First Advantage DEF 14A 2006
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 ¨
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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):
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¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
¨ Fee paid previously with preliminary materials.
I am very pleased to invite you to attend the third 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 May 11, 2006 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.
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.
Chief Executive Officer
FIRST ADVANTAGE CORPORATION
100 Carillon Parkway
St. Petersburg, FL 33716
NOTICE OF ANNUAL MEETING
To be Held on May 11, 2006
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 May 11, 2006 at 9:00 a.m. Eastern Time, and at any adjournments thereof, for the following purposes:
Our board of directors has fixed the close of business on March 31, 2006 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.
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
Julie A. Waters
Vice President, General Counsel
St. Petersburg, Florida
April 11, 2006
FIRST ADVANTAGE CORPORATION
100 Carillon Parkway
St. Petersburg, FL 33716
annual meeting of stockholders
May 11, 2006
The board of directors of First Advantage Corporation is soliciting proxies for use at the annual meeting of stockholders to be held at the Renaissance Vinoy Resort, located at 501 Fifth Avenue NE, St. Petersburg, Florida 33701, on May 11, 2006 at 9:00 a.m. Eastern Time, and at any adjournments thereof. On or about April 14, 2006, we began sending the attached notice of annual meeting, this proxy statement, the enclosed proxy card, and our annual report for 2005 (which is not part of the proxy soliciting materials) to all holders of record of our Class A and Class B common stock entitled to receive such materials and vote.
Frequently Asked Questions About The Annual Meeting
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.
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.
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.
NOMINEES FOR ELECTION OF DIRECTORS
Our charter documents require our entire board of eleven directors to be elected annually. Our board has designated the persons listed below as candidates for election. Each is currently serving as a director. Unless otherwise specified in the proxy card, the proxies solicited by the board will be voted FOR the election of these candidates. In case any of these candidates becomes unavailable to stand for election to the board, an event that is not anticipated, the proxy holders will have full discretion and authority to vote or refrain from voting for any substitute nominee in accordance with their judgment.
The terms of directors elected at the annual meeting expire at the annual meeting to be held in 2007 or as soon thereafter as their successors are duly elected and qualified. The board has no reason to believe that any of the nominees will be unable or unwilling to serve as a director if elected.
Directors are elected by a plurality vote of shares present at the 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.
None of the nominees has a family relationship with the other nominees, any existing director or any executive officer of our company. Pursuant to the stockholders agreement dated as of December 13, 2002 among First American, Pequot Private Equity Fund II, L.P. and First Advantage, First American and each of its affiliates has agreed to vote its shares for one nominee designated by Pequot, who has chosen Lawrence D. Lenihan, Jr. as its designee.
The board recommends a vote FOR the election of each nominee listed below.
Parker Kennedy, Chairman and Director since 2003. Mr. Kennedy, age 58, was president of our parent company First American until 2004, served as executive vice president from 1986 to 1993, was appointed to its board of directors in 1987, and was named chairman and chief executive officer in 2003. Mr. Kennedy has been employed by First Americans primary subsidiary, First American Title Insurance Company, since 1977. He was appointed vice president of that company in 1979 and in 1981 he joined its board of directors. During 1983, he was appointed executive vice president of First American Title Insurance Company, and in 1989 was appointed its president. He now serves as its chairman, a position to which he was appointed in 1999.
John Long, Chief Executive Officer, and Director since 2003. Mr. Long, age 50, has served as chief executive officer of First Advantage since June 2003. Before joining First Advantage, Mr. Long was with First American since 1990, serving first as senior vice president of sales, then as executive vice president and then president of First American Real Estate Tax Services, Inc. From November 1993 to March 2000, Mr. Long was president and chief executive officer of First American Real Estate Information Services, Inc., overseeing that companys strategic and acquisition direction, completing over 40 acquisitions. In March 2000, he became president and chief executive officer of HireCheck, Inc. where he oversaw the acquisition of Substance Abuse Management, Inc., Employee Health Programs, Inc., American Driving Records, Inc., First American Registry, Inc., and SafeRent, all of which are now part of First Advantage. Mr. Long also serves on the board of directors of First American Title Insurance Company, a wholly-owned subsidiary of First American. Mr. Long earned a Bachelor of Arts degree from the College of New Rochelle and a Masters degree in business administration from Hofstra University in New York.
J. David Chatham, Director since 2003. Mr. Chatham, age 53, has been a director of First American since 1989, and has been a director of First Advantage since 2003. Mr. Chatham currently serves as chairman of First Americans audit committee and as a member of its compensation and nominating and corporate governance committees. Mr. Chatham has also been a member of the board of directors of First American Title Insurance Company since 1989. Since 1972, he has been president and chief executive officer of Chatham Holdings, Inc., a real estate development company.
Barry Connelly, Director since 2003. Mr. Connelly, age 65, serves on the board of Collection House LTD, a company quoted on the Australian Exchange. Mr. Connelly also serves as the chairman and on the board of Director Rapid Ratings, LTD, a subsidiary of Collection House LTD. In December 2002, he retired from the Consumer Data Industry Association (CDIA) after 33 years of service, including eight years as president. During his tenure with CDIA, he was a contributor in drafting the first Fair Credit Reporting Act in 1970 and its successor in 1997.
Lawrence Lenihan, Jr., Director since 2003. Mr. Lenihan, age 41, was a director of US SEARCH.com, Inc. (US SEARCH) from September 2000 until June 2003 when First Advantage acquired that company. 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. Previously, Mr. Lenihan was a principal with Broadview Associates, L.L.C. where he was a senior member of the mergers and acquisitions team. Prior to joining Broadview, Mr. Lenihan held various positions within IBM. Mr. Lenihan is also a member of the board of directors of Saba Software, Inc., a Nasdaq-quoted company and serves as a member of its audit and compensation committees as well as chairman of its governance committee. In addition, Mr. Lenihan serves as a director on several non-public companies, including Duck Creek Technologies, Haley Systems and OutlookSoft. Mr. Lenihan was recommended as a nominee by Pequot Private Equity Fund II, L.P., a holder of our Class A common stock who is entitled to designate one director that First American and its affiliates are required to vote for under the terms of a stockholders agreement, as amended, which is described in Certain Relationships and Related Transactions beginning on page 24.
Frank McMahon, Director since April 2006. Mr. McMahon, age 46, serves as vice chairman and chief financial officer of First American. Prior to joining First American in April 2006, Mr. McMahon was a managing director of the Investment Banking Division with Lehman Brothers, Inc. and was responsible for managing their western region financial institutions group, as well as their U.S. asset management sector. Prior to that, Mr. McMahon managed a similar group for Merrill Lynch.
Donald Nickelson, Director since 2003. Mr. Nickelson, age 73, serves as a director and vice chairman of the leveraged buy-out firm, Harbour Group Industries, Inc., and also sits on its executive and compensation committees. In addition, Mr. Nickelson serves as a director of Adolor Corporation, where he serves on the audit and nominating-governance committee, and serves as a director of Mainstay Mutual Funds, where he serves on the nominating and audit committees. Mr. Nickelson also holds directorship positions for several non-public companies, including AddressFree Corporation and Del Industries. Prior to joining Harbour Group, he served as president of PaineWebber Group, an investment banking and brokerage firm, from February 1988 to January 1990.
Donald Robert, Director since 2003. Mr. Robert, age 46, is currently chief executive officer of Experian Group, a global information technology company and a wholly owned subsidiary of GUS Plc, a British retailing and consumer information conglomerate. Prior to his current appointment, Mr. Robert served as chief executive officer of Experian North America, and chief operating officer, and president of its Information Solutions business unit, beginning in April 2001. From 1995 to 2001, Mr. Robert was a group executive of First American with responsibility for its Consumer Information and Services Group. From 1992 to 1995, Mr. Robert was president of Credco, Inc., now First Advantage Credco, the nations largest specialized credit reporting company and a wholly-owned subsidiary of First Advantage. He is a member of the GUS Plc board of directors.
Adelaide Sink, Director since December, 2003. Ms. Sink, age 57, currently serves on the board of Raymond James Financial Inc. and Raymond James Bank, where she serves as a member of Raymond James Inc.s compensation committee, and as a member of Raymond James Banks audit committee, and is an active board member of several non-profit organizations, including the Community Foundation of Tampa Bay, Nature Conservancy of Florida and Wake Forest University. Ms. Sink had a 26-year career with Bank of AmericaFlorida, which culminated in her appointment as president from 1993 until 2000.
D Van Skilling, Director since November 2005. Mr. Skilling, age 72, currently serves as a director of First American, where he sits on the audit and executive committees; Lamson & Sessions, where he chairs the compensation, nomination and governance committees; McData, where he is a member of the audit and governance committees; Onvia, where he is a member of the compensation committee; and American Business Bank, where he chairs the compensation committee and is a member of the audit committee. Mr. Skilling formally served as the chairman and chief executive officer of Experian Information Solutions, Inc. (formerly TRW Information Systems & Services), a position he was appointed to in 1996.
David Walker, Director since 2003. Mr. Walker, age 52, is currently serving as the Director of Programs of Accountancy and Social Responsibility and Corporate Reporting in the College of Business at the University of South Florida St. Petersburg, and is a consultant on corporate governance matters, both roles he has held since 2002. From 1975 through 2002, Mr. Walker was with Arthur Andersen LLP, serving as a partner in the firm from 1986 through 2002. Mr. Walker is also a member of the boards of directors of, Technology Research Corporation, Inc. where he also sits on its compensation committee, and Chicos, FAS.
INFORMATION ABOUT OUR BOARD OF DIRECTORS
Composition of Board and Committees
Our board of directors oversees our business and affairs and monitors the performance of management. Management is responsible for the day-to-day operations of our company. As of the date of this proxy statement, our board has eleven directors and the following committees: audit, nominating, compensation and special. The membership during the last fiscal year and the function of each of the committees are described below. Each of the committees is required to be comprised of three or more members of the board.
We held seven board meetings in 2005. Each director attended at least 75% of all board and applicable committee meetings. The following table lists membership of our board of directors and board committees:
X= Committee Member; X*= Committee Chair
Our board has determined that each of our directors is independent within the meaning of applicable Nasdaq and SEC rules, except for Parker Kennedy, who is chairman and chief executive officer of our parent company First American; John Long, who is our chief executive officer; and Frank McMahon, who is the vice chairman and chief financial officer of First American. However, First Advantage is a controlled company within the meaning of the Nasdaq Marketplace Rules because First American controls more than 50% of the voting power in First Advantage. As such, we are relying on Nasdaq Marketplace Rule 4350(c), which allows controlled companies to be exempt from rules requiring (a) the compensation and nominating committees to be composed solely of independent directors; (b) the compensation of the executive officers to be determined by a majority of
the independent directors or a compensation committee composed solely of independent directors; and (c) director nominees to be selected or recommended for the boards selection, either by a majority of the independent directors, or a nominating committee composed solely of independent directors.
Audit Committee. Our board established the audit committee for the primary purposes of overseeing the accounting and financial reporting processes of our company and audits of our financial statements, and preparing an annual report of the committee. Our board of directors has made an affirmative determination that each member of the audit committee (a) is an independent director as that term is defined by Nasdaq Marketplace Rules and (b) satisfies Nasdaq Marketplace Rules relating to financial literacy and experience. Our board of directors has further determined that David Walker satisfies the criteria for being an audit committee financial expert as such term is defined in Item 401(h) of Regulation S-K promulgated by the SEC.
The audit committee is solely responsible for selecting First Advantages independent public accountants; approving in advance all audit services and related fees and terms; and approving in advance all non-audit services, if any, provided by our independent public accountants and related fees and terms. The audit committee also oversees and monitors our internal control system, evaluates the independence standards for our outside auditors, reviews the conduct of and personnel in our internal audit function, reviews financial information in our quarterly reports, and reviews and evaluates the audit performed by our outside auditors. The committee reports any significant developments with respect to its duties to the full board. The audit committee met 13 times during 2005. Our board of directors has adopted a written audit committee charter, a copy of which is attached to this proxy statement as Appendix A. The audit committee charter may also be viewed in the Corporate Governance page of the Investor Relations section of our website located at www.fadv.com. For more information regarding the audit committee, see Report of the Audit Committee of the Board of Directors on page 7 of this proxy statement.
Compensation Committee. The compensation committee is responsible for recommending compensation arrangements for officers of our company; evaluating the performance of our companys chief executive officer; administering our companys compensation plans, and preparing annual and other reports of the committee. Each member of the committee is a non-employee director. The compensation committee met 9 times in 2005. The compensation committee charter may be viewed on the Corporate Governance page of the Investor Relations section of our website located at www.fadv.com. For additional information regarding the compensation committee, see Report of the Compensation Committee of the Board of Directors on Executive Compensation on page 17 of this proxy statement.
Nominating Committee. Our board of directors has established a nominating committee to assist the board in identifying individuals qualified to become directors and recommending to the board for nomination candidates for election or reelection to the board or to fill board vacancies. The nominating committee met two times in 2005.
The nominating committee acts under a written charter (a copy of which may be viewed in the Corporate Governance page of the Investor Relations section of our website located at www.fadv.com) specifying, among other things, the following minimum qualifications for candidates recommended for election to the board:
The nominating committee also will consider, among other factors, whether an individual has any direct experience with our company or its subsidiaries (whether as a director, officer, employee, supplier or otherwise); the individuals experience in the industry in which our company operates; the individuals other obligations and time commitments; whether the individual is an employee of a company or institution on the board of directors of which a senior executive of our company serves; whether the individual has specific knowledge, skills or experience that may be of value to our company or a committee of the board; whether an individual has been recommended by a stockholder of our company, an independent member of the board, another member of the board, senior management of our company or a customer of our company; and the findings of any third parties that may be engaged to assist the committee in identifying directors.
The nominating committee recommended the slate of directors proposed for election at the annual meeting, which was unanimously approved by the full board of directors, including unanimous approval by the independent directors. Lawrence Lenihan, Jr. was recommended as a nominee by Pequot Private Equity Fund II, L.P., a holder of our Class A common stock who is entitled to designate one director that First American and its affiliates are required to vote for under the terms of a stockholders agreement.
Special Committee. In January 2005, the board of directors formed a special committee comprised of independent directors for the purpose of evaluating the acquisition of the Credit Information Group (CIG) from First American. The committee is not currently active.
Procedure for Stockholder Nominations of Directors
Nominations for the election of directors may only be made by the board of directors in consultation with its nominating committee. A stockholder of record who has the power to vote ten percent or more of the outstanding capital stock of our company may recommend to the nominating committee up to one candidate for consideration as a nominee in any 12-month period. The nominating committee will consider a stockholder nominee only if a stockholder gives written notice to the secretary of our company at our principal executive offices not later than the close of business on November 1 of the year immediately preceding the year of the annual meeting of stockholders at which the stockholder desires to have his or her candidate presented by the board. Each such notice must include the name, address and telephone number of the potential nominee; a detailed biography of the potential nominee; and evidence of stock ownership by the presenting stockholder, including the number of shares owned. Nominees properly proposed by eligible stockholders will be evaluated by the nominating committee in the same manner as nominees identified by the committee.
Our stockholders may communicate directly with the members of the board of directors or individual members by writing directly to it or those individuals, care of the secretary of our company at our principal executive offices, together with evidence of stock ownership. We strongly encourage our board of directors to attend our annual meeting of stockholders, and any member who misses three consecutive annual meetings will be removed.
Code of Ethics
First Advantage has adopted a code of ethics that applies to its chief executive officer, chief financial officer, controller and all of its other officers, employees and directors. A copy of our code of ethics may be viewed in the Corporate Governance page of the Investor Relations section of our website located at www.fadv.com.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee for fiscal 2005 were Messrs. Lenihan, Nickelson and Robert and Ms. Sink. No member of this committee was at any time during the 2005 fiscal year or at any other time an officer or employee of First Advantage, and no member had any relationship with First Advantage requiring disclosure under Item 404 of Regulation S-K. No executive officer of First Advantage has served on the board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of the board of directors or the compensation committee of First Advantage during the 2005 fiscal year.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
In the performance of its oversight function, the audit committee has met and held discussions with management of First Advantage, who represented to the audit committee that our companys consolidated financial statements were prepared in accordance with generally accepted accounting principles. The audit committee has reviewed and discussed the consolidated financial statements with both management and our companys registered certified public accountants, PricewaterhouseCoopers LLP. The audit committee also discussed with our companys registered certified public accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as currently in effect.
Our companys registered certified public accountants also provided to the audit committee the written disclosures required by the current version of Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the audit committee discussed their independence with the independent public accountants. In connection with that, the audit committee has considered whether the provision of non-auditing services (and the aggregate fees billed for these services) in fiscal 2005 by PricewaterhouseCoopers LLP to First Advantage is compatible with maintaining the registered certified public accountants independence.
Based upon the reports and discussions described in this report, the audit committee recommended to the board of directors that the audited consolidated financial statements be included in our companys annual report on Form 10-K for the fiscal year ended December 31, 2005, filed with the SEC.
By the Audit Committee of the Board of
/s/ DAVID WALKER
David Walker, Chairman
J. David Chatham
D. Van Skilling
Our executive officers in addition to Parker Kennedy and John Long are listed below:
Anand Nallathambi, 44, president since September 2005. Following the acquisition of the CIG from First American, Mr. Nallathambi was appointed president of First Advantage. Prior to joining First Advantage, Mr. Nallathambi served as president of First Americans Credit Information Group and as president of First American Appraisal Services from 1996 to 1998. Mr. Nallathambi received a masters in business administration from California Lutheran University after obtaining a bachelor of arts degree in economics from Loyola University in Madras, India.
Akshaya Mehta, 46, chief operating officer and executive vice president since 2003. Previously executive vice president and chief operating officer of American Driving Records (ADR), a wholly-owned subsidiary of First Advantage, Mr. Mehta has over 15 years of management experience and over 20 years of technology development expertise. Prior to joining ADR in 1999, Mr. Mehta served as division vice president of product development at Automatic Data Processing, Inc., vice president of development at Security Pacific Bank, and Deputy Head of Development at UBS London. Mr. Mehta earned a masters degree in computer science at the Imperial College of the University of London after obtaining a bachelor of science degree in physics and medical physics from the same university.
John Lamson, 55, chief financial officer and executive vice president since 2003. Prior to joining First Advantage, Mr. Lamson served as chief financial officer of First American Real Estate Information Services Inc., a wholly-owned subsidiary of First American, a position he held from September 1997 to June 2003. Prior to that, Mr. Lamson served as chief financial officer of a financial institution and as a certified public accountant with Arthur Andersen & Co. Mr. Lamson is a member of the American Institute of Certified Public Accountants and holds a bachelor of arts degree in business administration from the University of South Florida.
Julie Waters, 39, joined First Advantage in April 2004 as vice president and general counsel. Prior to joining First Advantage, Ms. Waters was general counsel for USA Floral Products, Inc., formally a publicly traded company on NASDAQ. Ms. Waters was previously employed as in-house counsel for Teco Corporation and Spalding & Evenflo Corporation. Ms. Waters received her juris doctorate from George Washington University after receiving a bachelor of arts degree in English and Rhetoric & Communications from the University of Virginia.
Alan Missen, 43, chief information officer since March 2005. Prior to joining First Advantage, Mr. Missen was with PricewaterhouseCoopers LLP, first as director of shared services applications and most recently as director of portfolio management. Before joining PricewaterhouseCoopers LLP, Mr. Missen was a senior information technology manager with Arthur Andersen LLP. Mr. Missen has more than 20 years of experience in information technology. Mr. Missen holds a bachelor of science degree in statistics from the University of Toronto.
Evan Barnett, 58, president of multifamily services segment since 2003. Previously, Mr. Barnett held senior management positions with Omni International Corporation and related entities from 1974 through December 1994. He was employed as a certified public accountant with Grant Thornton LLP (then Alexander Grant & Co) from 1970 to 1974. Mr. Barnett graduated from The American University with a bachelor of science degree in accounting and a masters degree in business administration in financial management.
Bart Valdez, 43, president of employment services segment since 2003. Mr. Valdez was named president of HireCheck, Inc. in October 2002 after joining the company in October 2000 as chief operating officer. From August 2001 until October 2002, he also served as president of Substance Abuse Management, Inc. (SAMI). From June of 1998 until he joined HireCheck, Mr. Valdez served as vice president of business development and operations for Employee Information Services, Inc. (EIS). HireCheck, SAMI and EIS are now part of First Advantages employment services segment. He received his bachelor of science degree from Colorado State University and his masters degree in business administration from the University of Colorado.
Andrew MacDonald, 42, joined First Advantage in 2002 through the acquisition of Employee Health Programs by Hirecheck, now part of First Advantages employment services segment, where he was president and chief financial officer. Following the acquisition, Mr. MacDonald served as both president of First Advantage Occupational Health Services and then as vice president and corporate development officer. In January 2006, Mr. MacDonald was appointed president of First Advantage Litigation Consulting, LLC, part of the investigative and litigation support services segment. Mr. MacDonald received his bachelor of arts degree in business administration from Emory University.
Howard Tischler, 53, joined First Advantage in September 2005 through the acquisition of CIG from First American and currently serves as the president of the dealer services segment of the company. Prior to joining First Advantage, Mr. Tischler served as chief executive officer and president of First American CMSI, a company acquired in connection with the acquisition of the CIG from First American Corporation. Mr. Tischler received his bachelor of science degree in mathematics from the University of Maryland and his masters of science degree in engineering and operations research from the George Washington University.
Isabelle Thiesen, 45, joined First Advantage as chief security officer in October 2005. Prior to joining First Advantage, Ms. Thiesen served as vice president of information security for Warner Bros. Prior to Warner Bros., Ms. Thiesen served in security positions for Universal Studios, American Express and Ernst & Young. Ms. Thiesen has a masters of science degree in business administration from California State Polytechnic University after having received a bachelor of arts degree in mass media communication and film studies from the University of Utah.
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the total compensation paid or to be paid by First Advantage, as well as certain other compensation paid or accrued, during the periods presented to the chief executive officer and the four most highly compensated executive officers serving at the end of 2005, based on salary and bonus (collectively, the Named Executive Officers):
Summary Compensation Table
Named Executive Officer Stock Option Grants and Exercises
The following table provides information about stock option grants made to each of the Named Executive Officers during 2005 pursuant to the First Advantage Corporation 2003 Amended and Restated Incentive Compensation Plan. No other options and no stock appreciation rights were granted to the Named Executive Officers during 2005.
Option Grants In 2005
The following table provides information about stock options held by the Named Executive Officers as of December 31, 2005.
Aggregated Option Exercises in 2005
and Option Values as of December 31, 2005
First American Benefit Plans
Certain employees of First Advantage are eligible to participate in the following benefit plans maintained by First American for the benefit of certain officers and employees of First American and its subsidiaries, including First Advantage and its subsidiaries.
Pension Plans. Employees of First Advantage and its subsidiaries who were participants in First Americans defined benefit pension plan prior to First Advantages June 5, 2003 acquisition of First Americans screening technology division, and who have become employees of First Advantage or its subsidiaries in connection with such acquisition generally are permitted to continue their participation in the pension plan, to the extent available to employees of First American. As of December 31, 2001, no new participants have been or will be permitted to participate in the defined benefit pension plan.
Pension Plan Table
The above table sets forth estimated annual benefits upon retirement (assuming such benefits will be paid in the form of a life annuity) at various compensation levels and years of service under First Americans pension plans. Subject to certain conditions of age and tenure, all regular employees of First American and its participating subsidiaries were eligible to join First Americans qualified pension plan until December 31, 2001. No employees are eligible to join the pension plan after that date.
In order to participate, during plan years ending on or prior to December 31, 1994, an employee was required to contribute 1 1/2% of pay (i.e., salary, plus cash bonuses, commissions and other pay) to the plan. As a result of amendments to the pension plan that were adopted in 1994, during plan years commencing after December 31, 1994, an employee was not required to contribute to the plan in order to participate. As a result of further amendments, which were adopted in 2000, the pension plan will not accept new participants after December 31, 2001.
A participant generally vests in his accrued benefit attributable to First Americans contributions upon the completion of three years of service or, if earlier, the attainment of normal retirement age while an employee. Normal retirement age is defined under the plan as the later of the employees attainment of age 65 or his third anniversary of participation in the plan.
Upon retirement at normal retirement age, an employee receives full monthly benefits which are equal, when calculated as a life annuity:
An employee with at least three years of participation in the plan may elect to retire after attaining age 55, but prior to age 65, and receive reduced benefits.
First American funds the plan based on actuarial determinations of the amount required to provide the stated benefits. The table is based on retirement at age 65 or later, with contributions having been made by the employee in each year of credited service prior to 1995. The benefits are not subject to deduction for Social Security payments or any other offsets. Currently, John Long, John Lamson and Evan Barnett have 16 1/2, 8 1/2, and 5 years, respectively, of credited service.
The compensation levels shown in the table are less than those set forth in the summary compensation table because the federal tax law limits the maximum amount of pay that may be considered in determining benefits under the tax-qualified pension plan, and First Americans pension restoration plan, which is described below, does not make up for these limits for pay exceeding $275,000. The limit on pay that could be recognized by tax-qualified retirement plans was $200,000 in 1989. This amount was adjusted for inflation for each year
through 1993, when the limit was $235,840. In 1993, this limit was decreased to $150,000 for plan years beginning in 1994. The $150,000 limit has been adjusted for inflation and was increased to $160,000 as of January 1, 1997, and to $170,000 as of January 1, 2000. The highest final average pay that could be considered in determining benefits accruing under the pension plan before 1994 is $219,224, and since First Americans pension plan does not consider pay earned after December 31, 2001, the highest final average pay that can be considered in determining benefits accruing after 1993 is $164,000.
During 1996, First American adopted its pension restoration plan. This plan is an unfunded, nonqualified plan designed to make up for the benefit accruals that are restricted by the indexed $150,000 pay limit. However, in order to limit its expense, the pension restoration plan does not make up for benefit accruals on compensation exceeding $275,000. The pension restoration plan also makes up for benefits that cannot be paid from First Americans pension plan because of limitations imposed by the federal tax laws. Vesting of benefits payable to an employee under First Americans pension restoration plan occurs at the same time that vesting occurs for that employee in his or her pension plan benefits. The pension restoration plan is effective as of January 1, 1994, but only covers selected pension plan participants who were employees of First American or its participating subsidiaries on that date. As noted above, January 1, 1994, is the date as of which the pay limit for the pension plan was reduced from $235,840 to $150,000. The pension restoration plan excludes pay earned after December 31, 2001, as does the pension plan.
Supplemental Benefit Plan. First American maintains an executive supplemental benefit plan that it believes assists in attracting and retaining highly qualified individuals for upper management positions. The plan provides retirement benefits for, and pre-retirement death benefits with respect to, certain key management personnel selected by First Americans board of directors, and may include executives of First Advantage or its subsidiaries at and to the extent selected by First Americans board of directors. Under the plan, upon retirement at normal retirement date (the later of age 65 or, unless waived by First Americans board of directors, completion of ten years of service), a participant receives a joint life and 50% survivor annuity benefit equal to 35% of final average compensation. Final average compensation is the average annual compensation, composed of base salary, plus cash and stock bonuses, for those three calendar years out of the last ten years of employment preceding retirement in which such compensation is the highest.
The benefit is reduced by 5% for each year prior to normal retirement date in which retirement occurs and, until age 70, increased by 5% (compounded in order to approximate the annuitized value of the benefit had retirement occurred at age 65) for each year after such date in which retirement occurs. With respect to such postponed retirement, the plan takes into account covered compensation received until age 70, so that the retirement benefit of an executive who retires after normal retirement date is equal to the greater of the annuitized benefit or the benefit calculated using final average compensation until age 70.
To be eligible to receive benefits under the plan, a participant must be at least age 55, have been an employee of First American, or an employee of one of its subsidiaries (including First Advantage and its subsidiaries), for at least ten years and, unless waived by First Americans board of directors, covered by the plan for at least five years. A pre-retirement death benefit is provided consisting of ten annual payments, each of which equals 50% of final average compensation. Vesting of rights under the plan is accelerated in the event of a change in control (as defined in the plan) of First American.
The supplemental benefit plan is unfunded and unsecured. First American purchases insurance, of which First American is the owner and beneficiary, on the lives of the participants in the plan. This insurance is designed to recover, over the life of the plan, First Americans costs incurred with respect to the plan. Currently, only John Long, Anand Nallathambi, and one additional employee has been selected by the First American board to participate in the plan. No amounts are payable by First Advantage in connection with this plan, other than the reimbursable expenses for administration of the plan.
On October 11, 2005, the company and First American entered into a reimbursement agreement, which requires the company to reimburse First American for the actual costs associated with the participation of
executives of First Advantage or its subsidiaries in the supplemental benefit plan. The reimbursement of such costs will commence in 2006 and are estimated to be approximately $343,000 per year.
Deferred Compensation Plan. First Americans deferred compensation plan offers to a select group of management and highly compensated employees of First American and its subsidiaries, including First Advantage and its subsidiaries, the opportunity to elect to defer portions of salary, commissions and bonuses. A committee appointed by First Americans board is responsible for administering the plan, which became effective January 1, 1998. First American maintains a deferral account for each participating employee on a fully vested basis for all deferrals. Participants can choose to have their cash benefits paid in one lump sum or in quarterly payments upon termination of employment or death. Subject to the terms and conditions of the plan, participants also may elect to schedule in-service withdrawals of deferred compensation and the earnings and losses attributable thereto. For all participants who joined the plan prior to December 31, 2001, the plan provides a pre-retirement life insurance benefit equal to the lesser of 15 times the amount deferred in a participants first year of participation or $2.0 million. The life insurance benefit is reduced beginning at age 61 by 20% per year. Participants who join the plan after December 31, 2001, are not eligible for any life insurance benefit. First American pays a portion of the cost of such life insurance benefits. John Long, John Lamson, Akshaya Mehta and Anand Nallathambi participate in this plan. The plan is unfunded and unsecured.
Change of Control Arrangements
First Americans supplemental benefit plan calls for accelerated vesting of all benefits in the event of a change in control of First American. The First Advantage Corporation 2003 Incentive Compensation Plan calls for accelerated vesting of all awards in the event of a change in control of First American or First Advantage.
A change in control for purposes of First Americans supplemental benefit plan means any one of the following:
A change in control for purposes of the First Advantage Corporation 2003 Incentive Compensation Plan means any one of the following:
For 2005, the directors received the following compensation: (i) a chair retainer fee of $10,000 per year for the audit committee chair; (ii) a chair retainer fee of $4,000 per year for the compensation committee chair; (iii) a member retainer fee of $10,000 per year for each member of the audit committee; (iv) a member retainer fee of $4,000 per year for each member of the compensation committee; (v) a member meeting fee of $1,500 for each meeting of the Board; and (vi) a member meeting fee of $1,000 for each meeting attended by members of the audit committee, compensation committee and nominating committee. The compensation approved by the Board in February was retroactive to January 1, 2005. Non-employee directors receive an option to acquire 5,000 shares of our Class A common stock upon election to the board. Non-employee directors who have served for six months or more also receive an option to acquire 2,500 shares of our Class A common stock upon reelection. In all cases, the exercise price of options is the fair market value of our Class A common stock on the date of grant. In addition, First Advantage reimburses the directors for travel expenses incurred in connection with their duties as directors of First Advantage. Employees of First Advantage who also are directors receive no additional compensation for their service on the board or on any board committee.
The members of the special committee formed in 2005 were 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 companys 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 Companys board of directors, including each member of the special committee.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON
The compensation committee of our board of directors is charged with developing, overseeing and reviewing the general compensation plans and policies of First Advantage, and recommends the individual compensation arrangements for our chief executive officer, our other executive officers and the presidents of our primary operating subsidiaries. The compensation committee also administers the incentive compensation plan, including the equity-based component thereof.
The compensation committee is committed to designing and implementing a program of executive compensation that will contribute to the achievement of our business objectives and enhance stockholder value. We have an executive compensation program that we believe also:
Elements of Executive Compensation
Our executive compensation program has four key components:
These components combine fixed and variable elements to create a total compensation package that links a significant portion of compensation to corporate, business unit and individual performance.
Base Salary. Base salaries are set within ranges, which are targeted around the competitive norm for similar executive positions in similar companies. Individual salaries may be above or below the competitive norm. We consider the following factors in approving adjustments to salary levels for our executive officers:
Annual Bonuses. Annual bonuses are granted pursuant to our executive compensation plan and are intended to serve two primary functions. First, annual bonuses permit us to compensate officers directly if we achieve specific performance targets. Second, annual bonuses also serve to reward executives for performance on those activities that are most directly under their control and for which they are held accountable.
We set specific performance goals for our company, each business unit and each individual executive. Performance awards are increased or decreased from the target to reflect performance levels that exceed or fall
below expectations. Business unit and individual performance goals are based on each individual executives responsibilities and his or her respective contribution to our success. The annual bonus is largely based on objective factors and, except with respect to bonuses required to be paid pursuant to employment agreements, the committee has the authority to approve, reduce or entirely eliminate annual bonuses. Annual bonuses typically are cash-based and are paid at the end of each fiscal year. Generally, annual bonus amounts increase as financial measures increase above the levels originally set by the compensation committee.
Long-Term Incentive Awards. Long-term incentive awards are granted pursuant to the First Advantage Corporation 2003 Incentive Compensation Plan and are intended to align the interests of executive officers and other key employees with those of our stockholders. To achieve this purpose, the plan allows the granting of stock options to purchase our Class A common stock, stock appreciation rights, restricted stock awards of our Class A common stock, performance unit awards, performance share awards, restricted stock units and cash-based awards to eligible persons at the discretion of the compensation committee. To date, the committee has granted only stock options, restricted stock units and restricted stock under the plan.
The size of an individuals stock option award is based primarily on individual performance and the individuals responsibilities and position with our company. These options are granted with an exercise price equal to the fair market value of our Class A common stock on the date of grant, therefore, the stock options have value only if our Class A common stock price appreciates from the value on the date the options were granted. These options generally vest and become exercisable in three equal, annual, installments beginning on the first anniversary of the date of grant. The incentive compensation plan is a discretionary plan; however, it has been the compensation committees practice generally to award options quarterly.
Amendments to Incentive Compensation Plan. As part of its duties and its ongoing review of our companys compensation plans and policies, the committee reviewed and approved the amendments to the First Advantage Corporation 2003 Incentive Compensation Plan, including the increase in the number of shares available for grant under the plan to a total of 7,000,000. The committee determined that having 7,000,000 shares available under the plan and the expansion of the type of awards available to include other stock-based awards, under which shares can be granted to participants in the companys management stock purchase program in lieu of cash bonuses, are critical to our companys efforts to adequately compensate our key employees, to provide them with incentives to maintain and increase our profitability, and to recruit and retain employees of the caliber necessary to continue our companys growth. The committee also determined that having the additional shares available for grant under the plan is necessary to reflect the fact that, after the acquisition of CIG from First American, First Advantage is a much larger company with significantly more employees. In addition, the committee determined that some of the other amendments were necessary to comply with Internal Revenue Code Section 409A, which recently became effective and is applicable to deferred compensation arrangements.
Benefits. Benefits offered to executives serve a different purpose than do the other elements of executive compensation. In general, they are designed to provide a safety net of protection against the financial catastrophes that can result from illness, disability or death and to provide a reasonable level of retirement income. Benefits offered to executives are largely those that are offered to the general employee population.
Chief Executive Officer Compensation
In December 2003, the committee increased Mr. Longs base salary from $300,000 to $400,000 for the year 2004. In 2005, the committee increased Mr. Longs base salary from $400,000 to $440,000 effective January 1, 2005. In February 2006, Mr. Longs base salary was increased to $600,000, effective February 2006. The committees decision to increase Mr. Longs salary was based upon the committees opinion that Mr. Longs base salary was below current market conditions as well as the increase of the companys size following the acquisition of CIG from First American. In increasing Mr. Longs base salary, the committee considered the median salary range for chief executive officers in the group of comparable companies.
In addition to receiving an increase in his base salary, Mr. Long received a 2005 bonus in the amount of $550,000, of which $275,000 was paid in cash and the remainder was paid in restricted stock units in the amount of 9,707, which was matched by the company, for a total amount of 12,942 restricted stock units. The issuance of the restricted stock units was pursuant to the management stock purchase plan, adopted by the committee in 2005, which permitted certain executive officers to receive a portion of their bonus in restricted stock units, with a company match of one restricted stock unit for every three restricted stock units received. The restricted stock units vest ratably over a three year period, and are subject to customary terms and conditions, including continued employment with our company. Factors that the committee considered in awarding the bonus included objective factors based upon the financial performance of First Advantage, such as earnings per share, as well as subjective criteria relating to the execution of the desired strategic direction of First Advantage, including growth through acquisitions, and increased shareholder value. Mr. Long was also awarded options to acquire 150,000 common shares for his performance during 2005.
By the Compensation Committee of the Board of
/s/ DONALD ROBERT
Donald Robert, Chairman
Lawrence Lenihan, Jr.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information, as of March 31, 2006, concerning (a) each person that is known to First Advantage to be the beneficial owner of more than 5% of First Advantages Class A common stock and Class B common stock; (b) each Named Executive Officer; (c) each director of First Advantage; and (d) all of the directors and executive officers of First Advantage as a group. Unless otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares, except to the extent spouses share authority under applicable law. Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number and percentage of shares beneficially owned by a person, shares that may be acquired by such person within 60 days of March 31, 2006 are counted as outstanding, while these shares are not counted as outstanding for computing the percentage ownership of any other person.
The following table sets forth as of March 31, 2006 the total number of First American common shares beneficially owned and the percentage of the outstanding shares so owned, based on 95,797,949 shares of First American common stock outstanding on that date, by:
Unless otherwise indicated in the notes following the table, those listed are the beneficial owners of the listed shares of First American with sole voting and investment power (or, in the case of individual shareholders, shared power with such individuals spouse) over the shares listed. First American common shares subject to rights exercisable within 60 days of March 31, 2006 are treated as outstanding when determining the amount and percentage beneficially owned by a person or entity.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires our directors and executive officers, as well as persons who own ten percent or more of our outstanding Class A and Class B common stock, to file an initial report of beneficial ownership of company stock and reports of changes in beneficial ownership thereafter with the SEC. Section 16(a) requires these insiders to deliver copies of all reports filed under Section 16(a) to our company. Based solely on a review of these copies available to us, we believe that insiders have complied with all applicable Section 16(a) filing requirements for fiscal 2005, with the exception of Messrs. Missen and MacDonald, who reported stock option grants late.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our company effectively commenced operations on June 5, 2003 with our acquisition of First Americans screening technology division and US SEARCH. As consideration for the acquisitions, we issued on or about June 5, 2003 100% of our outstanding Class B common stock to First American and 100% of our Class A common stock to former stockholders of US SEARCH. Each share of our Class B common stock entitles the holder to ten votes in any meeting of stockholders. As a result, First American received approximately 80% of the outstanding capital stock of our company and approximately 97% of the voting power in our company. Former stockholders of US SEARCH received the remaining approximately 20% of our outstanding capital stock. Pequot Capital Management, Inc., formerly a stockholder of US SEARCH, received approximately 10% of our Class A common stock in the transaction. First American and Pequot Capital Management, Inc. entered into a stockholders agreement concurrently with the acquisitions that grants Pequot Capital Management, Inc. certain registration rights and the right to sell shares of our Class A common stock at the same time First American sells any of our shares under certain circumstances, and generally requires First American to vote for one nominee for director designated by Pequot Capital Management, Inc.
In connection with the June 2003 acquisitions discussed above, First Advantage and First American entered into a services agreement pursuant to which First American agreed to provide certain financial, administrative and managerial support services to First Advantage. On January 1, 2004, First Advantage and First American amended and restated the services agreement to eliminate most of the services and fees covered by the original agreement. Under the amended and restated agreement, First American will continue to provide certain business services to First Advantage at actual cost or on pricing at the same rate provided to similarly situated affiliates of First American. First American will also provide certain human resources systems, payroll systems and financial systems to First Advantage at a cost of $300,000 per year under the terms of the amended and restated service agreement.
First Advantage provides certain business services in India to First American at actual cost.
On July 31, 2003, First Advantage entered into a promissory note with First American. The loan evidenced by the promissory note is a $10 million uncollateralized revolving loan, with interest payable monthly. The principal balance of the promissory note is payable on July 31, 2006. The promissory note is subordinated to the $20 million bank debt and bears interest at the rate payable under the $20 million bank debt plus 0.5% per annum.
On April 27, 2004, First Advantage entered into a promissory note with First American. The loan evidenced by the promissory note is a $20 million uncollateralized revolving loan, with interest payable monthly. In connection with the acquisition of CIG, this promissory note was paid off by First Advantage in September 2005.
On September 14, 2005, the company completed the acquisition of CIG from First American under the terms of the master transfer agreement. First Advantage purchased CIG and related businesses with 29,073,170 shares of its Class B common stock.
On March 23, 2006, our company issued an additional 1,650,455 shares of its Class B common stock to First American under the terms of the master transfer agreement, requiring the issuance of additional shares in the event Dealertrack, a company acquired as part of CIG, conducted an initial public offering resulting in proceeds in excess of $50,000,000.
First American and certain affiliates provided sales and marketing, legal, financial, technology, leased facilities, leased equipment and other administrative services to CIG. As part of the acquisition of CIG, an amended and restated services agreement was entered into on September 14, 2005. Under the terms of the new agreement, human resources systems and payroll systems and support, network services and financial systems are provided at an annual cost of approximately $4,800,000. In addition, certain other services including pension and 401(k) expenses, corporate and medical insurance, personal property leasing and company car programs are provided at actual cost. The initial term of the agreement is for one year, and self renews every six months. The company also entered into an agreement with First American to lease the CIG office space in Poway, California. The 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 lease is approximately $169,000 a month and the Company is obligated to pay all costs and expenses related to the property, including operating expenses, maintenance and taxes. CIG recognized approximately $13,702,000, $11,664,000 and $11,627,000 in selling, general and administrative expense in 2005, 2004 and 2003, respectively, relating to these services. The amounts allocated to CIG are based on managements assumptions (primarily usage, time incurred and number of employees) as to the proportion of the services used by CIG in relation to the actual costs incurred by First American and affiliates in providing the services.
Effective January 1, 2003, our company and a subsidiary of First American entered into an agreement whereby the company will act as an agent in selling renters insurance. The company receives a commission of 12% of the insurance premiums and 20% of the profits (as defined in the agreement) of the insurance premiums written. Commissions earned in 2005, 2004, and 2003 were approximately $333,000, $87,000, and $11,000 respectively.
Our company performs employment screening services for First American. Total revenue from First American was approximately $700,000, $422,000 and $353,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
First American Real Estate Solutions, LLC (FARES), a joint venture between First American and Experian Information Solutions, Inc. (Experian), owns 50% of a joint venture that provides mortgage credit reports and operations support to a nationwide mortgage lender. In accordance with the terms of the joint venture operating agreement, the mortgage and consumer credit reporting operation of FARES receives a merge fee per credit report issued and is reimbursed for certain operating costs. In addition, FARES records the 50% share of the earnings of the joint venture using the equity method of accounting. In connection with the acquisition of CIG, FARES entered into an outsourcing agreement where the company continues to provide these services to the nationwide mortgage lender. These earnings are included in service revenue in the accompanying combined statements of income and totaled $5,724,000, $6,672,000, and $8,062,000, for the years ended December 31, 2005, 2004 and 2003, respectively. Total merge fees were $7,092,000, $7,379,000, and $9,056,000 for the years ended December 31, 2005, 2004 and 2003, respectively and are included in service revenue in the accompanying combined statement of income. Total reimbursement for operating costs were $7,289,000, $7,476,000, and $8,471,000, for the years ended December 31, 2005, 2004 and 2003, respectively.
First Advantage and First American Real Estate Information Services, Inc. (FAREISI), entered into an operating agreement on November 7, 2005, which provides for the formation of a limited liability company, Leadclick Holding Company, LLC, that was used to purchase their majority ownership interest in Leadclick Media, Inc (Leadclick). Pursuant to the terms of the operating agreement, First Advantage and FAREISI have agreed to an allocation of the profits from Leadclick.
First Advantage and First American entered into a reimbursement agreement whereby First Advantage reimburses First American for the actual expenses incurred by it in connection with certain First Advantage employees participation in the First American supplemental benefit plan.
Experian Information Solutions, Inc., as part of its joint venture with First American in FARES, owns approximately 65% of a combination of First Advantages Class A and Class B common shares and is considered a related party. First Advantage entered into a registration rights agreement with Experian, which requires First Advantage to register any shares of First Advantage Class A common stock that Experian may receive upon a distribution by FARES. First Advantage entered into an amended registration agreement with Experian, which requires First Advantage to register any shares of First Advantage Class A common stock that it may receive in the future.
First Advantage and certain of its subsidiaries purchases credit reports from Experian. The cost of credit reports purchased by First Advantage from Experian was $27,431,000, $20,020,000, and $19,399,000 for the years ended December 31, 2005, 2004 and 2003, respectively. First Advantage sells background and lead generation services to Experian. Total revenue from these sales was $263,000, $62,000 and $53,000 for the years ended December 31, 2005, 2004 and 2003, respectively.
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing change in the cumulative total stockholder return on First Advantages Class A common stock to the cumulative total stockholder return on the S&P SmallCap 600, and the publicly traded common stock of ChoicePoint Inc. ChoicePoint is a company with business lines substantially similar to First Advantages business lines. The period presented begins June 6, 2003, the first day our Class A common stock was quoted on the Nasdaq National Market, and ends December 31, 2005.
COMPARISON OF 31 MONTH CUMULATIVE TOTAL RETURN*
AMONG FIRST ADVANTAGE CORPORATION, CHOICEPOINT INC.
AND THE S & P SMALLCAP 600 INDEX
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The firm of PricewaterhouseCoopers LLP has been selected by the audit committee of our board as independent registered certified public accounting firm to audit the books and accounts of our company and its subsidiaries for the fiscal year ending December 31, 2005. This firm has served as independent accountants for our company since 2003. A representative of PricewaterhouseCoopers LLP is expected to be present at the annual meeting and will have an opportunity to make any desired statement and to answer any appropriate questions by stockholders.
Audit Firm Fee Summary
Our company retained PricewaterhouseCoopers LLP as its independent public accountants to provide services in the following categories and amounts during the relevant periods:
Audit Fees. This category includes the aggregate fees billed for professional services rendered for the audits of our companys consolidated financial statements for fiscal year 2005, for the reviews of the financial statements included in our quarterly reports on Form 10-Q during fiscal 2005, and for services that are normally provided by PricewaterhouseCoopers LLP in connection with statutory and regulatory filings or engagements for the relevant fiscal year.
Audit-Related Fees. This category includes the aggregate fees billed during the period from January 1, 2005 to December 31, 2005 for assurance and related services by PricewaterhouseCoopers LLP that are reasonably related to the performance of the audits or reviews of the financial statements and are not reported above under Audit Fees, and generally consist of fees for due diligence accounting consultation with respect to our registration statements and agreed-upon procedure reports.
Tax Fees. This category includes the aggregate fees billed during the period from January 1, 2005 to December 31, 2005 for professional services rendered by the independent accountants for tax advice and tax planning. First Advantage was not billed any fees in this category during such period.
All Other Fees. This category includes the aggregate fees billed during the period from January 1, 2005 to December 31, 2005 for products and services provided by the independent accountants that are not reported above under Audit Fees, Audit-Related Fees, or Tax Fees. First Advantage was not billed any fees in this category during such period.
The audit committee has considered the compatibility of the non-audit services performed by and fees paid to PricewaterhouseCoopers LLP in fiscal 2005 and determined that such services and fees were compatible with the independence of the accountants. During fiscal year 2005, PricewaterhouseCoopers LLP did not utilize any personnel in connection with the audit other than its full-time, permanent employees.
Policy for Approval of Audit and Non-audit Services. The audit committee has adopted an approval policy regarding the approval of audit and non-audit services provided by the independent accountants, which approval policy describes the procedures and the conditions pursuant to which the audit committee may grant general pre-approval for services proposed to be performed by our independent accountants. All services provided by our
independent accountants, both audit and non-audit, must be pre-approved by the audit committee. Our audit committee has delegated to the chairman of the audit committee the authority to grant pre-approvals of non-audit services provided by PricewaterhouseCoopers LLP. The decisions of the chairman of the audit committee to pre-approve such a service are required to be reported to the audit committee at its regularly scheduled meetings.
In determining whether to approve a particular audit or permitted non-audit service, the audit committee will consider, among other things, whether such service is consistent with maintaining the independence of the independent accountant. The audit committee will also consider whether the independent accountant is best positioned to provide the most effective and efficient service to our company and whether the service might be expected to enhance our ability to manage or control risk or improve audit quality.
In order for a proposal by a stockholder to be included in the proxy statement and proxy for the annual meeting to be held in 2007, such proposal must be received by First Advantage at its principal executive office, to the attention of the secretary, no later than December 31, 2006 (which is not more than 120 days prior to the anniversary of the mailing date of this proxy statement), assuming that the date of the annual meeting to be held in 2006 is not changed by more than 30 days from the date of this annual meeting. In such event, we will provide notice of the date by which such proposals must be received in order to be included. The determination by First Advantage of whether it will oppose inclusion of any proposal in its proxy statement and proxy will be made on a case-by-case basis in accordance with its judgment and the rules and regulations promulgated by the SEC. Proposals received after December 31, 2006 will not be considered for inclusion in our proxy materials for the annual meeting in 2007.
Pursuant to the rules and regulations promulgated by the SEC, any stockholder who intends to present a proposal at the annual meeting to be held in 2007 without requesting that we include such proposal in our companys proxy statement should be aware that he or she must notify our company at its principal executive office, attention secretary, not later than March 1, 2007 (which is 45 days prior to the anniversary of the mailing date of this proxy statement) of the intention to present the proposal. Otherwise, we may exercise discretionary voting with respect to such stockholder proposal pursuant to authority conferred by proxies to be solicited by our board and delivered in connection with the meeting.
As of the date of this proxy statement, the board is not aware of any matters to come before the annual meeting other than those set forth on the notice accompanying this proxy statement. If any other matters come before the annual meeting, the proxy card, if executed and returned, gives discretionary voting authority to the persons named as proxy holders, John Long and Julie Waters, our chief executive officer and general counsel, respectively, with respect to such matters.
All stockholders of record as of the Record Date have been sent, or are concurrently herewith being sent, a copy of our annual report for the fiscal year ended December 31, 2005. Such report contains certified consolidated financial statements of First Advantage and its subsidiaries for the fiscal year ended December 31, 2005.
No Incorporation by Reference
The report of the compensation committee of the board on executive compensation and the audit committee report, and the Stock Performance Graph above are not deemed to be filed with the SEC, and shall not be incorporated by reference into any prior or future filings made by First Advantage under the Securities Act or the Exchange Act, except to the extent that First Advantage specifically incorporates such information by reference.
Under the Delaware General Corporation Law, you will not have any appraisal rights in connection with the actions to be taken at the annual meeting.
Beginning on April 11, 2006 a list of holders of record of our Class A and Class B common stock as of the Record Date will be available at our principal executive office during ordinary business hours for examination by any stockholder holding any class of our common stock on the Record Date for any purpose germane to the annual meeting.
Our company will pay the cost of preparing, assembling and mailing the attached letter from our chief executive officer, notice of annual meeting, this proxy statement, the enclosed proxy card, and the solicitation of proxies. Directors, officers and other regular employees of First Advantage may solicit proxies. None of them will receive any additional compensation for such solicitation. People soliciting proxies may contact you in person, by telephone, via e-mail or by facsimile. First Advantage will pay brokers or other persons holding stock in their names or the names of their nominees for the expenses of forwarding soliciting material to their principals.
Our company will, upon the written request of any person who is a beneficial owner of our Class A or Class B common shares on the Record Date, furnish without charge a copy of our annual report on Form 10-K for the year 2005, together with the accompanying financial statements. We will also furnish a copy of the exhibits to the annual report, if requested. Such requests should contain a representation that the person requesting this material was a beneficial owner of the our Class A common stock or Class B common stock on the Record Date and be sent to the secretary of our company at the address indicated on the first page of this proxy statement.
By Order of the Board of Directors
/s/ JULIE WATERS
St. Petersburg, Florida
April 11, 2006
AUDIT COMMITTEE CHARTER
The primary purposes of the Audit Committee (the Committee) are (1) to assist the Board of Directors in fulfilling its oversight of the accounting and financial reporting processes of the Company and the audits of the Companys financial statements; and (2) to prepare the Report of the Committee to be included in the Companys annual proxy statement.
While the Committee has the responsibilities and powers set forth in the charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Companys financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for the preparation, presentation and integrity of the Companys financial statements. Management and the internal auditing department are responsible for maintaining appropriate accounting and financial reporting principles and policies and internal controls and procedures that provide for compliance with accounting standards and applicable laws and regulations. The independent accountants are responsible for planning and carrying out a proper audit of the Companys annual financial statements, and reviewing the Companys quarterly financial statements prior to the filing of each quarterly report.
In meeting its responsibilities, other than as set forth herein, the Committees policies and procedures shall be flexible so that it may react to any change in circumstances or conditions.
The Committee shall be comprised of three or more directors who shall be appointed by the Board of Directors. The Chairperson of the Committee shall be appointed by the Board of Directors.
Each member of the Committee shall qualify as an independent director under applicable law and the Nasdaq National Market listing requirements (the Nasdaq Rules) and shall be able to read and understand fundamental financial statements, including the Companys balance sheet, income statement and cash flow statement. In addition one member of the Committee shall have past employment experience in finance or accounting, requisite personal certification in accounting, or any other comparable experience or background which results in the individuals financial sophistication, including having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities, as determined in accordance with the Nasdaq Rules by the Board in its business judgment. When and as required by the Nasdaq Rules, applicable law or the rules of the Securities and Exchange Commission (the SEC), one member of the Committee shall be a financial expert, as determined by the Board of Directors in accordance with such law or rules in its business judgment.
No member of the Committee shall receive any compensation from the Company other than (i) directors fees for service as a director of the Company, including reasonable compensation for serving on the Committee and regular benefits that other directors receive and (ii) a pension or similar deferred compensation for past performance, provided that such compensation is not conditioned on continued or future service to the Company.
The Committee shall meet at least once every fiscal quarter or more frequently as circumstances require. Members of the Committee may participate in a meeting of the Committee by means of conference call or similar communications equipment by means of which all persons participating in the meeting can hear each other. The
Committee may ask members of management or others to attend meetings and provide pertinent information, as necessary. The Committee shall meet separately periodically at such times as it deems appropriate with management, the director of the internal auditing department, the independent accountants and the Companys general or outside counsel to discuss any matters that the Committee or any of these persons or firms believe should be discussed privately or as is necessary to fulfill the Committees duties hereunder.
RESOURCES AND AUTHORITY
The Committee shall be granted unrestricted access to all information and all employees of the Company as requested by members of the Committee. The Committee shall have the power to conduct or authorize investigations into any matters within its scope of responsibilities and shall be empowered to retain, at the Companys expense, independent counsel, accountants, or others to assist it in the conduct of any investigation, or to otherwise assist it in fulfilling its responsibilities and duties, without seeking approval of the Board of Directors or management.
The Committee shall have the sole authority to:
(i) select, retain and terminate the Companys independent accountants (subject, if applicable, to shareholder ratification);
(ii) approve in advance all auditing services and related fees and terms; and
(iii) approve in advance all non-audit services permitted to be provided to the Company by the independent accountants under applicable law and SEC rules, and related fees and terms; provided, however
a. that non-audit services that were not recognized at the time of the engagement to be non-audit services and otherwise fall within the pre-approval exception provided in Section 10A of the Securities Exchange Act of 1934 (de minimus non-audit services) may be approved by the Committee prior to completion of the audit, and
b. that the Committee may delegate to one or more members of the Committee the authority to pre-approve services to be provided by the independent accountants, provided that any such pre-approval by one or more members of the Committee shall be reported to the full Committee at its next scheduled meeting.
RESPONSIBILITIES AND DUTIES
The Committee, to the extent it deems necessary or appropriate in fulfilling its purposes, shall:
1. Obtain and review a written report by the independent accountants describing (i) the firms internal quality-control procedures, and (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues.
2. Obtain and review with the independent accountants a written statement as required by Independence Standards Board (ISB) Standard No. 1, as may be modified or supplemented, discuss with the independent accountants any disclosed relationships or services that may impact their objectivity and independence, and recommend any appropriate actions to be taken.
3. Set clear hiring policies for employees or former employees of the independent accountants.
4. Discuss with management the timing and process for implementing the rotation of audit partners as required by applicable law and SEC rules.
1. Prior to the annual audit, review the scope of the independent accountants audit plan, including the scope, procedures and timing of the audit, the experience and qualifications of the senior members of the independent accountants team and the quality control procedures of the independent accountant.
2. Review with management and the independent accountants the financial information included in the Companys Quarterly Report on Form 10-Q and managements discussion and analysis of the financial condition and results of operations prior to its filing.
3. Review with management and the independent accountants at the completion of the annual audit the Companys consolidated financial statements included in the Annual Report on Form 10-K and managements discussion and analysis of the financial condition and results of operations prior to its filing.
4. Discuss with management generally the types of information (including financial information and earnings guidance) to be disclosed in earnings press releases and earnings calls, as well as to analysts and rating agencies (paying particular attention to any use of pro forma, or adjusted non-GAAP information).
5. Review legal and regulatory matters that may have a material impact on the Companys consolidated financial statements, related compliance policies and programs, and reports received from regulators.
6. Establish procedures for (i) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
7. Discuss with the Companys general counsel and/or outside counsel any significant legal, compliance or regulatory matters that may have a material effect on the Companys business, financial statements or compliance policies, including material notices to or inquiries received from governmental agencies.
Internal Auditing Department, Financial Controls and Risk Management
1. Review and concur in the appointment or dismissal of the director of the internal auditing department.
2. Review in consultation with the independent accountants and the director of the internal auditing department the integrity of the Companys financial reporting processes and system of internal control including controls over quarterly financial reporting, computerized information systems and security.
3. Review with the director of the internal auditing department the qualifications and staffing of the internal audit department, the scope of the proposed audit plan for the following year and the coordination of the plan with the independent accountants.
4. Receive from the director of the internal auditing department summaries of and, as appropriate, the significant reports to management prepared by the internal auditing department and managements responses thereto.
5. Review with management, the director of the internal auditing department and the independent accountants (i) the Companys policies with respect to risk assessment and risk management, (ii) the Companys major financial risks exposures, and (iii) the steps management has taken to monitor and control such exposures.
Reporting and Recommendations
1. Prepare the Report of the Committee for inclusion in the annual stockholders meeting proxy statement. The Report of the Committee must state whether the Committee: (i) has reviewed and discussed the audited consolidated financial statements with management, (ii) has discussed with the independent accountants the
matters required to be discussed by SAS 61, as may be modified, supplemented or replaced, (iii) has received the written disclosures from the independent accountants required by ISB Standard No. 1, as may be modified or supplemented, and has discussed with the accountants their independence, and (iv) has recommended to the Board of Directors, based on the review and discussions referred to in above items (i) through (iii), that the Companys consolidated financial statements be included in the Annual Report on Form 10-K for the last fiscal year for filing with the SEC.
The Committee shall review and reassess the adequacy of this Audit Committee Charter on an annual basis and submit any proposed revisions to the Board of Directors for consideration and approval.
The Committee shall report regularly to the Board of Directors concerning significant developments in the course of performing the above responsibilities and duties, including reviewing with the full Board any issues that arise with respect to the quality or integrity of the Companys compliance with legal or regulatory requirements, the performance and independence of the Companys independent accountants, or the performance of the internal audit function.
The Committee shall perform such functions (whether or not described herein) as necessary or appropriate under applicable law, the Companys charter or Bylaws, and the resolutions and other directives of the Board of Directors.
* * *
FIRST ADVANTAGE CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
To Be Held
Thursday, May 11, 2006, 9:00 a.m.
RENAISSANCE VINOY RESORT
501 FIFTH AVENUE NE
ST. PETERSBURG, FLORIDA 33701
This proxy is solicited by the Board of Directors of First Advantage Corporation for use at the Annual Meeting on May 11, 2006.
The shares of First Advantage Class A or Class B common stock you hold of record as of March 31, 2006 will be voted as you specify on the reverse side.
By signing and dating this proxy, you revoke all prior proxies and appoint John Long and Julie Waters, and each of them, with full power of substitution, to vote your shares as directed on the matters shown on the reverse side.
If no choice is specified, the proxy will be voted FOR the nominees for director listed herein and at the discretion of the proxy holders on other matters that may come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
¨ Please detach here ¨
The Board of Directors Recommends a Vote FOR all nominees listed below.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH NOMINEE LISTED HEREIN.
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