificate (as well as the number of one one-hundredths of a Preferred
Share which may be purchased upon the exercise of each Right) set forth above,
and the Exercise Price set forth above, are the numbers and the Exercise Price
as of November 1, 1995, based on the Preferred Shares as constituted on such
date. As provided in the Rights Agreement, such number of Rights (and/or such
number of one one-hundredths of a Preferred Share) and such Exercise Price are
subject to change and adjustment upon the happening of certain events specified
in the Rights Agreement. Capitalized terms not defined herein have the
respective meanings specified in the Rights Agreement.
From and after the first occurrence of any Section 11(a)(ii)
Event, if the Rights evidenced by this Rights Certificate are Beneficially Owned
by (i) a Restricted Person, (ii) a transferee from a Restricted Person who
becomes a transferee after the Acquiring Person becomes such or (iii) under
certain circumstances specified in the Rights Agreement, a transferee from a
Restricted Person who becomes a transferee prior to or concurrently with the
Acquiring Person becoming such, such Rights shall be or become void, and no
holder hereof shall have any rights whatsoever with respect to such Rights.
This Rights Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are incorporated herein by reference and made a part hereof, to which
Rights Agreement reference is hereby made for a full description of the rights,
powers, obligations, duties and immunities hereunder of the Company, the Rights
Agent and the holders of the Rights Certificates. Under the circumstances set
forth in the Rights Agreement, the exercisability of the Rights represented
hereby may be temporarily suspended. The Rights Agreement is on file at the
principal office of the Company and at the principal office of the Rights Agent,
and a copy will be provided upon written request to the
<PAGE>
Secretary of the Company.
Upon surrender at the principal office of the Rights Agent,
this Rights Certificate, with or without other Rights Certificates, may be
exchanged for one or more Rights Certificates of like tenor and date evidencing
Rights entitling the holder to purchase the same aggregate number of one
one-hundredths of a Preferred Share as the Rights evidenced by the Rights
Certificates so surrendered. If this Rights Certificate shall be exercised in
part, the holder hereof shall be entitled to receive, upon surrender hereof, one
or more Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Rights Certificate (i) may be redeemed, at the direction of
the Board, at a redemption price (subject to adjustment) of $.01 per Right
(payable in cash, shares of Common Stock of the Company or any other form of
consideration deemed appropriate by the Board) or (ii) under certain
circumstances, may be exchanged, in whole or in part, at the direction of the
Board, for shares of Common Stock of the Company or Preferred Shares at an
exchange rate (subject to adjustment) of one share of Common Stock or one
one-hundredth of a Preferred Share per Right.
No fractional Preferred Share will be issued upon the exercise
of any Rights represented hereby (other than fractions which are a multiple of
one one-hundredth of a Preferred Share), but in lieu thereof a cash payment will
be made as provided in the Rights Agreement.
No holder, as such, of this Rights Certificate shall be
entitled to vote, to receive dividends or other distributions on or to exercise
any preemptive rights with respect to, or shall be deemed for any other purpose
to be the holder of, the Preferred Shares or other shares of capital stock of
any class of the Company which may at any time be issuable upon exercise hereof;
nor shall anything contained herein or in the Rights Agreement be construed to
confer upon the holder hereof, as such, any of the rights of a stockholder of
the Company, or any right to vote for the election of directors or upon any
other matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action, to receive notice of meetings or other
actions affecting stockholders (except as provided in the Rights Agreement) or
to receive dividends, subscription rights or other distributions, until the
Rights evidenced by this Rights Certificate shall have been exercised, in whole
or in part, in accordance with the provisions of the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
<PAGE>
IN WITNESS WHEREOF, this Rights Certificate has been executed
by the Company by the duly authorized facsimile signature of a proper officer of
the Company and a facsimile of its corporate seal has been imprinted hereon and
duly attested by the duly authorized facsimile signature of a proper officer of
the Company.
Dated as of _______________, ____.
FIRST COMMONWEALTH, INC.
(Corporate Seal) By:
---------------------------------
Name:
Title:
ATTEST:
- ------------------------------
Name:
Title:
Countersigned:
First Chicago Trust Company of New York,
as Rights Agent
By
--------------------------------------
Authorized Signature
<PAGE>
[REVERSE SIDE OF RIGHTS CERTIFICATE]
FORM OF ELECTION TO PURCHASE
(To be executed by the registered holder
if such holder desires to exercise Rights
represented by this Rights Certificate)
To First Commonwealth, Inc.:
The undersigned hereby irrevocably elects to exercise
__________ Rights represented by this Rights Certificate to purchase the
Preferred Shares (or other securities, cash or property) issuable upon the
exercise of such Rights and requests that certificates for such Preferred Shares
be issued in the name of:
Please insert social security
or other identifying number: ____________________
- ----------------------------------------------------------------
(Please print name and address)
- ----------------------------------------------------------------
If such number of Rights shall not be all the Rights represented by this Rights
Certificate, a new Rights Certificate for the remaining unexercised Rights shall
be registered in the name of and delivered to:
Please insert social security
or other identifying number: ____________________
- ----------------------------------------------------------------
(Please print name and address)
- ----------------------------------------------------------------
Dated: _______________, 19__
---------------------------------------
Signature
<PAGE>
Signature Guaranteed: ________________________________
Signatures must be guaranteed by a participant in a
recognized Signature Guaranty Medallion Program.
CERTIFICATION OF STATUS
The undersigned hereby certifies by checking the
appropriate boxes that:
(1) this Rights Certificate
----
---- is
----
---- is not
being exercised by or on behalf of a Person who is or was a
Restricted Person (as such term is defined in the Rights
Agreement); and
(2) after due inquiry and to the best knowledge of the
undersigned, it
----
---- did
----
---- did not
acquire, directly or indirectly, the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became a Restricted Person.
---------------------------------------
Signature
Date: _______________, 19__
<PAGE>
NOTICE
The signature(s) on the foregoing Form of Election to Purchase
and Certification of Status must correspond to the name written upon the face of
this Rights Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the Certification of Status set forth above is
not completed, the Company will deem the Beneficial Owner of the Rights
represented by this Rights Certificate to be a Restricted Person (as such term
is defined in the Rights Agreement), will not honor the Election to Purchase and
will affix a legend to such effect on this Rights Certificate and on any Rights
Certificates issued in exchange for this Rights Certificate.
<PAGE>
[Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer this Rights Certificate)
FOR VALUE RECEIVED _________________________ hereby
sells, assigns and transfers unto
------------------------------
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________________
Attorney, to transfer the within Rights Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _______________, 19__
---------------------------------------
Signature
Signature Guaranteed: ________________________________
Signatures must be guaranteed by a participant in a recognized
Signature Guaranty Medallion Program.
<PAGE>
CERTIFICATION OF STATUS
The undersigned hereby certifies by checking the appropriate
boxes that:
(1) this Rights Certificate
[ ] is
[ ] is not
being sold, assigned or transferred by or on behalf of a Person who
is or was a Restricted Person (as such term is defined in the
Rights Agreement); and
(2) after due inquiry and to the best knowledge
of the undersigned, it
[ ] did
[ ] did not
acquire, directly or indirectly the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became a Restricted Person.
---------------------------------------
Signature
Date: _______________, 19__
<PAGE>
NOTICE
The signature(s) on the foregoing Form of Assignment and
Certification of Status must correspond to the name written upon the face of
this Rights Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the Certification of Status set forth above is
not completed, the Company will deem the Beneficial Owner of the Rights
represented by this Rights Certificate to be a Restricted Person (as such term
is defined in the Rights Agreement), will not honor the Assignment and will
affix a legend to such effect on this Rights Certificate and any Rights
Certificates issued in exchange for this Rights Certificate.
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
On October 20, 1995, the Board of Directors (the "Board") of
First Commonwealth, Inc., a Delaware corporation (the "Company"), declared a
dividend of one preferred stock purchase right (a "Right") for each outstanding
share of Common Stock, $.001 par value (the "Common Stock"), of the Company. The
dividend is payable on the effective date of the Company's initial public
offering registration statement, file no. 33-97426 (the "Record Date") to the
holders of record of the Common Stock at the Close of Business on such date.
Each Right entitles the holder thereof (except as described below) to purchase
from the Company one one-hundredth of a share of the Series A Junior
Participating Preferred Stock, $.001 par value (the "Preferred Shares"), of the
Company at a price (the "Exercise Price") of $40.00 per one one-hundredth of a
Preferred Share, subject to adjustment. The terms of the Rights are set forth in
the Stockholders Rights Agreement dated as of November 1, 1995 (the "Rights
Agreement") between the Company and First Chicago Trust Company of New York, as
Rights Agent (the "Rights Agent"). Capitalized terms not defined herein have the
respective meanings specified in the Rights Agreement.
DISTRIBUTION DATE; TRANSFER OF RIGHTS
Initially, the Rights associated with the Common Stock
outstanding as of the Record Date will be evidenced solely by the stock
certificates for such Common Stock, with a copy of this Summary of Rights
attached thereto. The Rights will separate from the Common Stock upon the
earliest to occur of (i) 10 Business Days after the first public announcement
that any Person (other than an Exempt Person (as hereinafter defined)) has
become an Acquiring Person (as hereinafter defined) and (ii) 10 Business Days
(or such other Business Day as may be determined by action of the Board prior to
the time that any Person shall become an Acquiring Person (as hereinafter
defined) after the commencement by any Person (other than an Exempt Person) of,
or the first public announcement of its intention to commence, a tender or
exchange offer if, upon the consummation thereof, such Person would be the
Beneficial Owner of 15% or more of the outstanding shares of Common Stock (the
earliest of the dates specified in clauses (i) and (ii) being hereinafter called
the "Distribution Date"). After the Distribution Date, the Rights will be
evidenced solely by separate certificates and will trade independently from the
Common Stock.
An "Acquiring Person" is any Person who or which,
together with its Affiliates and Associates, has acquired 15% or more of the
shares of Common Stock then outstanding, but does not include (i) the Company,
(ii) any Subsidiary of the Company, (iii) any employee benefit plan or other
compensation program or
<PAGE>
arrangement of the Company or of any such Subsidiary or (iv) any Person holding
shares of Common Stock for or pursuant to the terms of any such plan, program or
arrangement (the Persons specified in clauses (i) through (iv) being herein
collectively called "Exempt Persons"). Notwithstanding the foregoing, if the
Board of Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person," has become so inadvertently, and such
Person divests as promptly as practicable a sufficient number of shares of
Common Stock so that such Person would no longer be an "Acquiring Person," then
such Person shall not be deemed to be an "Acquiring Person."
A "Disinterested Director" is (i) any member of the Board who
is not a Restricted Person (as hereinafter defined), or a representative or
nominee of a Restricted Person, and was a member of the Board prior to the date
of the Rights Agreement and (ii) any individual who subsequently becomes a
member of the Board and is not a Restricted Person, or a representative or
nominee of a Restricted Person, and whose nomination for election to the Board
is recommended or approved by a majority of the Disinterested Directors then in
office. A "Restricted Person" is an Acquiring Person or any Affiliate or
Associate thereof.
The Rights Agreement provides that, until the Distribution
Date (or the earlier redemption or expiration of the Rights), the Rights may be
transferred only with the associated shares of Common Stock. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), stock
certificates for Common Stock issued after the Record Date, either upon transfer
of outstanding shares or original issuance of additional shares of Common Stock,
will contain a legend incorporating the Rights Agreement by reference. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), the
surrender for transfer of any stock certificate for shares of Common Stock, with
or without such legend and whether or not a copy of this Summary of Rights is
attached thereto, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such stock certificate.
As soon as practicable after the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to the
holders of record of the Common Stock as of the Close of Business on the
Distribution Date, which thereafter will constitute the sole evidence of the
Rights. Each share of Common Stock issued by the Company after the Record Date
and prior to the earlier redemption or expiration of the Rights, including any
shares of Common Stock issued by reason of the exercise of any option, warrant,
right (other than the Rights) or conversion or exchange privilege (however
evidenced) issued by the Company prior to the Distribution Date, will be
accompanied by a Right (unless the Board expressly provides to the contrary at
the time of issuance of any such option, warrant, right or privilege), and
Rights Certificates evidencing such Rights will be issued at the same time as
the stock certificates for the associated shares of Common Stock.
The Rights ARE NOT EXERCISABLE until the Distribution Date.
Moreover, the time when the Rights may be exercised is restricted as described
in the next paragraph.
<PAGE>
The Rights will expire on the tenth anniversary of the Record Date (the "Final
Expiration Date"), unless the Final Expiration Date is extended or unless the
Rights are earlier redeemed or exchanged by the Company, in each case as
described below.
EXERCISE OF RIGHTS UNDER CERTAIN CIRCUMSTANCES
In the event that any Person becomes an Acquiring Person,
proper provision will be made so that the registered holder of each Right (other
than Rights Beneficially Owned as described in the next sentence) will
thereafter have the right to receive, upon exercise thereof, the number of
shares of Common Stock which, at the time of the occurrence of such event, will
have a market value equal to two times the then current Exercise Price. After
the first occurrence of either of the events described in the preceding
sentence, all Rights which are, or (under certain circumstances specified in the
Rights Agreement) were, Beneficially Owned by a Restricted Person or specified
transferees therefrom will be or become void. Under no circumstances may a Right
be exercised after the occurrence of either such event unless the Company's
right to redeem the Rights (as described below) has expired.
If, on or after the date on which any Person has become an
Acquiring Person, any of the following transactions occur: (i) the Company
merges into or consolidates with an Interested Stockholder (as hereinafter
defined) or, unless all holders of the Company's outstanding shares of Common
Stock are treated the same, another Person (with limited designated exceptions);
(ii) an Interested Stockholder or, unless all holders of the Company's
outstanding shares of Common Stock are treated the same, another Person (with
limited designated exceptions) merges into the Company and either (A) all or
part of the outstanding shares of Common Stock of the Company are converted into
capital stock or other securities of any other Person (or the Company), cash
and/or other property or (B) such shares remain outstanding, unconverted and
unchanged; or (iii) the Company sells or transfers 50% or more of its
consolidated assets or earning power to an Interested Stockholder (as
hereinafter defined) or, unless all holders of the Company's outstanding shares
of Common Stock are treated the same, another Person (with limited designated
exceptions); proper provision will be made so that the registered holder of each
Right (other than Rights which have become void) will thereafter have the
right (the "Flip-Over Right") to receive, upon exercise thereof, the number of
common shares of the acquiror (or of another Person affiliated therewith) which,
at the time of consummation of such transaction, will have a market value equal
to two times the then current Exercise Price. An "Interested Stockholder" is any
Restricted Person or any Affiliate or Associate of any other Person in which
such Restricted Person has an interest, or any Person acting, directly or
indirectly, on behalf of or in concert with any such Restricted Person.
ADJUSTMENTS TO EXERCISE PRICE AND STOCK PURCHASABLE UPON EXERCISE
The Exercise Price payable, the number and kind of shares of
capital stock issuable upon exercise of the Rights and the number of Rights
outstanding are subject to adjustment from time to time to prevent dilution (i)
in the event of a dividend
<PAGE>
payable in Preferred Shares on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to the holders of
the Preferred Shares of certain options, warrants or rights to subscribe for or
purchase Preferred Shares at a price, or securities convertible into or
exchangeable for Preferred Shares with a conversion or exchange price, less than
the then Fair Market Value of the Preferred Shares or (iii) upon the
distribution to the holders of the Preferred Shares of cash, securities,
evidences of indebtedness or other property (other than a regular quarterly cash
dividend or a dividend payable in Preferred Shares) or options, warrants or
rights (other than those referred to in clause (ii) above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a dividend on the Common Stock
payable in shares of Common Stock or a subdivision, combination or
reclassification of the Common Stock occurring, in any such case, prior to the
Distribution Date.
With certain specified exceptions, no adjustment in the
Exercise Price will be made until the cumulative adjustments required equal at
least 1% of the Exercise Price. The Company is not required to issue fractional
Preferred Shares (other than fractions which are multiples of one one-hundredth
of a Preferred Share), but in lieu thereof the Company would be required to make
a cash payment based on the Fair Market Value of the Preferred Shares on the
trading day immediately preceding the date of exercise.
TERMS OF PREFERRED SHARES
The Preferred Shares receivable upon exercise of the Rights
will not be redeemable. Each Preferred Share will entitle the holder thereof to
receive a preferential quarterly dividend equal to 100 times the aggregate per
share amount of all cash dividends, plus 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends and other distributions
(other than in shares of Common Stock), declared on the Common Stock during such
quarter, adjusted to give effect to any dividend on the Common Stock payable in
shares of Common Stock or any subdivision, combination or reclassification of
the Common Stock (a "Dilution Event"). Each Preferred Share will entitle the
holder thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Company, voting together as a single class with the holders
of the Common Stock and the holders of any other class of capital stock having
general voting rights, adjusted to give effect to any Dilution Event. In the
event of liquidation of the Company, the holder of each Preferred Share will be
entitled to receive a preferential liquidation payment equal to 100 times the
aggregate per share amount to be distributed to the holders of the Common Stock,
adjusted to give effect to any Dilution Event, plus an amount equal to accrued
and unpaid dividends and distributions on such Preferred Share, whether or not
declared, to the date of such payment. In the event of any merger, consolidation
or other transaction in which the outstanding shares of Common Stock of the
Company are exchanged for or converted into other capital stock, securities,
cash and/or other property, each Preferred Share will
<PAGE>
be similarly exchanged or converted into 100 times the per share amount
applicable to the Common Stock, adjusted to give effect to any Dilution Event.
Because of the nature of the dividend, voting, liquidation and
other rights accorded to each Preferred Share, the value of the one
one-hundredth of a Preferred Share receivable upon the exercise of each Right
should approximate the value of one share of Common Stock.
REDEMPTION OF RIGHTS
At any time prior to the earliest of (i) 10 Business Days
after the first public announcement that any Person (other than an Exempt
Person) has become an Acquiring Person, (ii) the occurrence of any transaction
which permits the exercise of the Flip-Over Right and (iii) the Final Expiration
Date, the Board may redeem the Rights in whole, but not in part, at the
redemption price of $.01 per Right, adjusted to give effect to any Dilution
Event (the "Redemption Price"); PROVIDED, HOWEVER, that, under certain
circumstances specified in the Rights Agreement, the Rights may not be redeemed
unless there are Disinterested Directors in office and such redemption is
approved by at least a majority of such Disinterested Directors. The redemption
of the Rights may be made effective at such time, on such basis and with such
conditions as the Board, in its sole discretion, may establish. After the
redemption period has expired, the Company's right of redemption may be
reinstated, under the circumstances specified in the Rights Agreement, which
include the concurrence of at least a majority of the Disinterested Directors,
if either (i) the Person who became an Acquiring Person shall reduce, in one or
a series of related transactions not involving the Company or any Subsidiary or
the occurrence of any transaction which permits the exercise of the Flip-Over
Right, its Beneficial Ownership of the outstanding shares of Common Stock to
less than 10% of such outstanding shares or (ii) in connection with any
transaction which permits the exercise of the Flip-Over Right, which does not
involve an Interested Stockholder and in which all holders of the Common Stock
are treated the same. Immediately after action by the Board directing the
redemption of the Rights, the option to exercise the Rights will terminate, and
thereafter each registered holder of the Rights will only be entitled to receive
the Redemption Price therefor.
EXCHANGE OF RIGHTS
At any time after any Person has become an Acquiring Person
and prior to the time that any Person (other than an Exempt Person), together
with its Affiliates and Associates, has become the Beneficial Owner of 50% or
more of the outstanding shares of Common Stock, the Board may direct that all or
any part of the outstanding Rights (other than Rights which have become void) be
exchanged for shares of Common Stock at the exchange rate of one share of Common
Stock (or one one-hundredth of a Preferred Share or of another share of capital
stock of the Company having equivalent rights, preferences and privileges) per
Right, adjusted to give effect to any Dilution Event.
<PAGE>
AMENDMENT OF THE RIGHTS AND THE RIGHTS AGREEMENT
Prior to the Distribution Date, the terms of the Rights and
the Rights Agreement may be supplemented or amended by the Board in any manner.
From and after the Distribution Date, the Rights may be supplemented or amended
by the Board, without the approval of the holders of the Rights, in certain
respects which do not adversely affect, as determined by the Board (with the
concurrence of at least a majority of the Disinterested Directors), the
interests of such holders; PROVIDED, HOWEVER, that the Rights Agreement cannot
be amended to lengthen (i) any time period unless (A) such lengthening is
approved by at least a majority of the Disinterested Directors and (B) such
lengthening is for the benefit of the holders of the Rights or (ii) any time
period relating to when the Rights may be redeemed if at such time the Rights
are not then redeemable.
MISCELLANEOUS
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
<PAGE>
Exhibit 17
FIRST AMENDMENT TO STOCKHOLDERS RIGHTS AGREEMENT
First Amendment, dated as of December 15, 1998 (the "Amendment"), to
the Stockholders Rights Agreement, dated as of November 1, 1995 (the "Rights
Agreement"), by and between First Commonwealth, Inc., a Delaware corporation
(the "Company"), and First Chicago Trust Company of New York (the "Rights
Agent"). Capitalized terms used in this Agreement shall have the meanings
ascribed to them in the Rights Agreement.
W I T N E S S E T H:
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company
has directed the Rights Agent to amend the Rights Agreement as hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and mutual
agreements hereinafter set forth, the parties hereto agree as follows:
1. Section 1(i) and 1(t) of the Rights Agreement are hereby deleted in
their entirety and remaining Sections 1(j) through 1(nn) are hereby redesignated
as Sections 1(i) through 1(ll).
2. The first sentence of the legend in Section 3(c) of the
<PAGE>
Rights Agreement is hereby amended to insert a comma after "1995" and to insert
the words "as amended" immediately following such comma.
3. Section 11(a)(iii) of the Rights Agreement is hereby amended to read in
its entirety as follows:
"(iii) In the event that there shall not be sufficient authorized and
unissued or treasury shares of Common Stock to permit the exercise in full
of the Rights in accordance with paragraph (ii) of this subsection (a),
the Company shall take all necessary action to authorize and reserve for
issuance such number of additional shares of Common Stock as may from time
to time be required to be issued upon the exercise in full of all
outstanding Rights and, if necessary, shall use its best efforts to obtain
stockholder approval thereof. Notwithstanding the preceding sentence, if
the Board shall determine that such action is necessary or appropriate and
is not contrary to the best interests of the holders of the Rights, the
Board may cause the Company, in lieu of issuing shares of Common Stock in
accordance with such paragraph (ii), to distribute, or if a sufficient
number of shares of Common Stock cannot be issued for such purpose in
accordance with the provisions hereof, the Company shall distribute, upon
the exercise of each Right, cash, debt securities, Preferred Shares, other
shares of Preferred Stock, other property or any combination thereof
having an aggregate Fair Market Value (determined as provided in
subsection (d) of this Section 11) equal to the Fair Market Value (as so
determined) of the number of shares of Common Stock which otherwise would
have been issuable pursuant to such paragraph (ii). Any such decision by
the Board must be made and publicly announced within 30 days after the
occurrence of any Section 11(a)(ii) Event."
4. Section 13(d) of the Rights Agreement is hereby deleted in its
entirety, and Sections 13(e) through 13(h) are hereby redesignated as Sections
13(d) through 13(g).
5. Sections 23(a) and (b) of the Rights Agreement are hereby amended to
read in their entirety as follows:
<PAGE>
" (a) The Board may, at its option, at any time prior to the earliest of
(i) the Close of Business on the 10th Business Day after the Share
Acquisition Date (or, if the Share Acquisition Date shall have occurred
prior to the Record Date, the Close of Business on the 10th Business Day
after the Record Date), (ii) the occurrence of any Section 13 Event and
(iii) the Final Expiration Date, redeem all, but not less than all, of the
then outstanding Rights at a redemption price of $.01 per Right, adjusted
as provided in subsection (g) of this Section 23 (such redemption price
being hereinafter called the "Redemption Price").
(b) In addition to the right of redemption reserved in the first
sentence of subsection (a) of this Section 23, the Board may redeem all,
but not less than all, of the then outstanding Rights at the Redemption
Price after the Share Acquisition Date, but prior to the occurrence of any
Section 13 Event, if either (i) the Person who is an Acquiring Person
shall have transferred or otherwise disposed of (either alone or together
with its Affiliates and Associates) such number of shares of Common Stock
of the Company, in one or a series of related transactions not directly or
indirectly involving the Company or any of its Subsidiaries or the
occurrence of any Section 13 Event, as shall result in such Person
thereafter being a Beneficial Owner of less than 10% of the then
outstanding shares of Common Stock of the Company, and after such transfer
or other disposition there is no other Acquiring Person, or (ii) in
connection with any Section 13 Event which shall not involve an Interested
Stockholder and in which all holders of the Common Stock of the Company
are treated the same."
6. Section 23(d) of the Rights Agreement is hereby amended to strike and
remove the words "and the Disinterested Directors" from the first sentence
thereof.
7. Section 27 of the Rights Agreement is hereby amended in its entirety to
read as follows:
"Section 27. Supplements and Amendments. Prior to the Distribution
Date, but subject to the last sentence of this Section 27, the Company and
the Rights Agent, if so directed in writing by the Company, shall
supplement or amend any term, provision or condition of this Agreement,
without the approval of the registered holders of the stock certificates
representing the Common Stock and the Rights. From and after the
Distribution Date, but subject to the
<PAGE>
last sentence of this Section 27, the Company and the Rights Agent, if so
directed in writing by the Company, shall supplement or amend this
Agreement, without the approval of the registered holders of the Rights
(however represented), in order: (a) to cure any ambiguity, (b) to correct
or supplement any term, provision or condition of this Agreement which may
be defective or inconsistent with any other term, provision or condition
hereof, (c) to shorten or lengthen any time period specified herein or (d)
to change or supplement one or more of the terms, provisions or conditions
hereof in any manner which the Company may deem necessary or desirable and
which shall not adversely affect, as determined by the Board, the
interests of the holders (other than any Restricted Person or the
transferees therefrom specified in Section 7(d) of the Rights (however
represented); provided, however, that this Agreement may not be
supplemented or amended pursuant to clause (c) of this sentence (i) to
lengthen any time period (except as permitted by Section 3(a)(ii)) unless
such lengthening is for the purpose of protecting, enhancing or clarifying
the rights of, and/or the benefits to, the holders (other than any
Restricted Person or the transferees therefrom specified in Section 7(d))
of the Rights or (ii) to lengthen any time period relating to when the
Rights may be redeemed if at such time the Rights are not then redeemable.
Upon the delivery of a certificate from an appropriate officer of the
Company stating that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment; provided, however, that the Rights Agent shall
not be required to execute any supplement or amendment which affects any
of the Rights Agent's rights, powers, obligations, duties or immunities
under this Agreement without its consent. On and after the Distribution
Date, no supplement or amendment shall be made which changes the Exercise
Price, the number of one one-hundredths of a Preferred Share for which a
Right is exercisable, the Redemption Price or the Final Expiration Date.
Prior to the Distribution Date, the interests of the holders of the Rights
shall be deemed coincident with the interests of the holders of the Common
Stock of the Company."
8. Section 29 of the Rights Agreement is hereby amended to strike and
remove the parenthetical phrase "(or, as and when set forth herein, the
Disinterested Directors)" from the second sentence thereof and to strike and
remove the parenthetical phrases "(or the Disinterested Directors)" and
"(including any Disinterested Director)" from the third sentence thereof.
9. Section 31 of the Rights Agreement is hereby amended to
<PAGE>
strike and remove the parenthetical phrase "(with the concurrence of at least a
majority of the Disinterested Directors then in office)" from the proviso
thereof.
10. Exhibit C to the Rights Agreement is amended and restated in its
entirety in the form attached hereto.
11. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware.
12. This Amendment may be executed in any number of counterparts, and each
of such counterparts shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same agreement.
13. Except as specifically provided in this Amendment to the Rights
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 Rights Agreement, all of which are
ratified and affirmed in all respects and shall continue in full force and
effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Rights 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
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By: /s/ Joanne Gorostiola
-----------------------------------
Name: Joanne Gorostiola
Title: Assistant Vice President
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
SHARES OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
On October 20, 1995, the Board of Directors (the "Board") of First
Commonwealth, Inc., a Delaware corporation (the "Company"), declared a dividend
of one preferred stock purchase right (a "Right") for each outstanding share of
Common Stock, $.001 par value (the "Common Stock"), of the Company. The dividend
was paid to holders of record of the Common Stock on November 16, 1995, the
effective date of the Company's initial public offering registration statement,
file no. 33-97426 (the "Record Date"). Each Right entitles the holder thereof
(except as described below) to purchase from the Company one one-hundredth of a
share of the Series A Junior Participating Preferred Stock, $.001 par value (the
"Preferred Shares"), of the Company at a price (the "Exercise Price") of $40.00
per one one-hundredth of a Preferred Share, subject to adjustment. The terms of
the Rights are set forth in the Stockholders Rights Agreement dated as of
November 1, 1995, as amended (the "Rights Agreement") between the Company and
First Chicago Trust Company of New York, as Rights Agent (the "Rights Agent").
Capitalized terms not defined herein have the respective meanings specified in
the Rights Agreement.
Distribution Date; Transfer of Rights
Initially, the Rights associated with the Common Stock outstanding
as of the Record Date will be evidenced solely by the stock certificates for
such Common Stock, with a copy of this Summary of Rights attached thereto. The
Rights will separate from the Common Stock upon the earlier to occur of (i) 10
Business Days after the first public announcement that any Person (other than an
Exempt Person (as hereinafter defined)) has become an Acquiring Person (as
hereinafter defined) and (ii) 10 Business Days (or such other Business Day as
may be determined by action of the Board prior to the time that any Person shall
become an Acquiring Person (as hereinafter defined) after the commencement by
any Person (other than an Exempt Person) of, or the first public announcement of
its intention to commence, a tender or exchange offer if, upon the consummation
thereof, such Person would be the Beneficial Owner of 15% or more of the
outstanding shares of Common Stock (the earlier of the dates specified in
clauses (i) and (ii) being hereinafter called the "Distribution Date"). After
the Distribution Date, the Rights will be evidenced solely by separate
certificates and will trade independently from the Common Stock.
An "Acquiring Person" is any Person who or which, together with its
Affiliates and Associates, has acquired 15% or more of the shares of Common
Stock then outstanding, but does not include (i) the Company, (ii) any
Subsidiary of the
<PAGE>
Company, (iii) any employee benefit plan or other compensation program or
arrangement of the Company or of any such Subsidiary or (iv) any Person holding
shares of Common Stock for or pursuant to the terms of any such plan, program or
arrangement (the Persons specified in clauses (i) through (iv) being herein
collectively called "Exempt Persons"). Notwithstanding the foregoing, if the
Board of Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person," has become so inadvertently, and such
Person divests as promptly as practicable a sufficient number of shares of
Common Stock so that such Person would no longer be an "Acquiring Person," then
such Person shall not be deemed to be an "Acquiring Person."
A "Restricted Person" is an Acquiring Person or any Affiliate or
Associate thereof.
The Rights Agreement provides that, until the Distribution Date (or
the earlier redemption or expiration of the Rights), the Rights may be
transferred only with the associated shares of Common Stock. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), stock
certificates for Common Stock issued after the Record Date, either upon transfer
of outstanding shares or original issuance of additional shares of Common Stock,
will contain a legend incorporating the Rights Agreement by reference. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), the
surrender for transfer of any stock certificate for shares of Common Stock, with
or without such legend and whether or not a copy of this Summary of Rights is
attached thereto, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such stock certificate.
As soon as practicable after the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to the
holders of record of the Common Stock as of the Close of Business on the
Distribution Date, which thereafter will constitute the sole evidence of the
Rights. Each share of Common Stock issued by the Company after the Record Date
and prior to the earlier redemption or expiration of the Rights, including any
shares of Common Stock issued by reason of the exercise of any option, warrant,
right (other than the Rights) or conversion or exchange privilege (however
evidenced) issued by the Company prior to the Distribution Date, will be
accompanied by a Right (unless the Board expressly provides to the contrary at
the time of issuance of any such option, warrant, right or privilege), and
Rights Certificates evidencing such Rights will be issued at the same time as
the stock certificates for the associated shares of Common Stock.
The Rights are not exercisable until the Distribution Date.
Moreover, the time when the Rights may be exercised is restricted as described
in the next paragraph. The Rights will expire on the tenth anniversary of the
Record Date (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Rights are earlier redeemed or exchanged by the Company,
in each case as described below.
<PAGE>
Exercise of Rights Under Certain Circumstances
In the event that any Person becomes an Acquiring Person, proper
provision will be made so that the registered holder of each Right (other than
Rights Beneficially Owned as described in the next sentence) will thereafter
have the right to receive, upon exercise thereof, the number of shares of Common
Stock which, at the time of the occurrence of such event, will have a market
value equal to two times the then current Exercise Price. After the occurrence
of the event described in the preceding sentence, all Rights which are, or
(under certain circumstances specified in the Rights Agreement) were,
Beneficially Owned by a Restricted Person or specified transferees therefrom
will be or become void. Under no circumstances may a Right be exercised after
the occurrence of either such event unless the Company's right to redeem the
Rights (as described below) has expired.
If, on or after the date on which any Person has become an Acquiring
Person, any of the following transactions occur: (i) the Company merges into or
consolidates with an Interested Stockholder (as hereinafter defined) or, unless
all holders of the Company's outstanding shares of Common Stock are treated the
same, another Person (with limited designated exceptions); (ii) an Interested
Stockholder or, unless all holders of the Company's outstanding shares of Common
Stock are treated the same, another Person (with limited designated exceptions)
merges into the Company and either (A) all or part of the outstanding shares of
Common Stock of the Company are converted into capital stock or other securities
of any other Person (or the Company), cash and/or other property or (B) such
shares remain outstanding, unconverted and unchanged; or (iii) the Company sells
or transfers 50% or more of its consolidated assets or earning power to an
Interested Stockholder (as hereinafter defined) or, unless all holders of the
Company's outstanding shares of Common Stock are treated the same, another
Person (with limited designated exceptions); proper provision will be made so
that the registered holder of each Right (other than Rights which have become
void) will thereafter have the right (the "Flip-Over Right") to receive, upon
exercise thereof, the number of common shares of the acquiror (or of another
Person affiliated therewith) which, at the time of consummation of such
transaction, will have a market value equal to two times the then current
Exercise Price. An "Interested Stockholder" is any Restricted Person or any
Affiliate or Associate of any other Person in which such Restricted Person has
an interest, or any Person acting, directly or indirectly, on behalf of or in
concert with any such Restricted Person.
Adjustments to Exercise Price and Stock Purchasable Upon Exercise
The Exercise Price payable, the number and kind of shares of capital
stock issuable upon exercise of the Rights and the number of Rights outstanding
are subject to adjustment from time to time to prevent dilution (i) in the event
of a dividend payable in Preferred Shares on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to the holders of
the Preferred Shares of certain options, warrants or rights to subscribe for or
purchase Preferred Shares at a price, or securities convertible into or
exchangeable for Preferred Shares with a conversion or
<PAGE>
exchange price, less than the then Fair Market Value of the Preferred Shares or
(iii) upon the distribution to the holders of the Preferred Shares of cash,
securities, evidences of indebtedness or other property (other than a regular
quarterly cash dividend or a dividend payable in Preferred Shares) or options,
warrants or rights (other than those referred to in clause (ii) above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a dividend on the Common Stock
payable in shares of Common Stock or a subdivision, combination or
reclassification of the Common Stock occurring, in any such case, prior to the
Distribution Date.
With certain specified exceptions, no adjustment in the Exercise
Price will be made until the cumulative adjustments required equal at least 1%
of the Exercise Price. The Company is not required to issue fractional Preferred
Shares (other than fractions which are multiples of one one-hundredth of a
Preferred Share), but in lieu thereof the Company would be required to make a
cash payment based on the Fair Market Value of the Preferred Shares on the
trading day immediately preceding the date of exercise.
Terms of Preferred Shares
The Preferred Shares receivable upon exercise of the Rights will not
be redeemable. Each Preferred Share will entitle the holder thereof to receive a
preferential quarterly dividend equal to 100 times the aggregate per share
amount of all cash dividends, plus 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends and other distributions (other than
in shares of Common Stock), declared on the Common Stock during such quarter,
adjusted to give effect to any dividend on the Common Stock payable in shares of
Common Stock or any subdivision, combination or reclassification of the Common
Stock (a "Dilution Event"). Each Preferred Share will entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Company, voting together as a single class with the holders of the Common Stock
and the holders of any other class of capital stock having general voting
rights, adjusted to give effect to any Dilution Event. In the event of
liquidation of the Company, the holder of each Preferred Share will be entitled
to receive a preferential liquidation payment equal to 100 times the aggregate
per share amount to be distributed to the holders of the Common Stock, adjusted
to give effect to any Dilution Event, plus an amount equal to accrued and unpaid
dividends and distributions on such Preferred Share, whether or not declared, to
the date of such payment. In the event of any merger, consolidation or other
transaction in which the outstanding shares of Common Stock of the Company are
exchanged for or converted into other capital stock, securities, cash and/or
other property, each Preferred Share will be similarly exchanged or converted
into 100 times the per share amount applicable to the Common Stock, adjusted to
give effect to any Dilution Event.
Because of the nature of the dividend, voting, liquidation and other
rights
<PAGE>
accorded to each Preferred Share, the value of the one one-hundredth of a
Preferred Share receivable upon the exercise of each Right should approximate
the value of one share of Common Stock.
Redemption of Rights
At any time prior to the earliest of (i) 10 Business Days after the
first public announcement that any Person (other than an Exempt Person) has
become an Acquiring Person, (ii) the occurrence of any transaction which permits
the exercise of the Flip-Over Right and (iii) the Final Expiration Date, the
Board may redeem the Rights in whole, but not in part, at the redemption price
of $.01 per Right, adjusted to give effect to any Dilution Event (the
"Redemption Price"). The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Board, in its sole
discretion, may establish. After the redemption period has expired, the
Company's right of redemption may be reinstated, under the circumstances
specified in the Rights Agreement, if either (i) the Person who became an
Acquiring Person shall reduce, in one or a series of related transactions not
involving the Company or any Subsidiary or the occurrence of any transaction
which permits the exercise of the Flip-Over Right, its Beneficial Ownership of
the outstanding shares of Common Stock to less than 10% of such outstanding
shares or (ii) in connection with any transaction which permits the exercise of
the Flip-Over Right, which does not involve an Interested Stockholder and in
which all holders of the Common Stock are treated the same. Immediately after
action by the Board directing the redemption of the Rights, the option to
exercise the Rights will terminate, and thereafter each registered holder of the
Rights will only be entitled to receive the Redemption Price therefor.
Exchange of Rights
At any time after any Person has become an Acquiring Person and
prior to the time that any Person (other than an Exempt Person), together with
its Affiliates and Associates, has become the Beneficial Owner of 50% or more of
the outstanding shares of Common Stock, the Board may direct that all or any
part of the outstanding Rights (other than Rights which have become void) be
exchanged for shares of Common Stock at the exchange rate of one share of Common
Stock (or one one-hundredth of a Preferred Share or of another share of capital
stock of the Company having equivalent rights, preferences and privileges) per
Right, adjusted to give effect to any Dilution Event.
Amendment of the Rights and the Rights Agreement
Prior to the Distribution Date, the terms of the Rights and the
Rights Agreement may be supplemented or amended by the Board in any manner. From
and after the Distribution Date, the Rights may be supplemented or amended by
the Board, without the approval of the holders of the Rights, in certain
respects which do not adversely affect, as determined by the Board, the
interests of such holders; provided, however, that the Rights Agreement cannot
be amended to lengthen (i) any time period
<PAGE>
unless such lengthening is for the benefit of the holders of the Rights or (ii)
any time period relating to when the Rights may be redeemed if at such time the
Rights are not then redeemable.
Miscellaneous
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
<PAGE>
Exhibit 18
SECOND AMENDMENT TO RIGHTS AGREEMENT
Second Amendment, dated as of May 19, 1999 (the "Amendment"), to the
Rights Agreement, dated as of November 1, 1995, as amended by the First
Amendment to the Rights Agreement, dated December 15, 1998 (as amended, the
"Rights Agreement"), by and between First Commonwealth, Inc., a Delaware
corporation (the "Company"), and First Chicago Trust Company of New York (the
"Rights Agent"). Capitalized terms used in this Agreement shall have the
meanings ascribed to them in the Rights Agreement.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has approved an
Agreement and Plan of Merger (the "Merger Agreement"), dated May 19, 1999 among
the Company, The Guardian Life Insurance Company of America, a New York
corporation ("Parent"), and Floss Acquisition Corp., a Delaware corporation
("Sub") and wholly owned subsidiary of Parent;
WHEREAS, the Board of Directors desires to amend the Rights
Agreement to provide that Parent and Sub shall not be deemed to be Acquiring
Persons under the Rights Agreement;
WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company
has directed the Rights Agent to amend the Rights Agreement as hereinafter set
forth;
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
1. Section 1(a) of the Rights Agreement is hereby amended by inserting the
following at the end of Section 1(a):
Notwithstanding anything in this Agreement to the contrary, neither The
Guardian Life Insurance Company of America, a New York corporation
("Parent"), nor any of its Affiliates or Associates, including but not
limited to, Floss Acquisition Corp., a Delaware corporation ("Sub") and
wholly owned subsidiary of Parent, is or shall be deemed to be an
Acquiring Person as a result of (i) the execution and delivery of the
Agreement and Plan of Merger (the "Merger Agreement"), dated May 19, 1999
between the Company, Parent and Sub, or (ii) any action taken by Parent,
Sub or any of their Affiliates, Associates or shareholders in accordance
with the provisions of the Merger Agreement, including, without
limitation, the initiation or consummation of the Offer (as such term is
defined in the Merger Agreement) or the consummation of the Merger (as
such term is defined in the Merger Agreement) in accordance with the
provisions of the Merger Agreement. Notwithstanding the foregoing, upon
termination of the Merger Agreement in accordance with its terms, the
preceding sentence shall become null and void and of no further force or
effect.
2. Section 1(i) of the Rights Agreement is hereby amended by inserting the
following at the end of Section 1(i):
Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Distribution Date shall not occur by reason of the execution
of the Merger Agreement, the announcement of the Offer, the consummation
of the Offer, the consummation of the Merger, or any other transaction
contemplated by the Merger Agreement.
3. Section 1(cc) of the Rights Agreement is hereby amended by inserting
the following at the end of Section 1(cc):
<PAGE>
Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Section 11(a)(ii) Event shall not occur by reason of the
execution of the Merger Agreement, the announcement of the Offer, the
consummation of the Offer, the consummation of the Merger, or any other
transaction contemplated by the Merger Agreement. Notwithstanding the
foregoing, upon termination of the Merger Agreement in accordance with its
terms, the preceding sentence shall become null and void and of no further
force or effect.
4. Section 1(dd) of the Rights Agreement is hereby amended by inserting
the following at the end of Section 1(dd):
Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Section 13 Event shall not occur by reason of the execution
of the Merger Agreement, the announcement of the Offer, the consummation
of the Offer, the consummation of the Merger, or any other transaction
contemplated by the Merger Agreement. Notwithstanding the foregoing, upon
termination of the Merger Agreement in accordance with its terms, the
preceding sentence shall become null and void and of no further force or
effect.
5. Section 1(gg) of the Rights Agreement is hereby amended by inserting
the following at the end of Section 1(gg):
Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Share Acquisition Date shall not occur by reason of the
execution of the Merger Agreement, the announcement of the Offer, the
consummation of the Offer, the consummation of the Merger, or any other
transaction contemplated by the Merger Agreement. Notwithstanding the
foregoing, upon termination of the Merger Agreement in accordance with its
terms, the preceding sentence shall become null and void and of no further
force or effect.
6. Section 1(ll) of the Rights Agreement is hereby amended by inserting
the following at the end of Section 1(ll):
Notwithstanding the foregoing or any provision to the contrary in this
Agreement, a Triggering Event shall not occur by reason of the execution
of the Merger Agreement,
<PAGE>
the announcement of the Offer, the consummation of the Offer, the
consummation of the Merger, or any other transaction contemplated by the
Merger Agreement. Notwithstanding the foregoing, upon termination of the
Merger Agreement in accordance with its terms, the preceding sentence
shall become null and void and of no further force or effect.
7. This Amendment shall be governed by and construed in accordance with
the laws of the State of Delaware.
8. This Amendment may be executed in any number of counterparts, and each
of such counterparts shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same agreement.
9. The term "Agreement" as used in the Agreement shall be deemed to refer
to the Agreement as amended hereby, and all references to the Agreement shall be
deemed to include this Amendment. Except as specifically provided in this
Amendment to the Rights 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 Rights
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
the Rights 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
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By: /s/ Joanne Gorostiola
-----------------------------------
Name: Joanne Gorostiola
Title: Assistant Vice President
<PAGE>
EXHIBIT 19
[LOGO]
FIRST COMMONWEALTH, INC.
444 NORTH WELLS STREET, SUITE 600
CHICAGO, ILLINOIS 60610
(312) 644-1800
May 25, 1999
Dear Fellow Stockholder:
We are pleased to inform you that First Commonwealth, Inc., a Delaware
corporation ("First Commonwealth"), has entered into a merger agreement with The
Guardian Life Insurance Company of America, a New York corporation ("Guardian"),
pursuant to which Guardian has agreed to acquire First Commonwealth. Under the
terms of the merger agreement, Floss Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Guardian, today commenced a tender offer for
all of the outstanding shares of First Commonwealth's Common Stock, $.001 par
value per share, together with the associated preferred stock purchase rights
(collectively, the "Shares"), at $25.00 per Share net to the seller in cash,
without interest. Under the merger agreement, the consummation of the tender
offer will be followed by a merger of Floss Acquisition Corp. and First
Commonwealth in which non-tendering stockholders will receive $25.00 per Share
in cash and First Commonwealth will become a wholly owned subsidiary of
Guardian.
The Board of Directors of First Commonwealth has unanimously determined that
the merger is advisable and that the terms of the tender offer and the merger
are fair to and in the best interests of First Commonwealth and the stockholders
of First Commonwealth and have approved the tender offer, the merger and the
merger agreement. Accordingly, your Board of Directors recommends that all of
the stockholders of First Commonwealth accept the tender offer and tender all of
their Shares and approve the merger agreement and the merger.
In arriving at its decision, the Board of Directors considered a number of
factors, including the opinion of William Blair & Company, L.L.C., First
Commonwealth's financial advisor, that the consideration to be received by the
stockholders in the tender offer and the merger is fair to the stockholders from
a financial point of view.
Enclosed with this letter are Floss Acquisition Corp.'s Offer to Purchase,
dated May 25, 1999, and other related documents. These documents set forth the
terms and conditions of the tender offer. Also enclosed with this letter is a
copy of First Commonwealth's Solicitation/Recommendation Statement on Schedule
14D-9, which contains information regarding the factors considered by the Board
of Directors in its deliberations, a copy of the opinion of William Blair &
Company, certain other information regarding the tender offer and the merger,
and a copy of an Information Statement pursuant to Rule 14f-1 under the
Securities Exchange Act of 1934, as amended. We urge you to read the enclosed
materials carefully.
We and the other members of the Board of Directors, management and employees
of First Commonwealth wish to thank you for your loyal support through the
years.
Very truly yours,
/s/ Christopher C. Multhauf /s/ David W. Mulligan
Christopher C. Multhauf David W. Mulligan
PRESIDENT AND CHIEF OPERATING OFFICER CHAIRMAN AND CHIEF EXECUTIVE OFFICER
