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First American Mispriced Stock Options

January 5, 2007

SANTA ANA, Calif. (AP) -- First American Corp on Friday said mispriced and improperly accounted stock option awards granted between 1996 and 2006 amounted to $35.7 million. First American called the impact of the costs on shareholder equity "negligible," but said it would restate earnings between 2001 and 2005. In total, the restatements would draw down profit over the period by 27 cents per share.

The company said it would also take an additional expense in the first quarter of 2006 of about $1.9 million, which would reduce earnings in that period to 69 cents per share from 71 cents per share.

First American added that its investigation, which the company disclosed in November, did not uncover any intent of fraud, self-interest on the part of management or members of its board of directors, or intent to misstate financial statements. Instead, the company pointed to its date selection method, internal control deficiencies and the misapplication of technical accounting provisions.

First American additionally noted that it would take action to improve its practice for awarding stock options.

The company will file quarterly reports for the periods ended Sept. 30 and June 30, 2006, which the backdating investigation delayed, by Monday.

Backdating refers to a method whereby the vesting price of a stock option is set to a day when the stock traded cheaply, making it more valuable for the executive holding the option. While not necessarily illegal, the method can be problematic if not properly disclosed to investors.

At least 197 companies have disclosed Securities and Exchange Commission, Department of Justice or internal investigations related to backdating, according to an Associated Press review.

Coopyright 2007 Associated Press

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