Business Context and Reporting Period
Company: First Advantage Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: September 14, 2005
Event: Completion of the acquisition of the CIG Business, a minority interest in Dealer Track Holdings, Inc., Bar None, Inc., and the XRES Business from The First American Corporation ("First American").
Key Financial Metrics and Capital Structure
This filing details a significant capital restructuring and asset acquisition rather than standard operating financial results. Key financial figures include:
- Acquisition Consideration: Issuance of 29,073,170 shares of Class B common stock to First American.
- Debt Repayment: Repayment of a $20 million promissory note to First American via the issuance of 975,610 shares of Class B common stock.
- New Debt Obligation: Execution of a $45 million unsecured subordinated promissory note in favor of First American for working capital.
- Contingent Liability: Assumption of a potential earn-out payment of up to $9 million to former stockholders of Bar None based on future financial targets.
- Operating Lease: Entered into a five-year office lease in Poway, California, with monthly rent of approximately $169,000.
- Ownership Structure: First American's ownership increased from approximately 67% to 80% of outstanding capital stock, controlling approximately 98% of voting power.
Note: The filing does not provide specific revenue, profit, cash flow, or margin figures for the reporting period.
Material Changes Versus Prior Period
- Asset Base: Significant expansion through the acquisition of credit information businesses (CIG, XRES), automotive lead generation (Bar None), and software services (Dealer Track).
- Capitalization: Issuance of approximately 30 million shares of Class B common stock (convertible to Class A) in connection with the acquisition and debt repayment.
- Authorized Shares: Increased authorized Class A common stock from 75 million to 125 million shares and Class B common stock from 25 million to 75 million shares.
- Management: Anand Nallathambi appointed as President of First Advantage effective upon the acquisition closing.
- Compensation Plan: Amended the 2003 Incentive Compensation Plan to increase available shares from 3 million to 7 million and expand award types.
Guidance, Outlook, Risks, and Unusual Items
- Future Consideration: First Advantage is obligated to issue additional Class B shares if Dealer Track completes an IPO within two years and its value exceeds $50 million.
- Related Party Transactions: The company is dependent on First American for key services under an amended Services Agreement, including exclusive reselling rights for credit information to mortgage lenders.
- Financial Obligations: The $45 million promissory note matures 135 days after closing and bears interest at the Bank of America line of credit rate plus 0.5%.
- Regulatory Compliance: Amendments to the Code of Ethics were made to enhance security practices and enable periodic background checks.
- Financial Statements: Audited financial statements of the acquired businesses and pro forma financial information are not included in this filing but will be filed within 71 days if required.
Investor Verification Checklist
- Verify the valuation assumptions used for the issuance of 29 million shares in the acquisition.
- Review the terms of the $45 million subordinated promissory note and its impact on liquidity.
- Assess the dependency risks associated with the exclusive reseller agreement with First American.
- Monitor the potential $9 million earn-out liability for Bar None and the contingent share issuance for Dealer Track.
- Confirm the filing of pro forma financial information within the 71-day window to understand the combined entity's financial position.