Form 10-Q
Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2005

 

OR

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                      to                     

 

Commission file number: 001-31666

 

FIRST ADVANTAGE CORPORATION

(Exact name of registrant as specified in its charter)

 

Incorporated in Delaware   61-1437565
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

 

One Progress Plaza, Suite 2400

St. Petersburg, Florida 33701

(Address of principal executive offices, including zip code)

 

(727) 214-3411

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x  No ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨  No x

 

There were 9,178,956 shares of outstanding Class A Common Stock of the registrant as of November 8, 2005.

 

There were 46,076,066 shares of outstanding Class B Common Stock of the registrant as of November 8, 2005.

 



Table of Contents

INDEX

 

Part I. FINANCIAL INFORMATION

    

Item 1.

   Financial Statements    1
     Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 (unaudited)    3
     Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2005 and September 30, 2004 (unaudited)    4
     Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2005 (unaudited)    5
     Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and September 30, 2004 (unaudited)    6
     Notes to Consolidated Financial Statements (unaudited)    7

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    19

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    34

Item 4.

   Controls and Procedures    35

Part II. OTHER INFORMATION

    

Item 1.

   Legal Proceedings    35

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    36

Item 3.

   Defaults Upon Senior Securities    36

Item 4.

   Submission of Matters to a Vote of Security Holders    36

Item 5.

   Other Information    37

Item 6.

   Exhibits    37


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

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Table of Contents

First Advantage Corporation

Consolidated Financial Statements

For the Nine Months Ended

September 30, 2005 and 2004

 

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Table of Contents

First Advantage Corporation

 

Consolidated Balance Sheets (Unaudited)

 

     September 30,
2005


   December 31,
2004


Assets

             

Current assets:

             

Cash and cash equivalents

   $ 17,438,000    $ 9,996,000

Accounts receivable (less allowance for doubtful accounts of $4,203,000 and $3,444,000 in 2005 and 2004, respectively)

     97,462,000      67,981,000

Notes receivable

     —        4,000,000

Due from affiliates

     —        553,000

Prepaid expenses and other current assets

     6,770,000      3,217,000
    

  

Total current assets

     121,670,000      85,747,000

Property and equipment, net

     49,947,000      44,966,000

Goodwill

     437,442,000      380,596,000

Intangible assets, net

     54,187,000      43,596,000

Database development costs, net

     10,039,000      9,688,000

Investment in equity investee

     36,086,000      34,854,000

Deferred income tax asset

     17,369,000      —  

Other assets

     4,808,000      3,657,000
    

  

Total assets

   $ 731,548,000    $ 603,104,000
    

  

Liabilities and Stockholders’ Equity

             

Current liabilities:

             

Accounts payable

   $ 10,675,000    $ 14,726,000

Accrued compensation

     24,232,000      19,918,000

Accrued liabilities

     28,578,000      19,482,000

Deferred income

     6,125,000      4,558,000

Due to affiliates

     3,835,000      —  

Income taxes payable

     473,000      4,381,000

Current portion of long-term debt and capital leases

     31,685,000      24,326,000
    

  

Total current liabilities

     105,603,000      87,391,000

Long-term debt and capital leases, net of current portion

     95,208,000      86,480,000

Deferred income tax liability

     —        8,454,000

Other liabilities

     2,523,000      861,000
    

  

Total liabilities

     203,334,000      183,186,000
    

  

Commitments and contingencies

             

Stockholders’ equity:

             

Preferred stock, $.001 par value; 1,000,000 shares authorized, no shares issued or outstanding

     —        —  

Class A common stock, $.001 par value; 125,000,000 and 75,000,000 shares authorized; 8,223,667 and 7,226,801 shares issued and outstanding as of September 30, 2005 and December 31, 2004, respectively

     8,000      7,000

Class B common stock, $.001 par value; 75,000,000 shares authorized; 46,076,066 and 42,856,553 shares issued and outstanding as of September 30, 2005 and December 31, 2004, respectively

     46,000      43,000

Additional paid-in capital

     386,043,000      298,243,000

Retained earnings

     141,730,000      121,367,000

Accumulated other comprehensive income

     387,000      258,000
    

  

Total stockholders’ equity

     528,214,000      419,918,000
    

  

Total liabilities and stockholders’ equity

   $ 731,548,000    $ 603,104,000
    

  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

First Advantage Corporation

 

Consolidated Statements of Income and Comprehensive Income (Unaudited)

 

     For the Three Months Ended
September 30,


    For the Nine Months Ended
September 30,


 
     2005

    2004

    2005

    2004

 

Service revenue

   $ 157,746,000     $ 122,865,000     $ 437,022,000     $ 356,526,000  

Reimbursed government fee revenue

     12,200,000       11,208,000       36,669,000       33,569,000  
    


 


 


 


Total revenue

     169,946,000       134,073,000       473,691,000       390,095,000  
    


 


 


 


Cost of service revenue

     49,881,000       37,219,000       133,026,000       112,901,000  

Government fees paid

     12,200,000       11,208,000       36,669,000       33,569,000  
    


 


 


 


Total cost of service

     62,081,000       48,427,000       169,695,000       146,470,000  
    


 


 


 


Gross margin

     107,865,000       85,646,000       303,996,000       243,625,000  
    


 


 


 


Salaries and benefits

     46,646,000       37,018,000       130,308,000       105,876,000  

Facilities and telecommunications

     6,205,000       5,333,000       18,974,000       15,673,000  

Other operating expenses

     20,193,000       15,115,000       57,845,000       48,919,000  

Depreciation and amortization

     6,685,000       5,878,000       19,085,000       17,134,000  
    


 


 


 


Total operating expenses

     79,729,000       63,344,000       226,212,000       187,602,000  
    


 


 


 


Income from operations

     28,136,000       22,302,000       77,784,000       56,023,000  
    


 


 


 


Other (expense) income:

                                

Interest expense

     (1,580,000 )     (714,000 )     (4,115,000 )     (1,665,000 )

Interest income

     22,000       150,000       48,000       567,000  
    


 


 


 


Total other (expense), net

     (1,558,000 )     (564,000 )     (4,067,000 )     (1,098,000 )

Equity in earnings of investee

     280,000       349,000       1,232,000       986,000  
    


 


 


 


Income before income taxes

     26,858,000       22,087,000       74,949,000       55,911,000  

Provision for income taxes

     10,835,000       9,125,000       32,251,000       23,067,000  
    


 


 


 


Net income

     16,023,000       12,962,000       42,698,000       32,844,000  
    


 


 


 


Other comprehensive income, net of tax:

                                

Foreign currency translation adjustments

     189,000       130,000       129,000       141,000  
    


 


 


 


Comprehensive income

   $ 16,212,000     $ 13,092,000     $ 42,827,000     $ 32,985,000  
    


 


 


 


Per share amounts:

                                

Basic

   $ 0.30     $ 0.26     $ 0.82     $ 0.67  
    


 


 


 


Diluted

   $ 0.30     $ 0.26     $ 0.81     $ 0.66  
    


 


 


 


Weighted-average common shares outstanding:

                                

Basic

     53,200,609       49,683,345       52,132,551       49,318,123  

Diluted

     53,964,766       50,128,761       52,616,858       49,646,664  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

First Advantage Corporation

 

Consolidated Statement of Changes in Stockholders’ Equity

For the Nine Months Ended September 30, 2005 (Unaudited)

 

     Common
Stock Shares


   Common
Stock Amount


   Additional
Paid-in Capital


   Accumulated
Other
Comprehensive
Income


   Retained
Earnings


    Total

 

Balance at December 31, 2004, as previously reported

   23,254,087    $ 23,000    $ 271,995,000    $ 258,000    $ 17,895,000     $ 290,171,000  

CIG acquisition

   26,829,267      27,000      26,248,000             103,472,000       129,747,000  
    
  

  

  

  


 


December 31, 2004, as restated

   50,083,354    $ 50,000    $ 298,243,000    $ 258,000    $ 121,367,000     $ 419,918,000  

Distribution to First American from CIG prior to the merger

   —      $ —      $ —      $ —      $ (22,335,000 )   $ (22,335,000 )

Net income

   —        —        —        —        42,698,000       42,698,000  

Class A Shares issued in connection with acquisitions

   742,336      1,000      16,432,000      —        —         16,433,000  

Class A Shares issued in connection with option, benefit and savings plans

   254,530      —        4,629,000      —        —         4,629,000  

Class B Shares issued in connection with acquisitions

   2,243,903      2,000      46,553,000      —        —         46,555,000  

Class B Shares issued in connection with conversion of debt

   975,610      1,000      19,999,000      —        —         20,000,000  

Tax benefit related to stock options

   —        —        187,000      —        —         187,000  

Foreign currency translation

   —        —        —        129,000      —         129,000  
    
  

  

  

  


 


Balance at September 30, 2005

   54,299,733    $ 54,000    $ 386,043,000    $ 387,000    $ 141,730,000     $ 528,214,000  
    
  

  

  

  


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

First Advantage Corporation

 

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2005 and 2004 (Unaudited)

 

     For the Nine Months Ended
September 30,


 
     2005

    2004

 

Cash flows from operating activities:

                

Net income

   $ 42,698,000     $ 32,844,000  

Adjustments to reconcile net income to net cash provided by operating activities:

                

Depreciation and amortization

     19,085,000       17,134,000  

Deferred income tax

     (25,823,000 )     (5,646,000 )

Equity in earnings of investee

     (1,232,000 )     (986,000 )

Change in operating assets and liabilities, net of acquisitions:

                

Accounts receivable

     (20,675,000 )     (21,230,000 )

Prepaid expenses and other current assets

     (3,363,000 )     248,000  

Goodwill, intangibles and other assets

     28,028,000       1,958,000  

Accounts payable

     (5,933,000 )     174,000  

Accrued liabilities

     2,643,000       2,100,000  

Deferred income

     (845,000 )     2,000  

Due to affiliates

     4,207,000       49,000  

Income taxes

     (3,762,000 )     4,845,000  

Accrued compensation and other liabilities

     6,055,000       (2,163,000 )
    


 


Net cash provided by operating activities

     41,083,000       29,329,000  
    


 


Cash flows from investing activities:

                

Database development costs

     (2,552,000 )     (2,226,000 )

Purchases of property and equipment

     (10,749,000 )     (5,803,000 )

Notes receivable

     4,000,000       1,000,000  

Cash paid for acquisitions

     (31,041,000 )     (49,970,000 )

Cash balance of companies acquired

     6,486,000       3,212,000  
    


 


Net cash used in investing activities

     (33,856,000 )     (53,787,000 )
    


 


Cash flows from financing activities:

                

Proceeds from long-term debt

     114,000,000       57,000,000  

Repayment of long-term debt and capital leases

     (95,179,000 )     (18,308,000 )

Proceeds from class A shares issued in connection with stock option plan and employee stock purchase plan

     3,727,000       3,509,000  

Distribution to First American from CIG prior to the merger

     (22,335,000 )     (19,152,000 )
    


 


Net cash provided by financing activities

     213,000       23,049,000  
    


 


Effect of exchange rates on cash

     2,000       —    

Increase (decrease) in cash and cash equivalents

     7,442,000       (1,409,000 )

Cash and cash equivalents at beginning of period

     9,996,000       8,623,000  
    


 


Cash and cash equivalents at end of period

   $ 17,438,000     $ 7,214,000  
    


 


Supplemental disclosures of cash flow information:

                

Cash paid for interest

   $ 4,221,000     $ 1,244,000  
    


 


Cash paid for income taxes

   $ 11,210,000     $ 176,000  
    


 


Non-cash investing and financing activities:

                

Class A shares issued in connection with acquisitions

   $ 16,433,000     $ 19,180,000  
    


 


Class B shares issued in connection with acquisitions

   $ 46,555,000     $ —    
    


 


Notes issued in connection with acquisitions

   $ 16,905,000     $ 30,819,000  
    


 


Class A shares issued for benefit plan

   $ 902,000     $ —    
    


 


Class B shares issued for converted debt

   $ 20,000,000     $ —    
    


 


Class A shares issued in connection with convertible notes

     —       $ 8,961,000  
    


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

1. Organization and Nature of Business

 

The Company operates in six primary business segments: Lender Services, Data Services, Dealer Services, Employer Services, Multifamily Services, and Investigative and Litigation Support Services. The business lines in the Lender Services segment offers lenders across the country credit reporting solutions for mortgage and home equity needs. The Data Services segment includes business lines that provide transportation credit reporting, motor vehicle record reporting, fleet management, supply chain theft and damage mitigation consulting, consumer location, criminal records reselling, subprime credit reporting, and consumer credit reporting services. The Dealer Services business segment serves the automotive dealer marketplace by delivering consolidated consumer credit reports, credit automation software and lead development services. The Employer Services segment is comprised of the business lines that deliver global employment background verifications, occupational health services, tax credits and incentives programs and other business tax consulting services that are frequently sold to support organization’s human resource functions. The Multifamily Services segment’s business lines include resident screening, property management software and renters insurance services—providing solutions to property owners and managers across the nation. The Investigative and Litigation Support Services segment consists of the business lines that support businesses, insurers and law firms nationwide with their insurance fraud investigations, surveillance, computer forensics, electronic discovery, data recovery, due diligence reporting and corporate and litigation investigative needs.

 

The First American Corporation and affiliates (“First American”) own approximately 85% of the shares of capital stock of the Company as of September 30, 2005. The Class B common stock owned by First American is entitled to ten votes per share on all matters presented to the stockholders for vote.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial information included in this report has been prepared in accordance with the instructions to Form 10-Q and does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments are of a normal recurring nature and are considered necessary for a fair statement of the results for the interim period. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission and the Proxy Statement filed June 30, 2005.

 

The accompanying financial statements have been prepared to give effect to the acquisition of the Consumer Information Group (“CIG”) Business by First Advantage. The acquisition of the CIG Business by First Advantage is a transaction between businesses under the common control of First American. In acquisition of businesses under common control, the acquiring company

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

records acquired assets and liabilities at historical costs. The historical income statements of First Advantage for the three and nine months ended September 30, 2005 and 2004 have been restated to include operations of the CIG business at historical cost assuming the acquisition was completed on January 1, 2004. The balance sheet at December 31, 2004 has been restated to reflect the acquisition.

 

On September 14, 2005 in connection with the consummation of the acquisition of the CIG Business and related businesses from First American, First Advantage repaid in full the principal amount of $20 million under a promissory note originally issued to First American, by issuing 975,610 shares of First Advantage’s Class B common stock.

 

In conjunction with the CIG acquisition, First Advantage will be obligated to issue additional shares of Class B common stock to First American in the future if DealerTrack (a 21% owned equity investee) consummates an initial public offering of its stock on or prior to September 14, 2007 and the value of the DealerTrack Interest exceeds $50 million. If DealerTrack completes an IPO within 180 days of September 14, 2005, the number of shares to be issued will be equal to the quotient of (x) 50% of the amount by which the value of the DealerTrack Interest exceeds $50 million (based on the average closing price per share of DealerTrack’s stock over the 60 business day period beginning on the fifth business day after the completion of its initial public offering), divided by (y) $20.50. If the DealerTrack IPO occurs after the 180-day period following September 14, 2005 (but prior to September 14, 2007), the number of additional Class B common shares issuable to First American will be equal to the quotient of (x) 50% of the amount by which the DealerTrack Interest exceeds $50 million (based on the average closing price per share of DealerTrack’s stock over the 60 business day period beginning on the fifth business day after its initial public offering), divided by (y) the average closing price per share of First Advantage’s Class A common stock during the 30 trading day period ending on the third trading day prior to the date of DealerTrack’s IPO, except that the minimum price per share will be $20.50.

 

First Advantage completed three additional acquisitions during the third quarter of 2005. The Company’s operating results for the three and nine months ended September 30, 2005 and 2004 include results for the acquired entities, other than CIG, from their respective dates of acquisition.

 

Operating results for the three and nine months ended September 30, 2005 and 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year.

 

The results of operations for the nine months ended September 30, 2005, include $3.2 million of nondeductible merger costs that First Advantage incurred in connection with its pending acquisition of the CIG Business from First American; $2.0 million of costs incurred in connection with the relocation of the company’s corporate headquarters and other office consolidations; and $0.6 million of costs related to the launch of the corporate branding initiative that was announced in June 2005. These costs are included in the Company’s Corporate segment.

 

Accounts Receivable

 

Accounts receivable are due from companies in a broad range of industries located throughout the United States. Credit is extended based on an evaluation of the customer’s financial condition, and generally, collateral is not required.

 

The allowance for all probable uncollectible receivables is based on a combination of historical data, cash payment trends, specific customer issues, write-off trends, general economic conditions and other factors. These factors are continuously monitored by management to arrive at the estimate for the amount of accounts receivable that may be ultimately uncollectible. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, the Company records a specific allowance for doubtful accounts against amounts due, to reduce the net recognized receivable to the amount it reasonably believes will be collected. Management believes that the allowance at September 30, 2005 and December 31, 2004 is reasonably stated.

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

Comprehensive Income

 

Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income”, governs the financial statement presentation of changes in stockholders’ equity resulting from non-owner sources. Comprehensive income includes all changes in equity except those resulting from investments by owners and distribution to owners.

 

Impairment of Intangible and Long-Lived Assets

 

First Advantage carries intangible and long-lived assets at cost less accumulated amortization. Accounting standards require that assets be written down if they become impaired. Intangible and long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is not recoverable. At such time that an impairment in value of an intangible or long-lived asset is identified, the impairment will be measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. Fair value is determined by employing an expected present value technique, which utilizes multiple cash flow scenarios that reflect the range of possible outcomes and an appropriate discount rate.

 

Stock Based Compensation Plan

 

The Company adopted SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure,” as of January 1, 2003 with respect to the disclosure requirements. The Company has elected to continue accounting for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. If the Company had elected or was required to apply the fair value recognition provisions of SFAS No. 123, “Accounting for Stock Based Compensation,” to stock-based employee compensation, net income and net income per share would have been reduced to the pro forma amounts indicated in the following table.

 

     Three Months Ended
September 30,


   Nine Months Ended
September 30,


     2005

   2004

   2005

   2004

Net income, as reported

   $ 16,023,000    $ 12,962,000    $ 42,698,000    $ 32,844,000

Less: stock based compensation expense, net of tax

     1,008,000      820,000      3,146,000      2,502,000
    

  

  

  

Pro forma net income

   $ 15,015,000    $ 12,142,000    $ 39,552,000    $ 30,342,000
    

  

  

  

Earnings per share:

                           

Basic, as reported

   $ 0.30    $ 0.26    $ 0.82    $ 0.67

Basic, pro forma

   $ 0.28    $ 0.24    $ 0.76    $ 0.62

Diluted, as reported

   $ 0.30    $ 0.26    $ 0.81    $ 0.66

Diluted, pro forma

   $ 0.28    $ 0.24    $ 0.75    $ 0.61

 

In December 2004, the FASB issued SFAS No. 123R (Revised 2004), “Share-Based Payment.” SFAS No. 123R is a revision of FASB Statement 123 “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25 “Accounting for Stock Issued to Employees” and its related implementation guidance. The Statement focuses primarily on

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. In April 2005, the Securities and Exchange Commission approved a new rule that amended the effective date of SFAS 123R, whereby the Company will now be required to adopt this standard no later than January 1, 2006. Based on options outstanding at September 30, 2005, the Company estimates the effects of FAS 123R will reduce diluted earnings per share by $0.09 in 2006.

 

Revenue Recognition

 

Revenue from the sale of reports is recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery. Revenue from investigative services is recognized as services are performed. In accordance with generally accepted accounting principles, the Company includes reimbursed government fees in revenue and in cost of service. Membership fees, billed monthly to member’s accounts, are recognized in the month the fee is earned. A portion of the membership revenue received is paid in the form of a commission to clients and is reflected in other operating expenses. Revenue earned from providing services to third party issuers of membership based consumer products is recognized at the time the service is provided, generally on a monthly basis. Software maintenance revenues are recognized ratably over the term of the maintenance period. Custom programming and professional consulting service revenue is recognized using the percentage-of-completion method pursuant to Accounting Research Bulletin (ARB) No. 45 “Long-Term Construction-Type Contracts.” To the extent that interim amounts billed to clients exceed revenue earned, deferred income is recorded. Other revenue is recognized upon completion of the contractual obligation, which is typically evidenced by delivery of the product or performance of the service.

 

3. Acquisitions

 

During the first quarter of 2005, the Company completed two acquisitions and made a scheduled payment amounting to $233,000 of Class A shares related to a prior year acquisition. During the second quarter of 2005, the Company acquired four companies. The Company acquired three companies in the third quarter of 2005. These acquisitions have been included in the Company’s Lender Services, Dealer Services, Employer Services, Multifamily Services, and Investigative and Litigation Support Services segments. The preliminary allocation of the purchase price is based upon estimates of the assets and liabilities acquired in accordance with SFAS No. 141, “Business Combinations.” The allocations may be revised in 2005. The acquisition of these companies is based on management’s consideration of past and expected future performance as well as the potential strategic fit with the long-term goals of the Company. The expected long-term growth, market position and expected synergies to be generated by inclusion of these

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

companies are the primary factors which gave rise to an acquisition price which resulted in the recognition of goodwill.

 

The aggregate purchase price of acquisitions completed during 2005 is as follows:

 

Cash

   $ 30,960,000

Notes

     16,905,000

Stock (729,557 Class A shares)

     16,200,000

Stock (2,243,903 Class B shares)

     46,555,000
    

Purchase price

   $ 110,620,000
    

 

The preliminary allocation of the aggregate purchase price of these acquisitions is as follows:

 

Goodwill

   $ 87,168,000

Identifiable intangible assets

     15,457,000

Net assets acquired

     7,995,000
    

     $ 110,620,000
    

 

The changes in the carrying amount of goodwill, by operating segment, are as follows for the nine months ended September 30, 2005:

 

    

Balance at

December 31, 2004


   Acquisitions

   Adjustments to net
assets acquired


  

Recognition of pre-

acquisition tax

loss carryforwards


    Balance at
September 30, 2005


Lender Services

   $ 27,710,000    $ 12,210,000    $ —      $ —       $ 39,920,000

Data Services

     116,013,000      —        211,000      (16,911,000 )     99,313,000

Dealer Services

     34,727,000      24,043,000      —        —         58,770,000

Employer Services

     123,834,000      43,553,000      355,000      (12,514,000 )     155,228,000

Multifamily Services

     44,740,000      4,531,000      2,371,000      (3,909,000 )     47,733,000

Investigative and Litigation Support Services

     33,572,000      2,831,000      75,000      —         36,478,000
                                    —  
    

  

  

  


 

Consolidated

   $ 380,596,000    $ 87,168,000    $ 3,012,000    $ (33,334,000 )   $ 437,442,000
    

  

  

  


 

 

The adjustment to net assets acquired represents changes in the fair value of net assets acquired in connection with acquisitions consummated within the past twelve months.

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

Unaudited pro forma results of operations assuming all acquisitions were consummated on January 1, 2004 are as follows:

 

     For the Three Months Ended
September 30,


   For the Nine Months Ended
September 30,


     2005

   2004

   2005

   2004

Total revenue

   $ 172,301,000    $ 155,425,000    $ 502,145,000    $ 466,331,000
    

  

  

  

Net income

   $ 15,202,000    $ 12,411,000    $ 41,292,000    $ 31,299,000
    

  

  

  

Earnings per share:

                           

Basic

   $ 0.28    $ 0.23    $ 0.78    $ 0.59

Diluted

   $ 0.28    $ 0.23    $ 0.77    $ 0.59

Weighted-average common shares outstanding:

                           

Basic

     53,426,913      53,052,432      53,235,521      52,931,196

Diluted

     54,191,069      53,126,248      53,719,828      53,092,063

 

4. Goodwill and Intangible Assets

 

In accordance with SFAS No.142, “Goodwill and Other Intangible Assets,” the Company will complete the transitional goodwill impairment test for all reporting units. The annual test for impairment will be performed in the fourth quarter of 2005 (using the September 30 valuation date). There have been no impairments of goodwill during the nine months ending September 30, 2005.

 

The Company has approximately $54.2 million of intangible assets at September 30, 2005, with definite lives ranging from 2 to 20 years.

 

Goodwill and other intangible assets for the years ended September 30, 2005 and December 31, 2004 are as follows:

 

     September 30, 2005

    December 31, 2004

 

Goodwill

   $ 437,442,000     $ 380,596,000  
    


 


Intangible assets:

                

Customer lists

   $ 56,615,000     $ 44,841,000  

Noncompete agreements

     5,295,000       3,356,000  

Other

     2,113,000       913,000  
    


 


       64,023,000       49,110,000  

Less accumulated amortization

     (9,836,000 )     (5,514,000 )
    


 


Intangible assets, net

   $ 54,187,000     $ 43,596,000  
    


 


 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

Amortization of intangible assets totaled $4,879,000 and $2,649,000 for the nine months ended September 30, 2005 and 2004, respectively. Estimated amortization expense relating to intangible asset balances as of September 30, 2005 is expected to be as follows over the next five years:

 

2005

   $ 2,028,000

2006

     7,998,000

2007

     7,461,000

2008

     6,450,000

2009

     5,849,000

Thereafter

     24,401,000
    

     $ 54,187,000
    

 

The changes in the carrying amount of identifiable intangible assets are as follows for the nine months ended September 30, 2005:

 

     Intangible
Assets


 

Balance, at December 31, 2004

   $ 43,596,000  

Acquisitions

     15,457,000  

Adjustments

     13,000  

Amortization

     (4,879,000 )
    


Balance, at September 30, 2005

   $ 54,187,000  
    


 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

5. Debt

 

Long-term debt consists of the following at September 30, 2005:

 

Acquisition notes:

      

Weighted average interest rate of 4.75% with maturities through 2008

   $ 41,907,000

Bank notes:

      

$225 million Secured Credit Facility, interest at 30-day LIBOR plus 1.25% (5.11% at September 30, 2005), matures September 2010

     74,500,000

Promissory Note with First American:

      

$10 million revolving loan, interest at 30-day LIBOR plus 1.75% (5.61% at September 30, 2005), matures July 2006

     10,000,000

Capital leases and other debt:

      

Various interest rates with maturities through 2006

     486,000
    

Total long-term debt and capital leases

     126,893,000

Less current portion of long-term debt and capital leases

     31,685,000
    

Long-term debt and capital leases, net of current portion

   $ 95,208,000
    

 

On September 14, 2005, at the closing of the CIG Acquisition, the Company executed a $45 million unsecured subordinated promissory note in favor of First American. Under the note, First Advantage may borrow, repay and re-borrow for up to and including 90 days from closing. The note matures 135 days after September 14, 2005. The note bears interest at the rate payable under First Advantage’s line of credit with Bank of America, N.A. plus 0.5% per annum. Proceeds of the note may be used only for working capital of CIG. There is no outstanding balance at September 30, 2005.

 

On September 29, 2005, the Company executed of a revolving credit agreement, with a bank syndication (the “Credit Agreement”). Borrowings available under the Credit Agreement total up to $225 million. The Credit Agreement includes a $10 million sub-facility for the issuance of letters of credit and up to a $5 million swing loan facility. The credit facility maturity date is September 28, 2010.

 

The interest rate is based on the one of two options consisting of 1) the higher of Federal Funds Rate plus  1/2% and Bank of America’s announced “Prime Rate” or 2) a “LIBOR based rate”. The “LIBOR based rate” is based on LIBOR plus a margin that can range from 1.125% to 1.75% (based on progressive levels of leverage). First Advantage management must elect the LIBOR based option up to three days prior to its utilization.

 

The agreement contains usual and customary negative covenants for transactions of this type including but not limited to those regarding liens, investments, creation of indebtedness and fundamental changes, as well as financial covenants of consolidated leverage ratio and minimum consolidated fixed charge coverage ratio.

 

The agreement contains usual and customary provisions regarding acceleration. In the event of a default by the Company under the credit facility, the lenders will have no further obligation to make loans or issue letters of credit and in some cases may, at the option of a majority of the lenders, declare all amounts owed by the Company immediately due and payable and require the

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

Company to provide collateral, and in some cases any amounts owed by the Company under the credit facility will automatically become immediately due and payable.

 

At September 30, 2005, the Company was in compliance with the financial covenants of its loan agreement.

 

6. Income Taxes

 

The effective tax rate was 40% and 43% for the three and nine months ended September 30, 2005, respectively. The nine month rate exceeds the Company's statutory tax rate primarily due to the nondeductible merger costs of $3.2 million that were incurred in the second quarter of 2005 in connection with the pending acquisition of the CIG Business from First American.

 

The net change in the total valuation allowance for the third quarter 2005 was a decrease of $33 million with an offsetting entry to goodwill. The valuation allowance relates primarily to deferred tax assets for federal net operating-loss carryforwards relating to acquisitions. Utilization of the pre-acquisition net operating losses is subject to limitations by the Internal Revenue Code and state jurisdictions. The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance if necessary. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.

 

Based upon a sustained pattern of historical taxable income, projections for future taxable income over the periods in which the net operating losses will be deductible, and the impact the CIG acquisition had on the pooled historical taxable income and on the projections for future taxable income, management believes it is more likely than not that First Advantage will realize the benefits of the federal net operating losses. The valuation allowance relating to the state net operating-loss carryforwards will remain until further evidence is available to indicate that these deferred assets are realizable.

 

7. Earnings Per Share

 

A reconciliation of earnings per share and weighted-average shares outstanding is as follows:

 

     Three Months Ended
September 30,


   Nine Months Ended
September 30,


     2005

   2004

   2005

   2004

Net Income

   $ 16,023,000    $ 12,962,000    $ 42,698,000    $ 32,844,000

Interest on convertible note, net of tax

     —        40,000      —        81,000
    

  

  

  

Net Income - numerator for basic and fully diluted earnings per share

   $ 16,023,000    $ 13,002,000    $ 42,698,000    $ 32,925,000

Denominator:

                           

Weighted-average shares for basic earnings per share

     53,200,609      49,683,345      52,132,551      49,318,123

Effect of dilutive securities

     764,157      73,816      484,307      160,868

Convertible notes

     —        371,600      —        167,673
    

  

  

  

Denominator for diluted earnings per share

     53,964,766      50,128,761      52,616,858      49,646,664
    

  

  

  

Earnings per share:

                           

Basic

   $ 0.30    $ 0.26    $ 0.82    $ 0.67

Diluted

   $ 0.30    $ 0.26    $ 0.81    $ 0.66

 

For the three months ended September 30, 2005 and 2004, options and warrants totaling 361,398 and 2,163,305, respectively, were excluded from the weighted average diluted shares outstanding, as they were antidilutive. For the nine months ended September 30, 2005 and 2004, options and warrants totaling 312,125 and 1,853,676, respectively, were excluded from the weighted average diluted shares outstanding, as they were antidilutive.

 

8. Segment Information

 

The Company operates in six primary business segments: Lender Services, Data Services, Dealer Services, Employer Services, Multifamily Services, and Investigative and Litigation Support Services.

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

The Lender Services segment offers lenders across the country credit reporting solutions for mortgage and home equity needs.

 

The Data Services segment includes business lines that provide transportation credit reporting, motor vehicle record reporting, fleet management, supply chain theft and damage mitigation consulting, consumer location, criminal records reselling, subprime credit reporting, and consumer credit reporting services. Revenue for the Data Services segment includes $68,000 and $230,000 of inter-segment sales for the three months ended September 30, 2005 and 2004, respectively, and $220,000 and $421,000 for the nine months ended September 30, 2005 and 2004, respectively.

 

The Dealer Services business segment serves the automotive dealer marketplace by delivering consolidated consumer credit reports, credit automation software and lead development services.

 

The Employer Services segment includes employment background screening, occupational health services and tax incentive services. Products and services relating to employment background screening include criminal records searches, employment and education verification, social security number verification and credit reporting. Occupational health services include drug-free workplace programs, physical examinations and employee assistance programs. Tax incentive services include services related to the administration of employment-based and location-based tax credit and incentive programs, sales and use tax programs and fleet asset management programs. Revenue for the Employer Services segment includes $210,000 and $213,000 of inter-segment sales for the three months ended September 30, 2005 and 2004, respectively, and $600,000 and $682,000 for the nine months ended September 30, 2005 and 2004, respectively.

 

The Multifamily Services segment includes resident screening and software services. Resident screening services include criminal background and eviction searches, credit reporting, employment verification and lease performance and payment histories. Revenue for the Multifamily Services segment includes $92,000 and $42,000 of inter-segment sales for the three months ended September 30, 2005 and 2004, respectively, and $228,000 and $42,000 for the nine months ended September 30, 2005 and 2004, respectively.

 

The Investigative and Litigation Support Services segment includes all investigative services. Products and services offered by the Investigative and Litigation Support Services segment includes surveillance services, field interviews, computer forensics, electronic discovery, due diligence reports and other high level investigations.

 

The elimination of inter-segment revenue and cost of service revenue is included in Corporate. These transactions are recorded at cost.

 

International operations are included in the Employer Services segment and include revenue of $2,854,000 and $352,000 for the three months ended September 30, 2005 and 2004, respectively, and $6,011,000 and $780,000 for the nine months ended September 30, 2005 and 2004, respectively.

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

The following table sets forth segment information for the three and nine months ended September 30, 2005 and 2004.

 

     Revenue

    Depreciation
and Amortization


   Income (Loss)
From Operations


    Assets

Three Months Ended September 30, 2005

                             

Lender Services

   $ 43,907,000     $ 1,760,000    $ 12,971,000     $ 82,745,000

Data Services

     32,161,000       1,465,000      7,206,000       137,240,000

Dealer Services

     29,219,000       641,000      3,964,000       117,427,000

Employer Services

     40,404,000       1,371,000      3,560,000       221,343,000

Multifamily Services

     17,544,000       1,023,000      4,824,000       76,847,000

Investigative and Litigation Support Services

     8,237,000       385,000      353,000       49,169,000

Corporate and Eliminations

     (1,526,000 )     40,000      (4,742,000 )     46,777,000
    


 

  


 

Consolidated

   $ 169,946,000     $ 6,685,000    $ 28,136,000     $ 731,548,000
    


 

  


 

Three Months Ended September 30, 2004

                             

Lender Services

   $ 33,870,000     $ 1,657,000    $ 9,125,000     $ 62,113,000

Data Services

     25,105,000       1,307,000      5,102,000       142,331,000

Dealer Services

     18,355,000       404,000      2,125,000       87,267,000

Employer Services

     34,733,000       1,080,000      3,822,000       152,409,000

Multifamily Services

     15,711,000       1,064,000      4,498,000       74,976,000

Investigative and Litigation Support Services

     6,770,000       343,000      612,000       45,616,000

Corporate and Eliminations

     (471,000 )     23,000      (2,982,000 )     18,784,000
    


 

  


 

Consolidated

   $ 134,073,000     $ 5,878,000    $ 22,302,000     $ 583,496,000
    


 

  


 

Nine Months Ended September 30, 2005

                             

Lender Services

   $ 128,963,000     $ 4,942,000    $ 37,596,000     $ 82,745,000

Data Services

     92,083,000       4,403,000      20,956,000       137,240,000

Dealer Services

     72,252,000       1,639,000      10,522,000       117,427,000

Employer Services

     112,642,000       3,846,000      10,550,000       221,343,000

Multifamily Services

     49,134,000       3,003,000      14,155,000       76,847,000

Investigative and Litigation Support Services

     23,142,000       1,146,000      1,032,000       49,169,000

Corporate and Eliminations

     (4,525,000 )     106,000      (17,027,000 )     46,777,000
    


 

  


 

Consolidated

   $ 473,691,000     $ 19,085,000    $ 77,784,000     $ 731,548,000
    


 

  


 

Nine Months Ended September 30, 2004

                             

Lender Services

   $ 103,480,000     $ 5,322,000    $ 31,012,000     $ 62,113,000

Data Services

     82,547,000       3,882,000      8,541,000       142,331,000

Dealer Services

     53,022,000       1,179,000      6,665,000       87,267,000

Employer Services

     92,480,000       3,194,000      6,838,000       152,409,000

Multifamily Services

     41,838,000       2,715,000      9,982,000       74,976,000

Investigative and Litigation Support Services

     18,687,000       790,000      621,000       45,616,000

Corporate and Eliminations

     (1,959,000 )     52,000      (7,636,000 )     18,784,000
    


 

  


 

Consolidated

   $ 390,095,000     $ 17,134,000    $ 56,023,000     $ 583,496,000
    


 

  


 

 

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Table of Contents

First Advantage Corporation

 

Notes to Consolidated Financial Statements

September 30, 2005 and 2004 (Unaudited)

 

9. Subsequent Event

 

Subsequent to September 30, 2005, the Company has acquired four companies. In consideration for the purchase of the assets and membership interest, the Company paid the sellers an aggregate purchase price of $140.1 million comprised of $71.3 million in cash, $35.0 million of subordinated notes, and $33.8 million in Class A shares.

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Note of Caution Regarding Forward Looking Statements

 

Certain statements in this quarterly report on Form 10-Q relate to future results of the Company and are considered “forward-looking statements”. These statements, which may be expressed in a variety of ways, including the use of future or present tense language, relate to among other things, sufficiency and availability of cash flows and other sources of liquidity, current levels of operations, anticipated growth, future market positions, synergies from integration, ability to execute its growth strategy, levels of capital expenditures and ability to satisfy current debt. These forward-looking statements, and others forward-looking statements contained in other public disclosures of the Company are based on assumptions that involve risks and uncertainties, and that are subject to change based on various important factors (some of which are beyond the Company’s control). Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include: general volatility of the capital markets and the market price of the Company’s Class A common stock; the Company’s ability to successfully raise capital; the Company’s ability to identify and complete acquisitions and to successfully integrate businesses it acquires; changes in applicable government regulations; the degree and nature of the Company’s competition; increases in the Company’s expenses; continued consolidation among the Company’s competitors and customers; unanticipated technological changes and requirements; the Company’s ability to identify suppliers of quality and cost-effective data; and other factors described in this quarterly report on Form 10-Q. Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties. The forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

 

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

Overview

 

First Advantage Corporation (Nasdaq: FADV) (“First Advantage” or the “Company”) is a global risk mitigation and business solutions provider. The Company now operates in six primary business segments: Lender Services, Data Services, Dealer Services, Employer Services, Multifamily Services, and Investigative & Litigation Support Services. First Advantage is headquartered in St. Petersburg, Florida, and has approximately 3,700 employees in offices throughout the United States and abroad. For the nine months ended September 30, 2005, First Advantage has acquired nine companies and completed the merger of the CIG Business.

 

On September 14, 2005, the Company completed the acquisition to buy First American’s CIG Business under the terms of the master transfer agreement. First Advantage paid for the CIG Business and related businesses with 29,073,170 shares of its Class B common stock. The acquisition of CIG by First Advantage is a transaction between businesses under common control of First American. As such, First Advantage has recorded the assets and liabilities of CIG at historical cost. Historical income statements of First Advantage have been restated to include results of operations of CIG at historical costs.

 

Operating results for the three and nine months ended September 30, 2005 included total revenue of $169.9 million and $473.7 million, respectively, representing an increase of 26.8% and 30.6% over the same periods in 2004, with 11.0% and 8.4% of that growth being organic growth. Net income for the three and nine months ended September 30, 2005 was $16.0 million and $42.7 million, respectively. Net income increased $3.1 million for the three months and $9.9 million for the nine months ended September 30, 2005 in comparison to the same periods in 2004.

 

For the nine months ended September 30, 2005, the results of operations include $3.2 million of nondeductible merger costs that First Advantage incurred in connection with its pending acquisition of the CIG Business from First American; $2.0 million of costs incurred in connection with the relocation of the company’s corporate headquarters and other office consolidations; and $.6 million of costs related to the launch of the corporate branding initiative that was announced in September 2005. These costs are included in the Company’s corporate segment.

 

Critical Accounting Policies

 

Critical accounting policies are those policies used in the preparation of the company’s financial statements that require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosure of contingencies. A summary of these policies can be found in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for year ended December 31, 2004 and the Proxy Statement filed June 30, 2005.

 

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Table of Contents

The following is a summary of the operating results by the Company’s business segments for the three months ended September 30, 2005 and 2004 and for the nine months ended September 30, 2005 and 2004.

 

Quarter ending September 30, 2005


 

Lender

Services


   

Data

Services


    Dealer
Services


    Employer
Services


    Multifamily
Services


    Invest/Litigation
Support Services


    Corporate

    Total

 

Service revenue

  $ 43,907,000     $ 22,100,000     $ 29,219,000     $ 37,673,000     $ 17,544,000     $ 8,237,000     $ (934,000 )   $ 157,746,000  

Reimbursed government fee revenue

    —         10,061,000       —         2,731,000       —         —         (592,000 )     12,200,000  
   


 


 


 


 


 


 


 


Total revenue

    43,907,000       32,161,000       29,219,000       40,404,000       17,544,000       8,237,000       (1,526,000 )     169,946,000  

Cost of service revenue

    14,200,000       3,624,000       15,635,000       12,132,000       1,788,000       3,443,000       (941,000 )     49,881,000  

Government fees paid

    —         10,061,000       —         2,731,000       —         —         (592,000 )     12,200,000  
   


 


 


 


 


 


 


 


Total cost of service

    14,200,000       13,685,000       15,635,000       14,863,000       1,788,000       3,443,000       (1,533,000 )     62,081,000  

Gross margin

    29,707,000       18,476,000       13,584,000       25,541,000       15,756,000       4,794,000       7,000       107,865,000  

Salaries and benefits

    12,500,000       3,922,000       4,222,000       13,559,000       6,064,000       2,715,000       3,664,000       46,646,000  

Facilities and telecommunications

    1,916,000       632,000       422,000       1,514,000       808,000       296,000       617,000       6,205,000  

Other operating expenses

    560,000       5,251,000       4,335,000       5,537,000       3,037,000       1,045,000       428,000       20,193,000  

Depreciation and amortization

    1,760,000       1,465,000       641,000       1,371,000       1,023,000       385,000       40,000       6,685,000  
   


 


 


 


 


 


 


 


Income (loss) from operations

  $ 12,971,000     $ 7,206,000     $ 3,964,000     $ 3,560,000     $ 4,824,000     $ 353,000     $ (4,742,000 )   $ 28,136,000  
   


 


 


 


 


 


 


 


Operating margin percentage

    29.5 %     32.6 %     13.6 %     9.4 %     27.5 %     4.3 %     N/A       17.8 %

Quarter ending September 30, 2004


 

Lender

Services


   

Data

Services


    Dealer
Services


    Employer
Services


    Multifamily
Services


    Invest/Litigation
Support Services


    Corporate

    Total

 

Service revenue

  $ 33,870,000     $ 16,678,000     $ 18,355,000     $ 31,952,000     $ 15,711,000     $ 6,770,000     $ (471,000 )   $ 122,865,000  

Reimbursed government fee revenue

    —         8,427,000       —         2,781,000       —         —         —         11,208,000  
   


 


 


 


 


 


 


 


Total revenue

    33,870,000       25,105,000       18,355,000       34,733,000       15,711,000       6,770,000       (471,000 )     134,073,000  

Cost of service revenue

    10,020,000       2,957,000       8,652,000       11,396,000       1,624,000       3,041,000       (471,000 )     37,219,000  

Government fees paid

    —         8,427,000       —         2,781,000       —         —         —         11,208,000  
   


 


 


 


 


 


 


 


Total cost of service

    10,020,000       11,384,000       8,652,000       14,177,000       1,624,000       3,041,000       (471,000 )     48,427,000  

Gross margin

    23,850,000       13,721,000       9,703,000       20,556,000       14,087,000       3,729,000       —         85,646,000  

Salaries and benefits

    10,802,000       2,735,000       2,932,000       10,879,000       5,318,000       1,956,000       2,396,000       37,018,000  

Facilities and telecommunications

    1,561,000       538,000       562,000       1,446,000       784,000       262,000       180,000       5,333,000  

Other operating expenses

    705,000       4,039,000       3,680,000       3,329,000       2,423,000       556,000       383,000       15,115,000  

Depreciation and amortization

    1,657,000       1,307,000       404,000       1,080,000       1,064,000       343,000       23,000       5,878,000  
   


 


 


 


 


 


 


 


Income (loss) from operations

  $ 9,125,000     $ 5,102,000     $ 2,125,000     $ 3,822,000     $ 4,498,000     $ 612,000     $ (2,982,000 )   $ 22,302,000  
   


 


 


 


 


 


 


 


Operating margin percentage

    26.9 %     30.6 %     11.6 %     12.0 %     28.6 %     9.0 %     N/A       18.2 %

Nine months ending September 30, 2005


 

Lender

Services


   

Data

Services


    Dealer
Services


    Employer
Services


    Multifamily
Services


    Invest/Litigation
Support Services


    Corporate

    Total

 

Service revenue

  $ 128,963,000     $ 61,860,000     $ 72,252,000     $ 104,451,000     $ 49,134,000     $ 23,142,000     $ (2,780,000 )   $ 437,022,000  

Reimbursed government fee revenue

    —         30,223,000       —         8,191,000       —         —         (1,745,000 )     36,669,000  
   


 


 


 


 


 


 


 


Total revenue

    128,963,000       92,083,000       72,252,000       112,642,000       49,134,000       23,142,000       (4,525,000 )     473,691,000  

Cost of service revenue

    41,773,000       8,928,000       36,754,000       33,808,000       4,862,000       9,689,000       (2,788,000 )     133,026,000  

Government fees paid

    —         30,223,000       —         8,191,000       —         —         (1,745,000 )     36,669,000  
   


 


 


 


 


 


 


 


Total cost of service

    41,773,000       39,151,000       36,754,000       41,999,000       4,862,000       9,689,000       (4,533,000 )     169,695,000  

Gross margin

    87,190,000       52,932,000       35,498,000       70,643,000       44,272,000       13,453,000       8,000       303,996,000  

Salaries and benefits

    37,764,000       11,161,000       10,435,000       37,175,000       16,662,000       7,846,000       9,265,000       130,308,000  

Facilities and telecommunications

    5,320,000       1,839,000       865,000       4,619,000       2,472,000       801,000       3,058,000       18,974,000  

Other operating expenses

    1,568,000       14,573,000       12,037,000       14,453,000       7,980,000       2,628,000       4,606,000       57,845,000  

Depreciation and amortization

    4,942,000       4,403,000       1,639,000       3,846,000       3,003,000       1,146,000       106,000       19,085,000  
   


 


 


 


 


 


 


 


Income (loss) from operations

  $ 37,596,000     $ 20,956,000     $ 10,522,000     $ 10,550,000     $ 14,155,000     $ 1,032,000     $ (17,027,000 )   $ 77,784,000  
   


 


 


 


 


 


 


 


Operating margin percentage

    29.2 %     33.9 %     14.6 %     10.1 %     28.8 %     4.5 %     N/A       17.8 %

 

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Table of Contents

Nine months ending September 30, 2004


 

Lender

Services


   

Data

Services


    Dealer
Services


    Employer
Services


    Multifamily
Services


    Invest/Litigation
Support Services


    Corporate

    Total

 

Service revenue

  $ 103,480,000     $ 56,794,000     $ 53,022,000     $ 84,664,000     $ 41,838,000     $ 18,687,000     $ (1,959,000 )   $ 356,526,000  

Reimbursed government fee revenue

    —         25,753,000       —         7,816,000       —         —         —         33,569,000  
   


 


 


 


 


 


 


 


Total revenue

    103,480,000       82,547,000       53,022,000       92,480,000       41,838,000       18,687,000       (1,959,000 )     390,095,000  

Cost of service revenue

    29,963,000       14,063,000       24,357,000       31,830,000       4,779,000       9,868,000       (1,959,000 )     112,901,000  

Government fees paid

    —         25,753,000       —         7,816,000       —         —         —         33,569,000  
   


 


 


 


 


 


 


 


Total cost of service

    29,963,000       39,816,000       24,357,000       39,646,000       4,779,000       9,868,000       (1,959,000 )     146,470,000  

Gross margin

    73,517,000       42,731,000       28,665,000       52,834,000       37,059,000       8,819,000       —         243,625,000  

Salaries and benefits

    32,607,000       8,618,000       8,449,000       28,819,000       15,509,000       5,100,000       6,774,000       105,876,000  

Facilities and telecommunications

    5,095,000       1,621,000       1,467,000       4,334,000       2,038,000       629,000       489,000       15,673,000  

Other operating expenses

    (519,000 )     20,069,000       10,905,000       9,649,000       6,815,000       1,679,000       321,000       48,919,000  

Depreciation and amortization

    5,322,000       3,882,000       1,179,000       3,194,000       2,715,000       790,000       52,000       17,134,000  
   


 


 


 


 


 


 


 


Income (loss) from operations

  $ 31,012,000     $ 8,541,000     $ 6,665,000     $ 6,838,000     $ 9,982,000     $ 621,000     $ (7,636,000 )   $ 56,023,000  
   


 


 


 


 


 


 


 


Operating margin percentage

    30.0 %     15.0 %     12.6 %     8.1 %     23.9 %     3.3 %     N/A       15.7 %

 

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Table of Contents

Lender Services Segment

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Total service revenue was $43.9 million for the three months ended September 30, 2005, an increase of $10.0 million compared to service revenue of $33.9 million in the same period of 2004. The acquisition of a mortgage credit reporting business during the first quarter of 2005 accounted for $5.0 million of the increase and an increase in transaction volume accounted for the additional growth in service revenue.

 

Cost of service revenue was $14.2 million for the three months ended September 30, 2005, an increase of $4.2 million compared to cost of service revenue of $10.0 million in the same period of 2004. The acquisition of a mortgage credit reporting business during the first quarter of 2005 accounted for $2.0 million of the increase, and an increase in transactions and the addition of a surcharge by the three credit bureaus related to free credit reports to consumers pursuant to the FACT Act were the primary reasons for the additional increase in the cost of service revenue.

 

Salaries and benefits increased by $1.7 million. Salaries and benefits were 28.5% of service revenue in the third quarter of 2005 compared to 31.9% in the same period of 2004. Salaries and benefits expense increased $1.2 million due to the acquisition, and the percentage decrease is primarily due to the efficiencies obtained on the increased transaction volume and related revenues.

 

Facilities and telecommunication expenses increased by $.4 million. Facilities and telecommunication expenses were 4.4% of service revenue in the third quarter of 2005 and 4.6% in the third quarter of 2004. The percentage decrease is primarily due to the increase in revenues.

 

Other operating expenses decreased by $.1 million. Other operating expenses were 1.3% of service revenue in the third quarter of 2005 and 2.1% in the third quarter of 2004. The decrease is primarily due to non-recurring professional fees incurred during the third quarter of 2004.

 

Depreciation and amortization increased by $.1 million due to an increase in amortization of intangible assets as a result of the acquisition.

 

The operating margin percentage increased from 26.9% to 29.5% primarily due to the 2004 period having certain non-recurring professional fees not incurred in 2005, and due to operational efficiencies achieved in 2005 based on the growth in transactions and related increase in revenue.

 

Income from operations was $13.0 million for the third quarter of 2005 compared to $9.1 million in the third quarter of 2004. Operating income from existing businesses increased by $3.4 million.

 

Data Services Segment

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Total service revenue was $22.1 million for the three months ended September 30, 2005, an increase of $5.4 million compared to service revenue of $16.7 million in the same period of 2004. Acquisitions accounted for $2.7 million of the revenue growth.

 

Salaries and benefits increased by $1.2 million. Salaries and benefits were 17.7% of service revenue in the third quarter of 2005 compared to 16.4% in the same period of 2004. The increase is based on additional employees brought in through acquisitions.

 

Facilities and telecommunication expenses were comparable to the same period in 2004. Facilities and telecommunication expenses were 2.9% of service revenue in the third quarter of 2005 and 3.2% in the third quarter of 2004. The percentage decrease is primarily due to the costs remaining constant.

 

Other operating expenses increased by $1.2 million. Other operating expenses were 23.8% of service revenue in the third quarter of 2005 and 24.2% in the third quarter of 2004. The increase is largely attributable to increased marketing expenses, consulting fees and membership costs that are all correlated to increased revenues.

 

Depreciation and amortization increased by $.2 million due to an increase in amortization of intangible assets as a result of the acquisitions.

 

The operating margin percentage increased from 30.6% to 32.6% primarily due to operational efficiencies achieved in 2005 based on the growth in transactions and related increase in revenue.

 

Income from operations was $7.2 million for the third quarter of 2005 compared to $5.1 million in the third quarter of 2004.

 

Dealer Services Segment

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Total service revenue was $29.2 million for the three months ended September 30, 2005, an increase of $10.8 million compared to service revenue of $18.4 million in the same period of 2004. The acquisition of a lead generation business during the third quarter of 2005 accounted for $7.7 million of the increase and an increase in transactions accounted for the additional growth in service revenue.

 

Cost of service revenue was $15.6 million for the three months ended September 30, 2005, an increase of $7.0 million compared to cost of service revenue of $8.6 million in the same period of 2004. The acquisition of a lead generation business during the third quarter of 2005 accounted for $4.8 million of the increase, and an increase in transactions and the addition of a surcharge by the three credit bureaus related to free credit reports to consumers pursuant to the FACT Act were the primary reasons for the additional increase in the cost of service revenue.

 

Salaries and benefits increased by $1.3 million. Salaries and benefits were 14.4% of service revenue in the third quarter of 2005 compared to 16.0% in the same period of 2004. The increase in salaries and benefits expense

 

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Table of Contents

is due to the acquisition, and the percentage decrease is primarily due to operational efficiencies based on the increase in revenue.

 

Facilities and telecommunication expenses decreased by $.1 million. Facilities and telecommunication expenses were 1.4% of service revenue in the third quarter of 2005 and 3.1% in the third quarter of 2004. The percentage decrease is primarily due to expense reductions related to the relocation of certain facilities and based on the increase in revenues.

 

Other operating expenses increased by $.7 million. Other operating expenses were 14.8% of service revenue in the third quarter of 2005 and 20.0% in the third quarter of 2004. The increase in other operating expenses is primarily due to the acquisition.

 

Depreciation and amortization increased by $.2 million due to an increase in amortization of intangible assets as a result of the acquisition.

 

The operating margin percentage increased from 11.6% to 13.6% primarily due to operational efficiencies achieved in 2005 based on the growth in transactions and related increase in revenue.

 

Income from operations was $4.0 million for the third quarter of 2005 compared to $2.1 million in the third quarter of 2004. Operating income from existing businesses increased by $3.1 million.

 

Employer Services Segment

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Total service revenue was $37.7 million for the three months ended September 30, 2005, an increase of $5.7 million compared to service revenue of $32.0 million in the same period of 2004. The increase was primarily driven by organic growth of 14.8% in the background screening business and the addition of $4.0 million of revenue from acquisitions.

 

Salaries and benefits increased by $2.7 million. Salaries and benefits were 36.0% of service revenue in the third quarter of 2005 compared to 34.0% in the same period of 2004. The number of employees has increased due to acquisitions and the growth of this segment in comparison to the same period in 2004.

 

Facilities and telecommunication expenses were comparable to the same period in 2004. Facilities and telecommunication expenses were 4.0% of service revenue in the third quarter of 2005 and 4.5% in the third quarter of 2004. The percentage decrease is primarily due to the increase in revenues.

 

Other operating expenses increased by $2.2 million. Other operating expenses were 14.7% of service revenue in the third quarter of 2005 and 10.4% for the same period of 2004. Efforts to execute cross sell, consolidation and integration strategies increased travel, telecommunication, lease equipment and outside labor expenses.

 

Depreciation and amortization increased by $.3 million mostly due to the addition of intangible assets related to the acquisitions.

 

The operating margin percentage decreased from 12.0% to 9.4% primarily due to a greater increase in operating expense quarter over quarter versus the increase in revenue.

 

Income from operations was $3.6 million for the third quarter of 2005 compared to $3.8 million in the third quarter of 2004.

 

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Table of Contents

Multifamily Services Segment

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Total service revenue was $17.5 million for the three months ended September 30, 2005, an increase of $1.8 million compared to service revenue of $15.7 million in the same period of 2004. The majority of the increase is derived from organic growth of 10.0% and one recent acquisition in the third quarter. The organic growth is driven by cross sell opportunities and the increase in criminal products.

 

Salaries and benefits increased by $.7 million. Salaries and benefits were 34.6% of service revenue for the third quarter of 2005 compared to 33.8% of service revenue in the same period of 2004. This is reflective of the increased compensation packages in the form of increased bonus and commission plans.

 

Facilities and telecommunication expenses were comparable to the same period in 2004. Facilities and telecommunication expenses were 4.6% of service revenue in the third quarter of 2005 and 5.0% in the third quarter of 2004. The decrease is primarily due to expenses being constant.

 

Other operating expenses increased by $.6 million and were 17.3% of service revenue in the third quarter of 2005 compared to 15.4% in the same period of 2004. This increase was primarily due to an increase in professional fees and branding expenses.

 

Depreciation and amortization is comparable to the same period of 2004. Depreciation and amortization was 5.8% of service revenue in the third quarter of 2005 compared to 6.8% in the same period of 2004. This decrease, as a percent of service revenue, is primarily due to costs remaining stable.

 

The operating margin percentage decreased from 28.6% to 27.5% due to some one-time charges related to legal fees and branding expenses in the third quarter of 2005.

 

Income from operations was $4.8 million in the third quarter of 2005 compared to income from operations of $4.5 million in the same period of 2004.

 

Investigative and Litigation Services Segment

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Total service revenue was $8.2 million for the three months ended September 30, 2005, an increase of $1.4 million compared to service revenue of $6.8 million in the same period of 2004. The increase is predominantly driven by the three acquisitions in this segment.

 

Salaries and benefits increased by $.8 million. Salaries and benefits were 33.0% of service revenue in the third quarter of 2005 compared to 28.9% in the same period of 2004. The increases are mainly due to the acquisitions.

 

Facilities and telecommunication expenses were comparable to the same period in 2004. Facilities and telecommunication expenses were 3.6% of service revenue in the third quarter of 2005 and 3.9% in the third quarter of 2004.

 

Other operating expenses increased by $.5 million. Other operating expenses were 12.7% of service revenue in the third quarter of 2005 and 8.2% for the same period of 2004.

 

Depreciation and amortization is comparable to the same period in 2004.

 

The operating margin percentage decreased from 9.0% to 4.3%.

 

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Table of Contents

Income from operations was $.4 million for the third quarter of 2005 compared to $.6 million compared to income from operations in the period of 2004.

 

Corporate

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Corporate costs and expenses represent primarily compensation and benefits for senior management, administrative staff, technology personnel and their related expenses in addition to an administrative fee paid to First American. Additional costs were incurred for the increased level of professional fees for audit related services, Sarbanes Oxley compliance and increased staffing in the technology and legal departments to support corporate growth. The corporate expenses were $4.7 million in the third quarter of 2005 compared to expenses of $3.0 million in the same period of 2004. Corporate branding costs of $.3 million were incurred in the third quarter.

 

Consolidated Results

 

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

 

Consolidated service revenue for the three months ended September 30, 2005 was $157.8 million, an increase of $34.9 million compared to service revenue of $122.9 million in the same period in 2004. Acquisitions accounted for $21.2 million of the increase.

 

Salaries and benefits were 29.6% of service revenue for the three months ended September 30, 2005 and 30.1% compared to the same period in 2004.

 

Facilities and telecommunication increased by $.9 million compared to the same period in 2004. Facilities and telecommunication expenses were 3.9% of service revenue in the third quarter of 2005 and 4.3% in the third quarter of 2004. The percentage decrease is primarily due to the increase in revenues.

 

Other operating expenses were 12.8% of service revenue for the three months ended September 30, 2005 and 12.3% compared to the same period for 2004. The increase is primarily related to increased marketing fees related to revenue and an increase in professional fees in the third quarter of 2005 related to legal fees and Sarbanes Oxley compliance fees.

 

Depreciation and amortization increased by $.8 million due to an overall increase in amortization of intangible assets as a result of acquisitions and additions to database assets.

 

The consolidated operating margin was 17.8% for the three months ended September 30, 2005 compared to 18.2% for the same period in 2004. The increase is due to the change in the mix of margins related to the acquired businesses, and efficiencies realized from consolidating operations and leveraging vendor relationships.

 

Income from operations was $28.1 million for the three months ended September 30, 2005 compared to $22.3 million for the same period in 2004. The increase of $5.8 million is comprised of an increase in operating income of $3.8 million in Lender Services, $2.1 million in Data Services, $1.8 million in Dealer Services and $.3 million in Multifamily Services offset by decreases in operating income of $.2 million at Employer Services and $.2 million at Investigative and Litigation Services and an increase of corporate expenses of $1.8 million.

 

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Table of Contents

Lender Services Segment

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Total service revenue was $129.0 million for the nine months ended September 30, 2005, an increase of $25.5 million compared to service revenue of $103.5 million in the same period of 2004. The acquisition of a mortgage credit reporting business during the first quarter of 2005 accounted for $10.3 million of the increase, and an increase in transactions accounted for the additional growth in service revenue.

 

Cost of service revenue was $41.8 million for the nine months ended September 30, 2005, an increase of $11.8 million compared to cost of service revenue of $30.0 million in the same period of 2004. The acquisition of a mortgage credit reporting business during the first quarter of 2005 accounted for $4.2 million of the increase, and an increase in transactions and the addition of a surcharge by the three credit bureaus related to free credit reports to consumers pursuant to the FACT Act were the primary reasons for the additional increase in the cost of service revenue.

 

Salaries and benefits increased by $5.2 million. Salaries and benefits were 29.3% of service revenue in September 2005 compared to 31.5% in the same period of 2004. Salaries and benefits expense increased $2.4 million due to the acquisition, and the percentage decrease is primarily due to operational efficiencies based on the increased transaction volume and related increase in revenue.

 

Facilities and telecommunication expenses increased by $.2 million. Facilities and telecommunication expenses were 4.1% of service revenue in September 2005 compared to 4.9% in the same period of 2004. The percentage decrease is primarily due to the increase in revenues.

 

Other operating expenses increased by $2.1 million. Other operating expenses were 1.2% of service revenue for the nine months ended September 2005. The change is primarily due to the acquisition which increased other operating expenses by $1.5 million and due to an increase of $.6 million in an allocation from First American prior to the consummation of the CIG merger.

 

Depreciation and amortization decreased by $.4 million due primarily to the decision to lease rather than purchase most equipment since the third quarter of 2001, as partially offset by an increase in amortization of intangible assets as a result of the acquisition.

 

The operating margin percentage decreased from 30.0% to 29.2% primarily due to the impact of the acquisition which decreased operating margins to a greater extent than the operational efficiencies gained from the higher revenue within the existing business.

 

Income from operations was $37.6 million for the nine months ended September 2005 compared to $31.0 million in the same period of 2004. Operating income from existing businesses increased by $5.7 million.

 

Data Services Segment

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Total service revenue was $61.9 million for the nine months ended September 30, 2005, an increase of $5.1 million compared to service revenue of $56.8 million in the same period of 2004. Two acquisitions in this segment were the primary reason for the revenue growth, along with strong organic growth in the consumer location and subprime credit businesses.

 

Salaries and benefits increased by $2.5 million. Salaries and benefits were 18.1% of service revenue for the nine months ended September 30, 2005 compared to 15.2% in the same period of 2004. The percentage increase is primarily due to the acquisitions.

 

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Facilities and telecommunication expenses increased by $.2 million. Facilities and telecommunication expenses were 3.0% of service revenue in 2005 compared to 2.9% in the same period of 2004.

 

Other operating expenses decreased by $5.5 million. Other operating expenses were 23.6% of service revenue in 2005 and 35.3% compared to the same period at 2004. The decrease is primarily due to a $2.1 million year- to-date reduction in advertising costs related to its credit monitoring membership product in 2005 and a non-recurring expense of $5.1 incurred during the second quarter of 2004 based on payment of $3.0 million to settle a lawsuit and a $2.1 million write-off of the carrying value of the related limited liability company’s stock, offset by increases in operating cost related to increased revenues and acquisitions.

 

Depreciation and amortization increased by $.5 million due to an increase in amortization of intangible assets as a result of the acquisitions and additions to the databases.

 

The operating margin percentage increased from 15.0% to 33.9% primarily due to operating efficiencies at all the businesses and also the acquisitions, which generate higher operating margin levels than the existing companies. In addition, there was $5.1 million of non-recurring expenses in 2004 for the membership business.

 

Income from operations was $21.0 million for the third quarter of 2005 compared to $8.5 million in the third quarter of 2004.

 

Dealer Services Segment

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Total service revenue was $72.3 million for the nine months ended September 30, 2005, an increase of $19.3 million compared to service revenue of $53.0 million in the same period of 2004. The acquisition of a lead generation business during the second quarter of 2005 accounted for $10.6 million of the increase, and an increase in transactions accounted for the additional growth in service revenue.

 

Cost of service revenue was $36.8 million for the nine months ended September 30, 2005, an increase of $12.4 million compared to cost of service revenue of $24.4 million in the same period of 2004. The acquisition of a lead generation business during the second quarter of 2005 accounted for $6.3 million of the increase, and an increase in transactions and the addition of a surcharge by the three credit bureaus related to free credit reports to consumers pursuant to the FACT Act were the primary reasons for the additional increase in the cost of service revenue.

 

Salaries and benefits increased by $2.0 million. Salaries and benefits were 14.4% of service revenue in 2005 compared to 15.9% in the same period of 2004. Salaries and benefits expense increased $2.4 million due to the acquisition, and the percentage decrease is primarily due to operational efficiencies based on the increase in revenue.

 

Facilities and telecommunication expenses decreased by $.6 million. Facilities and telecommunication expenses were 1.2% of service revenue in 2005 compared to 2.8% in the same period of 2004. The percentage decrease is primarily due to expense reductions related to the relocation of certain facilities and based on the increase in revenues.

 

Other operating expenses increased by $1.1 million. Other operating expenses were 16.7% of service revenue in 2005 compared to 20.6% in the same period of 2004. The increase in 2005 is primarily due to the acquisition.

 

Depreciation and amortization increased by $.5 million due primarily to an increase in amortization of intangible assets as a result of the acquisition.

 

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The operating margin percentage increased from 12.6% to 14.6% primarily due to operational efficiencies achieved in 2005 based on the growth in transactions and related increase in revenue.

 

Income from operations was $10.5 million for the nine months ended September 2005 compared to $6.7 million in the same period of 2004. Operating income from existing businesses increased by $3.8 million.

 

Employer Services Segment

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Total service revenue was $104.5 million for the nine months ended September 30, 2005, an increase of $19.8 million compared to service revenue of $84.7 million in the same period of 2004. The increase is primarily due to acquisitions of the tax incentive and background screening companies in this segment. Acquisitions accounted for $16.4 million of the revenue growth on a year-to-date basis.

 

Salaries and benefits increased by $8.4 million. Salaries and benefits were 35.6% of service revenue in 2005 compared to 34.0% in the same period of 2004. The increase is primarily due to the increase of employees due to the acquisitions.

 

Facilities and telecommunication expenses increased by $.3 million. Facilities and telecommunication expenses were 4.4% of service revenue in 2005 compared to 5.1% in the same period of 2004. The percentage decrease is primarily due to expense reductions related to the relocation of certain facilities and based on the increase in revenues.

 

Other operating expenses increased by $4.8 million. Other operating expenses were 13.8% of service revenue in 2005 and 11.4% for the same period of 2004. The increase is due to increased travel, leased equipment expense, and the duplication of staff and temporary employee costs required during the transition to lower cost facilities.

 

Depreciation and amortization increased by $.7 million due to amortization of customer lists and non-compete agreements at the newly acquired entities.

 

The operating margin percentage of service revenue increased from 8.1% to 10.1% primarily due to the higher operating margins in the acquired businesses and negotiated discounts to reduce expense through consolidation and increased volumes.

 

Income from operations was $10.6 million for the nine months ended 2005 compared to $6.8 million for the same period in 2004. This increase is due to the addition of profitable acquisition companies and solid organic revenue growth in the background screening group.

 

Multifamily Services Segment

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Total service revenue was $49.1 million for the nine months ended September 30, 2005, an increase of $7.3 million compared to service revenue of $41.8 million in the same period of 2004. Revenue increased by $6.5 million at businesses owned in the third quarter of 2004. The growth rate of 15.6%, excluding acquisitions, is due to expanded market share and an increase in products and services.

 

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Salaries and benefits increased by $1.2 million. Salaries and benefits were 33.9% of service revenue in 2005 compared to 27.3% of service revenue in the same period of 2004. This increase reflects the increased compensation packages and increased personnel from acquisitions.

 

Facilities and telecommunication expenses increased by $.4 million. Facilities and telecommunication expenses were 5.0% of service revenue in 2005 compared to 4.9% in the same period of 2004.

 

Other operating expenses increased by $1.2 million and were 16.2% of service revenue in 2005 compared to 16.3% in the same period of 2004.

 

Depreciation and amortization increased by $.3 million. Depreciation and amortization was 6.1% of service revenue in 2005 compared to 6.5% in the same period of 2004.

 

The operating margin percentage of service revenue increased from 23.9% to 28.8% primarily as a result of efficiencies realized from consolidating operations and leveraging vendor relationships.

 

Income from operations was $14.2 million for the nine months ended September 30, 2005 compared to income from operations of $10.0 million in the same period of 2004. The increase was a direct result of organic revenue growth and an increase in higher margin revenue products.

 

Investigative and Litigation Services Segment

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Total service revenue was $23.1 million as of September 30, 2005, an increase of $4.4 million compared to service revenue of $18.7 million in the same period of 2004. The increase is due to acquisition.

 

Salaries and benefits increased by $2.7 million. Salaries and benefits were 33.9% of service revenue in 2005 compared to 27.3% in the same period of 2004. The increases are primarily due to the increase in employees related to the acquisitions.

 

Facilities and telecommunication expenses increased by $.2 million. Facilities and telecommunication expenses were 3.5% of service revenue in 2005 compared to 3.4% in 2004.

 

Other operating expenses increased by $.9 million. Other operating expenses were 11.4% of service revenue in 2005 and 9.0% for the same period of 2004.

 

Depreciation and amortization increased by $.4 million, mainly due to the amortization of customer lists.

 

The operating margin percentage increased from 3.3% to 4.5% mainly due to increased revenues with higher gross margins compared to the same period in 2004.

 

Income from operations was $1.0 million for the nine months ended September 30, 2005 compared to $.6 million in the same period of 2004.

 

Corporate

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Corporate costs and expenses represent primarily compensation and benefits for senior management, administrative staff, technology personnel and their related expenses in addition to an administrative fee paid to First American. Additional costs were incurred for the increased level of professional fees for audit related services, Sarbanes Oxley compliance and increased staffing in the technology and legal departments to support corporate growth. The corporate expenses were $17.0 million in the nine months ended September 30, 2005 compared to expenses of $7.6 million in the same period of 2004. The current year increase was impacted by the following one-time expenses; (a) $3.2 million related to CIG acquisition costs; (b) $2.0 million related to relocation expenses; and (c) $.6 million related to launching the Company’s branding initiative.

 

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Consolidated Results

 

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004

 

Consolidated service revenue for the Nine Months Ended September 30, 2005 was $437.0 million, an increase of $80.5 million compared to service revenue of $356.5 in the same period in 2004. Acquisitions accounted for $51.7 million of the increase.

 

Salaries and benefits were 29.8% of service revenue for the nine months ended September 30, 2005 and 29.7% compared to the same period in 2004.

 

Facilities and telecommunication expenses increased by $3.3 million. Facilities and telecommunication expenses were 4.3% of service revenue year to date September 2005 compared to 4.4% in the same period of 2004.

 

Other operating expenses were 13.2% of service revenue for the nine months ended September 30, 2005 and 13.7% compared to the same period for 2004. The decrease is primarily due to increased revenue levels greater than operating expense levels.

 

Depreciation and amortization increased by $2.0 million due to an overall increase in amortization of intangible assets as a result of acquisitions and additions to database assets.

 

The consolidated operating margin was 17.8% for the nine months ended September 30, 2005 compared to 15.7% for the same period in 2004. The increase is due to the change in the mix of operating margins related to the acquired businesses, and efficiencies realized from consolidating operations and leveraging vendor relationships and internal databases, along with the offset of the 2004 non-recurring expense of $5.1 million related to the membership services and the 2005 non-recurring expenses of $6.0 million related to acquisition costs, relocations, consolidations and branding.

 

Income from operations was $77.8 million for the nine months ended September 30, 2005 compared to $56.0 million for the same period in 2004. The increase of $21.8 million is comprised of an increase in operating income across the segments that is comprised of $6.6 million in Lender Services, $12.4 million in Data Services, $3.9 million in Dealer Services, $3.7 million in Employer Services, $4.2 million in Multifamily service, $.4 million in Investigative and Litigation Support Services and an increase of corporate expenses of $9.4 million.

 

Liquidity and Capital Resources

 

The Company’s primary source of liquidity is cash flow from operations and amounts available under credit lines the Company has established with a bank syndication. As of September 30, 2005, cash and cash equivalents were $17.4 million.

 

Cash provided by operating activities was $41.1 million and $29.3 million for the nine months ended September 30, 2005 and 2004, respectively.

 

Cash provided from operating activities increased $11.8 million from the nine months ended September 30, 2005 compared to the same period in 2004, while net income was $42.7 million for the nine months ended September 30, 2005 and $32.8 million for the same period in 2004. The increase was primarily comprised of an increase in net income of $9.9 million, an increase in current and deferred income tax of $28.8 million, and offset by a decrease in goodwill and other assets of $26.1 million.

 

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Cash used in investing activities was $33.9 million and $53.8 million for the nine months ended September 30, 2005 and 2004, respectively. For the nine months ended September 30, 2005, cash in the amount of $31.0 million was used for acquisitions and $50.0 million in the same period of 2004. Purchases of property and equipment were $10.7 million for the nine months ended September 30, 2005 compared to $5.8 million in the same period of 2004.

 

Cash provided by financing activities was $.2 million for the nine months ended September 30, 2005 compared to cash provided by financing of $23.0 million for the nine months ended September 30, 2004. For the nine months ended September 30, 2005, proceeds from existing credit facilities with a bank syndication were $114.0 million and $57.0 million in the same period of 2004. Repayment of debt was $95.2 million for the nine months ended September 30, 2005 and $18.3 million in the same period of 2004. Proceeds from Class A shares issued in connection with the stock option plan and employee stock purchase plan were $3.7 million and $3.5 million for the nine months ended September 30, 2005 and 2004, respectively. The CIG business made a cash distribution to First American of $22.0 million prior to acquisition during 2005.

 

At September 30, 2005 the Company had unused lines of credit of $150.5 million.

 

First Advantage filed a Registration Statement with the Securities and Exchange Commission for the issuance of up to 4,000,000 shares of our Class A common stock, par value $.001 per share, from time to time as full or partial consideration for the acquisition of businesses, assets or securities of other business entities. The Registration Statement was declared effective on July 14, 2003. A total of 2,786,762 of the 4,000,000 shares were issued for acquisitions as of September 30, 2005.

 

First Advantage filed a Registration Statement with the Securities and Exchange Commission for the issuance of up to 2,000,000 shares of our Class A common stock, par value $.001 per share, from time to time for general corporate purposes. The Registration Statement was declared effective on January 3, 2005. No shares have been issued as of September 30, 2005.

 

On September 14, 2005, at the closing of the CIG Acquisition, the Company executed a $45 million unsecured subordinated promissory note in favor of First American. Under the note, First Advantage may borrow, repay and re-borrow for up to and including 90 days from closing. The note matures 135 days after September 14, 2005. The note bears interest at the rate payable under First Advantage’s line of credit with Bank of America, N.A. plus 0.5% per annum. Proceeds of the note may be used only for working capital of CIG. There is no outstanding balance at September 30, 2005.

 

On September 29, 2005, the Company executed a revolving credit agreement, with a bank syndication (the “Credit Agreement”). Borrowings available under the Credit Agreement total up to $225 million. The Credit Agreement includes a $10 million sub-facility for the issuance of letters of credit and up to a $5 million swing loan facility. The credit facility maturity date is September 28, 2010.

 

The interest rate is based on the one of two options consisting of 1) the higher of Federal Funds Rate plus  1/2% and Bank of America’s announced “Prime Rate” or 2) a “LIBOR based rate”. The “LIBOR based rate” is based on LIBOR plus a margin that can range from 1.125% to 1.75% (based on progressive levels of leverage). First Advantage management must elect the LIBOR based option up to three days prior to its utilization.

 

The agreement contains usual and customary negative covenants for transactions of this type including but not limited to those regarding liens, investments, creation of indebtedness and fundamental changes, as well as financial covenants of consolidated leverage ratio and minimum consolidated fixed charge coverage ratio.

 

The agreement contains usual and customary provisions regarding acceleration. In the event of a default by the Company under the credit facility, the lenders will have no further obligation to make loans or issue letters of credit and in some cases may, at the option of a majority of the lenders, declare all amounts owed by the Company immediately due and payable and require the Company to provide collateral, and in some cases any amounts owed by the Company under the credit facility will automatically become immediately due and payable.

 

At September 30, 2005, the Company was in compliance with the financial covenants of its loan agreement.

 

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In 2005, First Advantage seeks to acquire other businesses as part of its growth strategy. The Company will continue to evaluate acquisitions in order to achieve economies of scale, expand market share and enter new markets. The extent of future acquisitions, however, is dependent upon the availability of capital and liquidity to fund such acquisitions.

 

While uncertainties within the Company’s industry exist, management is not aware of any trends or events likely to have a material adverse effect on liquidity or the accompanying financial statements. The Company believes that, based on current levels of operations and anticipated growth, the Company’s cash flow from operations, together with available sources of liquidity, will be sufficient to fund operations, fund anticipated capital expenditures, make required payments of principal and interest on debt, and satisfy other long-term contractual commitments. However, any material adverse change in our operating results from our business plan or acceleration of existing debt obligations or in the amount of investment in acquisitions, technology or products could require the Company to seek other funding alternatives including raising additional capital.

 

The following is a schedule of long-term contractual commitments as of September 30, 2005 over the periods in which they are expected to be paid.

 

     2005

   2006

   2007

   2008

   2009

   Thereafter

   Total

Advertising commitments

   $ 230,000    $ 525,000    $ —      $ —      $ —      $ —      $ 755,000

Minimum contract purchase commitments

     568,000      1,587,000      1,029,000      1,040,000      290,000      —        4,514,000

Operating leases

     4,346,000      16,025,000      13,182,000      10,316,000      8,479,000      26,812,000      79,160,000

Long-term debt and capital leases

     5,631,000      30,189,000      9,787,000      6,764,000      20,000      74,502,000      126,893,000

Interest payments related to long-term debt (1)

     1,568,000      5,504,000      4,437,000      4,132,000      3,900,000      2,925,000      22,466,000
    

  

  

  

  

  

  

Total

   $ 12,343,000    $ 53,830,000    $ 28,435,000    $ 22,252,000    $ 12,689,000    $ 104,239,000    $ 233,788,000
    

  

  

  

  

  

  

 

(1) Estimated interest payments are calculated assuming current interest rates over minimum maturity periods specified in debt agreements.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

There have been no material changes in the Company’s risk since filing its Form 10-K for the year ended December 31, 2004.

 

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Item 4. Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, have concluded that, as of the end of the fiscal quarter covered by this report on Form 10-Q, the Company’s disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports filed or submitted under such Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

There was no change in the Company’s internal control over financial reporting during the quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

First Advantage’s subsidiaries are involved in litigation from time to time in the ordinary course of their businesses. We do not believe that the outcome of any pending or threatened litigation involving these entities will have a material adverse effect on our financial position or operating results.

 

A subsidiary of the Company is a defendant in a class action lawsuit that is pending in federal court in New York. The plaintiffs allege that our subsidiary, directly and through its agents, violated the Fair Credit Reporting Act, New York’s Fair Credit Reporting Act and New York’s Deceptive Practices Act by failing to use reasonable procedures to ensure the maximum possible accuracy when issuing tenant reports. The action seeks injunctive and declaratory relief, compensatory, punitive and statutory damages, plus attorneys’ fees and costs.

 

Two subsidiaries are defendants in separate class action lawsuits that are pending in state court in California. The plaintiffs in both cases allege that our subsidiaries, directly and through their agents, violated the California Consumer Credit Reporting Agencies Act and California Business and Professions Code by failing to use reasonable procedures to ensure the maximum possible accuracy when issuing tenant reports. The actions seek injunctive relief, an accounting, restitution, statutory damages, interest, punitive damages and attorneys’ fees and costs.

 

A subsidiary of the Company is involved in a class action lawsuit that is pending in state court in California. The plaintiff in this case alleges that our subsidiary violated the California Consumer Credit Reporting Agencies Act by failing to use reasonable

 

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procedures to ensure the maximum possible accuracy when issuing a background report and, in particular, by failing to provide a written disclaimer on the background report regarding its accuracy. The action seeks statutory damages, actual damages, and attorney’s fees.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

In connection with the September 14, 2005 acquisition of Credit Information Group (CIG) of The First American Corporation, the Company amended its Certificate of Incorporation. Prior to the amendment, the Company was authorized to issue up to 75,000,000 shares of Class A common stock, 25,000,000 shares of Class B common stock, and 1,000,000 shares of preferred stock The amendment authorized the Company to issue up to 125,000,000 shares of Class A common stock, which is entitled to one vote per share, 75,000,000 shares of Class B common stock, which is entitled to ten votes per share, and up to 1,000,000 shares of preferred stock. On September 14, 2005, FADV Holdings LLC, a wholly-owned subsidiary of The First American Corporation (“First American”) received Class B shares representing approximately 80% of the total issued and outstanding common stock of the Company on such date.

 

Item 3. Defaults upon Senior Securities

 

None

 

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

 

On September 13, 2005, the Company held its annual shareholders meeting at which four matters were submitted to its shareholders for approval. Proposal one, approval of the acquisition of CIG, was approved by 3,025,310 shares of Class A common stock (without giving effect to common stock held by First American, and its affiliates, Don Robert or Company’s management) which constituted a majority of Class A shares voting by proxy or in person, and 19,089,552 shares of all Company common stock outstanding, which constituted a majority of all common stock voting by proxy or in person. Proposal two, approval of the amendment to the Company’s certificate of incorporation, was approved by 4,902,299 shares of Class A common, which constituted a majority of Class A shares issued and outstanding, of which 4,865,343 were comprised of a majority of Class A shares issued and outstanding (without giving effect to common stock held by First American, its affiliates, Don Robert or Company’s management), and 16,027,286 shares of Class B common stock, which constituted 100 percent of Class B shares issued and outstanding. The total number of common shares voting in favor of proposal two was 20,929,585, which constituted a majority of all common shares issued and outstanding. Proposal three, election of the directors nominated to serve for the ensuing year, was approved by a plurality of shareholders, and a tabulation of the results of voting with respect to each nominee is listed in the table below. Proposal four, approval of the amendment to the 2003 incentive plan was approved by 18,893,444 shares of Company common stockholders, voting together as one class, which constituted a majority of all common stock voting by proxy or in person.

 

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     Shares Voted

Name of Nominee


   Eligible
for Voting


   Voted

   YES

   Withhold

Parker Kennedy

   168,149,018    167,575,691    167,491,785    83,906

John Long

   168,149,018    167,575,691    167,563,586    12,105

J. David Chatham

   168,149,018    167,575,691    167,491,765    83,926

Barry Connelly

   168,149,018    167,575,691    167,491,765    83,926

Lawrence Lenihan

   168,149,018    167,575,691    167,522,782    52,909

Donald Nickelson

   168,149,018    167,575,691    167,563,646    12,045

Donald Robert

   168,149,018    167,575,691    166,407,072    1,168,619

Adelaide Sink

   168,149,018    167,575,691    167,563,666    12,025

David Walker

   168,149,018    167,575,691    167,422,493    153,198

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

(a) Exhibits

 

2.1    Amended and Restated Master Transfer Agreement among The First American Corporation, First American Real Estate Services, Inc., First American Real Estate Solutions, LLC, FADV Holdings LLC, and First Advantage Corporation, dated as of June 22, 2005
2.2    Contribution Agreement among The First American Corporation, First American Real Estate Services, Inc., FADV Holdings LLC, and First Advantage Corporation, dated as of September 14, 2005
2.3    Contribution Agreement among First American Real Estate Solutions, LLC, FADV Holdings LLC, and First Advantage Corporation, dated as of September 14, 2005
3.1    Certificate of Amendment to the First Amended and Restated Certificate of Incorporation of First Advantage Corporation
10.1    Amended and Restated Services Agreement between The First American Corporation and First Advantage Corporation, dated as of September 14, 2005
10.2    Outsourcing Agreement between First American Real Estate Solutions, LLC and First Advantage Corporation, dated as of September 14, 2005
10.3    First Advantage 2003 Incentive Compensation Plan, Amended and Restated as of September 14, 2005

 

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10.4    Subordinated Promissory Note, made September 14, 2005, by First Advantage Corporation to the order of The First American Corporation
10.5    Office Lease by and between First American Title Insurance Company and First Advantage Corporation, dated as of September 14, 2005
10.6    Credit Agreement, dated as of September 28, 2005, among First Advantage Corporation as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender And L/C Issuer, LaSalle Bank National Association, as Syndication Agent, Wachovia Bank, National Association and Suntrust Bank, as Co-Documentation Agents and the Other Lenders Party Hereto
10.7    Pledge Agreement, dated as of September 28, 2005, made by First Advantage Corporation in favor of Bank of America, N.A., as administrative and collateral agent
10.8    Security Agreement, dated as of September 28, 2005, made by First Advantage Corporation in favor of Bank of America, N.A., as administrative and collateral agent.
10.9    Subsidiary Guaranty Agreement as of September 28, 2005, made by First Advantage Corporation in favor of Bank of America, N.A., as administrative and collateral agent.
10.10    Note, dated September 28, 2005, made by First Advantage in favor of LaSalle Bank National Association
10.11    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Wachovia Bank, National Association
10.12    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Suntrust Bank
10.13    Note, dated September 28, 2005, made by First Advantage Corporation in favor of U.S. Bank National Association
10.14    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Commerzbank AG, New York and Grand Cayman Branches
10.15    Note, dated September 28, 2005, made by First Advantage Corporation in favor Regions Bank

 

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31.1    Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1    Reimbursement Agreement entered into October 11. 2005 between The First American Corporation and First Advantage Corporation
99.2    Amendment to Registration Agreement, dated November 1, 2005 between First Advantage Corporation and Experian Information Solutions, Inc.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

FIRST ADVANTAGE CORPORATION

(Registrant)

 

Date: November 10, 2005       By:   /s/ JOHN LONG
                John Long
                Chief Executive Officer
Date: November 10, 2005       By:   /s/ JOHN LAMSON
                John Lamson
                Chief Financial Officer


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EXHIBIT INDEX

 

Exhibit No.

  

Description


2.1    Amended and Restated Master Transfer Agreement among The First American Corporation, First American Real Estate Services, Inc., First American Real Estate Solutions, LLC, FADV Holdings LLC, and First Advantage Corporation, dated as of June 22, 2005
2.2    Contribution Agreement among The First American Corporation, First American Real Estate Services, Inc., FADV Holdings LLC, and First Advantage Corporation, dated as of September 14, 2005
2.3    Contribution Agreement among First American Real Estate Solutions, LLC, FADV Holdings LLC, and First Advantage Corporation, dated as of September 14, 2005
3.1    Certificate of Amendment to the First Amended and Restated Certificate of Incorporation of First Advantage Corporation
10.1    Amended and Restated Services Agreement between The First American Corporation and First Advantage Corporation, dated as of September 14, 2005
10.2    Outsourcing Agreement between First American Real Estate Solutions, LLC and First Advantage Corporation, dated as of September 14, 2005
10.3    First Advantage 2003 Incentive Compensation Plan, Amended and Restated as of September 14, 2005
10.4    Subordinated Promissory Note, made September 14, 2005, by First Advantage Corporation to the order of The First American Corporation
10.5    Office Lease by and between First American Title Insurance Company and First Advantage Corporation, dated as of September 14, 2005
10.6    Credit Agreement, dated as of September 28, 2005, among First Advantage Corporation as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender And L/C Issuer, LaSalle Bank National Association, as Syndication Agent, Wachovia Bank, National Association and Suntrust Bank, as Co-Documentation Agents and the Other Lenders Party Hereto


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Exhibit No.

  

Description


10.7    Pledge Agreement, dated as of September 28, 2005, made by First Advantage Corporation in favor of Bank of America, N.A., as administrative and collateral agent
10.8    Security Agreement, dated as of September 28, 2005, made by First Advantage Corporation in favor of Bank of America, N.A., as administrative and collateral agent.
10.9    Subsidiary Guaranty Agreement as of September 28, 2005, made by First Advantage Corporation in favor of Bank of America, N.A., as administrative and collateral agent.
10.10    Note, dated September 28, 2005, made by First Advantage in favor of LaSalle Bank National Association
10.11    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Wachovia Bank, National Association
10.12    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Suntrust Bank
10.13    Note, dated September 28, 2005, made by First Advantage Corporation in favor of U.S. Bank National Association
10.14    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Commerzbank AG, New York and Grand Cayman Branches
10.15    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Regions Bank
10.16    Note, dated September 28, 2005, made by First Advantage Corporation in favor of Bank of America N.A.
31.1    Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certifications pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1    Reimbursement Agreement entered into October 11. 2005 between The First American Corporation and First Advantage Corporation
99.2    Amendment to Registration Agreement, dated November 1, 2005 between First Advantage Corporation and Experian Information Solutions, Inc.
Amended and Restated Master Transfer Agreement dtd June 22, 2005

Exhibit 2.1

 


 

AMENDED AND RESTATED

MASTER TRANSFER AGREEMENT

 

among

 

THE FIRST AMERICAN CORPORATION,

 

FIRST AMERICAN REAL ESTATE INFORMATION SERVICES, INC.,

 

FIRST AMERICAN REAL ESTATE SOLUTIONS, LLC,

 

FADV HOLDINGS LLC,

 

and

 

FIRST ADVANTAGE CORPORATION

 


 

Dated as of June 20, 2005

 


 


 

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TABLE OF CONTENTS1

 

ARTICLE I.
DEFINITIONS AND INTERPRETATIONS

1.1

   Defined Terms    2

1.2

   Principles of Construction    7
ARTICLE II.
REPRESENTATIONS OF CONTRIBUTORS

2.1

   Existence and Good Standing; Binding Effect; Power.    7

2.2

   Capacity; Binding Effect    8

2.3

   Restrictive Documents    8

2.4

   Litigation    8

2.5

   Consents and Approvals; No Violations    8
ARTICLE III.
REPRESENTATIONS OF THE BUYER

3.1

   Existence and Good Standing; Binding Effect; Power    9

3.2

   Capacity; Binding Effect    10

3.3

   Restrictive Documents    10

3.4

   Litigation    10

3.5

   Consents and Approvals; No Violations    10
ARTICLE IV.
THE TRANSACTION

4.1

   Documents To Be Delivered by Parties    11

4.2

   Closing    12
ARTICLE V.
CERTAIN COVENANTS

5.1

   Conduct of Business Prior to Closing    13

5.2

   Due Diligence    14

5.3

   Commercially Reasonable Efforts    15

5.4

   Proxy Statement    15

5.5

   Authorization    16

5.6

   Stockholder Approval    16

5.7

   Notices of Certain Events    16

5.8

   Consents and Further Assurances    17

5.9

   Use of Names    17

1 This Table of Contents is provided for convenience only and does not form a part of this Master Transfer Agreement.

 

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5.10

   Portal Agreements    18

5.11

   Bar None    18
ARTICLE VI.
CONDITIONS PRECEDENT

6.1

   Conditions of all Parties    19

6.2

   Conditions of FADV    20

6.3

   Conditions of Contributors    24
ARTICLE VII.
TERMINATION

7.1

   Events of Termination    25

7.2

   Effect of Termination    27
ARTICLE VIII.
NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS

8.1

   General    27
ARTICLE IX.
MISCELLANEOUS

9.1

   Knowledge    27

9.2

   Expenses    27

9.3

   Publicity; Confidentiality    27

9.4

   Governing Law; Jurisdiction    28

9.5

   Notices    29

9.6

   Parties in Interest    30

9.7

   Counterparts    30

9.8

   Entire Agreement    30

9.9

   Amendments    30

9.10

   Severability    30

9.11

   Extension; Waiver    31

9.12

   Third Party Beneficiaries    31

9.13

   Consent    31
EXHIBITS

A

  

First American Contribution Agreement

B

  

FARES Contribution Agreement

C

  

Subordinated Promissory Note

D

  

GE Sublease Agreement

E

  

Poway Lease Agreement

F

  

eAppraiseIT Sublease Agreement

G

  

FAIG Sublease Agreement

H

  

Amended and Restated Services Agreement

I

  

Outsourcing Agreement

J

  

Certificate of Amendment

 

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AMENDED AND RESTATED

MASTER TRANSFER AGREEMENT

 

This AMENDED AND RESTATED MASTER TRANSFER AGREEMENT (as the same may be amended, modified and supplemented from time to time, this “Agreement”) is entered into as of June 20, 2005 by and among THE FIRST AMERICAN CORPORATION, a California corporation (“First American”); FIRST AMERICAN REAL ESTATE INFORMATION SERVICES, INC., a California corporation (“FAREISI”); FIRST AMERICAN REAL ESTATE SOLUTIONS, LLC, a California limited liability company (“FARES”); FADV HOLDINGS LLC, a Delaware limited liability company (“Newco”); and FIRST ADVANTAGE CORPORATION, a Delaware corporation (“FADV”; First American, FAREISI, FARES, Newco and First Advantage are each a “Party” and are collectively the “Parties”).

 

W I T N E S S E T H :

 

WHEREAS, First American, FAREISI, FARES and FADV previously entered into that certain Master Transfer Agreement, dated as of May 25, 2005 (the “Original Agreement”);

 

WHEREAS, First American, FAREISI, FARES and FADV wish to amend and restate the Original Agreement as provided herein;

 

WHEREAS, as of immediately prior to Closing (as defined below), Newco will be the beneficial owner of (a) all of the issued and outstanding (i) capital stock of North American CREDCO, Inc., a Delaware corporation (“NA CREDCO”); First Canadian CREDCO, Inc., an Ontario corporation (“FC CREDCO”); First American Credit Management Solutions, Inc., a Delaware corporation (“CMSI”); CMSI Credit Services, Inc., a Maryland corporation (“Credit Services”); Teletrack, Inc., a Georgia corporation (“Teletrack”); and Teletrack Canada, Inc., an Ontario corporation (“Teletrack Canada”); (ii) membership interests of CreditReportPlus, LLC, a Maryland limited liability company (“Credit Report+”); and (iii) capital stock of Bar None, Inc., a Delaware corporation (“Bar None”); and (b) 4,071,618 shares of Series A-2 Preferred Stock of DealerTrack Holdings, Inc., a Delaware corporation (“DealerTrack”), and 1,357,206 shares of Series C-3 Preferred Stock of DealerTrack (collectively, the “DealerTrack Interest”);

 

WHEREAS, as of immediately prior to Closing, Newco will be the record owner of all of the issued and outstanding (a) capital stock of First American Membership Services, Inc., a California corporation (“Membership Services”); and (b) membership interests of CIG Investments, LLC, a Delaware limited liability company (“CIG”);

 

WHEREAS, as of immediately prior to Closing, (a) FARES will be the record owner of a 50.1% membership interest in RELS, LLC, a Delaware limited liability company (“RELS”); and (b) Newco will be the owner of the securities, assets, properties and rights constituting FARES’ CREDCO Division (collectively, the “CREDCO Division”), including all of the issued and outstanding capital stock of First American Credco of Puerto Rico, Inc., a Delaware corporation (“PR CREDCO”);

 

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WHEREAS, the companies, assets, properties and rights referred to in the above recitals (other than the DealerTrack Interest, Bar None, RELS and the XRES Business (as defined below)) comprise First American’s Credit Information Segment (the “Business”); and

 

WHEREAS, First American, FAREISI, FARES and Newco (each, a “Contributor” and collectively, “Contributors”) desire to contribute or cause the contribution, and FADV desires to accept the contribution, of the Business, Bar None and the DealerTrack Interest pursuant to the terms and conditions of this Agreement and the Related Agreements (as defined below).

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements herein contained, the Parties hereby amend and restate the Original Agreement in its entirety as follows:

 

ARTICLE I.

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):

 

Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by Contract or otherwise; provided that FADV and its Subsidiaries shall not be deemed to be Affiliates of any Contributor for purposes of this Agreement, and Contributors and their Subsidiaries shall not be deemed to be Affiliates of FADV for purposes of this Agreement.

 

Agreement” has the meaning provided in the introductory paragraph.

 

Assignment and Assumption Agreement” has the meaning provided in Section 4.1(o).

 

Assignment of Intellectual Property” has the meaning provided in Section 4.1(p).

 

Audited Financial Statements” has the meaning provided in Section 6.2(l).

 

Bill of Sale” has the meaning provided in Section 4.1(n).

 

Beaverton Lease Assignment” has the meaning provided in Section 4.1(f).

 

Business” has the meaning provided in the sixth recital.

 

Business Day” means any day, other than a Saturday, Sunday or other day on which banks located in Los Angeles, California or St. Petersburg, Florida are authorized or required by law to close.

 

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Certificate of Amendment” has the meaning provided in Section 5.4.

 

CIG” has the meaning provided in the fourth recital.

 

Class A Common Stock” means FADV’s Class A common stock, par value $0.001 per share.

 

Class B Common Stock” means FADV’s Class B common stock, par value $0.001 per share.

 

Closing” has the meaning provided in Section 4.2.

 

Closing Date” has the meaning provided in Section 4.2.

 

CMSI” has the meaning provided in the third recital.

 

Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

 

Common Stock” means the Class A Common Stock and the Class B Common Stock.

 

Company” and “Companies” means, as the context requires, any or all of NA CREDCO; FC CREDCO; CMSI; Credit Services; Teletrack; Teletrack Canada; Credit Report+; Membership Services; CIG; and PR CREDCO.

 

Confidentiality Agreement” has the meaning provided in Section 5.2(c).

 

Contract” means any contract, agreement, understanding, note, bond, mortgage, indenture, guarantee, license, franchise, commitment, lease or instrument, whether oral or written, including all amendments and supplements thereto and restatements thereof.

 

Contribution Agreement” and “Contribution Agreements” means the First American Contribution Agreement and/or the FARES Contribution Agreement, as the context may require.

 

Contributor” and “Contributors” has the meaning provided in the seventh recital.

 

CREDCO Division” has the meaning provided in the fifth recital.

 

Credit Report+” has the meaning provided in the third recital.

 

Credit Services” has the meaning provided in the third recital.

 

DealerTrack” has the meaning provided in the third recital.

 

DealerTrack Interest” has the meaning provided in the third recital.

 

eAppraiseIT Sublease” has the meaning provided in Section 4.1(i).

 

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Ellie Mae” has the meaning provided in Section 5.10(a).

 

Encumbrances” means all liens, security interests, options, rights of first refusal, claims, easements, mortgages, charges, indentures, deeds of trust, rights of way, restrictions on the use of real property, encroachments, licenses to third parties, leases to third parties, security agreements and any other encumbrances and other restrictions or limitations on use or irregularities in title thereto.

 

Entity” means any Person that is not a natural person.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

FADV” has the meaning provided in the introductory paragraph.

 

FADV Note” has the meaning provided in Section 2.6.

 

FAIG Sublease” has the meaning provided in Section 4.1(j).

 

FAREISI” has the meaning provided in the introductory paragraph.

 

FARES” has the meaning provided in the introductory paragraph.

 

FARES Contribution Agreement” has the meaning provided in Section 4.1(b).

 

FC CREDCO” has the meaning provided in the third recital.

 

Final Proxy Statement” has the meaning provided in Section 5.4.

 

First American” has the meaning provided in the introductory paragraph.

 

First American Contribution Agreement” has the meaning provided in Section 4.1(a).

 

GAAP” means United States generally accepted accounting principles applied on a consistent basis.

 

GE Sublease” has the meaning provided in Section 4.1(d).

 

Governmental Entity” means any instrumentality, subdivision, court, administrative agency, commission, official or other authority of the United States or any other country or any state, province, prefect, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.

 

Indebtedness” of any Person shall mean and include (a) indebtedness for borrowed money or indebtedness issued or incurred in substitution or exchange for indebtedness for borrowed money, (b) amounts owing as deferred purchase price for property or services, including all stockholder notes and “earn-out” payments, (c) indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security, (d) commitments or

 

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obligations by which such Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit), (e) indebtedness secured by an Encumbrance on assets or properties of such Person, (f) obligations under any interest rate, currency or other hedging agreement or (g) guarantees or other contingent liabilities (including so-called take-or-pay or keep-well agreements) with respect to any indebtedness, obligation, claim or liability of any other Person of a type described in clauses (a) through (f) above.

 

Independent Committee” has the meaning provided in Section 6.1(f).

 

Material Adverse Effect” means, (a) when used with respect to any Contributor, (i) any material adverse change in or effect on the properties, assets, businesses, liabilities, results of operations or condition (financial or otherwise) of the Business, taken as a whole, and (ii) any materially adverse change in or effect on (including any material delay) the ability of such Contributor to perform its respective obligations under this Agreement or any Related Agreement to which such Contributor is a party, (b) when used with respect to the Business, (i) any material adverse change in or effect on the properties, assets, businesses, liabilities, results of operations or condition (financial or otherwise) of the Business, taken as a whole, and (c) when used with respect to FADV, (i) any material adverse change in or effect on the properties, assets, businesses, liabilities, results of operations or condition (financial or otherwise) of FADV and its Subsidiaries, taken as a whole, and (ii) any materially adverse change in or effect on (including any material delay) the ability of FADV to perform its obligations under this Agreement or any Related Agreement to which FADV is a party; provided, however, that the term “Material Adverse Effect” shall not include any adverse change or effect that is proximately caused by (1) conditions affecting the United States economy generally or the economy of the regions in which the applicable Person and its Subsidiaries (if any), taken as a whole, conducts a material part of its business, (2) changes in financial markets, (3) conditions affecting the industries in which the applicable Person and its Subsidiaries (if any) compete or (4) the announcement, or other disclosure, of the Transaction (to the extent such announcement or disclosure is not effected in contravention of any term of this Agreement) or the consummation of the Transaction (including compliance by such Person with its covenants hereunder).

 

Membership Services” has the meaning provided in the fourth recital.

 

NA CREDCO” has the meaning provided in the third recital.

 

Newco” has the meaning provided in the introductory paragraph.

 

New York Lease Assignment” has the meaning provided in Section 4.1(g).

 

Officer” has the meaning provided in Rule 16a-1(f) promulgated under the Exchange Act.

 

Ordinary Course” means, with respect to any Person, the ordinary course of commercial operations customarily engaged in by such Person, consistent with past practices (including with respect to quantity and frequency).

 

Original Agreement” has the meaning provided in the first recital.

 

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Party” or “Parties” has the meaning provided in the introductory paragraph.

 

Person” means and includes 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.

 

Portal Agreement” and “Portal Agreements” have the meanings provided in Section 5.10.

 

Poway Lease” has the meaning provided in Section 4.1(e).

 

PR CREDCO” has the meaning provided in the fifth recital.

 

Preliminary Proxy Statement” has the meaning provided in Section 5.4.

 

Related Agreements” has the meaning provided in Section 4.1.

 

RELS” has the meaning provided in the fifth recital.

 

SEC” has the meaning provided in Section 5.4.

 

Standstill Agreement” has the meaning provided in Section 6.3(i).

 

Stockholders Meeting” has the meaning provided in Section 5.6(b).

 

Subsidiary” means, with respect to any Person, (a) 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 (b) 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 or otherwise controls the management and affairs of such Entity (including the power to veto any material act or decision); provided that FADV and its Subsidiaries shall not be deemed to be Subsidiaries of First American for purposes of this Agreement.

 

Teletrack” has the meaning provided in the third recital.

 

Teletrack Canada” has the meaning provided in the third recital.

 

Transaction” means the contribution of the Business, Bar None and the DealerTrack Interest to FADV pursuant to the Related Agreements and the other transactions contemplated by this Agreement and the Related Agreements.

 

XRES Business” has the meaning provided in FARES Contribution Agreement.

 

XRES Lease Assignment” has the meaning provided in Section 4.1(h).

 

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1.2 Principles of Construction.

 

(a) All references to Articles, Sections and subsections are to Articles, Sections and subsections in 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 GAAP.

 

(c) In the computation of periods of time from a specified date to a later specified date, the words “from” and “within” mean “from and including”; the words “to” and “until” each mean “to but excluding”; and the word “through” means “to and including.”

 

(d) The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

 

(e) In the event that the final day of any time period provided herein does not fall on a Business Day, such time period shall be extended such that the final day of such period shall fall on the next Business Day thereafter.

 

(f) 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.

 

ARTICLE II.

REPRESENTATIONS OF CONTRIBUTORS

 

Each Contributor severally, and not jointly, represents, warrants and agrees in favor of FADV, as of the date of this Agreement and as of the Closing Date (unless a representation speaks as of a specific date, in which case, as of such date), as follows:

 

2.1 Existence and Good Standing; Binding Effect; Power.

 

(a) Each of First American and FAREISI (i) is a corporation validly existing and in good standing under the laws of the State of California and (ii) has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted.

 

(b) FARES (i) is a limited liability company validly existing and in good standing under the laws of the State of California and (ii) has all requisite limited liability company power and authority to own, lease and operate its properties and to carry on its business as now being conducted.

 

(c) Newco (i) is a limited liability company validly existing and in good standing under the laws of the State of Delaware and (ii) has all requisite limited liability company power and authority to own, lease and operate its properties and to carry on its business as now being conducted.

 

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2.2 Capacity; Binding Effect. Each Contributor has the requisite organizational power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance of this Agreement by each Contributor has been duly authorized and approved by all necessary organizational action of such Contributor. This Agreement has been duly executed and delivered by each Contributor, and assuming the due execution and delivery of the other Parties hereto, constitutes its valid and binding agreement, enforceable against it 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.

 

2.3 Restrictive Documents. Assuming the receipt of any and all consents of third parties in connection with the contribution of the Business, Bar None and the DealerTrack Interest to FADV under the Related Agreements (other than the consents listed on Schedule 6.2(f)), no Contributor is subject to, or a party to, any charter, bylaw, mortgage, lien, lease, license, permit, Contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or character, which would reasonably be expected to have a material adverse effect on (including any material delay) the ability of such Contributor to perform its respective obligations under this Agreement or any Related Agreement to which such Contributor is a party.

 

2.4 Litigation. There is no action, suit, proceeding at law or in equity, arbitration or administrative or other proceeding by or before (or to the knowledge of any Contributor any investigation by) any Governmental Entity or other instrumentality or agency, pending, or, to the knowledge of any Contributor, threatened, against or affecting such Contributor that would reasonably be expected to have a material adverse effect on (including any material delay) the ability of such Contributor to perform its respective obligations under this Agreement or any Related Agreement to which such Contributor is a party. No Contributor is subject to any judgment, order or decree entered in any lawsuit or proceeding which would reasonably be expected to have a material adverse effect on (including any material delay) the ability of such Contributor to perform its respective obligations under this Agreement or any Related Agreement to which such Contributor is a party.

 

2.5 Consents and Approvals; No Violations. The execution and delivery of this Agreement by each Contributor and the consummation of the transactions contemplated hereby by each Contributor will not (a) violate any provision of its organizational documents, (b) violate any statute, ordinance, rule, regulation, order or decree of any court or any Governmental Entity applicable to such Contributor, (c) require any filing with, or permit, consent or approval of, or the giving of any notice to, any Governmental Entity having authority over such Contributor, or (d) require any consent or approval of, or the giving of any notice to, any shareholder or member of any Contributor other than the notice and consent contemplated by Section 6.1(i), (e) assuming the receipt of any and all consents of third parties in connection with the contribution of the Business, Bar None and the DealerTrack Interest to FADV under the Related Agreements (other than the consents listed on Schedule 6.2(f)), 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

 

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right of termination, cancellation, payment or acceleration) under, increase in obligations or loss of rights, or result in the creation of any Encumbrance upon any of the properties or assets of the Business under, any of the terms, conditions or provisions of any Contract to which such Contributor or any of its Affiliates is a party and which relates to the Business, or by which such Contributor’s or its Affiliates’ properties or assets constituting all or a part of the properties or assets of the Business may be bound.

 

2.6 Newco. Newco is a newly formed entity that (a) immediately prior to consummation of the Transaction will be owned 61.25% by First American, 1.16% by FAREISI, and 37.58% by FARES, (b) has not conducted, and will not prior to Closing conduct, any business other than (i) the receipt of the Business, Bar None, the XRES Business, the DealerTrack Interest and the Promissory Note in the original principal amount of $20 million, dated as of April 27, 2004, made by FADV in favor of First American (the “FADV Note”), from the other Contributors by way of a contribution immediately prior to Closing substantially on the terms described to FADV in connection with the amendment and restatement of the Original Agreement and (ii) upon consummation of the Transaction, the contribution of the Business, Bar None, the XRES Business and the DealerTrack Interest to FADV or its wholly-owned Subsidiary pursuant to this Agreement and the Related Agreements, (c) has no indebtedness or other liabilities, whether contingent or otherwise, other than (i) its obligations under and as contemplated by this Agreement and the Related Agreements and (ii) the indebtedness and other liabilities of the Business, Bar None, the XRES Business, the DealerTrack Interest and the FADV Note during the period from its receipt of the contribution of the Business, Bar None, the XRES Business, the DealerTrack Interest and the FADV Note from the other Contributors to its contribution thereof to FADV or its wholly-owned Subsidiary pursuant to the terms hereof and the Related Agreements, and (d) has not and will not, during the period from its receipt of the contribution of the Business, Bar None, the XRES Business, the DealerTrack Interest and the FADV Note from the other Contributors to its contribution thereof to FADV or its wholly-owned Subsidiary pursuant to the terms hereof and the Related Agreements, changed or modified any of the assets or liabilities related to the Business, Bar None, the XRES Business, the DealerTrack Interest or the FADV Note.

 

ARTICLE III.

REPRESENTATIONS OF THE BUYER

 

FADV represents, warrants and agrees in favor of each Contributor, as of the date of this Agreement and as of the Closing Date (unless a representation or warranty speak as of a specific date, in which case, as of such date), as follows:

 

3.1 Existence and Good Standing; Binding Effect; Power. FADV (i) is a corporation validly existing and in good standing under the laws of the State of Delaware; (ii) has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted; and (iii) is duly qualified and/or licensed to conduct its business, and is in good standing, in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified or licensed would not have a Material Adverse Effect on FADV.

 

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3.2 Capacity; Binding Effect. FADV has the requisite corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and, assuming the stockholders of FADV and the Independent Committee (as defined below) duly approve of the transactions contemplated by this Agreement as required by Sections 6.1(d) and (f), respectively, performance of this Agreement by FADV has been duly authorized and approved by all necessary corporate and stockholder action of FADV. This Agreement has been duly executed and delivered by FADV, and assuming the due execution and delivery of the other Parties hereto, constitutes its valid and binding agreement, enforceable against it 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 Restrictive Documents. FADV is not subject to, or a party to, any charter, bylaw, mortgage, lien, lease, license, permit, Contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or character, which would reasonably be expected to have a material adverse effect on (including any material delay) the ability of FADV to perform its obligations under this Agreement or any Related Agreement to which FADV is a party.

 

3.4 Litigation. There is no action, suit, proceeding at law or in equity, arbitration or administrative or other proceeding by or before (or to the knowledge of FADV any investigation by) any Governmental Entity or other instrumentality or agency, pending, or, to the knowledge of FADV, threatened, against or affecting FADV that would reasonably be expected to have a material adverse effect on (including any material delay) the ability of FADV to perform its obligations under this Agreement or any Related Agreement to which FADV is a party. FADV is not subject to any judgment, order or decree entered in any lawsuit or proceeding which would reasonably be expected to have a material adverse effect on (including any material delay) the ability of FADV to perform its obligations under this Agreement or any Related Agreement to which FADV is a party.

 

3.5 Consents and Approvals; No Violations. Assuming the approval of the stockholders of FADV required by Section 6.1(d), and the filing of the Certificate of Amendment with the Delaware Secretary of State, the execution and delivery of this Agreement by FADV and the consummation of the transactions contemplated hereby by FADV will not (a) violate any provision of its organizational documents, (b) violate any statute, ordinance, rule, regulation, order or decree of any court or any Governmental Entity applicable to FADV, (c) require any filing with, or permit, consent or approval of, or the giving of any notice to, any Governmental Entity having authority over FADV, or (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 Encumbrance upon any of the properties or assets of FADV under, any of the terms, conditions or provisions of any Contract to which FADV is a party, or by which FADV or any of its properties or assets may be bound.

 

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ARTICLE IV.

THE TRANSACTION

 

4.1 Documents To Be Delivered by Parties. FADV and each applicable Contributor will deliver, and each will cause each of its appropriate Affiliates to deliver, as applicable, at Closing the following documents (collectively, and together with all agreements, certificates and documents contemplated by such agreements, the “Related Agreements”):

 

(a) a Contribution Agreement among First American, FAREISI, Newco and FADV substantially in the form attached hereto as Exhibit A (the “First American Contribution Agreement”);

 

(b) a Contribution Agreement among FARES, Newco and FADV substantially in the form attached hereto as Exhibit B (the “FARES Contribution Agreement”);

 

(c) a Subordinated Promissory Note between First American and FADV substantially in the form attached hereto as Exhibit C;

 

(d) a Sublease Agreement among General Electric Capital Corporation, FARES and FADV substantially in the form attached hereto as Exhibit D (the “GE Sublease”);

 

(e) a Lease Agreement between First American Title Insurance Company and FADV relating to the buildings located at 12385 and 12395 First American Way, Poway, California, 92064, substantially in the form attached hereto as Exhibit E (the “Poway Lease”);

 

(f) an Assignment of Lease Agreement and Consent among FARES, FADV and Opus Northwest, LLC in form and substance reasonably satisfactory to FARES, FADV and Opus Northwest, LLC (the “Beaverton Lease Assignment”), pursuant to which FARES will assign its rights, and FADV will assume FARES’ obligations, under the Lease Agreement, dated as of September 14, 2002, between Opus Northwest, LLC and FARES, relating to the property located at 1500 S.W. Bethany Boulevard, Suite 300, Beaverton, Oregon 97006.

 

(g) an Assignment of Lease Agreement and Consent among FARES, FADV and MagnaCare LLC in form and substance reasonably satisfactory to FARES, FADV and MagnaCare LLC (the “New York Lease Assignment”), pursuant to which FARES will assign its rights, and FADV will assume FARES’ obligations, under the Lease Agreement, dated as of August 18, 2004, between MagnaCare LLC and FARES d/b/a the CREDCO Division, relating to the property located at 825 East Gate Boulevard, Garden City, New York, 11530.

 

(h) an Assignment of Lease Agreement and Consent among FARES, FADV and Executive IV, LLC in form and substance reasonably satisfactory to FARES, FADV and Executive IV, LLC (the “XRES Lease Assignment”), pursuant to which FARES will assign its rights, and FADV will assume FARES’ obligations, under the Lease Agreement, dated November 27, 2001, between Executive IV, LLC and CBA Information Services, as amended by the First Amendment to Lease Agreement, as assigned to Experian Affiliate Acquisition, LLC pursuant to that certain Assignment and Assumption of Lease Agreement, dated January 23, 2004, between CBA Information Services and Experian Affiliate Acquisition, LLC and consented to by Executive IV, LLC, and as assigned to FARES pursuant to that certain Assignment and Assumption of Lease Agreement, dated March 30, 2005, between Experian Affiliate Acquisition, LLC and FARES and consented to by Executive IV, LLC;

 

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(i) a Sublease Agreement between First American Title Insurance Company and FADV relating to the portion of the buildings located at 12385 and 12395 First American Way, Poway, California, 92064, used by eAppraiseIT, LLC, substantially in the form attached hereto as Exhibit F (the “eAppraiseIT Sublease”);

 

(j) a Sublease Agreement between First American Title Insurance Company and FADV relating to the portion of the buildings located at 12385 and 12395 First American Way, Poway, California, 92064, used by First American Interactive Group, substantially in the form attached hereto as Exhibit G (the “FAIG Sublease”);

 

(k) an Amended and Restated Services Agreement between First American and FADV substantially in the form attached hereto as Exhibit H;

 

(l) an Outsourcing Agreement between First American and FADV substantially in the form attached hereto as Exhibit I;

 

(m) a Registration Rights Agreement between Experian Information Solutions, Inc. and FADV in form and substance reasonably satisfactory to FARES and FADV;

 

(n) one or more bills of sale in form and substance reasonably satisfactory to FARES and FADV (including the Independent Committee) (each, a “Bill of Sale”);

 

(o) one or more assignment and assumption agreements in form and substance reasonably satisfactory to FARES and FADV (including the Independent Committee) as reasonably requested by FADV to more fully assign to FADV the CREDCO Division (each, an “Assignment and Assumption Agreement”); and

 

(p) one or more assignment of intellectual property agreements relating to the assignment by Contributors of certain intellectual property used in the Business to FADV in form and substance reasonably satisfactory to FARES and FADV (each, an “Assignment of Intellectual Property”).

 

4.2 Closing. The closing of the contribution of the Business, Bar None and the DealerTrack Interest to FADV and the issuance of the Class B Common Stock under this Agreement and the Related Agreements (the “Closing”) shall take place at 10:00 a.m. local time at the offices of First American, 1 First American Way, Santa Ana, California, 92707, on July 31, 2005, or if later, as soon as practicable after all conditions precedent to the Closing described in Sections 6.1, 6.2 and 6.3 are met or waived, or such other date as First American and FADV (including the Independent Committee) shall mutually agree (the “Closing Date”).

 

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ARTICLE V.

CERTAIN COVENANTS

 

5.1 Conduct of Business Prior to Closing.

 

(a) Except as otherwise expressly contemplated by this Agreement or the Related Agreements, during the period from the date of this Agreement to the Closing Date, each Contributor shall cause the Business to be conducted only according to the Ordinary Course. Except as otherwise expressly contemplated by this Agreement or the Related Agreements, during the period from the date of this Agreement to the Closing Date, each Contributor shall use commercially reasonable efforts to preserve its business organizations, to keep available the services of its key officers, and to substantially maintain current relationships with material licensors, suppliers, distributors, customers and other third party business relationships; provided, however, that nothing in this sentence shall require any Contributor or its Affiliates to (1) take any action or refrain from taking any action that could cause a breach of any representation or warranty of the Contributors in this Agreement or in any of the Related Agreements, (2) repay any loan agreement or Contract for borrowed money in whole or in part, except as currently required by its terms, (3) amend any Contract to increase the amount payable thereunder or otherwise to be more burdensome to any Contributor or its Affiliates, (4) make any cash payment, provide any guaranty or relinquish any property or contractual rights, or (5) be required to commit to any divestiture transaction, agree to sell or hold separate or agree to license to competitors of such Contributor or its Affiliates, before or after the Closing Date, any of such Contributor’s or its Affiliates’ businesses, product lines, properties or assets (other than the Business pursuant to this Agreement and the Related Agreements), or agree to any changes or restrictions in the operation of such businesses, product lines, properties or assets. Without limiting the immediately preceding sentence, prior to the Closing Date, except as may be first approved in writing by the Chief Executive Officer, Chief Operating Officer or Chief Financial Officer of FADV or as expressly permitted by this Agreement or in the Related Agreements, each Contributor shall, and shall cause each Company to, cause the Business to refrain from:

 

(i) increasing its Indebtedness;

 

(ii) canceling or waiving any claim or right of substantial value;

 

(iii) selling, leasing or otherwise disposing of any material asset or property used by the Business, other than in the Ordinary Course;

 

(iv) entering into any Contract that is reasonably expected to generate annual revenue in excess of $1,000,000, or amending any Contract that generated revenue in excess of $1,000,000 for the twelve month period ended April 30, 2005;

 

(v) liquidating or dissolving;

 

(vi) changing its capital structure;

 

(vii) entering into or amending any Contract with an Affiliate of any Contributor (or any director or Officer of a Contributor or any of its Affiliates or any “associates” or members of the “immediate family” (as such terms are respectively defined in

 

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Rule 12b-2 and Rule 16a-1 promulgated under the Exchange Act) of any such director or Officer, other than Experian Information Solutions, Inc. and its Affiliates) other than on arms-length terms; and

 

(viii) writing off as uncollectible any notes or accounts receivable of the Business, except write-offs in the Ordinary Course.

 

(b) Except as otherwise expressly contemplated by this Agreement or the Related Agreements, during the period from the date of this Agreement to the Closing Date, each Contributor shall cause the business of Bar None and the XRES Business to be conducted only according to the Ordinary Course.

 

5.2 Due Diligence.

 

(a) FADV may, prior to the Closing Date, directly or through its representatives and advisers, review the properties, books and records of the Business and Bar None to the extent FADV deems reasonably necessary to familiarize itself with such properties, books and records, in a manner so as not to interfere with the normal business operation of the Business, Bar None and the Companies. Prior to the Closing Date, each Contributor shall, and shall cause each Company and Bar None, to permit FADV and its representatives to have reasonable access during normal business hours to the business operations, properties, and books and records of the Business and Bar None, and to cause the officers of each Contributor and each Company and Bar None to furnish FADV, subject to compliance by Contributors, Bar None and the Companies with all applicable restrictions imposed by law, rule, regulation or court order and subject to compliance by FADV and its representatives with the restrictions contained in any confidentiality agreement entered into by FADV, Contributors, Bar None or the Companies, the existence of which has been disclosed, with such financial and operating data and other information with respect to the Business and Bar None as FADV shall from time to time reasonably request, in a manner so as not to interfere with the normal business operation of the Business or Bar None.

 

(b) First American may, prior to the Closing Date, directly or through its representatives and advisers, review the properties, books and records of FADV to the extent First American deems reasonably necessary to familiarize itself with such properties, books and records, in a manner so as not to interfere with the normal business operation of the FADV and its Subsidiaries. Prior to the Closing Date, FADV shall, and shall cause its Subsidiaries to, permit First American and its representatives to have reasonable access during normal business hours to the business operations, properties, and books and records of FADV and its Subsidiaries, and to cause the officers of FADV and its Subsidiaries to furnish First American, subject to compliance by FADV with all applicable restrictions imposed by law, rule, regulation or court order and subject to compliance by Contributors and their representatives with the restrictions contained in any confidentiality agreement entered into by FADV, Contributors or the Companies, the existence of which has been disclosed, with such financial and operating data and other information with respect to FADV and its Subsidiaries as First American shall from time to time reasonably request, in a manner so as not to interfere with the normal business operation of FADV.

 

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(c) In the event of a termination of this Agreement, FADV shall, and shall cause its Subsidiaries and each of their representatives and advisers to, keep confidential any information obtained from Contributors and any Subsidiaries thereof concerning any Contributor and its Subsidiaries and, at the request of any Contributor, shall return to Contributors all copies of any schedules, statements, documents or other written information obtained in connection herewith. In the event of a termination of this Agreement, Contributors shall, and shall cause their Subsidiaries and each of their representatives and advisers to, keep confidential any information obtained from FADV and any Subsidiaries thereof concerning FADV and its Subsidiaries and, at the request of FADV, shall return to FADV all copies of any schedules, statements, documents or other written information obtained in connection herewith. The Confidentiality Agreement between First American and FADV dated as of February 4, 2005 (the “Confidentiality Agreement”) shall remain in full force and effect.

 

5.3 Commercially Reasonable Efforts. Subject to Section 5.8, until such time as this Agreement is terminated pursuant to Section 7.1, FADV and each Contributor shall each cooperate and use its respective commercially reasonable efforts to take, or cause to be taken, all necessary action, and to make, or cause to be made, all filings necessary under applicable laws and regulations to consummate and make effective the Transaction, including its respective commercially reasonable efforts to obtain, prior to the Closing Date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Entities as are necessary for consummation of the Transaction and to fulfill the conditions to the Transaction.

 

5.4 Proxy Statement. As soon as practicable following the date of this Agreement, FADV shall prepare and file with the Securities and Exchange Commission (the “SEC”) a preliminary proxy statement and proxy meeting the requirements of Regulation 14A under the Exchange Act (the “Preliminary Proxy Statement”) describing, among other things, the Transaction, and the proposals to be voted on by the stockholders of FADV at the Stockholders Meeting (as defined below), including (a) the approval of this Agreement, the Related Agreements and the Transaction by a majority of shares of Class A Common Stock (calculated without giving effect to beneficial holdings of Common Stock by First American, its Affiliates (including directors and officers of First American and its Affiliates), Donald Robert, and any member of management of FADV) present in person or represented by proxy at the Stockholders Meeting, and by a majority of shares of Common Stock present in person or represented by proxy at the Stockholders Meeting, and (b) the approval of an amendment to FADV’s Certificate of Incorporation substantially in the form of Exhibit J hereto (the “Certificate of Amendment”) by a majority of outstanding shares of Class A Common Stock (calculated without giving effect to beneficial holdings of Common Stock by First American, its Affiliates (including directors and officers of First American and its Affiliates), Donald Robert, and any member of management of FADV), and by a majority of outstanding shares of Common Stock. At the earliest time permitted by Rule 14a-6 of the Exchange Act, FADV shall prepare and file with the SEC a final proxy statement and proxy meeting the requirements of Regulation 14A under the Exchange Act covering the foregoing and, if necessary, including disclosure required by Nasdaq Marketplace Rule 4350(i)(2) (the “Final Proxy Statement”). Final forms of the Preliminary Proxy Statement and the Final Proxy Statement shall be subject to approval by First American, such approval not to be unreasonably withheld, conditioned or delayed. FADV shall use all commercially reasonable efforts to cause the Final Proxy Statement to be mailed as promptly as reasonably practicable. Each Party shall take such action as the other Parties may reasonably

 

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request in connection with the preparation and filing of the Preliminary Proxy Statement and the Final Proxy Statement. If at any time prior to the mailing of the Final Proxy Statement any event or information should be discovered by any Party that should be set forth in the Final Proxy Statement, the Party discovering such event or information shall promptly inform the other Parties, and to the extent required by law, FADV will promptly file a revised proxy statement and proxy with the SEC and disseminate such revised proxy statement and proxy to FADV’s stockholders as promptly as practicable.

 

5.5 Authorization. FADV has, or before the Closing Date will have, authorized the issuance and sale pursuant to the Contribution Agreements of 29,073,170 shares of its Class B Common Stock, plus an additional number of shares of its Class B Common Stock sufficient to (a) pay the DealerTrack Earnout (as defined in the First American Contribution Agreement) in full and (b) repay in full the amounts owing under the FADV Note in accordance with the First American Contribution Agreement. FADV has, or before the Closing will have, taken all action required under applicable federal and state laws in connection with the issuance of shares of Class B Common Stock in connection with the Transaction.

 

5.6 Stockholder Approval. Prior to Closing, FADV, acting through its Board of Directors, shall, in accordance with applicable law:

 

(a) mail a copy of the Final Proxy Statement to each of its stockholders;

 

(b) promptly and duly call, give notice of, convene and hold a special or annual meeting of its stockholders (the “Stockholders Meeting”) for the purpose of voting upon this Agreement and the Related Agreements, the Certificate of Amendment and the Transaction, and FADV agrees that this Agreement, the Related Agreements, the Certificate of Amendment and the Transaction shall be submitted for approval at the Stockholders Meeting; and

 

(c) use its commercially reasonable efforts to obtain the stockholder approvals required by Section 6.1(d); provided, that nothing herein shall require any member of the Board of Directors of FADV to take any action that is inconsistent with his or her fiduciary duties under Delaware law.

 

5.7 Notices of Certain Events. Prior to Closing, each Contributor, on the one hand, and FADV, on the other:

 

(a) may elect at any time to notify the other Parties (i) of any development causing a breach or potential breach of any of its representations and warranties in this Agreement or any Related Agreement to which it is a party, or (ii) if the schedules to any Related Agreement deliverable by such Party are not true and accurate in all material respects; and

 

(b) shall promptly deliver written notice to the other Parties if it obtains knowledge that (i) the representations and warranties of such other Party or Parties, as the case may be, in this Agreement or the Related Agreements to which it is or they are a party are not true and accurate in all material respects, or (ii) the schedules to any Related Agreement deliverable by such other Party or Parties, as the case may be, are not true and accurate in all material respects.

 

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Notwithstanding the foregoing, unless FADV or any Contributor has the right to terminate this Agreement pursuant to Section 7.1(i), (j), (k) or (l) by reason of any of the foregoing and exercises that right within the period of time provided in such Sections, the notice of the foregoing will be deemed to have amended the disclosure schedules delivered by any Contributor or FADV, respectively, to have qualified the representations and warranties of such Parties in the relevant Articles of the First American Contribution Agreement or the FARES Contribution Agreement, as applicable, and to have cured any misrepresentation or breach of warranty that otherwise might have existed under such Contribution Agreement by reason of the development.

 

5.8 Consents and Further Assurances.

 

(a) Each Contributor agrees that it will, and it will cause the Companies and Bar None to, use commercially reasonable efforts to obtain the written consent of any other necessary party to the assignment of any Contract or undertaking constituting a part of the Business to be transferred under the Related Documents and, to the extent that any such Contract or undertaking requiring such consent is transferred or assigned pursuant to the terms of the Related Agreements without such consent, each Contributor shall, and shall cause the Companies and Bar None to, cooperate with FADV in any lawful arrangement designed to provide FADV the benefits of such Contract or undertaking; provided, however, that, in order to obtain any such consent, 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 any Contributor or its Affiliates, (c) Contributor or its Affiliates shall be required to make any cash payment, provide any guaranty or relinquish any property or contractual rights and (d) Contributor or its Affiliates shall, and no Contributor or its Affiliates shall be required to, commit to any divestiture transaction, agree to sell or hold separate or agree to license to competitors of such Contributor or its Affiliates, before or after the Closing Date, any of such Contributor’s or its Affiliates’ businesses, product lines, properties or assets, or agree to any changes or restrictions in the operation of such businesses, product lines, properties or assets.

 

(b) Subject to the proviso in (a) above, on or after the Closing Date and without further consideration, FADV and each Contributor shall from time to time execute and deliver such further instruments of conveyance, assignment and transfer and shall take, or cause to be taken, such other action as any other Party may reasonably request for the more effective conveyance, assignment and transfer to FADV of any part of the Business as contemplated by this Agreement and the Related Agreements, and each shall lend its assistance in the effectuation of the intentions and purposes of this Agreement and the Related Agreements.

 

5.9 Use of Names.

 

(a) Notwithstanding any other provision of this Agreement and the Related Agreements, no interest in or right to use the names “The First American Corporation,” “First American Real Estate Solutions,” “First American Information Services,” “First American” or any derivation thereof, or the respective logos, names, trademarks, service marks, trade names or any derivatives thereof, are being transferred hereunder or under the Related Agreements.

 

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(b) FADV agrees that it will as promptly as practicable, but in any event within one hundred eighty (180) calendar days following the date of delivery of a written request by First American, cause any of its Subsidiaries to change its corporate name and/or the name under which it does business to remove “First American” and any derivations thereof. FADV further agrees that it will, and will cause its Subsidiaries to, as promptly as practicable, but in any event within one hundred eighty (180) calendar days following the date of delivery of a written request by First American, discontinue the use of “First American” and all logos, names, trademarks, service marks, trade names or any derivatives thereof, and to remove or obliterate them from all signs, packaging stock, letterhead, labels, websites, and other materials used or produced by FADV or its Subsidiaries and Affiliates, except as otherwise permitted by Contributors.

 

5.10 Portal Agreements. From and after the Closing, FADV agrees to perform the obligations of First American, FAREISI, FARES and their respective Affiliates (including the CREDCO Division) with respect to the provision of credit reports and related products and services under the following agreements (each, a “Portal Agreement” and collectively, the “Portal Agreements”):

 

(a) the Services Agreement, dated as of February 1, 2001, by and between Ellie Mae, Inc. (“Ellie Mae”) and First American, as amended by Amendment No. 1 to Services Agreement, dated as of October 12, 2001, by and between Ellie Mae and First American and by Amendment No. 2 to Services Agreement, dated as of June 10, 2002 by and between Ellie Mae and First American; and

 

(b) the Retained Portal Agreements (as defined in the FARES Contribution Agreement);

 

as each such Portal Agreement existed on the date hereof. FADV shall fulfill such obligations under the Portal Agreements in the same or better manner and with the same or better quality as First American, FAREISI, FARES and their respective Affiliates (including the CREDCO Division) were fulfilling their respective obligations thereunder prior to the Closing. FADV’s obligations under each Portal Agreement pursuant to this Section 5.10 shall expire upon the expiration of the term of such Portal Agreement, as such term was specified in the relevant Portal Agreement on the date hereof. To the extent First American, FAREISI, FARES or one of their respective Affiliates receives payment for services rendered by FADV pursuant to this Section 5.10, First American, FARESISI or FARES shall, or shall cause such Affiliates to, remit to FADV such payment within five (5) Business Days of receipt thereof.

 

5.11 Bar None. Within thirty (30) days of the date hereof, First American shall contribute to Bar None an amount in cash equal to $1,500,000. Prior to Closing, First American shall not permit Bar None to pay any cash dividends or other distributions to its stockholders. On or prior to Closing, First American shall assume the obligations of Bar None under the Promissory Note, dated May 25, 2005, in the original principal amount of $1,000,000, made by Bar None in favor of Francis A. Tarkenton.

 

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ARTICLE VI.

CONDITIONS PRECEDENT

 

6.1 Conditions of all Parties. The obligation of each of the Parties to consummate the Transaction is subject to the satisfaction or waiver by such Party (including, in the case of FADV, the Independent Committee) on or before the Closing, of the following conditions precedent:

 

(a) Injunction. No preliminary or permanent injunction or other order shall have been issued by any court or by any Governmental Entity which prohibits or restrains the consummation of the Transaction and which is in effect on the Closing Date.

 

(b) 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 other Governmental Entity which prohibits the consummation of the Transaction; all governmental and other consents and approvals necessary to permit the consummation of the Transaction shall have been received; any waiting period (and any extension thereof) in connection with the foregoing shall have expired or been terminated.

 

(c) No Litigation. As of the Closing Date, no action or proceedings shall have been threatened or instituted before a court or other Governmental Entity or by any public authority challenging the legality of the Transaction, or restraining or prohibiting the consummation of the Transaction.

 

(d) Stockholders Meeting; Approval of FADV’s Stockholders. The Stockholders Meeting shall have occurred and (i) this Agreement, the Related Agreements and the Transaction shall have been duly approved by a majority of shares of Class A Common Stock (calculated without giving effect to beneficial holdings of Common Stock by First American, its Affiliates (including directors and officers of First American and its Affiliates), Donald Robert, and any member of management of FADV) present in person or represented by proxy at the Stockholders Meeting, and by a majority of shares of Common Stock present in person or represented by proxy at the Stockholders Meeting, and (ii) the Certificate Amendment shall have been duly approved by a majority of outstanding shares of Class A Common Stock (calculated without giving effect to beneficial holdings of Common Stock by First American, its Affiliates (including directors and officers of First American and its Affiliates), Donald Robert, and any member of management of FADV), and by a majority of outstanding shares of Common Stock or such other vote as may be required under applicable law and FADV’s certificate of incorporation and bylaws, and the Stockholders Meeting and such stockholder approvals shall have been obtained in accordance with applicable law and FADV’s certificate of incorporation and bylaws.

 

(e) Certificate of Amendment. The Certificate of Amendment shall have been filed with the Delaware Secretary of State and all proceedings necessary therefor shall have been taken by FADV and its directors and stockholders.

 

(f) FADV Board Committee Approval. In addition to the approval of the FADV’s Board of Directors required under Delaware law, a committee of independent directors

 

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appointed by FADV’s Board of Directors meeting independence requirements of Nasdaq Marketplace Rule 4200(15) (the “Independent Committee”) shall have, at a meeting duly called and held in accordance with FADV’s certificate of incorporation and bylaws, acting with a quorum throughout, (i) approved this Agreement, the Related Agreements and the Transaction for purposes of Nasdaq Marketplace Rule 4350(h), (ii) determined that the Transaction, taken as a whole, is fair to and in the best interests of the stockholders of FADV, and (iii) resolved to recommend that the stockholders of FADV approve this Agreement, the Related Agreements and the Transaction, including the adoption and filing of the Certificate of Amendment.

 

(g) Contributor Board Approval. First American’s Board of Directors shall have approved of this Agreement, the Transaction and each Related Agreement.

 

(h) Note. The original FADV Note shall have been delivered to Newco and marked “Cancelled.”

 

(i) Consent. Experian Information Solutions, Inc. shall have provided to FARES a written consent to FARES’ participation in the Transaction in form and substance reasonably satisfactory to First American and FADV.

 

6.2 Conditions of FADV. The obligation of the FADV to consummate the Transaction is additionally subject to the satisfaction or waiver by FADV (including the Independent Committee) on or before the Closing Date of the following conditions precedent:

 

(a) Truth of Representations and Warranties. The representations and warranties of each Contributor contained herein and in the Related Agreements to which such Contributor is a party shall be true and accurate in all material respects, in each case at and as of the date of this Agreement or such Related Agreement, as applicable, and as of the Closing Date (except to the extent a representation or warranty speaks specifically as of another date (in which case such representation and warranty shall be true and accurate in all material respects as of such date) or as expressly provided for in this Agreement or a Related Agreement), and an officer of each Contributor shall have delivered to FADV a certificate dated the Closing Date to such effect.

 

(b) Performance of Agreements. All of the agreements of each Contributor to be performed at or prior to the Closing pursuant to this Agreement and the Related Agreements to which such Contributor is a party shall have been duly performed in all material respects, and an officer of each Contributor shall have delivered to FADV a certificate dated the Closing Date to such effect.

 

(c) Good Standing and Charter Documents.

 

(i) First American shall have delivered, or caused to be delivered, to FADV:

 

(A) a copy of the articles or certificate of incorporation (or other charter document) of First American, NA CREDCO, FC CREDCO, CMSI, Credit Services, Teletrack, Teletrack Canada and Bar None, including all amendments thereto, certified by the Secretary of State or other appropriate official of the jurisdiction of organization of each such entity as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date;

 

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(B) a copy of the bylaws, including all amendments thereto, of First American, NA CREDCO, FC CREDCO, CMSI, Credit Services, Teletrack, Teletrack Canada and Bar None, certified by First American’s Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date;

 

(C) a copy of the articles of organization of Credit Report+, certified by the Maryland State Department of Assessments and Taxation as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date, and a copy of the operating agreement of Credit Report+, including all amendments thereto, certified by First American’s Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date;

 

(D) a copy of the certificate of formation of Newco certified by the Secretary of State of Delaware as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date, and a copy of the operating agreement of Newco, including all amendments thereto, certified by First American’s Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date; and

 

(E) a certificate from the Secretary of State or other appropriate official of the jurisdiction of organization to the effect that First American, Newco, NA CREDCO, FC CREDCO, CMSI, Credit Services, Teletrack, Teletrack Canada, Credit Report+ and Bar None are each in good standing or validly existing in its jurisdiction of organization as of a date not more than ten (10) days prior to the Closing Date.

 

(ii) FAREISI shall have delivered, or caused to be delivered, to FADV:

 

(A) a copy of the articles of incorporation, including all amendments thereto, of FAREISI and Membership Services, certified by the Secretary of State of California as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date;

 

(B) a copy of the bylaws, including all amendments thereto, of FAREISI and Membership Services, certified by FAREISI’s Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date;

 

(C) a copy of the certificate of organization of CIG, certified by the Secretary of State of Delaware as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date, and a copy of the operating agreement of CIG, including all amendments thereto, certified by FAREISI’s Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date;

 

(D) certificates from the Secretary of State of Delaware to the effect that CIG and DealerTrack are each in good standing or validly existing in such State as of a date not more than ten (10) days prior to the Closing Date; and

 

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(E) certificates from the Secretary of State of California to the effect that FAREISI and Membership Services are each in good standing or validly existing in such State as of a date not more than ten (10) days prior to the Closing Date.

 

(iii) FARES shall have delivered, or cause to be delivered, to FADV:

 

(A) a copy of the articles of organization of FARES, certified by the Secretary of State of California as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date, and a copy of the operating agreement of FARES, including all amendments thereto, certified by FARES’ Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date;

 

(B) a copy of the certificate of incorporation of PR CREDCO, including all amendments thereto, certified by the Secretary of State of Delaware as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date;

 

(C) a copy of the bylaws, including all amendments thereto, of PR CREDCO, certified by FARES’ Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date; and

 

(D) a certificate from the Secretary of State or other appropriate official of the jurisdiction of organization to the effect that FARES, and PR CREDCO is each is in good standing or validly existing in its jurisdiction of organization as of a date not more than ten (10) days prior to the Closing Date.

 

(d) No Material Adverse Effect. As of the Closing Date there shall have been no Material Adverse Effect on the Business, and there shall not have occurred any change or development that would be reasonably likely to have a Material Adverse Effect on the Business.

 

(e) Certificates. Contributors shall have delivered or caused to have been delivered to FADV the certificates evidencing the following interests, properly endorsed in blank for transfer or accompanied by duly executed stock powers (or in lieu thereof an affidavit of lost certificate and an indemnification agreement reasonably acceptable to FADV) or, if any of the following interests are not certificated, Contributors shall have caused the transfers thereof to have been duly recorded on the books and records of the applicable issuer:

 

(i) all of the issued and outstanding shares of Common Stock of NA CREDCO;

 

(ii) all of the issued and outstanding shares of Common Stock of CMSI;

 

(iii) all of the issued and outstanding shares of Common Stock of Teletrack;

 

(iv) all of the issued and outstanding shares of Common Stock of Membership Services;

 

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(v) all of the outstanding membership interests of CIG;

 

(vi) all of the issued and outstanding shares of Common Stock of PR CREDCO; and

 

(vii) all of the issued and outstanding shares of Common Stock of Bar None.

 

(f) Consents. Bank of America, N.A. shall have provided to FADV a written consent to the Transaction. Each third party with a Contract relating to the Business set forth on Schedule 6.2(f) shall have provided to FADV a written consent to the assignment of the applicable Contract to FADV as contemplated by the Transaction if assignment is required by the terms of such Contract.

 

(g) Proceedings. As of the Closing Date, all corporate proceedings of Contributors to be taken in connection with the transactions contemplated by this Agreement, the Related Agreements and all documents incident hereto and thereto shall be reasonably satisfactory in form and substance to FADV, and FADV shall have received copies of all such documents and other evidences as it may reasonably request in order to establish the consummation of such transactions and the taking of all corporate proceedings in connection therewith.

 

(h) Related Agreements. Each of the Related Agreements shall have been duly executed and delivered by the parties thereto (other than the FADV).

 

(i) Corporate Record Books; DealerTrack Interest. Contributors shall have delivered or caused to have been be delivered to FADV the original corporate record books and stock or membership interest record books of the Companies and Bar None, and the certificates evidencing the DealerTrack Interest and the outstanding capital stock or equity interests, as applicable, held by each Company that owns one or more Subsidiaries, including all of the issued and outstanding shares of Common Stock of FC CREDCO, all of the issued and outstanding shares of Common Stock of Credit Services, all of the issued and outstanding shares of Teletrack Canada, and all of the outstanding membership interests of Credit Report+ (or in lieu thereof an affidavit of lost certificate and an indemnification agreement reasonably acceptable to FADV).

 

(j) Resignation Letters. Contributors shall have delivered to FADV the resignation letters of all members of the boards of directors and management committees of the Companies and Bar None and/or any officer of the Companies and Bar None as FADV shall have requested at or prior to the Closing, together with an acknowledgment that they have no prior or present claim whatsoever against the Company or Companies for which they served or Bar None, as applicable, in connection with so acting as directors and/or officers.

 

(k) Opinion of FADV Financial Advisor. The Independent Committee shall have been advised in writing by its financial advisor, Morgan Stanley & Co., that in such advisor’s opinion, as of May 23, 2005, the price to be paid for contribution of the Business and the DealerTrack Interest under the Related Agreements is fair to FADV from a financial point of view.

 

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(l) Audited Financial Statements. First American shall have delivered, or caused to have been delivered, to FADV the audited and unaudited financial statements of the Business required to be included in FADV’s filings with the SEC (the “Audited Financial Statements”), including the Preliminary Proxy Statement, and such Audited Financial Statements shall be consistent in all material respects with all of the Financial Statements (as defined in each Contribution Agreement) considered as a whole.

 

6.3 Conditions of Contributors. The obligations of each Contributor to consummate the Transaction are additionally subject to the satisfaction or waiver on or before the Closing Date of the following conditions precedent:

 

(a) Truth of Representations and Warranties. The representations and warranties of FADV contained herein and in the Related Agreements to which it is a party shall be true and accurate in all material respects, in each case at and as of the date of this Agreement or such Related Agreement, as applicable, and as of the Closing Date (except to the extent a representation or warranty speaks specifically as of another date (in which case such representation and warranty shall be true and accurate in all material respects as of such date) or as expressly provided for in this Agreement or a Related Agreement), and an officer of FADV shall have delivered to Contributors a certificate dated the Closing Date to such effect.

 

(b) Performance of Agreements. All of the agreements of FADV to be performed at or prior to the Closing pursuant to this Agreement and the Related Agreements to which FADV is a party shall have been duly performed in all material respects, and an officer of FADV shall have delivered to Contributors a certificate dated the Closing Date to such effect.

 

(c) Good Standing and Charter Documents. FADV shall have delivered, or caused to be delivered, to Contributors (i) a copy of the certificate of incorporation of FADV, including all amendments thereto, certified by the Secretary of State of Delaware as being true and correct and in effect as of a date not more than ten (10) days prior to the Closing Date; (ii) a copy of the bylaws, including all amendments thereto, of FADV, certified by FADV’s Secretary or Assistant Secretary as being true and correct and in effect on the Closing Date; and (iii) a certificate from the Secretary of State of Delaware to the effect that FADV is in good standing or validly existing in Delaware as of a date not more than ten (10) days prior to the Closing Date.

 

(d) No Material Adverse Effect. As of the Closing Date there shall have been no Material Adverse Effect on FADV, and there shall not have occurred any change or development that would be reasonably likely to have a Material Adverse Effect on FADV.

 

(e) Class B Common Stock Certificates. FADV shall have delivered or caused to have been delivered to Newco an aggregate total of 30,048,780 shares of Class B Common Stock.

 

(f) Notice. FADV shall have timely delivered to the Nasdaq National Market the notice required by Nasdaq Marketplace Rule 4310(c)(17)(D).

 

(g) Proceedings. As of the Closing Date, all corporate proceedings of FADV to be taken in connection with the transactions contemplated by this Agreement, the Related Agreements and all documents incident hereto and thereto shall be reasonably satisfactory in

 

LOSANGELES 396222 (2K)    -24-     


form and substance to Contributors, and Contributors shall have received copies of all such documents and other evidences as they may reasonably request in order to establish the consummation of such transactions and the taking of all corporate proceedings in connection therewith.

 

(h) Related Agreements. The Related Agreements to which FADV is a party shall have been duly executed and delivered by the parties thereto (other than Contributors).

 

(i) Standstill Agreement. FADV shall have delivered to Contributors a written waiver of FADV’s rights under the Standstill Agreement, dated as of June 5, 2003, between First American and FADV (the “Standstill Agreement”), with respect to the Transaction, and FADV shall have delivered to Contributors the written approval of the Transaction by a majority of the Disinterested Directors (as defined in the Standstill Agreement).

 

(j) Opinion of First American Financial Advisor. First American shall have been advised in writing by its financial advisor, Lehman Brothers, that in such advisor’s opinion, as of May 25, 2005, the price to be received for contribution of the Business and the DealerTrack Interest under the Related Agreements is fair to Contributors from a financial point of view.

 

ARTICLE VII.

TERMINATION

 

7.1 Events of Termination. This Agreement may be terminated in whole, but not in part, as follows:

 

(a) at any time by mutual written agreement of the Parties;

 

(b) by FADV, by written notice to First American if the conditions set forth in Sections 6.1 and 6.2 hereof shall not have been complied with or performed on or prior to the one hundred twentieth (120th) calendar day from the date hereof (or such later date as the Parties may have agreed to in writing) in any material respect and FADV shall not have materially breached any of its representations, warranties, covenants or agreements contained herein;

 

(c) by First American, by written notice to FADV if the conditions set forth in Sections 6.1 and 6.3 hereof shall not have been complied with or performed on or prior to the one hundred twentieth (120th) calendar day from the date hereof (or such later date as the Parties may have agreed to in writing) in any material respect and no Contributor shall have materially breached any of its representations, warranties, covenants or agreements contained herein;

 

(d) by First American or FADV, by written notice to the other, if the Board of Directors of FADV or the Independent Committee shall have withdrawn or adversely modified its approval or recommendation of the Transaction;

 

(e) by FADV or First American, by written notice to the other Parties, if 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 Transaction;

 

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(f) by either First American or FADV, by written notice to the other, if at the Stockholders Meeting (including any adjournment or postponement thereof), the requisite vote of the stockholders of FADV in favor of this Agreement, the Related Agreements and the Transaction, including approval of the Certificate of Amendment, shall not have been obtained as required by Section 6.1(d);

 

(g) by either First American or FADV, by written notice to the other, if Morgan Stanley & Co., FADV’s financial advisor, withdraws its opinion referred to in Section 6.2(k) or otherwise notifies the Board of Directors of FADV that it may no longer rely on such opinion;

 

(h) by either First American or FADV, by written notice to the other, if Lehman Brothers, First American’s financial advisor, withdraws its opinion referred to in Section 6.3(j) or otherwise notifies the Board of Directors of First American that it may no longer rely on such opinion;

 

(i) by FADV by written notice to First American delivered prior to the Closing, if FADV reasonably determines that the developments set forth in any notice delivered by Contributors under Section 5.7, together with any developments set forth in any other notice or notices delivered by Contributors under Section 5.7, will result in a material breach of any representation or warranty of First American or FAREISI contained in the First American Contribution Agreement;

 

(j) by FADV by written notice to First American delivered prior to the Closing, if FADV reasonably determines that the developments set forth in any notice delivered by Contributors under Section 5.7, together with any developments set forth in any other notice or notices delivered by Contributors under Section 5.7, will result in a material breach of any representation or warranty of FARES contained in the FARES Contribution Agreement;

 

(k) by First American by written notice to FADV delivered prior to the Closing, if First American reasonably determines that the developments set forth in any notice delivered by FADV under Section 5.7, together with any developments set forth in any other notice or notices delivered by FADV under Section 5.7, will result in a material breach of any representation or warranty of FADV contained in the First American Contribution Agreement;

 

(l) by First American by written notice to FADV delivered prior to the Closing, if First American reasonably determines that the developments set forth in any notice delivered by FADV under Section 5.7, together with any developments set forth in any other notice or notices delivered by FADV under Section 5.7, will result in a material breach of any representation or warranty of FADV contained in the FARES Contribution Agreement; or

 

(m) in whole and not in part by FADV, by written notice to First American, if, as a condition to receiving the approval of the Transaction by any Governmental Entity, FADV or any of its Subsidiaries or Affiliates shall be required to, or required to agree to, (i) divest, sell or hold separate or agree to license to its competitors, before or after the Closing Date, any of FADV’s, its Subsidiaries’ or Affiliates’, the Business’ or Bar None’s businesses, product lines, properties or assets, (ii) make any material changes or accept material restrictions in the

 

LOSANGELES 396222 (2K)    -26-     


operation of such businesses, product lines, properties or assets or (iii) make any changes or accept any restrictions in any of FADV’s, its Subsidiaries’ or Affiliates’, the Business’ or Bar None’s businesses, product lines, properties, assets, or to this Agreement, the Related Agreements or the Transaction.

 

7.2 Effect of Termination. In the event that this Agreement shall be terminated pursuant to Section 7.1, all further obligations of the Parties under this Agreement (other than pursuant to Sections 5.2(c) (Confidentiality), 9.2 (Expenses) and 9.3 (Confidentiality), 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) willful failure of such Party to have performed its obligations hereunder and (b) any knowing misrepresentation made by such Party of any matter set forth herein.

 

ARTICLE VIII.

NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS

 

8.1 General. Except for the covenants and agreements in Section 5.1 and the covenants and agreements which, by their express terms, are to be performed after the Closing Date, none of the representations, warranties, covenants and agreements of the Parties in this Agreement shall survive the Closing, and thereafter no Party and no Subsidiary, officer, director, member, manager or employee of any such Party, shall have any liability under this Agreement with respect to any such representation, warranty, covenant or agreement except for liabilities arising from intentional fraud, willful (tortious or illegal) misconduct or criminal acts.

 

ARTICLE IX.

MISCELLANEOUS

 

9.1 Knowledge. Where any representation or warranty contained in this Agreement is expressly qualified by reference to the knowledge of a Person, the Person making such representation or warranty confirms that the senior executive officers of such Person have made a reasonable inquiry of the managers reporting to them as to the matters that are the subject of such representations and warranties.

 

9.2 Expenses. Except as expressly provided herein, each Party shall bear its own (a) costs incurred as a result of the Transaction, including payments to third parties, if any, to obtain their consent to such transfer and (b) professional fees and related costs and expenses (including fees, costs and expenses of accountants, attorneys, benefits specialists, investment banks, financial advisors, tax advisors and appraisers) incurred by it in connection with the preparation, execution and delivery of this Agreement and the Related Agreements and the Transaction.

 

9.3 Publicity; Confidentiality. Except as otherwise required by law, neither First American (and its Affiliates) nor FADV (and its Affiliates) 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 Related Agreements or the matters contained herein or therein, without obtaining the prior written consent of the other to the contents and the manner of presentation and publication thereof, which consent shall not be unreasonably or untimely withheld, delayed

 

LOSANGELES 396222 (2K)    -27-     


or conditioned; provided, however, that either First American or FADV may, without the prior written consent of the other, issue any such press release or other public statement as may, upon the advice of counsel, be required by law or the rules or regulations of the New York Stock Exchange or the Nasdaq National Market, as applicable, if it has used all reasonable efforts to consult with the other.

 

9.4 Governing Law; Jurisdiction.

 

(a) The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of New York (exclusive of conflict of laws principles) applicable to agreements executed and to be performed solely within such State.

 

(b) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York state court sitting in the borough of Manhattan, New York, or Federal court of the United States of America in the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, the Related Agreements or the agreements delivered in connection herewith or therewith or the Transaction or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such New York State or Federal court and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such New York State or Federal court. Each of the Parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE RELATED AGREEMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE RELATED AGREEMENTS AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.4.

 

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9.5 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:

 

  (a) If to FADV, to:

 

First Advantage Corporation

One Progress Plaza

Suite 2400

St. Petersburg, Florida 33701

  Facsimile: (727) 214-3401
  Attention: John Long
       Julie Waters

 

with a copy (which shall not constitute notice) to:

 

Independent Committee

c/o Davis Polk & Wardwell

450 Lexington Avenue

New York, New York 10017

  Facsimile: (212) 450-3800
  Attention: John H. Butler

 

  (b) If to any Contributor other than FARES, to:

 

The First American Corporation

1 First American Way

Santa Ana, California 92707

  Facsimile: (714) 800-3325
  Attention: Parker Kennedy
       Kenneth DeGiorgio

 

with a copy (which shall not constitute notice) to:

 

White & Case LLP

633 West Fifth Street, Suite 1900

Los Angeles, California 90071

  Facsimile: (213) 687-0758
  Attention: Neil W. Rust

 

  (c) If to FARES, to:

 

The First American Corporation

1 First American Way

Santa Ana, California 92707

  Facsimile: (714) 800-3325
  Attention: Parker Kennedy
       Kenneth DeGiorgio

 

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and

 

Experian Information Solutions, Inc.

475 Anton Boulevard

Costa Mesa, California 92626

  Facsimile: (714) 830-2513
  Attention: Senior Vice President and Lead Counsel

 

with a copy (which shall not constitute notice) to:

 

White & Case LLP

633 West Fifth Street, Suite 1900

Los Angeles, California 90071

  Facsimile: (213) 687-0758
  Attention: Neil W. Rust

 

or such other address or number as shall be furnished in writing by any such Party. Except for a notice of a change of address, which shall be effective only upon receipt thereof, all such notices, requests, demands, waivers and communications properly addressed shall be effective: (i) if sent by U.S. mail, three (3) Business Days after deposit in the U.S. mail, postage prepaid; (ii) if sent by FedEx or other overnight delivery service, one (1) Business Day after delivery to such service; (iii) if sent by personal courier, upon receipt; and (iv) if sent by facsimile, upon receipt.

 

9.6 Parties in Interest. This Agreement may not be transferred, assigned, pledged or hypothecated by any Party hereto, other than by operation of law, except that FADV may assign any of its rights and benefits (but not its obligations) hereunder to any of its wholly-owned subsidiaries. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and permitted assigns.

 

9.7 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one instrument.

 

9.8 Entire Agreement. This Agreement, including the Related Agreements, the Confidentiality Agreement and the other documents referred to herein and therein, and in the exhibits and schedules thereto which form a part thereof, contains the entire understanding of the Parties with respect to the subject matter contained herein and therein. This Agreement, including the Related Agreements, the Confidentiality Agreement and the other documents referred to herein and therein, supersedes all prior oral and written agreements and understandings between the Parties with respect to such subject matter.

 

9.9 Amendments. This Agreement may not be amended or modified orally, but only by an agreement in writing signed by the Parties and consented to by the Independent Committee; provided that non-substantive changes to the Exhibits attached hereto may be made by the Parties without the consent of the Independent Committee.

 

9.10 Severability. If any term, provision, agreement, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, agreements, covenants and restrictions of

 

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this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such a determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a reasonably acceptable manner in order that the transactions contemplated hereby may be consummated as originally contemplated to the fullest extent possible.

 

9.11 Extension; Waiver. At any time prior to the Closing, the Parties may, to the extent legally allowed, but shall not be obligated to, (a) extend the time for performance of any of the obligations or other acts of the other Parties, (b) waive any inaccuracies in the representations and warranties of the other Parties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions of the other Parties contained herein; provided that, except as otherwise permitted by this Agreement, any extension or waiver granted by FADV shall require the consent of the Independent Committee to be effective. Any agreement on the part of a Party to any such extension or waiver shall be valid only if and to the extent set forth in a written instrument signed by such Party.

 

9.12 Third Party Beneficiaries. 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.

 

9.13 Consent. FADV hereby consents to First American’s assignment of the FADV Note to Newco.

 

*             *            *

 

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IN WITNESS WHEREOF, each Party has caused its name to be hereunto subscribed by its duly authorized signatory as of the day and year first above written.

 

THE FIRST AMERICAN CORPORATION
By:  

 


Name:    
Title:    
FIRST AMERICAN REAL ESTATE INFORMATION SERVICES, INC.
By:  

 


Name:    
Title:    

FIRST AMERICAN REAL ESTATE

SOLUTIONS, LLC

By:  

 


Name:    
Title:    
FADV HOLDINGS LLC
By:  

 


Name:    
Title:    

 

LOSANGELES 396222 (2K)   

-Signature Page-

Master Transfer Agreement

    


FIRST ADVANTAGE CORPORATION
By:  

 


Name:    
Title:    

 

LOSANGELES 396222 (2K)   

-Signature Page-

Master Transfer Agreement

    
Contribution Agreement dtd September 14, 2005

Exhibit 2.2

 


 

CONTRIBUTION AGREEMENT

 

among

 

THE FIRST AMERICAN CORPORATION,

 

FIRST AMERICAN REAL ESTATE INFORMATION SERVICES, INC.,

 

and

 

FIRST ADVANTAGE CORPORATION

 


 

Dated as of [                        ], 2005

 


 


 

LOSANGELES 396686 (2K)          


TABLE OF CONTENTS1

 

     ARTICLE I.     
     DEFINITIONS AND INTERPRETATIONS     

1.1

  

Defined Terms

   2

1.2

  

Principles of Construction.

   7
     ARTICLE II.     
     REPRESENTATIONS OF CONTRIBUTORS     

2.1

  

Existence and Good Standing

   8

2.2

  

Binding Effect

   8

2.3

  

Investment

   8

2.4

  

Restrictive Documents

   8

2.5

  

Litigation

   9
     ARTICLE III.     
     REPRESENTATIONS OF CONTRIBUTORS REGARDING THE COMPANIES     

3.1

  

Companies; Subsidiaries.

   9

3.2

  

Capitalization.

   10

3.3

  

Financial Statements.

   10

3.4

  

Books and Records

   10

3.5

  

Title to Properties; Encumbrances

   11

3.6

  

Real Property

   11

3.7

  

Leases

   11

3.8

  

Material Contracts.

   12

3.9

  

Restrictive Documents

   12

3.10

  

Litigation

   13

3.11

  

Taxes.

   13

3.12

  

Intellectual Properties.

   14

3.13

  

Compliance with Laws

   16

3.14

  

Governmental Licenses

   16

3.15

  

Labor Matters.

   17

3.16

  

Consents and Approvals; No Violations

   17

3.17

  

Broker’s or Finder’s Fees

   18

3.18

  

Copies of Documents

   18

3.19

  

Affiliate Transactions

   18

3.20

  

Undisclosed Liabilities

   18

3.21

  

Disclosure

   18

3.22

  

After-Acquired Business

   18

1 This Table of Contents is provided for convenience only and does not form a part of this Contribution Agreement.

 

LOSANGELES 396686 (2K)    (i)     


     ARTICLE IV.     
     REPRESENTATIONS OF CONTRIBUTORS REGARDING DEALERTRACK INTEREST     

4.1

  

DealerTrack Interest

   19
     ARTICLE V.     
     REPRESENTATIONS OF BUYER     

5.1

  

Existence and Good Standing

   19

5.2

  

Binding Effect

   19

5.3

  

Capitalization.

   20

5.4

  

SEC Reports and Financial Statements

   20

5.5

  

Restrictive Documents

   21

5.6

  

Litigation

   21

5.7

  

Compliance with Laws

   21

5.8

  

Consents and Approvals; No Violations

   22

5.9

  

Broker’s or Finder’s Fees

   22

5.10

  

Copies of Documents

   22

5.11

  

Board Approval

   22

5.12

  

Undisclosed Liabilities

   22

5.13

  

Disclosure

   22
     ARTICLE VI.     
     THE TRANSACTION     

6.1

  

Contribution.

   23

6.2

  

Consideration; Debt Repayment.

   23

6.3

  

DealerTrack Earn-Out

   24

6.4

  

Minimum Cash

   24

6.5

  

Closing

   24
     ARTICLE VII.     
     CERTAIN COVENANTS     

7.1

  

Employees

   25

7.2

  

Pre-Closing Distribution

   25

7.3

  

Certain Benefits Relating to Acquisition Agreements.

   25

7.4

  

After-Acquired Business.

   26
     ARTICLE VIII.     
     INDEMNIFICATION     

8.1

  

Survival of Representations

   27

8.2

  

Indemnification.

   28

8.3

  

Indemnification Procedure.

   29
     ARTICLE IX.     
     TAX MATTERS     

9.1

  

Tax Returns.

   31

9.2

  

Payment of Taxes.

   32

 

LOSANGELES 396686 (2K)    (ii)     


9.3

  

Transfer Taxes

   32

9.4

  

Controversies.

   32

9.5

  

Indemnification for Taxes

   33

9.6

  

Post-Closing Access and Cooperation

   33
     ARTICLE X.     
     MISCELLANEOUS     

10.1

  

Knowledge

   33

10.2

  

Expenses

   34

10.3

  

Publicity; Confidentiality

   34

10.4

  

Governing Law; Jurisdiction.

   34

10.5

  

Notices

   35

10.6

  

Parties in Interest

   36

10.7

  

Counterparts

   36

10.8

  

Entire Agreement

   36

10.9

  

Amendments

   36

10.10

  

Severability

   36

10.11

  

Extension; Waiver

   36

10.12

  

No Other Representations or Warranties

   37

10.13

  

Third Party Beneficiaries

   37

 

LOSANGELES 396686 (2K)    (iii)     


CONTRIBUTION AGREEMENT

 

This CONTRIBUTION AGREEMENT (as the same may be amended, modified and supplemented from time to time, this “Agreement”) is entered into as of [                        ], 2005 by and among THE FIRST AMERICAN CORPORATION, a California corporation (“First American”); FIRST AMERICAN REAL ESTATE INFORMATION SERVICES, INC., a California corporation (“FAREISI”); and FIRST ADVANTAGE CORPORATION, a Delaware corporation (“FADV”; First American, FAREISI, and FADV are each a “Party” and are collectively the “Parties”).

 

W I T N E S S E T H :

 

WHEREAS, First American is the beneficial owner of (a) all of the issued and outstanding (i) capital stock of North American CREDCO, Inc., a Delaware corporation (“NA CREDCO”); First Canadian CREDCO, Inc., an Ontario corporation (“FC CREDCO”); First American Credit Management Solutions, Inc., a Delaware corporation (“CMSI”); CMSI Credit Services, Inc., a Maryland corporation (“Credit Services”); Teletrack, Inc., a Georgia corporation (“Teletrack”); and Teletrack Canada, Inc., an Ontario corporation (“Teletrack Canada”); and (ii) membership interests of CreditReportPlus, LLC, a Maryland limited liability company (“Credit Report+”); and (b) 4,071,618 shares of Series A-2 Preferred Stock of DealerTrack Holdings, Inc., a Delaware corporation (“DealerTrack”), and 1,357,206 shares of Series C-3 Preferred Stock of DealerTrack (collectively, the “DealerTrack Interest”);

 

WHEREAS, FAREISI is the record owner of all of the issued and outstanding (a) capital stock of First American Membership Services, Inc., a California corporation (“Membership Services”); and (b) membership interests of CIG Investments, LLC, a Delaware limited liability company (“CIG” and collectively with the companies referred to in the above recitals (other than DealerTrack and the DealerTrack Interest), the “FACO Business”);

 

WHEREAS, First American, FAREISI, First American Real Estate Solutions, LLC and FADV are parties to that certain Master Transfer Agreement, dated as of May 25, 2005 (the “Master Transfer Agreement”), pursuant to which, among other things, First American, FAREISI and FADV shall have entered into this Agreement as a condition precedent to closing of the transactions contemplated by the Master Transfer Agreement; and

 

WHEREAS, First American and FAREISI (each, a “Contributor” and collectively, “Contributors”) desire to contribute, and FADV desires to accept the contribution of, the FACO Business and the DealerTrack Interest, pursuant to the terms and conditions of this Agreement.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements herein contained, the Parties agree as follows:

 

LOSANGELES 396686 (2K)    -1-     


ARTICLE I.

DEFINITIONS AND INTERPRETATIONS

 

1.1 Defined Terms. Capitalized terms used in this Agreement but not defined herein shall have the meanings assigned in the Master Transfer Agreement. 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):

 

24/7” has the meaning provided in Section 3.13(k).

 

Accredited Investor” has the meaning set forth in Regulation D promulgated under the Securities Act of 1933, as amended.

 

Acquisition Agreement” and “Acquisition Agreements” have the meanings provided in Section 7.3(a).

 

Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by Contract or otherwise; provided that FADV and its Subsidiaries shall not be deemed to be Affiliates of Contributors for purposes of this Agreement, and Contributors and their Subsidiaries shall not be deemed to be Affiliates of FADV for purposes of this Agreement.

 

After-Acquired Business” has the meaning provided in Section 7.4(a).

 

Agreed Claims” has the meaning provided in Section 8.3(d).

 

Agreement” has the meaning provided in the introductory paragraph.

 

Balance Sheet Date” means March 31, 2005.

 

Balance Sheet” means the unaudited pro forma balance sheet of First American’s Credit Information Group for the quarter ended on the Balance Sheet Date.

 

Business Day” means any day, other than a Saturday, Sunday or other day on which banks located in Los Angeles, California or St. Petersburg, Florida are authorized or required by law to close.

 

Call Notice” has the meaning provided in Section 7.4(a).

 

Certificate” has the meaning provided in Section 8.3(a).

 

CIG” has the meaning provided in the second recital.

 

LOSANGELES 396686 (2K)    -2-     


Class A Common Stock” means FADV’s Class A common stock, par value $0.001 per share.

 

Class B Common Stock” means FADV’s Class B common stock, par value $0.001 per share.

 

CMSI” has the meaning provided in the first recital.

 

Code” means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

 

Common Stock” means the Class A Common Stock and the Class B Common Stock.

 

Company” and “Companies” means, as the context requires, any or all of NA CREDCO; FC CREDCO; CMSI; Credit Services; Teletrack; Teletrack Canada; Credit Report+; Membership Services; and CIG.

 

Company Intellectual Property” means all Intellectual Property owned by a Company and/or any Subsidiary thereof or used in the business of a Company and/or any Subsidiary thereof.

 

Company Permitted Liens” has the meaning provided in Section 3.5.

 

Contracts” means any Contract, agreement, understanding, note, bond, mortgage, indenture, guarantee, license, franchise, commitment, lease or instrument, whether oral or written, including all amendments and supplements thereto and restatements thereof.

 

Contributor” and “Contributors” have the meanings provided in the fourth recital.

 

Contributor Indemnified Party” has the meaning provided in Section 8.2(b).

 

Credit Report+” has the meaning provided in the first recital.

 

Credit Services” has the meaning provided in the first recital.

 

DealerTrack” has the meaning provided in the first recital.

 

DealerTrack Earnout” has the meaning provided in Section 6.3.

 

DealerTrack Excess Value” has the meaning provided in Section 6.3(a).

 

DealerTrack Interest” has the meaning provided in the first recital.

 

Distributions” has the meaning provided in Section 7.2.

 

Encumbrances” means all liens, security interests, options, rights of first refusal, claims, easements, mortgages, charges, indentures, deeds of trust, rights of way, restrictions on

 

LOSANGELES 396686 (2K)    -3-     


the use of real property, encroachments, licenses to third parties, leases to third parties, security agreements and any other encumbrances and other restrictions or limitations on use or irregularities in title thereto.

 

Entity” means any Person that is not a natural person.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

FACO Business” has the meaning provided in the second recital.

 

FADV” has the meaning provided in the introductory paragraph.

 

FADV Financial Statements” has the meaning provided in Section 5.4.

 

FADV Indemnified Party” has the meaning provided in Section 8.2(a).

 

FADV SEC Reports” has the meaning provided in Section 5.4.

 

FAREISI” has the meaning provided in the introductory paragraph.

 

FARES Contribution Agreement” means the Contribution Agreement, dated as of the date hereof, between First American Real Estate Solutions, LLC and FADV.

 

FC CREDCO” has the meaning provided in the first recital.

 

First American” has the meaning provided in the introductory paragraph.

 

Financial Statements” means the unaudited balance sheet and income statement of First American’s Credit Information Group for the years ended December 31, 2002, 2003 and 2004, and the Balance Sheet and related income statement for the three months ended on the Balance Sheet Date.

 

GAAP” means United States generally accepted accounting principles applied on a consistent basis.

 

Governmental Entity” means any instrumentality, subdivision, court, administrative agency, commission, official or other authority of the United States or any other country or any state, province, prefect, municipality, locality or other government or political subdivision thereof, or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority.

 

Indebtedness” of any Person shall mean and include (a) indebtedness for borrowed money or indebtedness issued or incurred in substitution or exchange for indebtedness for borrowed money, (b) amounts owing as deferred purchase price for property or services, including all stockholder notes and “earn-out” payments, (c) indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security, (d) commitments or obligations by which such Person assures a creditor against loss (including contingent reimbursement obligations with respect to letters of credit), (e) indebtedness secured by an

 

LOSANGELES 396686 (2K)    -4-     


Encumbrance on assets or properties of such Person, (f) obligations under any interest rate, currency or other hedging agreement or (g) guarantees or other contingent liabilities (including so-called take-or-pay or keep-well agreements) with respect to any indebtedness, obligation, claim or liability of any other Person of a type described in clauses (a) through (f) above.

 

Indemnified Party” has the meaning provided in Section 8.3(a).

 

Indemnifying Party” has the meaning provided in Section 8.3(a).

 

Intellectual Property” means all domestic and foreign patents, patent applications, trademarks, service marks and other indicia of origin, trademark and service mark registrations and applications for registrations thereof, copyrights, copyright registrations and applications for registration thereof, Internet domain names, applications and reservations therefor, uniform resource locators (“URLs”) and the Internet sites (collectively, the “Sites”) corresponding thereto, trade secrets, inventions (whether or not patentable), invention disclosures, moral and economic rights of authors and inventors (however denominated), technical data, customer lists, corporate and business names, trade names, trade dress, brand names, know-how, show-how, maskworks, formulae, methods (whether or not patentable), designs, processes, procedures, technology, source codes, object codes, computer software programs, databases, data collectors and other proprietary information or material of any type, whether written or unwritten (and all goodwill associated with, and all derivatives, improvements and refinements of, any of the foregoing).

 

IRS” means the Internal Revenue Service.

 

Licenses” has the meaning provided in Section 3.14.

 

Losses” has the meaning provided in Section 8.2(a).

 

Master Transfer Agreement” has the meaning provided in the third recital.

 

Material Adverse Effect” means, (a) when used with respect to the Business, any material adverse change in or effect on the properties, assets, businesses, liabilities, results of operations or condition (financial or otherwise) of the Business, taken as a whole, and (b) when used with respect to FADV, (i) any materially adverse change in or effect on (including any material delay) the ability of FADV to perform its obligations under this Agreement, and (ii) any material adverse change in or effect on the properties, assets, businesses, liabilities, results of operations or condition (financial or otherwise) of FADV and its Subsidiaries, taken as a whole; provided, however, that the term “Material Adverse Effect” shall not include any adverse change or effect that is proximately caused by (1) conditions affecting the United States economy generally or the economy of the regions in which the applicable Person and its Subsidiaries (if any), taken as a whole, conducts a material part of its business, (2) changes in financial markets, (3) conditions affecting the industries in which the applicable Person and its Subsidiaries (if any) compete or (4) the announcement, or other disclosure, of the Transaction (to the extent such announcement or disclosure is not effected in contravention of any term of this Agreement) or the consummation of the Transaction (including compliance by such Person with its covenants hereunder).

 

LOSANGELES 396686 (2K)    -5-     


Membership Services” has the meaning provided in the second recital.

 

NA CREDCO” has the meaning provided in the first recital.

 

Note” has the meaning provided in Section 6.2(b).

 

Ordinary Course” means, with respect to any Person, the ordinary course of commercial operations customarily engaged in by such Person, consistent with past practices (including with respect to quantity and frequency).

 

Overlap Period” has the meaning provided in Section 9.2(a).

 

Party” or “Parties” has the meaning provided in the introductory paragraph.

 

Person” means and includes 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.

 

Pre-Closing Period” has the meaning provided in Section 3.11(b).