-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FZANCtZdGEC/OOwKNcTrXDL6IO2+tMi8TA9ZNknCB8oPYQyjjwOCUQzbzrkeoDL7 iXZyaN5lycHqkmWLkCD1Xw== 0000950131-99-003201.txt : 19990518 0000950131-99-003201.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950131-99-003201 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMONWEALTH INC CENTRAL INDEX KEY: 0001001493 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 752154228 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27064 FILM NUMBER: 99625698 BUSINESS ADDRESS: STREET 1: 444 NORTH WELLS ST STREET 2: STE 600 CITY: CHICAGO STATE: IL ZIP: 60610 BUSINESS PHONE: 3126441800 MAIL ADDRESS: STREET 1: 444 NORTH WELLS ST STREET 2: STE 600 CITY: CHICAGO STATE: IL ZIP: 60610 10-Q 1 FORM 10-Q ---------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 0-27064 FIRST COMMONWEALTH, INC. (Exact name of registrant as specified in its charter) Delaware 75-2154228 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 444 North Wells Street, Suite 600, Chicago, IL 60610 (Address of principal executive offices) (312) 644-1800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Common Stock, par value $.001 per share, outstanding as of April 30, 1999: 3,730,135 shares ---------------------------------------------- First Commonwealth, Inc. Form 10-Q For the quarter ended March 31, 1999 INDEX PART I. FINANCIAL INFORMATION -----------------------------
Page ---- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998......................................... 3 Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 1999 and 1998............ 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998.......................... 6 Reconciliations of Net Income to Net Cash Provided by Operating Activities for the three months ended March 31, 1999 and 1998....................................... 7 Notes to Consolidated Financial Statements.................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 9 PART II. OTHER INFORMATION ---------------------------- Item 6. Exhibits and Reports on Form 8-K.............................. 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.... 13 SIGNATURES.............................................................. 14
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this Form 10-Q under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, increased competition in the markets in which the Company operates; changes in regulation affecting the Company; changes in the utilization of services; changes in arrangements relating to payments to providers; the level of the Company's indemnity enrollment and the related indemnity risk of indemnity plans; the ability to integrate and successfully operate acquired businesses and the risks associated with such businesses; the possible need for, and ability to obtain if needed, financing on acceptable terms to finance the Company's growth strategy; the ability of the Company to operate within the limitations imposed by any such financing arrangements; and other factors referenced or incorporated by reference in this Form 10-Q. 2 PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Financial Statements
First Commonwealth, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS - ----------------------------------------- (Dollars in Thousands) ASSETS March 31, 1999 December 31, 1998 - ------ -------------- ----------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $10,388 $ 6,189 Short-term investments 7,510 4,824 Accounts receivable, net of allowance of $414 at March 31, 1999 and $410 at December 31, 1998 3,683 4,942 Other receivables 471 579 Deposit under reinsurance agreement 2 2 Prepaid expenses 2,145 2,734 Deferred tax asset 1,390 982 ------- ------- Total current assets 25,589 20,252 ------- ------- PROPERTY AND EQUIPMENT, at cost 5,014 4,778 Less - Accumulated depreciation (3,238) (3,034) ------- ------- Property and equipment, net 1,776 1,744 ------- ------- OTHER ASSETS: Investments 771 3,076 Restricted cash equivalents and government securities on deposit, at market 2,502 2,967 Deposits and other 36 38 Intangible assets, net 9,933 9,999 ------- ------- Total other assets 13,242 16,080 ------- ------- TOTAL ASSETS $40,607 $38,076 ======= =======
The accompanying notes are an integral part of these financial statements. 3
First Commonwealth, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS - continued - ------------------------------------------------------------------ (Dollars in Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY March 31, 1999 December 31, 1998 -------------- ----------------- (Unaudited) CURRENT LIABILITIES: Accounts payable - trade $ 256 $ 155 Accounts payable - dental service providers 1,138 1,131 Claims liability 1,919 1,669 Accrued payroll and related costs 935 1,129 Other accrued expenses 697 812 Deferred subscriber revenue 5,272 5,089 Payable under reinsurance agreement 60 87 Income taxes payable 1,119 109 Other current liabilities 0 0 ------- ------- Total current liabilities 11,396 10,181 DEFERRED TAX LIABILITY - long-term 196 176 ------- ------- Total liabilities 11,592 10,357 ------- ------- STOCKHOLDERS' EQUITY: Common stock ($.001 par value; 15,000,000 shares authorized, 3,727,900 shares at March 31, 1999 and 3,684,525 shares at December 31, 1998 issued and outstanding) 4 4 Capital in excess of par value 13,418 13,353 Retained earnings 15,284 14,072 Less 735 shares of common stock at March 31, 1999 and at December 31,1998 held in treasury, at cost (16) (16) Accumulated other comprehensive income 325 306 ------- ------- Total stockholders' equity 29,015 27,719 ------- ------- Total liabilities and stockholders' equity $40,607 $38,076 ======= =======
The accompanying notes are an integral part of these financial statements. 4 First Commonwealth, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME - ------------------------------------------------------------------- (Dollars in Thousands, except per share data)(Unaudited)
For the three months ended: ------------------------------ March 31, 1999 March 31, 1998 -------------- -------------- SUBSCRIBER REVENUE Managed Care $12,188 $11,686 Indemnity/PPO 4,231 3,649 Fee Income 319 280 ------- ------- Total Subscriber Revenue 16,738 15,615 ------- ------- BENEFIT COVERAGE EXPENSES Managed Care 7,241 7,337 Indemnity/PPO 3,596 3,113 Fee Income -- -- ------- ------- Total Benefit Coverage Expenses 10,837 10,450 ------- ------- GROSS MARGIN Managed Care 4,947 4,349 Indemnity/PPO 635 536 Fee Income 319 280 ------- ------- Total Gross Margin 5,901 5,165 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 4,136 3,772 ------- ------- Operating income 1,765 1,393 INTEREST INCOME, net 182 144 ------- ------- Income before income taxes 1,947 1,537 PROVISION FOR INCOME TAXES 735 624 ------- ------- NET INCOME $ 1,212 $ 913 ------- ------- COMPREHENSIVE INCOME, net of tax: UNREALIZED GAINS ON SECURITIES: Unrealized holding gains arising during period, net of taxes of $10 16 -- STOCK OPTION EXPENSE, recognized only for tax purposes -- 183 ------- ------- Other comprehensive income 16 183 ------- ------- COMPREHENSIVE INCOME $ 1,228 $ 1,096 ======= ======= BASIC EARNINGS PER SHARE $0.33 $0.25 DILUTED EARNINGS PER SHARE $0.32 $0.24
The accompanying notes are an integral part of these financial statements. 5 First Commonwealth, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- (Dollars in Thousands)(Unaudited)
For the three months ended: -------------------------------- March 31, 1999 March 31, 1998 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from subscribers $18,310 $15,787 Cash paid to providers of care (6,505) (6,797) Cash paid to employees, brokers and suppliers (3,812) (3,448) Claims paid (3,393) (3,098) Interest paid 0 0 Interest received 212 94 Income taxes paid (112) (181) Cash transferred from (to) restricted funds 50 0 ------- ------- Net cash provided by operating activities 4,750 2,357 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (236) (151) Purchase of short-term investments (2,677) 0 Proceeds from long-term investments 2,297 0 Acquisition related cost 0 0 ------- ------- Net cash used in investing activities (616) (151) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 65 14 Principal payments on capital leases 0 0 Purchase of treasury stock 0 (1) Payments of preferred dividends 0 0 ----- ----- Net cash provided (used) in financing activities 65 13 ----- ----- Net change in cash and cash equivalents 4,199 2,219 CASH AND CASH EQUIVALENTS, beginning of period 6,189 9,047 ------ ------- CASH AND CASH EQUIVALENTS, end of period $10,388 $11,266 ======= =======
The accompanying notes are an integral part of these financial statements. 6 First Commonwealth, Inc. and Subsidiaries RECONCILIATIONS OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES - -------------------------------------------------------------------------------- (Dollars in Thousands)(Unaudited)
For the three months ended: ------------------------------ March 31, 1999 March 31, 1998 -------------- -------------- Net income $ 1,212 $ 913 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 270 235 (Increase) decrease in assets: Accounts receivable, net 1,259 (368) Other receivables 108 (31) Deposit under reinsurance agreement 0 0 Prepaid expenses 589 155 Deferred tax asset (408) (120) Restricted cash equivalents and government securities 465 (5) Deposits and other 3 14 Increase (decrease) in current liabilities: Accounts payable - trade 101 (9) Accounts payable - dental service providers 7 287 Claims liability 250 53 Accrued payroll and related costs (194) 159 Other accrued expenses (115) 104 Deferred subscriber revenue 183 408 Payable under reinsurance agreement (27) 0 Income taxes payable 1,027 413 Increase in long-term liabilities: Long-term deferred tax liability 20 149 ------- ------- Net cash provided by operating activities $ 4,750 $ 2,357 ======= =======
The accompanying notes are an integral part of these financial statements. 7 FIRST COMMONWEALTH, INC. Notes to Consolidated Financial Statements March 31, 1999 1. Interim Financial Statements The accompanying consolidated financial statements include the accounts of First Commonwealth, Inc., together with its subsidiaries and an affiliate (collectively, the "Company"). All material intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain notes and other information normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the interim financial statements presented in this quarterly report on Form 10-Q in accordance with such rules and regulations. In the opinion of the Company's management, the accompanying consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position of the Company as of March 31, 1999, and the results of its operations and cash flows for the periods indicated. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the Company's financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 2. Earnings Per Share Under SFAS No. 128, primary earnings per share is replaced by "Basic" earnings per share ("EPS"), which excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. "Diluted" EPS, which is computed similarly to fully diluted EPS, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The following table reconciles the numerators (Net Income) and denominators (Shares) of the basic and diluted earnings per share computations.
Three Months Ended Three Months Ended March 31, 1999 EPS March 31, 1998 EPS -------------- -------------- Net Income $1,212,000 $ 913,000 ========== ========== Basic Shares/EPS 3,723,881 $0.33 3,638,953 $0.25 ===== ===== Effect of dilutive common stock options 46,946 98,357 ---------- ---------- Diluted Shares/EPS 3,770,827 $0.32 3,737,310 $0.24 ========== ===== ========== =====
8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following discussion should be read in conjunction with the attached consolidated financial statements and notes thereto. Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Total subscriber revenue increased by $1.1 million, or 7.2%, to $16.7 million in the three months ended March 31, 1999 from $15.6 million in the three months ended March 31, 1998. The $1.1 million increase was partially attributable to increased enrollment in the Company's indemnity/PPO dental plans, as well as price increases that went into effect in 1999. Managed care revenue increased $502,000, or 4.3% to $12.2 million in the three months ended March 31, 1999 from $11.7 million in the same period in 1998, primarily due to price increases. During the quarter ending March 31, 1999, approximately 30,000 members transferred out of a managed care product, which was at a relatively low per member per month charge, into a fee income product. Indemnity/PPO revenue increased $582,000 to $4.2 million in 1999 from $3.6 million in 1998, primarily as a result of adding new indemnity/PPO plan members and price increases. Total gross margin increased by $736,000, or 14.2%, to $5.9 million in the three months ended March 31, 1999 from $5.2 million in the three months ended March 31, 1998. Total gross margin as a percentage of revenue was 35.3% in 1999 as compared to 33.1% in 1998. This percentage increase was the result of improved gross margins on both the managed care and indemnity/PPO lines of business. Managed care gross margin as a percentage of managed care revenue was 40.6% in 1999 as compared to 37.2% in 1998. The improved managed care gross margin percentage was the result of the completion of transitioning the Company's Illinois membership to the new higher gross margin "template plan" line of products; the transfer of approximately 30,000 low gross margin members, mentioned above, out of a managed care product to a fee income product; transitioning lower gross margin business acquired in Missouri to the Company's higher gross margin standard products; and price increases. The Company expects the managed care gross margin percentage to remain fairly consistent with the current level throughout the balance of 1999. The level of indemnity/PPO gross margin as a percentage of indemnity/PPO revenue increased to 15.0% in 1999 from 14.7% in 1998. This increase in indemnity/PPO gross margin percentage is mainly the result of an increase in pricing under the Company's indemnity/PPO contracts. The Company expects the indemnity/PPO gross margin percentage to remain fairly consistent with the current level throughout the balance of 1999. In addition, overall gross margin percentages will vary if the mix of the Company's managed care and indemnity/PPO business changes from current levels. SG&A expenses increased by $364,000, or 9.7%, to $4.1 million for the three months ended March 31, 1999 from $3.8 million in the three months ended March 31, 1998. As a percentage of revenue, SG&A expenses increased to 24.7% for 1998 from 24.2% for 1997. This increase is attributable to new staffing hires, primarily in sales and marketing, salary adjustments, and the phase-in of premium taxes that were effective July 1, 1998. The Company expects SG&A as a percent of revenue to remain relatively constant in 1999 and management expects it to decline thereafter, as the Company continues to achieve economies of scale and operating efficiencies. Included in the SG&A total is $66,000, for the three months ended in March 31, 1999 and 1998, for the amortization of goodwill associated with the acquisitions. Operating income increased by $372,000, or 26.7%, to $1.8 million for the three months ended March 31, 1999 from $1.4 million in the three months ended March 31, 1998. As a percentage of revenue, 9 operating income was 10.5% in 1999 and 8.9% in 1998. The Company expects its operating income percentage to remain relatively constant throughout 1999. The effective tax rate for the three months ended March 31, 1999 was 37.8% compared to 40.6% for the three months ended March 31, 1998. The decline in effective tax rate is primarily due to the purchase of federally tax exempt municipal bonds purchased during the second half 1998 as well as the purchase of United States Treasury Notes and Bills which are exempt from state tax. The Company expects to continue to hold and/or purchase federally tax exempt municipal bonds throughout 1999. Net income increased by $299,000, or 32.8%, to $1.2 million for the three months ended March 31, 1999 from $913,000 for the three months ended March 31, 1998. Diluted earnings per share was $0.33 and $0.25 for the three months ended March 31, 1998 and 1997, respectively. Year 2000 Disclosure Many existing computer systems and applications abbreviate dates using only two digits ("98") rather than four digits ("1998"). If not corrected, this shortcut may cause problems when the century date "2000" occurs. On that date, some computer operating systems and applications and embedded technology may recognize the date as January 1, 1900 instead of January 1, 2000. If the Company fails to correct any critical Year 2000 processing problems prior to January 1, 2000, the affected systems may either cease to function or produce erroneous data, which could have material adverse operational and financial consequences. Currently, the Company believes that the major risks associated with the inability of systems and software to process Year 2000 data correctly include a disruption in the operation of its core enterprise systems, telephony systems, accounting and financial systems, and desktop and support systems. A failure of such systems could materially and adversely affect the Company's results of operations, financial position and cash flows. Throughout 1998 the Company had been actively working on its plan to address year 2000 compliance. The plan consists of three phases. Phase 1, which involved the assessment of the Company's internal systems, is completed. The Company has found as a result of the assessment process that its core enterprise systems have always contained the ability to store and process the full four- digit year. Although this capability exists, several functional points of the system have not fully utilized the capability. Phase 1 included the identification of core business areas and processes, analysis of systems and hardware supporting the core business areas and the prioritization of renovation or replacement of systems and hardware that are not Year 2000 compliant. Included in the assessment phase is an analysis of risk management factors such as contingency plans and legal matters. The internal systems assessment process of Phase 1 categorized internal systems into 4 functional areas: (1) Core Enterprise System, (2) Telephony Systems, (3) Accounting and Financial Systems, and (4) Desktop and Support Systems. The Core Enterprise System includes computer systems that support key business functions such as billing, finance, customer service, and network provider payments. Within each of these areas it has been determined that the main suppliers of the systems utilized by the Company are able to provide year 2000 compliant releases. The acquisition of the available releases will be accomplished either through existing support arrangements or through the purchase of upgraded products. A fifth area that required additional investigation was the assessment of the Company's major third party relationships outside of the information technology arena. 10 Phase 2, scheduled for completion by July 1999, consists of the conversion or replacement of selected platforms, applications, databases and utilities. Phase 3, scheduled for the second and third quarters of 1999, includes the testing, verifying and validating the renovated or replaced platforms, applications, databases and utilities. The Company's current schedule is subject to change depending on developments that may arise through unforeseen circumstances, and through execution of the Company's compliance efforts. The Company is dependent on its vendors for compliant hardware, systems and applications and upgrades by experts, both internal and external, and the availability of critical resources with the requisite skill sets. The Company's ability to meet its target dates is dependent upon the timely provision of necessary upgrades and modifications by its suppliers and internal resources. In addition, the Company cannot guarantee that third parties on whom it depends for essential services (such as utilities, telecommunications operators, etc.) will convert their critical systems and processes in a timely manner. Failure or delay by any of these parties could significantly disrupt the Company's business. The Company's contingency plans will address mechanisms for preventing or mitigating interruption caused by such third parties. The Company believes that it will cost approximately $80,000 to upgrade and verify all critical areas identified. This cost includes the purchase of required software and hardware as well as outside contracting services. The Company has already secured the necessary resources for the remainder of 1999. Based on the Company's current schedule for completion of Year 2000 tasks, the Company believes that its planning is adequate to secure Year 2000 readiness of its critical systems. Nevertheless, management cannot provide assurance that its plans to achieve Year 2000 compliance will be successful or that the cost of its efforts will not differ materially from estimates, as each is subject to various risks and uncertainties, many of which are described above. Accordingly, the Company's goal is to develop business continuity and contingency plans in 1999 to address high-risk areas as they are identified. These plans are expected to assess the potential for business disruption in various scenarios, and to provide for key operational back-up, recovery and restoration alternatives. However, if the Company, or third parties with whom it has significant business relationships, fails to achieve Year 2000 readiness with respect to critical systems, there could be a material adverse affect on the Company's results of operations, financial position and cash flows. The Company's Year 2000 most reasonably likely worst case scenario may involve interruption of data processing services and telecommunications services and/or interruption of customer billing, operating and other information systems. As part of its Year 2000 initiative, the Company is evaluating these worst-case scenarios and is in the process of developing contingency and business plans tailored for Year 2000-related occurrences. The contingency and business contingency plans are expected to assess the potential for business disruption in various scenarios, and to provide key operational back-up, recovery and restorational alternatives. The Company's contingency plan initiatives include the following: personnel to be on call during the Year 2000 change to monitor critical systems, telecommunications and other processes and to react promptly to facilitate repairs; back-up plans in the event of failure of information or telecommunications systems or other Year 2000 disruptions; identification of alternate suppliers and implementation of plans to be in place for third-party products/services that fail to meet Year 2000 compliance commitment schedules; and data retention and recovery procedures to be in place for customer and critical business data to provide backups with on-site as well as off-site data copies. The Company anticipates having these contingency plans in place before December 31, 1999. 11 The above information, which contains statements that are "forward-looking" within the meaning of the Private Securities Litigation Reform Act of 1995, is based on the Company's current best estimates, which were derived using numerous assumptions of future events, including the availability and future costs of certain technological and other resources, third party modification actions and other factors. Given the complexity of these issues and the possibility of unidentified risks, actual results may vary materially from those anticipated and discussed above. Specific factors that might cause such differences include, among others, the availability and cost of personnel trained in this area, the ability to locate and correct all affected computer codes, the timing and success of remedial efforts of third party suppliers and similar uncertainties. Liquidity and Capital Resources The Company's operating cash requirements for the three months ended March 31, 1999 have been met principally through operating cash flows. The primary uses of cash have been for operating activities and capital investments in the business. The Company believes that cash generated from operations will be adequate to finance its anticipated operating needs for the foreseeable future. Cash flows from operating activities were $4.7 million and $2.4 million for the three months ended March 31, 1999, and 1998, respectively. The Company primarily receives premium payments in advance of disbursing managed care dentist capitation payments and indemnity claims payments. Cash balances in excess of current needs are invested in interest-bearing accounts or cash equivalents. Cash flows from operations consist primarily of subscriber premiums and investment income net of capitation payments to network dentists, claims paid, brokers' commissions, general and administrative expenses and income taxes. Cash used in investing activities was $616,000 and $151,000 for the three months ended March 31, 1999 and 1998, respectively. The first three months of 1999 includes a net of $380,000 used to purchase short term investment grade securities (securities which mature between 3 months and 12 months). Capital expenditures were $236,000 for the three months ended March 31, 1999 for computer hardware, software enhancements, and furniture, and $151,000 for the three months ended March 31, 1998 for computer software enhancements. As of March 31, 1999, the Company had cash and cash equivalents of $10.4 million, short-term investments of $7.5 million, long term investments of $0.8 million, restricted cash of $2.5 million, and no long term debt outstanding. In addition, the Company has a committed unsecured line of credit (the "Credit Agreement") available which expires June 30, 1999, and to date has not been executed and utilized. Upon execution of this Credit Agreement, the Company may borrow up to $5 million at the rate of LIBOR plus one-half percent. To the extent the Company makes acquisitions, a portion of the purchase price may be financed through borrowings. Under applicable insurance laws of the states in which the Company conducts business, the Company's subsidiaries operating in the particular state are required to maintain a minimum level of net worth and reserves. The Company may be required from time to time to invest funds in one or more of its subsidiaries to meet regulatory requirements, or to expand its operations into new geographic areas. In addition, applicable laws generally limit the ability of the Company's subsidiaries to pay dividends to the extent that required regulatory capital or surplus would be impaired. Impact of Inflation The Company does not believe the impact of inflation has significantly affected the Company's operations. 12 PART II. OTHER INFORMATION -------------------------- Item 6. Exhibits and Reports on Forms 8-K (a) Exhibits: Exhibit No. Description ----------- ----------- 10.1 Amended and Restated Employment Agreement between the Company and Christopher C. Multhauf dated as of February 12, 1999 10.2 Amended and Restated Employment Agreement between the Company and David W. Mulligan dated as of February 12, 1999 10.3 Amendment to Employment Agreement between the Company and Gregory D. Stobbe dated as of February 12, 1999 10.4 Amendment to Employment Agreement between the Company and Mark R. Lundberg dated as of February 12, 1999 10.5 Amendment to Employment Agreement between the Company and Scott B. Sanders dated as of February 12, 1999 11 Statement Regarding Computation of Earnings Per Share (Included as Note 2 in Notes to Consolidated Financial Statements filed herewith) 27 Financial Data Schedule (b) Reports on Form 8-K filed during the quarter ended March 31, 1999: None Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Company has determined that its market risk exposures, which arise primarily from exposures to fluctuations in interest rates, are not material to its future earnings, fair value and cash flows. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. FIRST COMMONWEALTH, INC. (Registrant) Date: May 17, 1999 By: /s/ Christopher C. Multhauf ----------------------------------- Christopher C. Multhauf Chairman and Chief Executive Officer Date: May 17, 1999 By: /s/ David W. Mulligan ----------------------------------- David W. Mulligan President, Secretary and Chief Operating Officer Date: May 17, 1999 By: /s/ Scott B. Sanders ----------------------------------- Scott B. Sanders Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) 14 EXHIBIT INDEX ------------- Exhibit No. Description - ----------- ----------- 10.1 Amended and Restated Employment Agreement between the Company and Christopher C. Multhauf dated as of February 12, 1999 10.2 Amended and Restated Employment Agreement between the Company and David W. Mulligan dated as of February 12, 1999 10.3 Amendment to Employment Agreement between the Company and Gregory D. Stobbe dated as of February 12, 1999 10.4 Amendment to Employment Agreement between the Company and Mark R. Lundberg dated as of February 12, 1999 10.5 Amendment to Employment Agreement between the Company and Scott B. Sanders dated as of February 12, 1999 11 Statement Regarding Computation of Earnings Per Share (Included as Note 2 in Notes to Consolidated Financial Statements filed herewith) 27 Financial Data Schedule EX-10.1 2 AMENDED C. MULTHAUF EMPLOYMENT AGREEMENT Exhibit 10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT Amended and Restated Employment Agreement dated as of February 12, 1999 between Christopher C. Multhauf ("Executive") and First Commonwealth, Inc., a Delaware corporation (the "Company"), with its principal office at Suite 600, 444 North Wells Street, Chicago, Illinois 60610. WHEREAS, the Company and Employee are parties to an Employment Agreement dated September 21, 1995; and WHEREAS, the Company and Employee desire to amend and restate such Employment Agreement on the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the agreements and covenants contained herein, Executive and the Company hereby agree as follows: ARTICLE I EMPLOYMENT Section 1.1 Position; Term; Responsibilities. The Company hereby employs Executive as its Chairman of the Board and Chief Executive Officer until this Agreement is terminated as herein provided, subject to all the covenants and conditions hereinafter set forth. Subject to the powers, authorities and responsibilities vested in the Board under the General Corporation Law of the State of Delaware, and in duly constituted committees of the Board, Executive shall have the responsibility and authority for the formulation and execution of the policies relating to the affairs of the Company and the administration of the Company's operations. Executive shall hold the title of Chairman of the Board and Chief Executive Officer or such other or additional title as is not inconsistent with the aforementioned responsibilities. Executive shall also perform such other executive and administrative duties for the Company and its subsidiaries (not inconsistent with the position of the Company's Chairman of the Board and Chief Executive Officer) as Executive may reasonably be expected to be capable of performing on behalf of the Company, as may from time to time be authorized or directed by the Board. Executive agrees to be employed by the Company and its subsidiaries in all such capacities until this Agreement is terminated as herein provided, subject to all the covenants and conditions hereinafter set forth. Section 1.2 Duties. During the term of this Agreement, Executive shall perform faithfully the duties assigned to him hereunder to the best of his abilities and devote his full and undivided business time and attention to the transaction of the Company's business and not engage in any other business activities except with the approval of the Board. Section 1.3 Place of Performance. Executive's duties hereunder shall be performed in the Chicago metropolitan area and Executive shall not be required to relocate his principal residence outside of the Chicago metropolitan area. ARTICLE II COMPENSATION Section 2.1 Basic Compensation. As compensation for his services hereunder, the Company shall pay to Executive during the term of this Agreement a minimum annual salary of $160,000 (the "Base Salary"), payable in installments in accordance with the Company's normal payment schedule for senior management and executive officers of the Company. On each anniversary of the date hereof during the term of this Agreement, the Board of Directors or the Compensation Committee shall review the Base Salary and may increase (but not decrease) the Base Salary, in its discretion. Executive's annual salary in effect from time to time under this Section 2.1 is hereinafter called his "Basic Compensation." Section 2.2 Performance Bonus. In addition to his Basic Compensation, the Company shall pay to Executive a performance bonus ("Performance Bonus"), in respect of each fiscal year of the Company during the term of this Agreement, an amount determined in accordance with the performance bonus plan which is provided to senior management and executive officers of the Company, and which shall be similar in structure to the Company's current Management Bonus Plan. Section 2.3 Other Employee Benefits. Executive shall be entitled to participate in all employee benefit plans, including group health care plans, to take time off for vacation or illness in accordance with the Company's policy for senior management and executive officers, and to receive all other fringe benefits as are from time to time made generally available to the senior management and executive officers of the Company; provided, however, that notwithstanding any contrary policy, Executive shall be entitled to six weeks of vacation on an annual basis. The Company shall pay to Executive a minimum annual car allowance of $4,800, payable in accordance with the Company's normal payment schedule. Section 2.4 Expense Reimbursements. The Company shall reimburse Executive for all proper expenses incurred by him in the performance of his duties hereunder in accordance with the policies and procedures established by the Board. ARTICLE III TERMINATION OF EMPLOYMENT Section 3.1 Termination. (a) Executive and the Company acknowledge that, except as may be provided under applicable law, this Agreement or any other agreement between Executive and the Company, the employment of Executive by the Company is "at will" and, prior to the effective date of a Change in Control, may be terminated by either Executive or the Company at any time, subject to applicable law. In the event of a Change in Control, neither the Company nor Executive shall terminate Executive's employment for a period of six months following the effective date of the Change in Control, except for Cause by the Company or Good Reason by Executive. Upon termination of Executive's employment, there shall be no further rights or obligations under this Agreement except as expressly provided herein. (b) In the event of (i) termination of employment of Executive by the Company without Cause, (ii) termination of employment by Executive due to a material breach of the terms of this Agreement by the Company (following notice from Executive and after a reasonable opportunity to cure such breach), (iii) death of Executive during the term of this Agreement, (iv) termination of executive in the event of Long-term Disability (as defined below) of Executive (v) termination of employment by Executive or the Company for any reason (other than Cause) following the expiration of six months after the effective date of a Change in Control or (vi) termination of employment by Executive with Good Reason (following notice from Executive and after a reasonable opportunity to cure by the Company) during the six month period following a Change in Control, Executive (or his beneficiaries or estate in the event of Death) shall be entitled to receive all compensation provided herein under Sections 2.1, 2.2. and 2.3 and reimbursement for his expenses under Section 2.4 to the date of such termination, plus compensation equal to two full year's Basic Compensation, as determined under Section 2.1, plus the product of two and the average of the amount paid to Executive as a Performance Bonus under Section 2.2 for the two fiscal years of the Company immediately preceding such termination, and shall be entitled to continue participation in all other employee benefits under Section 2.3 for a period of two years following such termination. Any amount payable or benefit to be provided pursuant to the foregoing sentence shall be paid or provided in accordance with the Company's procedures for senior management and executive officers and as if Executive's employment by the Company had continued for one complete year after the date of termination; provided, however, that in the event that such payments are made due to long-term disability, such payments shall be reduced by the amount of payments made to the Executive for the same period pursuant to the Company's long-term disability plan. (c) In the event the Board terminates the employment of Executive for Cause, or in the event of voluntary termination of Executive prior to a Change in Control or without Good Reason during the six-month period following a Change in Control, Executive shall be entitled to receive all compensation provided herein under Sections 2.1, 2.2. and 2.3 and reimbursement for his expenses under Section 2.4 to the date of termination, and all other rights and obligations of the parties hereunder shall terminate, except as provided in Article IV and Section 5.4. Section 3.2 Incapacity. If at any time during the term of this Agreement Executive is unable to substantially perform his duties hereunder by reason of illness, accident or other disability ("Disability"), he shall be entitled to receive his Basic Compensation, Performance Bonus and other employee benefits to which he would be entitled under Sections 2.1, 2.2 and 2.3 for a minimum period of six months. To determine the amount of Performance Bonus which the Executive shall be entitled to receive during such period, the Board shall prorate the average of the amount paid to Executive as a Performance Bonus under Section 2.2 for the two fiscal years of the Company immediately preceding such disability. In the event the Executive's Disability continues for a period of six months or more ("Long-term Disability"), the Company may (i) continue to employ the Executive, in which case the Executive will continue to be entitled to receive his Basic Compensation, Performance Bonus and other employee benefits to which he would be entitled under Sections 2.1, 2.2 and 2.3 until the Executive's employment is terminated hereunder or (ii) terminate Executive's employment at any time, in which case Executive shall be entitled to receive all compensation provided herein under Sections 2.1, 2.2. and 2.3 to the date of such termination, plus compensation equal to one full year's Basic Compensation, as determined under Section 2.1, plus the average of the amount paid to Executive as a Performance Bonus under Section 2.2 for the two fiscal years of the Company immediately preceding such termination, and shall be entitled to continue participation in all other employee benefits under Section 2.3 for a period of one year following such termination, pursuant to Section 3.1(a). To determine the amount of Performance Bonus which Executive shall be entitled to receive during any period of incapacity, the Board shall prorate such benefit by multiplying the average of the Performance Bonus paid to Executive for the immediately preceding two fiscal years by a fraction, the denominator of which is the number of days of incapacity and the denominator of which is 365. ARTICLE IV NONCOMPETITION; CONFIDENTIAL INFORMATION Section 4.1 Noncompetition. During the term of this Agreement and, in the event of termination for Cause or voluntary termination by Executive prior to a Change in Control or for Good Reason during the six-month period following a Change in Control), for a period of two years thereafter, except with the prior written consent of the Board, Executive: (a) shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by the Company or any of its subsidiaries or controlled affiliates (the "Companies"), or (ii) any business in which the Companies are substantially engaged at any time during the term of this Agreement; (b) shall not solicit, in competition with the Companies, any person who is a customer of the businesses conducted by the Companies at the date hereof or of any business in which the Companies are substantially engaged at any time during the term of this Agreement; and (c) shall not induce or attempt to persuade any employee of the Companies to terminate his employment relationship in order to enter into competitive employment. Section 4.2 Trade Secrets. Executive shall not, at any time during the term of this Agreement or thereafter, make use of any bidding information (or computer programs thereof) of any of the Companies, nor divulge any trade secrets or other confidential information of any of the Companies, except to the extent that such information becomes a matter of public record, is published in a newspaper, magazine or other periodical available to the general public or as the Board may so authorize in writing; and when Executive shall cease to be employed by the Company, Executive shall surrender to the Company all records and other documents obtained by him or entrusted to him during the course of his employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in Section 4.1 or which were paid for by any of the Companies; provided, however, that Executive may retain copies of such documents as necessary for Executive's personal records for federal income tax purposes. Section 4.3 Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in Sections 4.1 and 4.2: (a) the covenants contained in paragraphs (a) and (b) of Section 5. shall apply within all territories in which any of the Companies are actively engaged in the conduct of business during the term of this Agreement, including, without limitation, the territories in which customers are then being solicited; (b) without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in Sections 4.1 and 4.2, it is expressly agreed by Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (c) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 4.1 and 4.2 any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (d) the covenants contained in Sections 4.1 and 4.2 shall survive the conclusion of Executive's Employment by the Company. ARTICLE V MISCELLANEOUS Section 5.1 Headings. The Article, Section paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section 5.2 Successors; Binding Agreement. (a) This Agreement shall not be terminated by any merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 5.2, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a material breach of this Agreement and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated by the Company without Cause during the six-month period following a Change in Control. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the termination date. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. Section 5.3 Notices. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (i) if to Executive, to Christopher C. Multhauf, 365 Iris, Highland Park, Illinois 60035, and if to the Company, to First Commonwealth, Inc., Suite 600, 444 North Wells Street, Chicago, Illinois 60610, attention: Chairman of the Board of Directors, with a copy to the Secretary, or (ii) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice by the Company or Executive, as the case may be, to the other, asserting a breach of the terms of this Agreement or any other event requiring the delivery of notice and providing a reasonable opportunity to cure, shall (i) indicate the specific provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances being asserted and (iii) specify a date (which date shall be not less than 15 days after the giving of such notice) by which the receiving party must cure the deficiency specified in such notice. (c) A written notice of Executive's termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than 15 days after the giving of such notice). (d) The failure by Executive or the Company to set forth in any notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder. Section 5.4 Full Settlement; Resolution of Disputes; Expenses. (a) The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not Executive obtains other employment. (b) If there shall be any dispute between the Company and Executive regarding any payments to be made hereunder during the term hereof or in the event of any termination of Executive's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that the Company is not obligated to pay any amount or provide any benefit to Executive and his dependents or other beneficiaries, as the case may be, under this Agreement, the Company shall pay all amounts, and provide all benefits, to Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to this Agreement as if no dispute with respect to such payments existed; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which Executive is ultimately adjudged by such court not to be entitled. (c) If any contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute, together with interest in an amount equal to the prime rate of The First National Bank of Chicago from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, Executive's claims in such contest or dispute, Executive shall be required to reimburse the Company, for all sums advanced to Executive pursuant to this Section 5.4(c) in connection with such contest or dispute, together with interest in an amount equal to the corporate base rate of The First National Bank of Chicago from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company made the payment to Executive through the date of payment by Executive thereof. Section 5.5 Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois without regard to conflicts of laws principle. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. Section 5.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. Section 5.7 Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including, without limitation, the right of Executive to terminate employment for Good Reason or the right of the Company to terminate Executive's employment for Cause, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. The rights of, and benefits payable to, Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company. ARTICLE VI DEFINITIONS As used in this Agreement, the following terms shall have the respective meanings set forth below: 6.1 "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2, as in effect on the effective date of this Plan, under the Exchange Act; provided, however, that no director or officer of the Company shall be deemed an Affiliate or Associate of any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. 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. 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 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 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 favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; (e) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 5.2; or (f) a material breach by the Company of any of the terms of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by Executive shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive shall not constitute Good Reason. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and Executive has signed this Agreement as of the day and year first above written. FIRST COMMONWEALTH, INC. By: /s/ David W. Mulligan --------------------- David W. Mulligan President EMPLOYEE By: /s/ Christopher C. Multhauf --------------------------- Christopher C. Multhauf Chairman and Chief Executive Officer EX-10.2 3 AMENDED D.W. MULLIGAN EMPLOYMENT AGREEMENT Exhibit 10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT Amended and Restated Employment Agreement dated as of February 12, 1999 between David W.Mulligan("Executive") and First Commonwealth, Inc., a Delaware corporation (the "Company"), with its principal office at Suite 600, 444 North Wells Street, Chicago, Illinois 60610. WHEREAS, the Company and Employee are parties to an Employment Agreement dated September 21, 1995; and WHEREAS, the Company and Employee desire to amend and restate such Employment Agreement on the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the agreements and covenants contained herein, Executive and the Company hereby agree as follows: ARTICLE I EMPLOYMENT Section 1.1 Position; Term; Responsibilities. The Company hereby employs Executive as its President and Chief Operating Officer until this Agreement is terminated as herein provided, subject to all the covenants and conditions hereinafter set forth. Subject to the powers, authorities and responsibilities vested in the Board under the General Corporation Law of the State of Delaware, and in duly constituted committees of the Board, and in the Chairman and Chief Executive Officer of the Company, Executive shall have the responsibility and authority for the formulation and execution of the policies relating to the affairs of the Company and the administration of the Company's operations. Executive shall hold the title of President and Chief Operating Officer or such other or additional title as is not inconsistent with the aforementioned responsibilities. Executive shall also perform such other executive and administrative duties for the Company and its subsidiaries (not inconsistent with the position of the Company's President and Chief Operating Officer) as Executive may reasonably be expected to be capable of performing on behalf of the Company, as may from time to time be authorized or directed by the Board. Executive agrees to be employed by the Company and its subsidiaries in all such capacities until this Agreement is terminated as herein provided, subject to all the covenants and conditions hereinafter set forth. Section 1.2 Duties. During the term of this Agreement, Executive shall perform faithfully the duties assigned to him hereunder to the best of his abilities and devote his full and undivided business time and attention to the transaction of the Company's business and not engage in any other business activities except with the approval of the Board. Section 1.3 Place of Performance. Executive's duties hereunder shall be performed in the Chicago metropolitan area and Executive shall not be required to relocate his principal residence outside of the Chicago metropolitan area. Section 1.4 Board of Directors of the Company. During the term of the Executive's employment herunder, the Company will take all reasonable efforts to cause the Executive to be elected to the Board of Directors of the Company. ARTICLE II COMPENSATION Section 2.1 Basic Compensation. As compensation for his services hereunder, the Company shall pay to Executive during the term of this Agreement a minimum annual salary of $155,000 (the "Base Salary"), payable in installments in accordance with the Company's normal payment schedule for senior management and executive officers of the Company. On each anniversary of the date hereof during the term of this Agreement, the Board of Directors or the Compensation Committee shall review the Base Salary and may increase (but not decrease) the Base Salary, in its discretion. Executive's annual salary in effect from time to time under this Section 2.1 is hereinafter called his "Basic Compensation." Section 2.2 Performance Bonus. In addition to his Basic Compensation, the Company shall pay to Executive a performance bonus ("Performance Bonus"), in respect of each fiscal year of the Company during the term of this Agreement, an amount determined in accordance with the performance bonus plan which is provided to senior management and executive officers of the Company, and which shall be similar in structure to the Company's current Management Bonus Plan. Section 2.3 Other Employee Benefits. Executive shall be entitled to participate in all employee benefit plans, including group health care plans, to take time off for vacation or illness in accordance with the Company's policy for senior management and executive officers, and to receive all other fringe benefits as are from time to time made generally available to the senior management and executive officers of the Company; provided, however, that notwithstanding any contrary policy, Executive shall be entitled to six weeks of vacation on an annual basis. The Company shall pay to Executive a minimum annual car allowance of $4,800, payable in accordance with the Company's normal payment schedule. Section 2.4 Expense Reimbursements. The Company shall reimburse Executive for all proper expenses incurred by him in the performance of his duties hereunder in accordance with the policies and procedures established by the Board. ARTICLE III TERMINATION OF EMPLOYMENT Section 3.1 Termination. (a) Executive and the Company acknowledge that, except as may be provided under applicable law, this Agreement or any other agreement between Executive and the Company, the employment of Executive by the Company is "at will" and, prior to the effective date of a Change in Control, may be terminated by either Executive or the Company at any time, subject to applicable law. In the event of a Change in Control, neither the Company nor Executive shall terminate Executive's employment for a period of six months following the effective date of the Change in Control, except for Cause by the Company or Good Reason by Executive. Upon termination of Executive's employment, there shall be no further rights or obligations under this Agreement except as expressly provided herein. (b) In the event of (i) termination of employment of Executive by the Company without Cause, (ii) termination of employment by Executive due to a material breach of the terms of this Agreement by the Company (following notice from Executive and after a reasonable opportunity to cure such breach), (iii) death of Executive during the term of this Agreement, (iv) termination of executive in the event of Long-term Disability (as defined below) of Executive (v) termination of employment by Executive or the Company for any reason (other than Cause) following the expiration of six months after the effective date of a Change in Control or (vi) termination of employment by Executive with Good Reason (following notice from Executive and after a reasonable opportunity to cure by the Company) during the six month period following a Change in Control, Executive (or his beneficiaries or estate in the event of Death) shall be entitled to receive all compensation provided herein under Sections 2.1, 2.2. and 2.3 and reimbursement for his expenses under Section 2.4 to the date of such termination, plus compensation equal to two full year's Basic Compensation, as determined under Section 2.1, plus the product of two and the average of the amount paid to Executive as a Performance Bonus under Section 2.2 for the two fiscal years of the Company immediately preceding such termination, and shall be entitled to continue participation in all other employee benefits under Section 2.3 for a period of two years following such termination. Any amount payable or benefit to be provided pursuant to the foregoing sentence shall be paid or provided in accordance with the Company's procedures for senior management and executive officers and as if Executive's employment by the Company had continued for one complete year after the date of termination; provided, however, that in the event that such payments are made due to long-term disability, such payments shall be reduced by the amount of payments made to the Executive for the same period pursuant to the Company's long-term disability plan. (c) In the event the Board terminates the employment of Executive for Cause, or in the event of voluntary termination of Executive prior to a Change in Control or without Good Reason during the six-month period following a Change in Control, Executive shall be entitled to receive all compensation provided herein under Sections 2.1, 2.2. and 2.3 and reimbursement for his expenses under Section 2.4 to the date of termination, and all other rights and obligations of the parties hereunder shall terminate, except as provided in Article IV and Section 5.4. Section 3.2 Incapacity. If at any time during the term of this Agreement Executive is unable to substantially perform his duties hereunder by reason of illness, accident or other disability ("Disability"), he shall be entitled to receive his Basic Compensation, Performance Bonus and other employee benefits to which he would be entitled under Sections 2.1, 2.2 and 2.3 for a minimum period of six months. To determine the amount of Performance Bonus which the Executive shall be entitled to receive during such period, the Board shall prorate the average of the amount paid to Executive as a Performance Bonus under Section 2.2 for the two fiscal years of the Company immediately preceding such disability. In the event the Executive's Disability continues for a period of six months or more ("Long-term Disability"), the Company may (i) continue to employ the Executive, in which case the Executive will continue to be entitled to receive his Basic Compensation, Performance Bonus and other employee benefits to which he would be entitled under Sections 2.1, 2.2 and 2.3 until the Executive's employment is terminated hereunder or (ii) terminate Executive's employment at any time, in which case Executive shall be entitled to receive all compensation provided herein under Sections 2.1, 2.2. and 2.3 to the date of such termination, plus compensation equal to one full year's Basic Compensation, as determined under Section 2.1, plus the average of the amount paid to Executive as a Performance Bonus under Section 2.2 for the two fiscal years of the Company immediately preceding such termination, and shall be entitled to continue participation in all other employee benefits under Section 2.3 for a period of one year following such termination, pursuant to Section 3.1(a). To determine the amount of Performance Bonus which Executive shall be entitled to receive during any period of incapacity, the Board shall prorate such benefit by multiplying the average of the Performance Bonus paid to Executive for the immediately preceding two fiscal years by a fraction, the denominator of which is the number of days of incapacity and the denominator of which is 365. ARTICLE IV NONCOMPETITION; CONFIDENTIAL INFORMATION Section 4.1 Noncompetition. During the term of this Agreement and, in the event of termination for Cause or voluntary termination by Executive prior to a Change in Control or for Good Reason during the six-month period following a Change in Control), for a period of two years thereafter, except with the prior written consent of the Board, Executive: (a) shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by the Company or any of its subsidiaries or controlled affiliates (the "Companies"), or (ii) any business in which the Companies are substantially engaged at any time during the term of this Agreement; (b) shall not solicit, in competition with the Companies, any person who is a customer of the businesses conducted by the Companies at the date hereof or of any business in which the Companies are substantially engaged at any time during the term of this Agreement; and (c) shall not induce or attempt to persuade any employee of the Companies to termi nate his employment relationship in order to enter into competitive employment. Section 4.2 Trade Secrets. Executive shall not, at any time during the term of this Agreement or thereafter, make use of any bidding information (or computer programs thereof) of any of the Companies, nor divulge any trade secrets or other confidential information of any of the Companies, except to the extent that such information becomes a matter of public record, is published in a newspaper, magazine or other periodical available to the general public or as the Board may so authorize in writing; and when Executive shall cease to be employed by the Company, Executive shall surrender to the Company all records and other documents obtained by him or entrusted to him during the course of his employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in Section 4.1 or which were paid for by any of the Companies; provided, however, that Executive may retain copies of such documents as necessary for Executive's personal records for federal income tax purposes. Section 4.3 Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in Sections 4.1 and 4.2: (a) the covenants contained in paragraphs (a) and (b) of Section 5. shall apply within all territories in which any of the Companies are actively engaged in the conduct of business during the term of this Agreement, including, without limitation, the territories in which customers are then being solicited; (b) without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in Sections 4.1 and 4.2, it is expressly agreed by Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (c) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 4.1 and 4.2 any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (d) the covenants contained in Sections 4.1 and 4.2 shall survive the conclusion of Executive's Employment by the Company. ARTICLE V MISCELLANEOUS Section 5.1 Headings. The Article, Section paragraph and subparagraph headings are for convenience of reference only and shall not define or limit the provisions hereof. Section 5.2 Successors; Binding Agreement. (a) This Agreement shall not be terminated by any merger or consolidation of the Company whereby the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in paragraph (a) of this Section 5.2, it will cause any successor or transferee unconditionally to assume, by written instrument delivered to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a material breach of this Agreement and shall entitle Executive to compensation and other benefits from the Company in the same amount and on the same terms as Executive would be entitled hereunder if Executive's employment were terminated by the Company without Cause during the six-month period following a Change in Control. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the termination date. (c) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive's estate. Section 5.3 Notices. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (i) if to Executive, to Christopher C. Multhauf, 365 Iris, Highland Park, Illinois 60035, and if to the Company, to First Commonwealth, Inc., Suite 600, 444 North Wells Street, Chicago, Illinois 60610, attention: Chairman of the Board of Directors, with a copy to the Secretary, or (ii) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (b) A written notice by the Company or Executive, as the case may be, to the other, asserting a breach of the terms of this Agreement or any other event requiring the delivery of notice and providing a reasonable opportunity to cure, shall (i) indicate the specific provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances being asserted and (iii) specify a date (which date shall be not less than 15 days after the giving of such notice) by which the receiving party must cure the deficiency specified in such notice. (c) A written notice of Executive's termination by the Company or Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than 15 days after the giving of such notice). (d) The failure by Executive or the Company to set forth in any notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder. Section 5.4 Full Settlement; Resolution of Disputes; Expenses. (a) The Company's obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and, such amounts shall not be reduced whether or not Executive obtains other employment. (b) If there shall be any dispute between the Company and Executive regarding any payments to be made hereunder during the term hereof or in the event of any termination of Executive's employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that the Company is not obligated to pay any amount or provide any benefit to Executive and his dependents or other beneficiaries, as the case may be, under this Agreement, the Company shall pay all amounts, and provide all benefits, to Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to this Agreement as if no dispute with respect to such payments existed; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this paragraph except upon receipt of an undertaking by or on behalf of Executive to repay all such amounts to which Executive is ultimately adjudged by such court not to be entitled. (c) If any contest or dispute shall arise under this Agreement involving termination of Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such contest or dispute, together with interest in an amount equal to the prime rate of The First National Bank of Chicago from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive's statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, Executive's claims in such contest or dispute, Executive shall be required to reimburse the Company, for all sums advanced to Executive pursuant to this Section 5.4(c) in connection with such contest or dispute, together with interest in an amount equal to the corporate base rate of The First National Bank of Chicago from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company made the payment to Executive through the date of payment by Executive thereof. Section 5.5 Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Illinois without regard to conflicts of laws principle. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. Section 5.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. Section 5.7 Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or the Company may have hereunder, including, without limitation, the right of Executive to terminate employment for Good Reason or the right of the Company to terminate Executive's employment for Cause, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. The rights of, and benefits payable to, Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company. ARTICLE VI DEFINITIONS As used in this Agreement, the following terms shall have the respective meanings set forth below: 6.1 "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2, as in effect on the effective date of this Plan, under the Exchange Act; provided, however, that no director or officer of the Company shall be deemed an Affiliate or Associate of any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. 6.2 "Beneficial Owner" (including the terms "Beneficially Own" and "Beneficial Ownership"), when used with respect to any Person, shall be deemed to include any securities which: (a) such Person or any of such Person's Affiliates or Associates beneficially owns, directly or indirectly (determined as provided in Rule 13d-3, as in effect on the effective date of this Plan, under the Securities Exchange Act of 1934, as amended (the "Exchange Act")); (b) such Person or any of such Person's Affiliates or Associates, directly or indirectly, has: (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time or upon the satisfaction of any conditions, or both) pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities), upon the exercise of any options, warrants, rights or conversion or exchange privileges or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person's Affiliates or Associates until such tendered securities are accepted for purchase or exchange; or (ii) the right to vote pursuant to any written or oral agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to Beneficially Own, any security otherwise subject to this item (B) if such agreement, arrangement or understanding to vote (1) arises solely from a revocable proxy or consent given to such Person or any of such Person's Affiliates or Associates in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (2) is not also then reportable by such Person on Schedule 13D (or any comparable or successor report then in effect) under the Exchange Act; or (iii) the right to dispose of pursuant to any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities); or (c) are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person's Affiliates or Associates has any written or oral agreement, arrangement or understanding (other than customary agreements with and among underwriters and selling group members with respect to a bona fide public offering of securities) for the purpose of acquiring, holding, voting (except to the extent contemplated by the proviso to item (ii) of subparagraph (b) of the first paragraph of this definition) or disposing of any securities of the Company. Notwithstanding the first paragraph of this definition, no director or officer of the Company shall be deemed to be the "Beneficial Owner" of, or to "Beneficially Own," shares of Common Stock or other securities of the Company beneficially owned by any other director or officer of the Company solely as a result of his or her being a director or officer of the Company. 6.3 "Board" means the Board of Directors of the Company. 6.4 "Cause" means embezzlement or misappropriation of corporate funds, other act of dishonesty, significant activities harmful to the reputation of the Company, willful refusal to perform or substantial disregard of the duties properly assigned pursuant to Article II of this Agreement (subject to notice and reasonable opportunity to cure) or significant violation of any statutory or common law duty of loyalty to the Company (including any material breach by Executive of Article IV of this Agreement). 6.5 "Change in Control" means: (a) the acquisition by any individual, entity or group (a "Person"), including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of Beneficial Ownership of 50% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by an Exempt Person or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 6.5); provided further, that for purposes of clause (ii), if any Person (other than an Exempt Person, the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the Beneficial Owner of 50% or more of the Outstanding Company Common Stock or 50% or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the Beneficial Owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such Beneficial Ownership is publicly announced, such additional Beneficial Ownership shall constitute a Change in Control; (b) individuals who, as of the effective date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the Company subsequent to the effective date hereof whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board; (c) approval by the stockholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Corporate Transaction"); excluding, however, a Corporate Transaction pursuant to which (i) all or substantially all of the individuals or entities who are the Beneficial Owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will Beneficially Own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or indirectly) in substantially the same proportions relative to each other as their Beneficial Ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than an Exempt Person; the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which Beneficially Owned, immediately prior to such Corporate Transaction, directly or indirectly, 50% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) will Beneficially Own, directly or indirectly, 50% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or (d) approval by the stockholders of the Company of a plan of complete liquidation or dissolution of the Company. Notwithstanding anything to the contrary herein, no Change of Control shall be deemed to have taken place as a result of the issuance of shares of Common Stock by the Company or the sale of shares of Common Stock by its stockholders in connection with the Company's initial public offering. 6.6 "Exempt Person" shall mean each of Christopher C. Multhauf and David W. Mulligan and each Affiliate thereof. 6.7 "Good Reason" means, without Executive's express written consent, the occurrence of any of the following events after a Change in Control: (a) any of (i) the assignment to Executive of any duties inconsistent in any material respect with Executive's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in Executive's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary termination of Executive from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect Executive to any position with the Company held by Executive immediately prior to such Change in Control; (b) a reduction by the Company in Executive's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter or the failure by the Company to increase such rate of base salary after such Change in Control by an amount which at least equals, on a percentage basis, the mean average percentage increase in the rates of base salary for all officers (within the meaning of Rule 3b-2 promulgated under the Exchange Act) of the Company during the two full fiscal years of the Company immediately preceding such Change in Control; (c) any requirement of the Company that Executive (i) be based anywhere other than at the facility where Executive is located at the time of the Change in Control or (ii) travel on Company business to an extent substantially more burdensome than the travel obligations of Executive immediately prior to such Change in Control; (d) the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which Executive is participating immediately prior to such Change in Control, unless Executive is permitted to participate in other plans providing Executive with substantially comparable benefits, or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such plan, (ii) provide Executive and Executive's dependents welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive immediately prior to such Change in Control or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, (iii) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for Executive immediately prior to such Change in Control or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, (iv) provide an office or offices of a size and with furnishings and other appointments, together with exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to Executive by the Company and its affiliated companies immediately prior to such Change in Control or, if more favorable to Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, (v) provide Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for Executive immediately prior to such Change in Control or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies, or (vi) reimburse Executive promptly for all reasonable employment expenses incurred by Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for Executive immediately prior to such Change in Control, or if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; (e) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 5.2; or (f) a material breach by the Company of any of the terms of this Agreement. For purposes of this Agreement, any good faith determination of Good Reason made by Executive shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive shall not constitute Good Reason. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its duly authorized officer and Executive has signed this Agreement as of the day and year first above written. FIRST COMMONWEALTH, INC. By: /s/ Christopher C. Multhauf --------------------------- Christopher C. Multhauf Chairman and Chief Executive Officer EMPLOYEE By: /s/ David W. Mulligan --------------------- David W. Mulligan President and Chief Operating Officer EX-10.3 4 AMENDMENT TO G. STOBBE EMPLOYMENT AGREEMENT Exhibit 10.3 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and entered into as of the 12th day of February, 1999, by and between First Commonwealth, Inc., a Delaware corporation (the "Company"), and Greg D. Stobbe, an individual resident of the State of Illinois ("Employee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and Employee are parties to an Employment Agreement dated March 1, 1991 and amended January 23, 1995 (the "Employment Agreement"); and WHEREAS, the Company and Employee desire to amend such Employment Agreement on the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the mutual promises and agreements contained in this Amendment, the receipt and sufficiency of which is acknowledged by the parties, the parties agree as follows: 1. Paragraph 4 of Section 2 of the Agreement is hereby amended to read in its entirety as follows: "4. Termination Without Cause. This Agreement may be terminated by the Company without "good cause," provided that, in such event, the Company shall continue to pay the Employee his or her then current base salary for a period of twelve (12) months following such termination as if the Employee were continuing his/her duties and shall continue employee benefits then in existence for a period of six (6) months following such termination." 2. As of the date hereof, the amount of the Base Salary in Paragraph 1 of Section 3 is hereby amended to read "$115,000.08." 3. The first sentence of Paragraph 5 of Section 2 is hereby amended and restated in its entirety as follows: "Employee may terminate this Agreement upon sixty (60) days written notice to Company." 4. Paragraph 3 of Section 5 is hereby amended and restated in its entirety to read as follows: "3. Restrictive covenants. Employee recognizes that the Company's entering into this Agreement is induced primarily because of the covenants and assurances made by the Employee, that Employee's covenant not to compete is necessary to insure the continuation of the business of the Company and its Affiliates, and that irreparable harm and damage will be done to the Company and its Affiliates in the event that Employee competes with the Company or its Affiliates within the geographic area and the time periods described below. Therefore, Employee agrees as follows: a. During the term of this Agreement, Employee will not directly or indirectly own, manage, operate, control, participate in the management or control of, be employed by, lend his or her name to, or maintain or continue any financial interest whatsoever in any business or enterprise having to do with the provision, distribution, marketing, promotion, or advertising of any services or products similar to those offered by the Company within the United States or its territories and possessions. b. For a period of twelve (12) months after the termination of this Agreement, Employee will not directly or indirectly own, manage, operate, control, participate in the management or control of, be employed by, lend his or her name to, or maintain or continue any financial interest whatsoever in any business or enterprise of the type and character engaged in and competitive with that of the Company or any of its Affiliates within any jurisdiction or marketing area in which the Company or any Affiliate is doing business or is qualified to do business. c. For a period of one year after the termination of this Agreement, for any reason, Employee shall not persuade or attempt to persuade any employee of the Company or its Affiliates, to leave the Company's or such Affiliate's employ, or to become employed by any person, firm or corporation other than the Company or such Affiliate. d. For a period of one year after the termination of this Agreement, Employee shall not persuade or attempt to persuade any client or participating dentist providers to hire or affiliate with another company. e. For a period of one year after the termination of this Agreement, Employee shall not solicit for himself or herself or any person, firm or corporation other than the Company or any of its Affiliates the business of any company or dental provider which is a customer, client of, or party to a contract with the Company or any of its Affiliates. f. These restrictions against competition are considered by the parties to be reasonable for the purposes of protecting the business of the Company. It is the desire and intent of the parties to this Agreement that the provisions of this Section 5.3 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If any particular provision or portion of this Section 5.3 shall be adjudicated to be invalid or unenforceable, this Section shall be deemed amended to extend only over the maximum period of time, range of activities, or geographic area as to which it may be enforceable, such amendment to apply only with respect to the operation of such Section in the particular jurisdiction in which such adjudication is made. 4. Remedies. The parties recognize that the performance of the obligations under Sections 5.1, 5.2 and 5.3 by the Employee are special, unique and extraordinary in character, and that in the event of the breach by the Employee of the terms and conditions of Section 5.1, 5.2 and/or 5.3 to be performed, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of Section 5.1, 5.2 and/or 5.3 to enforce the specific performance thereof by such Employee or to enjoin such Employee from performing services for such other person, firm or corporation." 4. Except as specifically provided in this Amendment to the Agreement, this Amendment shall not by implication or otherwise alter, modify, amend or in any such way affect any of the terms, conditions, obligations, covenants or agreements contained in the Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. In the event of any conflict between the terms of this Amendment and the Agreement, the terms of this Amendment shall govern. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Agreement to be duly executed, all as of the date and year first above written. FIRST COMMONWEALTH, INC. By: /s/ David W. Mulligan --------------------- Name: David W. Mulligan Title: President EMPLOYEE By: /s/ Gregory D. Stobbe --------------------- Name: Gregory D. Stobbe EX-10.4 5 AMENDMENT TO MARK R. LUNDBERG EMPLOYMENT AGREEMENT Exhibit 10.4 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and entered into as of the 12th day of February, 1999, by and between First Commonwealth, Inc., a Delaware corporation (the "Company"), and Mark R. Lundberg, an individual resident of the State of Illinois ("Employee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and Employee are parties to an Employment Agreement dated July 25, 1994 (the "Employment Agreement"); and WHEREAS, the Company and Employee desire to amend such Employment Agreement on the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the mutual promises and agreements contained in this Amendment, the receipt and sufficiency of which is acknowledged by the parties, the parties agree as follows: 1. Paragraph 4 of Section 2 of the Agreement is hereby amended to read in its entirety as follows: "4. Termination Without Cause. This Agreement may be terminated by the Company without "good cause," provided that, in such event, the Company shall continue to pay the Employee his or her then current base salary for a period of twelve (12) months following such termination as if the Employee were continuing his/her duties and shall continue employee benefits then in existence for a period of six (6) months following such termination." 2. As of the date hereof, the amount of the Base Salary in Paragraph 1 of Section 3 is hereby amended to read "$118,499.94." 3. The first sentence of Paragraph 5 of Section 2 is hereby amended and restated in its entirety as follows: "Employee may terminate this Agreement upon sixty (60) days written notice to Company." 4. Paragraph 3 of Section 5 is hereby amended and restated in its entirety to read as follows: "3. Restrictive covenants. Employee recognizes that the Company's entering into this Agreement is induced primarily because of the covenants and assurances made by the Employee, that Employee's covenant not to compete is necessary to insure the continuation of the business of the Company and its Affiliates, and that irreparable harm and damage will be done to the Company and its Affiliates in the event that Employee competes with the Company or its Affiliates within the geographic area and the time periods described below. Therefore, Employee agrees as follows: a. During the term of this Agreement, Employee will not directly or indirectly own, manage, operate, control, participate in the management or control of, be employed by, lend his or her name to, or maintain or continue any financial interest whatsoever in any business or enterprise having to do with the provision, distribution, marketing, promotion, or advertising of any services or products similar to those offered by the Company within the United States or its territories and possessions. b. For a period of twelve (12) months after the termination of this Agreement, Employee will not directly or indirectly own, manage, operate, control, participate in the management or control of, be employed by, lend his or her name to, or maintain or continue any financial interest whatsoever in any business or enterprise of the type and character engaged in and competitive with that of the Company or any of its Affiliates within any jurisdiction or marketing area in which the Company or any Affiliate is doing business or is qualified to do business. c. For a period of one year after the termination of this Agreement, for any reason, Employee shall not persuade or attempt to persuade any employee of the Company or its Affiliates, to leave the Company's or such Affiliate's employ, or to become employed by any person, firm or corporation other than the Company or such Affiliate. d. For a period of one year after the termination of this Agreement, Employee shall not persuade or attempt to persuade any client or participating dentist providers to hire or affiliate with another company. e. For a period of one year after the termination of this Agreement, Employee shall not solicit for himself or herself or any person, firm or corporation other than the Company or any of its Affiliates the business of any company or dental provider which is a customer, client of, or party to a contract with the Company or any of its Affiliates. f. These restrictions against competition are considered by the parties to be reasonable for the purposes of protecting the business of the Company. It is the desire and intent of the parties to this Agreement that the provisions of this Section 5.3 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If any particular provision or portion of this Section 5.3 shall be adjudicated to be invalid or unenforceable, this Section shall be deemed amended to extend only over the maximum period of time, range of activities, or geographic area as to which it may be enforceable, such amendment to apply only with respect to the operation of such Section in the particular jurisdiction in which such adjudication is made. 4. Remedies. The parties recognize that the performance of the obligations under Sections 5.1, 5.2 and 5.3 by the Employee are special, unique and extraordinary in character, and that in the event of the breach by the Employee of the terms and conditions of Section 5.1, 5.2 and/or 5.3 to be performed, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of Section 5.1, 5.2 and/or 5.3 to enforce the specific performance thereof by such Employee or to enjoin such Employee from performing services for such other person, firm or corporation." 4. Except as specifically provided in this Amendment to the Agreement, this Amendment shall not by implication or otherwise alter, modify, amend or in any such way affect any of the terms, conditions, obligations, covenants or agreements contained in the Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. In the event of any conflict between the terms of this Amendment and the Agreement, the terms of this Amendment shall govern. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Agreement to be duly executed, all as of the date and year first above written. FIRST COMMONWEALTH, INC. By: /s/ David W. Mulligan --------------------- Name: David W. Mulligan Title: President EMPLOYEE By: /s/ Mark R. Lundberg -------------------- Name: Mark R. Lundberg EX-10.5 6 AMENDMENT TO SCOTT B. SANDERS EMPLOYMENT AGREEMENT Exhibit 10.5 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), is made and entered into as of the 12th day of February, 1999, by and between First Commonwealth, Inc., a Delaware corporation (the "Company"), and Scott B. Sanders, an individual resident of the State of Illinois ("Employee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company and Employee are parties to an Employment Agreement dated May 25, 1995 (the "Employment Agreement"); and WHEREAS, the Company and Employee desire to amend such Employment Agreement on the terms and subject to the conditions contained herein; NOW, THEREFORE, in consideration of the mutual promises and agreements contained in this Amendment, the receipt and sufficiency of which is acknowledged by the parties, the parties agree as follows: 1. Paragraph 4 of Section 2 of the Agreement is hereby amended to read in its entirety as follows: "4. Termination Without Cause. This Agreement may be terminated by the Company without "good cause," provided that, in such event, the Company shall continue to pay the Employee his or her then current base salary for a period of twelve (12) months following such termination as if the Employee were continuing his/her duties and shall continue employee benefits then in existence for a period of six (6) months following such termination." 2. As of the date hereof, the amount of the Base Salary in Paragraph 1 of Section 3 is hereby amended to read "$119,999.88." 3. The first sentence of Paragraph 5 of Section 2 is hereby amended and restated in its entirety as follows: "Employee may terminate this Agreement upon sixty (60) days written notice to Company." 4. Paragraph 3 of Section 4 is hereby amended and restated in its entirety to read as follows: "3. Restrictive covenants. Employee recognizes that the Company's entering into this Agreement is induced primarily because of the covenants and assurances made by the Employee, that Employee's covenant not to compete is necessary to insure the continuation of the business of the Company and its Affiliates, and that irreparable harm and damage will be done to the Company and its Affiliates in the event that Employee competes with the Company or its Affiliates within the geographic area and the time periods described below. Therefore, Employee agrees as follows: a. During the term of this Agreement, Employee will not directly or indirectly own, manage, operate, control, participate in the management or control of, be employed by, lend his or her name to, or maintain or continue any financial interest whatsoever in any business or enterprise having to do with the provision, distribution, marketing, promotion, or advertising of any services or products similar to those offered by the Company within the United States or its territories and possessions. b. For a period of twelve (12) months after the termination of this Agreement, Employee will not directly or indirectly own, manage, operate, control, participate in the management or control of, be employed by, lend his or her name to, or maintain or continue any financial interest whatsoever in any business or enterprise of the type and character engaged in and competitive with that of the Company or any of its Affiliates within any jurisdiction or marketing area in which the Company or any Affiliate is doing business or is qualified to do business. c. For a period of one year after the termination of this Agreement, for any reason, Employee shall not persuade or attempt to persuade any employee of the Company or its Affiliates, to leave the Company's or such Affiliate's employ, or to become employed by any person, firm or corporation other than the Company or such Affiliate. d. For a period of one year after the termination of this Agreement, Employee shall not persuade or attempt to persuade any client or participating dentist providers to hire or affiliate with another company. e. For a period of one year after the termination of this Agreement, Employee shall not solicit for himself or herself or any person, firm or corporation other than the Company or any of its Affiliates the business of any company or dental provider which is a customer, client of, or party to a contract with the Company or any of its Affiliates. f. These restrictions against competition are considered by the parties to be reasonable for the purposes of protecting the business of the Company. It is the desire and intent of the parties to this Agreement that the provisions of this Section 5.3 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. If any particular provision or portion of this Section 5.3 shall be adjudicated to be invalid or unenforceable, this Section shall be deemed amended to extend only over the maximum period of time, range of activities, or geographic area as to which it may be enforceable, such amendment to apply only with respect to the operation of such Section in the particular jurisdiction in which such adjudication is made. 4. Remedies. The parties recognize that the performance of the obligations under Sections 5.1, 5.2 and 5.3 by the Employee are special, unique and extraordinary in character, and that in the event of the breach by the Employee of the terms and conditions of Section 5.1, 5.2 and/or 5.3 to be performed, the Company shall be entitled, if it so elects, to institute and prosecute proceedings in any court of competent jurisdiction, either in law or in equity, to obtain damages for any breach of Section 5.1, 5.2 and/or 5.3 to enforce the specific performance thereof by such Employee or to enjoin such Employee from performing services for such other person, firm or corporation." 4. Except as specifically provided in this Amendment to the Agreement, this Amendment shall not by implication or otherwise alter, modify, amend or in any such way affect any of the terms, conditions, obligations, covenants or agreements contained in the Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. In the event of any conflict between the terms of this Amendment and the Agreement, the terms of this Amendment shall govern. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the Agreement to be duly executed, all as of the date and year first above written. FIRST COMMONWEALTH, INC. By: /s/ David W. Mulligan --------------------- Name: David W. Mulligan Title: President EMPLOYEE By: /s/ Scott B. Sanders -------------------- Name: Scott B. Sanders EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF FIRST COMMONWEALTH, INC. AS OF MARCH 31, 1999, AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 10,388 7,510 4,097 414 0 25,589 5,014 3,238 40,607 11,396 0 0 0 4 29,011 40,607 0 16,738 0 14,767 0 24 0 1,947 735 1,212 0 0 0 1,212 0.33 0.32
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