As filed with the Securities and Exchange Commission on April 23, 2001
Registration No. 333-58464
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
PRE-EFFECTIVE
AMENDMENT
No. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE FIRST AMERICAN CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
California 6361 95-1068610
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
1 First American Way
Santa Ana, California 92707-5913
(714) 800-3000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
---------------
MARK R ARNESEN, Esq.
Secretary
The First American Corporation
1 First American Way
Santa Ana, California 92707-5913
(714) 800-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
With copies to:
NEIL W. RUST, Esq. STEPHEN A. RIDDICK, Esq.
White & Case LLP Brobeck, Phleger & Harrison LLP
633 West Fifth Street 1333 H Street, N.W., Suite 800
Los Angeles, California 90071 Washington, D.C. 20005
(213) 620-7700 (202) 220-6000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective and all
other conditions precedent under the Agreement and Plan of Merger discussed
herein are satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
=====================================================================================================
Proposed Proposed
Title of each class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered(1) per share(2) offering price(3) fee(4)
-----------------------------------------------------------------------------------------------------
Common shares, $1.00 par value........ 2,890,123 shares $5.813 $59,135,109 $14,784(5)
=====================================================================================================
(Notes continued on following page)
(Notes continued from previous page)
--------
(1) Based on the estimated number of shares of First American common stock
issuable in connection with the merger, calculated as the product of (a)
10,172,907, which is the sum of (i) 7,994,124 shares of CMSI common stock
estimated to be outstanding on April 2, 2001, (ii) 2,175,478 shares of CMSI
common stock issuable pursuant to employee, director and advisor stock
options prior to the expected merger date and (iii) 3,305 shares of CMSI
common stock to be issued prior to the effectiveness of the merger pursuant
to CMSI's employee stock purchase plan, and (b) an assumed exchange ratio
of 0.2841 (determined by dividing $6.25 by $22.00, the minimum price per
share of First American common stock permitted by the merger agreement).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act, based
on the average of the high and low sales prices of CMSI common stock
reported on the Nasdaq National Market on April 4, 2001.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act, based
on the maximum number of shares of CMSI common stock to be acquired in the
merger multiplied by the average of the high and low sales prices of CMSI
common stock reported on the Nasdaq National Market on April 4, 2001.
(4) Calculated in accordance with Section 6 of the Securities Act and Rule 457
under the Securities Act by multiplying 0.00025 and the proposed maximum
aggregate offering price.
(5) Previously paid.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO OF CREDIT MANAGEMENT SOLUTIONS, INC. (CMSI) APPEARS HERE]
----------------
A MERGER IS PROPOSED--YOUR VOTE IS VERY IMPORTANT
----------------
Dear Stockholder:
We are pleased to inform you that Credit Management Solutions, Inc. has
agreed, subject to stockholder approval, to merge with a subsidiary of The
First American Corporation, a leading provider of business information and
related products and services. As a result of the merger, CMSI will become a
wholly-owned subsidiary of First American.
You are cordially invited to attend a special meeting of stockholders of
Credit Management Solutions, Inc. at 10:00 a.m., Eastern Time, on May 29, 2001,
at the Sheraton Columbia Hotel, 10207 Wincopin Circle, Columbia, Maryland,
21044 to consider and vote upon the merger and to elect five (5) persons to
serve on our board of directors. Only stockholders who hold common shares of
CMSI at the close of business on April 25, 2001 will be entitled to vote.
If the planned merger takes place, each share of your CMSI common stock will
be converted into the right to receive that portion of a share of First
American common stock determined by dividing $6.25 by the average closing price
per share of First American common stock for the ten trading day period ending
on the third trading day before the special meeting, subject to a maximum price
of $30.00 and a minimum price of $22.00. You will be entitled to receive cash
in lieu of any fractional shares owed to you. First American's common shares
trade on the New York Stock Exchange under the symbol "FAF." On April 18, 2001
First American's closing stock price was $21.15.
We are excited about the opportunities presented by the merger. After
careful consideration, your board of directors has determined the merger is
consistent with and in furtherance of the long-term business strategy of CMSI
and that the merger and the merger agreement are in the best interests of CMSI
and you, our stockholders. Your board of directors unanimously recommends that
you vote "FOR" the proposed merger.
In light of the importance of the merger proposal, we urge you to attend the
special meeting. Whether or not you plan to attend in person, after carefully
reading and considering the accompanying materials, please take the time to
vote by completing and mailing the enclosed proxy card to us. If you date and
mail your proxy card without indicating how you would like to vote, your proxy
will be counted as a vote "FOR" the merger and a vote "FOR" the election of
each nominee for director recommended by the board of directors and listed in
the proxy card. If you do not return your proxy card or otherwise vote your
shares, or if you do not instruct your broker how to vote any shares held for
you in "street name," the effect will be the same as a vote "AGAINST" the
merger.
The enclosed joint proxy statement-prospectus provides you with important
information about the proposed merger and the election of directors. Please
give all of this information your careful attention. In particular, you should
read and consider carefully the discussion in the section entitled "Risk
Factors" beginning on page 9 of the joint proxy statement-prospectus.
The merger cannot be completed unless approved by holders of a majority of
the outstanding common shares of CMSI present in person or by proxy and
entitled to vote at the special meeting. Two of our affiliates have entered
into voting agreements whereby they have agreed to vote an aggregate of
3,841,081 shares of CMSI common stock, representing approximately 48% of our
outstanding common shares as of April 17, 2001, to approve the merger.
Sincerely,
/s/ SCOTT L. FREIMAN
Scott L. Freiman
Chief Executive Officer and
President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION OR THE
SECURITIES TO BE ISSUED IN THE MERGER, OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS JOINT PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement-prospectus is dated April 23, 2001.
First mailed to Credit Management Solutions, Inc. stockholders on or about
April 26, 2001.
[LOGO OF CREDIT MANAGEMENT SOLUTIONS, INC. (CMSI) APPEARS HERE]
135 National Business Parkway
Annapolis Junction, Maryland 20701
----------------
NOTICE OF SPECIAL MEETING
To be Held on May 29, 2001
----------------
We invite you to attend the special meeting of the stockholders of Credit
Management Solutions, Inc., a Delaware corporation, to be held at the Sheraton
Columbia Hotel, 10207 Wincopin Circle, Columbia, Maryland, 21044 on May 29,
2001 at 10:00 a.m., Eastern Time, and at any adjournments of the special
meeting, for the following purposes:
1. To elect five (5) persons to serve on our board of directors until their
terms expire and their successors are elected and are qualified, or
until the merger is approved and completed, whichever occurs first. Our
board of directors currently has five (5) members.
2. To consider and vote on a proposal to adopt and approve the Agreement
and Plan of Merger dated as of January 30, 2001 by and among The First
American Corporation, a California corporation, Rusti Corp., a wholly-
owned Delaware subsidiary of First American, and CMSI, and to approve
the merger of CMSI with Rusti Corp. If the merger is approved, each
share of your CMSI common stock will be exchangeable for that portion of
a First American common share determined by dividing $6.25 by the
average closing price of First American common shares for the ten
trading day period ending on the third trading day before the special
meeting, subject to a maximum price of $30.00 and a minimum price of
$22.00. Due to this "collar" on First American's share price, you would
receive between 0.2083 and 0.2841 of a First American common share for
each share of CMSI common stock you own.
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Our board of directors has fixed the close of business on April 25, 2001 as
the record date for determining the stockholders of CMSI entitled to notice of
the meeting, as well as for determining those stockholders entitled to vote at
the meeting.
Our board of directors has determined that the merger agreement and the
merger are advisable and fair to, and in the best interests of, CMSI and you,
and unanimously recommends that you vote "FOR" the adoption of the merger
agreement. Our board of directors also recommends that you vote "FOR" the
election of each nominee for director listed in the proxy card.
It is important that your shares be represented whether or not you are able
to attend in person. We urge you to read the accompanying joint proxy
statement-prospectus and specify your choices on the matters presented by
filling in the appropriate boxes on the enclosed proxy card and returning it
promptly. If you attend the meeting and prefer to vote in person, you may do so
even if you have returned your proxy card. You may also revoke a proxy at any
time before it is exercised.
Thank you for your cooperation and support.
By Order Of The Board Of Directors
/s/ SCOTT L. FREIMAN
Scott L. Freiman
Chief Executive Officer and
President
Annapolis Junction, Maryland
April 26, 2001
QUESTIONS AND ANSWERS ABOUT THIS JOINT PROXY STATEMENT-PROSPECTUS
What is the purpose of this joint proxy statement-prospectus?
This document serves as both a proxy statement of CMSI and a prospectus of
First American. As a proxy statement, it is being provided to you by CMSI
because the board of directors of CMSI is soliciting your proxy to vote to
approve the proposed merger of CMSI and a subsidiary of First American and to
elect our board of directors. As a prospectus, it is being provided to you by
First American because First American is offering you shares of its common
stock in exchange for your shares of CMSI common stock if the merger is
completed.
Do I need to read the entire document?
Yes. Parts of this document summarize information that is presented in
greater detail elsewhere in this document or in the annexes to this document.
Each summary discussion is qualified by reference to the full text. For
example, the summary of the terms of the merger agreement is qualified by the
actual terms of the merger agreement, a copy of which is included as Annex A.
Is there other information I should consider?
Yes. Much of the business and financial information about First American and
CMSI that may be important to you is not included directly in this document.
Instead, this information is incorporated into this document by reference to
documents separately filed by First American and CMSI with the Securities and
Exchange Commission. This means that First American and CMSI may satisfy their
disclosure obligations to you by referring you to one or more documents
separately filed by them with the SEC. Such documents include reports, proxy
statements and other information filed by First American and CMSI with the SEC.
See "Where You Can Find More Information" on page 56 for a list of documents
that First American and CMSI have incorporated by reference into this joint
proxy statement-prospectus. You can obtain these documents at the SEC's public
reference facilities. Please call the SEC at (800) 732-0330 for information
about these facilities. You may also view them by visiting the SEC Internet
site at www.sec.gov or by requesting them in writing or by telephone from the
appropriate company:
The First American Corporation Credit Management Solutions, Inc.
Mark R Arnesen Nancy L. Weil
1 First American Way 135 National Business Parkway
Santa Ana, California 92707-5913 Annapolis Junction, Maryland 20701
(714) 800-3000 (301) 362-6000
If you would like to request documents from First American or CMSI, please
do so by May 21, 2001 to receive them before the CMSI stockholders' meeting. We
will send such documents to you free of charge by first-class mail within one
business day of receiving your request.
What if there is a conflict between documents?
You should rely only on the most recently filed document. Information in
this joint proxy statement-prospectus may update information contained in the
First American or CMSI documents incorporated by reference. Similarly,
information in documents that First American or CMSI may file after the date of
this joint proxy statement-prospectus may update information contained in this
joint proxy statement-prospectus or information contained in previously filed
documents.
What if I choose not to read the incorporated documents?
Information contained in a document that is incorporated by reference is
part of this joint proxy statement-prospectus, unless it is superseded by
information contained directly in this joint proxy statement-prospectus or a
document that is subsequently filed with the SEC. Information that is
incorporated from another document is considered to have been disclosed to you
whether or not you choose to read the documents.
(i)
TABLE OF CONTENTS
Page
----
SUMMARY................................................................... 1
The Companies........................................................... 1
The Stockholders' Meeting............................................... 3
The Merger.............................................................. 3
RISK FACTORS.............................................................. 9
SELECTED FINANCIAL DATA................................................... 12
Comparative Per Share Market Price...................................... 12
Selected Historical Financial of First American......................... 13
Selected Historical Financial of CMSI................................... 15
Historical and Unaudited Pro Forma Per Share Data....................... 16
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS.............. 17
THE STOCKHOLDERS' MEETING................................................. 18
Time and Place; Purpose................................................. 18
Voting Rights; Votes Required........................................... 18
Voting of Proxies....................................................... 18
Proposal One: Election of CMSI Directors ............................... 20
Proposal Two: Adoption of the Merger.................................... 25
THE MERGER................................................................ 26
General................................................................. 26
Background of the Merger................................................ 26
First American's Reasons for the Merger................................. 28
The CMSI Board of Directors Recommends a Vote "FOR" the Merger.......... 28
CMSI's Reasons for the Merger and Consideration of the Merger by CMSI's
Board of Directors..................................................... 28
Accounting Treatment.................................................... 30
Material Federal Income Tax Consequences to You......................... 31
We Must Obtain Antitrust Approval....................................... 32
You Will Not Have Appraisal Rights...................................... 32
Federal Securities Laws Consequences for Certain CMSI Stockholders...... 32
SUMMARY OF THE MERGER AGREEMENT........................................... 33
General................................................................. 33
Consideration You Will Receive in the Merger............................ 33
Exchange of Shares...................................................... 33
Certain Representations and Warranties of First American and CMSI....... 34
Certain Covenants of First American and CMSI............................ 35
Conditions to the Consummation of the Merger............................ 37
The Merger May Be Terminated Prior to the Effective Time Under Certain
Circumstances.......................................................... 39
Expenses................................................................ 40
VOTING AGREEMENTS......................................................... 41
AFFILIATE AND POOLING AGREEMENTS.......................................... 41
ROLE OF FINANCIAL ADVISOR................................................. 43
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 48
Termination in Connection With Change in Control........................ 48
Option Plan............................................................. 48
Noncompetition Agreement................................................ 49
Indemnification Agreement............................................... 49
Indemnification and Directors' and Officers' Insurance.................. 50
COMPARISON OF RIGHTS OF SECURITY HOLDERS.................................. 50
Authorized and Issued Capital Stock..................................... 50
(ii)
Page
----
Voting Rights............................................................ 50
Preemptive Rights; Cumulative Voting..................................... 51
Derivative Action........................................................ 51
Action by Written Consent of Shareholders................................ 51
Special Meeting of Shareholders.......................................... 51
Quorum and Voting Requirements for Shareholder Meetings.................. 51
Board of Directors....................................................... 52
Vacancies................................................................ 52
Removal of Directors..................................................... 52
Limitation on Directors' Liability....................................... 52
Indemnification.......................................................... 52
Anti-takeover Protections................................................ 54
Amendments to Articles of Incorporation or Bylaws........................ 54
Rights to Purchase Preferred Stock....................................... 55
LEGAL MATTERS.............................................................. 56
EXPERTS.................................................................... 56
2001 ANNUAL MEETING OF CMSI STOCKHOLDERS................................... 56
WHERE YOU CAN FIND MORE INFORMATION........................................ 56
ANNEXES
Annex
-----
Agreement and Plan of Merger.............................................. A
Amendment No. 1 to Agreement and Plan of Merger........................... B
Opinion of Chase Securities Inc. ......................................... C
Form of Voting Agreement.................................................. D
CMSI Audit Committee Charter.............................................. E
(iii)
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q: What am I being asked to vote on?
A: You are being asked to vote on two proposals.
First, you are being asked to vote to elect a new board of directors. Credit
Management Solutions, Inc., or CMSI, is holding an election of its directors
to comply with Delaware law which requires its officers to call an election
at a special meeting of stockholders following the revival of its
certificate of incorporation. In January 2001, CMSI learned that its
certificate of incorporation had become inoperative after a mistake was made
in the manner of the filing of its Delaware franchise tax return. CMSI's
certificate of incorporation was renewed and revived by the Delaware
Secretary of State on January 25, 2001. See "Stockholders' Meeting--Proposal
One: Election of CMSI Directors" on page 20.
Second, you are being asked to vote in favor of the proposed merger:
. The First American Corporation, or First American, has formed a new
subsidiary called Rusti Corp., a Delaware corporation, to facilitate the
proposed merger.
. Rusti Corp. will be merged with and into CMSI.
. CMSI will survive the merger and become a wholly-owned subsidiary of
First American.
. after the merger, you will be a shareholder in First American and will no
longer own shares in CMSI.
Q: How do I vote?
A: You may vote in one of two ways if you hold your CMSI shares in your name:
. just indicate on the enclosed proxy card how you want to vote, sign it
and mail it in the enclosed return envelope as soon as possible so that
your shares may be represented at the special meeting of CMSI
stockholders; or
. attend the special meeting in person and vote your shares.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares following the
directions provided by your broker.
Q: Can I change my vote after I mail my proxy?
A: Yes. If you grant a proxy, you may revoke your proxy at any time prior to it
being used at the stockholders' meeting by mailing a new proxy with enough
time for it to be delivered prior to the special meeting, or you may attend
the special meeting and vote in person. However, if you elect to vote in
person at the special meeting and your shares are held by a broker, bank or
other nominee, you must bring to the special meeting a legal proxy from the
broker, bank or nominee authorizing you to vote your shares.
Q: What will happen to my CMSI stock?
A: If the merger is completed, you will give up your stock ownership in CMSI
and become a shareholder in First American.
Q: What do I need to do now?
A: We urge you to carefully read this joint proxy statement-prospectus,
including its annexes, and to consider how the merger will affect you as a
stockholder. You should also read the documents referenced in the section
entitled "Where You Can Find More Information" on page 56.
Q: Should I send in my share certificates now?
A: No. If the merger is completed, you should follow the written instructions
of First American's transfer agent, First American Trust Company, which
written instructions will be mailed to you if the merger is approved.
Q: Does the board of directors of CMSI have a recommendation on the election of
directors?
A: Yes. The board of directors of CMSI unanimously recommends that you vote to
elect the slate of directors proposed in its proxy card.
Q: Does the board of directors of CMSI have a recommendation on the merger?
A: Yes. The board of directors of CMSI has carefully considered the merger
proposal and it unanimously recommends that you vote in favor of the merger.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as soon as possible. We hope to
complete the merger shortly after the CMSI stockholders' meeting, assuming
the required stockholder approval is obtained at the meeting.
(iv)
SUMMARY
This summary highlights selected information in this joint proxy statement-
prospectus and may not contain all of the information that is important to you.
You should carefully read this entire joint proxy statement-prospectus, the
annexes and the exhibits to the registration statement of which this joint
proxy statement-prospectus is a part for a more complete understanding of the
matters presented. In addition, we incorporate by reference important business
and financial information about First American and CMSI into this joint proxy
statement-prospectus. You may obtain the incorporated information without
charge by following the instructions in the section entitled "Where You Can
Find More Information" that begins on page 56 of this joint proxy statement-
prospectus.
The Companies
The First American Corporation
1 First American Way
Santa Ana, California 92707-5913
(714) 800-3000
The First American Corporation is a leading provider of business information
and related products and services. Originally organized in 1894 as a local
title abstract company in Orange County, California, First American expanded
into a national title insurance underwriter beginning in 1924. Through
subsidiaries, it now sells title insurance products through a national and
international network of both direct operations and independent title agents.
In 1986, First American began a diversification program by acquiring and
developing business information companies closely related to the real estate
transfer and closing process. In 1998, First American expanded its
diversification program to include business information companies outside of
the real estate transfer and closing process.
1
The following table is a list of the products and services which First
American now offers through its subsidiaries. These products and services are
listed by business segment.
Title Insurance Real Estate Information Consumer Information
And Services And Services And Services
. aircraft and vessel . credit reporting and --consumer information
title insurance information . pre-employment screening
. equity loan services management . resident screening
. lender services . default management specialized credit
. national/commercial services reporting
title insurance . field inspections . sub-prime consumer
. residential title . flood determination information
insurance and compliance . vehicle information and
. subdivision title . mortgage document insurance tracking
insurance services
. 1031 tax-deferred . mortgage origination --consumer services
exchange services software systems . banking services
. title and escrow . mortgage servicing . consumer credit reports
systems software systems . home comparable reports
. residential and . home warranty
commercial real . investment services
estate tax reporting . property and casualty
. tax valuation insurance
services . trust services
. appraisal and
property valuation
. database management
services and document
imaging
. property information
and map image
products
. title plant and
document imaging
services
Rusti Corp.
1 First American Way
Santa Ana, California 92707-5913
(714) 800-3000
Rusti Corp. is a wholly-owned subsidiary of First American formed as a
Delaware corporation solely to accomplish the proposed merger. It has no
material assets and will not engage in any substantial activities prior to the
merger. If the merger is completed, Rusti Corp. will be merged with and into
CMSI, with CMSI being the surviving entity. First American will own all of the
outstanding capital stock of CMSI after the merger.
Credit Management Solutions, Inc.
135 National Business Parkway
Annapolis Junction, Maryland 20701
(301) 362-6000
Credit Management Solutions, Inc. provides solutions and services for
automation of the consumer and small business credit analysis, approval and
funding processes. Products and services offered by CMSI or its subsidiaries
are used in a wide range of credit products, including vehicle loans and
leases, home equity loans, student loans, telecommunications services, credit
cards and small business credit. CMSI's primary products and services include:
. The CreditRevue(TM) software, which automates the entire credit
application process--from the entry of the credit application, through
the making of the credit decision, to the transfer of the funding
information to the credit provider's servicing system;
2
. The eValuate(TM) software, which is designed to work with a credit
provider's chosen credit origination application workflow system to
provide background credit analysis, decisioning and pricing capabilities,
based on client-defined criteria;
. The CreditOnline(TM) online network, which links funding sources, credit
information providers, and sources of credit origination, such as
financing Web sites and retail management systems; and
. The CreditConnection(R) service, which allows automobile dealers and
other credit originators to submit credit applications to multiple
lenders, retrieve and analyze credit information, and manage the credit
application process through features such as workflow management tools, a
payment calculator and receipt of news bulletins from participating
funding sources.
The Stockholders' Meeting
Record date; voting power (see page 18)
You are entitled to vote at the CMSI stockholders' meeting if you owned CMSI
common shares at the close of business on April 25, 2001, the record date.
On April 17, 2001, there were 7,999,431 CMSI common shares outstanding. For
each CMSI common share that you own on the record date, you will have one vote
at the CMSI stockholders' special meeting.
Votes required (see page 18)
The affirmative vote of a majority of the outstanding common shares of CMSI
entitled to vote as of the record date is required to approve and adopt the
merger proposal. Directors are elected by a plurality of the votes of the
shares present in person or represented by proxies at the special meeting and
entitled to vote.
Certain voting commitments (see page 41)
Scott Freiman, Director, Chief Executive Officer and President of CMSI, and
James DeFrancesco, Director, former Chief Executive Officer and President of
CMSI and its largest stockholder, have each entered into a voting agreement
with First American. 1,271,684 shares of CMSI common stock beneficially owned
by Mr. Freiman and 2,569,397 shares of CMSI common stock beneficially owned by
Mr. DeFrancesco are subject to the voting agreements. Pursuant to the voting
agreements, Messrs. Freiman and DeFrancesco are required to vote these shares
in favor of the merger. Together these shares represent approximately 48% of
the total number of CMSI common shares issued and outstanding as of April 17,
2001. The form of voting agreement signed by Messrs. Freiman and DeFrancesco is
attached as Annex D to this joint proxy statement-prospectus, and you are urged
to read it in its entirety.
The board of directors of CMSI recommends that you vote "FOR" each nominee
listed below (see page 20)
The five nominees for election to the CMSI board of directors are Scott L.
Freiman, James R. DeFrancesco, John J. McDonnell, Jr., Robert P. Vollono and
Stephen X. Graham. Each nominee currently serves as a member of the board.
The Merger
The Agreement and Plan of Merger and Amendment No. 1 to Agreement and Plan
of Merger are attached to this joint proxy statement-prospectus as Annexes A
and B, respectively, and are incorporated herein. You are encouraged to read
the Agreement and Plan of Merger and the Amendment as these are the legal
documents that govern the merger. For ease of reference, we refer to the
amended Agreement and Plan of Merger in this joint proxy statement-prospectus
as the merger agreement.
What you will receive in the merger (see page 33)
If the merger is completed, you will receive, for each CMSI common share
that you own, the right to receive a fraction of a share of First American
common stock. The exchange ratio will be determined by
3
dividing $6.25, the price per share of CMSI common stock agreed to by CMSI and
First American, by the average closing price of First American common shares on
the New York Stock Exchange for the ten trading day period ending on the third
trading day before the special meeting. However, if the average closing price
of First American common shares on the NYSE for such ten trading day period is
more than $30.00 or less than $22.00, the price per share of First American
common stock will be deemed to be $30.00 or $22.00, as the case may be. The
range of per share prices for First American common stock is as follows:
Average Closing Price Of Deemed Price Per Share
First American Common Shares Of First American
Over Ten Trading Day Period Common Shares
---------------------------- ----------------------------
Less than $22.00................................. $22.00
Equal to or greater than $22.00 but equal to or
less than $30.00................................ Actual average trading price
Greater than $30.00.............................. $30.00
Due to this "collar" on First American's stock price, you will receive
between 0.2083 and 0.2841 of a First American share for each CMSI share that
you own. As an example, the following table shows the average closing price of
First American common stock for the ten trading day periods ending January 29,
2001, the last trading day before the merger was announced, and April 18, 2001,
the most recent practicable date before we printed this joint proxy statement-
prospectus. The table also shows the value to be received by you, if the merger
was completed on those dates, for each share of CMSI common stock that you own.
We urge you to obtain more recent market quotations and determine the potential
merger consideration prior to voting at the special meeting.
Portion of First
American Common
Average Price Per Share Of Agreed Price Per Share Share Received For Each
Ten Trading Day First American Of CMSI Share Of
Period Ending Common Stock Over Period(1) Common Stock(2) CMSI Common Stock
--------------- --------------------------- ---------------------- -----------------------
January 29, 2001........ $30.46 $6.25 0.2083(3)
April 18, 2001.......... $22.94 $6.25 0.2724(4)
--------
(1) Based on closing prices reported on the NYSE.
(2) The merger agreement sets the price per share of CMSI common shares at
$6.25.
(3) The value per share is calculated by dividing $6.25 by $30.00, the maximum
per share price permitted by the collar arrangement.
(4) The value per share is calculated by dividing $6.25 by $22.94.
First American will not issue any fractional shares in the merger. Instead,
you will receive cash in lieu of any fractional First American share owed to
you in an amount based on the exchange ratio.
The CMSI board of directors recommends that you approve the merger (see page
28)
Based on CMSI's reasons for the merger described in this document, including
the fairness opinion of Chase Securities Inc., the CMSI board of directors
believes that the merger is in your best interests as a CMSI stockholder and
unanimously approved the merger agreement and recommends that you vote "FOR"
approval of the merger.
The board of directors and executive officers of CMSI and their affiliates
held approximately 4,171,399 shares of CMSI common stock as of April 17, 2001.
These shares represent approximately 52% of the number of shares of CMSI common
stock outstanding as of that date, which would be a sufficient number to
approve the merger as of that date if all of those shares were voted in favor
of the merger. CMSI currently expects that all of its directors and executive
officers and their affiliates will vote in favor of the merger.
4
Ownership of First American after the merger
The exact number of First American common shares to be issued to CMSI
stockholders is not determinable until the exchange ratio is set on the third
trading day before the special meeting. Based on the minimum and maximum price
of First American common shares permitted by the collar arrangement, First
American would issue approximately 1,666,281 to 2,272,638 of its common shares
to CMSI stockholders in connection with the merger based on the number of CMSI
common shares outstanding on April 17, 2001. After giving effect to the
issuance of shares in the merger, this represents approximately 2.50% to 3.38%
of First American common shares outstanding, based on the number of First
American common shares outstanding on April 17, 2001.
Effect of the merger (see page 33)
Upon consummation of the merger, Rusti Corp. will merge with and into CMSI,
and CMSI will become a wholly-owned subsidiary of First American.
Your rights will differ as a First American shareholder (see page 50)
Your rights as a CMSI stockholder are governed by Delaware law and CMSI's
certificate of incorporation and bylaws. Upon completion of the merger, you
will become a First American shareholder, and your rights will be governed by
California law and First American's articles of incorporation and bylaws.
Directors and executive officers of CMSI have some interests in the merger that
are in addition to their interests as stockholders (see page 48)
Certain of CMSI's directors and executive officers hold stock options that
will vest upon completion of the merger, which is sooner than they were
originally scheduled to vest. It is expected that a total of 439,515 stock
option awards held by CMSI's directors and executive officers will vest sooner
than scheduled. These stock option award include 58,598 awards held by Miles
Grody, a former Director and Senior Vice President of CMSI and President and
Chief Executive Officer of its CMSI Systems, Inc. subsidiary, which awards
vested upon termination of his employment on March 2, 2001.
All executive officers and certain other key employees of CMSI are parties
to employment agreements with CMSI that provide severance payments and other
benefits if their employment is terminated other than for "cause," or if they
resign for "good reason," during a specified period of time before or after a
change in control. Robert Vollono, Chief Financial Officer of CMSI, is subject
to a separate letter agreement, pursuant to which his employment is to be
terminated during that time period with respect to the merger. He will then be
entitled to receive severance benefits in accordance with his employment
agreement. Miles Grody was subject to a similar letter agreement prior to the
termination of his employment. Upon the consummation of the merger, he will be
entitled to the severance benefits provided under his employment agreement in
connection with a change in control. The aggregate cash severance payments that
could become payable to CMSI executive officers under those plans, agreements
and arrangements, including the amounts paid or payable to Mr. Grody, is
estimated to be approximately $1.8 million.
Scott Freiman and James DeFrancesco have entered into a non-competition
agreement with First American and CMSI pursuant to which Messrs. Freiman and
DeFrancesco have agreed for a period of five years not to be employed by,
participate in or be connected with any business that competes with CMSI, is
engaged in substantially the same business as CMSI or that provides similar or
comparable services as CMSI, or to employ, solicit for employment or contract
for the services of any employee of CMSI.
Also, following the merger, First American has agreed to indemnify, and
provide directors' and officers' insurance during a limited period of time for,
the directors and officers of CMSI and its subsidiaries for events occurring
before the merger, including events that are related to the merger.
5
The members of CMSI's board of directors knew about these additional
interests, and considered them, when they approved the merger.
Conditions to the merger (see page 37)
The merger will be completed only if certain conditions are satisfied or
waived, including without limitation the following conditions:
. the new CMSI board of directors must have been elected by CMSI
stockholders at the special meeting;
. the board of directors of CMSI elected at the special meeting must have
ratified and approved all actions taken by CMSI on or after January 25,
2001, including the merger and the merger agreement, and the other
transactions contemplated thereby;
. the merger must be approved by CMSI stockholders;
. no material adverse effect with respect to CMSI shall have occurred since
January 30, 2001, and no change or development shall have occurred since
January 30, 2001 that First American can demonstrate has a probability of
having a material adverse effect upon CMSI;
. all necessary governmental approvals must be obtained, and there must be
no order of any court or governmental authority prohibiting the merger;
. our respective representations and warranties in the merger agreement
must be true and accurate in all material respects;
. the SEC must declare effective the registration statement of which this
joint proxy statement-prospectus is a part, and the newly issued First
American shares must be accepted for listing by the NYSE;
. First American must receive a satisfactory letter from
PricewaterhouseCoopers LLP that the merger qualifies for pooling-of-
interests accounting treatment. First American will waive this condition
because it will account for the merger as a purchase;
. CMSI must receive an opinion of its tax counsel that the merger will
qualify as a tax-free reorganization; and
. First American and CMSI must each be in compliance in all material
respects with all of its respective covenants and agreements in the
merger agreement.
Termination of the merger agreement (see page 39)
First American and CMSI may agree to terminate the merger agreement at any
time before the merger is completed. Either First American or CMSI may
unilaterally terminate the merger agreement at any time before the merger is
completed if:
. the merger is not completed within one month after the closing of the
transactions described in the merger agreement;
. a court or governmental entity or regulatory body does not allow the
merger to proceed; or
. a majority of CMSI's stockholders do not approve the merger agreement.
In addition, First American, on its own, may terminate the merger agreement
at any time before the merger is completed if:
. a new CMSI board of directors has not been elected by CMSI stockholders
at the special meeting;
6
. the board of directors of CMSI elected at the special meeting has not
ratified and approved all actions taken by CMSI on or after January 25,
2001, including the merger and the merger agreement, and the other
transactions contemplated thereby;
. CMSI's board of directors modifies or withdraws its approval or
recommendation of the merger in a manner adverse to First American;
. CMSI does not call a stockholder meeting within 35 days after the
effectiveness of the registration statement of which this joint proxy
statement-prospectus forms a part;
. the merger cannot be accounted for as a pooling-of-interests. However,
First American will waive this right because it will use the purchase
method of accounting;
. either of the governmental entities responsible for reviewing the merger
under United States antitrust laws would require First American or CMSI
to sell or divest any assets or make any material change to its business;
or
. the conditions to First American's obligations to proceed with the merger
are not satisfied by July 29, 2001.
Finally, CMSI, on its own, may terminate the merger agreement at any time
before the merger is completed if:
. another takeover proposal for CMSI has been made and the CMSI board of
directors, after determining that to proceed with the merger would not be
consistent with its fiduciary duty to you as a stockholder, withdraws or
modifies its approval and recommendation of the merger proposal described
in this joint proxy statement-prospectus; or
. the conditions to CMSI's obligations to proceed with the merger are not
satisfied by July 29, 2001.
Regulatory approvals we must obtain for the merger (see page 32)
Completion of the merger requires that we obtain the approval of antitrust
authorities in the United States. We have received notice of early termination
of the waiting period requirements of the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice. It is still
possible, however, that one of those entities, or a state government or private
person, could challenge the merger on antitrust grounds.
Opinion of financial advisor (see page 43)
At a meeting of the board of directors of CMSI on January 27, 2001, Chase
Securities Inc. delivered its oral opinion to the board of directors,
subsequently confirmed in writing, that as of such date, the exchange ratio in
the merger was fair from a financial point of view to you, the CMSI
stockholders. The full text of this written opinion, which sets forth the
assumptions made, matters considered and limits on review undertaken, has been
attached as Annex C to this joint proxy statement-prospectus. You are
encouraged to read this opinion carefully in its entirety. The opinion is
addressed to the CMSI board of directors and relates only to the fairness, from
a financial point of view, of the exchange ratio to you as a CMSI stockholder.
The opinion does not address any other aspects of the proposed merger and does
not constitute an opinion or recommendation to any stockholder of CMSI as to
how such stockholder should vote at the special meeting.
Material federal income tax consequences (see page 31)
CMSI is not required to complete the merger unless it receives a legal
opinion from its counsel to the effect that the merger will qualify as a
"reorganization" for U.S. federal income tax purposes. Assuming the merger
qualifies as a reorganization, CMSI stockholders generally will recognize gain
or loss only in connection with cash received in lieu of fractional shares.
7
Tax matters are complicated and the tax consequences of the merger to you
will depend on the facts of your individual situation. We urge you to consult
your tax advisor for a full understanding of the tax consequences of the merger
to you.
You will not have appraisal rights (see page 32)
Under Delaware law, you will not have any right to dissent from the merger,
have the value of your CMSI common shares appraised in connection with the
merger, or have your CMSI common shares purchased for cash (except for
fractional shares of First American common stock which may be acquired in
exchange for your CMSI common stock).
First American will use the purchase method of accounting (see page 30)
First American will account for the merger using the purchase method of
accounting.
Affiliate, pooling agreements and restrictions on the ability to sell First
American common shares (see pages 32 and 41)
Absent any legal or contractual rights or restrictions applicable
specifically to you, all First American common shares received by you in the
merger will be freely transferable unless you are considered an affiliate of
either First American or CMSI under federal securities laws. It is a condition
to First American's obligation to consummate the merger that certain persons
who are deemed affiliates of CMSI under federal securities laws enter into an
affiliate agreement with First American requiring them to comply with Rule 145
under the Securities Act if they sell their shares of First American received
in the merger. First American has also required affiliates of CMSI to enter
into a pooling agreement which prohibits them from selling their shares of
First American received in the merger (or entering into a put or similar
arrangement) during the period beginning 30 days prior to the effectiveness of
the merger and ending on the date First American releases earnings containing
at least 30 days of earnings of the combined company. Since First American will
account for the merger as a purchase, it will waive its rights under the
pooling agreements.
8
RISK FACTORS
If the merger is completed, you will receive First American common shares.
In addition to the other information contained in this joint proxy statement-
prospectus, you should carefully consider the following risk factors in
deciding whether to vote in favor of the merger proposal and thereby make an
investment in First American.
The merger consideration may fluctuate before it is set and the price per share
of CMSI common stock may be different than its market price
Since the final exchange ratio will be determined in part by the market
price of First American common shares just prior to the CMSI stockholder
meeting, we cannot state definitively how many First American common shares you
will receive. The actual exchange ratio will fall between 0.2083 and 0.2841,
depending on the market price of First American common stock. First American
and CMSI will issue a joint press release announcing the final exchange ratio
after it is determined.
You should be aware that the price per share of CMSI common stock is fixed
at $6.25 and will not change as the market price of CMSI common shares
fluctuates. Therefore, the value of the First American common shares that you
will receive in return for your CMSI common shares may be based, at least in
part, on a per share price of CMSI common stock that is either less than or
more than the current or future market price of CMSI common stock. You should
also be aware that the price per share of First American common shares will be
fixed at between $22.00 and $30.00 per share on the third trading day before
the special meeting, regardless of when payment of the merger consideration is
made. This means that the market value of the consideration you will receive in
the merger may fluctuate as the price of First American common stock changes
between the date the merger consideration is fixed and the date payment is
made. You should obtain current market quotations of First American common
shares and CMSI common stock before voting to adopt the merger agreement. You
may obtain current stock price quotations for First American common stock from
a newspaper, on the Internet or by calling your broker.
Neither CMSI nor First American will have the right to terminate the merger
agreement or elect not to consummate the merger as a result of changes in the
market prices of either company's common shares.
First American's revenues may decline during periods when the demand for its
products decreases
First American's revenues decrease as the number of real estate transactions
in which its products are purchased decreases. First American has found that
the number of real estate transactions in which its products are purchased
decreases in the following situations.
. when mortgage rates are high;
. when the mortgage fund supply is limited; and
. when the United States economy is weak.
First American believes that this trend will recur.
First American's earnings may be reduced if acquisition projections are
inaccurate
First American's earnings have improved since 1991 in large part because of
its acquisition and integration of non-title insurance businesses. These
businesses generally have higher margins than First American's title insurance
businesses. The success or failure of each of these acquisitions has depended
in large measure upon the accuracy of First American's projections. These
projections are not always accurate. Inaccurate projections have historically
led to lower than expected earnings.
9
As a holding company, First American depends on distributions from its
subsidiaries, and if distributions from its subsidiaries are materially
impaired, First American's ability to declare and pay dividends may be
adversely affected
First American is a holding company whose primary assets are the securities
of its operating subsidiaries. First American's ability to pay dividends is
dependent on the ability of its subsidiaries to pay dividends or repay funds to
First American. If First American's operating subsidiaries are not able to pay
dividends or repay funds to First American, First American may not be able to
declare and pay dividends to you. Moreover, pursuant to insurance and other
regulations under which First American's insurance subsidiaries operate, the
amount of dividends, loans and advances available to First American is limited.
Under such regulations, the maximum amount of dividends, loans and advances
available to First American from its insurance subsidiaries in 2001 is $138.2
million.
Changes in government regulation could prohibit or limit First American's
operations
First American's title insurance, property and casualty insurance, home
warranty, thrift, trust and investment businesses are regulated by various
governmental agencies. Many of First American's other businesses operate within
statutory guidelines. Changes in the applicable regulatory environment or
statutory guidelines could prohibit or restrict First American's existing or
future operations. Such restrictions may adversely affect First American's
financial performance.
Current legal proceedings may have a material adverse affect on First
American's financial condition or results of operations
On May 19, 1999, the State of California and the controller and insurance
commissioner of the State of California filed a class action suit in the state
court in Sacramento. Initially, the action sought to certify as a class of
defendants all title and escrow companies doing business in California from
1970 to the present, including certain of First American's subsidiaries. The
plaintiffs allege that the defendants:
. failed to give unclaimed property to the State of California on a timely
basis;
. charged California home buyers and other escrow customers fees for
services that were never performed or which cost less than the amount
charged; and
. devised and carried out schemes, known as earnings credits, with
financial institutions to receive interest on escrow funds deposited by
defendants with financial institutions in demand deposits.
Since the initial filing of the suit, the California attorney general's
office, on behalf of the State, the controller and the insurance commissioner,
indicated that it would not seek to certify a class of defendants, but would
instead amend its suit to name an unspecified number of title underwriters and
underwritten title companies. To date, the attorney general has neither amended
the suit, nor to First American's knowledge taken steps to progress with it,
including the service of process on any party. The attorney general, however,
has entered into settlement discussions with various title insurance
underwriters, including certain First American subsidiaries. Additionally, the
attorney general indicated that it will address issues pertaining to escheat
obligations through routine audits conducted by the controller's office, rather
than through litigation.
Subsequent to the filing of this lawsuit, the First American Title Insurance
Company, a subsidiary of First American, was named and served as a defendant in
two private class actions in California courts. The allegations in those
actions include some, but not all, of the allegations contained in the lawsuit
discussed above. The private class actions independently seek injunctive
relief, attorneys' fees, damages and penalties in unspecified amounts. One of
the private class actions has been dismissed. The remaining private class
action has not progressed beyond limited document production.
10
An adverse decision in these lawsuits may have a material adverse effect on
First American's financial condition or results of operations.
Certain provisions of First American's charter and its rights plan may make a
takeover of First American difficult even if such takeover could be beneficial
to some of First American's stockholders
First American's restated articles of incorporation authorize the issuance
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by First American's board of directors.
Accordingly, First American's board is empowered, without further shareholder
action, to issue shares or series of preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights, including the ability to receive dividends, of
First American's common shareholders. The issuance of such preferred stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control. In conjunction with the rights plan
discussed below, First American has authorized the issuance of its Series A
Junior Participating Preferred Shares. Although First American has no present
intention of issuing any additional shares or series of preferred stock, First
American cannot guarantee that it will not make such an issuance in the future.
First American has adopted a rights plan which could, alone or in
combination with First American's restated articles of incorporation,
discourage transactions involving actual or potential changes of control,
including transactions that otherwise could involve payment of a premium over
prevailing market prices to shareholders for their common shares.
11
SELECTED FINANCIAL DATA
Comparative Per Share Market Price
CMSI common shares are quoted on the Nasdaq National Market System under the
symbol "CMSS" and First American common shares are listed on the NYSE under the
symbol "FAF." On January 29, 2001, the last full trading day prior to the
public announcement of the proposed merger, CMSI common shares closed at $3.75
and First American common shares closed at $32.00. On April 18, 2001, the most
recent practicable date prior to the printing of this joint proxy statement-
prospectus, CMSI common shares closed at $5.45 and First American common shares
closed at $21.15. The following table sets forth these closing prices per share
of First American common stock and CMSI common stock and the "equivalent price
per share" of CMSI common stock on those dates. The "equivalent price per
share" of CMSI common stock is equal to the closing price of a share of First
American common stock on that date multiplied by the exchange ratio. We
calculated the exchange ratio on the basis of the average closing price of the
First American common stock for the ten trading days ended on the date
specified. The actual exchange ratio may be higher or lower. See "Summary--The
Merger--What you will receive in the merger" on page 3 and "Summary of the
Merger Agreement--Consideration you will receive in the merger" on page 33,
which discusses how the actual exchange ratio will be calculated.
First American CMSI Equivalent Price Per Share
Common Stock Common Stock Of CMSI Common Stock
-------------- ------------ --------------------------
January 29, 2001..... $32.00 $3.75 $6.67
April 18, 2001....... $21.15 $5.45 $5.76
The following table sets forth, for the periods indicated, the high and low
sales prices per share of (1) First American common stock as reported on the
NYSE and (2) CMSI common stock as reported on the Nasdaq National Market, in
each case based on published financial sources.
First
American CMSI
------------- ------------
High Low High Low
------ ------ ------ -----
Fiscal Year Ended December 31, 1999
First Quarter................................... $35.19 $15.81 $5.75 $3.63
Second Quarter.................................. 21.38 13.50 5.00 3.50
Third Quarter................................... 19.44 11.81 7.75 4.50
Fourth Quarter.................................. 15.19 11.50 9.00 3.88
Fiscal Year Ended December 31, 2000
First Quarter................................... $14.25 $10.25 $14.50 $7.25
Second Quarter.................................. 17.75 12.50 8.50 3.63
Third Quarter................................... 22.88 14.38 5.75 3.75
Fourth Quarter.................................. 32.89 17.06 4.25 0.88
Fiscal Year Ended December 31, 2001
First Quarter................................... $35.49 $23.90 $7.13 $1.50
Second Quarter (through April 18)............... 27.00 19.10 6.06 4.75
12
Selected Historical Financial Data of First American
The following selected consolidated financial data as of and for each of the
five fiscal years ended December 31, 2000 have been derived from First
American's consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent public accountants.
This information is only a summary and you should read it together with the
audited and consolidated financial statements of First American, including the
notes to the financial statements, incorporated by reference in this joint
proxy statement-prospectus. See "Where You Can Find More Information" on page
56. All data are in thousands, except percentages, per share amounts and
employee data.
Year Ended December 31
----------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- ----------
Revenues................ $1,654,976 $1,962,001 $2,943,880 $2,988,169 $2,934,255
Income before cumulative
effect of a change in
accounting for tax
service contracts (1).. 55,766 67,765 201,527 88,643 82,223
Cumulative effect of a
change in accounting
for tax service
contracts (1).......... -- -- -- (55,640) --
Net income.............. 55,766 67,765 201,527 33,003 82,223
Total assets............ 1,010,556 1,220,377 1,852,731 2,116,414 2,199,737
Notes and contracts
payable................ 72,761 51,720 143,466 196,815 219,838
Mandatorily redeemable
preferred securities... 100,000 100,000 100,000 100,000
Stockholders' equity.... 384,931 442,783 762,265 815,991 870,237
Return on average
stockholders' equity
(2).................... 15.4% 16.4% 33.4% 10.9% 9.8%
Cash dividends on common
shares................. 7,928 14,035 13,894 15,840 15,256
Per share of common
stock (3)..............
Basic:
Income before
cumulative effect of
a change in
accounting for tax
service contracts.... .98 1.19 3.35 1.37 1.29
Cumulative effect of a
change in accounting
for tax service
contracts............ -- -- -- (.86) --
---------- ---------- ---------- ---------- ----------
Net income............ $ .98 $ 1.19 $ 3.35 $ .51 $ 1.29
========== ========== ========== ========== ==========
Diluted:
Income before
cumulative effect of
a change in
accounting for tax
service contracts.... $ .98 $ 1.16 $ 3.21 $ 1.34 $ 1.24
Cumulative effect of a
change in accounting
for tax service
contracts............ -- -- -- (.84) --
---------- ---------- ---------- ---------- ----------
Net income............ $ .98 $ 1.16 $ 3.21 $ .50 $ 1.24
========== ========== ========== ========== ==========
Stockholders' equity.. $ 6.76 $ 7.74 $ 12.08 $ 12.54 $ 13.62
Cash dividends........ $ .14 $ .25 $ .23 $ .24 $ .24
Number of common shares
outstanding:
Weighted average during
the year:
Basic................. 56,652 57,092 60,194 64,669 63,680
Diluted............... 57,112 58,482 62,720 66,351 66,050
End of year............ 56,965 57,186 63,120 65,068 63,887
Title orders opened
(4).................... 1,027 1,173 1,585 1,334 1,241
Title orders closed
(4).................... 775 886 1,210 1,120 975
Number of employees..... 11,611 13,156 19,669 20,065 20,346
--------
All consolidated results reflect the 1999 acquisition of National Information
Group accounted for under the pooling-of-interests method of accounting.
13
(1) In December 1999, First American adopted Staff Accounting Bulletin No. 101
(SAB), "Revenue Recognition in Financial Statements." The SAB, which became
effective January 1, 1999, applies to First American's tax service
operations and requires the deferral of the tax service fee and the
recognition of that fee as revenue ratably over the expected service
period. The amortization rates applied to recognize the revenues assume a
10-year contract life and are adjusted to reflect prepayments. First
American periodically reviews its tax service contract portfolio to
determine if there have been changes in contract lives and/or changes in
the number and/or timing of prepayments. Accordingly, First American may
adjust the rates to reflect current trends. The SAB finalizes a series of
changes instituted by the Securities and Exchange Commission concerning
revenue recognition policies. As a result of adopting the SAB, in 1999,
First American reported a charge of $55.6 million, net of income taxes and
minority interests, as a cumulative change in accounting principle, reduced
net income by $10.9 million, or $0.16 per diluted share and restated its
quarterly information. During the year ended December 31, 2000, First
American recognized $38.6 million in revenues that were included in the
cumulative effect adjustment. Revenues earned by the other products in the
real estate information segment are recognized at the time of delivery, as
First American has no significant ongoing obligation after delivery.
(2) Return on average stockholders' equity for 1999 excludes the cumulative
effect of a change in accounting for tax service contracts from both net
income and stockholders' equity.
(3) Per share information relating to net income is based on weighted-average
number of shares outstanding for the years presented. Per share information
relating to stockholders' equity is based on shares outstanding at the end
of each year.
(4) Title order volumes are those processed by the direct title operations of
the Company and do not include orders processed by agents.
14
Selected Historical Financial Data of CMSI
The following selected historical financial data for each of the five fiscal
years ended December 31, 2000 have been derived from CMSI's consolidated
financial statements, which have been audited by Ernst & Young LLP, independent
auditors.
This information is only a summary and you should read it together with the
audited consolidated financial statements of CMSI, including the notes to the
financial statements, incorporated by reference in this joint proxy statement-
prospectus. See "Where You Can Find More Information" on page 56. All data are
in thousands, except per share amounts.
Year Ended December 31
-------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
Statement of Operations Data:
Revenues:
License and software development
fees............................. $10,101 $11,549 $10,186 $13,164 $12,350
Maintenance fees.................. 2,045 3,311 4,295 5,059 6,443
Computer hardware sales........... 2,107 1,657 777 1,249 972
Service bureau revenues........... -- 641 1,645 3,303 5,408
------- ------- ------- ------- -------
14,253 17,158 16,903 22,775 25,173
Cost of Revenues:
Cost of license and software
development fees................. 5,096 7,329 6,989 6,505 7,323
Cost of maintenance fees.......... 453 880 1,108 940 1,402
Cost of computer hardware sales... 1,782 1,505 953 1,528 1,202
Cost of service bureau............ -- 2,086 3,398 3,038 4,596
Selling, general and
administrative expenses.......... 6,126 8,538 12,824 12,123 12,012
Research and development costs.... 527 1,791 1,964 1,458 758
------- ------- ------- ------- -------
13,984 22,129 27,236 25,592 27,293
------- ------- ------- ------- -------
Income (loss) from operations..... 269 (4,971) (10,333) (2,817) (2,120)
Other income (expense):
Interest income (expense) net..... (78) 1,181 763 262 211
Amortization of excess assigned
value of identifiable assets over
cost of an acquired interest..... 305 51 -- -- --
------- ------- ------- ------- -------
227 1,232 763 262 211
------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 496 (3,739) (9,570) (2,555) (1,909)
Income tax expense................ 201 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)................. $ 295 $(3,739) $(9,570) $(2,555) $(1,909)
======= ======= ======= ======= =======
Basic earnings (loss) per common
share............................ $ 0.06 $ (0.49) $ (1.25) $ (0.33) $ (0.24)
Diluted earnings (loss) per common
share............................ $ 0.05 $ (0.49) $ (1.25) $ (0.33) $ (0.24)
Balance Sheet Data:
Cash and cash equivalents......... $23,502 $20,569 $ 3,091 $ 3,594 $ 1,588
Investments available-for-sale.... -- -- 6,482 1,316 2,529
Working capital................... 21,056 19,503 6,450 4,240 2,101
Total assets...................... 28,452 28,957 25,110 19,493 20,265
Long term debt and other lease
obligations, less
current portion.................. 220 101 761 -- --
Stockholders' equity.............. 22,588 23,211 13,850 11,476 10,306
15
Historical and Unaudited Pro Forma Per Share Data
The following table sets forth selected historical and unaudited pro forma
per share data for First American and CMSI. The unaudited pro forma financial
data assume that the merger was consummated at the beginning of the earliest
period presented and gives effect to the merger as a purchase under generally
accepted accounting principles. The unaudited pro forma per share data for
First American is based on the number of outstanding First American shares
adjusted to include the maximum number of First American shares that could be
issued in the merger. The unaudited pro forma equivalent per share data for
CMSI is based on the unaudited pro forma amounts per share for First American.
See Notes (2) and (3) below for the exchange ratios used. The information set
forth below should be read in conjunction with the historical financial data of
First American and CMSI which is incorporated by reference herein.
Year Ended
December 31, 2000
-----------------
Net Income (Loss) Per Share:
Historical First American Basic........................ 1.29
Historical First American Diluted...................... 1.24
First American Pro Forma Basic......................... 1.20(1)
First American Pro Forma Diluted....................... 1.16(1)
CMSI................................................... (0.24)
CMSI Equivalent Pro Forma Basic........................ 0.34(2)
CMSI Equivalent Pro Forma Diluted...................... 0.33(2)
CMSI Equivalent Pro Forma Basic-Minimum shares issued.. 0.25(3)
CMSI Equivalent Pro Forma Diluted-Minimum shares
issued................................................ 0.24(3)
Cash Dividends Per Share:
Historical First American.............................. 0.24
CMSI................................................... --
CMSI Equivalent Pro Forma.............................. 0.07(2)
Book Value Per Share:
Historical First American.............................. 13.62
First American Pro Forma............................... 13.90(4)
CMSI................................................... 1.32
CMSI Equivalent Pro Forma.............................. 3.95(2)
CMSI Equivalent Pro Forma Diluted-Minimum shares
issued................................................ 2.92(3)
--------
(1) Determined by dividing the pro forma net income by the pro forma number of
weighted average number of shares outstanding for the year ended December
31, 2000. The pro forma number of weighted average shares outstanding was
determined by using the low-end collar price of $22.00 per First American
common share to calculate the number of First American shares to be issued
in the merger. See Note (2) below. Pro forma net income was determined by
adding the net income of First American to that of CMSI. In addition, the
effect of purchase accounting adjustments and transaction costs were
included in the calculation. The effect of the purchase accounting
adjustments and transaction costs on pro forma net income was to decrease
pro forma net income by $1,269,000.
(2) The CMSI equivalent pro forma amounts are calculated by multiplying First
American pro forma combined amounts by 0.2841, which represents the
fraction of a share of First American common stock each CMSI stockholder
will receive for each share of CMSI in the merger if the low-end collar
price of $22.00 per First American common share is used to determine the
purchase price. Under these assumptions, the purchase price equals
$59,419,560 (including the fair value of vested CMSI stock options to be
exchanged in the merger) and 2,223,000 shares of First American common
stock would be issued in the merger.
(3) Determined by using the minimum number of First American common shares to
be issued in this transaction. The minimum number of shares is based on a
value of $30.00 per First American share. The impact on the pro forma
amounts for First American when using this value is not material.
(4) Determined by dividing the pro forma stockholders equity by the pro forma
number of shares outstanding as of December 31, 2000. Pro forma
stockholders equity was determined by adding the stockholders equity of
First American at December 31, 2000 to the value of the shares to be issued
in this transaction. The number of pro forma shares outstanding was
determined by adding the number of shares outstanding for First American at
December 31, 2000 to the number of shares to be issued in this transaction.
See Note (2) above for the number of the shares, and their corresponding
value, to be issued in this transaction.
16
SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement-prospectus and the documents incorporated by
reference contain "forward-looking statements" within the meaning of the
federal securities laws. These forward-looking statements are based on
estimates and assumptions made by management of First American or CMSI, as the
case may be, and take into account only the information available at the time
the forward-looking statements are made. Although we each believe our
respective estimates and assumptions are and will be reasonable, forward-
looking statements involve risks, uncertainties and other factors that could
cause our respective actual results to differ materially from those suggested
in the forward-looking statements. Forward-looking statements include the
information concerning future financial performance, anticipated benefits of
the merger, business strategy, projected plans and objectives of First American
and CMSI set forth in the letter to CMSI stockholders on the cover of this
joint proxy statement-prospectus and in the sections entitled:
. "Summary;"
. "The Merger;" and
. "Role of Financial Advisor."
The words "anticipates," "estimates," "projects," "forecasts," "goals,"
"believes," "expects," "intends," and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements are
subject to numerous risks and uncertainties. The following are some important
factors that could cause First American's actual results to differ materially
from those in forward-looking statements:
. general volatility of the capital markets and the market price of First
American common shares;
. changes in the real estate market, interest rates or the general economy;
. First American's ability to identify and complete acquisitions and
successfully integrate businesses it acquires (including CMSI's
business);
. First American's ability to employ and retain qualified employees;
. changes in government regulations that are applicable to First American's
regulated businesses;
. the degree and nature of First American's competition;
. an increase in First American's expenses;
. continued consolidation among First American's competitors and customers;
. technological changes may be more difficult or expensive than
anticipated;
. legal proceedings commenced by the California attorney general and
related litigation; or
. other factors described in First American's annual report on form 10-K
for the fiscal year ended December 31, 2000.
First American's actual results, performance or achievement could differ
materially from those expressed in, or implied by, forward-looking statements
and, accordingly, no assurances can be given that any of the events anticipated
by the forward-looking statements will transpire or occur, or if any of them do
so, what impact they will have on the results of operations and financial
condition of First American. The forward-looking statements speak only as of
the date they are made. First American does not undertake to update forward-
looking statements to reflect circumstances or events that occur after the date
the forward-looking statements are made.
17
THE STOCKHOLDERS' MEETING
This joint proxy statement-prospectus is furnished in connection with the
solicitation of proxies from the holders of CMSI common shares by the board of
directors of CMSI for use at a stockholders' meeting at which the election of
directors and the merger proposal will be voted upon. This joint proxy
statement-prospectus and accompanying proxy are first being mailed to the CMSI
stockholders on or about April 26, 2001.
Time and place; purpose
The CMSI stockholders' meeting will be held at the Sheraton Columbia Hotel,
10207 Wincopin Circle, Columbia, Maryland, 21044 on May 29, 2001, starting at
10:00 a.m., Eastern Time. At the meeting, CMSI stockholders will be asked to:
. consider and vote upon a proposal to elect five (5) persons to serve on
the CMSI board of directors until their terms expire and their successors
are elected and are qualified, or until the merger is approved and
completed, whichever occurs first. Our board of directors currently has
five (5) seats;
. consider and vote upon a proposal to adopt and approve the merger
agreement and approve the merger; and
. conduct any other business properly brought before the meeting.
Voting rights; votes required
The board of directors of CMSI has fixed the close of business on April 25,
2001 as the record date for CMSI stockholders entitled to notice of and to vote
at the CMSI stockholders' meeting. The only outstanding voting securities of
CMSI are its common shares. Only holders of record of CMSI common shares on the
record date are entitled to notice of and to vote at the CMSI stockholders'
meeting. Each holder of record, as of the record date, of CMSI common shares is
entitled to cast one vote per share on each proposal acted upon. On April 17,
2001, there were 7,999,431 CMSI common shares outstanding and entitled to vote
at the CMSI stockholders' meeting. The affirmative vote of a majority of the
CMSI common shares entitled to vote are required to approve the proposed
merger. The affirmative vote of a plurality of the shares of CMSI common stock
present in person or by proxy at the special meeting is required to elect each
director.
As of April 17, 2001, the directors and executive officers of CMSI and their
affiliates beneficially owned and were entitled to vote approximately 4,171,399
CMSI common shares, or approximately 52% of the CMSI common shares outstanding
on that date. This includes the CMSI common shares beneficially owned by Scott
Freiman and James DeFrancesco. Pursuant to voting agreements entered into
between First American and each of Mr. Freiman and Mr. DeFrancesco, both of
whom are candidates for election to the board of directors, those individuals
have agreed to vote a total of 3,841,081 of the shares of CMSI common stock
beneficially owned by them, or approximately 48% of the total number of shares
of CMSI common stock issued and outstanding as of April 17, 2001, in favor of
the merger proposal. The voting agreements also require Messrs. Freiman and
DeFrancesco to refrain from voting in favor of any action or agreement which
would impede, frustrate or prevent the merger or any of the other transactions
contemplated by the merger agreement. See "Voting Agreements" on page 41.
Voting of proxies
All CMSI common shares represented by properly executed proxies received
prior to or at the CMSI stockholders' meeting and not revoked, will be voted in
accordance with the instructions indicated in such proxies. If no instructions
are indicated on a properly executed returned proxy, such proxies will be voted
"FOR" the election of the slate of directors proposed by CMSI's current board
of directors, and "FOR" the approval of the merger proposal.
18
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing,
including by telegram or telecopy, with the Secretary of CMSI before the taking
of the vote at the special meeting, a written notice of revocation bearing a
later date than the date of the proxy or a later-dated proxy relating to the
same shares. Proxies may also be revoked by attending the meeting and voting in
person. In order to vote in person at the CMSI stockholders' meeting, you must
attend the CMSI stockholders' meeting and cast your vote in accordance with the
voting procedures established for the meeting. Attendance at the meeting will
not in and of itself constitute a revocation of a proxy. Any written notice of
revocation or subsequent proxy must be delivered at the special meeting before
the taking of the vote, or if sent before the special meeting, to the
following:
Credit Management Solutions, Inc.
Attention: Neal Dittersdorf
135 National Business Parkway
Annapolis Junction, Maryland 20701
(301) 362-6000
CMSI stockholders who require assistance in changing or revoking a proxy
should contact CMSI's Secretary at the above address and phone number.
Under Nasdaq rules, brokers who hold shares in "street name" for customers
have the authority to vote on certain "routine" proposals (including the
election of directors) when they have not received instructions from beneficial
owners. However, brokers are precluded from exercising their voting discretion
with respect to the approval and adoption of non-routine matters such as the
merger proposal. Absent specific instructions from the beneficial owner of such
shares, brokers are not empowered to vote shares with respect to the approval
and adoption of such proposals. The result is commonly referred to as a "broker
non-vote." Since the affirmative votes described above are required for
approval of the merger proposal, a "broker non-vote" will effectively result in
the shares being counted "AGAINST" the merger proposal.
As to the election of directors, the proxy card being provided by the board
of directors enables a stockholder to vote "FOR" the election of the nominees
proposed by the board of directors, or to "WITHHOLD AUTHORITY" to vote for one
or more of the nominees being proposed. Under Delaware law and CMSI's bylaws,
directors are elected by a plurality of votes cast, without regard to either
broker non-votes or proxies as to which authority to vote for one or more of
the nominees being proposed is withheld. If any nominee is unable to be a
candidate when the election takes place, the shares represented by valid
proxies will be voted in favor of any nominee who may be designated by the
remainder of the board to fill the vacancy. CMSI has no reason to believe that
any nominee will be unable to serve as a director following the special
meeting.
CMSI stockholders may abstain from voting "FOR" or "AGAINST" the merger
proposal. Since the favorable vote of a majority of the outstanding CMSI common
shares is required to approve the proposal, a proxy marked "ABSTAIN" will
effectively be counted as a vote "AGAINST" the merger proposal. Similarly, the
failure of a CMSI stockholder to return a proxy will effectively result in the
stockholder's votes being counted "AGAINST" the proposal.
CMSI may, but is not obligated to, retain a proxy solicitation firm to aid
in the solicitation of proxies and to verify certain records related to the
solicitations. If a proxy solicitation firm is so retained, CMSI will pay such
firm customary fees and expense reimbursement for such services. To the extent
necessary in order to ensure sufficient representation at the CMSI
stockholders' meeting, CMSI may request by telephone or telegram the return of
proxy cards. The extent to which this will be necessary depends entirely upon
how promptly proxy cards are returned. CMSI stockholders are urged to send in
their proxies without delay.
CMSI stockholders should not send in any share certificates with their proxy
cards. A transmittal letter with instructions for the surrender of certificates
representing CMSI common shares will be mailed by First American or its
transfer agent to former CMSI stockholders as soon as practicable after the
consummation of the merger.
19
Proposal One: Election Of CMSI Directors
In January 2001, CMSI discovered that its certificate of incorporation had
become inoperative under Delaware law in calendar year 2000 due to an
inadvertent error by CMSI in the manner of the completion of its 1998 Delaware
franchise tax return. Upon learning of the mistake, CMSI promptly filed a
corrected return, and its certificate of incorporation was renewed and revived
by the State of Delaware on January 25, 2001. Under the Delaware General
Corporation Law, such reinstatement of the certificate of incorporation had the
effect of validating all contracts signed, actions taken and other matters
performed by CMSI during the period that its certificate of incorporation was
inoperative. Pursuant to Section 312 of the Delaware General Corporation Law,
following such reinstatement CMSI is required to elect a full board of
directors. CMSI petitioned the Delaware Secretary of State to withdraw its
determination that the company's certificate had become inoperative. On March
14, 2001, CMSI learned that the Delaware Secretary of State had declined the
petition. Accordingly, CMSI's stockholders are being asked at the special
meeting to vote in favor of a proposal to elect to CMSI's board of directors
each of the persons who was serving as a member of the board at the time that
CMSI's certificate of incorporation became inoperative, other than Miles Grody,
who resigned from the board effective March 2, 2001.
CMSI's certificate of incorporation and bylaws provide that CMSI's board of
directors is to have between five and 15 members, as the board may determine
from time to time. The board currently consists of five members. The board is
divided into three classes, denominated class I, class II and class III, with
members of each class holding office for staggered three-year terms or until
their respective successors are duly elected and qualified. At each annual
meeting of CMSI's stockholders, the successors to the directors whose terms
have expired are elected to serve from the time of their election and
qualification until the third annual meeting of stockholders following the
election, or until their successors have been duly elected and qualified.
The five nominees for election to the board of directors are Scott L.
Freiman, James R. DeFrancesco, John J. McDonnell, Jr., Robert P. Vollono and
Stephen X. Graham. Mr. Vollono is the nominee for election to class I of the
board, whose term would expire at CMSI's 2003 annual meeting of stockholders,
Messrs. Freiman and Graham are the nominees for election to class II, whose
terms would expire at the 2004 annual meeting, and Messrs. DeFrancesco and
McDonnell are the nominees for election to class III, whose terms would expire
at the 2002 annual meeting.
Information regarding nominees for election as directors
The following information regarding the principal occupation or employment,
other affiliations and business experience of the nominees has been furnished
to CMSI by the nominees.
Scott L. Freiman, a co-founder of CMSI, has served as CMSI's President and
Chief Executive Officer since September 1999, and as a director since 1987. Mr.
Freiman served as Executive Vice President of CMSI from October 1987 to
September 1999. From 1985 to 1987, Mr. Freiman served as Technology Director of
American Financial Corporation, an automobile finance/leasing company, where he
worked with Mr. DeFrancesco to develop the Company's credit origination
software. Prior to 1985, Mr. Freiman served as a development engineer for IBM
and AT&T Bell Laboratories.
James R. DeFrancesco, a co-founder of CMSI, has served as a director since
1987. Mr. DeFrancesco served as CMSI's Chief Executive Officer from 1987 to May
1999, as Chairman of the Board of Directors from 1987 to September 1999 and as
President from 1987 to 1998. Since 1989, Mr. DeFrancesco has served as the
President of Businessliner, Inc., a company which leases an airplane to CMSI
for business travel. From August 1997 to May 1999, Mr. DeFrancesco served as a
Vice President of D & R Investments, L.L.C., a company that leased an airplane
to the Company for business travel during that period. From 1986 to April 1999,
Mr. DeFrancesco served as President of Financial Design Systems, a software
company. From 1987 to 1992, Mr. DeFrancesco served as President of Perpetual
Leasing Services, Inc., the automobile leasing subsidiary of Perpetual Savings
Bank, FSB. From 1976 to 1987, Mr. DeFrancesco founded and served as President
and Chief Executive Officer of American Financial Corporation, an automobile
finance/leasing company.
20
John J. McDonnell, Jr. has served as a director of CMSI since November 1996,
and as Chairman of the Board since September 1999. In April 2001, Mr. McDonnell
was elected as Chairman of the Board, and appointed President, of Transaction
Network Systems, Inc., a nationwide communications network company specializing
in transaction-oriented data services which was owned by PSInet, Inc. from
November 1999 until April 2001. Mr. McDonnell also served as President, Chief
Executive Officer and a director of Transaction Network Systems from 1990 until
November 1999. Mr. McDonnell has served as a General Partner of McDonnell &
Associates Investment Co., L.P., a private investment company, since September
2000. From February 2000 to September 2000, Mr. McDonnell served as President
and Chief Executive Officer of Paylinx Corporation, a leading provider of
Internet payment solutions. From 1987 to 1989, Mr. McDonnell served as
President and Chief Executive Officer of Digital Radio Network, Inc., a local
access carrier for point-of-sale transactions. Mr. McDonnell has previously
served as Group Vice President for the Information Technologies and
Telecommunications Group of the Electronic Industries Association (EIA); Vice
President, International Operations and Vice President, Sales, for Tymnet, Inc.
with the responsibility for both private network sales and public services; and
Director of Technology and Telecommunications for the National Commission on
Electronic Funds Transfer. Mr. McDonnell was one of the founding members and is
currently a member of the Executive Committee of the Board of Directors of the
Electronics Funds Transfer Association. Mr. McDonnell currently serves on the
Boards of Directors of Intelidata Data Technologies Corp. and CyberSource
Corporation, as well as several private companies.
Robert P. Vollono has served as CMSI's Senior Vice President and Chief
Financial Officer since April 1995, and as its Treasurer and a director since
October 1996. Since February 1999, Mr. Vollono has served as Chief Financial
Officer of the company's CMSI Systems, Inc. and Credit Online, Inc.
subsidiaries. From 1988 to April 1995, Mr. Vollono served as Vice President and
Chief Financial Officer of Carey International, Inc., a transportation services
company. From 1986 to 1988, Mr. Vollono served as Vice President and Chief
Financial Officer of Commercial Office Environments, Inc.
Stephen X. Graham has served as a director of CMSI since October 1996. Since
1998, he has been the President and Chief Executive Officer of Cross Hill
Financial Group, Inc., a private investment banking firm. From 1988 to 1998,
Mr. Graham served as President of Graham, Hamilton & Co., which merged into
Cross Hill in 1998. Since 1996, Mr. Graham has also served as Chief Executive
Officer of Prestwick Scientific Capital. From 1982 to 1988 Mr. Graham was a
Vice President of Kidder, Peabody & Co.
Recommendation of the board of directors
The board of directors of CMSI recommends that stockholders vote "FOR" the
election of each of the nominees listed above.
Committees of the board
CMSI's board of directors has a compensation committee and an audit
committee.
Compensation committee. The compensation committee is responsible for
advising the board of directors on issues concerning CMSI's executive
compensation policies for senior officers. The compensation committee also
administers various incentive compensation, stock and option plans. The current
members of the compensation committee are Messrs. Graham and McDonnell.
Audit Committee. The audit committee is responsible for recommending
independent auditors, reviewing the audit plan, the adequacy of internal
controls, the audit report and management letter, and performing such other
duties as the board of directors may from time to time direct. The current
members of the audit committee are Messrs. Graham and McDonnell.
CMSI's board of directors has adopted a written charter for the audit
committee. A copy of the charter is attached as Annex E to this joint proxy
statement-prospectus. The board has determined that each of the current members
of the audit committee is "independent," in accordance with the definition of
"independence" set forth in the listing standards of the National Association
of Securities Dealers.
21
Attendance at board and committee meetings
During 2000, CMSI's board of directors held six meetings, its compensation
committee held six meetings and its audit committee held six meetings. During
2000, each director attended or participated in 75% or more of the aggregate of
(i) the total number of meetings of the board and (ii) the total number of
meetings held by all committees of the board on which such director served.
Audit committee report
The following is the report of CMSI's audit committee as to CMSI's audited
financial statements for the fiscal year ended December 31, 2000, which
includes CMSI's consolidated balance sheets as of December 31, 1999 and 2000,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2000,
and the notes thereto:
Review with Management. The audit committee has reviewed and discussed
CMSI's audited financial statements with management.
Review and Discussions with Independent Accountants. The audit committee has
discussed with Ernst & Young LLP, CMSI's independent accountants, the matters
required to be discussed by SAS 61 (Codification of Statements on Accounting
Standards) which includes, among other items, matters related to the conduct of
the audit of CMSI's financial statements.
The audit committee has also received written disclosures and the letter
from Ernst & Young LLP required by Independence Standards Board Standard No. 1
(which relates to the accountants' independence from CMSI and any of its
related entities) and has discussed with Ernst & Young LLP its independence
from CMSI.
Conclusion. Based on the review and discussions referred to above, the audit
committee recommended to CMSI's board of directors that CMSI's audited
financial statements be included in its annual report on form 10-K for the
fiscal year ended December 31, 2000.
Submitted by the audit committee of the
board of directors
Stephen X. Graham
John J. McDonnell, Jr.
Compensation committee report
The compensation committee advises the board of directors on issues
concerning CMSI's compensation philosophy and the compensation of executive
officers and other individuals compensated by CMSI. The compensation committee
is responsible for the administration of CMSI's 1997 Stock Incentive Plan,
under which option grants, stock appreciation rights, restricted awards and
performance awards may be made to directors, executive officers and employees
of CMSI and its subsidiaries.
The compensation committee believes that the compensation programs for
CMSI's executive officers should reflect CMSI's performance and the value
created for CMSI's stockholders. In addition, the compensation programs should
support the short-term and long-term strategic goals and values of CMSI and
should reward individual contribution to CMSI's success. CMSI is engaged in a
very competitive industry, and CMSI's success depends upon its ability to
attract and retain qualified executive through the competitive compensation
packages it offers to such individuals.
General Compensation Policy. The fundamental policy of the compensation
committee is to advise the board of directors on information which will aid the
board in providing CMSI's executive officers with competitive compensation
opportunities based upon their contributions to the development and financial
success of CMSI and their personal performance. It is the compensation
committee's philosophy to advise the board of
22
directors that a portion of each executive officer's compensation should be
contingent upon CMSI's performance as well as upon such executive officer's own
level of performance. Accordingly, the compensation package for each executive
officer should be comprised of two elements: (i) base salary which reflects
individual performance and is designed primarily to be competitive with salary
levels in the industry and (ii) long-term stock-based incentive awards which
strengthen the mutuality of interests between the executive officer and CMSI's
stockholders.
Factors. The principal factors which the compensation committee considered
in reviewing the components of each executive officer's compensation package
for 2000 are summarized below. The compensation committee may, however, in its
discretion apply entirely different factors in advising the board of directors
with respect to executive compensation for future years.
Base Salary. The suggested base salary for each executive officer is
determined on the basis of the following factors: experience, personal
performance, the salary levels in effect for comparable positions within and
without the industry and internal base salary comparability considerations. The
weight given to each of these factors shall differ from individual to
individual, as the compensation committee deems appropriate.
While it is the general policy of the compensation committee to advise the
board of directors not to award performance-based cash bonuses, from time to
time, the compensation committee may advocate cash bonuses when such bonuses
are deemed to be in the best interest of CMSI.
Long-Term Incentive Compensation. Long-term incentives are provided
primarily through grants of stock options. The grants are designed to align the
interests of each executive officer with those of the stockholders and provide
each individual with a significant incentive to manage CMSI from the
perspective of an owner with an equity stake in CMSI. Each option grant allows
the individual to acquire shares of CMSI's common stock at a fixed price per
share over a specified period of time. Each option generally becomes
exercisable in installments over a fixed period, contingent upon the executive
officer's continued employment with CMSI Accordingly, the option grant will
provide a return to the executive officer only if the executive officer remains
employed by CMSI during the vesting period, and then only if the market price
of the underlying shares appreciates.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the executive
officer's current position with CMSI, the base salary associated with that
position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term and the individual's personal
performance in recent periods. The compensation committee also intends to
consider the number of unvested options held by he executive officer in order
to maintain an appropriate level of equity incentive for that individual.
However, the compensation committee has not and will not adhere to any specific
guidelines as to relative option holdings of CMSI's executive officers.
CEO Compensation. Regulations of the Securities and Exchange Commission
require the board of directors to disclose its basis for compensation reported
for Mr. Freiman in 2000 and to discuss the relationship between CMSI's
performance during the last fiscal year and Mr. Freiman's performance. In
advising the board of directors with respect to the compensation payable to
CMSI's chief executive officer, the compensation committee seeks to establish a
level of base salary competitive with that paid by companies within the
industry which are of comparable size to CMSI and by companies outside of the
industry with which CMSI competes for executive talent.
In reviewing Mr. Freiman's base salary in 2000, the suggested base salary
established for Mr. Freiman on the basis of the foregoing criteria was intended
to provide a level of stability and certainty. Accordingly, Mr. Freiman's
compensation was not affected to any significant degree by CMSI's performance.
Compliance with Internal Revenue Code Section 162(m). As a result of Section
162(m) of the Internal Revenue Code of 1986, as amended, which was enacted in
1993, CMSI will not be allowed a federal income
23
tax deduction for compensation paid to certain executive officers, to the
extent that compensation exceeds $1.0 million per officer in any one year. This
limitation will apply to all compensation paid to the covered executive
officers which is not considered to be performance based. Compensation which
does qualify as performance-based compensation will not have to be taken into
account for purposes of this limitation. The 1997 Stock Incentive Plan contain
certain provisions which are intended to assure that any compensation deemed
paid in connection with the exercise of stock options granted under that Plan
with an exercise price equal to the market price of the option shares on the
grant date will qualify as performance-based compensation.
The compensation committee does not expect that the compensation paid or
payable to CMSI's executive officers for 2000 will exceed the $1.0 million
limit per officer. Further, in accordance with issued Treasury Regulations
relating to the $1.0 million limitation, the committee may in the future
determine to restructure one or more components of the compensation paid to the
executive officers so as to qualify those components as performance-based
compensation that will not be subject to $1.0 million limitation.
Submitted by the compensation
committee of the board of directors
Stephen X. Graham
John J. McDonnell, Jr.
24
Performance graph
The following graph compares the annual percentage change in CMSI's
cumulative total stockholder return on its common stock to the cumulative total
return of the Nasdaq Stock Market--U.S. Index and a line-of-business index,
consisting of the Nasdaq Computer and Data Processing Services Companies index
(SIC Code 7371) for the period from December 18, 1996 (the date of CMSI's
initial public offering) to December 31, 2000. The graph assumes an investment
of $100 in each of CMSI's common stock, the Nasdaq Stock Market and the line-
of-business index on December 18, 1996, and also assumes reinvestment of all
dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG [COMPANY NAME HERE], S&P 500 INDEX AND PEER GROUP
PERFORMANCE GRAPH APPEARS HERE
12/18/96 12/96 12/97 12/98 12/99 12/00
-------- ------- ------- ------- ------- -------
Credit Management
Solutions, Inc. $100.00 $126.00 $113.00 $48.00 $74.00 $11.00
NASDAQ Stock Market (U.S.) $100.00 $100.00 $122.00 $173.00 $321.00 $193.00
NASDAQ Computer &
Data Processing $100.00 $100.00 $123.00 $219.00 $482.00 $223.00
Notwithstanding anything to the contrary in any of CMSI's previous or future
filings made under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate this joint proxy
statement-prospectus or any future filings made by CMSI under those statutes,
neither the preceding audit committee report, references to the independence of
CMSI's audit committee members, compensation committee report or performance
graph is deemed filed with the Securities and Exchange Commission or is to be
incorporated by reference into any such prior filings or into any future
filings made by CMSI under those statutes.
Proposal Two: Adoption Of The Merger
Following the election of directors, the special meeting will be temporarily
adjourned while the votes are tabulated. The newly elected board will then hold
a meeting to appoint officers of CMSI and to ratify and approve all actions
taken by CMSI on or after January 25, 2001, including the merger and the merger
agreement, and the other the transactions contemplated thereby. The special
meeting will then be convened and stockholders will be asked to vote on the
proposal to adopt and approve the merger.
25
THE MERGER
General
First American and CMSI are providing the stockholders of CMSI with this
joint proxy statement-prospectus in connection with the solicitation of proxies
by the CMSI board of directors for use at the special meeting of CMSI
stockholders and at any adjournments and postponements of that meeting. At the
meeting, CMSI stockholders will be asked to elect its board of directors, to
approve the merger of Rusti Corp., a wholly-owned subsidiary of First American,
with and into CMSI and to approve the merger agreement, as amended. While we
believe that the following description covers the material terms of the merger,
the description may not contain all of the information that is important to
you. A copy of the merger agreement and amendment no. 1 to the merger agreement
are attached hereto as Annexes A and B, respectively. We urge you to read the
merger agreement and amendment in their entirety.
Background of the merger
During the regular meeting of the board of directors of CMSI on June 7,
2000, and in executive sessions of the board of directors in June and July
2000, the board of directors discussed CMSI's options, both as an independent
company and as a party to a business combination transaction. At these
meetings, management made presentations to the board of directors concerning
stock valuations, balance sheet strategies and approaches to increasing
shareholder value and income. To better evaluate these options, the board of
directors authorized management to enter into an arrangement, at a time deemed
appropriate by management, with an investment banker to represent CMSI in
connection with a potential investment in, business combination with, or sale
of, CMSI or one of its subsidiaries.
In June and July 2000, certain third parties expressed interest in entering
into discussions with CMSI regarding potential strategic partnerships,
strategic investments and/or business combinations. On August 4, 2000, CMSI
retained Chase Securities Inc. to contact companies that it believed might be
interested in a transaction with CMSI and that potentially offered a strategic
fit with the company. Chase Securities contacted 11 companies. As a result of
these contacts, two companies, exclusive of First American, expressed an
interest in a potential investment in, business combination with, or purchase
of, CMSI or one of its subsidiaries.
In August and September 2000, the management of CMSI, and the board of
directors in executive sessions, considered competing offers by third parties
for the acquisition of CMSI's subsidiary CMSI Systems, Inc. Management and
Chase Securities continued discussions with those third parties.
During the regular meeting of the board of directors on September 13, 2000,
the board discussed potential opportunities for the sale of CMSI or one of its
subsidiaries, including the ongoing discussions with certain third parties. The
board authorized management to continue to explore those opportunities with the
assistance of Chase Securities. Management continued the discussions and
evaluation of the opportunities.
In September 2000, Chase Securities contacted First American on CMSI's
behalf. On October 24, 2000, representatives from First American and CMSI met
in Philadelphia, Pennsylvania for discussions about the potential strategic
benefits of an acquisition of CMSI or one of its subsidiaries.
During the regular meeting of the board of directors of CMSI on October 25,
2000, Chase Securities evaluated for the board various discussions that were
ongoing with respect to expressions of interest in an acquisition of CMSI or
one of CMSI's subsidiaries. The board of directors gave further guidance to
management and directed management to proceed with the ongoing discussions.
On November 14, 2000, Scott Freiman, President and Chief Executive Officer
of CMSI, and other senior executives of CMSI traveled to First American's
headquarters in Santa Ana, California to meet with Parker Kennedy, President of
First American, and Don Robert, head of First American's consumer information
division. During the same time period, another company also expressed interest
in acquiring CMSI.
26
On November 17, 2000, Parker Kennedy sent a formal letter of interest to
CMSI on behalf of First American requesting permission for First American to
visit the Maryland offices of CMSI and conduct preliminary due diligence. First
American conducted its preliminary on-site due diligence of CMSI between
November 28, 2000 and November 30, 2000.
On December 1, 2000, Mr. Freiman and Mr. Robert held a telephone discussion
to discuss strategic benefits and valuation issues. On December 5, 2000, Mr.
Robert and Mr. Vollono met to further discuss the strategic benefits and
valuation issues with respect to the potential purchase by First American of
CMSI. At the conclusion of this meeting, First American orally proposed to
purchase CMSI.
During the regular meeting of the board of directors of CMSI on December 7,
2000, senior management of CMSI and representatives of Chase Securities made
presentations to the board of directors relating to CMSI's future prospects as
an independent entity, a likely range of acquisition prices, the indication of
interest by First American in an acquisition of CMSI, and a comparison of the
First American proposal with the prior expressions of interest by other third
parties in the purchase of CMSI Systems, Inc, a subsidiary of CMSI. The board
determined that the First American indication of interest appeared to be the
most attractive based on the valuation range indicated by First American and
the strategic fit of the two companies. Based on this determination, the board
of directors authorized management to explore the sale of the company to
First American and to enter into a letter of intent, within certain guidelines,
subject to approval by the board of directors of any definitive agreement.
During a regularly scheduled meeting of the board of directors of First
American on December 14, 2000, the board considered the proposed acquisition of
CMSI. The board authorized further negotiations by First American and approved
an offer to purchase all of the outstanding common stock of CMSI, subject to
certain price limitations and completion of due diligence inquiries.
After CMSI's board of directors meeting on December 7, 2000 and First
American's board meeting on December 14, 2000, representatives of the parties
reached preliminary agreement on an exchange ratio for the merger, subject to,
among other things, the completion of due diligence, the negotiation of
definitive agreements and the final approval of their respective boards of
directors. On December 27, 2000, First American and CMSI executed a letter of
intent memorializing that preliminary agreement. At the same time, the legal
advisors of First American commenced drafting definitive documentation with
respect to a possible merger of the two companies.
On January 12, 2001, at a regularly scheduled meeting, the board of
directors of First American approved the offer to purchase CMSI, including the
exchange ratio.
During January 2001, First American and CMSI, together with their legal,
accounting and financial advisors, negotiated and finalized the terms of the
merger agreement and supporting documentation and completed due diligence
investigations. First American formed Rusti Corp. as a wholly-owned Delaware
corporation during this period as well.
On January 22, 2001, CMSI learned from the Delaware Secretary of State that
its certificate of incorporation had become inoperative under Delaware law due
to CMSI's inclusion of the calculation used to determine its Delaware franchise
taxes for the 1998 tax year in a cover letter sent with its franchise tax
return for that year, rather than on the tax return form. CMSI successfully
took steps to "revive" its corporate charter, resulting in a certificate of
revival being issued on January 25, 2001. CMSI subsequently petitioned the
Delaware Secretary of State's office to withdraw its determination that CMSI's
certificate had become inoperative.
On January 27, 2001, the CMSI board of directors held a special meeting to
consider the proposed merger. Senior management of CMSI reviewed with the board
of directors its discussions and negotiations with First American, as well as
the results of its due diligence investigation. Senior management of CMSI and
27
representatives of Chase Securities presented to the board of directors
financial information with respect to both First American and the potential
transaction. Chase Securities rendered its oral opinion (which was subsequently
confirmed in writing) that, as of that date, the exchange ratio set forth in
the merger agreement was fair to the CMSI stockholders from a financial point
of view. Representatives of Brobeck, Phleger & Harrison LLP and CMSI's general
counsel reviewed with the CMSI board of directors the terms of the merger
agreement and the legal standards applicable to the board's decision to approve
the agreement and the transactions contemplated thereby. The board was also
informed of the terms of agreements discussed under "Interests of Certain
Persons in the Merger" on page 48. After questions by and discussion among the
members of the CMSI board, and after consideration of the factors described
under "The Merger--The CMSI board of directors recommends a vote for the
merger" and "--CMSI's reasons for the merger and consideration of the merger by
CMSI's board of directors" on this page, the CMSI board voted unanimously to
approve the merger agreement and the transactions contemplated by the merger
agreement, including the merger.
On January 30, 2001, First American, Rusti Corp. and CMSI executed the
merger agreement. Later that day, First American and CMSI issued a joint press
release announcing the proposed merger.
On March 14, 2001, CMSI found out that its petition to have the Delaware
Secretary of State withdraw its determination that CMSI's certificate of
incorporation had become inoperative had been denied. On March 15, 2001, CMSI
disclosed to First American the circumstances surrounding the revocation of its
charter and the outcome of its petition. At CMSI's request, First American
agreed to include the solicitation of proxies to elect directors as part of
this joint proxy statement-prospectus to assist CMSI in its efforts to comply
with the requirement under Delaware law that an election of directors be held
following the revival of the certificate of incorporation. First American and
CMSI entered into Amendment No. 1 to the Agreement and Plan of Merger to add as
additional conditions precedent to First American's obligation to consummate
the merger that CMSI conduct an election of its directors by stockholders, and
that the newly constituted board ratify and approve all actions taken by CMSI
on or after January 25, 2001, including the merger and the merger agreement,
and the other transactions contemplated thereby.
First American's reasons for the merger
First American believes that the merger will:
. provide its consumer information division a unique opportunity to expand
its automotive and consumer lending credit reporting business;
. provide First American with an opportunity to continue expanding the
products and services offered by its consumer information segment by
cross-marketing consumer information products to a nationwide customer
base of automobile dealers and consumer lenders who use CMSI products;
and
. give First American what it believes is a state-of-the-art Internet-based
software platform that would make First American an important provider of
services to the automobile industry.
The CMSI board of directors recommends a vote "FOR" the merger
At its meeting on January 27, 2001, the CMSI board of directors, by
unanimous vote, determined after careful consideration that the merger is in
the best interests of CMSI and you, CMSI's stockholders, and that the terms of
the merger agreement and the merger are fair to you. Accordingly, the CMSI
board of directors has approved the merger and recommends that you vote "FOR"
the adoption of the merger agreement.
CMSI's reasons for the merger and consideration of the merger by CMSI's board
of directors
The decision of the CMSI board of directors that the merger agreement and
the merger are advisable, and fair to and in the best interests of CMSI and
you, its stockholders, was based upon a number of potential
28
benefits of the merger that the CMSI board of directors believes will
contribute to the success of the combined company compared to CMSI continuing
to operate as an independent business, including the following:
. the CMSI board's judgment that the two companies have significant
complementary strengths and complementary products, services and
solutions;
. the potential that First American's larger market capitalization, broader
suite of products and services, and historical revenue growth will
provide CMSI with additional resources to grow and gain market share more
rapidly than CMSI can grow as an independent company in the rapidly
evolving Internet services market, which is characterized by the entrance
of an increasing number of large, well capitalized and well known
competitors;
. that, based on the price of First American common shares at the time the
merger agreement was approved by the CMSI board of directors, the value
of the First American shares to be issued to CMSI stockholders in the
merger represented a significant premium over the price of CMSI common
stock then prevailing in the market, and the further opportunity for
CMSI's stockholders to participate in the anticipated future growth in
value of the combined company as shareholders of First American following
the merger; and
. the greater liquidity afforded CMSI stockholders upon exchange of their
shares of CMSI common stock for common shares of First American, whose
shares trade in significantly higher volumes.
In identifying these benefits and evaluating the merger, the CMSI board of
directors reviewed a number of factors and sources of information, including
the following:
. historical information concerning CMSI and First American and their
respective businesses, financial performance, condition, operations,
technology, management and position in the industry, and information and
evaluations regarding the two companies' strengths, weaknesses and
prospects, both before and after giving effect to the merger;
. the reports and presentations of CMSI's legal counsel, Brobeck, Phleger &
Harrison LLP, regarding the terms of the transaction, and the oral and
written presentations of CMSI's financial advisor, Chase Securities Inc.,
including its written opinion (which is attached to this document as
Annex C) to the effect that, based upon and subject to various
assumptions and limitations set forth in the opinion, as of January 30,
2001, the exchange ratio of a fraction of a First American common share
to be received for each share of CMSI common stock pursuant to the merger
agreement was fair from a financial point of view to the holders of CMSI
common stock;
. current financial market conditions and historical market prices,
volatility and trading information for CMSI common stock and First
American common shares, and various factors that might affect the market
value of First American common shares in the future;
. the premium represented by the exchange ratio and the premiums paid in
other recent transactions that could be viewed as comparable, and the
negotiations between CMSI and First American relating to the exchange
ratio;
. the limited number of closing conditions and termination rights;
. the alternatives available to CMSI and the history of contacts with other
parties concerning their possible interest in a business combination with
CMSI;
. the terms of the merger agreement and related agreements, in isolation
and in comparison to the terms of other transactions, and the intensive
negotiations between First American and CMSI, including their
negotiations relating to the details of the conditions to the parties'
obligations to complete the merger, the restrictions on CMSI's right to
take actions relating to competing proposals to acquire CMSI, the
parties' termination rights, and the voting agreements; and
29
. the conditions to closing the merger, and the provisions of the merger
agreement concerning what will, and will not, constitute a "material
adverse effect" allowing a party not to complete the merger.
The CMSI board of directors also identified and considered a number of risks
and uncertainties in its deliberations concerning the merger, including the
following:
. the fact that the exchange ratio is fixed at $6.25 per share of CMSI
common stock and between $22.00 and $30.00 per share for First American
common shares and will not change with increases or decreases in the
market price of CMSI's common stock or outside the "collar" for First
American's common shares before the closing of the merger, and the
possibility that the dollar value of a common share of First American at
the closing of the merger may be more or less than the dollar value of a
common share of First American at the signing of the merger agreement;
. the risk that the potential benefits sought in the merger may not be
fully realized, if at all;
. the possibility that the merger may not be consummated and the effect of
the public announcement of the merger on CMSI's sales, customer relations
and operating results and CMSI's ability to attract and retain key
management, marketing and technical personnel;
. the risk that despite the efforts of the combined company, key technical,
marketing and management personnel might not choose to remain employed by
the combined company;
. the risk of market confusion and hesitation and potential delay or
reduction in orders;
. the fact that pursuant to the merger agreement, CMSI is required to
obtain First American's consent before it can take a variety of actions
between the signing and the closing of the merger; and
. various other risks associated with the businesses of CMSI, First
American and the combined company and the merger described under the
section entitled "Risk Factors" beginning on page 9 of this joint proxy
statement-prospectus.
The CMSI board of directors concluded, however, that many of these risks
could be managed or mitigated by CMSI or by the combined company or were
unlikely to have a material impact on the merger or the combined company, and
that, overall, the risks, uncertainties, restrictions and potentially negative
factors associated with the merger were outweighed by the potential benefits of
the merger.
The foregoing discussion of information and factors considered and given
weight by the CMSI board of directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
merger, the CMSI board of directors did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determinations and recommendations.
FOR THE REASONS DISCUSSED ABOVE, THE CMSI BOARD OF DIRECTORS HAS APPROVED
THE MERGER AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE MERGER
AGREEMENT AND THE MERGER ARE ADVISABLE, AND FAIR TO AND IN THE BEST INTERESTS
OF CMSI AND YOU, AND RECOMMENDS THAT YOU VOTE TO ADOPT AND APPROVE THE MERGER
AGREEMENT AND APPROVE THE MERGER.
Accounting treatment
First American will account for the merger as a purchase. This means that
the purchase price will be allocated to the assets acquired and liabilities
assumed based on their estimated fair values on the acquisition date. Although
the merger agreement provides that the availability to First American of
pooling-of-interests accounting treatment for the merger is a condition to
First American's obligation to close, First American will waive this condition.
30
Material federal income tax consequences to you
In the opinion of Brobeck, Phleger & Harrison LLP, counsel to CMSI, the
following discussion describes the material federal income tax consequences of
the merger generally applicable to a United States stockholder of CMSI who
holds his or her shares as a capital asset. It is a condition to CMSI's
obligation to consummate the merger that it receive an opinion from Brobeck,
Phleger & Harrison LLP that the merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. To render such opinion, Brobeck, Phleger & Harrison LLP will assume
that the merger will be consummated in accordance with the provisions of the
merger agreement and will be relying on certain other assumptions and
representations, including representations contained in the certificates of
officers of First American and CMSI.
Assuming that the Internal Revenue Service agrees that the merger
constitutes a "reorganization," no gain or loss will be recognized for United
States federal income tax purposes by holders of CMSI common stock who exchange
their CMSI common stock solely for First American common shares pursuant to the
merger, except with respect to cash, if any, received in lieu of fractional
shares. The aggregate tax basis of First American common shares received by a
stockholder in exchange for CMSI common stock pursuant to the merger will be
the same as the stockholder's aggregate tax basis in the CMSI common stock
surrendered in the exchange (reduced by any such tax basis allocable to
fractional First American common shares for which cash is received). The
holding period of the First American common shares received by a former CMSI
stockholder in exchange for CMSI common stock pursuant to the merger will
include the period during which such stockholder held the CMSI common stock
exchanged. A holder of CMSI common stock who receives cash in lieu of a
fractional share of First American stock will recognize gain or loss for United
States federal income tax purposes, measured by the difference between the
amount of cash received and the portion of the tax basis of the CMSI common
stock allocable to such fractional share. Any such gain or loss generally will
be capital gain or loss, and will be long-term capital gain or loss if such
shares of CMSI common stock have been held for more than one year as of the
effective date of the merger.
The foregoing discussion describes the material United States federal income
tax consequences of the merger to a United States stockholder who holds shares
of CMSI common stock as a capital asset but does not purport to be a complete
analysis or description of all potential tax effects of the merger. In
addition, the discussion does not address all of the tax consequences that may
be relevant to particular stockholders in light of their personal circumstances
or to stockholders subject to special treatment under the Internal Revenue
Code. Examples of the latter category include stockholders who are insurance
companies, financial institutions, dealers in securities, tax-exempt
organizations, foreign corporations, foreign partnerships or other foreign
entities and individuals who are not citizens or residents of the United States
or stockholders who acquired their CMSI common stock pursuant to the exercise
of employee options or otherwise as compensation.
The opinion of Brobeck, Phleger & Harrison LLP will represent only such
counsel's legal judgment and will have no binding effect or official status of
any kind. No assurance can be given that contrary positions will not be
successfully asserted by the Internal Revenue Service (which is not bound by
the opinion) or adopted by a court if the issues are litigated. If the Internal
Revenue Service were to assert successfully that the merger does not constitute
a "reorganization" for federal income tax consequences, each CMSI stockholder
would recognize capital gain or loss on the merger equal to the difference
between the fair market value of the First American common shares received in
the merger (and any cash in lieu of fractional shares) and the stockholder's
tax basis in his or her CMSI common stock.
No information is provided herein with respect to the tax consequences, if
any, of the merger under applicable foreign, state, local and other tax laws.
The foregoing discussion is based upon the provisions of the Internal Revenue
Code, applicable Treasury Department regulations thereunder, Internal Revenue
Service rulings and judicial decisions, as in effect as of the date of this
joint proxy statement-prospectus. Future legislative, administrative or
judicial changes or interpretations could significantly change such authorities
either prospectively or retroactively. No rulings have or will be sought from
the Internal Revenue Service concerning the tax consequences of the merger.
31
Each stockholder of CMSI receiving First American common shares as a result
of the merger will be required to retain certain records and file with its
United States federal income tax return a statement setting forth certain facts
relating to the merger.
You are urged to consult your tax advisor as to the specific tax
consequences to you of the merger under federal, state, local or any other
applicable tax laws.
We must obtain antitrust approval
Federal antitrust laws prohibit First American and CMSI from consummating
the merger until notifications are given and certain information is furnished
to the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice and specified waiting period requirements are satisfied
or terminated. On March 16, 2001, First American and CMSI each filed the
applicable notification and report forms with the FTC and the Antitrust
Division, together with a request for early termination of the applicable 30-
day waiting period. First American and CMSI received notice of early
termination of the waiting period on March 27, 2001.
Notwithstanding the expiration of the waiting period, at any time before or
after the completion of the merger, the FTC or the Antitrust Division could
take such action under the antitrust laws as it deems necessary or desirable to
protect the public's interest. For example, they could seek to enjoin the
consummation of the merger or require the divestiture of assets or businesses
of First American or CMSI. State governmental officials and private parties may
also bring actions under antitrust laws under certain circumstances. There can
be no assurance that a challenge to the merger on antitrust grounds will not be
made or if such a challenge is made, that it would not be successful.
You will not have appraisal rights
Under Delaware law, CMSI stockholders are not entitled to dissenters' rights
in connection with the merger, seek an appraisal of the value of their CMSI
common shares or receive cash in lieu of whole First American common shares for
their CMSI common shares.
Federal securities laws consequences for certain CMSI stockholders
This joint proxy statement-prospectus does not cover any re-sales of First
American common shares to be received by CMSI stockholders upon consummation of
the merger. No person is authorized to make any use of this joint proxy
statement-prospectus in connection with any such re-sale.
All First American common shares received by you in the merger will be
freely transferable, unless you are deemed to be an "affiliate" of CMSI or
First American under the federal securities laws at the time of the special
meeting of CMSI stockholders, or you are otherwise subject to legal or
contractual restrictions. If you are deemed to be an "affiliate," the First
American common shares received by you in the merger may be resold by you only
in transactions permitted by Rule 145 under the Securities Act or as otherwise
permitted under the Securities Act.
Persons who may be deemed to be affiliates of CMSI or First American for
such purposes generally include individuals or entities that control, are
controlled by, or are under common control with, CMSI or First American and may
include officers, directors and principal stockholders of CMSI and First
American. The merger agreement requires CMSI to use its best efforts to deliver
or cause to be delivered to First American, on or prior to the closing of the
merger, an executed agreement from each CMSI affiliate receiving First American
common shares in the merger to the effect that each such affiliate will not
offer or sell or otherwise dispose of any of the First American shares issued
to such persons in violation of the Securities Act. See "Affiliate and Pooling
Agreements" on page 41.
32
SUMMARY OF THE MERGER AGREEMENT
General
The merger agreement contemplates the merger of Rusti Corp. with and into
CMSI, with CMSI surviving the merger as a wholly-owned subsidiary of First
American. The merger agreement provides that the merger will become effective
following the approval of the merger proposal by the CMSI stockholders, the
satisfaction or waiver of all other conditions to the consummation of the
merger and upon the filing of an agreement of merger with the Secretary of
State of Delaware (which is defined in the merger agreement as the "Effective
Time").
It is anticipated that the filing with the Secretary of State of Delaware
will be made immediately after the last of the conditions precedent to the
merger set forth in the merger agreement has been satisfied or waived. A
closing will be held as soon as practicable after the last of the conditions
precedent to the merger set forth in the merger agreement has been satisfied or
waived. The merger agreement obligates First American to have the shares of
First American to be issued in connection with the merger approved for listing
on the New York Stock Exchange prior to the Effective Time.
The following summary of the merger agreement is qualified in its entirety
by reference to the complete text of the merger agreement. The merger agreement
is incorporated by reference herein. Copies of the merger agreement and
amendment no. 1 to the merger agreement are attached to this joint proxy
statement-prospectus as Annexes A and B, respectively.
Consideration you will receive in the merger
Pursuant to the merger agreement, each share of CMSI common stock
outstanding at the Effective Time (other than shares owned by First American or
CMSI or any of its subsidiaries, all of which will be canceled) will be
converted into the right to receive that fraction of a share of First American
common stock determined by dividing $6.25 by the "market price" per share of
First American common stock. The "market price" per share of First American
common stock is the average closing price per share of First American common
stock on the NYSE for the ten trading days ending on the third trading day
prior to the special meeting of CMSI stockholders, subject to adjustment. If
the average closing price for such ten trading day period is less than $22.00
per share, the market price per share of First American common stock will be
$22.00. If the average closing price for such ten trading day period is greater
than $30.00 per share, the market price per share of First American common
stock will be $30.00. Therefore, depending on the market price of First
American common shares over the relevant period, you will be entitled to
receive between 0.2083 of a First American common share and 0.2841 of a First
American common share.
Exchange of shares
PLEASE DO NOT SEND IN YOUR CMSI SHARE CERTIFICATES UNTIL YOU RECEIVE A
LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, First American will deposit
with its transfer agent, First American Trust Company, certificates
representing the First American common shares issuable in exchange for the
outstanding CMSI common shares and cash in an amount required to be paid in
lieu of fractional First American common shares. A letter of transmittal will
be mailed to each holder of record of a certificate that immediately prior to
the Effective Time represented outstanding CMSI common shares whose shares were
converted into the right to receive a portion of a First American common share.
The letter of transmittal will be accompanied by instructions specifying other
details of the exchange. This letter of transmittal must be used in forwarding
share certificates for surrender in exchange for First American common shares
and, if applicable, cash in lieu of any First American common share. Holders of
unexchanged CMSI common shares will not be entitled to receive any dividends or
other distributions payable by First American until their certificates are
surrendered. Upon surrender, however, subject to applicable laws, they will
receive accumulated dividends and distributions, without interest, together
with cash in lieu of fractional shares.
33
No fractional First American common shares will be issued to holders of CMSI
common shares. First American will pay the holder of a fractional share that
would otherwise be issued by check an amount, rounded to the nearest whole
cent, equal to the fraction of a First American common share multiplied by the
average closing price of a single First American common share, as reported on
the NYSE, for the ten trading days ending on the trading day that is three
trading days prior to the special meeting of CMSI stockholders.
Certain representations and warranties of First American and CMSI
The merger agreement contains customary representations and warranties by
First American, Rusti Corp. and CMSI as to, among other things, the following
matters:
. each company's due organization and good standing in its state of
organization;
. each company's authority to enter into the merger transaction;
. the binding effect of the merger agreement;
. the absence of conflicts with each company's organizational documents and
material agreements;
. the compliance of their respective filings under the federal securities
laws;
. the consents and approvals required to enter into the merger agreement
and to consummate the merger;
. each company's capitalization;
. each company's compliance with laws;
. broker's or finder's fees required to be paid in connection with the
merger;
. litigation which may affect one of the companies;
. conditions or circumstances which may affect First American's ability to
account for the merger as a pooling-of-interests; and
. the truth and accuracy of statements made by each company in this joint
proxy statement-prospectus.
The merger agreement also contains representations and warranties from CMSI
regarding the following matters:
. its qualification to do business in jurisdictions other than its state of
organization;
. the due organization, good standing and qualification of its
subsidiaries;
. the comprehensiveness of and control over its books and records;
. its title to its properties and the existence of liens on such property;
. the binding effect of and its compliance with its leases;
. the principal contracts to which it is a party;
. the payment of its taxes and certain other tax related matters;
. insurance policies covering its activities;
. intellectual property owned or licensed by it;
. licenses necessary to conduct its business;
. the status of its relationship with its employees;
. employee benefit matters;
. the existence of any transactions it may have with or interests it may
have in one of its officers, directors, employees or affiliates;
34
. changes it has experienced since the date of its last audited financial
statements;
. payments and obligations triggered by the execution of the merger
agreement or the consummation of the merger;
. the truth and accuracy of documents provided in connection with the
merger;
. its receipt of a fairness opinion from Chase Securities Inc.;
. the vote required by CMSI stockholders to approve the merger proposal;
and
. the continued patronage of substantial customers and the continued
engagement of substantial suppliers.
Many of these representations and warranties were also made with respect to
the subsidiaries of CMSI.
Finally, the merger agreement contains further representations and
warranties from First American as to various matters related to the issuance
of its common shares in the merger.
Many of the representations and warranties of First American and CMSI are
subject to a "material adverse effect" qualifier. This qualifier limits the
scope of the representations and warranties subject to the qualification to
only those circumstances which generally would affect the subject company in
both a substantial and harmful manner. This qualifier expressly excludes
effects proximately caused by conditions affecting the U.S. economy generally
or the industries in which First American and CMSI compete. It also expressly
excludes conditions resulting from the announcement of the merger or by virtue
of the merger agreement.
None of the representations and warranties of either First American, Rusti
Corp. or CMSI survive the merger.
Certain covenants of First American and CMSI
Operation of CMSI prior to the merger
CMSI has agreed that during the period from the date the merger agreement
is signed until the Effective Time, it will take the following actions,
subject to certain exceptions set forth in the merger agreement:
. conduct its operations in the ordinary and usual course of business;
. use its reasonable efforts to preserve intact its business organization;
. use reasonable efforts to keep available the services of its officers and
employees;
. maintain its relationships with all licensors, suppliers, distributors,
customers, landlords, employees, agents and others with which it has a
business relationship;
. discuss with First American material operational matters, including the
cancellation or waiver of any claim or right exceeding $50,000 in value;
and
. report to First American periodically about its business, operations and
finances.
In addition, during this period, except as permitted by the terms of the
merger agreement and subject to certain limitations and exceptions, CMSI has
agreed to, and agreed to cause its subsidiaries to, refrain from the following
actions without First American's prior written consent:
. amending or modifying their governing documents;
. increasing any salaries or compensation, except in the ordinary course;
. paying bonuses;
. paying or increasing other compensation to any officer or employee or
entering into any employment, severance or similar agreement with any
officer or employee except in the ordinary course of business;
35
. adopting or increasing any profit sharing, bonus, deferred compensation,
savings, insurance, pension, retirement or other employee benefit plan;
. entering into any contract or commitment not in the ordinary course of
business;
. increasing indebtedness for borrowed money, except borrowings in the
ordinary course of business or under existing lines of credit;
. refrain from canceling or waiving any material claims or rights of
substantial value;
. declaring or paying dividends;
. with certain specified exceptions, making any material change in
accounting methods or practices;
. issuing or selling any shares of capital stock other than pursuant to
CMSI's stock option plans;
. issuing or selling any other securities, entering into any arrangement to
do the same or making any other change in their respective capital
structures;
. selling, leasing or otherwise disposing of any asset or property other
than in the ordinary course of business;
. making any capital expenditure or entering into any commitment to make a
capital expenditure not in the ordinary course of business;
. with certain specified exceptions, writing off as uncollectible any note
or accounts receivable, except write-offs in the ordinary course of
business;
. taking any action which would interfere with First American's ability to
account for the merger as a pooling-of-interests (First American will
waive its rights under this provision); and
. agreeing in writing to do any of the foregoing.
Exclusive dealing
CMSI has further agreed that neither it, nor any of its subsidiaries,
officers, directors, employees, financial advisors, attorneys, accountants or
other advisors or representatives shall solicit, initiate, knowingly encourage
(including by way of furnishing information), endorse or enter into any
agreement that constitutes or may lead to an offer to acquire a substantial
equity interest in CMSI or a substantial portion of the assets of CMSI. The
merger agreement requires CMSI to immediately notify First American of any
offer to acquire a substantial equity interest in CMSI or a substantial portion
of the assets of CMSI or any inquiries or discussions with respect thereto and
to provide First American a copy of any writing documenting such proposal or a
written summary of any oral proposal.
The merger agreement further obligates CMSI's board of directors and any
committee of its board of directors to refrain from withdrawing or modifying
its recommendation of the merger proposal or approving or recommending any
offer to acquire a substantial equity interest in CMSI or a substantial portion
of the assets of CMSI, unless the board of directors of CMSI determines in good
faith, based upon the advice of its outside counsel, that its fiduciary duties
so require. If such a determination is made, CMSI may provide information to or
enter into discussion or negotiations regarding a proposed takeover from any
unsolicited person. The merger agreement does not preclude CMSI from notifying
its stockholders of a qualifying tender offer.
Indemnification and directors' and officers' insurance
The merger agreement requires First American to, following the merger,
indemnify and hold harmless the present and former officers, directors,
employees and agents of CMSI and its subsidiaries in respect of acts or
omissions occurring on or prior to the closing of the merger to the extent
provided under CMSI's and its subsidiaries' certificate of incorporation and
bylaws or any indemnification agreement with CMSI's and its
36
subsidiaries' officers and directors. The merger agreement also provides that,
for six years from and after the closing of the merger, First American will
use its best efforts to procure officers' and directors' liability insurance
in respect of acts or omissions occurring on or prior to the closing of the
merger covering each such person currently covered by CMSI's and/or its
subsidiaries' officers' and directors' liability insurance policy on terms
substantially similar to those of, and with a reputable insurance carrier
comparable to the carrier providing, such policy in effect as of the closing
of the merger.
CMSI stock option plan
The merger agreement requires First American to assume any CMSI stock
option, stock issuance rights, stock appreciation rights, limited stock
appreciation rights and stock purchase rights issued by CMSI prior to the
effectiveness of the merger. The result will be that the options and rights
will be converted automatically into options to purchase First American common
shares, on the same terms and conditions as applicable to such plan prior to
the merger. The amount of First American common shares subject to each such
options and rights and the exercise price of each subsequent to the
consummation of the merger will be adjusted in accordance with the exchange
ratio applicable to the merger. See "The Merger--What you will receive in the
merger" on page 3 and "Summary of the merger agreement--Consideration you will
receive in the merger" on page 33 for an explanation of the exchange ratio.
Other covenants
The merger agreement contains various other covenants, including covenants
relating to the following:
. filing, preparation and distribution of this joint proxy statement-
prospectus;
. First American's access to CMSI's properties, books, records, officers
and employees prior to the consummation of the merger;
. notification of certain events;
. coordination of the special meeting of CMSI's stockholders;
. cooperation regarding filings with governmental and other agencies and
organizations;
. execution of affiliate and pooling agreements;
. anti-takeover statutes; and
. protection of confidential information.
In addition, the merger agreement contains a general covenant requiring
each of First American, Rusti Corp. and CMSI, and their subsidiaries, to use
its best efforts to consummate the merger.
Conditions to the consummation of the merger
Each party's obligation to consummate the merger and the transactions
contemplated by the merger agreement is subject to the satisfaction or waiver
of the following conditions:
. Stockholder approval. The merger proposal shall have been approved and
adopted by the CMSI stockholders.
. Lapse of antitrust waiting periods. Any waiting period under any
antitrust laws applicable to the merger shall have expired or been
terminated. The applicable waiting periods have terminated.
. Statutes and governmental approvals. No statute, rule or regulation shall
have been enacted which prohibits the consummation of the merger, and all
governmental approvals and other consents necessary to consummate the
merger shall have been received.
. Litigation. No temporary or preliminary or permanent injunction or other
order restraining or prohibiting the consummation of the merger shall be
in effect.
37
. Securities Matters. The registration statement of which this joint proxy
statement-prospectus forms a part shall remain effective and no stop
order shall have been issued.
. Listing. The First American common shares to be issued in the merger
shall have been approved for listing on the New York Stock Exchange,
subject only to official notice of issuance.
The obligation of First American and Rusti Corp. to consummate the merger
and the transactions contemplated by the merger agreement is subject further to
the satisfaction or waiver of each of the following additional conditions:
. Election of Directors. A new board of directors of CMSI shall have been
elected by CMSI stockholders at the special meeting.
. Ratification of Merger. The board of directors of CMSI elected at the
special meeting shall have ratified and approved all actions taken by
CMSI on or after January 25, 2001, including the merger and the merger
agreement, and the other transactions contemplated thereby.
. Representations and warranties. The representations and warranties of
CMSI set forth in the merger agreement shall be true and accurate in all
material respects as of the date of the merger agreement and the closing
of the merger.
. Performance of agreements. All agreements of CMSI to be performed prior
to the closing of the merger shall have been performed.
. Good standing and other certificates. CMSI shall have delivered to First
American a good standing certificate and certain other certificates
regarding the organizational documents and standing of CMSI.
. No material adverse effect. Since January 30, 2001, there shall have been
no material adverse effect on CMSI's ability to perform its obligations
under the merger agreement or the business, assets, condition or results
of operations of CMSI and its subsidiaries, taken as a whole, and no
change or development which First American can demonstrate as being
probable to result in such a material adverse effect on CMSI shall have
occurred. An adverse change, event or effect that is proximately caused
by conditions affecting the United States economy generally or the
economy of the regions in which CMSI and its subsidiaries, taken as a
whole, conducts a material part of their business, by conditions
affecting the industries in which CMSI and its subsidiaries compete, by
the announcement of the merger, by virtue of the merger agreement or by
any change in generally accepted accounting principles in the United
States shall not be taken into account in determining whether there has
been a "material adverse effect."
. Proceedings. Authorizations and approvals necessary for CMSI to
consummate the merger shall have been obtained and CMSI shall have
delivered copies of documents evidencing such authorizations and
approvals to First American.
. Affiliates. First American shall have received from each affiliate of
CMSI an executed pooling agreement and an executed affiliate agreement.
First American will waive its rights under the pooling agreements because
it will account for the merger as a purchase. See "Affiliate and Pooling
Agreements" on page 41.
. Letters from accountants. First American shall have received from
PricewaterhouseCoopers LLP certain letters relating to the accounting of
the merger using pooling-of-interests accounting and certain other
matters relating to the merger and this joint proxy statement-prospectus.
However, since First American will account for the acquisition as a
purchase, First American will waive this condition.
. Termination of plans. Any 401(k), profit sharing plan or other qualified
plan of CMSI shall have been terminated.
38
The obligation of CMSI to consummate the merger and the transactions
contemplated by the merger agreement is subject further to the satisfaction or
waiver of each of the following additional conditions.
. Representations and warranties. The representations and warranties of
First American and Rusti Corp. set forth in the merger agreement shall be
true and accurate in all material respects as of the date of the merger
agreement and the closing of the merger.
. Performance of agreements. All agreements of First American and Rusti
Corp. to be performed prior to the closing of the merger shall have been
performed.
. Opinion of counsel. CMSI shall have received a favorable opinion from
Brobeck, Phleger & Harrison LLP, counsel to CMSI, to the effect that the
merger will be treated for federal income tax purposes as a
"reorganization" qualifying under the provisions of Section 368(a) of the
Internal Revenue Code.
. Good standing and other certificates. First American and Rusti Corp.
shall have delivered to CMSI good standing certificates and certain other
certificates regarding the formative documents of First American and
Rusti Corp.
. No material adverse effect. Since January 30, 2001, there shall have been
no material adverse effect on First American's ability to perform its
obligations under the merger agreement or the business, assets, condition
or results of operations of First American and its subsidiaries, taken as
a whole, and no change or development which CMSI can demonstrate as being
probable to result in such a material adverse effect on First American
shall have occurred. An adverse change, event or effect that is
proximately caused by conditions affecting the United States economy
generally or the economy of the regions in which First American and its
subsidiaries, taken as a whole, conducts a material part of their
business, by conditions affecting the industries in which First American
and its subsidiaries compete, by the announcement of the merger, by
virtue of the merger agreement or by any change in generally accepted
accounting principles in the United States shall not be taken into
account in determining whether there has been a "material adverse
effect."
. Proceedings. Authorizations and approvals necessary for First American
and Rusti Corp. to consummate the merger shall have been obtained and
First American shall have delivered copies of documents evidencing such
authorizations and approvals to CMSI.
. Fairness Opinion. CMSI shall have received an opinion from Chase
Securities Inc., CMSI's financial advisor, dated the date of the mailing
of this joint proxy statement-prospectus, confirming its opinion given on
the date of the merger agreement that the number of First American common
shares given to CMSI stockholders for their CMSI common shares is fair to
the CMSI stockholders from a financial point of view. CMSI has decided to
waive this condition precedent.
The merger agreement may be terminated prior to the Effective Time under
certain circumstances
The merger agreement may be terminated prior to the Effective Time as set
forth below:
. by mutual written agreement of the parties;
. by First American if a new board of directors of CMSI is not elected at
the special meeting, or if elected, the new board of directors does not
ratify and confirm all actions taken by CMSI on or after January 25,
2001, including the merger and the merger agreement, and all transactions
related to the merger.
. on or after July 29, 2001, by First American if the conditions to its and
Rusti Corp.'s obligations to consummate the merger have not been
materially satisfied or waived;
. by First American if the board of directors of CMSI shall have withdrawn
or modified in any manner adverse to First American or Rusti Corp. its
approval or recommendation of the merger proposal;
. on or after July 29, 2001, by CMSI if the conditions to its obligation to
consummate the merger have not been materially satisfied or waived;
39
. by any party to the merger agreement if the Effective Time has not
occurred within one month of the closing of the merger;
. by First American if CMSI fails to call a special meeting of its
stockholders to consider the merger proposal on or prior to the 35th day
after the registration statement of which this joint proxy statement-
prospectus forms a part is declared effective by the SEC;
. by CMSI if an offer to acquire a substantial equity interest in CMSI or a
substantial portion of the assets of CMSI has occurred and its board of
directors, after consultation with CMSI's legal counsel and, in
accordance with its fiduciary duties, withdraws or modifies its approval
and recommendation of the merger proposal;
. by either First American or CMSI if a governmental entity shall have
issued a final order or taken any action having the effect of permanently
prohibiting or restraining the merger;
. by either First American or CMSI if at the special meeting of CMSI's
stockholders the required vote in favor of the merger proposal is not
obtained;
. by First American if it uses pooling of interests accounting and
PricewaterhouseCoopers LLP does not deliver to First American a letter or
letters, in a form acceptable to First American, to the effect that the
merger qualifies for pooling-of-interests accounting treatment if the
merger is consummated in accordance with the merger agreement (First
American will waive this right because it will use the purchase method of
accounting);
. by First American if as a condition to receiving the approval of the
Federal Trade Commission or the Antitrust Division of the Department of
Justice either First American or CMSI must take any of the following
actions:
. divest itself of or license any of its subsidiaries' respective
businesses, product lines, properties or assets;
. make any material changes or accept any material restrictions in the
operation of its respective businesses, product lines, properties or
assets; and
. make or agree to any changes or restrictions on its respective
businesses, product lines, properties or assets or to the merger
agreement and the transactions contemplated thereby which would
prevent First American from accounting for the merger as a pooling-
of-interests (First American will waive this right because it will
use the purchase method of accounting).
If the merger agreement is terminated in any manner described above, the
merger agreement will be of no further force or effect, except that certain
provisions with regard to confidentiality, expenses and publicity will survive
such termination and First American, Rusti Corp. and CMSI will remain liable to
each other for certain breaches of the merger agreement.
Expenses
All fees and expenses incurred in connection with the merger agreement and
the transactions contemplated by the merger agreement shall be paid by the
party incurring such expenses, except that First American has agreed to pay all
expenses directly associated with any of the following:
. the filing of the registration statement of which this joint proxy
statement-prospectus forms a part;
. the filings required under the federal antitrust laws;
. the filing of the listing application with the New York Stock Exchange;
and
. the printing and mailing of this joint proxy statement-prospectus.
In the event the merger is not consummated, First American explicitly has
not agreed to pay the fees and expenses of CMSI's counsel, auditors and
financial advisors associated with the preparation or review of any document or
action associated with the merger.
40
VOTING AGREEMENTS
In connection with the merger agreement, Scott Freiman, Director, Chief
Executive Officer and President of CMSI, and James DeFrancesco, the largest
single stockholder of CMSI, Director and former Chief Executive Officer, have
entered into voting agreements with First American, pursuant to which they have
agreed to vote an aggregate of 3,841,081 shares of CMSI common stock
beneficially owned by them in favor of the merger proposal. The voting
agreements also obligate Mr. Freiman and Mr. DeFrancesco to refrain from voting
their CMSI shares in favor of any offer from a third party to acquire a
substantial equity interest in CMSI or a substantial portion of the assets of
CMSI, and any other action or agreement which would impede, frustrate or
prevent the merger or any of the other transactions contemplated by the merger
agreement. Mr. Freiman and Mr. DeFrancesco, in their capacities as stockholders
of CMSI, have also agreed to refrain from encouraging, soliciting or
participating in or providing information in connection with any third-party
offer to acquire a substantial portion of CMSI's equity or assets. The voting
agreements, however, do not limit any action Mr. Freiman may be required to
take in connection with his fiduciary duties as an officer or director of CMSI,
or that Mr. DeFrancesco may be required to take in connection with his
fiduciary duties as a director of CMSI.
The voting agreements apply to 1,271,684 shares of CMSI common stock
beneficially owned by Mr. Freiman, and 2,569,397 shares of CMSI common stock
beneficially owned by Mr. DeFrancesco, on January 30, 2001. These shares
represent, in the aggregate, approximately 48% of the total number of CMSI
shares issued and outstanding as of April 17, 2001.
These voting agreements will terminate upon the earlier to occur of the
termination of the merger agreement and the completion of the merger. The form
of voting agreement is attached to this joint proxy statement-prospectus as
Annex D, and you are urged to read it in its entirety.
AFFILIATE AND POOLING AGREEMENTS
It is a condition to the obligation of First American and Rusti Corp. to
consummate the merger that on the day immediately preceding the filing of this
joint proxy statement-prospectus with the SEC, each affiliate of CMSI deliver
to First American an affiliate agreement and a pooling agreement. As used in
this section, "affiliate" has the meaning given to it in Rule 145 promulgated
under the Securities Act. Forms of the affiliate agreement and the pooling
agreement are attached as Exhibit D and Exhibit E, respectively, to the merger
agreement, which is itself attached as Annex A to this joint proxy statement-
prospectus. The following descriptions of the affiliate agreement and the
pooling agreement are qualified by reference to the complete text of each such
agreement.
Pursuant to the affiliate agreement, each CMSI affiliate agrees to observe
and comply with the Securities Act and the rules and regulations promulgated
thereunder. Each affiliate further agrees that he will not offer, sell, pledge
or otherwise dispose of any First American shares he receives in connection
with the merger unless one of the following conditions applies:
. the action is permitted by Rule 145(d) under the Securities Act;
. First American receives from the affiliate's attorney a satisfactory
written opinion that no registration of the First American shares under
the Securities Act would be required;
. there is an effective registration statement with a current prospectus
covering such First American shares; or
. an authorized representative of the SEC has provided the affiliate with
written advice that the SEC would take no action or that the staff of the
SEC would recommend that no action be taken with respect to the
affiliate's proposed disposition of the First American shares.
41
Unless and until a CMSI affiliate makes a public sale of such First American
shares in compliance with one of the foregoing conditions, the affiliate
agreement authorizes First American to place a legend on the certificates
representing the First American shares of such affiliate noting that such
shares are subject to Rule 145. First American may also place stop transfer
orders on shares represented by certificates bearing this legend.
Pursuant to the pooling agreement, each CMSI affiliate agrees that during
the 30 day period preceding the consummation of the merger and until such time
as First American publishes financial results covering at least 30 days of
post-merger combined operations of First American and CMSI, he will not dispose
of or reduce any risk relative to any securities of First American or, with
respect to the 30 day period preceding the merger, any securities of CMSI.
First American will waive its rights under the pooling agreements because it
will account for the merger as a purchase.
42
ROLE OF FINANCIAL ADVISOR
The board of directors of CMSI retained Chase Securities Inc. to act as its
financial advisor in connection with the merger and to render an opinion as to
the fairness, from a financial point of view, to you as holders of the
outstanding shares of common stock of CMSI of the consideration to be received
by such holders in the merger. Chase Securities was selected by the board of
directors of CMSI to provide an opinion based on Chase Securities'
qualifications as a nationally-known investment bank of expertise and
reputation and its ongoing relationship with CMSI.
Chase Securities rendered its oral opinion (subsequently confirmed in
writing) on January 27, 2001, to the board of directors of CMSI that, as of
such date, the exchange ratio, as defined in the merger agreement, is fair to
the holders of common stock of CMSI from a financial point of view. On January
30, 2001, CMSI's board of directors received Chase Securities' written opinion
dated the same date reaffirming that the exchange ratio is fair to the holders
of common stock of CMSI from a financial point of view. Such exchange ratio was
determined pursuant to negotiations between First American and CMSI, with
advice from Chase Securities. The consideration to be given to holders of
common stock of CMSI was the result of arms-length negotiations between CMSI
and First American. No limitations were placed on Chase Securities by the board
of directors of CMSI with respect to the investigation made or the procedures
followed in preparing and rendering its opinion.
The full text of the definitive written Chase Securities opinion, dated
January 30, 2001, which sets forth the assumptions made, the procedures
followed, the matters considered and the limitations on the scope of the review
undertaken by Chase Securities in rendering its opinion is attached as Annex C
to this joint proxy statement-prospectus. CMSI stockholders are urged to read
the Chase Securities opinion carefully and in its entirety. Chase Securities
was not asked to consider, and its opinion does not address, the relative
merits of the merger as compared to any alternative business strategy that
might exist for CMSI or of the effect of any other business combinations in
which CMSI might engage. The Chase Securities opinion only addresses the
fairness of the financial terms from a financial point of view to the CMSI
stockholders as of the date of the Chase Securities opinion, and does not
constitute a recommendation to any stockholder of CMSI as to how the
stockholder should vote at the special meeting. The summary of the Chase
Securities opinion set forth in this joint proxy statement-prospectus is
qualified in its entirety by reference to the full text of the opinion.
In its review of the merger, and in arriving at its opinion, Chase
Securities, among other things:
. reviewed the financial statements of First American for recent years and
interim periods to date and certain other relevant financial and
operating data of First American made available to Chase Securities from
published sources;
. discussed the business, financial condition and prospects of First
American with certain of its officers;
. reviewed the financial statements of CMSI for recent years and interim
periods to date and certain other relevant financial and operating data
of CMSI made available to Chase Securities from published sources and
from the internal records of CMSI;
. reviewed certain internal financial and operating information relating to
CMSI prepared by the senior management of CMSI;
. discussed the business, financial condition and prospects of CMSI with
certain of its officers;
. reviewed the recent reported prices and trading activity for the common
stocks of First American and CMSI and compared such information and
certain financial information for First American and CMSI with similar
information for certain other companies engaged in businesses Chase
Securities considered comparable;
. reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
43
. reviewed the merger agreement dated January 30, 2001; and,
. performed such other analyses and examinations and considered such other
information, financial studies, analyses and investigations and
financial, economic and market data as Chase Securities deemed relevant.
Chase Securities did not independently verify any of the information
concerning CMSI or First American considered in connection with its review of
the merger and, for purposes of its opinion, Chase Securities assumed and
relied upon the accuracy and completeness of all such information. In
connection with its opinion, Chase Securities did not prepare or obtain any
independent evaluation or appraisal of any of the assets or liabilities of CMSI
or First American, nor did it conduct a physical inspection of the properties
and facilities of CMSI or First American. With respect to the financial
forecasts and projections used in its analyses, Chase Securities assumed that
it reflected the best currently available estimates and judgments of the
expected future financial performance of First American and CMSI. Chase
Securities also assumed that neither CMSI nor First American was a party to any
pending transactions, including external financings, recapitalizations or
merger discussions, other than the merger and those in the ordinary course of
conducting their respective businesses. For purposes of its opinion, Chase
Securities assumed that the merger will qualify as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended, for the stockholders of
CMSI and that the merger will be accounted for as a pooling-of-interests,
except as otherwise noted. Chase Securities' opinion is necessarily based upon
market, economic, financial and other conditions as they existed and could be
evaluated as of the date of the opinion and any subsequent change in such
conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Chase Securities analyses set forth below does not purport to be a
complete description of the presentation by Chase Securities to the board of
directors of CMSI. In arriving at its opinion, Chase Securities did not
attribute any particular weight to any analysis or factor considered by it, but
rather made qualitative judgments as to the significance and relevance of each
analysis and factor. Accordingly, Chase Securities believes that its analyses
and the summary set forth below must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, or of the
following summary, without considering all factors and analyses, could create
an incomplete view of the processes underlying the analyses set forth in the
Chase Securities presentation to the board of directors of CMSI and its
opinion. In performing its analyses, Chase Securities made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of CMSI and First
American. The analyses performed by Chase Securities (and summarized below) are
not necessarily indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
In performing its analyses, Chase Securities made use of estimates provided
by senior management of CMSI to project CMSI's calendar year 2001 financial
performance. Chase Securities also made use of published estimates to project
First American's calendar year 2001 financial performance.
The following is a summary of the financial analyses performed by Chase
Securities in connection with providing its written opinion to the CMSI board
of directors on January 30, 2001:
Premium Analysis: Chase Securities compared the premium of the implied price
per share of the merger consideration as of January 26, 2001 over the last sale
price of the common stock of CMSI on both January 26, 2001 and December 26,
2000 (the twentieth trading day preceding the board meeting) to similar
premiums for certain transactions announced since January 2000. Chase
Securities analyzed 16 acquisitions of companies in the software industry and
231 acquisitions overall. Chase Securities observed that the mean of the means
of premiums for the four sets of transactions as follows:
. all transactions announced between January 1, 2000 and December 31, 2000;
44
. all transactions announced between September 30, 2000 and December 31,
2000;
. all software industry transactions announced between January 1, 2000, and
December 31, 2000; and
. all software industry transactions announced between September 30, 2000,
and December 31, 2000,
were 46.2% and 32.4% for premiums to prices one day and four weeks,
respectively, prior to the public announcements of these transactions. This
compared with the proposed acquisition in which, based on the closing price of
the common stock of First American as of January 26, 2001, the premium offered
over the closing price for the common stock of CMSI on January 26, 2001 was 58%
and the premium offered over the closing price for the common stock of CMSI on
December 26, 2000 was 460%.
Analysis of Publicly Traded Comparable Companies: Chase Securities compared
selected historical and projected financial information of CMSI to fourteen
publicly traded companies Chase Securities deemed to be comparable to CMSI and
CMSI's subsidiaries. Such data and ratios included enterprise value (market
value plus debt less cash), enterprise value to projected calendar year 2001
revenue and earnings, and earnings per share growth rates.
The results of analysis of comparable companies were used to analyze CMSI on
a consolidated basis and each component of CMSI, the CreditOnline and CMSI
Systems subsidiaries. Those companies deemed comparable to CMSI Systems were
BARRA, Fair Isaac & Company, Omega Research, SS&C Technologies, ESPS, Inc.,
iXOS Software, J.D. Edwards and Ultimate Software Group. The companies deemed
comparable to CreditOnline were Cybersource, Bottomline Technologies, Fundtech,
Online Resources & Communications, Sanchez Computer Associates and S1
Corporation. The arithmetic means of the sets of subsidiaries' comparables as
groups and as consolidated were used to calculate values for implied purchase
prices per share for CMSI as follows:
Implied
Average CMSI Equity Purchase
Multiple of Comparable Valuation of Price Per
Metric Metric Stock Share
----------- ---------- ------------ ---------
Consolidated Valuation
Comparable Companies:
Multiple of CY01 Revenue... 1.6x $36.4 $65.2 $7.35
Multiple of CY01 Earnings.. 17.5 1.6 28.4 3.62
2001 P/E to 5yr Growth..... 0.7 1.6 21.4 2.73
Component Valuation
Comparable Companies:
Sum of Component
Valuations, as adjusted... $70.2* $7.81
--------
* Equity value was calculated as the sum of enterprise value, cash and the
present value of net operating losses less outstanding debt.
Based on this analysis of publicly traded comparable companies, CMSI's
implied equity valuation of stock ranged from approximately $21.4 million to
$70.2 million and its implied price per share ranged from $2.73 to $7.81. This
compared with an implied market value of $53.87 million and an implied price
per share of $6.30, based on the closing price of First American common stock
on January 26, 2001.
Analysis of Selected Merger and Acquisition Transactions: Chase Securities
compared the proposed acquisition with selected merger and acquisition
transactions deemed comparable by Chase Securities. This analysis included 35
comparable public and private company transactions. In examining these
transactions, Chase Securities analyzed certain income statement parameters of
the acquired company relative to the acquisition consideration offered. Such
multiples included purchase price to last twelve months revenue and last
45
twelve months earnings before interest, taxes, depreciation and amortization.
The arithmetic means of the aforementioned multiples of the acquisitions of
companies comparable to CMSI and to its CreditOnline subsidiary were used to
calculate values for implied purchase prices per share for CMSI as follows:
Average CMSI Implied Equity Purchase
Multiple of Comparable Valuation of Price Per
Metric Metric Stock Share
----------- ---------- -------------- ---------
Precedent Transaction:
Consolidated Valuation
Multiple of LTM
Revenue................ 1.8x $23.5 $51.3 $6.06
Multiple of LTM EBITDA.. 13.9 (3.1) NM
Precedent Transaction:
Component Valuation
Sum of Component
Valuations, as
adjusted............... $64.6* $7.29
--------
* Equity value was calculated as the sum of enterprise value, cash and the
present value of net operating losses less outstanding debt.
LTM = last twelve months
EBITDA = earnings before interest, taxes, depreciation and amortization
NM = Not meaningful
Based on this analysis of comparable transactions, CMSI's implied equity
valuation of stock ranged from $51.3 million to $64.6 million and its implied
price per share ranged from $6.06 to $7.29. This compared with an implied
market value of $53.87 million and an implied price per share of $6.30, based
on the closing price of First American common stock on January 26, 2001.
Exchange Ratio Analysis. Chase Securities observed the historical exchange
ratio implied by the trading prices of First American and CMSI for various
periods and compared these ratios to the implied exchange ratio as of January
26, 2001 of 0.208 shares of common stock of First American for each share of
common stock of CMSI. The average natural exchange ratios for First American
and CMSI were:
Historical Exchange
Period Ratio
------ -------------------
Closing Price on 1/27/01................................. 0.13
20 Day Average........................................... 0.10
6 Month Average.......................................... 0.18
Implied Exchange Ratio................................... 0.208
Pro Forma Merger Analysis: Chase Securities analyzed the pro forma impact of
the merger using the estimates for First American for net income in calendar
year 2001 of $79.0 million and the estimates for CMSI for net income in
calendar year 2001 of $1.6 million. This analysis assumed no revenue or expense
adjustment to the combined company, but did assume a tax benefit due to CMSI's
net operating loss. Chase Securities observed that the pro forma impact of the
merger on First American's projected calendar year 2001 earnings per share was
slightly accretive if accounted for as a pooling-of-interests as originally
contemplated, but slightly dilutive if accounted for as a purchase. The actual
results achieved by the combined company resulting from the merger may vary
from the projected results and variations may be material.
No company or transaction used in the above analyses is identical to CMSI or
First American or the merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values of
the companies or company to which they are compared.
The foregoing description of Chase Securities' opinion is qualified in its
entirety by reference to the full text of such opinion which is attached as
Annex C to this joint proxy statement-prospectus.
Chase Securities, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, strategic alliances,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements
46
and valuations for corporate and other purposes. Chase Securities is familiar
with First American having acted as financial advisor in connection with its
proposed debt offering of $200.0 million. Chase Securities received customary
compensation in connection with such transaction. In the ordinary course of its
business, Chase Securities acts as a market maker and broker in the publicly
traded securities of First American and receives customary compensation in
connection therewith. In the ordinary course of its business, Chase Securities
actively trades in the equity and derivative securities of First American for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities.
Pursuant to an engagement letter dated August 3, 2000, CMSI has agreed to
pay Chase Securities a customary fee in connection with the delivery of a
fairness opinion. CMSI also has agreed to reimburse Chase Securities for its
reasonable out-of-pocket expenses and to indemnify Chase Securities against
certain liabilities, including liabilities under the federal securities laws or
relating to or arising out of Chase Securities' engagement as financial
advisor.
47
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the board of directors of CMSI with
respect to the merger agreement and the transactions contemplated thereby,
stockholders of CMSI should be aware that certain members of CMSI's management
and board of directors have interests in the merger that are different from,
and in addition to, the interests of CMSI's stockholders generally. The CMSI
board of directors was aware of these interests and considered the following
matters, among others, in approving the merger agreement and the merger.
Termination in connection with change in control
Certain executive officers, including Scott Freiman, Howard Tischler and
Robert Vollono, other key employees of CMSI, and Miles Grody, a former officer
of CMSI, are parties to employment agreements with CMSI that provide severance
benefits if the officer's or employee's employment is terminated other than for
"cause," or the officer or employee resigns for "good reason," either (a)
within 18 months after a change in control of CMSI, or (b) prior to a change in
control of CMSI but after a letter of intent, term sheet or written offer is
executed that would result in a change in control of CMSI, so long as that
period does not exceed 180 days. Under the agreements, upon the occurrence of
such event, the officer or key employee would be entitled to:
. earned and unpaid salary and bonuses;
. all accrued and unused vacation;
. a lump sum payment equal to the product of 2.99 and the average annual
cash compensation for the previous five year period (or shorter period if
the employee was employed for less than five years);
. medical, life and disability coverage for a coverage period of twelve
months after the effective date of the termination, or until the officer
receives comparable coverage from another employer;
. all accrued retirement and deferred compensation plans vest in full; and
. the accelerated vesting of stock options.
The employment agreements provide further that the amount of the foregoing
benefits will be reduced to the extent necessary to avoid the benefits being
subject to an excise tax under Section 4999 of the Internal Revenue Code and
therefore not subject to a federal tax deduction by CMSI. Subject to such
reduction, approximately ten employees would be entitled to approximately $3.6
million in lump sum severance payments under such agreements if all were
terminated on the record date. This includes amounts paid or payable to Miles
Grody, whose employment with CMSI and service as a board member terminated as
of March 2, 2001.
CMSI, First American and Rusti Corp. have entered into a letter agreement
regarding the employment of Miles Grody, former Senior Vice President of CMSI
and President and Chief Executive Officer of its CMSI Systems, Inc. subsidiary.
CMSI, First American, Rusti Corp. and Robert Vollono, Chief Financial Officer
of CMSI, have entered into a letter agreement regarding the employment of Mr.
Vollono.
Under the respective letter agreements, Messrs. Grody's and Vollono's
employment will be terminated in connection with the merger. Assuming neither
man is terminated "for cause" (as defined in each man's employment agreement
with CMSI), each will be entitled to receive the severance benefits set forth
in his employment agreement for termination without cause upon a change in
control of CMSI. Mr. Grody's employment with CMSI has since terminated, and he
is entitled to the benefits payable under his employment agreement and the
letter agreement applicable to him, which, upon the consummation of the merger,
will include the benefits described above for a termination without cause in
connection with a change in control.
Option plan
The CMSI 1997 Stock Incentive Plan, as amended, provides for five separate
equity programs for employees and directors of CMSI, as well as other eligible
persons. Certain of the equity programs contain
48
vesting acceleration clauses in the event of a merger in which existing
stockholders will not retain at least 50% of the voting power of CMSI, or the
composition of the board of directors of CMSI changes over a thirty-six month
period through one or more contested elections and the successor directors have
not been nominated by then current directors. All options under the Director
Fee Option Grant Program and Automatic Option Grant Program, which directors
are eligible to participate in, and the Salary Investment Option Grant Program,
which officers are eligible to participate in, will vest and become immediately
exercisable just prior to the completion of the merger. In addition, pursuant
to each executive officer's employment agreement with CMSI, all options granted
to the executive officers will vest and become immediately exercisable upon
completion of the merger. Set forth below is a list of the directors and
officers and the outstanding options affected under this plan as of April 18,
2001:
Number Of Shares That May Be
Option Holder Acquired Upon Exercise Of Options
------------- ---------------------------------
Scott L. Freiman........................... 24,000
Howard Tischler............................ 375,000
Robert P. Vollono.......................... 359,980
John J. McDonnell.......................... 20,000
Steven X. Graham........................... 20,000
Noncompetition agreement
Scott Freiman, CMSI's President and Chief Executive Officer and a member of
the board of directors, and James DeFrancesco, a member of the board of
directors and a former President and Chief Executive Officer of CMSI, have
entered into a noncompetition agreement with First American, Rusti Corp. and
CMSI. Under the terms of the noncompetition agreement, Messrs. Freiman and
DeFrancesco have agreed not to be employed by, participate in or be connected
with any business that:
. competes with CMSI;
. is engaged in substantially the same business as CMSI; or
. provides similar or comparable services as those provided by CMSI to past
or present clients and customers of CMSI.
The noncompetition agreement also provides that Messrs. Freiman and
DeFrancesco will not employ, solicit for employment or contract for the
services of any current or future employee of CMSI. The provisions of the
noncompetition agreement are effective for a period of five years.
Indemnification agreement
Messrs. Freiman and DeFrancesco have also entered into an indemnification
agreement with First American, Rusti Corp. and CMSI. Under the terms of the
indemnification agreement, Messrs. Freiman and DeFrancesco have agreed, jointly
and severally, to indemnify First American and its subsidiaries and related
parties against any damages or losses suffered or incurred in connection with
any breach of a representation or warranty made by CMSI in Sections 3 or 11.1
of the merger agreement. Messrs. Freiman and DeFrancesco's liability under the
indemnification agreement will expire on the one year anniversary of the
completion of the merger. In the alternative, Messrs. Freiman and DeFrancesco
may procure representations and warranties insurance covering their
indemnification obligations. If they do not procure the insurance, the
aggregate liability of Messrs. Freiman and DeFrancesco under the
indemnification agreement is capped at $3.0 million, and no claim may be made
against either of them until the amount of damages or losses suffered or
incurred exceeds $500,000 in the aggregate. If they obtain the insurance, the
aggregate liability of Messrs. Freiman and DeFrancesco is capped at $500,000
and no claim may be made against either of them until the aggregate amount of
damages or losses exceeds $100,000.
49
Indemnification and directors' and officers' insurance
First American will indemnify and hold harmless the present and former
officers, directors, employees and agents of CMSI and its subsidiaries in
respect of acts or omissions occurring on or prior to the Effective Date to the
extent provided under CMSI's and its subsidiaries' certificate of
incorporation, bylaws or under any indemnification agreements in effect on the
date of the merger agreement. CMSI's certificate of incorporation and bylaws
permit CMSI to indemnify its officers, directors, employees and agents to the
fullest extent permitted by law. First American must also pay all reasonable
expenses incurred in the enforcement of the indemnification.
In addition, for a period of six years after the effective date of the
merger, First American will cause CMSI to use its best efforts to provide
officers' and directors' liability insurance in respect to acts or omissions
occurring on or prior to the effective date of the merger covering each such
person currently covered by CMSI and/or its subsidiaries officers' and
directors' liability insurance policies. Such insurance shall retain similar
terms as are currently existing.
COMPARISON OF RIGHTS OF SECURITY HOLDERS
Upon consummation of the merger, the stockholders of CMSI will become
shareholders of First American. Accordingly, certain differences in your rights
will occur when the merger takes effect. Each company has different governing
documents, and First American is organized under the laws of the State of
California while CMSI is organized under the laws of the State of Delaware.
Although it is impractical to compare all of the aspects in which California
law and Delaware law, and CMSI's and First American's governing documents
differ with respect to your rights as a security holder, the following
discussion summarizes certain significant differences. This summary is not
intended to be complete and is qualified in its entirety by reference to First
American's articles of incorporation and bylaws and CMSI's certificate of
incorporation and bylaws. Copies of the First American articles of
incorporation and bylaws and the CMSI certificate of incorporation and bylaws
are incorporated by reference herein and will be sent to stockholders of CMSI
upon request.
Authorized and issued capital stock
The authorized capital stock of First American currently consists of 108.0
million common shares and 500,000 preferred shares, $1.00 par value, of which
1,000 of such shares have been designated Series A Junior Participating
Preferred Shares. The board of directors is authorized to fix the rights,
preferences, privileges and restrictions of the remaining preferred shares if
and when issued. As of April 17, 2001, 64,889,822 common shares were issued and
outstanding and no preferred shares were issued and outstanding. The common
stock of First American is listed on the New York Stock Exchange under the
symbol "FAF."
The authorized capital stock of CMSI currently consists of 40.0 million
common shares and 1.0 million preferred shares, $0.01 par value. The board of
directors is authorized to fix the rights, preferences, privileges and
restrictions of the preferred shares if and when issued. As of April 17, 2001,
7,999,431 common shares were issued and outstanding and no preferred shares
were issued and outstanding. The common shares of CMSI are listed on the Nasdaq
National Market System under the symbol "CMSS."
Voting rights
Each First American common share entitles its holder to one vote on all
matters submitted to a vote of First American's shareholders. Each First
American Series A Junior Participating Preferred Share would entitle its holder
to 100,000 votes on all matters submitted to a vote of First American's
shareholders. Each other First American preferred share would entitle its
holder to the number of votes provided for by the board of directors at the
time of issuance, if any. Each CMSI common share entitles its holder to one
vote on all matters submitted to a vote of CMSI's stockholders. Each CMSI
preferred share would entitle its holder to the number of votes provided for by
the board of directors at the time of issuance, if any.
50
Preemptive rights; cumulative voting
Neither the First American articles of incorporation nor the CMSI
certificate of incorporation grants any preemptive rights to shareholders.
Subject to certain conditions, First American's bylaws provide for cumulative
voting during the election of directors. No cumulative voting is allowed by
CMSI stockholders in voting for the election of directors.
Derivative action
A "derivative action" is a lawsuit that may be brought by a stockholder on
behalf of, and for the benefit of, the corporation. Delaware law provides that
a stockholder must allege in the complaint for that he or she was a stockholder
of the corporation at the time of the transaction in question. A stockholder
may not sue derivatively unless he first makes demand on the corporation that
it bring suit and such demand has been refused, unless it is shown that such
demand would have been futile.
California law provides that a shareholder bringing a derivative action on
behalf of the corporation need not have been shareholder at the time of the
transaction in question (so long as the person is a shareholder at the
initiation of the derivative action), provided that certain tests are met
concerning the fairness of allowing the action to go forward. As required by
Delaware law, the shareholder must make his or her demands on the board before
filing suit. California law also provides that the corporation or the defendant
in a derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond as a condition to continuing
with the suit.
Action by written consent of shareholders
First American's articles of incorporation provide that actions which may be
taken at an annual or special meeting of shareholders may be taken without such
meeting and without prior notice, if a consent in writing setting forth the
action so taken is signed by the holders of outstanding shares having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. If consent is sought for less than all shareholders entitled
to vote, notice as required under California law must be given. CMSI's
certificate of incorporation does not permit stockholder action to be taken
without a meeting.
Special meetings of shareholders
The First American bylaws state that a special meeting of the shareholders
may be called at any time by the board of directors, the chairman of the board,
the president, or by the holders of 10% of all votes entitled to be cast on any
issue proposed to be considered at the special meeting. A special meeting of
CMSI stockholders may only be called by the board of directors, or a committee
of the board of directors previously granted the authority to call a special
meeting by the full board, under the certificate of incorporation of CMSI.
Quorum and voting requirements for shareholder meetings
Both the First American bylaws and the CMSI bylaws state that a majority of
the shares entitled to vote at a meeting shall constitute a quorum for the
transaction of business at such meeting. If a quorum is present, the
affirmative vote of the majority of shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) is
required to take action. Directors are elected by a plurality of shares
entitled to vote at the meeting subject, in the case of First American, to
cumulative voting described above.
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Board of directors
The First American board of directors currently consists of 13 directors who
serve for one-year terms. The number of directors on First American's board of
directors is subject to change by action of First American's board of directors
or by the First American shareholders, but cannot be less than nine or more
than 17. The CMSI board of directors currently consists of five directors. The
board is divided into three classes who serve for staggered three year terms.
The number of directors on CMSI's board of directors is subject to change by a
duly adopted amendment to CMSI's articles or by an amendment to CMSI's bylaws
adopted by a majority of the outstanding shares entitled to vote, but cannot be
less than five nor more than 15.
Vacancies
The First American bylaws provide that vacancies in the board of directors
may be filled by a majority of the remaining directors, though less than a
quorum, or by a sole remaining director, unless the vacancy is caused by court
order or shareholder action. Vacancies on the CMSI board of directors may be
filled by a two-thirds majority vote of the directors then sitting on the board
under the CMSI bylaws.
Removal of directors
The First American bylaws are silent regarding the percentage of the
outstanding shares to remove a director. California law provides that the board
of directors may declare vacant the office of a director who has been declared
of unsound mind by an order of court or convicted of a felony. Further, any
director or the entire board of directors may be removed, with or without
cause, with the approval of a majority of the outstanding shares entitled to
vote thereon; however, no director may be removed (unless the entire board is
removed) if the number of shares voted against the removal would be sufficient
to elect the director under cumulative voting. Shareholders holding at least
10% of the outstanding shares in any class may sue in California State court to
remove from office any officer or director for fraud, dishonest acts or gross
abuse of authority or discretion
CMSI's bylaws require the vote of 66-2/3% of the outstanding shares to
remove a director.
Limitation on directors' liability
Both the First American articles of incorporation and the CMSI certificate
of incorporation provide that the liability of directors of each respective
company for monetary damages be eliminated to the fullest extent permissible
under law.
Indemnification
First American's bylaws contain the following provisions relating to
indemnification:
. First American shall indemnify its officers and directors to the fullest
extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary;
. First American is required to advance expenses to its officers and
directors as incurred, including expenses relating to obtaining a
determination that such officers and directors are entitled to
indemnification, provided that they undertake to repay the amount
advanced if it is ultimately determined that they are not entitled to
indemnification;
. an officer or director may bring suit against First American if a claim
for indemnification is not timely paid;
. First American may not retroactively amend the indemnification provisions
in its bylaws in a way which is adverse to its officers and directors;
and
. the foregoing provisions apply to all past and present officers and
directors of First American. Indemnification of agents of First American
who are not its officers and directors is governed by the provisions of
Section 317 of the California General Corporation Law.
52
First American may enter into indemnification agreements with its directors,
officers and other agents upon such terms and conditions as are deemed to be in
the best interests of First American by its board of directors.
Notwithstanding the foregoing provisions, First American's indemnification
obligations do not include the following:
. to indemnify or advance expenses to an officer, director or agent with
respect to proceedings or claims initiated or brought voluntarily by such
officer, director or agent and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification
under an indemnification agreement or any statute or law or otherwise as
required under Section 317 of the California General Corporation Law, but
such indemnification or advancement of expenses may be provided by First
American in specific cases if the board of directors has approved the
bringing of such suit;
. to indemnify an officer, director or agent for any expenses incurred with
respect to any proceeding instituted by such officer, director or agent
to enforce or interpret provisions of an indemnity agreement or this
section of the bylaws, if a court of competent jurisdiction determines
that each of the material assertions made by the officer, director or
agent in such proceeding was not made in good faith or was frivolous;
. to indemnify an officer, director or agent for expenses or liabilities of
any type whatsoever (including, but not limited to, judgments, fines,
ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid or satisfied by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by First
American; provided that First American shall be obligated to remit to the
officer, director or agent any insurance proceeds received in respect of
expenses or liabilities previously paid or satisfied by such officer,
director or agent;
. to indemnify an officer, director or agent for expenses, judgments, fines
or penalties sustained, or for an accounting of profits made from, the
purchase and sale by such officer, director or agent of securities of
First American in violation of the provisions of the federal securities
laws or any similar provisions of any state or local statutory law;
. to indemnify an officer, director or agent in the event a court of
competent jurisdiction finally determines that such indemnification is
unlawful. The term "officer" as used immediately above is defined as each
person who is, or was, appointed to the office of Chairman of the Board,
President, Vice President, Secretary, Assistant Secretary, Chief
Financial Officer, Treasurer, Assistant Treasurer and such other office
of First American as the board shall designate from time to time. The
term "director" as used immediately above is defined as any person who
is, or was, appointed to serve on the board of directors of First
American either by the shareholders or the remaining board members. The
term "agent" as used immediately above is defined as having the same
meaning as that set forth in the California General Corporation Law,
except that it shall not include officers and directors.
CMSI's certificate of incorporation allows CMSI to indemnify its officers,
employees and other agents to the fullest extent permitted by Delaware law.
Delaware law does not permit the elimination of monetary liability where such
liability is based on any of the following:
. any breach of the director's duty of loyalty to CMSI or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, which creates
liability for unlawful payment of dividends and unlawful stock purchases
or redemptions;
. any transaction from which the director derived an improper personal
benefit; or
. any act or omission occurring prior to the date the CMSI certificate of
incorporation became effective.
53
Anti-takeover protections
Section 203 of the Delaware General Corporation Law prevents an "interested
stockholder" (defined generally as a person who owns 15% or more of a
corporation's outstanding voting stock, with the exception of any person who
owned and has continued to own shares in excess of the 15% limitation since
December 23, 1987) from engaging in a "business combination" with a Delaware
corporation for three years following the date such person became an interested
stockholder. The term "business combination" includes mergers or consolidations
with an interested stockholder and certain other transactions with an
interested stockholder.
The effects of Section 203 may be avoided if (a) before such person became
an interested stockholder, the board of directors of the corporation approved
either the business combination or the transaction in which the interested
stockholder became an interested stockholder; (b) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the stockholder owned at least 85% of the voting stock of he
corporation outstanding at the time the transaction commenced (excluding shares
held by directors who are also officers of the corporation and by employee
stock ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (c) on or following the date on which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders (and not by written consent) by the affirmative vote of
the stockholders of at least 66- 2/3% of the outstanding voting stock of the
corporation not owned by the interested stockholder.
Under California law, there is no comparable provision. However, California
law does provide that, except where the fairness of the terms and conditions of
the transaction has been approved by the California Commissioner of
Corporations and except in a "short-form" merger (the merger of a parent
corporation with a subsidiary in which the parent owns at least 90% of the
outstanding shares of each class of the subsidiary's stock), if the surviving
corporation or its parent corporation owns, directly or indirectly, shares of
the target corporation representing more than 50% of the voting power of the
target corporation prior to the merger, the nonredeemable common stock of a
target corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholders already
own 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
Amendments to articles of incorporation or bylaws
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval, although certain minor amendments may be adopted by
the board alone such as amendments causing stock splits (including an increase
in the authorized number of shares in proportion thereto) and not required a
greater level of approval for an amendment thereto. Under California law, the
holders of the outstanding shares of a class of stock are entitled to vote as a
class if a proposed amendment to the articles of incorporation would:
. increase or decrease the aggregate number of authorized shares of such
class;
. effect an exchange, reclassification or cancellation of all or part of
the shares of such class, other than a stock split;
. effect an exchange, or create a right of exchange, of all or part of the
shares of another class into the shares of such class;
. change the rights, preferences, privileges or restrictions of the shares
of such class;
. create a new class of shares having rights, preferences or privileges
prior to the shares of such class, or increase the rights, preferences or
privileges or the number or authorized shares having rights, preference
or privileges prior to the shares of such class;
54
. in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions
or authorize the board of directors to do so; or
. cancel or otherwise affect dividends on the shares of such class which
have accrued but have not been paid.
The First American articles of incorporation do not specify the approvals
necessary to adopt amendments to the articles. Therefore, the California law
discussed above controls.
Delaware law requires a vote of the corporation's board of directors
followed by the affirmative vote of a majority of the outstanding stock of each
class entitled to vote for any amendment to the certificate of incorporation,
unless a greater level of approval is required by the certificate of
incorporation. Further, Delaware law states that if an amendment would increase
or decrease the aggregate number of authorized shares of such class, increase
or decrease the par value of shares of such class or alter or change the
powers, preferences or special rights of a particular class or series of stock
so as to affect them adversely, the class or series shall be given the power to
vote as a class notwithstanding the absence of any specifically enumerated
power in the certificate of incorporation. Delaware law also states that the
power to adopt, amend or repeal the bylaws of a corporation shall be vested in
the stockholders entitled to vote, provided that the corporation in its
certificate of incorporation may confer such power on the board of directors in
addition to the stockholders.
The certificate of incorporation of CMSI requires the vote of 80% or more of
the outstanding shares for certain amendments.
Rights to purchase preferred stock
Each First American common share has attached to it a right which, subject
to the terms and conditions of the Rights Agreement, as amended, between First
American and Wilmington Trust Company, dated October 23, 1997, entitles the
holder to purchase a fraction of a Series A Junior Participating Preferred
Share upon the occurrence of certain change of control events which are defined
in the Rights Agreement. As of the date of this joint proxy statement-
prospectus, such rights are not exercisable. See Description of the Stock and
the description of Rights to Purchase Series A Junior Participating Preferred
Shares contained in First American's Registration Statement on Form 8-A, dated
November 7, 1997, and incorporated by reference herein.
CMSI common stock has no comparable rights.
55
LEGAL MATTERS
The validity of the First American common shares to be issued to CMSI
stockholders pursuant to the merger will be passed upon by White & Case LLP,
special counsel to First American. It is a condition to the consummation of the
merger that CMSI receive an opinion from Brobeck, Phleger & Harrison LLP,
special counsel to CMSI, to the effect that the merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. See "The Merger--Material federal income tax consequences to you" and
"Summary of the Merger Agreement--Conditions to the consummation of the merger"
on pages 31 and 37, respectively.
EXPERTS
First American's financial statements incorporated in this joint proxy
statement-prospectus by reference to First American's annual report on form 10-
K for the year ended December 31, 2000, have been so incorporated by reference
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The consolidated financial statements of CMSI included in CMSI's
annual report on form 10-K for the year ended December 31, 2000, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
2001 ANNUAL MEETING OF CMSI STOCKHOLDERS
CMSI will hold a 2001 annual meeting of stockholders only if the merger is
not consummated before the time of such meeting. The deadline for receipt by
CMSI of stockholder proposals to be presented at the meeting was February 28,
2001. No stockholder proposals were received by the deadline.
WHERE YOU CAN FIND MORE INFORMATION
First American and CMSI file annual, quarterly and current reports, proxy
statements and other information with the SEC. You may read and copy, upon
payment of a fee set by the SEC, any document that First American or CMSI files
with the SEC at any of its public reference rooms in the following locations:
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, D.C. 20549 13th Floor, Suite 1300 500 West Madison Street
New York, New York 10048 14th Floor, Suite 1400
Chicago, Illinois 60661
You may also call the SEC at 1-800-432-0330 for more information on the
public reference rooms. Our filings are also available to the public on the
Internet through the SEC's EDGAR database. You may access the EDGAR database at
the SEC's web site at www.sec.gov.
The SEC allows us to "incorporate by reference" information into this joint
proxy statement-prospectus. This means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
joint proxy statement-prospectus, except for any information superseded by
information in this joint proxy statement-prospectus. This joint proxy
statement-prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
business and financial information about our company, including information
concerning its financial performance.
56
First American documents incorporated by reference
First American incorporates by reference into this joint proxy statement-
prospectus the following documents:
. annual report on form 10-K for the fiscal year ended December 31, 2000;
. current reports on form 8-K filed January 31, 2001 and February 21, 2001;
. the description of First American's common shares, $1.00 par value,
contained in its Registration Statement on Form 8-A, dated November 19,
1993, which registers the shares under Section 12(b) of the Exchange Act;
and
. the description of Rights to Purchase Series A Junior Participating
Preferred Shares, which may be transferred with First American's common
shares, contained in its Registration Statement on Form 8-A, dated
November 7, 1997, which registers the rights under Section 12(b) of the
Exchange Act.
First American also incorporates by reference any additional documents that
First American files with the SEC between the date of this joint proxy
statement-prospectus and the date on which First American common shares are no
longer being offered by this joint proxy statement-prospectus. A copy of the
annual report on form 10-K for the fiscal year ended December 31, 2000 has been
transmitted herewith. First American has supplied all information contained or
incorporated by reference in this joint proxy statement-prospectus relating to
First American.
You may obtain a copy of First American's SEC filings at no cost by writing
to First American at The First American Corporation, 1 First American Way,
Santa Ana, California 92707-5913, attention: Mark R Arnesen, or by telephoning
First American at (714) 800-3000. If you would like to request documents from
First American, please do so by May 21, 2001 to receive them before the CMSI
stockholders' meeting. First American will send such documents by first-class
mail within one business day of receiving any such request.
CMSI documents incorporated by reference
CMSI incorporates by reference into this joint proxy statement-prospectus
the following documents:
. annual report on form 10-K for the fiscal year ended December 31, 2000;
and
. current reports on form 8-K filed February 2, 2001 and March 8, 2001.
CMSI also incorporates by reference any additional documents that CMSI files
with the SEC between the date of this joint proxy statement-prospectus and the
date on which First American common shares are no longer being offered by this
joint proxy statement-prospectus. A copy of the annual report on form 10-K for
the fiscal year ended December 31, 2000 has been transmitted herewith. CMSI has
supplied information contained or incorporated by reference in this joint proxy
statement-prospectus relating to CMSI.
You may obtain a copy of CMSI's filings at no cost by writing to CMSI at 135
National Business Parkway, Annapolis Junction, Maryland 20701, attention:
Robert P. Vollono, or by telephoning CMSI at (301) 362-6000. If you would like
to request documents from CMSI, please do so by May 21, 2001 to receive them
before the CMSI stockholders' meeting. CMSI will send such documents by first-
class mail within one business day of receiving any such request.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement-prospectus to vote on the merger
proposal. Neither First American nor CMSI has authorized anyone to provide you
with information that is different from what is contained in this joint proxy
statement-prospectus. This joint proxy statement-prospectus is dated April 23,
2001. You should not assume that the information contained in this joint proxy
statement-prospectus is accurate as of any date other than such date, and
neither the mailing of this joint proxy statement-prospectus to shareholders
nor the issuance of First American common shares in the merger shall create any
implication to the contrary.
* * *
57
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
THE FIRST AMERICAN CORPORATION,
RUSTI CORP.,
AND
CREDIT MANAGEMENT SOLUTIONS, INC.
Dated as of January 30, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A-1
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS AND INTERPRETATIONS............................... A-5
1.1 Defined Terms................................................. A-5
1.2 Principles of Construction.................................... A-9
SECTION 2 THE MERGER AND RELATED MATTERS................................ A-10
2.1 The Merger.................................................... A-10
2.2 Conversion of Shares.......................................... A-10
2.3 Surrender of Certificates..................................... A-11
2.4 No Further Rights of Transfers................................ A-12
2.5 Stock Option and Other Plans.................................. A-12
2.6 Certificate of Incorporation of the Surviving Corporation..... A-13
2.7 By-Laws of the Surviving Corporation.......................... A-13
2.8 Directors and Officers of the Surviving Corporation........... A-13
2.9 Accounting Consequences....................................... A-14
2.10 Closing....................................................... A-14
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. A-14
3.1 Existence and Good Standing................................... A-14
3.2 Authorization; Binding Effect................................. A-14
3.3 Capitalization................................................ A-14
3.4 Subsidiaries and Investments.................................. A-14
3.5 SEC Reports and Financial Statements.......................... A-15
3.6 Books and Records............................................. A-15
3.7 Title to Properties; Encumbrances............................. A-15
3.8 Real Property................................................. A-16
3.9 Leases........................................................ A-16
3.10 Material Contracts............................................ A-16
3.11 Restrictive Documents......................................... A-16
3.12 Litigation.................................................... A-17
3.13 Taxes......................................................... A-17
3.14 Insurance..................................................... A-18
3.15 Intellectual Properties....................................... A-18
3.16 Compliance with Laws.......................................... A-20
3.17 Governmental Licenses......................................... A-20
3.18 Labor Matters................................................. A-20
3.19 Employee Benefit Plans........................................ A-21
3.20 Interests in Clients, Suppliers, Etc.......................... A-24
3.21 No Changes Since Balance Sheet Date........................... A-24
3.22 Consents and Approvals; No Violations......................... A-24
3.23 Pooling of Interests.......................................... A-25
3.24 Disclosure.................................................... A-25
3.25 Broker's or Finder's Fees..................................... A-25
3.26 Copies of Documents........................................... A-25
3.27 Registration Statement; Proxy Statement/Prospectus............ A-25
3.28 Opinion of Financial Advisor.................................. A-25
3.29 Vote Required................................................. A-26
3.30 Board Approval................................................ A-26
3.31 Customers and Suppliers....................................... A-26
3.32 Affiliates.................................................... A-26
A-2
SECTION 4 REPRESENTATIONS AND WARRANTIES OF FACO AND FACOSUB........... A-26
4.1 Existence and Good Standing; Power and Authority............. A-26
4.2 Consents and Approvals; No Violations........................ A-26
4.3 Broker's or Finder's Fees.................................... A-27
4.4 FACO Common Shares........................................... A-27
4.5 Capitalization............................................... A-27
4.6 SEC Reports and Financial Statements......................... A-27
4.7 Litigation................................................... A-28
4.8 Compliance with Laws......................................... A-28
4.9 Disclosure................................................... A-28
4.10 Tax Matters.................................................. A-28
4.11 Board Approval............................................... A-28
4.12 Restrictive Documents........................................ A-28
4.13 Pooling of Interests......................................... A-29
4.14 Registration Statement; Proxy Statement/Prospectus........... A-29
4.15 Ownership of FACOSUB; No Prior Activities.................... A-29
SECTION 5 TRANSACTIONS PRIOR TO THE EFFECTIVE TIME..................... A-29
5.1 Conduct of the Business of the Company Prior to Closing...... A-29
5.2 Review of the Company; Confidentiality....................... A-30
5.3 Exclusive Dealing............................................ A-31
5.4 Best Efforts................................................. A-31
SECTION 6 CONDITIONS PRECEDENT TO MERGER............................... A-32
6.1 Conditions Precedent to Obligations of FACO, FACOSUB and the A-32
Company......................................................
6.2 Conditions Precedent to Obligations of FACO and FACOSUB...... A-32
6.3 Conditions Precedent to Obligation of the Company............ A-33
SECTION 7 COVENANTS RELATING TO SECURITIES MATTERS..................... A-34
7.1 Proxy Statement/Prospectus; Registration Statement........... A-34
7.2 Listing...................................................... A-35
SECTION 8 OTHER COVENANTS.............................................. A-35
8.1 Shareholder Approval......................................... A-35
8.2 HSR Act...................................................... A-35
8.3 Returns...................................................... A-36
8.4 Directors and Officers Indemnification....................... A-36
8.5 Pooling Accounting........................................... A-36
8.6 Affiliate Agreements......................................... A-36
8.7 Confidentiality Agreement.................................... A-36
8.8 Takeover Statutes............................................ A-37
8.9 Employee Benefit Plans....................................... A-37
8.10 Company Opinion Letter....................................... A-37
SECTION 9 TERMINATION.................................................. A-37
9.1 Events of Termination........................................ A-37
9.2 Effect of Termination........................................ A-38
A-3
SECTION 10 NONSURVIVAL OF REPRESENTATIONS................................ A-39
SECTION 11 MISCELLANEOUS................................................. A-39
11.1 Knowledge..................................................... A-39
11.2 Expenses...................................................... A-39
11.3 Governing Law................................................. A-39
11.4 Jurisdiction; Agents for Service of Process................... A-39
11.5 Publicity..................................................... A-39
11.6 Notices....................................................... A-39
11.7 Parties in Interest........................................... A-40
11.8 Counterparts.................................................. A-40
11.9 Entire Agreement.............................................. A-40
11.10 Amendments.................................................... A-41
11.11 Extension; Waiver............................................. A-41
11.12 Severability.................................................. A-41
11.13 Third Party Beneficiaries..................................... A-41
EXHIBIT A--CERTIFICATE OF MERGER
EXHIBIT B--CERTIFICATE OF INCORPORATION
EXHIBIT C--BY-LAWS
EXHIBIT D--AFFILIATE AGREEMENT
EXHIBIT E--POOLING AGREEMENT
EXHIBIT F--REPRESENTATION LETTER
A-4
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of January 30, 2001 (this
"Agreement"), by and among The First American Corporation, a California
corporation ("FACO"), Rusti Corp., a Delaware corporation and a wholly-owned
subsidiary of FACO ("FACOSUB") and CREDIT MANAGEMENT SOLUTIONS, INC., a
Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of FACO, FACOSUB and the Company have each
determined that it is in the best interests of their respective companies and
the shareholders of their respective companies that the Company and FACOSUB
combine into a single company through the statutory merger of FACOSUB with and
into the Company (the "Merger") and, in furtherance thereof, have approved the
Merger;
WHEREAS, pursuant to the Merger, among other things, the outstanding shares
of the Company's common stock, $0.01 par value per share (each whole share of
common stock of the Company, a "Company Common Share"), shall be converted into
common shares, par value $1.00, of FACO (each whole Common share of FACO, a
"FACO Common Share"), at the rate set forth herein;
WHEREAS, the Parties (as defined below) intend to cause the Merger to be
accounted for as a pooling of interests under APB Opinion No. 16, Staff
Accounting Series Releases 130, 135 and 146, Staff Accounting Bulletins Topic
Two (Business Combinations) and any similar or supplemental opinions, releases
and bulletins (the "Pooling Rules");
WHEREAS, the Parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe various
conditions to the Merger;
WHEREAS, in order to effectuate and facilitate the Merger, each Party has
independently determined that it is in its best interest to enter into this
Agreement and to consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties hereto agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATIONS
1.1 Defined Terms. In this Agreement the following words and expressions
shall have the following meanings (such meaning to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate Agreement" shall have the meaning provided in Section 6.2(f);
"Agreement" shall have the meaning provided in the introductory paragraph
hereto;
"Antitrust Division" shall mean the Antitrust Division of the Department of
Justice;
"Authorized Actions" shall include the following actions:
(a) the purchase, as planned by the Company as of the date of this
Agreement, of hardware and software reasonably necessary for the continued
operation of the Company's CreditOnline Network;
(b) the defining of bonus plans, the defining of commission plans and the
offering of raises, in each case in the ordinary course of business of the
Company, with respect to any employee of the Company and its
A-5
Subsidiaries other than Scott Freiman, Neal Dittersdorf, Robert Vollono, Howard
Tischler, Miles Grody and any other executive of the Company or any of its
Subsidiaries; and
(c) the granting of a commercially reasonable bonus plan to Scott Freiman,
Neal Dittersdorf, Robert Vollono and Howard Tischler covering the six months
ending June 30, 2001; provided that each of Scott Freiman, Neal Dittersdorf,
Robert Vollono and Howard Tischler shall have executed an amendment to his
employment agreement with the Company excluding amounts payable pursuant to
such bonus plan from any calculation of severance payments to be made pursuant
to such employment agreement.
"Business Day" shall mean any day, excluding Saturday, Sunday or any day
which shall be a legal holiday in the State of California or the State of
Maryland;
"By-Laws" shall have the meaning provided in Section 2.7;
"Certificate of Incorporation" shall have the meaning provided in Section
2.6;
"Certificate of Merger" shall mean the Certificate of Merger in the form
attached hereto as Exhibit A;
"Closing" shall have the meaning provided in Section 2.10;
"Closing Date" shall have the meaning provided in Section 2.10;
"Code" shall have the meaning provided in Section 3.19(a);
"Company" shall have the meaning provided in the introductory paragraph
hereto;
"Company Balance Sheet" shall mean the balance sheet of the Company included
in the Company's Quarterly Report on Form 10-Q for the period ended September
30, 2000;
"Company Balance Sheet Date" shall mean September 30, 2000;
"Company Common Certificate" shall have the meaning provided in Section
2.3(a);
"Company Common Share" shall have the meaning provided in the second WHEREAS
clause;
"Company Financial Statements" shall have the meaning provided in Section
3.5;
"Company Intellectual Property" shall mean all Intellectual Property owned
by the Company and/or any of its Subsidiaries or used in connection with the
business of the Company and/or any of its Subsidiaries;
"Company SEC Reports" shall have the meaning provided in Section 3.5;
"Company Shareholders Meeting" shall have the meaning provided in Section
8.1(b);
"Company Stock Rights" shall have the meaning provided in Section 2.5(a);
"Confidentiality Agreement" shall mean that certain Confidentiality and
Nondisclosure Agreement, dated September 1, 2000 by and between FACO and Chase
Securities Inc., as agent for the Company;
"Delaware Code" shall mean the Delaware General Corporation Law;
"Effective Time" shall have the meaning provided in Section 2.1(b);
"Employee Assignments" shall have the meaning provided in Section 3.15(h);
"Employee Benefit Plans" shall have the meaning provided in Section 3.19(a);
A-6
"Employee Stock Purchase Plan" shall mean the Company's 1996 Credit
Management Solutions, Inc. Employee Stock Purchase Plan in effect as of the
date hereof;
"Entity" shall mean any Person that is not a natural Person;
"ERISA" shall have the meaning provided in Section 3.19(a);
"Excepted Shares" shall mean any Company Common Shares which are held by the
Company or any Subsidiary of the Company or which are held, directly or
indirectly, by FACO or any direct or indirect subsidiary of FACO (including
FACOSUB);
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended;
"Exchange Agent" shall have the meaning provided in Section 2.3(a);
"Exchange Ratio" shall have the meaning provided in Section 2.2(a);
"FACO" shall have the meaning provided in the introductory paragraph hereto;
"FACO Common Certificates" shall have the meaning provided in Section
2.3(a);
"FACO Common Shares" shall have the meaning provided in the second WHEREAS
clause;
"FACO SEC Reports" shall have the meaning provided in Section 4.6;
"FACOSUB" shall have the meaning provided in the introductory paragraph
hereto;
"FACOSUB Common Shares" shall mean the common shares, $0.01 par value, of
FACOSUB;
"FTC" shall mean the Federal Trade Commission;
"Governmental Entities" shall mean the appropriate legislative, executive,
judicial, Federal, state and local governmental or regulatory agencies and
authorities in the United States or any other jurisdiction;
"HSR Act" shall have the meaning provided in Section 3.22;
"Indemnified Parties" shall have the meaning provided in Section 8.4(a);
"Intellectual Property" shall mean 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 and universal resource locators ("URLs"), inventions
(whether or not patentable), invention disclosures, moral and economic rights
of authors and inventors (however denominated), corporate and business names,
source codes, object codes, computer software programs, trade names, trade
dress, brand names, maskworks, trade secrets (including technical data,
customer lists, know-how, show-how, maskworks, formulae, methods (whether or
not patentable), designs, processes, procedures, technology, databases, data
collectors and other proprietary information or material of any type), whether
written or unwritten (and all good will associated with, and all derivatives,
improvements and refinements of, any of the foregoing);
"IRS" shall have the meaning provided in Section 3.19(f);
"Licenses" shall have the meaning provided in Section 3.17;
"Material Adverse Effect" shall mean, with respect to any Person, a material
adverse effect on (i) the validity or enforceability of this Agreement, (ii)
the ability of such Person to perform its obligations under this
A-7
Agreement or (iii) the business (without regard to any changes in the market
price or trading volume of such Person's securities), assets, condition
(without regard to any changes in the market price or trading volume of such
Person's securities) or results of operations of such Person and its
Subsidiaries, taken as a whole; provided, however, that any adverse change,
event or effect that is proximately caused by (a) conditions affecting the
United States economy generally or the economy of the regions in which such
Person and its Subsidiaries, taken as a whole, conducts a material part of its
business, (b) by conditions affecting the industries in which such Person and
its Subsidiaries compete, (c) by the announcement of the Merger or by virtue of
this Agreement, including compliance by such Person with its covenants
hereunder or (d) any change in US GAAP, shall not be taken into account in
determining whether there has been a Material Adverse Effect;
"Merger" shall have the meaning provided in the first WHEREAS clause;
"Merger Consideration" shall mean the FACO Common Shares and any cash in
lieu of fractional FACO Common Shares receivable by each shareholder of the
Company pursuant to Section 2.2(a) and 2.2(b), respectively;
"Merger Documents" shall mean those documents required to be filed with the
Delaware Secretary of State in accordance with Section 251 of the Delaware
Code;
"New Stock Rights" shall have the meaning provided in Section 2.5(a);
"NASD" shall mean the National Association of Securities Dealers, Inc. (or
any successor thereto);
"NYSE" shall mean the New York Stock Exchange;
"Party" or "Parties" shall mean each of FACO, FACOSUB and the Company, or
all of them, as the case may be;
"Permitted Liens" shall have the meaning provided in Section 3.7;
"Person" shall mean and include any individual, partnership, joint venture,
association, joint stock company, corporation, trust, limited liability
company, unincorporated organization, a group and a government or other
department, agency or political subdivision thereof;
"Pooling Agreement" shall have the meaning provided in Section 6.2(f);
"Pooling Rules" shall have the meaning provided in the third WHEREAS clause;
"Pre-Closing Period" shall have the meaning provided in Section 3.13(b);
"Principal Stockholders" shall mean Scott Freiman and James DeFrancesco.
"Proxy Statement/Prospectus" shall have the meaning provided in Section
7.1(a);
"Registration Statement" shall have the meaning provided in Section 7.1(a);
"Returns" shall have the meaning provided in Section 3.13(a);
"Rule 145" shall have the meaning provided in Section 3.33;
"SEC" shall mean the Securities and Exchange Commission;
"Securities Act" shall mean the Securities Act of 1933, as amended;
"Stock Plans" shall have the meaning provided in Section 2.5(a);
A-8
"Subsidiary" shall mean, with respect to any Person, (i) any corporation
more than 50% of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person and/or
one or more Subsidiaries of such Person and (ii) any Entity (other than a
corporation) in which such Person and/or one more Subsidiaries of such Person
has more than a 50% equity interest at the time or otherwise controls the
management and affairs of such Entity (including the power to veto any
material act or decision);
"Surviving Corporation" shall have the meaning provided in Section 2.1(a);
"Takeover Proposal" shall mean any tender or exchange offer, or proposal,
other than a proposal by FACO or any of its affiliates, for a merger, share
exchange or other business combination involving the Company or any of its
Subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in the Company or any of its Subsidiaries or a substantial
portion of the assets of the Company or any of its Subsidiaries;
"Takeover Statute" shall mean any "fair price," "moratorium," "control
share acquisition," or other similar antitakeover statute or regulation
enacted under state or federal laws in the United States;
"Taxes" shall mean all taxes, assessments, charges, duties, fees, levies or
other governmental charges, including, all Federal, state, local, foreign and
other income, franchise, profits, capital gains, capital stock, transfer,
sales, use, occupation, property, excise, severance, windfall profits, stamp,
license, payroll, withholding and other taxes, assessments, charges, duties,
fees, levies or other governmental charges of any kind whatsoever (whether
payable directly or by withholding and whether or not requiring the filing of
a Return), all estimated taxes, deficiency assessments, additions to tax,
penalties and interest and shall include any liability for such amounts as a
result either of being a member of a combined, consolidated, unitary or
affiliated group or of a contractual obligation to indemnify any Person;
"Trading Day" shall mean a day on which the NYSE is open for at least one-
half of its normal business hours;
"US GAAP" shall mean United States generally accepted accounting principles
applied on a consistent basis;
"VEBAs" shall have the meaning provided in Section 3.19(a); and
"Year 2000 Issues" shall mean, with respect to any computer or
telecommunications software or hardware that contains or calls on a calendar
function that is indexed to a computer processing unit clock, provides
specific dates or calculates spans of dates, the inability of such software or
hardware without material expense to be rendered able, to record, store,
process and provide true and accurate dates and calculations for dates and
spans of dates including and following January 1, 2000.
1.2 Principles of Construction.
(a) All references to Sections, subsections, Schedules and Exhibits are to
Sections, subsections, Schedules and Exhibits in or to this Agreement unless
otherwise specified. The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement. The term
"including" is not limiting and means "including without limitation."
(b) All accounting terms not specifically defined herein shall be construed
in accordance with US GAAP.
(c) In the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including"; the words "to" and
"until" each mean "to but excluding"; and the word "through" means "to and
including."
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(d) The Table of Contents hereto and the Section headings herein are for
convenience only and shall not affect the construction hereof.
(e) This Agreement is the result of negotiations among and has been reviewed
by each Party's counsel. Accordingly, this Agreement shall not be construed
against any Party merely because of such Party's involvement in its
preparation.
(f) The Schedules referred to herein are incorporated herein by reference.
SECTION 2
THE MERGER AND RELATED MATTERS
2.1 The Merger.
(a) At the Effective Time, and subject to and upon the terms and conditions
of this Agreement, the Certificate of Merger and the applicable provisions of
the Delaware Code, FACOSUB shall be merged with and into the Company and the
separate corporate existence of FACOSUB shall cease, and the Company shall
continue as the surviving corporation under the laws of the State of Delaware
(the "Surviving Corporation").
(b) The Merger shall become effective when (i) the Closing has occurred and
(ii) the Certificate of Merger, executed in accordance with the applicable
provisions of the Delaware Code, is filed with and approved by the Secretary of
State of Delaware (the time of such filing and approval, the "Effective Time").
(c) From and after the Effective Time, the Merger shall have the effects
provided for in Section 251 of the Delaware Code.
2.2 Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of FACO, FACOSUB, the Company or any of their
respective shareholders:
(a) Each Company Common Share then issued and outstanding, other than
Excepted Shares, shall be converted into the right to receive such fraction of
a FACO Common Share equal to the quotient (rounded to the ten-thousandth place)
resulting from the division of $6.25 by the average closing price per share of
FACO Common Shares as reported on the NYSE for the ten Trading Days ending on
the third Trading Day prior to the Company Shareholders Meeting (such fraction,
the "Exchange Ratio"); provided that for purposes of determining the Exchange
Ratio, (i) if such average closing price is greater than $30 per share, such
average closing price shall be deemed to be equal to $30 per share and (ii) if
such average closing price is less than $22 per share, such average closing
price shall be deemed to be equal to $22 per share. All such Company Common
Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a Company Common
Certificate representing any such Company Common Shares shall cease to have any
rights with respect thereto, other than its right to receive FACO Common Shares
and cash in lieu of fractional FACO Common Shares;
(b) No fraction of a FACO Common Share will be issued, but in lieu thereof
each holder of Company Common Shares who would otherwise be entitled to receive
a fraction of a FACO Common Share shall receive from FACO an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction
and (ii) the average closing price of a FACO Common Share, as reported on the
NYSE, for the ten Trading Days ending on the Trading Day that is three Trading
Days prior to the date of the Company Shareholders Meeting;
(c) Excepted Shares shall be canceled and retired without any conversion
thereof and shall not receive any cash payment with respect to a fractional
share;
(d) The Exchange Ratio shall be adjusted to reflect fully the effect of any
stock split, reverse split, stock dividend, reorganization, recapitalization or
other like change with respect to FACO Common Shares or Company Common Shares
occurring after the date hereof and prior to the Effective Time; and
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(e) Each FACOSUB Common Share shall be converted into one share of common
stock, $0.01 par value per share, of the Surviving Corporation.
2.3 Surrender of Certificates.
(a) Exchange of Company Common Certificates. At or prior to the Effective
Time, or as soon as practicable thereafter (but in no event later than ten (10)
Business Days after the Effective Time), FACO, through such reasonable
procedures as FACO and the Company mutually agree, shall deposit with the First
American Trust Company (the "Exchange Agent") in trust for the holders of
certificates which immediately prior to the Effective Time represented Company
Common Shares (each such certificate a "Company Common Certificate"), and each
such holder will be entitled to receive, upon surrender of one or more Company
Common Certificates to the Exchange Agent in the manner set forth in subsection
(b) below, (i) certificates representing the FACO Common Shares (the "FACO
Common Certificates") into which the Company Common Shares represented by such
Company Common Certificates were converted in the Merger and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractions of shares
pursuant to Section 2.2(b). The Exchange Agent shall invest any such cash
deposited with it as directed by FACO, on a daily basis. Any interest and other
income resulting from such investments shall be paid to FACO.
(b) Exchange Procedures. Promptly (and in no event later than ten (10)
Business Days) after the Effective Time, the Exchange Agent shall mail to each
record holder of a Company Common Certificate: (i) a letter of transmittal in
customary form (which shall specify that delivery shall be effected, and risk
of loss and title to the Company Common Certificates shall pass, only upon
receipt of the Company Common Certificates by the Exchange Agent and shall
otherwise be in such form and have such other provisions as FACO shall
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Company Common Certificates in exchange for FACO Common Certificates (and
cash in lieu of fractional shares). Upon surrender to the Exchange Agent of a
Company Common Certificate, together with such letter of transmittal properly
completed and duly executed, together with any other customary documents as may
be reasonably required by the Exchange Agent, the holder of such Company Common
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration payable in respect of the Company Common Shares formerly
represented by such Company Common Certificate and such Company Common
Certificate shall forthwith be canceled. Until so surrendered, each Company
Common Certificate shall be deemed, for all corporate purposes, to evidence
only the right to receive upon such surrender the Merger Consideration
deliverable in respect thereof to which the holder of such Company Common
Certificate is entitled pursuant to this Section 2.
No dividends or other distributions with respect to FACO Common Shares with
a record date after the Effective Time will be paid to the holder of any
unsurrendered Company Common Certificate with respect to the FACO Common Shares
represented thereby until the holder of record of such Company Common
Certificate surrenders such Company Common Certificate. Subject to applicable
law, following the surrender of any such Company Common Certificate, there
shall be paid to the record holder of the FACO Common Certificates issued in
exchange thereof, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this paragraph)
with respect to the shares represented by such FACO Common Certificates.
(c) Registration Name on Certificates. If the Merger Consideration (or any
portion thereof) is to be delivered to a Person other than the Person in whose
name the Company Common Certificate surrendered in exchange therefor is
registered, it shall be a condition to the payment of the Merger Consideration
that the Company Common Certificates so surrendered shall be properly endorsed
or accompanied by appropriate stock powers and otherwise in proper form for
transfer, that such transfer otherwise be proper and that the Person requesting
such transfer pay any transfer or other taxes payable by reason of the
foregoing or establish to the reasonable satisfaction of FACO that such taxes
have been paid or are not required to be paid.
(d) Unavailable Certificates. In the event any Company Common Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be
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lost, stolen or destroyed, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate the Merger Consideration deliverable in
respect thereof as determined in accordance with this Section 2, provided that
the Surviving Corporation may require the Person to whom the Merger
Consideration is paid, as a condition precedent to the payment thereof, to give
the Surviving Corporation a bond in such sum as is customary or otherwise
indemnify the Surviving Corporation in a manner reasonably satisfactory to it
against any claim that may be made against the Surviving Corporation with
respect to the Company Common Certificate claimed to have been lost, stolen or
destroyed.
(e) Merger Not Consummated. In the event the Merger is not consummated for
any reason, FACO and the Company shall promptly direct the Exchange Agent to
return promptly to (i) each Person who deposited a Company Common Certificate
and any other agreements or instruments tendered to the Exchange Agent by such
Person, such Company Common Certificate and other agreements or instruments and
(ii) FACO, the Merger Consideration.
(f) Escheat Laws. Notwithstanding any provisions of this Section 2 to the
contrary, neither FACO nor the Surviving Corporation shall be liable to any
holder of the Company Common Certificates formerly representing Company Common
Shares for any property properly delivered or amount paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.4 No Further Rights of Transfers. At and after the Effective Time, each
holder of a Company Common Certificate shall cease to have any rights as a
shareholder of the Company, except for, in the case of a holder of a Company
Common Certificate (other than Excepted Shares), the right to surrender his or
her Company Common Certificate in exchange for the Merger Consideration, and no
transfer of Company Common Shares shall be made on the stock transfer books of
the Surviving Corporation. Company Common Certificates presented to the
Surviving Corporation after the Effective Time shall be canceled and exchanged
as provided in this Section 2. At the close of business on the day of the
Effective Time the stock ledger of the Company with respect to the Company
Common Shares shall be closed.
2.5 Stock Option and Other Plans.
(a) Prior to the Effective Time, the Board of Directors of the Company (or,
if appropriate, any committee thereof) and the Board of Directors of FACO (or,
if appropriate, any committee thereof) shall adopt appropriate resolutions and
take all other actions necessary to provide that effective at the Effective
Time all the outstanding stock options, stock issuance rights, stock
appreciation rights, limited stock appreciation rights and stock purchase
rights (the "Company Stock Rights") heretofore granted under any stock option,
incentive or similar plan, agreement or arrangement of the Company and its
Subsidiaries, except for the Employee Stock Purchase Plan (the "Stock Plans"),
shall be assumed by FACO and converted automatically into options to purchase
FACO Common Shares (collectively, "New Stock Rights") in an amount and, if
applicable, at an exercise price determined as provided below:
(i) The number of FACO Common Shares to be subject to each New Stock
Right shall be equal to the product of (x) the number of Company Common
Shares remaining subject (as of immediately prior to the Effective Time) to
the original Company Stock Right and (y) the Exchange Ratio, provided that
any fractional FACO Common Shares resulting from such multiplication shall
be rounded down to the nearest share; and
(ii) The exercise price per FACO Common Share under each New Stock Right
shall be equal to the exercise price per Company Common Share under the
original Company Stock Right divided by the Exchange Ratio, provided that
such exercise price shall be rounded up to the nearest cent.
After the Effective Time, each New Stock Right shall be exercisable and shall
vest in accordance with, and shall otherwise be subject to, the same terms and
conditions as were applicable to the related Company Stock Right immediately
prior to the Effective Time (except that with regard to such New Stock Right,
any references to the Company shall be deemed, as appropriate, to include
FACO).
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(b) The Company shall take all actions so that following the Effective Time
no holder of a Company Stock Right under or any participant in any of the Stock
Plans or the Employee Stock Purchase Plan shall have any right thereunder to
acquire capital stock of the Company or the Surviving Corporation. The Company
shall take all actions so that, as of the Effective Time, neither the Company
nor the Surviving Corporation or any of their respective Subsidiaries is or
will be bound by any Company Stock Rights, any stock rights under the Employee
Stock Purchase Plan or other options, warrants, rights or agreements which
would entitle any Person, other than FACOSUB or its affiliates, to own any
capital stock of the Company, the Surviving Corporation or any of their
respective subsidiaries or to receive any payment in respect thereof, except as
otherwise provided herein. The Company shall, except as otherwise expressly
required under employment agreements to which the Company is a party, refrain
from exercising any discretionary authority granted under any Stock Plan to
(x) accelerate the vesting of any Company Stock Right or (y) terminate any
repurchase and/or cancellation right held by the Company, in each case whether
as a result of the transactions contemplated hereby or otherwise.
(c) FACO agrees that it shall take all action necessary, at or prior to the
Effective Time, to authorize and reserve a number of FACO Common Shares
sufficient for issuance upon exercise of options as contemplated by this
Section 2.5.
(d) Unless at the Effective Time the New Stock Rights are registered
pursuant to an effective FACO registration statement, as soon as practicable
(and in any event within ten (10) Business Days) following the Effective Time,
FACO shall prepare and file with the SEC a registration statement on Form S-8
(or another appropriate form) registering a number of FACO Common Shares equal
to the number of shares subject to the New Stock Rights. Any such registration
statement shall be kept effective (and the current status of the initial
offering prospectus or prospectuses required thereby shall be maintained) for
at least as long as any New Stock Right remains outstanding. FACO shall also,
as soon as practicable (and in any event within ten (10) Business Days)
following the Effective Time, prepare and submit to the NYSE a listing
application covering the FACO Common Shares subject to the New Stock Rights.
(e) The Company hereby assigns, effective as of the Effective Time, all
repurchase and/or cancellation rights it may have under any Stock Plan to FACO,
and the Company shall take all further action as is necessary, at or prior to
the Effective Time, to give effect to such assignment.
(f) On or before the earlier of (i) the later of (A) the tenth day following
the date of this Agreement and (B) the earliest date on which the termination
of the Employee Stock Purchase Plan is permitted by the terms thereof and (ii)
the Closing Date, the Company shall take all actions necessary to cause the
termination of the Employee Stock Purchase Plan.
2.6 Certificate of Incorporation of the Surviving Corporation. The
certificate of incorporation of the Company, as in effect immediately prior to
the Effective Time and attached hereto as Exhibit B, shall be the certificate
of incorporation of the Surviving Corporation and thereafter shall continue to
be its certificate of incorporation (the "Certificate of Incorporation") until
amended as provided therein and under the Delaware Code.
2.7 By-Laws of the Surviving Corporation. The by-laws of the Company, as in
effect immediately prior to the Effective Time and attached hereto as Exhibit
C, shall be the by-laws of the Surviving Corporation and thereafter shall
continue to be its by-laws (the "By-Laws") until amended as provided therein
and under the Certificate of Incorporation and the Delaware Code.
2.8 Directors and Officers of the Surviving Corporation. At the Effective
Time, the directors of FACOSUB immediately prior to the Effective Time shall be
the directors of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the Certificate of
Incorporation and By-Laws, until their respective successors shall be duly
elected or appointed and qualified. At the Effective Time, the officers of the
Company immediately prior to the Effective Time shall, subject to the
applicable provisions of the Certificate of Incorporation and By-Laws, be the
officers of the Surviving Corporation until their respective successors shall
be duly elected or appointed and qualified.
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2.9 Accounting Consequences. The Parties intend that the Merger shall
qualify for accounting treatment as a pooling of interests under APB Opinion
No. 16, Staff Accounting Series Releases 130, 135 and 146 and Staff Accounting
Bulletins Topic Two (Business Combinations) and agree to take such actions as
may reasonably be necessary or desirable to carry out the intentions of this
Section 2.9.
2.10 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of White & Case LLP, 633 West Fifth
Street, Suite 1900, Los Angeles, California, as soon as practicable (and in any
event within five (5) Business Days) after the last of the conditions set forth
in Section 6 hereof is fulfilled or waived (subject to applicable law) or at
such other time and place and on such other date as FACO and the Company shall
mutually agree (the "Closing Date").
SECTION 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents, warrants and agrees in favor of FACO and FACOSUB as
follows:
3.1 Existence and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company is duly qualified or licensed to conduct its business and is in good
standing in each jurisdiction in which the character or location of the
property owned, leased or operated by the Company or the nature of the business
conducted by the Company makes such qualification or licensing necessary
(except where the failure to be so qualified, licensed or in good standing
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company). Schedule 3.1 sets forth all such jurisdictions in which the
Company is so duly qualified or licensed to conduct its business.
3.2 Authorization; Binding Effect. This Agreement (i) has been duly
authorized and approved by all required corporate action of the Company, (ii)
has been duly executed and delivered by the Company and (iii) constitutes the
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or similar laws and equitable principles relating to or
affecting the rights of creditors generally from time to time in effect.
3.3 Capitalization. The authorized capital stock of the Company is (i)
40,000,000 common shares, $0.01 par value, of which 7,824,113 shares were
issued and outstanding as of January 26, 2001 and (ii) 1,000,000 shares of
Preferred Stock, $0.01 par value, of which none are issued and outstanding as
of the date of this Agreement. All such outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. Except as
set forth on Schedule 3.3, there is not and as of the Effective Time there will
not be, outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
providing for the purchase, issuance or sale of any Company Common Shares, any
other securities of the Company, or any equity interest in the Company or its
business and none of the foregoing will arise as a result of the execution or
performance of this Agreement or the transactions contemplated herein. Schedule
3.3 contains a complete and accurate list of Company Stock Rights granted under
any Stock Plans, including the "grant programs" pursuant to which such Company
Stock Rights were granted. Except as set forth on Schedule 3.3, no Person has
any demand or piggyback registration rights in respect of their Company Common
Shares.
3.4 Subsidiaries and Investments.
(a) Set forth on Schedule 3.4 hereto is a list of each direct or indirect
Subsidiary of the Company and the percentage ownership of the Company in each
such Subsidiary. Each Subsidiary of the Company is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization (as set
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forth in Schedule 3.4) and has all requisite corporate power to own, lease and
operate its properties and to carry on its business as now being conducted.
(b) Set forth on Schedule 3.4 is a list of jurisdictions in which each
Subsidiary of the Company is qualified as a foreign company. Such jurisdictions
are the only jurisdictions in which the character or location of the properties
owned, leased or operated by each Subsidiary of the Company, or the nature of
the business conducted by each Subsidiary of the Company, makes such
qualification necessary, except where the failure to obtain such qualification
would not have a Material Adverse Effect on the Company.
3.5 SEC Reports and Financial Statements. Each form, report, schedule,
registration statement and definitive proxy statement filed by the Company with
the SEC on or after October 11, 1996 (as such documents have been amended prior
to the date hereof, the "Company SEC Reports"), as of their respective dates,
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations thereunder
and, since the first date on which Company Common Shares were listed for
trading on the NASDAQ National Market System, the rules of the NASD. The
Company has made available to FACO accurate and complete copies of all SEC
Reports filed by the Company since October 11, 1996. None of the Company SEC
Reports, as of their respective dates, contained any untrue statement of
material fact or failed to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements of the Company and its Subsidiaries included in such Company SEC
Reports (the "Company Financial Statements") complied as to form in all
material respects with applicable accounting requirements and with published
rules and regulations of the SEC with respect thereto as of their respective
dates, were prepared in accordance with US GAAP as in effect as of such dates
(except as may be indicated in the notes thereto, or in the case of unaudited
interim financial statements, as permitted by Form 10-Q of the SEC) and fairly
present in all material respects, subject, in the case of the unaudited interim
financial statements, to normal, year-end adjustments, the consolidated
financial position of the Company and its Subsidiaries as of the dates thereof.
3.6 Books and Records. The minute books of the Company and each of its
Subsidiaries contain, in all material respects, accurate records of all
meetings of, and corporate action taken by (including action taken by written
consent) the shareholders and Board of Directors of the Company and its
respective Subsidiaries. Except as set forth on Schedule 3.6, neither the
Company nor any of its Subsidiaries has any material records, systems,
controls, data or information recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which (including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company or its Subsidiaries;
provided, however, that the Company does not represent or warrant that (a) it
has full access to, or direct control over, all versions and modifications of
systems, data or information that are developed and owned by Company and
distributed to customers or other end users or placed in escrow pursuant to
written agreements with customers or other end users or (b) it has full access
to, owns or directly controls, any records, systems, data or information
licensed or leased from third parties.
3.7 Title to Properties; Encumbrances. Except (1) as set forth on Schedule
3.7 (and except for (x) property leased by the Company and (y) Intellectual
Property, which, for the avoidance of doubt, are represented and warranted to
in Sections 3.9 and 3.15, respectively) and (2) for properties and assets
reflected in the Company Balance Sheet or acquired since the Company Balance
Sheet Date which have been sold or otherwise disposed of in the ordinary course
of business, the Company and its Subsidiaries have good, valid and marketable
title to all of their respective properties and assets (real and personal,
tangible and intangible), including all of the properties and assets reflected
in the Company Balance Sheet, except as indicated in the notes thereto, in each
case subject to no encumbrance, lien, charge or other restriction of any kind
or character, except for (i) liens reflected in the Company Balance Sheet, (ii)
liens consisting of zoning or planning restrictions, easements, permits and
other restrictions or limitations on the use of real property or irregularities
A-15
in title thereto, and other liens or other imperfections in title, if any,
which do not, individually or in the aggregate, materially detract from the
value of, or impair the use of, such property by the Company or such Subsidiary
in the operation of its business, (iii) liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent and (iv)
liens described on Schedule 3.7 (liens of the type described in clauses (i),
(ii) and (iii) above are hereinafter sometimes referred to as "Permitted
Liens").
3.8 Real Property. Neither the Company nor any of its Subsidiaries owns,
directly or indirectly, in whole or in part, any interest in any real property.
3.9 Leases. Schedule 3.9 contains an accurate and complete list of each real
and personal property lease for which total annual rent payments equal or
exceed $25,000 to which the Company or any of its Subsidiaries is a party (as
lessee or lessor). Each lease set forth on Schedule 3.9 (or required to be set
forth on Schedule 3.9) is in full force and effect; all rents and additional
rents due by the Company or one of its Subsidiaries to date on each such lease
have been paid (other than any pass through expenses not yet invoiced to the
Company); in each case, the lessee has been in peaceable possession since the
commencement of the original term of such lease and is not in default
thereunder and no waiver, indulgence or postponement of the lessee's
obligations thereunder has been granted by the lessor; and there exists no
event of default or event, occurrence, condition or act which, with the giving
of notice, the lapse of time or the happening of any further event or
condition, would become a default under such lease, except where such defaults
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. The tangible personal property leased by the Company and its
Subsidiaries is in a state of good maintenance and repair, reasonable wear and
tear excepted, except where the state of such property would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
3.10 Material Contracts. Except as set forth on Schedule 3.10 or in the
Company SEC Reports filed prior to the date of this Agreement, neither the
Company nor any of its Subsidiaries is bound by (a) any agreement, contract or
commitment relating to the employment of any Person (as hereinafter defined) by
either the Company or any of its Subsidiaries or any bonus, deferred
compensation, pension, profit sharing, stock option, employee stock purchase,
retirement or other employee benefit plan, (b) any agreement, indenture or
other instrument which contains restrictions with respect to payment of
dividends or any other distribution in respect of its capital stock, (c) any
agreement, contract or commitment relating to capital expenditures in excess of
$50,000 per individual item or $100,000 in the aggregate, (d) any loan or
advance to, or investment in, any Person or any agreement, contract or
commitment relating to the making of any such loan, advance or investment, (e)
any guarantee or other contingent liability in respect of any indebtedness or
obligation of any Person other than the Company or one of its Subsidiaries
(other than the endorsement of negotiable instruments for collection in the
ordinary course of business), (f) any management service, consulting or any
other similar type contract, (g) any agreement, contract or commitment limiting
the ability of the Company to engage in any line of business or to compete with
any Person or (h) any agreement, contract or commitment not entered into in the
ordinary course of business which involves $50,000 or more and is not
cancelable without penalty within 30 days. Each contract or agreement set forth
on Schedule 3.10 (or required to be set forth on Schedule 3.10) and filed as a
part of a Company SEC Report is in full force and effect. Neither the Company
nor any of its Subsidiaries has violated any of the terms or conditions of any
contract or agreement set forth on Schedule 3.10 (or required to be set forth
on Schedule 3.10), or filed as a part of a Company SEC Report, in any material
respect, and, to the best knowledge, information and belief of the Company, all
of the covenants to be performed by any other party thereto have been fully
performed.
3.11 Restrictive Documents. Except as set forth on Schedule 3.11, neither
the Company nor any of its Subsidiaries is subject to, or a party to, any
charter, by-law, mortgage, lien, lease, license, permit, agreement, contract,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind or character, which, by its own operation, and
not by the breach or violation, as the case may be, thereof, (a) would
materially restrict the ability of the Company or any of its Subsidiaries to
acquire any property or conduct business in any area or (b) has or would
reasonably be expected to have a Material Adverse Effect on the Company.
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3.12 Litigation. Except as set forth on Schedule 3.12, there is no action,
suit, proceeding at law or in equity, arbitration or administrative or other
proceeding by or before (or to the best knowledge, information and belief of
the Company any investigation by) any governmental or other instrumentality or
agency, pending, or, to the best knowledge, information and belief of the
Company, threatened, against or impacting the Company, any of its Subsidiaries
or any of their respective properties or rights which could materially and
adversely affect the right or ability of the Company or any of its Subsidiaries
to carry on its business as now conducted, or which could have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
is subject to any judgment, order or decree entered in any lawsuit or
proceeding which may have a Material Adverse Effect on the Company.
3.13 Taxes.
(a) Tax Returns. The Company and each of its Subsidiaries have filed or
caused to be filed with the appropriate taxing authorities all returns,
statements, forms and reports for Taxes (the "Returns") that are required to be
filed by, or with respect to, the Company or such Subsidiary on or prior to the
Closing Date. The Returns have accurately reflected in all material respects
and will accurately reflect in all material respects all liability for Taxes of
the Company and such Subsidiaries for the periods covered thereby.
(b) Payment of Taxes. All material Taxes and Tax liabilities of the Company
and each of its Subsidiaries for all taxable years or periods that end on or
before the Closing Date and, with respect to any taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
year or period ending on and including the Closing Date (the "Pre-Closing
Period") have been paid or adequately accrued and disclosed and fully provided
for on the books and records of the Company and each of its Subsidiaries in
accordance with US GAAP.
(c) Other Tax Matters.
(i) Except as set forth on Schedule 3.13(c)(i), neither the Company nor
any of its Subsidiaries has received notice of an audit or other examination of
Taxes by the tax authorities of any nation, state or locality nor has the
Company or any of its Subsidiaries received any written notices from any taxing
authority relating to any issue which could affect the Tax liability of the
Company or any of its Subsidiaries.
(ii) Except as set forth on Schedule 3.13(c)(ii), neither the Company
nor any of its Subsidiaries (A) has, as of the Closing Date, entered into an
agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
Taxes of the Company and (B) is, as of the Closing Date, currently contesting
the Tax liability of the Company or any of its Subsidiaries before any court,
tribunal or agency.
(iii) Neither the Company nor any of its Subsidiaries has been included
in any "consolidated," "unitary" or "combined" Return, other than the
consolidated, unified or combined Returns of the Company's Subsidiaries filed
with other Subsidiaries of the Company and/or the Company, provided for under
the laws of the United States, any foreign jurisdiction or any state or
locality with respect to Taxes for any taxable period for which the statute of
limitations has not expired.
(iv) All Taxes which either the Company or any of its Subsidiaries is
(or was) required by law to withhold or collect have been duly withheld or
collected, and have been timely paid over to the proper authorities to the
extent due and payable.
(v) Neither the Company nor any of its Subsidiaries is a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(vi) There are no tax sharing, allocation, indemnification or similar
agreements in effect as between (A) the Company or any predecessor, Subsidiary
or other affiliate thereof and (B) any other party under which FACO, the
Company or any of the Company's Subsidiaries could be liable for any Taxes or
other claims of any party.
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(vii) Neither the Company nor any of its Subsidiaries has applied for,
been granted, or agreed to any accounting method change for which it will be
required to take into account any adjustment under Section 481 of the Code or
any similar provision of the Code or the corresponding tax laws of any nation,
state or locality.
(viii) No election under Section 341(f) of the Code has been made or
shall be made prior to the Closing Date to treat the Company or any of its
Subsidiaries as a consenting corporation, as defined in Section 341 of the
Code.
(ix) No claim has ever been made by any taxing authority in a
jurisdiction where the Company does not file Returns that the Company or any of
its assets are or may be subject to taxation by that jurisdiction.
(x) The Company is not a party to any agreement that would require it to
make any payment that would constitute an "excess parachute payment" for
purposes of Sections 280G and 4999 of the Code.
3.14 Insurance. Set forth on Schedule 3.14 is a complete list of insurance
policies which the Company and its Subsidiaries maintain with respect to their
respective businesses, properties and employees. Such policies are in full
force and effect. None of such policies is the subject of any notice of
termination. There are no circumstances that would give rise to any
cancellation or termination of any such policies based on any default, breach
or other action or omission of the Company, its Subsidiaries or any of their
respective officers, directors and employees. The Company and its Subsidiaries
are insured with reputable insurers against such risks and in such amounts as
are consistent with customary industry practices in the respective industries
in which the Company and each Subsidiary thereof is engaged.
3.15 Intellectual Properties.
(a) Schedule 3.15(a) is an accurate and complete list of 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, registered copyrights and applications for
registration thereof, Internet domain names and URLs, corporate and business
names, trade names, brand names and material computer software programs
developed or owned by the Company and/or its Subsidiaries. To the extent
indicated on such Schedule, the Intellectual Property listed (or required to be
listed) on Schedule 3.15(a) has been duly registered in, filed in or issued by
the United States Patent and Trademark Office, United States Copyright Office,
a duly accredited domain name registrar, the appropriate offices in the various
states of the United States and the appropriate offices of other jurisdictions
(foreign and domestic), and each such registration, filing and issuance remains
in full force and effect as of the Closing Date. Copies of all items of Company
Intellectual Property listed (or required to be listed) on Schedule 3.15(a)
that have been reduced to writing or other tangible form have been made
available by the Company to FACO and its counsel (including true and complete
copies of all related licenses, and amendments and modifications thereto)
(excluding, however, source code, which is highly confidential and
proprietary).
(b) Except (i) as set forth in Schedule 3.15(b), (ii) for agreements
(including purchase orders, sales agreements and license agreements) entered
into in the ordinary course of business between the Company, or a Subsidiary
thereof, and customers of the Company and its Subsidiaries and (iii) for
licenses related to "off the shelf" or other software widely available through
regular commercial distribution channels on generally standard terms and
conditions, neither the Company nor any of its Subsidiaries is a party to any
license or agreement, whether as licensor, licensee, or otherwise with respect
to any Intellectual Property. Except as set forth in Schedule 3.15(b), to the
extent any Intellectual Property is used under license in the business of the
Company and/or any of its Subsidiaries, no notice of a material default has
been sent or received by the Company or any of its Subsidiaries under any such
license which remains uncured and the execution, delivery or performance of the
Company's obligations hereunder will not result in such a default. Each license
agreement to which the Company or any of its Subsidiaries is a party is a
legal, valid and binding obligation of the Company and/or its Subsidiaries and,
to the best knowledge, information and belief of the Company, each of the other
parties thereto, enforceable by the Company and/or its Subsidiaries in
accordance with the terms thereof.
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(c) Except as set forth in Schedule 3.15(c), the Company and/or its
Subsidiaries owns or is licensed to use, all of the material Company
Intellectual Property (including all of the Intellectual Property set forth (or
required to be set forth) in Schedule 3.15(a)), free and clear of any liens,
security interest, charges, encumbrances and other adverse claims, without
obligation to pay any royalty or any other fees with respect thereto. Neither
the Company's or any of its Subsidiaries' use of the Company Intellectual
Property developed or owned by the Company or any of its Subsidiaries and, to
the best knowledge, information and belief of the Company, all other Company
Intellectual Property, nor the operation of the Company's or any of its
Subsidiaries' business, as presently used and operated violates, infringes,
misappropriates or misuses any intellectual property rights of any third party.
Except as set forth in Schedule 3.15(c), no Company Intellectual Property has
been cancelled, abandoned or otherwise terminated and all renewal and
maintenance fees in respect thereof have been duly paid. Except as set forth in
Schedule 3.15(c), the Company and its Subsidiaries have the exclusive right to
file, prosecute and maintain all applications and registrations identified (or
required to be identified) in Schedule 3.15(a).
(d) Except as set forth in Schedule 3.15(d), neither the Company nor any of
its Subsidiaries has received any written notice or claim from any third party
challenging the right of the Company or any of its Subsidiaries to use any of
the Company Intellectual Property. The Company Intellectual Property listed (or
required to be listed) on Schedules 3.15(a) and 3.15(b) constitutes all the
Intellectual Property necessary to operate the business of the Company and its
Subsidiaries as of the date of this Agreement, as of the Closing Date and
thereafter, in the manner in which it is presently operated, except for
licenses related to "off the shelf" or other software widely available through
regular commercial distribution channels on generally standard terms and
conditions.
(e) Except as set forth in Schedule 3.15(e), neither the Company nor any of
its Subsidiaries has made any claim in writing of a violation, infringement,
misuse or misappropriation by any third party (including any employee or former
employee of the Company or any of its Subsidiaries) of its rights to, or in
connection with any Intellectual Property, which claim is still pending. Except
as set forth in Schedule 3.15(e), neither the Company nor any of its
Subsidiaries has entered into any agreement to indemnify any other person
against any charge of infringement of any Intellectual Property, other than
indemnification provisions contained in purchase orders, sales agreements,
strategic alliance agreements, license agreements or any agreements with end
users or customers, in each case arising in the ordinary course of business.
(f) Except as set forth in Schedule 3.15(f), to the best knowledge,
information and belief of the Company, there is no pending or threatened claim
by any third party of a violation, infringement, misuse or misappropriation by
the Company or any of its Subsidiaries of any Intellectual Property owned by
any third party, or of the invalidity of any patent or registration of a
copyright, trademark, service mark, domain name, or trade name included in the
Company Intellectual Property. To the best knowledge, information and belief of
the Company, neither the Company nor any of its Subsidiaries knows of any valid
basis for any such claims.
(g) Except as set forth in Schedule 3.15(g), there are no interferences or
other contested proceedings, either pending or, to the best knowledge,
information and belief of the Company, threatened, in the United States
Copyright Office, the United States Patent and Trademark Office, or any
governmental authority (foreign or domestic) relating to any pending
application with respect to the Company Intellectual Property identified (or
required to be identified) on Schedule 3.15(a).
(h) Except as set forth on Schedule 3.15(h), the Company and its
Subsidiaries have secured valid written assignments ("Employee Assignments")
from all consultants and employees who contributed to the creation or
development of Company Intellectual Property developed by or on behalf of the
Company or any of its Subsidiaries of the rights to such contributions that the
Company or its Subsidiaries do not already own by operation of law.
(i) The Company and its Subsidiaries have taken all commercially reasonable
steps to protect and preserve the confidentiality of all trade secrets, know-
how, source codes, databases, customer lists, schematics,
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ideas, algorithms and processes. To the best knowledge, information and belief
of the Company, neither the Company nor any of its Subsidiaries has breached
any agreements of non-disclosure or confidentiality.
(j) Except as set forth on Schedule 3.15(j), no Year 2000 Issues exist with
respect to any of the computer and telecommunications software and hardware,
including source and object code, necessary to carry on the Company's business
substantially as currently conducted. Except as set forth on Schedule 3.15(j),
to the best knowledge, information and belief of the Company, none of the
Company's significant (individually or in the aggregate) suppliers, significant
(individually or in the aggregate) customers and those other Persons with which
(individually or in the aggregate) it conducts significant business are unable
to identify and resolve their own Year 2000 Issues, except where the inability
of such suppliers, customers and other Persons to identify and resolve their
own Year 2000 Issues would not have a Material Adverse Effect on the Company.
(k) With respect to all material software developed by the Company for use
in its business and either (i) distributed to any customer or other end user or
(ii) used to provide services to any customer or other end user (collectively,
"Distributed Company Software"), the Company has taken commercially reasonable
efforts consistent with standard practice in the industry to document the use,
maintenance and operation of the Distributed Company Software for use in its
business as currently conducted. The Company has made commercially reasonable
efforts consistent with standard practice in the industry to ensure that the
Distributed Company Software as currently distributed performs in accordance
with the specifications for that software. As currently conducted, the
operation of the business of the Company includes a reasonable effort
consistent with standard practice in the industry to protect Distributed
Software, before distribution, against viruses, trojan horses and other
unauthorized malicious code.
(l) Except as set forth on Schedule 3.15(l), neither the Company nor any of
its Subsidiaries has entered into any agreements, understandings or other
arrangements with any Principal Stockholder concerning any portion of the
Company Intellectual Property.
3.16 Compliance with Laws. The Company and each of its Subsidiaries are in
compliance in all material respects with all applicable laws, regulations,
orders, judgments and decrees, except where the failure to comply would not
reasonably be expected to have a Material Adverse Effect on the Company.
3.17 Governmental Licenses. Each of the Company and its Subsidiaries has all
governmental licenses, permits, franchises, approvals, permits and other
authorizations of, and have made all registrations and or filings with, all
Governmental Entities (the "Licenses") necessary to own, lease and operate its
properties and to enable it to carry on its respective business as presently
conducted, except where the failure to have such Licenses would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company. All Licenses held by the Company and each of its Subsidiaries, are in
full force and effect, except where the failure of such Licenses to be in full
force and effect would not have a Material Adverse Effect on the Company.
Neither the Company nor any of its Subsidiaries has received notice of any
proceeding for suspension or revocation of, or similar proceedings with respect
to, any such License. No jurisdiction has demanded or requested that the
Company or any of its Subsidiaries qualify or become licensed as a foreign
corporation.
3.18 Labor Matters.
(a) Each of the Company and its Subsidiaries is in compliance with all
federal, state or other applicable laws, domestic or foreign, respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and has not and is not engaged in any unfair labor practice,
except in each case as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(b) No unfair labor practice complaint against the Company or any of its
Subsidiaries is pending before the National Labor Relations Board and, to the
best knowledge, information and belief of the Company, no unfair labor practice
complaint is threatened or pending against the Company before the National
Labor Relations Board.
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(c) There is no labor strike, dispute, slowdown or stoppage actually pending
or, to the best knowledge, information and belief of the Company, threatened
against or involving the Company or any of its Subsidiaries.
(d) No union representation question exists respecting the employees of the
Company or any of its Subsidiaries.
(e) No grievance which would reasonably be expected to have a Material
Adverse Effect upon the Company, no arbitration proceeding arising out of or
under any collective bargaining agreement is pending and no claim therefor has
been asserted.
(f) No collective bargaining agreement is currently being negotiated by the
Company or any of its Subsidiaries.
(g) There has been no, and will not be any, "layoff" or "plant closing" as
defined by the Worker Adjustment Retraining and Notification Act during the 90
days prior to the Closing Date.
3.19 Employee Benefit Plans.
(a) List of Plans. Set forth in Schedule 3.19(a) is an accurate and complete
list of all (i) "employee benefit plans," within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended, and the rules
and regulations thereunder ("ERISA"); (ii) bonus, stock option, stock purchase,
restricted stock, incentive, fringe benefit, "voluntary employees' beneficiary
associations" ("VEBAs"), under Section 501(c)(9) of the Internal Revenue Code
of 1986, as amended, and the rules and regulations promulgated thereunder (the
"Code"), profit-sharing, pension or retirement, deferred compensation, medical,
life insurance, disability, accident, salary continuation, severance, accrued
leave, vacation, sick pay, sick leave, supplemental retirement and unemployment
benefit plans, programs, arrangements, commitments and/or practices (whether or
not insured); and (iii) employment, consulting, termination, and severance
contracts or agreements; in each case for active, retired or former employees
or directors, whether or not any such plans, programs, arrangements,
commitments, contracts, agreements and/or practices (referred to in (i), (ii)
or (iii) above) are in writing or are otherwise exempt from the provisions of
ERISA; that have been established, maintained or contributed to (or with
respect to which an obligation to contribute has been undertaken) or with
respect to which any potential liability is borne by the Company or any of its
Subsidiaries (including, for this purpose and for the purpose of all of the
representations in this Section 3.19, any predecessors to the Company or any of
its Subsidiaries and all employers (whether or not incorporated) that would be
treated together with the Company or any of its Subsidiaries as a single
employer (1) within the meaning of Section 414 of the Code, or (2) as a result
of the Company or any Subsidiary being or having been a general partner of any
such employer), since November 1, 1992 ("Employee Benefit Plans").
(b) Status of Plans. Except as set forth on Schedule 3.19(b) with respect
only to remedial amendments pursuant to the Code, each Employee Benefit Plan
(including any related trust) complies in form with the requirements of all
applicable laws, including ERISA and the Code, and has at all times been
maintained and operated in material compliance with its terms and the
requirements of all applicable laws, including ERISA and the Code. No complete
or partial termination of any Employee Benefit Plan has occurred since
November 1, 1992, or is expected to occur. Neither the Company nor any of its
Subsidiaries has any commitment, intention or understanding to create, modify
or terminate any Employee Benefit Plan. No condition or circumstance exists
that would prevent the amendment or termination of any Employee Benefit Plan.
No event has occurred and no condition or circumstance has existed that could
result in a material increase in the benefits under or the expense of
maintaining any Employee Benefit Plan from the level of benefits or expense
incurred for the most recent fiscal year ended thereof.
(c) No Pension Plans. No Employee Benefit Plan is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) subject to Section
412 of the Code or Section 302 or Title IV of ERISA. Neither the Company nor
any of its Subsidiaries has ever maintained or contributed to, or had any
obligation to
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contribute to (or borne any liability with respect to) any "multiple employer
plan" (within the meaning of the Code or ERISA) or any "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA).
(d) Liabilities. Neither the Company nor any of its Subsidiaries maintains
any Employee Benefit Plan which is a "group health plan" (as such term is
defined in Section 607(1) of ERISA or Section 5000(b)(1) of the Code) that has
not been administered and operated in all respects in compliance with the
applicable requirements of Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code, except to the extent such noncompliance would not result in
material liability, and neither the Company nor any of its Subsidiaries is
subject to any material liability, including additional contributions, fines,
taxes, penalties or loss of tax deduction as a result of such administration
and operation. No Employee Benefit Plan which is such a group health plan is a
"multiple employer welfare arrangement," within the meaning of Section 3(40) of
ERISA. Each Employee Benefit Plan that is intended to meet the requirements of
Section 125 of the Code meets such requirements, and each program of benefits
for which employee contributions are provided pursuant to elections under any
Employee Benefit Plan meets the requirements of the Code applicable thereto.
Neither the Company nor any of its Subsidiaries maintains any Employee Benefit
Plan which is an "employee welfare benefit plan" (as such term is defined in
Section 3(1) of ERISA) that has provided any "disqualified benefit" (as such
term is defined in Section 4976(b) of the Code) with respect to which an excise
tax could be imposed.
Except as required by Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code or any similar applicable state law, and except as set forth
on Schedule 3.19(d), neither the Company nor any of its Subsidiaries maintains
any Employee Benefit Plan (whether qualified or non-qualified under Section
401(a) of the Code) providing for post-employment or retiree health, life
insurance and/or other welfare benefits and having unfunded liabilities, and
neither the Company nor any of its Subsidiaries have any obligation to provide
any such benefits to any retired or former employees or active employees
following such employees' retirement or termination of service. Neither the
Company nor any of its Subsidiaries has any unfunded liabilities pursuant to
any Employee Benefit Plan that is not intended to be qualified under Section
401(a) of the Code. No Employee Benefit Plan holds as an asset any interest in
any annuity contract, guaranteed investment contract or any other investment or
insurance contract, policy or instrument issued by an insurance company that,
to the best knowledge, information and belief of the Company, is or may be the
subject of bankruptcy, conservatorship, insolvency, liquidation, rehabilitation
or similar proceedings.
Neither the Company nor any of its Subsidiaries has incurred any material
liability for any tax or excise tax arising under Chapter 43 of the Code, and,
to the best knowledge, information and belief of the Company, no event has
occurred and no condition or circumstance has existed that could give rise to
any such material liability.
There are no actions, suits, claims or disputes pending, or, to the best
knowledge and belief of the Company, threatened, anticipated or expected to be
asserted against or with respect to any Employee Benefit Plan or the assets of
any such plan (other than routine claims for benefits and appeals of denied
routine claims). No civil or criminal action brought pursuant to the provisions
of Title I, Subtitle B, Part 5 of ERISA is pending, threatened, anticipated or
expected to be asserted against the Company or any of its Subsidiaries or any
fiduciary of any Employee Benefit Plan, in any case with respect to any
Employee Benefit Plan. No Employee Benefit Plan or any fiduciary thereof has
been the direct or indirect subject of an audit, investigation or examination
by any governmental or quasi-governmental agency.
(e) Contributions. Full payment has been timely made of all amounts which
the Company or any of its Subsidiaries is required, under applicable law or
under any Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which the Company or any of its Subsidiaries is a party, to
have paid as contributions or premiums thereto as of the last day of the most
recent fiscal year of such Employee Benefit Plan ended prior to the date
hereof. All such contributions and/or premiums have been fully deducted for
income tax purposes and no such deduction has been challenged or disallowed by
any governmental entity, and to the best knowledge and belief of the Company
and its Subsidiaries no event has occurred and no condition or circumstance has
existed that could give rise to any such challenge or disallowance. The Company
has made
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adequate provision for reserves to meet contributions and premiums and any
other liabilities that have not been paid or satisfied because they are not yet
due under the terms of any Employee Benefit Plan, applicable law or related
agreements. Benefits under all Employee Benefit Plans are as represented and
have not been increased subsequent to the date as of which documents have been
provided.
(f) Tax Qualification. Except as set forth on Schedule 3.19(f) with respect
only to any applications to the IRS for determination letters which the Company
has made or will make prior to the expiration of the requisite period under
applicable Treasury Regulations or IRS pronouncements in which to apply for
such determination letters, each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code has, as currently in effect, been determined
to be so qualified by the Internal Revenue Service (the "IRS"), and each trust
established in connection with any Employee Benefit Plan which is intended to
be exempt from Federal income taxation under Section 501(a) of the Code has, as
currently in effect, been determined to be so exempt by the IRS or such
Employee Benefit Plan has been established under a standardized prototype plan
for which an IRS opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer. Each VEBA has been determined by the IRS to
be exempt from Federal income tax under Section 501(c)(9) of the Code. Since
the date of each most recent determination referred to in this paragraph (f),
no event has occurred and no condition or circumstance has existed that
resulted or is likely to result in the revocation of any such determination or
that could adversely affect the qualified status of any such Employee Benefit
Plan or the exempt status of any such trust or VEBA.
(g) Transactions. Neither the Company nor any of its Subsidiaries nor any of
their respective directors, officers, employees or, to the best knowledge and
belief of the Company, other persons who participate in the operation of any
Employee Benefit Plan or related trust or funding vehicle, has engaged in any
transaction with respect to any Employee Benefit Plan or breached any
applicable fiduciary responsibilities or obligations under Title I of ERISA
that would subject the Company or any of its Subsidiaries to a material tax,
penalty or liability for prohibited transactions or breach of any obligations
under ERISA or the Code or would result in any claim being made under, by or on
behalf of any such Employee Benefit Plan by any party with standing to make
such claim.
(h) Triggering Events. Except as set forth on Schedule 3.19(h), the
execution of this Agreement and the consummation of the transactions
contemplated hereby, do not constitute a triggering event under any Employee
Benefit Plan, policy, arrangement, statement, commitment or agreement, whether
or not legally enforceable, which (either alone or upon the occurrence of any
additional or subsequent event) will or may result in any payment (whether of
severance pay or otherwise), "parachute payment" (as such term is defined in
Section 280G of the Code), acceleration, vesting or increase in benefits to any
employee or former employee or director of the Company or any of its
Subsidiaries, other than with respect to the termination of any 401(k), profit
sharing plan or other qualified plan of the Company. No Employee Benefit Plan
provides for the payment of severance, termination, change in control or
similar-type payments or benefits.
(i) Documents. The Company has delivered or made available to FACO and its
counsel true and complete copies of all material documents in connection with
each Employee Benefit Plan, including (where applicable): (i) all Employee
Benefit Plans as in effect on the date hereof, together with all amendments
thereto, including, in the case of any Employee Benefit Plan not set forth in
writing, a written description thereof; (ii) all current summary plan
descriptions, summaries of material modifications, and material communications;
(iii) all current trust agreements, declarations of trust and other documents
establishing other funding arrangements (and all amendments thereto and the
latest financial statements thereof); (iv) the most recent IRS determination
letter obtained with respect to each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code or exempt under Section 501(a) or
501(c)(9) of the Code; (v) the annual report on IRS Form 5500-series or 990 for
each of the last three years for each Employee Benefit Plan required to file
such form; (vi) the most recently prepared financial statements for each
Employee Benefit Plan for which such statements are required; and (vii) all
contracts and agreements relating to each Employee Benefit Plan, including
service provider agreements, insurance contracts, annuity contracts, investment
management agreements, subscription agreements, participation agreements, and
recordkeeping agreements and collective bargaining agreements.
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3.20 Interests in Clients, Suppliers, Etc. Except as set forth on Schedule
3.20, no officer, director, affiliate or, to the best knowledge, information
and belief of the Company, employee of the Company or any of its Subsidiaries
either (a) is or (b) possesses, directly or indirectly, any financial interest
in or (c) is a director, officer or employee of, any Person which is, a client
of, supplier to, customer of, lessor to, lessee of or competitor or potential
competitor of the Company or any of its Subsidiaries. Except as set forth on
Schedule 3.20, neither the Company nor any of its Subsidiaries is a party to
any transaction agreement, arrangement or understanding with any affiliate,
officer, director or employee of the Company or any of its Subsidiaries.
Ownership of securities of a company whose securities are registered under the
Exchange Act of 1% or less of any class of such securities shall not be deemed
to be a financial interest for purposes of this Section 3.20.
Except as set forth on Schedule 3.20 or in the Company SEC Reports filed
prior to the date of this Agreement, neither the Company nor any of its
Subsidiaries is indebted to any director, officer, employee or agent of the
Company or any of its Subsidiaries (except for amounts due as normal salaries
or bonuses or in reimbursement of ordinary expenses), and no such person is
indebted to the Company or any of its Subsidiaries, there have been no other
transactions of the type required to be disclosed pursuant to Items 402 and 404
of Regulation S-K under the Securities Act and the Exchange Act.
3.21 No Changes Since Balance Sheet Date. Except as set forth in the Company
SEC Reports filed prior to the date of this Agreement, on Schedule 3.21 or as
expressly permitted or contemplated by this Agreement, since the Company
Balance Sheet Date neither the Company nor any of its Subsidiaries has
(a) incurred any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise), except in the ordinary course of business,
(b) permitted any of its assets to be subjected to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind (other than
Permitted Liens), (c) sold, transferred or otherwise disposed of any assets
except in the ordinary course of business, (d) made any capital expenditure or
commitment therefor, except in the ordinary course of business, (e) made any
distribution to its shareholders or declared or paid any dividend or made any
distribution on any shares of its capital stock (f) redeemed, purchased or
otherwise acquired any shares of its capital stock, (g) granted or issued any
option, warrant or other right to purchase or acquire any shares of its capital
stock, (h) made any bonus or profit sharing distribution or payment of any
kind, (i) increased its indebtedness for borrowed money, except current
borrowings from banks in the ordinary course of business, or made any loan to
any Person, (j) written off as uncollectible any notes or accounts receivable,
except write-offs in the ordinary course of business charged to applicable
reserves, none of which individually or in the aggregate is material to the
Company and its Subsidiaries, taken as a whole, (k) granted any increase in the
rate of wages, salaries, bonuses or other remuneration of any executive
employee or other employees, except in the ordinary course of business,
(l) canceled or waived any claims or rights of material value, (m) made any
change in any method of accounting or auditing practice, (n) otherwise
conducted its business or entered into any material transaction, except in the
ordinary course of business or (o) agreed, whether or not in writing, to do any
of the foregoing.
3.22 Consents and Approvals; No Violations. Assuming (i) the filings
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), are made and the waiting period thereunder has been
terminated or expired, (ii) the shareholders of the Company approve the Merger
and (iii) the Merger Documents are accepted for filing with the Delaware
Secretary of State, the execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated hereby will not (a)
violate any provision of the certificate of incorporation or by-laws of the
Company or any of its Subsidiaries, (b) violate any statute, ordinance, rule,
regulation, order or decree of any court or any governmental or regulatory
body, agency or authority applicable to the Company or any of its Subsidiaries,
(c) require any filing with, or permit, consent or approval of, or the giving
of any notice to, any governmental or regulatory body, agency or authority,
other than the filing of the Registration Statement with the SEC and the
Prospectus/Proxy Statement with the NYSE and the NASD 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
lien, security interest,
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charge or encumbrance upon any of the properties or assets of the Company or
any of its Subsidiaries under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which either the
Company or any of its Subsidiaries is a party, or by which either the Company
or any of its Subsidiaries or any of their respective properties or assets may
be bound, other than, in the case of clauses (b), (c) and (d) above, any
violations, breaches, conflicts, defaults and liens which, and filings,
permits, consents, approvals and notices the absence of which, would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
3.23 Pooling of Interests. Neither the Company nor any of its Subsidiaries
or, to the best knowledge, information and belief of the Company, any of their
respective directors, officers or shareholders has taken any action, nor to the
best knowledge, information and belief of the Company does any fact or
circumstance exist, which would interfere with FACO's ability to account for
the Merger as a pooling of interests under the Pooling Rules; provided,
however, that if FACO waives the condition precedent to closing contained in
Section 6.2(g), the representations and warranties contained in this Section
3.23 shall terminate and have no further effect.
3.24 Disclosure. None of this Agreement and the Schedules, Exhibits and
certificates attached hereto or delivered by the Company pursuant to this
Agreement contains any untrue statement of a material fact, or omits any
statement of a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they were
made, not misleading. There is no fact known to the Company which is reasonably
likely to have a Material Adverse Effect on the Company and which has not been
disclosed in a Schedule, Exhibit or certificate attached or provided hereto.
3.25 Broker's or Finder's Fees. Except as set forth on Schedule 3.25, no
agent, broker, person or firm acting on behalf of the Company or any of its
Subsidiaries is, or will be, entitled to any commission or broker's or finder's
fees from any of the parties hereto or from any Person controlling, controlled
by or under common control with any of the parties hereto, in connection with
any of the transactions contemplated by this Agreement.
3.26 Copies of Documents. The Company has caused to be made available for
inspection by FACO and its advisers, to the extent requested by FACO, true,
complete and correct copies of all documents referred to in this Section 3 or
in any Schedule or Exhibit attached hereto.
3.27 Registration Statement; Proxy Statement/Prospectus. The information
supplied by the Company and its Subsidiaries for inclusion in the Registration
Statement pursuant to which the FACO Common Shares to be issued in the Merger
will be registered with the SEC shall not, at the time the Registration
Statement (including any amendments or supplements thereto) is declared
effective by the SEC, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The information supplied by the Company or any of
its Subsidiaries for inclusion in the Proxy Statement/Prospectus shall not, on
the date the Proxy Statement/Prospectus is first mailed to the shareholders of
the Company, at the time of the Company Shareholders Meeting and at the
Effective Time, contain any statement which, at such time, is false or
misleading, with respect to any material fact, or omit to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by the
Company which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement/Prospectus, the Company shall promptly
inform FACO.
3.28 Opinion of Financial Advisor. The Company has been advised in writing
by its financial advisor, Chase Securities, Inc., in customary form and
substance that in such advisor's opinion, as of the date hereof, the Exchange
Ratio is fair to the shareholders of the Company from a financial point of
view.
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3.29 Vote Required. The affirmative vote of the holders of a majority of the
voting shares of the Company outstanding on the record date set for the Company
Shareholders Meeting is the only vote of the holders of any of the Company's
capital stock necessary to approve this Agreement and the transaction
contemplated hereby, including the Merger.
3.30 Board Approval. The Board of Directors of the Company (at a meeting
duly called and held) has unanimously (a) approved this Agreement and the
Merger, (b) determined that the Merger is in the best interests of the
shareholders of the Company and is on terms that are fair to such shareholders
and (c) recommended that the shareholders of the Company approve this Agreement
and the Merger.
3.31 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of the Company's and its Subsidiaries',
taken as a whole, gross revenues during the 12 month period preceding the date
hereof has indicated to either the Company or any of its Subsidiaries that it
will stop, or materially decrease the rate of, buying services or products of
the Company and its Subsidiaries, or has at any time on or after December 31,
1999 decreased materially its usage of the services or products of the Company
or any of its Subsidiaries. Except as set forth on Schedule 3.31, as of the
date hereof, no material supplier of the Company or any of its Subsidiaries has
indicated to the Company or any of its Subsidiaries that it will stop, or
materially decrease the rate of, supplying materials, products or services to
the Company.
3.32 Affiliates. Schedule 3.32 sets forth those officers, directors,
employees and agents of the Company and its Subsidiaries who, and other persons
who to the best knowledge, information and belief of the Company, as of the
date hereof may be deemed "affiliates" of the Company within the meaning of
Rule 145 promulgated under the Securities Act ("Rule 145").
SECTION 4
REPRESENTATIONS AND WARRANTIES OF FACO AND FACOSUB
Each of FACO and FACOSUB represents, warrants and agrees in favor of the
Company as follows:
4.1 Existence and Good Standing; Power and Authority. FACO is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. FACOSUB is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each of FACO and
FACOSUB has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Each of FACO and FACOSUB is duly qualified or licensed to conduct its
respective business, and is in good standing, in each jurisdiction in which the
character or location of the respective property owned, leased or operated by
it or the nature of the respective business conducted by it makes such
qualification or licensing necessary (except where the failure to be so
qualified, licensed or in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on FACO or FACOSUB). Each of FACO and
FACOSUB has the corporate power and authority to enter into, execute and
deliver this Agreement and to perform its obligations hereunder. This Agreement
(i) has been duly authorized and approved by all required corporate action of
FACO and FACOSUB, (ii) has been duly executed and delivered by each of FACO and
FACOSUB and (iii) constitutes the legal, valid and binding obligation of FACO
and FACOSUB enforceable against FACO and FACOSUB in accordance with its terms
except as such enforceability may be limited by bankruptcy, insolvency or
similar laws and equitable principles relating to or affecting the rights of
creditors generally from time to time in effect.
4.2 Consents and Approvals; No Violations. Assuming (i) the filings required
under the HSR Act are made and the waiting period thereunder has been
terminated or expired, (ii) the Registration Statement has been filed and
declared effective, (iii) the shareholders of the Company approve the Merger,
(iv) the Merger Documents are accepted for filing with the Secretary of State
of Delaware and (v) the Proxy Statement/Prospectus is delivered to the
Shareholders at least twenty (20) Business Days prior to the Company
Shareholders Meeting, the execution and delivery of this Agreement by FACO and
FACOSUB and the consummation of the transactions
A-26
contemplated hereby will not (a) violate any provision of the articles or
certificate of incorporation or by-laws of either FACO or FACOSUB, (b) violate
any statute, ordinance, rule, regulation, order or decree of any court or any
governmental or regulatory body, agency or authority applicable to either FACO
or FACOSUB, (c) require any filing with, or permit, consent or approval of, or
the giving of any notice to, any governmental or regulatory body, agency or
authority, authority, other than the filing of the Prospectus/Proxy Statement
with the NYSE and the NASD 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 lien, security interest,
charge or encumbrance upon any of the properties or assets of either FACO or
FACOSUB under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, franchise, permit, agreement, lease, franchise
agreement or other instrument or obligation to which either FACO or FACOSUB is
a party, or by which they or any of their properties or assets may be bound,
other than, in the case of clauses (b), (c) and (d) above, any violations,
breaches, conflicts, defaults and liens which, and filings, permits, consents,
approvals and notices the absence of which, would not, individually or in the
aggregate, have a Material Adverse Effect on FACO.
4.3 Broker's or Finder's Fees. Except as set forth on Schedule 4.3, no
agent, broker, person or firm acting on behalf of FACO, FACOSUB or any of their
respective Subsidiaries is, or will be, entitled to any commission or broker's
or finder's fees from any of the parties hereto or from any Person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated by this Agreement.
4.4 FACO Common Shares. The FACO Common Shares to be delivered in connection
with the Merger and, subject to Section 2.5, the FACO Common Shares to be
issued upon the exercise of New Stock Rights (a) have been authorized, (b) when
delivered, will be validly issued, fully paid, nonassessable and registered
pursuant to an effective registration statement under the Securities Act, (c)
will be issued in compliance with all federal and state securities laws and (d)
will be listed for trading with the NYSE.
4.5 Capitalization. The authorized capital stock of FACO is 180,000,000
common shares, par value $1.00, of which 63,968,403 were issued and outstanding
as of January 26, 2001 and 500,000 shares of Series A Junior Participating
Preferred Shares, par value $1.00, none of which are issued and outstanding.
All such outstanding shares have been duly authorized and validly issued, and
are fully paid and nonassessable. Except for options granted under FACO's 1996
Employee Stock Option Plan and the 1997 Directors Stock Plan, and except as set
forth on Schedule 4.5 or in the FACO SEC Reports, there are no outstanding
material options, warrants, calls, commitments, rights of exchange, convertible
securities or other securities or rights, plans or other agreements of any
character issued, granted or entered into by FACO which entitle the holder
thereof or any other party thereto to purchase or acquire FACO Common Shares,
any other securities of FACO or any equity interest in FACO or its business,
and no such rights will arise as a result of the execution or performance of
this Agreement or the transactions contemplated herein. Except as set forth on
Schedule 4.5, no Person has any demand or piggyback registration rights in
respect of their FACO Common Shares.
4.6 SEC Reports and Financial Statements. Except with respect to any
information supplied by the Company or any of its Subsidiaries for inclusion
therein, each form, report, schedule, registration statement, definitive proxy
statement filed by FACO with the SEC on or after October 11, 1996 (as such
documents have been amended prior to the date hereof, the "FACO SEC Reports"),
as of their respective dates, complied in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder and, since the first date on which FACO Common
Shares were listed for trading on the NYSE, the rules of the NYSE. FACO has
made available to the Company accurate and complete copies of all FACO SEC
Reports filed by the Company since October 11, 1996. Except with respect to any
information supplied by the Company or any of its Subsidiaries for inclusion
therein, none of the FACO SEC Reports, as of their respective dates, contained
any untrue statement of material fact or failed to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of FACO and its Subsidiaries included in such
FACO SEC Reports complied as to form in all material respects with applicable
accounting requirements
A-27
and with published rules and regulations of the SEC with respect thereto as of
their respective dates, were prepared in accordance with US GAAP as in effect
as of such dates (except as may be indicated in the notes thereto, or in the
case of unaudited interim financial statements, as permitted by Form 10-Q of
the SEC) and fairly present in all material respects, subject, in the case of
the unaudited interim financial statements, to normal, year-end adjustments,
the consolidated financial position of FACO and its Subsidiaries as of the
dates thereof and neither FACO nor any of its Subsidiaries has incurred any
material liabilities and obligations (whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due) of any nature except material liabilities, obligations and contingencies
(a) which are reflected in the consolidated balance sheet of FACO and its
Subsidiaries at December 31, 1999, (b) which (i) were incurred in the ordinary
course of business after December 31, 1999 or (ii) are disclosed in the FACO
SEC Reports filed after December 31, 1999, (c) which are not required to be
recorded as a liability under US GAAP or disclosed in notes to financial
statements or (d) which individually or in the aggregate are not expected to
have a Material Adverse Effect on FACO. Since December 31, 1999, there has been
no change in any of the significant accounting (including tax accounting)
policies, practices or procedures of FACO or any of its Subsidiaries except
changes resulting from changes in accounting pronouncements of the Financial
Accounting Standards Boards, changes in applicable laws or rules or regulations
thereunder or changes disclosed in the FACO SEC Reports.
4.7 Litigation. Except as disclosed in the FACO SEC Reports, there is no
action, suit, proceeding at law or in equity, arbitration or administrative or
other proceeding by or before (or to the best knowledge, information and belief
of FACO any investigation by) any governmental or other instrumentality or
agency, pending, or, to the best knowledge, information and belief of FACO,
threatened, against or impacting FACO, any of its Subsidiaries or any of its or
their properties or rights which could materially and adversely affect the
right and ability of FACO and its Subsidiaries, taken as a whole, to carry on
its business as now conducted or which could have a Material Adverse Effect on
FACO. Neither FACO nor its Subsidiaries is subject to any judgment, order or
decree entered in any lawsuit or proceeding which may have a Material Adverse
Effect on FACO.
4.8 Compliance with Laws. Except as set forth on Schedule 4.8, FACO and its
Subsidiaries are in compliance in all material respects with all applicable
laws, regulations, orders, judgments and decrees, except where the failure to
comply would not reasonably be expected to have a Material Adverse Effect on
FACO.
4.9 Disclosure. None of this Agreement, any Schedule, Exhibit or certificate
attached hereto or delivered by FACO or FACOSUB pursuant to this Agreement
contains any untrue statement by FACO or FACOSUB of a material fact, or omits
any statement of a material fact necessary in order to make the statements of
FACO or FACOSUB contained herein or therein, in light of the circumstances in
which they were made, not misleading. There is no fact known to FACO which is
reasonably likely to have a Material Adverse Effect on FACO.
4.10 Tax Matters. Prior to the Merger, FACO will be in control of FACOSUB
within the meaning of Section 368(c) of the Code. FACO has no plan or intention
to reacquire any of the FACO Common Shares issued in connection with the
Merger. FACO has no plan or intention to liquidate the Surviving Corporation,
to merge the Surviving Corporation with or into another corporation or to sell
or otherwise dispose of the capital stock of the Surviving Corporation, except
for transfers of shares of the Surviving Corporation to corporations controlled
by FACO. The Surviving Corporation will continue the historic business of the
Company or use a significant portion of the Company's historic business assets
in a business.
4.11 Board Approval. The Boards of Directors of FACO and FACOSUB,
respectively (each at a meeting duly called and held or by written consent in
lieu of such meeting) has approved this Agreement and the Merger.
4.12 Restrictive Documents. Neither FACO nor any of its Subsidiaries
(including FACOSUB) is subject to, or a party to, any charter, by-law,
mortgage, lien, lease, license, permit, agreement, contract, instrument, order,
law, rule, ordinance, regulation, judgment or decree, or any other restriction
of any kind or character, which, by its own operation, and not by the breach or
violation, as the case may be, thereof, (a) would
A-28
materially restrict the ability of FACO and its Subsidiaries, taken as a whole,
to acquire any property or conduct business in any area or (b) has or would
reasonably be expected to have a Material Adverse Effect on FACO.
4.13 Pooling of Interests. Neither FACO nor any of its Subsidiaries or, to
the best knowledge, information, and belief of FACO, any of their respective
directors, officers or shareholders have taken any action, and to the best
knowledge, information and belief of FACO no facts or circumstances exist,
which would interfere with FACO's ability to account for the Merger as a
pooling of interests under the Pooling Rules; provided, however, that if FACO
waives the condition precedent to closing contained in Section 6.2(g), the
representations and warranties contained in this Section 4.13 shall terminate
and have no further effect.
4.14 Registration Statement; Proxy Statement/Prospectus. Except with respect
to any information supplied by the Company or any of its Subsidiaries, the
information included by FACO in the Registration Statement pursuant to which
the FACO Common Shares to be issued in the Merger will be registered with the
SEC shall not, at the time the Registration Statement (including any amendments
or supplements thereto and documents incorporated therein by reference) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except with respect to any information
supplied by the Company or any of its Subsidiaries, the information included by
FACO or any of its Subsidiaries in the Proxy Statement/Prospectus shall not, on
the date the Proxy Statement/Prospectus is first mailed to the shareholders of
the Company, at the time of the Company Shareholder Meeting and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material
fact necessary in order to make statements made therein, in light of the
circumstances under which they are made, not false or misleading in any
material respect.
4.15 Ownership of FACOSUB; No Prior Activities. As of the date of this
Agreement and the Effective Time, except for obligations or liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated by this Agreement, and except for this Agreement and
any other agreements contemplated by this Agreement, FACOSUB has not and will
not have incurred, directly or indirectly, through any Subsidiary or affiliate,
any obligations or liabilities or engaged in any business activities of any
type or kind whatsoever or entered into any agreements or arrangements with any
Person.
SECTION 5
TRANSACTIONS PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of the Business of the Company Prior to Closing. During the
period from the date of this Agreement to the Effective Time, the Company shall
and shall cause its Subsidiaries to: (x) conduct their respective operations
only according to the ordinary and usual course of business, accurately
maintain their corporate books and records in the manner required by the
Delaware Code and any other applicable law, maintain their accounting and other
financial records in accordance with applicable accounting requirements,
published rules and regulations of the SEC with respect thereto, and US GAAP,
and use reasonable efforts to preserve intact their business organizations,
keep available the services of their officers and employees (without having any
obligation to provide retention packages) and maintain existing relationships
with licensors, suppliers, distributors, customers, landlords, employees,
agents and others having business relationships with them; (y) confer with FACO
concerning operational matters of a material nature (including the cancellation
or waiver of any claim or right in excess of $50,000) and (z) report
periodically to FACO concerning the business, operations and finances of the
Company and its Subsidiaries. Notwithstanding the immediately preceding
sentence, prior to the Effective Time, except as may be first approved in
writing by FACO, except for the Authorized Actions or as is otherwise permitted
or required by this Agreement, the Company shall and the Company shall cause
each of its Subsidiaries to: (a) refrain from amending or modifying their
respective articles of incorporation, certificates of incorporation and by-laws
from their respective forms on the date of
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this Agreement, (b) refrain from paying any bonuses (except only to the extent
that the Company or any of its Subsidiaries has expressly agreed and is bound
as of the date of this Agreement to pay such bonuses) and increasing any
salaries or other compensation to any director, officer, employee or
stockholder and entering into any employment, severance, or similar agreement
with any director, officer, or employee, (c) refrain from adopting or
increasing any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
of their respective, directors, officers or employees, except as required by
applicable law, (d) refrain from entering into any contract or commitment
except contracts and commitments in the ordinary course of business, (e)
refrain from increasing their indebtedness for borrowed money, except
borrowings in the ordinary course of business under existing lines of credit,
provided that such borrowings shall not exceed the maximum commitment under
each such existing line of credit, (f) refrain from canceling or waiving any
claim or right of substantial value which individually or in the aggregate is
material, (g) refrain from declaring or paying any dividends in respect of
their respective capital stock or redeeming, purchasing or otherwise acquiring
any of their respective securities, (h) refrain from making any material change
in accounting methods or practices, except as required by law or US GAAP,
(i) refrain from selling any shares of capital stock or any other securities,
as the case may be, or issuing any securities convertible into, or options,
warrants or rights to purchase or subscribe to, or entering into any
arrangement or contract with respect to the issue and sale of, any shares of
their respective capital stock or any other securities, or making any other
changes in their respective capital structures, except such issuances or sales
of securities which either the Company or any of its Subsidiaries is already
obligated to make as of the date of this Agreement and which are disclosed to
FACO, (j) refrain from selling, leasing or otherwise disposing of any asset or
property other than in the ordinary course of business, (k) refrain from making
any capital expenditure or commitment therefor, except in the ordinary course
of business, (l) refrain from writing off as uncollectible any notes or
accounts receivable, except write-offs in the ordinary course of business
charged to applicable reserves, none of which individually or in the aggregate
is material, (m) refrain from taking any action which would interfere with
FACO's ability to account for the Merger as a pooling of interests, (n) to the
extent not included in clauses (a) through (m) above, refrain from taking any
of the actions described in Section 3.21 and (o) refrain from agreeing to do
any of the foregoing.
5.2 Review of the Company; Confidentiality.
(a) FACO may, prior to the Closing Date, directly or through its
representatives, review the properties, books and records of the Company and
its Subsidiaries and their financial and legal condition to the extent FACO
deems necessary or advisable to familiarize itself with such properties and
other matters; such review shall not, however, affect the representations and
warranties made by the Company in this Agreement or the remedies of FACO for
breaches of those representations and warranties. The Company shall, and shall
cause the Subsidiaries of the Company to, permit FACO and its representatives
to have, after the date of execution of this Agreement, reasonable access,
during normal business hours and upon reasonable advance notice, to the
premises, to the officers, employees and to all the books and records of the
Company and its Subsidiaries and to cause the officers of the Company and its
Subsidiaries to furnish FACO with such financial and operating data and other
information with respect to the business and properties of the Company as FACO
shall from time to time reasonably request.
(b) In the event of termination of this Agreement, FACO shall keep
confidential any material information obtained from the Company and its
Subsidiaries concerning the Company's and its Subsidiaries' properties,
operations and business (unless readily ascertainable from public or published
information or trade sources) until the same ceases to be material (or becomes
so ascertainable) and, at the request of the Company, shall return to the
Company and its Subsidiaries or destroy all copies of any schedules,
statements, documents, source codes, object codes, programs and flowcharts or
other written information obtained in connection therewith, including, but not
limited to, any materials prepared by FACO or its representatives (except for
work product encompassed by the attorney-client privilege) containing any such
confidential information, except to the extent that such materials contain
information confidential to FACO, in which case such materials shall not be
returned, but destroyed. Each of the Company and FACO shall deliver or cause to
be delivered to the other such additional instruments, documents and
certificates as the other may reasonably request for the purpose of
A-30
(i) verifying the information set forth in this Agreement and on any Schedule
or Exhibit attached hereto and (ii) consummating or evidencing the transactions
contemplated by this Agreement.
(c) In the event of termination of this Agreement, the Company shall keep
confidential any material information obtained from FACO and its Subsidiaries
concerning the FACO's and its Subsidiaries' properties, operations and business
(unless readily ascertainable from public or published information or trade
sources) until the same ceases to be material (or becomes so ascertainable)
and, at the request of FACO, shall return to FACO and its Subsidiaries or
destroy all copies of any schedules, statements, documents or other written
information obtained in connection therewith, including any materials prepared
by the Company or its representatives (except for work product encompassed by
the attorney-client privilege) containing any such confidential information,
except to the extent that such materials contain information confidential to
the Company, in which case such materials shall not be returned, but destroyed.
In the event of termination of this Agreement, the Confidentiality Agreement
shall remain in full force and effect.
5.3 Exclusive Dealing. The Company shall not, and shall not permit any of
its Subsidiaries to, and the Company and its Subsidiaries shall not authorize
or permit any officer, director or employee of, or any financial advisor,
attorney, accountant or other advisor or representative retained by, the
Company or any of its Subsidiaries to, solicit, initiate, knowingly encourage
(including by way of furnishing information), endorse or enter into any
agreement with respect to, or take any other action that would reasonably be
expected to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal.
The Company shall promptly (and in no event later than one (1) Business Day
after obtaining knowledge thereof) advise FACO orally and in writing of any
Takeover Proposal or any inquiries or discussions with respect thereto and
shall promptly, but in any event within two (2) Business Days of receipt,
furnish to FACO a copy of any such written proposal or a written summary of any
such oral proposal. Neither the Board of Directors of the Company nor any
committee thereof shall (a) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to FACO the approval or recommendation by the Board
of Directors of the Company of the Merger or this Agreement or (b) approve or
recommend, or propose to approve or recommend, any Takeover Proposal other than
pursuant to the Merger or this Agreement. Notwithstanding the foregoing,
nothing contained in this Agreement shall prevent the Board of Directors of the
Company (or any officer of the Company acting solely at the instruction of the
Board of Directors of the Company) from (i) furnishing information to or
entering into discussions or negotiations with any unsolicited Person or taking
any other action if and only to the extent that the Board of Directors of the
Company shall have determined in good faith, that such action is required in
the exercise of its fiduciary duties, based upon the advice of its outside
counsel confirmed in writing by such outside counsel or (ii) complying with
Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act.
5.4 Best Efforts. Until such time as this Agreement is terminated pursuant
to Section 9.1, each of the Company, FACO and FACOSUB shall, and the Company
shall cause each of its Subsidiaries to, cooperate and use their respective
best efforts to take, or cause to be taken, all appropriate action, and to
make, or cause to be made, all filings necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including their respective best
efforts to obtain, prior to the Effective Time, all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company, FACO and FACOSUB as are
necessary for consummation of the transactions contemplated by this Agreement
and to fulfill the conditions to the Merger; provided, however, that in order
to obtain any such consent, approval or authorization no (a) loan agreement or
contract for borrowed money shall be repaid except as currently required by its
terms, in whole or in part, (b) contract shall be amended to increase the
amount payable thereunder or otherwise to be more burdensome to the Company,
FACO or FACOSUB and (c) Party shall, and no Party shall be required to, commit
to any divestiture transaction, agree to sell or hold separate or agree to
license to such Party's competitors, before or after the Effective Time, any of
FACO's, the Company's or their respective Subsidiaries' businesses, product
lines, properties or assets, or agree to any changes or restrictions in the
operation of such businesses, product lines, properties or assets.
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SECTION 6
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions Precedent to Obligations of FACO, FACOSUB and the
Company. The respective obligations of FACO and FACOSUB, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
satisfaction or waiver (subject to applicable law) at or prior to the Closing
Date of each of the following conditions:
(a) Approval of Company's Shareholders. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the shareholders of the
Company in accordance with applicable law and the Company's certificate of
incorporation and by-laws;
(b) HSR Act. Any waiting period (and any extension thereof) under the HSR
Act applicable to the Merger shall have expired or been terminated;
(c) Statutes; Governmental Approvals. No statute, rule, regulation,
executive order, decree or order of any kind shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
the consummation of the Merger; all governmental and other consents and
approvals, if any, disclosed on any Schedule attached hereto or necessary to
permit the consummation of the transactions contemplated by this Agreement
shall have been received;
(d) No Litigation. No temporary or preliminary or permanent injunction or
other order issued by a court or other government body or by any public
authority to restrain or prohibit or restraining or prohibiting the
consummation of the Merger shall be in effect;
(e) Securities Matters. The SEC shall have declared effective the
Registration Statement. No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued by the SEC
and no proceeding for that purpose, and no similar proceeding in respect of the
Proxy Statement/Prospectus, shall have been initiated or threatened by the SEC;
and all requests for additional information on the part of the SEC shall have
been complied with to the reasonable satisfaction of the parties hereto; and
(f) Listing. The FACO Common Shares to be delivered shall have been listed
with the NYSE, subject only to official notice of issuance.
6.2 Conditions Precedent to Obligations of FACO and FACOSUB. The obligations
of FACO and FACOSUB to effect the Merger are also subject to the satisfaction
or waiver, at or prior to the Closing Date, of each of the following
conditions:
(a) Truth of Representations and Warranties. The representations and
warranties of the Company contained herein shall be true and accurate in all
material respects, in each case at and as of the date of this Agreement and as
of the Closing Date (except to the extent a representation or warranty speaks
specifically as of an earlier date), and the Company shall have delivered to
FACO a certificate from the Chief Executive Officer of the Company, dated the
Closing Date to such effect;
(b) Performance of Agreements. All of the agreements of the Company to be
performed prior to the Closing pursuant to the terms of this Agreement shall
have been duly performed in all material respects as of the Closing Date, and
the Company shall have delivered to FACO a certificate from the Chief Executive
Officer of the Company, dated the Closing Date, to such effect;
(c) Good Standing and Other Certificates. As of the Closing Date, the
Company shall have delivered to FACO (i) copies of the Company's certificate of
incorporation including all amendments thereto, certified by the Secretary of
State of Delaware, (ii) a certificate from the Secretary of State or other
appropriate official of the Company's jurisdiction of incorporation to the
effect that the Company is in good standing in such
A-32
jurisdiction and listing all charter documents of the Company on file, (iii) a
certificate from the Secretary of State or other appropriate official in each
State in which the Company is qualified to do business to the effect that the
Company is in good standing in such State and (iv) a copy of the by-laws of the
Company, certified by the Secretary of the Company as being true and correct
and in effect on the Closing Date;
(d) No Material Adverse Effect. During the period from the date hereof to
the Closing Date, there shall have been no Material Adverse Effect on the
Company, and there shall not have occurred any change or development that FACO
can demonstrate has a probability of having a Material Adverse Effect on the
Company;
(e) Proceedings. As of the Closing Date, the Company shall have delivered to
FACO certified copies of resolutions duly adopted by the Company's Board of
Directors and shareholders, approving the Merger and authorizing the
transactions contemplated hereby, and such other or additional instruments,
consents, waivers, approvals, endorsements and documents as are necessary to
enable the Merger to be consummated as provided in this Agreement. All other
proceedings in connection with the Merger and the other transactions
contemplated hereby, and all other instruments, consents, waivers, approvals,
endorsements and documents referred to hereunder or otherwise necessary to
enable the Merger to be consummated as provided in this Agreement, shall have
occurred or been obtained, as the case may be, and be reasonable in form and
substance;
(f) Affiliates. As of the date immediately preceding the date that the
Registration Statement is filed, FACO shall have received from each person that
is deemed an "affiliate" of the Company under Rule 145 on the date immediately
preceding the date of the filing of the Registration Statement written
agreements substantially in the form attached hereto as Exhibit D (each such
agreement, an "Affiliate Agreement") and Exhibit E (each such agreement, a
"Pooling Agreement"), and, in the event that any other Person becomes an
affiliate of the Company thereafter, an Affiliate Agreement and a Pooling
Agreement from such Person, and each such Affiliate Agreement and Pooling
Agreement shall remain in full force and effect;
(g) Letters from Accountants. As of the Closing Date and as of the date the
Registration Statement is declared effective by the SEC, FACO shall have
received a letter or letters from PriceWaterhouseCoopers LLP, as independent
auditors of FACO and the Company, in a form reasonably acceptable to FACO, to
the effect that the Merger qualifies for pooling of interests accounting
treatment if consummated in accordance with this Agreement; and
(h) Termination of Plans. Any 401(k), profit sharing plan or other qualified
plan of the Company shall have been terminated; provided, however, that FACO
shall have provided the opportunity for participants in such plans of the
Company who are to be employed by FACO or the Surviving Corporation following
the Effective Time to "roll over" their account balances into FACO's 401(k)
plan. The Employee Stock Purchase Plan shall have been terminated.
(i) Employee Benefit Plans. The Company shall have filed annual reports on
IRS Form 5500 with respect to all Employee Benefit Plans for which such reports
are required to be filed for each plan year for which such annual reports are
due, and the Company shall have paid any applicable penalties with respect to
the Company's failure to timely file such annual reports. The Company shall
have furnished FACO with copies of all such annual reports and evidence
reasonably acceptable to FACO of the filing thereof. The Company shall have
prepared a summary plan description, as required by ERISA, and furnished to
applicable plan participants a copy thereof, for each Employee Benefit Plan for
which no summary plan description has previously been prepared and furnished to
plan participants. The Company shall have furnished to FACO copies of each such
summary plan description.
6.3 Conditions Precedent to Obligation of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver, at
or prior to the Closing Date, of each of the following conditions:
(a) Opinion of Counsel. The Company shall have received a written opinion
from Brobeck, Phleger & Harrison LLP, counsel to the Company, to the effect
that the Merger will be treated for federal income tax
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purposes as a "reorganization" within the meaning of Section 368(a) of the Code
(it being agreed that in rendering such opinion, Brobeck, Phleger & Harrison
LLP shall be entitled to rely on representations made by FACO, FACOSUB and the
Company as to certain matters relating to the qualification of the Merger as a
reorganization under Section 368(a) of the Code);
(b) Good Standing Certificate. As of the Closing Date FACO and FACOSUB shall
have delivered to the Company (i) copies of the articles of incorporation and
certificate of incorporation of FACO and FACOSUB, respectively, including all
amendments thereto, certified by the Secretary of State of the State of
California and the Secretary of State of Delaware, respectively and (ii) a
certificate from the Secretary of State of the State of California and the
Secretary of State of Delaware to the effect that FACO and FACOSUB,
respectively, is in good standing in such State, and listing all charter
documents of FACO and FACOSUB on file;
(c) Truth of Representations and Warranties. The representations and
warranties of FACO and FACOSUB contained herein shall be true and accurate in
all material respects, in each case at and as of the date of this Agreement and
as of the Closing Date (except to the extent a representation or warranty
speaks specifically as of an earlier date), and FACO and FACOSUB shall have
delivered to the Company a certificate from the President of FACO and FACOSUB,
respectively, dated the Closing Date, to such effect;
(d) Performance of Agreements. All of the agreements of FACO and FACOSUB to
be performed prior to the Closing pursuant to the terms of this Agreement shall
have been duly performed in all material respects, and FACO and FACOSUB shall
have delivered to the Company a certificate, dated the Closing Date, to such
effect;
(e) Proceedings. As of the Closing Date, FACO and FACOSUB shall have
delivered to the Company certified copies of resolutions duly adopted by their
respective Boards of Directors and, with respect to FACOSUB, its sole
shareholder, approving the Merger and authorizing the transactions contemplated
hereby, and such other or additional instruments, consents, waivers, approvals,
endorsements and documents as are necessary to enable the Merger to be
consummated as provided in this Agreement. All other proceedings in connection
with the Merger and the other transactions contemplated hereby, and all other
instruments, consents, waivers, approvals, endorsements and documents referred
to hereunder or otherwise necessary to enable the Merger to be consummated as
provided in this Agreement, shall have occurred or been obtained, as the case
may be, and be reasonable in form and substance;
(f) No Material Adverse Effect. During the period from the date hereof to
the Closing Date, there shall have been no Material Adverse Effect on FACO and
there shall not have occurred any change or development that the Company can
demonstrate has a probability of having a Material Adverse Effect on FACO; and
(g) Fairness Opinion. The Company shall have received an opinion in
customary form and substance from Chase Securities, Inc., its financial
advisor, dated as of the date of the mailing of the Proxy Statement/Prospectus,
confirming the opinion referred to in Section 3.28.
SECTION 7
COVENANTS RELATING TO SECURITIES MATTERS
7.1 Proxy Statement/Prospectus; Registration Statement.
(a) As soon as practicable following the date of this Agreement, FACO and
the Company shall jointly prepare and FACO shall file with the SEC, a
registration statement on Form S-4 under the Securities Act (the "Registration
Statement"), which will include a proxy statement/prospectus (the "Proxy
Statement/Prospectus") describing, among other things, the transactions
contemplated by this Agreement. FACO and the Company shall also take any action
(other than, with respect to FACO and the Company, qualifying to do business in
any jurisdiction in which they are not now so qualified and, with respect to
FACO, accounting for the Merger as a
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"purchase") required to be taken under state blue sky or securities laws in
connection with the issuance of FACO Common Shares necessary to fulfill the
transaction contemplated by this Agreement. FACO and the Company shall each
furnish the other all information concerning FACO and the Company and all such
other information required for use in the Proxy Statement/Prospectus and each
of FACO and the Company shall take such other action as the other may
reasonably request in connection with the preparation of the Proxy
Statement/Prospectus. FACO shall use all commercially reasonable efforts to
have or to cause the Registration Statement to become effective as promptly as
practicable (except that FACO shall have no obligation to agree to account for
the Merger as a "purchase" in order to cause the Registration Statement to
become effective) and shall take all action required under applicable federal
or state securities laws in connection with the issuance of FACO Common Shares
in the Merger (other than qualifying to do business in any jurisdiction in
which FACO is not now so qualified).
(b) If at any time prior to the Effective Time any event with respect to
FACO or the Company or their respective Subsidiaries shall occur which is
required at that time to be described in the Proxy Statement/Prospectus, the
Party with respect to whom the event occurs shall promptly notify the other
Parties, and to the extent required by law, FACO will promptly file an
amendment or supplement with the SEC and disseminate such amendment to the
Company shareholders.
7.2 Listing. FACO shall prepare and submit to the NYSE a listing application
covering the FACO Common Shares to be issued in the Merger, and shall use its
best efforts to cause such shares to be approved for listing and trading on the
NYSE prior to the Effective Time, subject to official notice of issuance. Such
listing application shall be submitted to the NYSE promptly following the
filing of the Registration Statement with the SEC.
SECTION 8
OTHER COVENANTS
8.1 Shareholder Approval. In order to consummate the Merger, the Company,
acting through its Board of Directors, shall, in accordance with applicable
law:
(a) promptly furnish a copy of the Proxy Statement/Prospectus to each of its
shareholders after the Registration Statement has become effective with the
SEC;
(b) promptly and duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Company Shareholders Meeting") for the
purpose of voting upon this Agreement and the Merger and the Company agrees
that this Agreement and the Merger shall be submitted at such Company
Shareholders Meeting; provided, however, that the Company Shareholders Meeting
shall not be held on a day earlier than the day that is twenty (20) Business
Days after the Proxy Statement/Prospectus has been delivered to the
shareholders of the Company; and
(c) use its reasonable best efforts to obtain the necessary approval of the
Merger by its shareholders.
8.2 HSR Act. FACO and the Company shall each, in cooperation with the other,
make the required filings in connection with the transactions contemplated by
this Agreement under the HSR Act with the FTC and the Antitrust Division, and
shall request early termination of the waiting period with respect to such
filings. As promptly as practicable from time to time after the date of this
Agreement, each Party shall make all such further filings and submissions, and
take such further action as may be required in connection therewith (except
that no Party hereby commits to any divestiture transaction, agrees to sell or
hold separate or agrees to license to such Party's competitors any of their or
their respective Subsidiaries' businesses, product lines, properties or assets,
or agrees to any changes or restrictions in the operation of such businesses,
product lines, properties or assets), and shall furnish the other all
information in its possession necessary therefor. FACO and the Company shall
each notify the other immediately upon receiving any request for additional
information with respect to
A-35
such filings from either the Antitrust Division or the FTC, and the Party
receiving the request shall use its reasonable best efforts to comply with such
request as soon as possible. Neither such Party shall withdraw any such filing
or submission without the written consent of the other.
8.3 Returns. Except as required by law, the Company shall not file, and
shall cause its Subsidiaries to refrain from filing, any Returns with respect
to the Company or such Subsidiary without the prior written consent of FACO.
8.4 Directors and Officers Indemnification.
(a) After the Effective Time, FACO will, and will cause the Surviving
Corporation to, indemnify and hold harmless the present and former officers,
directors, employees and agents of the Company and its Subsidiaries (the
"Indemnified Parties") in respect of acts or omissions occurring on or prior to
the Effective Time to the extent provided under the Company's and its
Subsidiaries' certificate of incorporation (or equivalent organizational
documents) and bylaws or any indemnification agreement with the Company's and
its Subsidiaries' officers and directors to which the Company and/or its
Subsidiaries is a party, in each case in effect on the date hereof; provided
that any indemnification of an officer, director, employee or agent of the
Company or any of its Subsidiaries under this Section 8.4(a) shall, regardless
of the identity of the Person providing such indemnification, be subject to all
limitations imposed from time to time under laws applicable to the Company or
such Subsidiary, as the case may be.
(b) For six years after the Effective Time, FACO will cause the Surviving
Corporation to use its best efforts to procure officers' and directors'
liability insurance in respect of acts or omissions occurring on or prior to
the Effective Time covering each such person currently covered by the Company's
and/or its Subsidiaries' officers' and directors' liability insurance policy on
terms substantially similar to those of, and with a reputable insurance carrier
comparable to the carrier providing, such policy in effect on the date hereof.
If the Surviving Corporation is unable to obtain the insurance required by this
Section, it shall obtain as much comparable insurance as possible for an annual
premium equal to such maximum amount.
(c) The provisions of this Section 8.4 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives.
8.5 Pooling Accounting. Except to the extent that FACO determines otherwise
in its sole discretion by written notice to the Company, FACO and the Company
shall each use their respective best efforts to cause the business combination
effected by the Merger to be accounted for as a pooling of interests. Each of
the Company and FACO shall use its best efforts to cause "affiliates" (as
defined in Section 6.2(f)) not to take any action that would adversely affect
the ability of FACO to account for the business combination to be effected by
the Merger as a pooling of interests.
8.6 Affiliate Agreements. The Company shall provide FACO such information
and documents as FACO shall reasonably request for purposes of reviewing the
list of persons contained in Schedule 3.32 and the Company shall provide to
FACO prior to the Closing a supplemental list including any additional persons
who may be deemed "affiliates" of the Company within the meaning of Rule 145
and who are not otherwise included on Schedule 3.32. The Company shall use its
best efforts to deliver or cause to be delivered to FACO, concurrently with the
execution of this Agreement (and in each case prior to the filing of the
Registration Statement) from each of the affiliates of the Company, an executed
Affiliate Agreement and a Pooling Agreement. FACO and FACOSUB shall be entitled
to place appropriate legends on the certificates evidencing any FACO Common
Shares to be received by such affiliates of the Company pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for FACO Common Shares, consistent with the terms of such
Affiliate Agreements.
8.7 Confidentiality Agreement. The Parties agree that the Confidentiality
Agreement shall be hereby amended to provide that any provision therein which
in any manner would be inconsistent with this Agreement
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or the transactions contemplated hereby shall terminate as of the date hereof.
The Parties further agree that the Confidentiality Agreement shall terminate as
of the Effective Time.
8.8 Takeover Statutes. If any Takeover Statute is or may become applicable
to the Merger, each of FACO and the Company shall take such actions as are
necessary so that the Merger and the other transactions contemplated by this
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of
any Takeover Statute on the Merger and such other transactions.
8.9 Employee Benefit Plans. At the Effective Time or following a reasonable
transition period as set forth below, continuing employees of the Company
("Continuing Employees") shall be eligible to participate in those employee
benefit plans maintained by FACO ("FACO Plans") for similarly situated
employees of FACO (or in substantially similar programs), on the same terms
applicable to similarly situated employees of FACO. Each Continuing Employee
shall be given credit for any vacation time accrued, but unused, as of the day
immediately preceding the Effective Time (or, if later, the time of the
transition of such employee from an Employee Benefit Plan to a FACO Plan). Each
Continuing Employee will be subject to FACO's sick leave policy and the number
of sick days used by such Continuing Employee as of the day immediately
preceding the Effective Time will be deducted from the total number of sick
days available to such Continuing Employee under such policy. Notwithstanding
the foregoing, in lieu of causing the Continuing Employees to participate in
FACO Plans as provided in the first sentence of this Section, FACO may, in its
sole discretion, as to any one or more of such benefits, cause the Continuing
Employees to continue to participate in an Employee Benefit Plan providing the
same benefits (other than rights with respect to the acquisition of stock of
the Company) as are provided under the Employee Benefits Plans as of the date
hereof for a reasonable transition period after the Effective Time. FACO will
use commercially reasonable efforts to refrain from terminating the Company's
Section 125 plan during the plan year in which the Effective Time occurs. Each
Continuing Employee shall be given credit, for purposes of any service
requirement for participation or vesting (but not benefit accrual for purposes
of any defined benefit pension plan), for his or her period of service with the
Company prior to the Effective Time credited under a similar plan, if any,
maintained by FACO, subject to appropriate break in service rules. Each such
employee shall, with respect to any FACO Plans which have co-payment,
deductible or other co-insurance features, receive credit for any amounts such
individual has paid in the plan during the calendar year in which the Effective
Time occurs (or, if later, the time of the transition of such employee from an
Employee Benefit Plan to a FACO Plan) under comparable plans or programs
maintained by the Company prior to the Effective Time. Each Continuing Employee
and eligible dependent who, at the Effective Time (or, if later, the time of
the transition of such employee from a Employee Benefit Plan to a FACO Plan),
was participating in an employee group health plan maintained by the Company
shall not be excluded from FACO's employee group health plan or limited
coverage thereunder by reason of any waiting period restriction or pre-existing
condition limitation to the extent such restriction or limitation did not apply
to such Continuing Employee as of the Effective Time (or, if later, the time of
transition of such employee from a Employee Benefit Plan to a FACO Plan) under
the Company's group health plan.
8.10 Company Opinion Letter. On or before the date the Registration
Statement is filed, FACO shall provide the Company's counsel with a
representation letter substantially in the form attached hereto as Exhibit F.
SECTION 9
TERMINATION
9.1 Events of Termination. This Agreement may be terminated at any time
prior to the Effective Time (a) by mutual written agreement of the Parties, (b)
on or after the 180th day from the date hereof (or such later date as the
Parties may have agreed to in writing) by FACO, by written notice to the
Company, if the conditions set forth in Section 6.1 and Section 6.2 (with the
exception of Section 6.2(g) which is provided for in subsection (j) below)
hereof shall not have been complied with or performed in any material respect
and neither FACO nor FACOSUB shall have materially breached any of their
representations, warranties, covenants
A-37
or agreements contained herein, (c) by FACO, by written notice to the Company,
if the Board of Directors of the Company shall have withdrawn or modified in
any manner adverse to FACO or FACOSUB its approval or recommendation of the
Merger, (d) on or after the 180th day from the date hereof (or such later date
as the Parties may have agreed to in writing) by the Company, by written notice
to FACO, if the conditions set forth in Section 6.1 and Section 6.3 hereof
shall not have been complied with or performed in any material respect and the
Company shall not have materially breached any of its representations,
warranties, covenants or agreements contained herein, (e) by FACO or the
Company by written notice to the other if the Effective Time shall not have
occurred within one month after the Closing Date, (f) by FACO, by written
notice to the Company, if the Company fails to call the Company Shareholders
Meeting on or prior to the 35th day after the Registration Statement is
declared effective by the SEC, (g) by the Company, by written notice to FACO,
if a Takeover Proposal shall have occurred and the Board of Directors of the
Company in connection therewith, after consultation with its legal counsel,
withdraws or modifies its approval and recommendation of this Agreement and the
transactions contemplated hereby after determining that to cause the Company to
proceed with the transactions contemplated hereby would not be consistent with
the Board of Directors' fiduciary duty to the shareholders of the Company, (h)
by either FACO or the Company, by written notice to the other, 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
Merger, (i) by either FACO or the Company, by written notice to the other, if
at the Company Shareholders Meeting (including any adjournment or postponement
thereof), the requisite vote of the shareholders of the Company in favor of
this Agreement and the Merger shall not have been obtained, (j) by FACO, by
written notice to the Company, if as of the date the Registration Statement is
declared effective by the SEC, (x) PriceWaterhouseCoopers LLP, as independent
auditors of FACO and the Company, shall not have delivered to FACO a letter or
letters, in a form reasonably acceptable to FACO, to the effect that the Merger
qualifies for pooling of interests accounting treatment if consummated in
accordance with this Agreement and (y) FACO shall not have waived the condition
precedent to closing contained in Section 6.2(g), (k) by FACO, by written
notice to the Company, if, as a condition to receiving the approval of the
Merger by either the FTC or the Antitrust Division or as a condition to the
expiration or termination of any waiting period under the HSR Act, either FACO
or the Company shall be required to, or required to agree to, (i) divest, sell
or hold separate or agree to license to such Party's competitors, before or
after the Effective Time, any of FACO's, the Company's or their respective
Subsidiaries' businesses, product lines, properties or assets, (ii) make any
material changes or accept material restrictions in the operation of such
businesses, product lines, properties or assets or (iii) make any changes or
accept restrictions in their respective businesses, product lines, properties,
assets or to this Agreement or the transactions contemplated hereby which would
prevent FACO from accounting for the Merger as a pooling of interests under the
Pooling Rules or (l) by the Company, by written notice to FACO, if Chase
Securities, Inc., the Company's financial advisor, shall not have delivered to
the Company an opinion in customary form and substance, dated the date of
mailing of the Proxy Statement/Prospectus, confirming the opinion referred to
in Section 3.28.
9.2 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to Section 9.1, all further obligations of the Parties
hereto under this Agreement (other than pursuant to Sections 5.2(b), 11.2 and
11.5 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 transactions contemplated hereby are
abandoned by reason of (a) the willful failure of such Party to have performed
its obligations hereunder and (b) any knowing misrepresentation made by such
Party regarding any matter set forth herein.
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SECTION 10
NONSURVIVAL OF REPRESENTATIONS
Except for covenants and agreements which, by their terms, are to be
performed after the Effective Time, all representations, warranties, covenants
and agreements of the Parties in this Agreement shall not survive the Effective
Time, and thereafter no Party hereto shall have any liability under this
Agreement with respect to any such representation, warranty or agreement except
for liabilities arising from intentional fraud, willful (tortious or illegal)
misconduct or criminal acts.
SECTION 11
MISCELLANEOUS
11.1 Knowledge. Except as otherwise set forth herein, where any
representation or warranty contained in this Agreement is expressly qualified
by reference to information "known" by, or to the "best knowledge, information
and belief" of (a) the Company, the Company confirms that one or more of (i)
its chief executive officer and president, (ii) its chief financial officer,
(iii) its controller, (iv) its general counsel and (v) the presidents of the
Company's Subsidiaries (and the Company hereby represents and warrants to FACO
that such presidents are the persons in charge of technology matters relating
to the operations of the Company and its Subsidiaries) persons in charge of
technology matters for the Company and/or its Subsidiaries has made due and
diligent inquiry as to the matters that are the subject of such representations
and warranties or (b) FACO, FACO confirms that one or more of (i) its
president, (ii) its chief financial officer, (iii) its controller, (iv) its
general counsel and (v) its tax director has made due and diligent inquiry as
to the matters that are the subject of such representations and warranties.
11.2 Expenses. The Parties hereto shall pay all of their own expenses
relating to the transactions contemplated by this Agreement and the documents
described herein, including, the fees and expenses of their respective counsel,
auditors and financial advisers.
11.3 Governing Law. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
New York (exclusive of conflict of laws principles) applicable to agreements
executed and to be performed solely within such State.
11.4 Jurisdiction; Agents for Service of Process. Any judicial proceeding
brought against any of the Parties to this Agreement on any dispute arising out
of this Agreement or any matter related hereto may be brought in the courts of
the State of New York, or in the United States District Court for the Southern
District of New York, and, by execution and delivery of this Agreement, each of
the Parties to this Agreement accepts the exclusive jurisdiction of such
courts, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement.
11.5 Publicity. Except as otherwise required by law, none of FACO, the
Company and their respective Subsidiaries, shall issue any press release or
make any other public statement, in each case relating to, connected with or
arising out of this Agreement or the matters contained herein, without
obtaining the prior consent of the other to the contents and the manner of
presentation and publication thereof, which consent shall not be unreasonably
or untimely withheld; provided, however, that either FACO or the Company may,
without the prior 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 NYSE or the Nasdaq Stock Market, as applicable, if
it has used all reasonable efforts to consult with the other.
A-39
11.6 Notices. Any notice or other communication required or permitted under
this Agreement shall be sufficiently given if delivered in person or sent by
facsimile or by registered or certified mail, postage prepaid, addressed as
follows:
if to FACO or FACOSUB, to:
The First American Corporation
1 First American Way
Santa Ana, California 92707
Telephone: 714-800-3000
Facsimile: 714-800-3490
Attention: Parker S. Kennedy
Thomas Wawersich
Kenneth D. DeGiorgio
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Telephone: 213-620-7700
Facsimile: 213-687-0758
Attention: Neil W. Rust
if to the Company, to:
Credit Management Solutions, Inc.
135 National Business Parkway
Annapolis Junction, Maryland 20701
Telephone: 301-362-6000
Facsimile: 301-362-6312
Attention: Scott L. Freiman
Copy to: General Counsel
with a copy to:
Brobeck, Phleger & Harrison LLP
1333 H Street, N.W., Suite 800
Washington, D.C. 20005
Telephone: 202-220-6000
Facsimile: 202-220-5200
Attention: Stephen A. Riddick
or such other address or number as shall be furnished in writing by any such
Party, and such notice or communication shall, if properly addressed, be deemed
to have been given as of the date so delivered, sent by facsimile or three
business days after deposit into the U.S. mail postage prepaid.
11.7 Parties in Interest. This Agreement may not be transferred, assigned,
pledged or hypothecated by any Party hereto. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and permitted assigns.
11.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one instrument.
11.9 Entire Agreement. This Agreement and the other documents referred to
herein which form a part hereof, contains the entire understanding of the
parties hereto with respect to the subject matter contained herein and therein.
This Agreement supersedes all prior agreements, understandings, representations
and warranties between the parties with respect to such subject matter. The
Parties acknowledge and agree that
A-40
there are no, and there shall not be any, oral agreements, representations or
warranties between or among any of the Parties and that for any agreement,
representation or warranty to be binding such agreement, representation or
warranty must be in a writing executed by each Party.
11.10 Amendments. This Agreement may be amended by the Parties, by action
taken or authorized by their respective Board of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the
shareholders of FACOSUB and the Company, but, after any such approval by such
shareholders, no amendment shall be made which by law requires further approval
by such shareholders without such further approval. Any such amendment may not
be made orally, but only by an agreement in writing signed by FACO, FACOSUB and
the Company.
11.11 Extension; Waiver. At any time prior to the Effective Time, the
Parties may, to the extent legally allowed, (i) extend the time for performance
of any of the obligations or other acts of the other parties hereto contained
here, (ii) waive any inaccuracies in the representations and warranties of the
other Parties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions of the other
Parties contained herein. Any agreement on the part of a Party to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such Party.
11.12 Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
11.13 Third Party Beneficiaries. Except as expressly provided herein
(including, for the avoidance of doubt, in Section 8.4), each Party hereto
intends that this Agreement shall not benefit or create any right or cause of
action in or on behalf of any Person other than the Parties hereto and the
shareholders of the Company.
IN WITNESS WHEREOF, each of FACO, FACOSUB and the Company has caused its
corporate name to be hereunto subscribed by its officer thereunto duly
authorized, all as of the day and year first above written.
THE FIRST AMERICAN CORPORATION
/s/ Thomas A. Klemens
By: _________________________________
Name: Thomas A. Klemens
Title: EVP/CFO
RUSTI CORP.
/s/ Kenneth DeGiorgio
By: _________________________________
Name: Kenneth DeGiorgio
Title: Vice President
CREDIT MANAGEMENT SOLUTIONS, INC.
/s/ Scott L. Freiman
By: _________________________________
Name: Scott L. Freiman
Title: CEO/President
A-41
EXHIBIT A
to Agreement and Plan of Merger
CERTIFICATE OF MERGER
OF
RUSTI CORP.
INTO
CREDIT MANAGEMENT SOLUTIONS, INC.
Pursuant to Title 8, Section 251(c) of the General Corporation Law of the
State of Delaware, the undersigned corporation, organized and existing under
the laws of Delaware, DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
Name State of Incorporation
---- ----------------------
Rusti Corp. Delaware
Credit Management Solutions, Inc. Delaware
SECOND: That an agreement and plan of merger between the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of Section
251 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is Credit
Management Solutions, Inc..
FOURTH: That the certificate of incorporation of Credit Management
Solutions, Inc., a Delaware corporation (the "Surviving Corporation"), shall be
the certificate of incorporation of the Surviving Corporation.
FIFTH: That the executed agreement and plan of merger is on file at the
principal place of business of the Surviving Corporation. The address of the
principal place of business of the Surviving Corporation is
[ ].
SIXTH: That a copy of the agreement and plan of merger will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
IN WITNESS WHEREOF, Credit Management Solutions, Inc. has caused this
Certificate to be signed by , its authorized officer, this
day of , 2001.
CREDIT MANAGEMENT SOLUTIONS, INC.
By ___________________________________
Name: ______________________________
Title: _____________________________
A-42
EXHIBIT B
to Agreement and Plan of Merger
CREDIT MANAGEMENT SOLUTIONS, INC.
CERTIFICATE OF INCORPORATION
You may obtain a copy of this exhibit to the Agreement and Plan of Merger at
no cost by writing to Credit Management Solutions, Inc., attention Nancy L.
Weil, 135 National Business Parkway, Annapolis Junction, Maryland 20701, or by
calling (301) 362-6000. If you would like to request this exhibit from CMSI,
please do so by May 21, 2001 to receive it before the CMSI stockholders'
meeting. CMSI will send this exhibit by first-class mail within one business
day of receiving your request. Alternatively, you may obtain this exhibit by
contacting the SEC via telephone or the Internet. Please see "Where You Can
Find More Information" on page 56 of the joint proxy statement-prospectus for
details.
A-43
EXHIBIT C
to Agreement and Plan of Merger
CREDIT MANAGEMENT SOLUTIONS, INC.
BY-LAWS
You may obtain a copy of this exhibit to the Agreement and Plan of Merger at
no cost by writing to Credit Management Solutions, Inc., attention Nancy L.
Weil, 135 National Business Parkway, Annapolis Junction, Maryland 20701, or by
calling (301) 362-6000. If you would like to request this exhibit from CMSI,
please do so by May 21, 2001 to receive it before the CMSI stockholders'
meeting. CMSI will send this exhibit by first-class mail within one business
day of receiving your request. Alternatively, you may obtain this exhibit by
contacting the SEC via telephone or the Internet. Please see "Where You Can
Find More Information" on page 56 of the joint proxy statement-prospectus for
details.
A-44
EXHIBIT D
to Agreement and Plan of Merger
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AFFILIATE AGREEMENT
BY AND BETWEEN
THE FIRST AMERICAN CORPORATION,
AND
THE INDIVIDUAL
SET FORTH BELOW
Dated as of , 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A-45
AFFILIATE AGREEMENT (the "Agreement") entered into as of ,
2001 by and between The First American Corporation, a California corporation
("FACO), and the individual whose signature, name and address appears below
(the "Individual").
WITNESSETH:
WHEREAS, FACO, Rusti Corp., a Delaware corporation and a wholly-owned
subsidiary of FACO ("FACOSUB"), and Credit Management Solutions, Inc., a
Delaware corporation (the "Company"), have entered into an Agreement and Plan
of Merger dated as of January 30, 2001 (the "Merger Agreement"; capitalized
terms used herein, but not otherwise defined herein, shall have the meanings
given them in the Merger Agreement), pursuant to which FACOSUB will merge with
and into the Company (the "Merger");
WHEREAS, upon the consummation of the Merger and in connection
therewith, the Individual will become the owner of FACO Common shares, par
value $1.00 (the "FACO Shares"); and
WHEREAS, it is a condition precedent to FACO's willingness to enter into
the Merger Agreement and consummate the Merger that the Individual shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements, provisions and covenants set forth in the Merger Agreement, and
hereinafter in this Agreement, it is hereby agreed as follows:
1. Affiliate Status: Agreements.
(a) The Individual hereby acknowledges that he may be deemed to be (but
does not hereby admit to be) an "affiliate" of the Company within the meaning
of Rule 145 under the Securities Act and agrees that he will not offer, sell,
pledge, hypothecate, transfer or otherwise dispose (each, a "Disposition"; the
terms "Disposed" and "Dispose" shall have correlative meanings) of any FACO
Shares unless at that time either:
(i) such Disposition shall be permitted pursuant to the provisions
of Rule 145(d) under the Securities Act (or any successor rule promulgated
by the SEC);
(ii) counsel representing the Individual, which counsel shall be
reasonably satisfactory to FACO, shall have advised FACO in a written
opinion letter reasonably satisfactory to FACO and FACO's counsel and upon
which FACO and its counsel may rely, that no registration under the
Securities Act would be required in connection with the proposed
Disposition;
(iii) a registration statement under the Securities Act covering the
FACO Shares proposed to be Disposed of, describing the manner and terms of
the proposed Disposition, and containing a current prospectus under the
Securities Act, shall be effective under the Securities Act; or
(iv) an authorized representative of the SEC shall have rendered
written advice to the Individual (sought by the Individual or counsel to
the Individual, with a copy thereof and of all other related communications
delivered to FACO) to the effect that the Commission would take no action,
or that the staff of the Commission would not recommend that the Commission
take action, with respect to the proposed Disposition if consummated.
The Individual acknowledges and agrees that FACO is under no
obligation to register the Disposition of FACO Shares by the Individual on
his behalf or to take any other action necessary in order to make
compliance with an exemption from registration available.
(b) The Individual acknowledges and agrees that until a public sale of
FACO Shares represented by such certificate has been made in compliance with
one of the alternative conditions set forth in the subparagraphs of paragraph
(a) of this Section 1, all certificates representing FACO Shares deliverable to
A-46
the Individual pursuant to the Merger Agreement and in connection with the
Merger and any certificates subsequently issued with respect thereto or in
substitution therefor shall bear a legend substantially as follows ("Rule 145
Certificates"):
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), applies. The shares represented by this certificate
may not be offered, sold, pledged, hypothecated, transferred or
otherwise disposed of (a "Disposition") except in compliance with
paragraph (d) of Rule 145 or pursuant to an effective registration
statement under the Securities Act covering the shares represented by
this certificate, describing the manner and terms of the proposed
Disposition and containing a current prospectus under the Securities
Act, or pursuant to an exemption from such registration."
FACO, in its sole discretion, may cause stop transfer orders to be placed with
its transfer agent(s) with respect to the Rule 145 Certificates, but not as to
the Rule 145 Certificates for any part of FACO Shares as to which said legend
is no longer appropriate as provided above.
(c) The Individual agrees to observe and comply with the Securities Act
and the general rules and regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or promulgated, in
connection with any Disposition of FACO Shares or any part thereof. In the
event of a sale or other disposition by the undersigned of FACO Shares pursuant
to Rule 145, the Individual will supply FACO with evidence of compliance with
such rule, in the form of a broker's letter in customary form or other evidence
reasonably satisfactory to FACO.
2. FACO Reports. From and after the Effective Time and for so long as
necessary in order to permit the Individual to sell FACO Shares pursuant to
Rule 145 and, to the extent applicable, Rule 144 under the Securities Act, FACO
will use its best efforts to file on a timely basis all reports required to be
filed by it pursuant to Section 13 of the Exchange Act so that the Individual
may sell the FACO Shares pursuant to the terms and conditions of Rule 145 and
the applicable provisions of Rule 144.
3. No Waiver. No waiver by any party hereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing.
4. Notices. All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
if to FACO, to:
The First American Corporation
1 First American Way
Santa Ana, California 92707
Attention: President
Facsimile: 714-800-3490
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Attention: Neil W. Rust
Facsimile: 213-687-0758
A-47
if to the Individual, at the address set forth below the Individual's signature
on the signature page hereof, or, with respect to both FACO and the Individual,
to such other address as such party may designate for itself by notice given as
herein provided
5. Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one instrument.
6. Binding Effect; No Assessment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto or their respective heirs, executors,
administrators, successors and assigns.
7. GOVERNING LAW. THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, AND
ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY WITHIN SUCH
STATE.
8. Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
9. Acknowledgment. The Individual acknowledges that (i) he has carefully
read, this Agreement and understands the requirements hereof and the
limitations imposed upon the Disposition of FACO Shares and (ii) the receipt by
FACO of this Agreement is an inducement and a condition to FACO's obligations
to consummate the Merger.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written:
INDIVIDUAL:
_____________________________________
Name:
Street:
City:
State:
Zip Code:
THE FIRST AMERICAN CORPORATION
By:__________________________________
Name:
Title:
A-48
EXHIBIT E
to Agreement and Plan of Merger
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
POOLING AGREEMENT
BY AND BETWEEN
THE FIRST AMERICAN CORPORATION,
AND
THE INDIVIDUAL
SET FORTH BELOW
Dated as of , 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A-49
POOLING AGREEMENT (the "Agreement") entered into as of , 2001,
by and between The First American Corporation, a California corporation
("FACO"), and the individual whose signature, name and address appears below
(the "Individual").
WITNESSETH:
WHEREAS, FACO, Rusti Corp., a Delaware corporation and a wholly-owned
subsidiary of FACO ("FACOSUB"), and Credit Management Solutions, Inc., a
Delaware corporation (the "Company"), have entered into an Agreement and Plan
of Merger dated as of January 30, 2001 (the "Merger Agreement"); capitalized
terms used herein, but not otherwise defined herein, shall have the meanings
given them in the Merger Agreement), pursuant to which FACOSUB will merge with
and into the Company (the "Merger");
WHEREAS, upon the consummation of the Merger and in connection
therewith, the Individual will become the owner of FACO Common shares, par
value $1.00 (the "FACO Shares"); and
WHEREAS, it is a condition precedent to FACO's willingness to enter into
the Merger Agreement and consummate the Merger that the Individual execute and
deliver this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements, provisions and covenants set forth in the Merger Agreement, and
hereinafter in this Agreement, it is hereby agreed as follows:
1. Affiliate Status. The Individual hereby acknowledges that he may be
deemed to be (but does not hereby admit to be) an "affiliate" of the Company
within the meaning of Rule 145 under the Securities Act and as such term is
used in and for purposes of the Pooling Rules.
2. Covenant. The Individual represents to, and covenants with, FACO that he
will not, during the 30 days prior to the Effective Time, sell, transfer or
otherwise dispose of, or reduce any risk relative to, any securities of FACO or
the Company, and the undersigned will not sell, transfer or otherwise dispose
of, or reduce any risk relative to, the FACO Shares received by the Individual
in the Merger or any other FACO Common Shares until after such time as results
covering at least 30 days of operations of FACO (including the combined
operations of FACO and the Company and its Subsidiaries) have been published by
FACO in the form of a quarterly earnings report, an effective registration
statement filed with the SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or
any other public filing or announcement which includes such results of
operations.
3. No Waiver. No waiver by any party thereto of any condition or of any
breach of any provision of this Agreement shall be effective unless in writing.
4. Notices. All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
if to FACO, to:
The First American Corporation
1 First American Way
Santa Ana, California 92707
Attention: President
Facsimile: 714-800-3490
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
A-50
Los Angeles, California 90071
Attention: Neil W. Rust
Facsimile: 213-687-0758
if to the Individual, at the address set forth below the Individual's signature
on the signature pages hereof, or, with respect to both FACO and the
Individual, to such other address as such party may designate for itself by
notice given as herein provided.
5. Counterparts. This Agreement may be executed in one or more counterparts,
all of which taken together shall constitute one instrument.
6. Binding Effect; No Assignment. This Agreement shall be binding upon and
insure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be transferred, assigned, pledged or
hypothecated by any party hereto and their respective heirs, executors,
administrators, successors and permitted assigns.
7. GOVERNING LAW. THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, AND
ALL MATTERS RELATING HERETO, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO AGREEMENTS EXECUTED AND TO BE PERFORMED SOLELY WITHIN SUCH
STATE.
8. Severability. In case any provision in this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof will not in any way be affected or impaired
thereby.
9. Acknowledgment. The Individual acknowledges that (i) he has carefully
read this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of FACO
Shares and (ii) the receipt by FACO of this letter is an inducement and a
condition to FACO's obligations to consummate the Merger.
10. Termination. This Agreement and the covenants, representations,
warranties and agreements herein shall terminate in the event that, for any
reason whatsoever, the business combination to be effected by the Merger is not
effected as a "pooling of interests" for accounting purposes.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
INDIVIDUAL
By:__________________________________
Name:
Street:
City:
State
Zip Code:
THE FIRST AMERICAN CORPORATION
By:__________________________________
Name:
Title:
A-51
EXHIBIT F
to Agreement and Plan of Merger
REPRESENTATION LETTER
The First American Corporation
and
Rusti Corp.
, 2001
Brobeck, Phleger & Harrison LLP
1333 H Street, N.W., Suite 800
Washington, DC 20005
Re: Merger pursuant to the Agreement and Plan of Merger (the "Agreement")
dated as of January 30, 2001, among The First American Corporation, a
California corporation ("Parent"), Rusti Corp., a Delaware corporation
("Merger Sub"), and Credit Management Solutions, Inc., a Delaware
corporation ("Target")
Ladies and Gentlemen:
This letter is supplied to you in connection with your rendering of an
opinion pursuant to the Agreement regarding certain federal income tax
consequences of the above-captioned merger (the "Merger"). Unless otherwise
indicated, capitalized terms not defined herein have the meanings set forth in
the Agreement.
A. Representations
The undersigned hereby certify and represent that the following facts are
now true and will continue to be true through the Effective Time of the Merger
and thereafter where relevant:
1. At least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value of the
gross assets held by Merger Sub immediately prior to the Merger will be held
by Target after the Merger. For the purpose of determining the percentage of
Merger Sub's net and gross assets held by Target immediately following the
Merger, the following assets will be treated as property held by Merger Sub
immediately prior to the Merger but not by Target subsequent to the Merger:
(i) assets disposed of by Merger Sub (other than assets transferred by Merger
Sub to Target in the Merger) prior to the Merger (including without limitation
any asset disposed of by Merger Sub, other than in the ordinary course of
business, pursuant to a plan or intent existing during the period ending at
the Effective Time and beginning with the commencement of negotiations
(whether formal or informal) with Target regarding the Merger (the "Pre-Merger
Period")), (ii) assets used by Merger Sub to pay other expenses or liabilities
incurred in connection with the Merger, (iii) assets used by Merger Sub to
make payments to Target shareholders in lieu of fractional shares of Parent
stock and (iv) assets used by Merger Sub to make distribution, redemption or
other payments in respect of Target stock or rights to acquire such stock
(including payments treated as such for tax purposes) that are made in
contemplation of the Merger or related thereto;
2. The Merger is being undertaken for business reasons and not for the
purpose of tax avoidance;
3. Prior to the Merger, Parent will be in "Control" of Merger Sub. As
used herein, "Control" of a corporation shall consist of ownership of stock
possessing at least eighty percent (80%) of the total combined voting power of
all classes of stock entitled to vote and at least eighty percent (80%) of the
total number of shares of all other classes of stock of the corporation. For
purposes of determining Control, a person shall not be considered to own
voting stock if rights to vote such stock (or to restrict or otherwise control
the voting of such stock) are held by a third party (including a voting trust)
other than an agent of such person;
A-52
4. Merger Sub has been formed solely to consummate the Merger and, prior
to the Effective Time, Merger Sub has not conducted and will not conduct any
business activity or other operation of any kind (except for the issuance of
its stock to Parent);
5. In the Merger, all shares of Target stock will be exchanged solely
for consideration at least eighty percent (80%) of the fair market value of
which consists of voting stock of Parent, and the shares of Target stock that
are exchanged solely for Parent voting stock will represent Control of Target;
6. Parent has no plan or intention to cause Target to issue additional
shares of stock after the Merger or take any other action that would result in
Parent losing Control of Target;
7. Except for transfers described in both Section 368(a)(2)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulation
Section 1.368-2(k), Parent has no current plan or intention to (i) liquidate
Target; (ii) merge Target with or into another corporation other than into
Parent in a transaction qualifying as a reorganization under Section
368(a)(1)(A) of the Code; (iii) sell, distribute or otherwise dispose of Target
stock; or (iv) sell or otherwise dispose of (if Target is merged into Parent),
or cause Target to sell or otherwise dispose of, any of Target's assets (or any
assets acquired from Merger Sub) except for (a) dispositions made in the
ordinary course of business, (b) payment of expenses incurred by Target
pursuant to the Merger (including payments made with respect to fractional
shares), and (c) other dispositions that in the aggregate would not cause the
Merger to fail the requirement set forth in Section 368(a)(2)(E)(i) of the
Code;
8. In the Merger, Merger Sub will have no liabilities assumed by Target
and will not transfer to Target any assets subject to liabilities;
9. Parent intends that Target (or Parent if Target is merged into
Parent) will continue the historic business of Target following the Merger
within the meaning of Section 1.368-1(d) of the Treasury Regulations;
10. Neither Parent nor Merger Sub is an investment company within the
meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code;
11. Neither Parent nor Merger Sub is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code;
12. Neither Parent (or any agent of Parent) nor any "related person"
with respect to Parent within the meaning of Section 1.368-1(e)(3) of the
Treasury Regulations (a) has purchased or will purchase any Target stock in
connection with or in contemplation of the Merger, or (b) has a current
intention to purchase any Parent stock issued in the Merger or will purchase
any such Parent stock as part of the consummation of the Merger;
13. Except as otherwise specifically provided in the Agreement, Parent,
Merger Sub, Target and the shareholders of Target will each pay separately its
or their own expenses in connection with the Merger;
14. With respect to each instance, if any, in which shares of Target
stock have been purchased by a shareholder of Parent (a "Shareholder") during
the Pre-Merger Period (a "Stock Purchase"): (i) the Stock Purchase was not made
by such Shareholder as a representative, or for the benefit, of Parent; (ii)
the purchase price paid by such Shareholder pursuant to the Stock Purchase was
not and will not be advanced, and was not and will not be reimbursed, either
directly or indirectly, by Parent; (iii) at no time was such Shareholder or any
other party required or obligated to surrender to Parent the Target stock
acquired in the Stock Purchase, and neither such Shareholder nor any other
party will be required to surrender to Parent the Parent stock for which such
shares of Target stock will be exchanged in the Merger; and (iv) the Stock
Purchase was not a formal or informal condition to consummation of the Merger;
and
15. The undersigned officer of each of Parent and Merger Sub is
authorized to make all of the certifications and representations on behalf of
Parent and Merger Sub, respectively, set forth herein.
A-53
B. Reliance by You in Rendering Opinion; Limitations on Your Opinion
1. The undersigned recognize that (i) your opinion will be based on the
representations set forth herein and on the statements contained in the
Agreement and the documents related thereto and (ii) your opinion will be
subject to certain limitations and qualifications including that it may not be
relied upon if any such representations are not accurate in all material
respects.
2. The undersigned recognize that your opinion will not address any tax
consequences of the Merger or any action taken in connection therewith except
as expressly set forth in such opinion.
Very truly yours,
The First American Corporation
By___________________________________
Title________________________________
Rusti Corp.
By___________________________________
Title________________________________
A-54
ANNEX B
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment"),
dated as of March 22, 2001, among THE FIRST AMERICAN CORPORATION, a California
corporation ("FACO"), RUSTI CORP., a Delaware corporation and a wholly-owned
subsidiary of FACO ("FACOSUB"), and CREDIT MANAGEMENT SOLUTIONS, INC., a
Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, FACO, FACOSUB and the Company are parties to that certain
Agreement and Plan of Merger dated as of January 30, 2001 (the "Agreement");
WHEREAS, pursuant to this Amendment, FACO, FACOSUB and the Company desire
to amend the Agreement;
NOW, THEREFORE, in consideration of the foregoing, the premises and mutual
covenants contained herein and for other valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings given thereto in the Agreement.
2. Effectiveness of this Amendment. This Amendment shall be effective on
and as of the date hereof.
3. Amendments. The Agreement is hereby amended by:
(a) inserting the following text as a new clause (j) at the end of
Section 6.2 of the Agreement:
"(j) Election of New Board; Ratification of Agreement. (i) Prior to
the Company Shareholders Meeting, the Company shall have duly called and
given notice (which notice may be contained in the Proxy
Statement/Prospectus) of a special meeting of its shareholders (which
meeting may be the same meeting as the Company Shareholders Meeting) for
the purpose of electing the board of directors of the Company (the
"Special Meeting"), (ii) prior to the vote by the stockholders of the
Company regarding the approval and adoption of this Agreement and the
Merger, (A) the stockholders of the Company shall have duly elected the
board of directors of the Company at the Special Meeting and (B) such
newly elected board of directors of the Company shall have duly ratified
all actions taken by the Company (including, without limitation, the
execution and delivery of this Agreement and the approval of the
consummation of the Merger and the other the transactions contemplated
hereby) on or after January 25, 2001 and prior to the time of
effectiveness of such ratification and (iii) on or prior to the third
Business Day after the Special Meeting, the Company shall have delivered
to FACO copies of the resolutions of the Company's board of directors
and/or stockholders, as applicable, evidencing, in reasonable form and
substance, the satisfaction of the conditions set forth in
subsection 6.2(j)(ii)."; and
(b) inserting the following text before the period at the end of Section
9.1 of the Agreement:
"or (m) by FACO by written notice to the Company, if the conditions set
forth in Section 6.2(j) hereof shall not have been complied with or
performed on or prior to the third Business Day after the Special
Meeting".
B-1
4. Miscellaneous.
(a) Except as expressly modified by this Amendment, the Agreement shall
continue to be and remain in full force and effect in accordance with its
terms. Any future reference to the Agreement shall, from and after the date
hereof, be deemed to be a reference to the Agreement as amended by this
Amendment.
(b) This Amendment may be executed in any number of counterparts, each
of which shall constitute an original, but all of which when taken together
shall constitute but one instrument.
(c) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO CONFLICTS OF LAW RULES.
(d) This Amendment may be executed by facsimile signature and each such
signature shall be treated in all respects as having the same effect as an
original signature.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
THE FIRST AMERICAN CORPORATION
/s/ Kenneth DeGiorgio
By: _________________________________
Name: Kenneth DeGiorgio
Title: Vice President
RUSTI CORP.
/s/ Kenneth DeGiorgio
By: _________________________________
Name: Kenneth DeGiorgio
Title: Vice President
CREDIT MANAGEMENT SOLUTIONS, INC.
/s/ Scott L. Freiman
By: _________________________________
Name: Scott L. Freiman
Title: President and CEO
B-2
ANNEX C
January 30, 2001
Confidential
The Board of Directors
Credit Management Solutions, Inc.
135 National Business Parkway
Annapolis Junction, MD 20701
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock, par value $.01
per share (the "Credit Common Stock") of Credit Management Solutions (the
"Company") of the consideration to be received by such shareholders in
connection with the proposed merger of Rusti Corp. ("Merger Sub"), a wholly
owned subsidiary of First American Corporation ("First American"), with and
into the Company (the "Proposed Transaction") pursuant to the Agreement and
Plan of Merger dated as of January 30, 2001, among First American, Merger Sub,
and the Company (the "Agreement").
We understand that the terms of the Agreement provide, among other things,
that upon consummation of the Proposed Transaction, each issued and outstanding
share of First Common Stock shall be converted into the right to receive that
number of shares of common stock, par value $1.00 per share (the "FAC Common
Stock"), of First American determined in accordance with the terms of the
Agreement (the "Exchange Ratio"). For purposes of this opinion, we have assumed
that the Proposed Transaction will qualify as a tax-free reorganization under
the United States Internal Revenue Code for the shareholders of the Company and
that the Proposed Transaction will be accounted for as a pooling of interests.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available audited consolidated financial
statements of First American for the fiscal year ended December 31,
1999 and the publicly available unaudited consolidated financial
statements of First American for the period ended September 30, 2000
and certain other relevant financial and operating data of First
American (including its capital structure) made available to us from
published sources;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to First American;
(iii) discussed with certain members of senior management of First
American the business, financial condition and prospects of First
American and the effects of the Proposed Transaction on the
financial condition and prospects of First American;
(iv) reviewed the audited consolidated financial statements of the
Company for the fiscal year ended December 31, 1999 and the
unaudited consolidated financial statements of the Company for the
period ended September 30, 2000 and certain other relevant financial
and operating data of the Company made available to us from
published sources and from the internal records of the Company;
(v) reviewed certain internal financial and operating information,
including certain projections, relating to the Company prepared by
the senior management of the Company;
(vi) discussed with certain members of senior management of the Company
the business, financial condition and prospects of the Company and
the effects of the Proposed Transaction on the financial condition
and prospects of the Company;
C-1
(vii) reviewed the recent reported prices and trading activity for the FAC
Common Stock and the Credit Common Stock and compared such
information and certain financial information for the Company with
similar information for certain other companies engaged in
businesses we consider comparable;
(viii) reviewed the financial terms, to the extent publicly available, of
certain transactions involving companies we deem comparable to the
Company and the terms of other business combinations that we deemed
relevant;
(ix) reviewed the Agreement dated January 30, 2001; and
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all information that
was publicly available or furnished to us by First American or the Company or
otherwise reviewed by us in connection with the Proposed Transaction, and we
have not assumed any responsibility or liability therefor. We have not
conducted any independent valuation or appraisal of any of the assets or
liabilities of First American or the Company, nor have any such valuations or
appraisals been provided to us. In addition, we have not conducted any physical
inspection of the properties and facilities of either company. With respect to
the financial forecasts and projections made available to us and used in our
analysis, we have assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future financial performance of the Company. For
purposes of this opinion, we have assumed that neither First American nor the
Company is a party to any pending transactions, including external financings,
recapitalizations or material merger discussions, other than the Proposed
Transaction and those activities undertaken in the ordinary course of
conducting their respective businesses. In rendering this opinion, we have
assumed that the Proposed Transaction will be consummated substantially on the
terms discussed in the Agreement, without any waiver of any material terms or
conditions by any party thereto. We have relied as to all legal matters
relevant to rendering our opinion upon the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent developments may affect this opinion
and that we do not have any obligation to update, revise, or reaffirm this
opinion. We are expressing no opinion herein as to the price at which the FAC
Common Stock will trade at any future time.
Chase Securities Inc. ("Chase"), as part of its investment banking services,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, strategic transactions, corporate
restructurings, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. We have acted as a financial advisor to the Board of Directors of the
Company in connection with the Proposed Transaction, and we will receive a fee
for our services, which include the rendering of this opinion. In the past,
Chase and certain of its affiliates have arranged or underwritten certain debt
obligations of First American, for which they received customary compensation.
In addition, in the ordinary course of their businesses, Chase and its
affiliates may actively trade the debt and equity securities of the Company or
First American for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
It is understood that this letter is solely for the information of the
Company's Board of Directors in connection with and for purposes of its
evaluation of the Proposed Transaction and may not be used for any other
purpose without our prior written consent. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the Proposed Transaction. This opinion may not be disclosed,
referred to, or communicated (in whole or in part) to any third party for any
purpose whatsoever except with our prior written consent in each instance. This
opinion may be reproduced in full in any proxy or information statement mailed
to stockholders of the Company but may not otherwise be disclosed publicly in
any manner without our prior written approval and must be treated as
confidential.
C-2
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Exchange Ratio in the Proposed Transaction is fair, from a financial point
of view, to the holders of the Credit Common Stock. We express no opinion,
however, as to the adequacy of any consideration received in the Proposed
Transaction by First American or any of its affiliates.
Very truly yours,
CHASE SECURITIES INC.
/s/ Paul B. Cleveland
By: _________________________________
Paul B. Cleveland
Managing Director
C-3
ANNEX D
FORM OF VOTING AGREEMENT
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
VOTING AGREEMENT
BY AND AMONG
THE FIRST AMERICAN CORPORATION
AND
----------------
Dated as of January 30, 2001
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
D-1
VOTING AGREEMENT
VOTING AGREEMENT, dated as of January 30, 2001 (this "Agreement"), by and
among The First American Corporation, a California corporation ("FACO"), and
(the "Shareholder"). Capitalized terms used, but not otherwise defined,
herein shall have the meanings given them in the Merger Agreement (as defined
below).
WITNESSETH:
WHEREAS, concurrently with the execution and delivery of this Agreement,
FACO, Rusti Corp., a Delaware corporation and a wholly-owned Subsidiary of FACO
("FACOSUB"), and Credit Management Solutions, Inc., a Delaware corporation (the
"Company"), have entered into that certain Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which, at the Effective Time, FACOSUB will
merge with and into the Company, with the Company continuing as the surviving
corporation (the "Merger");
WHEREAS, as a condition to, and in consideration for, FACO's willingness to
enter into the Merger Agreement and to consummate the transactions contemplated
thereby, FACO has required that the Shareholder enter into this Agreement; and
WHEREAS, the Shareholder owns the number of Company Common Shares listed
opposite his, her or its signature below (the "Shares").
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Agreements.
(a) Voting Agreement. The Shareholder shall, with respect to any meeting
of the holders of Company Common Shares (including, without limitation, the
Company Shareholders Meeting), however such meeting is called and regardless of
whether such meeting is a special or annual meeting of the shareholders of the
Company (a "Meeting of Company Shareholders"), or in connection with any
written consent of the shareholders of the Company (a "Written Consent"), (A)
take such actions as are necessary to vote or cause to be voted all of such
Shareholder's Shares in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement and this Agreement
and any actions reasonably required in furtherance thereof and hereof
(collectively, the "Merger Proposal") and (B) not vote or cause or permit to be
voted any of such Shareholder's Shares in favor of any Takeover Proposal or any
other action or agreement that would in any manner impede, frustrate, prevent
or nullify any of the transactions contemplated by the Merger Agreement,
including the Merger, or result in a breach of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement or which would result in any of the conditions to the Company's or
FACO's obligations under the Merger Agreement not being fulfilled.
(b) No Inconsistent Arrangements. Unless specifically required by court
order or by operation of law, in which case the transferee shall agree to be
bound hereby, the Shareholder hereby covenants and agrees, severally and not
jointly and solely as to himself, herself or itself, that such Shareholder
shall not (i) transfer (which term shall include, without limitation, any sale,
gift, pledge or other disposition) or consent to any transfer of, any or all of
such Shareholder's Shares, or any interest therein if such transfer would
result in the Shareholder no longer having the power to vote or cause to be
voted such Shareholder's Shares on the Merger Proposal (pursuant to Section
1(a) hereof), (ii) enter into any contract, option or other agreement or
understanding with respect to any such transfer of any or all of such
Shareholder's Shares, or any interest therein if the entering into or
performance of any such contract, option or other agreement or understanding
would result in the Shareholder no longer having the power to vote or cause to
be voted such Shareholder's
D-2
Shares on the Merger Proposal (pursuant to Section 1(a) hereof), (iii) grant
any proxy, power-of-attorney or other authorization in or with respect to such
Shareholder's Shares, (iv) deposit such Shareholder's Shares into a voting
trust or enter into a voting agreement or arrangement with respect to such
Shares, other than pursuant to this Agreement, or (v) take any other action
that would in any way restrict, limit or interfere with the performance of such
Shareholder's obligations hereunder or the transactions contemplated hereby or
by the Merger Agreement.
(c) No Solicitation. The Shareholder hereby agrees, in his, her or its
capacity as a shareholder of the Company, that such Shareholder shall not (and
such Shareholder shall use reasonable efforts to cause his, her or its
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, knowingly
encourage, solicit, participate in or initiate discussions or negotiations
with, or provide any information to, any Person (other than FACO, any of its
affiliates or representatives) concerning any Takeover Proposal.
(d) Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its, her or his best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Merger Agreement.
2. Representations and Warranties.
(a) The Shareholder hereby represents and warrants to FACO as follows:
(i) Ownership of Securities. On the date hereof, the Shareholder is
the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended) of the Shares as set
forth opposite his, her or its signature hereto. The Shareholder has the
sole power to vote with respect to the matters set forth in Section 1
hereof, sole power of disposition, sole power of conversion, sole power (if
any) to demand appraisal rights and sole power to agree to all of the
matters set forth in this Agreement, in each case with respect to all of
the Shares with no limitations, qualifications or restrictions on such
rights, subject to applicable securities laws and the terms of this
Agreement.
(ii) Power; Binding Agreement. The Shareholder has the power and
authority to enter into and perform all of his, her or its obligations
under this Agreement. The execution, delivery and performance of this
Agreement by the Shareholder will not violate any agreement to which the
Shareholder is a party including, without limitation, any voting agreement,
proxy arrangement, pledge agreement, shareholders agreement or voting
trust. This Agreement has been duly and validly executed and delivered by
the Shareholder and constitutes a valid and binding agreement of the
Shareholder, enforceable against the Shareholder in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws, and subject
to general equitable principles and to limitations on availability of
equitable relief, including specific performance. There is no beneficiary
or holder of a voting trust certificate or other interest of any trust of
which the Shareholder is a trustee whose consent is required for the
execution and delivery of this Agreement or the compliance by the
Shareholder with the terms hereof.
(iii) No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any Governmental Entity is required for the
execution of this Agreement by the Shareholder and the consummation by the
Shareholder of the transactions contemplated hereby, and none of the
execution and delivery of this Agreement by the Shareholder, the
consummation by the Shareholder of the transactions contemplated hereby or
compliance by the Shareholder with any of the provisions hereof shall (A)
result in a violation or breach of, or constitute (with or without notice
or lapse of time or both) a default (or give rise to any third party right
of termination, cancellation, material modification or acceleration) under
any of the terms, conditions or provisions of any note, loan agreement,
bond, mortgage, indenture, license, contract, commitment, arrangement,
understanding, agreement or other instrument or obligation of any kind to
which the Shareholder is a party or by which the Shareholder or any of his,
her or its properties or assets may be bound or (B) violate any order,
writ, injunction, decree, judgment, order, statute, arbitration
D-3
award, rule or regulation applicable to the Shareholder or any of his, her
or its properties or assets, other than, in each case, any such violations
or defaults which, individually or in the aggregate, do not impair the
ability of the Shareholder to perform his, her or its obligations
hereunder.
(b) FACO hereby represents and warrants to the Shareholder as follows:
(i) Power; Binding Agreement. FACO has the corporate power and
authority to enter into and perform all of its obligations under this
Agreement. The execution, delivery and performance of this Agreement by
FACO will not violate any agreement to which FACO is a party. This
Agreement has been duly and validly executed and delivered by FACO and
constitutes a valid and binding agreement of FACO, enforceable against FACO
in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws, and subject to general equitable principles and to
limitations on availability of equitable relief, including specific
performance.
(ii) No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any Governmental Entity is required for the
execution of this Agreement by FACO and the consummation by FACO of the
transactions contemplated hereby, and none of the execution and delivery of
this Agreement by FACO, the consummation by FACO of the transactions
contemplated hereby or compliance by FACO with any of the provisions hereof
shall (A) conflict with or result in any breach of any organizational
documents applicable to FACO, (B) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any material note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which FACO is a party or by
which FACO or any of its properties or assets may be bound or (C) violate
any order, writ, injunction, decree, judgment, order, statute, arbitration
award, rule or regulation applicable to FACO or any of its properties or
assets, other than, in each case, any such violations or defaults which,
individually or in the aggregate, do not impair the ability of FACO to
perform its obligations hereunder.
3. Stop Transfer. The Shareholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Shareholder's Shares, unless
such transfer is made in compliance with this Agreement. In the event of any
dividend or distribution, or any change in the capital structure of the Company
by reason of any non-cash dividend, split-up, recapitalization, combination,
exchange of securities or the like, the term "Shares" shall refer to and
include the Shareholder's Shares as well as all such dividends and
distributions of securities and any securities into which or for which any or
all such Shares may be changed, exchanged or converted.
4. Termination. This Agreement and the covenants, representations and
warranties and agreements contained herein or granted pursuant hereto shall
terminate upon the earlier to occur of (i) the termination of the Merger
Agreement in accordance with its terms or (ii) the consummation of the
transactions contemplated by the Merger Agreement.
5. Fiduciary Duties. The Shareholder is signing this Agreement solely in
his, her or its capacity as an owner of his, her or its Shares, and nothing
herein shall prohibit, prevent or preclude such Shareholder from taking or not
taking any action in such Shareholder's capacity as a director of the Company
(or as an officer of the Company acting solely at the direction of the Board of
Directors of the Company), to the extent permitted by the Merger Agreement.
6. Miscellaneous.
(a) Specific Performance. Each party hereto recognizes and agrees that
if for any reason any of the provisions of this Agreement are not performed by
any other party in accordance with their specific terms or are otherwise
breached, immediate and irreparable harm or injury would be caused to non-
breaching parties for
D-4
which money damages would not be an adequate remedy. Accordingly, the parties
agree that, in addition to any other available remedies, the non-breaching
party shall be entitled to seek an injunction restraining any violation or
threatened violation of the provisions of this Agreement.
(b) Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. Without limiting the
foregoing, with respect to any provision of this Agreement, if it is determined
by a court of competent jurisdiction to be excessive as to duration or scope,
it is the parties' intention that such provision nevertheless be enforced to
the fullest extent which it may be enforced.
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF THE LAWS THAT
MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
(d) Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, among the parties or any of them with respect to the subject matter
hereof.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile (which is confirmed), or by registered or certified mail (postage
prepaid, return receipt requested):
if to the Shareholder, to:
______________
with a copy to:
______________
if to FACO, to:
The First American Corporation
1 First American Way
Santa Ana, California 92707
Attention: President
Facsimile: 714-800-3490
with a copy to:
White & Case LLP
633 West Fifth Street, Suite 1900
Los Angeles, California 90071
Attention: Neil W. Rust
Facsimile: 213-687-0758
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Descriptive Headings; Interpretation. The descriptive headings
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.
D-5
(g) Assignment; Binding Agreement. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties hereto.
(h) Amendment; Modification and Waiver. This Agreement may not be
amended, modified or waived except by an instrument or instruments in writing
signed and delivered on behalf of the party hereto against whom such amendment,
modification or waiver is sought to be entered.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, FACO has caused its corporate name to be hereunto
subscribed by its officer thereunto duly authorized and the Shareholder has
signed this Agreement, all as of the day and year first above written.
THE FIRST AMERICAN CORPORATION
By: _________________________________
Name:
Title:
Shares: _____________________________
D-6
ANNEX E
CMSI AUDIT COMMITTEE CHARTER
I. Organization
This charter governs the operations of the audit committee. The committee
shall review and reassess the charter at least annually and obtain the approval
of the board of directors. The committee shall be appointed by the board of
directors and shall comprise at least three directors, each of whom are
independent of management and the Company. Members of the committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the committee, and at
least one member shall have accounting or related financial management
expertise.
II. Statement of Policy
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Company's financial statements, and the legal
compliance and ethics programs as established by management and the board. In
so doing, it is the responsibility of the committee to maintain free and open
communication between the committee, independent auditors, the internal
auditors and management of the Company. In discharging its oversight role, the
committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Company and
the power to retain outside counsel, or other experts for this purpose.
III. Responsibilities and Processes
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of their activities to the board. Management is responsible for
preparing the Company's financial statements, and the independent auditors are
responsible for auditing those financial statements. The committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior. The following shall be the principal recurring processes of
the audit committee in carrying out its oversight responsibilities. The
processes are set forth as a guide with the understanding that the committee
may supplement them as appropriate. The committee shall have a clear
understanding with management and the independent auditors that the independent
auditors are ultimately accountable to the board and the audit committee, as
representatives of the Company's shareholders. The committee shall have the
ultimate authority and responsibility to evaluate and, where appropriate,
replace the independent auditors. The committee shall discuss with the auditors
their independence from management and the Company and the matters included in
the written disclosures required by the Independence Standards Board. Annually,
the committee shall review and recommend to the board the selection of the
Company's independent auditors, subject to shareholders' approval.
. The committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
committee shall discuss with management, the internal auditors, and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the Company's system to monitor and manage
business risk, and legal and ethical compliance programs. Further, the
committee shall meet separately with the internal auditors and the
independent auditors, with and without management present, to discuss the
results of their examinations.
E-1
. The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the committee by the independent auditors
under generally accepted auditing standards. The chair of the committee
may represent the entire committee for the purposes of this review.
. The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment about the quality, not
just acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the
financial statements. Also, the committee shall discuss the results of
the annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
E-2
PART II
Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers.
Subject to certain limitations, Section 317 of the California Corporations
Code provides in part that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor) by reason of the fact that the person is or
was an agent (which term includes officers and directors) of the corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful.
The California indemnification statute, as provided in Section 317 of the
California Corporations Code (noted above), is nonexclusive and allows a
corporation to expand the scope of indemnification provided, whether by
provisions in its Bylaws or by agreement, to the extent authorized in the
corporation's articles.
The Restated Articles of Incorporation of the Registrant provide that: "The
liability of the directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law." The effect
of this provision is to exculpate directors from any liability to the
Registrant, or anyone claiming on the Registrant's behalf, for breaches of the
directors' duty of care. However, the provision does not eliminate or limit the
liability of a director for actions taken in his capacity as an officer. In
addition, the provision applies only to monetary damages and is not intended to
impair the rights of parties suing on behalf of the Registrant to seek
equitable remedies (such as actions to enjoin or rescind a transaction
involving a breach of the directors' duty of care or loyalty).
The Bylaws of the Registrant provide that, subject to certain
qualifications, "(i) The corporation shall indemnify its Officers and Directors
to the fullest extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary; (ii) the corporation is
required to advance expenses to its Officers and Directors as incurred,
including expenses relating to obtaining a determination that such Officers and
Directors are entitled to indemnification, provided that they undertake to
repay the amount advanced if it is ultimately determined that they are not
entitled to indemnification; (iii) an Officer or Director may bring suit
against the corporation if a claim for indemnification is not timely paid; (iv)
the corporation may not retroactively amend this Section 1 in a way which is
adverse to its Officers and Directors; (v) the provisions of subsections (i)
through (iv) above shall apply to all past and present Officers and Directors
of the corporation." "Officer" includes the following officers of the
Registrant: Chairman of the Board, President, Vice President, Secretary,
Assistant Secretary, Chief Financial Officer, Treasurer, Assistant Treasurer
and such other officers as the board shall designate from time to time.
"Director" of the Registrant means any person appointed to serve on the
Registrant's board of directors either by its shareholders or by the remaining
board members.
Each of the Registrant's 1996 Stock Option Plan, 1997 Directors' Stock Plan,
401(k) Savings Plan, Pension Plan, Pension Restoration Plan and Employee Profit
Sharing and Stock Ownership Plan (for purposes of this paragraph, each
individually, the "Plan") provides that, subject to certain conditions, the
Registrant may, through the purchase of insurance or otherwise, indemnify each
member of the Board (or board of directors of any affiliate), each member of
the committee charged with administering the Plan, and any other employees to
whom any responsibility with respect to the Plan is allocated or delegated,
from and against any and all claims, losses, damages, and expenses, including
attorneys' fees, and any liability, including any amounts paid in settlement
with the Registrant's approval, arising from the individual's action or failure
to act, except when the same is judicially determined to be attributable to the
gross negligence or willful misconduct of such person.
II-1
The Registrant's Deferred Compensation Plan (for purposes of this paragraph,
the "Plan") provides that, "To the extent permitted by applicable state law,
the Company shall indemnify and save harmless the Committee and each member
thereof, the Board of Directors and any delegate of the Committee who is an
employee of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims arising out
of their discharge in good faith of responsibilities under or incident to the
Plan, other than expenses and liabilities arising out of willful misconduct.
This indemnity shall not preclude such further indemnities as may be available
under insurance purchased by the Company or provided by the Company under any
bylaw, agreement or otherwise, as such indemnities are permitted under state
law."
Each of the Registrant's Management Supplemental Benefit Plan and Executive
Supplemental Benefit Plan (for purposes of this paragraph, each individually,
the "Plan") provides that, subject to certain conditions, the Registrant may,
through the purchase of insurance or otherwise, indemnify and hold harmless, to
the extent permitted by law, the members of the Board of Directors and any
other employees to whom any responsibility with respect to the administration
of the Plan has been delegated against any and all costs, expenses and
liabilities (including attorneys' fees) incurred by such parties in performing
their duties and responsibilities under the Plan, provided that such party or
parties were not guilty of willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-2
Item 21. Exhibits and Financial Statements.
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of January 30, 2001, among The
First American Corporation, Rusti. Corp. and Credit Management
Solutions, Inc. (included as Annex A to the joint proxy statement-
prospectus contained in this Registration Statement).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of March 22,
2001, among The First American Corporation, Rusti Corp. and Credit
Management Solutions, Inc. (included as Annex B to the joint proxy
statement-prospectus contained in this Registration Statement).
3.1 Restated Articles of Incorporation of Registrant, dated July 14, 1998
(incorporated by reference from Exhibit 3.1 of Amendment No. 1, dated
July 28, 1998, to Registrant's Registration Statement No. 333-53681
on Form S-4).
3.2 Certificate of Amendment of Restated Articles of Incorporation of
Registrant, dated April 23, 1999 (incorporated by reference from
Exhibit (3) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
3.3 Certificate of Amendment of Restated Articles of Incorporation of
Registrant, dated May 11, 2000 (incorporated by reference from
Exhibit 3.1 to Registrant's Current Report on Form 8-K dated June 12,
2000).
3.4 Bylaws of Registrant, as amended (incorporated by reference from
Exhibit 3(d) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000).
4.1 Description of Registrant's capital stock in Article Sixth of
Registrant's Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 of Amendment No. 1, dated July 28, 1998,
to Registrant's Registration Statement No. 333-53681 on Form S-4).
4.2 Rights Agreement (incorporated by reference from Exhibit 4 of
Registrant's Registration Statement on Form 8-A dated November 7,
1997).
5 Opinion of White & Case LLP regarding validity of the common shares.
8 Opinion of Brobeck, Phleger & Harrison LLP regarding tax matters.
9 Form of Voting Agreement, dated as of January 30, 2001, among
Registrant, Scott L. Freiman and James DeFrancesco (included as Annex
D to the joint proxy statement-prospectus contained in this
Registration Statement).
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants to
Registrant.
23.2 Consent of Ernst & Young LLP, independent accountants to CMSI.
23.3 Consent of White & Case LLP (contained in Exhibit 5).
23.4 Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 8).
24* Power of Attorney.
99.1 Form of CMSI proxy card.
--------
* Previously filed.
II-3
Item 22. Undertakings.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(3) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by reference
into this joint proxy statement-prospectus pursuant to Item 4, 10(b), 11, or 13
of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it
became effective.
(7) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(8) Pursuant to Item 601(b)(2) of Regulation S-K, the schedules to the
Agreement and Plan of Merger attached as Annex A to the joint proxy statement-
prospectus have been omitted. These schedules describe, among other things,
exceptions to the representations and warranties contained in the Agreement and
Plan of Merger. The Registrant hereby undertakes to furnish supplementally a
copy of any such omitted schedule to the Commission upon request.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Santa Ana, state of
California, on April 23, 2001.
THE FIRST AMERICAN CORPORATION
By: /s/ Parker S. Kennedy
-----------------------------------
Parker S. Kennedy
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date: April 23, 2001 By: /s/ D.P. Kennedy
_______________________________________________
D.P. Kennedy, Chairman and Director
Date: April 23, 2001 By: /s/ Parker S. Kennedy
_______________________________________________
Parker S. Kennedy, President and Director
Date: April 23, 2001 By: /s/ Thomas A. Klemens
_______________________________________________
Thomas A. Klemens, Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Date: April 23, 2001 By: /s/ Max Valdes
_______________________________________________
Max Valdes, Vice President, Chief Accounting
Officer
(Principal Accounting Officer)
II-5
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date: April 23, 2001 By: *
_______________________________________________
D.P. Kennedy, Chairman and Director
Date: April 23, 2001 By: /s/ Parker S. Kennedy
_______________________________________________
Parker S. Kennedy, President and Director
Date: April 23, 2001 By: *
_______________________________________________
George L. Argyros, Director
Date: By:
_______________________________________________
Gary J. Beban, Director
Date: April 23, 2001 By: *
_______________________________________________
J. David Chatham, Director
Date: By:
_______________________________________________
Hon. William G. Davis, Director
Date: April 23, 2001 By: *
_______________________________________________
James L. Doti, Director
Date: April 23, 2001 By: *
_______________________________________________
Lewis W. Douglas, Jr., Director
Date: April 23, 2001 By: *
_______________________________________________
Paul B. Fay, Jr., Director
Date: April 23, 2001 By: *
_______________________________________________
Frank E. O'Bryan, Director
Date: April 23, 2001 By: *
_______________________________________________
Roslyn B. Payne, Director
Date: April 23, 2001 By: *
_______________________________________________
D. Van Skilling, Director
Date: April 23, 2001 By: *
_______________________________________________
Virginia Ueberroth, Director
*By: /s/ Parker S. Kennedy
----------------------------
Parker S. Kennedy
Attorney-in-Fact
II-6
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Agreement and Plan of Merger, dated as of January 30, 2001, among The
First American Corporation, Rusti. Corp. and Credit Management
Solutions, Inc. (included as Annex A to the joint proxy statement-
prospectus contained in this Registration Statement).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of March 22,
2001, among The First American Corporation, Rusti Corp. and Credit
Management Solutions, Inc. (included as Annex B to the joint proxy
statement-prospectus contained in this Registration Statement).
3.1 Restated Articles of Incorporation of Registrant, dated July 14, 1998
(incorporated by reference from Exhibit 3.1 of Amendment No. 1, dated
July 28, 1998, to Registrant's Registration Statement No. 333-53681 on
Form S-4).
3.2 Certificate of Amendment of Restated Articles of Incorporation of
Registrant, dated April 23, 1999 (incorporated by reference from
Exhibit (3) to Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999).
3.3 Certificate of Amendment of Restated Articles of Incorporation of
Registrant, dated May 11, 2000 (incorporated by reference from Exhibit
3.1 to Registrant's Current Report on Form 8-K dated June 12, 2000).
3.4 Bylaws of Registrant, as amended (incorporated by reference from
Exhibit 3(d) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000).
4.1 Description of Registrant's capital stock in Article Sixth of
Registrant's Restated Articles of Incorporation (incorporated by
reference from Exhibit 3.1 of Amendment No. 1, dated July 28, 1998, to
Registrant's Registration Statement No. 333-53681 on Form S-4).
4.2 Rights Agreement (incorporated by reference from Exhibit 4 of
Registrant's Registration Statement on Form 8-A dated November 7,
1997).
5 Opinion of White & Case LLP regarding validity of the common shares.
8 Opinion of Brobeck, Phleger & Harrison LLP regarding tax matters.
9 Form of Voting Agreement, dated as of January 30, 2001, among
Registrant, Scott L. Freiman and James DeFrancesco (included as Annex
D to the joint proxy statement-prospectus contained in this
Registration Statement).
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants to
Registrant.
23.2 Consent of Ernst & Young LLP, independent accountants to CMSI.
23.3 Consent of White & Case LLP (contained in Exhibit 5).
23.4 Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 8).
24* Power of Attorney.
99.1 Form of CMSI proxy card.
--------
*Previously filed.
II-7