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First Advantage DEF 14A 2005
Definitive Proxy Statement
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SCHEDULE 14A

INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant    x

 

Filed by Party other than Registrant    ¨

 

Check the appropriate box:

 

¨    Preliminary proxy statement

 

¨    Confidential, for Use of the Commission Only
 (as permitted by Rule 14a-6(e)(2))

x    Definitive proxy statement

   

¨    Definitive additional materials

   

¨    Soliciting Materials pursuant to Rule 14a-11(c)  or Rule 14a-12

   

 

FIRST ADVANTAGE CORPORATION


(Name of Registrant as Specified in Its Charter)

 

 


(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x    No fee required

 

¨    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)   Title of each class of securities to which transaction applies:

 

  (2)   Aggregate number of securities to which transaction applies:

 

  (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

  (4)   Proposed maximum aggregate value of transaction:

 

  (5)   Total fee paid:

 

¨    Fee paid previously with preliminary materials.

 

  ¨   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)   Amount previously paid:

 

  (2)   Form, Schedule or Registration Statement No.:

 

  (3)   Filing Party:

 

  (4)   Date Filed:

 

 


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LOGO

 

Dear Stockholders:

 

I am pleased to invite you to attend the annual meeting of stockholders of First Advantage Corporation, a Delaware corporation, to be held at the Renaissance Vinoy Resort, located at 501 Fifth Avenue NE, St. Petersburg, Florida 33701, on September 13, 2005 at 9:00 a.m. Eastern Time. Details of the business to be conducted at the meeting are given in the attached notice of annual meeting and proxy statement.

 

At the annual meeting, we will ask you to vote to approve the amended and restated master transfer agreement, dated as of June 22, 2005, which we have entered into with our controlling stockholder, The First American Corporation, and certain of its subsidiaries and related agreements which we will enter into with First American and/or its subsidiaries in connection with the closing of the transactions contemplated by the master transfer agreement (which are described in the attached proxy statement), and the transactions contemplated by the master transfer agreement and related agreements, including the following:

 

    The contribution by a subsidiary of First American of First American’s credit information business to First Advantage in exchange for the initial issuance of 29,073,170 shares of our Class B common stock in accordance with the master transfer agreement, and the agreements contemplated by the master transfer agreement. First American’s credit information business is a leading provider of credit reports and other credit information to lenders and other users in the mortgage, automotive, consumer and sub-prime credit businesses throughout the United States. As part of the transaction, we will be required to issue additional shares of our Class B common shares to a subsidiary of First American under an earn-out provision if DealerTrack Holdings, Inc. consummates an initial public offering within 24 months after the contribution, and the minority interest in DealerTrack we will acquire as part of the transaction is worth more than $50 million;

 

    The repayment in full of the principal amount of $20 million of indebtedness that we owe to First American with 975,610 shares of our Class B common stock;

 

    The amended and restated services agreement between First Advantage and First American, under which First American and its affiliates, which currently provide key services to First Advantage and its affiliates, will continue to provide those services on the same terms and for limited periods and will provide additional key services, including acting as the exclusive resellers of First Advantage’s credit information and related products to mortgage lenders and others in the mortgage industry, for limited periods;

 

    Entering into an outsourcing agreement between First Advantage and a subsidiary of First American, under which First Advantage will manage and provide credit reports and related products and services to customers of RELS, LLC, a joint venture which is currently operated by First American; and

 

    An amendment to our certificate of incorporation in order to provide us with sufficient authorized Class A common stock and Class B common stock to issue the above shares and for other general corporate purposes after the transaction.

 

If the transactions are approved, First American will control approximately 98% of the voting power of First Advantage, and approximately 85% of the total outstanding shares of First Advantage’s capital stock. As of the date of this proxy statement, First American controls approximately 95% of the voting power of First Advantage, and approximately 67% of the total outstanding shares of First Advantage’s capital stock.

 

Because First American is our controlling stockholder, our board of directors formed a special committee to evaluate the proposed transactions with First American. The special committee determined that the proposed transactions with First American are fair to, and in the best interests of, First Advantage and our stockholders


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(other than First American and its affiliates, Donald Robert and our management), unanimously approved the proposed transactions with First American and unanimously recommended that our board of directors approve the proposed transactions. After receiving the special committee’s unanimous recommendation, our full board of directors approved the proposed transactions with First American. Our board of directors recommends that you vote “FOR” the proposal to approve the master transfer agreement and the related agreements and the transactions contemplated thereby, including the initial issuance of a total of 30,048,780 Class B common shares to a subsidiary of First American and the possible future issuance of additional shares to this subsidiary in connection with the DealerTrack earn-out. Our board of directors also recommends that you vote “FOR” the proposal to approve the amendment to our certificate of incorporation to increase our authorized shares.

 

At the annual meeting, you will also be asked to vote on the election of our board of directors and to approve an amendment to our incentive compensation plan to increase the number of shares available for grant under the plan and certain other amendments to the plan. Our board of directors recommends that you vote “FOR” election of the nominees for director named in the proxy statement and that you vote “FOR” approval of the amendments to the incentive compensation plan.

 

We hope that you are able to attend the annual meeting. It is important that you vote your shares whether or not you are able to attend in person. We urge you to read the accompanying proxy statement and vote 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 your support and interest in First Advantage Corporation.

 

 

LOGO

John Long

Chief Executive Officer and President

 

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FIRST ADVANTAGE CORPORATION

One Progress Plaza

Suite 2400

St. Petersburg, Florida 33701

 


 

NOTICE OF ANNUAL MEETING

To be Held on September 13, 2005

 


 

The annual meeting of stockholders of First Advantage Corporation, a Delaware corporation, will be held at the Renaissance Vinoy Resort, located at 501 Fifth Avenue NE, St. Petersburg, Florida 33701, on September 13, 2005 at 9:00 a.m. Eastern Time, and at any adjournments thereof, for the following purposes:

 

  1. To consider and vote on approval of the amended and restated master transfer agreement, dated as of June 22, 2005, among The First American Corporation, First American Real Estate Information Services, Inc., First American Real Estate Solutions, LLC, FADV Holdings LLC and First Advantage Corporation and related agreements which First Advantage will enter into with The First American Corporation and/or its subsidiaries in connection with the closing of the transactions contemplated by the master transfer agreement, and the transactions contemplated by the master transfer agreement and related agreements, including the following:

 

    the contribution by FADV Holdings LLC, a newly formed subsidiary of The First American Corporation, of the assets and companies comprising The First American Corporation’s credit information group, including its minority ownership interest in DealerTrack Holdings, Inc., to First Advantage or a wholly-owned subsidiary of First Advantage;

 

    the issuance of 29,073,170 shares of our Class B common stock to FADV Holdings LLC in exchange for its contribution of the assets and companies comprising The First American Corporation’s credit information group, including its minority ownership interest in DealerTrack Holdings, Inc., to First Advantage or a wholly-owned subsidiary of First Advantage;

 

    the payment in full of the principal amount of $20 million under the promissory note that we originally issued to The First American Corporation by the issuance of 975,610 shares of Class B common stock to FADV Holdings LLC;

 

    the potential issuance of an additional number of our shares of Class B common stock to FADV Holdings LLC in the future if DealerTrack Holdings, Inc. consummates an initial public offering of its stock before the second anniversary of the closing and the value of our minority interest in DealerTrack exceeds $50 million;

 

    an amended and restated services agreement between First Advantage and First American; and

 

    an outsourcing agreement between First Advantage and a subsidiary of First American.

 

  2. To consider and vote on the approval of the adoption of an amendment to our certificate of incorporation to increase the number of authorized shares of Class A common stock from 75,000,000 to 125,000,000 and to increase the number of authorized shares of Class B common stock from 25,000,000 to 75,000,000;

 

  3. To elect our board of directors to serve until our annual meeting of stockholders to be held in 2006, or such later time as their successors may be elected and are qualified;

 

  4. To consider and vote on the approval of the adoption of an amendment to the First Advantage Corporation 2003 Incentive Compensation Plan to increase the number of shares available for grant by 4,000,000 shares to a total of 7,000,000 shares, as well as other amendments to the plan described in this proxy statement; and

 

  5. To transact such other business as may properly come before the meeting.


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Our board of directors has fixed the close of business on August 9, 2005 as the record date for determining the holders of our Class A and Class B common stock entitled to notice of the meeting, as well as for determining the holders of our Class A and Class B common stock entitled to vote at the meeting.

 

On or about August 11, 2005 we began sending this notice of annual meeting, the attached proxy statement, and the enclosed proxy card to all holders of record of our Class A and Class B common stock entitled to receive such materials and vote.

 

All stockholders are invited to attend the annual meeting in person. All stockholders also are respectfully urged to execute and return the enclosed proxy card as promptly as possible. Stockholders who execute a proxy card may nevertheless attend the annual meeting, revoke their proxy and vote their shares in person. Please read the accompanying proxy statement and proxy card for information on the annual meeting and voting.

 

By Order Of The Board Of Directors

LOGO

Ken Chin

Secretary

St. Petersburg, Florida

August 11, 2005


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TABLE OF CONTENTS

 

    Page

QUESTIONS AND ANSWERS

  i

SUMMARY

  S-1

RISK FACTORS

  1

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

  6

ANNUAL MEETING OF FIRST ADVANTAGE STOCKHOLDERS

  7

Date, Time and Place

  7

Purposes of Annual Meeting

  7

Record Date and Stock Entitled to Vote

  8

Quorum

  8

Votes Required

  8

Voting, Revocation and Solicitation of Proxies

  9

Abstentions and Broker Non-Votes

  9

Adjournments or Postponements

  10

PROPOSAL 1—APPROVAL OF THE FIRST AMERICAN TRANSACTION, INCLUDING ISSUANCE OF SHARES IN CONNECTION THEREWITH

  11

General

  11

Vote Required

  11

Information About the CIG Business

  11

The CIG Business

  11

Cyclicality/Seasonality

  12

Historical Growth

  12

Governmental Regulation

  13

Employees

  13

Organizational Structure of the CIG Business and Related Businesses Prior to the First American Transaction

  13

Structure of the First American Transaction

  14

DealerTrack Earn-Out

  15

Background of the First American Transaction

  17
    Page

Reasons of the Special Committee for the First American Transaction

  22

Actions of Special Committee With Respect to the First American Transaction

  24

Recommendation of First Advantage’s Full Board of Directors with Respect to the First American Transaction

  24

Fairness Opinion of Financial Advisor to First Advantage’s Special Committee

  25

Interests of Certain Persons in the First American Transaction

  31

Use of Proceeds of the First American Transaction

  33

Regulatory Approvals

  33

Tax and Accounting Treatment

  33

No Appraisal Rights

  33

MASTER TRANSFER AGREEMENT

  33

Terms of Transfer of the CIG Business

  34

Representations of First American, Other Contributors and First Advantage

  34

Conduct of CIG Business Prior to Closing

  35

Certain Other Covenants

  36

Conditions Precedent to Closing

  38

Termination

  42

Expenses, Amendments, Waiver and Other Miscellaneous Provisions

  44

OTHER TRANSACTION DOCUMENTS

  44

First American Contribution Agreement

  44

FARES Contribution Agreement

  56

Amended and Restated Services Agreement

  61

Subordinated Promissory Note

  65

Outsourcing Agreement

  66

Poway Lease Agreement

  68

Other Related Transaction Agreements

  69

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

  69

 

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    Page

FIRST ADVANTAGE MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  69

SELECTED HISTORICAL FINANCIAL INFORMATION OF THE CIG BUSINESS

  70

CIG BUSINESS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  71

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

  79

FIRST ADVANTAGE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

  86

DESCRIPTION OF FIRST ADVANTAGE COMMON STOCK

  90

PROPOSAL 2—APPROVAL OF THE CERTIFICATE OF AMENDMENT PROPOSAL

  94

Purpose and Effect of the Certificate Amendment Proposal

  94

Vote Required for Approval of the Certificate Amendment Proposal

  94

PROPOSAL 3—NOMINEES FOR ELECTION OF DIRECTORS

  95

INFORMATION ABOUT OUR BOARD OF DIRECTORS

  98

Composition of Board and Committees

  98

Procedure for Stockholder Nominations of Directors

  100

Stockholder Communications

  100

Code of Ethics

  100

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

  100

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

  101

EXECUTIVE OFFICERS

  102
    Page

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

  103

Named Executive Officer Stock Option Grants and Exercises

  104

First American Benefit Plans

  105

Change of Control Arrangements

  108

Employment Contract

  109

Director Compensation

  110

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

  111

Compensation Policies

  111

Elements of Executive Compensation

  111

Chief Executive Officer Compensation

  112

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  114

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

  117

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  117

STOCK PERFORMANCE GRAPH

  119

PRINCIPAL ACCOUNTING FEES AND SERVICES

  120

PROPOSAL 4—AMENDMENT TO FIRST ADVANTAGE CORPORATION’S 2003 INCENTIVE COMPENSATION PLAN TO INCREASE THE NUMBER OF SHARES AVAILABLE AND OTHER AMENDMENTS

  122

Summary Description of First Advantage Corporation’s 2003 Incentive Compensation Plan

  123

GENERAL INFORMATION

  136

Stockholder Proposals

  136

Annual Report

  136

Items Not Incorporated by Reference

  136

Additional Information

  136

 

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    Page

WHERE YOU CAN FIND MORE INFORMATION

  137

DOCUMENTS INCORPORATED BY REFERENCE

  137

EXPERTS

  137

INDEX TO FINANCIAL STATEMENTS

  F-1

ANNEX A—AMENDED AND RESTATED MASTER TRANSFER AGREEMENT

  A-1

ANNEX B—FIRST AMERICAN CONTRIBUTION AGREEMENT

  B-1

ANNEX C—FARES CONTRIBUTION AGREEMENT

  C-1

ANNEX D—AMENDED AND RESTATED SERVICES AGREEMENT

  D-1
    Page

ANNEX E—SUBORDINATED PROMISSORY NOTE

  E-1

ANNEX F—OUTSOURCING AGREEMENT

  F-1

ANNEX G—POWAY LEASE AGREEMENT

  G-1

ANNEX H—OPINION OF MORGAN STANLEY & CO. INCORPORATED

  H-1

ANNEX I—TEXT OF AMENDMENT TO CERTIFICATE OF INCORPORATION

  I-1

ANNEX J—TEXT OF AMENDED AND RESTATED 2003 INCENTIVE COMPENSATION PLAN

  J-1

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

 

Please refer to the section entitled “Certain Terms and Phrases” under the “Summary” section of this proxy statement beginning on page S-2 for the definition of certain terms and phrases that we use in these questions and answers and in other portions of this proxy statement.

 

Q: What are First Advantage stockholders being asked to approve at the annual meeting?

 

A: The First Advantage stockholders are being asked to consider and vote on four proposals.

 

Proposal Number One. First Advantage stockholders are being asked to approve the amended and restated master transfer agreement, dated as of June 22, 2005, which we have entered into with First American and certain of its subsidiaries and related agreements which we will enter into with First American and/or its subsidiaries in connection with the closing of the transactions contemplated by the master transfer agreement (which are described in this proxy statement), and the transactions contemplated by the master transfer agreement and related agreements, including the following:

 

    the contribution to First Advantage or its wholly-owned subsidiary of the assets and companies comprising the CIG Business, the DealerTrack Interest, Bar None and the XRES Business in exchange for 29,073,170 shares of Class B common stock to Newco;

 

    the issuance of additional shares of our Class B common stock to Newco in the future if DealerTrack consummates an initial public offering of its stock before the second anniversary of the closing and the value of the DealerTrack Interest exceeds $50 million;

 

    the payment in full of the principal amount of $20 million under the promissory note that we originally issued to First American, in exchange for 975,610 shares of our Class B common stock;

 

    an amended and restated services agreement between First Advantage and First American; and

 

    an outsourcing agreement between First Advantage and a subsidiary of First American.

 

     We refer to this proposal as the “First American Transaction proposal”.

 

Proposal Number Two. First Advantage stockholders are being asked to approve an amendment to First Advantage’s certificate of incorporation to increase the number of authorized shares of Class A common stock to 125,000,000 and to increase the number of authorized shares of Class B common stock to 75,000,000. We refer to this proposal as the “certificate amendment proposal”.

 

Proposal Number Three. First Advantage stockholders will consider and elect our board of directors, to serve until the next annual meeting. We refer to this proposal as the “board election proposal”.

 

Proposal Number Four. First Advantage stockholders are being asked to approve an amendment to the First Advantage Corporation 2003 Incentive Compensation Plan to increase the number of shares of Class A common stock available for grant under the plan to 7,000,000, as well as other amendments to the plan. We refer to this proposal as the “incentive plan amendment proposal”.

 

     We will also transact any other business that may properly be presented at the annual meeting.

 

Q: What is the voting requirement?

 

A: The voting requirement is different for each proposal.

 

First American Transaction Proposal. The favorable vote of the holders of a majority of the shares of our Class A common stock (without giving effect to any shares held by First American or its affiliates, Donald Robert, or our management) represented at the annual meeting in person or by proxy and the favorable vote of the holders of a majority of the shares of our

 

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common stock (giving effect to all shareholdings) present in person or by proxy at the annual meeting is required for the approval of the First American Transaction proposal. Donald Robert is one of our directors and is the chief executive officer of Experian Group, an affiliate of Experian, which owns a 20% interest in FARES.

 

Certificate Amendment Proposal. Under the master transfer agreement, the favorable vote of the holders of a majority of the outstanding shares of our Class A common stock (without giving effect to any shares held by First American or its affiliates, Donald Robert, or our management) represented at the annual meeting in person or by proxy and the favorable vote of the holders of a majority of the outstanding shares of our common stock (giving effect to all shareholdings) present in person or by proxy is required for approval of the certificate amendment proposal. In addition, under Delaware law, the holders of each class of our common stock are required to vote separately on the proposal to amend our certificate of incorporation to increase the number of authorized shares of the Class A common stock and Class B common stock. Accordingly, under Delaware law, in order to approve this proposal, it must also be approved by the holders of a majority of the outstanding shares of each class. The certificate amendment will not be filed with the Delaware Secretary of State and become effective if the First American Transaction proposal is not approved by the stockholders.

 

Board Election Proposal. The holders of the shares of our Class A and Class B common stock will vote together as a single class on this proposal. You may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the director nominees. In the election of directors, the persons receiving the highest number of “FOR” votes will be elected.

 

Incentive Plan Amendment Proposal. The holders of the shares of our Class A and Class B common stock will vote together as a single class on this proposal. The favorable vote of the holders of a majority of the shares of common stock represented at the annual meeting in person or by proxy is required for the adoption of the amendment to the incentive compensation plan.

 

Q: Did First Advantage take any special steps in considering the First American Transaction?

 

A: Yes. Because First American is our controlling stockholder and several of our board members have a current or past relationship with First American, our board created a special committee of board members to evaluate the First American Transaction, the master transfer agreement and related agreements and the issuance of Class B common shares to Newco. The special committee engaged Morgan Stanley as its financial advisor. The special committee determined that the First American Transaction is fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, Donald Robert and our management) and unanimously approved the First American Transaction. The special committee unanimously recommended to the full First Advantage board of directors that it approve the First American Transaction. After receiving this recommendation, the full board of First Advantage approved the First American Transaction.

 

Q: What factors did the special committee consider in evaluating the First American Transaction?

 

A: In evaluating the First American Transaction, the members of the special committee considered a number of factors and risks relating to the transactions described in this proxy statement (as further described in “Reasons of the Special Committee for the First American Transaction” beginning on page 22) including:

 

    the potential benefits of combining the CIG Business and the related businesses with First Advantage;

 

    potential cross-selling opportunities in various markets;

 

    the purchase price and other terms of the master transfer agreement and related agreements;

 

    the potential increase in First Advantage’s financial flexibility and its ability to access capital markets;

 

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    the strength of the senior management team of the CIG Business;

 

    the potential increase in First Advantage’s ability to implement its acquisition strategy;

 

    the addition of the Poway, CA facility, which includes a data collection center;

 

    Morgan Stanley’s opinion;

 

    First Advantage’s due diligence review; and

 

    the requirement that the First American Transaction be approved by the holders of the majority of the shares of Class A common stock held by stockholders that did not have a potential interest in the First American Transaction.

 

The risks that the special committee considered (as further described in “Reasons of the Special Committee for the First American Transaction” beginning on page 22), include:

 

    the potential adverse effect on First Advantage if the transaction is not completed;

 

    the potential conflicts of interest that the management of First American and First Advantage may have in the transaction (as further described in “Interests of Certain Persons in the First American Transaction” beginning on page 31);

 

    First American’s control of First Advantage’s capital stock and voting power after the completion of the transaction;

 

    that the potential benefits of the transaction may not be realized in a timely fashion, if at all;

 

    the relationship between First American and First Advantage after the completion of the transaction, including First Advantage’s dependency on First American for services provided under the amended and restated services agreement;

 

    risks related to the outsourcing agreement described under “First American Transaction Documents—Outsourcing Agreement” beginning page 66;

 

    the potential impact on the CIG Business and the related businesses of recent high profile events involving data theft;

 

    the sensitivity of the CIG Business to the levels of and changes in interest rates;

 

    the risk that key employees of the CIG Business might not remain with First Advantage following completion of the transaction;

 

    that First American is providing only limited assurances in the transaction documents as to the DealerTrack Interest, the XRES Business and Bar None and that First Advantage will be subject to the provisions of the acquisition agreements that were negotiated by First American with third parties with respect to its recent acquisition of the XRES Business and Bar None;

 

    that First Advantage is assuming contingent liabilities and payment obligations associated with portions of the CIG Business; and

 

    other risks described in “Risk Factors” beginning on page 1.

 

Q: Does the First Advantage board have a recommendation on voting on the First American Transaction?

 

A: Yes. The board of directors, after receiving the unanimous recommendation of the special committee, unanimously approved the First American Transaction and determined that the First American Transaction is fair to, and in the best interests of, First Advantage and our stockholders. The board also unanimously approved the certificate amendment proposal and recommends that you vote “FOR” approval of the First American Transaction proposal and the certificate amendment proposal.

 

Q: Is the certificate amendment proposal subject to approval by stockholders other than First American and other interested stockholders?

 

A:

Yes. First American has indicated that it will vote its shares of Class B common stock on the certificate amendment proposal, but approval of the certificate amendment proposal will also require the approval under the master transfer agreement of the holders of a majority of the outstanding shares of our Class A common stock (without giving effect to any shares held

 

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by First American or its affiliates, Donald Robert, or our management) represented at the annual meeting in person or by proxy and under Delaware law of the holders of a majority of the outstanding shares of the Class A common stock, voting as a separate class. First American does not own any shares of our Class A common stock.

 

Q: Have any stockholders of First Advantage indicated how they will vote their shares in connection with the First American Transaction proposal?

 

A: Pequot Private Equity Fund II, L.P., which held approximately 28% of our Class A common stock outstanding as of the Record Date, has indicated that it intends to vote all of its shares of Class A common stock in favor of the First American Transaction proposal. Mr. Lawrence D. Lenihan, Jr., a member of the special committee, is the managing general partner and co-head of this company. In addition, First American has indicated that it intends to vote all of the shares of our Class B common stock controlled by it in favor of the First American Transaction.

 

Q: What shares can I vote?

 

A: You may vote all shares owned by you as of the Record Date. This includes all shares you hold directly as the record holder and all shares you hold indirectly as the beneficial owner.

 

Q: How many votes will I have?

 

A: Holders of our Class A common stock will have one vote for each share held of record on the Record Date. The holder of our Class B common stock will have ten votes for each share held of record on the Record Date. Cumulative voting is not permitted. First American currently owns 100% of our outstanding Class B common stock, and therefore controls approximately 95% of our total voting power as of the Record Date.

 

Q: What is the CIG Business?

 

A: The CIG Business is First American’s credit information group, which includes a credit reporting business that provides credit information to users in the mortgage, automotive, consumer and sub-prime credit businesses throughout the United States.

 

Q: What other assets will First Advantage acquire as part of the First American Transaction?

 

A: As part of the First American Transaction, we will acquire a minority ownership interest in DealerTrack, which provides software and services that connect credit originators with funding sources, all of the outstanding stock of Bar None, which provides automobile dealerships with credit-based lead generation services, and the XRES Business, which offers merged credit reports and related services for mortgage and real estate transactions.

 

Q: What shares of our common stock will Newco receive as a result of the First American Transaction?

 

A: Newco will receive the following in connection with the First American Transaction:

 

    In exchange for the transfer of the CIG Business, the DealerTrack Interest, Bar None and the XRES Business, First Advantage will issue an aggregate of 29,073,170 shares of Class B common stock to Newco.

 

    In addition, First Advantage will issue 975,610 shares of Class B common stock to Newco as payment in full of the principal amount of $20 million under the promissory note originally issued to First American, which will be contributed to Newco prior to closing.

 

    Finally, if DealerTrack publicly offers its stock within two years after the completion of the First American Transaction and the value of the DealerTrack Interest exceeds $50 million, then First Advantage will be required to issue additional shares of Class B common stock to Newco.

 

Q: What will other First Advantage stockholders receive as a result of the First American Transaction?

 

A:

The First Advantage stockholders (other than First American, indirectly through its subsidiary, Newco) will not receive any new shares of First Advantage stock or any distribution and will continue to hold their existing shares of First Advantage common stock. Assuming approval

 

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is given, immediately after the consummation of the First American Transaction, on a pro forma basis approximately 15% of the common stock of First Advantage will be owned by current First Advantage stockholders (other than First American and its subsidiaries) and approximately 85% of the common stock of First Advantage will be controlled by First American, and First American will control approximately 98% of the voting power in First Advantage.

 

Q: If the First American Transaction proposal and certificate amendment proposal are approved, are there any other conditions to completion of the First American Transaction?

 

A: Yes. The transaction is subject to the other conditions of closing, described in “Master Transfer Agreement—Conditions Precedent to Closing” beginning on page 38, all of which we currently expect to be satisfied.

 

Q: When will the First American Transaction be completed?

 

A: If the First Advantage stockholders approve the First American Transaction proposal and the certificate amendment proposal, we expect to complete the First American Transaction as soon as possible after the satisfaction or waiver of the other conditions to the First American Transaction. Assuming we receive stockholder approval, we currently anticipate that the First American Transaction will be completed during the third quarter of 2005.

 

Q: After the First American Transaction closes, will First Advantage be required to issue any other shares to Newco in connection with the First American Transaction?

 

A: First Advantage will be required to issue additional shares of Class B common stock to Newco if DealerTrack completes an initial public offering of its stock within two years after the closing of the First American Transaction and the value of the DealerTrack Interest exceeds $50 million. We refer to this potential issuance as the “DealerTrack Earn-Out”. The exact number of shares of Class B common stock to be issued, if any, will be determined at the time the DealerTrack Earn-Out is paid. See “DealerTrack Earn-Out” beginning on page 15.

 

Q: Are there risks associated with the First American Transaction?

 

A: Yes. See “Risk Factors” beginning on page 1, “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 6 and “Reasons of the Special Committee for the First American Transaction” beginning on page 22.

 

Q: Who will serve as the executive officers of First Advantage after completion of the First American Transaction?

 

A: First Advantage’s executive management team will be bolstered by the addition of the management of the CIG Business. In particular, Anand Nallathambi, the current president of the CIG Business, will become the president of First Advantage.

 

Q: What is First Advantage’s 2003 Incentive Compensation Plan?

 

A: First Advantage’s 2003 Incentive Compensation Plan was adopted to enable First Advantage to grant incentive awards to its and its affiliates non-employee directors, officers, employees and consultants whose substantial contributions are essential to the continued growth and success of our business. First Advantage believes that these awards strengthen the commitment of its and its affiliates, non-employee directors, officers, employees and consultants and help attract and retain competent and dedicated individuals whose efforts will result in our long-term growth and profitability. The plan provides that we may grant awards of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, performance units, performance shares and cash-based awards.

 

Q: Why is First Advantage increasing the number of shares available for grant under the 2003 Incentive Compensation Plan?

 

A:

We established the First Advantage 2003 Incentive Compensation Plan to provide

 

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additional incentives to non-employee directors, officers, key employees and consultants of us and our affiliates whose substantial contributions are essential to our continued growth and success. We intend for awards granted to these individuals under the plan to strengthen their commitment to us and to align their interests with the interests of our stockholders. The plan also assists us and our affiliates in attracting and retaining competent and dedicated individuals whose efforts will result in our long-term growth and profitability. We believe the purposes of plan are being achieved and desire to increase the number of shares available for grant under the plan so that we can continue in the future to provide these incentives to appropriate non-employee directors, officers, key employees and consultants of us and our affiliates. The increase in the number of available shares also reflects the fact that, after the completion of the First American Transaction, we will be a much larger company with significantly more employees with the addition of the employees of the CIG Business.

 

Q: Has First American indicated how it will vote its shares in connection with the board election proposal and the incentive plan amendment proposal?

 

A: First American has indicated that it intends to vote all of the shares of our Class B common stock controlled by it in favor of the nominees named in the board election proposal and the incentive plan amendment proposal.

 

Q: Who is generally entitled to vote at the meeting?

 

A: Generally, holders of record of our Class A common stock and our Class B common stock at the close of business on August 9, 2005 (the “Record Date”) are eligible to vote at the annual meeting. On the Record Date, there were approximately 7,867,102 shares of Class A common stock outstanding and 16,027,286 shares of Class B common stock outstanding.

 

Q: What is the difference between record ownership and beneficial ownership?

 

A: Most stockholders own their shares through a stockbroker or other nominee rather than directly in their own names. There are some differences in how to vote, depending on how you hold your shares.

 

    You are the record owner of shares if those shares are registered directly in your name with our transfer agent. The transfer agent for our Class A common stock is Wells Fargo Shareowner Services. First Advantage acts as its own transfer agent for our Class B common stock. As the record holder of shares, you may vote such shares in person at the annual meeting or grant your voting proxy directly by completing the enclosed proxy card.

 

    You are the beneficial owner of shares if you hold those shares in “street name” through a stockbroker, bank, trustee or other nominee, including shares held on your behalf in the First Advantage Corporation 401(k) Savings Plan. If you are a beneficial owner, these proxy materials are being sent to you through your stockbroker or other nominee together with a voting instruction card. In order to vote, you must complete the voting instruction card provided by your stockbroker or other nominee to direct the record holder how to vote your shares or obtain a valid proxy from the stockbroker or other nominee who is the record owner of your shares giving you authority to vote your shares in person at the meeting.

 

Q: How do I vote?

 

A: You can vote on matters that come before the meeting in two ways:

 

    You can attend the annual meeting and vote in person; or

 

    You can vote by filling out, signing and returning the proxy card or voting instruction card.

 

If you wish to vote at the annual meeting and you are a beneficial owner of your shares, you must have a legal proxy in your favor executed by the stockbroker or other nominee who is the record owner.

 

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Whether or not you plan to attend the annual meeting in person, please fill in and sign the enclosed proxy card or instruction card and return it promptly.

 

Q: Can I revoke my proxy?

 

A: Yes. If you are the record holder of your shares, you may revoke your proxy after you have signed and returned it at any time before the proxy is voted at the annual meeting. There are three ways to revoke your proxy:

 

    You may send in another proxy card with a later date;

 

    You may notify the secretary of our company in writing before the annual meeting that you have revoked your proxy; or

 

    You may vote in person at the annual meeting.

 

Q: What is the quorum requirement for the annual meeting?

 

A: A quorum of stockholders is necessary to hold a valid meeting. A majority of the outstanding shares of Class A and Class B common stock on the Record Date taken as a whole, present in person or represented by proxy at the beginning of the annual meeting, constitutes a quorum. If you have returned a properly signed proxy card, you will be considered present at the meeting and counted in determining the presence of a quorum. Shares represented by proxies that withhold authority to vote for a nominee for election as a director or that reflect abstentions or “broker non-votes” (i.e., shares represented at the meeting held by brokers or nominees and as to which (i) instructions have not been received from the beneficial owners or persons entitled to vote and (ii) the broker or nominee does not have the discretionary voting power on a particular matter) will be treated as shares that are present for purposes of determining the presence of a quorum. Shares held by First American and its affiliates, officers and directors and our management and interested directors will be counted in order to determine whether we have a quorum for the annual meeting. Because First American owns more than half of our outstanding common stock and is expected to be present or represented by proxy at the meeting, we anticipate that a quorum will be present.

 

Q: How will my proxy be voted?

 

A: Shares represented by a properly executed and returned proxy will be voted at the meeting in accordance with the directions noted thereon. If you sign and return the proxy card but do not make specific choices, the proxy holders named in the proxy card will vote your shares “FOR” the First American Transaction proposal, the certificate amendment proposal, the election of all nominees for director recommended by the board and listed on the proxy card and the incentive plan amendment proposal. John Long and Julie Waters, our chief executive officer and general counsel, respectively, have agreed to act as proxy holders. Any undirected shares that you hold in the First Advantage Corporation 401(k) Savings Plan will be voted in the same proportion as those shares that have been directed by other participants in the plan.

 

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SUMMARY

 

The following is a brief summary of the terms of the First American Transaction and the other proposals to be voted on at the meeting. This summary is qualified in its entirety by the more detailed information appearing elsewhere in or incorporated by reference into this proxy statement. Initially capitalized terms not otherwise defined in this summary have the meanings assigned to them elsewhere in this proxy statement.

 

The Parties

First Advantage Corporation

One Progress Plaza, Suite 2400

St. Petersburg, Florida 33701

(727) 214-3411

 

First Advantage Corporation, a Delaware corporation (NASDAQ: FADV), provides best-in-class single-source solutions for global risk mitigation and enterprise and consumer screening needs. Incorporating state-of-the-art technology, proprietary systems and data resources, First Advantage is a leading provider of employment background screening, drug-free workplace programs and other occupational health testing, employee assistance programs, corporate tax and incentive services, resident screening, motor vehicle records services, transportation business credit services, investigative services, computer forensics and electronic discovery services, supply chain security and consumer location services. First Advantage ranks among the top three companies in all of its major business lines based on revenue. First Advantage is headquartered in St. Petersburg, Fla., and has more than 2,400 employees in offices throughout the United States and abroad.

 

The First American Corporation

1 First American Way

Santa Ana, California 92707

(714) 800-3000

 

The First American Corporation, a California corporation (NYSE: FAF), is a Fortune 500 company that traces its history to 1889. As the nation’s largest data provider, the company and its affiliates supply businesses and consumers with information resources in connection with major economic events of people’s lives, such as getting a job; renting an apartment; buying a car, house, boat or airplane; securing a mortgage; opening or buying a business; and planning for retirement. The First American family of companies, many of which command leading market share positions in their respective industries, operate within six primary business segments including: Title Insurance and Services, Specialty Insurance, Mortgage Information, Property Information, Credit Information and Screening Information (which is operated by First Advantage). With revenues of $6.72 billion in 2004, First American has 31,000 employees in approximately 2,000 offices throughout the United States and abroad.

 

First American Real Estate Information Services, Inc.

1 First American Way

Santa Ana, California 92707

(714) 800-3000

 

First American Real Estate Information Services, Inc., a California corporation (“FAREISI”), is a wholly owned subsidiary of First American.

 

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First American Real Estate Solutions LLC

1 First American Way

Santa Ana, California 92707

(714) 800-3000

 

First American Real Estate Solutions LLC, a California limited liability company (“FARES”), is a joint venture between First American and Experian Information Solutions, Inc. (“Experian”), in which FAREISI owns an 80% equity interest and Experian owns a 20% equity interest.

 

FADV Holdings LLC

 

FADV Holdings LLC, a Delaware limited liability company, is a newly formed company owned by First American, FARES and FAREISI and is referred to in this proxy statement as Newco. Newco was formed in connection with the First American Transaction. Before the closing of the First American Transaction, First American, FARES and FARESI will contribute all of the companies and assets that comprise the CIG Business, as well as the DealerTrack Interest, Bar None and the XRES Business and the $20 million promissory note, to Newco.

 

Certain Terms and Phrases

 

We use the following terms in describing the First American Transaction.

 

    “Bar None” refers to Bar None, Inc., a company that was recently acquired by First American that is also being conveyed to us as part of the First American Transaction.

 

    “CIG Business” refers to the credit information group of First American and its subsidiaries.

 

    “DealerTrack” refers to DealerTrack Holdings, Inc.

 

    “DealerTrack Earn-Out” refers to the additional shares of our Class B common stock that we will be required to issue if DealerTrack completes an initial public offering within two years of the closing of the First American Transaction and the value of the DealerTrack Interest exceeds $50 million.

 

    “DealerTrack Interest” refers to the minority interest in DealerTrack that will be conveyed to us as part of the First American Transaction.

 

    “Experian” refers to Experian Information Solutions, Inc., which owns 20% of FARES.

 

    “FAREISI” and “FARES” refer to First American Real Estate Information Services, Inc. and First American Real Estate Solutions LLC, respectively, two companies that are subsidiaries of First American.

 

    “FARES contribution agreement” refers to the contribution agreement that we will enter into with FARES and Newco which contains the terms and provisions applicable to the conveyance of the portion of the CIG Business currently owned by FARES as well as the XRES Business to us at the closing of the First American Transaction.

 

    “First Advantage”, “us”, “our” and “we” refer to our company, First Advantage Corporation.

 

    “First American” refers to The First American Corporation, which is our controlling stockholder.

 

    “First American contribution agreement” refers to the contribution agreement that we will enter into with First American, FAREISI and Newco which contains the terms and provisions applicable to the conveyance of the portion of the CIG Business currently owned by First American and FAREISI, as well the DealerTrack Interest and Bar None, to us at the closing of the First American Transaction.

 

    “master transfer agreement” refers to the amended and restated master transfer agreement dated as of June 22, 2005 which we have entered into with First American, FAREISI, FARES and Newco and which sets forth the basic terms and provisions of the First American Transaction.

 

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    “Morgan Stanley” refers to Morgan Stanley & Co. Incorporated, the financial advisor to the special committee of our board formed in connection with the First American Transaction.

 

    “Newco” refers to FADV Holdings LLC, a newly-formed limited liability company that is an indirect subsidiary of First American.

 

    “related agreements” refers to the First American contribution agreement, the FARES contribution agreement and the other agreements that we will enter into with First American, FAREISI, FARES, Newco and/or their affiliates in order to consummate the First American Transaction.

 

    “RELS” refers to RELS, LLC, which is a joint venture operated by First American.

 

    “XRES Business” refers to the certain businesses related to the assets that the CIG Business recently purchased from Experian and its affiliate. The XRES Business will also be conveyed to us as part of the First American Transaction.

 

Overview of First American Transaction

 

First Advantage has agreed to buy First American’s CIG Business and related businesses under the terms of the master transfer agreement. First Advantage has agreed to pay for the CIG Business and related businesses with shares of its Class B common stock. When First Advantage completes its acquisition of the CIG Business and related businesses, First Advantage and First American will also enter into related agreements as described below.

 

The CIG Business

 

The CIG Business consists of First American’s mortgage, automotive, consumer and sub-prime credit information business. This business provides reports derived from credit reports obtained from one or more of the three United States credit bureaus. As part of the First American Transaction, we will also obtain a minority ownership interest in DealerTrack, which provides software and services that connect credit originators with funding sources, all the stock of Bar None, which provides automobile dealerships with credit-based lead generation services, and the XRES Business, which offers merged credit reports and related services for mortgage and real estate transactions. See “Information About the CIG Business” beginning on page 11.

 

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The following diagram illustrates the companies and assets that currently comprise the CIG Business and the related businesses being contributed to First Advantage. As further described in “Master Transfer Agreement” beginning on page 33, prior to the closing of the First American Transaction, First American, FAREISI and FARES each will contribute to Newco all of the companies and assets that they own that comprise the CIG Business and the related businesses to Newco. At the closing of the First American Transaction, Newco will contribute all of the assets and companies that comprise the CIG Business and the related businesses to First Advantage or its wholly-owned subsidiary.

 

LOGO

 

Structure of the First American Transaction

 

The First American Transaction consists of several related transactions in accordance with the terms of the master transfer agreement and related agreements. The following transactions will occur on or immediately prior to the closing date of the First American Transaction:

 

    Prior to the closing of the First American Transaction, First American, FAREISI and FARES will contribute the CIG Business, the DealerTrack Interest, Bar None and the XRES Business to Newco. First American will also transfer to Newco the $20 million promissory note that First Advantage issued to First American in April 2004.

 

   

Pursuant to the terms of the contribution agreements, Newco will then contribute the CIG Business, the DealerTrack Interest, Bar None and the XRES Business to First Advantage or its wholly-owned subsidiary. In exchange, First Advantage will issue to Newco an aggregate of 29,073,170 shares of First Advantage Class B common stock, and First Advantage will assume substantially all of the liabilities associated with the CIG Business and related businesses. In particular, First Advantage will assume First American’s obligations under its agreement to purchase Bar None, which includes a possible maximum earn-out payment of $9 million to former stockholders of Bar None during the three year period following the completion of First American’s purchase of Bar None if Bar None achieves agreed

 

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financial targets during the three year period. See “Other Transaction Documents—The First American Contribution Agreement” beginning on page 44 and “Other Transaction Documents—The FARES Contribution Agreement” beginning on page 56.

 

    Concurrently with the contributions above, First Advantage will repay in full the principal amount of $20 million under the promissory note held by Newco by delivering to Newco 975,610 shares of Class B common stock. See “Other Transaction Documents— The First American Contribution Agreement” beginning on page 44.

 

    First Advantage will enter into several related agreements with First American and/or its affiliates, including the following:

 

    First Advantage and First American will enter into an amended and restated services agreement, under which First American and its affiliates, which currently provides key services to First Advantage and its affiliates, will continue to provide those services on the same terms and for limited periods and will provide additional key services, including acting as the exclusive resellers of First Advantage’s credit information and related products to mortgage lenders and others in the mortgage industry, for limited periods;

 

    First Advantage and FARES will enter into an outsourcing agreement, under which First Advantage will manage and provide credit reports and related products and services to customers of RELS, LLC, a joint venture which is currently operated by First American;

 

    First Advantage will execute a $45 million subordinated note in favor of First American, under which First Advantage may borrow, repay and reborrow from First American for a period of up to 90 days after the note is executed for working capital for the CIG Business; and

 

    First Advantage will enter into a five year lease with First American for the CIG Business’s facilities located in Poway, California, which includes a data center facility used by the CIG Business.

 

Following the closing date of the First American Transaction, First Advantage will be required to issue additional shares of its Class B common stock to Newco if DealerTrack completes an initial public offering within two years and the value of the DealerTrack Interest exceeds $50 million.

 

For a description of these and the other related documents, see “Other Transaction Documents” beginning on page 44.

 

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The following diagram illustrates the First American Transaction in general terms and is not comprehensive. For a more complete description of the First American Transaction, see “Master Transfer Agreement” beginning on page 33 and “Other Transaction Documents” beginning on page 44.

 

LOGO

 

See “Structure of the First American Transaction” beginning on page 14.

 

DealerTrack Earn-Out Payment

 

First Advantage will be obligated to issue additional shares of Class B common stock to Newco if DealerTrack completes an initial public offering of its stock on or prior to the second anniversary of the closing of the First American Transaction and the value of the DealerTrack Interest exceeds $50 million. If DealerTrack completes an IPO within 180 days after the closing of the First American Transaction, the number of shares to be issued will be equal to the quotient of (x) 50% of the amount by which the value of the DealerTrack Interest exceeds $50 million (based on the average closing price per share of DealerTrack’s stock over the 60 business day period beginning on the fifth business day after its initial public offering), divided by (y) $20.50. If the DealerTrack IPO occurs after the 180-day period following the closing of the First American Transaction (but prior to the second anniversary thereof), the number of additional Class B common shares we must issue to Newco will be equal to the quotient of (x) 50% of the amount by which the DealerTrack Interest exceeds $50 million (based on the average closing price per share of DealerTrack’s stock over the 60 business day period beginning on the fifth business day after its initial public offering), divided by (y) the average closing price per share of First Advantage’s Class A common stock during the 30 trading day period ending on the third trading day prior to the date of DealerTrack’s IPO, except that the minimum price per share will be $20.50.

 

See “Other Transaction Documents—The First American Contribution Agreement” beginning on page 44.

 

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First Advantage cannot determine the maximum number of Class B shares that may be issued to Newco in connection with the DealerTrack Earn-Out because the final number of shares to be issued to Newco will depend on a number of factors, which cannot be ascertained at this time, including:

 

    whether DealerTrack completes an initial public offering within two years after the closing of the First American Transaction;

 

    assuming DealerTrack completes an initial public offering of its common stock within that period, whether the offering is completed during the first 180 days following the First American Transaction closing or during the following 18 month period; and

 

    the average trading price of the DealerTrack common stock for the applicable period following completion of the DealerTrack IPO and the average closing price of First Advantage’s Class A common stock during the applicable period, if the IPO is completed after the 180-day period but before the second anniversary of the closing, which will be used to determine the number of shares to be issued.

 

We have included a table of examples to illustrate how the number of Class B shares to be issued to Newco in the DealerTrack Earn-Out will be calculated in the discussion of the “DealerTrack Earn-Out” beginning on page 15.

 

Appointment of Special Committee to Consider the First American Transaction

 

First American currently holds approximately 67% of First Advantage’s economic ownership and approximately 95% of the voting power of First Advantage. In order to avoid any potential conflicts of interest between First American and First Advantage, our board of directors appointed a special committee consisting of five directors who are not employed by or affiliated with First American or First Advantage, other than as directors of First Advantage or Class A stockholders, to evaluate the First American Transaction and make a recommendation to the full board of directors whether to proceed with the First American Transaction. The special committee independently selected and retained legal and financial advisors to assist it. We discuss the special committee in greater detail under the heading “Background of the First American Transaction” beginning on page 17.

 

Actions of Special Committee With Respect to the First American Transaction

 

The special committee has determined that the First American Transaction is fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, officers and directors, as to which the special committee made no determination) and has unanimously approved the First American Transaction. The special committee unanimously recommended to the full First Advantage board of directors that it recommend the First American Transaction. See “Actions of Special Committee With Respect to the First American Transaction” beginning on page 24.

 

Reasons of the Special Committee for the First American Transaction

 

In evaluating and approving the First American Transaction, the members of the special committee relied upon their knowledge of the business, financial condition and prospects of First Advantage, the knowledge of senior management of First Advantage regarding the business, financial condition and prospects of First Advantage and the CIG Business, and the advice of the special committee’s financial and legal advisors. In particular, the special committee considered the factors and risks described under “Reasons of the Special Committee for the First American Transaction” beginning on page 22.

 

Opinion of Special Committee’s Financial Advisor

 

Morgan Stanley, financial advisor to the special committee of our board of directors, delivered to the special committee its oral opinion, subsequently confirmed in writing on May 23, 2005, that, as of such date, and based

 

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upon and subject to the assumptions, limitations and qualifications set forth in the opinion, the consideration to be paid by First Advantage pursuant to the master transfer agreement and related agreements was fair to First Advantage from a financial point of view. The full text of Morgan Stanley’s written opinion is attached as Annex H. We encourage you to read it carefully in its entirety. Morgan Stanley’s opinion is directed to the special committee of our board of directors and it does not address the prices at which our common stock may trade prior to or after the proposed contribution nor does the opinion constitute a recommendation to any stockholder as to how to vote or as to any other action that a stockholder should take relating to the First American Transaction. See “Fairness Opinion of Financial Advisor to First Advantage’s Special Committee” beginning on page 25.

 

Recommendation of First Advantage’s Full Board of Directors with Respect to the First American Transaction

 

Our board of directors, after receiving the unanimous recommendation of the special committee, determined that the First American Transaction is fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, Donald Robert and our management, as to which the board made no determination), unanimously approved the First American Transaction and recommends that you vote “FOR” approval of the First American Transaction. See “Recommendation of First Advantage’s Full Board of Directors with Respect to the First American Transaction” beginning on page 24.

 

First American Transaction Documents

 

The terms and conditions of the First American Transaction are set forth in the master transfer agreement, which was executed on May 25, 2005 and amended and restated on June 22, 2005, and related agreements, described below, which will be entered into at the time of the closing of the First American Transaction, if approved.

 

Master Transfer Agreement

 

First Advantage, First American, FAREISI, FARES and Newco have entered into an amended and restated master transfer agreement dated as of June 22, 2005, which sets forth the terms and conditions of the First American Transaction. Among other things, the master transfer agreement sets forth representations and warranties of the parties to the agreement as to enforceability of the agreement and related matters, restricts the operations of the CIG Business, Bar None and the XRES Business (but not DealerTrack or RELS) prior to closing, sets forth covenants and agreements relating to consummation of the transaction, contains conditions of closing and provides for termination of the agreement under certain circumstances. You are urged to read the section entitled “The Master Transfer Agreement” beginning on page 33 and the copy of the master transfer agreement attached as Annex A.

 

First American Contribution Agreement

 

At the closing of the First American Transaction, First Advantage, First American, FAREISI and Newco will enter into a contribution agreement substantially in the form attached as Annex B (referred to as the “First American contribution agreement”), which sets forth additional terms and conditions on which Newco will transfer to First Advantage or its wholly-owned subsidiary the portion of the CIG Business contributed to Newco by First American and FAREISI as well as the DealerTrack Interest and Bar None. The First American contribution agreement sets forth the number of shares of our Class B common stock that will be issued to Newco in exchange for those assets and as payment in full of the principal amount of $20 million under the promissory note originally issued by First Advantage to First American in April 2004, which will be transferred to Newco prior to closing.

 

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In addition, the First American contribution agreement sets forth the terms under which First Advantage will issue additional shares of Class B common stock to Newco if the payment of the DealerTrack Earn-Out is required by the contribution agreement.

 

The First American contribution agreement also sets forth representations and warranties of parties to the agreement, covenants and agreements relating to consummation of the transaction, and indemnification provisions. You are urged to read the section entitled “First American Contribution Agreement” beginning on page 44 and the copy of the form of the First American contribution agreement attached hereto as Annex B.

 

FARES Contribution Agreement

 

At the closing of the First American Transaction, First Advantage, FARES and Newco will enter into a contribution agreement substantially in the form attached as Annex C (which is referred to as the “FARES contribution agreement”), which sets forth additional terms and conditions on which Newco will transfer to First Advantage or a wholly-owned subsidiary the portion of the CIG Business contributed to it by FARES, which consists of the CREDCO Division and the XRES Business. The FARES contribution agreement sets forth the number of shares of Class B common stock that will be issued to Newco in exchange for that portion of the CIG Business and the XRES Business and the assumption of certain liabilities associated with such assets by First Advantage. The FARES contribution agreement also sets forth representations and warranties of parties to the agreement, covenants and agreements relating to consummation of the transaction, and indemnification provisions. You are urged to read the section entitled “FARES Contribution Agreement” beginning on page 56 and the copy of the form of the FARES contribution agreement attached hereto as Annex C.

 

Amended and Restated Services Agreement

 

At the closing of the First American Transaction, First Advantage and First American will enter into an amended and restated services agreement substantially in the form attached as Annex D (which is referred to as the “amended and restated services agreement”), which amends and restates the services agreement previously entered into and amended by the parties. Under the amended and restated services agreement, First American and First Advantage agree to continue to provide business services to each other and their respective affiliates on the same terms. First Advantage also appoints First American and its affiliates as the exclusive resellers of First Advantage’s credit information and related products to mortgage lenders and others in the mortgage industry. The amended and restated services agreement sets forth the rates that will be paid for the services, as well as provisions with respect to treatment of employees. The term of the amended and restated services agreement will commence on the date the agreement is executed (which is expected to be the closing date of the First American Transaction) and terminate with respect to the applicable services as follows: (i) as to the First American business services (which include benefits costs, human resources systems, payroll system, and other general business services), two years from the effective date; (ii) as to the First Advantage mortgage services (which include the appointment of First American and its affiliates as the exclusive resellers of First Advantage’s credit products in the mortgage industry), two years from the effective date and then for additional successive two-year terms unless First American terminates with 60 days prior written notice to First Advantage; and (iii) as to all other services, one year from the effective date and then for successive 180-day periods unless either First American or First Advantage advises the other in writing no later than 30 days prior to the end of the current term that such services will not be extended. First Advantage is dependent on First American for a number of key services provided under the amended and restated services agreement, including the sale by First American of certain services of the CIG Business and related businesses to mortgage customers. First American’s interests with respect to such sales may differ from First Advantage’s interests. You are urged to read the section entitled “Amended and Restated Services Agreement” beginning on page 61 and the copy of the form of the amended and restated services agreement attached hereto as Annex D. See also the description of certain risks associated with the amended and restated services agreement under “Risk Factors” beginning on page 1 and the potential risks associated with the services agreement considered by the special committee under “Reasons of the Special Committee for the First American Transaction” beginning on page 22.

 

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Subordinated Promissory Note

 

At the closing of the First American Transaction, First Advantage will execute a $45 million unsecured subordinated promissory note in favor of First American substantially in the form attached as Annex E (which is referred to as the “promissory note”). First Advantage may borrow, repay and reborrow under the promissory note for up to and including 90 days following the date of the promissory note is executed (referred to as the “draw period”). The promissory note matures on the 135th day from and after the date it is executed and bears interest at the rate payable under First Advantage’s line of credit with Bank of America, N.A. plus 0.5% per annum. Proceeds of the note may only be used for working capital of the CIG Business. The promissory note contains customary default provisions. The promissory note will be subject to a subordination agreement between First American and Bank of America, which will be entered into at the same time as the promissory note. You are urged to read the section entitled “Subordinated Promissory Note” beginning on page 65 and the copy of the form of the promissory note attached hereto as Annex E.

 

Outsourcing Agreement

 

At the closing of the First American Transaction, FARES and First Advantage will enter into an outsourcing agreement substantially in the form attached as Annex F (which is referred to as the “outsourcing agreement”). Under the outsourcing agreement, First Advantage agrees, and agrees to cause its affiliates, to manage and provide credit reports and related products and services to customers of RELS as required under existing service agreements with RELS until these service agreements terminate, RELS dissolves or ceases to exist, or FARES or one of its affiliates is no longer a member of RELS, whichever occurs first. The outsourcing agreement provides that FARES will pay to First Advantage all amounts paid to FARES pursuant to the terms of the three existing service agreements for services provided under these agreements by First Advantage after the effective date of the outsourcing agreement. In addition, FARES will pay to First Advantage an amount equal to FARES’s percentage of the pre-tax income of RELS derived from the sale of credit reports and related products and services by RELS. First Advantage expects to receive a significant amount of revenue under the outsourcing agreement. These revenues are dependent on the performance of RELS, which will continue to be managed and controlled by First American after the closing of the First American Transaction. In addition, the commercial arrangements under which RELS provides services and derives revenues are based on agreements with RELS’ single customer, which is the other member of RELS, whose interests may be different from and/or adverse to First Advantage, and these underlying arrangements are terminable with little or no notice. You are urged to read the section entitled “Outsourcing Agreement” beginning on page 66 and the copy of the form of outsourcing agreement attached hereto as Annex F. See also the description of certain risks associated with the outsourcing agreement under “Risk Factors” beginning on page 1 and the potential risks associated with the outsourcing agreement considered by the special committee under “Reasons of the Special Committee for the First American Transaction” beginning on page 22.

 

Poway Lease Agreement

 

At the closing of the First American Transaction, First Advantage and First American will enter into a lease agreement substantially in the form attached as Annex G (which is referred to as the “Poway lease agreement”), pursuant to which First Advantage will lease from First American certain land, buildings and a parking structure in Poway, California, which is near San Diego. The Poway lease agreement has a five year term, with a one-time option to renew for five years, and monthly rent of approximately $169,000. You are urged to read the section entitled “Poway Lease Agreement” beginning on page 68 and the copy of the form of the Poway lease agreement attached hereto as Annex G.

 

Other Related Transaction Agreements

 

At the closing of the First American Transaction, other related agreements will be entered into, including:

 

    a sublease agreement between eAppraiseIT, as sub-lessee, and First Advantage or its wholly-owned subsidiary, as sub-lessor, of a portion of the Poway, California office space;

 

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    a sublease agreement between Interactive Division, as sub-lessee, and First Advantage or its wholly-owned subsidiary, as sub-lessor, of a portion of the Poway, California office space; and

 

    an equipment sublease agreement between FARES, as sub-lessor, and a subsidiary of First Advantage, as sub-lessee, as required by a master lease agreement among FARES, General Electric Capital Corporation and the other parties thereto dated as of December 28, 2000, under which the subsidiary of First Advantage will sublease certain equipment from FARES.

 

Interests of Certain Persons in the First American Transaction

 

Certain of our officers, directors and stockholders have interests in the First American Transaction that differ from the interests of our stockholders generally, including the following:

 

    First American currently holds approximately 67% of the outstanding capital stock of First Advantage and approximately 95% of our voting power.

 

    First Advantage and First American are parties to an amended and restated services agreement, which will be amended and restated in connection with the First American Transactions.

 

    First American is First Advantage’s primary subordinated lender.

 

    First American has guaranteed First Advantage’s repayment obligation under a $45 million unsecured credit facility.

 

    Several members of First Advantage’s board of directors are also current or former directors or senior officers of First American, and several members of First Advantage’s management were formerly employed by First American.

 

    First American has guaranteed earn-out payments to former shareholders of Bar None and would be subrogated to the former Bar None shareholders if First Advantage does not make earn-out payments as and when required under the Bar None agreement.

 

    Donald Robert, a member of First Advantage’s board of directors and compensation committee, is also chief executive officer of Experian Group, an affiliate of Experian.

 

    Experian owns a 20% interest in FARES, which, in turn, owns a minority interest in Newco. Upon consummation of the First American Transaction, Experian will indirectly own approximately 6.5% of First Advantage’s capital stock by virtue of these ownership interests. First Advantage will enter into an agreement with Experian at the completion of the First American Transaction which will require First Advantage to register under certain circumstances any shares of First Advantage’s common stock that Experian may in the future acquire by virtue of its minority ownership of FARES.

 

Because of these interests and for other reasons, First Advantage’s board of directors formed a special committee of five members to evaluate the First American Transaction. See “Interests of Certain Persons in the First American Transaction” beginning on page 31.

 

The Certificate Amendment Proposal

 

First Advantage must amend its current certificate of incorporation to increase the number of authorized shares of Class B common stock in order to have enough authorized shares to issue to Newco in connection with the First American Transaction. In addition, because each share of Class B common stock is convertible into one share of Class A common stock, First Advantage is also required to increase the authorized shares of Class A common stock in the event a conversion were to occur, and First Advantage also desires to have additional shares available after the First American Transaction for general corporate purposes. First Advantage will not file the amendment to the certificate with the Secretary of State of the State of Delaware unless and until the First

 

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American Transaction proposal is approved by the required vote of the stockholders. First Advantage intends to file the amendment as soon as practicable following approval of the First American Transaction proposal and the certificate amendment proposal by the stockholders. See “Proposal Number Two—Approval of the Certificate Amendment Proposal” beginning on page 94. In the event that the number of shares required to be issued in connection with the DealerTrack Earn-Out exceeds the authorized Class B shares, First Advantage may be required to amend its certificate of incorporation to increase further its authorized common stock.

 

First American has indicated that it intends to vote all the shares of Class B common stock controlled by it in favor of the certificate amendment proposal.

 

Recommendation of First Advantage’s Special Committee and Full Board of Directors With Respect to the Certificate Amendment Proposal

 

The special committee unanimously approved the certificate amendment proposal and unanimously recommended to the full First Advantage board of directors that it recommend the certificate amendment proposal. Our board of directors, after receiving the unanimous recommendation of the special committee, unanimously approved the certificate amendment proposal and recommends that you vote “FOR” approval of the certificate amendment proposal.

 

Other Proposals for First Advantage Stockholders

 

First Advantage stockholders are also being asked to consider two other proposals:

 

    the Board election proposal, which is a proposal to elect First Advantage’s board of directors; and

 

    the incentive compensation plan amendment proposal, which is a proposal to approve the amendment of First Advantage’s 2003 Incentive Compensation Plan to increase the number of shares of Class A common stock available for issuance under the plan from 3,000,000 to 7,000,000, as well as other amendments to the plan.

 

First American has indicated that it intends to vote all of the shares of our Class B common stock controlled by it in favor of the nominees named in the board election proposal and the incentive plan amendment proposal.

 

We will also consider any other business that may properly come before the meeting.

 

Recommendations of First Advantage’s Board of Directors With Respect to Other Proposals to be Voted on By First Advantage Stockholders

 

First Advantage’s board of directors unanimously recommends that you vote “FOR” the nominees for director named in this proxy statement and FOR the proposal to approve the incentive compensation plan amendments.

 

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SUMMARY HISTORICAL FINANCIAL INFORMATION OF THE CIG BUSINESS

 

This selected financial information has been derived from the audited combined financial statements and accompanying notes of the CIG Business for the three-year period ended December 31, 2004, the unaudited combined financial statements of the CIG Business for the two-year period ended December 31, 2001 and for the three months ended March 31, 2005 and 2004. This information is only a summary and should be read in conjunction with the audited and unaudited financial statements and accompanying notes included in this proxy statement.

 

   

Three months ended:

March 31,


   

Twelve months ended:

December 31,


    2005

  2004

    2004

  2003

  2002

  2001

  2000

Income Statement Data:

                                           

Service revenue

  $ 66,345,000   $ 62,452,000     $ 242,812,000   $ 244,806,000   $ 208,521,000   $ 188,547,000   $ 144,858,000

Other income

    1,612,000     2,143,000       7,392,000     9,060,000     9,654,000     5,192,000     1,533,000
   

 


 

 

 

 

 

Total revenue

    67,957,000     64,595,000       250,204,000     253,866,000     218,175,000     193,739,000     146,391,000

Cost of service revenue

    23,499,000     22,200,000       85,573,000     81,970,000     66,581,000     64,741,000     53,397,000
   

 


 

 

 

 

 

Gross margin

    44,458,000     42,395,000       164,631,000     171,896,000     151,594,000     128,998,000     92,994,000

Operating expenses

    26,142,000     27,032,000       111,818,000     118,471,000     106,871,000     98,367,000     74,784,000
   

 


 

 

 

 

 

Income from operations

    18,316,000     15,363,000       52,813,000     53,425,000     44,723,000     30,631,000     18,210,000

Other income (expense)

    458,000     (121,000 )     2,064,000     13,132,000     11,000     28,000     48,000
   

 


 

 

 

 

 

Income before income taxes

    18,774,000     15,242,000       54,877,000     66,557,000     44,734,000     30,659,000     18,258,000

Provision for income taxes

    7,815,000     6,266,000       22,477,000     31,023,000     18,340,000     13,712,000     7,668,000
   

 


 

 

 

 

 

Net income

  $ 10,959,000   $ 8,976,000     $ 32,400,000   $ 35,534,000   $ 26,394,000   $ 16,947,000   $ 10,590,000
   

 


 

 

 

 

 

Balance Sheet Data:

                                           

Total assets

  $ 195,699,000   $ 183,279,000     $ 171,912,000   $ 182,786,000   $ 167,093,000   $ 171,145,000   $ 91,913,000

Long-term debt

  $ 456,000   $ 912,000     $ 570,000   $ 1,026,000   $ —     $ —     $ 17,000

Stockholders’ equity

  $ 155,143,000   $ 135,437,000     $ 129,747,000   $ 129,660,000   $ 129,816,000   $ 138,947,000   $ 78,350,000

 

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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

The following unaudited combined financial information has been prepared to give effect to the acquisition of the CIG Business by First Advantage. The acquisition of the CIG Business by First Advantage is a transaction between businesses under the common control of First American. In acquisitions of businesses under common control, the acquiring company generally records acquired assets and liabilities at historical cost. Historical income statements of the acquirer are restated to include operations of the acquired business at historical cost assuming the acquisition was completed at the beginning of the respective period. The unaudited combined financial information for the five years ended December 21, 2004 and the three months ended March 31, 2005 and 2004 include the historical results of operations for First Advantage and the historical operating results for the CIG Business.

 

The unaudited pro forma combined financial information is presented for illustrative purposes only and are not necessarily indicative of the consolidated financial position or consolidated results of operations of First Advantage that would have been reported had the First American Transaction occurred on the dates indicated, nor do they represent a forecast of the consolidated financial position of First Advantage at any future date or the consolidated results of operations for any future period. Furthermore, no effect has been given in the unaudited pro forma combined statements of operations for synergistic benefits or cost savings that may be realized through the combination of First Advantage and the CIG Business. The unaudited pro forma combined financial information should be read in conjunction with the historical financial statements and related notes and management’s discussion and analysis of financial condition and results of operations of the CIG Business included in this proxy statement and the historical financial condition and results of operations and related notes of First Advantage incorporated by reference in this proxy statement.

 

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Three months ended:

March 31,


   

Twelve months ended:

December 31,


 
    2005

    2004

    2004

    2003

  2002

    2001

    2000

 

Income Statement Data:

                                                     

Service revenue

  $ 126,493,000     $ 108,411,000     $ 464,750,000     $ 379,716,000   $ 281,561,000     $ 234,379,000     $ 180,088,000  

Other income

    1,612,000       2,143,000       7,392,000       9,060,000     9,654,000       5,192,000       1,533,000  

Reimbursed government fee revenue

    12,216,000       11,474,000       44,599,000       31,585,000     27,885,000       3,350,000       3,352,000  
   


 


 


 

 


 


 


Total revenue

    140,321,000       122,028,000       516,741,000       420,361,000     319,100,000       242,921,000       184,973,000  

Cost of service revenue

    37,833,000       36,181,000       146,457,000       120,124,000     84,115,000       76,021,000       61,173,000  

Government fees paid

    12,216,000       11,474,000       44,599,000       31,585,000     27,885,000       3,335,000       3,352,000  
   


 


 


 

 


 


 


Total cost of service

    50,049,000       47,655,000       191,056,000       151,709,000     112,000,000       79,356,000       64,525,000  

Gross margin

    90,272,000       74,373,000       325,685,000       268,652,000     207,100,000       163,565,000       120,448,000  

Operating expenses

    65,351,000       57,688,000       252,192,000       208,526,000     157,876,000       133,375,000       101,640,000  

Impairment loss

    —         —         —         1,739,000     —         —         —    
   


 


 


 

 


 


 


Income from operations

    24,921,000       16,685,000       73,493,000       58,387,000     49,224,000       30,190,000       18,808,000  

Other (expense) income

    (590,000 )     (341,000 )     (173,000 )     13,019,000     (159,000 )     (154,000 )     (233,000 )
   


 


 


 

 


 


 


Income before income taxes

    24,331,000       16,344,000       73,320,000       71,406,000     49,065,000       30,036,000       18,575,000  

Provision for income taxes

    10,145,000       6,729,000       30,239,000       33,069,000     19,969,000       13,653,000       7,934,000  
   


 


 


 

 


 


 


Net income

  $ 14,186,000     $ 9,615,000     $ 43,081,000     $ 38,337,000   $ 29,096,000     $ 16,383,000     $ 10,641,000  
   


 


 


 

 


 


 


Per Share Information:

                                                     

Net income

                                                     

Basic

  $ 0.28     $ 0.20     $ 0.87     $ 0.80     N/A       N/A       N/A  
   


 


 


 

 


 


 


Diluted

  $ 0.28     $ 0.20     $ 0.86     $ 0.80     N/A       N/A       N/A  
   


 


 


 

 


 


 


Weighted average shares

                                                     

Basic

    51,098,973       48,960,100       49,711,384       48,065,731     N/A       N/A       N/A  

Diluted

    51,379,983       49,151,010       50,035,519       48,202,464     N/A       N/A       N/A  

Balance Sheet Data:

                                                     

Total assets

  $ 636,297,000     $ 501,218,000     $ 603,265,000     $ 466,686,000   $ 332,348,000     $ 234,959,000     $ 120,358,000  

Long-term debt

  $ 92,494,000     $ 27,460,000     $ 86,480,000     $ 14,499,000   $ 651,000     $ 1,159,000     $ 2,278,000  

Stockholders’ equity

  $ 446,391,000     $ 386,206,000     $ 416,515,000     $ 369,996,000   $ 275,718,000     $ 192,021,000     $ 96,842,000  

 

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RISK FACTORS

 

The First American Transaction involves a number of risks. In addition to the other information included and incorporated by reference in this proxy statement, including the matters addressed in the “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 6, you should carefully consider the following risks before deciding how to cast your vote on the First American Transaction proposal and the certificate amendment proposal. In addition, you should read and consider the other risks associated with First Advantage, which can be found in First Advantage’s Annual Report on Form 10-K for the year ended December 31, 2004, which has been filed with the SEC and is incorporated by reference into this proxy statement. You should also read and consider the other information in this proxy statement and the documents incorporated by reference into this proxy statement. Additional risks and uncertainties not presently known to First Advantage or that are not currently believed to be important also may adversely affect the First American Transaction.

 

Risks Related to the First American Transaction

 

The integration of the CIG Business and related businesses following the First American Transaction will be difficult and may result in a failure to realize some or all of the anticipated potential benefits in a timely manner.

 

The integration of the CIG Business and related businesses into the operations of First Advantage and its subsidiaries involves the integration of several businesses that previously operated within First American. We cannot assure you that First Advantage will be able to integrate the operations of the CIG Business and related businesses without encountering difficulties. Any difficulty in integrating the operations of the CIG Business and related businesses successfully could have a material adverse effect on the business, financial condition, results of operations or prospects of First Advantage, and could lead to a failure to realize or delay in realizing the anticipated benefits of the First American Transaction. Moreover, First Advantage’s management will be required to dedicate substantial time and effort to the integration of the CIG Business and related businesses. During the integration process, these efforts could divert management’s focus and resources from other strategic opportunities and operational matters.

 

We may not realize the expected benefits from the First American Transaction.

 

We anticipate that First Advantage will realize certain benefits as a result of the First American Transaction, including allowing us to enter new vertical markets with cross-sell potential, raise additional capital, increase debt capacity, complete larger acquisitions and realize cost synergies. However, we cannot predict with certainty whether or when these benefits will occur or be achieved. Realization of any benefits could be affected by a number of factors beyond our control, including general economic conditions, increased operating costs due to unrelated factors, the response of our competitors to the First American Transaction, regulatory developments, inability to realize cost synergies and increase in competition.

 

We will incur significant costs relating to the First American Transaction that could have a material adverse effect on our operating results.

 

We anticipate that First Advantage will incur costs in excess of $3.5 million in connection with the First American Transaction and the integration of the CIG Business and related businesses into our existing operations. These expenses may have a material adverse effect on our operating results in the period in which they are recorded. We cannot assure you that any of the benefits that we expect to realize as a result of the First American Transaction will offset these expenses.

 

We will be entering into a new line of business with which our management may not be familiar and which may require substantial management resources.

 

After the First American Transaction, our range of products and services, scope of operations, competitors and suppliers will be significantly different from those in place before the First American Transaction.

 

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Accordingly, after the First American Transaction, our results of operations and prospects, as well as the market price for our Class A common stock, may be affected by factors that are different from those that have historically affected us, including the impact of general economic conditions in the mortgage business, interest rates, and the fact that when the United States’ economy is weak, the demand for the products associated with the CIG Business and related businesses historically decreases. Our management may not be able to manage these differences and risks effectively. In addition, we will be succeeding to numerous contracts and arrangements in market segments and with counterparties with which we are not familiar. Effective management of these contracts and arrangements in new markets may require substantial time and resources. If we are not able to effectively manage these challenges, our results of operations and/or the market price of our Class A common stock may be materially adversely affected.

 

Failure to complete the First American Transaction could adversely impact the market price for our Class A common stock as well as our business and operating results.

 

If the First American Transaction is not completed for any reason, the market price of our Class A common stock may decline to the extent that the market price reflects positive market assumptions concerning the First American Transaction and the related benefits that could be realized. We could also be subject to additional risks if the First American Transaction is not completed, including the impact of costs associated with the transaction, such as legal, accounting, filing, financial advisory and printing costs which must be paid regardless of whether the First American Transaction is completed and potential disruption of our business and the distraction of our management and workforce.

 

The historical financial information of the CIG Business and the pro forma combined financial information may not reflect the results of the CIG Business if it had been operated independently of First American and, accordingly, may not be a reliable indicator of historical or future results.

 

The CIG Business is currently integrated within First American and its operations. Consequently, the financial information regarding the CIG Business included in this proxy statement has been derived from the consolidated financial statements and accounting records of First American and reflects assumptions and allocations made by management of First American and the CIG Business. The historical financial position, results of operations and cash flows of the CIG Business presented in this proxy statement, as well as the pro forma combined information for the CIG Business and First Advantage, may be different from those that would have resulted had the CIG Business been operated independently and the historical financial information for the CIG Business and on a pro forma combined basis may not be reliable indicators of future results.

 

As a result of the First American Transaction, the current holders of our Class A common stock will be diluted by the issuance of additional shares of Class B common stock to Newco.

 

As of the date of this proxy statement, the holders of our Class A common stock (other than First American) own approximately 33% of our outstanding common stock and approximately 5% of the voting power of First Advantage. Immediately following completion of the First American Transaction (but without taking into account the DealerTrack Earn-Out), the current holders of First Advantage’s Class A common stock will own, on a pro forma basis, approximately 15% of our outstanding common stock and approximately 2% of the voting power of First Advantage. The closing of the First American Transaction therefore will result in substantial additional dilution of the ownership percentage of the holders of our Class A common stock and will result in First American controlling, directly or indirectly, on a pro forma basis approximately 85% of our issued and outstanding capital stock and approximately 98% of the voting power of First Advantage.

 

The DealerTrack Earn-Out, if triggered, will result in further dilution of our Class A common stock.

 

If DealerTrack consummates an initial public offering within two years after the closing of the First American Transaction and the value of the DealerTrack Interest exceeds $50 million, the DealerTrack Earn-Out will be triggered and we will be required to issue additional shares of Class B common stock to Newco. This will

 

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result in a further dilution of the percentage of our outstanding common stock owned by stockholders other than First American and its subsidiaries. We cannot ascertain at this time how many shares we will have to issue if the DealerTrack Earn-Out is triggered and there is no cap on the number of shares we may be required to issue.

 

The number of shares of Class B common stock to be issued in connection with the First American Transaction is not subject to adjustment if the per share price of our Class A common stock is greater than $20.50 per share, which could result in First Advantage paying a higher value for the CIG Business and related businesses than anticipated at the time the First American Transaction was first announced.

 

The First American and FARES contribution agreements require First Advantage to issue at closing a fixed number of shares of Class B common stock to Newco in exchange for the assets of the CIG Business, the DealerTrack Interest, Bar None and the XRES Business. The number of shares to be issued was negotiated on an arms length basis and is based on a fixed price per share of $20.50. The number of shares of our Class B common stock to be issued to Newco will not be adjusted upwards or downwards based upon changes in the market price for our Class A common stock or other factors. Because each share of Class B common stock is convertible into one share of Class A common stock, if the price of our Class A common stock increases, then we could be issuing to Newco shares of Class B common stock with a value that is greater than the aggregate value that was used at the time the First American Transaction was first announced. (On the other hand, if the price of our Class A common stock decreases, then we could be issuing to Newco shares of Class B common stock with a value that is less than the aggregate value that was used at the time the First American Transaction was first announced.) Neither First Advantage nor First American and its subsidiaries have the right to terminate the master transfer agreement solely because of changes in the market price of our Class A common stock. As a result, we cannot assure you of the actual aggregate value of shares of Class B common stock we will issue to Newco at the closing of the First American Transaction or whether the aggregate value will be greater or less than the valuation assumed at the time the First American Transaction was first announced.

 

Some of the directors and officers of First Advantage may have interests in the First American Transaction that are different from, and in addition to, the interests of the holders of our Class A common stock (other than First American and its affiliates)

 

In considering the recommendation of First Advantage’s board of directors to vote to approve the First American Transaction and the amendment to First Advantage’s certificate of incorporation, First Advantage stockholders should be aware of potential conflicts of interest of, and of the benefits available to, some of First Advantage’s stockholders, directors and officers. These stockholders, directors and officers may have interests in the First American Transaction that are different from, or in addition to, the interests of First Advantage stockholders as a result of the First American Transaction. You should read “Interests of Certain Persons in the First American Transaction” beginning on page 31 for a more complete description of these potential interests and benefits.

 

After the consummation of the First American Transaction, First Advantage will be dependent on First American for additional key services.

 

Currently, First Advantage is dependent upon First American for a number of key services, described in “Certain Relationships and Related Transactions” beginning on page 117. After the consummation of the First American Transaction, First Advantage will be dependent on First American for additional key services, including First American and its affiliates being the exclusive resellers of credit reports and related services compiled by the CIG Business to the mortgage market. First American has agreed to provide these services for only a limited period of time, and there is no guarantee that First American will continue to provide these services to First Advantage following the expiration of the term of the applicable service under the amended and restated services agreement, or continue the price or other terms on which First American might be willing to do so. In addition, since the sale of CIG Business reports and services in the mortgage industry will be made exclusively by First American, the sale of these reports and services will be in accordance with the terms of the

 

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amended and restated services agreement, and there can be no assurances as to the future amount of such sales or level of services beyond the term or in excess of the levels required under the amended and restated services agreement.

 

After the consummation of the First American Transaction, First Advantage expects to receive a significant amount of revenue under an outsourcing agreement with First American.

 

The revenues that may in the future be received under the outsourcing agreement with First American described under “Other Transaction Documents—Outsourcing Agreement” beginning on page 66 are dependent upon the performance of RELS, an entity that after the transaction will continue to be managed and controlled by First American, and thus are beyond the control of First Advantage. The commercial arrangements under which RELS provides services and it derives revenues are based on agreements with RELS’ single customer, which is the other member of RELS, whose interests may be different from and/or adverse to First Advantage. These underlying arrangements are terminable with little or no notice. Accordingly, there can be no assurances as to revenues, if any, that may in the future be received by First Advantage under the outsourcing agreement. The loss of such revenues could be material to First Advantage.

 

Risks Related to the CIG Business

 

The CIG Business and First Advantage, respectively, may be adversely effected by recent high-profile events involving data theft at a number of information services companies.

 

Several information services companies that are competitors of the CIG Business and First Advantage have recently been involved in high-profile events involving data theft. These incidents or similar data theft incidents in the future could impact the CIG Business and First Advantage. Given the differences between First Advantage and the CIG Business, the nature and magnitude of this impact could be materially different on First Advantage and the CIG Business and the risk of these events to First Advantage may be increased after completion of the First American Transaction because of its ownership of the CIG Business. In particular, these events could result in increased legal and regulatory scrutiny of the industry in general and specific information services companies in particular and changes in federal, state and local laws and regulations in the United States designed to protect the public from the misuse of personal information in the marketplace. Changes in the laws and adverse publicity or potential litigation concerning the commercial use of such information may affect the CIG Business’ and First Advantage’s operations and could result in substantial regulatory compliance expense, litigation expense and a loss of revenue.

 

A substantial portion of the CIG Business is related to the level of borrowing activity in the United States, and the levels of these activities have historically been sensitive to changes in interest rates.

 

Demand for a substantial portion of the CIG Business’ products generally decreases as the number of lending transactions in which the CIG Business’ products are purchased decreases. Management of the CIG Business has found that the number of lending transactions in which the CIG Business’ products are purchased decreases when:

 

    interest rates are high;

 

    supply of funds for borrowing are limited; and

 

    the United States economy is weak.

 

First Advantage believes that this trend could continue when these factors occur.

 

Key employees of the CIG Business and/or First Advantage might not remain with First Advantage following completion of the First American Transaction.

 

First Advantage is entering into the First American Transaction for a number of reasons, including the addition of the CIG Business’ management team to First Advantage. In particular, Mr. Anand Nallathambi will

 

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become First Advantage’s president following the closing of the transaction. First Advantage, however, is not entering into employment or other retention agreements with any of the members of the CIG Business’ management. Accordingly, we cannot assure you that Mr. Nallathambi or other key employees of the CIG Business will remain with First Advantage after completion of the transaction or for a significant period of time following completion of the transaction. If key CIG Business employees are not retained by First Advantage, we may experience substantial disruption in the CIG Business and the loss of key management personnel or other key employees may adversely affect our ability to manage our overall operations and successfully implement our business strategy.

 

Essential suppliers to the CIG Business also compete with certain operations of the CIG Business; this competition may put the CIG Business at a competitive disadvantage.

 

A substantial proportion of the revenue of the CIG Business is derived from the resale to end users of credit reports provided exclusively by the three repositories of credit information in the United States. In certain transactions, such as those involving the resale of residential property, end users require the CIG Business to provide a credit report derived from merged information supplied by all three repositories. These repositories also sell credit reports directly to end users. There can be no assurance that a credit repository will not attempt to gain a competitive advantage over the CIG Business by increasing the price it charges the CIG Business for credit reports or by selling credit reports to end users at a lower price than the CIG Business can offer. Such practices may make the credit report products of the CIG Business less profitable or less attractive to end-users and, thus, may have a material adverse effect on the results of operations or financial condition of the CIG Business.

 

We may be subject to increased regulation regarding the use of personal information.

 

The CIG Business is highly regulated, as described in “Information about the CIG Business - Governmental Regulation” beginning on page 13. Although we have been informed that compliance with existing federal, state and local laws and regulations has not had a material adverse effect on the CIG Business’ results of operations or financial condition to date, compliance with federal, state and local laws and regulations in the United States that relate to the operation of the CIG Business may affect First Advantage’s operations and could result in substantial regulatory compliance expense, litigation expense and a loss of revenue.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement contains “forward-looking statements.” These forward-looking statements are based on estimates and assumptions made by management of First Advantage, and take into account only the information available at the time the forward-looking statements are made. Although we believe our estimates and assumptions are and will be reasonable, forward-looking statements involve risks, uncertainties and other factors that could cause our 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 First American Transaction, business strategy, projected plans and objectives of First Advantage, prospective products, sales and marketing efforts, costs and expenses, liquidity, cost savings and the other forward-looking statements contained in this proxy statement, including:

 

    the expected closing date of the First American Transaction;

 

    pro forma financial data for First Advantage and the CIG Business;

 

    information concerning the anticipated benefits of the proposed First American Transaction;

 

    the matters described under “Risk Factors” beginning on page 1;

 

    the effect of the First American Transaction on First Advantage’s financial flexibility and its ability to access capital markets;

 

    the expected increase in First Advantage’s ability to implement its acquisition strategy or pursue larger acquisition targets after the First American Transaction;

 

    statements about the expected competitive position and profitability of First Advantage and the CIG Business after closing of the transaction; and

 

    estimates of the market capitalization and valuation of First Advantage and projected financial results of First Advantage and the CIG Business.

 

Forward-looking statements are subject to numerous risks and uncertainties. The following are some important factors that could cause First Advantage’s actual results to differ materially from those in forward-looking statements:

 

    general volatility of the capital markets and the market price of First Advantage Class A common stock;

 

    First Advantage’s ability to successfully raise capital;

 

    First Advantage’s ability to identify and complete acquisitions and successfully integrate businesses it acquires (including the CIG Business);

 

    changes in applicable government regulations;

 

    the degree and nature of First Advantage’s competition;

 

    an increase in First Advantage’s expenses;

 

    continued consolidation among First Advantage’s competitors and customers;

 

    technological changes may be more difficult or expensive than anticipated; and

 

    other factors described in the section entitled “Risk Factors” beginning on page 1.

 

First Advantage’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 Advantage. The forward-looking statements speak only as of the date they are made. First Advantage does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

 

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ANNUAL MEETING OF FIRST ADVANTAGE STOCKHOLDERS

 

We are furnishing this proxy statement to First Advantage stockholders as part of the solicitation of proxies by our board of directors for use at the annual meeting of stockholders. On or about August 11, 2005 we began sending the attached notice of annual meeting, this proxy statement, and the enclosed proxy card to all holders of record of our Class A and Class B common stock entitled to receive such materials and vote.

 

Date, Time and Place

 

The annual meeting will be held at the Renaissance Vinoy Resort, located at 501 Fifth Avenue, St. Petersburg, Florida 33701, on September 13, 2005 at 9:00 a.m. Eastern Time, and at any adjournments thereof.

 

Purposes of Annual Meeting

 

At the annual meeting, you will be asked to consider and vote upon the following proposals:

 

1. To consider and vote on approval of the amended and restated master transfer agreement, dated as of June 22, 2005, among The First American Corporation, First American Real Estate Information Services, Inc., First American Real Estate Solutions, LLC, FADV Holdings LLC and First Advantage Corporation and related agreements which First Advantage will enter into with The First American Corporation and/or its subsidiaries in connection with the closing of the transactions contemplated by the master transfer agreement, and the transactions contemplated by the master transfer agreement and related agreements, including the following:

 

    the contribution by FADV Holdings LLC, a newly formed subsidiary of The First American Corporation, of the assets and companies comprising The First American Corporation’s credit information group, including its minority ownership interest in DealerTrack Holdings, Inc. to First Advantage or a wholly-owned subsidiary of First Advantage;

 

    the issuance of 29,073,170 shares of our Class B common stock to FADV Holdings LLC in exchange for its contribution of the assets and companies comprising The First American Corporation’s credit information group, including its minority ownership interest in DealerTrack Holdings, Inc. to First Advantage or a wholly-owned subsidiary of First Advantage;

 

    the payment in full of the principal amount of $20 million under the promissory note that we originally issued to The First American Corporation by the issuance of 975,610 shares of Class B common stock to FADV Holdings LLC;

 

    the potential issuance of an additional number of our shares of Class B common stock to FADV Holdings LLC in the future if DealerTrack Holdings, Inc. consummates an initial public offering of its stock before the second anniversary of the closing and the value of our minority interest exceeds $50 million;

 

    an amended and restated services agreement between First Advantage and First American; and

 

    an outsourcing agreement between First Advantage and a subsidiary of First American.

 

2. To consider and vote on the approval of the adoption of an amendment to our certificate of incorporation to increase the number of authorized shares of Class A common stock from 75,000,000 to 125,000,000 and to increase the number of authorized shares of Class B common stock from 25,000,000 to 75,000,000;

 

3. To elect our board of directors to serve until our annual meeting of stockholders to be held in 2006, or such later time as their successors may be elected and are qualified;

 

4. To consider and vote on the approval of the adoption of an amendment to the First Advantage Corporation 2003 Incentive Compensation Plan to increase the number of shares available for grant by 4,000,000 shares to a total of 7,000,000 shares, as well as other amendments to the plan described in this proxy statement; and

 

5. To transact such other business as may properly come before the meeting.

 

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Record Date and Stock Entitled to Vote

 

Our board of directors has fixed the close of business on August 9, 2005 as the record date for determining the holders of our Class A and Class B common stock entitled to notice of the meeting, as well as for determining the holders of our Class A and Class B common stock entitled to vote at the meeting.

 

Quorum

 

A quorum of stockholders is necessary to hold a valid meeting. A majority of the outstanding shares of Class A and Class B common stock on the Record Date taken as a whole, present in person or represented by proxy at the beginning of the annual meeting, constitutes a quorum. If you have returned a properly signed proxy card, you will be considered present at the meeting and counted in determining the presence of a quorum. Shares represented by proxies that withhold authority to vote for a nominee for election as a director or that reflect abstentions or “broker non-votes” (i.e., shares represented at the meeting held by brokers or nominees and to which (i) instructions have not been received from the beneficial owners or persons entitled to vote and (ii) the broker or nominee does not have the discretionary voting power on a particular matter) will be treated as shares that are present for purposes of determining the presence of a quorum. Abstentions and broker non-votes will not otherwise affect the voting, except with respect to the certificate amendment proposal, which requires a majority of the outstanding shares of Class A common stock and Class B common stock (such that an abstention or broken non-vote will have the same effect as a vote against the proposal). Shares held by First American and its affiliates, officers and directors and our management and interested directors will be counted in determining the presence of a quorum.

 

Because First American owns more than half of our outstanding common stock and is expected to be present or represented by proxy at the annual meeting, we anticipate that a quorum will be present. If a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned or postponed to solicit additional proxies.

 

Votes Required

 

The voting requirement is different for each proposal.

 

    First American Transaction Proposal. The favorable vote of the holders of a majority of the shares of our Class A common stock (without giving effect to any shares held by First American or its affiliates, Donald Robert, or our management) represented at the annual meeting in person or by proxy and the favorable vote of the holders of a majority of our shares of common stock (giving effect to all shareholdings) present in person or by proxy is required for the adoption of this proposal.

 

    Certificate Amendment Proposal. Under the master transfer agreement, the favorable vote of the holders of a majority of the outstanding shares of our Class A common stock (without giving effect to any shares held by First American or its affiliates, Donald Robert, or our management) represented at the annual meeting in person or by proxy and the favorable vote of the holders of a majority of the outstanding shares of our common stock (giving effect to all shareholdings) present in person or by proxy is required for approval of the certificate amendment proposal. In addition, under Delaware law, the holders of each class of our common stock are required to vote separately on the proposal to amend our certificate of incorporation to increase the number of authorized shares of the Class A common stock and Class B common stock. Accordingly, under Delaware law, the favorable vote of the holders of a majority of the outstanding shares of each class is required for the adoption of this proposal.

 

    Board Election Proposal. Directors are elected by a plurality vote of shares present at the annual meeting, meaning that the nominee with the most affirmative votes for a particular seat is elected for that seat. If you do not vote for a particular nominee, or if you withhold authority to vote for a particular nominee on your proxy card, your vote will not count either “FOR” or “AGAINST” the nominee.

 

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    Incentive Plan Amendment Proposal. The holders of the shares of our Class A and Class B common stock will vote together as a single class on this proposal. The favorable vote of the holders of a majority of the shares of common stock represented at the annual meeting in person or by proxy is required for the adoption of the amendment to the incentive compensation plan.

 

Voting, Revocation and Solicitation of Proxies

 

You can vote on matters that come before the meeting in two ways:

 

    You can attend the annual meeting and vote in person; or

 

    You can vote by filling out, signing and returning the proxy card or voting instruction card.

 

All shares of First Advantage’s common stock represented by properly executed proxies received in time for the annual meeting will be voted at the annual meeting in the manner specified by First Advantage’s stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted for the First American Transaction proposal, the certificate amendment proposal and the incentive plan amendment proposal and for the director nominees named in this proxy statement.

 

If you plan to attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the record holder of the shares authorizing you to vote at the annual meeting.

 

Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of First Advantage at our principal executive office, One Progress Plaza, Suite 2400, St. Petersburg, Florida, 33701, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the meeting and voting in person. Attendance at the annual meeting will not, by itself, revoke a proxy. Revoking a proxy and failing to subsequently vote in person or by a later proxy will result in a non-vote.

 

First Advantage will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy card and any additional information furnished to stockholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of common stock beneficially owned by others to forward to such beneficial owners. First Advantage may reimburse persons representing beneficial owners of common stock for their costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by contact in person, by telephone, via e-mail or by facsimile by directors, officers or other regular employees of First Advantage. No additional compensation will be paid to directors, officers or other regular employees for such services.

 

Whether or not you plan to attend the annual meeting in person, we urge you to fill in and sign the enclosed proxy card or instruction card and return it promptly.

 

Abstentions and Broker Non-Votes

 

Shares of First Advantage common stock held by persons attending the annual meeting but not voting, and shares of First Advantage common stock for which First Advantage has received proxies but with respect to which holders of those shares have abstained from voting, will be counted as present at the annual meeting for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting.

 

Shares represented by proxies that reflect a broker “non-vote” will be counted for purposes of determining whether a quorum exists. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner has not received instructions from the beneficial owner and does not have discretionary authority to vote the shares.

 

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Adjournments or Postponements

 

First Advantage does not expect that any matter other than the proposals presented in this proxy statement will be brought before the annual meeting. However, if other matters are properly presented at the annual meeting or any adjournment or postponement of the annual meeting, but we did not receive notice of the proposal a reasonable time before we mail this proxy statement, we will exercise discretionary authority (granted under SEC rules) to vote proxies we receive with respect to such proposals. Under the laws of the State of Delaware, no business may be raised at the annual meeting unless proper notice to the First Advantage stockholders has been given. For further information, see “General Information—Stockholder Proposals” beginning on page 133.

 

Adjournments may be made for the purpose of reconvening the stockholders meeting to permit a vote to be taken to approve the proposals described in this proxy statement, but not for the purpose of soliciting additional proxies. An adjournment may be made from time to time by approval of the holders of shares representing a majority of the votes present in person or by proxy at the annual meeting, whether or not a quorum exists, without further notice other than by an announcement made at the annual meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting will be given to each stockholder entitled to vote at the meeting.

 

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PROPOSAL NUMBER ONE

 

APPROVAL OF THE FIRST AMERICAN TRANSACTION, INCLUDING

ISSUANCE OF SHARES IN CONNECTION THEREWITH

 

General

 

The board of directors of First Advantage, based on the recommendation of the special committee and the opinion of the financial advisor to the special committee described below, has unanimously approved the First American Transaction, including the issuance of shares of Class B common stock of First Advantage to Newco in connection therewith and the master transfer agreement and related agreements.

 

Vote Required

 

First Advantage is submitting the First American Transaction for approval of the stockholders in accordance with First Advantage’s listing agreement with Nasdaq National Market System, which, among other things, generally requires stockholder approval of a transaction or series of transactions which involve the acquisition of assets or stock of another company in which any First Advantage director, officer or substantial stockholder directly or indirectly has a 5% or greater interest in the stock or assets to be acquired or in which the consideration to be paid in the transaction and the present or potential issuance of shares could result in an increase in outstanding common shares of voting power of 5% of more. In addition, approval of the First American Transaction, including the issuance of our Class B common shares and approval of the master transfer and related agreements, by our stockholders is a condition to closing under the master transfer agreement.

 

The affirmative vote of the holders of a majority of the shares of our Class A common stock (without giving effect to any shares of common stock held by First American and its affiliates, Donald Robert or our management) and the affirmative vote of the holders of a majority of our shares of common stock (giving effect to all shareholdings) present in person or by proxy is necessary to approve the First American Transaction.

 

Pequot Private Equity Fund II, L.P., the largest Class A common stockholder, which owns approximately 28% of our Class A common stock, has indicated that it will vote all of the shares of Class A common stock that it owns in favor of approval of the First American Transaction. Mr. Lawrence D. Lenihan, Jr., a member of the special committee, is the managing general partner and co-head of this company.

 

THE BOARD RECOMMENDS THAT YOU VOTE “FOR” APPROVAL OF THE FIRST AMERICAN TRANSACTION.

 

INFORMATION ABOUT THE CIG BUSINESS

 

The CIG Business

 

The CIG Business, which comprises the credit information segment of First American, operates through four primary businesses: First American CREDCO, currently a division of FARES (“First American CREDCO”), First American Membership Services (“Membership Services”), Teletrack and First American Credit Management Solutions (“CMSI”).

 

First American CREDCO helps thousands of mortgage lenders, automotive dealers and other companies in the United States assess the credit risk of individuals through the provision of credit reports and related products and services. First American CREDCO resells credit information purchased from the three United States repositories of credit information, Equifax, Experian and Trans Union. This credit information is packaged by First American CREDCO into single bureau reports and merged credit reports. Single bureau reports involve the receipt, formatting and delivery of credit information from the databases of one of the repositories. First American CREDCO’s merged credit reports require additional steps, in particular the receipt of credit information from at least two of the three repositories and the merging and duplication elimination of the

 

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information received. First American CREDCO’s reports also may include other information, such as fraud and OFAC alerts as well as FICO credit scores. First American CREDCO is the largest reseller of credit reports in the United States and the largest provider of merged credit reports to the mortgage and automotive finance industries. First American CREDCO accounted for approximately 78% of the CIG Business’s revenue in 2004.

 

Membership Services provides credit reports and credit monitoring services directly to consumers through its retail and other marketing partners. In addition, Membership Services provides and manages third party products and administrative services to these partners, which include major financial institutions and retail websites. Membership Services accounted for approximately 9% of the CIG Business’s revenue in 2004.

 

We believe that Teletrack is the largest provider of credit information on sub-prime consumers in the United States based upon the number of reports issued. Drawing on its proprietary databases of credit and other information culled from merchants which cater to sub-prime consumers and the public record, Teletrack assembles and delivers credit reports to a variety of businesses, including pay-day loan and check-advance stores, sub-prime consumer finance companies, rent-to-own retailers, sub-prime credit card issuers and similar types of creditors. Teletrack accounted for approximately 8% of the CIG Business’s revenue in 2004.

 

CMSI provides software and services which allow customers to automate the credit decision process, including data entry, credit report retrieval, application of credit scoring models, application of lending policies, booking of loans and related administrative functions. CMSI’s products also permit lenders to monitor their lending practices to ensure compliance with internal and regulatory requirements. CMSI’s customers include major financial institutions, student loan lenders and other lending institutions. CMSI accounted for approximately 5% of the CIG Business’s revenue in 2004.

 

Cyclicality/Seasonality

 

The demand for First American CREDCO’s products is sensitive to changes in interest rates. Generally when interest rates increase consumer borrowing decreases, resulting in reduced demand for credit reports and related products. In addition, demand for mortgage and automotive credit reports tends to decline slightly toward year-end, when historically mortgage and automotive financing transactions have decreased. CMSI and Membership Services have historically experienced little seasonal variance in their businesses.

 

Historical Growth

 

The CIG Business grew out of First American’s acquisition in 1994 of California Credit Data, Inc. and Prime Credit Reports, Inc., which it combined with its Metropolitan Credit Reporting Services, Inc. and Metropolitan Property Reporting Services, Inc. subsidiaries. The following year, First American significantly expanded its credit operations with the acquisition of CREDCO, Inc. In 1998, First American contributed the companies then constituting its credit information business to FARES, a joint venture with Experian. These companies were later merged with FARES, with the credit operations continuing to function as a division of the joint venture.

 

In 1999, First American acquired Teletrack and in 2001 purchased Credit Management Solutions, Inc., a publicly traded corporation which was subsequently renamed First American Credit Management Solutions, Inc. In that transaction, First American also acquired a subsidiary corporation, Credit Online, Inc., a provider of software and services which connects credit originators, such as automobile dealers, with funding sources. In early 2003, First American sold Credit Online to DealerTrack in a stock for stock transaction. In 2000, First American formed Membership Services.

 

In March 2005, the CIG Business purchased the XRES Business. Two months later, the CIG Business increased the services it offers to the automobile industry through the acquisition of Bar None, which provides automobile dealerships with credit-based lead generation services, with an emphasis on identifying credit impaired consumers in need of automobile financing. These two businesses are also being contributed to First Advantage as part of the First American Transaction.

 

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Governmental Regulation

 

Generally, the products and services offered by the CIG Business do not require governmental approvals; however, the CIG Business’s (including XRES Business’s and Bar None’s) credit report related products and services are subject to various federal and state regulations. For example, the Fair Credit Reporting Act, the Fair and Accurate Credit Transactions Act, the Graham-Leach-Bliley Act and similar federal and state laws regulate the disclosure and use of the personal information that may be included in these products and services.

 

Employees

 

The CIG Business employs approximately 800 people.

 

Organizational Structure of the CIG Business and Related Businesses Prior to the First American Transaction

 

The following diagram illustrates the companies and assets that currently comprise the CIG Business and the related businesses being contributed to First Advantage. As further described in “Master Transfer Agreement” beginning on page 33, prior to the closing of the First American Transaction, First American, FAREISI and FARES each will contribute to Newco all of the companies and assets that they own that comprise the CIG Business and the related businesses (together with associated liabilities). At the closing of the First American Transaction, Newco will contribute all of the assets and companies that it owns that comprise the CIG Business and the related businesses (together with associated liabilities) to First Advantage or its wholly-owned subsidiary.

 

LOGO

 

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STRUCTURE OF THE FIRST AMERICAN TRANSACTION

 

The master transfer agreement and related agreements provide for the following actions to occur at the closing of the First American Transaction:

 

    Newco will contribute the CIG Business, the DealerTrack Interest, Bar None and the XRES Business to First Advantage or its wholly-owned subsidiary in exchange for an aggregate of 29,073,170 shares of First Advantage’s Class B common stock, and First Advantage will assume substantially all the liabilities associated therewith. In particular, First Advantage will assume First American’s obligations under its agreement for the purchase of Bar None, which includes a possible maximum payment of $9 million to former stockholders of Bar None during the three year period following the completion of First American’s purchase of Bar None if Bar None achieves agreed upon financial targets during the three year period following the closing; and

 

    Concurrently with the contributions described above, First Advantage will pay in full the principal amount of $20 million under the promissory note that we originally issued to First American in April 2004 by issuing 975,610 shares of our Class B common stock to Newco.

 

As a result of the contributions, the CIG Business, the DealerTrack Interest, Bar None and the XRES Business will become part of the business and operations of First Advantage or its wholly-owned subsidiary. At the time of the closing, the companies comprising the CIG Business (other than the CREDCO Division) and their respective subsidiaries are required to have cash and cash equivalents of $1.95 million or more and the CREDCO Division is required to have cash or cash equivalents of $3.05 million or more.

 

The following diagram illustrates the First American Transaction in general terms and is not comprehensive. For a more complete description of the First American Transaction, see “Master Transfer Agreement” beginning on page 33 and “Other Transaction Documents” beginning on page 44.

 

LOGO

 

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In connection with the closing of the First American Transaction, First Advantage and First American will enter into several agreements that relate to the transfer of the CIG Business and the related businesses to First Advantage, including:

 

    An amended and restated services agreement, under which First American and its affiliates, which currently provides key services to First Advantage and its affiliates, will continue to provide those services on the same terms and for limited periods and will provide additional key services, including acting as the exclusive resellers of First Advantage’s credit information and related products to mortgage lenders and others in the mortgage industry, for limited periods. See “Other Transaction Documents—Amended and Restated Services Agreement” beginning on page 61.

 

    A $45 million unsecured subordinated promissory note, under which First Advantage can borrow, repay and reborrow from First American from time to time for 90 days after the closing for working capital for the CIG Business, with a maturity date of 135 days after the date it is executed. See “Other Transaction Documents—Subordinated Promissory Note” beginning on page 65.

 

    An outsourcing agreement, pursuant to which First Advantage will manage and provide credit reports and related products and services to customers of RELS with respect to three existing service agreements until these service agreements terminate, RELS dissolves or ceases to exist, or FARES or one of its affiliates is no longer a member of RELS, whichever occurs first. See “Other Transaction Documents—Outsourcing Agreement” beginning on page 66.

 

    An office lease agreement between First American Title Insurance Company, as landlord, and First Advantage, as tenant, of certain buildings and property located in Poway, California. See “Other Transaction Documents—Poway Lease Agreement” beginning on page 68.

 

    A sublease agreement between eAppraiseIT, as sub-lessee, and First Advantage, as sub-lessor, of a portion of the Poway, California office space. See “Other Related Transaction Agreements” beginning on page 69.

 

    A sublease agreement between Interactive Division, as a sub-lessee, and First Advantage, as sub-lessor, of a portion of the Poway, California office space. See “Other Related Transaction Agreements” beginning on page 69.

 

    An equipment sublease agreement to be entered into by and between FARES, as sub-lessor, and First Advantage or its wholly-owned subsidiary, as sub-lessee under a sublease required under a master lease agreement among FARES, General Electric Capital Corporation and the other parties thereto, dated as of December 28, 2000, under which a First Advantage subsidiary will sublease certain equipment from FARES. See “Other Related Transaction Agreements” beginning on page 69.

 

DealerTrack Earn-Out

 

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

 

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See “Other Transaction Documents—First American Contribution Agreement” beginning on page 44.

 

First Advantage cannot determine the maximum number of Class B shares that may be issued to Newco in connection with the DealerTrack Earn-Out because the final number of shares to be issued to Newco will depend on a number of factors, which cannot be ascertained at this time including:

 

    whether DealerTrack completes an initial public offering within two years after the closing of the First American Transaction;

 

    assuming DealerTrack completes an initial public offering of its common stock within that period, whether the offering is completed during the first 180 days following the First American Transaction closing or during the following 18 month period;

 

    the average trading price of the DealerTrack common stock for the applicable period following completion of the DealerTrack IPO and the average closing price of First Advantage’s Class A common stock during the applicable period, if the IPO is completed after the 180-day period but before the second anniversary of the closing, which will be used to determine the number of shares to be issued.

 

The following table includes examples of the calculation of the number of Class B common shares that may be issued in connection with the DealerTrack Earn-Out assuming that DealerTrack completes an IPO after the 180-day period following the closing of the First American Transaction but prior to the second anniversary thereof. If DealerTrack completes an IPO during the initial 180 day period, the first line of the table below illustrates the number of shares that would be issued, because in that case the denominator in the formula is always $20.50.

 

Example of Number of First Advantage Shares Issued Pursuant to DealerTrack Earn-Out

(IPO After Initial 180-Day Period)

         Value of DealerTrack Interest (in millions)

         50.0

   70.0

   90.0

   110.0

   130.0

   150.0

   

20.50*

   0.00    487,805    975,610    1,463,415    1,951,220    2,439,024
   

20.75

   0.00    481,928    963,855    1,445,783    1,927,711    2,409,639
   

21.00

   0.00    476,190    952,381    1,428,571    1,904,762    2,380,952
   

21.25

   0.00    470,588    941,176    1,411,765    1,882,353    2,352,941
   

21.50

   0.00    465,116    930,233    1,395,349    1,860,465    2,325,581
   

21.75

   0.00    459,770    919,540    1,379,310    1,839,080    2,298,851
   

22.00

   0.00    454,545    909,091    1,363,636    1,818,182    2,272,727
   

22.25

   0.00    449,438    898,876    1,348,315    1,797,753    2,247,191
   

22.50

   0.00    444,444    888,889    1,333,333    1,777,778    2,222,222
   

22.75

   0.00    439,560    879,121    1,318,681    1,758,242    2,197,802
   

23.00

   0.00    434,783    869,565    1,304,348    1,739,130    2,173,913
 

23.25

   0.00    430,108    860,215    1,290,323    1,720,430    2,150,538
 

23.50

   0.00    425,532    851,064    1,276,596    1,702,128    2,127,660
   

23.75

   0.00    421,053    842,105    1,263,158    1,684,211    2,105,263
   

24.00

   0.00    416,667    833,333    1,250,000    1,666,667    2,083,333
   

24.25

   0.00    412,371    824,742    1,237,113    1,649,485    2,061,856
   

24.50

   0.00    408,163    816,327    1,224,490    1,632,653    2,040,816
   

24.75

   0.00    404,040    808,081    1,212,121    1,616,162    2,020,202
   

25.00

   0.00    400,000    800,000    1,200,000    1,600,000    2,000,000

 

* As noted above, the price of one share of First Advantage’s Class B common stock used to calculate the number of shares may not be less than $20.50.

 

There is no limit on the maximum number of Class B common shares that may be issued to First American in connection with the DealerTrack Earn-Out. Accordingly, First Advantage may be required to seek additional

 

Value of First Advantage Stock

 

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stockholder approval to amend the certificate of incorporation in the event that First Advantage does not have a sufficient number of authorized shares under its certificate of incorporation.

 

Background of the First American Transaction

 

In November 2004, Parker S. Kennedy, the Chairman and Chief Executive Officer of First American and the Chairman of First Advantage, and John Long, the Chief Executive Officer of First Advantage, discussed strategic alternatives for First Advantage, including the possible contribution to First Advantage of certain credit information businesses owned by First American. In late December 2004, these discussions narrowed, focusing in particular on the contribution of the CIG Business to First Advantage.

 

On January 7, 2005, Mr. Kennedy, Mr. Long, Anand Nallathambi, the president of the CIG Business, and representatives from Lehman Brothers discussed in a telephone conference near term strategic goals of First American and First Advantage and in particular the potential transfer of First American’s credit information businesses to First Advantage. Following this call, First American retained Lehman Brothers to assist it in determining the value of the CIG Business and in structuring a potential transaction. In the weeks that followed, Mr. Kennedy discussed the proposed transaction with Lawrence D. Lenihan, Jr., a member of First Advantage’s board of directors and a representative of Pequot Private Equity Fund II, L.P., a large stockholder of First Advantage. During this time Mr. Kennedy also discussed the transaction with Donald Robert, a member of First Advantage’s board of directors and chief executive officer of Experian Group, an affiliate of Experian. Mr. Kennedy discussed with Mr. Robert the necessity of obtaining Experian’s consent to the proposed transaction. This consent is required under Experian’s and First American’s joint venture agreement relating to FARES, the owner of a portion of the assets of the CIG Business.

 

On January 20, 2005, Mr. Nallathambi, Mr. Long and representatives of Lehman Brothers met at First American’s offices to discuss the potential transaction and to begin determining a range of values for the CIG Business.

 

On January 25, 2005, the board of directors of First American held a special meeting at which Mr. Kennedy advised the members of a possible transaction involving the contribution of the CIG Business to First Advantage.

 

On January 26, 2005, First Advantage’s board gathered informally, and John Long, the Chief Executive Officer of First Advantage, described First American’s interest in contributing the CIG Business to First Advantage. At a regularly scheduled board meeting the following day, Mr. Long and other members of management, including Mr. Kennedy, the chairman of First Advantage’s board and chief executive officer of First American, described the potential transaction in additional detail. After a discussion concerning the potential benefits and risks that the potential transaction could entail, First Advantage’s board designated a special committee consisting of Barry Connelly, Lawrence D. Lenihan, Jr., Donald Nickelson, Adelaide Sink and David Walker to evaluate the proposed contribution of the CIG Business by First American and to make a recommendation to First Advantage’s full board as to whether to approve the transactions with First American.

 

The special committee met later in the day on January 27, 2005. At this meeting, the members of the special committee discussed the appropriate process to follow and appointed Donald Nickelson and David Walker as co-chairmen. The special committee met four times over the next twelve days to further define its review process and select legal and financial advisors. The special committee engaged Davis Polk & Wardwell as its outside legal advisor on February 4, 2005, and promptly thereafter engaged Morgan Stanley & Co. Incorporated as its outside financial advisor. At these meetings, counsel to the special committee discussed with the members of the special committee their fiduciary duties, the role of the special committee and other legal matters, and the special committee instructed its counsel to reach agreement with management of First Advantage and First American on a mutually acceptable process. In addition, at the direction of the special committee, Morgan Stanley commenced its due diligence process.

 

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On January 31, 2005, Mr. Kennedy, Mr. Nallathambi, Thomas Klemens and Kenneth DeGiorgio, chief financial officer and general counsel, respectively, of First American, and representatives of Lehman Brothers met to discuss Lehman Brothers’ recommendations with respect to the value of the CIG Business and the structure of the transaction.

 

On several occasions between January 31, 2005 and February 7, 2005, Mr. Kennedy and Mr. Long discussed possible terms for a potential transaction, including the value of the individual businesses comprising the CIG Business and the value of the First Advantage stock to be issued in consideration for the contribution of the CIG Business. Mr. Kennedy and Mr. Long also discussed the future management of the combined operations of First Advantage and the CIG Business and its strategic direction.

 

On February 2, 2005, Mr. Nickelson and Mr. Walker conducted due diligence on behalf of the special committee at the Poway, CA headquarters of the CIG Business, including presentations by and discussions with senior management of CIG Business. This was followed by a due diligence investigation by Mr. Lenihan at the same facility on February 3, 2005.

 

On February 4, 2005, First American and First Advantage entered into a confidentiality agreement.

 

On February 7, 2005, the board of directors of First American met again. At the February 7 meeting, representatives from Lehman Brothers made a presentation in which they discussed proposed terms and the strategic rationale for the transaction. The First American board of directors authorized management to pursue the transaction and formed a committee of three of its members for the purpose of advising First American management.

 

Following several conversations between the parties, on February 9, 2005, Julie Waters, First Advantage’s general counsel, representatives of Reed Smith LLP, outside counsel to First Advantage, Mr. DeGiorgio, representatives of White & Case LLP, First American’s outside counsel, and representatives of Davis Polk & Wardwell, counsel to the special committee, discussed the respective roles of First Advantage, First American and the special committee with regard to the proposed transaction. They agreed that in addition to closing conditions, any transaction would be subject to approval by the special committee and to approval by the holders of a majority of First Advantage’s Class A common stock, excluding shares held by First American and its affiliates, officers and directors or by management and interested directors of First Advantage. They also agreed on a due diligence review process that would include, among other things, business, financial, accounting and legal matters. Ms. Waters and representatives of Davis Polk subsequently agreed that management of First Advantage, under the oversight of the special committee, would take the lead role in negotiating the transaction with First American.

 

Between February 7, 2005 and February 10, 2005, Mr. Kennedy and Mr. Long continued to discuss different methods to value the CIG Business and the First Advantage Class B common stock. In addition, First American delivered to First Advantage a draft letter of intent setting forth the terms discussed between Mr. Long and Mr. Kennedy and First American’s proposal with respect to outstanding matters. In particular, the letter of intent provided that First American and certain of its affiliates would contribute to First Advantage the CIG Business, including certain businesses related thereto which were in the process of being acquired by First American, and would convert $20 million of outstanding indebtedness to equity. In exchange, the letter of intent provided that First Advantage would issue to First American and its affiliates 29,513,035 shares of its Class B common stock for the CIG Business, Class B common stock valued at $20.33 per share to satisfy the outstanding indebtedness and in payment for the companies pending acquisition and one half of the contingent value of the DealerTrack Interest, a minority equity investment in an unaffiliated third party held by the CIG Business.

 

After a series of discussions with First American, on February 11, 2005, Mr. Long called Mr. Nickelson, co-chairman of the special committee, and indicated that the economic terms reflected in the letter of intent were inadequate for First Advantage. Following this conversation, Mr. Long informed First American that the terms outlined in the letter of intent were unacceptable, and the parties agreed to re-evaluate their interest in pursuing a

 

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transaction. Later that day the special committee met with its legal advisor to discuss the letter of intent and these developments, and the special committee instructed its financial and legal advisors to cease working on the transaction.

 

Discussions between Mr. Long and Mr. Kennedy continued between February 11, 2005 and February 24, 2005, at which time the First American board of directors met and discussed the progress being made on the transaction, the benefits of the transaction to First Advantage and First American, in its capacity as First Advantage’s largest stockholder, and the value that Mr. Nallathambi would bring to First Advantage’s management team.

 

At a regularly scheduled meeting of First Advantage’s board on February 17, 2005, Mr. Long informed the members of the special committee that he believed discussions regarding the acquisition should be reopened. The members of the special committee consented under the standstill agreement between First American and First Advantage to further discussions between First Advantage and First American regarding the transaction in order to allow management to present a proposed transaction to the special committee. Over the course of the next week, management of First Advantage and First American discussed revised terms for a potential transaction. Also during this period, as part of its due diligence review, the special committee’s financial advisor met several times with management of First Advantage and with management of the CIG Business, including a due diligence visit to the Poway, CA headquarters of the CIG Business.

 

On February 24, 2005, the special committee discussed with its financial and legal advisors the status of the ongoing negotiations regarding the proposed transaction and the ongoing due diligence reviews being conducted by management, the special committee, and Morgan Stanley with respect to certain diligence, including financial and business diligence. The special committee met again on March 3, 2005 with its financial and legal advisors and discussed the ongoing due diligence.

 

On March 7, 2005, counsel to First American delivered draft documentation for the proposed transaction to First Advantage and First Advantage delivered a due diligence request list to First American. On March 8 and 9, Mr. Connelly and Ms. Sink of the special committee conducted a due diligence visit to the headquarters of the CIG Business in Poway, CA. During this visit, Mr. Connelly and Ms. Sink attended management presentations and interviewed the senior management of the CIG Business. On March 9, counsel to the special committee described to management of First Advantage the scope of the due diligence review that the special committee expected management to undertake and report on to the special committee prior to any special committee decision regarding the proposed transaction. On March 10, 2005, First Advantage provided drafts of the transaction documents to the special committee and over the next several days counsel to the special committee discussed the drafts with First Advantage’s general counsel and on March 15, 2004 First Advantage delivered revised drafts to First American.

 

On March 16, 2005, the special committee met with its financial and legal advisors and with management of First Advantage. Management of First Advantage described the proposed terms of the transaction, the financial, operational and strategic rationale for the transaction, and the status of the ongoing negotiations with First American. After management of First Advantage left the meeting, representatives of Morgan Stanley, the financial advisor to the special committee, discussed their ongoing review of certain diligence, which included financial and business diligence and then discussed various financial and business issues including valuation. Mr. Connelly and Ms. Sink then reported on their due diligence visit to Poway. The representatives of Morgan Stanley then left the meeting and the special committee’s counsel discussed with the members of the special committee their fiduciary duties and other legal matters. Following this meeting, Mr. Nickelson telephoned Mr. Donald Robert and requested that Mr. Robert ensure that arrangements would be put in place to retain certain senior managers in the event a transaction were consummated.

 

Commencing on March 18, 2005, representatives of First Advantage conducted due diligence at the CIG Business headquarters in Poway. Management’s due diligence continued until the initial signing of the agreements for the transaction in May.

 

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During this period, discussions between Mr. Kennedy and Mr. Long continued with respect to the value of the CIG Business and First Advantage’s Class B common shares to be issued in the proposed transaction. After several discussions between Mr. Kennedy and Mr. Long, the companies agreed to value the CIG Business (without including the XRES Business or Bar None or the DealerTrack Interest) at $550 million and to value each share of Class B common stock to be issued to First American in connection with the proposed transactions at $20.50.

 

On March 21 and 22, 2005, First American and First Advantage, with the input of the special committee, negotiated the final terms of the non-binding letter of intent, including that the transaction would be subject to approval by the special committee and to approval by the holders of a majority of the shares of Class A common stock of First Advantage, other than First American and its affiliates, officers and directors and other than management and interested directors of First Advantage. The special committee met with its legal advisor in the morning on March 22 to review and discuss the draft letter of intent and related press release and directed management of First Advantage to make certain changes. On March 25, 2005, First American and First Advantage signed a non-binding letter of intent. The executed letter of intent provided that First American would contribute the CIG Business and the DealerTrack Interest to First Advantage in exchange for 26,829,268 shares of its Class B common stock plus an additional number of shares, valued at $20.50 per share, equal to half of the contingent value of the DealerTrack Interest. First Advantage would also issue 975,610 shares to First American in satisfaction of $20 million of outstanding indebtedness to First American and approximately 2,243,900 shares for companies pending acquisition by First American that would be contributed in the transaction. Following the execution of the non-binding letter of intent, in the afternoon of March 22, First American and First Advantage jointly announced the execution of the non-binding letter of intent and held a conference call with investors and the financial community to discuss the proposed transactions.

 

Following the announcement of the non-binding letter of intent, the special committee, its financial advisor and management of First Advantage continued their due diligence review of the CIG Business. On March 31, 2005, First American completed its acquisition of the assets of the XRES Business. On April 1, 2005, the special committee met with its legal advisor and discussed, among other things, the status of due diligence and negotiations regarding definitive agreements for the transactions. Counsel to First American delivered revised draft agreements for the transaction on April 4, 2005, and the special committee met with its legal and financial advisors on April 11, 2005, and discussed the proposed transaction, the ongoing due diligence review and the revised documentation. The special committee directed its counsel to advise management of First Advantage that the current draft agreements were not acceptable and to discuss with management various improvements to the economic and other terms.

 

Following these discussions, on April 22, 2005, First Advantage delivered revised drafts of the transaction documents to First American. Over the course of the next several weeks, Ms. Waters, First Advantage’s general counsel, had numerous conversations with counsel to the special committee concerning the draft documentation, and management of First Advantage continued to negotiate the documentation with First American and its counsel.

 

On April 29, 2005, management of First Advantage began providing due diligence reports to the special committee and its financial and legal advisors. Management discussed these reports with the special committee’s financial and legal advisors and reported on follow-up inquiries.

 

On May 6, 2005, representatives of First Advantage’s management, the management of the CIG Business, the special committee’s financial and legal advisors, and First American’s financial advisor held a conference call during which the participants discussed, among other things, the status of the definitive documentation for the transaction and due diligence matters, including the preliminary April results for each of First Advantage and the CIG Business. Following this call, the special committee’s legal advisor and First Advantage’s general counsel discussed in detail the preliminary results of First Advantage’s ongoing due diligence review and agreed upon additional matters to be reviewed. Later that day, First American delivered revised drafts of the transaction agreements to First Advantage and to counsel to the special committee.

 

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On May 12, the special committee held a telephonic meeting with its financial and legal advisors. At this meeting, the special committee and its advisors reviewed the ongoing due diligence and the draft transaction documents. After discussion, the special committee directed its counsel to advise management of First Advantage and management of First American that the draft agreements were not acceptable and to request further changes. Over the course of the next several days, Ms. Waters, Mr. DeGiorgio, First American’s outside counsel and counsel to the special committee negotiated the documents for the transaction. Throughout these negotiations, counsel to the special committee consulted with and took direction from the co-chairmen of the special committee.

 

In the morning on May 17, 2005, the special committee met with its counsel at the St. Petersburg, FL offices of First Advantage and discussed the draft transaction agreements and the status of the negotiations. After this discussion, a meeting of the full board of directors of First Advantage was convened with certain directors who were not members of the special committee participating by telephone. Also in attendance were representatives of management of First Advantage and of the CIG Business, as well as counsel to the special committee. Management of First Advantage discussed the business and prospects of the CIG Business and presented the results of its due diligence review, including with respect to accounting, benefits, tax, regulatory, real estate, environmental, intellectual property, litigation, insurance and contracting matters. Management of the CIG Business then offered its view as to the business and prospects of the CIG Business. In addition, terms of the proposed transaction, including with respect to the RELS joint venture outsourcing arrangement, were discussed. Throughout the meeting, the members of the special committee and their counsel asked questions of management of each of First Advantage and the CIG Business. A general discussion followed, including a discussion of the potential benefits and risks involved in the proposed transaction.

 

The meeting of the First Advantage board was adjourned, the management teams were excused, and a meeting of the special committee was reconvened with the legal and financial advisors to the special committee present. After discussion, the special committee invited Mr. John Lamson, First Advantage’s chief financial officer, to further discuss the proposed services agreement between First American and First Advantage and the proposed outsourcing agreement relating to the RELS joint venture. After a discussion of these arrangements, Mr. Lamson was excused. After further discussion, the special committee invited Messrs. Long and Lamson and Ms. Waters to join the meeting. The special committee discussed the terms of the transaction agreements with Messrs. Long and Lamson and Ms. Waters, and directed management and counsel to the special committee to seek certain changes. Management and counsel to the special committee then left the meeting to continue negotiations on the transaction documents, and the special committee’s financial advisor began to discuss with the special committee its review of certain diligence, which included financial and business diligence and certain financial and business issues, including valuation regarding the proposed transaction. Counsel to the special committee rejoined the meeting and, after further discussion, Morgan Stanley rendered an oral opinion as to the fairness to First Advantage from a financial point of view of the consideration to be paid in the transaction. Following further discussion, Morgan Stanley was excused from the meeting.

 

After more discussion, counsel to the special committee was excused from the meeting to confer with management of First Advantage, and later returned and updated the committee on the results of the most recent negotiations concerning the transaction documents. After further discussion, the members of the special committee unanimously determined, in consultation with its independent legal and financial advisors, that it is advisable and in the best interests of First Advantage and its stockholders (other than First American, its affiliates, officers and directors) to effect the First American Transaction pursuant to the terms of the master transfer agreement and the related agreements and resolved to recommend them to the full board of First Advantage, subject in each case, to the finalization of the definitive agreements in form satisfactory to the special committee.

 

The meeting of the First Advantage board was reconvened and, after discussion and subject to the finalization of the definitive agreements, the special committee recommended the transaction to the board. After further discussion, the board unanimously approved the contribution of the CIG Business and related transactions and determined that such transactions were fair to, and in the best interests of, First Advantage and its

 

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stockholders (other than First American and its affiliates, Donald Robert or First Advantage’s management, as to which the board did not make a determination), subject in each case to finalization of the definitive agreements.

 

On May 18, 2005, the First American board of directors met. Representatives of Lehman Brothers made a presentation regarding the transaction and advised that in their opinion the transaction was fair from a financial point of view to First American. After discussion, the First American board of directors unanimously approved the transaction.

 

Over the next week, management of and counsel to First American, management of First Advantage, and counsel to the special committee finalized the definitive documentation for the transaction, with counsel to the special committee regularly updating and consulting with the co-chairmen of the special committee. On May 23, 2005, Morgan Stanley delivered its written opinion to the special committee of the board of directors of First Advantage with respect to the First American Transaction that as of such date and, based on and subject to the assumptions, limitations and qualifications stated therein, the consideration to be paid by First Advantage pursuant to the master transfer agreement and the related agreements was fair from a financial point of view to First Advantage. The full board of directors of First Advantage unanimously approved the First American Transaction and determined that the First American Transaction is fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, Donald Robert or First Advantage’s management, as to which the board did not make a determination). On May 25, 2005, First Advantage and First American executed the master transfer agreement and publicly announced the execution of the definitive agreements.

 

On June 22, 2005, the special committee met to consider the revisions to and impact of the terms of the amended and restated master transfer agreement and related agreements. After discussions, the special committee approved these revised documents and resolved to recommend them to the full board of First Advantage. The master transfer agreement was amended and restated based on the advice of First American’s tax advisors to make certain structural changes to the First American Transaction for tax planning purposes and to account for the acquisition by First American of all of the shares of common stock of Bar None.

 

The special committee met again on June 28, 2005 and unanimously re-affirmed its prior approval of the master transfer agreement and related agreements and unanimously approved the certificate amendment proposal.

 

Reasons of the Special Committee for the First American Transaction

 

The special committee has determined that the terms of the First American Transaction are fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, Donald Robert or First Advantage’s management, as to which the special committee did not make a determination). In approving the First American Transaction, the members of the special committee relied upon their knowledge of the business, financial condition and prospects of First Advantage, the knowledge of senior management of First Advantage regarding the business, financial condition and prospects of First Advantage and the CIG Business and related businesses, and the advice of the special committee’s financial and legal advisors. In particular, the special committee considered a number of factors, including the following:

 

    the acquisition of the CIG Business and related businesses would create a leading business information and services provider with a unique combination of data ownership, access and distribution and having an anticipated initial market capitalization of over $1 billion and pro forma 2005 annual revenues of approximately $600 million and would enhance First Advantage’s competitive position by providing it with additional operating scale, a broader scope of services, expanded geographic reach and increased financial strength;

 

    the purchase price for the acquisition of the CIG Business and related businesses and the other material terms of the transactions, including the amended and restated services agreement, the outsourcing agreement, and the terms of the transaction documents, including the representations, warranties, indemnities and closing conditions in those agreements;

 

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    management’s belief that the transaction will provide cross-selling opportunities in the mortgage/home equity credit, automotive finance and direct-to-consumer credit markets;

 

    management’s belief that the transaction would increase First Advantage’s financial flexibility and its ability to access capital markets;

 

    the strength of the senior management team of the CIG Business, including the anticipated appointment of Mr. Anand Nallathambi as the president of First Advantage;

 

    management’s belief that the transaction would increase First Advantage’s ability to successfully implement its acquisition strategy, including the flexibility to pursue larger acquisition targets;

 

    the addition of the CIG Business’s data center located in Poway, California which was expected to eliminate the need for First Advantage to establish a facility elsewhere;

 

    the oral opinion of Morgan Stanley, subsequently confirmed in writing on May 23, 2005, that as of the date of such opinion and based on and subject to the assumptions, limitations and qualifications stated therein, the consideration to be paid by First Advantage pursuant to the master transfer agreement and the related agreements was fair, from a financial point of view, to First Advantage as more fully described in “Fairness Opinion of Financial Advisor to First Advantage’s Special Committee” beginning on page 25;

 

    the due diligence review of the CIG Business conducted by management of First Advantage, the members of the special committee, and (with respect to certain diligence, including financial and business diligence) the special committee’s financial advisor; and

 

    that, in addition to approval by the holders of a majority of First Advantage’s common stock, the transaction is subject to the approval of the holders of a majority of First Advantage’s Class A common stock, other than First American, its affiliates, Donald Robert or First Advantage’s management.

 

The special committee also considered potential risks associated with the First American Transaction, including:

 

    the possibility that the First American Transaction may not be consummated and the potential adverse effect on First Advantage’s business, operations and financial condition should it not be possible to consummate the transaction in a timely manner, if at all;

 

    that management of First Advantage and First American, which negotiated (under the oversight of the special committee in the case of First Advantage) the terms of the First American Transaction, have interests that may differ from the interests of the other holders of the Class A common stock of First Advantage, and that the terms of such agreements may not be as advantageous to First Advantage as could have been achieved in negotiations with unrelated third parties;

 

    that after consummation of the First American Transaction, First American and its subsidiaries would control on a pro forma basis approximately 85% of the outstanding common stock of First Advantage and approximately 98% of the voting power of First Advantage, and that the standstill agreement between First American and First Advantage expires not later than June 5, 2007;

 

    the risk that the potential benefits of the acquisition of the CIG Business and related businesses may not be realized in a timely fashion, if at all;

 

    that after the consummation of the First American Transaction, First Advantage will be dependent on First American for additional key services, including the sale by First American of certain services of the CIG Business and related businesses to customers of First American as part of a bundled package of services provided by First American and that First American has agreed to provide these services for only a limited period of time and that First American’s interests with respect to such sales may differ from First Advantage’s interests;

 

   

that after the consummation of the First American Transaction, First Advantage expects to receive a significant amount of revenue under the outsourcing agreement with First American, and that (i) the

 

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revenues received under such agreement are dependent upon the performance of RELS, which is a joint venture that First American will continue to operate on a day-to-day basis, (ii) the commercial arrangements under which the joint venture provides services and derives its revenues are agreements that are terminable with little or no advance notice and (iii) the interests of RELS and its members may be different from, and adverse to, those of First Advantage, which adverse interest will be enhanced by the fact that First American has in effect assigned to First Advantage a substantial portion of the economic benefits and burdens that First American could derive from this relationship;

 

    the impact on the CIG Business (including related businesses) and First Advantage, respectively, of recent high-profile events involving data theft at a number of information services companies, including the prospect that such events could have different impacts on the companies, and the possibility of increased legal and regulatory scrutiny of the industry in general and specific companies in particular;

 

    that a substantial portion of the CIG Business is related to the level of mortgage origination and refinancing activity in the United States, and that the levels of these activities have historically been sensitive to the level of and changes in interest rates and that a decrease in these activities resulting from the interest rate environment could have material impact on First Advantage’s revenues;

 

    the risk that, notwithstanding the efforts of management to retain them, key employees of the CIG Business and/or First Advantage might not remain with First Advantage following completion of the transactions;

 

    that First American is providing only limited assurances in the transaction documents as to the DealerTrack Interest and the business and financial condition of the XRES Business and Bar None and, with respect to the XRES Business and Bar None, First Advantage will be subject to the benefits and burdens of the acquisition agreements that were negotiated by First American with third parties;

 

    that First Advantage is assuming contingent liabilities associated with the CIG Business and related businesses, including in particular the obligation to potentially issue more shares of Class B stock pursuant to the Dealer-Track Earn-Out and the cash payment of earn-out under the Bar None acquisition agreement; and

 

    the other risks associated with the First American Transaction and with the CIG Business and related businesses described in “Risk Factors” beginning on page 1.

 

In addition, the special committee considered the interests of certain of First Advantage’s directors and executive officers described under “Interests of Certain Persons in the First American Transaction” beginning on page 31.

 

Due to the variety of factors and the quality and amount of information considered, the special committee did not find it practicable to and did not make specific assessments of, quantify or assign relative weights to the specific factors considered in reaching its determination to approve the First American Transaction. Instead, the special committee made its determinations after consideration of all factors taken together. In addition, individual members of the special committee may have given different weight to different factors.

 

Actions of Special Committee With Respect to the First American Transaction

 

The special committee determined that the First American Transaction is fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, officers and directors, as to which the special committee made no determination) and unanimously approved the First American Transaction. The special committee recommended to the full First Advantage board of directors that it approve the First American Transaction and recommend the First American Transaction to the stockholders.

 

Recommendation of First Advantage’s Full Board of Directors with Respect to the First American Transaction

 

First Advantage’s board of directors, after receiving the unanimous recommendation of the special committee, determined that the First American Transaction is fair to, and in the best interests of, First Advantage and its stockholders (other than First American and its affiliates, Donald Robert or First Advantage’s

 

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management, as to which the board made no determination), unanimously approved the First American Transaction, and recommends that you vote “FOR” approval of the First American Transaction proposal.

 

Fairness Opinion of Financial Advisor to First Advantage’s Special Committee

 

Pursuant to an engagement letter, on February 17, 2005, the special committee of the board of directors of First Advantage engaged Morgan Stanley to act as its financial advisor in connection with the First American Transaction. Morgan Stanley is a global financial services firm engaged in the securities, investment management and credit services businesses, and regularly provides financial advisory services in connection with mergers and acquisitions. The special committee selected Morgan Stanley to act as its financial advisor and to render an opinion to the special committee regarding the fairness of the First American Transaction because of Morgan Stanley’s expertise, reputation and familiarity with First Advantage and its businesses. On May 17, 2005, Morgan Stanley rendered to the special committee of the board of directors of First Advantage its oral opinion, which was subsequently confirmed in writing on, May 23, 2005, that as of such date and based on and subject to the assumptions, limitations and qualifications stated therein, the consideration to be paid by First Advantage pursuant to the master transfer agreement and the related agreements was fair from a financial point of view to First Advantage.

 

This summary of the Morgan Stanley opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion attached as Annex H to this proxy statement. You are encouraged to read the opinion for a discussion of the assumptions made, procedures followed, factors considered and limitations of the review undertaken by Morgan Stanley in rendering its opinion, including the fact that Morgan Stanley relied upon the accuracy and completeness of certain information provided to it for the purposes of its evaluation.

 

Morgan Stanley’s advisory services and opinion were provided for the information and assistance of the special committee of the board of directors of First Advantage in connection with its consideration of the First American Transaction. Morgan Stanley’s opinion is not intended to be and does not constitute a recommendation to any stockholder of First Advantage as to how such stockholder should vote in connection with the First American Transaction proposal. Morgan Stanley was not involved in structuring, planning or negotiating the First American Transaction. Morgan Stanley did not express an opinion as to the likelihood that First Advantage’s Class A common stock will trade at or above certain levels or the prices at which First American’s common stock and the First Advantage Class A common stock will actually trade at any time, or the future value of the First Advantage Class B common stock. The opinion did not address whether an initial public offering of DealerTrack Interest will be consummated at any time, the terms of such offering or the value of such stock or whether a market for such securities will exist.

 

In arriving at its opinion, Morgan Stanley did the following:

 

    reviewed certain publicly available financial information and other information of First American and First Advantage;

 

    reviewed unaudited consolidated financial statements of the companies comprising the CIG Business and DealerTrack Interest (which are referred to as the “unaudited financial statements”) and certain other internal financial information and other financial and operating data concerning the companies comprising the CIG Business and DealerTrack Interest prepared by the management of such companies;

 

    discussed the unaudited financial statements and certain other matters with First American’s auditors, PriceWaterhouseCoopers, LLC (“PWC”);

 

    reviewed certain financial projections prepared by the management of the companies comprising the CIG Business and DealerTrack Interest;

 

    discussed the past and current operations and financial condition and the prospects of the companies comprising the CIG Business and DealerTrack Interest with senior executives of First American, the companies comprising the CIG Business and DealerTrack Interest and First Advantage;

 

    reviewed certain internal financial statements and other financial operating data concerning First Advantage prepared by the management of First Advantage;

 

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    reviewed First Advantage’s 2005 business plan;

 

    reviewed certain publicly available estimates of the future financial performance of First Advantage and discussed such estimates with management of First Advantage;

 

    reviewed legal due diligence reports on the companies comprising the CIG Business and DealerTrack Interest prepared by First Advantage;

 

    discussed certain strategic, financial and operational benefits anticipated from the First American Transaction with the management of First Advantage and the management of the companies comprising the CIG Business and DealerTrack Interest;

 

    discussed the strategic rationale for the transaction with senior executives of First Advantage;

 

    discussed the past and current operations and financial condition and the prospects of First Advantage with senior executives of First Advantage, and reviewed the pro forma impact of the transaction on First Advantage’s earnings per share and financial ratios;

 

    reviewed the reported prices and trading activity for First American common stock and First Advantage’s class A common stock;

 

    compared the financial performance of the companies comprising the CIG Business and DealerTrack Interest with that of certain other publicly-traded companies comparable with the companies comprising the CIG Business and DealerTrack Interest and their securities;

 

    reviewed the master transfer agreement and the related agreements and certain related documents; and

 

    performed such other analyses and considered such other factors as it deemed appropriate.

 

In arriving at its opinion, Morgan Stanley assumed and relied upon without independent verification the accuracy and completeness of the information supplied or otherwise made available to it by First American, the companies comprising the CIG Business and DealerTrack Interest and First Advantage for the purposes of its opinion. With respect to the financial projections and First Advantage’s 2005 business plan, including information relating to certain strategic and the financial and operational benefits anticipated from the First American Transaction, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the future financial performance of the managements of First Advantage and the companies comprising the CIG Business and the DealerTrack Interest. Neither First Advantage nor the special committee imposed any limitations on the scope of Morgan Stanley’s investigation.

 

With the special committee’s consent, Morgan Stanley assumed for purposes of its analysis that First Advantage may be required to make the DealerTrack Earn-Out payment and an earnout payment relating to Bar None, which was one of the businesses that First American had agreed to acquire at the time the Morgan Stanley opinion was delivered. Morgan Stanley expressed no opinion as to the likelihood that the DealerTrack Interest or Bar None will achieve any of the milestones upon which the earnout payments are conditioned. Morgan Stanley also assumed for the purpose of its analysis and with the special committee’s consent that Bar None will be among the businesses that will be transferred to First Advantage pursuant to the First American Transaction as of closing and therefore, the consideration to be paid by First Advantage pursuant to the master transfer agreement and related agreements includes First Advantage’s Class B common stock to be issued by First Advantage for the transfer of Bar None.

 

In addition, Morgan Stanley assumed that the First American Transaction will be consummated in accordance with the terms set forth in the master transfer agreement and related agreements without any waiver, amendment or delay of any terms or conditions. Morgan Stanley also assumed that the terms and provisions of the standstill agreement, dated as of June 5, 2003, between First American and First Advantage, will remain in full force and effect in accordance with their terms, without modification, after consummation of the First American Transaction. Upon advice of management of First Advantage, Morgan Stanley also assumed that the financial terms of the amended and restated services agreement and the outsourcing agreement relating to, among other things, the agreement with respect to RELS will be consistent with those reflected in the historic and projected financial information described in Morgan Stanley’s opinion.

 

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Because audited financial statements for the companies comprising the CIG Business and the DealerTrack Interest on a consolidated basis were not available at the time Morgan Stanley issued its opinion, for the purpose of its analysis, Morgan Stanley assumed that the unaudited financial statements used in preparing the opinion will not differ materially from audited consolidated financial statements of the companies comprising the CIG Business and the DealerTrack Interest.

 

Morgan Stanley is not a legal, tax or regulatory expert and relied upon, without independent verification, the assessment of First Advantage and its legal, tax and regulatory advisors with respect to legal, tax and regulatory matters. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the companies comprising the CIG Business and the DealerTrack Interest, nor was Morgan Stanley furnished with any such appraisals. Morgan Stanley has also relied without independent investigation on the assessment by the executives of First Advantage regarding the strategic rationale for the acquisition of the companies comprising the CIG Business and the DealerTrack Interest. Morgan Stanley expressed no opinion as to the relative fairness of any portion of the consideration to be paid by First Advantage pursuant to the master transfer agreement and related agreements with respect to any of the individual companies comprising the CIG Business and the DealerTrack Interest or any of the assets to be transferred to First Advantage pursuant to the First American Transaction. Morgan Stanley also did not express an opinion as to the relative fairness of the allocation or structure of the DealerTrack Earn-Out payment or earnout payment associated with the acquisition of Bar None. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Events occurring after the date of the opinion, may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

 

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion for the special committee of the board of directors of First Advantage. These summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

 

For the purposes of the following analyses, Morgan Stanley assumed that First Advantage may be required to make a DealerTrack Earnout (as defined in the Transaction Documents) payment relating to the DealerTrack Preferred Stock to be transferred to First Advantage pursuant to the transaction and an earnout payment relating to Bar None as described in the Transaction Documents, however, Morgan Stanley did not make any specific assumptions about the likelihood that the DealerTrack Interest or Bar None will achieve any of the other milestones upon which these earn out payments are conditioned.

 

Comparable Company Analysis

 

Morgan Stanley compared certain financial information of the CIG Business and First Advantage, respectively, with publicly available consensus earnings estimates for other companies that shared similar business characteristics with the CIG Business and First Advantage, respectively. The companies used in this comparison included the following companies:

 

    Acxiom Corporation;

 

    ChoicePoint Inc.;

 

    The Dun & Bradstreet Corporation;

 

    Equifax Inc.;

 

    Fair Isaac Corporation;

 

    First Advantage Corporation;

 

    Fiserv, Inc; and

 

    TALX Corporation.

 

 

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For purposes of this analysis, Morgan Stanley analyzed the ratio of price to estimated earnings for calendar year 2006 (based on publicly available estimates) for each of these companies for comparison purposes. Based on this analysis, Morgan Stanley selected a representative range of multiples of 14x - 16x for the comparable companies and applied this range to the relevant statistics for the CIG Business and First Advantage, which were provided by the respective management. From this analysis and based on the CIG Business’ price to estimated 2006 earnings of $34.9 million, Morgan Stanley estimated the implied equity value range for the CIG Business (excluding the DealerTrack Interest) as of May 15, 2005 to be $488 million to $558 million. From this analysis and based on First Advantage’s price to estimated 2006 earnings per share of $1.14, Morgan Stanley estimated the implied per share value range for First Advantage as of May 15, 2005 to be $18.25 to $22.82. Morgan Stanley noted that the total and per share consideration for the CIG Business (excluding the DealerTrack Interest) were $500 million and $20.50, respectively.

 

No company utilized in the comparable company analysis is identical to the CIG Business or First Advantage. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the CIG Business and First Advantage, such as the impact of competition on the CIG Business, the businesses of First Advantage and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of the CIG Business or First Advantage or the industry or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.

 

Sum-of-the-Parts Analysis

 

Morgan Stanley computed a range of equity values for the CIG Business based on a pre-tax sum-of-the-parts analysis. Each of the businesses that comprise the CIG Business (CREDCO, Teletrack, CMSI and Membership Services) and DealerTrack Interest were valued using the discounted cash flow methodology in order to arrive at a range of equity values for the sum-of-the-parts analysis. Morgan Stanley relied on the financial projections for each of the businesses that comprise the CIG Business and the DealerTrack Interest provided by the managements of the CIG Business and DealerTrack. In arriving at the estimated aggregate value, defined as market capitalization plus total debt less cash and cash equivalents, for each of the businesses that comprise the CIG Business and the DealerTrack Interest, Morgan Stanley calculated a terminal value as of December 31, 2010, by applying a range of aggregate value divided by EBITDA (defined as earnings before interest, taxes, depreciation and amortization) terminal multiples. The unlevered free cash flows from calendar year 2005 through 2010 and the terminal value were then discounted to present values. The range of aggregate values for CREDCO, Teletrack, CMSI, Membership Services and the DealerTrack Interest (assuming a 20.9% ownership interest) were combined to produce a range of aggregate values for the CIG Business. Morgan Stanley assumed the net debt balance for the CIG Business and the DealerTrack Interest was zero in order to arrive at a range of equity values for the sum-of-the-parts analysis.

 

The following table summarizes Morgan Stanley’s analysis:

 

     Implied Equity
Value Range
($MM)


Subtotal for the CIG Business (excluding the XRES Business and Bar None)

   $ 475 - $565MM

Sum-of-the-Parts Value of the CIG Business (excluding the XRES Business and Bar None) and DealerTrack Interest

   $ 530 - $641MM

Sum-of-the-Parts Value of the CIG Business, DealerTrack Interest, XRES Business and the then Pending Bar None Acquisition

   $ 575 - $700MM

 

Morgan Stanley noted that the consideration was $500 million for the CIG Business (excluding the XRES Business, Bar None and the DealerTrack Interest), $550 million for the CIG Business (excluding the XRES Business and Bar None) and the DealerTrack Interest, and $596 million for the CIG Business (including the XRES Business) and DealerTrack Interest, and the then pending Bar None acquisition.

 

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Discounted Cash Flow Analysis

 

Morgan Stanley computed a range of equity values for the CIG Business and for First Advantage based on discounted cash flow analyses. Morgan Stanley relied on financial projections for the CIG Business and for First Advantage provided by the management of the CIG Business and First Advantage. In arriving at estimated aggregate values for the CIG Business and First Advantage, Morgan Stanley calculated a terminal value as of December 31, 2010, by applying a range of aggregate value divided by EBITDA terminal multiples ranging from 7.0x to 9.0x for the CIG Business and 8.0x to 10.0x for First Advantage. The unlevered free cash flows from calendar year 2005 through 2010 and the terminal value were then discounted to present values using a range of discount rates of 10% to 12%. Morgan Stanley assumed the net debt balance for the CIG Business to be zero in order to arrive at a range of equity values for the CIG Business.

 

The following table summarizes Morgan Stanley’s analysis:

 

     Implied Equity
Value Range
($MM)


CIG Business

   $ 460 - $596MM

DealerTrack Interest Consideration

     $50 - $50MM

Total CIG Business and DealerTrack Interest

   $ 510 - $646MM

 

Morgan Stanley noted that the consideration was $500 million for the CIG Business and $550 million for the CIG Business and the DealerTrack Interest.

 

Morgan Stanley assumed the net debt balance and total shares outstanding for First Advantage to be $103.3 million and 23.9 million shares, respectively, in order to arrive at an implied range of per share values of $16.89 to $23.06 per share for First Advantage. Morgan Stanley noted that the per share consideration was $20.50.

 

First Advantage Historical Class A Common Stock Performance

 

Morgan Stanley performed an historical share price analysis to provide the special committee to the board of directors with background information and perspective with respect to the historical share prices of First Advantage Class A common stock. Morgan Stanley reviewed the historical 52-week low and 52-week high intraday prices of First Advantage’s Class A common stock. The tables below show Morgan Stanley’s findings:

 

     Share Price(1)
($)


52-week Low

   $ 14.30

52-week High

   $ 22.75

May 13, 2005

   $ 20.70

(1) Represents unweighted average and split-adjusted prices

 

Morgan Stanley noted that the per share consideration was $20.50.

 

Present Value of Analyst Targets for First Advantage

 

Morgan Stanley performed a discounted price target analysis to arrive at a range of present values per share for First Advantage. Specifically, Morgan Stanley considered the range of publicly available equity research analysts’ price targets for First Advantage and calculated the present value of such targets based on a 12-month period and assuming a 10% estimated cost of equity. This analysis resulted in a range of implied values of $20.00 to $20.91 per share for First Advantage Class A common stock. Morgan Stanley noted that the per share consideration was $20.50.

 

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Relative Contribution Analysis

 

Morgan Stanley compared the CIG Business’ (including the DealerTrack Interest) and First Advantage’s respective percentage ownership of the combined company to the CIG Business’ (including the DealerTrack Interest) and First Advantage’s respective percentage contribution (and the implied ownership based on such contribution) to the combined company using revenues, EBITDA, earnings before interest and taxes (“EBIT”), and net income based on the respective managements’ estimates.

 

Morgan Stanley noted that the implied pro forma ownership of the combined company represented by the shares of First Advantage being issued in exchange for the CIG Business and the DealerTrack Interest (based on each of the operating metrics noted above) ranged from 38% to 59%. Based on the value of the shares being issued in exchange for the CIG Business and the DealerTrack Interest, Morgan Stanley noted that the implied ownership of the combined company represented by such shares was approximately 47%.

 

The public market trading price targets published by the equity research analysts do not necessarily reflect current market trading prices for First Advantage Class A common stock and these estimates are subject to uncertainties, including the future financial performance of First Advantage and future financial market conditions.

 

Pro Forma Analysis

 

Morgan Stanley reviewed the pro forma impact of the First American Transaction on First Advantage’s projected earnings per share for the calendar years 2005 and 2006. Morgan Stanley relied on financial projections for the CIG Business (including the DealerTrack Interest) and for First Advantage provided by the management of the CIG Business and First Advantage, respectively. For the analyses that included the XRES Business and the then pending Bar None acquisition, Morgan Stanley relied on projections provided by First American and reviewed by the management of First Advantage. Morgan Stanley performed full year pro forma analyses both including and excluding the $46 million consideration for XRES Business and the then pending Bar None acquisition as well as the amortization expenses associated with each of these acquisitions and the synergies for Bar None. For both analyses, Morgan Stanley included the $20 million debt-for-equity exchange consideration as well as the amortization expenses associated with the acquisition of the CIG Business and the DealerTrack Interest. For the purpose of these analyses, Morgan Stanley assumed the transaction was completed as of January 1, 2005, and therefore the pro forma earnings utilized for these analyses included a full year of earnings for the CIG Business for both 2005 and 2006. Morgan Stanley observed that the transaction, excluding XRES Business and the then pending Bar None acquisition, would result in an accretion in earnings per share for 2005 and 2006 of 19.9% and 4.6%, respectively, and, including XRES Business and the then pending Bar None acquisition, would result in an accretion in earnings per share for 2005 and 2006 of 17.1% and 3.5%, respectively.

 

In connection with the review of the First American Transaction by the special committee, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of First Advantage.

 

Morgan Stanley’s opinion and its presentation to the special committee was one of many factors taken into consideration by the special committee in deciding to approve the First American Transaction. Consequently, Morgan Stanley’s opinion as described above should not be viewed as solely determinative of the opinion of the special committee with respect to the consideration or of whether the special committee would have been willing to agree to a different consideration for the First American Transaction.

 

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As compensation for its services in connection with the First American Transaction, First Advantage paid a fee of $1.75 million to Morgan Stanley when it delivered its opinion to the special committee. In addition, First Advantage has agreed to pay Morgan Stanley for reasonable out-of-pocket expenses incurred in connection with the First American Transaction and to indemnify Morgan Stanley for certain liabilities, including certain liabilities under the federal securities laws, related to and arising out of Morgan Stanley’s engagement. The special committee has the authority, if it determines in its sole discretion that Morgan Stanley’s efforts on the First American Transaction warrant additional compensation, to pay Morgan Stanley an additional fee of up to $500,000 at closing.

 

In the ordinary course of its trading, brokerage, investment management and financing activities, Morgan Stanley or its affiliates may trade in any currency or commodity that may be involved in this transaction, and may actively trade the debt and equity securities of First American and First Advantage 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.

 

Interests of Certain Persons in the First American Transaction

 

First American and its affiliates, officers, directors and some of our management have interests in the First American Transaction that differ from the interests of our stockholders generally and which may present them with potential or actual conflicts of interests in the First American Transaction.

 

First Advantage began operations in June 2003, when it acquired First American’s screening technology division and a company called US Search. As consideration for the acquisition of First American’s screening technology division, First Advantage issued 100% of its outstanding Class B common stock to First American. This resulted in First American holding approximately 80% of the outstanding capital stock of First Advantage and approximately 97% of the voting power of First Advantage.

 

First American currently holds approximately 67% of the outstanding capital stock of First Advantage and approximately 95% of its voting power. Consequently, First American has the right to control the outcome of any matter submitted for the vote or consent of First Advantage’s stockholders, unless a separate class vote is required under Delaware law or, as is the case with the First American Transaction, First American’s shares will not be counted pursuant to an agreement with First American. First American has the voting power to control the election of our board of directors and is able to approve certain amendments of our certificate of incorporation or bylaws. First American also may be able to cause changes in the business of First Advantage without seeking the approval of any other party. These changes may not be beneficial to us or in the best interest of our other stockholders. For example, First American has the power to prevent, delay or cause a change in control and could take other actions that might be favorable to First American, but not necessarily to other stockholders. Similarly, subject to restrictions contained in the standstill agreement (described in further detail in “Description of First Advantage Common Stock—Standstill Agreement” beginning on page 91), First American has the voting power to exercise a controlling influence over our business and affairs and has the ability to make decisions concerning such things as:

 

    mergers or other business combinations;

 

    purchases or sales of assets;

 

    offerings of securities;

 

    indebtedness that we may incur; and

 

    payments of any dividends.

 

First Advantage and First American are also parties to a services agreement, which will be amended and restated in connection with the First American Transaction. See “Other Transaction Documents—Amended and Restated Services Agreement” beginning on page 61.

 

 

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First American is also First Advantage’s primary subordinated lender. Currently, First Advantage owes an aggregate principal amount of $45 million to First American under several promissory notes. Twenty million dollars of this debt will be converted into 975,610 shares of Class B shares in connection with the First American Transaction. First American has also guaranteed First Advantage’s repayment obligation under a $45 million unsecured credit facility.

 

Parker S. Kennedy and J. David Chatham, who are members of First Advantage’s board of directors, are also directors or officers of First American. In addition, several members of First Advantage’s management were formerly employed by First American (including John Long, our Chief Executive Officer, John Lamson, our Chief Financial Officer, and Akshaya Mehta, our Chief Operating Officer) and own First American common stock. From time to time, Mr. Long receives compensation from First American. Mr. Long also serves as a director of First American Title Insurance Company, First American’s title insurance subsidiary and lessor under the Poway lease agreement.

 

Experian owns a 20% equity interest in FARES. As part of the First American Transaction, FARES will be contributing the portion of the CIG Business that it owns to Newco in exchange for an ownership interest in Newco. Newco will receive a total of 30,048,780 shares of Class B common stock in consideration of the First American Transaction and repayment of the principal amount of the $20 million promissory note (without taking into account the DealerTrack Earn-Out). As a result of the First American Transaction, Experian will indirectly own approximately 6.5% of our capital stock (without taking into account the DealerTrack Earn-Out) by virtue of its ownership interest in FARES and FARES’s ownership interest in Newco. Mr. Donald Robert, a member of First Advantage’s board of directors, is the chief executive officer of Experian Group, an affiliate of Experian. First Advantage will enter into an agreement with Experian at the completion of the First American Transaction which will require First Advantage to register under certain circumstances any shares of First Advantage common stock that Experian may in the future acquire by virtue of its minority ownership of FARES.

 

Pursuant to the terms of First Advantage’s certificate of incorporation, upon the transfer of any share of Class B common stock to a “person” (as defined in the certificate of incorporation) that at the time of such transfer is neither First American nor an “affiliate” (as defined in the certificate of incorporation) of First American, the share will automatically be converted into one fully paid and nonassessable share of Class A common stock. Experian does not meet the definition of affiliate. Accordingly, if Experian were to receive any shares of Class B common stock by virtue of its indirect ownership interest in Newco, the shares would automatically be converted in shares of Class A common stock. Experian required as a condition to its approval of the transaction as an equityholder of FARES, that as a condition to the closing of the First American Transaction, First Advantage execute and deliver to Experian a registration rights agreement for resale of any shares of Class A common stock it may receive upon a distribution by FARES of the shares of Class B common stock it receives from Newco. It is contemplated that First Advantage will enter into a registration rights agreement with Experian relating to these shares.

 

In addition, in connection with the First American Transaction, First American and First Advantage propose to enter into several agreements relating to the operation of the CIG Business after the completion of the transaction or in general, each as described in “Other Transaction Documents” beginning on page 44. The ongoing agreements between First American and First Advantage include:

 

    the amended and restated services agreement;

 

    the outsourcing agreement;

 

    the Poway lease agreement;

 

    subleases related to two offices and certain equipment; and

 

    the subordinated promissory note.

 

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In order to avoid any potential conflict of interest between First American, its officers, directors and our management, on one hand, and First Advantage, on the other hand, the First Advantage board formed a special committee to represent the interests of our stockholders other than First American and its affiliates, Donald Robert and our management. The members of the special committee discussed with counsel to the special committee the factors bearing on independence of the special committee members, including that Mr. Lenihan is a senior managing director of Pequot Capital Management, Inc. and managing general partner and co-head of the Pequot venture funds and the Pequot Private Equity Funds, and has been recommended as a director nominee by Pequot Private Equity Fund II, L.P., which owns approximately 28% of First Advantage’s Class A common stock and that affiliates of Pequot have business relationships with First Advantage (as further described in “Certain Relationships and Related Transactions” beginning on page 117), and determined that each member of the special committee was independent for the purposes of evaluating the transaction. In this regard, the special committee noted that Mr. Lenihan is considered an independent director under applicable NASDAQ corporate governance rules and that Mr. Lenihan consulted with Pequot’s counsel regarding his status.

 

The members of the special committee will be compensated for their service on the special committee, with each individual receiving a committee fee of $10,000 (or, in the case of each of Messrs. Nickelson and Walker, as co-chairmen, $15,000) plus a $1,000 meeting fee for each committee meeting, as well as reimbursement of out-of-pocket expenses. In addition, the Company’s by-laws provide each director of the Company (including each member of the special committee) with certain indemnification rights and the Company has entered into an indemnity agreement with each member of the Company’s board of directors, including each member of the special committee.

 

Use of Proceeds of the First American Transaction

 

The proceeds from the First American Transaction are the assets and companies that comprise the CIG Business, as well as the DealerTrack Interest, Bar None and the XRES Business. A portion of these assets include a minimum of $5 million of cash. First Advantage currently intends to use this cash and any amounts drawn under the unsecured subordinated promissory note for working capital for the CIG Business and other general corporate purposes related to the CIG Business following the closing.

 

Regulatory Approvals

 

Neither First American nor First Advantage is required to comply with any federal or state regulatory requirements, and no federal or state approval must be obtained, in connection with the completion of the First American Transaction.

 

Tax and Accounting Treatment

 

Neither First Advantage nor any stockholder will recognize any gain or loss as a result of the First American Transaction or the issuance of the shares of Class B common stock to Newco in accordance with the master transfer agreement and related agreements. First Advantage’s tax basis in the CIG Business, the DealerTrack Interest, Bar None and XRES Business will be equal to Newco’s tax basis in these assets immediately prior to the transfer of these assets to First Advantage.

 

No Appraisal Rights

 

First Advantage stockholders do not have and will not be entitled to exercise appraisal rights under the General Corporation Law of the State of Delaware in connection with the First American Transaction or issuance of shares of Class B common stock to Newco in connection therewith.

 

Master Transfer Agreement

 

The following summary describes certain provisions of the master transfer agreement among First American, FAREISI, FARES, Newco and First Advantage, as it was amended and restated on June 22, 2005,

 

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which is included as Annex A to this proxy statement. The provisions of the master transfer agreement are extensive and not easily summarized. This summary may not contain all of the information about the master transfer agreement that is important to you. We encourage you to read the master transfer agreement carefully in its entirety.

 

The master transfer agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First Advantage makes with the SEC. The master transfer agreement contains representations and warranties the parties thereto made to and solely for the benefit of each other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the master transfer agreement. Accordingly, investors and security holders should not rely on the representations and warranties as characterizations of the actual state of facts, since they are modified in important part by the underlying disclosure schedules. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the master transfer agreement, which subsequent information may or may not be fully reflected in First Advantage’s public disclosures.

 

Terms of Transfer of the CIG Business. The master transfer agreement outlines the general terms of the First American Transaction, includes general representations, warranties and covenants by the parties, includes each party’s obligations prior to the closing of the First American Transaction, sets forth each party’s conditions to closing and provides for each party’s right to terminate the agreement prior to the closing. For purposes of the master transfer agreement, First American, FAREISI, FARES and Newco are referred to as “contributors”.

 

Representations of First American, Other Contributors and First Advantage. The master transfer agreement contains representations and warranties by the parties relating to, among other things:

 

    valid existence and good standing in its jurisdiction of formation;

 

    power and authority to carry on their respective businesses;

 

    requisite organizational power and authority to execute and deliver the master transfer agreement and to perform their respective obligations under the master transfer agreement;

 

    due execution and enforceability of the master transfer agreement, with certain exceptions relating to bankruptcy, insolvency or similar laws and equitable principles relating to or affecting the rights of creditors;

 

    absence of pending, known or threatened litigation or similar proceeding against or affecting them that would reasonably be expected to have a material adverse effect including any material delay on their ability to perform the master transfer agreement or related agreements;

 

    absence of any judgment, order or decree against them that would reasonably be expected to have a material adverse effect on their ability to perform the master transfer agreement or related agreements;

 

    absence of any violation of organizational documents, statute, ordinance, rule, regulation or decree of any court or any governmental entity; and

 

    required filings with, or permits, consent or approval of or notice to any governmental entity in connection with the First American Transaction.

 

First Advantage also makes additional representations and warranties relating to, among other things:

 

    due qualification and/or license to conduct its business;

 

    good standing in each jurisdiction in which qualification is necessary, except where failure to do so would not have a material adverse effect on First Advantage;

 

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    absence of restrictions which would reasonably be expected to have a material adverse effect on the ability of First Advantage to perform its obligations under the master transfer agreement or related agreements; and

 

    absence of breach of, conflict with, default under, increase in obligations or loss of rights, or creation of any encumbrance upon any of the properties or assets of First Advantage under any of the terms and conditions of any contract to which First Advantage is a party or by which First Advantage’s or its properties or assets may be bound as a result of the First American Transaction.

 

First American, FAREISI, FARES and Newco also make additional representations and warranties relating to:

 

    assuming the receipt of third party consents in connection with the contribution of the CIG Business, Bar None and the DealerTrack Interest to First Advantage under the related agreements, the absence of restrictions which would reasonably be expected to have a material adverse effect on their ability to perform the master transfer agreement or related agreements;

 

    assuming the receipt of third party consents, the absence of breach of, conflict with, default under, increase in obligations or loss of rights, or create any encumbrance upon any of the properties or assets of CIG Business under any of the terms and conditions of any contract to which they or any of their affiliates is a party and which relates to the CIG Business or their or any of their affiliates’ properties or assets that are part of the CIG Business may be bound as a result of the First American Transaction;

 

    absence of any required consent or approval of, or notice to any shareholder or member other than certain notices or consents contemplated under the master transfer agreement;

 

    ownership of Newco prior to the closing;

 

    absence of any business conducted by Newco other than to receive the CIG Business, Bar None, the XRES Business, the DealerTrack Interest and the $20 million promissory note as contemplated by the amended and restated master transfer agreement and to contribute the CIG Business, Bar None, the XRES Business and the DealerTrack Interest to First Advantage or its wholly-owned subsidiary pursuant to the master transfer agreement and the related agreements;

 

    absence of indebtedness or other liabilities by Newco other than the obligations under and as contemplated by the master transfer agreement and the related agreements, and indebtedness and other liabilities of the CIG Business, Bar None, the XRES Business, the DealerTrack Interest and the $20 million promissory note during the period from its contribution to Newco from First American, FAREISI and FARES to its contribution by Newco to First Advantage or a wholly-owed subsidiary pursuant to the terms of the master transfer agreement and related agreements; and

 

    absence of change or modification of any of the assets or liabilities related to the CIG Business, Bar None, the XRES Business, the DealerTrack Interest and the $20 million promissory note during the period from its contribution to Newco from First American, FAREISI and FARES to its contribution by Newco to First Advantage or a wholly-owed subsidiary pursuant to the terms of the related agreements, during the time period from its receipt of the contribution.

 

The representations and warranties contained in the master transfer agreement are made as of the closing (unless made as of a specified date) of the First American Transaction.

 

Conduct of CIG Business Prior to Closing. Until the completion of the First American Transaction, First American, FAREISI, FARES and Newco have agreed to cause the CIG Business to be conducted only in the ordinary course. Except as expressly contemplated by the master transfer agreement or the related agreements, during the period from the date of the master transfer agreement to the closing date, First American, FAREISI, FARES and Newco each agree to use commercially reasonably efforts to preserve its business organizations, to keep available the services of its key officers, and to substantially maintain current relationships with material

 

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licensors, suppliers, distributors, customers and other third party business relationships (subject to the limitations set forth below).

 

In addition, except as approved in writing by the chief executive officer, chief operating officer or chief financial officer of First Advantage or expressly permitted by the terms of the master transfer agreement or related agreements, until the completion of the First American Transaction, First American, FAREISI, FARES and Newco have each agreed not to do the following with respect to the CIG Business nor to allow the CIG Business to do the following:

 

    increase its indebtedness,

 

    cancel or waive any claim or right of substantial value,

 

    sell, lease or otherwise dispose of any material asset or property used by the CIG Business other than in the ordinary course,

 

    enter into any contract that is reasonably expected to generate annual revenue in excess of $1 million, or amend any contract that generated annual revenue in excess of $1 million for the twelve-month period ended April 30, 2005,

 

    liquidate or dissolve,

 

    change its capital structure,

 

    enter into or amend any contract other than on arms-length terms with an affiliate of First American, FAREISI, FARES or Newco, including any director or officer of First American, FAREISI, FARES or Newco or any of its affiliates or any “associates” or members of the “immediate family” (as the terms are respectively defined in Rule 12b-2 and Rule 16a-1 promulgated under the Exchange Act) of any director or officer, other than Experian and its affiliates, and

 

    write off as uncollectible any notes or accounts receivable of the CIG Business, except write-offs in the ordinary course.

 

Further, First American, FAREISI, FARES and Newco each agreed except as contemplated by the master transfer agreement or the related agreements to cause Bar None and the XRES Business to be conducted only according to the ordinary course.

 

First American, FAREISI, FARES and Newco or their affiliates are not required to:

 

    take any action or refrain from taking any action that could cause a breach of any representation or warranty made by First American, FAREISI, FARES and Newco in the master transfer agreement or in any of the related agreements,

 

    repay any loan agreement or contract for borrowed money in whole or in part, except as expressly required by its terms,

 

    amend any contract to increase the amount payable under the contract or otherwise to be more burdensome to First American, FAREISI, FARES or Newco or their affiliates,

 

    make any cash payment, provide any guaranty or relinquish any property or contractual right, or

 

    be required to commit to any divestiture transaction, agree to sell or hold separate or agree to license to competitors of First American, FAREISI, FARES or Newco or their affiliates, before or after the closing date, any of First American’s, FAREISI’s, FARES’s or Newco’s or their affiliates’ businesses, product lines, properties or assets (other than the CIG Business pursuant to the master transfer agreement and the related agreements), or agree to any changes or restrictions in the operation of the businesses, product lines, properties or assets.

 

Certain Other Covenants. Prior to closing, First Advantage has access to the books and records of the CIG Business and Bar None, and First American has access to the books and records of First Advantage. The master

 

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transfer agreement also contains provisions relating to confidentiality following termination of the master transfer agreement. The parties agreed to cooperate and use their respective commercially reasonable efforts to make all filings necessary under applicable laws and regulations to consummate the First American Transaction, including commercially reasonable efforts to obtain, prior to the closing date, all licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental entities that are necessary for consummation of the First American Transaction.

 

First Advantage agreed to prepare and file with the SEC a preliminary proxy statement and proxy and a final proxy statement and proxy and to use commercially reasonable efforts to cause the final proxy statement to be mailed to its stockholders as promptly as reasonably practicable.

 

First Advantage agreed that it has, or before the closing date will have, authorized the issuance and sale pursuant to the contribution agreements of 29,073,170 shares of Class B common stock, plus an additional number of shares of its Class B common stock sufficient to (i) pay the DealerTrack Earn-Out (as described under “Other Transaction Documents—First American Contribution Agreement” beginning on page 44) in full, (ii) repay in full the amounts owing under the $20 million promissory note, dated as of April 27, 2004, made by First Advantage in favor of First American, which will be assigned to Newco prior to closing. First Advantage also agreed that it has, or before the closing date will have, taken all action required under applicable federal and state laws in connection with the issuance of shares of Class B common stock in connection with the transaction.

 

Prior to closing, First Advantage agreed to, in accordance with applicable law:

 

    mail a copy of the final proxy statement to each of its stockholders;

 

    promptly and duly call, give notice of, convene and hold a special or annual meeting of its stockholders for the purpose of voting on the master transfer agreement and the related agreements, the amendment to its certificate of incorporation and the First American Transaction, and First Advantage agreed that the master transfer agreement, the related agreements, the amendment to its certificate of incorporation and the First American Transaction will be submitted for approval at the stockholders meeting; and

 

    use its commercially reasonable efforts to obtain the stockholder approvals required by the terms of the master transfer agreement, but nothing in the master transfer agreement will require any member of the board of directors of First Advantage to take any action inconsistent with his or her fiduciary duties under Delaware law.

 

Each party also agreed:

 

    that each party may elect to provide the others with notice of any development causing a breach or potential breach of any of its representations and warranties in the master transfer agreement or any related agreement to which it is a party, or if the schedules to any related agreement deliverable by the party are not true and accurate in all material respects; and

 

    that each party shall provide notice to the others if it obtains knowledge that the representations and warranties of the other party or parties, as the case may be, in the master transfer agreement or the related agreements to which it is a party are not true and accurate in all material respects, or the schedules to any related agreement deliverable by the other party or parties, as the case may be, are not true and accurate in all material respects.

 

Notwithstanding the requirements described above, unless a party has the right to terminate the master transfer agreement pursuant to the termination provisions described below, if notice of a material breach of a representation or warranty is given, the notice will be deemed to have amended the disclosure schedules delivered by the party, to have qualified its representations and warranties in the relevant sections of the applicable agreement and to have cured any misrepresentation or breach of warranty that otherwise might have existed under that agreement by reason of the development disclosed in the amended disclosure schedule.

 

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Each of First American, FAREISI, FARES and Newco agreed that it will, and it will cause its affiliates to, use commercially reasonable efforts, subject to certain exceptions, to obtain the written consent of any other party necessary to the assignment of any contract or undertaking constituting a part of the CIG Business and Bar None. To the extent that any such contract or undertaking requiring consent is transferred or assigned pursuant to the terms of the related agreements without consent, First American, FAREISI, FARES and Newco will, and will cause their subsidiaries and Bar None to, cooperate with First Advantage in any lawful arrangement designed to provide First Advantage the benefits of the contract or undertaking, with certain specified exceptions.

 

First Advantage will as promptly as practicable, but in any event within 180 calendar days following the date of delivery of a written request by First American, cause any of its subsidiaries to change its corporate name or the name under which it does business to remove “First American”. First Advantage also agreed that it will, and will cause its subsidiaries to, as promptly as practicable, but in any event within 180 calendar days following the date of delivery of a written request by First American, discontinue the use of “First American” and all logos, names, trademarks, service marks, trade names or any derivatives thereof, and to remove or obliterate them from all signs, packaging stock, letterhead, labels, websites and other materials used or produced by First Advantage or its subsidiaries and affiliates, except as otherwise permitted by First American, FAREISI, FARES and Newco.

 

Following the closing date, First Advantage will perform the obligations of First American, FAREISI, FARES and their respective affiliates (including the CREDCO Division) with respect to providing credit reports and related products and services. These services will be performed through the following agreements as they exist on the date of the master transfer agreement, which are referred to as “portal agreements”:

 

    the services agreement, dated as of February 1, 2001, by and between Ellie Mae, Inc. and First American, as amended; and

 

    the retained portal agreements (as described Under “Other Transaction Documents—FARES Contribution Agreement—Transactions under the FARES Contribution Agreement” beginning on page 56).

 

First Advantage agreed to fulfill the obligations under the portal agreements in the same or better manner and with the same or better quality as First American, FAREISI, FARES and their respective affiliates (including the CREDCO Division) were fulfilling their respective obligations prior to the closing date. First Advantage’s obligations with respect to each portal agreement pursuant to master transfer agreement will expire upon the expiration of the term of the relevant portal agreement. To the extent First American, FAREISI, FARES or one of their respective affiliates receives payment for services rendered by First Advantage, First American, FAREISI or FARES will, or will cause their affiliates to, pay the amount over to First Advantage within five business days of receiving the payment.

 

First American agreed to contribute $1.5 million of cash to Bar None by no later than July 21, 2005 (which contribution has been made). First American agreed not to permit Bar None to pay any cash dividends or other distributions to stockholders prior to closing. On or prior to closing, First American will assume the obligations of Bar None under the promissory note, dated May 25, 2005, in the original principal amount of $1 million made by Bar None in favor of Francis A. Tarkenton.

 

Conditions Precedent to Closing. The obligations of each of the parties to consummate the First American Transaction is subject to the satisfaction or waiver by each party (including, in the case of First Advantage, the special committee) on or before the closing of the following conditions:

 

    No preliminary or permanent injunction or other order shall have been issued by any court or by any governmental entity which prohibits or restrains the consummation of the First American Transaction and which is in effect on the closing date.

 

   

No statute, rule, regulation, executive order, decree or order of any kind shall have been enacted, entered, promulgated or enforced by any court or other governmental entity which prohibits the consummation of the First American Transaction; all governmental and other consents and approvals

 

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necessary to permit the consummation of the First American Transaction shall have been received; and any waiting period (and any extension thereof) in connection with the foregoing shall have expired or been terminated.

 

    As of the closing date, no action or proceedings shall have been threatened or instituted before a court or other governmental entity or by any public authority challenging the legality of the First American Transaction, or restraining or prohibiting the consummation of the First American Transaction.

 

    The stockholders meeting of First Advantage shall have occurred and (i) the master transfer agreement, the related agreements and the First American Transaction shall have been duly approved by a majority of shares of Class A common stock (calculated without giving effect to beneficial holdings of common stock by First American, its affiliates (including directors and officers of First American and its affiliates), Donald Robert, and any member of management of First Advantage) present in person or represented by proxy at the stockholders meeting, and a majority of shares of common stock present in person or represented by proxy at the stockholders meeting, and (ii) the certificate amendment shall have been duly approved by stockholders holding a majority of outstanding shares of Class A common stock (calculated without giving effect to beneficial holdings of common stock by First American, its affiliates (including directors and officers of First American and its affiliates), Donald Robert, and any member of management of First Advantage) and by a majority of outstanding shares of common stock or such other vote as may be required under applicable law and First Advantage’s certificate of incorporation and bylaws, and the stockholders meeting and such stockholder approvals shall have been obtained in accordance with applicable law and First Advantage’s certificate of incorporation and bylaws.

 

    The certificate of amendment shall have been filed with the Delaware Secretary of State and all proceedings necessary in order to do so shall have been taken by First Advantage and its directors and stockholders.

 

    In addition to the approval of the First Advantage’s board of directors required under Delaware law, a committee of independent directors appointed by First Advantage’s board of directors meeting the independence requirements of the applicable Nasdaq Marketplace Rules shall have, at a meeting duly called and held in accordance with First Advantage’s certificate of incorporation and bylaws, acting with a quorum throughout, (i) approved the master transfer agreement, the related agreements and the First American Transaction for purposes of the applicable Nasdaq Marketplace Rules, (ii) determined that the First American Transaction, taken as a whole, is fair to and in the best interests of the stockholders of First Advantage, and (iii) resolved to recommend that the board of directors of First Advantage approve the master transfer agreement, the related agreements and the First American Transaction, including the adoption and filing of the certificate of amendment. In addition, the board of directors of First Advantage shall have resolved to approve and recommend to the stockholders of First Advantage, the master transfer agreement, the related agreements and the First American Transaction, including the adoption and filing of the certificate of amendment.

 

    First American’s board of directors shall have approved of the master transfer agreement, the First American Transaction and each related agreement.

 

    The promissory note in the original principal amount of $20 million, dated as of April 27, 2004, made by First Advantage in favor of First American, which will be contributed to Newco prior to closing, shall have been delivered to First Advantage and marked “Cancelled.”

 

    Experian shall have provided FARES with written consent to FARES’ participation in the First American Transaction in form and substance reasonably satisfactory to First American and First Advantage (which consent has been provided).

 

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In addition, the obligations of First Advantage to consummate the transaction are subject to the satisfaction or waiver by First Advantage (including the special committee) on or before the closing of the following conditions:

 

    The representations and warranties of each of First American, FAREISI, FARES and Newco contained in the master transfer agreement and in the related agreements to which it is a party shall be true and accurate in all material respects, in each case as of the date of the master transfer agreement or such related agreement, as applicable, and as of the closing date (except to the extent a representation or warranty speaks specifically as of another date, in which case such representation and warranty shall be true and accurate in all material respects as of such date, or as expressly provided for in the master transfer agreement or a related agreement), and an officer of each of First American, FAREISI, FARES and Newco shall have delivered to First Advantage a certificate dated the closing date to this effect.

 

    All of the agreements of each of First American, FAREISI, FARES and Newco to be performed at or prior to the closing pursuant to the master transfer agreement and the related agreements to which it is a party shall have been duly performed in all material respects, and an officer of each of First American, FAREISI, FARES and Newco shall have delivered to First Advantage a certificate dated the closing date to such effect.

 

    First American, FAREISI, FARES and Newco each shall have delivered, or caused to be delivered to First Advantage, copies of organizational documents and operating documents, including by-laws, of subsidiaries included in the CIG Business, Bar None and DealerTrack, which shall be certified as being correct and true as of closing by the secretary or assistant secretary of First American, FAREISI, FARES and Newco, as applicable, and the secretary of state or other appropriate official of the jurisdiction of formation and each shall provide a certificate of good standing dated as of not more than ten days from closing from the jurisdiction of formation or organization for those companies it owns that are part of the CIG Business, Bar None and DealerTrack.

 

    As of the closing date there shall have been no material adverse effect on the CIG Business, and there shall not have occurred any change or development that would be reasonably likely to have a material adverse effect on the CIG Business.

 

    First American, FAREISI, FARES and Newco shall have delivered or caused to have been delivered to First Advantage the certificates evidencing all of the issued and outstanding shares of common stock of North America CREDCO, Inc. (“NA CREDCO”), CMSI Credit Services, Inc. (“CMSI”), Teletrack, Inc. (“Teletrack”), First American Membership Services, Inc. (“Membership Services”), First American Credco of Puerto Rico, Inc. (“PR CREDCO”) and Bar None and all of the issued and outstanding membership interests of CIG Investments, LLC (“CIG”), properly endorsed in blank for transfer or accompanied by duly executed stock powers or, if any of the foregoing interests are not certificated, First American, FAREISI, FARES and Newco shall have caused the transfers thereof to have been duly recorded on the books and records of the applicable issuer.

 

    Bank of America, N.A. shall have provided to First Advantage a written consent to the First American Transaction.

 

    Each third party with a contract relating to the CIG Business as identified on schedules to the master transfer agreement shall have provided to First Advantage a written consent to the assignment of the applicable contract to First Advantage as contemplated by the First American Transaction if assignment is required by the terms of the applicable contract.

 

    As of the closing date, all corporate proceedings of First American, FAREISI, FARES and Newco to be taken in connection with the First American Transaction and all documents incident thereto shall be reasonably satisfactory in form and substance to First Advantage, and First Advantage shall have received copies of all such documents and other evidences as it may reasonably request in order to establish the consummation of the First American Transaction and the taking of all corporate proceedings in connection therewith.

 

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    Each of the related agreements shall have been duly executed and delivered by the parties thereto (other than First Advantage).

 

    First American, FAREISI, FARES and Newco shall have delivered or caused to have been delivered to First Advantage the original corporate record books and stock or membership interest record books of the companies that comprise the CIG Business and Bar None, and the certificates evidencing the DealerTrack Interest and the outstanding capital stock or equity interests, as applicable, held by each of the companies that owns one or more subsidiaries, including all of the issued and outstanding shares of common stock of First Canadian CREDCO (“FC CREDCO”), all of the issued and outstanding shares of common stock of Credit Services, all of the issued and outstanding shares of Teletrack Canada, Inc. (“Teletrack Canada”), and all of the outstanding membership interests of CreditReportPlus (“CreditReport+”).

 

    First American, FAREISI, FARES and Newco shall have delivered to First Advantage the resignation letters of all members of the boards of directors and management committees of the companies that comprise the CIG Business and Bar None and/or any officer of such companies as First Advantage shall have requested at or prior to the closing, together with an acknowledgment that they have no prior or present claim against any of the companies that comprise the CIG Business or Bar None, as applicable for which they served in connection with acting as directors and/or officers.

 

    The special committee shall have been advised in writing by its financial advisor, Morgan Stanley, that in such advisor’s opinion, as of May 23, 2005, the consideration to be paid by First Advantage pursuant to the master transfer agreement and related agreements was fair to First Advantage from a financial point of view (which has been received).

 

    First American shall have delivered, or caused to be have been delivered, to First Advantage the audited and unaudited financial statements of the CIG Business required to be included in First Advantage’s filings with the SEC, including the preliminary proxy statement, and other unaudited financial statements will be consistent in all material respects with the financial statements considered as a whole (which has been received).

 

The obligations of each of First American, FAREISI, FARES and Newco to consummate the First American Transaction are subject to the satisfaction or waiver on or before the closing of the following conditions:

 

    The representations and warranties of First Advantage contained in the master transfer agreement and in the related agreements to which it is a party shall be true and accurate in all material respects, in each case as of the date of the master transfer agreement or such related agreement, as applicable, and as of the closing date (except to the extent a representation or warranty speaks specifically as of another date, in which case such representation and warranty shall be true and accurate in all material respects as of such date, or as expressly provided for in the master transfer agreement or a related agreement), and an officer of First Advantage shall have delivered to First American, FAREISI, FARES and Newco a certificate dated the closing date to such effect.

 

    All of the agreements of First Advantage to be performed at or prior to the closing pursuant to the master transfer agreement and the related agreements to which First Advantage is a party shall have been duly performed in all material respects, and an officer of First Advantage shall have delivered to First American, FAREISI, FARES and Newco a certificate dated the closing date to such effect.

 

    First Advantage shall have delivered, or caused to be delivered, to First American, FAREISI, FARES and Newco a copy of its organizational documents, which shall be certified as being correct and true as of closing by the secretary of state of Delaware, and a copy of its by-laws, which shall be certified as accurate by its secretary or assistant secretary, and a certificate of good standing from the state of Delaware dated within ten days prior to closing.

 

    As of the closing date, there shall have been no material adverse effect on First Advantage, and there shall not have occurred any change or development that would be reasonably likely to have a material adverse effect on First Advantage.

 

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    First Advantage shall have delivered or caused to be delivered to Newco a total of 30,048,780 shares of Class B common stock.

 

    First Advantage shall have timely delivered to the Nasdaq National Market the notice required by the applicable Nasdaq Marketplace Rule.

 

    As of the closing date, all corporate proceedings of First Advantage to be taken in connection with the First American Transaction and all documents incident thereto shall be reasonably satisfactory in form and substance to First American, FAREISI, FARES and Newco, and each shall have received copies of all such documents and other evidences as they may reasonably request in order to establish the consummation of the First American Transaction and the taking of all corporate proceedings in connection therewith.

 

    The related agreements to which First Advantage is a party shall have been duly executed and delivered by the parties thereto (other than First American, FAREISI, FARES and Newco).

 

    First Advantage shall have delivered to First American, FAREISI, FARES and Newco a written waiver of First Advantage’s rights under the standstill agreement, dated as of June 5, 2003, between First American and First Advantage, with respect to the First American Transaction, and First Advantage shall have delivered to First American, FAREISI, FARES and Newco the written approval of the First American Transaction by a majority of the disinterested directors (as defined in the standstill agreement).

 

    First American will have been advised in writing by its financial advisor, Lehman Brothers, that in such advisor’s opinion, as of May 25, 2005, the price to be received for contribution of the CIG Business and the DealerTrack Interest under the related agreements is fair to First American, FAREISI, FARES and Newco from a financial point of view (which has been received).

 

Termination. The master transfer agreement may be terminated in whole, but not in part, as follows:

 

    At any time by mutual written agreement of the parties.

 

    By First Advantage by written notice to First American:

 

    if the conditions precedent of all of the parties and the conditions precedent of First Advantage have not been complied with or performed on or prior to October 19, 2005 (or such later date as the parties may have agreed to in writing) in any material respect and First Advantage has not materially breached any of its representations, warranties, covenants or agreements contained in the master transfer agreement;

 

    prior to closing, if First Advantage reasonably determines that the developments set forth in any notice delivered pursuant to the provisions of the master transfer agreement relating to notice of certain events together with any other notice or notices delivered pursuant to the provisions of the master transfer agreement relating to notice of certain events will result in a material breach of any representation or warranty of First American or FAREISI contained in the First American contribution agreement;

 

    prior to closing, if First Advantage reasonably determines that the developments set forth in any notice delivered pursuant to the provisions of the master transfer agreement relating to notice of certain events together with any other notice or notices delivered pursuant to the provisions of the master transfer agreement relating to notice of certain events will result in a material breach of any representation or warranty of FARES contained in the FARES contribution agreement; or

 

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    if, as a condition to receiving the approval of the First American Transaction by any governmental entity, First Advantage or any of its subsidiaries or affiliates will be required to, or required to agree in whole and not in part to:

 

    divest, sell or hold separate or agree to license to its competitors, before or after the closing date, any of the businesses, product lines, properties or assets of First Advantage, its subsidiaries or affiliates, the CIG Business or Bar None’s business,

 

    make any material changes or accept material restrictions in the operation of such businesses, product lines, properties or assets, or

 

    make any changes or accept any restrictions in any of such businesses, product lines, properties or assets of First Advantage, its subsidiaries or affiliates or the CIG Business or Bar None’s business, or to the master transfer agreement, the related agreements or the First American Transaction.

 

    By First American by written notice to First Advantage:

 

    if the conditions precedent of all of the parties and the conditions precedent of First American, FAREISI, FARES and Newco have not been complied with or performed on or prior to October 19, 2005 (or such later date as the parties may have agreed to in writing) in any material respect and First American, FAREISI, FARES and Newco have not materially breached any of their respective representations, warranties, covenants or agreements contained in the master transfer agreement; or

 

    prior to closing, if First American reasonably determines that the developments set forth in any notice delivered pursuant to provisions of the master transfer agreement relating to notice of certain events together with any other notice or notices delivered pursuant to the master transfer agreement relating to notice of certain events will result in a material breach of any representation or warranty of First Advantage contained in the First American contribution agreement or the FARES contribution agreement.

 

    By First American or First Advantage, by written notice to the other, if:

 

    the board of directors of First Advantage or the special committee withdraws or adversely modifies its approval or recommendation of the First American Transaction;

 

    a court or other governmental entity issues a final, non-appealable order, decree or ruling, or taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the First American Transaction;

 

    at the First Advantage stockholders meeting (including any adjournment or postponement thereof), the requisite vote of the stockholders of First Advantage in favor of the master transfer agreement, the related agreements and the First American Transaction, including approval of the certificate of amendment, have not been obtained;

 

    Morgan Stanley withdraws its opinion delivered in connection with the master transfer agreement or otherwise notifies the board of directors of First Advantage that it may no longer rely on such opinion; or

 

    Lehman Brothers withdraws its opinion delivered in connection with the master transfer agreement or otherwise notifies the board of directors of First American that it may no longer rely on such opinion.

 

In the event that the master transfer agreement is terminated, all further obligations of the parties under the master transfer agreement (other than certain confidentiality and expense provisions, which will continue in full force and effect) will terminate without further liability or obligation of any party to any other party under the master transfer agreement; however, no party will be released from liability under the master transfer agreement if the master transfer agreement is terminated and the First American Transaction is abandoned by reason of

 

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willful failure of such party to have performed its obligations under the master transfer agreement, and any knowing misrepresentation made by such party of any matter set forth in the master transfer agreement.

 

Expenses, Amendments, Waiver and Other Miscellaneous Provisions. Each party will bear its own costs incurred as a result of the First American Transaction, including payments to third parties, if any, to obtain their consent to the transfer contemplated by the First American Transaction and professional fees and related costs and expenses (including fees, costs and expenses of accountants, attorneys, benefits specialists, investment banks, financial advisors, tax advisors and appraisers) incurred by it in connection with the preparation, execution and delivery of the master transfer agreement and the related agreements and the First American Transaction.

 

The master transfer agreement may only be amended by a written agreement signed by the parties and consented to by the special committee, provided that non-substantive changes to exhibits to the master transfer agreement may be made without the consent of the special committee.

 

At any time prior to the closing, the parties may extend the time for performance of any of the obligations or other acts of the other parties, waive any inaccuracies in the representations and warranties of the other parties contained in the master transfer agreement or in any document delivered pursuant to it, and waive compliance with any of the agreements or conditions of the other parties contained in the master transfer agreement; provided that, except as otherwise permitted in the master transfer agreement, any extension or waiver will require the consent of the special committee to be effective. No extension or waiver will be valid unless and to the extent set forth in a written instrument signed by such party.

 

In addition, First Advantage gave its consent to First American’s contribution to Newco of the promissory note dated as of April 27, 2004, made by First Advantage in favor of First American.

 

OTHER TRANSACTION DOCUMENTS

 

First American Contribution Agreement

 

The following summary describes certain provisions of the First American contribution agreement, the form of which is included as Annex B to this proxy statement. The provisions of the First American contribution agreement are extensive and not easily summarized. This summary may not contain all of the information about the First American contribution agreement that is important to you. We encourage you to read the First American contribution agreement carefully in its entirety.

 

The First American contribution agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First American makes with the SEC. The First American contribution agreement contains representations and warranties the parties thereto made to and solely for the benefit of each other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the First American contribution agreement. Accordingly, investors and security holders should not rely on the representations and warranties as characterizations of the actual state of facts, since they are modified in important part by the underlying disclosure schedules. Moreover, the information concerning the subject matter of the representations and warranties may change after the date of the First American contribution agreement, which subsequent information may or may not be fully reflected in First Advantage’s public disclosures.

 

Transactions Under the First American Contribution Agreement. Under the First American contribution agreement, Newco will, and First American and FAREISI agree to cause Newco to, contribute to First Advantage or its wholly-owned subsidiary all of the issued and outstanding shares of common stock or membership interests

 

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of the companies that it will acquire from First American and FAREISI and that comprise a portion of the CIG Business, as well as the DealerTrack Interest and Bar None. In consideration for this contribution, on the closing date, First Advantage will deliver an aggregate of 11,756,097 shares of its Class B common stock to Newco and deliver a certificate in its name representing such shares of Class B common stock of First Advantage. For purposes of the First American contribution agreement, First American, FAREISI and Newco are referred to as “contributors”.

 

The First American contribution agreement also provides that, as repayment in full of the principal amount of $20 million owed pursuant to the terms of the promissory note, dated as of April 27, 2004, made by First Advantage in favor of First American and assigned to Newco, First Advantage will deliver to Newco 975,610 shares of its Class B common stock.

 

In addition, First Advantage will deliver to Newco an additional number of shares of Class B common stock if DealerTrack or its successor consummates an initial public offering of its capital stock on or prior to the second anniversary of the closing of the First American Transaction equal to one half of the value of the DealerTrack Interest in excess of $50 million. The actual number of our Class B shares to be issued in respect of the DealerTrack Earn-Out, if any, is determined as follows:

 

    If the initial public offering occurs on or prior to the date that is 180 calendar days from and including the closing date, the additional number of shares of Class B common stock will be equal to the quotient resulting from dividing (A) the product of (1) 0.50 and (2) the DealerTrack Excess Value (as described below) (if greater than zero), by (B) $20.50.

 

    If the initial public offering occurs after 180 calendar days from and including the closing date, but on or prior to the second anniversary of the closing date, the additional number of shares of Class B common stock will be equal to the quotient resulting from dividing (A) the product of (1) 0.50 and (2) the DealerTrack Excess Value (if greater than zero), by (B) the average closing price per share of our Class A common stock, rounded to the fourth decimal place, as reported on the Nasdaq National Market for the 30 trading days ending on the third trading day prior to the date of the pricing of DealerTrack’s capital stock in its initial public offering; provided, however, that if such average closing price is less than $20.50 per share, then the average closing price per share of the Class A common stock for calculation of this section will be deemed to equal $20.50 per share.

 

The additional shares must be delivered by First Advantage to Newco within 180 days of the triggering event. The DealerTrack Excess Value means the amount, if any, by which the value of the DealerTrack Interest exceeds $50 million, calculated using the average closing price per share of the publicly listed DealerTrack capital stock, rounded to the fourth decimal place, as reported on the exchange or quotation system then listing such shares, for the 60 business day period beginning on the fifth business day from and after the closing of the initial public offering by DealerTrack or its successor.

 

As of the closing, the aggregate amount of cash and cash equivalents of the CIG Business of the companies being conveyed to First Advantage under the First American contribution agreement and their respective subsidiaries must be $1.95 million or more.

 

Representations and Warranties. The First American contribution agreement contains representations and warranties by First American and FAREISI relating to, among other things:

 

    valid existence and good standing in its jurisdiction of formation;

 

    power and authority to carry on their respective businesses;

 

    power and authority of Newco to carry on its business;

 

    requisite organizational power and authority of First American, FAREISI and Newco to execute, deliver and perform their obligations under the First American contribution agreement;

 

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    due execution and enforceability of the First American contribution agreement, with certain exceptions relating to bankruptcy, insolvency or similar laws and equitable principles relating to or affecting the rights of creditors;

 

    nature and purpose of the acquisition of the Class B common stock to be issued in connection with the transaction;

 

    acknowledgment by First American, FAREISI and Newco that the Class B common stock to be acquired under the First American contribution agreement must be held indefinitely, unless it is registered or exempt from registration under the Securities Act;

 

    Newco as an Accredited Investor;

 

    assuming the receipt of third party consents in connection with transactions contemplated by the First American contribution agreement, the absence of restrictions which would, individually or in the aggregate, reasonably be expected to have a material adverse effect (including any material delay) on the ability of First American, FAREISI and Newco to perform its respective obligations under the First American contribution agreement;

 

    absence of pending, known or threatened litigation or similar proceeding against or affecting First American, FAREISI or Newco that would, individually or in the aggregate, reasonably be expected to have a material adverse effect (including any material delay) on the ability of First American, FAREISI or Newco to perform their obligations under the First American contribution agreement;

 

    absence of any judgment, order or decree against First American, FAREISI or Newco that would, individually or in the aggregate, reasonably be expected to have a material adverse effect (including any material delay) on the ability of First American, FAREISI or Newco to perform their obligations under the First American contribution agreement;

 

    ownership of Newco prior to the closing;

 

    absence of any business conducted by Newco other than to receive the CIG Business, Bar None, the XRES Business, the DealerTrack Interest and the $20 million promissory note as contemplated by the amended and restated master transfer agreement and to contribute the CIG Business, Bar None, the XRES Business and the DealerTrack Interest to First Advantage or its wholly-owned subsidiary pursuant to the First American contribution agreement and the related agreements;

 

    absence of indebtedness or other liabilities by Newco other than the obligations under and as contemplated by the First American contribution agreement and the related agreements;

 

    during the period from receipt from First American and FAREISI to its contribution to First Advantage or a wholly-owed subsidiary pursuant to the terms of the First American contribution agreement and related agreements, Newco’s absence of indebtedness and other liabilities of the CIG Business, Bar None, the XRES Business, the DealerTrack Interest and the $20 million promissory note; and

 

    during the period from receipt from First American and FAREISI to its contribution to First Advantage or a wholly-owed subsidiary pursuant to the terms of the First American contribution agreement and the related agreements, the absence of change or modification by Newco of any of the assets or liabilities related to the CIG Business, Bar None, the XRES Business, the DealerTrack Interest and the $20 million promissory note.

 

In addition, the First American contribution agreement contains representations and warranties made jointly and severally by First American and FAREISI regarding the companies that comprise the portion of the CIG Business and their subsidiaries contributed by First American and FAREISI to Newco and then to First Advantage relating to, among other things:

 

    ownership of each company in each direct or indirect subsidiary of such company;

 

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    valid existence and good standing of each company and each direct or indirect subsidiary of such company in their jurisdictions of formation;

 

    power and authority of each company and its subsidiaries to carry on its business;

 

    absence of any violations of organizational documents by any company or its subsidiaries;

 

    good standing in each jurisdiction in which qualification is necessary, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

    ownership of capital stock of, or other equity, ownership, proprietary or voting interest in any person by any company;

 

    capitalization of each company;

 

    entities beneficially owned by Newco;

 

    financial statements of the CIG Business, prepared in accordance with GAAP, which fairly present in all material respects, subject to certain exceptions, the financial position of each of the Companies on a combined basis with the other businesses constituting the CIG Business, and the results of operations of each of the companies on a combined basis with the other businesses constituting the CIG Business;

 

    conduct of the CIG Business in the ordinary course, and absence of any incurrence, assumption of guarantee by the companies or their subsidiaries of any indebtedness other than in the ordinary course;

 

    absence of any undisclosed material records, systems, controls, data or information recorded or otherwise held by the companies or their subsidiaries by any means not under the exclusive ownership and direct control of a company or an affiliate;

 

    good, valid and marketable title to all of the property and assets (real and personal, tangible and intangible) of the companies and their subsidiaries;

 

    title to property and assets of the companies and their subsidiaries is free and clear of all liens, subject to certain permitted encumbrances;

 

    all tangible personal property, real property and assets owned or leased by the companies, together with the contributed assets, as described beginning on page 56, the tangible personal property, real property and assets subject to the related agreements, and the tangible personal property, real property and assets used by First American and its affiliates to provide services to First Advantage and its affiliates under the related agreements, constitute all of the tangible personal property, real property and assets necessary for the conduct of the CIG Business as conducted in the ordinary course in all material respects;

 

    absence of fee interest in any real property held by any of the companies or their subsidiaries;

 

    real and personal property leases of the companies and their subsidiaries with annual rent payments of $100,000 or more, are in full force and effect; all rents and additional rents due by a company or its subsidiaries for such leases have been paid (other than any pass through expenses not yet invoiced); the lessee has been in peaceable possession since the beginning of the original term of the lease and is not in default and the lessor has not granted any waivers, indulgences or postponements of the lessee’s obligations under any of the leases, and the absence of defaults or events which would become a default if certain additional events occurred, except where the defaults would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

    material contracts of the companies and their subsidiaries that are known by First American, FAREISI and Newco are in full force and effect;

 

   

assuming the receipt of third party consents in connection with the transactions contemplated by the First American contribution agreement, the absence of defaults, or events that would become defaults if

 

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certain additional events occurred, by any company or, to the knowledge of First American, FAREISI or Newco, any other party to a contract, with respect to any term or provision of a contract, except as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

    absence of any violations in any material respect by the companies or their subsidiaries of any of the material terms or conditions of any of their contracts or agreements where the other party is a customer that accounts for a certain percentage of the total sales of the CIG Business and all of the material covenants to be performed by any other party to such contract have been fully performed in all material respects to the knowledge of First American, FAREISI and Newco;

 

    assuming the receipt of third party consents in connection with the transactions contemplated by the First American contribution agreement, absence of undisclosed restrictive documents applicable to the companies or their subsidiaries that would materially restrict the ability of the CIG Business to acquire property or conduct business, or would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business or prevent or materially delay the consummation of the transactions contemplated by the First American contribution agreement;

 

    absence of undisclosed pending, known or threatened litigation, similar proceeding or judgment, order or decree applicable to the companies or their subsidiaries or any of their properties or rights that would, individually or in the aggregate, be reasonably expected to have a material adverse effect on the CIG Business;

 

    taxes, including the timely filing of all material tax returns, statements, forms and reports that accurately reflect in all material respects all liability for taxes of the companies and their subsidiaries for the periods covered; timely payment or adequate disclosure on the books and records of the companies and their subsidiaries of all material taxes due with respect to the income, assets or operations of the companies and their subsidiaries for certain taxable periods; and the collection or withholding and timely payment of all material taxes required to be collected or withheld by any company or its subsidiaries in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party;

 

    intellectual properties of the companies and their subsidiaries, duly registered in, filed in or issued by the appropriate office, and the full force and effect of each registration, filing and issuance;

 

    absence of any undisclosed licenses or agreements with the companies or their subsidiaries as a party, whether as licensor, licensee or otherwise, with respect to any of the intellectual properties of the companies and their subsidiaries, with certain exceptions;

 

    absence of any notice of any material default under a license for intellectual property used in the business of any company or their subsidiaries that remains uncured, and assuming the receipt of third party consents in connection with the assignment of such licenses to First Advantage, the execution, delivery or performance of First American’s, FAREISI’s or Newco’s obligations under the First American contribution agreement will not result in a material default;

 

    licenses for intellectual property used in the business are legal, valid and binding obligations of the companies and their subsidiaries that are parties to such licenses and, to the knowledge of the companies, each of the other parties to such licenses and is enforceable by such company in accordance with the terms of each license;

 

    company intellectual property is owned by or licensed to be used by the companies or their subsidiaries, free and clear of any encumbrances, without obligation to pay royalties or other fees and neither the companies’ nor their subsidiaries’ use violates, infringes, misappropriates or misuses any intellectual property rights of any third party;

 

    no company intellectual property has been cancelled, abandoned or otherwise terminated and all renewal and maintenance fees have been paid;

 

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    exclusive rights held by the companies and their subsidiaries to file, prosecute and maintain all applications and registrations with respect to the intellectual property that is owned by any companies or their subsidiaries;

 

    absence of any undisclosed written notices or claims from third parties challenging the right of any company or their subsidiaries to use any of the company intellectual property;

 

    disclosure of intellectual property necessary to operate the CIG Business in the way it is presently operated, with certain exceptions;

 

    absence of any undisclosed written claims still pending of a violation, infringement, misuse, or misappropriation by any third party (including any employee or former employee of any company or its subsidiaries) of the third party’s rights to, or in connection with any intellectual property;

 

    absence of any undisclosed agreements by any company or its subsidiaries to indemnify any other person against any charge of infringement of any intellectual property, other than indemnification provisions contained in purchase orders or license agreements arising in the ordinary course;

 

    absence of undisclosed pending, known or threatened litigation, or similar proceeding, involving a violation, infringement, misuse or misappropriation by any company or its subsidiaries of intellectual property owned by any third party, or involving the invalidity of any patent or registration of a copyright, trademark, service mark, domain name or trade name included in the company intellectual property, and no valid basis for such a claim exists to the knowledge of First American, FAREISI or Newco;

 

    absence of undisclosed interferences or other contested proceedings, pending or, to the knowledge of the companies, 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 owned by the company;

 

    valid written assignments secured by a company or its subsidiary from all consultants and employees who helped to create company intellectual property that is not already owned by either a company or its subsidiary by operation of law;

 

    confidentiality of all trade secrets, know-how, source codes, databases, customer lists, schematics, ideas, algorithms and processes; the absence of any use, disclosure or appropriation by a third party of such confidential information unless pursuant to the terms of a written agreement and the absence of any breach of an agreement of non-disclosure or confidentiality by the companies or their subsidiaries;

 

    material computer software programs used or held for use by the companies and their subsidiaries operate and run in a commercially reasonable business manner, conform in all material respects to the specifications provided and, with respect to each of the computer software programs that are owned by a company or its subsidiary, the applications can be compiled from their associated source code without undue burden;

 

    accessibility of the companies’ and their subsidiaries’ Internet sites to Internet users on substantially a twenty-four hours per day, seven days per week basis, excluding maintenance periods;

 

    compliance with laws, except where failure to comply would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business, including compliance with any privacy, data protection, publicity, advertising or similar federal, state or local law of any kind in the United States or any other nation by the companies and their subsidiaries, and absence of any written notice of such violation received by any of the companies or their subsidiaries, and absence of any facts that would give rise to such a violation to the knowledge of First American, FAREISI, Newco or any company, except where such violation would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

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    governmental licenses, permits, franchises, approvals, and other authorizations held by the companies and their subsidiaries, and registrations and filings, necessary to own, lease and operate its properties and to enable it to carry on its respective business as presently conducted, have been obtained or made, except where failure to comply would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business, and all governmental licenses held by any company or its subsidiaries are in full force and effect, except where the failure to be in full force and effect would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business, and no governmental license is the subject of a proceeding for suspension or revocation or similar proceedings;

 

    absence of any demands or requests by any jurisdiction that any company or its subsidiary qualify or become licensed as a foreign corporation;

 

    compliance with all applicable laws, domestic or foreign, respecting employment and employment matters by each of the companies and their subsidiaries, including compliance with unfair labor practice laws, except in each case as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

    absence of any collective bargaining or labor union agreements applicable to any employees of the companies or their subsidiaries and absence of any current negotiations involving collective bargaining or labor union agreements by the companies or their subsidiaries;

 

    absence of any pending, known, or threatened unfair labor practice complaints against any company or its subsidiaries before the National Labor Relations Board;

 

    absence of any pending, known, or threatened labor strikes, disputes, slowdowns or stoppages against or involving any company or subsidiary;

 

    absence of any grievances that would, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

    absence of any material labor difficulties experienced by the companies or their subsidiaries over a certain period of time;

 

    absence of any “layoffs” or “plant closings” during a certain period of time with respect to any company or its subsidiaries;

 

    assuming the receipt of consents from third parties in connection with the transactions contemplated by the First American contribution agreement, the execution and delivery of the First American contribution agreement and the consummation of the transactions contemplated by that agreement will not violate the organizational documents of either First American, FAREISI, Newco or any company or its subsidiaries;

 

    assuming the receipt of consents from third parties in connection with the transactions contemplated by the First American contribution agreement, the execution and delivery of the First American contribution agreement and the consummation of the transactions contemplated by that agreement will not violate any statutes, ordinances, rules, regulations, orders or decrees of any court or governmental body or other applicable authority; require any filings, permits, consents, approvals or notices other than those required by certain laws or regulations; or result in a violation or breach of, conflict with, constitute a default under or result in any liens, security interests, charges or encumbrances upon any of the properties or assets of First American, FAREISI, Newco, or any company or its subsidiaries under the terms, conditions or provisions of certain instruments or obligations to which First American, FAREISI, Newco, or any company or its subsidiaries is a party or by which any of their properties or assets are bound, for each, other than those which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business;

 

    no broker’s and finder’s fees applicable to the companies or their subsidiaries;

 

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    copies of documents of the companies and their subsidiaries;

 

    absence of affiliate transactions subject to certain exceptions and exclusions;

 

    absence of undisclosed liabilities of the companies and their subsidiaries, to the actual knowledge of First American, FAREISI or Newco, other than liabilities incurred in the ordinary course, liabilities disclosed on any exhibit or schedule to the First American contribution agreement or the related documents, liabilities provided for in the financial statements, or other undisclosed liabilities which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the CIG Business;

 

    to the actual knowledge of First American, FAREISI or Newco, the information disclosed in the First American contribution agreement with respect to the companies does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained in the First American contribution agreement, in light of the circumstances under which they were made, not misleading, except as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the CIG Business; and

 

    certain representations and warranties with respect to Bar None.

 

First American and FAREISI also jointly and severally make representations and warranties relating to ownership of the DealerTrack Interest that the record owner of the DealerTrack Interest owns the interest free and clear of all encumbrances and has not entered into any agreements or commitments for the sale of any part of the DealerTrack Interest or otherwise conveyed or encumbered its interest. The representations and warranties with respect to the companies that comprise the CIG Business described elsewhere in the First American contribution agreement do not relate to the DealerTrack Interest. Other than the representations and warranties that specifically relate to Bar None, the representations and warranties with respect to the companies that comprise the CIG Business described elsewhere in the First American contribution agreement do not relate to Bar None.

 

First Advantage also makes certain representations and warranties relating to, among other things:

 

    valid existence and good standing of First Advantage in its jurisdiction of formation;

 

    power and authority to carry on its business;

 

    good standing in each jurisdiction in which qualification is necessary, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage;

 

    requisite organizational power and authority to execute and deliver the First American contribution agreement and to perform its obligations under the First American contribution agreement;

 

    capitalization of First Advantage as of May 4, 2005 and due authorization and valid issuance of all capital stock of First Advantage after the date of the First American contribution agreement, and due authorization and valid issuance of shares of Class B common stock to Newco under the First American contribution agreement in compliance with applicable securities laws and First Advantage’s organizational documents, free and clear of all encumbrances, with certain exceptions, and not subject to any preemptive rights or rights of first refusal. However, no representation or warranty is being made to the authorization and issuance with respect to this proxy statement’s compliance with the Exchange Act or regulations promulgated under the Exchange Act;

 

    compliance of SEC reports filed by First Advantage in all material respects with the applicable requirements of the Securities Acts and related rules and regulations, court interpretations, and rules of the Nasdaq National Market and the absence of untrue statements of fact or omitted statements of fact required or necessary to make the statements not misleading to a certain extent, other than facts that did not or would not, individually or in the aggregate, reasonably be expected to have, a material adverse effect on First Advantage;

 

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    compliance of consolidated financial statements of First Advantage and its subsidiaries included in the SEC reports as to form in all material respects with applicable accounting requirements and published rules and regulations of the SEC, prepared in accordance with GAAP, with certain exceptions, which fairly present in all material respects, subject to certain exceptions, the consolidated financial position of First Advantage and its subsidiaries, and no executive officer of First Advantage has failed to make the required certifications under the Sarbanes-Oxley Act of 2002, with certain exceptions, and no enforcement action has been initiated against First Advantage by the SEC relating to any company SEC Reports;

 

    absence of undisclosed restrictive documents that would materially restrict the ability of First Advantage or any of its subsidiaries to acquire any property or conduct business, or would, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage;

 

    absence of any undisclosed pending, known, or threatened litigation, similar proceeding, or judgment, order or decree against First Advantage or its subsidiaries that would, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage;

 

    compliance with applicable laws in all material respects, except where failure to comply would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage, including compliance with any privacy, data protection, publicity, advertising or similar federal, state or local law of any kind in the United States or any other nation, and absence of any written notice of any such violation received by First Advantage or its subsidiaries, and absence of any facts that would give rise to any such violation to the knowledge of First Advantage or its subsidiaries, except where such violation would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage;

 

    absence of any violation of the organizational documents of either First Advantage or any of its subsidiaries for the execution and delivery of the First American contribution agreement and the consummation of the transactions contemplated by that agreement;

 

    the execution and delivery of the First American contribution agreement and the consummation of the transactions contemplated by that agreement will not violate any statutes, ordinances, rules, regulations, orders or decrees of any court or governmental bodies or other applicable authority; require any filings, permits, consents or approvals or notices other than those required by certain laws or regulations; or result in a violation or breach of, conflict with, constitute a default under or result in any liens, security interests, charges or encumbrances upon any of the properties or assets of First Advantage or any of its subsidiaries under the terms, conditions or provisions of certain instruments or obligations to which either First Advantage or any of its subsidiaries is a party or by which any of their properties or assets are bound, for each, other than those which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage;

 

    no broker’s and finder’s fees applicable to First Advantage or any of its subsidiaries;

 

    copies of documents of First Advantage;

 

    board of directors and special committee approval relating to the First American contribution agreement and the transactions contemplated by that agreement;

 

    absence of undisclosed liabilities of First Advantage other than liabilities incurred in the ordinary course, liabilities disclosed on any exhibit or schedule to the First American contribution agreement or the related documents, liabilities provided for in First Advantage’s financial statements, or other undisclosed liabilities which, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on First Advantage; and

 

   

to the actual knowledge of First Advantage, the information disclosed in the First American contribution agreement with respect to First Advantage does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained in that agreement, in

 

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light of the circumstances under which they were made, not misleading, except as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on First Advantage.

 

The representations and warranties in the First American contribution agreement are made as of the closing (unless made as of a specified date) of the First American Transaction.

 

Covenants. The First American contribution agreement contains certain covenants, including the following:

 

    First American and FAREISI will be jointly and severally responsible for paying bonuses to employees of the companies for that portion of the 2005 calendar year occurring on and prior to the closing date. First Advantage will be responsible for paying bonuses to employees of the companies for that portion of the 2005 calendar year occurring after the closing date, and for all periods thereafter.

 

    Prior to the closing, First American, FAREISI and Newco are entitled to cause the companies to transfer to the stockholders of the companies all of the companies’ cash and cash equivalent balances in excess of $1.95 million.

 

    First American, FAREISI and Newco, as applicable, will assign or cause its affiliates to assign its or their rights under the following agreements, which are each referred to “acquisition agreements”, if permitted to do so by the terms of the applicable acquisition agreement:

 

    each of the agreements by which First American, FAREISI and Newco, as applicable, or its affiliates acquired the companies and their respective subsidiaries from any third parties, whether by merger, purchase of equity securities, purchase of assets or otherwise,

 

    the agreement and plan of merger dated as of May 20, 2005 among First American, Bar None, Delaware Bay Merger Corp. and James Crouse, and

 

    the agreement pursuant to which First American, FAREISI and Newco, as applicable, or their affiliates acquired the DealerTrack Interest.

 

    For each of the acquisition agreements, First Advantage will assume all of First American’s, FAREISI’s and Newco’s obligations under any acquisition agreement that is assigned (including any earn-out payments required by the terms of the applicable acquisition agreement) but excluding in each case First American’s, FAREISI’s or Newco’s obligations relating to breach of any representation or warranty made by it or its affiliates in the acquisition agreements and any covenant of First American, FAREISI or Newco or their affiliates in the acquisition agreements required by its terms to be performed prior to closing.

 

    Each of First American, FAREISI and Newco agree that it will use commercially reasonable efforts to obtain the written consent of any other necessary party to the assignment of any acquisition agreement; provided, however, that, in order to obtain any consent, no contributor nor its affiliates are required to:

 

    repay any loan agreement or contract for borrowed money except as currently required by its terms, in whole or in part,

 

    amend any contract to increase the amount payable under the contract or otherwise to be more burdensome to First American, FAREISI and Newco, as applicable, or its affiliates,

 

    make any cash payment, provide any guaranty or relinquish any property or contractual rights, or

 

    commit to any divestiture transaction, agree to sell or hold separate or agree to license to competitors of First American, FAREISI and Newco, as applicable, or its affiliates, before or after the closing date, any of a contributor’s or its affiliates’ businesses, product lines, properties or assets, or agree to any changes or restrictions in the operation of such businesses, product lines, properties or assets.

 

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    If the terms of any acquisition agreement require the written consent of a necessary party in order to assign the acquisition agreement and a party does not grant its consent, or if any acquisition agreement may not be transferred or assigned pursuant to its terms, then the following provisions will apply:

 

    First American, FAREISI and Newco will not be required to assign, and the First American contribution agreement will not be deemed to constitute an assignment of, that acquisition agreement and First Advantage shall assume no direct obligations or liabilities under any such acquisition agreement until such consent is obtained;

 

    First American, FAREISI, or Newco, as applicable, will cooperate with First Advantage following the closing date in any reasonable arrangement designed to provide First Advantage with the rights and benefits under the applicable acquisition agreement, including enforcement for the benefit of First Advantage and at First Advantage’s expense of any and all rights of the applicable contributor or its affiliates against any other party arising out of any breach or cancellation of such acquisition agreement by such other party, if requested by First Advantage, acting as an agent on behalf of First Advantage or as First Advantage shall otherwise reasonably require;

 

    First Advantage will bear the contributor’s reasonable out-of-pocket expenses as its agent and will indemnify First American, FAREISI, or Newco, as applicable, and its affiliates for actions taken or not taken as its agent; provided, that First Advantage will cooperate with the applicable contributor following the closing date in any reasonable arrangement designed to require First Advantage to assume, be responsible for and otherwise meet the burdens and obligations under any such acquisition agreement (excluding the contributor’s obligations in respect to any breach of representation or warranty made by it or its affiliates in the applicable acquisition agreement and any breach of covenant of it or its affiliates in the applicable acquisition agreement required by its terms to be performed prior to closing); and

 

    in the event that First American, FAREISI, or Newco, as applicable, or any of its affiliates collects indemnification or other amounts under, or reduces or offsets against any payment obligations to third parties arising from or relating to any such acquisition agreement, including offsets or reductions against promissory notes to third parties, which promissory notes reflect payment obligations of the applicable contributor or any of its affiliates pursuant to such acquisition agreement, the applicable contributor will, and will cause its affiliates to, pay an amount of cash equal to the indemnification, other amount, reduction or offset to First Advantage within five business days of the date on which the applicable contributor or its affiliate collects the indemnification or other amount or recognizes such reduction or offset; provided that from and after the closing, in the event that the applicable contributor or any of its affiliates is required to pay any earn-out amounts to third parties arising from or relating to any such acquisition agreement, First Advantage will, and will cause its affiliates to, pay an amount of cash equal to the earn-out amounts to the applicable contributor within five business days of the date on which First American or its affiliate is required to pay the earn-out amounts.

 

Indemnification. The representations and warranties of the First American contribution agreement are made as of closing unless another date is specified and survive for eighteen months following the closing date. However, certain representations by First American and FAREISI relating to binding effect, the business and operations of Newco, capitalization, broker’s and finder’s fees and ownership of the DealerTrack Interest, and certain representations by First Advantage relating to binding effect, capitalization and broker’s and finder’s fees will survive for five years after the closing date. In addition, the representations and warranties by the contributors relating to taxes will survive until 30 days after the expiration of the applicable statute of limitations.

 

First American and FAREISI will, jointly and severally, indemnify and hold First Advantage and its subsidiaries and affiliates (including, after the closing, each company and its subsidiaries that comprise part of the CIG Business contributed to First Advantage under the First American contribution agreement) and each of

 

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their respective directors, officers, members, managers, stockholders, employees and agents and any successors thereto harmless from and against any and all losses suffered, incurred or paid, directly or indirectly, as a result of or arising out of:

 

    the failure of any representation or warranty in the First American contribution agreement made by First American, FAREISI or Newco to be true and correct in all respects as of the closing date (unless a representation or warranty speaks as of a specific date, in which case as of the date specified); and

 

    any breach or nonperformance of any covenants or agreements made by First American, FAREISI or Newco in or pursuant to the First American contribution agreement or the provision of the master transfer agreement relating to operation of the CIG Business and related businesses during the period between signing of the master transfer agreement and closing of the First American Transaction.

 

The sole recourse and remedy of each indemnified party for any inaccuracy in any representation or warranty or alleged representation or warranty by or on behalf of the contributors contained in or made pursuant to the First American contribution agreement will be under the provisions of and to the extent provided for in the indemnification provisions.

 

First American and FAREISI are not required to indemnify and hold the indemnified parties harmless for losses relating to breaches of representations and warranties by First American and FAREISI as of closing until the aggregate amount due in respect of such losses exceeds $1.95 million, and then First American and FAREISI are required to indemnify and hold harmless for losses in excess of this amount. The maximum aggregate amount of losses payable by First American and FAREISI relating to such breaches of representations and warranties is capped at $39 million. However, the foregoing limitations will not apply to losses that arise from (i) a breach of any of the representations and warranties relating to binding effect, the business and operations of Newco, capitalization, broker’s and finder’s fees and ownership of the DealerTrack Interest, or (ii) the intentional breach or misrepresentation of any of the representations or warranties by First American or FAREISI where First Advantage can prove it was caused by the actions or inactions of certain individuals, with respect to which the maximum aggregate limitation for the losses in (i) and (ii) is $214.5 million.

 

First Advantage will indemnify and hold First American and FAREISI and its affiliates and each of their respective directors, officers, members, managers, stockholders, employees and agents and any successors thereto harmless from any and all losses suffered, incurred or paid, directly or indirectly, as a result of or arising out of:

 

    the failure of any representation or warranty in the First American contribution agreement made by First Advantage to be true and correct in all respects as of the closing date (unless a representation or warranty speaks as of a specific date, in which case as of the date specified); and

 

    any breach or nonperformance of any covenants or agreements made by First Advantage in or pursuant to the First American contribution agreement.

 

The sole recourse and remedy of each indemnified party for any inaccuracy in any representation or warranty or alleged representation or warranty by or on behalf of First Advantage contained in or made pursuant to the First American contribution agreement will be under the provisions of and to the extent provided for in the indemnification provisions.

 

First Advantage is not required to indemnify and hold the indemnified parties harmless for losses relating to breaches of representations and warranties by First Advantage as of closing until the aggregate amount due in respect of such losses exceeds $1.95 million, and thereafter First Advantage is required to indemnify and hold harmless for losses in excess of this amount. The maximum aggregate amount of losses payable by First Advantage relating to such breaches of representations and warranties is capped at $39 million. However, the foregoing limitations will not apply to losses that arise from (i) a breach of any of the representations and warranties relating to the binding effect, capitalization and broker’s and finder’s fees, or (ii) the intentional

 

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breach or misrepresentation of any of the representations or warranties by First Advantage where the contributors can prove it was caused by the actions or inactions of certain individuals, with respect to which the maximum aggregate limitation for the losses in (i) and (ii) is $214.5 million.

 

The respective obligations of each parties to indemnify and hold harmless pursuant to the indemnification provisions will survive the consummation of the transactions contemplated by the First American contribution agreement for the time periods described above, except for claims for indemnification asserted prior to the end of such periods, which claims will survive until final resolution thereof.

 

The First American contribution agreement also contains certain procedures with respect to indemnification, which include submission of a certificate containing certain specific information, objections to the indemnification that is being sought, notice and submitting claims with insurance carriers. No indemnifying party will be required to indemnify for any special, consequential, punitive or indirect damages.

 

Miscellaneous. Provisions relating to expenses, amendments, extensions and waivers are the same as those contained in the master transfer agreement described above. Except as provided in the First American contribution agreement, First American and FAREISI do not make any representation or warranty with respect to Bar None or the effect of First American’s acquisition of Bar None on the companies comprising the CIG Business and Bar None will be transferred to First Advantage on an “as is where is” basis.

 

FARES Contribution Agreement

 

The following summary describes certain provisions of the FARES contribution agreement, the form of which is included as Annex C to this proxy statement. The provisions of the FARES contribution agreement are extensive and not easily summarized. This summary may not contain all of the information about the FARES contribution agreement that is important to you. We encourage you to read the FARES contribution agreement carefully in its entirety.

 

The FARES contribution agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First Advantage makes with the SEC. The FARES contribution agreement contains representations and warranties the parties thereto made to and solely for the benefit of each other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the FARES contribution agreement. Accordingly, investors and security holders should not rely on the representations and warranties as characterizations of the actual state of facts, since they are modified in important part by the underlying disclosure schedules. Moreover, the information concerning the subject matter of the representations and warranties may change after the date of the FARES contribution agreement, which subsequent information may or may not be fully reflected in First Advantage’s public disclosures.

 

Transactions under the FARES Contribution Agreement. Under the FARES contribution agreement, Newco will, and FARES will cause Newco to, contribute to First Advantage or its wholly-owned subsidiary all of FARES’s, Newco’s and their affiliates’ right title and interest in and to the assets (personal, tangible and intangible) used exclusively in, or which relate exclusively to, the CREDCO Division, including without limitation those assets set forth below, free and clear of any encumbrances (other than permitted liens and assumed liabilities), which are refered to as the “contributed assets”. For purposes of the FARES contribution agreement, FARES and Newco are referred to as “contributors”.

 

    all assets owned by the CREDCO Division and reflected on the balance sheet of the CREDCO Division (other than certain excluded assets);

 

    certificates representing all of the issued and outstanding shares of common stock of PR CREDCO;

 

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    all documents, files, forms, processes, policies or procedures of FARES and Newco relating solely to the CREDCO Division;

 

    all tangible personal property of FARES and Newco used solely in the CREDCO Division;

 

    all of the CREDCO Division’s and PR CREDCO’s books and records (except those expressly excluded), sales data, customer lists, all other information relating to customers, suppliers’ names and contact information, mailing lists, files, documents, correspondence, lists, advertising and promotional materials, studies, reports, and other printed or written materials relating solely to the CREDCO Division;

 

    all of FARES’s and Newco’s rights and interests under contracts to which FARES or Newco is a party that relate exclusively to the CREDCO Division, which are referred to as the “assumed contracts”;

 

    all licenses and other permits, consents and certificates of any regulatory, administrative or other governmental entity issued to or held by FARES for use solely in the CREDCO Division that are transferable;

 

    all claims, warranties, guarantees, refunds, causes of action, choses in action, rights of recovery, rights of set off, insurance proceeds and rights of recoupment (excluding any such item relating to the payment of taxes) relating solely to the CREDCO Division (other than certain excluded assets) or the contributed assets;

 

    cash and cash equivalents in the amount of $3.05 million;

 

    all accounts receivable of FARES and Newco derived exclusively from the business activity of the CREDCO Division;

 

    all of the trademarks identified on the applicable schedule to the FARES contribution agreement; and

 

    all of the purchased assets acquired by FARES pursuant to the XRES asset purchase agreement dated as of March 30, 2005, among FARES, Experian Affiliate Acquisition LLC and Experian (which is referred to as the “XRES asset purchase agreement”) and, to the extent assignable, the rights and obligations of FARES under the XRES asset purchase agreement and the agreements related thereto (except FARES’s obligation in respect of any representation or warranty made by FARES or its affiliates in the XRES asset purchase agreement or any covenant by FARES or its affiliates in the XRES asset purchase agreement required by its terms to be performed prior to closing).

 

All assets of FARES and Newco other than the contributed assets listed above are excluded assets and will not be sold, assigned, conveyed, transferred or contributed to First Advantage, including:

 

    all cash and cash equivalents (except for $3.05 million as described above);

 

    the articles of organization, operating agreement, qualifications to conduct business as a foreign corporation, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, membership interest transfer books, blank membership interest certificates, and other documents relating to the organization, maintenance, and existence of FARES and Newco as limited liability companies or FARES’s and Newco’s businesses and assets other than related to the CREDCO Division;

 

    all rights of FARES and Newco under the FARES contribution agreement and the related agreements to which it is a party;

 

    all rights of FARES and Newco under the Service Agreements with RELS and its subsidiaries (as defined on page 66);

 

    except as required by the master transfer agreement, all rights of FARES and Newco under the services agreement, dated as of February 1, 2001, between Ellie Mae, Inc. and First American, as amended; and

 

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    except as required by the master transfer agreement, all rights of FARES and Newco under certain portal agreements under which First American and/or its affiliates other than First Advantage derive certain benefits from (which are referred to as the “retained portal agreements”).

 

In consideration for the contribution of the contributed assets to First Advantage or its wholly-owned subsidiary, in addition to assuming the assumed liabilities, First Advantage will deliver to Newco on the closing date, a certificate in its name representing 17,317,073 shares of its Class B common stock.

 

In addition to the payment to Newco of the consideration described above, and as additional consideration for the contributed assets, from and after the closing, First Advantage will assume and become responsible for, or will cause its wholly-owned subsidiary to assume and become responsible for, the assumed liabilities, which will include all liabilities and obligations of FARES, Newco and their affiliates relating to the CREDCO Division, and all liabilities and obligations of FARES, Newco and their affiliates arising out of or related to the contributed assets, and the assumed liabilities under the XRES asset purchase agreement.

 

Except for assumed liabilities and subject to the terms and conditions of the FARES contribution agreement, neither First Advantage nor any of its Subsidiaries will assume any liabilities, obligations or commitments of FARES and Newco, including the following, which will be retained by FARES or Newco, as applicable:

 

    all liabilities and obligations of FARES and Newco under the FARES contribution agreement and the related agreements to which it is a party;

 

    all liabilities and obligations of the FARES and Newco for expenses or fees incident to or arising out of the negotiation, preparation, approval or authorization of the FARES contribution agreement and the related agreements to which it is a party or its consummation of the transactions contemplated by the FARES contribution agreement and the related agreements (including attorneys’ and accountants’ fees and fees of investment banks or brokers);

 

    all liabilities and obligations in respect of any of the excluded assets (including under any contracts, commitments or understandings related the excluded assets);

 

    all liabilities and obligations of FARES and Newco, if any, under the Service Agreements with RELS and its subsidiaries;

 

    except as required by the master transfer agreement, all liabilities and obligations of FARES and Newco under the services agreement, dated as of February 1, 2001, between Ellie Mae, Inc. and First American, as amended;

 

    all obligations of FARES in respect of any breach of a representation or warranty made by FARES, or FARES’s affiliate in the XRES asset purchase agreement and any breach of any covenant by FARES or its affiliate in the XRES asset purchase agreement required by its terms to be performed prior to closing;

 

    except as required by the master transfer agreement, all liabilities and obligations of FARES and Newco under the retained portal agreements; and

 

    except as required by the sublease agreement among General Electric Capital Corporation, FARES and First Advantage to be entered into in connection with the First American Transaction, all liabilities and obligations of FARES and Newco under the master lease financing agreement dated as of December 28, 2001 between General Electric Capital Corporation and the parties named therein as lessees with respect to equipment subject to a sublease (referred to as the “master lease”).

 

Representations and Warranties. FARES makes representations and warranties relating to FARES, Newco and the CREDCO Division of substantially the same nature as those made by each of the contributors in the First American contribution agreement and also makes representations and warranties relating to the XRES Business and the amount of rent paid by FARES pursuant to the lease agreement between First American Title Insurance Company and First Advantage relating to buildings located in Poway, California. In addition, First Advantage

 

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makes the same representations and warranties to FARES as those made to the contributors in the First American contribution agreement. The representations and warranties contained in the FARES contribution agreement are made as of the closing (unless made as of a specified date) of the First American Transaction.

 

Covenants. The FARES contribution agreement contains certain covenants, including the following:

 

    FARES will be responsible for paying bonuses to employees of the CREDCO Division for that portion of the 2005 calendar year occurring on and prior to the closing date. First Advantage will be responsible for paying bonuses to employees of the CREDCO Division for that portion of the 2005 calendar year occurring after the closing date, and for all periods after the closing date.

 

    From and after the closing date, in the event FARES is not permitted to assign to Newco or First Advantage, or Newco is not permitted to assign to First Advantage, any agreement by which FARES acquired any contributed assets and FARES collects indemnification or other amounts under, or reduces or offsets against any payment obligations to third parties arising under such agreements, then FARES or its affiliates will pay an amount of cash equal to the indemnification, amount, reduction or offset to First Advantage within five business days, and in the event FARES pays any earn-out amounts to third parties arising from or relating to these agreements, then First Advantage will or will cause its affiliates to pay an amount of cash equal to any earn-out amount to FARES within five business days.

 

    To the extent that the assignment by FARES to Newco or First Advantage, or by Newco to First Advantage, of any assumed contract by FARES is not permitted or is not permitted without consent, the FARES contribution agreement will not be deemed to constitute an assignment of that assumed contract if consent is not given and if the assignment would constitute a material breach of, or cause a loss of contractual benefits, under that assumed contract. First Advantage will assume no direct obligations or liabilities under that assumed contract until consent is obtained. If any consent or waiver necessary for the sale, transfer, assignment and delivery of an assumed contract is not obtained or if such assignment is not permitted and the closing is consummated, FARES and Newco will cooperate with First Advantage following the closing date in any reasonable arrangement designed to provide First Advantage with the rights and benefits under any such assumed contract, including enforcement for the benefit of First Advantage and at First Advantage’s expense of any and all rights of FARES and Newco against any other party arising out of any breach or cancellation of any the assumed contract by the other party and as First Advantage may otherwise reasonably require. Under these circumstances, First Advantage will bear FARES’s and Newco’s reasonable out-of-pocket expenses and indemnify FARES and Newco for actions taken or not taken and will cooperate with FARES and Newco following the closing date in any reasonable arrangement designed to require First Advantage to assume, be responsible for and otherwise meet the burdens and obligations under any of those assumed contracts.

 

    The sale, transfer, conveyance and assignment by Newco of the contributed assets to First Advantage and the assumption of the assumed liabilities by First Advantage in accordance with the FARES contribution agreement will be consummated through instruments of transfer and assumption reasonably requested by First Advantage.

 

    FARES will on or prior to December 31, 2005 exercise the purchase option under the master lease if permitted to do so under the master lease, and will transfer to First Advantage the title to the equipment that it receives following exercise of the purchase option.

 

Indemnification. The representations and warranties of the FARES contribution agreement are made as of closing unless another date is specified and survive for eighteen months following the closing date. However, certain representations by FARES relating to binding effect, broker’s and finder’s fees and the business and operations of Newco, and by First Advantage relating to binding effect, capitalization and broker’s and finder’s fees will survive for five years after the closing date. In addition, the representations and warranties by FARES relating to taxes will survive until 30 days after the expiration of the applicable statute of limitations.

 

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FARES will indemnify and hold First Advantage and its subsidiaries and affiliates (including, after the closing, PR CREDCO) and each of their respective directors, officers, members, managers, stockholders, employees and agents and any successors thereto harmless from and against any and all losses suffered, incurred or paid, directly or indirectly, as a result of or arising out of:

 

    the failure of any representation or warranty in the FARES contribution agreement made by FARES to be true and correct in all respects as of the closing date (unless a representation speaks as of a specific date, and then the representation will be as of the specified date);

 

    any breach or nonperformance of any covenants or agreements made by FARES or Newco in or pursuant to the FARES contribution agreement or the provision of the master transfer agreement relating to operation of the CIG Business and related businesses during the period between signing of the master transfer agreement and closing of the First American Transaction;

 

    any excluded liabilities; and

 

    any excluded assets.

 

The sole recourse and remedy of each indemnified party for any inaccuracy in any representation or warranty or alleged representation or warranty by or on behalf of FARES contained in or made pursuant to the FARES contribution agreement will be under the provisions of and to the extent provided for in the indemnification provisions.

 

FARES is not required to indemnify and hold the indemnified parties harmless for losses relating to breaches of representations and warranties made by FARES as of the closing date until the aggregate amount due in respect of such losses exceeds $3.05 million, and thereafter FARES is required to indemnify and hold harmless for losses in excess of this amount. The maximum aggregate amount of losses payable by FARES relating to such breaches of representations and warranties is capped at $61 million. However, the foregoing limitations will not apply to losses that arise from (i) a breach of any of the representations and warranties relating to binding effect, broker’s and finder’s fees and the business and operations of Newco, or (ii) any intentional breach or misrepresentation of any of the representations or warranties of the FARES contribution agreement by FARES where First Advantage can prove an intentional breach or misrepresentation was actually caused by the actions or inactions of certain individuals, with respect to which the maximum aggregate limitation for the losses in (i) and (ii) is $335.5 million.

 

First Advantage will indemnify and hold FARES, Newco and their affiliates and each of their respective directors, officers, members, managers, stockholders, employees and agents and any successors thereto from or against any and all losses suffered, incurred or paid, directly or indirectly, as a result of or arising out of:

 

    the failure of any representation or warranty in the FARES contribution agreement made by First Advantage to be true and correct in all material respects as of the closing date (unless a representation speaks as of a specific date, and then the representation will be as of the specified date);

 

    any breach or nonperformance of any covenants or agreements made by First Advantage in or pursuant to the FARES contribution agreement; and

 

    any assumed liability.

 

The sole recourse and remedy of each indemnified party for any inaccuracy in any representation or warranty or alleged representation or warranty by or on behalf of First Advantage contained in or made pursuant to the FARES contribution agreement will be under the provisions of and to the extent provided for in the indemnification provisions.

 

First Advantage is not required to indemnify and hold the indemnified parties harmless for losses relating to breaches of representations and warranties made by First Advantage as of closing until the aggregate amount due

 

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in respect of such losses exceeds $3.05 million, and thereafter First Advantage is required to indemnify and hold harmless for losses in excess of this amount. The maximum aggregate amount of losses payable by First Advantage relating to such breaches of representations and warranties is capped at $61 million. However, the foregoing limitations will not apply to losses that arise from (i) a breach of any of the representations and warranties relating to the binding effect, capitalization and broker’s and finder’s fees, or (ii) intentional breach or misrepresentation of any of the representations or warranties of the FARES contribution agreement by First Advantage where FARES can prove intentional breach or misrepresentation of any representations or warranties was actually caused by the actions or inactions of certain individuals, with respect to which the maximum aggregate limitation for the losses is $335.5 million.

 

The obligations to indemnify and hold harmless pursuant to the indemnification provisions will survive the consummation of the transactions contemplated by the FARES contribution agreement for the time periods set forth above, except for claims for indemnification asserted prior to the end of such periods, which claims will survive until final resolution thereof.

 

The FARES contribution agreement also contains similar procedures with respect to indemnification as those contained in the First American contribution agreement described above. No indemnifying party will be required to indemnify for any special, consequential, punitive or indirect damages.

 

Miscellaneous. Provisions relating to expenses, amendments, extensions and waivers are the same as those contained in the master transfer agreement described above. In addition, FARES does not make any representations or warranties with regard to the assets purchased or liabilities assumed under the XRES asset purchase agreement, except as provided in the FARES contribution agreement or the effect of the assets of business purchased or liabilities assumed under the XRES asset purchase agreement on the CREDCO Division or the CIG Business. The business, assets and liabilities under the XRES asset purchase agreement are being transferred and assumed under the FARES contribution agreement on an “as is, where is basis” subject only to provisions of the FARES contribution agreement pertaining to certain benefits relating to acquisition agreements.

 

Amended and Restated Services Agreement

 

The following summary describes certain provisions of the amended and restated services agreement, the form of which is included as Annex D to this proxy statement. The provisions of the amended and restated services agreement are extensive and not easily summarized. This summary may not contain all of the information about the amended and restated services agreement that is important to you. We encourage you to read the amended and restated services agreement carefully in its entirety.

 

The amended and restated services agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First Advantage makes with the SEC.

 

First Advantage and First American are parties to an amended and restated services agreement dated as of January 1, 2004, which amended and restated the terms of a services agreement between them dated as of June 5, 2003. In connection with the closing of the First American Transaction, First Advantage and First American will enter into a new amended and restated services agreement pursuant to which First Advantage or its affiliates, on the one hand, and First American or its affiliates, on the other hand, will provide the other with certain business services, services relating to operations in India and mortgage services.

 

First Advantage is dependent on First American for a number of key services provided under the services agreement. Specifically, First American will act as the exclusive reseller of credit information and related products of the CIG Business and related businesses to customers in the mortgage industry as part of a bundled package of services provided by First American and otherwise. First American’s interests with respect to such sales may differ

 

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from First Advantage’s interests. See the description of certain risks associated with the services agreement under “Risk Factors” beginning on page 1 and the potential risks associated with the services agreement considered by the special committee under “Reasons of the Special Committee for the First American Transaction” beginning on page 22.

 

First American Business Services. The following business services will be provided by First American to First Advantage and/or its affiliates at the rates set forth below. In addition, First American will and will cause its affiliates to allocate resources with regard to the business services in a manner that is consistent with the allocation of resources by First American and its affiliates prior to the CREDCO Division being transferred to First Advantage.

 

Service


 

Rate


•      401(k) Expenses

  Actual Cost

•      Pension Expenses

  Actual Cost

•      Insurance Allocation

  Actual Cost

•      Medical Insurance Allocation

  Actual Cost

•      Company Car Program

  Actual Cost

•      Personal Property Leasing

  Comparable to pricing given to similarly situated affiliates of First American

•      Mortgage Marketing Services, Human Resources Systems, Payroll Systems (through a provider designated exclusively by First American), technology support services (including FASTWEB, corporate technology management, LAN Administration, and UNIX Administration) and Oracle Financial Systems provided with respect to the CIG Business

  $4.5 million per year

•      Human Resources Systems, Payroll Systems (through a provider designated exclusively by First American) and Oracle Financial Systems provided to the Company other than with respect to the CIG Business

  $300,000 per year

 

First Advantage Services, Including Services in India. First Advantage and/or its affiliate will provide First American and/or its affiliates with products and services offered by or through First Advantage or its affiliates from time to time (excluding the additional services with respect to operations in India and the mortgage services discussed below) at rates and on terms no less favorable than those generally offered by First Advantage and its affiliates to third parties.

 

The following additional services with respect to operations in India will be provided by First Advantage or its affiliates to First American and its affiliates at cost plus such fees as may be negotiated from time to time:

 

    Leasing of real and personal property in India;

 

    Management support;

 

    Human resources/payroll support in India; and

 

    Services incidental to providing the foregoing.

 

In addition, First Advantage will and will cause its affiliates to allocate resources with regard to these services in a manner that is consistent with the allocation of resources by First Advantage and its affiliates prior to the CREDCO Division being transferred to First Advantage.

 

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First American will cause FARES to provide First Advantage with reasonable access to its voice communications hub for the purpose of routing customer service calls to and monitoring personnel at the operations in India. In exchange for use of the communications hub, First Advantage will pay FARES its pro rata share of the total actual cost to FARES.

 

First Advantage Mortgage Services. First Advantage shall and shall cause its affiliates to provide First American and/or its affiliates with credit reports for resale to mortgage customers. First Advantage also designates First American and its affiliates as the exclusive resellers of credit reports to mortgage customers. Credit reports include merged, multiple-source or single-source credit reports created by accessing one or more of the national credit database repositories and other information sources, which credit reports will include basic, partial and fully verified Instant Merge Reports (including Merge Plus Reports and Residential Mortgage Credit Reports). Credit reports also include other credit reports incorporating credit scores, fraud check products, products which list creditor addresses and phone numbers, and other related information and enhancements that First Advantage and/or its affiliates may offer from time to time. Mortgage customers are mortgage lenders, mortgage servicers, mortgage brokers, underwriters, and other users of information in the mortgage lending process and their respective customers.

 

First American will pay First Advantage a fee of $12.60 for each of the merged reports provided to First American or its affiliates that is bundled with other products or services. Fees for all other credit reports not bundled with other First American products or services, will be negotiated between the parties on a case-by-case basis. The parties agree to renegotiate the bundled credit report fee in good faith every two years during the term.

 

The CIG Business as operated by First Advantage must satisfy requisite service levels, and if First Advantage does not meet these service levels, and has received notice of the deficiency and failed to cure the deficiency during the applicable cure period, First American will have the right (but not the obligation) to assume control of the remedial action to cure the deficiency and First Advantage will reimburse First American for any fees, costs and expenses in connection with the remediation. First Advantage also must promptly reimburse First American or its affiliates for any amounts they are required to pay as a result of First Advantage’s or its affiliate’s failure to meet the standard of care required by the agreements pursuant to which the mortgage credit reports are provided to mortgage customers.

 

During the term of the amended and restated services agreement, First Advantage will appoint and cause its affiliates to appoint First American and its affiliates as the exclusive resellers of credit reports to mortgage customers. Except as otherwise provided in the amended and restated services agreement, First Advantage will not, and will not permit any of its affiliates to, directly or indirectly market, sell or provide mortgage credit reports to mortgage customers.

 

First American will be solely responsible for all sales, marketing, delivery, pricing and collections with regard to the sale of credit reports to mortgage customers and will control marketing services, which include sales, marketing, delivery, pricing and collections strategies with regard to the sale of credit reports to mortgage customers. First Advantage will, and will cause its affiliates to, cooperate with First American and its affiliates in the marketing and sale of credit reports to mortgage customers and to provide reasonable technical assistance to First American and its affiliates for such purpose.

 

First Advantage and First American will collectively appoint four individuals to serve on a committee which will be responsible for managing the provision of the mortgage services, except where the management thereof has been allocated to one of the parties by the terms of the amended and restated services agreement. First American and First Advantage will each appoint two members to the committee.

 

First Advantage and its affiliates will allocate information technology and project resources with regard to mortgage services in a manner that is consistent with the allocation of such resources by First American’s CREDCO Division prior to the transfer of that division to First Advantage or its affiliate, and that equals or

 

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exceeds the allocation of such resources to other businesses of First Advantage and its affiliates. First Advantage will not, and will prevent its affiliates from discriminating against the provision of mortgage services. In addition, First American will identify certain key mortgage customers and First Advantage and its affiliates will dedicate the appropriate resources necessary to meet those superior service levels.

 

Treatment of Employees Under Services Agreement. First American or the other First American entities will continue to employ all personnel performing the business services directly and will be solely responsible for and pay all of their salary, benefits, workers’ compensation premiums, unemployment insurance premiums, and all other compensation, insurance and benefits, including participation in employee benefit plans, if applicable. First American and the other First American entities will be solely responsible for timely payment, withholding and reporting of all applicable Federal, state, foreign and local withholding, employment and payroll taxes with respect to the personnel that perform the First American business services. First American or the other First American entities will maintain workers’ compensation and employers’ liability insurance, in accordance with applicable law, covering the personnel that perform the First American business services.

 

First Advantage and its affiliates will continue to employ all personnel performing the First Advantage services, the additional services with respect to operations in India and the mortgage services directly and will be solely responsible for and pay all of their salary, benefits, workers’ compensation premiums, unemployment insurance premiums and all other compensation, insurance and benefits, including participation in employee benefit plans, if applicable. First Advantage and its affiliates will be solely responsible for timely payment, withholding and reporting of all applicable federal, state, foreign and local withholding, employment and payroll taxes with respect to the personnel that perform the First Advantage services, the additional services with respect to operations in India and the mortgage services. First Advantage and its affiliates will maintain workers’ compensation and employers’ liability insurance, in accordance with applicable law, covering the personnel that perform the First Advantage services, the additional services with respect to Indian operations and the mortgage services.

 

In providing the business services, First American and its affiliates will not be liable to First Advantage and its affiliates for errors or omissions other than those resulting from the gross negligence or willful misconduct of First American or its affiliates. First American and its affiliates will not be liable to First Advantage, its affiliates, or third parties for damages such as lost profits or injury to goodwill arising from First American’s or its affiliates’ performance of services.

 

In providing services with respect to operations in India, First Advantage and its affiliates will not be liable to First American and its affiliates for errors or omissions other than those resulting from the gross negligence or willful misconduct of First Advantage or its affiliates. First Advantage and its affiliates will not be liable to First American, its affiliates or third parties for damages such as lost profits or injury to goodwill arising from First Advantage’s or its affiliate’s performance of services.

 

In providing the mortgage services, if First Advantage or its affiliates fail to meet the standard of care required by the agreements that govern the credit reports provided to mortgage customers, First Advantage and its affiliates will reimburse First American and its affiliates for any penalties First American and its affiliates must pay as a result.

 

Term. The services agreement will commence on the date the agreement is executed (which is expected to be the closing date of the First American Transaction) and terminate with respect to the applicable services as set forth below:

 

    First American business services—two years from the effective date.

 

    First Advantage mortgage services—two years from the effective date, and then for additional successive two-year terms unless First American terminates with 60 days prior written notice to First Advantage.

 

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    All other services—one year from the effective date, and then for successive 180-day periods unless either First American or First Advantage advises the other in writing no later than 30 days prior to the end of the current term that such services will not be extended.

 

Subordinated Promissory Note

 

The following summary describes certain provisions of the subordinated promissory note, the form of which is included as Annex E to this proxy statement. The provisions of the subordinated promissory note are extensive and not easily summarized. This summary may not contain all of the information about the promissory note that is important to you. We encourage you to read the promissory note carefully in its entirety.

 

The subordinated promissory note has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First Advantage makes with the SEC.

 

In connection with the closing of the First American Transaction, First Advantage will execute and deliver to First American a subordinated promissory note in the original principal amount of $45 million. Pursuant to the terms of the promissory note, First Advantage may borrow, repay and reborrow up to $45 million at any one time during the ninety calendar days following the date of the subordinated promissory note (which is expected to be the closing date of the First American Transaction) (the “draw period”). The subordinated promissory note matures 135 days after the date it is executed and bears interest at a rate equal to the rate payable under a loan agreement and other documents delivered in connection with a loan from Bank of America, N.A. to First Advantage dated July 31, 2003, as amended, plus 0.5% per annum. If an event of default occurs under the promissory note, (i) the draw period will immediately and automatically terminate, (ii) First American may declare all principal and accrued interest immediately due and payable, and (iii) the interest rate will increase by an additional 4.5% per annum. The obligations of First Advantage under the promissory note are not secured.

 

The following occurrences are events of default under the promissory note:

 

    First Advantage defaults in the payment when due of any principal, interest or other amount due under the promissory note, which continues for a period of ten days;

 

    First Advantage or any subsidiary defaults (i) in the payment when due of any principal or interest of any other obligation for borrowed money beyond any applicable grace period or (ii) performance or observance of any other agreement, term or condition contained in any agreement if the effect of such default is to accelerate or permit the acceleration of the maturity of the obligation, except for obligations disputed in good faith if First American is promptly notified and reserves are established, if required by generally accepted accounting principles;

 

    An event of default, as defined in the loan agreement dated as of July 31, 2003, as amended, by and between First Advantage and Bank of America, N.A., occurs under such loan agreement during the term of the loan agreement;

 

    First Advantage or any subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as they become due;

 

    Any order, judgment or decree is entered under the bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction adjudicating First Advantage or any subsidiary, bankrupt or insolvent;

 

    First Advantage or any subsidiary petitions or applies to any tribunal for, or consents to, the appointment of a trustee, receiver, custodian, liquidator, or similar official, of First Advantage or any subsidiary or of any substantial part of the assets of First Advantage or any subsidiary, or commences a voluntary case under the Bankruptcy Code of the United States or any proceedings relating to First Advantage or any subsidiary, under the bankruptcy, insolvency, or moratorium law of any other jurisdiction, whether now or hereafter in effect;

 

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    Any such petition or application is filed, or any such proceedings are commenced, against First Advantage or any subsidiary and if First Advantage or any subsidiary by any act indicates its approval thereof, consent thereto, or acquiescence therein, or an order is entered in an involuntary case under the Bankruptcy Code of the United States, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator, or similar official, or approving the petition in any proceedings, and such order remains unstayed and in effect for more than 60 days;

 

    Any order is entered in any proceedings against First Advantage or any subsidiary decreeing the dissolution or split up of First Advantage or any subsidiary or if First Advantage or any subsidiary dissolves (or is dissolved) or its existence is terminated;

 

    Any judgment or judgments are entered against First Advantage or any subsidiary or against the property of any such person, in an aggregate amount in excess of $500,000 that remains unvacated, unbonded, unstayed or unsatisfied for a period of 45 days; or

 

    First Advantage or any subsidiary uses amounts drawn on the promissory note for any purpose other than satisfaction of current liabilities, as defined in accordance with GAAP, of the CIG Business.

 

The subordinated promissory note is subject to a subordination agreement between First American and Bank of America, N.A. to be entered into on the same date as the promissory note.

 

Outsourcing Agreement

 

The following summary describes certain provisions of the outsourcing agreement, the form of which is included as Annex F to this proxy statement. The provisions of the outsourcing agreement are extensive and not easily summarized. This summary may not contain all of the information about the outsourcing agreement that is important to you. We encourage you to read the outsourcing agreement carefully in its entirety.

 

The outsourcing agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First Advantage makes with the SEC.

 

In connection with the closing of the First American Transaction, FARES and First Advantage will enter into an outsourcing agreement. Pursuant to the outsourcing agreement, First Advantage will, and will cause its affiliates to fully perform all obligations, covenants and agreements of FARES under the following service agreements (which we refer to as the “Service Agreements”):

 

    the Marketing and Support Agreement, effective as of June 26, 2000, between the CREDCO Division and RESdirect LLC (which we refer to as the “Support Agreement”) under which FARES agreed to sell credit reports to customers of RESdirect LLC and provide certain services to RESdirect LLC (which we refer to as the “RESdirect Services”),

 

    the Service Bureau Agreement, effect as of November 1, 1998, between the CREDCO Division and RELS (which we refer to as the “Service Bureau Agreement”) under which FARES agreed to provide certain services to RELS (which we refer to as the “RELS Services”), and

 

    the RRS Services Agreement, which is an oral agreement between the CREDCO Division and RELS Reporting Services LLC (which we refer to as the “RRS Services Agreement”), under which the CREDCO Division agreed to perform the following services (which we refer to as the “RRS Services”):

 

    manage the business operations of RRS, including, without limitation, daily operation and financial reporting; order credit reports and related products and services from the credit report repositories and other entities involved in assessing the credit worthiness of individuals on behalf of RRS and its customers using certain subscriber codes;

 

    format and/or merge credit reports and related products and services based on certain requirements, if so required, using the CREDCO Division’s systems;

 

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    deliver the merged and/or formatted credit reports and related products and services, or, if required, the unmerged and/or unformatted credit report and related products and services to those requesting such report using the CREDCO Division’s networks and services;

 

    provide customer support services, technical support, product development services and product enhancements in connection with the credit report and related products and services; and

 

    cause the credit reports and related products and services delivered by the CREDCO Division to be private labeled in RRS’ name or the name of an RRS or other designee if requested.

 

First Advantage expects to receive a significant amount of revenue under the outsourcing agreement. These revenues are dependent on the performance of RELS, which will continue to be managed and controlled by First American after the closing of the First American Transaction. In addition, the commercial arrangements under which RELS provides services and derives revenues are based on agreements with RELS’ single customer, which is the other member of RELS, whose interests may be different from and/or adverse to First Advantage, and these underlying arrangements are terminable with little or no notice. See the description of certain risks associated with the outsourcing agreement under “Risk Factors” beginning on page 1 and the potential risks associated with the outsourcing agreement considered by the special committee under “Reasons of the Special Committee for the First American Transaction” beginning on page 22.

 

In providing the RESdirect Services, the RELS Services and the RRS Services (which we collectively refer to as the “Services” for purpose of the description of the outsourcing agreement), First Advantage will and will cause its affiliates to comply with applicable laws and regulations and the terms of the Service Agreements, and act in a good faith commercially reasonable manner and at least in accordance with the standards for the Services used by FARES in the performance of the Services prior to the effective date of the outsourcing agreement. In addition, First Advantage will perform all obligations, covenants and agreements of FARES under the Service Agreements so long as these agreements remain in effect.

 

In consideration for First Advantage providing the Services pursuant to the outsourcing agreement, FARES will pay to First Advantage:

 

    The quarterly pre-tax income of RELS (as defined in accordance with generally accepted accounting principles, but excluding the effects of any depreciation or amortization of any asset purchased in connection with a capital expenditure) derived from the sale during the applicable calendar quarter of the credit reports and related products and services required to be delivered by the CREDCO Division in connection with the services, minus the amount of any capital expenditures required to be made during the applicable calendar quarter by RELS in connection with the sale of the credit reports and related products and services acquired by RELS from First Advantage and or its subsidiaries (which are considered capital expenditures), and (ii) the percentage interest in RELS collectively owned by FARES and/or its affiliates as of the end of the applicable calendar quarter. For purposes of this calculation during the first calendar quarter of the outsourcing agreement, the period to be used will be the period between the effective date of the outsourcing agreement and the end of the calendar quarter in which the effective date occurs; and

 

    All amounts paid to FARES pursuant to the Services Agreements for services provided by First Advantage and/or its affiliates pursuant to the Services Agreements after the effective date of the outsourcing agreement.

 

The term of the outsourcing agreement will begin on the effective date (which is expected to be the closing date of the First American Transaction) and terminate:

 

    with respect to the performance of the RESdirect Services by First Advantage pursuant to the outsourcing agreement, on the first to occur of (i) the date the Support Agreement is terminated or is otherwise no longer in full force and effect in accordance with its terms, (ii) RELS dissolves or ceases to exist, or (iii) FARES or one of its affiliates is no longer a member of RELS;

 

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    with respect to the performance of the RELS Services by First Advantage pursuant to the outsourcing agreement, on the earlier to occur of (i) the date the Service Bureau Agreement is terminated or is otherwise no longer in full force and effect in accordance with its terms, (ii) RELS dissolves or ceases to exist, or (iii) FARES or one of its affiliates is no longer a member of RELS; and

 

    with respect to the performance of the RRS Services by First Advantage pursuant to the outsourcing agreement, on the earlier to occur of (i) the date the RRS Service Agreement is terminated or is otherwise no longer in full force and effect in accordance with its terms, (ii) RELS dissolves or ceases to exist, or (iii) FARES or one of its affiliates is no longer a member of RELS.

 

FARES will use reasonable efforts to provide First Advantage with the rights and benefits under the Service Agreements, including enforcement for the benefit of First Advantage, which will be at First Advantage’s sole expense of any and all rights of FARES against RESdirect, RELS and RRS, respectively, arising out of any breach of the Services Agreements by RESdirect, RELS and/or RRS, respectively, if requested by First Advantage, acting as an agent on behalf of First Advantage, or as First Advantage otherwise reasonably requires. First Advantage will bear FARES’s reasonable out-of-pocket expenses and costs as agent and will indemnify FARES for actions taken or not taken as agent. FARES will not agree to amend or modify, or agree to any waiver of any provision of the Service Agreements without the prior written consent of First Advantage.

 

In addition, First Advantage will indemnify and hold FARES and its subsidiaries, each of their affiliates, and each of their respective officers, managers, employees, agents and any assignees and successors thereto, harmless, from and against any and all claims, losses, liabilities, damages, costs, disbursements, interest, and reasonable out-of-pocket expenses (including reasonable attorney fees) suffered, incurred or paid, directly or indirectly, as a result of or arising out of First Advantage’s or its affiliates’ performance of First Advantage’s obligations under the outsourcing agreement. FARES will indemnify and hold First Advantage and its subsidiaries and each of their affiliates, and each of their respective officers, managers, employees, agents, any assignees and successors thereto, harmless, from and against any and all claims, losses, liabilities, damages, costs, disbursements, interest, and reasonable out-of-pocket expenses (including reasonable attorney fees) suffered, incurred or paid, directly or indirectly, as a result of or arising out of FARES’s or its affiliates’ performance of FARES’s obligations under the outsourcing agreement.

 

FARES and First Advantage will cooperate in good faith to carry out the purposes of the outsourcing agreement. If FARES exercises its right to terminate any of the Service Agreements, FARES must provide First Advantage with at least five days notice of its desire to terminate the applicable Services Agreement, and First Advantage has the option to delay the termination for a period of 45 calendar days, during which FARES will use commercially reasonable best efforts (which efforts shall not require FARES to make any payment or forego any rights) to obtain the consent of the other parties to such agreement and other necessary consents to the assignment of the applicable Services Agreement to First Advantage. If the necessary consents are obtained, FARES will assign the Services Agreement to First Advantage, or its designee, and will cooperate in the execution of any reasonably necessary documentation to effect the assignment. FARES and First Advantage will assist and furnish the other party with such information and documentation as the other party may reasonably request.

 

Poway Lease Agreement

 

The following summary describes certain provisions of the Poway lease agreement, the form of which is included as Annex G to this proxy statement. The provisions of the Poway lease agreement are extensive and not easily summarized. This summary may not contain all of the information about the lease agreement that is important to you. We encourage you to read the Poway lease agreement carefully in its entirety.

 

The Poway lease agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about First Advantage. This information may be found elsewhere in this proxy statement and in the other public filings that First Advantage makes with the SEC.

 

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In connection with the closing of the First American Transaction, First Advantage and First American will enter into a lease for office space in Poway, California. Pursuant to the terms of the Poway lease, First Advantage will lease from First American certain land, buildings and parking structure located at 12385 and 12395 First American Way in Poway. The Poway lease is for an initial lease term of five years to commence on the closing date with a one-time option to renew the term for an additional five years.

 

The rent payable under the Poway lease will be approximately $169,000 per month. First Advantage will also be obligated to pay all costs and expenses related to the property, including any operating expenses, real estate property taxes and assessments, personal property taxes, maintenance, repair to the structure and parking lot and other management costs associated with the property. First Advantage will also be obligated to pay all utilities, services and janitorial costs.

 

Other Related Transaction Agreements

 

At the closing of the First American Transaction, other related agreements will be entered into, including:

 

    A sublease agreement between eAppraiseIT, as sub-lessee, and First Advantage, as sub-lessor, of a portion of the Poway, California office space;

 

    A sublease agreement between Interactive Division, as a sub-lessee, and First Advantage, a sub-lessor, of a portion of the Poway, California office space; and

 

    An equipment sublease agreement to be entered into by and between FARES, as lessee, and a First Advantage subsidiary, as sublessee, as required by the terms of the master lease agreement among FARES, General Electric Capital Corporation and the other parties named therein, dated as of December 28, 2000, under which the First Advantage subsidiary will sublease certain equipment from FARES.

 

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

 

For federal income tax purposes the First American Transaction will be treated as a tax-free reorganization in accordance with Section 351 of the Internal Revenue Code.

 

FIRST ADVANTAGE MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

First Advantage management’s discussion and analysis of financial condition and results of operations included in its annual report on Form 10-K, as amended, for the year ended December 31, 2004 and its quarterly report on Form 10-Q, as amended, for the quarter ended March 31, 2005 are incorporated by reference into this proxy statement. This proxy statement should be read in conjunction with First Advantage’s audited consolidated financial statements for the fiscal year ended December 31, 2004 included in its annual report on Form 10-K, as amended, for the year ended December 31, 2004, and its unaudited consolidated financial statements for the quarter ended March 31, 2005 included in its quarterly report on Form 10-Q, as amended, for the quarter ended March 31, 2005, which are incorporated by reference into this proxy statement.

 

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SELECTED HISTORICAL FINANCIAL INFORMATION OF THE CIG BUSINESS

 

This selected financial information has been derived from the audited combined financial statements and accompanying notes of the CIG Business for the three-year period ended December 31, 2004 and the unaudited combined financial statements of the CIG Business for the two-year period ended December 31, 2001 and the three months ended March 31, 2005 and 2004. This information is only a summary and should be read in conjunction with the audited financial statements and accompanying notes included in this proxy statement.