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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1999
REGISTRATION NO. 333-
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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)
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<S> <C> <C>
CALIFORNIA 6361 95-1068610
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code No.) Identification
Incorporation of Organization) No.)
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114 EAST FIFTH STREET
SANTA ANA, CALIFORNIA 92701-4642
(800) 854-3643
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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<S> <C>
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, SUITE 1900
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)
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
AND CERTAIN OTHER CONDITIONS UNDER THE AGREEMENT AND PLAN OF MERGER ARE MET OR
WAIVED.
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.
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING PRICE REGISTRATION FEE
TO BE REGISTERED REGISTERED PER UNIT (1) (2)
<S> <C> <C> <C> <C>
Common shares, $1.00 par value 3,411,000 shares N/A $68,404,293 $19,016
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) and Rule 457(c) under the Securities Act of
1933, as amended (the "Act"), based on the product of (i) $13.4375, the
average of the high and low prices of the common shares of National
Information Group on the Nasdaq National Market System on March 18, 1999 and
(ii) 5,090,552, the number of shares of National Information Group common
shares outstanding at the close of business on November 17, 1998, assuming
the exercise of all outstanding options to purchase National Information
Group common shares.
(2) Computed in accordance with Rule 457(f) under the Act by multiplying
0.000278 by the proposed maximum aggregate offering price of $68,404,293.
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.
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<PAGE>
CROSS REFERENCE SHEET OF
REGISTRATION STATEMENT ITEMS TO LOCATION IN PROXY STATEMENT/PROSPECTUS
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S-4 ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus........................... Facing Page of the Registration Statement; Outside
Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Where You Can Find More Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information.................................. Outside Front Cover Page of Proxy Statement/
Prospectus; Questions and Answers About the Merger;
Who Can Help Answer Your Questions; Summary; Risk
Factors; Interests of Certain Persons in the
Merger; Selected Financial Information; Historical
and Pro Forma Per Share Data; The Merger; The
Shareholders' Meeting; Where You Can Find More
Information*
4. Terms of the Transaction............................. Outside Front Cover Page of Proxy Statement/
Prospectus; Summary; The Merger; Role of Financial
Advisors; Summary of the Merger Agreement;
Comparison of Shareholders' Rights
5. Pro Forma Financial Information...................... Pro Forma Combined Financial Data
6. Material Contracts with the Company Being Acquired... Summary; The Merger; Summary of the Merger Agreement;
Employment Agreements
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters...... **
8. Interests of Named Experts and Counsel............... **
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... **
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants.......... Where You Can Find More Information
11. Incorporation of Certain Information by Reference.... Where You Can Find More Information
12. Information With Respect to S-2 and S-3
Registrants........................................ **
13. Incorporation of Certain Information by Reference.... **
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S-4 ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
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<C> <S> <C>
14. Information With Respect to Registrants Other Than
S-3 or S-2 Registrants............................. **
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies............ **
16. Information With Respect to S-2 or S-3 Companies..... Where You Can Find More Information
17. Information With Respect to Companies Other Than S-3
or S-2 Companies................................... **
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
Are to be Solicited................................ Outside Front Cover Page of Proxy Statement/
Prospectus; Summary; Interests of Certain Persons
in the Merger; The Merger; Summary of the Merger
Agreement; Voting Agreement; Affiliate and Pooling
Agreement; Employment Agreements; The Shareholders'
Meeting; Comparison of Shareholder Rights; Where
You Can Find More Information
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer.... **
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* Indicates that the Registrant has departed from the Item in certain respects
by virtue of the "Plain English" format of the Proxy Statement/Prospectus.
** Omitted because the Item is inapplicable or the response thereto is
negative.
<PAGE>
[FIRST AMERICAN LOGO] [NATIONAL LOGO]
------------------------
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
---------------------
To the shareholders of National Information Group:
The Board of Directors of National Information Group has unanimously approved a
merger between National and The First American Financial Corporation. The merger
would result in National becoming a wholly-owned subsidiary of First American.
First American is the nation's leading provider of real estate-related financial
and information services.
National shareholders will have an opportunity to vote on the merger at a
special shareholders' meeting to be held on [ ], 1999 at 10:00 a.m.,
local time, at The Embassy Suites, 250 Gateway Boulevard, South San Francisco,
California 94080. The merger cannot be completed unless National shareholders
approve it. Shareholders of First American are not required to approve the
merger.
If the merger is completed, you will receive 0.67 of a First American common
share for each National common share that you own. First American common shares
are traded under the symbol "FAF" on the New York Stock Exchange.
This proxy statement/prospectus provides you with detailed information about the
proposed merger and constitutes the prospectus of First American with respect to
the common shares that will be issued in connection with the merger. We
encourage you to read this entire document carefully. PLEASE CONSIDER CAREFULLY
THE "RISK FACTORS" BEGINNING ON PAGE 5.
Whether or not you plan to attend the special meeting, please take the time to
vote by completing and mailing the enclosed proxy card to us. Your vote is very
important.
Your Board of Directors has determined that the merger is fair to you and is in
your best interests. On behalf of the Board of Directors of National, I urge you
to vote "FOR" approval of the merger and the related merger agreement.
/s/ Mark A. Speizer
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Mark A. Speizer
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF NATIONAL INFORMATION GROUP
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 1999
and was first mailed to National Information Group shareholders on ,
1999.
<PAGE>
[NATIONAL INFORMATION GROUP LETTERHEAD]
NATIONAL INFORMATION GROUP
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD [ ], 1999
------------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders of
NATIONAL INFORMATION GROUP, a California corporation, will be held on
[ ], 1999 at 10:00 a.m., local time, at The Embassy Suites, 250 Gateway
Boulevard, South San Francisco, California 94080, for the following purposes.
- To consider and vote on a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of November 17, 1998, between The First American
Financial Corporation, National Information Group, and Pea Soup
Acquisition Corp. and related transactions. This item of business is more
fully described in the proxy statement accompanying this notice.
- To vote on such other matters as may properly come before the
shareholders.
Only shareholders of record at the close of business on [ ], 1999 are
entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign and
return the enclosed proxy card as promptly as possible in the enclosed
postage-prepaid envelope.
Any shareholder attending the meeting may vote in person even if he or she
has returned a proxy.
Sincerely,
Robert P. Barbarowicz
EXECUTIVE VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
South San Francisco, California
[ ], 1999
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
SUMMARY.................................................................................................... 2
RISK FACTORS............................................................................................... 5
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS............................................... 6
THE MERGER................................................................................................. 7
SUMMARY OF THE MERGER AGREEMENT............................................................................ 15
VOTING AGREEMENT........................................................................................... 22
EMPLOYMENT AGREEMENTS...................................................................................... 23
AFFILIATE AND POOLING AGREEMENT............................................................................ 23
SELECTED FINANCIAL INFORMATION............................................................................. 24
HISTORICAL AND PRO FORMA PER SHARE DATA.................................................................... 29
PRO FORMA COMBINED FINANCIAL DATA.......................................................................... 31
ROLE OF FINANCIAL ADVISOR.................................................................................. 37
VOTING COMMITMENTS FROM CERTAIN SHAREHOLDERS............................................................... 41
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................. 42
THE SHAREHOLDERS' MEETING.................................................................................. 43
COMPARISON OF SHAREHOLDERS' RIGHTS......................................................................... 44
LEGAL MATTERS.............................................................................................. 48
EXPERTS.................................................................................................... 49
1999 ANNUAL MEETING OF SHAREHOLDERS........................................................................ 49
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 49
</TABLE>
LIST OF ANNEXES
Annex A .......................................... Agreement and Plan of Merger
Annex B ....................... First Amendment to Agreement and Plan of Merger
Annex C .................................. Opinion of A.G. Edwards & Sons, Inc.
Annex D ....................... Chapter 13 of the California Corporation's Code
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote in favor of the proposed merger of National and
First American. As a result of the merger, National will become a wholly-owned
subsidiary of First American.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, sign it and mail it in
the enclosed return envelope as soon as possible so that your shares may be
represented at the National shareholders' meeting.
Q: CAN I CHANGE MY VOTE?
A: If you grant a proxy, you may take back your proxy up to and including the
day of the shareholders' meeting by following the directions on page # and
either change your vote or attend the shareholders' meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares following the
directions provided by your broker.
Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A: No. After the merger is completed, First American or its transfer agent,
First American Trust Company, will send written instructions for exchanging
share certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as soon as possible. We hope to
complete the merger shortly after the National shareholders' meeting, assuming
the required shareholder approval is obtained at the meeting and further
assuming that all necessary regulatory approvals have been obtained.
Q: WHO CAN ANSWER MY OTHER QUESTIONS?
A: If you have more questions about the merger you should contact:
Mr. Robert P. Barbarowicz
National Information Group
395 Oyster Point Boulevard
Suite 500
San Francisco, California 94080
Telephone: (650) 872-6772
If you would like additional copies of this proxy statement/prospectus, you
should contact:
Mr. Mark R Arnesen
The First American Financial Corporation
114 East Fifth Street
Santa Ana, California 92701
Telephone: (714) 558-3211
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT, INCLUDING THE ANNEXES, AND THE DOCUMENTS WE HAVE REFERRED YOU
TO. SEE "WHERE YOU CAN FIND MORE INFORMATION."
THE COMPANIES
THE FIRST AMERICAN FINANCIAL CORPORATION
PEA SOUP ACQUISITION CORP.
114 East Fifth Street
Santa Ana, California 92701
Telephone: (714) 558-3211.
First American provides real estate-related financial and information
services to real property buyers and mortgage lenders. First American's products
and services include title insurance, tax monitoring, credit reporting, property
data services, flood certification, field inspection services, appraisal
services, mortgage loan servicing systems, mortgage document preparation, home
warranty services, investment services, and trust and thrift services.
Pea Soup Acquisition Corp. is a wholly-owned subsidiary of First American
formed to accomplish the proposed merger. It has no material assets and has not
engaged in any activities. Pea Soup Acquisition Corp. will be merged into
National, with National being the surviving entity. Please see the description
of the merger beginning on page 7.
NATIONAL INFORMATION GROUP
395 Oyster Point Boulevard
Suite 500
South San Francisco, California 94080
Telephone: (650) 872-6772
National provides information services to financial institutions located
throughout North America. National's services and products include flood
certification, real property tax monitoring, insurance monitoring for collateral
securing mortgage and automobile loans, insurance monitoring for automobiles
subject to leases, outsourcing for real estate tax, vehicle and hazard insurance
services and lender placed and other insurance products.
REASONS FOR THE MERGER
The merger will allow National's business to be conducted by a significantly
larger company with historically strong performance. The combined company will
benefit from economies of scale and will enjoy an enhanced ability to compete.
NATIONAL'S BOARD OF DIRECTORS' RECOMMENDATION
The board of directors of National believes that the merger is in your best
interest and unanimously recommends that you vote FOR the merger proposal.
RISKS RELATING TO AN INVESTMENT IN FIRST AMERICAN
If the merger is completed, you will become a First American shareholder. An
investment in First American common shares entails a degree of risk. Before
approving the proposed merger you should consider carefully the "RISK FACTORS"
set forth beginning on page 5.
THE SHAREHOLDERS' MEETING
RECORD DATE; VOTING POWER (SEE PAGE 44)
You are entitled to vote at the National shareholders' meeting if you owned
National common shares as of the close of business on [ ], 1999, the
record date.
On the record date, there were [4, , ] National common shares
outstanding. For each National common share that you own on the record date, you
will have one vote at the National shareholders' meeting to approve and adopt
the merger proposal.
VOTES REQUIRED
The affirmative vote of a majority of the outstanding common shares of
National is required to approve and adopt the merger proposal.
2
<PAGE>
CERTAIN VOTING COMMITMENTS (SEE PAGE 42)
Mark A. Speizer, Chairman and Chief Executive Officer of National and its
largest shareholder, and Bruce A. Cole, President of National, each has agreed
to vote all of the National common shares owned by him on November 17, 1998 in
favor of the merger. On November 17, 1998, Mr. Speizer owned 1,542,909 National
common shares. On November 17, 1998, Mr. Cole owned 3,000 National common
shares. Together these shares represent approximately 37% of the National common
shares issued and outstanding as of the record date.
THE MERGER
THE MERGER AGREEMENT AND THE FIRST AMENDMENT THERETO ARE ATTACHED AS ANNEX A
AND ANNEX B RESPECTIVELY TO THIS PROXY STATEMENT/PROSPECTUS. YOU ARE ENCOURAGED
TO READ THE MERGER AGREEMENT, AS AMENDED, AS IT IS THE LEGAL DOCUMENT THAT
GOVERNS THE MERGER.
WHAT YOU WILL RECEIVE IN THE MERGER
As a result of the merger, you will receive, for each National common share
that you own, 0.67 of a First American common share. First American will not
issue any fractional shares in the merger. Instead, you will receive cash in
lieu of any fractional First American shares owed to you in an amount based on a
formula set forth in the Agreement and Plan of Merger. See page 15 for further
details.
OWNERSHIP OF FIRST AMERICAN AFTER THE MERGER
First American will issue approximately 3,411,000 common shares to National
shareholders in connection with the merger. This represents approximately
[ ]% of the First American common shares which will be outstanding after the
merger.
EFFECT OF THE MERGER
Upon consummation of the merger, National will become a wholly-owned
subsidiary of First American.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
A number of National's directors and executive officers and certain of
National's shareholders may have interests in the merger that are different
from, or in addition to, your interests. See page 40 for further details.
CONDITIONS TO THE MERGER (SEE PAGE 19)
The merger will be completed only if various conditions are satisfied or
waived, including conditions relating to:
- National shareholders' approval;
- regulatory approvals;
- listing of the newly issued First American shares on the NYSE;
- accounting for the merger as a pooling of interests; and
- executive employment agreements.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 21)
First American and National may agree with each other to terminate the
merger agreement at any time before the merger is completed.
First American, on its own, may terminate the merger agreement if:
- National's board modifies its approval or recommendation of the merger to
its shareholders;
- National's shareholders do not approve the merger agreement;
- National does not call a shareholder meeting within 35 days after the
effectiveness of First American's registration statement;
- the merger cannot be accounted for as a pooling of interests;
- a governmental entity or regulatory body does not allow the merger to
proceed within a specified time frame; or
- the conditions to First American's obligations to proceed with the merger
are not satisfied by July 15, 1999.
3
<PAGE>
National, on its own, may terminate the merger agreement if:
- another takeover proposal for National has been made and the National
board of directors determines that, as a result of its duty to the
National shareholders, it must withdraw or modify its approval and
recommendation of the merger proposal described in this proxy statement/
prospectus;
- National's shareholders do not approve the merger agreement;
- a governmental entity or regulatory body does not allow the merger to
proceed within a specified time frame; or
- the conditions to National's obligations to proceed with the merger are
not satisfied by July 15, 1999.
REGULATORY APPROVALS
The California insurance commissioner must approve the merger.
We cannot predict whether the required approval will be obtained or whether
the required approval will include conditions that would be detrimental to First
American.
OPINION OF FINANCIAL ADVISOR
In deciding to approve the merger, the National board of directors
considered the opinion of A.G. Edwards & Sons, Inc., National's financial
advisor, which concluded that the number of First American common shares to be
exchanged for each National common share is fair to the National shareholders
from a financial point of view. This opinion is attached as Annex B to this
proxy statement/prospectus. You are encouraged to read and consider this
opinion.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 11)
It is intended that National shareholders will not recognize any gain or
loss for federal income tax purposes as a result of the merger (except for taxes
payable on cash received in lieu of fractional shares).
It is a condition to the closing of the merger that National receive an
opinion of its counsel to such effect. National does not currently intend to
waive this condition. In the event that National waives this condition because
the merger is likely to be a taxable transaction to National shareholders,
National and First American will recirculate this proxy statement/prospectus to
disclose the waiver of this condition and all related material disclosures,
including the risks to National's shareholders resulting from the waiver, and
will resolicit proxies from National's shareholders.
TAX MATTERS ARE COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU ARE URGED TO CONSULT YOUR
TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO
YOU.
APPRAISAL RIGHTS (SEE PAGE 13)
Under California law, National shareholders who do not vote in favor of the
merger may have the right to have their shares purchased from them for cash.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
National common shares are quoted on the Nasdaq National Market System under
the symbol "NAIG" and First American common shares are listed on the NYSE under
the symbol "FAF". On November 17, 1998, the last full trading day prior to the
public announcement of the proposed merger, National common shares closed at
$11.625 and First American common shares closed at $34.813. On [ ], 1999,
the most recent practicable date prior to the printing of this proxy
statement/prospectus, National common shares closed at $[ ] and First
American common shares closed at $[ ].
4
<PAGE>
RISK FACTORS
IF THE MERGER IS COMPLETED, YOU WILL RECEIVE FIRST AMERICAN COMMON SHARES.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
IN CONSIDERING WHETHER TO VOTE IN FAVOR OF THE MERGER PROPOSAL AND AN INVESTMENT
IN FIRST AMERICAN.
FIXED MERGER CONSIDERATION DESPITE POTENTIAL CHANGES IN SHARE PRICES
The terms of the merger agreement provide that each National common share
will be converted into 0.67 of a First American common share. The 0.67 exchange
ratio is a fixed number and will not be adjusted in the event of any increases
or decreases in the price of either company's shares. Accordingly, National
shareholders will not be able to determine the value of the First American
common shares they would receive in the merger at the time they vote on the
merger proposal.
In addition, neither National nor First American will have the right to
terminate the merger agreement or elect not to consummate the merger as a result
of changes in the market prices of either company's common shares. The prices of
either or both company's common shares at the time of conversion may vary from
their respective prices at the date of this proxy statement/prospectus and at
the date of the National shareholders' meeting. Such variations could result
from any of the following factors.
- Changes in the business, operations or prospects of First American or
National.
- Market assessments of the likelihood that the merger will be consummated.
- Market assessments of the timing of the merger.
- Market assessments of the prospects of post-merger operations.
- Regulatory considerations.
- General market and economic conditions and other factors.
Because the conversion will likely occur after the date on which the
National shareholders' meeting occurs, there can be no assurance that the prices
of First American common shares and National common shares on the date of the
meeting will be indicative of their respective prices at the time of conversion.
See "Summary of the Merger Agreement--Consideration to be Received in the
Merger."
REVENUES MAY DECLINE DURING PERIODS WHEN THE DEMAND FOR OUR PRODUCTS DECREASES
First American's revenues decrease as the number of real estate transactions
in which its products are purchased decreases. First American has found that the
number of real estate transactions in which its products are purchased decreases
in the following situations.
- When mortgage rates are high.
- When the mortgage fund supply is limited.
- When the United States economy is weak.
First American believes that this trend will recur.
EARNINGS MAY BE REDUCED IF ACQUISITION PROJECTIONS ARE INACCURATE
First American's earnings have improved since 1991 in large part because of
its acquisition and integration of non-title insurance businesses. These
businesses generally have higher margins than First American's title insurance
businesses. The success or failure of each of these acquisitions has depended in
large measure upon the accuracy of First American's projections. These
projections are not always accurate. Inaccurate projections have historically
led to lower than expected earnings.
5
<PAGE>
BUSINESS INTERRUPTION, SHUTDOWN AND LIABILITY BECAUSE OF YEAR 2000 PROBLEMS
The following situations could occur as a result of the Year 2000 problem.
- First American's information suppliers may be unable to provide it with
accurate data in a timely manner.
- First American may be unable to process information in an accurate and
timely manner.
- First American's customers may be unable to receive its products and
services.
Each of these situations could result in the interruption or shutdown of one
or more of First American's businesses. Additionally, a disruption of
telecommunications and utilities as a result of the Year 2000 problem would most
likely result in the interruption or shutdown of one or more of First American's
businesses. A business interruption and/or shutdown, if prolonged, would most
likely result in financial loss, potential regulatory action, harm to our
reputation and potential legal liability.
To the extent First American packages or uses erroneous information
resulting from the Year 2000 problem in its products and services, it may incur
liability to others. The degree of liability will depend in large measure upon
the harm caused and the particular product or service involved. For example, an
error in monitoring tax payments for a property under a tax service contract
could result in the imposition of a tax lien. That could lead to a foreclosure
proceeding against the property, which in turn could result in harm to the
property owner and mortgage lender. By way of contrast, in First American's
credit reporting business, First American acts as a consumer reporting agency
when it uses data provided by credit bureaus. As such, under the Fair Credit
Reporting Act, First American has no liability for inaccuracies in information
contained in credit reports so long as it uses reasonable procedures to assure
the accuracy of such information.
CHANGES IN GOVERNMENT REGULATION COULD PROHIBIT OR LIMIT FIRST AMERICAN'S
OPERATIONS
First American's title insurance, home warranty, thrift, trust and
investment businesses are regulated by various governmental agencies. Many of
First American's other businesses operate within statutory guidelines. Changes
in the applicable regulatory environment or statutory guidelines could prohibit
or restrict First American's existing or future operations. Such restrictions
may adversely affect First American's financial performance.
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains "forward-looking statements" within
the meaning of the federal securities laws. The words "anticipates,"
"estimates," "projects," "forecasts," "goals," "believes," "expects," "intends,"
and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements are subject to numerous risks and
uncertainties. The following are some important factors that could cause actual
results to differ materially from those in forward-looking statements.
- General volatility of the capital markets and the market price of First
American common shares.
- Changes in the real estate market, interest rates or the general economy.
- First American's ability to identify and complete acquisitions and
successfully integrate businesses it acquires (including National's
business).
- First American's ability to employ and retain qualified employees.
- First American's ability, and the ability of its significant vendors,
suppliers and customers, to achieve Year 2000 compliance.
- Changes in government regulations that are applicable to First American's
regulated businesses.
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- Changes in the demand for First American's products.
- Degree and nature of First American's competition.
- An increase in First American's expenses.
- An increase in the loss ratio of First American's title insurance
business.
- Consolidation among First American's customers.
First American's actual results, performance or achievement could differ
materially from those expressed in, or implied by, forward-looking statements
and, accordingly, no assurances can be given that any of the events anticipated
by the forward-looking statements will transpire or occur, or if any of them do
so, what impact they will have on the results of operations and financial
condition of First American.
THE MERGER
GENERAL
First American and National are providing the shareholders of National with
this proxy statement/ prospectus in connection with the solicitation of proxies
by the National board of directors for use at the special meeting of National
shareholders and at any adjournments and postponements of that meeting. At the
meeting, National shareholders will be asked to approve the merger of Pea Soup
Acquisition Corp., a wholly-owned subsidiary of First American, into National
and to approve the merger agreement, as amended. A copy of the merger agreement
and the first amendment thereto are attached hereto as Annex A and Annex B
respectively. We urge you to read the merger agreement and the amendment in
their entirety.
BACKGROUND OF THE MERGER
On June 25, 1998, at a regular meeting of the board of directors of First
American, John W. Long, President of First American Real Estate Information
Services, Inc., a wholly-owned subsidiary of First American, indicated to the
board of directors that the acquisition of National or a company like National
might prove advantageous to First American. The board of directors of First
American authorized the management of First American and First American Real
Estate Information Services to explore such a proposal further.
In early July 1998, Mr. Long telephoned Mark A. Speizer, the Chairman and
Chief Executive Officer of National, and had a brief, preliminary discussion
regarding a possible acquisition of National by First American or another type
of affiliation between the two companies.
On July 15, 1998, Mr. Long and John Lampson, the Chief Financial Officer of
First American Real Estate Information Services, traveled to South San
Francisco, California to continue discussions with Mr. Speizer. At that time,
Mr. Speizer delivered to Mr. Long a confidentiality agreement and conditioned
further discussions upon its execution. Mr. Long did not execute the
confidentiality agreement at that time and, in a subsequent letter of July 17,
1998, indicated that discussions should be discontinued.
At the end of July 1998, Mr. Speizer and Mr. Long resumed discussions. In
anticipation of future meetings, First American Real Estate Information Services
and National entered into a confidentiality agreement on July 31, 1998. The
confidentiality agreement provided customary terms designed to protect the
confidential information National would reveal to First American during the
course of negotiations prior to the execution and delivery of the merger
agreement.
During the first week of August 1998, Parker S. Kennedy, the President of
First American, Craig I. DeRoy, General Counsel of First American, Mr. Long, Mr.
Speizer and Bruce Cole, the President of National, met in Burlingame,
California. During that meeting, Mr. Speizer disclosed information concerning
the business of National. During these preliminary discussions, the
above-mentioned representatives
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considered a merger transaction as well as various other types of transactions,
including the sale of certain subsidiaries and/or divisions of National. In the
course of considering these alternatives, Mr. Speizer expressed his opinion that
a merger of the entire company would be in the best interests of National and
its shareholders. The meeting concluded without the parties reaching any
agreement on the structure or the terms of a possible transaction. On August 6,
1998, Mr. Speizer reviewed with the board of directors of National the
preliminary discussions which had been held with First American. On August 7,
1998, Mr. Long sent Mr. Speizer a letter reiterating First American's interest
in acquiring National and informing Mr. Speizer that First American's
representatives needed to further consider the proposed transaction.
On August 27, 1998, at a regular meeting of the board of directors of First
American, Mr. Kennedy and Mr. Long advised the board of directors of First
American of their discussions with National. First American's board of directors
approved the continuation of discussions with National.
During the morning of September 10, 1998, Mr. Kennedy, Mr. Long, Mr. DeRoy,
and Thomas Klemens, the Chief Financial Officer of First American, met with
First American's legal and financial advisors to discuss alternative structures
for a transaction with National and the range of possible terms. Later that same
day, Mr. Kennedy and Mr. Long met with Mr. Speizer and Mr. Cole, to continue the
discussions.
Mr. Long and Mr. Speizer continued their occasional discussions throughout
the month of September. On September 28, 1998, Mr. Kennedy, Mr. Long, Mr.
Klemens, Mr. DeRoy and Donald P. Kennedy, the Chairman of the Board of First
American, met with Mr. Speizer and Mr. Cole to continue their discussions
regarding National's business and various possible structures for a transaction.
On September 30, 1998 Mr. Speizer advised National's board of the
discussions with First American.
During the first half of October, Mr. Parker S. Kennedy, Mr. Long and Mr.
Speizer continued these discussions. During this time Mr. Kennedy, Mr. Long and
other First American representatives conferred with First American's auditors
regarding the ability to accomplish an acquisition of National using the pooling
of interests accounting treatment and accounting related due diligence issues.
The other advisors to First American continued to analyze a possible acquisition
by First American of National.
On October 22, 1998, the board of directors of First American held a regular
meeting at which the proposed acquisition of National was discussed. At this
meeting, Salomon Smith Barney, Inc., First American's financial advisor, made a
presentation concerning the business of National and the strategic rationale
for, and the possible financial implications of, First American's proposed
acquisition of National. Salomon Smith Barney also provided the board with a
preliminary analysis of the range of values attributable to National. The First
American board of directors ultimately decided to delegate the consideration of
and oversight over the proposed acquisition of National to its executive
committee.
A regular meeting of the board of directors of National was held on October
26, 1998. The board discussed the continued evaluation by First American of a
potential transaction and the lack of a firm indication of price. Management was
authorized to proceed with the discussions with First American.
On October 27, 1998, First American's executive committee met for a special
meeting to discuss the proposed acquisition of National. At this meeting the
committee discussed the range of values attributable to National. The executive
committee instructed First American's executives to present National with a
preliminary indication of interest, subject to satisfaction of due diligence and
structuring issues, of 0.67 of a First American common share for each National
common share.
On October 29, 1998, Mr. Kennedy prepared a letter of interest in which
First American proposed further discussions with National based on a preliminary
merger exchange ratio of 0.67 of a First American common share for each National
common share. Mr. Kennedy, together with Mr. Long, personally
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delivered the letter to Mr. Speizer and Mr. Cole. Mr. Speizer and Mr. Cole asked
a number of questions and informed Mr. Kennedy and Mr. Long that National would
consider First American's offer.
A special meeting of the board of directors of National was convened on
October 29, 1998 to consider the expression of interest received from First
American. The board reviewed the details of the proposed transaction and
authorized Mr. Speizer, Mr. Cole, and Mr. Robert Barbarowicz to proceed with
negotiations and to retain outside counsel and investment bankers.
From November 2 through November 4, 1998, Mr. Barbarowicz, with the aid of
counsel, interviewed investment bankers. Mr. Speizer and Mr. Barbarowicz, with
the aid of counsel, reviewed and discussed the investment bankers' proposals.
On November 3, 1998, Mr. Speizer informed Mr. Long that the suggested
exchange ratio was acceptable but that other material terms of the transaction
would need to be discussed and agreed upon.
Between November 3, 1998 and November 17, 1998, First American and National,
together with their auditors, legal and financial advisors, negotiated the
provisions of the merger agreement and the related agreements.
On November 5, 1998, a special meeting of the board of directors of National
convened. The status of the negotiations with First American was discussed, and
the board selected A.G. Edwards to act as investment bankers to National. A
special committee of the board, consisting of Mr. Jodel, Mr. Bunaes and Mr.
Goodman, met with Mr. Speizer, Mr. Barbarowicz and counsel to discuss the
engagement with representatives of A.G. Edwards.
On November 9, 1998, First American and National entered into a
confidentiality agreement, which provided customary terms designed to protect
certain confidential information that First American would reveal to National in
connection with First American's proposed acquisition of National. A.G. Edwards
& Sons, Inc., financial advisor to National, thereafter commenced its due
diligence review of First American.
On November 13, 1998, the executive committee of First American approved the
transaction.
On November 17, 1998, a meeting of the special committee of National's board
was convened to review the report from A.G. Edwards. Later that night, the board
of directors of National met for a special meeting to consider further the
proposed acquisition. The board of directors reviewed with National's legal and
financial advisors the principal terms of the merger agreement and the related
agreements and various financial, legal, accounting and other related issues. As
part of such review, A.G. Edwards & Sons, Inc., National's financial advisor,
delivered its opinion to the effect that the number of First American common
shares to be received by National shareholders in the merger for each of their
National common shares is fair to the National shareholders from a financial
point of view. The National board of directors then unanimously approved the
merger proposal.
Early in the morning of November 18, 1998, the merger agreement was
executed, effective as of November 17, 1998.
REASONS FOR THE MERGER; RECOMMENDATION OF THE NATIONAL BOARD OF DIRECTORS
REASONS FOR THE MERGER
First American and National believe that the merger will:
- provide National shareholders the opportunity to continue to participate
in National's business through an ownership interest in First American;
- offer National shareholders an opportunity to receive shares in a
significantly larger company with historically strong performance;
- create a combined company which will benefit from synergies and economies
of scale; and
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- create a combined company with an enhanced ability to compete.
The National board of directors, in determining whether to recommend the
merger to the shareholders of National, considered the following material
factors.
- all the reasons described above under "Reasons for the Merger;"
- the opinion of A.G. Edwards & Son, Inc. that the number of First American
common shares each National shareholder would receive in exchange for
their National common shares was fair from a financial point of view (see
"Role of the Financial Advisors");
- current and historical market prices and trading information with respect
to First American and National shares;
- the fact that the number of First American shares to be issued in the
merger to the National shareholders for each of their National shares is
fixed and will not fluctuate with changes in the price per First American
share;
- the likelihood of being able to complete a business combination with
another entity on the same or better terms;
- the course of negotiations regarding the terms of the merger agreement;
- the existence of various interests that certain directors and officers of
National have with respect to the merger, in addition to their interests
as shareholders of National generally (see "Interests of Certain Persons
in the Merger");
- the likelihood that the merger would be consummated;
- the effect of the public announcement of the merger on National's customer
and supplier relationships, operating results and ability to retain
employees;
- the likelihood of obtaining the required regulatory approvals, the
possibility that regulatory authorities may impose conditions to the
granting of their approval and the commitment of the parties to take the
actions required by any such conditional approvals;
- information concerning the business, assets, capital structure, financial
performance and condition and prospects of National and First American;
- information relating to the business, assets, liabilities, management,
financial condition, competitive position and prospects of National if it
were to continue as an independent company;
- the complementary nature of National's and First American's businesses,
the opportunity for significant cost savings, achieving operating
efficiencies and synergies and the possibility that National, acting
alone, would not be able to realize these cost savings, efficiencies and
synergies;
- the terms and structure of the transaction and the terms and conditions of
the merger, including the number of First American common shares National
shareholders would receive for each of their National common shares in the
merger, the limitations on National's ability to negotiate with a third
party which may make a takeover proposal and the circumstances in which
either First American or National could terminate the transaction,
including the fact that National may terminate the merger agreement if its
board of directors determines, in accordance with its fiduciary
obligations, that an alternative takeover proposal is more favorable to
the National shareholders;
- the accounting treatment of the merger; and
- the tax effects of the merger on National shareholders.
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Given the number and complexity of these factors, the National board of
directors did not attempt to quantify or rank them. Rather, the National board
of directors examined all of the factors as a whole. This examination included
discussions with and questioning of National's management and legal and
financial advisors. In considering the factors set forth above, each individual
member of the National board of directors may have given different weight to
different factors. The National board of directors considered the factors as a
whole to be favorable to and in support of its determination.
The National board of directors also relied upon the experience and
expertise of A.G. Edwards & Sons, Inc., National's financial advisor, for
quantitative and qualitative analysis of the merger. See "Role of Financial
Advisors."
RECOMMENDATION OF THE NATIONAL BOARD OF DIRECTORS
THE NATIONAL BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF NATIONAL AND RECOMMENDS
TO THE NATIONAL SHAREHOLDERS THAT THEY VOTE "FOR" THE MERGER PROPOSAL.
ACCOUNTING TREATMENT
The merger will be accounted for by First American as a pooling of
interests. As a condition to First American's obligation to consummate the
merger, First American must receive letters to such effect from
PricewaterhouseCoopers LLP, independent auditors of First American and National.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Morgan, Lewis & Bockius LLP, counsel to National, will render an opinion to
National, a copy of the form of which has been filed as an exhibit to the
registration statement on which this proxy statement/ prospectus was filed, that
the merger will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended. In agreeing to render
its opinion in the provided form, Morgan, Lewis & Bockius LLP has assumed that
the merger will be consummated in accordance with the provisions of the merger
agreement, and the absence of changes in existing law, and may rely on certain
other assumptions, representations and covenants including those contained in
the certificates of officers of First American and National. It is a condition
to National's obligation to consummate the merger that the opinion of Morgan,
Lewis & Bockius LLP be rendered on the date the merger closes. National does not
currently intend to waive this condition. If National does decide to waive this
condition, however, First American and National will recirculate this proxy
statement/prospectus to disclose the waiver of this condition and all related
material disclosures, including the risks to National shareholders resulting
from the waiver, and will resolicit proxies from the National shareholders.
National believes, based on the opinion of Morgan, Lewis & Bockius LLP, that
the merger will have the following United States federal income tax
consequences. The merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and First American and National will each be a party to such reorganization
within the meaning of Section 368(b) of the Code. No gain or loss will be
recognized for United States federal income tax purposes by holders of National
common shares who exchange their National common shares solely for First
American common shares pursuant to the merger, except with respect to cash, if
any, received in lieu of fractional shares. The aggregate tax basis of First
American common shares received by a shareholder in exchange for National Common
shares pursuant to the merger will be the same as the shareholder's aggregate
tax basis in the National common shares surrendered in the exchange (reduced by
any such tax basis allocable to fractional First American common shares for
which cash is received). For purposes of receiving long-term or short-term
capital gains treatment, the holding period of the First American common shares
received by a former National shareholder in exchange for National common shares
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pursuant to the merger will include the period during which such shareholder
held the National common shares exchanged. A holder of National common shares
who receives cash in lieu of a fractional share of First American will recognize
gain or loss for United States federal income tax purposes, measured by the
difference between the amount of cash received and the portion of the tax basis
of the National common shares allocable to such fractional share. Any such gain
or loss generally will be capital gain or loss if such National common shares
have been held as a capital asset, and will be long-term capital gain or loss if
such National common shares have been held for more than one year as of the
effective date of the merger.
The foregoing discussion summarizes the material United States federal
income tax consequences of the merger to a United States shareholder who holds
National common shares as a capital asset but does not purport to be a complete
analysis or description of all potential tax effects of the merger. In addition,
the discussion does not address all of the tax consequences that may be relevant
to particular shareholders in light of their personal circumstances or to
shareholders subject to special treatment under the Internal Revenue Code.
Examples of the latter category include shareholders who are insurance
companies, financial institutions, dealers in securities, tax-exempt
organizations, foreign corporations, foreign partnerships or other foreign
entities and individuals who are not citizens or residents of the United States
or shareholders who acquired their National shares pursuant to the exercise of
employee options or otherwise as compensation.
The opinion of Morgan, Lewis & Bockius LLP neither binds nor precludes the
Internal Revenue Service from adopting a contrary position. An opinion of
counsel sets forth such counsel's legal judgment and has no binding effect or
official status of any kind, and no assurance can be given that contrary
positions will not be successfully asserted by the IRS or adopted by a court if
the issues are litigated.
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
The foregoing discussion is based upon the provisions of the Internal Revenue
Code, applicable Treasury Department regulations thereunder, IRS rulings and
judicial decisions, as in effect as of the date of this proxy
statement/prospectus. Future legislative, administrative or judicial changes or
interpretations could significantly change such authorities either prospectively
or retroactively. No rulings have or will be sought from the IRS concerning the
tax consequences of the merger.
Each shareholder of National receiving First American common shares as a
result of the merger will be required to retain certain records and file with
its United States federal income tax return a statement setting forth certain
facts relating to the merger.
You are urged to consult your tax advisor as to the specific tax
consequences to you of the merger under federal, state, local or any other
applicable tax laws.
REGULATORY MATTERS
The federal antitrust laws prohibit First American and National from
consummating the merger until notifications are given and certain information is
furnished to the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice and specified waiting period requirements
are satisfied or terminated. On December 4, 1998, First American and National
each filed the applicable notification and report forms with the FTC and the
Antitrust Division, together with a request for early termination of the
applicable 30-day waiting period. First American and National received notice of
early termination of the waiting period on December 17, 1998.
Notwithstanding the expiration of the waiting period, at any time before or
after the completion of the merger, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable to
protect the public's interest. For example, they could seek to enjoin the
consummation of the merger or require the divestiture of assets or businesses of
First American or National. State governmental officials and private parties may
also bring actions under antitrust laws under
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certain circumstances. There can be no assurance that a challenge to the merger
on antitrust grounds will not be made or if such a challenge is made, that it
would not be successful.
The California Insurance Holding Company System Regulatory Act also
prohibits the consummation of the merger until the approval of the Insurance
Commissioner of the State of California, the domicile state of National's
insurance company subsidiary, has been obtained. First American has filed with
the Insurance Commissioner of the State of California an application to obtain
control of National.
We cannot predict whether the approval of the Insurance Commissioner of the
State of California will be obtained in a timely manner or whether the required
approval will include conditions that would be detrimental to First American.
APPRAISAL RIGHTS
Under California law, National shareholders may dissent from the merger,
seek an appraisal of the value of their National common shares and receive cash
in lieu of First American common shares for their National common shares.
For shares to qualify as dissenting shares under the California Corporations
Code, 5% or more of the total number of National shares issued and outstanding
must have voted against the merger proposal and each National shareholder
seeking to dissent must satisfy each of the following requirements.
- The shareholder's National shares must have been outstanding on the record
date.
- The shareholder's National shares must not have been voted in favor of the
merger proposal.
- The shareholder must make a written demand that National repurchase
his/her/its National shares at fair market value. This process is
discussed below.
- The shareholder must submit his/hers/its share certificates for
endorsement. This process is discussed below.
A vote by proxy or in person against the merger proposal does not in and of
itself constitute a demand for appraisal under the California Corporations Code.
Under California law, dissenting National shareholders comprising 5% or more of
the total number of the issued and outstanding National common shares as a group
may require National to repurchase their shares at a cash price equal to the
fair market value of the shares. For this purpose, "fair market value" is
determined as of the day before the first announcement of the terms of the
merger, excluding any appreciation or depreciation as a consequence of the
proposed merger, but adjusted for any stock split, reverse stock split or stock
dividend that becomes effective after such date. Within ten days following
approval of the merger proposal by National shareholders, National is required
to mail the following materials to each dissenting shareholder.
- A notice of the approval of the merger proposal.
- A statement of the price determined by National to represent the fair
market value of National shares that dissented from the merger. This
statement constitutes an offer by National to purchase the dissenting
shares at the stated price.
- A description of the procedures for the holders to exercise their rights
as dissenting shareholders.
Within 30 days after the date on which the notice of the approval of the
merger proposal is mailed to such dissenting shareholders, a dissenting
shareholder must demand that National repurchase his/her/its shares. The
statement must set forth the following information.
- The number of shares held of record by the dissenting shareholder that the
shareholder demands that National purchase.
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- A statement of what the dissenting shareholder claims to be the fair
market value of the dissenting shares as of the day before the
announcement of the proposed merger. This statement constitutes an offer
to sell the shares at the specified price.
In conjunction with such demand, the dissenting shareholder must also submit
to National or its transfer agent for endorsement the certificate or
certificates representing the National shares that the dissenting shareholder
demands National purchase. If National and the dissenting shareholder agree upon
the price to be paid for the shares and agree that the National shareholder has
complied with the procedures set forth under California law, then the agreed
price must be paid to the dissenting shareholder within the later of 30 days
after the date of such agreement or 30 days after any statutory or contractual
conditions to the consummation of the merger are satisfied or waived.
If National and a dissenting shareholder disagree as to the fair market
value of the shares or disagree as to whether the shares are entitled to be
classified as dissenting shares, the holder has the right to bring an action in
California Superior Court, within six months after the date on which the notice
of the approval of the merger proposal by National shareholders is mailed, to
resolve the dispute. The court will then determine whether the National shares
qualify as dissenting shares under California law, the fair market value of the
dissenting shares, or both. California law provides, among other things, that a
dissenting shareholder may not withdraw the demand for payment of the fair
market value of dissenting shares unless National consents thereto.
The preceding discussion is not a complete statement of California law
relating to dissenters' rights, and is qualified in its entirety by reference to
Sections 1300 through 1312 of the California Corporations Code which are
attached to this proxy statement/prospectus as Annex D and incorporated herein
by reference. This discussion and Annex D should be reviewed carefully if you
wish to exercise statutory dissenters' rights or wish to preserve the right to
do so, since failure to comply with the required procedures will result in the
loss of such rights.
FEDERAL SECURITIES LAWS CONSEQUENCES
This proxy statement/prospectus does not cover any resales of First American
common shares to be received by the National shareholders upon consummation of
the merger. No person is authorized to make any use of this proxy
statement/prospectus in connection with any such resale.
All First American common shares received by you in the merger will be
freely transferable, unless you are deemed to be an "affiliate" of National
under the federal securities laws at the time of the special meeting of National
shareholders. If you are deemed to be an "affiliate," the First American common
shares received by you in the merger may be resold by you only in transactions
permitted by Rule 145 under the Securities Act of 1933 or as otherwise permitted
under said Securities Act.
Persons who may be deemed to be affiliates of National for such purposes
generally include individuals or entities that control, are controlled by, or
are under common control with, National and may include officers, directors and
principal shareholders of National. The merger agreement requires National to
use its best efforts to deliver or cause to be delivered to First American, on
or prior to the closing of the merger, an executed agreement from each National
affiliate receiving First American common shares in the merger to the effect
that each such affiliate will not offer or sell or otherwise dispose of any of
the First American shares issued to such persons in violation of the Securities
Act.
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SUMMARY OF THE MERGER AGREEMENT
GENERAL
The merger agreement contemplates the merger of Pea Soup Acquisition Corp.
with and into National, with National surviving the merger as a wholly-owned
subsidiary of First American. The merger agreement provides that the merger will
be consummated following the approval of the merger proposal by the National
shareholders, the satisfaction or waiver of all other conditions to the
consummation of the merger and upon the filing of an agreement of merger with
each of the California Secretary of State and the Secretary of State of Delaware
(which is defined in the merger agreement as the "Effective Time").
It is anticipated that the filing with the California Secretary of State and
the Secretary of State of Delaware will be made immediately after the last of
the conditions precedent to the merger set forth in the merger agreement has
been satisfied or waived. A closing will be held twelve days (or such other date
as First American and National may agree upon) after the last of the conditions
precedent to the merger set forth in the merger agreement has been satisfied or
waived. The merger agreement obligates First American to have the shares of
First American to be issued in connection with the merger approved for listing
on the New York Stock Exchange prior to the Effective Time.
The following summary of the merger agreement is qualified by reference to
the complete text of the merger agreement, as amended. The merger agreement, as
amended, is incorporated by reference herein. A copy of the merger agreement and
the first amendment thereto are attached to this proxy statement/ prospectus as
Annex A and Annex B respectively.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, the following actions will occur.
- Each issued and outstanding National common share will be converted into
0.67 of a First American common share. Cash will be paid in lieu of any
fractional First American common share that would otherwise be issued.
- Each National common share owned by First American or National or any of
their respective wholly-owned subsidiaries will be canceled and retired.
- Each National share owned by a dissenting National shareholder will be
canceled and retired and the consideration to be received by such
shareholder in the merger will be determined in accordance with California
law.
EXCHANGE OF SHARES
Subject to the terms and conditions of the merger agreement, at or prior to
the Effective Time, or as soon as practicable thereafter, First American,
through procedures mutually acceptable to First American and National, will
deposit with First American Trust Company, First American's transfer agent,
certificates representing the First American common shares issuable in exchange
for the outstanding National common shares and cash in an amount required to be
paid in lieu of fractional First American common shares. Immediately after the
Effective Time, holders of National common shares may surrender their
certificates to First American Trust Company. In exchange for the share
certificates, holders will receive First American share certificates
representing the number of First American common shares he/she/it is entitled to
receive in the merger. Holders of unexchanged National common shares will not be
entitled to receive any dividends or other distributions payable by First
American until their certificates are surrendered. Upon surrender, however,
subject to applicable laws, they will receive accumulated dividends and
distributions, without interest, together with cash in lieu of fractional
shares.
No fractional First American common shares will be issued to holders of
National common shares. For each fractional share that would otherwise be
issued, First American will pay the holder thereof by
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check an amount, rounded to the nearest whole cent, equal to the fraction of a
First American common share multiplied by the average closing price of a single
First American common share, as reported on the New York Stock Exchange, for the
ten trading days ending on the trading day that is two trading days prior to the
Effective Time.
CERTAIN REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties of First
American, Pea Soup Acquisition Corp. and National as to, among other things, the
following matters.
- Each company's due organization and good standing in their respective
state of organization.
- Each company's authority to enter into the contemplated transaction.
- The binding effect of the merger agreement.
- The absence of conflicts with each company's organizational documents and
material agreements.
- The compliance of their respective filings under the federal securities
laws.
- The consents and approvals required to enter into the merger agreement and
to consummate the merger.
- Each company's capitalization.
- Each company's compliance with laws.
- Broker's or finder's fees required to be paid in connection with the
merger.
- Litigation which may affect one of the companies.
- Conditions or circumstances which may affect First American's ability to
account for the merger as a pooling of interests.
- The truth and accuracy of statements made by each company in this proxy
statement/prospectus.
The merger agreement also contains representations and warranties from
National regarding the following matters.
- Its qualification to do business in other jurisdictions.
- The due organization, good standing and qualification of its subsidiaries.
- The comprehensiveness of and control over its books and records.
- Its title to its properties and the existence of liens on such property.
- The binding effect of and its compliance with its leases.
- The principal contracts to which it is a party.
- The payment of its taxes and certain other tax related matters.
- Insurance policies covering its activities.
- Intellectual property owned or licensed by it.
- Licenses necessary to conduct its business.
- The status of its relationship with its employees.
- Employee benefit matters.
16
<PAGE>
- The existence of any transactions it may have with or interests it may
have in one of its officers, directors, employees or affiliates.
- Changes it has experienced since the date of its last audited financial
statements.
- Payments and obligations triggered by the execution of the merger
agreement or the consummation of the merger.
- The truth and accuracy of documents provided in connection with the
merger.
- Its receipt of a fairness opinion from A.G. Edwards & Sons, Inc.
- The vote required by National shareholders to approve the merger proposal.
- The continued patronage of substantial customers and the continued
engagement of substantial suppliers.
- Certain matters related to the insurance business of its wholly-owned
subsidiary, Great Pacific Insurance Company.
Many of these representations and warranties were also made with respect to
the subsidiaries of National.
Finally, the merger agreement contains further representations and
warranties from First American as to various matters related to the issuance of
its common shares in the merger.
Many of the representations and warranties of First American and National
are subject to a "material adverse effect" qualifier. This qualifier limits the
scope of the representations and warranties subject to the qualification to only
those circumstances which generally would affect the subject company in both a
substantial and harmful manner. This qualifier expressly excludes effects
proximately caused by conditions affecting the U.S. economy generally or the
industries in which First American and National compete. It also expressly
excludes conditions resulting from the announcement of the merger or by virtue
of the merger agreement.
None of the representations and warranties of either First American, Pea
Soup Acquisition Corp. or National survive the merger.
CERTAIN COVENANTS
OPERATION OF NATIONAL PRIOR TO THE MERGER.
Pursuant to the merger agreement, National has agreed that during the period
from the date of the merger agreement to the Effective Time, it will take the
following actions.
- Conduct its operations in the ordinary and usual course of business.
- Use its reasonable efforts to preserve intact its business organization.
- Use reasonable efforts to keep available the services of its officers and
employees.
- Maintain its relationships with all licensors, suppliers, distributors,
customers, landlords, employees, agents and others with which it has a
business relationship.
- Discuss with First American material operational matters, including the
cancellation or waiver of any claim or right exceeding $50,000 in value.
- Report to First American periodically about its business, operations and
finances.
In addition, during this period, except as permitted by the terms of the
merger agreement and subject to certain limitations and exceptions, National has
agreed to, and agreed to cause its subsidiaries to, refrain from the following
actions without First American's prior written consent.
17
<PAGE>
- Amending or modifying their governing documents.
- Increasing any salaries or compensation, except in the ordinary course.
- Paying bonuses in excess of $400,000 in the aggregate.
- Paying or increasing other compensation to any officer or employee or
entering into any employment, severance or similar agreement with any
officer or employee except in the ordinary course of business and except
that National can pay or agree to pay up to $250,000 to officers and
employees in order to retain their services.
- Adopting or increasing any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement or other employee benefit plan.
- Entering into any contract or commitment not in the ordinary course of
business.
- Increasing indebtedness for borrowed money, except borrowings in the
ordinary course of business or under existing lines of credit.
- With certain specified exceptions, canceling or waiving any claim or right
of substantial value.
- Declaring or paying dividends, except that National may pay quarterly
dividends equal to the lesser of $0.11 per share or 50% of its
consolidated net earnings for such quarter.
- With certain specified exceptions, making any material change in
accounting methods or practices.
- Issuing or selling any shares of capital stock other than pursuant to
National's stock option plans.
- Issuing or selling any other securities, entering into any arrangement to
do the same or making any other change in their respective capital
structures.
- Selling, leasing or otherwise disposing of any asset or property other
than in the ordinary course of business.
- Making any capital expenditure or entering into any commitment to make a
capital expenditure not in the ordinary course of business.
- With certain specified exceptions, writing off as uncollectible any note
or accounts receivable, except write-offs in the ordinary course of
business.
- Taking any action which would interfere with First American's ability to
account for the merger as a pooling of interests.
- Agreeing in writing to do any of the foregoing.
EXCLUSIVE DEALING
National has further agreed that neither it, nor any of its subsidiaries,
officers, directors, employees, financial advisors, attorneys, accountants or
other advisors or representatives shall solicit, initiate, encourage, endorse or
enter into any agreement that constitutes or may lead to an offer to acquire a
substantial equity interest in National or a substantial portion of the assets
of National. The merger agreement requires National to immediately notify First
American, both orally and in writing, of any offer to acquire a substantial
equity interest in National or a substantial portion of the assets of National
or any inquiries or discussions with respect thereto and to provide First
American a copy of any writing documenting such proposal or a written summary of
any oral proposal.
The merger agreement further obligates National's board of directors and any
committee of its board of directors to refrain from withdrawing or modifying its
recommendation of the merger proposal or approving or recommending any offer to
acquire a substantial equity interest in National or a substantial portion of
the assets of National, unless the board of directors of National determines in
good faith, based
18
<PAGE>
upon the written advice of its outside counsel, that its fiduciary duties so
require. If such a determination is made, National may provide information to or
enter discussion or negotiations regarding a proposed takeover from any
unsolicited person. The merger agreement does not preclude National from
notifying its shareholders of a qualifying tender offer.
NATIONAL STOCK OPTION PLANS.
The merger agreement requires that, prior to the consummation of the merger,
appropriate action will be taken to provide that after the consummation of the
merger any National stock option, performance unit or similar plan, other than
the National stock option plan for members of its board of directors, be assumed
by First American. The result will be that the options, performance units, or
equivalent instruments provided to National employees under an assumed plan will
be converted automatically into options to purchase First American common
shares, on the same terms and conditions as applicable to such plan prior to the
merger. The amount of First American common shares subject to each such plan and
the exercise price of each option subsequent to the consummation of the merger
shall be adjusted in accordance with the ratio of First American common shares
each National shareholder is to receive in the merger to each of their National
common shares, i.e. the number of shares subject to each option shall be
multiplied by 0.67 and the exercise price for each option shall be divided by
0.67.
By their own terms, options under National's stock option plan for members
of National's board of directors vest and become exercisable prior to the merger
and, to the extent not exercised, terminate upon its consummation.
OTHER COVENANTS.
The merger agreement contains various other covenants, including covenants
relating to the following.
- Filing, preparation and distribution of this proxy statement/prospectus.
- First American's access to National's properties, books, records, officers
and employees prior to the consummation of the merger.
- Notification of certain events.
- Coordination of the special meeting of National's shareholders.
- Cooperation regarding filings with governmental and other agencies and
organizations.
- Filing of amended tax returns.
- Execution of affiliate and pooling agreements.
- Accounting for the merger as a pooling of interests.
- Anti-takeover statutes.
- Protection of confidential information.
In addition, the merger agreement contains a general covenant requiring each
of First American, Pea Soup Acquisition Corp. and National, and their
subsidiaries, to use their best efforts to consummate the merger.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to consummate the merger and the transactions
contemplated by the merger agreement is subject to the satisfaction or waiver of
the following conditions.
- SHAREHOLDER APPROVAL. The merger proposal shall have been approved and
adopted by the National shareholders.
19
<PAGE>
- STATUTES AND GOVERNMENTAL APPROVALS. No statute, rule or regulation shall
have been enacted which prohibits the consummation of the merger and all
governmental approvals and other consents necessary to consummate the
merger shall have been received.
- LITIGATION. No temporary or preliminary or permanent injunction or other
order restraining or prohibiting the consummation of the merger shall be
in effect.
- SECURITIES MATTERS. The registration statement of which this proxy
statement/prospectus forms a part shall remain effective and no stop order
shall have been issued.
- LISTING. The First American common shares to be issued in the merger shall
have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
The obligation of First American and Pea Soup Acquisition Corp. to
consummate the merger and the transactions contemplated by the merger agreement
is subject further to the satisfaction or waiver of each of the following
additional conditions.
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
National set forth in the merger agreement shall be true and accurate in
all material respects as of the date of the merger agreement and the
closing of the merger.
- PERFORMANCE OF AGREEMENTS. All agreements of National to be performed
prior to the closing of the merger shall have been performed.
- OPINION OF COUNSEL. First American shall have received a favorable opinion
from Morgan, Lewis and Bockius LLP, counsel to National, in a form
acceptable to First American.
- GOOD STANDING AND OTHER CERTIFICATES. National shall have delivered to
First American a good standing certificate, tax status certificate and
certain other certificates regarding the organizational documents and
standing of National.
- NO MATERIAL ADVERSE CHANGE. As of the closing of the merger, there shall
have been no material adverse effect on National and its subsidiaries,
taken as a whole, and no change or development shall have occurred which
would reasonably be expected to have a material adverse effect on
National.
- PROCEEDINGS. Authorizations and approvals necessary for National to
consummate the merger shall have been obtained and National shall have
delivered copies of documents evidencing such authorizations and approvals
to First American.
- AFFILIATES. First American shall have received from each affiliate of
National an executed pooling agreement and an executed affiliate
agreement. See "Affiliate and Pooling Agreements".
- LETTERS FROM ACCOUNTANTS. First American shall have received from
PricewaterhouseCoopers LLP certain letters relating to the accounting of
the merger as a pooling of interests and certain other matters relating to
the merger.
- EMPLOYMENT AGREEMENTS. The employment agreements between First American
and National and each of Mr. Speizer and Mr. Cole shall be in full force
and effect. See "Employment Agreements."
The obligation of National to consummate the merger and the transactions
contemplated by the merger agreement is subject further to the satisfaction or
waiver of each of the following additional conditions.
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
First American and Pea Soup Acquisition Corp. set forth in the merger
agreement shall be true and accurate in all material respects as of the
date of the merger agreement and the closing of the merger.
20
<PAGE>
- PERFORMANCE OF AGREEMENTS. All agreements of First American and Pea Soup
Acquisition Corp. to be performed prior to the closing of the merger shall
have been performed.
- OPINIONS OF COUNSEL. National shall have received a favorable opinion from
White & Case LLP, counsel to First American and Pea Soup Acquisition
Corp., in a form acceptable to National and an opinion from Morgan, Lewis
& Bockius LLP, counsel to National, to the effect that the merger will be
treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Internal Revenue Code and
that each of First American and National will be a party to the
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code.
- GOOD STANDING AND OTHER CERTIFICATES. First American and Pea Soup
Acquisition Corp. shall have delivered to National good standing
certificates and certain other certificates regarding the formative
documents of First American and Pea Soup Acquisition Corp.
- NO MATERIAL ADVERSE CHANGE. As of the closing of the merger, there shall
have been no change or development which would have a material adverse
effect on First American.
- PROCEEDINGS. Authorizations and approvals necessary for First American and
Pea Soup Acquisition Corp. to consummate the merger shall have been
obtained and First American shall have delivered copies of documents
evidencing such authorizations and approvals to National.
- FAIRNESS OPINION. National shall have received an opinion from A.G.
Edwards & Sons, Inc., National's financial advisor, dated the date of the
mailing of this proxy statement/prospectus, confirming its opinion given
on the date of the merger agreement that the number of First American
common shares given to National shareholders for their National common
shares is fair to the National shareholders from a financial point of
view.
TERMINATION
The merger agreement may be terminated prior to the consummation of the
merger as set forth below.
- By mutual written agreement of the parties.
- On or after July 15, 1999, by First American if the conditions to its and
Pea Soup Acquisition Corp.'s obligations to consummate the merger have not
been materially satisfied or waived.
- By First American if the board of directors of National shall have
withdrawn or modified in any manner adverse to First American or Pea Soup
Acquisition Corp. its approval or recommendation of the merger proposal.
- On or after July 15, 1999, by National if the conditions to its obligation
to consummate the merger have not been materially satisfied or waived.
- By any party to the merger agreement if the Effective Time has not
occurred within one month of the closing of the merger.
- By First American if National fails to call a special meeting of its
shareholders to consider the merger proposal on or prior to the 35th day
after the registration statement of which this proxy statement/prospectus
forms a part is declared effective by the Securities and Exchange
Commission.
- By National if an offer to acquire a substantial equity interest in
National or a substantial portion of the assets of National has occurred
and its board of directors, after consultation with National's legal
counsel and, in accordance with its fiduciary duties, withdraws or
modifies its approval and recommendation of the merger proposal.
- By either First American or National if on or prior to July 15, 1999, a
governmental entity shall have issued a final order or taken any action
having the effect of permanently prohibiting or restraining the merger.
21
<PAGE>
- By either First American or National if at the special meeting of
National's shareholders the required vote in favor of the merger proposal
is not obtained.
- By First American if PricewaterhouseCoopers LLP does not deliver to First
American the letter or letters, in a form acceptable to First American, to
the effect that the merger qualifies for pooling of interests accounting
treatment if the merger is consummated in accordance with the merger
agreement.
- By First American if as a condition to receiving the approval of the
Federal Trade Commission or the Antitrust Division of the Department of
Justice either First American or National must take any of the following
actions.
- Divest itself of or license any of its subsidiaries' respective
businesses, product lines, properties or assets.
- Make any material changes or accept any material restrictions in the
operation of its respective businesses, product lines, properties or
assets.
- Make or agree to any changes or restrictions on its respective
businesses, product lines, properties or assets or to the merger
agreement and the transactions contemplated thereby which would prevent
First American from accounting for the merger as a pooling of
interests.
- By National, if A.G. Edwards & Sons, Inc., shall not have delivered to
National its fairness opinion.
If the merger agreement is terminated in any manner described above, the
merger agreement will be of no further force or effect, except that certain
provisions with regard to confidentiality, expenses and publicity will survive
such termination and First American, Pea Soup Acquisition Corp. and National
will remain liable to each other for certain breaches of the merger agreement.
EXPENSES
All fees and expenses incurred in connection with the merger agreement and
the transactions contemplated by the merger agreement shall be paid by the party
incurring such expenses, except that First American has agreed to pay all
expenses directly associated with any of the following.
- The filing of the registration statement of which this proxy
statement/prospectus forms a part.
- The filing required under the federal antitrust laws.
- The filing of the listing application with the New York Stock Exchange.
- The printing and mailing of this proxy statement/prospectus.
In the event the merger is not consummated, First American explicitly has
not agreed to pay the fees and expenses of National's counsel, auditors and
financial advisors associated with the preparation or review of any document or
action associated with the merger.
VOTING AGREEMENT
In connection with the merger agreement, Mr. Speizer and Mr. Cole have
entered into a Voting Agreement with First American, pursuant to which Mr.
Speizer and Mr. Cole have agreed to vote the National common shares legally and
beneficially owned by them on November 17, 1998, the date of the Voting
Agreement, in favor of the merger proposal. The Voting Agreement also obligates
Mr. Speizer and Mr. Cole to refrain from voting their National shares either in
favor of or against any offer from a third party to acquire a substantial equity
interest in National or a substantial portion of the assets of National or from
taking any other action or entering into any agreement which would impede,
frustrate or prevent the merger or any of the other transactions contemplated by
the merger agreement. Mr. Speizer and Mr. Cole, in their capacities as
shareholders of National, have also agreed to refrain from encouraging,
soliciting or
22
<PAGE>
participating in or providing information in connection with any proposed
takeover. The Voting Agreement, however, does not limit any action Mr. Speizer
or Mr. Cole may be required to take in connection with their fiduciary duties as
officers or directors of National.
On November 17, 1998, Mr. Speizer owned 1,542,909 National shares and Mr.
Cole owned 3,000 National shares. These National shares represent, in the
aggregate, approximately 37% of the total number of National shares issued and
outstanding as of the record date for voting on the proposed merger.
EMPLOYMENT AGREEMENTS
In connection with the merger agreement, First American and National and
each of Mr. Speizer and Mr. Cole have entered into employment agreements. The
employment agreements become effective at the Effective Time.
Under Mr. Speizer's employment agreement, for a period of five years
following the Effective Time, First American agrees to employ Mr. Speizer, and
Mr. Speizer agrees to serve, as Chairman of the Board and Chief Executive
Officer of Fastrac Systems, Inc., Great Pacific Insurance Company and Pinnacle
Management Solutions Insurance Services, each of which are subsidiaries of
National and, after the merger, will be subsidiaries of the company surviving
the merger. As compensation for his services, First American shall pay Mr.
Speizer, in the form of base salary and a fixed bonus, $625,000 per year. Mr.
Speizer will also receive a formula bonus, if positive, equal to 10% of
Fastrac's adjusted pre-tax earnings. Fastrac's adjusted pre-tax earnings will be
calculated by reducing Fastrac's income before provision for income taxes by $2
million and further reducing it by 4% of Fastrac's total revenues. Under this
employment agreement, First American also agrees to grant Mr. Speizer an option
or options to purchase 30,000 First American common shares at the closing price
of a single First American common share on the New York Stock Exchange on the
day the merger is consummated. Mr. Speizer's employment agreement further
provides for certain other benefits, including medical and dental health
benefits, pension plan participation with 26 years of vesting, participation
rights in First American's deferred compensation plan and vacation and sick
leave. First American has also agreed to recommend Mr. Speizer to its Nominating
Committee for appointment to the board of directors of First American.
Under Mr. Cole's employment agreement, for a period of three years following
the Effective Time, First American agrees to employ Mr. Cole, and Mr. Cole
agrees to serve, as Executive Vice President of Fastrac Systems, Inc. As
compensation for his services, First American shall pay Mr. Cole, in the form of
base salary and a fixed bonus, $400,000 per year. Mr. Cole's employment
agreement also provides for certain other benefits, including medical and dental
health benefits, participation rights in First American's deferred compensation
plan and vacation and sick leave.
Both Mr. Speizer's and Mr. Cole's employment agreements provide for the
termination of their current employment agreements with National immediately
prior to the consummation of the merger.
AFFILIATE AND POOLING AGREEMENTS
It is a condition to the obligation of First American and Pea Soup
Acquisition Corp. to consummate the merger that on the day immediately preceding
the filing of this proxy statement/prospectus with the Securities and Exchange
Commission, each affiliate of National deliver to First American an affiliate
agreement and a pooling agreement. As used in this section, "affiliate" has the
meaning given to it in Rule 145 promulgated under the Securities Act. A form of
the affiliate agreement and the pooling agreement are attached as Exhibit D and
Exhibit E, respectively, to the merger agreement, which is itself attached as
Annex A to this proxy statement/prospectus. The following descriptions of the
affiliate agreement and the pooling agreement are qualified by reference to the
complete text of each such agreement.
23
<PAGE>
Pursuant to the affiliate agreement, each National affiliate agrees to
observe and comply with the Securities Act and the rules and regulations
promulgated thereunder. Each affiliate further agrees that he will not offer,
sell, pledge or otherwise dispose of any First American shares he receives in
connection with the merger unless one of the following conditions applies.
- Such action is permitted by Rule 145(d) under the Securities Act.
- First American receives from the affiliate's attorney a satisfactory
written opinion that no registration of the First American shares under
the Securities Act would be required.
- There is an effective registration statement with a current prospectus
covering such First American shares.
- An authorized representative of the Securities and Exchange Commission has
provided the affiliate with written advice that the Securities and
Exchange Commission would take no action or that the staff of the
Securities and Exchange Commission would recommend that no action be taken
with respect to the affiliate's proposed disposition of the First American
shares.
Unless and until a National affiliate makes a public sale of such First
American shares in compliance with one of the foregoing conditions, the
affiliate agreement authorizes First American to place a legend on the
certificates representing the First American shares of such affiliate noting
that such shares are subject to Rule 145. First American may also place stop
transfer orders on shares represented by certificates bearing this legend. Each
National affiliate also agrees to refrain from dissenting from the merger and
seeking appraisal rights under California law.
Pursuant to the pooling agreement, each National affiliate agrees that
during the 30 day period preceding the consummation of the merger and until such
time as First American publishes financial results covering at least 30 days of
post-merger combined operations of First American and National, that he will not
dispose of or reduce any risk relative to any securities of First American or,
with respect to the 30 day period preceding the merger, any securities of
National.
SELECTED FINANCIAL INFORMATION
THE FIRST AMERICAN FINANCIAL CORPORATION
The following table sets forth summary historical consolidated financial and
other data for First American for the five years ended December 31, 1998. The
summary is qualified in its entirety by reference to the financial statements
and other information contained in First American's Annual Report on Form 10-K
for the year ended December 31, 1998, which is incorporated by reference in this
proxy statement/prospectus.
[The rest of this page has been intentionally left blank.]
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Revenues:
Operating revenues.................................... $1,362,524 $1,234,236 $1,587,895 $1,881,666 $2,802,190
Investment and other income........................... 19,447 23,031 26,398 27,257 75,138
--------- --------- --------- --------- ---------
1,381,971 1,257,267 1,614,293 1,908,923 2,877,328
Expenses:
Salaries and other personnel costs.................... 425,319 435,358 539,985 659,325 914,058
Premiums retained by agents........................... 533,598 413,444 516,593 563,137 773,030
Other operating expenses.............................. 234,102 261,185 329,525 421,056 611,332
Provision for title losses and other claims........... 110,230 90,387 86,487 90,323 118,763
Depreciation and amortization......................... 21,039 20,892 27,503 38,489 59,804
Premium taxes......................................... 15,453 13,627 16,676 16,904 20,912
Interest.............................................. 6,288 6,244 4,808 10,014 18,007
--------- --------- --------- --------- ---------
1,346,029 1,241,137 1,521,577 1,799,248 2,515,906
--------- --------- --------- --------- ---------
Income before income taxes and minority interests....... 35,942 16,130 92,716 109,675 361,422
Income taxes............................................ 13,300 6,200 35,600 41,500 127,700
--------- --------- --------- --------- ---------
Income before minority interests........................ 22,642 9,930 57,116 68,175 233,722
Minority interests...................................... 2,944 2,132 2,624 3,676 35,012
--------- --------- --------- --------- ---------
Net income.............................................. $ 19,698 $ 7,798 $ 54,492 $ 64,499 $ 198,710
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS PER SHARE DATA:
Basic(1)(2)(3).......................................... $ 0.37 $ 0.16 $ 1.01 $ 1.18 $ 3.46
Diluted(1)(2)(3)........................................ $ 0.37 $ 0.16 $ 1.00 $ 1.16 $ 3.32
</TABLE>
- ------------------------------
(1) Adjusted to reflect the 1998 acquisitions accounted for under the
pooling-of-interests method of accounting.
(2) Based upon the weighted average number of common shares outstanding.
(3) Adjusted to reflect First American's 3-for-1 stock split effected July 17,
1998.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BALANCE SHEET DATA(1):
Cash and invested assets.................................... $ 367,174 $ 340,616 $ 365,031 $ 411,717 $ 726,681
Total assets................................................ $ 805,350 $ 855,156 $ 963,444 $1,153,635 $1,784,790
Notes and contracts payable................................. $ 89,631 $ 77,430 $ 71,428 $ 42,119 $ 130,193
Mandatorily redeemable preferred securities of the Company's
subsidiary trust whose sole assets are the Company's
$100,000,000 8.5% deferrable interest subordinated
debentures due 2012....................................... -- -- -- $ 100,000 $ 100,000
Total shareholders' equity.................................. $ 293,056 $ 305,778 $ 356,379 $ 415,003 $ 731,915
OTHER DATA(1):
Loss ratio.................................................. 8.1% 7.3% 5.4% 4.8% 4.2%
Cash dividends per share(1)(2).............................. $ 0.13 $ 0.13 $ 0.15 $ 0.16 $ 0.22
Ratio of debt to capitalization(1)(3)....................... 22.1% 19.0% 15.9% 7.2% 12.3%
</TABLE>
- ------------------------------
(1) Adjusted to reflect the 1998 acquisitions accounted for under the
pooling-of-interests method of accounting.
(2) Adjusted to reflect First American's 3-for-1 stock split effected July 17,
1998.
(3) Total capitalization includes minority interests and mandatorily redeemable
preferred securities of the Company's subsidiary trust.
25
<PAGE>
MATERIAL CHANGES
Effective January 1, 1999, First American implemented a change to its
revenue recognition accounting policy for tax service contracts. The new
accounting policy was adopted prospectively and applies to all new loans
serviced beginning January 1, 1999. Prior to January 1, 1999, First American
recognized revenues from tax service contracts over the estimated duration of
the contracts as the related servicing costs were estimated to occur. The
majority of the servicing costs, approximately 70%, are incurred in the year the
contract is executed, with the remaining 30% incurred over the remaining service
life of the contract. The new policy provides for a more ratable recognition of
revenues, reducing the amount recognized at the inception of the contract and
recognizing it over the expected service period. The amortization rates applied
to recognize the revenues assume a 10-year contract life and are adjusted to
reflect prepayments. The resulting rates by year (starting with year one) are
32%, 24%, 14%, 9%, 7%, 5%, 4%, 2%, 2% and 1%. First American periodically
reviews its tax service contract portfolio to determine if there have been
changes in contract lives and/or changes in the number and/or timing of
prepayments; accordingly, First American may adjust the rates to reflect current
trends. First American estimates that adoption of this new policy will result in
a decrease in diluted earnings per share for 1999 of $0.25 to $0.35. This
estimate is heavily dependent on the volume of tax service contracts entered
into in 1999. Assuming the new accounting policy had been consistently applied
in prior years, First American would have reported diluted earnings per share of
$0.42, $0.17, $0.90, $1.02 and $3.10 for the years ended December 31, 1994,
1995, 1996, 1997 and 1998, respectively. Actual reported earnings per diluted
share for the years ended December 31, 1994, 1995, 1996, 1997 and 1998,
respectively, were $0.37, $0.16, $1.00, $1.16 and $3.32.
26
<PAGE>
NATIONAL INFORMATION GROUP
The following table sets forth summary historical consolidated financial and
other data for National for the five years ended December 31, 1998. The summary
is qualified in its entirety by reference to the financial statements and other
information contained in National's Annual Report on Form 10-K for the year
ended December 31, 1998, which is incorporated by reference in this proxy
statement/prospectus.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net premiums written............................................. $ 20,036 $ 14,956 $ 12,636 $ 20,501 $ 14,290
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net premiums earned.............................................. $ 20,858 $ 17,020 $ 13,585 $ 19,038 $ 15,512
Real estate information services(1).............................. 7,978 10,593 18,499 23,492 35,978
Tracking fees.................................................... 3,012 4,786 5,479 7,543 12,346
Net commission income............................................ 1,103 1,502 1,145 1,166 1,081
Net investment income............................................ 1,836 2,042 1,975 1,839 1,635
--------- --------- --------- --------- ---------
Total revenues................................................. 34,787 35,943 40,683 53,078 66,552
--------- --------- --------- --------- ---------
Loss and loss adjustment expense................................. 7,873 6,044 4,002 6,482 5,415
Commissions paid to nonaffiliates................................ 4,739 4,079 1,954 1,837 3,014
Personnel expenses............................................... 13,677 16,891 18,948 23,127 31,455
All other expenses............................................... 9,096 12,252 14,221 16,930 23,039
Non-recurring expense(2)......................................... 1,020 4,100 -- -- --
--------- --------- --------- --------- ---------
Total expenses(1).............................................. 36,405 43,366 39,125 48,376 62,923
--------- --------- --------- --------- ---------
Income (loss) before provision (benefit) for income taxes........ (1,618) (7,423) 1,558 4,702 3,629
Provision for (benefit from) income taxes........................ (534) (2,559) 284 1,436 812
--------- --------- --------- --------- ---------
Net income (loss)................................................ $ (1,084) $ (4,864) $ 1,274 $ 3,266 $ 2,817
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EARNINGS PER SHARE DATA
Basic(3)......................................................... $ (0.23) $ (1.04) $ 0.31 $ 0.83 $ 0.69
Diluted(3)....................................................... $ (0.23) $ (1.04) $ 0.31 $ 0.79 $ 0.65
BALANCE SHEET DATA
Cash and investments............................................. $ 39,112 $ 37,335 $ 33,777 $ 29,962 $ 25,537
Total assets..................................................... $ 55,092 $ 52,096 $ 47,112 $ 66,742 $ 67,941
Long-term notes payable.......................................... $ -- $ -- $ 333 $ 8,675 $ 10,031
Total shareholders' equity....................................... $ 37,290 $ 32,881 $ 28,552 $ 27,780 $ 30,351
OTHER DATA:
Cash dividends per share......................................... $ 0.20 $ 0.00 $ 0.00 $ 1.30 $ 0.31
</TABLE>
- ------------------------------
(1) Revenues for real estate information services include revenues in 1997 from
PinTax subsequent to the PinTax Acquisition. Total expenses include expenses
from PinTax subsequent to the PinTax Acquisition.
(2) Non-recurring expenses consist of $4.1 million in 1995 for Proposition 103
rebate and $1 million in 1994 for restructuring charges in connection with
the relocation of an operation.
(3) Based upon weighted average number of common shares outstanding.
MATERIAL CHANGES
Effective January 1, 1999, National implemented a change to its revenue
recognition accounting policy for tax service contracts. The accounting policy
was adopted prospectively and applies to all new loans serviced beginning
January 1, 1999. Prior to January 1, 1999, National recognized revenues from tax
service contracts over the estimated duration of the contracts as the related
servicing costs were estimated to occur. The majority of the servicing costs,
approximately 64%, are incurred in the first tax processing cycle, with the
remaining 36% incurred over the remaining service life of the contract. This
policy results in recognition of approximately 65% of billings as revenue in the
first year depending on the month that the
27
<PAGE>
contracts are added. The new policy provides for a more ratable recognition of
revenues, reducing the amount of revenue and gross profit recognized at the
inception of the contract and recognizing it over the expected service period.
The amortization rates applied to recognize the revenues are based on a 10-year
average contract life and are adjusted to reflect prepayments. The resulting
rates by year are 41%, 21%, 13%, 8%, 6%, 4%, 3%, 2%, 1% and 1%. National
periodically reviews its tax service contract portfolio to determine if there
have been changes in contract lives and/or changes in the number and/or timing
of prepayments. National may adjust rates to reflect current trends. Assuming a
constant rate of billings in 1999 as compared to 1998, revenue recognized from
new tax service contracts would be approximately 35%-40% lower and National's
consolidated revenues would be approximately 5% lower.
28
<PAGE>
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth selected historical and unaudited pro forma
per share data for First American and historical and equivalent unaudited pro
forma per share data for National. The unaudited pro forma financial data
assumes that the merger was consummated at the beginning of the earliest period
presented and gives effect to the merger as a pooling-of-interests under
generally accepted accounting principles. The unaudited pro forma per share data
for First American is based on the number of outstanding First American shares
adjusted to include the number of First American shares that would be issued in
the merger. The unaudited pro forma equivalent per share data for National is
based on the unaudited pro forma amounts per share for First American,
multiplied by the merger exchange ratio. The information set forth below should
be read in conjunction with the historical financial data of First American and
National which is incorporated by reference herein.
[The rest of this page has been intentionally left blank.]
29
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
FIRST AMERICAN FINANCIAL CORPORATION:
Net income per common share:
Historical:
Basic......................................................... $ 3.46 $ 1.18 $ 1.01
Diluted....................................................... $ 3.32 $ 1.16 $ 1.00
Pro forma combined:
Basic......................................................... $ 3.33 $ 1.18 $ 0.96
Diluted....................................................... $ 3.21 $ 1.16 $ 0.96
Dividends per share:
Historical $ 0.22 $ 0.16 $ 0.15
Book value per share:
Historical...................................................... $ 12.13
Pro forma combined.............................................. $ 12.07
NATIONAL INFORMATION GROUP:
Net income per common share:
Historical:
Basic......................................................... $ 0.69 $ 0.83 $ 0.31
Fully Diluted................................................. $ 0.65 $ 0.79 $ 0.31
Pro forma equivalent:
Basic......................................................... $ 2.23 $ 0.79 $ 0.64
Fully Diluted................................................. $ 2.15 $ 0.78 $ 0.64
Dividends per share:
Historical...................................................... $ 0.31 $ 1.30 $
Pro forma equivalent............................................ $ 0.15 $ 0.11 $ 0.10
Book value per share:
Historical...................................................... $ 7.29
Pro forma equivalent............................................ $ 8.09
</TABLE>
30
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data gives effect to
the merger of National and First American. The merger is accounted for by the
pooling-of-interests method and reflects adjustments as if the transaction had
occurred on January 1, 1996 for income statement purposes and December 31, 1998
for balance sheet purposes.
The pro forma adjustments are based upon available information and upon
certain assumptions that First American and National believe are reasonable. The
pro forma combined financial statements and accompanying notes should be read in
conjunction with the historical financial statements of First American and
National, and the related notes thereto, incorporated by reference in this proxy
statement/ prospectus.
The pro forma combined financial statements are provided for informational
purposes only in response to Securities and Exchange Commission requirements and
do not purport to represent what First American's financial position or results
of operations would actually have been if the merger had in fact occurred at
such dates or to project First American's financial position or results of
operations for any future date or period.
PRO FORMA COMBINED BALANCE SHEET
($ in thousands)
<TABLE>
<CAPTION>
DEC. 31, 1998 PRO FORMA
FIRST DEC. 31, 1998 -------------------------
AMERICAN NAIG ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
- --------------------------------------------------------
Cash and cash equivalents............................... $ 375,440 $ 5,853 $ 2,071(1) $ 383,364
Accounts and accrued income receivable.................. 191,122 10,043 201,165
Investments:
Deposits with savings and loan associations and
banks............................................... 32,974 3,438 36,412
Debt securities....................................... 227,685 11,011 238,696
Equity securities..................................... 27,338 5,235 32,573
Other long-term investments........................... 63,244 63,244
------------- ------------- ----------- ------------
351,241 19,684 370,925
------------- ------------- ----------- ------------
Investment in subsidiaries.............................. 33,515(2)
(33,515)(2)
Loans receivable........................................ 72,035 72,035
Property and equipment, net............................. 313,639 8,452 322,091
Title plants and other indexes.......................... 216,711 216,711
Assets acquired in connection with claim settlements.... 17,051 17,051
Deferred income taxes................................... 12,859 3,465 16,324
Goodwill and other intangibles.......................... 171,790 15,316 187,106
Other assets............................................ 62,902 5,128 1,093(1) 69,123
------------- ------------- ----------- ------------
$ 1,784,790 $ 67,941 $ 3,164 $ 1,855,895
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
DEC. 31, 1998 PRO FORMA
FIRST DEC. 31, 1998 -------------------------
AMERICAN NAIG ADJUSTMENTS COMBINED
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------
Demand deposits......................................... $ 67,404 $ 67,404
Accounts payable and accrued liabilities................ 256,707 $ 7,488 264,195
Deferred revenue........................................ 105,496 13,706 119,202
Reserve for known and incurred but not reported
claims................................................ 270,436 2,485 272,921
Income taxes payable.................................... 22,734 22,734
Notes and contracts payable............................. 130,193 13,911 144,104
Minority interests in consolidated subs................. 99,905 99,905
Guaranteed preferred beneficial interests in Company's
junior subordinated deferrable interest debentures.... 100,000 100,000
Stockholders' equity:
Common stock............................................ 60,332 19,749 3,164(1) 63,322
2,990(2)
(22,913)(3)
Additional paid-in capital.............................. 129,664 19,923(2) 149,587
Retained earnings....................................... 534,297 10,486 10,486(2) 544,783
(10,486)(3)
Other comprehensive income.............................. 7,622 116 116(2) 7,738
(116)(3)
------------- ------------- ----------- ------------
731,915 30,351 3,164 765,430
------------- ------------- ----------- ------------
$ 1,784,790 $ 67,941 $ 3,164 $ 1,855,895
------------- ------------- ----------- ------------
------------- ------------- ----------- ------------
</TABLE>
32
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
($ in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, 1998 YEAR ENDED PRO FORMA
FIRST DEC. 31, 1998 ---------------------------
AMERICAN NAIG ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Operating revenues...................................... $ 2,802,190 $ 64,917 $ 2,867,107
Investment and other income............................. 75,138 1,635 76,773
------------- ------------- ------ ------------
2,877,328 66,552 2,943,880
------------- ------------- ------ ------------
------------- ------------- ------ ------------
EXPENSES
- --------------------------------------------------------
Salaries and other personnel costs...................... 914,058 31,455 945,513
Premiums retained by agents............................. 773,030 3,014 776,044
Other operating expenses................................ 611,332 23,039 634,371
Provision for title losses and other claims............. 118,763 5,415 124,178
Depreciation and amortization........................... 59,804 59,804
Premium taxes........................................... 20,912 20,912
Interest................................................ 18,007 18,007
------------- ------------- ------ ------------
2,515,906 62,923 2,578,829
------------- ------------- ------ ------------
Income before income taxes and minority interests....... 361,422 3,629 365,051
Income taxes............................................ 127,700 812 128,512
------------- ------------- ------ ------------
Income before minority interests........................ 233,722 2,817 236,539
Minority interests...................................... 35,012 35,012
------------- ------------- ------ ------------
Net income.............................................. $ 198,710 $ 2,817 $ 201,527
------------- ------------- ------ ------------
------------- ------------- ------ ------------
Historical earnings per share
Basic................................................. $ 3.46 $ 0.69
Diluted............................................... $ 3.32 $ 0.65
Pro forma earnings per share
Basic................................................. $ 3.33
Diluted............................................... $ 3.21
</TABLE>
33
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
($ in thousands)
<TABLE>
<CAPTION>
12 MOS. ENDED
DEC. 31, 1997 12 MOS. ENDED PRO FORMA
FIRST DEC. 31, 1997 ---------------------------
AMERICAN NAIG ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
- --------------------------------------------------------
Operating revenues...................................... $ 1,860,205 $ 51,239 $ 1,911,444
Investment and other income............................. 27,256 1,839 29,095
------------- ------------- ------ ------------
1,887,461 53,078 1,940,539
EXPENSES
Salaries and other personnel costs...................... 647,750 23,127 670,877
Premiums retained by agents............................. 563,137 1,837 564,974
Other operating expenses................................ 411,319 16,930 428,249
Provision for title losses and other claims............. 90,323 6,482 96,805
Depreciation and amortization........................... 38,149 38,149
Premium taxes........................................... 16,904 16,904
Interest................................................ 9,994 9,994
------------- ------------- ------ ------------
1,777,576 48,376 1,825,952
------------- ------------- ------ ------------
Income before income taxes and minority interests....... 109,885 4,702 114,587
Income taxes............................................ 41,500 1,436 42,936
------------- ------------- ------ ------------
Income before minority interests........................ 68,385 3,266 71,651
Minority interests...................................... 3,676 3,676
------------- ------------- ------ ------------
Net income.............................................. $ 64,709 $ 3,266 $ 67,975
------------- ------------- ------ ------------
------------- ------------- ------ ------------
Historical earnings per share
Basic................................................. $ 1.18 $ 0.83
Diluted............................................... $ 1.16 $ 0.79
Pro forma earnings per share
Basic................................................. $ 1.18
Diluted............................................... $ 1.16
</TABLE>
34
<PAGE>
PRO FORMA COMBINED INCOME STATEMENT
($ in thousands)
<TABLE>
<CAPTION>
12 MOS. ENDED
DEC. 31, 1996 12 MOS. ENDED PRO FORMA
FIRST DEC. 31, 1996 ---------------------------
AMERICAN NAIG ADJUSTMENTS COMBINED
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Operating revenues...................................... $ 1,571,168 $ 38,708 $ 1,609,876
Investment and other income............................. 26,398 1,975 28,373
------------- ------------- ------ ------------
1,597,566 40,683 1,638,249
------------- ------------- ------ ------------
EXPENSES
Salaries and other personnel costs...................... 531,250 18,948 550,198
Premiums retained by agents............................. 516,593 1,954 518,547
Other operating expenses................................ 322,709 14,221 336,930
Provision for title losses and other claims............. 86,487 4,002 90,489
Depreciation and amortization........................... 27,242 27,242
Premium taxes........................................... 16,676 16,676
Interest................................................ 4,796 4,796
------------- ------------- ------ ------------
1,505,753 39,125 1,544,878
------------- ------------- ------ ------------
Income before income taxes and minority interests....... 91,813 1,558 93,371
Income taxes............................................ 35,600 284 35,884
------------- ------------- ------ ------------
Income before minority interests........................ 56,213 1,274 57,487
Minority interests...................................... 2,624 2,624
------------- ------------- ------ ------------
Net income.............................................. $ 53,589 $ 1,274 $ 54,863
------------- ------------- ------ ------------
------------- ------------- ------ ------------
Historical earnings per share
Basic................................................. $ 1.01 $ 0.31
Diluted............................................... $ 1.00 $ 0.31
Pro forma earnings per share
Basic................................................. $ 0.96
Diluted............................................... $ 0.96
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS DEBIT CREDIT
- -------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
(1) Other Assets............................................................................ $ 1,093
Cash..................................................................................... $ 2,071
Common stock.......................................................................... $ 3,164
(To record the issuance of 301,000 National shares reflecting actual stock options exercised
to date in 1999 and assuming the exercise of all outstanding Director's stock options.)
(2) Investment in subsidiaries.............................................................. $ 33,515
Common stock.......................................................................... $ 2,990
Paid in capital....................................................................... $ 19,923
Other comprehensive income............................................................ $ 116
Retained earnings..................................................................... $ 10,486
(To record issuance of 2,990,000 First American shares to effect the merger with National.
The number of First American shares to be issued assumes 4,463,000 National shares.)
(3) Common stock............................................................................ $ 22,913
Other comprehensive income............................................................... $ 116
Retained earnings........................................................................ $ 10,486
Investment in subsidiaries............................................................ $ 33,515
</TABLE>
(To eliminate equity accounts of National.)
36
<PAGE>
ROLE OF FINANCIAL ADVISOR
The board of directors of National engaged A.G. Edwards & Sons, Inc. to act
as its financial advisor and to render an opinion as to the fairness, from a
financial point of view, to the holders of the outstanding shares of common
stock of National, of the exchange ratio and the consideration to be received by
the National shareholders in connection with the merger. On November 17, 1998,
at the meeting at which the board of directors of National approved and adopted
the merger agreement and the transactions contemplated thereby, A.G. Edwards
rendered its opinion to the board of directors of National that, as of such
date, both the exchange ratio and the merger consideration were fair, from a
financial point of view, to National's shareholders.
A.G. Edwards is a nationally recognized securities and investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, competitive bidding, secondary distribution of listed
and unlisted securities, private placements, and valuations for estate,
corporate and other purposes. A.G. Edwards was selected by National as its
financial advisor based upon such expertise, the reputation of A.G. Edwards in
investment banking and mergers and acquisitions and A.G. Edwards' expertise in
providing financial advisory services to insurance companies and the financial
services industry in general. A.G. Edwards has advised National that A.G.
Edwards is not aware of any present or contemplated relationship between A.G.
Edwards, National, National's directors and officers or its shareholders or
First American which, in its opinion, would affect its ability to render a fair
and independent opinion in this matter.
The full text of the A.G. Edwards opinion, which sets forth, among other
things, assumptions made, procedures followed, matters considered and
limitations of the scope of the review undertaken by A.G. Edwards in rendering
its opinion, is attached as Annex B to this proxy statement/prospectus. National
shareholders are urged to, and should, read the A.G. Edwards opinion carefully
and in its entirety. The opinion was directed to the National board of directors
and addresses only the fairness, from a financial point of view, to National
shareholders of the exchange ratio and the merger consideration to be received
pursuant to the merger agreement and does not constitute a recommendation to any
holder of National common stock as to how to vote with respect to the merger.
The summary of the opinion set forth in this proxy statement/prospectus is
qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its Opinion, A.G. Edwards' activities included
the following.
- A review of the merger agreement and related documents.
- Conversations with the management of National and First American,
respectively, regarding the nature and extent of the terms of the merger.
- A review of publicly available information regarding National and First
American, which A.G. Edwards deemed relevant, including National's and
First American's annual and quarterly reports, proxy statements and other
relevant filings with the Securities and Exchange Commission through the
reporting periods ended September 30, 1998 and research reports and
analyst opinions.
- A review of projections of selected financial information for National and
First American for the fiscal years 1998 and 1999, as provided by the
respective management of National and First American.
- An investigation of certain other internal operating and financial
information regarding National and First American, respectively, supplied
to A.G. Edwards by the management of National and First American,
respectively, concerning the business, operations and financial prospects
of National and First American, respectively, and on a pro forma combined
basis.
- A review of the lines of business in which National and First American
operate.
37
<PAGE>
- A review of the reported price and trading activity for the common stock
of National and First American, respectively.
- A review of publicly available information concerning certain other
companies that Edwards believed to be relevant in evaluating National and
First American, respectively, and the trading of such companies'
securities.
- A review of information relating to the nature and financial terms of
certain other mergers or acquisitions that A.G. Edwards considered
relevant in evaluating the transaction.
- An assessment of other information that A.G. Edwards considered relevant
to its analyses.
In rendering its opinion, A.G. Edwards reviewed the pro forma impact of the
merger assuming that it will be accounted for as a pooling of interests business
combination in accordance with U.S. generally accepted accounting principles and
assuming that the merger will be consummated on the terms contained in the
merger agreement and related documents, without any waiver of any material terms
or conditions by National.
In rendering its opinion, A.G. Edwards relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other information, publicly available, or furnished to, or otherwise discussed
with A.G. Edwards for the purposes of its opinion. With respect to financial
projections and other information provided to or otherwise discussed with A.G.
Edwards, A.G. Edwards assumed and was advised by the management of National and
First American, respectively, that such projections and other information were
reasonably prepared on a basis that reflects the best currently available
estimates and judgments of the management of National and First American,
respectively, including information relating to the strategic, financial and
operational benefits anticipated from the merger as provided by First American
management. The Board of National did not specifically engage A.G. Edwards to,
and therefore A.G. Edwards did not, independently review or verify the adequacy
of National's or First American's respective insurance reserves. A.G. Edwards
was not engaged to, and did not, independently verify the information provided
and performed no audit of assets or liabilities and no independent appraisal of
assets or liabilities of either National or First American. A.G. Edwards has
relied upon the assurances of the management of National and First American that
the respective management are not aware of any facts that would make such
information inaccurate or misleading. A.G. Edwards did not express an opinion as
to what the value of the First American common shares will be when issued to the
holders of National common shares pursuant to the merger, or the price at which
First American common shares will trade subsequent to the merger.
In performing its analyses, A.G. Edwards made numerous assumptions with
respect to the industries in which National and First American operate, and
general business and economic conditions which are beyond the control of
National. The analyses performed by A.G. Edwards are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Such analyses were prepared
solely as part of A.G. Edwards' analysis of the fairness, from a financial point
of view, to the National shareholders, of the exchange ratio and the merger
consideration to be received pursuant to the merger agreement, and were provided
to the board of directors of National in connection with the delivery of its
opinion.
The following is a summary of the material analyses performed by A.G.
Edwards in arriving at its opinion.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES.
A.G. Edwards used publicly available information to compare selected
financial and market trading information for National, a group of information
providers (the "Information Providers") and a group of property and casualty
insurance companies (the "P&C Insurers"). The companies comprising the
Information Providers and the P&C Insurers were selected because they are
publicly traded companies with
38
<PAGE>
businesses that for purposes of analysis may be considered similar in certain
respects to National. The Information Providers are comprised of: Avert Inc.,
Barra Inc., Carreker Antinori Inc., CCC Information Services Group, ChoicePoint
Inc., Factset Research Systems Inc., Factual Data Corporation, Fair Isaac & Co.
Inc., Primark Corporation and Vista Information Services Inc. The P&C Insurers
are comprised of: Accel International, Acceptance Insurance Companies, American
Country Holdings, Baldwin & Lyons Inc., Danielson Holding Corporation, Gainsco
Inc., Gryphon Holdings Inc., Highlands Insurance Group Inc., Merchants Group
Inc., Meridian Insurance Group Inc., Penn-America Group Inc. and The Seibels
Bruce Group Inc. A.G. Edwards noted that no company used in the analysis of
selected publicly traded companies is identical to National. The financial
information reviewed included, among other things, the multiples of stock price
to the last twelve months earnings per share, stock price to projected fiscal
1998 earnings per share, stock price to projected fiscal 1999 earnings per share
and stock price to tangible book value per share. A.G. Edwards calculated
National's multiples using implied valuations based on a $10.75 stock price for
National common shares--the closing price of National's stock as of November 13,
1998--and using last twelve months financial results pro forma for the
acquisition of American Realty Tax Services by National in September 1997. The
implied stock price to last twelve months earnings per share for National was
17.0 times versus a median of 23.7 times for the Information Providers and a
median of 18.0 times for the P & C Insurers. The implied stock price to
projected 1998 earnings per share for National was 17.1 times versus a median of
19.8 times for the Information Providers and a median of 13.8 times for the P &
C Insurers. The implied stock price to projected 1999 earnings per share for
National was 7.8 times versus a median of 14.5 times for the Information
Providers and a median of 11.0 times for the P & C Insurers. The implied stock
price to tangible book value per share for National was 3.1 times versus median
of 4.5 times for the Information Providers and a median of 1.0 times for the P &
C Insurers.
A.G. Edwards also used publicly available information to perform a similar
comparison of selected financial and market trading information for First
American versus selected publicly traded title insurance companies (the "Title
Insurers"), and the Information Providers described above. The Title Insurers
are comprised of: Chicago Title Corporation, Fidelity National Financial Inc.,
Investors Title Corporation, LandAmerica Financial Group Inc. and Stewart
Information Services Corporation. A.G. Edwards noted that no company used in the
analysis of selected publicly traded companies is identical to the First
American. The financial information reviewed included, among other things, the
multiples of stock price to last twelve months earnings per share, stock price
to projected fiscal 1998 earnings per share, stock price to projected fiscal
1999 earnings per share and stock price to tangible book value per share. A.G.
Edwards calculated First American's multiples using implied valuations based on
a $34.00 stock price for First American Common Stock--the closing price of the
stock as of November 13, 1998. The implied stock price to last twelve months
earnings per share for First American was 11.3 times versus a median of 13.7
times for the Title Insurers and a median of 23.7 times for the Information
Providers. The implied stock price to projected 1998 earnings per share for
First American was 12.0 times versus a median of 9.7 times for the Title
Insurers and a median of 19.8 times for the Information Providers. The implied
stock price to projected 1999 earnings per share for First American was 12.4
times versus a median of 9.6 times for the Title Insurers and a median of 14.5
times for the Information Providers. The implied stock price to tangible book
value per share for First American was 4.0 times versus a median of 2.2 times
for the Title Insurers and a median of 4.5 times for the Information Providers.
ANALYSIS OF SELECTED MERGER AND ACQUISITION TRANSACTIONS.
A.G. Edwards analyzed the purchase prices and multiples paid or proposed to
be paid, to the extent publicly available, of 28 selected merger and acquisition
transactions involving information providers (the "Information Providers
Transactions") and 26 merger transactions of companies in the property and
casualty industry (the "P & C Insurance Transactions") since October 1994
(collectively the "Selected Merger and Acquisition Transactions").
39
<PAGE>
Among other things, A.G. Edwards analyzed the following, as available.
- The aggregate transaction value to last twelve months revenues. For this
purpose, "aggregate transaction value" was calculated as common equity
value, plus book value of debt and preferred stock, less cash and
marketable securities.
- The amount paid for the equity to last twelve months net income and net
tangible book value.
- The similarity of such transactions to the merger.
A.G. Edwards noted that no transaction used in the Analysis of Selected
Merger and Acquisition Transactions is identical to the proposed merger of First
American and National.
In comparing the multiples in the Selected Merger and Acquisition
Transactions to the proposed merger, First American's share price was assumed to
be $34.00. This resulted in an equity purchase price on a fully diluted basis of
$108.4 million and an aggregate transaction value on a fully diluted basis of
$118.0 million.
With respect to the Information Providers Transactions, the last twelve
months revenue multiple ranged from 0.5 times to 5.9 times, with a median of 1.6
times, the last twelve months net income multiple ranged from 14.8 times to 32.4
times, with a median of 27.1 times, and the tangible book value multiple ranged
from 4.0 times to 6.5 times, with a median of 4.9 times. With respect to the P &
C Insurance Transactions, the last twelve months revenues multiple ranged from
0.3 times to 5.2 times, with a median of 0.9 times, the last twelve months net
income multiple ranged from 7.7 times to 31.7 times, with a median of 15.8
times, and the net tangible book value multiple ranged from 0.6 times to 7.0
times, with a median of 1.4 times. In its analysis of the merger, A.G. Edwards
noted that the implied last twelve months revenues multiple was 1.8 times, the
implied last twelve months net income multiple was 34.7 times and the implied
tangible book value multiple was 6.6 times.
ANALYSIS OF THE MERGER PREMIUMS TO MARKET VALUE.
A.G. Edwards analyzed the premium of the consideration to be received by
National shareholders to the market value of National common stock one day, one
week, one month, six months and one year prior to the announcement of the merger
(the "Merger Premiums"). A.G. Edwards also reviewed the premiums paid one day,
one week, one month, six months and one year prior to the announcement for the
stock of publicly traded targets in 14 of the Selected Merger and Acquisition
Transactions. Assuming the announcement date had occurred on November 16, 1998,
the Merger Premiums are as follows: one day prior, 111.9%; one week prior,
160.3%; four weeks prior, 275.9%; six months prior, 87.8%; and, one year prior,
109.5%. The median premiums for the Selected Merger and Acquisition Transactions
are as follows: one day prior, 37.6%; one week prior, 36.4%; four weeks prior,
36.7%; six months prior, 30.2%; and one year prior, 46.6%.
PRO FORMA MERGER ANALYSIS.
A.G. Edwards analyzed the impact of the merger on First American's pro forma
earnings per share for the fiscal year 1998, First American's pro forma earnings
per share for the fiscal year 1999 and First American's pro forma tangible book
value per share as of September 30, 1998. Such analyses were based on publicly
available data, First American's and National's respective management
projections for the corresponding periods and First American's management's
estimated range of synergies resulting from the combination. A.G. Edwards
observed that, assuming the merger was treated as a pooling of interests for
accounting purposes and before taking into account any one-time restructuring
charge, the merger would result in a range of pro forma earnings per share
accretion/(dilution) of (3.6%) to (0.4%) and (2.5%) to 1.3% in fiscal 1998 and
fiscal 1999, respectively. The merger would also result in a dilution of pro
forma tangible book value per share of 1.4%.
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A.G. Edwards analyzed the impact of the merger on National's equivalent pro
forma earnings per share for the fiscal year 1998, National's pro forma earnings
per share for the fiscal year 1999, and National's pro forma tangible book value
per share as of September 30, 1998. For each of these financial items (earnings
per share and tangible book value per share), equivalent pro forma is defined as
the product of (a) the associated pro forma First American financial item and
(b) the "Exchange Ratio" as defined by the merger agreement. Such analyses were
based on publicly available data, First American's and National's respective
management's projections for the corresponding periods and First American's
management estimated range of synergies resulting from the combination. A.G.
Edwards observed that, assuming the merger was treated as a pooling of interests
for accounting purposes and before taking into account any one-time
restructuring charge, the merger would result in a range of equivalent pro forma
earnings per share accretion of 182.1% to 216.4% and 18.9% to 57.4% in fiscal
1998 and fiscal 1999, respectively. The merger would also result in an accretion
of pro forma tangible book value per share of 12.7% and a dilution of dividend
per share of 65.3%.
The opinion does not purport to be a complete description of all the
analyses performed by A.G. Edwards in arriving at its opinion. The preparation
of a fairness opinion is a complex process and is not susceptible to partial
analysis or summary description. In rendering its opinion, A.G. Edwards applied
its judgment to a variety of complex analyses and assumptions, considered the
results of all of its analyses as a whole and did not attribute any particular
weight to any analysis or factor considered by it. Furthermore, selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, A.G. Edwards
may have given various analyses and factors more or less weight than other
analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuation resulting from
any particular analysis described above should not be taken to be A.G. Edwards'
view of the actual value of National or First American. In performing its
analyses, A.G. Edwards made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of National or First American. The assumptions made
and judgments applied by A.G. Edwards in rendering its opinion are not readily
susceptible to description beyond that set forth in the written text of the
opinion itself. Any estimates contained herein are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by such estimates. A.G. Edwards does not assume
responsibility if future results are different from those projected. The
analyses performed were prepared solely as part of A.G. Edwards' analysis of the
fairness, from a financial point of view, to National's shareholders of the
exchange ratio and the merger consideration to be received in the merger and
were conducted in connection with the delivery of the opinion. As described
above, A.G. Edward's opinion to the National board of directors was one of the
many factors taken into consideration by the National Board in making its
determination to approve the merger agreement and the merger. The decision to
enter into the merger agreement was solely that of the National board of
directors.
The terms of the engagement of A.G. Edwards by National are set forth in a
letter agreement between A.G. Edwards and National. Pursuant to the terms of
this letter, as compensation for rendering its financial advisory services and
its opinion to the board of directors of National, National agreed to pay A.G.
Edwards a fee, payable upon the delivery of the opinion, of $350,000, such fee
having been paid. National has agreed to reimburse A.G. Edwards for reasonable
fees of A.G. Edwards' counsel and for A.G. Edwards' travel and out-of-pocket
expenses incurred in connection with its engagement. National has also agreed to
indemnify A.G. Edwards against certain liabilities in connection with the
engagement of A.G. Edwards.
VOTING COMMITMENTS FROM CERTAIN SHAREHOLDERS
As noted above under "Voting Agreement," Mark A. Speizer, the Chairman of
the Board and Chief Executive Officer of National and the largest National
shareholder, and Bruce A. Cole, the President of National, entered into an
agreement with First American pursuant to which Mr. Speizer and Mr. Cole
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each agreed to vote all of the National common shares beneficially owned by them
on November 17, 1998 in favor of the merger proposal and not to vote such shares
in favor of any proposal that would prevent the proposed merger. On November 17,
1998, Mr. Speizer and Mr. Cole beneficially owned 1,542,909 and 3,000 National
common shares or 37.5% and 0.07% of the National common shares outstanding at
such time, respectively.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the board of directors of National with
respect to the merger agreement and the transactions contemplated thereby,
shareholders of National should be aware that certain members of National's
management and board of directors have interests in the merger that are
different from, and in addition to, the interests of National's shareholders.
NEW EMPLOYMENT AGREEMENTS
As a condition precedent to First American's willingness to enter into the
merger agreement and consummate the merger, Messrs. Speizer and Cole entered
into employment agreements with First American. Mr. Speizer's employment
agreement has a term of five years commencing as of the effective time of the
merger. The term of Mr. Cole's employment agreement is three years. If, during
such term, First American terminates Mr. Speizer or Mr. Cole other than for
cause, First American will still be responsible for paying the salary and fixed
bonus of the terminated individual. A cause is defined in each employment
agreement as the conviction of a felony or a finding of liability based on
intentional tortious conduct consisting of a breach of fiduciary duty relating
to the employee's performance as an officer and/or director of First American
and certain of its subsidiaries.
DIRECTOR OPTION PLAN
The 1991 Director Option Plan, as amended, contains a vesting acceleration
clause which is triggered upon an event of merger. In the event of a merger in
which existing shareholders will not retain at least 50% of the voting power of
National, all options under the Director Option Plan will become immediately
exercisable. Optionees under the Director Option Plan will be able to exercise
their options as if all were vested starting 10 days prior to the event of
merger and ending upon the date of merger. Options granted under the Director
Option Plan which are not exercised by the date of the merger will be
terminated. Set forth below is a list of the directors and the number of options
affected under this plan as of March 1, 1999.
<TABLE>
<CAPTION>
EXERCISE
NAME VESTED OPTIONS UNVESTED OPTIONS TOTAL OPTIONS PRICE
- ------------------------------------------------- --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Bunaes, Bard E................................... 16,667 33,333 50,000 $ 7.1250
Croner, Melvyn D................................. 13,542 0 13,542 $ 6.5000
Goodman, Lawrence M.............................. 13,542 36,458 50,000 $ 8.3125
Herman, Howard................................... 1,042 0 1,042 $ 6.1250
Jodel, Saul B.................................... 32,292 17,708 50,000 $ 5.8750
Speizer, Mark A.................................. 41,667 8,333 50,000 $ 6.2500
</TABLE>
INDEMNIFICATION AND INSURANCE
First American will cause National to indemnify and hold harmless the
present and former officers, directors, employees and agents of National and its
subsidiaries in respect of acts or omissions occurring on or prior to the
effective date of the merger to the extent provided under National's and its
subsidiaries' articles of incorporation, bylaws or under any indemnification
agreements in effect on the date of the merger agreement. National's articles of
incorporation and bylaws provide for indemnification of its officers, directors,
employees and agents to the fullest extent permitted by law.
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In addition, for a period of six years after the effective date of the
merger, First American will cause National to use its best efforts to provide
officers' and directors' liability insurance in respect to acts or omissions
occurring on or prior to the effective date of the merger covering each such
person currently covered by National and/or its subsidiaries officers' and
directors' liability insurance policies. Such insurance shall retain similar
terms as are currently existing.
THE SHAREHOLDERS' MEETING
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of National common shares by the board
of directors of National for use at a shareholders' meeting at which the merger
proposal will be voted upon. This proxy statement/prospectus and accompanying
form of proxy are first being mailed to the National shareholders on or about
[ ].
TIME AND PLACE; PURPOSE
The National shareholders' meeting will be held at The Embassy Suites, 250
Gateway Boulevard, South San Francisco, California 94080 on [ ],
starting at 10:00 a.m., local time. At the meeting, National shareholders will
be asked to consider and vote upon the proposed merger.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
The board of directors of National has fixed the close of business on
[ ], 1999 as the record date for National shareholders entitled to notice
of and to vote at the National shareholders' meeting. The only outstanding
voting securities of National are its common shares. Only holders of record of
National common shares on the record date are entitled to notice of and to vote
at the National shareholders' meeting. Each holder of record, as of the record
date, of National common shares is entitled to cast one vote per share on the
merger proposal. On the record date, there were [ ] National common
shares outstanding and entitled to vote at the National shareholders' meeting,
held by approximately [ ] shareholders. The affirmative vote of
one-half of the National common shares outstanding on the record date are
required to approve the proposed merger.
On the record date, the directors and executive officers of National and
their affiliates beneficially owned and were entitled to vote approximately
[ ] National common shares, or approximately [ ]% of the
National common shares outstanding on the record date. This includes the
National common shares beneficially owned by Mark A. Speizer and Bruce A. Cole.
Pursuant to the Voting Agreement, Mr. Speizer and Mr. Cole have each agreed to
vote all National common shares that he beneficially owned on the Record Date in
favor of the merger proposal. See "Voting Commitments from Certain
Shareholders."
VOTING OF PROXIES
All National common shares represented by properly executed proxies received
prior to or at the National shareholders' meeting and not revoked, will be voted
in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxies
will be voted FOR the approval of the merger proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing,
including by telegram or telecopy, with the Secretary of National before the
taking of the vote at the relevant meeting, a written notice of revocation
bearing a later date than the date of the proxy or a later-dated proxy relating
to the same shares. Proxies may also be revoked by attending the relevant
meeting and voting in person. In order to vote in person at the National
shareholders' meeting, National shareholders must attend the National
shareholders' meeting and cast their votes in accordance with the voting
procedures established for such meeting. Attendance at a meeting will not in and
of itself constitute a revocation of a proxy. Any written notice of revocation
or subsequent
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proxy must be sent so as to be delivered at or before the taking of the vote at
the applicable meeting as follows:
Mr. Robert P. Barbarowicz
National Information Group
395 Oyster Point Boulevard, Suite 500
South San Francisco, California 94080
National shareholders who require assistance in changing or revoking a proxy
should contact National's secretary at the address or phone number provided in
this proxy statement/prospectus under the caption "Who Can Help Answer Your
Questions."
National shareholders may abstain from voting for or against the merger
proposal. Since the favorable vote of a majority of the outstanding National
common shares is required to approve the proposal, a proxy marked "ABSTAIN" with
respect thereto will effectively be counted as a vote "AGAINST" the merger
proposal. Similarly, the failure of a National shareholder to return a proxy
will effectively result in the shareholders votes being counted "AGAINST" the
proposal.
Under Nasdaq rules, brokers who hold shares in street names for customers
have the authority to vote on certain "routine" proposals when they have not
received instructions from beneficial owners. However, brokers are precluded
from exercising their voting discretion with respect to the approval and
adoption of non-routine matters such as the merger proposal. Absent specific
instructions from the beneficial owner of such shares, brokers are not empowered
to vote such shares with respect to the approval and adoption of such proposals.
The result is commonly referred to as a "broker non-vote." Since the affirmative
votes described above are required for approval of the merger proposal, a
"broker non-vote" will effectively result in the shares being counted "AGAINST"
the proposal.
National may retain a proxy solicitation firm to aid in the solicitation of
proxies and to verify certain records related to the solicitations. If a proxy
solicitation firm is so retained, National will pay such firm customary fees and
expense reimbursement for such services. To the extent necessary in order to
ensure sufficient representation at the National shareholders' meeting, National
may request by telephone or telegram the return of proxy cards. The extent to
which this will be necessary depends entirely upon how promptly proxy cards are
returned. National shareholders are urged to send in their proxies without
delay.
National Shareholders should not send in any share certificates with their
proxy cards. A transmittal form with instructions for the surrender of
certificates representing National common shares will be mailed by First
American or its transfer agent to former National shareholders as soon as
practicable after the consummation of the merger.
COMPARISON OF SHAREHOLDERS' RIGHTS
Upon consummation of the merger, the shareholders of National will become
shareholders of First American. Accordingly, certain differences in the rights
of the shareholders will occur when the merger takes effect. First American and
National are both organized under the laws of the State of California. Any
differences, therefore, between the current rights of National shareholders and
the shareholders' rights upon consummation of the merger will arise primarily
from differences between the respective articles of incorporation and bylaws of
National and First American.
The following is a summary of the material differences between the current
rights of National shareholders and those of First American shareholders. This
summary is not intended to be complete and is qualified in its entirety by
reference to the First American articles and bylaws and the National articles
and bylaws. Copies of the First American articles and bylaws and the National
articles and bylaws are incorporated by reference herein and will be sent to
shareholders of National upon request.
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AUTHORIZED AND ISSUED CAPITAL STOCK
The authorized capital stock of First American currently consists of
108,000,000 common shares and 500,000 preferred shares, $1.00 par value, of
which 1,000 of such shares have been designated Series A Junior Participating
Preferred Shares. As of [ ], 1999, [ ] common shares were issued and
outstanding and no preferred shares were issued and outstanding. The common
stock of First American is listed on the New York Stock Exchange under the
symbol "FAF."
The authorized capital stock of National currently consists of 15,000,000
common shares, no par value, and 5,000,000 preferred shares. The board of
directors is authorized to fix the rights, preferences, privileges and
restrictions of the preferred shares. 1,020,000 preferred shares have been
designated as Series A Preferred Stock. As of [ ], 1999, [ ]
National common shares were issued and outstanding and no preferred shares were
issued and outstanding. The common shares of National are listed on the Nasdaq
National Market System under the symbol "NAIG."
VOTING RIGHTS
Each First American common share entitles its holder to one vote on all
matters submitted to a vote of First American's shareholders. Each First
American Series A Junior Participating Preferred Share would entitle its holder
to 100,000 votes on all matters submitted to a vote of the Company's
shareholders. Each National common share entitles its holder to one vote on all
matters submitted to a vote of National's shareholders. Each National Series A
Preferred Stock is entitled to the number of votes equal to the number of common
shares into which such preferred stock could be converted at the record date of
such vote.
PREEMPTIVE RIGHTS; CUMULATIVE VOTING
Neither the First American articles nor the National articles grants any
preemptive rights to shareholders. Subject to certain conditions, both the First
American bylaws and the National bylaws provide for cumulative voting during the
election of directors.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Both the First American bylaws and the National bylaws provide that actions
which may be taken at an annual or special meeting of shareholders may be taken
without such meeting and without prior notice, if a consent in writing setting
forth the action so taken is signed by the holders of outstanding shares having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
SPECIAL MEETINGS OF SHAREHOLDERS
Both the First American bylaws and the National bylaws state that a special
meeting of the shareholders may be called at any time by the board of directors,
the chairman of the board, the president, or by the holders of 10% of all votes
entitled to be cast on any issue proposed to be considered at the special
meeting.
QUORUM AND VOTING REQUIREMENTS FOR SHAREHOLDER MEETINGS
Both the First American bylaws and the National bylaws state that a majority
of the shares entitled to vote at a meeting shall constitute a quorum for the
transaction of business at such meeting. If a quorum is present, the affirmative
vote of the majority of shares represented at the meeting and entitled to vote
on any matter (other than the election of directors) is required to take action.
Directors are elected by a plurality of shares entitled to vote at the meeting
subject to cumulative voting described above.
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BOARD OF DIRECTORS
The First American board of directors currently consists of 16 directors who
serve for one-year terms. The number of directors on First American's board of
directors is subject to change by action of First American's board of directors
or by the First American shareholders, but cannot be less than nine (9) nor more
than seventeen (17). The National board of directors consists of 5 directors who
serve for one-year terms. The number of directors on National's board of
directors is subject to change by a duly adopted amendment to National's
articles or by an amendment to National's bylaws adopted by a majority of the
outstanding shares entitled to vote.
VACANCIES
Both the First American bylaws and the National bylaws provide that
vacancies in the respective board of directors may be filled by a majority of
the remaining directors, though less than a quorum, or by a sole remaining
director, unless the vacancy is caused by court order or shareholder action.
REMOVAL OF DIRECTORS
The First American bylaws and the National bylaws have substantially the
same provisions relating to the removal of directors.
LIMITATION ON DIRECTORS' LIABILITY
Both the First American articles and the National articles provide that the
liability of directors of each respective Company for monetary damages be
eliminated to the fullest extent permissible under law.
INDEMNIFICATION
First American's bylaws contain the following provisions relating to
indemnification.
- First American shall indemnify its officers and directors to the fullest
extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary.
- First American 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.
- An officer or director may bring suit against First American if a claim
for indemnification is not timely paid.
- First American may not retroactively amend the indemnification provisions
in the bylaws in a way which is adverse to its officers and directors.
- The foregoing provisions apply to all past and present officers and
directors of First American.
Indemnification of agents of First American who are not its officers and
directors is governed by the provisions of Section 317 of the California General
Corporation Law.
First American may enter into indemnification agreements with its directors,
officers and other agents upon such terms and conditions as are deemed to be in
the best interests of First American by its board of directors.
Notwithstanding the foregoing provisions, First American's indemnification
obligations do not include the following.
- To indemnify or advance expenses to an officer, director or agent with
respect to proceedings or claims initiated or brought voluntarily by such
officer, director or agent and not by way of defense,
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except with respect to proceedings brought to establish or enforce a right
to indemnification under an indemnification agreement or any statute or
law or otherwise as required under said Section 317, but such
indemnification or advancement of expenses may be provided by First
American in specific cases if the board of directors has approved the
bringing of such suit.
- To indemnify an officer, director or agent for any expenses incurred with
respect to any proceeding instituted by such officer, director or agent to
enforce or interpret provisions of an indemnity agreement or this section
of the bylaws, if a court of competent jurisdiction determines that each
of the material assertions made by the officer, director or agent in such
proceeding was not made in good faith or was frivolous.
- To indemnify an officer, director or agent for expenses or liabilities of
any type whatsoever (including, but not limited to, judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid or satisfied by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by First American;
provided that First American shall be obligated to remit to the officer,
director or agent any insurance proceeds received in respect of expenses
or liabilities previously paid or satisfied by such officer, director or
agent.
- To indemnify an officer, director or agent for expenses, judgments, fines
or penalties sustained, or for an accounting of profits made from, the
purchase and sale by such officer, director or agent of securities of
First American in violation of the provisions of the federal securities
laws or any similar provisions of any state or local statutory law.
- To indemnify an officer, director or agent in the event a court of
competent jurisdiction finally determines that such indemnification is
unlawful.
The term "officer" as used immediately above is defined as each person who
is, or was, appointed to the office of Chairman of the Board, President, Vice
President, Secretary, Assistant Secretary, Chief Financial Officer, Treasurer,
Assistant Treasurer and such other office of First American as the board shall
designate from time to time. The term "director" as used immediately above is
defined as any person who is, or was, appointed to serve on the board of
directors of First American either by the shareholders or the remaining board
members. The term "agent" as used immediately above is defined as having the
same meaning as that set forth in the California General Corporation Law, except
that it shall not include officers and directors.
National's charter documents allow National to indemnify its officers,
employees and other agents to the fullest extent permitted by California law.
California law does not permit the elimination of monetary liability where such
liability is based on any of the following.
- Intentional misconduct or knowing and culpable violation of the law.
- Acts or omissions that a director believes to be contrary to the best
interest of the Company or its shareholders, or that involves the absence
of good faith on the part of the director.
- Acts or omissions that show reckless disregard for the director's duty to
the Company or its shareholders, where the director in the ordinary course
of performing a director's duties should be aware of a risk of serious
injury to the Company or its shareholders.
- Acts or omissions that constitute an unexcused pattern of inattention that
amount to an abdication of the director's duty to the Company and its
shareholders.
- Interested transactions between the Company and a director in which a
director has a material financial interest.
- Liability for improper distributions or loans or guarantees.
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Such limitation of liability does not affect the availability of equitable
remedies, such as injunctive relief or rescission.
In addition, National's bylaws provide that National shall indemnify its
directors and officers to the fullest extent permitted by California law,
including circumstances in which indemnification is not otherwise specifically
prohibited under California law. National has entered into separate
indemnification agreements with some of its officers and directors which,
consistent with the provisions of its charter documents, contain provisions
which provide for indemnification in circumstances which are not specifically
prohibited under California law. The indemnification agreements may require
National to take the following actions.
- To indemnify such officers and directors against certain liabilities that
may arise by reason of their status or service as directors or officers,
other than for liabilities arising from willful misconduct of a culpable
nature
- To advance their expenses incurred as a result of any proceeding against
them, as to which they could be indemnified.
- To obtain director's and officer's insurance, if it is available on
reasonable terms.
AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS
Neither the First American articles nor the National articles specifies the
approvals necessary to adopt amendments to the articles. Therefore, under the
California General Corporation Law, except for certain amendments as prescribed
therein for which the approval of the board of directors alone is required, any
amendment to the respective company's articles must be approved by the holders
of a majority of the outstanding shares of stock of that company.
The First American bylaws and the National bylaws have substantially similar
provisions regarding the adoption, amendment and repeal of bylaws by the
respective company's shareholders and directors.
RIGHTS TO PURCHASE PREFERRED STOCK
Each First American common share has attached to it a right which, subject
to the terms and conditions of the Rights Agreement between First American and
Wilmington Trust Company, dated October 23, 1997, entitles the holder to
purchase a fraction of a Series A Junior Participating Preferred Share upon the
occurrence of certain change of control events which are defined in the Rights
Agreement. As of the date of this proxy statement/prospectus, such rights are
not exercisable. See Description of the Stock and the description of Rights to
Purchase Series A Junior Participating Preferred Shares contained in First
American's Registration Statement on Form 8-A, dated November 7, 1997, and
incorporated by reference herein.
The shares of National's common stock do not entitle the holders to such
rights to purchase National preferred stock.
LEGAL MATTERS
The validity of the First American common shares to be issued to National
shareholders pursuant to the merger will be passed upon by White & Case LLP,
special counsel to First American. It is a condition to the consummation of the
merger that National receive an opinion from Morgan, Lewis & Bockius LLP,
special counsel to National, to the effect that, among other things, neither
National nor any of its shareholders will recognize gain or loss for U.S.
federal income tax purposes as a result of the merger (other than in respect of
any cash paid in lieu of fractional shares). See "Summary of the Merger
Agreement--Conditions to the Consummation of the Merger" and "The
Merger--Material Federal Income Tax Consequences."
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EXPERTS
First American financial statements incorporated in this proxy
statement/prospectus by reference to First American's Annual Report on Form 10-K
for the year ended December 31, 1998, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
National financial statements incorporated in this proxy
statement/prospectus by reference to National's Annual Report on Form 10-K for
the year ended December 31, 1998, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
1999 ANNUAL MEETING OF SHAREHOLDERS
National will hold a 1999 Annual Meeting of shareholders only if the merger
is not consummated before the time of such meeting. The deadline for receipt by
National of shareholder proposals to be presented at the meeting was January 5,
1999. No shareholder proposals were received by the deadline.
WHERE YOU CAN FIND MORE INFORMATION
First American and National file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
filed by First American or National at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. First
American's and National's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at http://www.sec.gov.
First American filed a Registration Statement on Form S-4 to register with
the SEC the First American common shares to be issued to National shareholders
in the merger. This proxy statement/ prospectus is a part of that Registration
Statement and constitutes a prospectus of First American in addition to being a
proxy statement of National for its shareholders' meeting. As permitted by SEC
rules, this proxy statement/prospectus does not contain all the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
The SEC allows First American and National to "incorporate by reference"
information into this proxy statement/prospectus, which means that First
American and National can disclose important information to you by referring you
to another document filed separately with the SEC. The information incorporated
by reference is deemed to be part of this proxy statement/prospectus, except for
any information superseded by information in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that First American and National have previously filed with the SEC.
These documents contain important information about First American and National,
including information concerning each company's financial performance.
FIRST AMERICAN DOCUMENTS
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
- The description of First American's Common shares, $1.00 par value,
contained in its Registration Statement on Form 8-A, dated November 19,
1993, which registers the shares under Section 12(b) of the Exchange Act.
- The description of Rights to Purchase Series A Junior Participating
Preferred Shares, which may be transferred with First American's Common
shares, contained in its Registration Statement on
49
<PAGE>
Form 8-A, dated November 7, 1997, which registers the rights under Section
12(b) of the Exchange Act.
First American is also incorporating by reference any additional documents
that First American files with the SEC between the date of this proxy
statement/prospectus and the date the merger is consummated.
NATIONAL DOCUMENTS
- Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
A copy of the Annual Report on Form 10-K for the fiscal year ended December
31, 1998 has been transmitted herewith. National is also incorporating by
reference any additional documents that National files with the SEC between the
date of this proxy statement/prospectus and the date of the National
shareholders' meeting.
First American has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to First American, and
National has supplied all such information contained in this proxy
statement/prospectus relating to National.
YOU MAY OBTAIN A COPY OF FIRST AMERICAN'S FILINGS AT NO COST BY WRITING TO
FIRST AMERICAN AT THE FIRST AMERICAN FINANCIAL CORPORATION, 114 EAST FIFTH
STREET, SANTA ANA, CALIFORNIA 92701-4642, ATTENTION: MR. MARK R ARNESEN, OR BY
TELEPHONING FIRST AMERICAN AT (714) 558-3211. If you would like to request
documents from First American, please do so by [ ] to receive them
before the National shareholders' meeting. First American will send such
documents by first-class mail within one business day of receiving any such
request.
YOU MAY OBTAIN A COPY OF NATIONAL'S FILINGS AT NO COST BY WRITING TO
NATIONAL AT NATIONAL INFORMATION GROUP, 395 OYSTER POINT BOULEVARD, SUITE 500,
SAN FRANCISCO, CALIFORNIA 94080, ATTENTION: MR. ROBERT P. BARBAROWICZ, OR BY
TELEPHONING NATIONAL AT (650) 872-6772. If you would like to request documents
from National, please do so by [ ] to receive them before the
National shareholders' meeting. National will send such documents by first-class
mail within one business day of receiving any such request.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to vote on the merger proposal.
Neither First American nor National has authorized anyone to provide you with
information that is different from what is contained in this proxy statement/
prospectus. This proxy statement/prospectus is dated [ ]. You should
not assume that the information contained in this proxy statement/prospectus is
accurate as of any date other than such date, and neither the mailing of this
proxy statement/prospectus to shareholders nor the issuance of First American
common shares in the merger shall create any implication to the contrary.
50
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE FIRST AMERICAN FINANCIAL CORPORATION,
PEA SOUP ACQUISITION CORP.,
AND
NATIONAL INFORMATION GROUP
DATED AS OF NOVEMBER 17, 1998
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 17, 1998 (this
"AGREEMENT"), by and among The First American Financial Corporation, a
California corporation ("FAFCO"), Pea Soup Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of FAFCO ("FAFCOSUB") and National
Information Group, a California corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of FAFCO, FAFCOSUB and the Company have
each determined that it is in the best interests of their respective companies
and the shareholders of their respective companies that the Company and FAFCOSUB
combine into a single company through the statutory merger of FAFCOSUB with and
into the Company (the "MERGER") and, in furtherance thereof, have approved the
Merger;
WHEREAS, pursuant to the Merger, among other things, the outstanding common
shares of the Company, no par value (each whole common share of the Company, a
"COMPANY COMMON SHARE"), shall be converted into Common shares, par value $1.00,
of FAFCO (each whole Common share of FAFCO, a "FAFCO COMMON SHARE"), at the rate
set forth herein;
WHEREAS, the Parties (as defined below) intend to cause the Merger to be
accounted for as a pooling of interests under APB Opinion No. 16, Staff
Accounting Series Releases 130, 135 and 146 and Staff Accounting Bulletins Topic
Two (Business Combinations) (the "POOLING RULES");
WHEREAS, the Parties (as defined below) desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
WHEREAS, in order to effectuate and facilitate the Merger, each Party has
independently determined that its in its best interest to enter into this
Agreement and to consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATIONS
1.1 DEFINED TERMS. In this Agreement the following words and expressions
shall have the following meanings (such meaning to be equally applicable to both
the singular and plural forms of the terms defined):
"ACCESS AGREEMENT" shall have the meaning provided in Section 5.2(a);
"AGREEMENT" shall have the meaning provided in the introductory paragraph
hereto;
"AGREEMENT OF MERGER" shall mean the Agreement of Merger in the form
attached hereto as EXHIBIT A;
"ANTITRUST DIVISION" shall mean the Antitrust Division of the Department of
Justice;
"ARTICLES OF INCORPORATION" shall have the meaning provided in Section 2.7;
"BUSINESS DAY" shall mean any day, excluding Saturday, Sunday or any day
which shall be a legal holiday in the State of California;
"BY-LAWS" shall have the meaning provided in Section 2.8;
"CALIFORNIA CODE" shall mean the California Corporations Code;
"CLOSING" shall have the meaning provided in Section 2.11;
ANNEX A-1
<PAGE>
"CLOSING DATE" shall have the meaning provided in Section 2.11;
"CODE" shall have the meaning provided in Section 3.19(a);
"COMPANY" shall have the meaning provided in the introductory paragraph
hereto;
"COMPANY BALANCE SHEET" shall mean the balance sheet of the Company included
in the Company's Quarterly Report on Form 10-Q for the period ended September
30, 1998;
"COMPANY BALANCE SHEET DATE" shall mean December 31, 1997;
"COMPANY COMMON CERTIFICATE" shall have the meaning provided in Section
2.4(a);
"COMPANY COMMON SHARE" shall have the meaning provided in the second WHEREAS
clause;
"COMPANY CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
and Nondisclosure Agreement, dated July 31, 1998, by and between First American
Real Estate Information Services, Inc. and the Company;
"COMPANY FINANCIAL STATEMENTS" shall have the meaning provided in Section
3.5;
"COMPANY SEC REPORTS" shall have the meaning provided in Section 3.5;
"COMPANY SHAREHOLDER MEETING" shall have the meaning provided in Section
8.1(b);
"COMPANY STOCK RIGHTS" shall have the meaning provided in Section 2.6(a);
"DELAWARE CODE" shall mean the Delaware General Corporation Law;
"DIRECTOR OPTION PLAN" shall mean the National Information Group 1991
Director Option Plan;
"DISSENTING SHAREHOLDERS" shall have the meaning provided in Section 2.3;
"EFFECTIVE TIME" shall have the meaning provided in Section 2.1(b);
"EMPLOYEE BENEFIT PLANS" shall have the meaning provided in Section 3.19(a);
"ENTITY" shall mean any Person that is not a natural Person;
"ERISA" shall have the meaning provided in Section 3.19(a);
"EXCEPTED SHARES" shall mean (i) any Company Common Shares which are held by
any Subsidiary of the Company or which are held, directly or indirectly, by
FAFCO or any direct or indirect subsidiary of FAFCO (including FAFCOSUB) and
(ii) Company Common Shares held by Dissenting Shareholders;
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended;
"EXCHANGE AGENT" shall have the meaning provided in Section 2.4(a);
"EXCHANGE RATIO" shall have the meaning provided in Section 2.2(a);
"FAFCO" shall have the meaning provided in the introductory paragraph
hereto;
"FAFCO COMMON CERTIFICATES" shall have the meaning provided in Section
2.4(a);
"FAFCO COMMON SHARES" shall have the meaning provided in the second WHEREAS
clause;
"FAFCO CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
and Nondisclosure Agreement, dated November 9, 1998, by and between FAFCO and
the Company;
"FAFCO SEC REPORTS" shall have the meaning provided in Section 4.7;
"FAFCOSUB" shall have the meaning provided in the introductory paragraph
hereto;
"FAFCOSUB COMMON SHARES" shall mean the common shares, no par value, of Pea
Soup Acquisition Corp.;
ANNEX A-2
<PAGE>
"FTC" shall mean the Federal Trade Commission;
"GOVERNMENTAL ENTITIES" shall mean the appropriate legislative, executive,
judicial, Federal, state and local governmental or regulatory agencies and
authorities in the United States or any other jurisdiction;
"GREAT PACIFIC" shall have the meaning provided in Section 3.33(a);
"HSR ACT" shall have the meaning provided in Section 3.22;
"INDEMNIFIED PARTIES" shall have the meaning provided in Section 8.4(a);
"INSURANCE APPROVALS" shall have the meaning provided in Section 3.22;
"INTELLECTUAL PROPERTY" shall mean all domestic and foreign patents, patent
applications, registered and unregistered trade marks and service marks,
registered and unregistered copyrights, computer programs, databases, trade
secrets and proprietary information;
"IRS" shall have the meaning provided in Section 3.19(f);
"LICENSES" shall have the meaning provided in Section 3.17;
"MATERIAL ADVERSE EFFECT" shall mean, with respect to any Person, a material
adverse effect on (i) the validity or enforceability of this Agreement, (ii) the
ability of such Person to perform its obligations under this Agreement, (iii)
the business, assets, condition or results of operations of such Person and its
Subsidiaries, taken as a whole; PROVIDED, HOWEVER, that any adverse change,
event or effect that is proximately caused by (a) conditions affecting the
United States economy generally or the economy of the regions in which such
Person and its Subsidiaries, taken as a whole, conducts a material part of its
business, (b) by conditions affecting the industries in which such Person and
its Subsidiaries compete or (c) by the announcement of the Merger or by virtue
of this Agreement, including without limitation, compliance by such Person with
its covenants hereunder, shall not be taken into account in determining whether
there has been a Material Adverse Effect;
"MERGER" shall have the meaning provided in the first WHEREAS clause;
"MERGER CONSIDERATION" shall mean the FAFCO Common Shares and any cash in
lieu of fractional FAFCO Common Shares receivable by each shareholder of the
Company pursuant to Section 2.2(a) and 2.2(b), respectively;
"MERGER DOCUMENTS" shall mean those documents required to be filed with the
California Secretary of State in accordance with Section 1103 of the California
Code;
"NEW STOCK RIGHTS" shall have the meaning provided in Section 2.6(a);
"NASD" shall mean the National Association of Securities Dealers, Inc. (or
any successor thereto);
"NYSE" shall mean the New York Stock Exchange;
"PARTY" or "PARTIES" shall mean each of FAFCO, FAFCOSUB and the Company, or
all of them, as the case may be;
"PERMITTED LIENS" shall have the meaning provided in Section 3.7;
"PERSON" shall mean and include any individual, partnership, joint venture,
association, joint stock company, corporation, trust, limited liability company,
unincorporated organization, a group and a government or other department,
agency or political subdivision thereof;
"POOLING LETTER" shall have the meaning provided in Section 6.2(g);
"POOLING RULES" shall have the meaning provided in the third WHEREAS clause;
"PRE-CLOSING PERIOD" shall have the meaning provided in Section 3.13(b);
ANNEX A-3
<PAGE>
"PROXY STATEMENT/PROSPECTUS" shall have the meaning provided in Section
7.1(a);
"REGISTRATION STATEMENT" shall have the meaning provided in Section 7.1(a);
"REINSURANCE AGREEMENT" or "REINSURANCE AGREEMENTS" shall have the meaning
provided in Section 3.33(b);
"RETURNS" shall have the meaning provided in Section 3.13(a);
"RULE 145" shall have the meaning provided in Section 8.6;
"RULE 145 LETTER" shall have the meaning provided in Section 6.2(g);
"SAP" shall mean, with respect to Great Pacific, the statutory accounting
procedures or practices prescribed or permitted by the Insurance Commissioner of
the State of California, the Department of Insurance of the State of California
and insurance departments of other states and Washington, D.C. or any applicable
insurance commission or other Governmental Entity having such authority over
Great Pacific;
"SCHEDULE CERTIFICATE" shall mean a certificate from the Chief Executive
Officer of the Company, delivered on a Business Day to FAFCO and FAFCOSUB (and a
copy properly delivered to White & Case LLP) pursuant to Section 11.6, and dated
and signed by the Chief Executive Officer of the Company on such Business Day,
setting forth the Schedules delivered by the Company under this Agreement and
certifying that all Schedules to be delivered by the Company under this
Agreement have been so delivered;
"SEC" shall mean the Securities and Exchange Commission;
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended;
"STOCK PLANS" shall have the meaning provided in Section 2.6(a);
"SUBSIDIARY" shall mean, with respect to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any Entity (other than a corporation)
in which such Person and/or one more Subsidiaries of such Person has more than a
50% equity interest at the time or otherwise controls the management and affairs
of such Entity (including the power to veto any material act or decision);
"SURVIVING CORPORATION" shall have the meaning provided in Section 2.1(a);
"TAKEOVER PROPOSAL" shall mean any tender or exchange offer, or proposal,
other than a proposal by FAFCO or any of its affiliates, for a merger, share
exchange or other business combination involving the Company or any of its
Subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in the Company or any of its Subsidiaries or a substantial
portion of the assets of the Company or any of its Subsidiaries;
"TAKEOVER STATUTE" shall mean any "fair price," "moratorium," "control share
acquisition," or other similar antitakeover statute or regulation enacted under
state or federal laws in the United States;
"TAXES" shall mean all taxes, assessments, charges, duties, fees, levies or
other governmental charges, including, without limitation, all Federal, state,
local, foreign and other income, franchise, profits, capital gains, capital
stock, transfer, sales, use, occupation, property, excise, severance, windfall
profits, stamp, license, payroll, withholding and other taxes, assessments,
charges, duties, fees, levies or other governmental charges of any kind
whatsoever (whether payable directly or by withholding and whether or not
requiring the filing of a Return), all estimated taxes, deficiency assessments,
additions to tax, penalties and interest and shall include any liability for
such amounts as a result either of being a member of a combined,
ANNEX A-4
<PAGE>
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other Entity;
"TRADING DAY" shall mean a day on which the New York Stock Exchange is open
for at least one-half of its normal business hours;
"US GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis;
"VEBAS" shall have the meaning provided in Section 3.19(a); and
"YEAR 2000 ISSUES" shall have the meaning provided in Section 3.15.
1.2 PRINCIPLES OF CONSTRUCTION.
(a) All references to Sections, subsections, Schedules and Exhibits are to
Sections, subsections, Schedules and Exhibits in or to this Agreement unless
otherwise specified. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. The term
"including" is not limiting and means "including without limitation."
(b) All accounting terms not specifically defined herein shall be construed
in accordance with US GAAP.
(c) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including"; the words "to" and
"until" each mean "to but excluding"; and the word "through" means "to and
including."
(d) The Table of Contents hereto and the Section headings herein are for
convenience only and shall not affect the construction hereof.
(e) This Agreement is the result of negotiations among and has been reviewed
by each Party's counsel. Accordingly, this Agreement shall not be construed
against any Party merely because of such Party's involvement in its preparation.
(f) The Schedules referred to herein are incorporated herein by reference.
The Parties acknowledge and agree that notwithstanding the delivery date of each
such Schedule and the date of the Schedule Certificate, each such Schedule shall
be construed to refer to the subject matter it contains as of the date of this
Agreement.
SECTION 2
THE MERGER AND RELATED MATTERS
2.1 THE MERGER.
(a) At the Effective Time, and subject to and upon the terms and conditions
of this Agreement, the Agreement of Merger and the applicable provisions of the
California Code, FAFCOSUB shall be merged with and into the Company and the
separate corporate existence of FAFCOSUB shall cease, and the Company shall
continue as the surviving corporation under the laws of the State of California
(the "SURVIVING CORPORATION").
(b) The Merger shall become effective when (i) each of the conditions set
forth in Section 6 has been satisfied or waived by the appropriate Party or
Parties, (ii) the Agreement of Merger, executed in accordance with the
applicable provisions of the Delaware Code, is filed with and approved by the
Secretary of State of Delaware and (iii) the Agreement of Merger, executed in
accordance with the relevant provisions of the California Code, is filed with
and approved by the California Secretary of State (the time of such latter
filing, the "EFFECTIVE TIME").
ANNEX A-5
<PAGE>
(c) From and after the Effective Time, the Merger shall have the effects
provided for in Section 1107 of the California Code.
2.2 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of FAFCO, FAFCOSUB, the Company or any of
their respective shareholders:
(a) Each Company Common Share then issued and outstanding, other than
Excepted Shares, shall be converted into the right to receive sixty-seven
hundredths (0.67) of a FAFCO Common Share (the "EXCHANGE RATIO"). All such
Company Common Shares, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and each holder of a Company Common
Certificate representing any such Company Common Shares shall cease to have any
rights with respect thereto, other than its right to receive FAFCO Common Shares
and cash in lieu of fractional FAFCO Common Shares;
(b) No fraction of a FAFCO Common Share will be issued, but in lieu thereof
each holder of Company Common Shares who would otherwise be entitled to receive
a fraction of a FAFCO Common Share shall receive from FAFCO an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction
and (ii) the average closing price of a FAFCO Common Share, as reported on the
New York Stock Exchange, for the ten Trading Days ending on the Trading Day that
is two Trading Days prior to the Effective Time;
(c) Excepted Shares shall be canceled and retired without any conversion
thereof and shall not receive any cash payment with respect to a fractional
share;
(d) The Exchange Ratio shall be adjusted to reflect fully the effect of any
stock split, reverse split, stock dividend, reorganization, recapitalization or
other like change with respect to FAFCO Common Shares or Company Common Shares
occurring after the date hereof and prior to the Effective Time; and
(e) Each FAFCOSUB Common Share shall be converted into one common share, no
par value, of the Surviving Corporation.
2.3 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, but only to the extent required by California law, Company Common
Shares issued and outstanding immediately prior to the Effective Time and held
by holders of Company Common Shares that (a) represent in the aggregate 5% or
more of the issued and outstanding Company Common Shares, (b) were not voted in
favor of the Merger and (c) whose holders comply with the provisions of Chapter
13 of the California Code concerning the right of holders of Company Common
Shares to dissent from the Merger and require appraisal of their Company Common
Shares ("DISSENTING SHAREHOLDERS"), shall not be converted into or represent the
right to receive the Merger Consideration but shall become the right to receive
such consideration as may be determined to be due such Dissenting Shareholder
pursuant to the law of the State of California. From and after the Effective
Time, Dissenting Shareholders shall not have and shall not be entitled to
exercise any of the voting rights or other rights of a shareholder of the
Surviving Corporation. If any Dissenting Shareholder shall fail to assert or
perfect, or shall waive, rescind, withdraw or otherwise lose, such holder's
right to dissent and obtain payment under Chapter 13 of the California Code,
then such Company Common Shares shall automatically be converted into and
represent only the right to receive (upon surrender of a Company Common
Certificate previously representing such Company Common Shares) FAFCO Common
Shares in accordance with Section 2.2(a) (and cash in lieu of any fractional
share in accordance with Section 2.2(b)). The Company shall give FAFCO and
FAFCOSUB (i) prompt notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other related instruments received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal. The Company will not voluntarily make any payment with
respect to any demands for appraisal and will not, except with the prior written
consent of FAFCO, settle or offer to settle any demand for appraisal.
ANNEX A-6
<PAGE>
2.4 SURRENDER OF CERTIFICATES.
(a) EXCHANGE OF COMPANY COMMON CERTIFICATES. At or prior to the Effective
Time, or as soon as practicable thereafter, FAFCO, through such reasonable
procedures as FAFCO and the Company mutually agree, shall deposit with the First
American Trust Company (the "EXCHANGE AGENT") in trust for the holders of
certificates which immediately prior to the Effective Time represented Company
Common Shares (each such certificate a "COMPANY COMMON CERTIFICATE"), and each
such holder will be entitled to receive, upon surrender of one or more Company
Common Certificates to the Exchange Agent in the manner set forth in subsection
(b) below, (i) certificates representing the FAFCO Common Shares (the "FAFCO
COMMON CERTIFICATES") into which the Company Common Shares represented by such
Company Common Certificates were converted in the Merger and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractions of shares
pursuant to Section 2.2(b). The Exchange Agent shall invest any such cash
deposited with it as directed by FAFCO, on a daily basis. Any interest and other
income resulting from such investments shall be paid to FAFCO.
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Exchange
Agent shall mail to each record holder of a Company Common Certificate: (i) a
letter of transmittal in customary form (which shall specify that delivery shall
be effected, and risk of loss and title to the Company Common Certificates shall
pass, only upon receipt of the Company Common Certificates by the Exchange Agent
and shall otherwise be in such form and have such other provisions as FAFCO
shall reasonably specify) and (ii) instructions for use in effecting the
surrender of the Company Common Certificates in exchange for FAFCO Common
Certificates (and cash in lieu of fractional shares). Upon surrender to the
Exchange Agent of a Company Common Certificate, together with such letter of
transmittal properly completed and duly executed, together with any other
required documents, the holder of such Company Common Certificate shall be
entitled to receive in exchange therefor the Merger Consideration payable in
respect of the Company Common Shares formerly represented by such Company Common
Certificate and such Company Common Certificate shall forthwith be canceled.
Until so surrendered, each Company Common Certificate shall be deemed, for all
corporate purposes, to evidence only the right to receive upon such surrender
the Merger Consideration deliverable in respect thereof to which such Person is
entitled pursuant to this Section 2.
No dividends or other distributions with respect to FAFCO Common Shares with
a record date after the Effective Time will be paid to the holder of any
unsurrendered Company Common Certificate with respect to the FAFCO Common Shares
represented thereby until the holder of record of such Company Common
Certificate surrenders such Company Common Certificate. Subject to applicable
law, following the surrender of any such Company Common Certificate, there shall
be paid to the record holder of the FAFCO Common Certificates issued in exchange
thereof, without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable (but for the provisions of this paragraph) with respect to
the shares represented by such FAFCO Common Certificates.
(c) REGISTRATION NAME ON CERTIFICATES. If the Merger Consideration (or any
portion thereof) is to be delivered to a Person other than the Person in whose
name the Company Common Certificate surrendered in exchange therefor is
registered, it shall be a condition to the payment of the Merger Consideration
that the Company Common Certificates so surrendered shall be properly endorsed
or accompanied by appropriate stock powers and otherwise in proper form for
transfer, that such transfer otherwise be proper and that the Person requesting
such transfer pay any transfer or other taxes payable by reason of the foregoing
or establish to the satisfaction of FAFCO that such taxes have been paid or are
not required to be paid.
(d) UNAVAILABLE CERTIFICATES. In the event any Company Common Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be lost, stolen or
destroyed, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the Merger Consideration deliverable in respect thereof as
determined in accordance with this
ANNEX A-7
<PAGE>
Section 2, provided that the Surviving Corporation may require the Person to
whom the Merger Consideration is paid, as a condition precedent to the payment
thereof, to give the Surviving Corporation a bond in such sum as is customary or
otherwise indemnify the Surviving Corporation in a manner satisfactory to it
against any claim that may be made against the Surviving Corporation with
respect to the Company Common Certificate claimed to have been lost, stolen or
destroyed.
(e) MERGER NOT CONSUMMATED. In the event the Merger is not consummated for
any reason, FAFCO and the Company shall promptly direct the Exchange Agent to
return promptly to (i) each Person who deposited a Company Common Certificate
and any other agreements or instruments tendered to the Exchange Agent by such
Person, such Company Common Certificate and other agreements or instruments and
(ii) FAFCO, the Merger Consideration.
(f) ESCHEAT LAWS. Notwithstanding any provisions of this Section 2 to the
contrary, neither FAFCO nor the Surviving Corporation shall be liable to any
holder of the Company Common Certificates formerly representing Company Common
Shares for any property properly delivered or amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.5 NO FURTHER RIGHTS OF TRANSFERS. At and after the Effective Time, each
holder of a Company Common Certificate shall cease to have any rights as a
shareholder of the Company, except for, in the case of a holder of a Company
Common Certificate (other than Excepted Shares), the right to surrender his or
her Company Common Certificate in exchange for the Merger Consideration or, in
the case of a Dissenting Shareholder, to perfect his or her right to receive
payment for his or her shares pursuant to California law if such holder has
validly perfected and not withdrawn his or her right to receive payment for his
or her shares, and no transfer of Company Common Shares shall be made on the
stock transfer books of the Surviving Corporation. Company Common Certificates
presented to the Surviving Corporation after the Effective Time shall be
canceled and exchanged as provided in this Section 2. At the close of business
on the day of the Effective Time the stock ledger of the Company with respect to
the Company Common Shares shall be closed.
2.6 STOCK OPTION AND OTHER PLANS.
(a) Prior to the Effective Time, the Board of Directors of the Company (or,
if appropriate, any committee thereof) and the Board of Directors of FAFCO (or,
if appropriate, any committee thereof) shall adopt appropriate resolutions and
take all other actions necessary to provide that effective at the Effective Time
(i) all the outstanding stock options, stock appreciation rights,
limited stock appreciation rights, performance units and stock purchase
rights (the "COMPANY STOCK RIGHTS") heretofore granted under any stock
option, performance unit or similar plan, agreement and arrangement of the
Company and its Subsidiaries, except for the Director Option Plan (the
"STOCK PLANS"), shall be assumed by FAFCO and converted automatically into
options to purchase FAFCO Common Shares (collectively, "NEW STOCK RIGHTS")
in an amount and, if applicable, at an exercise price determined as provided
below:
(A) The number of FAFCO Common Shares to be subject to each New Stock
Right shall be equal to the product of (x) the number of Company Common
Shares remaining subject (as of immediately prior to the Effective Time)
to the original Company Stock Right and (y) the Exchange Ratio, provided
that any fractional FAFCO Common Shares resulting from such
multiplication shall be rounded down to the nearest share; and
(B) The exercise price per FAFCO Common Share under each New Stock
Right shall be equal to the exercise price per Company Common Share under
the original Company Stock Right divided by the Exchange Ratio, provided
that such exercise price shall be rounded down to the nearest cent; and
(ii) each restricted Stock Purchase Agreement and Joint Escrow
Instructions to which the Company is a party pursuant to the Company's 1986
Stock Option Plan shall be assumed by FAFCO,
ANNEX A-8
<PAGE>
and the Company Common Shares subject to each such Agreement and
Instructions shall be converted automatically into FAFCO Common Shares,
pursuant to Section 2.2 hereof.
After the Effective Time, each New Stock Right shall be exercisable and shall
vest upon the same terms and conditions as were applicable to the related
Company Stock Right immediately prior to the Effective Time (except that with
regard to such New Stock Right, any references to the Company shall be deemed,
as appropriate, to include FAFCO).
(b) The Board of Directors of the Company shall take all actions necessary
to assure that all Persons holding outstanding options heretofore granted under
the Director Option Plan shall have been notified in accordance with such plan
at least ten (10) days prior to the Closing.
(c) The Company shall take all actions so that following the Effective Time
no holder of a Company Stock Right or a stock option under the Director Option
Plan or any participant in any Stock Plans or the Director Option Plan shall
have any right thereunder to acquire capital stock of the Company or the
Surviving Corporation. The Company will take all actions so that, as of the
Effective Time, neither the Company nor the Surviving Corporation or any of
their respective Subsidiaries is or will be bound by any Company Stock Rights,
stock options under the Director Option Plan, other options, warrants, rights or
agreements which would entitle any person, other than FAFCOSUB or its
affiliates, to own any capital stock of the Company, the Surviving Corporation
or any of their respective subsidiaries or to receive any payment in respect
thereof, except as otherwise provided herein.
(d) FAFCO agrees that it shall take all action necessary, on or prior to the
Effective Time, to authorize and reserve a number of FAFCO Common Shares
sufficient for issuance upon exercise of options as contemplated by this Section
2.6.
(e) Unless at the Effective Time the New Stock Rights are registered
pursuant to an effective FAFCO registration statement, as soon as practicable
following the Effective Time, FAFCO shall prepare and file with the SEC a
registration statement on Form S-8 (or another appropriate form) registering a
number of FAFCO Common Shares equal to the number of shares subject to the New
Stock Rights. Any such registration statement shall be kept effective (and the
current status of the initial offering prospectus or prospectuses required
thereby shall be maintained) for at least as long as any New Stock Right remains
outstanding.
2.7 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The articles
of incorporation of the Company, as in effect immediately prior to the Effective
Time and attached hereto as EXHIBIT B, shall be the articles of incorporation of
the Surviving Corporation and thereafter shall continue to be its articles of
incorporation (the "ARTICLES OF INCORPORATION") until amended as provided
therein and under the California Code.
2.8 BY-LAWS OF THE SURVIVING CORPORATION. The by-laws of the Company, as
in effect immediately prior to the Effective Time and attached hereto as EXHIBIT
C, shall be the by-laws of the Surviving Corporation and thereafter shall
continue to be its by-laws (the "BY-LAWS") until amended as provided therein and
under the Articles of Incorporation and the California Code.
2.9 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the Effective
Time, the directors of FAFCOSUB immediately prior to the Effective Time shall be
the directors of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the Articles of Incorporation
and By-Laws, until their respective successors shall be duly elected or
appointed and qualified. At the Effective Time, the officers of the Company
immediately prior to the Effective Time shall, subject to the applicable
provisions of the Articles of Incorporation and By-Laws, be the officers of the
Surviving Corporation until their respective successors shall be duly elected or
appointed and qualified.
2.10 ACCOUNTING CONSEQUENCES. The Parties intend that the Merger shall
qualify for accounting treatment as a pooling of interests under APB Opinion No.
16, Staff Accounting Series Releases 130, 135
ANNEX A-9
<PAGE>
and 146 and Staff Accounting Bulletins Topic Two (Business Combinations) and
agree to take such actions as may reasonably be necessary or desirable to carry
out the intentions of this Section 2.10.
2.11 CLOSING. The closing of the transactions contemplated hereby (the
"CLOSING") shall take place at the offices of White & Case LLP, 633 West Fifth
Street, Suite 1900, Los Angeles, California, twelve (12) days after the last of
the conditions set forth in Section 6 hereof is fulfilled or waived (subject to
applicable law) or at such other time and place and on such other date as FAFCO
and the Company shall mutually agree (the "CLOSING DATE").
SECTION 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents, warrants and agrees to FAFCO and FAFCOSUB as
follows:
3.1 EXISTENCE AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Company has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company is duly qualified or licensed to conduct its business, and is in good
standing in each jurisdiction listed on SCHEDULE 3.1, which are the only
jurisdictions in which the character or location of the property owned, leased
or operated by the Company or the nature of the business conducted by the
Company makes such qualification necessary.
3.2 BINDING EFFECT. This Agreement has been duly executed and delivered by
the Company and constitutes the valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency or similar laws and
equitable principles relating to or affecting the rights of creditors generally
from time to time in effect.
3.3 CAPITALIZATION. The authorized capital stock of the Company is (i)
15,000,000 common shares, no par value, of which 4,115,627 shares were issued
and outstanding as of November 4, 1998 and (ii) 5,000,000 shares of Preferred
Stock, no par value, of which none are issued and outstanding as of the date of
this Agreement. All such outstanding shares have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth on
SCHEDULE 3.3, there is not and as of the Effective Time there will not be,
outstanding options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements of any character providing for the
purchase, issuance or sale of any Company Common Shares, any other securities of
the Company, or any equity interest in the Company or its business.
3.4 SUBSIDIARIES AND INVESTMENTS.
(a) Set forth on SCHEDULE 3.4 hereto is a list of each direct or indirect
Subsidiary of the Company and the percentage ownership of the Company in each
such Subsidiary. Each Subsidiary of the Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization (as set forth in SCHEDULE 3.4) and has all requisite power to own,
lease and operate its properties and to carry on its business as now being
conducted.
(b) Set forth on SCHEDULE 3.4 is a list of jurisdictions in which each
Subsidiary of the Company is qualified as a foreign company. Such jurisdictions
are the only jurisdictions in which the character or location of the properties
owned, leased or operated by each Subsidiary of the Company, or the nature of
the business conducted by each Subsidiary of the Company, makes such
qualification necessary, except where the failure to obtain such qualification
would not have an Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole.
3.5 SEC REPORTS AND FINANCIAL STATEMENTS. Each form, report, schedule,
registration statement and definitive proxy statement filed by the Company with
the SEC on or after January 1, 1996 (as such
ANNEX A-10
<PAGE>
documents have been amended prior to the date hereof, the "COMPANY SEC
REPORTS"), as of their respective dates, complied in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder and, since the first date on which Company
Common Shares were listed for trading on the NASDAQ National Market System, the
rules of the NASD. The Company has made available to FAFCO accurate and complete
copies of all SEC Reports filed by the Company since January 1, 1996. None of
the Company SEC Reports, as of their respective dates, contained any untrue
statement of material fact or omitted statement of a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company and its Subsidiaries included in such
Company SEC Reports (the "COMPANY FINANCIAL STATEMENTS") comply as to form in
all material respects with applicable accounting requirements and with published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with US GAAP (except as may be indicated in the notes thereto, or in
the case of unaudited interim financial statements, as permitted by Form 10-Q of
the SEC) and fairly present in all material respects, subject, in the case of
the unaudited interim financial statements, to normal, year-end adjustments, the
consolidated financial position of the Company and its Subsidiaries as of the
dates thereof.
3.6 BOOKS AND RECORDS. The minute books of the Company and each of its
Subsidiaries contain accurate records of all meetings of, and corporate action
taken by (including action taken by written consent) the shareholders and Board
of Directors of the Company and its respective Subsidiaries. Except as set forth
on SCHEDULE 3.6, neither the Company nor any of its Subsidiaries will, as a
result of the consummation of the Merger, cease to have access to those records,
systems, controls, data or information that are necessary to continue the
business and operations of the Company and its Subsidiaries as such business and
operations exist on the date hereof.
3.7 TITLE TO PROPERTIES; ENCUMBRANCES. Except (1) as set forth on SCHEDULE
3.7 (and except for property leased by the Company, which, for the avoidance of
doubt, is represented and warranted to in Section 3.9) and (2) for properties
and assets reflected in the Company Balance Sheet or acquired since the Company
Balance Sheet Date which have been sold or otherwise disposed of in the ordinary
course of business, the Company and its Subsidiaries have good, valid and
marketable title to (a) all of its properties and assets (real and personal,
tangible and intangible), including, without limitation, all of the properties
and assets reflected in the Company Balance Sheet, except as indicated in the
notes thereto and (b) all of the properties and assets purchased by the Company
or its Subsidiaries since the Company Balance Sheet Date; in each case subject
to no encumbrance, lien, charge or other restriction of any kind or character,
except for (i) liens reflected in the Company Balance Sheet, (ii) liens
consisting of zoning or planning restrictions, easements, permits and other
restrictions or limitations on the use of real property or irregularities in
title thereto which do not materially detract from the value of, or impair the
use of, such property by the Company or such Subsidiary in the operation of its
business, (iii) liens for current taxes, assessments or governmental charges or
levies or condominium fees on property not yet due and delinquent and (iv) liens
described on SCHEDULE 3.7 (liens of the type described in clauses (i), (ii) and
(iii) above are hereinafter sometimes referred to as "Permitted Liens").
3.8 REAL PROPERTY. SCHEDULE 3.8 contains an accurate and complete list of
all real property owned in whole or in part by the Company or any of its
Subsidiaries and includes the name of the record title holder thereof and a list
of all indebtedness secured by a lien, mortgage or deed of trust thereon. Except
as set forth on SCHEDULE 3.8, each of the Company and its Subsidiaries has good
and marketable title in fee simple to all the real property owned by it, free
and clear of all encumbrances, liens, charges or other restrictions of any kind
or character, except for Permitted Liens. Other than with respect to the three
condominium units owned by the Company (which are all identified on SCHEDULE
3.8), all of the buildings, structures and appurtenances situated on the real
property owned in whole or in part by the Company or any of its Subsidiaries are
in good operating condition and in a state of good maintenance and repair, are
adequate and suitable for the purposes for which they are presently being used
and, with respect to each, the Company or one of its Subsidiaries has adequate
rights of ingress and egress. None of such buildings,
ANNEX A-11
<PAGE>
structures or appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any provision of any
federal, state or local law, ordinance, rule or regulation, or encroaches on any
property owned by others. No condemnation proceeding is pending or, to the best
knowledge, information and belief of the Company, threatened, which would
preclude or impair the use of any such property by the Company or such
Subsidiary for the purposes for which it is currently used.
3.9 LEASES. SCHEDULE 3.9 contains an accurate and complete list of each
real and personal property lease for which total annual rent payments equal or
exceed $100,000 to which the Company or any of its Subsidiaries is a party (as
lessee or lessor). Each lease set forth on SCHEDULE 3.9 (or required to be set
forth on SCHEDULE 3.9) is in full force and effect; all rents and additional
rents due by the Company or one of its Subsidiaries to date on each such lease
have been paid (other than any pass through expenses not yet invoiced to the
Company); in each case, the lessee has been in peaceable possession since the
commencement of the original term of such lease and is not in material default
thereunder and no waiver, indulgence or postponement of the lessee's obligations
thereunder has been granted by the lessor; and there exists no event of default
or event, occurrence, condition or act which, with the giving of notice, the
lapse of time or the happening of any further event or condition, would become a
default under such lease, except where such default would not have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole. The
tangible personal property leased by either the Company or any of its
Subsidiaries is, to the best knowledge, information and belief of the Company,
in a state of good maintenance and repair, reasonable wear and tear excepted,
except where the state of such property would not have a Material Adverse Effect
on the Company and its Subsidiaries, taken as a whole.
3.10 MATERIAL CONTRACTS. Except as set forth on SCHEDULE 3.10 and in the
Company SEC Reports, neither the Company nor any of its Subsidiaries is bound by
(a) any agreement, contract or commitment relating to the employment of any
Person (as hereinafter defined) by either the Company or any of its Subsidiaries
or any bonus, deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan, (b) any
agreement, indenture or other instrument which contains restrictions with
respect to payment of dividends or any other distribution in respect of its
capital stock, (c) any agreement, contract or commitment relating to capital
expenditures in excess of $100,000 per individual item or $250,000 in the
aggregate, (d) any loan or advance to, or investment in, any Person or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment, (e) any guarantee or other contingent liability in
respect of any indebtedness or obligation of any Person other than the Company
or one of its Subsidiaries (other than the endorsement of negotiable instruments
for collection in the ordinary course of business), (f) any management service,
consulting or any other similar type contract, (g) any agreement, contract or
commitment limiting the ability of the Company to engage in any line of business
or to compete with any Person or (h) any agreement, contract or commitment not
entered into in the ordinary course of business which involves $100,000 or more
and is not cancelable without penalty within 30 days. Each contract or agreement
set forth on SCHEDULE 3.10 (or required to be set forth on SCHEDULE 3.10) is in
full force and effect. Neither the Company nor any of its Subsidiaries has
violated any of the terms or conditions of any contract or agreement set forth
on SCHEDULE 3.10 (or required to be set forth on SCHEDULE 3.10) in any material
respect, and, to the best knowledge, information and belief of the Company, all
of the covenants to be performed by any other party thereto have been fully
performed.
3.11 RESTRICTIVE DOCUMENTS. Except as set forth on SCHEDULE 3.11, neither
the Company nor any of its Subsidiaries is subject to, or a party to, any
charter, by-law, mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind or character, which, by its own operation, and not
by the breach or violation, as the case may be, thereof, (a) would restrict the
ability of the Company or any of its Subsidiaries to acquire any property or
conduct business in any area or (b) has or might reasonably be expected to have
a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole,
except where such Material Adverse Effect may arise with respect to (i) the
obligations of Great Pacific to make payments under its
ANNEX A-12
<PAGE>
agreements of insurance or (ii) the obligations of the Company or its
Subsidiaries to indemnify, warrant or guarantee (or similar) the Company's or
such Subsidiary's ordinary course obligations under any lease, license,
agreement, contract or instrument between the Company or a Subsidiary of the
Company and a customer of the Company or such Subsidiary of the Company.
3.12 LITIGATION. Except as set forth on SCHEDULE 3.12 or as disclosed in
the Company SEC Reports, there is no action, suit, proceeding at law or in
equity, arbitration or administrative or other proceeding by or before (or to
the best knowledge, information and belief of the Company any investigation by)
any governmental or other instrumentality or agency, pending, or, to the best
knowledge, information and belief of the Company, threatened, against or
impacting the Company, any of its Subsidiaries or any of their respective
properties or rights which could materially and adversely affect the right or
ability of the Company or any of its Subsidiaries to carry on its business as
now conducted, or which could have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole. The Company is not subject to any judgment,
order or decree entered in any lawsuit or proceeding which may have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole.
3.13 TAXES.
(a) TAX RETURNS. Except as set forth on SCHEDULE 3.13(A), the Company and
each of its Subsidiaries have filed or caused to be filed with the appropriate
taxing authorities all returns, statements, forms and reports for Taxes (the
"RETURNS") that are required to be filed by, or with respect to, the Company or
such Subsidiary on or prior to the Closing Date. The Returns have accurately
reflected in all material respects and will accurately reflect in all material
respects all liability for Taxes of the Company and such Subsidiaries for the
periods covered thereby.
(b) PAYMENT OF TAXES. Except as set forth on SCHEDULE 3.13(B), all
material Taxes and Tax liabilities of the Company and each of its Subsidiaries
for all taxable years or periods that end on or before the Closing Date and,
with respect to any taxable year or period beginning before and ending after the
Closing Date, the portion of such taxable year or period ending on and including
the Closing Date (the "PRE-CLOSING PERIOD") have been paid or adequately accrued
and disclosed and fully provided for on the books and records of the Company and
each of its Subsidiaries in accordance with US GAAP.
(c) OTHER TAX MATTERS.
(i) Except as set forth on SCHEDULE 3.13(C)(I), in the last seven years
neither the Company nor any of its Subsidiaries has been the subject of an audit
or other examination of Taxes by the tax authorities of any nation, state or
locality nor has the Company or any of its Subsidiaries received any written
notices from any taxing authority relating to any issue which could affect the
Tax liability of the Company or any of its Subsidiaries.
(ii) Except as set forth on SCHEDULE 3.13(C)(II), neither the Company nor
any of its Subsidiaries (A) has, as of the Closing Date, entered into an
agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
Taxes of the Company and (B) is, as of the Closing Date, currently contesting
the Tax liability of the Company or any of its Subsidiaries before any court,
tribunal or agency.
(iii) Neither the Company nor any of its Subsidiaries has been included in
any "consolidated," "unitary" or "combined" Return, other than the consolidated,
unified or combined Returns of the Company's Subsidiaries filed with other
Subsidiaries of the Company and/or the Company, provided for under the laws of
the United States, any foreign jurisdiction or any state or locality with
respect to Taxes for any taxable period for which the statute of limitations has
not expired.
(iv) Except as set forth on SCHEDULE 3.13(C)(IV), all Taxes which either the
Company or any of its Subsidiaries is (or was) required by law to withhold or
collect have been duly withheld or collected, and have been timely paid over to
the proper authorities to the extent due and payable.
ANNEX A-13
<PAGE>
(v) Neither the Company nor any of its Subsidiaries is a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code.
(vi) Except as set forth on SCHEDULE 3.13(C)(VI), there are no tax sharing,
allocation, indemnification or similar agreements in effect as between (A) the
Company or any predecessor, Subsidiary or other affiliate thereof and (B) any
other party under which FAFCO, the Company or any of the Company's Subsidiaries
could be liable for any Taxes or other claims of any party.
(vii) Neither the Company nor any of its Subsidiaries has applied for, been
granted, or agreed to any accounting method change for which it will be required
to take into account any adjustment under Section 481 of the Code or any similar
provision of the Code or the corresponding tax laws of any nation, state or
locality.
(viii) No election under Section 341(f) of the Code has been made or shall be
made prior to the Closing Date to treat the Company or any of its Subsidiaries
as a consenting corporation, as defined in Section 341 of the Code.
(ix) Except as set forth on SCHEDULE 3.13(C)(IX), to the best knowledge,
information and belief of the Company no claim has ever been made by any taxing
authority in a jurisdiction where the Company does not file Returns that the
Company or any of its assets are or may be subject to taxation by that
jurisdiction.
(x) The liability of the Company and its Subsidiaries for interest,
penalties or fines as a result of the untimely filing of all Returns and as the
result of the untimely payment of Taxes does not exceed $200,000 in the
aggregate.
3.14 INSURANCE. Set forth on SCHEDULE 3.14 is a complete list of insurance
policies in which either the Company or any of its Subsidiaries is named an
insured or an additional insured. Such policies are in full force and effect.
The Company and its Subsidiaries are insured with reputable insurers against
such risks and in such amounts as the management of the Company reasonably has
determined to be prudent in accordance with customary industry practices in the
respective industries in which the Company and each Subsidiary of the Company is
engaged.
3.15 INTELLECTUAL PROPERTIES. The operation of the business of the Company
and its Subsidiaries requires no rights under Intellectual Property other than
(a) rights under Intellectual Property which is owned by the Company or any of
its Subsidiaries and (b) rights validly licensed by the Company or any of its
Subsidiaries. SCHEDULE 3.15 is a true, complete and accurate list of all
Intellectual Property licensed by the Company which, with respect to each item
of Intellectual Property, is (x) required for the operation of the business of
the Company and its Subsidiaries and (y) cannot be licensed and installed within
5 Business Days for a single payment of less than $25,000 or annual licensing
(or rental) payments less than $10,000. Unless otherwise described on SCHEDULE
3.15, either the Company or its Subsidiaries has taken actions reasonably
necessary and appropriate to preserve and protect its respective ownership
interest in all Intellectual Property owned by the Company, whether or not set
forth (or required to be set forth) on SCHEDULE 3.15, except where the failure
to do so would not have a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole. All registrations, filings and issuances with
respect to items of Intellectual Property owned by the Company, whether or not
set forth (or required to be set forth) on SCHEDULE 3.15, remain in full force
and effect. Except as set forth on SCHEDULE 3.15 under the caption "Claims," no
claim adverse to the interests of the Company or a Subsidiary of the Company in
the Intellectual Property owned or licensed by the Company, whether or nor set
forth (or required to be set forth) on SCHEDULE 3.15, has been made in
litigation or otherwise. Except as set forth on SCHEDULE 3.15 under the caption
"Claims," to the best knowledge, information and belief of the Company, no such
claim has been threatened or asserted, no basis exists for any such claim and no
Person has infringed or otherwise violated either the Company's or a Subsidiary
of the Company's right in any Intellectual Property owned or licensed by the
Company, whether or not set forth (or required to be set forth) on SCHEDULE
3.15. Except as set forth on SCHEDULE 3.15 under the caption "Claims," no
litigation is pending wherein either the Company or a Subsidiary of the Company
is accused of infringing or otherwise violating
ANNEX A-14
<PAGE>
the Intellectual Property right of another Person, or of breaching a contract
conveying a right under Intellectual Property. Except as set forth on SCHEDULE
3.15 under the caption "Claims," to the best knowledge, information and belief
of the Company, no such claim has been asserted or threatened against any either
the Company or any Subsidiary of the Company, nor are there any facts that would
give rise to such a claim. Except as set forth on SCHEDULE 3.15, all computer
and telecommunications software and hardware, including source and object code,
necessary to carry on the Company's business substantially as currently
conducted, that contains or calls on a calendar function that is indexed to a
computer processing unit clock, provides specific dates or calculates spans of
dates, is able, or can, without material expense, be made to be able, to record
store, process and provide true and accurate dates and calculations for dates
and spans of dated including and following January 1, 2000 ("YEAR 2000 ISSUES").
Except as set forth on SCHEDULE 3.15, no officer of the Company is aware of any
inability of the Company's significant suppliers, customers and those other
Persons with which it conducts business to identify and resolve their own Year
2000 Issues, except where the inability of such suppliers, customers and other
Persons to identify and resolve their own Year 2000 Issues would not have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a whole.
3.16 COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 3.16, the
Company and each of its Subsidiaries are in compliance in all material respects
with all applicable laws, regulations, orders, judgments and decrees, except
where the failure to comply is not likely to have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole.
3.17 GOVERNMENTAL LICENSES. Each of the Company and its Subsidiaries has
all governmental licenses, permits, franchises, approvals, permits and other
authorizations of, and have made all registrations and or filings with, all
Governmental Entities (the "LICENSES") necessary to own, lease and operate its
properties and to enable it to carry on their respective business as presently
conducted, except where the failure to have such would not have a Material
Adverse Effect on the Company and its Subsidiaries, taken as a whole. All
Licenses held by the Company and each of its Subsidiaries, are in full force and
effect, except where the failure of such Licenses to be in full force and effect
would not have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole. Neither the Company nor any of its Subsidiaries has received
written notice that any such License is the subject of a proceeding for
suspension or revocation or similar proceedings and, to the best knowledge,
information and belief of the Company, no such License is the subject of a
proceeding for suspension or revocation or similar proceedings. Except as set
forth on SCHEDULE 3.17, no jurisdiction has demanded or requested that the
Company or any of its Subsidiaries qualify or become licensed as a foreign
corporation. SCHEDULE 3.17 sets forth a true and complete list of each and every
License required for the Company or any of its Subsidiaries to transact
insurance or operate an insurance agency or brokerage and all material Licenses
of the Company or any of its Subsidiaries, together with a description of the
nature thereof. The Company has heretofore made available to FAFCO true and
complete copies of all of such Licenses listed on SCHEDULE 3.17 as are currently
in effect. Neither the Company nor any of its Subsidiaries is improperly
transacting any insurance or reinsurance business or improperly operating an
insurance agency or brokerage in any jurisdiction in which it is not authorized
or permitted to transact such business.
3.18 LABOR MATTERS. Except as set forth on SCHEDULE 3.18, (a) the Company
and each of its Subsidiaries is in compliance with all federal, state or other
applicable laws, domestic or foreign, respecting employment and employment
practices, terms and conditions of employment and wages and hours, except where
the failure to comply is not likely to have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole, and, to the best knowledge,
information and belief of the Company, has not and is not engaged in any unfair
labor practice; (b) neither the Company nor any of its Subsidiaries has received
written notice of any unfair labor practice complaint before the National Labor
Relations Board and, to the best knowledge, information and belief of the
Company, no unfair labor practice complaint is threatened or pending against the
Company before the National Labor Relations Board; (c) there is no labor strike,
dispute slowdown or stoppage actually pending or, to the best knowledge,
information and belief of the Company, threatened against or involving the
Company or any of its Subsidiaries; (d) to the
ANNEX A-15
<PAGE>
best knowledge, information and belief of the Company, no union representation
question exists respecting the employees of the Company or any of its
Subsidiaries; (e) to the best knowledge, information and belief, no grievance
which might have a Material Adverse Effect upon the Company and its
Subsidiaries, taken as a whole, exists, no arbitration proceeding arising out of
or under any collective bargaining agreement is pending and no claim therefor
has been asserted; (f) no collective bargaining agreement is currently being
negotiated by the Company or any of its Subsidiaries; and (g) to the best
knowledge, information and belief of the Company, the Company's labor relations
over the last three years are good.
3.19 EMPLOYEE BENEFIT PLANS.
(a) LIST OF PLANS. Set forth in SCHEDULE 3.19(A) is an accurate and complete
list of all (i) "employee benefit plans," within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations thereunder ("ERISA"); (ii) bonus, stock option, stock purchase,
restricted stock, incentive, fringe benefit, "voluntary employees' beneficiary
associations" ("VEBAS"), under Section 501(c)(9) of the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder (the
"CODE"), profit-sharing, pension or retirement, deferred compensation, medical,
life, disability, accident, salary continuation, severance, accrued leave,
vacation, sick pay, sick leave, supplemental retirement and unemployment benefit
plans, programs, arrangements, commitments and/or practices (whether or not
insured); and (iii) employment, consulting, termination, and severance contracts
or agreements; in each case for active, retired or former employees or
directors, whether or not any such plans, programs, arrangements, commitments,
contracts, agreements and/or practices (referred to in (i), (ii) or (iii) above)
are in writing or are otherwise exempt from the provisions of ERISA; that have
been established, maintained or contributed to (or with respect to which an
obligation to contribute has been undertaken) or with respect to which any
potential liability is borne by the Company or any of its Subsidiaries
(including, for this purpose and for the purpose of all of the representations
in this Section 3.19, any predecessors to the Company or any of its Subsidiaries
and all employers (whether or not incorporated) that would be treated together
with the Company or any of its Subsidiaries as a single employer (1) within the
meaning of Section 414 of the Code, or (2) as a result of the Company or any
Subsidiary being or having been a general partner of any such employer), since
November 1, 1992 ("EMPLOYEE BENEFIT PLANS").
(b) STATUS OF PLANS. Each Employee Benefit Plan (including any related
trust) complies in form with the requirements of all applicable laws, including,
without limitation, ERISA and the Code, and has at all times been maintained and
operated in substantial compliance with its terms and the requirements of all
applicable laws, including, without limitation, ERISA and the Code, except to
the extent such noncompliance would not result in material liability. No
complete or partial termination of any Employee Benefit Plan has occurred since
November 1, 1992, or is expected to occur. Neither the Company nor any of its
Subsidiaries has any commitment, intention or understanding to create, modify or
terminate any Employee Benefit Plan. No condition or circumstance exists that
would prevent the amendment or termination of any Employee Benefit Plan. No
event has occurred and no condition or circumstance has existed that could
result in a material increase in the benefits under or the expense of
maintaining any Employee Benefit Plan from the level of benefits or expense
incurred for the most recent fiscal year ended thereof.
(c) NO PENSION PLANS. No Employee Benefit Plan is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) subject to Section
412 of the Code or Section 302 or Title IV of ERISA. Neither the Company nor any
of its Subsidiaries has ever maintained or contributed to, or had any obligation
to contribute to (or borne any liability with respect to) any "multiple employer
plan" (within the meaning of the Code or ERISA) or any "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA).
(d) LIABILITIES. Neither the Company nor any of its Subsidiaries maintains
any Employee Benefit Plan which is a "group health plan" (as such term is
defined in Section 607(1) of ERISA or Section 5000(b)(1) of the Code) that has
not been administered and operated in all respects in compliance with the
applicable requirements of Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code, except to the
ANNEX A-16
<PAGE>
extent such noncompliance would not result in material liability, and neither
the Company nor any of its Subsidiaries is subject to any material liability,
including, without limitation, additional contributions, fines, taxes, penalties
or loss of tax deduction as a result of such administration and operation. No
Employee Benefit Plan which is such a group health plan is a "multiple employer
welfare arrangement," within the meaning of Section 3(40) of ERISA. Each
Employee Benefit Plan that is intended to meet the requirements of Section 125
of the Code meets such requirements, and each program of benefits for which
employee contributions are provided pursuant to elections under any Employee
Benefit Plan meets the requirements of the Code applicable thereto, except to
the extent such noncompliance would not result in material liability. Neither
the Company nor any of its Subsidiaries maintains any Employee Benefit Plan
which is an "employee welfare benefit plan" (as such term is defined in Section
3(1) of ERISA) that has provided any "disqualified benefit" (as such term is
defined in Section 4976(b) of the Code) with respect to which an excise tax
could be imposed.
Except as required by Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code, neither the Company nor any of its Subsidiaries maintains any
Employee Benefit Plan (whether qualified or non-qualified under Section 401(a)
of the Code) providing for post-employment or retiree health, life insurance
and/or other welfare benefits and having unfunded liabilities, and neither the
Company nor any of its Subsidiaries have any obligation to provide any such
benefits to any retired or former employees or active employees following such
employees' retirement or termination of service. Neither the Company nor any of
its Subsidiaries has any unfunded liabilities pursuant to any Employee Benefit
Plan that is not intended to be qualified under Section 401(a) of the Code. No
Employee Benefit Plan holds as an asset any interest in any annuity contract,
guaranteed investment contract or any other investment or insurance contract,
policy or instrument issued by an insurance company that, to the best knowledge,
information and belief of the Company, is or may be the subject of bankruptcy,
conservatorship, insolvency, liquidation, rehabilitation or similar proceedings.
Neither the Company nor any of its Subsidiaries has incurred any material
liability for any tax or excise tax arising under Chapter 43 of the Code, and no
event has occurred and no condition or circumstance has existed that could give
rise to any such material liability.
There are no actions, suits, claims or disputes pending, or, to the best
knowledge and belief of the Company, threatened, anticipated or expected to be
asserted against or with respect to any Employee Benefit Plan or the assets of
any such plan (other than routine claims for benefits and appeals of denied
routine claims). No civil or criminal action brought pursuant to the provisions
of Title I, Subtitle B, Part 5 of ERISA is pending or, to the best knowledge,
information and belief of the Company, threatened, anticipated, or expected to
be asserted against the Company or any of its Subsidiaries or any fiduciary of
any Employee Benefit Plan, in any case with respect to any Employee Benefit
Plan. No Employee Benefit Plan or, to the best knowledge, information and belief
of the Company, any fiduciary thereof has been the direct or indirect subject of
an audit, investigation or examination by any governmental or quasi-governmental
agency.
(e) CONTRIBUTIONS. Full payment has been timely made of all amounts which
the Company or any of its Subsidiaries is required, under applicable law or
under any Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which the Company or any of its Subsidiaries is a party, to have
paid as contributions or premiums thereto as of the last day of the most recent
fiscal year of such Employee Benefit Plan ended prior to the date hereof. All
such contributions and/or premiums have been fully deducted for income tax
purposes and no such deduction has been challenged or disallowed by any
governmental entity, and to the best knowledge and belief of the Company no
event has occurred and no condition or circumstance has existed that could give
rise to any such challenge or disallowance. The Company has made adequate
provision for reserves to meet contributions and premiums and any other
liabilities that have not been paid or satisfied because they are not yet due
under the terms of any Employee Benefit Plan, applicable law or related
agreements. Benefits under all Employee Benefit Plans
ANNEX A-17
<PAGE>
are as represented and have not been increased subsequent to the date as of
which documents have been provided.
(f) TAX QUALIFICATION. Each Employee Benefit Plan intended to be qualified
under Sections 401(a), 401(k) and 501(a) of the Code has been determined to be
so qualified by the Internal Revenue Service (the "IRS") and, except to the
extent such noncompliance would not result in material liability, nothing has
occurred since the date of the last such determination which resulted or is
likely to result in the revocation of such determination, other than changes in
applicable law made by subsequent legislation, regulations and rulings. With
respect to any such changes in applicable law, any such plan has been or may be
retroactively amended to comply with such changes in order to avoid
disqualification of the plan. Each VEBA has been determined by the IRS to be
exempt from Federal income tax under Section 501(c)(9) of the Code. Since the
date of each most recent determination with respect to any VEBA, no event has
occurred and no condition or circumstance has existed that resulted or is likely
to result in the revocation of any such determination or that could adversely
affect the exempt status of any such trust or VEBA, except to the extent such
noncompliance would not result in material liability.
(g) TRANSACTIONS. Neither the Company nor any of its Subsidiaries nor any of
their respective directors, officers, employees or, to the best knowledge and
belief of the Stockholder and the Company, other persons who participate in the
operation of any Employee Benefit Plan or related trust or funding vehicle, has
engaged in any transaction with respect to any Employee Benefit Plan or breached
any applicable fiduciary responsibilities or obligations under Title I of ERISA
that would subject any of them to a tax, penalty or liability for prohibited
transactions or breach of any obligations under ERISA or the Code or would
result in any claim being made under, by or on behalf of any such Employee
Benefit Plan by any party with standing to make such claim.
(h) TRIGGERING EVENTS. Except as set forth on SCHEDULE 3.19(H), the
execution of this Agreement and the consummation of the transactions
contemplated hereby, do not constitute a triggering event under any Employee
Benefit Plan, policy, arrangement, statement, commitment or agreement, whether
or not legally enforceable, which (either alone or upon the occurrence of any
additional or subsequent event) will or may result in any payment (whether of
severance pay or otherwise), "parachute payment" (as such term is defined in
Section 280G of the Code), acceleration, vesting or increase in benefits to any
employee or former employee or director of the Company or any of its
Subsidiaries. Except as set forth on SCHEDULE 3.19(H), no Employee Benefit Plan
provides for the payment of severance, termination, change in control or
similar-type payments or benefits.
(i) DOCUMENTS. The Company has delivered or caused to be delivered to FAFCO
and its counsel true and complete copies of all material documents in connection
with each Employee Benefit Plan, including, without limitation (where
applicable): (i) all Employee Benefit Plans as in effect on the date hereof,
together with all amendments thereto, including, in the case of any Employee
Benefit Plan not set forth in writing, a written description thereof; (ii) all
current summary plan descriptions, summaries of material modifications, and
material communications; (iii) all current trust agreements, declarations of
trust and other documents establishing other funding arrangements (and all
amendments thereto and the latest financial statements thereof); (iv) the most
recent IRS determination letter obtained with respect to each Employee Benefit
Plan intended to be qualified under Section 401(a) of the Code or exempt under
Section 501(a) or 501(c)(9) of the Code; (v) the annual report on IRS Form
5500-series or 990 for each of the last three years for each Employee Benefit
Plan required to file such form; (vi) the most recently prepared financial
statements for each Employee Benefit Plan for which such statements are
required; and (vii) all contracts and agreements relating to each Employee
Benefit Plan, including, without limitation, service provider agreements,
insurance contracts, annuity contracts, investment management agreements,
subscription agreements, participation agreements, and recordkeeping agreements
and collective bargaining agreements.
3.20 INTERESTS IN CLIENTS, SUPPLIERS, ETC. Except as set forth on SCHEDULE
3.20, to the Company's best knowledge, information and belief no officer,
director, employee or affiliate of the Company or any of its
ANNEX A-18
<PAGE>
Subsidiaries either (a) is or (b) possesses, directly or indirectly, any
financial interest in or (c) is a director, officer or employee of, any Person
which is, a client of, supplier to, customer of, lessor to, lessee of or
competitor or potential competitor of the Company or any of its Subsidiaries.
Except as set forth on SCHEDULE 3.20, neither the Company nor any of its
Subsidiaries is a party to any transaction agreement, arrangement or
understanding with any affiliate, officer, director or employee of the Company
or any of its Subsidiaries. Ownership of securities of a company whose
securities are registered under the Exchange Act of 1% or less of any class of
such securities shall not be deemed to be a financial interest for purposes of
this Section 3.20.
Except as set forth on SCHEDULE 3.20, neither the Company nor any of its
Subsidiaries is indebted to any director, officer, employee or agent of the
Company or any of its Subsidiaries (except for amounts due as normal salaries
and bonuses and in reimbursement of ordinary expenses), and no such person is
indebted to the Company or any of its Subsidiaries, except for reimbursements of
expenses of less than $5,000 in the aggregate, and, other than as set forth in
the SEC Reports, there have been no other transactions of the type required to
be disclosed pursuant to Items 402 and 404 of Regulation S-K under the
Securities Act and the Exchange Act.
3.21 NO CHANGES SINCE BALANCE SHEET DATE. Except as set forth in the
Company SEC Reports, on SCHEDULE 3.21 or as permitted or contemplated by this
Agreement, since the Company Balance Sheet Date neither the Company nor any of
its Subsidiaries has (a) incurred any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except in the ordinary
course of business, (b) permitted any of its assets to be subjected to any
mortgage, pledge, lien, security interest, encumbrance, restriction or charge of
any kind (other than Permitted Liens), (c) sold, transferred or otherwise
disposed of any assets except in the ordinary course of business, (d) made any
capital expenditure or commitment therefor, except in the ordinary course of
business, (e) made any distribution to its shareholders or declared or paid any
dividend or made any distribution on any shares of its capital stock (f)
redeemed, purchased or otherwise acquired any shares of its capital stock, (g)
granted or issued any option, warrant or other right to purchase or acquire any
shares of its capital stock, (h) made any bonus or profit sharing distribution
or payment of any kind, except in the ordinary course of business, (i) increased
its indebtedness for borrowed money, except current borrowings from banks in the
ordinary course of business, or made any loan to any Person, (j) written off as
uncollectible any notes or accounts receivable, except write-offs in the
ordinary course of business charged to applicable reserves or by reduction of
revenues, none of which individually or in the aggregate is material to the
Company and its Subsidiaries, taken as a whole, (k) granted any increase in the
rate of wages, salaries, bonuses or other remuneration of any executive employee
or other employees, except in the ordinary course of business, (l) canceled or
waived any claims or rights except in the ordinary course of business, (m) made
any change in any method of accounting or auditing practice, (n) otherwise
conducted its business or entered into any material transaction, except in the
ordinary course of business or (o) agreed, whether or not in writing, to do any
of the foregoing.
3.22 CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming (i) the filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT") are made and the waiting period thereunder has been
terminated or expired, (ii) the shareholders of the Company approve the Merger
and (iii) the Merger Documents are accepted for filing with the California
Secretary of State, the execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated hereby will not (a)
violate any provision of the articles of incorporation or by-laws of the Company
or any of its Subsidiaries, (b) violate any statute, ordinance, rule,
regulation, order or decree of any court or any governmental or regulatory body,
agency or authority applicable to the Company or any of its Subsidiaries, (c)
require any filing with, or permit, consent or approval of, or the giving of any
notice to, any governmental or regulatory body, agency or authority, other than
(A) the filing or appropriate documents with (including those on Form A), and
the approval of, the respective commissioners of insurance (or equivalent
regulatory bodies) of the State of California and such other states as may be
required as a result of the Merger to continue the business of the Company and
its Subsidiaries as it is
ANNEX A-19
<PAGE>
conducted and where it is conducted as of the date hereof (the "INSURANCE
APPROVALS"), which Insurance Approvals are listed on SCHEDULE 3.22, and (B) the
filing of the Registration Statement with the SEC and the Prospectus/Proxy
Statement with the NYSE and the NASD, (d) except as set forth on SCHEDULE 3.22,
result in a violation or breach of, conflict with, constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, lease, franchise agreement or other instrument or
obligation to which either the Company or any of its Subsidiaries is a party, or
by which either the Company or any of its Subsidiaries or any of their
respective properties or assets may be bound, excluding from the foregoing
clauses (b), (c) and (d) filings, notices, permits, consents and approvals the
absence of which, and violations, breaches, defaults, conflicts and liens which,
in the aggregate, would not have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole.
3.23 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Except as set forth on
SCHEDULE 3.23, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby, including, without
limitation, the Merger, will (a) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of the Company or any of its
Subsidiaries, (b) materially increase any benefits otherwise payable by the
Company or any of its Subsidiaries or (c) result in the acceleration of the type
of payment or vesting of any such benefits.
3.24 POOLING OF INTERESTS. Neither the Company nor any of its Subsidiaries
or, to the best knowledge, information and belief of the Company, any of their
respective directors, officers or shareholders has taken any action, nor to the
best knowledge, information and belief of the Company does any fact or
circumstance exist, which would interfere with FAFCO's ability to account for
the Merger as a pooling of interests under the Pooling Rules.
3.25 DISCLOSURE. None of this Agreement, any Schedule, Exhibit or
certificate attached hereto or delivered by the Company pursuant to this
Agreement contains any untrue statement by the Company of a material fact, or
omits any statement of a material fact necessary in order to make the statements
by the Company contained herein or therein, in light of the circumstances in
which they were made, not misleading. There is no fact known to the Company
which is reasonably likely to have a Material Adverse Effect on the Company or
its Subsidiaries, taken as a whole and which has not been disclosed in a
Schedule, Exhibit or certificate attached or provided hereto.
3.26 BROKER'S OR FINDER'S FEES. Except as set forth on SCHEDULE 3.26, no
agent, broker, person or firm acting on behalf of the Company or any of its
Subsidiaries is, or will be, entitled to any commission or broker's or finder's
fees from any of the parties hereto or from any Person controlling, controlled
by or under common control with any of the parties hereto, in connection with
any of the transactions contemplated by this Agreement. The Company agrees to
pay any commission or broker's or finder's fees listed (or required to be
listed) on Schedule 3.26.
3.27 COPIES OF DOCUMENTS. All documents made available by the Company for
FAFCO or its advisers' inspection to date, are true, complete (except as
contemplated by the last sentence of Section 5.2(a)) and correct.
3.28 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The information
supplied by the Company and its Subsidiaries for inclusion in the Registration
Statement pursuant to which the FAFCO Common Shares to be issued in the Merger
will be registered with the SEC shall not at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The information supplied by the Company or any of its
Subsidiaries for inclusion in
ANNEX A-20
<PAGE>
the Proxy Statement/Prospectus shall not, on the date the Proxy
Statement/Prospectus is first mailed to the shareholders of the Company, at the
time of the Company Shareholders Meeting and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Shareholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform FAFCO.
3.29 OPINION OF FINANCIAL ADVISOR. The Company has been advised in writing
by its financial advisor, A.G. Edwards & Sons, Inc., that in such advisor's
opinion, as of the date hereof, the Exchange Ratio is fair to the shareholders
of the Company from a financial point of view.
3.30 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the common shares of the Company outstanding on the record date set for the
Company Shareholders Meeting is the only vote of the holders of any of the
Company's capital stock necessary to approve this Agreement and the transaction
contemplated hereby, including, without limitation, the Merger.
3.31 BOARD APPROVAL. The Board of Directors of the Company (at a meeting
duly called and held) has unanimously (a) approved this Agreement and the
Merger, (b) determined that the Merger is in the best interests of the
shareholders of the Company and is on terms that are fair to such shareholders
and (c) recommended that the shareholders of the Company approve this Agreement
and the Merger.
3.32 CUSTOMERS AND SUPPLIERS. Except as indicated in the Company SEC
Reports, as of the date hereof, no customer which individually accounted for
more than 5% of the Company's and its Subsidiaries', taken as a whole, gross
revenues during the 12 month period preceding the date hereof has indicated to
either the Company or any of its Subsidiaries that it will stop, or materially
decrease the rate of, buying services or products of the Company and its
Subsidiaries, or has at any time on or after December 31, 1997 decreased
materially its usage of the services or products of the Company or any of its
Subsidiaries. As of the date hereof, no material supplier of the Company or any
of its Subsidiaries has indicated to the Company or any of its Subsidiaries that
it will stop, or materially decrease the rate of, supplying materials, products
or services to the Company.
3.33 INSURANCE MATTERS.
(a) Except for Great Pacific Insurance Company, a wholly-owned Subsidiary of
the Company ("GREAT PACIFIC"), neither the Company nor any of its other
Subsidiaries underwrites insurance as an insurer for any Person. Except as
otherwise would not, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect on Great Pacific, all policies, binders, slips,
certificates, annuity contracts and participation agreements and other
agreements of insurance, whether individual or group, and reinsurance in effect
as of the date hereof (including all applications, supplements, endorsements,
riders and ancillary agreements in connection therewith) that are issued or
entered into, as the case may be, by Great Pacific and any and all of its
marketing materials, are, to the extent required under applicable law, on forms
approved by applicable insurance regulatory authorities or which have been filed
and not objected to by such authorities within the period provided for
objection, and such forms comply in all material respects with the insurance
statutes, regulations and rules applicable thereto and, as to premium rates
established by Great Pacific which are required to be filed with or approved by
insurance regulatory authorities, the rates have been so filed or approved, the
premiums charged conform thereto in all material respects, and such premiums
comply in all material respects with the insurance statutes, regulations and
rules applicable thereto.
(b) SCHEDULE 3.33(B) sets forth a true and complete list of all reinsurance
treaties and contracts (including retrocessions) for reinsurance ceded by Great
Pacific. The treaties and contracts set forth on
ANNEX A-21
<PAGE>
SCHEDULE 3.33(B) (or required to be set forth on SCHEDULE 3.33(B)) (each a
"REINSURANCE AGREEMENT" and, collectively, the "REINSURANCE AGREEMENTS") are in
full force and effect except for such treaties or agreements the failure to be
in full force and effect as individually or in the aggregate are not reasonably
likely to have a Material Adverse Effect on Great Pacific.
(c) Neither Great Pacific nor the Company or any other Subsidiaries of the
Company transact reinsurance or own and/or operate any premium finance company.
(d) All underwriting and/or management and/or service agreements entered
into by Great Pacific as now in force are set forth in SCHEDULE 3.33(D), and to
the extent required under applicable law, are in a form acceptable to applicable
regulatory authorities or have been filed and not objected to by such
authorities within the period provided for objection, except where the failure
to obtain such approval or make such filing would not, individually or in the
aggregate, have a Material Adverse Effect on Great Pacific or in the future be
reasonably expected to have a Material Adverse Effect on Great Pacific or FAFCO
and its Subsidiaries.
(e) Each underwriting management and/or administration agreement to which
Great Pacific is a party is valid and binding against Great Pacific and is in
full force and effect in accordance with its terms. Great Pacific is and has
been in substantial compliance with such agreements. Great Pacific is not in
default in any material respect with respect to any such contract or other
agreement and no such contract or other agreement contains any provision which
would be altered or otherwise become applicable by reason of such transactions.
(f) Great Pacific owns an investment portfolio acquired in the ordinary
course of business, and a true and complete list of the securities and other
investments in each such investment portfolio, as of September 30, 1998, with
information included thereon as to the amortized cost of each such investment
and the market value thereof as of such date, is listed on SCHEDULE 3.33(F).
None of the investments included in such investment portfolios is in default in
the payment of principal or interest or dividends or materially impaired. All
investments included in such portfolios substantially comply with all insurance
laws and regulations of each of the states to which Great Pacific is subject
relating thereto.
(g) The Company has no reason to believe that any rating presently held by
Great Pacific is likely to be modified, qualified, lowered or placed under
surveillance for a possible downgrade for any reason, except in connection with
the change of control contemplated by this Agreement.
3.34 LIABILITIES AND RESERVES.
(a) The reserves carried on Great Pacific's statutory accounting statements
for the year ended December 31, 1997 for losses (including, without limitation,
incurred but not reported, losses, allocated and unallocated loss adjustment
expenses and unearned premiums) and similar purposes are in compliance in all
material respects with the requirements for reserves established by the
Department of Insurance of the State of California, were determined in all
material respects in accordance with generally accepted actuarial standards and
principles consistently applied and are fairly stated in all material respects
in accordance with sound actuarial principles and SAP. Such reserves were
adequate in the aggregate to cover the total amount of all reasonably
anticipated liabilities of Great Pacific under all outstanding insurance,
reinsurance and other applicable agreements as of the respective dates of such
statutory accounting statements of Great Pacific. All required statements of
actuarial opinion of loss and loss adjustment expense reserves have been filed
by Great Pacific in accordance with applicable insurance regulatory requirements
in each jurisdiction in which Great Pacific is admitted and no objections to
those filings have been received. The admitted assets of Great Pacific as
determined under applicable laws are in an amount at least equal to the minimum
amounts required by applicable laws.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the best knowledge, information and belief of the
Company, no claim or assessment is pending or threatened against any Subsidiary
ANNEX A-22
<PAGE>
which is peculiar or unique to such Subsidiary by any state insurance guaranty
associations in connection with such association's fund relating to insolvent
insurers which if determined adversely, would, individually or in the aggregate,
be reasonably likely to have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF FAFCO AND FAFCOSUB
Each of FAFCO and FAFCOSUB represents, warrants and agrees to the Company as
follows:
4.1 EXISTENCE AND GOOD STANDING; POWER AND AUTHORITY. Each of FAFCO and
FAFCOSUB is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and the State of Delaware,
respectively. Each of FAFCO and FAFCOSUB has the corporate power and authority
to enter into, execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement has been duly authorized and approved by all required
corporate action of FAFCO and FAFCOSUB and constitutes the legal, valid and
binding obligation of FAFCO and FAFCOSUB and is enforceable against FAFCO and
FAFCOSUB in accordance with its terms except as such enforceability may be
limited by bankruptcy, insolvency or similar laws and equitable principles
relating to or affecting the rights of creditors generally from time to time in
effect.
4.2 CONSENTS AND APPROVALS; NO VIOLATIONS. Assuming (i) the filings
required under the HSR Act are made and the waiting period thereunder has been
terminated or expired, (ii) the Registration Statement has been filed and
declared effective, (iii) the shareholders of the Company approve the Merger,
(iv) the Merger Documents are accepted for filing with the California Secretary
of State and the Secretary of State of Delaware and (v) the Proxy
Statement/Prospectus is delivered to the Shareholders at least twenty (20)
Business Days prior to the Company Shareholders Meeting, the execution and
delivery of this Agreement by FAFCO and FAFCOSUB and the consummation of the
transactions contemplated hereby will not (a) violate any provision of the
articles of incorporation or by-laws (or equivalent) of either FAFCO or
FAFCOSUB, (b) violate any statute, ordinance, rule, regulation, order or decree
of any court or any governmental or regulatory body, agency or authority
applicable to either FAFCO or FAFCOSUB, (c) require any filing with, or permit,
consent or approval of, or the giving of any notice to, any governmental or
regulatory body, agency or authority, authority, other than (A) the Insurance
Approvals and (B) the filing of the Prospectus/Proxy Statement with the NYSE and
the NASD, (d) result in a violation or breach of, conflict with, constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation, payment or acceleration) under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of either FAFCO or FAFCOSUB under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, franchise, permit, agreement, lease, franchise agreement or other
instrument or obligation to which either FAFCO or FAFCOSUB is a party, or by
which they or any of their properties or assets may be bound, excluding from the
foregoing clauses (c) and (d) filings, notices, permits, consents and approvals
the absence of which, and violations, breaches, defaults, conflicts and liens
which, in the aggregate, would not have a Material Adverse Effect on FAFCO and
FAFCOSUB, taken as a whole.
ANNEX A-23
<PAGE>
4.3 RESTRICTIVE DOCUMENTS. Neither FAFCO nor FAFCOSUB is subject to any
charter, by-law, mortgage, lien, lease, agreement, instrument, order, law, rule,
regulation, judgment or decree, or any other restriction of any kind or
character, which has or might reasonably be expected to have a Material Adverse
Effect on FAFCO and FAFCOSUB, taken as a whole.
4.4 BROKER'S OR FINDER'S FEES. Except for Salomon Smith Barney Inc.,
financial advisor to FAFCO, no agent, broker, person or firm acting on behalf of
FAFCO or FAFCOSUB is, or will be, entitled to any commission or broker's or
finder's fees from any of the Parties hereto, or from any Person controlling,
controlled by or under common control with any of the Parties hereto, in
connection with any of the transactions contemplated by this Agreement. FAFCO
agrees to pay the fees, costs and expenses of Salomon Smith Barney, Inc. or any
successor thereto.
4.5 FAFCO COMMON SHARES. The FAFCO Common Shares to be delivered in
connection with the Merger (a) have been authorized, (b) when delivered, will be
validly issued, fully paid, nonassessable and registered pursuant to an
effective registration statement under the Securities Act, (c) will be issued in
compliance with all federal and state securities laws and (d) will be listed for
trading with the NYSE.
4.6 CAPITALIZATION. The authorized capital stock of FAFCO is 108,000,000
common shares, par value $1.00, of which 60,025,471 were issued and outstanding
as of November 10, 1998 and 1,000 shares of Series A Junior Participating
Preferred Shares, par value $1.00, none of which are issued and outstanding. All
such outstanding shares have been duly authorized and validly issued, and are
fully paid and nonassessable. Except for options granted under FAFCO's 1996
Employee Stock Option Plan and the 1997 Directors Stock Plan, and except as set
forth on SCHEDULE 4.6, there are no outstanding options, warrants, convertible
securities or other securities or rights issued or granted by FAFCO which
entitle the holder thereof to purchase or acquire FAFCO Common Shares and none
of the foregoing will arise as a result of the execution or performance of this
Agreement or the transactions contemplated herein. Except as set forth on
SCHEDULE 4.6, no Person has any demand or piggyback registration rights in
respect of their FAFCO Common Shares.
4.7 SEC REPORTS AND FINANCIAL STATEMENTS. Each form, report, schedule,
registration statement, definitive proxy statement filed by FAFCO with the SEC
on or after January 1, 1996 (as such documents have been amended prior to the
date hereof, the "FAFCO SEC REPORTS"), as of their respective dates, complied in
all material respects with the applicable requirements of the Securities Act and
the Exchange Act and the rules and regulations thereunder and, since the first
date on which FAFCO Common Shares were listed for trading on the New York Stock
Exchange, the rules of the NYSE. FAFCO has made available to the Company
accurate and complete copies of all FAFCO SEC Reports filed by the Company since
January 1, 1997. None of the FAFCO SEC Reports, as of their respective dates,
contained or contains any untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of FAFCO and its Subsidiaries
included in such FAFCO SEC Reports comply as to form in all material respects
with applicable accounting requirements and with published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with US GAAP
(except as may be indicated in the notes thereto, or in the case of unaudited
interim financial statements, as permitted by Form 10-Q of the SEC) and fairly
present in all material respects, subject, in the case of the unaudited interim
financial statements, to normal, year-end adjustments, the consolidated
financial position of FAFCO and its Subsidiaries as of the dates thereof and
neither FAFCO nor any of its Subsidiaries has incurred any liabilities and
obligations (whether absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise and whether due or to become due) of any nature except
liabilities, obligations and contingencies (a) which are reflected in the
consolidated balance sheet of FAFCO and its Subsidiaries at December 31, 1997,
(b) which (i) were incurred in the ordinary course of business after December
31, 1997 or (ii) are disclosed in the FAFCO SEC Reports filed after December 31,
1997, (c) which are not required to be recorded as a liability under US GAAP or
disclosed in notes to financial statements or (d) which individually or in the
aggregate are not expected to have a Material Adverse Effect on FAFCO. Since
December 31, 1997, there has been no change in any of the
ANNEX A-24
<PAGE>
significant accounting (including tax accounting) policies, practices or
procedures of FAFCO or any of its Subsidiaries except changes resulting from
changes in accounting pronouncements of the Financial Accounting Standards
Boards or changes in applicable laws or rules or regulations thereunder.
4.8 LITIGATION. Except as disclosed in the FAFCO SEC Reports, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or to the best knowledge, information and belief
of FAFCO any investigation by) any governmental or other instrumentality or
agency, pending, or, to the best knowledge, information and belief of FAFCO,
threatened, against or impacting FAFCO and its Subsidiaries, taken as a whole,
or any of its or their properties or rights which could have a Material Adverse
Effect. Neither FAFCO nor its Subsidiaries is subject to any judgment, order or
decree entered in any lawsuit or proceeding which may have a Material Adverse
Effect on FAFCO and its Subsidiaries, taken as a whole.
4.9 COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 4.9, FAFCO and
its Subsidiaries are in compliance in all material respects with all applicable
laws, regulations, orders, judgments and decrees, except where the failure to
comply would not likely have a Material Adverse Effect on FAFCO and its
Subsidiaries, taken as a whole.
4.10 DISCLOSURE. None of this Agreement, any Schedule, Exhibit or
certificate attached hereto or delivered by FAFCO or FAFCOSUB pursuant to this
Agreement contains any untrue statement by FAFCO or FAFCOSUB of a material fact,
or omits any statement of a material fact necessary in order to make the
statements of FAFCO or FAFCOSUB contained herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact known to
FAFCO which is reasonably likely to have a Material Adverse Effect on FAFCO.
4.11 TAX MATTERS. Prior to the Merger, FAFCO will be in control of
FAFCOSUB within the meaning of Section 368(c)(1) of the Code. FAFCO has no plan
or intention to reacquire any of the FAFCO Common Shares issued in connection
with the Merger. FAFCO has no plan or intention to liquidate the Surviving
Corporation, to merge the Surviving Corporation with or into another
corporation, to sell or otherwise dispose of the capital stock of the Surviving
Corporation, except for transfers of shares of the Surviving Corporation to
corporations controlled by FAFCO or to cause the Surviving Corporation to sell
or otherwise dispose of any of its assets, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by the Surviving Corporation. The Surviving Corporation will continue the
historic business of the Company or use a significant portion of the Company's
historic business assets in a business.
4.12 POOLING OF INTERESTS. Neither FAFCO nor any of its Subsidiaries or,
to the best knowledge, information and belief of the Company, any of their
respective directors, officers or shareholders has taken any action, nor to the
best knowledge, information and belief of the Company does any fact or
circumstance exist, which would interfere with FAFCO's ability to account for
the Merger as a pooling of interests under the Pooling Rules.
4.13 BOARD APPROVAL. The Board of Directors of FAFCO (at a meeting duly
called and held) has approved this Agreement and the Merger.
4.14 REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. The information
included by FAFCO in the Registration Statement pursuant to which the FAFCO
Common Shares to be issued in the Merger will be registered with the SEC shall
not at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
included by FAFCO or any of its Subsidiaries for inclusion in the Proxy
Statement/Prospectus shall not, on the date the Proxy Statement/Prospectus is
first mailed to the shareholders of the Company, at the time of the Company
Shareholder Meeting and at the Effective Time, contain any statement which, at
such time, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to
ANNEX A-25
<PAGE>
make the statements made therein, in light of the circumstances under which they
are made, not false or misleading.
SECTION 5
TRANSACTIONS PRIOR TO THE EFFECTIVE TIME
5.1 CONDUCT OF THE BUSINESS OF THE COMPANY PRIOR TO CLOSING. During the
period from the date of this Agreement to the Effective Time, the Company shall
and shall cause its Subsidiaries to: (x) conduct their respective operations
only according to the ordinary and usual course of business; use reasonable
efforts to preserve intact their business organizations, keep available the
services of their officers and employees (without having any obligation to
provide retention packages) and maintain existing relationships with licensors,
suppliers, distributors, customers, landlords, employees, agents and others
having business relationships with them; (y) discuss with FAFCO concerning
operational matters of a material nature (including, without limitation, the
cancellation or waiver of any claim or right in excess of $50,000) and (z)
report periodically to FAFCO concerning the business, operations and finances of
the Company and its Subsidiaries. Notwithstanding the immediately preceding
sentence, prior to the Effective Time, except as may be first approved in
writing by FAFCO or as is otherwise permitted or required by this Agreement, the
Company shall and the Company shall cause each of its Subsidiaries to: (a)
refrain from amending or modifying their respective articles of incorporation,
certificates of incorporation and by-laws from their respective forms on the
date of this Agreement, (b) refrain from (i) paying bonuses in excess of
$400,000 in the aggregate after the date hereof, (ii) increasing any salaries,
except in the ordinary course of business or (iii) paying or increasing any
other compensation, in each case, to any officer or employee or entering into
any employment, severance, or similar agreement (in each case, except in the
ordinary course of business) with any officer or employee; PROVIDED, HOWEVER,
that the Company shall be entitled to make, or agree to make, cash payments in
an aggregate amount not to exceed $250,000 (in addition to the bonuses permitted
under Section 5.1(b)(i)) to officers and employees in order to retain the
services of such officers and/or employees, (c) except for payments required to
maintain any of the following at their current levels, refrain from adopting or
increasing any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any of their
respective, directors, officers or employees, (d) except to the extent permitted
by any other clause of this Section 5.1, refrain from entering into any contract
or commitment except contracts and commitments in the ordinary course of
business, (e) refrain from increasing their indebtedness for borrowed money,
except borrowings in the ordinary course of business, under existing lines of
credit, provided that such borrowings shall not exceed the maximum commitment
under each such existing line of credit, (f) except as set forth in SCHEDULE
5.1(F), refrain from canceling or waiving any claim or right of substantial
value which individually or in the aggregate is material, (g) refrain from
declaring or paying any dividends in respect of their respective capital stock,
other than quarterly cash dividends paid by the Company to its shareholders in
an amount not to exceed the lesser of (i) $0.11 per share per quarter and (ii)
50% of the consolidated net earnings of the Company for such quarter, or
redeeming, purchasing or otherwise acquiring any of their respective securities,
(h) refrain from making any material change in accounting methods or practices,
except as required by law, US GAAP or SAP, (i) refrain from issuing or selling
any shares of capital stock or any other securities, as the case may be, or
issuing any securities convertible into, or options, warrants or rights to
purchase or subscribe to, or entering into any arrangement or contract with
respect to the issue and sale of, any shares of their respective capital stock
or any other securities, or making any other changes in their respective capital
structures, except such issuances or sales of securities which either the
Company or any of its Subsidiaries is already obligated to make as of the date
of this Agreement and which are disclosed to FAFCO, (j) refrain from selling,
leasing or otherwise disposing of any asset or property other than in the
ordinary course of business, (k) refrain from making any capital expenditure or
commitment therefor, except in the ordinary course of business, (l) except as
set forth on SCHEDULE 5.1(F), refrain from writing off as uncollectible any
notes or accounts receivable, except write-offs in the ordinary course of
business charged to applicable reserves, none of which individually or in the
aggregate is material, (m) refrain from
ANNEX A-26
<PAGE>
taking any action which would interfere with FAFCO's ability to account for the
Merger as a pooling of interests and (n) refrain from agreeing in writing to do
any of the foregoing.
5.2 REVIEW OF THE COMPANY; CONFIDENTIALITY.
(a) FAFCO may, prior to the Closing Date, directly or through its
representatives, review the properties, books and records of the Company and its
Subsidiaries and their financial and legal condition to the extent FAFCO deems
necessary or advisable to familiarize itself with such properties and other
matters; such review shall not, however, affect the representations and
warranties made by the Company in this Agreement or the remedies of FAFCO for
breaches of those representations and warranties. The Company shall, and shall
cause the Subsidiaries of the Company to, permit FAFCO and its representatives
to have, after the date of execution of this Agreement, full access to the
premises, to the officers, employees and to all the books and records of the
Company and its Subsidiaries and to cause the officers of the Company and its
Subsidiaries to furnish FAFCO with such financial and operating data and other
information with respect to the business and properties of the Company as FAFCO
shall from time to time reasonably request. The Company represents and warrants
that all documents made or to be made available by the Company pursuant to this
Section 5.2(a) are true, complete (except as contemplated by the last sentence
of this Section 5.2(a)) and correct.
Notwithstanding anything to the contrary contained in this Agreement,
including, without limitation, Sections 5.1 and 5.2, neither the Company nor its
Subsidiaries shall be required to provide FAFCO or its representatives with
access to (i) the source code to proprietary software of the Company until such
time as any waiting period under the HSR Act shall have expired or been
terminated and (ii) the customer lists and/or customer contracts of the Company
until such time as FAFCO and the Company shall have entered into an Access to
Proprietary Information and Confidentiality Agreement (the "ACCESS AGREEMENT"),
in such form as FAFCO and the Company shall agree, except that FAFCO shall not
have access to the pricing and other terms contained in the Company's contracts
with customers of its flood certification business and tax reporting business
until the Effective Time.
(b) In the event of termination of this Agreement, FAFCO shall keep
confidential any material information obtained from the Company and its
Subsidiaries concerning the Company's and its Subsidiaries' properties,
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be material (or becomes
so ascertainable) and, at the request of the Company, shall return to the
Company and its Subsidiaries or destroy all copies of any schedules, statements,
documents, source codes, object codes, programs and flowcharts or other written
information obtained in connection therewith, including, but not limited to, any
materials prepared by FAFCO or its representatives (except for work product
encompassed by the attorney-client privilege) containing any such confidential
information, except to the extent that such materials contain information
confidential to FAFCO, in which case such materials shall not be returned, but
destroyed. The Company shall deliver or cause to be delivered to FAFCO such
additional instruments, documents, certificates and opinions as FAFCO may
reasonably request for the purpose of (i) verifying the information set forth in
this Agreement and on any Schedule or Exhibit attached hereto and (ii)
consummating or evidencing the transactions contemplated by this Agreement. In
the event of termination of this Agreement, the Company Confidentiality
Agreement shall remain in full force and effect, unless such Company
Confidentiality Agreement is terminated by the Access Agreement, in which case
the Access Agreement shall remain in full force and effect.
(c) In the event of termination of this Agreement, the Company shall keep
confidential any material information obtained from FAFCO and its Subsidiaries
concerning the FAFCO's and its Subsidiaries' properties, operations and business
(unless readily ascertainable from public or published information or trade
sources) until the same ceases to be material (or becomes so ascertainable) and,
at the request of FAFCO, shall return to FAFCO and its Subsidiaries or destroy
all copies of any schedules, statements, documents or other written information
obtained in connection therewith, including any materials prepared by the
Company or its representatives (except for work product encompassed by the
attorney-client
ANNEX A-27
<PAGE>
privilege) containing any such confidential information, except to the extent
that such materials contain information confidential to the Company, in which
case such materials shall not be returned, but destroyed. In the event of
termination of this Agreement, the FAFCO Confidentiality Agreement shall remain
in full force and effect, unless such FAFCO Confidentiality Agreement is
terminated by the Access Agreement, in which case the Access Agreement shall
remain in full force and effect.
5.3 EXCLUSIVE DEALING. The Company shall not, and shall not permit any of
its Subsidiaries to, and the Company and its Subsidiaries shall not authorize or
permit any officer, director or employee of, or any financial advisor, attorney,
accountant or other advisor or representative retained by, the Company or any of
its Subsidiaries to, solicit, initiate, encourage (including by way of
furnishing information), endorse or enter into any agreement with respect to, or
take any other action to facilitate, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal. The Company shall immediately advise FAFCO orally and in writing of
any Takeover Proposal or any inquiries or discussions with respect thereto and
shall promptly, but in any event within two (2) Business Days of receipt,
furnish to FAFCO a copy of any such written proposal or a written summary of any
such oral proposal. Neither the Board of Directors of the Company nor any
committee thereof shall (a) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to FAFCO the approval or recommendation by the Board
of Directors of the Company of the Merger or this Agreement or (b) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or any
other acquisition of outstanding Company Common Shares other than pursuant to
the Merger or this Agreement. Notwithstanding the foregoing, nothing contained
in this Agreement shall prevent the Board of Directors of the Company from (i)
furnishing information to or entering into discussions or negotiations with any
unsolicited Person or taking any action described in clauses (a) and (b) of the
preceding sentence if and only to the extent that the Board of Directors of the
Company shall have determined in good faith, that such action is required in the
exercise of its fiduciary duties, based upon the written advice of its outside
counsel or (ii) complying with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act.
5.4 BEST EFFORTS. Until such time as this Agreement is terminated pursuant
to Section 9.1, each of the Company, FAFCO and FAFCOSUB shall, and the Company
shall cause each of its Subsidiaries to, cooperate and use their respective best
efforts to take, or cause to be taken, all appropriate action, and to make, or
cause to be made, all filings necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, their respective
best efforts to obtain, prior to the Effective Time, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company, FAFCO and FAFCOSUB as are
necessary for consummation of the transactions contemplated by this Agreement
and to fulfill the conditions to the Merger; PROVIDED, HOWEVER, that in order to
obtain any such consent, approval or authorization no (a) loan agreement or
contract for borrowed money shall be repaid except as currently required by its
terms, in whole or in part, (b) contract shall be amended to increase the amount
payable thereunder or otherwise to be more burdensome to the Company, FAFCO or
FAFCOSUB or (c) Party shall, and no Party shall be required to, commit to any
divestiture transaction, agree to sell or hold separate or agree to license to
such Party's competitors, before or after the Effective Time, any of FAFCO's,
the Company's or their respective Subsidiaries' businesses, product lines,
properties or assets, or agree to any changes or restrictions in the operation
of such businesses, product lines, properties or assets.
SECTION 6
CONDITIONS PRECEDENT TO MERGER
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF FAFCO, FAFCOSUB AND THE
COMPANY. The respective obligations of FAFCO and FAFCOSUB, on the one hand, and
the Company, on the other hand, to effect
ANNEX A-28
<PAGE>
the Merger are subject to the satisfaction or waiver (subject to applicable law)
at or prior to the Closing Date of each of the following conditions:
(a) APPROVAL OF COMPANY'S SHAREHOLDERS. This Agreement and the Merger
shall have been approved and adopted by the requisite vote of the shareholders
of the Company in accordance with applicable law and the Company's articles of
incorporation and by-laws;
(b) HSR ACT. Any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or been terminated;
(c) STATUTES; GOVERNMENTAL APPROVALS. No statute, rule, regulation,
executive order, decree or order of any kind shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
the consummation of the Merger; all governmental and other consents and
approvals, if any, disclosed on any Schedule attached hereto or necessary to
permit the consummation of the transactions contemplated by this Agreement shall
have been received, including, without limitation, the Insurance Approvals;
(d) NO LITIGATION. No temporary or preliminary or permanent injunction or
other order issued by a court or other government body or by any public
authority to restrain or prohibit or restraining or prohibiting the consummation
of the Merger shall be in effect;
(e) SECURITIES MATTERS. The SEC shall have declared effective the
Registration Statement. No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued by the SEC and
no proceeding for that purpose, and no similar proceeding in respect of the
Proxy Statement/Prospectus, shall have been initiated or threatened by the SEC;
and all requests for additional information on the part of the SEC shall have
been complied with to the reasonable satisfaction of the parties hereto;
(f) LISTING. The FAFCO Common Shares to be delivered shall have been
listed with the New York Stock Exchange, subject only to official notice of
issuance; and
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF FAFCO AND FAFCOSUB. The
obligations of FAFCO and FAFCOSUB to effect the Merger are also subject to the
satisfaction or waiver, at or prior to the Closing Date, of each of the
following conditions:
(a) TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein shall be true and accurate in all
material respects, in each case at and as of the date of this Agreement and as
of the Closing Date (except to the extent a representation or warranty speaks
specifically as of an earlier date), and the Company shall have delivered to
FAFCO a certificate from the Chief Executive Officer of the Company, dated the
Closing Date to such effect;
(b) PERFORMANCE OF AGREEMENTS. All of the agreements of the Company to be
performed prior to the Closing pursuant to the terms of this Agreement shall
have been duly performed in all material respects as of the Closing Date, and
the Company shall have delivered to FAFCO a certificate from the Chief Executive
Officer of the Company, dated the Closing Date, to such effect;
(c) OPINION OF COUNSEL. On the Closing Date, FAFCO shall have received a
favorable opinion, dated the Closing Date, of Morgan, Lewis & Bockius LLP,
counsel to the Company, in customary form reasonably acceptable to FAFCO;
(d) GOOD STANDING AND OTHER CERTIFICATES. As of the Closing Date, the
Company shall have delivered to FAFCO (a) copies of the Company's articles of
incorporation including all amendments thereto, certified by the Secretary of
State of California, (b) a certificate from the Secretary of State or other
appropriate official of the Company's jurisdiction of incorporation to the
effect that the Company is in good standing in such jurisdiction and listing all
charter documents of the Company on file, (c) a certificate from the Secretary
of State or other appropriate official in each State in which the Company is
qualified to do business to the effect that the Company is in good standing in
such State, (d) a certificate as
ANNEX A-29
<PAGE>
to the tax status of the Company from the appropriate official in its
jurisdiction of incorporation and each state in which the Company is qualified
to do business and (e) a copy of the by-laws of the Company, certified by the
Secretary of the Company as being true and correct and in effect on the Closing
Date;
(e) NO MATERIAL ADVERSE CHANGE. As of the Closing Date, there shall have
been no Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole, and there shall not have occurred any change or development that would
reasonably be expected to have a Material Adverse Effect on the Company;
(f) PROCEEDINGS. As of the Closing Date, the Company shall have delivered
to FAFCO certified copies of resolutions duly adopted by the Company's Board of
Directors and shareholders, approving the Merger and authorizing the
transactions contemplated hereby, and such other or additional instruments,
consents, waivers, approvals, endorsements and documents as FAFCO reasonably
deems necessary to enable the Merger to be consummated as provided in this
Agreement. All other proceedings in connection with the Merger and the other
transactions contemplated hereby, and all instruments, consents, waiver,
approvals, endorsements and documents referred to hereunder or otherwise
incident to such transactions, shall have been obtained and be reasonably
satisfactory in form and substance to FAFCO and its counsel;
(g) AFFILIATES. As of the date immediately preceding the date that the
Registration Statement is filed, FAFCO shall have received from each person that
is deemed an "affiliate" of the Company under Rule 145 on the date immediately
preceding the date of the filing of the Registration Statement written
agreements substantially in the form attached hereto as EXHIBIT D (each such
agreement, a "RULE 145 LETTER") and EXHIBIT E (each such agreement, a "POOLING
LETTER"), and, in the event that any other Person becomes an affiliate of the
Company thereafter, a Rule 145 Letter and a Pooling Letter from such Person, and
each such Rule 145 Letter and Pooling Letter shall remain in full force and
effect;
(h) LETTERS FROM ACCOUNTANTS. As of the Closing Date and as of the date
the Registration Statement is declared effective by the SEC, FAFCO shall have
received a letter or letters from PriceWaterhouseCoopers LLP, as independent
auditors of FAFCO and the Company, in a form acceptable to FAFCO, to the effect
that the Merger qualifies for pooling of interests accounting treatment if
consummated in accordance with this Agreement;
(i) COMFORT LETTERS OF ACCOUNTANTS. As of the date the Registration
Statement is filed, FAFCO shall have received a letter or letters from
PriceWaterhouseCoopers LLP, as independent auditors of FAFCO and the Company,
acceptable to FAFCO, and customary in scope and substance for letters delivered
by independent public accountants in connection with registration statements
similar to the Registration Statement; and
(j) EMPLOYMENT AGREEMENTS. Employment agreements, which were executed
contemporaneously herewith by Mark A. Speizer and Bruce Cole, in each case
together with FAFCO and the Company, shall be in full force and effect.
6.3 CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger is also subject to the satisfaction or waiver,
at or prior to the Closing Date, of each of the following conditions:
(a) OPINION OF COUNSEL. The Company shall have received (i) a favorable
opinion, dated the Closing Date, of White & Case LLP, counsel to FAFCO and
FAFCOSUB, in customary form reasonably acceptable to the Company and (ii) a
written opinion from Morgan, Lewis & Bockius LLP, counsel to the Company, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code;
ANNEX A-30
<PAGE>
(b) GOOD STANDING CERTIFICATE. As of the Closing Date FAFCO and FAFCOSUB
shall have delivered to the Company (i) copies of the articles of incorporation
and certificate of incorporation of FAFCO and FAFCOSUB, respectively, including
all amendments thereto, certified by the Secretary of State of the State of
California and the Secretary of State of Delaware, respectively and (ii) a
certificate from the Secretary of State of the State of California and the
Secretary of State of Delaware to the effect that FAFCO and FAFCOSUB,
respectively, is in good standing in such State, and listing all charter
documents of FAFCO and FAFCOSUB on file;
(c) TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of FAFCO and FAFCOSUB contained herein shall be true and accurate in
all material respects, in each case at and as of the date of this Agreement and
as of the Closing Date (except to the extent a representation or warranty speaks
specifically as of an earlier date), and FAFCO and FAFCOSUB shall have delivered
to the Company a certificate from the President of FAFCO and FAFCOSUB,
respectively, dated the Closing Date, to such effect;
(d) PERFORMANCE OF AGREEMENTS. All of the agreements of FAFCO and FAFCOSUB
to be performed prior to the Closing pursuant to the terms of this Agreement
shall have been duly performed in all material respects, and FAFCO and FAFCOSUB
shall have delivered to the Company a certificate, dated the Closing Date, to
such effect;
(e) PROCEEDINGS. As of the Closing Date, FAFCO and FAFCOSUB shall have
delivered to the Company certified copies of resolutions duly adopted by their
respective Boards of Directors and, with respect to FAFCOSUB, its sole
shareholder, approving the Merger and authorizing the transactions contemplated
hereby, and such other or additional instruments, consents, waivers, approvals,
endorsements and documents as the Company reasonably deems necessary to enable
the Merger to be consummated as provided in this Agreement. All other
proceedings in connection with the Merger and the other transactions
contemplated hereby, and all instruments, consents, waiver, approvals,
endorsements and documents referred to hereunder or otherwise incident to such
transactions, shall have been obtained and be reasonably satisfactory in form
and substance to the Company and its counsel;
(f) NO MATERIAL ADVERSE CHANGE. As of the Closing Date there shall have
been no Material Adverse Effect on FAFCO and there shall not have occurred any
change or development that would reasonably be expected to have a Material
Adverse Effect on FAFCO; and
(g) FAIRNESS OPINION. The Company shall have received an opinion from A.G.
Edwards & Sons, Inc., its financial advisor, dated as of the date of the mailing
of the Proxy Statement/Prospectus, confirming the opinion referred to in Section
3.29.
SECTION 7
COVENANTS RELATING TO SECURITIES MATTERS
7.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT.
(a) As soon as practicable following the date of this Agreement, FAFCO and
the Company shall jointly prepare and FAFCO shall file with the SEC, a
registration statement on Form S-4 under the Securities Act (the "REGISTRATION
STATEMENT"), which will include a proxy statement/prospectus (the "PROXY
STATEMENT/PROSPECTUS") describing, among other things, the transactions
contemplated by this Agreement. FAFCO and the Company shall also take any action
(other than, with respect to FAFCO and the Company, qualifying to do business in
any jurisdiction in which they are not now so qualified and, with respect to
FAFCO, accounting for the Merger as a "purchase") required to be taken under
state blue sky or securities laws in connection with the issuance of FAFCO
Common Shares necessary to fulfill the transaction contemplated by this
Agreement. FAFCO and the Company shall each furnish the other all information
concerning FAFCO and the Company and all such other information required for use
in the Proxy Statement/Prospectus and each of FAFCO and the Company shall take
such other action as the other may reasonably request in connection with the
preparation of the Proxy Statement/Prospectus.
ANNEX A-31
<PAGE>
FAFCO shall use commercially reasonable efforts to have or to cause the
Registration Statement to become effective as promptly as practicable (except
that FAFCO shall have no obligation to agree to account for the Merger as a
"purchase" in order to cause the Registration Statement to become effective) and
shall take all action required under applicable federal or state securities laws
in connection with the issuance of FAFCO Common Shares in the Merger (other than
qualifying to do business in any jurisdiction in which FAFCO is not now so
qualified).
(b) If at any time prior to the Effective Date any event with respect to
FAFCO or the Company or their respective Subsidiaries shall occur which is
required at that time to be described in the Proxy Statement/Prospectus, the
Party with respect to whom the event occurs shall promptly notify the other
Parties, and to the extent required by law, FAFCO will promptly file an
amendment or supplement with the SEC and disseminate such amendment to the
Company shareholders.
7.2 LISTING. FAFCO shall prepare and submit to the NYSE a listing
application covering the FAFCO Common Shares to be issued in the Merger, and
shall use its best efforts to cause such shares to be approved for listing and
trading on the NYSE prior to the Effective Time, subject to official notice of
issuance. Such listing application shall be submitted to the NYSE promptly
following the filing of the Registration Statement with the SEC.
SECTION 8
OTHER COVENANTS
8.1 SHAREHOLDER APPROVAL. In order to consummate the Merger, the Company,
acting through its Board of Directors, shall, in accordance with applicable law:
(a) promptly furnish a copy of the Proxy Statement/Prospectus to each of its
shareholders after the Registration Statement has become effective with the SEC;
(b) promptly and duly call, give notice of, convene and hold a special
meeting of its shareholders (the "COMPANY SHAREHOLDER MEETING") for the purpose
of voting upon this Agreement and the Merger and the Company agrees that this
Agreement and the Merger shall be submitted at such Company Shareholder Meeting;
PROVIDED, HOWEVER, that the Company Shareholder Meeting shall not be held on a
day earlier than the day that is twenty (20) Business Days after the Proxy
Statement/Prospectus has been delivered to the shareholders of the Company; and
(c) use its reasonable best efforts to obtain the necessary approval of the
Merger by its shareholders.
8.2 HSR ACT. FAFCO and the Company shall each, in cooperation with the
other, make the required filings in connection with the transactions
contemplated by this Agreement under the HSR Act with the FTC and the Antitrust
Division, and shall request early termination of the waiting period with respect
to such filings. As promptly as practicable from time to time after the date of
this Agreement, each Party shall make all such further filings and submissions,
and take such further action as may be required in connection therewith (except
that no Party hereby commits to any divestiture transaction, agrees to sell or
hold separate or agrees to license to such Party's competitors any of their or
their respective Subsidiaries' businesses, product lines, properties or assets,
or agrees to any changes or restrictions in the operation of such businesses,
product lines, properties or assets), and shall furnish the other all
information in its possession necessary therefor. FAFCO and the Company shall
each notify the other immediately upon receiving any request for additional
information with respect to such filings from either the Antitrust Division or
the FTC, and the Party receiving the request shall use its reasonable best
efforts to comply with such request as soon as possible. Neither such Party
shall withdraw any such filing or submission without the written consent of the
other.
8.3 AMENDED RETURNS. Except as required by law, the Company shall not
file, and shall cause its Subsidiaries to refrain from filing, any Returns with
respect to the Company or such Subsidiary without the prior written consent of
FAFCO.
ANNEX A-32
<PAGE>
8.4 DIRECTORS AND OFFICERS INDEMNIFICATION.
(a) After the Effective Time, FAFCO will cause the Surviving Corporation to
indemnify and hold harmless the present and former officers, directors,
employees and agents of the Company and its Subsidiaries (the "INDEMNIFIED
PARTIES") in respect of acts or omissions occurring on or prior to the Effective
Time to the extent provided under the Company's and its Subsidiaries' articles
of incorporation and bylaws or any indemnification agreement with the Company's
and its Subsidiaries' officers and directors to which the Company and/or its
Subsidiaries is a party, in each case in effect on the date hereof; provided
that such indemnification shall be subject to any limitation imposed from time
to time under applicable law.
(b) For six years after the Effective Time, FAFCO will cause the Surviving
Corporation to use its best efforts to procure officers' and directors'
liability insurance in respect of acts or omissions occurring on or prior to the
Effective Time covering each such person currently covered by the Company's
and/or its Subsidiaries' officers' and directors' liability insurance policy on
terms substantially similar to those of such policy in effect on the date
hereof, provided that FAFCO shall not be required to cause the Surviving
Corporation to maintain such insurance with respect to a specific officer or
director if the premium for obtain such insurance exceeds (i) if the premium for
obtaining such insurance exceeds 115% of the amount per annum the Company paid
in its last full fiscal year, which amount has been disclosed to FAFCO unless
such officer or director pays the Surviving Corporation his or her pro rata
share of 50% of such excess premium. If the Surviving Corporation is unable to
obtain the insurance required by this Section, it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount.
8.5 POOLING ACCOUNTING. FAFCO and the Company shall each use their
respective best efforts to cause the business combination effected by the Merger
to be accounted for as a pooling of interests. Each of the Company and FAFCO
shall use its best efforts to cause "affiliates" (as defined in Section 6.2(g))
not to take any action that would adversely affect the ability of FAFCO to
account for the business combination to be effected by the Merger as a pooling
of interests.
8.6 AFFILIATE AGREEMENTS. SCHEDULE 8.6, as completed by the Company prior
to the Closing, sets forth those persons who may be deemed "affiliates" of the
Company within the meaning of Rule 145 promulgated under the Securities Act
("RULE 145"). The Company shall provide FAFCO such information and documents as
FAFCO shall reasonably request for purposes of reviewing such list. The Company
shall use its best efforts to deliver or cause to be delivered to FAFCO,
concurrently with the execution of this Agreement (and in each case prior to the
filing of the Registration Statement) from each of the Affiliates of the
Company, an executed Rule 145 Letter and a Pooling Letter. FAFCO and FAFCOSUB
shall be entitled to place appropriate legends on the certificates evidencing
any FAFCO Common Shares to be received by such affiliates of the Company
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for FAFCO Common Shares, consistent with the
terms of such Rule 145 Letters.
8.7 CONFIDENTIALITY AGREEMENTS. The Parties agree that both the Company
Confidentiality Agreement and the FAFCO Confidentiality Agreement, unless and
until terminated by the Access Agreement, shall be hereby amended to provide
that any provision therein which in any manner would be inconsistent with this
Agreement or the transactions contemplated hereby shall terminate as of the date
hereof. The Parties further agree that the Company Confidentiality Agreement
(or, if applicable, those provisions of the Access Agreement obligating FAFCO
and its Subsidiaries) shall terminate as of the Effective Time.
8.8 TAKEOVER STATUTES. If any Takeover Statute is or may become applicable
to the Merger, each of FAFCO and the Company shall take such actions as are
necessary so that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger and such other transactions.
ANNEX A-33
<PAGE>
8.9 INSURANCE MATTERS. The Company will furnish FAFCO with such
information as FAFCO may reasonably request in connection with any application
or notification FAFCO may make to applicable Governmental Entities in connection
with the transactions contemplated hereby. The Company will cooperate with
FAFCO, to the extent FAFCO may reasonably request, to enable it to make such
applications or notifications as promptly as practicable, including without
limitation, providing access to any and all employees of the Company. The
Company shall, or shall cause each of its Subsidiaries to, perform such other
actions to obtain prompt favorable action from any such agency or body as may be
reasonably requested by FAFCO. Notwithstanding the foregoing, the Company shall
not be required to perform such actions that will require an expenditure of
money that is not in the ordinary course of business.
The Company shall timely deliver to FAFCO copies of all regulatory reports
that may be filed with respect to the Company and its Subsidiaries and any
material correspondence between the Company or any of its Subsidiaries with any
state insurance regulatory authority regarding any of the Company or its
Subsidiaries.
SECTION 9
TERMINATION
9.1 EVENTS OF TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (a) by mutual written agreement of the Parties, (b)
on or after the 180th day from the date hereof (or such later date as the
Parties may have agreed to in writing) by FAFCO, by written notice to the
Company, if the conditions set forth in Section 6.1 and Section 6.2 (with the
exception of Section 6.2(h) which is provided for in subsection (k) below)
hereof shall not have been complied with or performed in any material respect
and neither FAFCO nor FAFCOSUB shall have materially breached any of their
representations, warranties, covenants or agreements contained herein, (c) by
FAFCO, by written notice to the Company, if the Board of Directors of the
Company shall have withdrawn or modified in any manner adverse to FAFCO or
FAFCOSUB its approval or recommendation of the Merger, (d) on or after the 180th
day from the date hereof (or such later date as the Parties may have agreed to
in writing) by the Company, by written notice to FAFCO, if the conditions set
forth in Section 6.1 and Section 6.3 hereof shall not have been complied with or
performed in any material respect and the Company shall not have materially
breached any of its representations, warranties, covenants or agreements
contained herein, (e) by any of the Parties by written notice to the other
Parties if the Effective Time shall not have occurred within one month after the
Closing Date, (f) by FAFCO by written notice to the Company, to be received no
later than the date that is ten days (PROVIDED, HOWEVER, that for purposes of
this Section 5.1(f) November 25, 26, 27, 28 and 29, 1998, December 24, 25, 26,
27, 31, 1998 and January 1, 2 and 3, 1999 shall not constitute a "day") after
the later of (i) the date the Chief Executive Officer of the Company shall have
delivered to FAFCO the Schedule Certificate and (ii) the date the Access
Agreement is executed and delivered by the Company in a form acceptable to
FAFCO, if FAFCO is not satisfied with its due diligence review of the Company
and its Subsidiaries, or if the Schedule Certificate is not delivered within 30
days of the date of this Agreement, (g) by FAFCO, by written notice to the
Company, if the Company fails to call the Company Shareholder Meeting on or
prior to the 35th day after the Registration Statement is declared effective by
the SEC, (h) by the Company, by written notice to FAFCO, if a Takeover Proposal
shall have occurred and the Board of Directors of the Company in connection
therewith, after consultation with its legal counsel, withdraws or modifies its
approval and recommendation of this Agreement and the transactions contemplated
hereby after determining that to cause the Company to proceed with the
transactions contemplated hereby would not be consistent with the Board of
Directors' fiduciary duty to the shareholders of the Company, (i) by either
FAFCO or the Company, by written notice to the other, if prior to the 180th day
from the date hereof, a court of competent jurisdiction or other Governmental
Entity shall have issued a final, non-appealable order, decree or ruling, or
taken any other action, having the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger, (j) by either FAFCO or the Company, by
written notice to the other, if at the Company Shareholder Meeting (including
any
ANNEX A-34
<PAGE>
adjournment or postponement thereof), the requisite vote of the shareholders of
the Company in favor of this Agreement and the Merger shall not have been
obtained, (k) by FAFCO, by written notice to the Company, if as of the date the
Registration Statement is declared effective by the SEC and as of the Closing
Date, PriceWaterhouseCoopers LLP, as independent auditors of FAFCO and the
Company, shall not have delivered to FAFCO a letter or letters, in a form
acceptable to FAFCO, to the effect that the Merger qualifies for pooling of
interests accounting treatment if consummated in accordance with this Agreement,
(l) by FAFCO, by written notice to the Company, if, as a condition to receiving
the approval of the Merger by either the FTC or the Antitrust Division or as a
condition to the expiration or termination of any waiting period under the HSR
Act, either FAFCO or the Company shall be required to, or required to agree to,
(i) divest, sell or hold separate or agree to license to such Party's
competitors, before or after the Effective Time, any of FAFCO's, the Company's
or their respective Subsidiaries' businesses, product lines, properties or
assets, (ii) make any material changes or accept material restrictions in the
operation of such businesses, product lines, properties or assets or (iii) make
any changes or accept restrictions in their respective businesses, product
lines, properties, assets or to this Agreement or the transactions contemplated
hereby which would prevent FAFCO from accounting for the Merger as a pooling of
interests under the Pooling Rules or (m) by the Company, by written notice to
FAFCO, if A.G. Edwards & Sons, Inc., the Company's financial advisor, shall not
have delivered to the Company an opinion, dated the date of mailing of the Proxy
Statement/Prospectus, confirming the opinion referred to in Section 3.29.
9.2 EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to Section 9.1, all further obligations of the Parties
hereto under this Agreement (other than pursuant to Sections 5.2(b) (Review of
the Company), 11.2 (Expenses) and 11.5 (Publicity) which shall continue in full
force and effect) shall terminate without further liability or obligation of any
Party to any other Party hereunder; PROVIDED, HOWEVER, that no Party shall be
released from liability hereunder if this Agreement is terminated and the
transaction abandoned by reason of (a) the willful failure of such Party to have
performed its obligations hereunder and (b) any knowing misrepresentation made
by such Party regarding any matter set forth herein.
SECTION 10
NONSURVIVAL OF REPRESENTATIONS
10.1 NON-SURVIVAL OF REPRESENTATIONS. Except for covenants and agreements
which, by their terms, are to be performed after the Effective Time, all
representations, warranties, covenants and agreements of the Parties in this
Agreement shall not survive the Effective Time, and thereafter no Party hereto
and no Subsidiary, officer, director or employee of any such Party, or any
Subsidiary of such Party, shall have any liability whatsoever with respect to
any such representation, warranty or agreement except for liabilities arising
from intentional fraud, willful (tortious or illegal) misconduct or criminal
acts.
SECTION 11
MISCELLANEOUS
11.1 KNOWLEDGE. Except as otherwise set forth herein, where any
representation or warranty contained in this Agreement is expressly qualified by
reference to the best knowledge, information and belief of (a) the Company, the
Company confirms that its chief executive officer, president, principal
accounting officer and general counsel has made due and diligent inquiry as to
the matters that are the subject of such representations and warranties or (b)
FAFCO, FAFCO confirms that its president, chief financial officer and general
counsel has made due and diligent inquiry as to the matters that are the subject
of such representations and warranties.
ANNEX A-35
<PAGE>
11.2 EXPENSES.
(a) Except as provided in 11.2(b), the Parties hereto shall pay all of their
own expenses relating to the transactions contemplated by this Agreement and the
documents described herein, including, without limitation, the fees and expenses
of their respective counsel, auditors and financial advisers.
(b) FAFCO shall pay all expenses associated directly with the filing of the
Registration Statement, the filing required under the HSR Act, the filing of the
listing application described in Section 7.4 and the printing and mailing of the
Prospectus/Proxy Statement, except, for the avoidance of doubt, in the event the
Effective Time does not occur, FAFCO shall not be required to pay the fees and
expenses of the Company's counsel, auditors and financial advisors associated
with the preparation or review of any of the foregoing.
11.3 GOVERNING LAW. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
California applicable to agreements executed and to be performed solely within
such State.
11.4 JURISDICTION; AGENTS FOR SERVICE OF PROCESS. Any judicial proceeding
brought against any of the Parties to this Agreement on any dispute arising out
of this Agreement or any matter related hereto may be brought in the courts of
the State of California, or in the United States District Court for the Central
District of California, and, by execution and delivery of this Agreement, each
of the Parties to this Agreement accepts the exclusive jurisdiction of such
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement.
11.5 PUBLICITY. Except as otherwise required by law, neither FAFCO nor the
Company shall issue any press release or make any other public statement, in
each case relating to, connected with or arising out of this Agreement or the
matters contained herein, without obtaining the prior consent of the other to
the contents and the manner of presentation and publication thereof, which
consent shall not be unreasonably or untimely withheld.
11.6 NOTICES. Any notice or other communication required or permitted
under this Agreement shall be sufficiently given if delivered in person or sent
by facsimile or by registered or certified mail, postage prepaid, addressed as
follows:
if to FAFCO or FAFCOSUB, to:
The First American Financial Corporation
114 East Fifth Street
Santa Ana, California 92702
Telephone: 714-558-3211
Facsimile: 714-647-2242
Attention: Parker S. Kennedy
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Telephone: 213-620-7700
Facsimile: 213-687-0758
Attention: Neil W. Rust
if to the Company, to:
National Information Group
395 Oyster Point Boulevard, Suite 500
San Francisco, California 94080
ANNEX A-36
<PAGE>
Telephone: 650-872-6772
Facsimile: 650-872-4777
Attention: Mark A. Speizer
with a copy to:
Morgan, Lewis & Bockius LLP
300 S. Grand Avenue, Suite 2200
Los Angeles, California 90071
Telephone: 213-612-2630
Facsimile: 213-612-2554
Attention: John F. Hartigan
or such other address or number as shall be furnished in writing by any such
Party, and such notice or communication shall, if properly addressed, be deemed
to have been given as of the date so delivered, sent by facsimile or three
business days after deposit into the U.S. mail postage prepaid.
11.7 PARTIES IN INTEREST. This Agreement may not be transferred, assigned,
pledged or hypothecated by any Party hereto. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
11.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
11.9 ENTIRE AGREEMENT. This Agreement and the other documents referred to
herein which form a part hereof, contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter. The Parties acknowledge and agree
that there are no, and there shall not be any, oral agreements between or among
any of the Parties and that for any agreement to be binding such agreement must
be in a writing executed by each Party.
11.10 AMENDMENTS. This Agreement may be amended by the Parties, by action
taken or authorized by their respective Board of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the
shareholders of FAFCOSUB and the Company, but, after any such approval by such
shareholders, no amendment shall be made which by law requires further approval
by such shareholders without such further approval. Any such amendment may not
be made orally, but only by an agreement in writing signed by FAFCO, FAFCOSUB
and the Company.
11.11 EXTENSION; WAIVER. At any time prior to the Effective Time, the
Parties may, to the extent legally allowed, (i) extend the time for performance
of any of the obligations or other acts of the other parties hereto contained
here, (ii) waive any inaccuracies in the representations and warranties of the
other Parties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions of the other
Parties contained herein. Any agreement on the part of a Party to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such Party.
11.12 SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
11.13 THIRD PARTY BENEFICIARIES. Except as expressly provided herein, each
Party hereto intends that this Agreement shall not benefit or create any right
or cause of action in or on behalf of any Person other than the Parties hereto
and the shareholders of the Company.
ANNEX A-37
<PAGE>
IN WITNESS WHEREOF, each of FAFCO, FAFCOSUB and the Company has caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized, all as of the day and year first above written.
<TABLE>
<S> <C> <C>
THE FIRST AMERICAN FINANCIAL CORPORATION
By: /s/ PARKER S. KENNEDY
-----------------------------------------
Name: Parker S. Kennedy
Title: PRESIDENT
PEA SOUP ACQUISITION CORP.
By: /s/ PARKER S. KENNEDY
-----------------------------------------
Name: Parker S. Kennedy
Title: PRESIDENT
NATIONAL INFORMATION GROUP
By: /s/ MARK A. SPEIZER
-----------------------------------------
Name: Mark A. Speizer
Title: CHAIRMAN AND CEO
</TABLE>
ANNEX A-38
<PAGE>
SCHEDULES
YOU MAY OBTAIN A COPY OF THE SCHEDULES TO THE AGREEMENT AND PLAN OF MERGER
AT NO COST BY WRITING TO NATIONAL AT NATIONAL INFORMATION GROUP, 395 OYSTER
POINT BOULEVARD, SUITE 500, SAN FRANCISCO, CALIFORNIA 94080, ATTENTION: MR.
ROBERT P. BARBAROWICZ, OR BY TELEPHONING NATIONAL AT (650) 872-6772. If you
would like to request the schedules from National, please do so by
[ ] to receive them before the National shareholders' meeting.
National will send such documents by first-class mail within one business day of
receiving any such request.
ANNEX A-SCHEDULES
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
AGREEMENT OF MERGER
BY AND AMONG
THE FIRST AMERICAN FINANCIAL CORPORATION,
PEA SOUP ACQUISITION CORP.
AND
NATIONAL INFORMATION GROUP
DATED AS OF , 1999
- --------------------------------------------------------------------------------
<PAGE>
AGREEMENT OF MERGER, dated as of , 1999 (the "MERGER
AGREEMENT"), is made and entered into by and among The First American Financial
Corporation, a California corporation ("FAFCO"), Pea Soup Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of FAFCO ("FAFCOSUB"), and
National Information Group, a California corporation (the "COMPANY"). The
Company and FAFCOSUB are sometimes hereinafter referred to as the "CONSTITUENT
CORPORATIONS."
W I T N E S S E T H:
WHEREAS, FAFCO directly owns the one outstanding share of stock of FAFCOSUB;
WHEREAS, FAFCO and the Constituent Corporations have previously entered into
an Agreement and Plan of Merger, dated as of November 17, 1998 (the "AGREEMENT
AND PLAN OF MERGER"), providing for certain representations, warranties and
agreements in connection with the transactions contemplated hereby; and
WHEREAS, the respective boards of directors of the Constituent Corporations
deem it advisable and in the best interests of the Constituent Corporations and
in the best interest of the shareholders of the Constituent Corporations that
FAFCOSUB be merged with and into the Company (the "MERGER") so that the Company
shall be the surviving corporation of the Merger.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1
THE MERGER
1.1 MERGER. In the Merger, (i) FAFCOSUB shall be merged with and into the
Company, (ii) the separate existence of FAFCOSUB shall thereupon cease and (iii)
the Company shall be the surviving corporation (the "SURVIVING CORPORATION") and
shall continue its corporate existence, with all of its purposes, objects,
rights, privileges, powers, immunities and franchises, under the laws of the
State of California unaffected and unimpaired by the Merger.
1.2 THE SURVIVING CORPORATION. The Surviving Corporation shall succeed to
all of the rights, privileges, immunities and franchises of FAFCOSUB, all of the
properties and assets of FAFCOSUB and all of the debts, choses in action and
other interests due or belonging to FAFCOSUB and shall be subject to, and
responsible for, all of the debts, liabilities and obligations of FAFCOSUB with
the effect set forth in the California General Corporation Law.
1.3 FURTHER ACTION. If at any time after the consummation of the Merger
any further action is necessary or desirable to carry out the purposes of this
Merger Agreement or to vest the Surviving Corporation with the full right, title
and possession to all assets, property, rights, privileges, immunities, powers
and franchises of FAFCOSUB, the officers and directors of the Surviving
Corporation are fully authorized in the name of either or both of the
Constituent Corporations or otherwise to take all such action.
SECTION 2
CORPORATE GOVERNANCE MATTERS
2.1 ARTICLES OF INCORPORATION. Upon the consummation of the Merger, the
Articles of Incorporation of the Company, as in effect immediately prior to the
consummation of the Merger, shall be the Articles of Incorporation of the
Surviving Corporation.
ANNEX A-EXHIBIT A-1
<PAGE>
SECTION 3
MANNER OF CONVERTING SHARES OF THE CONSTITUENT CORPORATIONS
3.1 FAFCOSUB STOCK. Upon the consummation of the Merger, each share of
common stock of FAFCOSUB outstanding prior to the consummation of the Merger
shall automatically be converted into and become one share of common stock of
the Surviving Corporation, and each certificate representing shares of common
stock of FAFCOSUB shall, without any action on the part of the holder thereof,
be deemed to represent the same number of shares of common stock of the
Surviving Corporation.
3.2 CONVERSION OF COMPANY COMMON STOCK. Except as provided in Section 3.5,
upon the consummation of the Merger, each share of common stock of the Company
outstanding immediately prior to the consummation of the Merger shall, without
any action on the part of the holders thereof, be converted into the right to
receive sixty-seven hundredths (0.67) of a common share, no par value, of FAFCO
(each, a "SHARE" and collectively, the "SHARES").
3.3 CLOSING OF THE COMPANY'S STOCK LEDGER. At and after the consummation
of the Merger, all holders of certificates representing shares of common stock
of the Company that were outstanding immediately prior to the consummation of
the Merger shall cease to have any rights as shareholders of the Company. At the
close of business on the day the Merger is consummated the stock ledger of the
Company shall be closed with respect to all shares of such Company Common Stock.
3.4 EXCHANGE OF COMPANY STOCK CERTIFICATES. AT OR PRIOR TO THE CONSUMMATION
OF THE MERGER, FAFCO SHALL DEPOSIT WITH THE FIRST AMERICAN TRUST COMPANY (THE
"EXCHANGE AGENT"), in trust for the holders of certificates (a "COMPANY STOCK
CERTIFICATE") which immediately prior to the consummation of the Merger
represented shares of the common stock of the Company, a certificate or
certificates representing the number of Shares which each shareholder of the
Company is to receive in the Merger. Upon surrender for cancellation to the
Exchange Agent of a Company Stock Certificate, together with the letter of
transmittal provided to each Company shareholder and duly executed and completed
in accordance with the instructions thereon, the Exchange Agent shall promptly
transfer to such shareholder the Shares to which such shareholder is entitled
pursuant to Section 3.2. Until surrendered as contemplated by this Section 3.4,
each Company Stock Certificate shall be deemed, from and after the consummation
of the Merger, to represent only the right to receive Shares (and cash in lieu
of any fractional Share as contemplated by Section 3.5), pursuant to this Merger
Agreement. If any Company Stock Certificate shall have been lost, stolen or
destroyed, the Exchange Agent shall issue a certificate representing Shares with
respect to such lost, stolen or destroyed Company Stock Certificate in
accordance with this Merger Agreement upon the making of an affidavit of that
fact by the owner of such lost, stolen or destroyed Company Stock Certificate;
PROVIDED, HOWEVER, that the Surviving Corporation may require as a condition to
the delivery of such certificate that the owner of such lost, stolen or
destroyed Company Stock Certificate deliver to the Surviving Corporation a bond
in such sum as is customary or otherwise indemnify the Surviving Corporation in
a manner satisfactory to the Surviving Corporation against any claim that may be
made against the Surviving Corporation with respect to the Company Stock
Certificate claimed to have been lost, stolen or destroyed.
3.5 NO FRACTIONAL SHARES. No fractional Shares shall be issued in
connection with the Merger, and no certificates for any such fractional Shares
shall be issued. In lieu of such fractional Shares, any holder of Company Common
Stock who would otherwise be entitled to receive a fraction of a Share shall,
upon surrender of such holder's Company Stock Certificate(s), be paid in cash in
the form of a check drawn on FAFCO in an amount (rounded to the nearest cent)
equal to the product of (i) such fraction and (ii) the average closing price of
a single Share, as reported on the New York Stock Exchange, for the ten trading
days ending on the trading day that is two trading days prior to the
consummation of the Merger.
ANNEX A-EXHIBIT A-2
<PAGE>
SECTION 4
DELAWARE REQUIREMENTS
4.1 CERTIFICATE OF MERGER. This Merger Agreement shall constitute the
certificate of merger contemplated by Section 252(c) of the Delaware General
Corporation Law ("DGCL").
4.2 AGREEMENT AND PLAN OF MERGER. The Agreement and Plan of Merger shall
be on file at the office of the Surviving Corporation at 395 Oyster Point
Boulevard, Suite 500, South San Francisco, California 94080 and will be
furnished by the Surviving Corporation, on request and without cost, to any
shareholder of any Constituent Corporation.
4.3 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. Each of the Company and
FAFCOSUB, on their own behalf and on behalf of the Surviving Corporation,
acknowledges and agrees that the Surviving Corporation may be served with
process in Delaware in any proceeding for enforcement of any obligation of any
Constituent Corporation, as well as for the enforcement of any obligation of any
Constituent Corporation arising from the Merger, including any suit or other
proceeding to enforce the right of any stockholders as determined in appraisal
proceedings pursuant to Section 262 of the DGCL. Each of the Company and
FAFCOSUB, on its own behalf and on behalf of the Surviving Corporation, hereby
irrevocably appoint the Secretary of State of Delaware as its agent to accept
service of process in any such suit or other proceedings. Until further notified
in writing, each of the Company and FAFCOSUB, on its own behalf and on behalf of
the Surviving Corporation, direct the Secretary of State of Delaware to deliver
a copy of such process to it in care of The First American Financial
Corporation, at 114 East Fifth Street, Santa Ana, California 92701.
SECTION 5
MISCELLANEOUS
5.1 TERMINATION.
(a) Notwithstanding the approval of this Merger Agreement by the
shareholders of the Company and FAFCOSUB, this Merger Agreement may be
terminated at any time prior to the consummation of the Merger by mutual
agreement of the parties to this Merger Agreement.
(b) Notwithstanding the approval of this Merger Agreement by the
shareholders of the Company and FAFCOSUB, this Merger Agreement shall terminate
automatically in the event that the Agreement and Plan of Merger shall be
terminated as provided therein.
(c) In the event of the termination of this Merger Agreement as provided
above, this Merger Agreement shall become void and there shall be no liability
on the part of the Company, FAFCOSUB or FAFCO or the Company's, FAFCOSUB's or
FAFCO's respective officers or directors, except as otherwise provided in the
Agreement and Plan of Merger.
5.2 AMENDMENT. This Merger Agreement may be amended by the parties hereto
any time before or after approval hereof by the shareholders of the Company or
FAFCOSUB, but after such approval, no amendment shall be made which by law
requires the further approval of such shareholders without obtaining such
approval. This Merger Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
5.3 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
[INTENTIONALLY LEFT BLANK]
ANNEX A-EXHIBIT A-3
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement of Merger
as of the date first written above.
THE FIRST AMERICAN FINANCIAL
CORPORATION
<TABLE>
<S> <C> <C>
By: -----------------------------------------
Parker S. Kennedy
PRESIDENT
By:
-----------------------------------------
Mark R Arnesen
SECRETARY
PEA SOUP ACQUISITION CORP.
By:
-----------------------------------------
Parker S. Kennedy
PRESIDENT
By:
-----------------------------------------
Mark R Arnesen
SECRETARY
NATIONAL INFORMATION GROUP
By:
-----------------------------------------
Mark A. Speizer
CHAIRMAN OF THE BOARD
By:
-----------------------------------------
Robert P. Barbarowicz
EXECUTIVE VICE PRESID
</TABLE>
ANNEX A-EXHIBIT A-4
<PAGE>
EXHIBIT B
[NATIONAL INFORMATION GROUP
ARTICLES OF INCORPORATION]
YOU MAY OBTAIN A COPY OF THIS DOCUMENT AT NO COST BY WRITING TO NATIONAL AT
NATIONAL INFORMATION GROUP, 395 OYSTER POINT BOULEVARD, SUITE 500, SAN
FRANCISCO, CALIFORNIA 94080, ATTENTION: MR. ROBERT P. BARBAROWICZ, OR BY
TELEPHONING NATIONAL AT (650) 872-6772. If you would like to request documents
from National, please do so by [ ] to receive them before the
National shareholders' meeting. National will send such documents by first-class
mail within one business day of receiving any such request.
ANNEX A-EXHIBIT B-1
<PAGE>
EXHIBIT C
[NATIONAL INFORMATION GROUP
BY-LAWS]
YOU MAY OBTAIN A COPY OF THIS DOCUMENT AT NO COST BY WRITING TO NATIONAL AT
NATIONAL INFORMATION GROUP, 395 OYSTER POINT BOULEVARD, SUITE 500, SAN
FRANCISCO, CALIFORNIA 94080, ATTENTION: MR. ROBERT P. BARBAROWICZ, OR BY
TELEPHONING NATIONAL AT (650) 872-6772. If you would like to request documents
from National, please do so by [ ] to receive them before the
National shareholders' meeting. National will send such documents by first-class
mail within one business day of receiving any such request.
ANNEX A-EXHIBIT C-1
<PAGE>
EXHIBIT D
- --------------------------------------------------------------------------------
AFFILIATE AGREEMENT
BY AND BETWEEN
THE FIRST AMERICAN FINANCIAL CORPORATION,
AND
THE SHAREHOLDER OF NATIONAL INFORMATION GROUP SET FORTH BELOW
DATED AS OF , 199
- --------------------------------------------------------------------------------
<PAGE>
AFFILIATE AGREEMENT (the "AGREEMENT") entered into as of , 199 ,
by and between The First American Financial Corporation, a California
corporation ("FAFCO), and the shareholder whose signature, name and address
appears below (the "SHAREHOLDER") of National Information Group, a California
corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, FAFCO, Pea Soup Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of FAFCO ("FAFCOSUB"), and the Company have entered into
an Agreement and Plan of Merger dated as of November 17, 1998 (the "MERGER
AGREEMENT"; capitalized terms used herein, but not otherwise defined herein,
shall have the meanings given them in the Merger Agreement), pursuant to which
FAFCOSUB will merge with and into the Company (the "MERGER");
WHEREAS, upon the consummation of the Merger and in connection therewith,
the Shareholder will become the owner of FAFCO Common shares, par value $1.00
(the "FAFCO SHARES"); and
WHEREAS, it is a condition precedent to FAFCO's willingness to enter into
the Merger Agreement and consummate the Merger that the Shareholder shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement, and hereinafter in
this Agreement, it is hereby agreed as follows:
12. AFFILIATE STATUS; AGREEMENTS.
(a) The Shareholder hereby acknowledges that he may be deemed to be an
"affiliate" of the Company within the meaning of Rule 145 under the Securities
Act and agrees that he will not offer, sell, pledge, hypothecate, transfer or
otherwise dispose (each, a "Disposition"; the terms "Disposed" and "Dispose"
shall have correlative meanings) of any of FAFCO Shares unless at that time
either:
(i) such Disposition shall be permitted pursuant to the provisions of
Rule 145(d) under the Securities Act;
(ii) counsel representing the Shareholder, which counsel shall be
reasonably satisfactory to FAFCO, shall have advised FAFCO in a
written opinion letter satisfactory to FAFCO and FAFCO's counsel
and upon which FAFCO and its counsel may rely, that no registration
under the Securities Act would be required in connection with the
proposed Disposition;
(iii) a registration statement under the Securities Act covering the
FAFCO Shares proposed to be Disposed of, describing the manner and
terms of the proposed Disposition, and containing a current
prospectus under the Securities Act, shall be effective under the
Securities Act; or
(iv) an authorized representative of the SEC shall have rendered written
advice to the Shareholder (sought by the Shareholder or counsel to
the Shareholder, with a copy thereof and of all other related
communications delivered to FAFCO) to the effect that the
Commission would take no action, or that the staff of the
Commission would not recommend that the Commission take action,
with respect to the proposed Disposition if consummated.
The Shareholder acknowledges and agrees that FAFCO is under no obligation to
register the Disposition of FAFCO Shares by the Shareholder on his behalf or to
take any other action necessary in order to make compliance with an exemption
from registration available.
(b) The Shareholder acknowledges and agrees that until a public sale of
FAFCO Shares represented by such certificate has been made in compliance with
one of the alternative conditions set forth in the subparagraphs of paragraph
(a) of this Section 1, all certificates representing FAFCO Shares deliverable to
the Shareholder pursuant to the Merger Agreement and in connection with the
Merger and any
ANNEX A-EXHIBIT D-1
<PAGE>
certificates subsequently issued with respect thereto or in substitution
therefor shall bear a legend substantially as follows ("RULE 145 CERTIFICATES"):
"The shares represented by this certificate were issued in a transaction
to which Rule 145 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933 applies. The shares represented by this
certificate may not be offered, sold, pledged, hypothecated, transferred
or otherwise disposed of except in compliance with paragraph (d) of Rule
145."
FAFCO, in its sole discretion, may cause stop transfer orders to be placed with
its transfer agent(s) with respect to the Rule 145 Certificates, but not as to
the Rule 145 Certificates for any part of FAFCO Shares as to which said legend
is no longer appropriate as provided above.
(c) The Shareholder agrees to observe and comply with the Securities Act and
the general rules and regulations thereunder, as now in effect and as from time
to time amended and including those hereafter enacted or promulgated, in
connection with any Disposition of FAFCO Shares or any part thereof. In the
event of a sale or other disposition by the undersigned of FAFCO Shares pursuant
to Rule 145, the Shareholder will supply FAFCO with evidence of compliance with
such rule, in the form of a broker's letter in customary form or other evidence
reasonably satisfactory to FAFCO.
13. FAFCO REPORTS. From and after the Effective Time and for so long as
necessary in order to permit the Shareholder to sell FAFCO Shares pursuant to
Rule 145 and, to the extent applicable, Rule 144 under the Securities Act, FAFCO
will use its best efforts to file on a timely basis all reports required to be
filed by it pursuant to Section 13 of the Exchange Act so that the Shareholder
may sell the FAFCO Shares pursuant to the terms and conditions of Rule 145 and
the applicable provisions of Rule 144.
14. NO DISSENT. The Shareholder agrees that he will not dissent from the
Merger and will not seek appraisal rights under the California Code.
15. NO WAIVER. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing.
16. NOTICES. All notices, requests, demands or other communications which
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
if to FAFCO, to:
The First American Financial Corporation
114 East Fifth Street
Santa Ana, California 92701
Attention: President
Facsimile: 714-647-2242
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Attention: Neil W. Rust
Facsimile: 213-687-0758
if to the Shareholder, at the address set forth below the Shareholder's
signature on the signature page hereof, or, with respect to both FAFCO and the
Shareholder, to such other address as such party may designate for itself by
notice given as herein provided.
ANNEX A-EXHIBIT D-2
<PAGE>
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument. This
Agreement shall be enforceable by, and shall inure to the benefit of and be
binding upon, the parties hereto and their respective successors and assigns.
18. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. This Agreement may not be transferred, assigned, pledged
or hypothecated by any party hereto or their respective heirs, executors,
administrators, successors and assigns.
19. GOVERNING LAW. THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT,
AND ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY WITHIN
SUCH STATE.
20. SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
21. ACKNOWLEDGMENT. The Shareholder acknowledges that (i) he has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the Disposition of FAFCO Shares and (ii) the receipt by FAFCO of
this letter is an inducement and a condition to FAFCO's obligations to
consummate the Merger.
[INTENTIONALLY LEFT BLANK]
ANNEX A-EXHIBIT D-3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
SHAREHOLDER:
----------------------------------------------------------------------------
Name:
Street:
City:
State:
Zip Code:
THE FIRST AMERICAN FINANCIAL
CORPORATION
By:
------------------------------------------------------------------------
Name: Parker S. Kennedy
Title: President
ANNEX A-EXHIBIT D-4
<PAGE>
EXHIBIT E
- --------------------------------------------------------------------------------
POOLING AGREEMENT
BY AND BETWEEN
THE FIRST AMERICAN FINANCIAL CORPORATION,
AND
THE SHAREHOLDER OF NATIONAL INFORMATION GROUP SET FORTH BELOW
DATED AS OF , 199
- --------------------------------------------------------------------------------
<PAGE>
POOLING AGREEMENT (the "AGREEMENT") entered into as of , 199 ,
by and between The First American Financial Corporation, a California
corporation ("FAFCO), and the shareholder whose signature, name and address
appears below (the "SHAREHOLDER") of National Information Group, a California
corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, FAFCO, Pea Soup Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of FAFCO ("FAFCOSUB"), and the Company have entered into
an Agreement and Plan of Merger dated as of November 17, 1998 (the "MERGER
AGREEMENT"; capitalized terms used herein, but not otherwise defined herein,
shall have the meanings given them in the Merger Agreement), pursuant to which
FAFCOSUB will merge with and into the Company (the "MERGER");
WHEREAS, upon the consummation of the Merger and in connection therewith,
the Shareholder will become the owner of FAFCO Common shares, par value $1.00
(the "FAFCO SHARES"); and
WHEREAS, it is a condition precedent to FAFCO's willingness to enter into
the Merger Agreement and consummate the Merger that the Shareholder execute and
deliver this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement, and hereinafter in
this Agreement, it is hereby agreed as follows:
22. AFFILIATE STATUS. The Shareholder hereby acknowledges that he may be
deemed to be an "affiliate" of the Company within the meaning of Rule 145 under
the Securities Act and as such term is used in and for purposes of the Pooling
Rules.
23. COVENANT. The Shareholder represents to, and covenants with, FAFCO
that he will not, during the 30 days prior to the Effective Time, sell, transfer
or otherwise dispose of, or reduce any risk relative to, any securities of FAFCO
or the Company, and the undersigned will not sell, transfer or otherwise dispose
of, or reduce any risk relative to, the FAFCO Shares received by the Shareholder
in the Merger or any other FAFCO Common Shares until after such time as results
covering at least 30 days of operations of FAFCO (including the combined
operations of FAFCO and the Company and its Subsidiaries) have been published by
FAFCO in the form of a quarterly earnings report, an effective registration
statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or
any other public filing or announcement which includes such results of
operations.
24. NO WAIVER. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing.
25. NOTICES. All notices, requests, demands or other communications which
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
if to FAFCO, to:
The First American Financial Corporation
114 East Fifth Street
Santa Ana, California 92701
Attention: President
Facsimile: 714-647-2242
ANNEX A-EXHIBIT E-1
<PAGE>
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Attention: Neil W. Rust
Facsimile: 213-687-0758
if to the Shareholder, at the address set forth below the Shareholder's
signature on the signature pages hereof, or, with respect to both FAFCO and the
Shareholder, to such other address as such party may designate for itself by
notice given as herein provided
26. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument. This
Agreement shall be enforceable by, and shall inure to the benefit of and be
binding upon, the parties hereto and their respective successors and assigns.
27. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and insure to the benefit of the parties hereto and their respective successors
and permitted assigns. This Agreement may not be transferred, assigned, pledged
or hypothecated by any party hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
28. GOVERNING LAW. THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT,
AND ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY WITHIN
SUCH STATE.
29. SEVERABILITY. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
30. ACKNOWLEDGMENT. The Shareholder acknowledges that (i) he has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of FAFCO
Shares and (ii) the receipt by FAFCO of this letter is an inducement and a
condition to FAFCO's obligations to consummate the Merger.
ANNEX A-EXHIBIT E-2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
SHAREHOLDER:
----------------------------------------------------------------------------
Name:
Street:
City:
State:
Zip Code:
THE FIRST AMERICAN FINANCIAL
CORPORATION
By:
------------------------------------------------------------------------
Name: Parker S. Kennedy
Title: PRESIDENT
ANNEX A-EXHIBIT E-3
<PAGE>
ANNEX B
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "AMENDMENT"),
dated as of March 15, 1999, by and among The First American Financial
Corporation, a California corporation ("FAFCO"), Pea Soup Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of FAFCO ("FAFCOSUB"), and
National Information Group, a California corporation (the "COMPANY"; FAFCO,
FAFCOSUB and the Company, collectively, the "PARTIES"), amends the Agreement and
Plan of Merger, dated as of November 17, 1998, by and among FAFCO, FAFCOSUB and
the Company (the "AGREEMENT").
R E C I T A L S
WHEREAS, the Board of Directors of each of the Parties have each determined
that it is in the best interest of their respective companies and the
shareholders of their respective companies that the Agreement be amended as set
forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
Parties agree as follows.
T E R M S
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings given thereto in the Agreement.
2. AMENDMENT TO THE AGREEMENT. The Agreement is hereby amended as follows.
2.1. Section 6.2(i) of the Agreement is amended by deleting the text
thereof in its entirety and inserting the text "[Intentionally omitted.]" in
place thereof.
2.2. Section 9.1 of the Agreement is amended by deleting the text
"180th" in each place it appears and inserting the text "240th" in each such
place.
3. REPRESENTATIONS AND WARRANTIES.
3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to FAFCO and FAFCOSUB that, as of the date hereof
and after giving effect to the provisions hereof, (a) each of the
representations and warranties contained in Sections 3.1 and 3.2 of the
Agreement is true and correct in all material respects as if made on and as
of the date hereof, (b) it is in compliance with all of the terms and
provisions set forth in the Agreement, (c) the Agreement is in full force
and effect and constitutes its legal, valid and binding obligation
enforceable against it in accordance with its terms and (d) it has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of this Amendment.
3.2. REPRESENTATIONS AND WARRANTIES OF FAFCO AND FAFCOSUB. Each of
FAFCO and FAFCOSUB represents and warrants to the Company that, as of the
date hereof and after giving effect to the provisions hereof, (a) each of
the representations and warranties contained in Sections 4.1 of the
Agreement is true and correct in all material respects as if made on and as
of the date hereof, (b) it is in compliance with all of the terms and
provisions set forth in the Agreement, (c) the Agreement is in full force
and effect and constitutes its legal, valid and binding obligation
enforceable against it in accordance with its terms and (d) it has taken all
necessary corporate action to authorize the execution, delivery and
performance by it of this Amendment.
ANNEX B-1
<PAGE>
4. MISCELLANEOUS.
4.1. Except as expressly modified by this Amendment, the Agreement shall
continue to be and remain in full force and effect in accordance with its
terms. Any future reference to the Agreement and any document or instrument
delivered in connection therewith shall, from and after the Effective Date,
be deemed to be a reference to the Agreement as modified by this Amendment.
4.2. Any consent, amendment or modification specified herein shall be
limited and interpreted precisely as written and shall not (a) be a consent
to or waiver or modification of any other term or condition of the Agreement
or any other instrument or agreement referred to therein, (b) prejudice any
right or rights which any Party may now have or may have in the future under
or in connection with the Agreement or any other instrument or agreement
referred to therein or (c) be extended beyond the terms specifically set
forth herein.
4.3. This Amendment may be executed in any number of counterparts, each
of which shall constitute an original, but all of which when taken together
shall constitute but one instrument.
4.4. The headings of the several sections of this Amendment are inserted
for convenience only and shall not in any way affect the meaning or
construction of any provision of this Amendment.
4.5. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF CALIFORNIA.
* * *
IN WITNESS WHEREOF, each Party has caused its corporate name to be hereunto
subscribed by its officer thereunto duly authorized, all as of the day and year
first above written.
<TABLE>
<S> <C> <C>
THE FIRST AMERICAN FINANCIAL CORPORATION
By: /s/ PARKER S. KENNEDY
-----------------------------------------
Parker S. Kennedy
PRESIDENT
PEA SOUP ACQUISITION CORP.
By: /s/ PARKER S. KENNEDY
-----------------------------------------
Parker S. Kennedy
PRESIDENT
NATIONAL INFORMATION GROUP
By: /s/ MARK A. SPEIZER
-----------------------------------------
Mark A. Speizer
CHAIRMAN AND CEO
</TABLE>
ANNEX B-2
<PAGE>
ANNEX D
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
1300. [RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED].--(a) If the approval of the outstanding shares (Section
152) of a corporation is required for a reorganization under subdivisions (a)
and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the
corporation entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the shareholder
which are dissenting shares as defined in subdivision (b). The fair market value
shall be determined as of the day before the first announcement of the terms of
the proposed reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; PROVIDED, HOWEVER, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and PROVIDED,
FURTHER, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) or paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; PROVIDED, HOWEVER, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case were
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
1301. [DEMAND FOR PURCHASE].--(a) If, in the case of a reorganization, any
shareholders of a corporation have a right under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivisions (b) thereof, to require
the corporation to purchase their shares for cash, such corporation shall mail
to each such shareholder a notice of the approval of the reorganization by its
outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the
ANNEX D-1
<PAGE>
shareholder desires to exercise the shareholder's right under such sections. The
statement of price constitutes an offer by the corporation to purchase at the
price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302. [ENDORSEMENT OF SHARES].--Within 30 days after the date on which
notice of the approval by the outstanding shares or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder
shall submit to the corporation at its principal office or at the office of any
transfer agent thereof, (a) if the shares are certificated securities, the
shareholder's certificates representing any shares which the shareholder demands
that the corporation purchase, to be stamped or endorsed with a statement that
the shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed or (b) if the shares are
uncertificated securities, written notice of the number of shares which the
shareholder demands that the corporation purchase. Upon subsequent transfers of
the dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
1303. [AGREED PRICE--TIME FOR PAYMENT].--(a) If the corporation and the
shareholder agree that the shares are dissenting shares and agree upon the price
of the shares, the dissenting shareholder is entitled to the agreed price with
interest thereon at the legal rate on judgments from the date of the agreement.
Any agreements fixing the fair market value of any dissenting shares as between
the corporation and the holders thereof shall be filed with the secretary of the
corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304. [DISSENTER'S ACTION TO ENFORCE PAYMENT].--(a) If the corporation
denies that the shares are dissenting shares, or the corporation and the
shareholder fail to agree upon the fair market values of the shares, then the
shareholder demanding purchase of such shares as dissenting shares or any
interested corporation, within six months after the date on which notice of the
approval by the outstanding shares (Section 152) or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder, but not
thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
ANNEX D-2
<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. [APPRAISER'S REPORT--PAYMENT--COSTS].--(a) If the court appoints an
appraiser or appraisers, they shall proceed forthwith to determine the fair
market value per share. Within the time fixed by the court, the appraisers, or a
majority of them, shall make and file a report in the office of the clerk of the
court. Thereupon, on the motion of any party, the report shall be submitted to
the court and considered on such evidence as the court considers relevant. If
the court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. [DISSENTING SHAREHOLDER'S STATUS AS CREDITOR].--To the extent that
the provisions of Chapter 5 prevent the payment to any holders of dissenting
shares of their fair market value, they shall become creditors of the
corporation for the amount thereof together with interest at the legal rate on
judgments until the date of payment, but subordinate to all other creditors in
any liquidation proceeding, such debt to be payable when permissible under the
provisions of Chapter 5.
1307. [DIVIDENDS PAID AS CREDIT AGAINST PAYMENT].--Cash dividends declared
and paid by the corporation upon the dissenting shares after the date of
approval of the reorganization by the outstanding shares (Section 152) and prior
to payment for the shares by the corporation shall be credited against the total
amount to be paid by the corporation therefor.
1308. [CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS].--
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
ANNEX D-3
<PAGE>
1309. [TERMINATION OF DISSENTING SHAREHOLDER STATUS].--Dissenting shares
lose their status as dissenting shares and the holders thereof cease to be
dissenting shareholders and cease to be entitled to require the corporation to
purchase their shares upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. [SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION].--If
litigation is instituted to test the sufficiency of regularity of the votes of
the shareholder in authorizing a reorganization, any proceedings under Section
1304 and 1305 shall be suspended until final determination of such litigation.
1311. [EXEMPT SHARES].--This chapter, except Section 1312, does not apply
to classes of shares whose terms and provisions specifically set forth the
amount to be paid in respect to such shares in the event of a reorganization or
merger.
1312. [ATTACKING VALIDITY OF REORGANIZATION OR MERGER].--(a) No shareholder
of a corporation who has a right under this chapter to demand payment of cash
for the shares held by the shareholder shall have any right at law or in equity
to attack the validity of the reorganization or short-form merger, or to have
the reorganization or short-form merger set aside or rescinded, except in an
action to test whether the number of shares required to authorize or approve the
reorganization have been legally voted in favor thereof; but any holder of
shares of a class whose terms and provisions specifically set forth the amount
to be paid in respect to them in the event of a reorganization or short-form
merger is entitled to payment in accordance with those terms and provisions or,
if the principal terms of the reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in accordance with the
terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days,
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or
ANNEX D-4
<PAGE>
short-form merger set aside or rescinded, (1) a party to a reorganization or
short-form merger which controls another party to the reorganization or
short-form merger shall have the burden of proving that the transaction is just
and reasonable as to the shareholders of the controlled party, and (2) a person
who controls two or more parties to a reorganization shall have the burden of
proving that the transaction is just and reasonable as to the shareholders of
any party so controlled.
ANNEX D-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROXY/STATEMENT 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 set forth 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 Restated 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 shall 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, Chief Financial Officer, 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,1997 Directors' Stock Plan,
401(k) Savings Plan, Pension Plan, Pension Restoration Plan and Employee Profit
and Stock Ownership Plan (for purposes of this paragraph, 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."
II-1
<PAGE>
The Registrant's Deferred Compensation Plan (for purposes of this paragraph,
the "Plan") provides that, "To the extent permitted by applicable state law, the
Company shall indemnify and save harmless the Committee and each member thereof,
the Board of Directors and any delegate of the Committee who is an employee of
the Company against any and all expenses, liabilities and claims, including
legal fees to defend against such liabilities and claims arising out of their
discharge in good faith of responsibilities under or incident to the Plan, other
than expenses and liabilities arising out of willful misconduct. This indemnity
shall not preclude such further indemnities as may be available under insurance
purchased by the Company or provided by the Company under any bylaw, agreement
or otherwise, as such indemnities are permitted under state law."
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 for
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 it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
2.1. Agreement and Plan of Merger, dated as of November 17, 1998, among The First American
Financial Corporation, National Information Group, and Pea Soup Acquisition Corp.
(included as Annex A to the proxy statement/prospectus contained in this Registration
Statement).
2.2. First Amendment to Agreement and Plan of Merger, dated as of March 15, 1999, among
The First American Financial Corporation, National Information Group, and Pea Soup
Acquisition Corp. (included as Annex B to the proxy statement/prospectus contained in
this Registration Statement).
4.1. Description of the Registrant's capital stock in Article Sixth of the Restated
Articles of Incorporation of The First American Financial Corporation, incorporated
by reference to Exhibit 3.1 of the Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 dated July 28, 1998.
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 White & Case LLP regarding legality.
8. Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.
10.1. Voting Agreement, dated as of November 17, 1998, among the Registrant, Mark A.
Speizer and Bruce A. Cole.
23.1. Consent of PricewaterhouseCoopers LLP (as independent accountants to First American).
23.2. Consent of PricewaterhouseCoopers LLP (as independent accountants to National).
23.3 Consent of White & Case LLP (contained in Exhibit 5).
23.4 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 8).
24. Power of Attorney.
99.1. Form of National Information Group Proxy Card.
99.2. Form of Transmittal Letter.
</TABLE>
II-2
<PAGE>
ITEM 23. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) 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.
(2) 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.
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
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.
(4) To respond to requests for information that is incorporated by reference
into this proxy/statement 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.
(5) 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.
(6) 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.
(7) Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the
Agreement and Plan of Merger attached as Annex A to the Proxy
statement/prospectus have been omitted. These schedules describe, among other
things, exceptions to the representations and warranties contained in the
Agreement and Plan of Merger. The Registrant hereby undertakes to furnish
supplementally a copy of any such omitted schedule to the Commission upon
request.
* * *
II-3
<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 March 23, 1999.
<TABLE>
<S> <C> <C>
THE FIRST AMERICAN FINANCIAL CORPORATION
By: /s/ PARKER S. KENNEDY
-------------------------------------
Parker S. Kennedy, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
</TABLE>
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.
<TABLE>
<S> <C> <C>
Date: March 23, 1999 By: /s/ D.P. KENNEDY
-----------------------------------------
D.P. Kennedy, CHAIRMAN AND DIRECTOR
Date: March 23, 1999 By: /s/ PARKER S. KENNEDY
-----------------------------------------
Parker S. Kennedy, PRESIDENT AND DIRECTOR
Date: March 23, 1999 By: /s/ THOMAS A. KLEMENS
-----------------------------------------
Thomas A. Klemens, EXECUTIVE VICE
PRESIDENT, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
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.
<TABLE>
<S> <C> <C>
Date: By: -----------------------------------------
George L. Argyros, DIRECTOR
Date: March 23, 1999 By: /s/ GARY J. BEBAN*
-----------------------------------------
Gary J. Beban, DIRECTOR
Date: March 23, 1999 By: /s/ J. DAVID CHATHAM*
-----------------------------------------
J. David Chatham, DIRECTOR
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
Date: By:
-----------------------------------------
William G. Davis, DIRECTOR
Date: March 23, 1999 By: /s/ JAMES L. DOTI*
-----------------------------------------
James L. Doti, DIRECTOR
Date: March 23, 1999 By: /s/ LEWIS W. DOUGLAS, JR.*
-----------------------------------------
Lewis W. Douglas, Jr., DIRECTOR
Date: March 23, 1999 By: /s/ PAUL B. FAY, JR.*
-----------------------------------------
Paul B. Fay, Jr., DIRECTOR
Date: By:
-----------------------------------------
Anthony R. Moiso, DIRECTOR
Date: March 23, 1999 By: /s/ FRANK O'BRYAN*
-----------------------------------------
Frank O'Bryan, DIRECTOR
Date: March 23, 1999 By: /s/ ROSLYN B. PAYNE*
-----------------------------------------
Roslyn B. Payne, DIRECTOR
Date: March 23, 1999 By: /s/ D. VAN SKILLING*
-----------------------------------------
D. Van Skilling, DIRECTOR
Date: March 23, 1999 By: /s/ VIRGINIA UEBERROTH*
-----------------------------------------
Virginia Ueberroth, DIRECTOR
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ MARK R ARNESEN
-------------------------
Mark R Arnesen
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1. Agreement and Plan of Merger, dated as of November 17, 1998, among The First American Financial
Corporation, National Information Group, and Pea Soup Acquisition Corp. (included as Annex A to the
proxy statement/prospectus contained in this Registration Statement).
2.2. First Amendment to Agreement and Plan of Merger, dated as of March 15, 1999, among The First American
Financial Corporation, National Information Group, and Pea Soup Acquisition Corp. (included as Annex B
to the proxy statement/prospectus contained in this Registration Statement).
4.1. Description of the Registrant's capital stock in Article Sixth of the Restated Articles of Incorporation
of The First American Financial Corporation, incorporated by reference to Exhibit 3.1 of the
Registrant's Post-Effective Amendment No. 1 to Registration Statement on Form S-4 dated July 28, 1998.
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 White & Case LLP regarding legality.
8. Opinion of Morgan, Lewis & Bockius LLP regarding tax matters (to be filed by amendment).
10.1. Voting Agreement, dated as of November 17, 1998, among the Registrant, Mark A. Speizer and Bruce A.
Cole.
23.1. Consent of PricewaterhouseCoopers LLP (as independent accountants to First American).
23.2. Consent of PricewaterhouseCoopers LLP (as independent accountants to National).
23.3 Consent of White & Case LLP (contained in Exhibit 5).
23.4 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 8).
24. Power of Attorney.
99.1. Form of National Information Group Proxy Card.
99.2. Form of Transmittal Letter.
</TABLE>
<PAGE>
EXHIBIT 5
[LETTERHEAD OF WHITE & CASE LLP]
March 23, 1999
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 3,411,000 Common
shares, $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 proxy statement/prospectus which is a part of the
Registration Statement.
Very truly yours,
/s/ White & Case LLP
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EXHIBIT 10.1
VOTING AGREEMENT
BY AND AMONG
THE FIRST AMERICAN FINANCIAL CORPORATION,
MARK A. SPEIZER
AND
BRUCE A. COLE
DATED AS OF NOVEMBER 17, 1998
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VOTING AGREEMENT
VOTING AGREEMENT, dated as of November 17, 1998 (this "AGREEMENT"), by
and among The First American Financial Corporation, a California corporation
("FAFCO"), Mark A. Speizer ("SPEIZER") and Bruce A. Cole ("COLE"; each of Cole
and Speizer, a "SHAREHOLDER," and collectively, the "SHAREHOLDERS").
Capitalized terms used, but not otherwise defined, herein shall have the
meanings given them in the Merger Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement FAFCO, Pea Soup Acquisition Corp., a Delaware corporation and
wholly-owned Subsidiary of FAFCO ("FAFCOSUB"), and National Information Group, a
California corporation (the "COMPANY"), have entered into that certain Agreement
and Plan of Merger (the "MERGER AGREEMENT") pursuant to which, at the Effective
Time, FAFCOSUB will merge with and into the Company, with the Company
continuing as the surviving corporation (the "MERGER");
WHEREAS, as a condition to, and in consideration for, FAFCO's
willingness to enter into the Merger Agreement and to consummate the
transactions contemplated thereby, FAFCO has required that the Shareholders
enter into this Agreement;
WHEREAS, each of the Shareholders, owns the number of Company Common
Shares listed opposite his signature below (the "SHARES");
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
31. AGREEMENTS.
(a) VOTING AGREEMENT. Each Shareholder shall, as to himself, with
respect to any meeting of the holders of Company Common Shares (including,
without limitation, the Company Shareholder Meeting), however such meeting is
called and regardless of whether such meeting is a special or annual meeting of
the shareholders of the Company (a "MEETING OF COMPANY SHAREHOLDERS"), or in
connection with any written consent of the shareholders of the Company (a
"WRITTEN CONSENT"), shall take such actions as are necessary (A) to vote or
cause to be voted all of such Shareholder's Shares in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
of the terms thereof and each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance thereof and
hereof (collectively, the "MERGER PROPOSAL") and (B) not to vote or cause or
permit to be voted all of such Shareholder's Shares in favor of or against any
Takeover Proposal or any other action or agreement that would in any manner
impede, frustrate, prevent or nullify any of the transactions contemplated by
the Merger Agreement, including the Merger, or result in a breach of any
covenant, representation or warranty or any other obligation
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or agreement of the Company under the Merger Agreement or which would result in
any of the conditions to the Company's or FAFCO's obligations under the Merger
Agreement not being fulfilled.
(b) NO INCONSISTENT ARRANGEMENTS. Each Shareholder hereby covenants
and agrees, severally and not jointly and solely as to himself, that he shall
not (i) transfer (which term shall include, without limitation, any sale, gift,
pledge or other disposition), or consent to any transfer of, any or all of his
Shares, or any interest therein if such transfer would result in the Shareholder
no longer having the power to vote or cause to be voted his Shares on the Merger
Proposal (pursuant to Section 1(a) hereof), (ii) enter into any contract, option
or other agreement or understanding with respect to any such transfer of any or
all of his Shares, or any interest therein, (iii) grant any proxy,
power-of-attorney or other authorization in or with respect to his Shares, (iv)
deposit his Shares into a voting trust or enter into a voting agreement or
arrangement with respect to such Shares, other than pursuant to this Agreement,
or (v) take any other action that would in any way restrict, limit or interfere
with the performance of his obligations hereunder or the transactions
contemplated hereby or by the Merger Agreement. Notwithstanding the foregoing,
the parties acknowledge and agree that (a) Mr. Speizer has pledged (i) 300,000
Shares to a stock brokerage firm as collateral for a loan by that stock
brokerage firm to Mr. Speizer and (ii) 1,224,295 Shares to an escrow agent as
security for payment of a note issued by Mr. Speizer in connection with the
acquisition of certain of the Shares in 1996 and (b) Mr. Cole has pledged 3,000
shares to a stock brokerage firm as collateral for a loan by that stock
brokerage firm to Mr. Cole. The Shares pledged by Mr. Speizer and Mr. Cole are
collectively referred to as the Pledged Shares. Such pledges of the Pledged
Shares include, without limitation, powers of sale of the Pledged Shares in the
event of certain defaults. Notwithstanding anything to the contrary contained
herein, the parties agree that Mr. Speizer and Mr. Cole may cause all or part of
the Pledged Shares to be released from the existing pledges and pledged to
another lender in connection with a refinancing of the existing loan
arrangements; provided, however, that the terms of any pledge of the Pledged
Shares in connection with any such refinancing do not contain more burdensome
and restrictive provisions relating to default.
(c) NO SOLICITATION. Each Shareholder hereby agrees, in his capacity
as a shareholder of the Company, that the Shareholder shall not (and each
Shareholder shall use reasonable efforts to cause his representatives and
agents, including, but not limited to, investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage, solicit, participate in
or initiate discussions or negotiations with, or provide any information to, any
Person (other than FAFCO, any of its affiliates or representatives) concerning
any Takeover Proposal; PROVIDED, HOWEVER, that nothing contained in this Section
1(c) shall restrict any Shareholder from taking any action in his capacity as an
officer and/or director of the Company which is permitted to be taken pursuant
to Section 5.3 of the Merger Agreement.
(d) REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its or his reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Merger Agreement; PROVIDED, HOWEVER, that nothing
contained in this Section 1(d) shall restrict any Shareholder from taking any
action in his
2
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or her capacity as an officer and/or director of the Company which is permitted
to be taken pursuant to Section 5.3 of the Merger Agreement.
32. REPRESENTATIONS AND WARRANTIES.
(a) Each Shareholder hereby represents and warrants, severally and
not jointly and solely as to himself, to FAFCO as follows:
(i) OWNERSHIP OF SECURITIES. On the date hereof, the
Shareholder is the beneficial owner of the Shares as set forth opposite his
signature hereto.
Except for the rights granted pledgees and agents of pledgees of the
Pledged Shares in connection with defaults under the loan agreements described
in Section 1 (b) of this Agreement and the exercise of remedies in connection
therewith, the Shareholder has the sole power to vote with respect to the
matters set forth in Section 1 hereof, sole power of disposition, sole power of
conversion, sole power (if any) to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case with
respect to all of the Shares with no limitations, qualifications or restrictions
on such rights, subject to applicable securities laws and the terms of this
Agreement. As of the date hereof, no default exists under the loan arrangements
and pledge arrangements described in Section 1(b) of this Agreement, nor has any
lender or pledgee or agent of any pledgee asserted any claim of default or
attempted to exercise any remedies with respect to Pledged Shares.
(ii) POWER; BINDING AGREEMENT. Each Shareholder has the power
and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by
the Shareholder will not violate any agreement to which the Shareholder is
a party including, without limitation, any voting agreement, proxy
arrangement, pledge agreement, shareholders agreement or voting trust.
This Agreement has been duly and validly executed and delivered by the
Shareholder and constitutes a valid and binding agreement of the
Shareholder, enforceable against the Shareholder in accordance with its
terms. There is no beneficiary or holder of a voting trust certificate or
other interest of any trust of which the Shareholder is a trustee whose
consent is required for the execution and delivery of this Agreement or the
compliance by the Shareholder with the terms hereof.
(iii) NO CONFLICTS. No filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is required
for the execution of this Agreement by the Shareholder and the consummation
by the Shareholder of the transactions contemplated hereby, and none of the
execution and delivery of this Agreement by the Shareholder, the
consummation by the Shareholder of the transactions contemplated hereby or
compliance by the Shareholder with any of the provisions hereof shall (A)
conflict with or result in any breach of any organizational documents
applicable to the Shareholder, (B) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract,
3
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commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which the Shareholder is a party or by which the
Shareholder or any of his properties or assets may be bound or (C) violate
any order, writ, injunction, decree, judgment, order, statute, arbitration
award, rule or regulation applicable to the Shareholder or any of his
properties or assets.
(b) FAFCO hereby represents and warrants to the Shareholders, and to
each of them, as follows:
(i) POWER; BINDING AGREEMENT. FAFCO has the corporate power
and authority to enter into and perform all of its obligations under this
Agreement. The execution, delivery and performance of this Agreement by
FAFCO will not violate any material agreement to which FAFCO is a party.
This Agreement has been duly and validly executed and delivered by FAFCO
and constitutes a valid and binding agreement of FAFCO, enforceable against
FAFCO in accordance with its terms.
(ii) NO CONFLICTS. No filing with, and no permit,
authorization, consent or approval of, any Governmental Entity is required
for the execution of this Agreement by FAFCO and the consummation by FAFCO
of the transactions contemplated hereby, and none of the execution and
delivery of this Agreement by FAFCO, the consummation by FAFCO of the
transactions contemplated hereby or compliance by FAFCO with any of the
provisions hereof shall (A) conflict with or result in any breach of any
organizational documents applicable to FAFCO, (B) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any material note, loan agreement, bond,
mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which FAFCO is a party or by which FAFCO or any of its properties or assets
may be bound or (C) violate any order, writ, injunction, decree, judgment,
order, statute, arbitration award, rule or regulation applicable to FAFCO
or any of its properties or assets.
33. STOP TRANSFER. No Shareholder shall request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of his Shares, unless such transfer is
made in compliance with this Agreement. In the event of any dividend or
distribution, or any change in the capital structure of the Company by reason of
any non-cash dividend, split-up, recapitalization, combination, exchange of
securities or the like, the term "Shares" shall refer to and include each
Shareholder's Shares as well as all such dividends and distributions of
securities and any securities into which or for which any or all such Shares may
be changed, exchanged or converted.
34. RESTRICTION ON SALES OF SECURITIES. From the date that is 30
days prior to the Effective Time, until after such time as results covering at
least 30 days of post-Merger combined operations of the Company and FAFCO have
been published by FAFCO, in the form of a quarterly earnings report, an
effective registration statement filed with the SEC, a report to the SEC on
Forms 10-K, 10-Q or 8-K, or any other public filing or announcement which
includes
4
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such combined results of operations, no Shareholder will sell, transfer or
otherwise dispose of any of his Shares, any FAFCO Common Shares he receives in
the Merger or any other FAFCO Common Shares or FAFCO preferred shares he holds.
35. TERMINATION. This Agreement and the covenants, representations
and warranties and agreements contained herein or granted pursuant hereto shall
terminate upon the earlier to occur of (i) the termination of the Merger
Agreement in accordance with Section 9 thereof or (ii) the consummation of the
transactions contemplated by the Merger Agreement, provided that the provisions
of Sections 4 and 5 hereof shall survive the consummation of such transactions
in accordance with their terms (but shall not survive the termination of the
Merger Agreement).
36. MISCELLANEOUS.
(a) SPECIFIC PERFORMANCE. Each party hereto recognizes and agrees
that if for any reason any of the provisions of this Agreement are not performed
by any other party in accordance with their specific terms or are otherwise
breached, immediate and irreparable harm or injury would be caused to
non-breaching parties for which money damages would not be an adequate remedy.
Accordingly, the parties agree that, in addition to any other available
remedies, the non-breaching party shall be entitled to seek an injunction
restraining any violation or threatened violation of the provisions of this
Agreement.
(b) SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. Without limiting the
foregoing, with respect to any provision of this Agreement, if it is determined
by a court of competent jurisdiction to be excessive as to duration or scope, it
is the parties' intention that such provision nevertheless be enforced to the
fullest extent which it may be enforced.
(c) ATTORNEYS' FEES. If any action at law or equity, including an
action for declaratory relief, is brought to enforce or interpret any provision
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and expenses from the other party, which fees and expenses shall
be in addition to any other relief which may be awarded.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS OF THE LAWS
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
(e) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
5
<PAGE>
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
(which is confirmed), or by registered or certified mail (postage prepaid,
return receipt requested):
if to Speizer, to:
Mark A. Speizer
In care of National Information Group
395 Oyster Point Boulevard, Suite 500
South San Francisco, CA 94404-1959
Facsimile: 650-827-0521
if to Cole, to:
Bruce A. Cole
630 North Elm Drive
Beverly Hills, CA 90210
Facsimile: 310-858-8984
if to FAFCO, to:
The First American Financial Corporation
114 East Fifth Street
Santa Ana, California 92701
Attention: President
Facsimile: 714-647-2242
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Attention: Neil W. Rust
Facsimile: 213-687-0758
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
(h) ASSIGNMENT; BINDING AGREEMENT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties hereto.
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(i) AMENDMENT, MODIFICATION AND WAIVER. This Agreement may not be
amended, modified or waived except by an instrument or instruments in writing
signed and delivered on behalf of the party hereto against whom such amendment,
modification or waiver is sought to be entered.
(j) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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IN WITNESS WHEREOF, FAFCO has caused its corporate name to be hereunto
subscribed by its officer thereunto duly authorized and each of Speizer and Cole
has signed this Agreement, all as of the day and year first above written.
THE FIRST AMERICAN FINANCIAL
CORPORATION
By: /s/ Parker S. Kennedy
-----------------------------------
Name:
Parker S. Kennedy
Title: President
Shares: 1,542,909 /s/ Mark A. Speizer
--------------------------------------
Mark A. Speizer
Shares: 3,000 /s/ Bruce A. Cole
--------------------------------------
Bruce A. Cole
8
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of The First American Financial Corporation of our report dated February
9, 1999, appearing on page 21 of The First American Financial Corporation's
Annual Report on Form 10-K for the year ended December 31, 1998. We also
consent to the reference to us under the heading "Experts" in such proxy
statement/prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Costa Mesa, CA
March 23, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of The First American Financial Corporation of our report dated February
15, 1999, appearing on page 45 of National Information Group's Annual Report
on Form 10-K for the year ended December 31, 1998. We also consent to the
reference to us under the heading "Experts" in such proxy
statement/prospectus.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Francisco, CA
March 23, 1999
<PAGE>
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: December 10, 1999 By:
---------------------------------
George L. Argyros, Director
Date: December 10, 1999 By: /s/ Gary J. Beban
---------------------------------
Gary J. Beban, Director
Date: December 10, 1999 By:/s/ J. David Chatham
---------------------------------
J. David Chatham, Director
Date: December 10, 1999 By:
---------------------------------
William G. Davis, Director
Date: December 10, 1999 By: /s/ James L. Doti
---------------------------------
James L. Doti, Director
Date: December 10, 1999 By: /s/ Lewis W. Douglas, Jr.
---------------------------------
Lewis W. Douglas, Jr., Director
Date: December 10, 1999 By: /s/ Paul B. Fay, Jr.
---------------------------------
Paul B. Fay, Jr., Director
Date: December 10, 1999 By: /s/ Dale F. Frey
---------------------------------
Dale F. Frey, Director
Date: December 10, 1999 By:
---------------------------------
Anthony R. Moiso, Director
Date: December 10, 1999 By: /s/ Frank O'Bryan
---------------------------------
Frank O'Bryan, Director
Date: December 10, 1999 By: /s/ Roslyn B. Payne
---------------------------------
Roslyn B. Payne, Director
Date: December 10, 1999 By: /s/ D. Van Skilling
---------------------------------
D. Van Skilling, Director
Date: December 10, 1999 By: /s/ Virginia Ueberroth
---------------------------------
Virginia Ueberroth, Director
<PAGE>
EXHIBIT 99.1
[FORM OF]
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF NATIONAL INFORMATION GROUP
THE UNDERSIGNED SHAREHOLDER OF NATIONAL INFORMATION GROUP, A CALIFORNIA
CORPORATION, (THE "COMPANY") HEREBY APPOINTS AS PROXIES AND ATTORNEYS-IN-FACT,
WITH FULL POWER OF SUBSTITUTION, MARK A. SPEIZER AND ROBERT P. BARBAROWICZ, AND
EACH OF THEM, TO REPRESENT AND VOTE THE STOCK OF THE UNDERSIGNED AT THE SPECIAL
MEETING OF SHAREHOLDERS OF THE COMPANY ON [__________], 1999, AT 10:00 A.M., AND
ANY ADJOURNMENT OR POSTPONEMENT THEREOF, WITH ALL THE POWERS THE UNDERSIGNED
WOULD HAVE IF PRESENT IN PERSON, WITH RESPECT TO THE MATTERS SET FORTH BELOW AND
ADJOURNMENT THEREOF:
TO CONSIDER AND VOTE ON A PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT
AND PLAN OF MERGER, DATED AS OF NOVEMBER 17, 1998, ATTACHED AS EXHIBIT
A TO THE PROXY STATEMENT:
FOR / / AGAINST / / ABSTAIN / /
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE LISTED PROPOSAL AND
AS SAID PROXIES MAY DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING. THIS PROXY MAY BE REVOKED BY GIVING NOTICE TO THE SECRETARY
OF THE COMPANY AT ANY TIME BEFORE THE PROXY IS VOTED.
THIS PROXY SHOULD BE DATED AND SIGNED BY THE SHAREHOLDER(S) EXACTLY AS HIS, HER
OR ITS NAME APPEARS HEREON, AND RETURNED PROMPTLY IN THE ENCLOSED ENVELOPE.
WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, OR TRUSTEE PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY THE
AUTHORIZED PERSON.
NAME OF SHAREHOLDER: DATED , 1999
-----------------
------------------------------
(SIGNATURE)
------------------------------
(SIGNATURE IF HELD JOINTLY)
PLEASE SIGN, DATE AND MAIL PROMPTLY. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE LISTED PROPOSAL.
<PAGE>
EXHIBIT 99.2
[FORM OF]
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES FORMERLY REPRESENTING COMMON SHARES, NO PAR VALUE
OF
NATIONAL INFORMATION GROUP
("NATIONAL")
SURRENDERED IN CONNECTION WITH THE MERGER OF A WHOLLY-OWNED SUBSIDIARY OF
THE FIRST AMERICAN FINANCIAL CORPORATION
("FIRST AMERICAN")
WITH AND INTO NATIONAL
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
------------------------
This Letter of Transmittal must accompany certificates ("NATIONAL
CERTIFICATES") formerly representing common shares, no par value ("NATIONAL
SHARES"), of National surrendered in connection with the merger (the "MERGER")
of Pea Soup Acquisition Corp. ("PEA SOUP"), a wholly-owned subsidiary of First
American, with and into National.
By delivering National Certificates, the registered holder of such National
Certificates releases First American, Pea Soup, National and their respective
affiliates, directors, officers, employees, partners, agents, advisors and
representatives, and their respective successors and assigns, from any and all
claims arising from or in connection with the purchase or ownership of such
National Shares or the exchange of such National Shares pursuant to the
Agreement and Plan of Merger, dated as of November 17, 1998, by and between
National, First American and Pea Soup, as amended (the "MERGER AGREEMENT").
This Letter of Transmittal should be promptly (a) completed and signed in
the space provided below and on the attached Substitute Form W-9 and (b) mailed
or delivered with your National Certificates to First American Trust Company
which is acting as exchange agent (the "EXCHANGE AGENT") in connection with the
Merger at the following address:
BY MAIL/OVERNIGHT DELIVERY/HAND:
First American Trust Company
421 North Main Street
Santa Ana, CA 92701-4642
Attn: Trust Operations
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(800) 854-3643
DELIVERY OF THIS LETTER OF TRANSMITTAL OR NATIONAL CERTIFICATES TO AN
ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
PLEASE DO NOT SEND STOCK CERTIFICATES TO FIRST AMERICAN OR NATIONAL.
Capitalized terms used in this Letter of Transmittal and not defined herein
shall have the respective meanings ascribed to them in the Proxy
Statement/Prospectus (as defined below).
/ / If any National Certificate which you own have been lost, stolen or
destroyed, check this box and see Instruction 10. Please fill out the
remainder of this Letter of Transmittal and indicate here the number of
National Shares formerly represented by such National Certificate:
-------------------
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The registered holder of the National Shares represented by the National
Certificates surrendered hereby has been advised that the shareholders of
National representing more than 50% of the votes entitled to be cast by holders
of common shares, no par value, of National have approved the merger of Pea Soup
with and into National and that such Merger has been consummated and became
effective on , 1999 (the "EFFECTIVE TIME").
Pursuant to the Merger Agreement, the undersigned surrenders the enclosed
National Certificate(s), which immediately prior to the Effective Time
represented National Shares in exchange for common shares, $1.00 par value, of
First American (the "FIRST AMERICAN SHARES").
The undersigned understands that to receive certificates for the First
American Shares, the Exchange Agent must receive the following.
- This Letter of Transmittal properly completed.
- National Certificate(s) formerly representing such holder's National
Shares.
- Any other documents required by this Letter of Transmittal.
The undersigned further understands that this Letter of Transmittal is
subject to (a) the terms, conditions and limitations set forth in the Proxy
Statement/Prospectus, dated , 1999, relating to the Merger (the "PROXY
STATEMENT/PROSPECTUS"), receipt of which is hereby acknowledged, (b) the terms,
conditions and limitations set forth in the Merger Agreement and (c) the
instructions herein. The acceptance by the Exchange Agent on behalf of First
American of the National Certificate(s) delivered pursuant to this Letter of
Transmittal will constitute a binding agreement between the undersigned and
First American upon the terms and subject to the conditions set forth in (a),
(b) and (c) listed above.
The undersigned represents and warrants that the undersigned has full power
and authority to surrender the National Certificates surrendered herewith or
covered by an affidavit and indemnification for mutilated, lost, destroyed or
stolen National Certificates, free and clear of any liens, claims, charges or
encumbrances whatsoever.
BY DELIVERING THE NATIONAL CERTIFICATES, THE REGISTERED HOLDER THEREOF (A)
REPRESENTS AND WARRANTS THAT SUCH HOLDER HAS THE FULL POWER AND AUTHORITY TO
SURRENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE NATIONAL SHARES SURRENDERED
HEREBY, THAT WHEN THE SAME ARE ACCEPTED FOR EXCHANGE FIRST AMERICAN WILL ACQUIRE
GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS,
RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE NATIONAL SHARES TENDERED
HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES AND (B) AGREES, UPON
REQUEST, TO EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY FIRST
AMERICAN OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE
EXCHANGE, ASSIGNMENT AND TRANSFER OF THE NATIONAL SHARES SURRENDERED HEREBY.
THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT (A) THE METHOD OF DELIVERY OF
THE CERTIFICATE(S) AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF
THE UNDERSIGNED AND THAT THE RISK OF LOSS AND TITLE TO SUCH CERTIFICATE(S) SHALL
PASS ONLY AFTER THE EXCHANGE AGENT HAS ACTUALLY RECEIVED THE CERTIFICATE(S), (B)
ALL QUESTIONS AS TO THE SURRENDER OF CERTIFICATE(S) HEREUNDER SHALL BE
DETERMINED BY THE EXCHANGE AGENT IN ITS REASONABLE DISCRETION, AND SUCH
DETERMINATION SHALL BE BINDING AND CONCLUSIVE., (C) NO AUTHORITY HEREBY
CONFERRED OR AGREED TO BE CONFERRED HEREBY SHALL BE AFFECTED BY, AND ALL SUCH
AUTHORITY SHALL SURVIVE, THE UNDERSIGNED'S DEATH OR INCAPACITY AND (D) ALL OF
THE UNDERSIGNED'S OBLIGATIONS HEREUNDER SHALL BE BINDING UPON THE HEIRS,
PERSONAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
2
<PAGE>
Unless otherwise indicated, please issue any certificate for First American
Shares and any cash payment in lieu of fractional shares, as discussed in the
Proxy Statement/Prospectus, in the name of the registered holder of the National
Shares tendered therefor and mail such certificate and/or cash payment to such
holder's address set forth below. In the event that either or both of the boxes
entitled "Special Delivery Instructions" and "Special Issuance Instruction" are
completed, please issue any certificates for First American Shares and any cash
payment in lieu of fractional shares in the name(s) of and mail such certificate
and/or cash payment to the person(s) so indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DESCRIPTION OF SURRENDERED NATIONAL SHARE CERTIFICATES
- -------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARES
NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE REPRESENTED BY
HOLDER(S) (PLEASE FILL IN IF BLANK) NUMBER(S) CERTIFICATE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
TOTAL NUMBER OF SHARES SURRENDERED:
- -------------------------------------------------------------------------------------------
</TABLE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTION 6)
Fill in ONLY if any new stock certificate(s) representing First American
Shares (as defined below) is to be registered in a name OTHER than that set
forth above.
Register the First American Share certificate(s) in the name of:
Name: -------------------------------------------------------
(please print)
Address:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
Please complete the Substitute Form W-9 included herein.
Tax I.D. or Social Security Number:
------------------------------
3
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 6)
Fill in ONLY if any new stock certificate(s) representing First American
Shares is to be registered in the name set forth above but DELIVERED to an
address OTHER than that set forth above.
Mail the First American Share Certificate(s) to:
Name: -------------------------------------------------------
(please print)
Address:
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
PLEASE SIGN HERE AND ON THE SUBSTITUTE FORM W-9 BELOW
Signature(s):___________________________________________________________________
Dated:____________________________ Telephone Number:___________________________
Must be signed by the registered holder of the National Shares exactly as
such holder's name appears on the National Certificate(s) surrendered or by the
person(s) to whom the National Certificate(s) surrendered has been assigned and
transferred as evidenced by endorsements or stock powers transmitted herewith.
If signing is by a trustee, executor, administrator, guardian, officer of a
corporation, attorney-in-fact or other person acting in a fiduciary or
representative capacity, please set forth full title and enclose proper
documentary evidence of the appointment and authority of such person so to act
(see Instruction 4).
SIGNATURE GUARANTEE
(REQUIRED ONLY IN CASES SPECIFIED IN INSTRUCTION 2)
Signature(s) Guaranteed by:_____________________________________________________
Date:___________________________________________________________________________
Title of Officer Signing this Guarantee (please print):_________________________
Name of Guaranteeing Firm (please print):_______________________________________
Address of Guaranteeing Firm (please print):____________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal, together with any National Certificates to be surrendered (duly
endorsed in blank), is to be properly completed and duly executed, with any
required signature guarantees and any other documents required by this Letter of
Transmittal, if National Certificates are to be forwarded herewith.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED.
The Exchange Agent will not accept any alternative, conditional or
contingent surrenders. Each surrendering holder, by execution of a Letter of
Transmittal (or a facsimile thereof), waives any right to receive any notice of
the acceptance of such surrender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if this Letter of Transmittal is signed by Holder,
unless such Holder has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" above.
In all other cases, an Eligible Institution must guarantee the signature on
this Letter of Transmittal. See Instruction 4. As used herein, "Eligible
Institution" means a firm or other entity identified in Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, as "an eligible guarantor
institution," including (as such terms are defined therein) (a) a bank, (b) a
broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (c) a credit union, (d) a national securities exchange,
registered securities association or clearing agency or (e) a savings
association that is a participant in a securities transfer association.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Surrendered National Shares" is inadequate, please attached a
separate signed schedule containing the information therein.
4. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the Holder of the National Shares
surrendered hereby, the signature must correspond exactly with the name as
written on the face of the National Certificates without alteration, enlargement
or any change whatsoever.
If any of the National Shares surrendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any surrendered National Shares are registered in different names on
several National Certificates, it will be necessary to complete, sign and submit
as many separate Letters of Transmittal (or facsimiles thereof) as there are
different registrations of National Certificates.
If this Letter of Transmittal or any National Certificates or stock powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Exchange Agent, in its sole discretion, of such
persons' authority to so act.
When this Letter of Transmittal is signed by the registered holder of the
National Shares surrendered hereby, no endorsement of National Certificates or
separate stock powers is required unless First American Shares are to be issued
in the name of a person other than such registered holder. Signatures on such
National Certificates or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder of the National Shares surrendered hereby, the National
Certificates must be endorsed or accompanied by appropriate
5
<PAGE>
stock powers, signed exactly as the name of such registered holder appears on
the National Certificates, and also must be accompanied by such opinions of
counsel, certifications and other information as First American or the Exchange
Agent may require in accordance with the restrictions on transfer applicable to
the National Shares. Signatures on such National Certificates or stock powers
must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If First American Shares
are to be issued in the name of a person other than the registered holder of the
National Shares surrendered hereby, or if First American Shares are to be sent
to someone other than such holder or to an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed.
National Certificates for National Shares not exchanged will be returned by mail
unless the appropriate boxes on this Letter of Transmittal are completed.
7. IRREGULARITIES. The Exchange Agent will determine, in its sole
discretion, all questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any surrendered
National Shares, which determination shall be final and binding on all parties.
The Exchange Agent reserves the absolute right to reject any and all surrenders
which it determines to not to be in proper form or the acceptance of which, or
exchange for, may, in the view of counsel to the Exchange Agent, be unlawful.
The Exchange Agent also reserves the absolute right, subject to applicable law,
to waive any of the conditions to or any irregularity in any surrender of
National Shares of any particular holder whether or not similar conditions or
irregularities are waived in the case of other holders. The Exchange Agent's
interpretation of the terms and conditions of any surrender (including with
respect to this Letter of Transmittal and the instructions hereto) will be final
and binding. No surrender of National Shares will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. None of First American, the Exchange Agent, any affiliates or assigns of
First American or the Exchange Agent, nor any other person shall be under any
duty to give notification of any irregularities in tenders or incur any
liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth in this Letter of Transmittal. Additional copies of
the Proxy Statement/Prospectus and the Letter of Transmittal may be obtained
from the Exchange Agent.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose surrendered National Shares are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on the Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to National Shares
surrendered pursuant to the Merger may be subject to 31% backup withholding.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the holder or other payee must also complete the National Certificate of
Awaiting Taxpayer Identification Number below in order to avoid backup
withholding. Notwithstanding that the box in Part 3 is checked and the National
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent. The Exchange Agent
will retain such amounts withheld during the 60 day period following the date of
the Substitute Form W-9. If the holder furnishes the Exchange Agent with its TIN
within 60 days after the date of the Substitute Form W-9, the amounts retained
during the 60-day period will be remitted to the holder and no further amounts
shall be retained or withheld from payments made to the holder thereafter. If,
however, the holder has not provided the Exchange Agent with its TIN within such
60-day period, amounts withheld will be remitted to the IRS as backup
withholding. In
6
<PAGE>
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the National Shares or of the last transferee appearing on the transfers
attached to, or endorsed on, the National Shares. If the National Shares are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Backup withholding is not an additional U.S. Federal income tax. Rather, the
U.S. Federal income tax liability of a person subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any National Certificates
representing National Shares have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent. The registered holder thereof will
then be instructed as to the steps that must be taken in order to replace the
National Certificates. This Letter of Transmittal and related documents cannot
be processed until the procedures for replacing lost, destroyed or stolen
National Certificates have been followed.
11. SECURITY TRANSFER TAXES. Holders who surrender their National Shares
for exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, First American Shares are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the
National Shares tendered, or if a transfer tax is imposed for any reason other
than the exchange of National Shares in connection with the Merger, then the
amount of any such transfer tax (whether imposed on the registered holder or any
other persons) will be payable by the surrendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
7
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------
PAYER'S NAME: FIRST AMERICAN TRUST COMPANY
- -------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND Social security number
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. OR
DEPARTMENT OF THE TREASURY Employer identification number
INTERNAL REVENUE SERVICE ------------------------------
- ------------------------------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER PART 2--CERTIFICATION--Under penalties of perjury, I certify that:
IDENTIFICATION NUMBER (TIN) (1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service (the
IRS) that I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer subject
to backup withholding.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you PART 3--
have been notified by the IRS that you are currently subject to backup Awaiting TIN 9
withholding because of under reporting interest or dividends on your
tax return. However, if after being notified by the IRS that you are
subject to backup withholding, you received another notification from
the IRS that you are no longer subject to backup withholding, do not
cross out such item (2).
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
SIGNATURE DATE
NAME (Please Print)
ADDRESS (Please Print)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE.
8
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a Taxpayer Identification Number by the time of payment, 31%
of all reportable payments made to me will be withheld, but that such amounts
will be refunded to me if I then provide a Taxpayer Identification Number within
sixty (60) days.
Signature_________________________________ Date________________________________
Name (Please Print)_____________________________________________________________
Address (Please Print)__________________________________________________________
9
