NOVASTAR FINANCIAL, INC.
2114 Central Street, Suite 600
Kansas City, MO 64108
(816) 237-7000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Our Stockholders:
You are cordially invited to attend the annual meeting of stockholders of NovaStar Financial, Inc., a Maryland corporation (the “Company”), to be held on Thursday, June 25, 200917, 2010 at 10:00 a.m., Central Time, at the Hyatt Regency Crown Center Hotel, 2345 McGee Street, Kansas City, MO 64108, for the following purposes:
| 1. | | To elect by vote of the holders of the Company’s common stock, par value $0.01 per share (the “Common Stock”), and holders of NovaStar Financial’s 9.00% Series D1 Mandatory Convertible Preferred Stock, par value $0.01 per share (the “Series D1 Preferred Stock”), two Class III directors to serve until the annual meeting of stockholders to be held in 20122013 and until their successors are elected and qualify; |
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| 2. | To elect, by vote of the holders of the 8.90% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share, two directors to serve until such time that all dividends accumulated and due on such stock have been paid fully paid; |
| 3. | To ratify by vote of the holders of Common Stock and holders the Series D1 Preferred Stock, the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009;2010; and |
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4. | 3. | | To transact such other business as may properly come before the annual meeting and any postponement or adjournment thereof. |
A proxy statement describing the matters to be considered at the annual meeting is attached to this notice. The Board of Directors has fixed the close of business on May 8, 2009April 23, 2010 as the record date for determination of stockholders entitled to notice of, and to vote at, the annual meeting and any postponement or adjournment thereof.
By Order of the Board of Directors | |
By Order of the Board of Directors | |
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/s/ W. Lance Anderson | |
W. Lance Anderson
Chairman of the Board and
/s/ W. Lance Anderson W. Lance Anderson Chairman of the Board and Chief Executive Officer | |
Kansas City, Missouri
May 29, 2009
April 30, 2010
YOUR VOTE IS IMPORTANT
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR AUTHORIZE A PROXY TO VOTE YOUR
SHARES BY TELEPHONE OR VIA THE INTERNET AS INSTRUCTED ON THE PROXY CARD. YOUR VOTE IS
REVOCABLE IN ACCORDANCE WITH THE PROCEDURES SET FORTH IN THIS PROXY STATEMENT. IF YOU
ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU RETURNED A PROXY.
TABLE OF CONTENTS
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GENERAL INFORMATION | | 1 |
PROPOSAL 1 – ELECTION OF CLASS III DIRECTORS BY HOLDERS OF COMMON STOCK AND SERIES D1 PREFERRED STOCK | | 3 |
PROPOSAL 2 – ELECTION OF SERIES C DIRECTORS BY HOLDERS OF SERIES C PREFERRED STOCK | | 4 |
CORPORATE GOVERNANCE AND OTHERRELATED MATTERS | | 5 |
AUDIT COMMITTEE REPORT | | 810 |
EXECUTIVE OFFICERS | | 911 |
EXECUTIVE COMPENSATION | | 911 |
SECURITIES OWNERSHIP | | 14 |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | | 1615 |
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PARTIES; RELATED PARTY TRANSACTIONS | | 16 |
PROPOSAL 32 – RATIFICATION OF THE SELECTION OF THE INDEPENDENT REGISTERED PUBLIC | | |
ACCOUNTING FIRM | | 1718 |
OTHER BUSINESS | | 1819 |
STOCKHOLDER PROPOSALS OR NOMINATIONS – 20102011 ANNUAL MEETING | | 19 |
NOVASTAR FINANCIAL, INC.
2114 Central Street, Suite 600
Kansas City, MO 64108
(816) 237-7000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 25, 200917, 2010
To Our Stockholders:
The Board of Directors of NovaStar Financial, Inc., a Maryland corporation (“NovaStar Financial” or the “Company”), is furnishing this proxy statement in connection with its solicitation of proxies for use at the annual meeting of stockholders to be held on Thursday, June 25, 200917, 2010 at 10:00 a.m., Central Time, at the Hyatt Regency Crown Center Hotel, 2345 McGee Street, Kansas City, MO 64108. This proxy statement, the accompanying proxy card and the notice of annual meeting are being provided to stockholders beginning on or about May 29, 2009.April 30, 2010.
Record Date and Voting Rights
Holders of shares of NovaStar Financial’s common stock, par value $0.01 per share (the “Common Stock”), and holders of NovaStar Financial’s 9.00% Series D1 Mandatory Convertible Preferred Stock, par value $0.01 per share (the “Series D1 Preferred Stock”), in each case at the close of business on May 8, 2009,April 23, 2010, the record date, are entitled to notice of, and to vote on Proposals 1 and 3 at the annual meeting. On that date, 9,368,053shares of Common Stock and 2,100,000 shares of Series D1 Preferred Stock were outstanding. Holders of Common Stock and Series D1 Preferred Stock are not entitled to vote on Proposal 2.
Each holder of Common Stock is entitled to one vote for each share of Common Stock held as of the record date. Each holder of Series D1 Preferred Stock is entitled to one vote for each share of Common Stock into which the Series D1 Preferred Stock held as of the record date is convertible, in the aggregate. The outstanding Series D1 Preferred Stock is convertible into 1,875,000 shares of Common Stock, in the aggregate. Consequently, the aggregate number of votes entitled to be cast at the annual meeting is 11,243,053.
Holders of NovaStar Financial’s 8.90% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) on May 8, 2009, the record date, are entitled to notice of, and to vote as a separate class on Proposal 2 at, the annual meeting Each holder of Series C Preferred Stock is entitled to one vote for each share of Series C Preferred Stock held as of the record date. On the record date, 2,990,000 shares of Series C Preferred Stock were outstanding. Holders of Series C Preferred Stock are not entitled to vote on Proposals 1 and 3 or on any other matters to be considered at the annual meeting.
Voting of Proxies
With respect to Proposals 1 and 3 and any other matters that may be brought before the annual meeting:
If you are not planning on attending the annual meeting to vote your shares in person, your shares of Common Stock or Series D1 Preferred Stock cannot be voted until either a signed proxy card is returned to the Company or voting instructions are submitted by using the Internet or by calling a specifically designated telephone number. Specific instructions for stockholders of record who wish to use the Internet or telephone voting procedures are set forth on the enclosed proxy card.
Shares of stock represented by properly executed proxies received in time for the annual meeting will be voted in accordance with the choices specified in the proxies. Unless contrary instructions are indicated on the proxy:
- shares will be voted FORthe election of the nominees named in this proxy statement as Class
III directors;
shares will be voted FORthe ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2009.2010.
With respect to Proposal 2:
If you are not planning on attending the annual meeting to vote your shares in person, your shares of Series C Preferred Stock cannot be voted until either a signed proxy card is returned to the Company or voting instructions are submitted by using the Internet or by calling a specifically designated telephone number. Specific instructions for stockholders of record who wish to use the Internet or telephone voting procedures are set forth on the enclosed proxy card. If a holder of Series C Preferred Stock does not vote for any nominee or votes for more than two nominees, such holder’s proxy will not be voted, and such holder will have been deemed to have abstained on the matter.
The Board of Directors is not making a recommendation “FOR” or “AGAINST” any of the nominees for Series C directors. Nonetheless, we encourage the holders of the Series C Preferred Stock to vote.
Revocability of Proxy
The giving of the enclosed proxy does not preclude the right to vote in person should the stockholder giving the proxy so desire. A proxy may be revoked at any time prior to its exercise by delivering a written statement to the Corporate Secretary that the proxy is revoked, by presenting a later-dated proxy, or by attending the annual meeting and voting in person.
Solicitation of Proxies
The costs of this solicitation by the Board of Directors will be borne by the Company. Proxy solicitations will be made by mail and also may be made by personal interview, telephone, facsimile transmission and telegram. Banks, brokerage house nominees and other fiduciaries are requested to forward the proxy soliciting material to the beneficial owners and to obtain authorization for the execution of proxies. NovaStar Financial will, upon request, reimburse those parties for their reasonable expenses in forwarding proxy materials to the beneficial owners. NovaStar Financial may engage an outside firm to solicit votes. If such a firm is engaged subsequent to the date of this proxy statement, the cost is estimated to be less than $10,000, plus reasonable out-of-pocket expenses.
Broker Non-Votes
If the shares you own are held in “street name” by a bank, brokerage firm or other nominee, your nominee, as the record holder of your shares, is required to vote your shares according to your instructions. In order to vote your shares, you will need to follow the directions your nominee provides to you. If you do not give instructions to your nominee, your nominee will stilldetermine whether it has discretionary authority to vote your shares. Recent changes in regulations now prohibit nominees from voting shares in elections of directors unless the beneficial owners indicate how the shares are to be ablevoted. Therefore, unlike in prior years, unless you instruct your nominee on how to vote your shares with respect to “discretionary” items, including the election of directors, includedyour nominee will be prohibited from voting on your behalf. As such, it is critical that you cast your vote if you want it to count in this proxy statement as Proposal 1 and Proposal 2 andthe election of directors at the annual meeting. Your nominee will, however, continue to have discretionary authority to vote uninstructed shares on the ratification of the appointment of the Company’s independent registered public accounting firm included in this proxy statement as Proposal 3. However, your nominee will not be allowed to vote your shares with respect to “non-discretionary” items. When a nominee does not vote on such “non-discretionary” items because instructions are not received, it is referred to as a “broker non-vote.”firm.
Votes Required for Approval of Proposals
With respect to Proposals 1 and 3 and any other matters that may be brought before the annual meeting:
The presence, in person or by proxy, of stockholders entitled to cast a majority of all of the votes entitled to be cast (including the Series D1 Preferred Stock on an as-converted into common stockCommon Stock basis) constitutes a quorum for the transaction of business at the annual meeting. Both abstentions and broker non-votes will be considered present for the purpose of determining the presence of a quorum.
Proposal 1: The vote of a plurality of all of the votes cast at the annual meeting (at which a quorum is present) is required for the election of Class III directors. For purposes of the election of Class III directors, broker non-votes and abstentions will not be counted as votes castexcluded entirely and will have no effect on the result of the vote.
Proposal 3:2: The affirmative vote of a majority of the votes cast at the annual meeting (at which a quorum is present) is required for ratification of the independent registered public accounting firm. For purposes of the vote on the ratification of the independent registered public accounting firm, abstentions will not be countedhave the same effect as votes cast and will have no effect ona vote against the result of the vote.
With respect to Proposal 2:
Proposal 2: The vote of a plurality of all of the votes cast by the holders of the Series C Preferred Stock at the annual meeting (at which a quorum is present) is required for the election of the Series C directors. Holders of Series C Preferred Stock may vote for two Series C director nominees, but may not vote twice for a single nominee. For purposes of the election of the Series C directors, abstentions will not be counted as votes cast and will have no effect on the result of the vote. Additionally, if you sell or transfer all of your shares of Series C Preferred Stock before the annual meeting and as such, are no longer holder of Series C Preferred Stock at the date of the annual meeting, your nomination for Series C Director will not be considered.proposal.
Voting by Shares Held in the 401(k) Plan
If you participate in the NovaStar Financial, Inc. 401(k) plan and your account has investments in shares of the Company’s Common Stock, you must provide voting instructions to the plan trustee (either via the proxy card or by Internet or telephone) no later than 11:59 P.M. Eastern Time on June 24, 200916, 2010 in order for your shares to be voted as you instruct. If no voting instructions are received by the plan trustee, your 401(k) shares will be voted by the plan administrator. Your voting instructions will be held in strict confidence. “Householding” of Proxy Materials
“Householding” of Proxy Materials
In December of 2000, the Securities and Exchange Commission adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements with respect to two or more security holders sharing the same address by delivering a single proxy statement addressed to those security holders. This process is commonly referred to as “householding.”
A single proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from an affected stockholder. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If you or another stockholder of record with whom you share an address wish to receive a separate Annual Report or Proxy Statement, we will promptly deliver it to you if you request it by writing to: NovaStar Financial, Inc., Investor Relations, 2114 Central Street, Suite 600, Kansas City, MO 64108. If you or another stockholder of record with whom you share an address wish to receive a separate Annual Report or Proxy Statement in the future, you may telephone toll-free 1-800-542-1061 or write to Broadridge, Attention Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
Stockholders who currently receive multiple copies of the proxy statement at their address and would like to request “householding” of their communications should contact their broker.
PROPOSAL 1 – ELECTION OF CLASS III DIRECTORS
BY HOLDERS OF COMMON STOCK AND SERIES D1 PREFERRED STOCK
The Board of Directors is divided into three classes, designated Class I, Class II and Class III, with one class standing for election at the annual meeting of stockholders each year. A director elected by stockholders shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor is elected and qualifies, subject however, to prior death, resignation, retirement, disqualification or removal from office. Two Class III directors will be elected at this year’s annual meeting. Their terms will expire upon the 20122013 annual meeting. The nominees for Class III directors are set forth below. The proxy holders intend to vote all proxies received by them in the accompanying form for the nominees for Class III directors listed below unless otherwise specified by the stockholder. In the event that the nominee is unable or declines to serve as a Class III director at the time of the annual meeting, the proxies will be voted for the nominee who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them for the nominee listed below and against any other nominee. Each nominee has agreed to serve as a director if elected, and as of the date of this proxy statement the Board of Directors is not aware that the either nominee is unable to serve as director. The nominees listed below alreadycurrently serve as directors of NovaStar Financial.
The election to the Board of Directors of the nominees identified in the proxy statement will require a plurality of all of the votes cast by the holders of Common Stock and Series D1 Preferred Stock at the annual meeting.
The Board of Directors unanimously recommends that the holders of Common Stock and Series D1 Preferred Stockstockholders vote “FOR”
“FOR” the nominees identified below:
Name | | |
| | Position with NovaStar Financial, Inc. |
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Art N. Burtscher | W. Lance Anderson | Class III Director |
Edward W. Mehrer | Gregory T. Barmore | Class III Director |
Nominees and Directors
Set forth below is certain information regarding each nominee for director and continuing director of the Company. The information presented includes information provided to the Company by each nominee and director including such person’s name, age, principal occupation and business experience for the past five years, the names of other publicly-held companies of which such person currently serves as a director or has served as a director during the past five years and the year in which the nominee first became a director of the Company.
In addition to the information presented below regarding the specific experience, qualifications, attributes and skills of each nominee and director that led the Board of Directors to the conclusion that such person should serve as a director, the Board also believes that all of the nominees and directors have a reputation for high personal and professional ethics, integrity, values and character. Each nominee and director brings a strong and unique background and set of skills to the Board of Directors giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance and board service, executive management, law and regulation, accounting and finance, and risk assessment. They have demonstrated business acumen and an ability to exercise sound judgment, as well as a commitment of service to the Company and the Board. Each nominee and director is committed to achieving, monitoring and improving on the Company’s business strategy.
Class III Nominees – Terms Expiring 2012
Art N. Burtscher, age 58, has been a member of the Board of Directors since 2001. In 2000, Mr. Burtscher became Chairman of McCarthy Group Advisors, LLC, an Omaha, Nebraska asset management organization. From 1988 to 2000, Mr. Burtscher served as President and Chief Executive Officer of Great Western Bank in Omaha, Nebraska. Mr. Burtscher also serves on the Board of Directors of Great Western Bancorporation, Inc., an Omaha, Nebraska multi-bank holding company, and NIC Inc., an Overland Park, Kansas eGovernment service provider.2013
Edward W. Mehrer, age 70, has been a member of the Board of Directors since 1996. From November 2002 through June 2003, he served as Interim President & Chief Executive Officer of Cydex, a pharmaceutical company based in Overland Park, Kansas. From 1996 through December 2003, he served as Chief Financial Officer of Cydex. For approximately ten years and until December 1995, Mr. Mehrer was associated with Hoechst Marion Roussel, formerly Marion Merrell Dow, Inc., an international pharmaceutical company (Marion). From December 1991 to December 1995, he served as Executive Vice President and Chief Financial Officer and a director of Marion. Prior to joining Marion, Mr. Mehrer was a partner with the public accounting firm of Peat, Marwick, Mitchell & Co., a predecessor firm to KPMG LLP, in Kansas City, Missouri. Mr. Mehrer also serves on the Board of Directors of FBL Financial Group, Inc., a Des Moines, Iowa insurance company.
Class II Directors – Terms Expiring 2010
W. Lance Anderson, age 48,50, is a co-founder, Chairman of the Board and Chief Executive Officer (CEO)(“CEO”) of NovaStar Financial, and has been a member of the Board of Directors since 1996. His primary responsibilities are to interact with the capital markets and oversee the portfolio of investments. Prior to Mr. Anderson’s appointment as CEO, he served as President and Chief Operating Officer where his primary responsibilities included directing the mortgage origination and servicing operations along with the non-financial support areas of human resources, information systems and legal.Officer. Prior to joining NovaStar Financial, Mr. Anderson served as Executive Vice President of Dynex Capital, Inc., formerly Resource Mortgage Capital, Inc., a New York Stock Exchange listed real estate investment trust (Dynex)(“Dynex”). In addition, Mr. Anderson was President and Chief Executive Officer of Dynex’s single-family mortgage operation, Saxon Mortgage. Prior to joining NovaStar Financial, he had been at Dynex since October 1989.
The Board believes Mr. Anderson qualifications to sit on the Board and serve as its Chairman include his extensive executive and operational experience and his detailed knowledge, as co-founder and an executive officer, of the Company and its development.
Gregory T. Barmore, age 66,67, has served on the Board of Directors since 1996. HeMr. Barmore is Chairman of the Board of Directors of ICO, Inc., a Houston, Texas based plastics products company and is a member of its audit committee and governance and nominating committee. In 1997, Mr. Barmore retired as Chairman of the Board of GE Capital Mortgage Corporation (GECMC)(“GECMC”), a subsidiary of General Electric Capital Corporation (GE Capital) headquartered in Raleigh, North Carolina in 1997. HeCarolina. In that capacity, he was responsible for overseeing the strategic development of GECMC’s residential real estate-affiliated financial business, including mortgage insurance, mortgage services and mortgage funding. Prior to joining GECMC in 1986, Mr. Barmore was Chief Financial Officer of Employers Reinsurance Corporation, (ERC), one of the nation’s largest property and casualty reinsurance companies. Mr. Barmore also serves as Chairman of the Board of Directors of ICO, Inc., a Houston, Texas based plastics products company.
The Board believes that Mr. Barmore’s qualifications to serve on the Board include his executive level experience, financial expertise, and service on multiple boards of directors.
Class III Director – Term Expiring 2011
Donald M. Berman, age 57, was named to58, has been a member of the Board of Directors in July ofsince 2005. Since 1987 Mr. Berman has been the Chairman and Chief Executive Officer of CardWorks, L.P., a privately held consumer finance company based in Woodbury, New York. As Chief Executive Officer of CardWorks, Mr. Berman oversees two wholly owned subsidiaries: Cardholder Management Services, Inc. (CMS)(“CMS”), based in Woodbury, New York, which was founded by Mr. Berman in 1987, and Merrick Bank, located in Salt Lake City, Utah, which was established by CMS in 1997. Mr. Berman has been a senior marketing executive with Eastern States Bankcard Association, a bankcard industry consultant and a Vice President in the Financial Institutions Division of Smith Barney.
PROPOSAL 2 – ELECTION OF SERIES C DIRECTORS
BY HOLDERS OF SERIES C PREFERRED STOCK
The Board believes Mr. Berman’s qualifications to serve on the Board include his executive level experience and knowledge of the bankcard and consumer finance industries.
Class I Directors – Terms Expiring 2012
Art N. Burtscher, age 59, has been a member of the Board of Directors since 2001. Since 2004, Mr. Burtscher has been Chairman of McCarthy Group Advisors, LLC, an Omaha, Nebraska investment advisory firm. From 2000 to 2004, he was President of McCarthy Group Asset Management. From 1988 to 2000, Mr. Burtscher served as President and Chief Executive Officer of Great Western Bank in Omaha, Nebraska. Mr. Burtscher also serves on the board of directors of NIC Inc., an Overland Park, Kansas eGovernment service provider, is its lead independent director and is chairman of the audit committee. Additionally, Mr. Burtscher serves on the boards of directors of Great Western BanCorp., AmeriSphere Multi-Family Finance, L.L.C., Landscapes Unlimited, Inc. and the Silverstone Group.
The Board believes that Mr. Burtscher’s qualifications to serve on the Board include his experience in the financial services industry, his extensive knowledge of financial, business and investment matters and his service on numerous boards of directors.
Edward W. Mehrer, age 71, has been a member of the Board of Directors since 1996. Mr. Mehrer served as Interim President & Chief Executive Officer of Cydex, Inc., a pharmaceutical company based in Overland Park, Kansas, from November 2002 through June 2003, and as its Chief Financial Officer from November 1996 through December 2003. Prior to joining Cydex, Mr. Mehrer was associated with Hoechst Marion Roussel, formerly Marion Merrell Dow, Inc., an international pharmaceutical company (“Marion”). From December 1991 to December 1995, he served as Executive Vice President and Chief Financial and Administrative Officer of Marion and a director and member of its executive committee. From 1976 to 1986, Mr. Mehrer was a partner with the public accounting firm of Peat, Marwick, Mitchell & Co., a predecessor firm to KPMG LLP, in Kansas City, Missouri. Mr. Mehrer also serves on the Board of Directors of FBL Financial Group, Inc., a Des Moines, Iowa insurance company and is a member of both the audit committee and the nominating and governance committee.
The Board believes that Mr. Mehrer’s qualifications to serve on the Board include his experience as a practicing CPA and his executive level experience and board service for multiple public companies.
Series C Directors
In addition to the five classified directors, two directors are elected to the Board by the holders of the Company’s 8.90% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series C Preferred Stock”) pursuant to the Articles Supplementary to the Company’s Charter that established the Series C Preferred Stock. The terms of the Series C Preferred Stock provide that whenever dividends on the Series C Preferred Stock are in arrears for six or more quarters (whether or not consecutive) the holders of the Series C Preferred Stock have the right to elect two additional directors to the Company’s board of directors (the “Board”).Board. On March 17, 2009, the Company notified the holders of the Series C Preferred Stock that the Company would not make its scheduled dividend payment on the Series C Preferred Stock due March 31, 2009, and as of such date, dividends on the Series C Preferred Stock would be in arrears for six or more quarters and the holders of the Series C Preferred Stock had the right to elect, as a separate class, two additional directors to the Company’s Board of Directors to serve as Series C directors until such time as all accrued dividend have been paid. The notice included a Series C Director Nomination Form permitting holders of the Series C Preferred Stock to make nominations for the election of the Series C directors to occur by vote of the holders of the Series C Preferred Stock at the Company’s 2009 annual meeting of stockholders. The Company sent questionnaires to all nominees seeking information about each nominee to be included in this proxy statement andAt the consent of each nominee to being listed as a director nominee. The Company received completed and signed questionnaires and consents from each ofmeeting, the nominees set forth below. Nominations were not accepted other than by meansholders of the Series C Director Nomination FormPreferred Stock elected Howard M. Amster and will not be permitted to made from the floor at the annual meeting. The two nominees receiving the most votes at the annual meeting will be electedBarry A. Igdaloff as Series C directors to serve until all dividends accumulated on the Series C Preferred Stock for the past dividend periods and the then current dividend period have been paid in full or authorized and a sum sufficient for the payment thereof has been set aside for payment.
Series C Director Nominees
Howard M. Amster, age 62, is an owner and operator of multiple real estate investments. Since March 1998, Mr. Amster has served as President of Pleasant Lake Apts. Corp., age 61,the corporate general partner of Pleasant Lake Apts. Limited Partnership. Mr. Amster also serves as a director of Maple Leaf Financial, Inc., the holding company for Geauga Savings Bank, and newAX, Inc. (formerly Astrex, Inc.) and since 2000, has served as a principal of Pleasant Lake Apartments, a real estate operating company, since the early 1990’s. Mr. Amster is also a principal ofPrincipal with Ramat Securities Ltd., a securities brokerage firm. From 1992 to 2000, Mr. Amster is a director of Geauga Savings Bank.was an investment consultant with First Union Securities (formerly EVEREN Securities and formerly Kemper Securities).
While Mr. Amster was nominated and elected by the holders of the Company’s Series C Preferred Stock, the Board believes Mr. Amster’s qualifications to serve on the Board include his investment experience and his service on multiple boards of directors.
Barry A. Igdaloff,, age 54,55, has served as the ownersole proprietor of Rose Capital, a registered investment advisor in Columbus, Ohio, since 1995. Mr. Igdaloff has also served on the Board of Directorsbeen a director of Dynex Capital, Inc. since 2000, is chairman of its compensation committee and is a member of both the compensationits audit committee and auditnominating and corporate governance committee. Previously, Mr. Igdaloff was a director of Guest Supply, Inc. prior to its acquisition by Sysco Foods in 2001. Prior to entering the investment business, Mr. Igdaloff was an employee of Ernst & Whinney’s international tax department. Mr. Igdaloff is a non-practicing certified public accountingCPA and a non-practicing attorney.
Glenn S. Gardipee, age 60, has served as President of Northern Systems, Inc. While Mr. Idgaloff was nominated and Charles Detrie, Inc. since 1980. Both Northern Systems, Inc. and Charles Detrie, Inc. operate as real estate investment companies. Additionally, Mr. Gardipee has served as General Partner of Northern Systems Capital Partners, a private equity partnership, since 1990. Mr Gardipee is a graduate of the University of Wisconsin - Madison with double majors in Finance and Real Estate. He is also an alumnus of the Applied Securities Analysis Program (ASAP) of the UW Graduate School of Business. Prior to 1990, Mr Gardipee was employed by the IBM Corporation. Mr. Gardipee currently serves on the Board of Directors of Northern Systems, Inc. and Charles Detrie, Inc.
Frankie Adamo, age 47, is a practicing attorney and has served as the Owner and President of a tax preparation company since 1995 and is a practicing attorney. Prior to becoming an attorney, Mr. Adamo worked in the software industry for over 18 years. Mr. Adamo holds a Bachelor of Science degree in computer science from the University of Central Florida and a Juris Doctorate from Florida A&M University College of Law.
Philip F. Sidotti, age 66, served as the Assistant Director of Field Experience at Rowan University from 1999 to 2006.
Bridget B. Bruch, age 42, has served as a research and reference librarian for the government of Seminole County, Florida since 2003.
Paul J. Floto, age 61, has served as President, CEO and Chairman of the Board of Directors of REIT Continuance Acquisition Group, Inc., an investment company, since 2006. Mr. Floto also serves as the President and Chairman of the Board of Directors of a charitable foundation. For approximately 14 years prior to 2006, Mr. Floto served as President, CEO and Chairman of the Board of Directors of a real estate appraisal company. From 2002 to 2003 Mr. Floto organized individual investors in a successful effort to be named a member of a creditors’ committee in the Conseco bankruptcy, obtaining about $80 million dollars of additional recovery for his creditors’ class. For approximately 15 years prior to 1992, Mr. Floto operated a sub-prime real estate loan brokerage firm. Before that time he was Chief Financial Officer of an investment company and NASD-registered broker-dealer. Mr. Floto graduated with Distinction from Stanford University with a BA in economics. Mr. Floto has been an owner of Novastar securities since 2004.
The electionelected to the Board of Directors of the nominees for Series C director identified in the proxy statement will require a plurality of all of the votes cast by the holders of the Company’s Series C Preferred Stock, at the annual meeting. Additionally, if you sell or transfer allBoard believes Mr. Igdaloff’s qualifications to serve on the Board include his financial expertise, his years of your sharesexperience as an investment advisor, attorney, and CPA and his service on multiple boards of Series C Preferred Stock before the annual meeting and as such, are no longer holder of Series C Preferred Stock at the date of the annual meeting, your nomination for Series C director will not be considered.directors.
The Board of Directors is not making a recommendation “FOR” or “AGAINST” any of the nominees for Series C director. Nonetheless, we encourage the holders of the Series C Preferred Stock to vote.
CORPORATE GOVERNANCE AND RELATED MATTERS
Director Independence
A majority of the directors of the Board must meet the criteria for independence as established by the Board. The Company’s criteria provide that a director will not qualify as independent unless the Board affirmatively determines that the director has no material relationship with the Company. The Board has adopted, upon recommendation from the Nominating and Corporate Governance Committee, a set of categorical standards to form the basis for the Board’s independence determinations (the “Director Independence Standards”). Although the Company’s securities are no longer listed on the New York Stock Exchange, the Director Independence Standards are substantively the same as those provided for in the rules of the New York Stock Exchange.
The Nominating and Corporate Governance Committee and the Board have evaluated the relationships between each director nominee or director (and his or her immediate family members and related interests) and the Company and its subsidiaries. As a result of this evaluation, the Board has affirmatively determined, upon recommendation from the Nominating and Corporate Governance Committee, that each of the following Class I director nominees or current directors has no material relationship with the Company and is independent under the Director Independence Standards: Gregory T. Barmore, Donald M. Berman, Art N. Burtscher, and Edward W. Mehrer. Additionally, based on current information,Mehrer, Howard M. Amster and Barry A. Igdaloff.
Board Leadership Structure
W. Lance Anderson, the Company’s Chief Executive Officer serves as the Chairman of the Board. The Board has combined the roles of Chairman of the Board and Chief Executive Officer in Mr. Anderson because it believes that this structure enables the Company believesto most effectively pursue its business strategy and allows Mr. Anderson to more effectively represent the nomineesCompany with it various constituents. Additionally, Mr. Anderson’s in-depth knowledge of the Company and its business provides the Board with the leadership needed to set the strategic focus and direction for Series Cthe Company. At the same time, the Board’s Lead Independent Director role provides and effective means for the independent directors to exercise appropriate independent oversight of management.
Lead Independent Director
Gregory T. Barmore currently serves as the Company’s Lead Independent Director. The primary responsibilities of the Lead Independent Director are to:
- Approve an appropriate schedule of the Board’s meetings, seeking to ensure the independent
underdirectors can perform theirduties responsibly while not interfering with the director Independence Standards.flow of the Company’s operations;
- Review agendas for the Board and committee meetings;
- Assess the quality, quantity and timeliness of the flow of information from management that is necessary for the independent directors to effectively and responsibly perform their duties, and although management is responsible for the preparation of materials for the Board, the Lead Independent Director may specifically request the inclusion of certain material;
- Whenever appropriate, direct the retention of consultants who report directly to the Board;
- Assist the Board and the Company’s officers in assuring compliance with and implementation of the Corporate Governance Guidelines and be principally responsible for recommending revisions to the Corporate Governance Guidelines;
- Coordinate an agenda for the Board’s independent directors;
- Evaluate, along with the members of the Compensation Committee and the full Board, the Chief Executive Officer’s performance and meet with the Chief Executive Officer to discuss the Board’s evaluation; and
- Review the membership and performance of the various Board Committees and Committee Chairs.
The Lead Independent Director is elected annually for a maximum tenure of three years. The performance of the Lead Independent Director is evaluated annually by the Board and where the Lead Independent Director is not sufficiently active or successful in providing meaningful leadership for the Board, the Lead Independent Director will be replaced.
Board Attendance and Annual Meeting Policy
During 2008,2009, there were 11seven meetings of the Board of Directors. Each director participated in at least 75% of the meetings of the Board and the committees on which he served.
served during the periods for which he has been a director or committee member. Independent directors are not expected to attend the annual meeting of stockholders.
Board Committee Membership and Meetings
The Board of Directors has three committees, Audit, Nominating and Corporate Governance and Compensation. The Nominating and Corporate Governance Committee makes recommendations to the Board concerning committee memberships and appointment of chairpersons for each committee, and the Board appoints the members and chairpersons of each committee. Descriptions of the committees are provided below. These descriptions are qualified in their entirety by the full text of the written committee charters that may be found on the Company’s website as described below.
- Audit Committee. The Audit Committee of the Board of Directors consists of four directors, all of whom are independent under the Director Independence Standards and other SEC rules and regulations applicable to audit committees. The following directors are currently members of the Audit Committee: Gregory T. Barmore, Donald M. Berman, Art N. Burtscher, Barry Igdaloff and Edward M. Mehrer, who serves as the chairman. The Board of Directors has determined that Edward W. Mehrer qualifies as an audit committee financial expert, as such term is defined by Item 407(d)(5)(ii) of Regulation S-K of the Exchange Act. During
2008,2009, the Audit Committee met 6five times.
The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibility relating to: (i) the integrity of the Company’s financial statements and financial reporting process and its system of internal accounting and financial controls, (ii) the performance of the internal audit function, (iii) the performance of the independent auditors, which would include an evaluation of the independent auditor’s qualifications and independence, (iv) the Company’s compliance with legal and regulatory requirements, including disclosure controls and procedures, and (v) the preparation of an Audit Committee report to be included in the Company’s annual proxy statement.
- Nominating and Corporate Governance Committee.The Nominating and Corporate Governance Committee of the Board of Directors consists of four directors, all of whom are independent under the Director Independence Standards. The following directors are currently members of the Nominating and Corporate Governance Committee: Gregory T. Barmore, Donald T. Berman, Art N. Burtscher and Edward M. Mehrer, with Mr. Burtscher serving as the chairman.
During 2008, theThe Nominating and Corporate Governance Committee met 1 time.did not meet in separate session during 2009.
The purpose of the Nominating & Corporate Governance Committee is to: (i) identify individuals qualified to become Board members, consistent with the criteria established by the Board, (ii) recommend to the Board the director nominees for the next annual meeting of stockholders, (iii) leading the Board in the annual review of the Board’s performance and the review of management’s performance, and (iv) shape the corporate governance policies and practices including developing a set of corporate governance principles applicable to the Company and recommending them to the Board.
- Compensation Committee.The Compensation Committee of the Board of Directors consists of four directors, all of whom are independent under the Director Independence Standards and SEC rules and regulations applicable to compensation committees. The following directors are currently members of the Compensation Committee: Gregory T. Barmore, Donald T. Berman, Art N. Burtscher,
and Edward M. Mehrer and Howard M. Amster. with Mr. Barmore serving as the chairman. The Committee is scheduled to meet quarterly, and more frequently as circumstances dictate. During 2008,2009, the Compensation Committee met 1 time.three times.
The responsibilities of the Compensation Committee are set forth in its charter and include: (i) review and approve the goals, objectives and compensation structure for our Chief Executive Officer and senior management; (ii) review, approve and recommend to the Board any new incentive-compensation and equity-based plans that are subject to Board approval and (iii) approve any required disclosure on executive officer compensation for inclusion in the Company’s annual proxy statement and annual report on Form 10-K.The Compensation Committee also reviews and approves the compensation structure for the Board of Directors. The Compensation Committee may delegate certain of its authority to a subcommittee comprised of one or more members of the Compensation Committee.
Corporate Governance Documents
The Company’s Corporate Governance Guidelines, Code of Conduct and charters of the Company’s Audit, Compensation and Nominating and Corporate Governance Committees may be obtained at the Corporate Governance section of the Company’s website (www.novastarfinancial.com ).at www.novastarfinancial.com. The Company will also provide copies of these documents free of charge to any stockholder who sends a written request to: NovaStar Financial, Inc., Investor Relations, 2114 Central Street, Suite 600, Kansas City, MO 64108.
Executive Sessions
Executive sessions of non-management directors are held at least three times a year. The sessions are scheduled and chaired by Mr. Burtscher, who is the Chair of the Nominating and Corporate Governance Committee. Any non-management director can request that an additional executive session be scheduled.
Communications with the Board
Individuals may communicate directly with any member of the Board of Directors or any individual chairman of a committee of the Board of Directors by writing directly to those individuals at the following address: NovaStar Financial, Inc., 2114 Central Street, Suite 600, Kansas City, MO 64108. Communications that are intended for the non-management, independent directors generally should be marked to the attention of the Chair of the Nominating and Corporate Governance Committee. The Company’s general policy is to forward, and not to intentionally screen, any mail received at the Company’s corporate office unless the Company believes the communication may pose a security risk.
Risk Oversight
The Board of Directors oversees an enterprise-wide approach to risk management, designed to support the achievement of Company objectives, improve long-term Company performance and create shareholder value. A fundamental part of risk management is understanding the risks the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the full Board of Directors in setting the Company’s business strategy and objectives is integral to the Board’s assessment of the Company’s risk and also a determination of what constitutes an appropriate level of risk for the Company. The full Board of Directors conducts an annual risk assessment of the Company’s financial risk, legal/compliance risk and operational/strategic risk and addresses individual risk issues throughout the year as necessary.
While the Board of Directors has the ultimate oversight responsibility for the risk management process, the Board delegates responsibility for certain aspects of risk management to the Audit Committee. Per its charter, the Audit Committee focuses on key financial risks and related controls and processes and discusses with management the Company’s major financial reporting exposures and the steps management has taken to monitor and control such exposures.
The Board believes its leadership structure enhances overall risk oversight. While the Board requires risk assessments from management, the combination of Board member experience, diversity of perspectives, continuing education and independence of governance processes provide an effective basis for testing, overseeing and supplementing management assessments.
Consideration of Director Nominees by Stockholders
The policy of the Nominating and Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board of Directors as described below.
Identifying and Evaluating Nominees for Directors
The Nominating and Corporate Governance Committee intends to utilize a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee will regularly assess the appropriate size of the Board of Directors, and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Corporate Governance Committee will consider various potential candidates for director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of the Board of Directors, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year. Stockholder nominations should be addressed to: NovaStar Financial, Inc., 2114 Central Street, Suite 600, Kansas City, MO 64108, attention Corporate Secretary. The Nominating and Corporate Governance Committee will consider properly submitted stockholder nominations for candidates for the Board of Directors, following verification of the stockholder status of persons proposing candidates. If any materials are provided by a stockholder in connection with the nominating of a director candidate such material will be forwarded to the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee will also review materials provided by professional search firms or other parties. In evaluating such nominations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board of Directors.
Directors Minimum Qualifications
The CompanyNominating and Corporate Governance Committee considers candidates for the Board of Directors based upon several criteria set forth in the Company’s Corporate Governance Guidelines, including their broad-based business and professional skills and experience, education, accounting and financial expertise, age, diversity, reputation, civic and community relationships, concern for the long-term interest of stockholders, personal integrity and judgment, and knowledge and experience in the mortgage bankingCompany’s industry. The Nominating and Corporate Governance Committee does not assign specific weights to the criteria and no particular criterion is necessarily applicable to all prospective nominees. When evaluating nominees, the composition of the entire Board of Directors is also taken into account including the need for a majority of independent directors. In addition, the assessment of a candidate includes consideration of the number of public boards on which he or she serves because of the time requirements for duties and responsibilities associated with serving on the Board of Directors. The Nominating and Governance Committee believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. The Nominating and Governance Committee assesses the effectiveness of the Corporate Governance Guidelines, including with respect to director nominations and qualifications and achievement of having directors with a broad range of experience and backgrounds, through completion of the annual self-evaluation process.
Director Nominee Recommendations
The Nominating and Corporate Governance Committee of the Board of Directors have approved the nominees for Class III directors for inclusion on the proxy card. The Class III director nominees are standing for re-election to their positions as Directors of the Company. The Nominating and Corporate Governance Committee of the Board of Directors has neither approved nor disapproved any of the nominees for Series C director.
Director Compensation in Fiscal Year 20082009
Pursuant to its 2005 Compensation Plan for Independent Directors, NovaStar Financial pays non-employee directors an annual retainer of $35,000 per year plus $1,500 for each day of board or committee meetings attended. In addition, each independent director is granted (i) upon becoming a director, options to purchase that number of shares of NovaStar Financial common stockCommon Stock which has a fair market value of $100,000 at the time of the grant but not to exceed 10,000 shares (2,500 shares after taking into effect the Company’s one-for-four reverse stock split effective July 20, 2007 (the “Reverse Split”) (the “New Director Grant”), exercisable in accordance with the NovaStar Financial 2004 Incentive Stock Plan (the “Incentive Plan”) and subject to a four year vesting schedule, and (ii) on the day after each annual meeting of stockholders, fully vested options to purchase 5,000 shares of common stock,Common Stock (1,250 shares after taking into effect the Reverse Split) (the “Annual Grant”), exercisable in accordance with the Incentive Plan. Finally, the chairperson of each of the Audit, Compensation and Nominating and Corporate Governance Committees is paid an annual retainer fee of $10,000, $5,000 and $5,000, respectively.
All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with meetings of the Board of Directors. No director who is an employee of NovaStar Financial will receive separate compensation for services rendered as a director.
The following table sets forth the compensation for each of our non-employee directors for the fiscal year ended December 31, 2008.2009.
| Fees Earned | | | | | | | |
| or Paid in | | | | | | | |
Name | Cash ($) | | Option Awards ($)(1) | | Total ($) |
Gregory T. Barmore | $ | 52,000 | | $ | 1,278 | (2) | | $ | 53,278 |
Art N. Burtscher | | 52,000 | | | 1,278 | (3) | | | 53,278 |
Edward W. Mehrer | | 57,000 | | | 1,278 | (4) | | | 58,278 |
Donald M. Berman | | 47,000 | | | 10,843 | (5) | | | 57,843 |
Howard M. Amster | | 20,500 | | | 359 | (6) | | | 20,859 |
Barry A. Igdaloff | | 20,500 | | | 359 | (7) | | | 20,859 |
| | Fees Earned or Paid in Cash ($) | | | Option Awards ($)(1) | | | Total ($) | |
Gregory T. Barmore | | $ | 56,500 | | | $ | 12,865 | | | $ | 69,365 | |
Art N. Burtscher | | | 56,500 | | | | 12,865 | | | | 69,365 | |
Edward W. Mehrer | | | 61,500 | | | | 12,865 | | | | 74,365 | |
Donald M. Berman | | | 50,000 | | | | 26,722 | | | | 76,722 | |
1. | | Represents the dollar amount recognized for financial reporting purposes for the fiscal year ended December 31, 2008,2009, in accordance with SFAS 123(R)FASB ASC Topic 718 (disregarding estimates of forfeitures), and includes amounts from stock option awards granted in 20032005 through 2008.2009. See Note 1918 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20082009 for a discussion of the relevant assumptions used in calculating these amounts. |
2. | | Mr. Barmore received an Annual Grant of 1,250 fully-vested options in 2009. The grant date fair value of the 2008Mr. Barmore’s option awards for each directoraward was $1,754.$1,278. The aggregate number of option awards outstanding at December 31, 2008 for each director was 10,0002009 for Mr. Barmore; 13,750Barmore was 11,249. |
3. | | Mr. Burtscher received an Annual Grant of 1,250 fully-vested options in 2009. The grant date fair value of Mr. Burtscher’s option award was $1,278. The aggregate number of option awards outstanding at December 31, 2009 for Mr. Burtscher; 14,062Burtscher was 15,000. |
4. | | Mr. Mehrer received an Annual Grant of 1,250 fully-vested options in 2009. The grant date fair value of Mr. Mehrer’s option award was $1,278. The aggregate number of option awards outstanding at December 31, 2009 for Mr. Mehrer;Mehrer was 13,347. |
5. | | Represents the amortization of the vesting of Mr. Berman’s New Director Grant of 1,966 options upon his election to the Board in July 2005 and 5,224the $1,278 grant date fair value of Mr. Berman’s Annual Grant of 1,250 fully-vested options in 2009. The aggregate number of option awards outstanding at December 31, 2009 for Mr. Berman.Berman was 6,966. |
6. | | Mr. Amster received a New Director Grant of 2,500 options upon his election to the Board in June 2009. The grant date fair value of Mr. Amsters’s option award was $2,703 and the options are subject to a four year vesting period. Because Mr. Amster received a New Director Grant in 2009, he was not eligible to receive the Annual Grant for that year. The aggregate number of option awards outstanding at December 31, 2009 for Mr. Amster was 2,500. |
7. | | Mr. Igdaloff received a New Director Grant of 2,500 options upon his election to the Board in June 2009. The grant date fair value of Mr. Igdaloff’s option award was $2,703 and the options are subject to a four year vesting period. Because Mr. Igdaloff received a New Director Grant in 2009, he was not eligible to receive the Annual Grant for that year. The aggregate number of option awards outstanding at December 31, 2009 for Mr. Igdaloff was 2,500. |
Notwithstanding anything to the contrary set forth in any of NovaStar Financial’s previous or future filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this proxy statement, in whole or in part, the Audit Committee Report shall not be incorporated by reference into any such filings.
The Audit Committee engages the independent auditors, reviews with the independent auditors the plans and results of any audits, reviews other professional services provided by the independent auditors, reviews the independence of the independent auditors, considers the range of audit and non-audit fees and reviews with management management’s evaluation of NovaStar Financial’s internal control structure. The Audit Committee is composed of fourfive directors.
The Audit Committee has reviewed and discussed with management and the independent auditors NovaStar Financial’s audited financial statements for fiscal 2008.2009. In addition, the Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 114, “The Auditor’s Communication With Those Charged With Governance.”61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380).
The Audit Committee has received from the independent auditors written disclosures and a letter concerningfrom the independent auditors’ independence from NovaStar Financial, asaccountant required by Independence Standardsapplicable requirements of the Public Company Accounting Oversight Board Standard No. 1, “Independence Discussionsregarding the independent accountant’s communications with Audit Committees.” These disclosures have been reviewed by the Audit Committee concerning independence, and has discussed with the independent auditors.accountant the independent accountant’s independence.
Based on these reviews and discussions, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20082009 for filing with the Securities and Exchange Commission.
|
Audit Committee |
|
Edward W. Mehrer, Chair |
Gregory T. Barmore |
Art N. Burtscher |
Donald M. Berman |
Gregory T. Barmore
Art N. BurtscherDonald M. BermanBarry A. Igdaloff
EXECUTIVE OFFICERS
The executive officers of NovaStar Financial and their positions are as follows:
| | Position With NovaStar Financial | | Age |
W. Lance Anderson | | Chairman of the Board and Chief Executive Officer | | 4850 |
Rodney E. Schwatken | | Senior Vice President and Chief Financial Officer | | 4546 |
The executive officers serve at the discretion of the Board of Directors. Biographical information regarding Mr. Anderson is provided in the “Nominee“Nominees and Directors” section of this document. Biographical information regarding Mr. Schwatken is set forth below.
Rodney E. Schwatken, age 45,46, assumed the responsibilities of Chief Financial Officer of the Company as of January 3, 2008. Since March 2006, Mr. Schwatken had been the Company’s Vice President-Strategic Initiatives where he was responsible for special projects generally related to corporate development and management of the Company’s strategic transactions. From March 1997 until March 2007, Mr. Schwatken held various titles including Vice President, Secretary, Treasurer and Controller (Chief Accounting Officer) of the Company and was responsible for corporate accounting, including implementation of accounting policies and procedures and developing and implementing proper internal control over all financial recordkeeping. From June 1993 to March 1997, when he joined the Company, Mr. Schwatken was Accounting Manager with U.S. Central Credit Union, a $30 billion dollar investment, liquidity and technology resource for the credit union industry. From January 1987 to June 1993, Mr. Schwatken was employed by Deloitte & Touche LLP in Kansas City, Missouri, most recently as an audit manager.
EXECUTIVE COMPENSATION
Introduction
This section provides information regarding the compensation of the persons who served as our chiefprincipal executive officer and principal financial officer during 2008, the other two most highly compensated executive officers at December 31, 2008, and one additional person whose employment was terminated during 2008 but who would have been among our most highly compensated executive officers for 2008 had he remained employed by the Company at December 31, 20082009 (collectively our “Named Executive Officers”).
Our Named Executive Officers for 2008,2009, and the positions they held during 2008,2009, were as follows:
| | | |
W. Lance Anderson (A) | | Chairman of the Board and Chief Executive Officer | |
Rodney R.E. Schwatken (B) | | Chief Financial Officer |
Scott F. Hartman (C) | | Chairman of the Board and Chief Executive Officer |
Michael L. Bamburg (D) | | Senior Vice President and Chief Investment Officer |
Todd M. Phillips (E) | | Vice President, Treasurer and Controller (Chief Accounting Officer) |
(A) | Effective January 3, 2008, Mr. Anderson was appointed Chairman of the Board and Chief Executive Officer. |
(B) | Effective January 3, 2008, Mr. Schwatken was appointed Chief Financial Officer |
(C) | Mr. Hartman’s employment was terminated and he resigned from the Board of Directors, effective January 3, 2008. |
(D) | Mr. Bamburg resigned as Senior Vice President and Chief Investment Officer, effective December 31, 2008. |
(E) | Mr. Phillips resigned as Vice President, Treasurer and Controller (Chief Accounting Officer), effective September 30, 2008. |
Summary Compensation Table
The following table sets forth the compensation of our Named Executive Officers during the fiscal year ended December 31, 20082009 and 2007. Mr. Schwatken first became a named executive during 2008 and, consequently, information with respect to Mr. Schwatken for 2007 is not reflected in this table.2008.
| | | | | | | | | Option | | Stock | | All Other | | |
| | | | | | | | | Awards | | Awards | | Compensation | | |
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | | Option Awards ($)(4) | | Stock Awards ($)(4) | | Severance ($)(5) | | All Other Compensation ($)(6) | | Total ($) | | Year | | Salary ($) | | Bonus ($) | | ($)(2) | | ($)(2) | | ($)(3) | | Total ($) |
W. Lance Anderson | | 2008 | | 665,784 | | | — | | | | 201,791 | | 157,456 | | — | | | 31,033 | | 1,056,064 | | | | | | | | | | | | | | |
| | | 2009 | | 665,784 | | — | | 164,687 | | 149,719 | | 97,241 | | 1,090,326 |
Chief Executive Officer | | 2007 | | 663,204 | | | — | | | | 188,401 | | 231,487 | | — | | | 31,573 | | 1,115,025 | | | | | | | | | | | | | | | |
| | | | | | | | | 2008 | | 665,784 | | — | | 201,791 | | 157,456 | | 31,033 | | 1,056,064 |
| | | | | | | | | | | | | | | |
Rodney E. Schwatken | | 2008 | | 165,000 | | | 100,000 | (1) | | | 6,120 | | 5,277 | | — | | | — | | 276,397 | | | | | | | | | | | | | | |
| | | 2009 | | 165,000 | | 100,000 | (1) | | 10,276 | | 4,552 | | — | | 283,001 |
Chief Financial Officer | | 2007 | | N/A | | | N/A | | | | N/A | | N/A | | N/A | | | N/A | | | N/A | | | | | | | | | | | | | | | |
| | | | | | | | | 2008 | | 165,000 | | 100,000 | (1) | | 6,120 | | 5,277 | | — | | 276,397 |
Scott F. Hartman | | 2008 | | | — | | | — | | | | 33,632 | | | 7,737 | | | 301,835 | ( | 5) | 106,828 | | | 450,032 | |
Chief Executive Officer | | 2007 | | 663,204 | | | — | | | | 188,401 | | | 231,847 | | — | | | 31,573 | | | 1,115,025 | |
| | | | | | | | |
Michael L. Bamburg | | 2008 | | 459,028 | | | — | | | | 19,038 | | 3,868 | | — | | | — | | 481,934 | |
Chief Investment Officer | | 2007 | | 412,738 | | | — | | | | 105,895 | | 126,895 | | — | | | 2,547 | | 648,075 | |
| | | | | | | | |
Todd M. Phillips | | 2008 | | 120,461 | | | 36,250 | (2) | | | 2,632 | | 290 | | — | | | — | | 159,363 | |
Chief Accounting Officer | | 2007 | | 136,554 | | | 166,800 | (3) | | | 13,093 | | 9,961 | | — | | | 111 | | 326,519 | |
The following table sets forth the outstanding stock options and stock awards for each of our Named Executive Officers as of December 31, 2008.2009.
Beneficial Ownership of Common Stock and Series D1 Preferred Stock by Directors, Management and Large Securityholders
REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PARTIES; RELATED PARTY TRANSACTIONS
The Company has adopted a written policy that addresses the review, approval or ratification of any transaction, arrangement, or relationship or series of similar transactions, arrangements or relationships, including any indebtedness or guarantee of indebtedness, between the Company and any related party, in which the aggregate amount involved exceeds the lesser of $120,000 or 1% of the average of the Company’s total assets at year end for the last two completed fiscal years. Under the policy, a related party of the Company includes:
Under the policy, the Board reviews the material facts of any related party transaction and approves it prior to its occurrence. If advance approval is not feasible, then the Board will either ratify transaction at its next regularly scheduled meeting or the transaction will be rescinded. In making its determination to approve or ratify any related party transaction, the Board may consider such factors as (i) the extent of the related party’s interest in the transaction, (ii) if applicable, the availability of other sources of comparable products or services, (iii) whether the terms of the transaction are no less favorable than terms generally available to Company in unaffiliated transactions under like circumstances, (iv) the benefit to the Company, and (v) the aggregate value of the transaction.
No director may engage in any Board discussion or approval of any related party transaction in which he or she is a related party; but that director is required to provide the Board with all material information reasonably requested concerning the transaction.
Also in connection with the Investors’ purchase of the Series D1 Preferred Stock, the Company and the Investors entered into a Registration Rights and Shareholders Agreement (the “Registration Rights Agreement”). Certain rights under the Registration Rights Agreement relate to the Series D1 Preferred Stock purchased by the Investors under the Securities Purchase Agreement and to any shares of Series D2 Preferred Stock into which such Series D1 Preferred Stock may be converted (collectively, the “Series D Preferred Stock”).
The ratification of Deloitte & Touche LLP as the independent registered public accounting firm will require the affirmative vote of a majority of the votes cast at the annual meeting.
The Board of Directors recommends that the stockholders vote “FOR” ratifying the selection of
Any stockholder proposal, including the nomination of a director, intended to be presented at the 20092011 annual meeting of stockholders and included in the proxy statement and form proxy relating to such meeting, must be received at NovaStar Financial’s offices on or before January 29,December 31, 2010.
In addition, the NovaStar Financial bylaws provide that any stockholder wishing to bring any matter, including the nomination of a director, before an annual meeting must deliver notice to the Corporate Secretary of NovaStar Financial, Inc. at the Company’s principal executive offices on or before February 28, 2010.January 30, 2011.
The stockholder’s notice must set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Securities Act of 1934, as amended (including such person’s written consent to being named in the proxy statement as a nominee and to servicing as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (i) the name and address of such stockholder, as they appear on the Company’s corporate books, and of such beneficial owner and (ii) the class and number of shares of the Company’s stock which are owned beneficially and of record by such stockholder and such beneficial owner.
You may contact the Secretary of NovaStar Financial, Inc. at the Company’s principal executive offices regarding the requirements for making stockholder proposals and nominating director candidates.