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 of FIRST AMERICAN FINANCIAL CORPORATION]
HOME OFFICE: 114 East Fifth Street, Santa Ana, CA 92701-4642 (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 24, 1996, 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;
(2) Approving The First American Financial Corporation 1996 Stock Option
Plan; and
(3) 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 8, 1996, 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 92702-9975, 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.
[SIGNATURE LOGO]
Mark R Arnesen, Secretary
Santa Ana, California
March 25, 1996
THE FIRST AMERICAN FINANCIAL CORPORATION
HOME OFFICE: 114 East Fifth Street., Santa Ana, CA 92701-4642 (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 24, 1996, 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 proposals 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 March 27, 1996.
Shareholders of record at the close of business on March 8, 1996 (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 11,354,403 shares of Common
stock outstanding and entitled to vote.
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 14) 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 Common shares 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 Common shares represented by "broker
1
nonvotes" (i.e., Common shares 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 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.
The affirmative vote of the holders of a majority of the Common shares
present at the meeting is required for the adoption of The First American
Financial Corporation 1996 Stock Option Plan (the "Plan"), a copy of which is
included as Exhibit "A" to this proxy statement. The proposal for approval of
the Plan is set forth below in Item 2 of this proxy statement. Abstentions and
broker nonvotes with regard to that item will have the same effect as votes
cast against the adoption of the Plan.
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. 626,100(1) 5.5%
333 South Hope Street
Los Angeles, California
D. P. Kennedy 481,060(2) 4.2%
114 East Fifth Street
Santa Ana, California
Sanwa Bank California, 1,618,065(3) 14.3%
Trustee of the Corporation's
Employee Stock Ownership Trust
601 South Figueroa Street
Los Angeles, California
(1) As of December 31, 1995, sole dispositive power with respect to the number
of shares set forth in the table and sole voting power with respect to
510,100 of such shares. The Corporation has been informed 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 1,950 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 wholly owned subsidiary of the Corporation whose
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twenty-one member board of directors has the power to direct the disposition
of such shares. The subsidiary's board members include D. P. Kennedy and his
son, Parker S. Kennedy, who is an executive officer of the Corporation,
Thomas A. Klemens, who is an executive officer of the Corporation, and all
of the persons who are directors of the Corporation. 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, has the power to direct the disposition of such shares.
(3) Pursuant to the Corporation's Employee Profit Sharing and Stock Ownership
Plan, the trustee is required to vote the shares as directed by employees.
Shares as to which no directions are received are not voted.
ITEM 1. 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 59 Chairman and Chief Executive Officer 1988
Arnel and Affiliates
Diversified Investment Company
J. David Chatham 45 President and Chief Executive Officer 1989
Chatham Holdings Corporation
Real Estate Development and Associated
Industries
William G. Davis 66 Counsel 1992
Tory Tory DesLauriers & Binnington
Director
Canadian Imperial Bank of Commerce
Premier of Province of Ontario (Canada)
(1971--1985)
James L. Doti 49 President and Professor of Economics 1993
Chapman University
Lewis W. Douglas, Jr. 71 Oil Exploration 1971(1)
Paul B. Fay, Jr. 77 President 1967
The Fay Improvement Company
Financial Consulting and Business
Ventures
D. P. Kennedy 77 Chairman of the Board 1956
The First American Financial Corporation
(1993 to date)
President of the Corporation (1963-1993)
3
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
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Parker S. Kennedy 48 President 1987(2)
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 76 President 1981
McLain Development Co.
Real Estate Development and Property
Management
Anthony R. Moiso 56 President and Chief Executive Officer 1990
Santa Margarita Company
Ranching and Real Estate Development
R. J. Munzer 78 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 62 Chairman of the Board 1994
Spring Mountain Group
Escrow and Savings and Loan Holding Company
Roslyn B. Payne 49 President 1988
Jackson Street Partners, Ltd.
Real Estate Venture Capital and Investments
Virginia Ueberroth 56 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.
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--Fleetwood Enterprises, Inc., and
Standard Pacific Corp.; Mr. Fay--Vestaur Securities Inc. and Suncoast Savings
and Loan Association; and Mr. O'Bryan--AFP Imaging Corporation.
The Board of Directors held six meetings during 1995. 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, Douglas, Moiso and Munzer.
The Board of Directors has an Audit Committee, the members of which are
Messrs. Chatham, Doti, Fay, 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 1995, the Audit Committee met twice.
4
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 1995, the Compensation Committee met three times.
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)
NUMBER PERCENT OF
OF SHARES OUTSTANDING,
NAME 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 1,100 --
Lewis W. Douglas, Jr. 2,548 --
Paul B. Fay, Jr. 11,180 --
D. P. Kennedy 481,060(3)(4) 4.24%
Parker S. Kennedy 117,500(3)(4)(5) 1.03%
Robert B. McLain 7,140 --
Anthony R. Moiso 2,140 --
R. J. Munzer 16,728 --
Frank O'Bryan 1,000 --
Roslyn B. Payne(6) 3,508 --
Virginia Ueberroth 12,140 --
EXECUTIVE OFFICERS WHO ARE NOT
DIRECTORS
Mark R Arnesen 5,371(5) --
Craig I. DeRoy 2,678 --
Thomas A. Klemens 14,392(3)(4)(5) --
All Directors and Executive Officers
as a Group (17 persons) 705,545 6.21%
(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: 1,950
shares for D. P. Kennedy; 1,651 shares for Parker S. Kennedy; 1,113 shares
for Mark R Arnesen; 27 shares for Craig I. DeRoy and 504 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 wholly owned subsidiary of the Corporation whose twenty-one 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.
(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, 1995 (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
ANNUAL ALL OTHER
COMPENSA- COMPENSA-
SALARY(1) BONUS(2) TION(3) TION(4)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- --------------------------- ---- --------- -------- --------- ---------
D. P. Kennedy 1995 299,780(5) -0- -- 125,088(6)
Chairman 1994 337,880(5) -0- -- 155,799(6)
1993 351,380(5) 118,063 -- 116,616(6)
Parker S. Kennedy 1995 325,860 -0- -- 598
President 1994 331,930(7) -0- -- 1,797
1993 281,220(7) 118,063 -- 3,276
Thomas A. Klemens 1995 173,825(8) 80,625 -- 598
Executive Vice President, 1994 170,110(8) 77,625 -- 959
Chief Financial Officer 1993 149,400(8) 113,063 -- 2,001
Craig I. DeRoy 1995 168,825 70,500 -- 454
Executive Vice President, 1994 166,470 48,219 -- 10,670(9)
General Counsel 1993 70,300 47,213 -- 100,767(9)
Mark R Arnesen 1995 109,680 25,969 -- 454
Vice President, Secretary, 1994 108,340 25,288 -- 1,327
Corporate Counsel 1993 102,900 38,738 -- 2,608
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 1995, 1994 and 1993, respectively, 237, 205 and
166 individuals were awarded cash and/or stock bonuses. During the three
years covered in the table, an average of 54,750 shares of stock has been
awarded annually to all participants in the Corporation's Stock Bonus
Plan. With respect to services rendered during 1995, neither D. P. Kennedy
nor Parker S. Kennedy received an award of Common shares, Thomas A.
Klemens received an award of 1,000 such shares having a fair market value
of $25,625 on the date of the award, Craig I. DeRoy received an award of
800 such shares having a fair market value of $20,500, and Mark R Arnesen
received an award of 350 such shares having a fair market value of $8,969.
During 1995, 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 with respect to services rendered during 1994. 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.
(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, the matching contributions made by the Corporation to such
officer's account in the Corporation's 401(k) Savings Plan during the
fiscal year ending December 31, 1995, 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
totaling $1,700, $200 and $500, which were earned by D. P. Kennedy for
services he rendered as a director of subsidiaries of the Corporation
during 1995, 1994 and 1993, respectively.
(6) 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. The compensation shown also includes cash and the value of
stock, aggregating $24,802, $52,541 and $18,235, distributed to D. P.
Kennedy during 1995, 1994 and 1993, respectively, from his accounts in the
7
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.
(7) 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 1995.
(8) The compensation shown in the "Salary" column of the table includes fees
totalling $5,000, $7,000 and $6,800, which were earned by Mr. Klemens for
services he rendered as a director of subsidiaries of the Corporation
during 1995, 1994 and 1993, respectively.
(9) 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
FINAL AVERAGE
PAY* YEARS OF BENEFIT SERVICE
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5 10 20 30 40 50
$ 75,000 $ 4,350 $ 8,888 $17,963 $ 27,038 $ 36,113 $ 45,188
100,000 5,850 11,950 24,150 36,350 48,550 60,750
125,000 7,350 15,013 30,338 45,663 60,988 76,313
150,000 8,850 18,075 36,525 54,975 73,425 91,875
175,000 10,350 21,138 42,713 64,288 85,863 107,438
200,000 11,850 24,200 48,900 73,600 98,300 123,000
225,000 13,350 27,263 55,088 82,913 110,738 138,563
250,000 14,850 30,325 61,275 92,225 123,175 154,125
275,000 or more 16,350 33,388 67,463 101,538 135,613 169,688
* Final Average Pay is defined as the highest consecutive five-year average
salary during the last ten years of employment.
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 generally 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 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
8
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, 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, D. P. Kennedy, Parker S. Kennedy, Thomas A. Klemens,
Craig I. DeRoy and Mark R Arnesen have 47, 19, 10, 2 and 10 years,
respectively, of credited service.
The compensation levels shown in the Pension table 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 the tax-qualified Pension Plan, and the
Corporation's Pension Restoration Plan, which is described below, does not
make up for these limits for pay exceeding $275,000. As established by the Tax
Reform Act of 1986, the limit on pay that could be recognized by tax-qualified
retirement plans 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 under the Pension Plan before 1994 is $219,224. The highest final
average pay that can currently be considered in determining benefits accruing
under the Pension Plan after 1993 is $150,000.
During 1996, the Corporation adopted an unfunded, nonqualified plan designed
to make up for the benefit accruals that are restricted by the indexed
$150,000 pay limit (the "Pension Restoration Plan"). However, in order to
lower its expense, the Pension Restoration Plan does not make up benefit
accruals on compensation exceeding $275,000. The Pension Restoration Plan also
makes up for benefits that cannot be paid from the Pension Plan because of
limitations imposed by Internal Revenue Code Section 415 and related
regulations. Vesting of benefits payable to an employee under the 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 employees who were participants in the
Pension Plan on that date, which, as noted above, is the date as of which the
pay limit for the Pension Plan was reduced from $235,840 to $150,000.
Pursuant to the provisions of the Internal Revenue Code of 1986, as amended,
during 1995, 1994 and 1993, respectively, mandatory distributions totaling
$98,006, $97,930 and $93,741 were made to D. P. Kennedy from the Pension Plan.
As stated in note (6) 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
9
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.
To be eligible 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 38 employees, including D. P. Kennedy, Parker S. Kennedy, Thomas
A. Klemens, Craig I. DeRoy and Mark R Arnesen, 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, Craig I. DeRoy andMark R 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, are $306,208, $215,222, $207,652, and $137,812, respectively.
The plan is unfunded. The Corporation purchases insurance, of which it is
the owner and beneficiary, on the lives of the plan participants. This
insurance is designed to recover, over the life of the 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. Directors are reimbursed for their
expenses incurred in attending meetings of the Board and its committees.
10
Pursuant to Item 402(a)(9) of Regulation S-K of the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "Exchange Act"), the
following Report of the Compensation Committee on Executive Compensation and
the Comparative Cumulative Total Return to Shareholders graph shall not be
deemed to be incorporated by reference into any previous filing by the
Corporation under either the Securities Act of 1933 (the "Securities Act") or
the Exchange Act that incorporates future Securities Act or Exchange Act
filings in whole or in part by reference.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
COMPENSATION POLICY
The Corporation's compensation program, which has been endorsed by the
Compensation Committee, is designed to enhance shareholder value by providing
that a large part of the executive compensation be related to the performance
of the Corporation as well as to the contribution of each individual officer.
The Corporation's policy is further designed 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 programs include a cash bonus program
as well as a Stock Bonus Plan designed to encourage and create ownership and
retention of the Corporation's shares by the key employees. As a further
incentive to increase the profits and growth of the Corporation, the Board of
Directors has proposed, in Item 2 below, a stock option plan for shareholder
approval.
RESPONSIBILITIES OF THE COMPENSATION COMMITTEE
The Compensation Committee was established in 1979, and is composed of five
independent directors, none of whom is a former or current officer or employee
of the Corporation or any of its subsidiaries. The Committee reviews and
approves the base salaries, as well as the other annual bonus programs,
incentive plans and executive benefit plans. The Committee as needed engages
compensation and benefits-consulting firms to assist the Committee in the
performance of its duties. In 1995, the Compensation Research Group, Inc.
("CRG"), provided advice to the Committee concerning the reasonableness of
compensation paid to executive officers and analyzed the Corporation's
compensation and benefit programs. In addition, CRG provided information on
general compensation trends of related companies. For the purpose of this
analysis, CRG used the group of peer companies whose returns to shareholders
compose the peer group index shown in the performance graph below. CRG also
reviewed published compensation surveys for comparative results against the
Corporation's compensation level. The consultants have reviewed the
compensation of the Corporation's executive officers for 1995, and have
reported that compensation for all executive officers is reasonable in view of
the Corporation's performance and industry compensation levels. Measures used
for determining the appropriate level of compensation for 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.
11
CEO COMPENSATION
For the year 1995, the Compensation Committee authorized continuation of the
1994 base salaries for Parker S. Kennedy in the amount of $324,960, and D. P.
Kennedy in the amount of $297,180. On December 13, 1995, Parker S. and D. P.
Kennedy voluntarily waived their right to cash or stock bonuses
COMPENSATION COMMITTEE
Lewis W. Douglas, Jr., Chairman
J. David Chatham
The Hon. William G. Davis
Paul B. Fay, Jr.
R. J. Munzer
12
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 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., 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.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG THE FIRST AMERICAN FINANCIAL CORPORATION**, S&P 500 COMPOSITE INDEX**
S&P FINANCIAL INDEX*** AND CUSTOM PEER GROUP**
PERFORMANCE GRAPH APPEARS HERE
The First
American Custom S&P S&P 500
Measurement Period Financial Peer Financial Composite
(Fiscal Year Covered) Corp. Group Index Index
- ------------------- ---------- --------- --------- ---------
Measurement Pt- 12/31/90 $100 $100 $100 $100
FYE 12/31/91 $178 $141 $150 $131
FYE 12/31/92 $397 $198 $185 $141
FYE 12/31/93 $536 $230 $204 $154
FYE 12/30/94 $271 $195 $197 $157
FYE 12/29/95 $432 $306 $302 $215
* Adjusted for reinvestment of dividends. Stock price performance shown is not
indicative of future price performance.
** As calculated by the University of Chicago Center for Research in Securities
Prices, to include the reinvestment of dividends.
*** As calculated by Bloomberg, to include the reinvestment of dividends.
13
EXECUTIVE OFFICERS
NAME POSITION HELD AGE
---- ------------- ---
D. P. Kennedy Chairman 77
Parker S. Kennedy President 48
Thomas A. Klemens Executive Vice President, 45
Chief Financial Officer
Craig I. DeRoy Executive Vice President, 43
General Counsel
Mark R Arnesen Vice President, Secretary, 43
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 Executive Vice President,
Chief Financial Officer of the Corporation since 1996, served as its Vice
President, Chief Financial Officer from 1993 to 1996, and served as its
principal accounting officer from 1992 to 1993. Mr. Klemens has been employed
by First American as Vice President, Chief Financial Officer since 1993, and
served as its Vice President, Controller from 1985 to 1993. Craig I. DeRoy has
been Executive Vice President, General Counsel of the Corporation since 1996,
and served as its Vice President, General Counsel from 1993 to 1996. Mr. DeRoy
has been employed by First American as Vice President, General Counsel 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 Common shares of the Corporation, 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, 1995, its officers, directors and greater-than-ten-percent
beneficial owners complied with all filing requirements under Section 16(a),
except that Director James L. Doti was late in filing a monthly report on Form
4 covering one transaction.
14
ITEM 2. PROPOSAL TO APPROVE THE CORPORATION'S 1996 STOCK OPTION PLAN
GENERAL
The Board of Directors (the "Board") of The First American Financial
Corporation (the "Corporation") has adopted The First American Financial
Corporation 1996 Stock Option Plan (the "Plan") because the Board believes
that the Plan will further assist the Corporation in attracting, retaining and
motivating the best qualified officers and other key employees, and will
further enhance the long-term mutuality of interest between the Corporation's
shareholders and its officers and key employees. The principal features of the
Plan are summarized below, but the summary is qualified in its entirety by
reference to the full text of the Plan, a copy of which is included as Exhibit
"A" of this proxy statement.
Under the Plan, the Compensation Committee of the Board (the "Committee")
may grant stock options to officers and other key employees of the Corporation
and its subsidiaries ("Employees"). The number of grantees may vary from year
to year. At this time no options have been awarded under the Plan. The
Committee has not identified specific individuals who will be receiving a
grant of options under the Plan in the immediate future and therefore it is
not possible at this time to determine the benefits that may be provided to
the Corporation's executive officers and other Employees.
The maximum number of Common shares of the Corporation that may be subject
to options outstanding at any time under the Plan is 1,250,000. If there is a
stock split, stock dividend, recapitalization, or other relevant change
affecting the Corporation's Common shares, appropriate adjustments will be
made by the Committee in the number of shares that may be issued in the future
and in the numbers of shares and option exercise prices under all outstanding
grants made before such event. If shares under a grant are not issued, those
shares will again be available for inclusion in future grants. No more than 15
percent of the Common shares authorized under the Plan may be issued to an
individual Employee.
GRANTS UNDER THE PLAN
The Committee may grant to Employees nonqualified options and options
qualifying as incentive stock options under the Internal Revenue Code of 1986,
as amended (the "Code"). The exercise price of either a non-qualified stock
option or an incentive stock option will be no less than the fair market value
of the Common shares on the date of grant. The fair market value of the
Corporation's Common shares on March 20, 1996, was $29.25 per share. To
exercise an option, an Employee may pay the exercise price in cash, or if
permitted by the Committee, by delivering previously acquired Common shares of
the Corporation or a combination of such shares and cash.
The term of each option will be fixed by the Committee but may not exceed 10
years from the date of grant. The Committee will determine the time or times
when each option may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Committee.
In the event of termination of employment by reason of long-term disability
or death, any option held by the Employee may thereafter be exercised in full
for a period of one year. In the event of an Employee's termination of
employment for "cause" (as defined in the Plan), any options held by him will
be forfeited. In the event of an Employee's termination of employment by
reason of "retirement" (as defined in the Plan), any options held by him will
be exercisable, to the extent exercisable at the date of termination, for a
period of 90
15
days. In the event of an Employee's termination of employment for any reason
other than retirement, disability, death or cause, any options held by him
will be exercisable, to the extent exercisable at the date of termination, for
a period of five days. Notwithstanding the above, no option shall be
exercisable following the stated term of such option.
The Plan provides that, in the event of a "change in control" (as defined in
the Plan), each outstanding option shall become fully exercisable.
Options awarded under the Plan are not transferable except by will or the
laws of descent and distribution and may be exercised only by the grantee
during his lifetime. The Board may terminate or suspend the Plan at any time
but such termination or suspension will not affect any stock options then
outstanding under the Plan. Unless earlier terminated by action of the Board,
the Plan will continue in effect until February 21, 2006, but options granted
prior to that date will continue in effect until they expire in accordance
with their terms. The Board may also amend the Plan in any respect. It is
presently intended that all material amendments to the Plan will be submitted
to the shareholders for their approval to the extent required by Rule 16b-3
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
federal tax laws applicable to incentive stock options. The Committee may
amend the term of any option theretofore granted, retroactively or
prospectively, but no such amendment will adversely affect the option without
the holder's consent.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences to participants in the Plan based on federal income tax laws
currently in effect. This summary is not intended to cover all tax
consequences that may apply to such participants or to the Corporation, such
as those under applicable state, local or foreign tax laws.
An individual will not recognize income upon the grant of a nonqualified
option. The individual may recognize ordinary income upon the exercise of a
nonqualified option, in which event the Corporation will receive a tax
deduction equal to the amount of income recognized, provided that any
applicable tax reporting requirements are satisfied. Except as noted below,
the amount of such ordinary income and deduction is the excess, if any, of the
fair market value on the exercise date of the Common shares acquired over the
aggregate exercise price paid. Any ordinary income recognized by an individual
upon the exercise of a nonqualified option will increase his tax basis for the
shares received. Upon a subsequent sale or exchange of such shares, the
individual will recognize capital gain or loss to the extent of the difference
between the selling price of such shares and his tax basis in such shares.
Such gain or loss will be long-term or short-term capital gain or loss,
depending on the individual's holding period for such shares.
Section 83 of the Code and the regulations thereunder provide that, so long
as the Common shares are registered under the Exchange Act, the date for
reporting and determining the amount of ordinary income (and the Corporation's
equivalent deduction) upon exercise of a nonqualified option and for the
commencement of the holding period of the shares thereby acquired by an
Employee who is an executive officer or director of the Corporation subject to
potential liability under Section 16(b) of the Exchange Act for so-called
"short-swing" profits on the sale of the Common shares acquired upon the
exercise of an option (a "Section 16(b) Person") will be delayed until the
date that is the earlier of (i) six months after the date of the exercise and
(ii) such time as the shares received upon exercise could be sold at a gain
without the Section 16(b) Person being subject to such potential liability.
After the adoption of Section 83 of the Code, the rules of the SEC under
Section 16(b)
16
were significantly changed such that the acquisition of Common shares pursuant
to the exercise of an option granted under the Plan will be an exempt
acquisition for purposes of determining whether such individual has any
Section 16(b) liability, provided that the shares underlying the option are
not sold during the six-month period following the date on which the option
was granted. Thus, contrary to the treatment prior to the rule changes under
Section 16(b), the simultaneous exercise of an option and sale of the
underlying Common shares will not automatically result in a Section 16(b)
Person incurring liability under Section 16(b). However, if the Section 16(b)
Person engages in a non-exempt acquisition of Common shares within six months
of such sale, such Person could be subject to Section 16(b) liability. As a
result, the date for reporting and determining the amount of ordinary income
(and the Corporation's equivalent deduction) with respect to the exercise of
an option by a Section 16(b) Person is not absolutely certain.
An individual will not recognize income upon either the grant of an
incentive stock option or upon the exercise of the incentive stock option. The
individual will recognize gain or loss, depending on his basis in the stock
(which is generally equal to the exercise price paid for the shares), upon the
sale or other disposition of the Common shares acquired upon exercise. If
certain statutory holding periods are met, such gain or loss will be long-term
capital gain or loss and the Corporation will not be entitled to any federal
income tax deduction. If the holding periods are not met, the individual may
be required to recognize ordinary income and the Corporation will be entitled
to a tax deduction equal to the amount of ordinary income, if any, recognized,
provided that applicable tax reporting requirements are satisfied.
Incentive stock options will be treated as nonqualified options to the
extent that the aggregate fair market value of the Common shares (determined
at the time the options are granted) with respect to which incentive stock
options are exercisable for the first time by an individual during a calendar
year (whether as a result of acceleration of exercisability or otherwise)
exceeds $100,000.
An individual who exercises an incentive stock option may be subject to the
alternative minimum tax because, for purposes of the alternative minimum tax,
the option will be treated as a nonqualified option. Accordingly, the taxable
event for alternative minimum tax purposes will generally occur on the
exercise of the option.
FOR THE REASONS SET FORTH IN ITEM 2 ABOVE, THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE PROPOSAL FOR APPROVAL OF THE 1996 STOCK
OPTION PLAN.
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, 1996.
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.
17
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 November 30, 1996, 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 SHARES 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 1995 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 SHARES 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
$4,500 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 25, 1996
18
EXHIBIT "A"
THE FIRST AMERICAN FINANCIAL CORPORATION
1996 STOCK OPTION PLAN
SECTION 1
PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of the Company and materially increase shareholder value by (a)
motivating superior performance by means of performance-related incentives,
(b) encouraging and providing for the acquisition of an ownership interest in
the Company by Employees, and (c) enabling the Company to attract and retain
the services of an outstanding management team upon whose judgment, interest,
and special effort the successful conduct of its operations is largely
dependent.
SECTION 2
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have the
respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (i) the willful failure by the Participant to perform
substantially his duties as an Employee of the Company (other than due to
physical or mental illness) after reasonable notice to the Participant of
such failure, (ii) the Participant's engaging in serious misconduct that is
injurious to the Company or any Subsidiary, (iii) the Participant's having
been convicted of, or entered a plea of nolo contendere to, a crime that
constitutes a felony or (iv) the breach by the Participant of any written
covenant or agreement with the Company or any Subsidiary not to disclose
any information pertaining to the Company or any Subsidiary or not to
compete or interfere with the Company or any Subsidiary.
(d) "Change in Control" means the occurrence, following the grant of an
Option, of any of the following events:
(i) the acquisition by any person, entity or group (within the
meaning of section 13(d)(3) of the Act, as amended) as beneficial
owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the then
outstanding securities of the Company; or
(ii) a change, during any period of two consecutive years, of a
majority of the Board as constituted at the beginning of such period,
unless the election of each director who was not a director at the
beginning of such period was approved by a vote of at least two-thirds
of the directors then in office who were directors at the beginning of
such period; or
(iii) any other event constituting a change in control required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
under the Act.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
A-1
(f) "Committee" means the Compensation Committee of the Board, which
shall consist of two or more members, each of whom shall be "disinterested
persons" within the meaning of Rule 16b-3, as promulgated under the Act, or
any other committee appointed by the Board to administer the Plan.
(g) "Company" means The First American Financial Corporation, a
California corporation, and any successor thereto.
(h) "Disability" means total disability as determined in accordance with
the terms of the long-term disability plan of the Company or any of its
Subsidiaries in which the Participant is eligible to participate.
(i) "Employee" means any officer or other key employee of the Company or
any of its Subsidiaries.
(j) "Fair Market Value" means, on any date, the average of the bid and
asked for price of a share of Stock as reported on the New York Stock
Exchange ("NYSE") (or on such other recognized market or quotation system
on which shares of the Stock are traded or quoted at the relevant time) on
such date. In the event that there are no Stock transactions reported on
NYSE (or such other market or system) on such date, Fair Market Value shall
mean the closing price on the immediately preceding date on which Stock
transactions were so reported.
(k) "Incentive Stock Option" means an Option that is an Incentive Stock
Option within the requirements of section 422 of the Code.
(l) "Nonstatutory Stock Option" means an Option that is not an Incentive
Stock Option.
(m) "Option" means the right to purchase Stock at a stated price for a
specified period of time. For purposes of the Plan, an Option may be either
(i) an Incentive Stock Option or (ii) a Nonstatutory Stock Option.
(n) "Participant" means any Employee designated by the Committee to
participate in the Plan.
(o) "Plan" means The First American Financial Corporation 1996 Stock
Option Plan, as in effect from time to time.
(p) "Retirement" means termination of a Participant's employment on or
after the date the Participant attains age 65.
(q) "Stock" means the Common shares of the Company, par value $1.00 per
share.
(r) "Subsidiary" means any corporation or partnership in which the
Company owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation or of the capital
interest or profits interest of such partnership.
2.2 Gender and Number. Except when otherwise indicated by the context, words
in the masculine gender used in the Plan shall include the feminine gender,
the singular shall include the plural, and the plural shall include the
singular.
SECTION 3
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees selected by the Committee
to participate in the Plan.
A-2
SECTION 4
POWERS OF THE COMMITTEE
4.1 Power to Grant. The Committee shall determine the Participants to whom
Options shall be granted and the terms and conditions of any and all such
Options. The terms and conditions of each Option shall be determined by the
Committee at the time of grant, and such terms and conditions shall not be
subsequently changed in a manner that would be adverse to Participants without
the consent of the Participant to whom such Option has been granted. The
Committee may establish different terms and conditions for different
Participants receiving Options and for each Option any Participant may
receive, whether or not granted at different times.
4.2 Substitute Options. The Committee shall have the right to grant Options
in substitution for, or upon the cancellation of, Options previously granted,
and such new Options may contain terms more favorable to the recipient than
the Options they replace, including, without limitation, a lower exercise
price (subject to Section 6.2).
4.3 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to prescribe, amend, and rescind rules and regulations relating to
the Plan, to provide for conditions deemed necessary or advisable to protect
the interests of the Company, and to make all other determinations necessary
or advisable for the administration and interpretation of the Plan with a view
to carrying out its provisions and purposes. All determinations, decisions,
interpretations and other actions made or taken by the Committee pursuant to
the provisions of the Plan shall be final, binding and conclusive for all
purposes and upon all persons.
SECTION 5
STOCK SUBJECT TO PLAN
5.1 Number. Subject to the provisions of Section 5.3, the number of shares
of Stock subject to Options under the Plan may not exceed 1,250,000 shares.
The shares to be delivered under the Plan may consist, in whole or in part, of
treasury Stock or authorized but unissued Stock, not reserved for any other
purpose.
5.2 Canceled, Terminated, or Forfeited Options. Any shares of Stock subject
to an Option that for any reason is canceled, terminated or otherwise settled
without the issuance of any Stock shall again be available for Options
subsequently granted under the Plan.
5.3 Adjustment in Capitalization. In the event of any Stock dividend or
Stock split, recapitalization (including, without limitation, the payment of
an extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to stockholders, exchange of shares, or other similar
corporate change, the aggregate number of shares of Stock available for
Options under Section 5.1 or subject to outstanding Options and the respective
prices and/or performance criteria applicable to outstanding Options may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
SECTION 6
STOCK OPTIONS
6.1 Grant of Options. Options may be granted to Participants at such time or
times as shall be determined by the Committee. The Committee shall have
complete discretion in determining the number of Options, if any, to be
granted to a Participant, provided that no Participant may in the aggregate be
granted Options representing more than 15 percent of the shares of Stock
authorized for issuance pursuant to Section 5.1. Each Option shall
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be evidenced by an agreement between the Company and the Participant
specifying the type of Option granted, the exercise price, the duration of the
Option, the number of shares of Stock to which the Option pertains, and such
other terms and conditions not inconsistent with the Plan as the Committee
shall determine.
6.2 Option Price. Nonstatutory Stock Options and Incentive Stock Options
granted pursuant to the Plan shall have an exercise price that is not less
than the Fair Market Value on the date the Option is granted.
6.3. Exercise of Options. Options awarded to a Participant under the Plan
shall be exercisable at such times and shall be subject to such restrictions
and conditions, including the performance of a minimum period of service or
the satisfaction of performance goals, as the Committee may impose at the time
of granting such Options, subject to the Committee's right to accelerate the
exercisability of such Options in its discretion. Notwithstanding the
foregoing, no Option shall be exercisable for more than 10 years after the
date on which it is granted.
6.4 Payment. The Committee shall establish procedures governing the exercise
of Options, which shall require that written notice of exercise be given and
that the Option price be paid in full in cash or cash equivalents, including
by personal check, at the time of exercise. The Committee may, in its
discretion, permit a Participant to make payment in Stock already owned by him
or her, valued at its Fair Market Value on the date of exercise, as partial or
full payment of the exercise price. As soon as practicable after receipt of a
written exercise notice and full payment of the exercise price, the Company
shall deliver to the Participant a certificate or certificates representing
the acquired shares of Stock.
6.5 Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary, no term of the Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be so exercised, so as to disqualify the Plan under Section 422
of the Code, or, without the consent of any Participant affected thereby, to
cause any Incentive Stock Option previously granted to fail to qualify for the
federal income tax treatment afforded under Section 421 of the Code.
6.6 Change in Control. Each outstanding Option shall become fully
exercisable immediately upon the occurrence of a Change in Control.
SECTION 7
TERMINATION OF EMPLOYMENT
7.1 Termination of Employment Due to Retirement. Unless otherwise determined
by the Committee, in the event a Participant's employment terminates by reason
of Retirement, any Options granted to such Participant which are not then
exercisable shall be cancelled and any Options granted to such Participant
which are then exercisable and outstanding may be exercised at any time prior
to the expiration of the term of the Options or within ninety (90) days (or
such other period as the Committee shall determine at the time of grant)
following the Participant's termination of employment, whichever period is
shorter.
7.2. Termination of Employment Due to Death or Disability. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant's
employment terminates by reason of death or Disability, any Options granted to
such Participant which are then outstanding may be exercised by the
Participant or the Participant's designated beneficiary, surviving spouse or
estate, as applicable in accordance with Section 9.2, at any time prior to the
expiration date of the term of the Options or within one year (or such other
period as the Committee shall determine at the time of grant) following such
termination of the Participant's employment, whichever period is shorter.
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7.3 Termination of Employment For Cause. Unless otherwise determined by the
Committee at the time of grant, in the event a Participant's employment is
terminated for Cause, any Options granted to such Participant which are then
outstanding (whether or not exercisable prior to the date of such termination)
shall be forfeited.
7.4 Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at or after the time of grant, in the event the
employment of a Participant shall terminate for any reason other than one
described in Sections 7.1, 7.2 or 7.3, any Options granted to such Participant
which are not exercisable shall be cancelled, and any Options granted to such
Participant which are exercisable and outstanding at the date of the
Participant's termination of employment shall be exercisable at any time prior
to the expiration of the term of such Options or the fifth day following the
Participant's termination of employment, whichever period is shorter.
SECTION 8
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board may at any time terminate or suspend the Plan, and from time to
time may amend or modify the Plan. No amendment, modification, or termination
of the Plan shall in any manner adversely affect any Option theretofore
granted under the Plan, without the consent of the Participant.
SECTION 9
MISCELLANEOUS PROVISIONS
9.1 Nontransferability of Options. No Options granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution to the
Participant's designated beneficiary upon the Participant's death, provided,
that the deceased Participant's beneficiary or the representative of his
estate shall acknowledge and agree in writing, in a form prescribed by the
Committee, to be bound by the provisions of the Plan as if such beneficiary or
the estate were the Participant. All rights with respect to Options granted to
a Participant under the Plan shall be exercisable during his lifetime only by
such Participant.
9.2 Beneficiary Designation. Each Participant may from time to time name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid or by whom any right under
the Plan is to be exercised in the event of the Participant's death. Each
designation will revoke all prior designations by the same Participant, shall
be in a form prescribed by the Committee, and will be effective only when
filed by the Participant in writing with the Committee during his lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to or exercised by the Participant's
surviving spouse, or, if the Participant has no surviving spouse, then to or
by the Participant's estate.
9.3 No Guarantee of Employment or Participation. Nothing in the Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary
to terminate any Participant's employment at any time or for any reason, nor
confer upon any Participant any right to continue in the employ of the Company
or any Subsidiary or affiliate. No Employee shall have a right to be selected
as a Participant, or, having been so selected, to receive any future Options.
9.4 Tax Withholding. Any federal, state, and local taxes, including FICA
amounts, required by law to be withheld with respect to Stock received upon
the exercise of an Option under the Plan or with respect to benefits
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earned and vested under any other compensation arrangement may, if not
remitted by a Participant, be withheld from Stock otherwise issuable to such
Participant or from such Participant's salary, wages or other amounts paid by
the Company and reasonably available for withholding. Prior to issuing Stock
or authorizing the issuance of Stock under this Plan, the Company may require
such documents from any taxing authority, or may require such indemnities or
surety bond from any Participant or beneficiary, as the Company shall
reasonably consider necessary for its protection.
9.5 Indemnification. The Company shall, through the purchase of insurance or
otherwise, indemnify each member of the Board (or board of directors of any
affiliate), each member of the Committee, and any other employees to whom any
responsibility with respect to the Plan is allocated or delegated, from and
against any and all claims, losses, damages, and expenses, including
attorneys' fees, and any liability, including any amounts paid in settlement
with the Company's approval, arising from the individual's action or failure
to act, except when the same is judicially determined to be attributable to
the gross negligence or willful misconduct of such person. The right of
indemnity described in the preceding sentence shall be conditioned upon (i)
the timely receipt of notice by the Company of any claim asserted against the
individual, which notice, in the event of a lawsuit, shall be given within ten
days after receipt by the individual of the complaint, and (ii) the receipt by
the Company from the individual of an offer for the Company to participate in
the settlement or defense of such claim.
9.6 No Limitation on Compensation. Nothing in the Plan shall be construed to
limit the right of the Company to establish other plans or to pay compensation
to its employees in cash or property, in a manner differing from that
authorized under the Plan.
9.7 Requirements of Law. The granting of Options and the issuance of shares
of Stock shall be subject to all applicable laws, rules, and regulations, and
to such approvals by any governmental agencies or national securities
exchanges as may be required.
9.8 Term of Plan. The Plan shall be effective upon its adoption by the Board
and approval by the shareholders of the Company. The Plan shall continue in
effect, unless sooner terminated pursuant to Section 8, until the tenth
anniversary of the date on which it is adopted by the Board.
9.9 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of
California.
9.10 No Impact On Benefits. Options granted under the Plan are not
compensation for purposes of calculating an Employee's rights under any
employee benefit plan.
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[LOGO of FIRST AMERICAN FINANCIAL CORPORATION]
FIRST AMERICAN SQUARE . 114 EAST FIFTH STREET, SANTA ANA, CA 92701-4642
[LOGO OF FIRST AMERICAN FINANCIAL CORP.]
THE FIRST AMERICAN FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
OF THE FIRST AMERICAN
FINANCIAL CORPORATION
Wednesday, April 24, 1996
2:00 p.m.
At the main office of
First American Title Insurance Company
114 East Fifth Street . Santa Ana, California 92701
-------------------------------------
Your Vote Is Important To The Company
-------------------------------------
Please complete, sign and return your proxy by tearing off the bottom portion of
this sheet and returning it in the enclosed postpaid envelope.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
THE FIRST AMERICAN FINANCIAL CORPORATION
FIRST AMERICAN SQUARE . 114 E. FIFTH ST., 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 24, 1996, 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 and the
approval of The First American Financial Corporation 1996 Stock Option Plan, as
indicated on the reverse side 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 PROPOSALS
LISTED ON THE REVERSE SIDE HEREOF AS THERE SPECIFIED. WHERE NO SPECIFICATION
IS MADE, SAID SHARES WILL BE VOTED FOR THE PROPOSALS.
(Continued and to be signed on reverse side)
[LOGO OF FIRST AMERICAN FINANCIAL CORP.]
THE FIRST AMERICAN FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Continued from other side)
The Board of Directors recommends a vote FOR items 1 and 2 listed below.
1. Election of Directors FOR [ ] all nominees listed below (except as marked
to the contrary below) WITHHOLD AUTHORITY [ ] 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., 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.)
- --------------------------------------------------------------------------------
2. Approval of the 1996 Stock Option Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN
- ---------------------- ------------------------ Dated................., 1996
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.