<PAGE>

===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-K

      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1996

                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                         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          (I.R.S. employer identification number)
incorporation or organization)

                 444 N. Wells St., Suite 600, Chicago, IL 60610
          (Address of principal executive offices, including zip code)

                                 (312) 644-1800
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

               Common Stock, par value $.001 per share, including
                   associated Preferred Stock Purchase Rights
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.   YES   X     NO
                                         ------     ------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1997 was approximately $43 million, based on the
closing price of $15.00 of the registrant's common stock on the Nasdaq National
Market.  This calculation does not reflect a determination that persons are
affiliates for any other purposes.

Number of shares of common stock outstanding as of February 28, 1997:  3,613,189

                      Documents Incorporated by Reference:

Part II - Portions of the registrant's 1996 Annual Report to Stockholders, as
indicated herein.
Part III - Portions of the registrant's definitive proxy statement to be
distributed in conjunction with registrant's annual stockholders' meeting to be
held in 1997 (the "Proxy Statement"), as indicated herein.

================================================================================
<PAGE>

                                    PART I

Item 1.  Business

     First Commonwealth, Inc. is a leading provider of managed dental benefits
in the upper Midwest, including the metropolitan areas of Chicago, Milwaukee,
Detroit, Indianapolis and St. Louis. As of December 31, 1996, the Company
provided managed care and indemnity/PPO products to approximately 397,800
employees and dependents ("members") through more than 4,000 employer groups
("groups"), excluding the acquisition of Champion Dental Services, Inc.
("Champion"), which was completed December 31, 1996. Champion, which serves the
greater St. Louis metropolitan area, adds approximately 60,000 members to the
above figure. The Company markets a broad range of innovative dental benefit
plans which are designed to meet the needs of large, medium and smaller-sized
groups. The managed care and PPO plans offer dental benefits primarily through
the Company's managed care and PPO network of approximately 2,175 general
dentists and specialists ("providers"), excluding the providers associated with
the Champion acquisition. The Company distributes its products through a network
of over 1,400 independent insurance brokers which target medium and smaller-
sized groups, and a direct sales unit which targets larger groups. Significant
client groups served by the Company include Advocate Health Care, Fort Howard
Paper Company, First Chicago/NBD and Inland Steel Industries, Inc. ("Inland").

     The Company's managed care plans are provided on a stand-alone basis
("managed care products") and also in conjunction with the Company's indemnity
and indemnity/PPO plans (collectively "indemnity/PPO plans") which provide
benefits outside the Company's managed care network (the combined managed
care/indemnity/PPO plans are referred to as "Managed Choice/SM /products"). The
Company has integrated its PPO network with the indemnity plan component of its
Managed Choice/SM/ product to offer a point-of-service option to members as of
January 1, 1996. Under this new product, "Managed Choice/SM/ Triple Option,"
members have a point-of-enrollment choice between the Company's managed care
plan and an indemnity/PPO plan (which may be the Company's insured indemnity/PPO
plan or the group's self-insured plan administered by the Company). Another new
product introduced in 1996 was the Company's PPO network "rental" option. This
product was developed to meet the needs of a large coalition of labor unions
seeking to offer a network option through their Taft-Hartley funds, while
maintaining their own self-administration. The Company also receives fee income
for administrative services only ("ASO") arrangements and for providing access
to its Preferred Provider Organization ("PPO") network.

     The Company receives a monthly premium for each employee who enrolls
in its managed care or indemnity plans. If covered by a managed care plan,
a member selects a provider (general dentist) from the Company's managed
care network. The Company then pays a monthly fee ("capitation payment")
to the provider selected by the member. Certain preventative and diagnostic
services (e.g., cleanings and x-rays) are provided to members at no
additional fee. The dentist provides other dental services for a reduced
fee ("co-payment") paid by the member. If covered by an indemnity plan,
the member pays fees set by the dentist for services rendered and submits
claims for reimbursement.

     The Company was founded in 1986 by Christopher C. Multhauf, Chairman of the
Board of Directors and Chief Executive Officer of the Company, David W.
Mulligan, President and Chief Operating Officer of the Company, Richard M.
Burdge, a Director of the Company and Philip N. Bredesen, a former Director of
the Company. Mr. Bredesen was previously the founder and Chairman of the Board
of HealthAmerica Corporation, which grew to operate HMOs in 17 states before
being acquired by Maxicare Health Plans, Inc. in 1986. The Company commenced
operations in 1988 with the goal of building a leading managed dental care
market position in the Chicago metropolitan area.

     Since beginning operations in 1988, the Company has grown to become one of
the upper Midwest's leading dental benefit organizations. During 1996, the
Company completed acquisitions in Milwaukee and St. Louis, and began de novo
start-ups in Detroit and Indianapolis. Effective July 18, 1996, the Company
completed the acquisition of Smileage Dental Services, Inc. ("Smileage"), a
Milwaukee, Wisconsin based dental HMO administrator which provides services to
approximately 50,000 members, and an associated reinsurance transaction, for an
aggregate purchase price (including transaction costs) of $5.6 million. The
acquisition was financed through the issuance of the Company's common stock.

                                      -2-
<PAGE>

     Effective December 31, 1996, the Company completed the acquisition of
Champion, a St. Louis, Missouri based prepaid dental plan which provides
services to approximately 60,000 members, for an aggregate purchase price
(including transaction costs) of $5.6 million. The acquisition was financed
through proceeds from the Company's initial public offering and was paid in cash
on January 2, 1997.


     As of January 1, 1997, the Company had increased the available market
population for the markets it serves from the Chicago metropolitan area, which
is the country's third most populous metropolitan market, with a population of
approximately 8.3 million, to include the metropolitan areas of Milwaukee,
Detroit, Indianapolis and St. Louis, as well as Chicago, which have a combined
population of approximately 18.4 million. The Company's revenues increased from
$11.3 million in 1992 to $44.1 million in 1996. Over the same period, the
Company's operating income grew from $1.2 million to $4.0 million. For the year
ended December 31, 1996, the Company's revenues increased 32% to $44.1 million
from $33.3 million in the prior year period and operating income increased 29%
to $4.0 million from $3.1 million. From December 31, 1992 to December 31, 1996,
the number of members covered by the Company's managed care and indemnity/PPO
products increased from 132,000 to 397,800 (excluding approximately 60,000
members with Champion).

     Several key operating strategies, including the Company's regional focus,
have contributed to the Company's growth. First, the Company has built the
largest prepaid managed dental care provider network in the Chicago metropolitan
area and maintains the quality of this network through credentialing, ongoing
peer review and Company-sponsored continuing education seminars. Second, the
Company has developed a wide range of innovative dental benefit products that it
believes have contributed to its success in attracting and retaining large
groups. For example, the Company's Managed Choice/SM /products provide it with
the capability to completely replace a group's existing indemnity plan with the
Company's combined managed care and indemnity/PPO plan. Furthermore, the
Company's national account administration program provides its Chicago-based
employers with managed care plan options outside the Company's managed care
network service area through its relationships with independent provider
networks. Third, the Company has built an efficient business development process
that combines an extensive proprietary database with targeted direct mail and
telemarketing to contact employers, independent insurance brokers and providers.
Utilizing this process, the Company markets its products directly to large
employers, distributes its products through brokers to medium and smaller-sized
employers and continuously recruits new providers into its managed care network.
Fourth, the Company has expanded its geographic service area and is implementing
its operating strategy in other major metropolitan areas in contiguous states.
This is intended to enable the Company to continue to achieve administrative
operating efficiencies as it expands.

     The Company believes there are significant opportunities for the continued
growth of its business both in the Chicago metropolitan area and through the
expansion of its geographic service area. First, the Company intends to continue
to seek to increase sales from medium and smaller-sized groups by increasing its
sales staff, telemarketing and direct mail efforts towards brokers which sell to
these market segments. The Company believes that these market segments are
currently under penetrated for managed care products. Second, the Company
intends to continue to develop innovative products in response to group needs.
With the introduction of its Managed Choice/SM /products in 1992 and its
introduction of Managed Choice/SM /Triple Option and PPO network rental option
products in 1996, the Company believes that it is well positioned to continue to
expand its presence among large employers and to increase its sales to medium
and smaller-sized employers. Third, the Company has expanded its managed care
provider network in the markets it serves to service existing groups, and it
intends to increase its marketing efforts in these areas and continue to expand
to contiguous or proximate areas. Fourth, the Company is committed to building
and maintaining large, quality provider networks in any major markets it serves.
Fifth, the Company intends to continue to focus on achieving administrative
operating efficiencies through increased use of voice and data technologies and
by emphasizing efficient provider arrangements.

     First Commonwealth, Inc. was incorporated in Delaware in 1986. Its
principal place of business is located at 444 North Wells Street, Suite 600,
Chicago, Illinois 60610, and its telephone number is (312) 644-1800. Unless the
context otherwise requires, all references to the "Company" shall mean First
Commonwealth, Inc., together with its subsidiaries, First Commonwealth Limited
Health Services Corporation, First Commonwealth of Illinois, Inc.,

                                      -3-
<PAGE>

First Commonwealth Reinsurance Company, First Commonwealth Limited Health
Service Corporation, Smileage Dental Services, Inc. and Champion Dental
Services, Inc. and its affiliate, First Commonwealth Health Services
Corporation. See "Business - Company's Corporate Structure."

The Dental Benefit Marketplace

     According to the U.S. Office of National Health Statistics, total
expenditures for dental care in the United States grew from approximately $14
billion in 1980 to an estimated $46 billion in 1995. The U.S. Health Care
Financing Administration reports that expenditures for dental services account
for approximately 5% of total national health care expenditures. According to
the U.S. Department of Labor, the cost of dental services has been rising at a
higher rate than that for consumer goods. The U.S. Department of Labor
Statistics reported that, from 1982 to 1994, the Consumer Price Index for all
Urban Consumers for dental services increased 112% whereas this index for all
items increased 54%. As a result, the Company believes that there has been
increased interest by employers in managing dental care costs.

     Employer-sponsored dental benefits are one of the most common employee
welfare benefits. The National Association of Dental Plans ("NADP") estimates
that approximately 117 million persons, representing approximately 46% of the
total United States population, were covered by some form of dental benefit
coverage at the end of 1995. Historically, a substantial majority of dental
coverage has been through traditional indemnity plans. In recent years, however,
managed dental care has achieved increasing market acceptance. National managed
care enrollment has grown at an annual rate of approximately 20% between 1990
and 1995, from approximately 7.8 million covered lives in 1990 to approximately
20.6 million in 1995. The estimated rate of growth in dental HMOs for 1996 was
approximately 15% in terms of enrollment. This compares to over 50 million
Americans who were enrolled in medical HMOs in 1994 according to the Group
Health Association of America. The Company believes the relatively high growth
rate for managed dental care plans is attributable to (i) the greater acceptance
of managed care by employers and employees; (ii) the significant price advantage
relative to indemnity plans; (iii) the cost effectiveness to employers of
managed dental care plans as an employee benefit; and (iv) the growing
acceptance of prepaid dental plans by dentists, resulting in improved
accessibility and convenience for members. Members of managed dental benefit
plans represent approximately 18% of the population with dental care coverage
and approximately 8% of the total U.S. population. The Company believes that
there will continue to be significant growth opportunities in the managed dental
benefits industry.

     Historically, larger employers have been more likely to offer dental
benefit coverage to their employees. According to the 1993 Foster Higgins Survey
of Employer Sponsored Health Plans (the "Foster Higgins Survey"), nationally
approximately 87% of employers with more than 200 employees offer some type of
dental benefit to some or all employees and approximately 64% of these employers
have a stand-alone dental plan, separate and distinct from other health and
welfare benefits offered to employees. By comparison, this survey reported that
only 47% of employers with less than 200 employees offer dental benefits. It has
been the Company's experience that many employers that do not offer dental
benefits are willing to consider offering a plan in which the employee pays the
full cost of such benefits through payroll deductions.

     The managed dental care industry as a whole is currently fragmented and
characterized by the participation of several large, national insurance
companies and many smaller independent plan sponsors. As of December 31, 1994,
the NADP estimated that there were over 150 managed dental companies in the
United States, with no dominant market leader.

     The increase in the number of dentists nationally during the last two
decades has exceeded the rate of population growth. According to the American
Dental Association ("ADA"), the number of practicing dentists in the United
States per 100,000 population has increased from 53 in 1980 to 60 in 1991. In
addition, the dental marketplace is highly fragmented with approximately 88% of
all dentists working in a one or two-dentist office, according to the ADA. Also,
according to a survey of dental practices published by Dental Economics in 1994,
the median of staff and other costs that are part of total overhead expenses was
approximately 60% of the gross revenues of solo and group dental practices. The
increase in the number of dentists as a proportion of the population, the

                                      -4-
<PAGE>

fragmented dental marketplace, the high proportion of overhead costs for
dentists and an improved level of overall dental health has created a highly
competitive environment among dentists, particularly in metropolitan areas. The
Company believes that these factors have contributed to the increased
willingness of qualified dentists to participate in managed care and PPO
networks as dentists seek to increase practice revenues.

     As in the case of medical coverage, the substantial majority of dental
coverage is provided through traditional fee-for-service indemnity dental plans.
Under a traditional fee-for-service indemnity plan, coverage is provided based
on a reimbursement formula of the usual and customary charges submitted by the
dentist. Compared to medical coverage, the average cost of dental services is
lower and the utilization of services is more predictable. Unlike medical
coverage, dental coverage generally does not cover catastrophic risks. Dental
care is provided almost exclusively on an outpatient basis and, according to a
1990 ADA survey, over 80% of all dental services are performed by general
dentists. Also, dental plans generally do not include coverage for
hospitalization, typically the most expensive component of medical services.
Common features of dental indemnity plans include deductibles, maximum annual
benefits of less than $2,000 per person and significant patient cost-sharing.
Patient cost-sharing typically varies by type of dental procedure ranging from
no cost sharing for preventive procedures to 50% cost-sharing for crowns and
even greater cost-sharing for orthodontic care. This high patient cost-sharing
and the relatively predictable nature of dental expenditures substantially
limits the underwriting risk of a dental plan when compared to the underwriting
risk of a medical plan which covers catastrophic illness and injuries.
Furthermore, since most dental problems are neither life threatening nor
represent serious impairments to overall health, there is a higher degree of
patient cost sensitivity and discretion associated with obtaining dental
services. Many dental conditions also have a range of appropriate courses of
treatment, each of which has a different out-of-pocket cost for patients. For
example, a deteriorated amalgam filling may be replaced with another amalgam
filling (a low-cost alternative), a pin-retained crown build-up (a more costly
alternative) or a gold crown with associated periodontal treatment (the most
costly alternative). The level of coverage provided to the patient and the
dental plan's reimbursement methodology may influence the type of services
selected by the patient or rendered by the dentist.

     Under a traditional indemnity insurance plan or fee-for-service
arrangement, the insurer and the patient each pays a percentage of the fee
charged by the dentist, subject to cost-sharing, maximum benefit allowances
and usual and customary limits. Under such an indemnity plan, dentists have
little incentive to reduce total charges because they are compensated on a
fee-for-service basis. By contrast, under a managed dental care plan
capitation payments are fixed and co-payments for additional services are
pre-negotiated by the Company. The co-payments generally are designed to
exceed the dentist's variable costs, but are typically less than the
dentist's usual and customary fee. Fixed capitation payments that do not
vary with the frequency of services provided create an incentive for
dentists to emphasize preventive care, control costs and maintain a long-
term patient relationship that generates consistent capitation revenue.
Fixed capitation payments also substantially reduce the underwriting risk
to the Company associated with the high utilization of services.

Markets Served by the Company

     Until July 1996, the Company had focused its efforts primarily on the
Chicago metropolitan market and has grown to become one of the Chicago's leading
managed dental care organizations. The Company began providing managed care
products to employers in the Chicago area in 1988. From 1988 to July 1996, the
Company had expanded into northwest Indiana and certain other areas in Illinois,
initially to serve employees of Chicago-based employers. By the end of 1996, the
Company had expanded into Milwaukee and had initiated expansion activity in
Detroit, Indianapolis and St. Louis.

     The Chicago area is the country's third most populous metropolitan market
with a population of approximately 7.5 million. In addition, northwest Indiana
has a population of approximately 750,000 and the other areas of Illinois into
which the Company has expanded have an aggregate population of approximately 1.9
million. According to the NADP, Illinois is the fifth largest state in terms of
enrollment in managed dental care plans and had approximately 1.1 million
persons enrolled in managed dental care plans in 1995 which represented 8.2% of
the state's population. As of December 31, 1994, virtually all of the Company's
216,000 managed care members were located in Illinois. Approximately 282,000 of
the Company's 341,600 managed care members (excluding Champion) were

                                      -5-
<PAGE>

located in Illinois as of December 31, 1996. The Company believes that Illinois,
and particularly the Chicago metropolitan area, offers significant opportunities
for continued growth in sales of managed dental care products, especially to
medium and smaller-sized employers who have historically been less likely to
offer managed dental coverage.

     The Company believes that, in the Chicago metropolitan area, there are
approximately 500 employers with 500 or more employees (employing an aggregate
of approximately 1.3 million persons), and approximately 50,000 employers with
10 - 499 employees (employing an aggregate of approximately 1.5 million
persons). Based on its database of contacts with employers in the Chicago
metropolitan area, the Company believes that a higher percentage of larger
employers have implemented managed care plans as compared to medium and smaller-
sized employers. The Company believes that medium and smaller-sized employers
have become increasingly receptive to managed dental care products in part
because of their increasing satisfaction with managed care in their medical
benefit plans.

     The Milwaukee metropolitan market has a population of approximately 1.6
million. According to the NADP, Wisconsin is the fourteenth largest state in
terms of enrollment in managed dental care plans and had approximately 306,000
people enrolled in managed dental care plans in 1995, which represents 5.5% of
the state's population. Approximately 55,600 of the Company's 341,600 managed
care members (excluding Champion) were primarily located in the greater
Milwaukee, Wisconsin area as of December 31, 1996. The Company believes that its
enrollment in Milwaukee positions it as the second largest managed dental care
provider in Wisconsin and that there are significant opportunities for continued
growth in sales of managed dental care and indemnity/PPO products.

     The Detroit metropolitan market has a population of approximately 4.4
million. According to the NADP, Michigan is the twelveth largest state in terms
of enrollment in managed dental care plans and had approximately 442,000 people
enrolled in managed dental care plans in 1995, which represents 4.3% of the
state's population. As of December 31, 1996, the Company had no managed care
members in Michigan. The Company believes that Michigan, and particularly the
non-labor commercial market in the Detroit metropolitan area, offers significant
opportunities for continued growth in sales of managed dental care and
indemnity/PPO products.

     The Indianapolis metropolitan market has a population of approximately 1.3
million. According to the NADP, Indiana is the twenty-second largest state in
terms of enrollment in managed dental care plans and had approximately 185,000
people enrolled in managed dental care plans in 1995, which represents 2.0% of
the state's population. As of December 31, 1996, the Company had no managed care
members in the Indianapolis metropolitan market. The Company will be focusing
its efforts in 1997 on establishing a stronger network presence in the
Indianapolis market to take advantage of the longer term opportunities presented
in this under penetrated market.

     The St. Louis metropolitan market has a population of approximately 2.8
million. According to the NADP, Missouri is the sixteenth largest state in terms
of enrollment in managed dental care plans and had approximately 278,000 people
enrolled in managed dental care plans in 1995, which represents 4.6% of the
state's population. Champion has approximately 60,000 managed care members that
are located in Missouri as of December 31, 1996 that are not included in the
Company's year end managed care membership figures. The Company believes that
Champion has the largest managed dental care enrollment in the metropolitan St.
Louis area and the second largest provider network, creating significant growth
opportunities in the future.

     Since the Company's operations are located primarily in the Chicago,
Milwaukee, Detroit, Indianapolis and St. Louis metropolitan areas, its
operations may be more adversely affected by localized economic, regulatory or
competitive conditions than more geographically diverse companies.

     The Company also markets its products to employers based in its service
areas who have employees outside the Company's managed care network service area
("out-of-area employees"). If an employer wishes to offer a managed care product
to its out-of-area employees, the Company has arrangements to provide this
option through its relationships with independent provider networks in over 40
states. The Company collects the revenue for these plans, retains a small
processing fee, and remits the premium to the out-of-area independent dental
plan carrier. Consequently, this product provides negligible gross margin to the
Company. The Company markets this product to

                                      -6-
<PAGE>

employers based in its service areas in order to compete with national dental
plans. As of December 31, 1996, approximately 10,400 members were enrolled with
other dental care plans through such arrangements. The Company also provides its
Managed Choice/SM/ product to employers who have some out-of-area employees,
which permits such employees to select the local managed dental care plan or
indemnity coverage through the Company.

Growth Strategy

     The Company plans to further expand its business through the following
strategies:

     Emphasize Medium and Smaller-sized Employers. The Company believes that
employers with 10-499 employees, which account for approximately 1.5 million
employees in the Chicago metropolitan area, continue to represent an attractive
market segment for managed care products. The Company intends to continue to
build upon its current market position and increase its sales staff,
telemarketing and direct mail efforts towards brokers which sell to medium and
smaller-sized employers.

     Continue to Expand Product Line. The Company believes its Managed
Choice/SM/ products, which can replace an employer's existing dental indemnity
plan with a combined managed care and indemnity/PPO product, will continue to be
particularly attractive to medium and smaller-sized employers. Additionally, the
Company plans to increase cross-selling its Managed Choice/SM/ products to its
existing managed care group clients. In response to group interest, the Company
has introduced its Managed Choice/SM/ Triple Option product as of January 1,
1996. This new product includes a point-of-service benefit option through the
Company's PPO. In addition, the Company began offering a PPO network rental
program to large labor unions. The Company also expects to introduce new managed
care plans designed to encourage greater employee participation in its managed
care products.

     Expand Geographic Service Area. The Company has expanded its managed care
provider network in Illinois and into northwest Indiana to meet the needs of its
large client groups. In addition, during 1996, the Company expanded into four
new markets by completing two acquisitions and initiating two de novo start-ups.
The Company intends to initiate marketing to groups in these new geographic
areas over the next 12 months and may continue to expand into other contiguous
or proximate markets.

     Increase Size of Quality Provider Network. A key factor in the past success
of the Company has been the size, accessibility and quality of the Company's
managed dental care provider network. The Company plans to add new, quality
providers to its networks, as well as to continue to expand the number of
qualified providers who participate in its reduced fee-for-service PPO network.
The Company believes a large, accessible network of quality providers is an
important component in attracting new enrollment into its managed care and PPO
products, both in existing markets and in any new markets developed by the
Company.

     Achieve Additional Cost Efficiencies. The Company believes that its
strategy of focusing operations on a regional basis provides certain SG&A cost
savings. Additionally, the Company has experienced a decline in its SG&A
expenses as a percentage of revenues in recent years. The Company continues to
enhance its management information systems and plans to introduce new voice and
data technologies in the areas of billing and enrollment to achieve additional
staffing economies. The Company also regards its large regional enrollment as an
effective cost-containment strategy in its provider contracting efforts. The
Company believes the combination of its volume purchasing arrangements with
providers and its administrative cost efficiencies can contribute to the future
growth of the business.

Products

     The Company offers a comprehensive range of flexible and innovative dental
benefit products that are designed to offer flexibility to an employer, its
eligible employees and their dependents. Each product is positioned to meet the
needs of key market segments that the Company has identified. The Company
primarily markets two categories of products: (i) stand-alone managed care
products and (ii) managed care plans offered in combination with indemnity/PPO
plans (marketed by the Company as Managed Choice/SM/ products). The following
table shows the enrollment growth in the Company's managed care and
indemnity/PPO plans.

                                      -7-
<PAGE>

<TABLE>
<CAPTION>

                                 As of December 31,
                              -------------------------
                               1994     1995     1996
                              -------  -------  -------
         <S>                  <C>      <C>      <C>
         Members
           Managed Care(1)..  215,700  265,800  341,600
           Indemnity/PPO....   11,600   36,700   56,200
                              -------  -------  -------
               Total........  227,300  302,500  397,800
                              =======  =======  =======
</TABLE>

-----------
(1)  Includes members who have selected the managed care option under the
     Company's Managed Choice/SM/ products and excludes Champion members as of
     December 31, 1996.


     From 1988 to 1992, the Company primarily marketed its managed care plans on
a stand-alone basis. Beginning in 1992, the Company combined its managed care
plans with indemnity plans and began marketing this combination as its Managed
Choice/SM/ products. Since the introduction of Managed Choice/SM/ products in
1992 and the addition of a PPO option in 1996, the Company has experienced
significant enrollment growth in its indemnity products, particularly among
large employers.

     The Company also receives fee income for providing access to its PPO
network and for ASO services. As of December 31, 1996, approximately 34,000
participants were eligible to access the Company's PPO network and were covered
under its ASO arrangements. See "Fee Income Products" below.

     Managed Care Products. The Company offers a range of managed care plans
which are designed to meet the needs of target markets. These plans vary in
coverage levels and cost, which allows the Company to tailor an appropriate
managed care product to an employer's current overall benefit program. The
Company offers its managed care products on a stand-alone basis and as an
alternative to traditional indemnity dental insurance. Managed care products
generally are more cost effective to groups and members than traditional
indemnity coverage. For example, the Company typically charges 20 to 40% less in
monthly premiums for managed care plans than for its indemnity plans which
provide comparable coverage. In addition, the Company's managed dental care
products offer more comprehensive benefits than traditional dental indemnity
plans. The following table compares certain features of the Company's managed
care plans with the features of a typical indemnity dental plan.

        COMPARISON OF FIRST COMMONWEALTH'S MANAGED CARE PLANS
                 WITH A TYPICAL DENTAL INDEMNITY PLAN

<TABLE>
<CAPTION>
============================================================================================
                                First Commonwealth                 Typical Dental
Feature                         Managed Care Plans                Indemnity Plan(1)
============================================================================================
<S>                           <C>                             <C>
       Deductible                       None                        $50 per person
--------------------------------------------------------------------------------------------
Annual dollar limitation                None                        $1,000 per year
       on coverage
--------------------------------------------------------------------------------------------
     Claim forms for            Not required; member          Required; member or dentist
      reimbursement          makes co-payment directly            may incur delays in
                                     to dentist                 obtaining reimbursement
--------------------------------------------------------------------------------------------
        Member's              Member co-payment fixed       Member pays any excess charges
   out-of-pocket costs         in advance of service          above customary fee levels
--------------------------------------------------------------------------------------------
</TABLE>

-----------
(1)  These features are also representative of indemnity plans offered by
     the Company.

     The Company receives a monthly premium for each employee and eligible
dependent enrolled in its managed care plans. The Company remits a portion of
the premium as a capitation payment to the participating network dentist
selected by the member to "pre-pay" for dental care to be rendered to that
member. The capitation payment is a

                                      -8-
<PAGE>

fixed, per-member payment which is made by the Company to the provider for each
member who chooses that dentist, regardless of the frequency or nature of
services rendered.

     Members covered under the Company's managed care plans obtain certain basic
dental procedures such as exams, x-rays, cleanings and fluoride treatments at no
additional charge other than, in some cases, a small office visit co-payment.
The Company's managed care plans also establish co-payments for other services
provided by the network dentist such as fillings, root canals and crowns. The
amount of the co-payment varies in accordance with the complexity of the covered
procedure but is designed to exceed the provider's variable cost related to the
procedure. The network general dentist provides all dental care services except
those specialized services that are more appropriately delivered by dental
specialists.

     When a managed care network general dentist identifies the need for a
specialist, the general dentist completes a referral request form and forwards
it to the Company for review. Examples of dental services provided by a
specialist include oral surgery, periodontics, endodontics, pedodontics and
orthodontics. The Company's independent contractor dentist consultants review
the referral request to determine the appropriateness of the requested
treatment. If the dental consultant approves the referral request, the patient
is then referred by the network general dentist to a network specialist. The
specialist dentist receives a co-payment from the member, negotiated in advance
by the Company, for the specialty services rendered. In addition, the Company
makes monthly payments to the specialist dentists on a capitated or other basis
negotiated by the Company and the specialist.

     Members pay the same amount as a co-payment for the same service whether it
is delivered by a managed care network general dentist or a managed care network
specialist. At the time of enrollment, members are provided a list which
itemizes all covered procedures, the applicable co-payment and any limitations
or exclusions. Members' specific out-of-pocket cost for each covered service is
thus known in advance of the service being provided by the managed care network
provider. These features make the Company's managed care plan coverage
relatively simple for the member to understand and for the managed care network
provider to administer, particularly when compared to the features of a typical
indemnity plan. Members directly pay their applicable co-payment to managed care
network providers, typically at the time of service. The Company's managed care
plans do not require the patient or provider to complete a claim form in order
to obtain coverage, reducing administrative requirements for its managed care
network providers. Moreover, the Company's fixed co-payment schedule also
improves the provider's ability to collect the patient portion of the cost of
services during the visit. This, combined with prepaid capitation, reduces
collection costs and improves the managed care network provider's cash flow.

     When an employer first introduces the Company's managed care product to its
employees, the employer offers an open enrollment period in which employees may
join the managed care plan. Employees enroll for a one year period. Each year
thereafter the employer offers an open enrollment period in which employees may
join the managed care plan and existing enrollees may terminate their coverage
under the plan. When employees enroll in the managed care plan, they select a
participating dentist from the Company's managed care network for each family
member. Unlike many competing plans, the Company's managed care plans permit
each member of an employee's family to choose a different dentist. This choice
allows an employee to select a dentist closer to work while other family members
may choose a dentist closer to home.

     The Company has designed a range of products to market to
employers that currently do not offer a dental plan and to employers that
currently offer only a traditional dental indemnity plan. A description of
these products and the manner in which they are offered to employer groups
follows.

     Managed Care Plans Offered on a Voluntary Basis. The Company's managed care
plans can be offered on a voluntary (employee-pays-all) basis, in which only
those employees who wish to receive and pay for coverage do so. This product is
attractive to many employers who do not presently offer dental benefits to their
employees, because it does not require the employer to contribute toward the
cost of the dental plan. The Company believes that the primary reasons many
employers do not offer a dental plan are cost and the restrictive underwriting
requirements of dental indemnity plans. These underwriting restrictions often
include minimum financial contributions from the employer, a guaranteed minimum
number of employees participating in the dental plans and significant coverage

                                      -9-
<PAGE>

exclusions. Under the Company's managed care products offered on a voluntary
basis, the employee pays for the cost of the plan through a payroll deduction,
which may be made on a pre-tax basis if the employer has adopted a flexible
spending plan under Section 125 of the Internal Revenue Code. Furthermore,
unlike many traditional indemnity carriers, the Company does not require any
minimum number of employees to enroll in order for this employee-pay-all dental
plan to be implemented. The Company's managed care products also do not have the
extensive coverage exclusions of dental indemnity plans.

     Managed Care Plans Offered as an Alternative to an Existing Indemnity
Dental Plan. The Company also offers its managed care plans as an alternative to
an employer's existing dental indemnity program. Employees have the choice of
enrolling in the Company's managed care plan or remaining in the employer's
existing indemnity dental plan. In offering the Company's managed care plan as
an alternative, the employer does not have to change existing indemnity dental
benefits or its existing dental claims processor. Unlike traditional indemnity
plan designs, the Company's managed care plans have no deductible to satisfy, no
annual limitation on benefits, no claim forms to file and are easier for many
employees to understand because of the relatively simple co-payment structure.

     The managed care plans offered by the Company to employers as an
alternative to existing indemnity plans typically offer more comprehensive
coverage than the managed care plans offered to employees on a voluntary basis.
The more comprehensive coverage of the managed care alternative is designed to
encourage employees to move from the existing dental indemnity plan because the
managed care product provides the employer with lower cost per employee.
Employers hold an annual open enrollment period in which employees may transfer
between the traditional dental indemnity alternative and the managed care
alternative. The Company has generally experienced net growth at annual renewals
in its managed care plan when offered on such a basis.

     Managed Care Plans Offered as a Replacement for an Existing Dental
Indemnity Plan. In evaluating the Company's managed care plans, some employers
have elected to implement the managed care plan as a replacement for an existing
dental indemnity plan. The Company believes that, typically, this decision is
based on three considerations: (1) the lower cost to the employer of the
Company's managed dental care plan compared with the traditional dental
indemnity plan, (2) the improved coverage to employees available through the
Company's managed care plans as compared with a typical indemnity dental plan
and (3) the Company's large and accessible network of credentialed dentists.

     In addition to the Company's stand-alone managed care products, the Company
also markets its managed care plans in combination with indemnity coverage. A
discussion of these products follows.

     Managed Care Plans Combined with Indemnity Plans--Managed Choice/SM/
Products. The Company has combined its managed care plans with indemnity dental
coverage in its Managed Choice/SM/ products which offer coverage from the dental
HMO network and non-network dentists. Managed Choice/SM/ products enable the
Company to replace an employer's existing traditional dental indemnity plan
offered by a third party insurance company. Upon enrollment, members select the
managed care product or the indemnity plan provided by the Company. The Company
provides the out-of-network coverage on a traditional dental indemnity basis and
administers the claims for the out-of-network coverage.

     In marketing its Managed Choice/SM/ products, the Company consults with
prospective groups to identify potential areas of cost containment for the out-
of-network coverage. Because the Company controls the design of both the managed
care and indemnity plans, it can encourage greater participation levels in the
less expensive managed care plan. Through a combination of plan design and
claims administration, the Company has helped contain the aggregate cost of its
groups' indemnity dental benefit programs through its Managed Choice/SM/
products.

     The Company has experienced considerable demand for its Managed Choice/SM/
products since their introduction in 1992. As of December 31, 1996, Managed
Choice/SM/ products accounted for approximately 138,100 (approximately 35%) of
the Company's approximately 397,800 members (excluding Champion). Of the 138,100
Managed Choice/SM/ enrollees, approximately 86,300 are enrolled in the Company's
managed care plans and approximately 51,800 are enrolled in the Company's
indemnity plans.

                                      -10-
<PAGE>

     Managed Care Plans Combined with Indemnity/PPO Plans--Managed Choice/SM/
"Triple Option" Products. The Company has integrated a PPO network with the
indemnity plan component of the Managed Choice/SM/ product to offer a point-of-
service option to members. Called the Managed Choice/SM/ Triple Option, members
have a point-of-enrollment choice between the managed care and the indemnity/
PPO plans. If a member selects the indemnity/PPO plan, the member then has a
point-of-service option to choose a participating PPO dentist or a non-
participating dentist. The member's out-of -pocket cost is reduced by selecting
a participating managed care or dental PPO provider over a non-participating
provider.

     Under the Company's Managed Choice/SM/ Triple Option product, members who
select the indemnity/PPO plan will have a benefit incentive to select the
participating PPO dentist. The reduced fee arrangements of the PPO are expected
to assist groups in containing dental costs. As of December 31, 1996, the
Company's PPO network of providers had approximately 400 more dentists than its
network of managed care providers. The Company is actively recruiting other
dentists to participate in its PPO network and intends to add more dentists to
its PPO plan to support this triple option product.

     The Company has had limited success with its Managed Choice/SM/ Triple
Option products since their introduction in 1996. As of December 31, 1996,
Managed Choice/SM/ Triple products accounted for approximately 9,000
(approximately 2.3%) of the Company's approximately 397,800 members. Of the
9,000 Managed Choice/SM/ Triple Option enrollees, approximately 4,200 are
enrolled in the Company's managed care plans and approximately 4,800 are
enrolled in the Company's indemnity/PPO plans. See "Fee Income Products" below
for members covered under this product on a self-insured basis.

     Fee Income Products. For self-insured employers, the Company provides
claims administration under an administrative services only ("ASO") arrangement
whereby the Company does not assume the underwriting risk for the indemnity
claims. The Company receives an administrative fee to process the claims and the
underwriting risk is retained by the employer sponsoring the self-insured plan.
Also under self-insured plans, the Company has offered the integration of the
PPO network into employer sponsored plans and can receive a PPO access fee for
each member who selects the indemnity/PPO self-insured plan as well as an ASO
fee for providing third party administration services. Pursuant to an agreement
with Inland, effective January 1, 1996, the Company is receiving PPO access fees
as well as ASO fees covering approximately 24,000 Inland employees and
dependents, and the Company is actively marketing combined PPO/ASO arrangements
to other employers as part of its Managed Choice/sm/ Triple Option product, as
discussed above.

     The Company also provides access to its PPO network for a fee to clients.
Under this program, PPO network providers offer a reduced fee schedule for
services performed. Eligible participants pay reduced fees when they receive
dental care services from a PPO network provider. The Company charges its PPO
network clients a monthly fee for each participant eligible to access the
Company's reduced fee arrangements. The Company does not make any payments to
its PPO network providers on behalf of the participants eligible to access the
reduced fee arrangements.

     In 1996, the Company introduced a new product called a PPO network "rental"
option. Under the terms of this new product offering, the Company provides
access to its reduced fee arrangements with providers, but does not handle the
third party administration services. This product capability was developed in
response to the opportunity to market to large union Taft-Hartley funds, many of
which handle their own claims processing. The Company has been selected by a
coalition of unions representing more than 50,000 members as the endorsed PPO
vendor and enrolled the first union group on January 1, 1997. Although this PPO
network "rental" option generates modest fee income, it enhances the Company's
purchasing power in the dental community and opens up the organized labor market
as a new opportunity for the Company's other managed care products.

Network Providers

     The Company believes that the size, quality and accessibility of its
network of managed care dentists has been an essential element in its managed
care enrollment growth. The Company maintains a proprietary database of dentist
contacts throughout its service area which it utilizes to continuously recruit
new providers into its network. The

                                      -11-
<PAGE>

Company also believes that its ability to effectively market its network of
managed care dentists to employers through its managed care products makes
participation in its provider network attractive to many dentists. The Company
regards its managed care network providers as customers and has implemented
practices and procedures to attract and retain qualified providers.

     The Company attempts to compensate managed care providers primarily on a
capitated basis because it believes that capitated compensation is the most
effective method of containing dental benefit plan costs on an ongoing basis.
The Company typically "prepays" the capitated amounts on the first business day
of each month for those members who have selected that dentist, thereby creating
attractive cash flow advantages to dentists who participate in the Company's
managed care network. Dentists have relative high fixed costs associated with
their practices. Many dentists are willing to negotiate their fees and find
capitation an attractive revenue source to help them cover such costs. In
addition to capitation, managed care dentists also receive co-payments for
services (other than certain preventative/diagnostic procedures) at the time
service is rendered. The Company attempts to price its members' co-payments so
that they exceed a dentist's variable costs for the procedure, but are less than
the dentist's usual and customary fee. The Company's benefit plans require a
patient to make co-payments directly to the dentist at the time of service,
which eliminates delays in payments and reduces the overhead associated with
filing claims and attendant collection efforts.

     In addition, the Company also may negotiate other payment arrangements with
managed care dentists under certain circumstances. This may involve, among other
things, contributions by the Company toward costs for infection control or cost-
sharing by the Company on a discounted fee-for-service basis. A significant
portion of the specialists with which the Company has managed care provider
contracts are compensated by the Company on such a discounted fee-for-service
basis and not on a capitated basis. Accordingly, the Company retains the risk of
its share of the cost for services provided through such arrangements. Total
payments to specialists represented approximately 9% of the Company's payments
to providers in 1996.

     The Company believes that the large number of practicing dentists and the
high proportion of solo practitioners make the Chicago metropolitan market
highly competitive for private practice dentists. It has been the Company's
experience within the Chicago metropolitan marketplace that dental providers are
willing to participate in its managed care network. The Company believes that
providers find participation in its managed care network attractive for several
reasons. The Company has established a record of delivering large volumes of new
patients to participating providers. The Company regards its network providers
as customers and believes that it provides higher levels of service and support
than typically provided by its competitors. These factors, coupled with the fact
that the Company's capitated payment arrangements provide attractive cash flow
advantages to its managed care dentists, have enabled the Company to attract and
retain qualified providers for its managed care network.

     The Company also believes that its managed care network must be of
demonstrable quality. The Company has developed a multi-step quality assessment
program which begins by initially qualifying interested dentists followed by a
personal office visit with the dentists. Further credentialing involves
verifying a dentist's license, the existence of professional liability coverage
and reviewing any previous claims history. Additionally, the dental office
itself is reviewed to determine if Company's managed care quality assessment
program standards, which include proper infection control procedures, are being
followed. After dentists are added to the managed care network, they and their
practices are periodically recredentialed to ensure Company quality assessment
standards are being maintained. This recredentialing also includes a periodic
random chart audit of members who have received services from network dentists
at that practice. Additionally, a comprehensive membership complaint/inquiry
database is maintained by the Company, the contents of which are discussed with
network dentists when considered necessary. The Company administers its
continuing quality assessment program through its staff and through consulting
dentists, under the supervision of a lead consulting dentist. The Company
further demonstrates its commitment to maintaining a quality oriented managed
care network through routine, on-site field visits and telephone service calls
to dentists. Additionally, the Company provides an ongoing series of continuing
education seminars covering such topics as infection control. The Company also
maintains a working relationship with professional dental organizations in
dealing with issues of common interest.

                                      -12-
<PAGE>

     The Company believes that its managed care network must be stable in order
to offer long-term continuity of care. The Company views its providers as
customers rather than vendors of care and, consequently, focuses significant
resources upon assessing and addressing provider concerns and sources of
dissatisfaction. The Company conducts periodic network dentist satisfaction
surveys and also provides an ongoing series of continuing education seminars, at
no cost for its managed care network providers. Through these contacts, the
Company proactively works to meet network dentists' expectations. As a result,
the Company's managed care provider annual retention rate has been on average
approximately 95%.

     Managed care network providers are independent contractors who provide
services to members pursuant to contractual arrangements with the Company. The
Company's relationships with its managed care network dentists generally are
terminable at any time by either party upon short notice. The contracts do not
require managed care network dentists to provide services exclusively to members
of the Company's plans. The Company may, following any required regulatory
approval, change the terms, capitation rates, benefits and conditions of the
various plans serviced by its managed care network upon advance notice. The
Company's contracts with managed care network dentists require the dentists to
maintain their own malpractice insurance. The Company also carries insurance
protecting it against liability relating to acts or omissions of managed care
network dentists. Although no material malpractice or similar claims have been
asserted against the Company in the past, there can be no assurance that the
Company will not become involved in such litigation or otherwise become subject
to material claims relating to its managed care or PPO network dentists in the
future. In the event of litigation or claims against the Company for malpractice
by one of the providers or for negligence in credentialing one of the providers
in its networks, there is no assurance that the Company's professional liability
insurance will be sufficient to cover any liability which might result from such
litigation or claims.

     The Company's policy is to permit dentists to participate in either its
managed care network, its PPO network or both. Consistent with the practice of
other dental PPOs, if a dentist elects to only participate in the Company's PPO
network, the credentialing requirements are less extensive than those for the
managed care network and currently there are no ongoing peer review requirements
for PPO dentists. Presently, substantially all of the participating dentists in
the Company's managed care network participate in the Company's PPO network. In
addition, at December 31, 1996, the Company's PPO network had approximately 400
additional dentists that do not participate in the Company's managed care
network. The Company is actively recruiting other dentists to participate in its
PPO network and intends to add more dentists to its PPO network.

Customer Groups

     The following table shows a breakdown of the Company's groups by size as of
December 31, 1996:

<TABLE>
<CAPTION>
                                                           Subscribers(2)
                                             Number of  -------------------
Size of Group by Number of Subscribers(1)     Groups     Total   % of Total
-----------------------------------------    ---------  -------  ----------
<S>                                          <C>        <C>      <C>
Individuals................................      N/A      4,600      2.5%
2-10.......................................    1,530      8,600      4.6%
11-50......................................    1,956     37,300     20.1%
51-100.....................................      294     20,600     11.1%
101-500....................................      205     39,200     21.1%
500+.......................................       46     75,400     40.6%
                                               -----    -------    -----
       Total...............................    4,031    185,700    100.0%
                                               =====    =======    =====
</TABLE>
-----------------

(1)  The number of subscribers represents the number of employees of an employer
     group who have enrolled in one of the Company's products but does not
     include dependents of such employees.

(2)  Amounts do not include subscribers in the Company's ASO, ASO/PPO, PPO
     network access and rental programs, and excludes subscribers associated
     with the Champion acquisition.

                                      -13-
<PAGE>

     The Company's 10 largest groups accounted for approximately 34% of the
Company's revenues for the year ended December 31, 1996. The Company's 10
largest groups accounted for approximately 32% of total members for such
period.  None of the Company's groups accounted for more than 10% of the
Company's revenues in 1996.

     The Company has been successful in obtaining dental benefit business
from some of the largest employers in the Chicago metropolitan area,
including First Chicago Corporation, Inland Steel, Loyola University and
Northwestern University. The Company believes that the size and prominence
of its largest employer groups has been instrumental in attracting and
retaining other employers.

     The Company's group contracts generally provide for a defined set of
dental benefits to be delivered to members for a period of one year at
specified monthly rates. The contracts normally have fixed terms of one
year and provide for automatic renewal unless terminated by notice from
either party provided a specified period (typically 60 days) prior to the
end of the term thereof.


Marketing and Sales

     The Company markets its dental benefit plans through a network of over
1,400 independent insurance brokers and a direct sales force consisting of
15 employees. This dual distribution system is designed to reach large
groups as well as smaller groups and individuals in an efficient and cost
effective manner. The Company believes that this marketing strategy
provides it with a competitive advantage by enabling it to market to a
wider range of potential groups more efficiently than companies relying on
a single distribution system.

     The Company's direct sales force targets larger employers and groups
which are more likely to contribute towards the cost of dental benefits for
their employees. In marketing to large groups, the Company's sales force
focuses on stand-alone managed care products as an economical alternative
to traditional indemnity coverage as well as Managed Choice/SM/ products.
The Company pays its direct sales force through a combination of salary and
bonus based upon the number of members enrolled for new groups. As part of
its growth strategy, the Company intends to increase its internal sales and
marketing staff to recruit and manage its network of brokers and expand
telemarketing and direct mail efforts.

     The Company's independent insurance broker network focuses on offering
primarily voluntary (employee-pays-all) managed care products to medium and
smaller-sized employers which have not previously contributed toward or
offered dental care benefits to their employees. The Company believes that
there are significant opportunities for the Company to expand managed care
coverage to medium and smaller-sized employers by expanding its network of
independent brokers who can efficiently sell dental benefit products to the
medium and smaller-sized market. Brokers typically do not market the
Company's dental benefit plans on an exclusive basis. Brokers generally
receive a flat percentage of the premium collected as commission for the
initial sale of the Company's product as well as a commission for each
annual renewal thereof.

     The Company has developed a proprietary business development process
which is used in conjunction with the Company's direct and brokered sales
efforts. This business development process relies heavily on a computerized
prospect tracking system which contains detailed benefit and contact
information on approximately 35,000 employers in the Chicago,  Milwaukee
and St. Louis metropolitan areas. Using this database, the Company's
business development representatives use direct mail to target employer
decision makers and brokers and telemarketing to follow up with these
employer decision makers and brokers. It has been the Company's experience
that the sales cycle may be a multi-year process, particularly since
employers tend to make decisions regarding dental coverage on an annual
basis. The Company believes that the continuity of communication which it
has established with these decision makers gives the Company a significant
advantage over its competitors in the Chicago metropolitan market. This
comprehensive database also links brokers with their clients which permits
the Company's field staff to contact brokers at the time of their clients'
annual renewal periods.

                                      -14-
<PAGE>

     Marketing generally is a two-step process in which presentations are
made first to employers and then directly to employees. Once selected by an
employer, the Company typically solicits potential subscribers from the
employee base directly. During periodic "open enrollments," when
employees are permitted to change dental benefit programs, the Company uses
direct mail, work site presentations and other marketing methods to attract
new subscribers. The Company stresses its ability to provide a flexible
schedule of benefits, quality dental services oriented toward preventive
care at reasonable prices and a large panel of dentists from which to
choose in these marketing efforts.

     The Company also has a member services department which assists
members on such matters as schedules of benefits, available network
dentists, transfers from one network dentist to another, emergency dental
services, billing issues and other administrative and group service
matters. The member services department also handles complaints about
providers and conducts member satisfaction surveys.

     The Company has a separate account management department that focuses
on servicing the needs of benefit managers and groups. The Company believes
that this service effort is important to group retention and enrollment
growth among group members. The Company manages its groups with a long-term
strategic goal to increasing participation in the Company's managed care
plans.

Management Information Systems

     The management information systems used by the Company are designed to
facilitate subscriber and provider service. The Company depends on these
systems for comprehensive group service, premium collection and
reconciliation, administration of capitation and commission payments,
member eligibility processing, marketing support, corporate accounting and
management reporting. The Company's management information systems allow it
to offer multiple plans tailored to the needs of its groups and have the
capability to interface directly with the systems of its groups, which can
facilitate expeditious processing of changes in membership information.

     The Company periodically upgrades its hardware and software systems to
(i) enhance its capability for electronic interchange with its groups, (ii)
streamline the systems' ability to support both multi-state accounts and
multiple products for the same group, (iii) enhance the integration between
the Company's management information systems and its corporate accounting
software, (iv) improve statistical and analytical capability with respect
to various aspects of the Company's business and (v) make other
technological changes to improve the efficiency of the Company's systems.
The Company plans to introduce new voice and data technologies and to
increase the use of electronic methods for billing, enrollment and ongoing
eligibility maintenance between employer groups and network dentists. The
Company believes that these steps should help it to limit staff increases
in the future and to increase the effectiveness and efficiency of its
administrative operations.

Competition

     The Company operates in a highly competitive environment. Its
competitors principally include insurance companies, which often offer both
managed dental care and indemnity dental products in the Company's market,
and independent companies offering managed dental care products similar to
those offered by the Company. The managed dental care industry as a whole
is currently fragmented and characterized by the participation of several
large, national insurance companies and many smaller independent plan
sponsors.  The Company also competes with numerous other types of
businesses in the health care industry, including health maintenance
organizations, limited health services corporations, self-funded plans
which are administered by third party administrators, preferred provider
organizations and other discount fee-for-service dental plans. The Company
has experienced, and expects that it will continue to experience in the
future, increased competition from all such sources. Many of the Company's
competitors are larger and have substantially greater financial and other
resources than the Company. Price considerations have been a significant
competitive factor in the past and the Company believes pricing will
continue to be a significant competitive factor in the future, especially
with respect to large government and labor union contracts awarded on the
basis of competitive bidding. Currently such contracts constitute less than
2% of the Company's total revenues.  The Company believes that it competes
principally on the basis of the pricing of managed care products in
comparison to traditional indemnity plan coverage, the size, accessibility
and quality of its provider network, its service reputation and the

                                      -15-
<PAGE>

diversity of its products. Of these, the Company has found that provider network
size, accessibility and quality, service reputation and cost are generally the
factors most critical in employer decision-making.

     While the managed dental care business does not require substantial amounts
of capital, the Company believes that certain factors may limit the number of
new competitors that successfully enter its marketplace. These include the need
for new competitors to comply with governmental licensing requirements and to
establish provider and insurance broker networks in order to enter and compete
in the market. The Company believes that it is well positioned to continue to
compete in the Chicago, Milwaukee and St. Louis metropolitan areas as a result
of its growing network of providers and insurance brokers and the Company's
service reputation and client base. The Company also believes that it is well
positioned to compete in the Detroit and Indianapolis metropolitan areas as a
result of the competitive size of its network of providers and the Company's
focused marketing efforst. While the Company believes that it has successfully
established one of the leading market positions in the Chicago, Milwaukee and
St. Louis metropolitan areas, there can be no assurance that the Company will be
able to continue to increase or maintain its market share. Increased competition
could adversely affect the Company's results of operations.

Government Regulation

     The business of the Company is subject to extensive regulation, by, as may
be applicable, the insurance statutes and regulations of the states in which the
Company operates with respect to the prepaid health plan, insurance,
reinsurance, and related operations of the Company ("Insurance Regulation"). The
Company is registered in Illinois as a Third Party Administrator and as an
Insurance Firm; its subsidiary, First Commonwealth of Illinois, Inc., is
registered in Illinois as a Preferred Provider Administrator; another
subsidiary, First Commonwealth Limited Health Services Corporation, is licensed
in Illinois as a Limited Health Service Organization and in Indiana as a Limited
Service Health Maintenance Organization; another subsidiary, First Commonwealth
Reinsurance Company, is licensed in Arizona as a life and disability reinsurer;
another subsidiary, First Commonwealth Limited Health Service Corporation, is
licensed in Wisconsin as a Limited Service Health Organization; another
subsidiary, Champion Dental Services, Inc., is licensed in Missouri as a prepaid
dental plan corporation; and an affiliate, First Commonwealth Health Services
Corporation, is organized under Illinois law as a Voluntary Health Services
Plan.

     Insurance Regulation, which may vary from state to state, establishes
extensive operational, financial, reporting, and other requirements applicable
to the Company's business in such state. Depending upon the nature and scope of
regulatory requirements adopted from time to time in each of the states having
jurisdiction over the legal entities or operations of the Company, Insurance
Regulation may materially and adversely affect the business, operating results
and financial condition of the Company. Insurance Regulation generally requires
the Company to be licensed by the state insurance department in order to offer
its dental care products, administrative services or preferred provider network
in such state and otherwise conduct its operations in such state. In addition,
Insurance Regulation generally prescribes minimum levels of net worth and
reserves, limits the ability of the Company's subsidiaries to pay dividends to
the extent required surplus would be impaired, requires filings for approval of
products and services offered by the Company and its subsidiaries and the filing
of rate schedules, certain product literature, forms of contracts with
subscribers, dentists and others (which may entail substantial delay in
implementing changes or introducing new products), establishes minimum benefit
levels for the Company's dental products in some cases, provides for periodic
examinations, including quality assessment review, establishes standards for the
Company's management and other personnel, specifies measures for resolving
grievances and requires prior approval if more than a certain percentage of the
Company's outstanding voting securities are to be acquired. Changes in Insurance
Regulation or the application thereof could involve, among other things,
increased capitalization requirements, limitations on the payment of dividends,
distributions, or principal or interest on subordinated debt, the imposition of
guaranty fund assessments, mandated health benefits and other terms of
enrollment contracts, restrictions on the use of "fronting arrangements" and
reinsurance agreements, requirements for admission of or licensing as foreign
reinsurance companies, limited health service organizations, limited service
health organizations, prepaid dental plan corporations, preferred provider
administrators and third party administrators, state health insurance reforms
for groups and individuals, "any willing provider" requirements limiting the
Company's right to restrict the size of its provider network, minimum loss ratio
requirements, or other matters. There can be no assurance that changes in
Insurance Regulation or the application of existing Insurance Regulation,
including matters relating to the

                                      -16-
<PAGE>

Company's limited operations outside its service areas, will not materially and
adversely affect the business or financial condition of the Company. Failure of
the Company to comply with the Insurance Regulation could subject the Company to
financial penalties, cease and desist orders or the revocation of one or more
licenses required to conduct its business.

     Any future expansion of the Company's business may subject the Company to
additional regulation by the state or federal governments. The insurance
statutes and regulations of certain states may limit the ability of the Company
to expand its operations in or into such states, or may substantially delay the
commencement of operations in such states as a result of the need to comply with
the licensing requirements of such states. Expansion of the Company's business
by acquisition of control of existing regulated entities may subject the Company
to substantial filing and approval requirements. Furthermore, proposals have
been made in the past, and may be made again, for national and state health care
reform which, if enacted, could materially and adversely affect the business and
financial condition of the Company. It has been the Company's policy to maintain
regular contact and productive working relationships with regulators in each
jurisdiction in which it is licensed to conduct business.

     In general, Insurance Regulation of the states in which the Company
and its subsidiaries operate require a person seeking to acquire control,
directly or indirectly, of certain regulated entities or of any person
controlling such entity to file with the relevant insurance regulatory
authority an application for change of control (commonly known as a "Form
A") containing certain information regarding the identity and background
of the acquiror and its affiliates, the source and amount of funds to be
used to effect the acquisition and certain other matters. For purposes of
many of these statutes and regulations promulgated thereunder, a person
that owns or controls, directly or indirectly, 10% or more of the
outstanding voting securities of any other person is generally presumed to
"control" that other person. Accordingly, any purchase of Common Stock
that would result in the purchaser having beneficial ownership of Common
Stock equal to or in excess of the specified threshold level, which may be
lower than 10% in some states or, as a result of future regulatory action,
in one or more of those states in which the Company currently operates,
pursuant to the offering of Common Stock made hereby or otherwise
(including through purchases in the open market), must file for and obtain
prior approval from all applicable regulatory authorities. Such prior
approval could also apply to the acquisition of proxies to vote specified
percentages of the outstanding Common Stock and, therefore, could delay or
prevent a stockholder from acquiring such proxies in a proxy contest. No
assurance can be given that the Company would not seek to invoke these laws
and regulations in a proxy contest or a tender offer or merger situation.
Failure to comply with change of control provisions under applicable state
insurance codes by an investor acquiring the Company's Common Stock at or
above the specified threshold levels could result in a material adverse
effect on such investor, including the possible entry of a divestiture
order, and could also possibly result in adverse regulatory action against
the Company and its subsidiaries. Prospective and current stockholders, and
not the Company, are responsible for compliance with Form A and similar
filing and prior approval requirements. The Company assumes no obligation
with respect to these matters.

     The Company's business is not currently regulated at the federal level.
During 1994, however, Congress considered legislation proposing comprehensive
reform of the health care system in the United States. The Company cannot
predict whether or when future health care reform initiatives at the federal or
state level or other initiatives affecting insurance and/or managed care
providers such as the Company may be proposed, enacted or implemented or what
impact such initiatives may have on the Company's business, operating results or
financial condition.

Company's Corporate Structure

     The Company contracts to provide dental care benefits to groups and members
in Illinois and Indiana through First Commonwealth Limited Health Services
Corporation, a wholly-owned subsidiary ("FC-Limited"), in Wisconsin through
First Commonwealth Limited Health Service Corporation, a wholly-owned subsidiary
("FC-Wisconsin"), and in 1997 in Missouri through Champion, a wholly-owned
subsidiary. The Company provides administrative and marketing services for FC-
Limited, FC-Wisconsin, and Champion. Another wholly-owned subsidiary, First
Commonwealth of Illinois, Inc. ("FC-Illinois"), contracts with dentists and
dental care specialists to provide dental care services to groups and to members
for whom FC-Limited, FC-Wisconsin, and Champion provides dental benefits.
Smileage, a wholly-owned subsidiary, is a Wisconsin based dental HMO
administrator.

                                      -17-
<PAGE>

     As the Company has increased its indemnity business, it has entered
into a reinsurance agreement with North American Insurance Company, an
Illinois licensed reinsurer ("North American"), covering a portion of its
indemnity business. North American, in turn, has entered into an agreement
with another subsidiary of the Company, First Commonwealth Reinsurance
Company ("FC-RE"), whereby North American transfers most of this
reinsured risk from FC-Limited to FC-RE. The Company currently retains
virtually all of the underwriting risk of its indemnity plans. FC-RE
engages in no reinsurance activity that is not related to the Company's
indemnity products.

     First Commonwealth Health Services Corporation ("FCHSC") is
consolidated with the Company and its subsidiaries for financial reporting
purposes. FCHSC is not material to the financial condition or operating
results of the Company. FCHSC is licensed under the Voluntary Health
Services Plans Act (the "VHSP Act"). In accordance with the VHSP Act,
FCHSC is operated and conducted as a not-for-profit and is also governed by
the provision of the General Not-for-Profit Corporation Act. FCHSC was
initially capitalized by First Commonwealth, Inc. ("FC Inc.") through the
purchase of a subordinated note. Certain officers and trustees of FCHSC are
common to the officers and directors of FC Inc. Consistent with its
authority under the VHSP Act, FCHSC provides reimbursement to its members
for covered dental care. The VHSP Act requires, among other provisions,
that FCHSC not expend more than 20% of its annual subscriber revenue for
administrative costs and 10% for marketing costs. FC Inc. provides
administrative and marketing services to FCHSC pursuant to a management
agreement.

Risk Management

     The Company maintains general and professional liability insurance to
cover the risk of operating its managed care dental plans. In addition,
each dentist in the provider network is required to maintain malpractice
insurance.

     The Company seeks to enter into capitation arrangements whenever
possible as its primary means of managed care dentist compensation. In
addition to capitation arrangements, the Company also may negotiate other
payment arrangements with dentists and specialists. Such arrangements may
involve, among other things, contributions by the Company toward costs for
infection control or discounted fee-for-service pricing arrangements.
Certain specialists with which the Company has provider contracts are
compensated by the Company on such a discounted fee-for-service basis and
not on a capitated basis. Accordingly, the Company retains the risk of its
share of the cost for services provided by such specialists. If the
utilization of specialty care benefits substantially increase under the
Company's managed care plans, the Company's profitability could be
materially and adversely affected. Total payments to specialists
represented approximately 9% of the Company's payments to managed care
providers in 1996.

     In addition, an increasing portion of the Company's business is the
sale of indemnity/PPO plans as part of its Managed Choice/SM/ product. The
Company retains virtually all of the underwriting risk of its indemnity/PPO
products. Although dental indemnity/PPO plans have limitations on coverage
(including limits on procedures covered, amounts covered per procedure and
annual and lifetime benefits), due to variability in both the utilization
of services and the cost per service under an indemnity/PPO plan, increased
indemnity/PPO enrollment increases the underwriting risk undertaken by the
Company. The dental benefit costs associated with the Company's Managed
Choice/SM/ products include an estimate of dental expenses incurred by its
members outside of the Company's provided network, but which have not yet
been reported to the Company. If the utilization or cost per service
incurred outside of the Company's network were to be greater than
estimated, the Company's business, operating results or financial condition
could be materially and adversely affected. The Company has not experienced
any significant adverse variations between such estimated and actual
expenses, but there can be no assurance that such variations will not occur
in the future.

     The Company staffs its claims processing operation with individuals
experienced in dental terminology and procedures such as hygienists, dental
office assistants and dentist consultants, who review claims submitted for
appropriateness. The Company also uses specific underwriting criteria as an
integral part of its risk management program for its indemnity/PPO plans.
Utilizing specific underwriting criteria, the Company attempts to assure
that each employer group's profile is consistent with relevant rating
assumptions. In addition, high patient cost-sharing in dental plans
substantially limits the underwriting risk of a dental plan, particularly
when compared to the risk in a medical plan. Furthermore, unlike medical
plans, dental plans typically do not cover catastrophic risks.

                                      -18-
<PAGE>

Employees

     The Company had approximately 135 employees as of December 31, 1996.
None of the Company's employees is covered by a collective bargaining
agreement. The Company believes its relations with its employees are good.


Item 2.  Properties

     The Company does not own any real estate; it leases approximately
24,000 feet of office space in Chicago. The lease has a term expiring in
2000, with an option for the Company to extend the lease through 2003.  In
addition, the Company leases approximately 1,700 feet of office space in
Milwaukee with a term expiring in 1999; 500 feet of office space in Detroit
with a term expiring in 1997, and 500 feet of office space in Indianapolis
with a term expiring in 1997.


Item 3.  Legal Proceedings

     The Company is involved from time to time in routine legal and
regulatory proceedings incidental to its business.  The Company is not
involved in any currently pending lawsuits or proceedings that it believes
will have, individually or in the aggregate, a material adverse effect on
the Company.


Item 4.  Submission of Matters to a Vote of Security Holders

     None.

                                      -19-
<PAGE>

                               PART II


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

     Incorporated herein by reference from section entitled "Related
Stockholder Matters and Market for the Company's Common Stock" in the
Company's 1996 Annual Report to Stockholders, which is included as Exhibit
13 to this Annual Report on Form 10-K.


Item 6.  Selected Financial Data

     Incorporated herein by reference from section entitled "Selected
Consolidated Financial and Operating Data" in the Company's 1996 Annual
Report to Stockholders, which is included as Exhibit 13 to this Annual
Report on Form 10-K.


Item 7.  Managements's Discussion and Analysis of Financial Condition and
         Results of Operations

     Incorporated herein by reference from section entitled "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
in the Company's 1996 Annual Report to Stockholders, which is included as
Exhibit 13 to this Annual Report on Form 10-K.


Item 8.  Financial Statements and Supplementary Data

     Incorporated herein by reference from sections entitled "Financial
Statements" and "Notes to Consolidated Financial Statements" in the
Company's 1996 Annual Report to Stockholders, which is included as Exhibit
13 to this Annual Report on Form 10-K.


Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

     None.

                                      -20-
<PAGE>

                               PART III


Item 10.  Directors and Executive Officers of the Registrant

     The information contained under the headings "Election of Directors"
and "Executive Officers" in the Proxy Statement (which Proxy Statement will
be filed with the Securities and Exchange Commission on or before April 30,
1997) is incorporated herein by reference.


Item 11.  Executive Compensation

     Except for information referred to in Item 402(a)(8) of Regulation S-K,
the information contained under the headings "Election of Directors" and
"Executive Compensation and Other Information" in the Proxy Statement
(which Proxy Statement will be filed with the Securities and Exchange
Commission on or before April 30, 1997) is incorporated herein by
reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The information contained under the heading "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement (which
Proxy Statement will be filed with the Securities and Exchange Commission
on or before April 30, 1997) is incorporated herein by reference.


Item 13.  Certain Relationships and Related Transactions

     The information contained under the heading "Certain Relationships and
Related Transactions" in the Proxy Statement (which Proxy Statement will be
filed with the Securities and Exchange Commission on or before April 30,
1997) is incorporated herein by reference.

                                      -21-
<PAGE>

                               PART IV
                               =======


Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)(1)  Financial Statements

     The following financial statements are filed as part of this report:

          Report of Independent Public Accountants on Consolidated
          Financial Statements.*

          Consolidated Balance Sheets of the Company as of December 31, 1996,
          1995 and 1994.*

          Consolidated Statements of Income of the Company for the years
          ended December 31, 1996, 1995 and 1994.*

          Consolidated Statements of Stockholders' Equity of the Company
          for the years ended December 31, 1995, 1994 and  1993.*

          Consolidated Statements of Cash Flows of the Company for the years
          ended December 31, 1996, 1995 and 1994.*

          Notes to Consolidated Financial Statements.*

------------

*   Incorporated herein by reference from the Company's 1996 Annual Report
to Stockholders.


     (a)(2) Financial Statement Schedules

     Report of Independent Public Accountants on Financial Statement Schedule
     Page 25

     Schedule II  --  Valuation and Qualifying Accounts      Page 26

     All other schedules for which provision is made in the applicable
     accounting regulation of the Securities and Exchange Commission are not
     required under the related instructions or an inapplicable, and therefore
     have been omitted.


     (a)(3)  Exhibits

     The following Exhibits are filed herewith or incorporated herein:
<TABLE>
<CAPTION>

Exhibit No.                                       Description
-----------                                       -----------
 <C>          <S>
   3.1  --    Second Restated Certificate of Incorporation of the Company, as amended (1)
   3.2  --    Restated By-laws of the Company (2)
   4.1  --    Stockholders Rights Agreement between the Company and First Chicago Trust Company of
              New York (1)
</TABLE>

                                      -22-
<PAGE>

<TABLE>
<CAPTION>

Exhibit No.                                         Description
-----------                                         -----------
<C>           <S>
  10.1  --    Series A and Series B Preferred Stock Purchase Agreement dated September 18, 1987 by and
              among the Company and the Purchasers referred to therein (1)
  10.2  --    Registration Agreement, dated September 18, 1987, by and among the Company and the
              Purchasers referred to therein (1)
  10.3  --    Founders' Agreement, dated September 18, 1987, by and among the Company, the Purchasers
              referred to therein and each of Christopher C. Multhauf and David W. Mulligan (1)
  10.4  --    First Amendment and Agreement, dated as of September 18, 1988, by and among the Company
              and the Purchasers referred to therein (1)
  10.5  --    First Commonwealth, Inc. Management Bonus Plan (1)(3)
  10.6  --    1987 Statutory-Nonstatutory Stock Option Plan, as amended (1)(3)
  10.7  --    1995 Long-Term Incentive Plan, as amended as of March 14, 1997 (3)
  10.8  --    First Commonwealth, Inc. Salary Savings Plan (1)(3)
  10.9  --    Employment Agreement between the Company and Christopher C. Multhauf (1)(3)
 10.10  --    Employment Agreement between the Company and David W. Mulligan (1)(3)
 10.11  --    Employment Agreement between the Company and Gregory D. Stobbe, as amended (1)(3)
 10.12  --    Employment Agreement between the Company and Mark R. Lundberg (1)(3)
 10.13  --    Employment Agreement between the Company and Scott B. Sanders (1)(3)
 10.14  --    Reinsurance Agreement between First Commonwealth Limited Insurance Company and First
              Commonwealth Reinsurance Company (1)
 10.15  --    Reinsurance Agreement between North American Insurance Company and First Commonwealth
              Reinsurance Company (1)
 10.16  --    Form of First Commonwealth Limited Health Services Corporation Group Master Contract (1)
 10.17  --    Form of First Commonwealth of Illinois, Inc. Dental Provider Agreement (1)
 10.18  --    Form of First Commonwealth of Illinois, Inc. Participating PPO Dentist Contract (1)
 10.19  --    Lease Agreement between 444 North Wells Limited Partnership as sole beneficiary of American
              National Bank & Trust Company of Chicago Trust No. 56647 as Landlord and the Company as
              Tenant, as amended (1)
 10.20  --    Administrative Master Contract, dated December 12, 1990, between First Commonwealth of
              Illinois, Inc. and First Commonwealth Limited Health Services Corporation (1)
 10.21  --    Administrative Contract, dated December 12, 1990, between First Commonwealth, Inc. and
              First Commonwealth Limited Health Services Corporation (1)
</TABLE>


                                      -23-
<PAGE>

<TABLE>
<CAPTION>

Exhibit No.                                       Description
-----------                                       -----------
<S>           <C>
 10.22  --    Management Agreement, dated November 20, 1987, between First Commonwealth, Inc. and
              First Commonwealth Health Services Corporation (1)
 10.23  --    Administrative Master Contract, dated February 1, 1989, between First Commonwealth of
              Illinois, Inc. and First Commonwealth Health Services Corporation, as amended (1)
 10.24  --    Public Offering Agreement among the Company, Christopher C. Multhauf, David W. Mulligan
              and the Selling Stockholders identified therein (1)
 10.25  --    Stock Exchange Agreement, dated July 18, 1996, by and among the Company and the
              Shareholders of Smileage Dental Services, Inc., is hereby incorporated by reference to Exhibit
              2.1 to the Company's Currrent Report on Form 8-K, dated July 18, 1996
 10.26  --    Registration Rights Agreement, dated July 18, 1996, between the Company and the Holders of
              Registrable Securities referred to therein, is hereby incoporated by reference to Exhibit 99.1 to
              the Company's Current Report on Form 8-K, dated July 18, 1996
 10.27  --    Stock Purchase Agreement, dated as of October 2, 1996, among the Company, Group Health
              Plan, Inc., Champion Dental Services, Inc. and Coventry Corporation, is hereby incorporated
              by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
              ended September 30, 1996
    11  --    Statement re: computation of per share earnings
    13  --    1996 Annual Report to Stockholders
    21  --    Subsidiaries of the Registrant
    23  --    Consent of Arthur Andersen LLP
    24  --    Powers of Attorney (included on signature page)
    27  --    Financial Data Schedule
</TABLE>
-----------
(1)  Incorporated herein by reference to an exhibit with the same number as
     filed with the Company's Registration Statement on Form S-1, as amended
     (Registration No. 33-97426).

(2)  Incorporated herein by reference to an exhibit with the same number as
     filed with the Company's Quarterly Report on Form 10-Q for the quarter
     ended June 30, 1996.

(3)  Represents management contract or compensatory plan or arrangement.


     (b)  Reports on Form 8-K

          The Company filed a Form 8-K, as amended, dated as of December
          31, 1996, to report the acquisition of Champion Dental Services,
          Inc., and to file required financial information relating
          thereto.

                                      -24-
<PAGE>

               REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                   ON FINANCIAL STATEMENT SCHEDULE



To the Stockholders and Board of Directors of
First Commonwealth, Inc.:

     We have audited in accordance with generally accepted auditing standards
the consolidated financial statements included in FIRST COMMONWEALTH, INC. AND
SUBSIDIARIES' 1996 Annual Report to Stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated February 12, 1997. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule included on page 26 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.



ARTHUR ANDERSEN LLP

Chicago, Illinois,
February 12, 1997

                                      -25-
<PAGE>

              FIRST COMMONWEALTH, INC. AND SUBSIDIARIES

           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

Period                                                        Additions
------                                              -----------------------------
Year Ended                            Balance at       Charged to
December                              Beginning of     Costs and     Charged to Other      Deductions-        Balance at
31,           Description             of Period        Expenses      Accounts-Describe     Describe           End of Period
---           -----------             ---------        --------      -----------------     --------           -------------
<S>           <C>                     <C>              <C>           <C>                   <C>                <C>
1994          Claims liability          $  225,962     $1,361,455            --            $1,199,703(1)      $  387,714

              Allowance for doubtful
              accounts                  $   80,782     $   36,000            --                    --         $  116,782


1995          Claims liability          $  387,714     $5,451,936            --            $4,581,969(1)      $1,257,681

              Allowance for doubtful
              accounts                  $  116,782     $  192,808            --            $  112,274(2)      $  197,316


1996          Claims liability          $1,257,681     $8,341,669            --            $8,019,681(1)      $1,579,669

              Allowance for doubtful
              accounts                  $  197,316     $  104,000            --            $   31,762(2)      $  289,554

</TABLE>

--------------------
(1)  Payment for claims

(2)  Write-off of bad debt


                                      -26-
<PAGE>

                              SIGNATURES

     Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, this Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  March 31, 1997          FIRST COMMONWEALTH, INC

                               By:  /s/ Christopher C. Multhauf
                                  ---------------------------------------------
                                  Christopher C. Multhauf
                                  Chairman of the Board of Directors and Chief
                                  Executive Officer


                   POWER OF ATTORNEY AND SIGNATURES

     Each of the undersigned officers and directors of First Commonwealth, Inc.
hereby severally constitutes and appoints Christopher C. Multhauf, David W.
Mulligan and Scott B. Sanders, and each of them singly, our true and lawful
attorneys, with full power to them and each of them singly, to sign for us in
our names in the capacities indicated below, all amendments to this Annual
Report on Form 10-K, and generally to do all things in our names and on our
behalf in such capacities to enable First Commonwealth, Inc. to comply with the
provisions of the Securities Act of 1934, as amended, and all requirements of
the Securities and Exchange Commission.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 31st day of March, 1997.


<TABLE>
       Name                                                 Capacity
       ----                                                 --------
<S>                              <C>
/s/ Christopher C. Multhauf      Chairman of the Board of Directors and Chief Executive Officer
-------------------------------  (principal executive officer)
Christopher C. Multhauf


/s/ David W. Mulligan            Director, President, Secretary and Chief Operating Officer
-------------------------------
David W. Mulligan


/s/ Scott B. Sanders             Chief Financial Officer and Treasurer (principal financial and
-------------------------------  accounting officer)
Scott B. Sanders


/s/ Richard M. Burdge, Sr.       Director
-------------------------------
Richard M. Burdge, Sr.


/s/ William J. McBride           Director
-------------------------------
William J. McBride


/s/ Jackson W. Smart, Jr.        Director
-------------------------------
Jackson W. Smart, Jr.

</TABLE>

                                      -27-
<PAGE>

                            Exhibit Index
                            -------------

<TABLE>
<CAPTION>



Exhibit No.                         Description
-----------                         -----------

<S>    <C> <C>
10.7   -   1995 Long-Term Incentive Plan, as amended as of March 14, 1997

11     -   Statement re: computation of per share earnings

13     -   1996 Annual Report to Stockholders

21     -   Subsidiaries of the Registrant

23     -   Consent of Arthur Andersen LLP

24     -   Powers of Attorney (included on signature page)

27     -   Financial Data Schedule


</TABLE>