SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the 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 Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
THE FIRST AMERICAN FINANCIAL CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
[LOGO FOR FIRST AMERICAN FINANCIAL CORPORATION]
HOME OFFICE: 114 East Fifth Street, Santa Ana, CA 92701-4699 (714) 558-3211
Mailing Address: Post Office Box 267, Santa Ana, CA 92702-0267
TO THE SHAREHOLDERS OF
THE FIRST AMERICAN FINANCIAL CORPORATION
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of The First
American Financial Corporation, a California corporation (the "Corporation"),
will be held on April 26, 1995, at 2:00 p.m., at the main office of First
American Title Insurance Company, 114 East Fifth Street, Santa Ana, California,
for the following purposes:
(1) Electing a board of directors to serve for the ensuing year; and
(2) Transacting such other business as may come before the meeting or any
adjournments thereof.
Only shareholders of record at the close of business on March 15, 1995, are
entitled to notice of and to vote at the meeting.
It is hoped that you will be present at the meeting; however, please sign,
date, indicate your vote on, and return promptly, the enclosed proxy card in
the accompanying envelope, addressed to the Corporation's Transfer Agent, First
American Trust Company, Attention: Trust Operations, Post Office Box 267, Santa
Ana, California 92702, which will accept and tabulate the proxies. If you
attend the meeting, you may, of course, personally vote your shares. You also
have the right to revoke a proxy at any time before it is exercised.
/s/ Mark R Arnesen
Mark R Arnesen, Secretary
Santa Ana, California
March 31, 1995
[LOGO OF FIRST AMERICAN FINANCIAL CORPORATION]
HOME OFFICE: 114 East Fifth Street, Santa Ana, CA 92701-4699 (714) 558-3211
Mailing Address: P.O. Box 267, Santa Ana, CA 92702-0267
PROXY STATEMENT
SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS
Proxies of the holders of Common shares of The First American Financial
Corporation, a California corporation (the "Corporation"), are solicited by its
Board of Directors for use at the Annual Meeting of Shareholders to be held on
April 26, 1995, and at any adjournments thereof. The enclosed proxy card
represents the shares that you are eligible to vote at the meeting. Shares
represented by a properly executed and returned proxy will be voted at the
meeting in accordance with the directions noted thereon or, if no directions
are indicated, they will be voted in favor of the proposal in the notice set
forth herein. A shareholder giving a proxy has the power to revoke it by
attending the meeting and electing to vote in person, or by filing with the
Secretary, prior to the meeting, a written revocation or a duly executed proxy
bearing a later date. The approximate date on which this proxy statement and
the enclosed proxy card were first sent to shareholders of the Corporation is
April 3, 1995.
Shareholders of record at the close of business on March 15, 1995 (the
"Record Date"), are eligible to vote at the meeting. The only outstanding class
of stock of the Corporation is its $1 par value Common. Each shareholder is
entitled to one vote per share of Common stock held as of the Record Date. With
respect to the election of directors, voting may be cumulative as described
below. As of the Record Date there were 11,332,074 shares of Common stock
outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the only persons
known to the Corporation to be beneficial owners of approximately 5% or more of
its voting securities, based upon information received from such persons as of
the Record Date. For purposes of this Proxy Statement, beneficial ownership of
securities is defined in accordance with the rules of the Securities and
Exchange Commission and in general means the power to vote or dispose of
securities, regardless of any economic interest therein.
COMMON STOCK
BENEFICIALLY
OWNED
--------------------
NAMES AND ADDRESSES NUMBER OF
OF SHAREHOLDERS SHARES PERCENT
------------------- --------- -------
The Capital Group Companies, Inc. 751,000(1) 6.6%
333 South Hope Street
Los Angeles, California
D. P. Kennedy 487,106(2) 4.3%
114 East Fifth Street
Santa Ana, California
Sanwa Bank California, 1,758,361(3) 15.5%
Trustee of the Corporation's
Employee Stock Ownership Trust
601 South Figueroa Street
Los Angeles, California
(1) As of December 31, 1994, sole dispositive power with respect to the number
of shares set forth in the table and sole voting power with respect to
476,000 of such shares. The Corporation has been informed
1
by The Capital Group Companies, Inc. (formerly known as "The Capital Group,
Inc."), that the shares are held by subsidiaries of the latter acting as
investment managers on behalf of institutional investors, and that the
shares are held solely for investment purposes in the ordinary course of
business and not with the purpose or effect of changing or influencing
control of the Corporation.
(2) Mr. Kennedy has sole voting and dispositive power with respect to the
number of shares set forth in the table, except as to 2,211 of such shares
which are allocated to Mr. Kennedy's account and held by the trustees of
the Corporation's Employee Profit Sharing and Stock Ownership Plan. In
addition to the shares set forth in the table, 204,000 shares are held by a
second-tier, wholly owned, subsidiary of the Corporation whose eight-member
board of directors, which includes D. P. Kennedy and his son, Parker S.
Kennedy, who is an executive officer of the Corporation, has the power to
direct the disposition of such shares. An additional 9,828 shares are held
by a nonprofit corporation whose five-member board of directors, which
includes D. P. Kennedy, Parker S. Kennedy, and Thomas A. Klemens, who is an
executive officer of the Corporation, has the power to direct the
disposition of such shares.
(3) The trust includes both shares allocated to employees (1,559,961 shares at
the Record Date) and shares held by the trustee but not as yet so allocated
(198,400 shares at the Record Date). Pursuant to the Corporation's Employee
Profit Sharing and Stock Ownership Plan, the trustee is required to vote
allocated shares as directed by employees and unallocated shares in the
same proportions as allocated shares are voted. Allocated shares as to
which no directions are received are not voted.
ELECTION OF DIRECTORS
The directors of the Corporation are elected annually. The Board of Directors
nominates persons to stand for election as directors. Unless otherwise
specified, each proxy that is duly executed and returned will be voted in favor
of the election of the following persons, if they are then available and
willing to serve. If any of the nominees should be unable or decline to serve
at the time of the meeting, the discretionary authority provided in each duly
executed proxy will be exercised to vote for a substitute or substitutes. The
Board of Directors has no reason to believe that any substitute will be
required. All nominees are at present directors of the Corporation.
The following schedule sets forth the nominees and certain information
concerning each of them:
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
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George L. Argyros 58 Chairman and Chief Executive Officer 1988
Arnel and Affiliates
Real Estate Investment and Management
J. David Chatham 44 President and Chief Executive Officer 1989
Chatham Holdings Corporation
Real Estate Development and Associated
Industries
William G. Davis 65 Counsel 1992
Tory Tory DesLauriers & Binnington
Chairman of the Board
Bramalea Inc.
Director
Canadian Imperial Bank of Commerce and
Ford Motor Company of Canada, Limited
Premier of Province of Ontario (Canada)
(1971-1985)
2
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
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James L. Doti 48 President (1991 to date) and 1993
Professor of Economics (1983 to date)
Chapman University
Lewis W. Douglas, Jr. 70 Oil Exploration 1971(1)
Paul B. Fay, Jr. 76 President 1967
The Fay Improvement Company
Financial Consulting and Business
Ventures
Frank C. Harrington 92 President 1962
Harrington Development Company
Land Development
D. P. Kennedy 76 Chairman of the Board 1956
The First American Financial Corporation
(1993 to date)
President of the Corporation (1963-1993)
Parker S. Kennedy(2) 47 President 1987
The First American Financial Corporation
(1993 to date)
Executive Vice President of the
Corporation (1986-1993)
President, First American Title
Insurance Company,
a subsidiary of the Corporation
Robert B. McLain 75 President 1981
McLain Development Co.
Real Estate Development and Property
Management
Anthony R. Moiso 55 President and Chief Executive Officer 1990
Santa Margarita Company
Ranching and Real Estate Development
R. J. Munzer 77 Private Investor (1984 to date) 1962
Chairman of the Board
Petrolane Incorporated
Oil Field Services, Liquified Petroleum
Gas Distribution and Automotive Services
(1971-1984)
Frank O'Bryan 61 Chairman of the Board 1994
Spring Mountain Group
Escrow and Savings and Loan Holding
Company
Roslyn B. Payne 48 President 1988
Jackson Street Partners, Ltd.
Real Estate Venture Capital and
Investments
Virginia Ueberroth 55 President 1988
Ueberroth Family Foundation
(1) Mr. Douglas also was a director of the Corporation during the period 1961-
1967.
(2) Parker S. Kennedy is D. P. Kennedy's son.
3
Certain nominees serve as directors of other publicly held companies as
follows: Mr. Davis--The Seagram Company Ltd., Magna International Inc. and
Inter-City Products Corporation; Dr. Doti--CIMCO Inc. and Home Interstate
Bancorp; and Mr. Fay--Vestaur Securities Inc. and Suncoast Savings and Loan
Association.
The Board of Directors held six meetings during 1994. Directors who attended
less than 75% of the aggregate of such meetings and meetings of committees of
which they are members are Messrs. Argyros, Davis, Doti and Moiso.
The Board of Directors has an Audit Committee, the members of which are
Messrs. Chatham, Doti, Fay, Harrington, McLain and Moiso and Mrs. Ueberroth.
The functions performed by the Committee include selecting the Corporation's
independent auditor, directing and supervising investigations into matters
within the scope of its duties, reviewing with the independent auditor the plan
and results of its audit, reviewing internal auditing procedures and results,
and determining the nature of other services to be performed by, and fees to be
paid to, the independent auditor. During 1994, the Audit Committee met twice.
The Board of Directors also has a Compensation Committee, the members of
which are Messrs. Chatham, Davis, Douglas, Fay and Munzer. This Committee
establishes compensation rates and procedures with respect to senior management
of the Corporation and its subsidiaries, including bonus awards. During 1994,
the Compensation Committee met three times.
VOTING PROCEDURES
In the event any shareholder entitled to vote for the election of directors
gives notice at the meeting prior to voting of a decision to cumulate votes for
a candidate or candidates and the name(s) of such candidate(s) has (have) been
placed in nomination prior to voting, every shareholder may cumulate votes and
(i) give one candidate the number of votes equal to the number of directors to
be elected (which is 15) multiplied by the number of shares held by such
shareholder, or (ii) distribute such number of votes among as many candidates
as such shareholder shall choose. Regardless of whether the voting for
directors is cumulative, those candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected directors
of the Corporation. As indicated on the enclosed proxy card, a proxy confers
upon the appointees discretionary authority to cumulate and distribute as the
appointees shall choose the aggregate cumulative votes in respect of the shares
represented among those nominees as to which the shareholder has not withheld
authority. In accordance with California state law and the Articles and Bylaws
of the Corporation, abstentions and broker nonvotes (discussed below) neither
have the effect of votes in opposition to, nor in favor of, the election of a
director.
Votes at the Annual Meeting of Shareholders will be tabulated by the
inspector(s) of election, who shall be appointed by the Chairman of the meeting
and who shall not be candidates for election to the Board of Directors.
Questions as to the qualifications of the voters, validity of proxies or other
matters pertaining to the vote shall be decided by the inspector(s), subject to
any ruling by the Chairman. The inspector(s) of election will treat shares of
Common stock represented by a properly signed and returned proxy as present at
the Annual Meeting of Shareholders for the purpose of determining a quorum,
without regard to whether the proxy is marked as casting a vote or withholding
a vote. The inspector(s) of election will treat shares of Common stock
represented by "broker nonvotes" (i.e., shares of Common stock held in record
name by brokers or nominees as to which (i) instructions have not been received
from the beneficial owners or other persons entitled to vote, (ii) the broker
or nominee does not have discretionary voting power under applicable
4
Securities and Exchange Commission rules or the instrument under which it
serves in such capacity, and (iii) the record holder has indicated on the proxy
card or otherwise notified the Corporation that such record holder does not
have authority to vote on that matter) as present for the purpose of
determining a quorum.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information received by the Corporation as of
the Record Date with respect to beneficial ownership of the Corporation's
Common shares by current directors, nominees for director, executive officers
and by all directors and executive officers as a group.
COMMON SHARES
BENEFICIALLY OWNED (1)
PERCENT OF
NUMBER SHARES OUTSTANDING
NAME OF SHARES IF GREATER THAN 1%
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DIRECTORS
George L. Argyros 26,160(2) --
J. David Chatham 800 --
William G. Davis 100 --
James L. Doti 100 --
Lewis W. Douglas, Jr. 2,548 --
Paul B. Fay, Jr. 6,180 --
Frank C. Harrington 4,100 --
D. P. Kennedy 487,106(3)(4) 4.3%
Parker S. Kennedy 125,221(3)(4)(5) 1.1%
Robert B. McLain 7,140 --
Anthony R. Moiso 2,140 --
R. J. Munzer 16,728 --
Frank O'Bryan -- --
Roslyn B. Payne(6) 3,508 --
Virginia Ueberroth 12,140 --
EXECUTIVE OFFICERS WHO ARE NOT DIREC-
TORS
Mark R Arnesen 4,906(5) --
Craig I. DeRoy 1,802 --
Thomas A. Klemens 13,284(4)(5) --
All Directors and Executive Officers
as a Group (18 persons) 713,963 6.3%
(1) Sole voting and dispositive power unless otherwise indicated. The shares
set forth in the table include the following shares allocated to the
following individuals' accounts in, and held by the trustees of, the
Corporation's Employee Profit Sharing and Stock Ownership Plan: 2,211
shares for D. P. Kennedy; 1,567 shares for Parker S. Kennedy; 1,048 shares
for Mark R Arnesen and 460 shares for Thomas A. Klemens. These individuals
do not currently have dispositive power with respect to these shares.
(2) In addition to the shares set forth in the table, 164,665 shares are held
by a nonprofit corporation whose four-member board of directors, which
includes George L. Argyros and his wife, has the power to direct the voting
and the disposition of such shares.
5
(3) In addition to the shares set forth in the table, 204,000 shares are held
by a second-tier, wholly owned, subsidiary of the Corporation whose eight-
member board of directors, which includes D. P. Kennedy and Parker S.
Kennedy, has the power to direct the disposition of such shares.
(4) In addition to the shares set forth in the table, 9,828 shares are held by
a nonprofit corporation whose five-member board of directors, which
includes D. P. Kennedy, Parker S. Kennedy and Thomas A. Klemens, has the
power to direct the disposition of such shares.
(5) In addition to the shares set forth in the table, 90,270 shares are held by
the trustee of the Corporation's Pension Trust, as part of the diversified
investment fund of the trust. Parker S. Kennedy, Mark R Arnesen and Thomas
A. Klemens serve on a committee composed of five members, a majority of
which may, under the terms of the trust agreement governing the trust, and
subject to the fiduciary requirements of the Employee Retirement Income
Security Act of 1974, direct the disposition of the securities held by the
trustee.
(6) In addition to the shares set forth in the table, Roslyn B. Payne owns 475
shares of common stock of First American Title Guaranty Holding Company,
which is a second-tier subsidiary of the Corporation. These shares
represent 2.2% of the total number of such shares that are issued and
outstanding.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by, or
paid to the executive officers of the Corporation who were serving as such at
the end of, or who retired during, the Corporation's last completed fiscal
year, which ended December 31, 1994 (the "named executive officers"), for all
services rendered in all capacities to the Corporation and its subsidiaries
during the years covered in the table:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------
OTHER ALL OTHER
ANNUAL COMPENSA-
SALARY(1) BONUS(2) COMPENSA- TION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) TION(3) ($) ($)
- --------------------------- ---- --------- -------- ----------- ---------
D. P. Kennedy 1994 337,880(5) -0- -- 152,501(6)(7)
Chairman 1993 351,380(5) 118,063 -- 116,616(7)
1992 191,570(5) 126,250 -- 112,834(7)
Parker S. Kennedy 1994 331,930(8) -0- -- 348(6)
President 1993 281,220(8) 118,063 -- 3,276
1992 201,090 91,250 -- 2,294
Thomas A. Klemens 1994 170,110(9) 77,625 -- 204(6)
Vice President, 1993 149,400(9) 113,063 -- 2,001
Chief Financial Officer(9) 1992 -- -- -- --
Craig I. DeRoy 1994 166,470 48,219 -- 10,204(6)(10)
Vice President, 1993 70,300 47,213 -- 100,767(10)
General Counsel(10) 1992 -- -- -- --
Mark R Arnesen 1994 108,340 25,288 -- 204(6)
Vice President, 1993 102,900 38,738 -- 2,608
Secretary, Corporate 1992 98,200 21,563 -- 1,973
Counsel
6
(1) Includes, in addition to regular salary, which is paid monthly, a fee of
$150 for each meeting of the Board of Directors attended by the named
executive officer during the years covered in the table.
(2) Consists of cash bonuses and the dollar value of noncash (stock) bonuses.
Officers of the Corporation, its subsidiaries and lower-tier subsidiaries
are eligible for such bonuses, which are awarded during the year following
the fiscal year to which the bonus relates, based on an evaluation by the
Compensation Committee of the Board of Directors of the performance of the
individual and the Corporation during the preceding fiscal year. For
services rendered during 1994, 1993 and 1992, respectively, 205, 166 and
140 individuals were awarded cash and/or stock bonuses. During the three
years covered in the table, an average of 53,567 shares of stock has been
awarded annually to all participants in the Corporation's Stock Bonus Plan.
With respect to services rendered during 1994, Thomas A. Klemens received
an award of 1,000 common shares having a fair market value of $17,625 on
the date of such award, Craig I. DeRoy received 750 such shares having a
fair market value of $13,219, and Mark R Arnesen received 300 such shares
having a fair market value of $5,288. During 1994, D. P. Kennedy, Parker S.
Kennedy and Thomas A. Klemens each received awards of 1,100 such shares
having a fair market value of $38,063 on the dates of such awards, Craig I.
DeRoy received 500 such shares having a fair market value of $17,213, and
Mark R Arnesen received 400 such shares having a fair market value of
$13,738, with respect to services rendered during 1993. During 1993, D. P.
Kennedy and Parker S. Kennedy each received an award of 1,000 shares having
a fair market value of $26,250 on the date of such awards, and Mark R
Arnesen received an award of 250 shares having a fair market value of
$6,563 on the date of such award, with respect to services rendered during
1992.
(3) Certain incidental perquisites or other personal benefits for executive
officers of the Corporation (not otherwise disclosed in this Proxy
Statement) may result from expenses incurred by the Corporation or its
subsidiaries in the interest of attracting and retaining qualified
personnel. The incremental cost to the Corporation and its subsidiaries of
providing such incidental perquisites or other personal benefits for any
executive officer named in the Summary Compensation Table did not, for any
fiscal year covered, exceed the lesser of $50,000 or 10% of the total of
annual salary and bonus reported for such year for the named executive
officer. In accordance with the rules of the Securities and Exchange
Commission governing disclosure of executive compensation, the amounts of
such perquisites or other personal benefits are not included in the table.
(4) Consists of the net increase in the value of the named executive officer's
accounts in the Corporation's Employee Profit Sharing and Stock Ownership
Plan (the "Profit Sharing Plan") occurring between December 31 of the
covered fiscal year and December 31 of the prior fiscal year attributable
to contributions made by the Corporation to that plan during the covered
fiscal year, plus the dollar value of insurance premiums paid by, or on
behalf of, the Corporation during the covered fiscal year with respect to
term life insurance for the benefit of such officer.
(5) The compensation shown in the "Salary" column of the table includes fees
totalling $200, $500 and $500 which were earned by D. P. Kennedy for
services he rendered as a director of subsidiaries of the Corporation
during 1994, 1993 and 1992, respectively.
(6) No allocations to the individual accounts of the participants in the
Corporation's Profit Sharing Plan for the fiscal year ended December 31,
1994, have been made as of the date of this Proxy Statement; therefore, no
amounts with respect thereto are included in the above table.
(7) The amounts shown in the last column of the Summary Compensation Table
include, for each fiscal year covered, the distributions made to D. P.
Kennedy from the Corporation's Pension Plan, which are required under
provisions of the Internal Revenue Code of 1986, as amended. See "Pension
Plan" below.
7
The compensation shown also includes cash and the value of stock,
aggregating $52,541, $18,235 and $15,907, distributed to D. P. Kennedy
during 1994, 1993 and 1992, respectively, from his accounts in the
Corporation's Profit Sharing Plan attributable to contributions made by the
Corporation and its participating subsidiaries in years prior to those
covered in the table and earnings on the contributions. The distributions
were required to be made under provisions of the Internal Revenue Code of
1986, as amended.
(8) The compensation shown in the "Salary" column of the table includes fees
totalling $200 and $300, which were earned by Parker S. Kennedy for
services he rendered as a director of subsidiaries of the Corporation
during 1994 and 1993, respectively. Mr. Kennedy did not earn such fees
during 1992.
(9) Thomas A. Klemens was not an executive officer of the Corporation prior to
1993. See "Executive Officers" below. The compensation shown in the
"Salary" column of the table includes fees totalling $7,000 and $6,800,
which were earned by Mr. Klemens for services he rendered as a director of
subsidiaries of the Corporation during 1994 and 1993, respectively.
(10) Craig I. DeRoy was not an officer of the Corporation prior to 1993. See
"Executive Officers" below. The compensation shown for Mr. DeRoy in the
last column of the Summary Compensation Table includes the amounts paid to
Corporate Risk Management, Inc., the principal shareholder and chief
executive officer of which is Mr. DeRoy, for consulting services Mr. DeRoy
rendered to the Corporation's subsidiary, First American Title Insurance
Company, during the years since he became an officer of the Corporation.
PENSION PLAN
ANNUAL PENSION BENEFITS
HIGHEST CONSECUTIVE FIVE YEAR
AVERAGE SALARY DURING THE LAST
TEN YEARS OF EMPLOYMENT YEARS OF BENEFIT SERVICE
-----------------------------------------------------------------------------------
5 10 20 30 40 50
$ 75,000 $ 4,538 $ 9,075 $18,150 $27,225 $ 36,300 $ 45,375
100,000 6,100 12,200 24,400 36,600 48,800 61,000
125,000 7,663 15,325 30,650 45,925 61,300 76,625
150,000 9,225 18,450 36,900 55,350 73,800 92,250
175,000 10,475 21,263 42,838 64,413 85,988 107,563
200,000 11,725 24,075 48,775 73,475 98,175 122,875
219,224 12,686 26,238 53,341 80,444 107,547 134,650
The above table sets forth estimated annual benefits (assuming such benefits
will be paid in the form of a life annuity) at various compensation levels and
years of service under the Corporation's qualified Pension Plan. Subject to
certain conditions of age and tenure, all regular employees of the Corporation,
its subsidiaries and participating lower-tier subsidiaries are eligible to join
the Pension Plan. 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
(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 is not required to contribute
to the plan in order to participate. A participant vests in his accrued benefit
attributable to the Corporation's contributions upon the completion of five
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 employee's attainment of age 65 or his fifth anniversary of participation
in the plan. Upon retirement at
8
normal retirement age, an employee receives full monthly benefits which are
equal to (when calculated as a life annuity): (i) for years of credited service
with the company as of December 31, 1994, 1% of the first $1,000 and 1 1/4% of
remaining final average pay (i.e., the average of the monthly "pay," as defined
above, during the five highest paid consecutive calendar years out of the last
ten years prior to retirement) times the number of years of credited service as
of December 31, 1994; and (ii) with respect to a participant's credited service
for plan years subsequent to December 31, 1994, 3/4% of the first $1,000 and 1%
of the remaining final average pay times the number of years of credited
service subsequent to December 31, 1994. An employee receives reduced benefits
upon retirement prior to age 65 with at least five years of service, and an
employee cannot begin receiving monthly benefits under the plan prior to
attaining age 55. The plan is funded by the Corporation based on actuarial
determinations of the amount required to provide the stated benefits. The table
is based on retirement at age 65 or later on December 31, 1994, with
contributions having been made by the employee in each year of service. The
benefits are not subject to deduction for Social Security payments or any other
offsets. Currently, D. P. Kennedy, Parker S. Kennedy, Thomas A. Klemens, Craig
I. DeRoy and Mark R Arnesen have 46, 18, 9, 1 and 9 years, respectively, of
benefit service.
The compensation levels shown in the table for the qualified Pension Plan are
less than those set forth in the Summary Compensation Table because the
Internal Revenue Code of 1986, as amended, limits the maximum amount of pay
that may be considered in determining benefits under such tax-qualified
retirement plans. As established by the Tax Reform Act of 1986, the limit was
$200,000 in 1989 and was adjusted for inflation for each year through 1993 when
the limit was $235,840. The Omnibus Budget Reconciliation Act of 1993 decreased
this limit to $150,000 for plan years beginning in 1994. The $150,000 limit
will also be adjusted for inflation for years after 1994, but only in
increments of $10,000. Within these limits, the highest final average pay that
could be considered in determining benefits accruing before 1994 is $219,224.
The highest final average pay that can currently be considered in determining
benefits accruing after 1993 is $150,000.
Pursuant to the provisions of the Internal Revenue Code of 1986, as amended,
during 1994, 1993 and 1992, respectively, mandatory distributions totalling
$97,930, $93,741 and $88,920 were made to D. P. Kennedy from the Pension Plan.
As stated in note (7) of the Summary Compensation Table set forth above, these
amounts are included in the last column of such table.
SUPPLEMENTAL BENEFIT PLANS
The Corporation maintains an Executive Supplemental Benefit Plan (the
"Executive Plan") which it believes will assist it in attracting and retaining
highly qualified individuals for upper management positions. The Executive Plan
provides retirement benefits for, and pre-retirement death benefits with
respect to, certain key management personnel selected by the Board of
Directors. Under the Executive Plan, upon retirement at normal retirement date
(the later of age 65 or, unless waived by the Board of Directors, completion of
10 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 of the preceding 10
years of employment in which it 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 (the "annuitized benefit").
With respect to such postponed retirement, the Executive 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 determined
as the greater of the annuitized benefit or the benefit calculated using final
average compensation (as defined above) until age 70.
9
To receive benefits under the Executive Plan, a participant must be at least
age 55, have been employed by the Corporation or a subsidiary for at least 10
years and, unless waived by the Board of Directors, covered by the Executive
Plan for at least five years. A pre-retirement death benefit is provided
consisting of 10 annual payments each of which equals 50% of final average
compensation. Vesting of rights under the Executive Plan is accelerated in the
event of a "change in control" (as defined in the plan) of the Corporation.
Currently 37 employees, including D. P. Kennedy, Parker S. Kennedy, Thomas A.
Klemens and Craig I. DeRoy, have been selected to participate in the Executive
Plan. The annual benefit payable under the Executive Plan to D. P. Kennedy in
the event of his retirement is $108,936. The estimated annual benefits payable
under the Executive Plan to Parker S. Kennedy, Thomas A. Klemens and Craig I.
DeRoy upon retirement at normal retirement age, assuming compound annual
increases of 5.0% in the relevant portions of compensation shown above in the
Summary Compensation Table, are $286,445, $199,424 and $192,204, respectively.
The Corporation also maintains a Management Supplemental Benefit Plan (the
"Management Plan") the provisions of which are similar to those of the
Executive Plan, except that the amount of the joint life and 50% survivor
benefit payable under the Management Plan upon retirement at normal retirement
date (as defined above) is equal to 15% of the participant's final average
compensation (as defined above), the retirement benefit does not take into
account compensation received after the normal retirement date, and no benefit
is payable to a participant who retires prior to the normal retirement date
unless the participant has been employed by the Corporation or a subsidiary for
at least 15 years and the Board of Directors consents to such early retirement.
Currently 61 employees, including Mark R Arnesen, have been selected to
participate in the Management Plan. The estimated annual benefit payable under
the Management Plan to Mr. Arnesen upon retirement at normal retirement age,
assuming compound annual increases of 5.0% in the relevant portions of
compensation shown above in the Summary Compensation Table, is $57,962.
Both of these plans are unfunded. The Corporation purchases insurance, of
which it is the owner and beneficiary, on the lives of the participants in each
plan. This insurance is designed to recover, over the life of each plan, costs
incurred by the Corporation with respect to it.
DIRECTORS' COMPENSATION
Each director who is not an employee of the Corporation or its subsidiaries
receives annual compensation of $8,000, a fee of $650 for attending each
meeting of the Board of Directors, and $400 for attending each committee
meeting. Each director who is such an employee receives a fee of $150 for
attending each meeting of the Board.
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REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following report of the Compensation Committee to the Board of Directors
shall not be deemed to be incorporated by reference into any previous filing by
the Corporation under either the Securities Act of 1933 ("Securities Act") or
the Securities Exchange Act of 1934 ("Exchange Act") that incorporates future
Securities Act or Exchange Act filings in whole or in part by reference.
TO THE BOARD OF DIRECTORS OF
THE FIRST AMERICAN FINANCIAL CORPORATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing and administering the policies that govern
executive compensation and benefit practices. The Committee evaluates the
performance of the executive officers and determines their compensation levels,
in terms of salary and annual bonus.
The Committee is composed of five independent directors. No member of the
Committee is a former or current officer or employee of the Corporation or any
of its subsidiaries, and there are no interlocking directorships.
The Committee has retained Compensation Resource Group, Inc. ("CRG"), a
compensation and benefits consulting firm, to assist the Committee with the
performance of its duties. In particular, CRG has provided advice to the
Committee with respect to the reasonableness of compensation paid to executive
officers of the Corporation in 1994. In doing so, CRG analyzes the
Corporation's compensation and benefits programs and performance in relation to
an analysis of the Corporation's competitors' compensation and benefits
programs and performance. For the purpose of this analysis, CRG uses the group
of peer companies whose returns to shareholders compose the peer group index
shown in the performance graph under the caption "Comparative Cumulative Total
Return to Shareholders" below. Also, CRG reviews published compensation surveys
and compares these results against the executive officers' compensation levels.
In this regard, CRG has reviewed the compensation of the Corporation's
executive officers for 1994 and has reported to the Committee that, in the
opinion of CRG, compensation for all executive officers is reasonable in view
of the Corporation's performance and industry compensation levels.
COMPENSATION POLICY
The compensation policy of the Corporation, which has been endorsed by the
Committee, is that a portion of the annual compensation of each executive
officer should be related to the performance of the Corporation, as well as the
individual contribution of each officer. The compensation programs are designed
to align the executives' compensation with the strategic goals and performance
of the Corporation. The Corporation strives to develop and administer programs
that will (i) attract and retain key executives critical to the long-term
success of the Corporation, (ii) provide median compensation levels which are
competitive with those of the Corporation's competitors, (iii) motivate
executives to enhance long-term shareholder value in the Corporation, and (iv)
integrate the Corporation's compensation programs with its annual planning and
measurement processes.
The annual bonus program includes a Stock Bonus Plan which is an integral
part of the Corporation's compensation program. The program is designed to
encourage and create ownership and retention of the Corporation's stock by key
employees and provide incentive to further the profits and growth of the
Corporation. This program is designed to align the long-range interests of key
employees with those of the shareholders.
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PERFORMANCE MEASURES AND RESULTS
The measures used for determining the appropriate levels of compensation for
the executive officers include competitive position (national market share),
profit, profit retention (ratio of profits to revenue), and ability to select
and develop executive replacement personnel.
In 1994, while it is anticipated that the subsidiaries of the Corporation
increased their market shares in most states, the overall profit decreased 71.4
percent from the previous year's record levels. All of the replacements except
one for retiring officers have been promoted from within the Corporation and
all have performed well.
CEO COMPENSATION
Parker S. Kennedy's base salary was increased on January 1, 1994, to
$280,020. On May 1, 1994, the Compensation Committee, in order to better
reflect competitive practices in view of his additional duties and
responsibilities as chief executive officer ("CEO"), increased his salary to
$375,000. This salary level approximated the median salary for CEOs in the
group of comparable companies. On October 1, 1994, Mr. Kennedy voluntarily
decreased his salary 13 percent to $324,960, to reflect the rapidly
deteriorating real estate economy. Mr. Kennedy voluntarily waived cash and
stock bonuses for the year 1994.
Mr. D. P. Kennedy also waived his right to bonuses and voluntarily reduced
his compensation in October, 1994.
Compensation Committee
Lewis W. Douglas, Jr., Chairman
J. David Chatham
William G. Davis
Paul B. Fay, Jr.
R. J. Munzer
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COMPARATIVE CUMULATIVE TOTAL RETURN TO SHAREHOLDERS
Since December 3, 1993, the Corporation's Common shares have been listed and
trading on the New York Stock Exchange under the trading symbol "FAF."
Previously, such shares were traded on the national over-the-counter market and
were designated and quoted on the National Association of Securities Dealers
Automated Quotations National Market System ("NASDAQ-NMS") under the trading
symbol "FAMR." The following graph compares the yearly percentage change in the
cumulative total shareholder return on the Corporation's Common shares,
assuming reinvestment of dividends, with the corresponding changes in the
cumulative total returns of the Standard & Poor's 500 Composite Stock Price
Index, the Standard & Poor's Financial Index, the NASDAQ Composite Index, the
NASDAQ Financial Index, and a peer group index consisting of the following six
companies: Alleghany Corp., Fidelity National Financial, Inc., Lawyers Title
Corp., Old Republic International Corp., Reliance Group Holdings, Inc., and
Stewart Information Services Corp., respectively, in each case assuming
reinvestment of dividends.
The cumulative total shareholder return of the peer group of companies has
been included in the graph to provide a comparison with other publicly held
companies having subsidiaries that transact the business of title insurance on
a nationwide basis. Such a peer group index, together with the Standard &
Poor's 500 Composite Stock Price Index and the Standard & Poor's Financial
Index, offers a more relevant comparison with the Corporation's return to
shareholders and will be used in future graphs in place of the NASDAQ Composite
Index and the NASDAQ Financial Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE FIRST AMERICAN FINANCIAL CORPORATION*,
NASDAQ COMPOSITE INDEX**, NASDAQ FINANCIAL INDEX**,
S&P 500 INDEX***, S&P FINANCIAL INDEX***, AND CUSTOM PEER GROUP
[PERFORMANCE GRAPH APPEARS HERE]
THE FIRST
AMERICAN NASDAQ NASDAQ S&P CUSTOM
Measurement Period FINANCIAL COMPOSITE FINANCIAL S&P 500 FINANCIAL PEER
(Fiscal Year Covered) CORP. INDEX INDEX INDEX INDEX GROUP
- --------------------- --------- --------- --------- ------- --------- -------
Measurement Pt- 12/30/89 $100 $100 $100 $100 $100 $100
FYE 12/29/90 $ 61 $ 85 $ 77 $ 97 $ 79 $ 94
FYE 12/31/91 $106 $136 $119 $126 $118 $133
FYE 12/31/92 $242 $159 $170 $136 $146 $186
FYE 12/31/93 $328 $181 $197 $150 $162 $216
FYE 12/31/94 $166 $177 $198 $152 $157 $182
* Adjusted for reinvestment of dividends. Stock price performance shown is
not necessarily indicative of future price performance.
** As calculated from the University of Chicago Center for Research in
Securities Prices Total Return Indexes for The Nasdaq Stock Market to
include the reinvestment of dividends.
*** As calculated by Standard & Poor's Compustat Services, a division of
McGraw-Hill, Inc., to include the reinvestment of dividends.
13
EXECUTIVE OFFICERS
NAME POSITION HELD AGE
---- ------------- ---
D. P. Kennedy Chairman 76
Parker S. Kennedy President 47
Thomas A. Klemens Vice President, 44
Chief Financial Officer
Craig I. DeRoy Vice President, 42
General Counsel
Mark R Arnesen Vice President, 42
Secretary, Corporate Counsel
All officers of the Corporation are appointed annually by the Board of
Directors subsequent to its election.
D. P. Kennedy has been Chairman of the Corporation since 1993, and served as
its President from 1963 to 1993. Parker S. Kennedy, who is D. P. Kennedy's son,
has been President of the Corporation since 1993, and served as its Executive
Vice President from 1986 to 1993. He has been employed by the Corporation's
subsidiary, First American Title Insurance Company ("First American"), since
1977 and became a Vice President of that company in 1979. During 1983, he was
appointed its Executive Vice President, and in 1989 was appointed its
President. Thomas A. Klemens has been Vice President, Chief Financial Officer
of the Corporation and First American since 1993 and became the Corporation's
principal accounting officer in 1992. Mr. Klemens has been employed by First
American since 1985, when he was Vice President, Controller. Craig I. DeRoy has
been Vice President, General Counsel of the Corporation and First American
since 1993. Mr. DeRoy is the principal shareholder and chief executive officer
of Corporate Risk Management, Inc., an environmental and regulatory consulting
firm whose business constituted his principal occupation from 1992 until his
employment by the Corporation and First American in 1993. From 1990 to 1992,
Mr. DeRoy served as Executive Vice President and chief operating officer of
First Environmental Review Insurance Company, where he helped pioneer a new
form of property insurance coverage for environmental risks. Mark R Arnesen has
been Vice President, Secretary and Corporate Counsel of the Corporation and
First American since 1992, has been employed by First American since 1979, and
has been a Vice President of the latter company since 1989.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Rules adopted by the Securities and Exchange Commission ("SEC") under Section
16(a) of the Securities Exchange Act of 1934 require the Corporation's officers
and directors, and persons who own more than ten percent of the issued and
outstanding shares of the Corporation's Common stock, to file reports of their
ownership, and changes in ownership, of such securities with the SEC on SEC
Forms 3, 4 or 5, as appropriate. Officers, directors and greater-than-ten-
percent shareholders are required by the SEC's regulations to furnish the
Corporation with copies of all forms they file pursuant to Section 16(a).
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that they were not
required to file a Form 5 to report previously unreported ownership or changes
in ownership, the Corporation believes that, during its fiscal year ending
December 31, 1994, its officers, directors and greater-than-ten-percent
beneficial owners complied with all filing requirements under Section 16(a).
14
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The firm of Price Waterhouse has been selected by the Audit Committee of the
Board of Directors as independent accountants to audit the books and accounts
of the Corporation and its subsidiaries for the year ending December 31, 1995.
This firm has served as independent accountants for the Corporation since 1954.
A representative of Price Waterhouse will be present at the Annual Meeting of
Shareholders with an opportunity to make any desired statement and to answer
any appropriate questions by the shareholders.
SHAREHOLDER PROPOSALS
In order that a proposal by a shareholder be included in the proxy statement
and proxy for the next Annual Meeting of Shareholders of the Corporation, such
proposal must be received no later than December 5, 1995, assuming that the
date of such meeting is not advanced by more than 30 calendar days, or delayed
by more than 90 calendar days, from the date of the current annual meeting. In
such event, the Corporation will provide notice of the date by which such
proposals must be received in order to be included.
GENERAL INFORMATION
THE CORPORATION WILL, UPON THE WRITTEN REQUEST OF ANY PERSON WHO IS A
BENEFICIAL OWNER OF ITS STOCK ON THE RECORD DATE FOR THE FORTHCOMING ANNUAL
MEETING, FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR
THE YEAR 1994 AND WILL FURNISH, AT A CHARGE OF $10, A COPY OF THE EXHIBITS
THERETO. SUCH REQUEST SHOULD CONTAIN A REPRESENTATION THAT THE PERSON
REQUESTING THIS MATERIAL WAS A BENEFICIAL OWNER OF THE CORPORATION'S STOCK ON
THE RECORD DATE AND BE SENT TO THE SECRETARY AT THE CORPORATION'S ADDRESS
INDICATED ON THE FIRST PAGE OF THIS PROXY STATEMENT.
The costs of soliciting proxies will be borne by the Corporation. In addition
to solicitation by mail, officers and regular employees of the Corporation's
subsidiaries may solicit proxies personally, by telephone or facsimile. Morrow
& Company, Inc., 909 Third Avenue, New York, New York 10022, has been engaged
to solicit proxies in such manner at an estimated cost of $4,000 plus
reimbursement of reasonable expenses.
The Board of Directors is not aware of any matters to come before the meeting
other than those set forth on the notice accompanying this Proxy Statement, and
the report of the President. If any other matters come before the meeting, the
holders of the proxies will vote thereon in their discretion.
By Order of the Board of Directors
Mark R Arnesen
Secretary
Santa Ana, California
March 31, 1995
15
[LOGO OF FIRST AMERICAN]
The First American Financial Corporation
First American Square . 114 East Fifth Street, Santa Ana, CA 92701-4699
[LOGO OF FIRST AMERICAN]
The First American Financial Corporation
FIRST AMERICAN SQUARE 114 EAST FIFTH STREET,
SANTA ANA, CA 92701 (714) 558-3211
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of The First American Financial Corporation hereby
appoints D. P. Kennedy, Parker S. Kennedy and Mark R Arnesen, and each of them,
with power to each of substitution, to attend the annual meeting of the
shareholders of said corporation to be held April 26, 1995, at 2:00 P.M. in the
main office of First American Title Insurance Company, 114 East Fifth Street,
Santa Ana, California, and any adjournments thereof; and thereat to vote the
shares of the undersigned with respect to the election of directors, as
indicated on the reverse hereof, with all powers which the undersigned would
have if acting in person, including the right in their discretion to cumulate
and distribute the aggregate cumulative votes in respect of such shares as they
choose among those nominees as to whom the undersigned has not withheld
authority; and WITH DISCRETIONARY AUTHORITY TO ACT ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE SAID MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED SPECIFICALLY ON THE PROPOSAL
LISTED ON THE REVERSE HEREOF AS THERE SPECIFIED. WHERE NO SPECIFICATION IS
MADE, SAID SHARES SHALL BE VOTED FOR THE PROPOSAL.
(Continued and to be signed on reverse side)
(Continued from other side)
Election of Directors FOR [_] all nominees listed below
(except as marked to the contrary below)
WITHHOLD AUTHORITY [_] to vote for all nominees listed
below
George L. Argyros, J. David Chatham, William G. Davis, James L. Doti, Lewis W.
Douglas, Jr., Paul B. Fay, Jr., Frank C. Harrington, D. P. Kennedy, Parker S.
Kennedy, Robert B. McLain, Anthony R. Moiso, R. J. Munzer, Frank O'Bryan,
Roslyn B. Payne, and Virginia Ueberroth.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),
WRITE THE NAME(S) OF SUCH NOMINEE(S) ON THE LINE BELOW.)
- --------------------------------------------------------------------------------
Dated..................., 1995
- ----------------------- -----------------------
Please sign exactly as name appears on stock certificate as shown hereon.
If shares are jointly held, this proxy should be signed by each such joint
owner. Executors, administrators, guardians or others signing in a fiduciary
capacity should state their full title as such. A proxy executed by a
corporation should be signed in its name by its president or any vice president
and attested to by its secretary or an assistant secretary; if otherwise
executed, please furnish proof of authority.
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED POSTPAID ENVELOPE.