As filed with the Securities and Exchange Commission on February 2, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE FIRST AMERICAN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 6361 95-1068610
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation of Organization) Classification Code No.) Identification No.)
114 EAST FIFTH STREET
SANTA ANA, CALIFORNIA 92701-4622
(800) 854-3643
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
MARK R ARNESEN, ESQ. (Copy to)
SECRETARY NEIL W. RUST, ESQ.
THE FIRST AMERICAN FINANCIAL CORPORATION WHITE & CASE, LLP
114 EAST FIFTH STREET 633 WEST FIFTH STREET
SANTA ANA, CALIFORNIA 92701 LOS ANGELES, CALIFORNIA 90071
(714) 558-3211 (213) 620-7700
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Approximate date of commencement of proposed sale to the public: from time
to time after this registration statement becomes effective as determined by
transaction objectives.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. ( )
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ( ) Registration No.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ( ) Registration No.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of Securities To Be Aggregate Price Aggregate Registration
To Be Registered Registered Per Unit(1) Offering Price(1) Fee(1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $1.00 par value 2,500,000 shares $48.53 $121,325,000 $35,791
==================================================================================================================================
<FN>
(1) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE IN
ACCORDANCE WITH RULE 457(C) UNDER THE SECURITIES ACT OF 1933, BASED ON
THE AVERAGE OF THE HIGH AND LOW PRICES OF THE COMMON STOCK REGISTERED
ON THE NEW YORK STOCK EXCHANGE AS OF JANUARY 26, 1998.
</FN>
</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
2,500,000 COMMON SHARES
THE FIRST AMERICAN FINANCIAL CORPORATION
This Prospectus relates to the offer from time to time by The First
American Financial Corporation (the "Company") of up to 2,500,000 Common shares,
$1.00 par value, of the Company (the "Stock"), upon terms to be determined at
the time of each such offering. The Stock is to be offered directly by the
Company in one or more of the following categories of transactions: (i) exchange
transactions in which the Company offers Stock to holders ("Debt Holders") of
promissory notes previously issued by the Company or its subsidiaries as total
or part consideration for the acquisition by the Company or its subsidiaries of
one or more businesses from Debt Holders (such debt "Acquisition Debt" and such
a transaction an "Acquisition Debt Offer"); (ii) transactions in which the
Company offers Stock to those shareholders of partially owned subsidiaries
previously acquired by the Company or its subsidiaries (w) in lieu of rights
under certain "earn-out" agreements, (x) that exercise their right to sell all
or part of their share holdings to the Company or its subsidiaries (a "Put
Right"), (y) that exchange all or a part of their shareholdings of stock in a
subsidiary of the Company for Stock pursuant to an offer made by the Company (a
"Tender Offer") or (z) upon the Company's exercise of certain call rights with
regard to the stock of its subsidiaries owned by those shareholders; and (iii)
transactions ("Acquisition Transactions") in which the Company offers Stock in
connection with the acquisition of the assets of, or ownership interests in,
certain entities engaged in the same or similar lines of business as the Company
or any of its subsidiaries. In the case of Acquisition Transactions, the
consideration to be paid by the Company or its subsidiaries may also include
cash, promissory notes, other evidences of indebtedness, guarantees, assumption
of liabilities, tangible or intangible property, or a combination thereof, as
determined through negotiations between the Company and the owners or
controlling persons of the assets or ownership interests to be acquired.
The Company contemplates that the terms of an acquisition will be
determined by negotiations between the Company's representatives and the owners
or controlling persons of the assets or ownership interests to be acquired.
Factors taken into account in acquisitions may include, among other relevant
factors, the quality and reputation of the business, the assets, liabilities,
results of operations and cash flows for the business, the quality of its
management and employees, its earnings potential, the geographic locations of
the business and the market value of the Stock of the Company.
The Company anticipates that shares of Stock issued in any such acquisition will
be valued at a price reasonably related to the market value of the Stock.
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The Company does not expect that underwriting discounts or commissions will
be paid, except that finders fees may be paid to persons from time to time in
connection with specific acquisitions. Any person receiving any such fees may be
deemed to be an underwriter within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
Stock issued pursuant to this Prospectus, and any applicable supplement to
this Prospectus (a "Supplement") or post-effective amendment hereto (a
"Post-Effective Amendment") may be reoffered pursuant hereto by the holders
thereof (the "Selling Stockholders") from time to time in transactions on the
open market, in negotiated transactions, through the writing of options on such
shares of Stock or through a combination of such methods of sale, at negotiated
prices, fixed prices which may be changed, market prices prevailing at the time
of sale or prices relating to such prevailing market prices. See "Selling
Stockholders."
THE STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "FAF." ON
JANUARY 26, 1998, THE CLOSING PRICE OF THE STOCK ON THE NEW YORK STOCK EXCHANGE
WAS $48.88 PER SHARE.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS [_____], 1998.
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(inside cover page)
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR
AN APPLICABLE SUPPLEMENT OR POST EFFECTIVE AMENDMENT IN CONNECTION WITH THE
OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE SHARES OF STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
STOCK OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL
FOR ANY SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THE DATE OF THE DOCUMENT CONTAINING SUCH INCORPORATED
INFORMATION, AS THE CASE MAY BE.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1998.
TABLE OF CONTENTS
Available Information.........................................................2
Incorporation by Reference....................................................2
Risk Factors..................................................................3
The Company...................................................................4
Overview.............................................................4
Business Segments....................................................5
Recent Developments..................................................8
Summary Historical Consolidated Financial Data......................10
The Proposed Transactions....................................................12
Selling Stockholders.........................................................12
Tax Matters..................................................................13
Legal Matters................................................................20
Experts......................................................................20
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and at the
following Regional Offices of the Commission: New York Regional Office, Seven
World Trade Center, 13th Floor, Suite 1300, New York, New York 10048; and
Chicago Regional Office, Citicorp Center, 500 West Madison Street, 14th Floor,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The
Commission also maintains a Web site (http://www.sec.gov) that contains reports,
proxy statements and other information regarding the Company. In addition, such
reports, proxy statements and other information can also be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005, on which the shares of Stock of the Company are listed.
This Prospectus constitutes part of a Registration Statement on Form S-4
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. In accordance with the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained in
the Registration Statement and the exhibits and schedules thereto. For further
information concerning the Company and the Stock offered hereby, reference is
hereby made to the Registration Statement and the exhibits and schedules filed
therewith which may be obtained at the Commission's offices whose addresses are
listed above. The Registration Statement has been filed electronically and may
be obtained at the Commission's Web site listed above. Any statements contained
herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby states that the documents listed in (1), (2), (3), (4),
(5), (6), (7), (8) and (9) below are incorporated by reference in this
Prospectus, and all documents filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, subsequent to the
date of this Prospectus and prior to the termination of any offering of
securities made by this Prospectus, shall be deemed to be incorporated by
reference in this Prospectus and to be part hereof from the date of filing of
such documents. Any statement contained herein, or in a document all or a
portion of which is incorporated or deemed to be incorporated by reference
herein, shall be deemed
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to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997;
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997;
(5) The Company's Report on Form 8-K dated November 7, 1997;
(6) The Company's Report on Form 8-K dated January 23, 1998;
(7) The Company's Report on Form 8-K dated January 27, 1998;
(8) The description of the Stock contained in the Company's
Registration Statement on Form 8-A registering its Common shares,
par value $1.00 per share, under Section 12(b) of the Exchange
Act, dated November 23, 1983; and
(9) the description of certain Rights to Purchase Series A Junior
Participating Preferred Shares which may be transferred with the
Company's Common shares, which description is contained in the
Company's Registration Statement on Form 8-A, under Section 12(b)
of the Exchange Act, dated November 7, 1997.
This Prospectus incorporates documents be reference which are not presented
herein or delivered herewith. These documents are available upon request from
Mark R Arnesen, Vice President and Secretary, The First American Financial
Corporation, 114 East Fifth Street, Santa Ana, California 92701-4642; telephone
number (714) 558-3211.
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and any
applicable Supplement, investors should consider carefully the following risk
factors before making an investment in the Stock. To the extent any of the
information contained or incorporated by reference in this Prospectus
constitutes a "forward-looking statement" as defined in Section 21E(i)(1) of the
Exchange Act, the risk factors set forth below are cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statement.
VOLATILITY OF STOCK PRICE
The market price of the Stock could be subject to significant fluctuations
in response to variations in financial results or announcements of material
events by the Company or its competitors. Regulatory changes, developments in
the real estate services industry or changes in general conditions in the
economy or the financial markets could also adversely affect the market price of
the Stock.
CYCLICAL NATURE OF REAL ESTATE MARKET
Resales and refinancings of residential properties constitute the major
source of the Company's revenues. Real estate activity is cyclical in nature and
is affected greatly by the cost and availability of long term mortgage funds.
Real estate activity and, in turn, the Company's revenue base, can be adversely
affected during periods of high interest rates and/or limited money supply.
However, this adverse effect is mitigated in part by the continuing
diversification of the Company's operations into areas outside of its
traditional title insurance business.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company has pursued and intends to continue to pursue acquisitions of
real estate service industry related businesses as a key component of its growth
strategy. Certain risks are inherent in an acquisition strategy, such as
increasing leverage and debt service requirements and combining disparate
company cultures and facilities, which could adversely affect the Company's
operating results. The success of any completed acquisition will depend in part
on the Company's ability to integrate effectively the acquired businesses into
the Company. The process of integrating such acquired businesses may involve
unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's financial and other resources. No
assurance can be given that additional suitable acquisition candidates will be
identified, financed and purchased on acceptable terms, or that recent
acquisitions or future acquisitions, if completed, will be successful.
THE SHAREHOLDER RIGHTS PLAN
On October 23, 1997 the Board of Directors of the Company authorized the
implementation of the Shareholder Rights Plan (the "Plan") which is implemented
through the Rights Agreement between the Company and the Wilmington Trust
Company as Rights Agent. The Plan may make a change in control of the Company
more difficult to effect, even if a change in control is in the shareholders'
best interest.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent upon the continued services of the
Company's senior management, particularly its President, Parker S. Kennedy, its
Chairman and Director, D.P. Kennedy, and its Executive Vice President and Chief
Financial Officer, Thomas A. Klemens. The loss of the services of any of these
individuals could have a material adverse effect on the Company's financial
position and results of operations. The Company's success also depends on its
ability to attract and retain other highly qualified managerial personnel.
YEAR 2000 COSTS
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day to day operations. The Company is evaluating the
Year 2000 issue as it relates to the Company's internal computer systems and
third party computer systems with which the Company interacts. The Company
expects to incur internal staff costs as well as consulting and other expenses
related to these issues; these costs will be expensed as incurred. In addition,
the appropriate course of action may include replacement or an upgrade of
certain systems or equipment at a substantial cost to the Company. There can be
no assurance that the Year 2000 issues will be resolved in 1998 or 1999. The
Company may incur significant costs in resolving its Year 2000 issues. If not
resolved, this issue could have a significant adverse impact on the Company's
operations.
GOVERNMENT REGULATION
The insurance industry is subject to extensive governmental regulation.
Applicable laws and their interpretation vary from state to state and are
enforced with broad discretion. There can be no assurance that any review of the
Company's operations and business relationships by courts or other regulatory
authorities will not result in determinations that could adversely affect the
Company or that the regulatory environment will not change to restrict the
Company's existing or future operations.
THE COMPANY
OVERVIEW
The Company was organized in 1894 as Orange County Title Company,
succeeding to the business of two title abstract companies founded in 1889 and
operating in Southern California. In 1924, the Company commenced issuing title
insurance policies. In 1986, the Company began a diversification program by
acquiring and developing financial service businesses closely related to the
real estate transfer and closing process. The Company is a California
corporation whose executive offices are located at 114 East Fifth Street, Santa
Ana, California 92701-4642, and its telephone number is (714) 558-3211.
The Company, through its subsidiaries, is engaged in the business of
providing real estate-related financial and informational services, including
title insurance, real estate tax monitoring, mortgage credit reporting, flood
zone determination, mortgage loan servicing systems, property information, home
warranty services, appraisal services and mortgage document preparation to real
property buyers and mortgage lenders. The Company also provides trust and
limited banking services.
Through growth and acquisitions, the Company believes it has become the
United States' largest provider of real estate-related financial and
informational services. The Company has assembled an array of companies which,
together, provide comprehensive services to the mortgage industry, commercial
and residential real estate developers, home buyers and other customers.
BUSINESS SEGMENTS
TITLE INSURANCE
Title insurance policies are insured statements of the condition of title
to real property, showing priority of ownership as indicated by public records,
as well as outstanding liens, encumbrances and other matters of record, and
certain other matters not of public record. Policies are issued based on a title
report prepared after a search of public records, maps, and documents and are
typically issued when a title is transferred.
Unlike other types of insurance policies, title insurance policies do not
insure against future risk. Before issuing title policies, title insurers seek
to limit their risk of loss by accurately performing title searches and
examinations. The major expenses of a title company relate to such searches and
examinations, the preparation of preliminary reports or commitments and the
maintenance of title plants, and not from claim losses as in the case of
property and casualty insurers. See "--Recent Developments" below.
The Company, through First American Title Insurance Company and its other
subsidiaries, transacts its title insurance business through a network of more
than 300 branch offices and more than 4,000 independent agents. In 1996, the
Company's title insurance operations generated $1.29 billion in revenues.
REAL ESTATE INFORMATION SERVICES
In recent years management has developed a strategy to be a "one-stop" real
estate information service company. To this end, in 1991 the Company acquired
what was believed to be the second largest tax service company, and in 1995
acquired what were believed to be, in each case, the largest mortgage credit
reporting company and the largest flood zone determination company, in the
United States. The Company acquired Strategic Mortgage Services, Inc. in May,
1997 ("SMS"). SMS operates in lines of business similar to those of the Company.
The acquisition of SMS has strengthened the Company's appraisal and credit
reporting services, and has added a new line of business, mortgage document
preparation. On January 1, 1998, the Company and its real estate information
service subsidiaries (other than Excelis Inc.) (the "Real Estate Information
Subsidiaries") consummated a joint venture transaction with Experian Information
Solutions, Inc. ("Experian"), pursuant to which First American Real Estate
Solutions LLC ("FARES") was established. Under the joint venture transaction,
the Real Estate Information Subsidiaries contributed substantially all of their
assets and liabilities to FARES in exchange for an 80% ownership interest and
Experian transferred substantially all of the assets and liabilities of its Real
Estate Solutions division ("RES") to FARES in exchange for a 20% ownership
interest. RES is believed to be the nation's foremost supplier of core real
estate data, providing, among other things, property valuation information,
title information, tax information and imaged title documents. As a result of
this joint venture transaction, the Company believes that FARES will become the
nation's largest and most diverse provider of information technology and
decision support solutions for the mortgage and real estate industries.
The Company's real estate information service products generate higher
margins than its title insurance products. The majority of pre-tax profits
generated by the Company from non-title business is derived from the real estate
services business, which generated $52.6 million in pre-tax profits in 1996 and
$247.8 million in revenues. Approximately 40% of the Company's pre-tax profits
in 1996 were derived from its real estate information services businesses. These
businesses are not regulated and hence not constrained by dividend statutes
enforceable by the states in which the Company operates its title business or by
constraints imposed by California on the Company's trust and banking business.
First American Real Estate Information Services, Inc. ("FAREIS") has grown
from its tax service origins into a diversified mortgage services company.
FAREIS and its subsidiaries now serve mortgage originators, mortgage servicers,
title companies, real estate attorneys, consumers as well as non-lending
entities. The business was initially established in 1987 to advise real property
mortgage lenders as to the status of tax payments on real property securing
their loans. The Company's real estate information services also includes
mortgage and other credit reporting services, flood zone determinations,
mortgage loan servicing systems, property inspections, appraisal services and
mortgage document preparation.
The tax service business includes both real estate tax reporting as well as
tax outsourcing and tax certification. The Company's tax service business
reports on 11 million properties annually and is believed to be the second
largest provider of tax services to the real estate market. The Company works
with over 22,000 taxing authorities nationwide.
First American CREDCO, Inc. ("CREDCO"), the Company's mortgage credit
reporting entity, is believed by the Company to be the largest provider of these
services in the United States and processes over 500,000 credit reports per
month. CREDCO provides residential mortgage credit reports, prequalifying
reports, merged credit data, resident screening services, business reports,
credit scoring tools and personal credit reports. CREDCO has recently branched
into the consumer lending and risk scoring areas, providing credit reporting and
information management services to automobile dealers, consumers and home equity
lenders nationwide. Approximately 20% of CREDCO's 1996 revenues were from
non-real estate related sources.
The Company is the leading provider of flood zone determinations. Flood
reporting services consist of a broad range of information required by
regulatory agencies regarding properties in relation to flood zones. This
business currently processes over 350,000 flood determinations per month.
The property/field services business consists of processing single family
home inspections and conducting field interviews with delinquent mortgagors and
monitoring the condition of properties and assuring timely property
preservation. The Company's acquisition in December 1996 of Ward Associates
places the Company among the leaders in this business.
The appraisal services business utilizes leading technology to provide
national mortgage lenders with property-relative value assessments. The
appraisal services business operates throughout the United States. Electronic
appraisals are supplemented with qualified local appraisers.
In April 1996, the Company acquired the Excelis Mortgage Loan Servicing
System ("Excelis MLS"), now known as Excelis, Inc. Excelis MLS is the only
commercially available real-time on-line servicing system that has been
developed since 1990 to meet increasingly sophisticated market demands. The
software employs rules-based technology which enables the user to customize the
system to fit its individual servicing criteria and policies.
In May 1997, the Company purchased all of the operations of SMS, other than
SMS' flood zone determination business. SMS is a leading provider of real estate
information services to the U.S. mortgage and title insurance industries. The
acquired businesses include SMS' credit division, which the Company believes is
the third largest provider of U.S. mortgage credit information; SMS' property
appraisal division, which the Company believes is the second largest provider of
U.S. appraisal services; SMS' title division, which provides title and closing
services throughout the United States, servicing primarily second mortgage
originators; SMS' settlement services business, which provides title plant
systems and accounting services, as well as escrow closing software, to the
title industry; and a controlling interest in what is believed by the Company to
be the largest mortgage document preparation firm.
HOME WARRANTY
The Company currently owns 79% of its home warranty business, with the
remaining balance owned by management of this subsidiary. The home warranty
business issues one-year warranties which protect homeowners against defects in
household systems and appliances such as plumbing, water heaters, and furnaces.
The warranties issued are for household systems and appliances only, not for the
homes themselves. The Company's home warranty business currently operates in
certain counties of Arizona, California, Nevada, North Carolina, South Carolina,
Texas and Washington.
The Company believes its home warranty business is the second largest in the
United States based on contracts under service. First American has realized a
35% growth rate in the last two years in its home warranty business, generating
$41.9 million in revenues in 1996.
TRUST AND THRIFT
Since 1960, the Company has conducted a general trust business in
California. In 1985, the Company formed a banking subsidiary into which its
subsidiary trust operation was merged. As of December 31, 1996, the trust
operations were administering fiduciary and custodial assets having a market
value in excess of $1 billion.
During 1988, the Company, through a majority owned subsidiary, acquired an
industrial loan corporation (the "Thrift") that accepts thrift deposits and uses
deposited funds to originate and purchase loans secured by commercial properties
in Southern California. The loans made by the Thrift currently range in amount
from $12,000 to $1,000,000, with an average loan balance of $247,000. Loans are
made only on a secured basis, at loan-to-value percentages no greater than 75%.
The Thrift specializes in making commercial real estate loans and financing
commercial equipment leases. In excess of 91% of the Thrift's loans are made on
a variable rate basis. The average yield on the Thrift's loan portfolio as of
December 31, 1996, was 11%. The Thrift's average loan is 60 months in duration.
Current deposits total $51.3 million and the loan portfolio totals $54.3
million.
RECENT DEVELOPMENTS
On October 23, 1997 the Board of Directors of the Company authorized the
implementation of the Shareholder Rights Plan (the "Plan") which is implemented
through the Rights Agreement between the Company and the Wilmington Trust
Company, as Rights Agent. The Company believes that the Plan will help the
Company protect itself against disruptive hostile takeover actions contrary to
the long-term interest of its shareholders. See also the Company's Report on
Form 8-K dated November 7, 1997 and incorporated by reference herein.
On December 11, 1997, the Board of directors of the Company declared a
three-for-two stock split to shareholders of record on January 1, 1998. The
Stock commenced trading on a post-split basis on January 16, 1998. See also the
Company's Report on Form 8-K dated January 23, 1998 and incorporated by
reference herein.
AS OF THE DATE OF THIS PROSPECTUS, THE FINANCIAL DATA INCORPORATED BY REFERENCE,
IS PRE-STOCK SPLIT DATA. FINANCIAL DATA APPEARING IN THIS PROSPECTUS AND IN
SUBSEQUENT DISCLOSURES BY THE COMPANY, INCLUDING DISCLOSURES REQUIRED BY
APPLICABLE EXCHANGE ACT REPORTING REQUIREMENTS AND INCORPORATED BY REFERENCE
HEREIN, IS POST-STOCK SPLIT DATA. CARE SHOULD BE TAKEN TO DISTINGUISH THE TWO.
On January 1, 1998, the Company and its Real Estate Information
Subsidiaries consummated a joint venture transaction with Experian, pursuant to
which First American Real Estate Solutions LLC ("FARES") was established. Under
the joint venture transaction, the Real Estate Information Subsidiaries
contributed substantially all of their assets and liabilities to FARES in
exchange for an 80% ownership interest and Experian transferred substantially
all of the assets and liabilities of its RES division to FARES in exchange for a
20% ownership interest. RES is believed to be the nation's foremost supplier of
core real estate data, providing, among other things, property valuation
information, title information, tax information and imaged title documents. As a
result of this joint venture transaction, the Company believes that FARES will
become the nation's largest and most diverse provider of information technology
and decision support solutions for the mortgage and real estate industries. See
also the Company's Report on Form 8-K dated January 27, 1998 and incorporated by
reference herein.
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
THE FINANCIAL DATA BELOW IS POST-STOCK SPLIT
DATA. SEE "--RECENT DEVELOPMENTS" ABOVE.
The summary below should be read in connection with the financial
information included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, and the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, each of which is incorporated by
reference herein.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
-------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA: (Dollars in thousands, except per share data)
Revenues
Operating revenues $1,102,385 $1,379,781 $1,356,946 $1,227,185 $1,571,168 $1,151,279 $1,315,053
Investment and other
income 13,082 18,645 19,447 23,031 26,398 20,775 20,046
---------- ---------- ---------- ---------- ---------- --------- ---------
1,115,467 1,398,426 1,376,393 1,250,216 1,597,566 1,172,054 1,335,099
---------- ---------- ---------- ---------- ---------- --------- ---------
Expenses:
Salaries and other
personnel costs 339,229 397,902 423,328 431,984 531,250 385,869 467,033
Premiums retained by
agents 378,547 504,375 533,598 413,444 516,593 372,856 396,114
Other operating expenses 188,361 222,934 232,532 260,611 327,744 240,261 295,897
Provision for title losses
and other claims 98,214 125,588 110,230 90,387 86,487 67,488 65,589
Depreciation and
amortization 15,114 16,333 19,796 18,002 22,207 15,886 20,098
Interest 6,038 4,419 6,267 6,242 4,796 3,783 6,972
Minority interest 4,893 5,267 2,944 2,132 2,624 2,151 2,287
---------- ---------- ----------- ----------- ----------- --------- ---------
1,030,396 1,276,818 1,328,695 1,222,802 1,491,701 1,088,294 1,253,990
---------- ---------- ----------- ----------- ----------- --------- ---------
Income before premium and
income taxes 85,071 121,608 47,698 27,414 105,865 83,760 81,109
Premium taxes 13,613 17,617 15,453 13,627 16,676 12,382 12,555
--------- --------- --------- --------- ----------- -------- --------
Income before income taxes 71,458 103,991 32,245 13,787 89,189 71,378 68,554
Income taxes 28,200 41,900 13,300 6,200 35,600 29,600 26,600
--------- --------- --------- --------- ----------- -------- --------
Income before cumulative
effect of a change in
accounting for income taxes 43,258 62,091 18,945 7,587 53,589 41,778 41,954
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Cumulative effect of a change
in accounting for income
taxes -- 4,200 -- -- -- -- --
---------- ---------- ---------- ----------- ----------- ---------- ---------
Net income $ 43,258 $ 66,291 $ 18,945 $ 7,587 $ 53,589 $ 41,778 $ 41,954
========== ========== ========== =========== =========== ========= =========
PER SHARE DATA:*
Income before cumulative
effect of a change in
accounting for income taxes $ 3.03 $ 3.65 $ 1.11 $ 0.45 $ 3.12 $ 2.43 $ 2.41
Cumulative effect of a change
in accounting for income
taxes -- 0.24 -- -- -- -- --
------------ ------------ ----------- ----------- ----------- --------- ---------
Net income per share $ 3.03 $ 3.89 $ 1.11 $ 0.45 $ 3.12 $ 2.43 $ 2.41
========== =========== ========== ========== ========== ========
December 31, September 30,
----------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET DATA: (Dollars in thousands, except per share data)
Cash and invested assets $ 308,083 $ 359,127 $ 368,999 $ 340,089 $ 364,620 $357,445 $384,900
========== ========== =========== ========== ========== =-------
Total assets $ 691,279 $ 786,448 $ 828,649 $ 873,778 $ 979,794 $960,179 $1,139,944
========== ========== =========== ========== ========== --------
Notes and contracts $ 81,981 $ 85,022 $ 89,600 $ 77,206 $ 71,257 $ 74,786 $43,870
========== ========== =========== =========== ========== ======== -------
payable
Total stockholders' equity $ 216,842 $ 283,718 $ 292,110 $ 302,767 $ 352,465 $337,759 $390,047
========== ========== =========== ========== ========== ======== --------
OTHER DATA:
Loss ratio 8.9% 9.1% 8.1% 7.4% 5.5% 5.9% 5.0%
==== ==== ==== ==== ==== ====
Ratio of debt to total
capitalization** 25.3% 21.5% 22.1% 19.1% 16.0% 17.2% 7.9%
===== ===== =====
Ratio of earnings to fixed
charges 12.8 24.5 6.1 3.2 19.6 19.9 10.8
==== ==== === === ==== ==== ====
Cash dividends per share $ 0.27 $ 0.34 $ 0.40 $ 0.40 $ 0.46 $ 0.34 $ 0.37
======== ======== ========- ======== ======== ------- =====
- ---------------------------------
<FN>
* Based upon the weighted average number of common shares outstanding.
** Capitalization includes minority interests and junior subordinated
deferrable interest debentures.
</FN>
</TABLE>
<PAGE>
THE PROPOSED TRANSACTIONS
The Stock is to be offered directly by the Company in one or more of the
following categories of transactions: (i) exchange transactions in which the
Company offers Stock to holders ("Debt Holders") of promissory notes previously
issued by the Company or its subsidiaries as total or part consideration for the
acquisition by the Company or its subsidiaries of one or more businesses from
Debt Holders (such debt "Acquisition Debt" and such a transaction an
"Acquisition Debt Offer"); (ii) transactions in which the Company offers Stock
to those shareholders of partially owned subsidiaries previously acquired by the
Company or its subsidiaries (w) in lieu of rights under certain "earn-out"
agreements, (x) that exercise their right to sell all or part of their share
holdings to the Company or its subsidiaries (a "Put Right"), (y) that exchange
all or a part of their shareholdings of stock in a subsidiary of the Company for
Stock pursuant to an offer made by the Company (a "Tender Offer") or (z) upon
the Company's exercise of certain call rights with regard to the stock of its
subsidiaries owned by those shareholders; and (iii) transactions ("Acquisition
Transactions") in which the Company offers Stock in connection with the
acquisition of the assets of, or ownership interests in, certain entities
engaged in the same or similar lines of business as the Company or any of its
subsidiaries. In the case of Acquisition Transactions, the consideration to be
paid by the Company or its subsidiaries may also include cash, promissory notes,
other evidences of indebtedness, guarantees, assumption of liabilities, tangible
or intangible property, or a combination thereof, as determined through
negotiations between the Company and the owners or controlling persons of the
assets or ownership interests to be acquired.
The Company contemplates that the terms of an acquisition will be
determined by negotiations between the Company's representatives and the owners
or controlling persons of the assets or ownership interests to be acquired.
Factors taken into account in acquisitions may include, among other relevant
factors, the quality and reputation of the business, the assets, liabilities,
results of operations and cash flows for the business, the quality of its
management and employees, its earnings potential, the geographic locations of
the business and the market value of the Stock of the Company. The Company
anticipates that shares of Stock issued in any such acquisition will be valued
at a price reasonably related to the market value of the Stock.
The Company does not expect that underwriting discounts or commissions will
be paid, except that finders fees may be paid to persons from time to time in
connection with specific acquisitions. Any person receiving any such fees may be
deemed to be an underwriter within the meaning of the Securities Act.
SELLING STOCKHOLDERS
Stock issued pursuant to this Prospectus, and any applicable Supplement or
Post-Effective Amendment, may be reoffered pursuant hereto by the Selling
Stockholders from time to time in transactions on the open market, in negotiated
transactions, through the writing of options on such shares of Stock or through
a combination of such methods of sale, at negotiated prices, fixed prices which
may be changed, market prices prevailing at the time of sale or prices relating
to such prevailing market prices. The Selling Stockholders may effect such
transactions by selling the Stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders, the purchasers of shares for whom
such broker-dealer may act as agent or to whom they may sell as principal or
both. The Company will not receive any part of the proceeds from the resale by
the Selling Stockholders of any Stock pursuant hereto. The Company will bear all
expenses (other than selling discounts and commissions and fees and expenses of
the Selling Stockholders) in connection with the registration of the Stock being
reoffered by the Selling Stockholders.
The identity of the Selling Stockholders, the number of shares of Stock to
be sold by the Selling Stockholders and the price per share of Stock will be
determined at the time of the consummation of the particular transaction.
Specific information regarding the transaction, the identity of the Selling
Stockholders and the number of shares of Stock to be resold may be provided at
the time of such transaction by means of a Supplement or a Post-Effective
Amendment hereto, as applicable.
The Selling Stockholders and any broker-dealers who act in connection with
the sale of such shares of Stock hereunder may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by them and profit on any resale of such shares of Stock as principal
may be deemed to be underwriting discounts and commissions under the Securities
Act. The Company intends to make available public information concerning itself
in compliance with the Securities Act and the regulations thereunder, and
accordingly, Rule 144 or Rule 145 under the Securities Act may be available for
use by holders of Stock to effect transfers of such securities, subject to
compliance with the remaining provisions of such rules.
<PAGE>
TAX MATTERS
The following is a general discussion of certain U.S. federal income tax
consequences of (i) the receipt of Stock by a holder of Acquisition Debt
pursuant to an Acquisition Debt Offer, (ii) the proposed issuance of Stock as
consideration upon the exercise of a Put Right (the "Put Offer") and (iii) the
proposed exchange of stock in a partially owned subsidiary of the Company for
Stock by shareholders of such partially owned subsidiary. Except as specifically
noted, this discussion applies only to U.S. Holders (as defined herein).
Further, this discussion applies only to U.S. Holders that hold Acquisition Debt
or stock in a subsidiary of the Company, as the case may be, as capital assets
and does not address aspects of U.S. federal income tax law that may be
applicable to shareholders that are subject to special tax rules, including,
without limitation, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities or currencies, persons who received stock in
a subsidiary of the Company pursuant to an employee stock option or rights plan
or otherwise as compensation, persons who hold Acquisition Debt or stock in a
subsidiary of the Company as a position in a "straddle" or as part of a
"hedging," "conversion" or "integrated" transaction for U.S. federal income tax
purposes, persons that have a "functional currency" other than the U.S. dollar
and Non-U.S. Holders (as defined herein). This summary does not address the tax
consequences of an Acquisition Transaction. Also, this summary does not address
state, local or foreign tax consequences that may be applicable. Consequently,
each holder should consult such holder's own tax advisor as to the specific tax
consequences of an Acquisition Debt Offer, Put Offer or Tender Offer, as the
case may be, to such holder.
This summary is based on the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), administrative pronouncements, judicial decisions
and existing and proposed U.S. Treasury Regulations, changes to any of which
subsequent to the date of these Offers may affect the tax consequences described
herein (possibly retroactively).
For purposes of this discussion, a "U.S. Holder" means a holder of
Acquisition Debt or stock in a subsidiary of the Company, as the case may be,
that for U.S. federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a partnership or corporation organized in or under the laws
of the United States or any state thereof (including the District of Columbia),
(iii) an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or (iv) a trust if (x) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (y) one or more United States persons have the authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in U.S. Treasury Regulations, certain trusts in existence
on August 20, 1996, and treated as U.S. persons prior to such date, that elect
to continue to be treated as U.S. persons will also be treated as U.S. Holders.
A Non-U.S. Holder is a holder of Acquisition Debt or Put Rights, as the case may
be, that is not a U.S. Holder.
Acquisition Debt Offer
Pursuant to an Acquisition Debt Offer, the holders of Acquisition Debt will
receive Stock.
U.S. Holders of Acquisition Debt Issued by the Company that are Securities. The
specific U.S. federal income tax consequences of the exchange to holders of
Acquisition Debt issued by the Company will depend upon whether such notes
constitute "securities" for purposes of the reorganization provisions of the
Code. Important factors to be considered include, among other things, the length
of time to maturity, the degree of continuing interest in the issuer and the
purpose of the borrowing. Generally, corporate debt instruments with maturities
when issued of less than five years are not considered securities and corporate
debt instruments with maturities when issued of ten years or more may be
considered securities. Accrued interest is not considered a security.
In general and subject to the discussion of accrued interest below, if an
Acquisition Debt issued by the Company constitutes a security (a "Company
Security"), holders of such indebtedness satisfy the continuity of shareholder
interest requirement applicable to corporate reorganizations (which requires a
continuing equity interest in the Company by holders of Company Securities), and
the transaction satisfies the business purpose requirement and the continuity of
business enterprise requirement for corporate reorganizations, the exchange of
such security for Stock should qualify as a reorganization for U.S. federal
income tax purposes. The following discussion contained in this section "U.S.
Holders of Acquisition Debt Issued by the Company" assumes that the exchange of
Company Securities for Stock pursuant to the Acquisition Debt Offer qualifies as
a reorganization as defined in the Code.
A U.S. Holder will not recognize gain or loss on the exchange of a Company
Security for Stock (other than the amount, if any, in respect of accrued
interest), except as described below with respect to the receipt of cash in lieu
of fractional shares of Stock. The aggregated adjusted tax basis of Stock (other
than the amount, if any, in respect of accrued interest) received by a U.S.
Holder (including fractional shares of Stock deemed received and redeemed as
described below) will be the same as the aggregate adjusted tax basis of the
Company Securities exchanged therefor. The holding period of Stock (including
the holding period of fractional shares of Stock, but excluding shares of Stock
received in respect of accrued interest) received by a U.S. Holder will include
the holding period of the Company Securities exchanged therefor. A U.S. Holder
of Company Securities who receives cash in lieu of fractional shares of Stock
will be treated as having received such fractional shares and then as having
received cash in redemption of such fractional shares. Under Section 302 of the
Code, provided that such deemed distribution is "substantially disproportionate"
with respect to such U.S. Holder or is not "essentially equivalent to a
dividend" after giving effect to the constructive ownership rules of the Code,
the U.S. Holder will generally recognize capital gain or loss equal to the
difference between the amount of cash received and the U.S. Holder's adjusted
tax basis in the fractional shares. The maximum marginal U.S. federal income tax
rate applicable to such gain will be lower than the maximum marginal U.S.
federal income tax rate applicable to ordinary income if such U.S. Holder's
holding period for such Securities exceeds one year and will be further reduced
if such Securities were held for more than eighteen months.
The amount of cash and the fair market value of Stock received by a cash
basis U.S. Holder in exchange for Company Securities that is allocable to
accrued interest for U.S. Federal income tax purposes will be taxable as
ordinary interest income upon receipt. The amount of cash and the fair market
value of Stock received by an accrual basis U.S. Holder that is allocable to
accrued interest will not be taxable to such U.S. Holder to the extent such
accrued interest has previously been included in income by such U.S. Holder. All
U.S. Holders of Company Securities should be entitled to compute their gain or
loss on the exchange by excluding from the amount received the portion allocable
to accrued interest. U.S. Holders should consult their tax advisors as to the
amount of cash to be received that is properly allocable to accrued interest.
Any gain recognized by a U.S. Holder on a later sale or exchange of Stock
received pursuant to an Acquisition Debt Offer will be treated as ordinary
income to the extent of accrued "market discount" carried over in the exchange.
Market discount is the amount by which the U.S. Holder's basis in the Company
Security immediately after its acquisition is exceeded by the stated redemption
price at maturity of the Company Security. If, however, such excess is less than
1/4 of 1% of the stated redemption price at maturity of the Company Security
multiplied by the number of complete years from the U.S. Holder's acquisition
date of the Company Security to its maturity date, the Company Security will be
considered to have no market discount. Generally, market discount obligations do
not include any Company Securities acquired by the tendering U.S. Holder at
their original issue. U.S. Holders of Company Securities having market discount
should consult their own tax advisors as to the effect to them of the market
discount rules on the tender of Company Securities pursuant to an Acquisition
Debt Offer.
To the extent that Acquisition Debt held by a U.S. Holder constitutes an
installment obligation for U.S. federal income tax purposes, such holder may be
required to recognize currently any gain remaining with respect to the
obligation. The rules regarding installment obligations are complex.
Accordingly, U.S. Holders are urged to consult their own tax advisors regarding
the application of such rules to their particular situation.
U.S. Holders of Acquisition Debt of Subsidiaries of the Company and Acquisition
Debt of the Company That Does Not Constitute a Security. The receipt of Stock
for (i) Acquisition Debt of the Company that are not securities or (ii)
Acquisition Debt of any direct or indirect subsidiary of the Parent pursuant to
an Acquisition Debt Offer by a U.S. Holder will be a taxable transaction for
U.S. federal income tax purposes. In general, and subject to the discussion of
accrued interest and market discount below, a U.S. Holder will recognize gain or
loss for U.S. federal income tax purposes equal to the difference, if any,
between the fair market value of Stock and the amount of cash received by a
holder of Acquisition Debt pursuant to an Acquisition Debt Offer and such U.S.
Holder's adjusted tax basis in such notes. Any such gain or loss will be capital
gain or loss. The maximum marginal U.S. federal income tax rate applicable to
such gain will be lower than the maximum marginal U.S. federal income tax rate
applicable to ordinary income if such U.S. Holder's holding period for such
Acquisition Debt exceeds one year and will be further reduced if such
Acquisition Debt were held for more than eighteen months.
To the extent that Acquisition Debt held by a U.S. Holder constitutes an
installment obligation for U.S. federal income tax purposes, such holder may be
required to recognize currently any gain remaining with respect to the
obligation. The rules regarding installment obligations are complex.
Accordingly, U.S. Holders are urged to consult their own tax advisors regarding
the application of such rules to their particular situation.
The amount of cash and the fair market value of Stock received by a cash
basis U.S. Holder in exchange for Acquisition Debt that is allocable to accrued
interest for U.S. Federal income tax purposes will be taxable as ordinary
interest income upon receipt. The amount of cash and the fair market value of
Stock received by an accrual basis U.S. Holder that is allocable to accrued
interest will not be taxable to such U.S. Holder to the extent such accrued
interest has previously been included in income by such U.S. Holder, and an
accrual basis U.S. Holder should be able to deduct as an ordinary loss the
excess, if any, of the amount of such accrued interest previously included in
income over the amount of cash and the fair market value of Stock received that
is allocable to accrued interest. All U.S. Holders of Acquisition Debt should be
entitled to compute their gain or loss on the sale of Acquisition Debt by
excluding from the amount received the portion allocable to accrued interest
(with a corresponding increase in the amount of capital loss or decrease in the
amount of capital gain which must be recognized by the U.S. Holder on the sale
of Acquisition Debt). U.S. Holders should consult their tax advisors as to the
amount of cash to be received that is properly allocable to accrued interest.
An exception to the capital gain treatment described above applies to a U.S
Holder who holds a Acquisition Note with "market discount". Market discount is
the amount by which the U.S. Holder's basis in the Acquisition Note immediately
after its acquisition is exceeded by the stated redemption price at maturity of
the Acquisition Note. If, however, such excess is less than 1/4 of 1% of the
stated redemption price at maturity of the Acquisition Note multiplied by the
number of complete years from the U.S. Holder's acquisition date of the
Acquisition Note to its maturity date, the Acquisition Note will be considered
to have no market discount. The gain, if any, realized by the U.S. Holder of a
market discount Acquisition Note on the sale or exchange of such Acquisition
Note will be treated as ordinary income to the extent that market discount has
accrued (on a straight line basis, or, at the election of the U.S. Holder, on a
constant interest basis) from the U.S. Holder's acquisition date to the date of
sale, unless the U.S. Holder has elected to include market discount in income
currently as it accrues. Any gain in excess of such accrued market discount will
be subject to the capital gains rules described above. Generally, market
discount obligations do not include any Acquisition Debt acquired by the
tendering U.S. Holder at their original issue. If a U.S. Holder had interest
expense attributable to market discount Acquisition Debt which interest expense
was not allowed as a deduction under Section 1277(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), such interest expenses may be allowable
in whole or in part upon such U.S. Holder's disposition of the Acquisition Debt.
U.S. Holders of Acquisition Debt having market discount should consult their own
tax advisors as to the effect to them of the market discount rules on the tender
of Acquisition Debt pursuant to the Offer.
Information Reporting and Backup Withholding Tax. United States information
reporting will apply to proceeds from the sale of Acquisition Debt paid by a
United States payor to a U.S. Holder (other than an "exempt recipient,"
including a corporation, a payee that is a Non-U.S. Holder that provides an
appropriate certification and certain other persons). A United States payor will
be required to withhold 31% of any such payment within the United States to a
holder (other than an "exempt recipient") if such holder fails to furnish its
correct taxpayer identification number and to certify under penalties of perjury
that such holder is not subject to backup withholding tax by submitting a
completed Substitute Form W-9 to the Company or otherwise fails to comply with
such backup withholding requirements. Accordingly, each Debt Holder should
complete, sign and submit the Substitute Form W-9 in order to avoid the
imposition of such backup withholding tax.
Earn-Out Transactions
In satisfaction of certain of its obligations under certain "earn-out"
agreements (more fully discussed below), the Company or one or more of its
subsidiaries may offer to satisfy its payment obligations in Stock rather than
in cash otherwise payable under such agreement. Certain "earn-out" agreements
have been entered into by the Company or one or more of its subsidiaries with
employees as part of a compensation package for such employees. Others have been
entered into by the Company or one or more of its subsidiaries as part of the
consideration to be paid by the Company or one of its subsidiaries for the
taxable acquisition of a business.
Any Stock to be issued in satisfaction of a payment obligation under an
"earn-out" agreement will not be subject to forfeiture.
If Earn-Out Agreement is Compensation. The receipt of Stock instead of cash
will not affect the taxable nature of the "earn-out" agreement. Generally, a
U.S. Holder that is an employee receiving Stock should recognize ordinary income
at the time of receipt of such Stock received pursuant to the "earn-out"
agreement in an amount equal to the fair market value of such Stock at such
time. The payment of Stock pursuant to an "earn-out" agreement that is
compensatory in nature may be subject to U.S. wage withholding.
If Earn-Out Agreement Was Part of Acquisition Consideration in Taxable
Purchase of Business. The receipt of Stock instead of cash will not affect the
taxable nature of the "earn-out" agreement. Such transaction will be a taxable
transaction for U.S. federal income tax purposes. In general, a U.S. Holder will
recognize gain or loss for U.S. federal income tax purposes equal to the
difference, if any, between the fair market value of Stock received pursuant to
the Earn-Out Transaction and such U.S. Holder's adjusted tax basis in the stock
or assets transferred to the Company or one of its subsidiaries (the
"Transferred Assets"). Any such gain or loss will be capital gain or loss only
if the Transferred Assets were held as capital assets. The maximum marginal U.S.
federal income tax rate applicable to such gain will be lower than the maximum
marginal U.S. federal income tax rate applicable to ordinary income if capital
U.S. Holder's holding period for such Transferred Assets exceeds one year and
will be further reduced if such Transferred Assets were held for more than
eighteen months. If the Transferred Assets were not held as capital assets then
such gain or loss will be ordinary gain or loss.
<PAGE>
Put Offer
Upon receiving notice of a holder's intention to exercise his or her Put
Rights, the Company may offer to make payment in Stock rather than in cash or
notes otherwise payable under the Put Right. The exercise of a Put Right would
constitute a taxable transaction for U.S. federal income tax purposes. In
general, a U.S. Holder will recognize gain or loss for U.S. federal income tax
purposes equal to the difference, if any, between the amount of cash received
and the issue price of any debt obligations received pursuant to the Put Offer
and such U.S. Holder's adjusted tax basis in the shares of stock subject to the
put. Any such gain or loss will be capital gain or loss. The maximum marginal
U.S. federal income tax rate applicable to such gain will be lower than the
maximum marginal U.S. federal income tax rate applicable to ordinary income if
such U.S. Holder's holding period for such Put Rights exceeds one year and will
be further reduced if such Put Rights were held for more than eighteen months.
The substitution of Stock will not alter the treatment of the exercise of a Put
Right as a taxable transaction.
Tender Offer
The Company or one of its subsidiaries may offer to acquire stock of a
partially owned subsidiary of the Company held by a U.S. Holder in exchange for
Stock (a "Tender Offer Exchange"). Such exchange may constitute a taxable
transaction or it may qualify as a tax-free transaction for U.S. federal income
purposes.
In general, if a Tender Offer Exchange constitutes a taxable transaction
for U.S. federal income tax purposes, a U.S. Holder will recognize gain or loss
for U.S. federal income tax purposes equal to the difference, if any, between
the total of the amount of cash received and the fair market value of Stock
received pursuant to the Tender Offer, and such U.S. Holder's adjusted tax basis
in its shares of stock. Any such gain or loss will be capital gain or loss. The
maximum marginal U.S. federal income tax rate applicable to such gain will be
lower than the maximum marginal U.S. federal income tax rate applicable to
ordinary income if such U.S. Holder's holding period for such stock exceeds one
year and will be further reduced if such stock was held for more than eighteen
months.
In general, if a Tender Offer Exchange constitutes a reorganization for
U.S. federal income tax purposes:
(i) no gain or loss will be recognized by a U.S. Holder of stock of a
subsidiary of the Company upon the exchange pursuant to the Tender
Offer of such stock solely for Stock, except with respect to the
receipt of cash in lieu of fractional shares of Stock;
(ii) the aggregate adjusted tax basis of shares of Stock received
pursuant to the Tender Offer by a U.S. Holder of stock of a subsidiary
of the Company (including fractional shares of Stock deemed received
and redeemed as described below) will be the same as the aggregate
adjusted tax basis of the stock exchanged therefore, increased by gain
recognized by the U.S. Holder and reduced by the amount of cash and
the fair market value of any other property received by the U.S.
Holder in the Tender Offer Exchange;
(iii) the holding period of shares of Stock received pursuant to the
Tender Offer by a U.S. Holder of stock of a subsidiary of the Company
(including fractional shares of Stock deemed received and redeemed as
described below) will include the holding period of the stock of a
subsidiary of the Company exchanged therefore, provided such shares
were held as capital assets; and
(iv) a U.S. Holder of stock of a subsidiary of the Company who
receives cash in lieu of fractional shares of Stock will be treated as
having received such fractional shares and then as having received
such cash in redemption of such fractional shares. Under Section 302
of the Code, provided such fractional shares would have constituted a
capital asset in the hands of such holder and provided such deemed
redemption is now "substantially disproportionate" with respect to
such holder or is "not essentially equivalent to a dividend" after
giving effect to the constructive ownership rules of the Code, the
owner will generally recognize capital gain or loss equal to the
difference between the amount of cash received and the holder's
adjusted tax basis in such fractional shares. Such capital gain or
loss will be long-term capital gain or loss if the holding period in
the fractional shares is more than one year.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION PURPOSES ONLY AND IS BASED UPON THE INTERNAL REVENUE CODE OF
1986, AS AMENDED TO THE DATE HEREOF, EXISTING AND PROPOSED U.S. TREASURY
REGULATIONS PROMULGATED THEREUNDER, RULINGS AND JUDICIAL DECISIONS NOW IN
EFFECT, CHANGES TO ANY OF WHICH COULD AFFECT THE TAX CONSEQUENCES DESCRIBED
HEREIN AND COULD BE MADE ON A RETROACTIVE BASIS. HOLDERS OF ACQUISITION DEBT AND
HOLDERS OF PUTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION DEBT OFFER AND PUT OFFER, AS THE
CASE MAY BE, TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE
MINIMUM TAX, STATE, LOCAL AND FOREIGN TAX LAWS.
THE TAX CONSEQUENCES OF AN "ACQUISITION TRANSACTION" (AS SUCH TERM IS
HEREIN DEFINED) ARE NOT COVERED BY THIS TAX DISCUSSION. SUCH A DISCUSSION MAY BE
INCLUDED IN A SUPPLEMENT OR POST-EFFECTIVE AMENDMENT AS REQUIRED BY THE
SECURITIES ACT.
LEGAL MATTERS
The validity of the shares of Stock offered hereby will be passed upon for
the Company by White & Case LLP, Los Angeles, California.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1996, have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
* * *
<PAGE>
PART II
Information Not Required in Prospectus
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subject to certain limitations, Section 317 of the California Corporations
Code provides in part that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor) by reason of the fact that the person is or was
an agent (which term includes officers and directors) of the corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful.
The California indemnification statute, as provided in Section 317 of the
California Corporations Code (noted above), is nonexclusive and allows a
corporation to expand the scope of indemnification provided, whether by
provisions in its Bylaws or by agreement, to the extent authorized in the
corporation's articles.
The Articles of Incorporation of the Registrant provide that: "The
liability of the directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law." The effect
of this provision is to exculpate directors from any liability to the
Registrant, or anyone claiming on the Registrant's behalf, for breaches of the
directors' duty of care. However, the provision does not eliminate or limit the
liability of a director for actions taken in his capacity as an officer. In
addition, the provision applies only to monetary damages and is not intended to
impair the rights of parties suing on behalf of the Registrant to seek equitable
remedies (such as actions to enjoin or rescind a transaction involving a breach
of the directors' duty of care or loyalty).
The Bylaws of the Registrant provide that, subject to certain
qualifications, "(i) the corporation shall indemnify its Officers and Directors
to the fullest extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary; (ii) the corporation is
required to advance expenses to its Officers and Directors as incurred,
including expenses relating to obtaining a determination that such Officers and
Directors are entitled to indemnification, provided that they undertake to repay
the amount advanced if it is ultimately determined that they are not entitled to
indemnification; (iii) an Officer or Director may bring suit against the
corporation if a claim for indemnification is not timely paid; (iv) the
corporation may not retroactively amend this Section 1 in a way which is adverse
to its Officers and Directors; (v) the provisions of subsections (i) through
(iv) above apply to all past and present Officers and Directors of the
corporation." "Officer" includes the following officers of the Registrant:
Chairman of the Board, President, Vice President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer and such other officers as the board
shall designate from time to time. "Director" of the Registrant means any person
appointed to serve on the Registrant's board of directors either by its
shareholders or by the remaining board members.
Each of the Registrant's 1996 Stock Option Plan and its 1997 Directors'
Stock Plan (each individually, the "Plan") provides that, subject to certain
conditions, "The Company shall, through the purchase of insurance or otherwise,
indemnify each member of the Board (or board of directors of any affiliate),
each member of the [Compensation] Committee, and any [other] employees to whom
any responsibility with respect to the Plan is allocated or delegated, from and
against any and all claims, losses, damages, and expenses, including attorneys'
fees, and any liability, including any amounts paid in settlement with the
Company's approval, arising from the individual's action or failure to act,
except when the same is judicially determined to be attributable to the gross
negligence or willful misconduct of such person."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
3. Restated Articles of Incorporation of The First American Financial
Corporation dated January 1, 1998.
4.1. Description of the Registrant's capital stock in Article Sixth of the
Restated Articles of Incorporation of the First American Financial
Corporation (contained in Exhibit 3).
4.2. Rights Agreement, incorporated by reference to Exhibit 4 of the
Registrant's Registration Statement on Form 8-A dated November 7, 1997.
5. Opinion of counsel regarding legality.
23.1. Consent of independent accountants.
23.2. Consent of counsel (contained in Exhibit 5).
24. Power of Attorney.
ITEM 23. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by its is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
* * *
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santa Ana, state of
California, on February 2, 1998.
THE FIRST AMERICAN FINANCIAL
CORPORATION
By:/s/ Parker S. Kennedy
Parker S. Kennedy, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date: February 2, 1998 By:/s/ D.P. Kennedy
-----------------------------------------
D.P. Kennedy, Chairman and Director
Date: February 2, 1998 By:/s/ Parker S. Kennedy
-----------------------------------------
Parker S. Kennedy, President and Director
Date: February 2, 1998 By:/s/ Thomas A. Klemens
-----------------------------------------
Thomas A. Klemens, Executive Vice
President, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date: January 28, 1998 By:/s/ George L. Argyros*
----------------------------
George L. Argyros, Director
Date: January 28, 1998 By:/s/ Gary J. Beban*
----------------------------
Gary J. Beban, Director
Date: January 28, 1998 By:/s/ J. David Chatham*
----------------------------
J. David Chatham, Director
Date: January 28, 1998 By:/s/ William G. Davis*
----------------------------
William G. Davis, Director
Date: January __, 1998 By:
----------------------------
James L. Doti, Director
Date: January 28, 1998 By:/s/ Lewis W. Douglas, Jr.*
----------------------------
Lewis W. Douglas, Jr., Director
Date: January 28, 1998 By:/s/ Paul B. Fay, Jr.*
----------------------------
Paul B. Fay, Jr., Director
Date: January 28, 1998 By:/s/ Dale F. Frey*
----------------------------
Dale F. Frey, Director
Date: January 28, 1998 By:/s/ Anthony R. Moiso*
----------------------------
Anthony R. Moiso, Director
Date: January __, 1998 By:
----------------------------
Rudolph J. Munzer, Director
Date: January 28, 1998 By:/s/ Frank O'Bryan*
----------------------------
Frank O'Bryan, Director
Date: January 28, 1998 By:/s/ Roslyn B. Payne*
----------------------------
Roslyn B. Payne, Director
Date: January __, 1998 By:
----------------------------
D. Van Skilling, Director
Date: January __, 1998 By:
----------------------------
Virginia Ueberroth, Director
*By:/s/ Mark R Arnesen
Mark R Arnesen
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3. Restated Articles of Incorporation of The First American Financial
Corporation dated January 1, 1998.
4.1. Description of the Registrant's capital stock in Article Sixth of the
Restated Articles of Incorporation of the First American Financial
Corporation (contained in Exhibit 3).
4.2. Rights Agreement, incorporated by reference to Exhibit 4 of the
Registrant's Registration Statement on Form 8-A dated November 7, 1997.
5. Opinion of counsel regarding legality.
23.1. Consent of independent accountants.
23.2. Consent of counsel (contained in Exhibit 5).
24. Power of Attorney.
EXHIBIT 3
RESTATED ARTICLES OF INCORPORATION
OF
THE FIRST AMERICAN FINANCIAL CORPORATION
Thomas A. Klemens certifies that:
1. He is an executive vice president and the chief financial officer of The
First American Financial Corporation, a California corporation.
2. The entire text of the articles of incorporation of said corporation as
amended to date is amended and restated as follows:
FIRST: That the name of said Corporation shall be The First
American Financial Corporation.
SECOND: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized
under the General Corporation Law of California other than the
banking business, the trust company business or the practice of a
profession permitted to be incorporated by the California
Corporations Code.
THIRD: That the place where the principal business of said
Corporation is to be transacted is Santa Ana, Orange County,
State of California.
FOURTH: This Corporation shall have perpetual existence.
FIFTH: The number of directors of this Corporation shall be
no less than nine (9) nor more than seventeen (17).
SIXTH: This Corporation is authorized to issue two classes
of shares, to be designated Common and Preferred, respectively.
The number of Common shares authorized to be issued is
36,000,000. The aggregate par value of such Common shares is
$36,000,000 and the par value of each such share is $1.00. Each
Common share shall have one vote per share. Each $1.00 par value
Common share outstanding immediately preceding the effective date
of these Restated Articles of Incorporation is split up and
converted into one and one-half (1.5) $1.00 par value Common
shares. The number of Preferred shares authorized to be issued is
500,000. The aggregate par value of such Preferred shares is
$500,000 and the par value of each such share is $1.00. The Board
of Directors may fix by resolution the rights, preferences,
privileges and restrictions of any wholly unissued class or
series of shares other than the Common shares, and the series
designation and number of shares to constitute any series (which
number may thereafter in the same manner be increased or
decreased), and a certificate of determination shall then be
filed with the California Secretary of State.
Pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of this
Article Sixth of these Restated Articles of Incorporation, the
Board of Directors has created a series of preferred shares of
the Corporation, the amount, designation, rights, preferences and
privileges of which are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating
Preferred Shares" and the number of shares constituting such
series shall initially be one thousand (1,000), $1.00 par
value, such number of shares to be subject to increase or
decrease by action of the Board of Directors as evidenced by a
certificate of determination.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of preferred shares
ranking prior and superior to the shares of Series A Junior
Participating Preferred Shares with respect to dividends,
the holders of Series A Junior Participating Preferred
Shares shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in
cash on the last day of March, June, September and December
in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series A Junior
Participating Preferred Shares, in an amount per share
(rounded to the nearest cent) equal to the greater of (a)
$10.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100,000 times the aggregate per share
amount of all cash dividends, and 100,000 times the
aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend
payable in Common Shares or a subdivision of the outstanding
Common Shares (by reclassification or otherwise), declared
on the common shares, $1.00 par value, of the Corporation
(the "Common Shares") since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A
Junior Participating Preferred Shares. In the event the
Corporation shall at any time after October 23, 1997 (the
"Rights Declaration Date") (i) declare any dividend on
Common Shares payable in Common Shares, (ii) subdivide the
outstanding Common Shares, or (iii) combine the outstanding
Common Shares into a smaller number of shares, then in each
such case the amount to which holders of Series A Junior
Participating Preferred Shares were entitled immediately
prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of Common
Shares outstanding immediately after such event and the
denominator of which is the number of Common Shares that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Junior Participating Preferred
Shares as provided in paragraph (A) above immediately after
it declares a dividend or distribution on the Common Shares
(other than a dividend payable in Common Shares); provided
that, in the event no dividend or distribution shall have
been declared on the Common Shares during the period between
any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10.00 per
share on the Series A Junior Participating Preferred Shares
shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding Series A Junior Participating Preferred
Shares from the Quarterly Dividend Payment Date next
preceding the date of issue of such Series A Junior
Participating Preferred Shares, unless the date of issue of
such share is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for
the determination of holders of Series A Junior
Participating Preferred Shares entitled to receive a
quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the Series A Junior
Participating Preferred Shares in an amount less than the
total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date
for the determination of holders of Series A Junior
Participating Preferred Shares entitled to receive payment
of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed
for the payment thereof.
Section 3. Voting Rights. The holders of Series A Junior Participating
Preferred Shares shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter
set forth, each Series A Junior Participating Preferred
Share shall entitle the holder thereof to 100,000 votes on
all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend
on Common Shares payable in Common Shares, (ii) subdivide
the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares,
then in each such case the number of votes per share to
which holders of Series A Junior Participating Preferred
Shares were entitled immediately prior to such event shall
be adjusted by multiplying such number by a fraction the
numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator
of which is the number of Common Shares that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of Series A Junior Participating Preferred Shares
and the holders of Common Shares shall vote together as one
class on all matters submitted to a vote of shareholders of
the Corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Shares shall be in arrears in an
amount equal to six (6) quarterly dividends thereon, the
occurrence of such contingency shall mark the beginning of a
period (herein called a "default period") which shall extend
until such time when all accrued and unpaid dividends for
all previous quarterly dividend periods and for the current
quarterly dividend period on all Series A Junior
Participating Preferred Shares then outstanding shall have
been declared and paid or set apart for payment. During each
default period, the right to elect two (2) of the
Corporation's directors then authorized pursuant to Article
Fifth of the Corporation's Restated Articles of
Incorporation shall become vested in the holders of
preferred shares (including holders of the Series A Junior
Participating Preferred Shares) (collectively, the
"Preferred Shares") with dividends in arrears in an amount
equal to (6) quarterly dividends thereon, voting as a class
and irrespective of series.
(ii) During any default period, such voting right of the holders
of Series A Junior Participating Preferred Shares may be
exercised initially at a special meeting called pursuant to
subparagraph (iii) of this Section 3(C) or at any annual
meeting of shareholders, and thereafter at annual meetings
of shareholders, provided that such voting right shall not
be exercised unless the holders of ten percent in number of
Preferred Shares outstanding shall be present in person or
by proxy. The absence of a quorum of the holders of Common
Shares shall not affect the exercise by the holders of
Preferred Shares of such voting right. At any meeting at
which the holders of Preferred Shares shall exercise such
voting right initially during an existing default period,
they shall have the right, voting as a class, to fill such
vacancies, if any, in the Board of Directors as may then
exist up to two (2) Directors or, if such right is exercised
at an annual meeting, to elect two (2) Directors. If the
number of Directors which may be so elected at any special
meeting exceeds the vacancies, if any, then existing in the
Board of Directors, the terms of one (1) or two (2), as the
case may be, of the Directors having served as such for the
least amount of time shall terminate in order to permit the
election by the holders of the Preferred Shares the required
number of Directors. After the holders of the Preferred
Shares shall have exercised their right to elect Directors
in any default period and during the continuance of such
period, the number of Directors shall not be increased or
decreased except by vote of the holders of Preferred Shares
as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with Series A
Junior Participating Preferred Shares.
(iii)Unless the holders of Preferred Shares shall, during an
existing default period, have previously exercised their
right to elect Directors, the Board of Directors may order,
or any shareholder or shareholders owning in the aggregate
not less than ten percent (10)% of the total number of
Preferred Shares outstanding, irrespective of series, may
request, the calling of a special meeting of the holders of
Preferred Shares, which meeting shall thereupon be called by
the Chairman of the Board, the President or the Secretary of
the Corporation. Notice of such meeting and of any annual
meeting at which holders of Preferred Shares are entitled to
vote pursuant to this paragraph (C)(iii) shall be given to
each holder of record of Preferred Shares by mailing a copy
of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall
be called for a time not earlier than 10 days and not later
than 60 days after such order or request, such meeting may
be called on similar notice by any shareholder or
shareholders owning in the aggregate not less than ten
percent (10)% of the total number of Preferred Shares
outstanding. Notwithstanding the provisions of this
paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the
date fixed for the next annual meeting of the shareholders.
(iv) In any default period, the holders of Common Shares, and
other classes of stock of the Corporation if applicable,
shall continue to be entitled to elect the whole number of
Directors until the holders of Preferred Shares shall have
exercised their right to elect two (2) Directors voting as a
class, after the exercise of which right (x) the Directors
so elected by the holders of Preferred Shares shall continue
in office until their successors shall have been elected by
such holders or until the expiration of the default period,
and (y) any vacancy in the Board of Directors may (except as
provided in paragraph (C)(ii) of this Section 3) be filled
by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected
the Director whose office shall have become vacant.
References in this paragraph (C) to Directors elected by the
holders of a particular class of stock shall include
Directors elected by such Directors to fill vacancies as
provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Shares as a class to elect
Directors shall cease and (y) the term of any Directors
elected by the holders of Preferred Shares as a class shall
terminate. Any vacancies in the Board of Directors effected
by clause (y) in the preceding sentence may be filled by a
majority of the remaining Directors.
(D) Except as provided in this Section 3, in Section 10, or as
required by law, holders of Series A Junior Participating
Preferred Shares shall have no special voting rights and
their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Shares as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating
Preferred Shares as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on Series A Junior
Participating Preferred Shares outstanding shall have been
paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior
Participating Preferred Shares;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior
Participating Preferred Shares, except dividends paid
ratably on the Series A Junior Participating Preferred
Shares and all such parity stock on which dividends are
payable or in arrears in proportion to the total
amounts to which the holders of all such shares are
then entitled;
(iii)redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Junior
Participating Preferred Shares, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A
Junior Participating Preferred Shares; or
(iv) redeem or purchase or otherwise acquire for
consideration any Series A Junior Participating
Preferred Shares, or any shares of stock ranking on a
parity with the Series A Junior Participating Preferred
Shares, except in accordance with a purchase offer made
in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after
consideration of the respective annual dividend rates
and other relative rights and preferences of the
respective series and classes, shall determine in good
faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any Series A Junior Participating
Preferred Shares purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares upon their cancellation
become authorized but unissued Preferred Shares and may be reissued as
part of a new series of Preferred Shares to be created by resolution
or resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior
Participating Preferred Shares unless, prior thereto, the
holders of Series A Junior Participating Preferred Shares
shall have received $100,000 per share, plus an amount equal
to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the
"Series A Liquidation Preference"). Following the payment of
the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of
Series A Junior Participating Preferred Shares unless, prior
thereto, the holders of Common Shares shall have received an
amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100,000 (as appropriately adjusted as set
forth in subparagraph C below to reflect such events as
stock splits, stock dividends and recapitalizations with
respect to the Common Shares) (such number in clause (ii),
the "Adjustment Number"). Following the payment of the full
amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding Series A Junior
Participating Preferred Shares and Common Shares,
respectively, holders of Series A Junior Participating
Preferred Shares and holders of Common Shares shall receive
their ratable and proportionate share of the remaining
assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Preferred Shares and Common
Shares, on a per share basis, respectively.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of the
Series A Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any,
which rank on a parity with the Series A Junior
Participating Preferred Shares, then such remaining assets
shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation
preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Shares.
(C) In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend
on Common Shares payable in Common Shares, (ii) subdivide
the outstanding Common Shares, or (iii) combine the
outstanding Common Shares into a smaller number of shares,
then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the
numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator
of which is the number of Common Shares that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the Common Shares are exchanged for or changed into other
stock or securities, cash and/or any other property, then in any such
case the Series A Junior Participating Preferred Shares shall at the
same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal
to 100,000 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into
which or for which each Common Share is changed or exchanged. In the
event the Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Shares payable in Common
Shares, (ii) subdivide the outstanding Common Shares, or (iii) combine
the outstanding Common Shares into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with
respect to the exchange or change of Series A Junior Participating
Preferred Shares shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of Common Shares
outstanding immediately after such event and the denominator of which
is the number of Common Shares that were outstanding immediately prior
to such event.
Section 8. No Redemption. The Series A Junior Participating Preferred
Shares shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Shares
shall rank junior to all other series of the Corporation's Preferred
Shares as to the payment of dividends and the distribution of assets,
unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Restated Articles of Incorporation of the
Corporation and this Certificate of Determination shall not be
amended, nor shall any other Certificate of Determination be issued or
amended, as the case may be, so as to materially and adversely alter
or change the powers, preferences or special rights of the Series A
Junior Participating Preferred Shares without the affirmative vote of
the holders of two-thirds (2/3) or more of the outstanding Series A
Junior Participating Preferred Shares, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Shares may be issued in fractions of a share which shall entitle the
holder, in proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Series A Junior
Participating Preferred Shares.
SEVENTH: That the amount of said capital stock which has been
actually subscribed is one hundred and thirty-five thousand Dollars
and the following are the names of the persons by whom the same has
been subscribed, and the amount subscribed by each of them, to wit:
NAMES OF SUBSCRIBERS NO. OF SHARES AMOUNT
W. S. Bartlett 50 $ 5,000.00
W. S. Bartlett, Trustee 10 1,000.00
Hiram Mabury
by W.S. Bartlett, his agent 100 10,000.00
M. M. Crookshank 30 3,000.00
C. W. Humphreys 20 2,000.00
Thos. McKeever 10 1,000.00
Victor Montgomery 30 3,000.00
Bank of America,
by Geo. H. Stewart, Cash 50 5,000.00
Frank A. Gibson 22 2,200.00
Mrs. Mary E. Fox 75 7,500.00
C. E. DeCamp 30 3,000.00
Fred 'k Stephens 20 2,000.00
C. W. Wilcox 10 1,000.00
Geo. W. Minter 20 2,000.00
C. F. Mansur 5 500.00
Joseph Yoch 20 2,000.00
The First National Bank of
Santa Ana, Cal., by J. A.
Turner, Cash 10 1,000.00
H. J. Blee 5 500.00
J. F. Kendall 5 500.00
H. K. Snow 10 1,000.00
A. Guy Smith 10 1,000.00
Bank of Anaheim, by W. S.
Bartlett, its Pres. 10 1,000.00
James McFadden 30 3,000.00
O. F. Brant 140 14,000.00
F. G. Smythe 10 1,000.00
C. H. Parker 184 18,400.00
Geo. Taylor 10 1,000.00
C. E. Parker 428 42,800.00
A. B. Harris 96 9,600.00
EIGHTH: The Corporation elects to be governed by all of the
provisions of the California General Corporation Law of 1977 not
otherwise applicable to it under Chapter 23 thereof.
NINTH: The liability of the directors of the Corporation for
monetary damages shall be eliminated to the fullest extent permissible
under California law.
Any repeal of modification of the provisions of this Article by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of
such repeal or modification.
TENTH: The Corporation is authorized to provide indemnification
of agents (as defined in Section 317 of the Corporations Code) for
breach of duty to the Corporation and its shareholders through bylaw
provisions or through agreements with the agents, or both, in excess
of the indemnification otherwise permitted by Section 317 of the
Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
Any repeal of modification of the provisions of this Article by the
shareholders of the Corporation shall not adversely affect any right
or protection of a director or other agent of the Corporation existing
at the time of such repeal of modification.
3. The foregoing amendment and restatement of the articles of incorporation
has been duly approved by the board of directors.
4. The Company has only one class of shares outstanding, its $1.00 par
value Common shares. No Series A Junior Participating Preferred Shares have been
issued. The amendment to Article Sixth effects only a stock split and
incorporation of prior amendments and certificates of determination and is an
amendment that may be adopted with approval by the Board of Directors alone
pursuant to Sections 902(c) and 910 of the California Corporations Code.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
January 1, 1998.
/s/ Thomas A. Klemens
Thomas A. Klemens, Executive Vice President
/s/ Thomas A. Klemens
Thomas A. Klemens, Chief Financial Officer
The undersigned, Thomas A. Klemens, an Executive Vice President and the Chief
Financial Officer of The First American Financial Corporation, declares under
penalty of perjury that the matters set out in the foregoing Certificate are
true of his own knowledge.
Executed at Santa Ana, California on January 1, 1998.
/s/ Thomas A. Klemens
Thomas A. Klemens, Executive Vice President
/s/ Thomas A. Klemens
Thomas A. Klemens, Chief Financial Officer
EXHIBIT 5
[LETTERHEAD OF WHITE & CASE, LLP]
February 2, 1998
The First American Financial Corporation
114 East Fifth Street
Santa Ana, CA 92701
Ladies and Gentlemen:
We have acted as counsel to The First American Financial Corporation, a
California corporation (the "Company"), and are familiar with the proceedings
and documents relating to the proposed registration by the Company, through a
Registration Statement on Form S-4 (the "Registration Statement"), to be filed
by the Company with the Securities and Exchange Commission, of 2,500,000 shares
of Common stock, $1.00 par value, of the Company and an equal number of Rights
to purchase $1.00 par value Series A Junior Participating Preferred Shares
(collectively, the "Shares").
For the purposes of rendering this opinion, we have examined originals or
photostatic copies of certified copies of such corporate records, agreements and
other documents of the Company as we have deemed relevant and necessary as a
basis for the opinion hereinafter set forth.
Based on the foregoing, we are of the opinion that the Shares, when issued
and paid for in accordance with the terms and conditions set forth in the
Registration Statement, will be duly authorized, validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and we further consent to the use of our name under the heading
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/S/ White & Case, LLP
EXHIBIT 23.1.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of The First
American Financial Corporation of our report dated February 11, 1997, appearing
on page 21 of The First American Financial Corporation's Annual Report on Form
10-K for the year ended December 31, 1996. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
By: /s/ Price Waterhouse LLP
Price Waterhouse LLP
Costa Mesa, California
Date: February 2, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of The First
American Financial Corporation, a California corporation (the "Corporation"),
hereby constitute and appoint Parker S. Kennedy and Mark R Arnesen, and each of
them, the true and lawful agents and attorneys-in-fact of the undersigned, with
full power and authority in said agents and attorneys-in-fact, and in either or
both of them, to sign for the undersigned and in their respective names as
directors of the Corporation the Registration Statement on Form S-4 to be filed
with the United States Securities and Exchange Commission, Washington, D.C.,
under the Securities Act of 1933, as amended, and any amendment or amendments to
such Registration Statement, relating to the Common shares, par value $1.00 per
share, of the Corporation to be offered thereunder, and the undersigned ratify
and confirm all acts taken by such agents and attorneys-in-fact, or either or
both of them, as herein authorized. This Power of Attorney may be executed in
one or more counterparts.
Date: January 28, 1998 By:/s/ George L. Argyros
-------------------------
George L. Argyros
Date: January 28, 1998 By:/s/ Gary J. Beban
-------------------------
Gary J. Beban
Date: January 28, 1998 By:/s/ J. David Chatham
-------------------------
J. David Chatham
Date: January 28, 1998 By:/s/ William G. Davis
-------------------------
William G. Davis
Date: January __, 1998 By:
-------------------------
James L. Doti
Date: January 28, 1998 By:/s/ Lewis W. Douglas, Jr.
-------------------------
Lewis W. Douglas, Jr.
Date: January 28, 1998 By:/s/ Paul B. Fay, Jr.
-------------------------
Paul B. Fay, Jr.
Date: January 28, 1998 By:/s/ Dale F. Frey
-------------------------
Dale F. Frey
Date: January 28, 1998 By:/s/ Anthony R. Moiso
-------------------------
Anthony R. Moiso
Date: January __, 1998 By:
-------------------------
Rudolph J. Munzer
Date: January 28, 1998 By:/s/ Frank O'Bryan
-------------------------
Frank O'Bryan
Date: January 28, 1998 By:/s/ Roslyn B. Payne
-------------------------
Roslyn B. Payne
Date: January __, 1998 By:
-------------------------
D. Van Skilling
Date: January __, 1998 By:
-------------------------
Virginia Ueberroth
