SEPARATION AND CONSULTING AGREEMENT
This Separation and Consulting Agreement (the "Agreement") is entered into
as of the 3rd day of January 2008, by and between NovaStar Financial, Inc., on
behalf of itself and all of its direct and indirect subsidiaries (all of the
foregoing, collectively, the "Company") and Xxxxxxx Xxxx ("Consultant").
WHEREAS, the Company and Consultant are parties to an Employment Agreement
dated January 15, 2004, as amended December 20, 2006 (as so amended, the
"Employment Agreement"), which provides for certain benefits and obligations
upon termination by the Company of Consultant's employment with the Company,
without cause;
WHEREAS, Consultant's employment by the Company will be terminated by the
Company, without "cause" (as described in the Employment Agreement), as of
January 3, 2008 (the "Termination Date") pursuant to this Agreement, and the
Company desires to ensure a smooth and orderly transition of business by
reserving the right to obtain Consultant's services for a limited period of time
as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the Company and Consultant agree as follows:
1. Termination of Employment.
1.1 Termination. Consultant's employment by the Company is hereby
terminated by the Company, without "cause" (as described in the Employment
Agreement), effective as of the Termination Date. Except to the extent expressly
provided herein, the rights and obligations set forth in this Agreement
supersede all rights and obligations of the parties under the Employment
Agreement that otherwise would arise upon or be applicable following the
Termination Date, including but not limited to severance compensation and other
benefits; provided, however, that neither this Agreement nor any provision
hereof shall be deemed to supersede or otherwise affect any rights to
indemnification, defense, or similar rights under the Employment Agreement or,
for the avoidance of doubt, under any other written agreement, the certificate
of incorporation, bylaws or other organizational documents of the Company
(including NovaStar Financial, Inc. and each of its direct and indirect
subsidiaries), or any policy of directors and officers or other insurance.
1.2 Resignation as Officer and Director. In connection with and as a result
of the termination of Consultant's employment by the Company, Consultant hereby
resigns from all positions as an officer, manager, and/or director of the
Company (including NovaStar Financial, Inc., and all of its direct and indirect
subsidiaries), effective as of the Termination Date. Consultant and the Company
agree that this Agreement constitutes notice of such resignation, and that the
Company shall immediately take any and all additional actions necessary to give
effect to each such resignation.
1.3 Accrued Wages, Vacation, and Business Expenses. Consultant shall be
entitled to payment, in accordance with the Company's normal payroll schedule
following the Termination Date, of (a) all wages accrued from the end of the
period covered by Consultant's paycheck immediately preceding the Termination
Date to the Termination Date, and (b) all accrued and unused vacation of
Consultant as of the Termination Date. In addition, the Company shall reimburse
Consultant, whether on or following the Termination Date, in accordance with the
normal expense reimbursement policies of the Company, for any and all
reasonable, customary and usual expenses incurred by Consultant on behalf of the
Company prior to the Termination Date.
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1.4 Outstanding Awards.
(a) Immediately upon termination of employment on the Termination Date
in accordance with this Agreement, Consultant shall be fully vested with
respect to all stock options, restricted stock, and accumulated dividend
equivalent rights that, in the case of each of the foregoing, were awarded
or granted prior to the Termination Date and that would have been vested at
the end of the year in which the termination occurred had Consultant
remained an employee of the Company through the end of such year. The
vesting of all other stock options, restricted stock, and accumulated
dividend equivalent rights shall cease upon the Termination Date.
(b) Accumulated dividend equivalent rights that vest upon the
Termination Date pursuant to Section 1.4(a) above shall be paid by the
Company to Consultant in cash upon the Termination Date, subject to Section
6.2 below.
(c) Except as expressly provided in Section 1.4(a) and Section 1.4(b)
above, all rights and obligations with respect to stock options, restricted
stock, and dividend equivalent rights awarded or granted prior to the
Termination Date shall be governed by the terms of the applicable plan and
the applicable grant or award agreement.
1.5 Waiver of Incentive Compensation. Consultant and the Company agree that
Consultant shall not receive, and Consultant hereby relinquishes and waives any
and all right to any cash bonus from the Company that has not been paid prior to
the Termination Date (including any cash bonus that otherwise would be payable
as a result of or following the termination of Consultant's employment with the
Company).
1.6 Health Benefits. Consultant shall be entitled to continue health
benefits coverage upon and following the Termination Date pursuant to and to the
extent provided by the terms of COBRA. Consultant shall not be entitled to
receive, and hereby waives any and all right to, continued life insurance
coverage from the Company, as of the Termination Date.
1.7 Financial and Tax Planning Services Reimbursement. Consultant shall be
entitled to reimbursement in accordance with the Company's normal policies
applicable to Consultant prior to the Termination Date for expenses incurred by
Consultant for financial and tax planning services, whether prior to or
following the Termination Date, provided that Consultant submits a proper
request for such reimbursement with all required documentation within thirty
(30) days following the Termination Date. Such reimbursement shall be paid to
Consultant within ten (10) business days following submission of all required
documentation.
1.8 Other Rights and Benefits. All rights with respect to benefits accrued
under any benefit plan of the Company that is not expressly addressed by this
Agreement shall be governed by the terms of such plan, subject to Section 6.2
hereof.
2. Consulting Services.
2.1. Consulting. During the period commencing on the Termination Date and
ending on February 28, 2009 (the "Consulting Period"), Consultant agrees to make
himself available to the Company for up to ten (10) hours per week, whether by
telephone, e-mail, or in person, on an as-needed basis to consult with respect
to matters that were within Consultant's job description during the course of
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Consultant's employment with the Company. Consultant agrees to respond promptly,
reasonably and cooperatively to the Company's requests for assistance. Barring
special circumstances, the consulting hours shall not be cumulative;
accordingly, hours not used within a given week will be waived by the Company,
but Consultant will receive Consultant's full consulting compensation for such
week under Section 2.2 below. However, the Company reserves the right to require
Consultant to provide more than ten (10) hours of service per week in the event
that special circumstances arise in which Consultant's unique assistance is
required by the Company. (Examples of special circumstances include, but are not
limited to, assistance in litigation or responding to government inquiries.) In
order to protect the Company's confidential and trade secret information from
use or disclosure to a party other than the Company, and to enable the Company
to be able to obtain the benefits of Consultant's consulting obligations
hereunder, Consultant agrees that so long as he is accepting consulting fees
pursuant to this Agreement, Consultant will abide by the provisions of Sections
3 and 4 below. Notwithstanding the foregoing, in the event that Consultant
accepts employment or other consulting work within the Consulting Period,
Consultant will be required to spend no more than five (5) hours per week
consulting with the Company.
2.2. Consulting Fees; Expenses. In consideration of the services provided
by Consultant during the Consulting Period, the Company agrees to pay
Consultant, each month during the Consulting Period, a monthly consulting fee
equal to one-twelfth of Consultant's base salary from the Company immediately
prior to the Termination Date. The Company will pay the consulting fee by direct
deposit to an account designated from time to time by Consultant. The consulting
fee shall be paid by the Company monthly in advance, beginning on the
Termination Date. In addition to the consulting fee, the Company shall reimburse
Consultant for all reasonable out-of-pocket expenses incurred by Consultant in
providing cooperation and assistance to the Company, within ten (10) business
days following receipt by the Company of reasonable documentation thereof.
2.3. Consultant's Status; Taxes. Consultant's status under this Agreement
during the Consulting Period shall be that of an independent contractor to the
Company, and not that of an agent or employee of the Company. The Company shall
not withhold federal or state taxes for Consultant on any amounts received under
this Agreement. Consultant is solely responsible for and agrees to report and
pay all taxes on any income received under this Agreement. Consultant agrees to
indemnify and to hold harmless the Company from and against any and all taxes
and/or penalties with which Consultant is assessed, if any, as a result of
Consultant's non-payment of taxes on any amounts received under this Agreement.
2.4. No Authority to Bind the Company. The Consultant shall have no
authority to enter into contracts or agreements on behalf of the Company or to
otherwise legally bind the Company, and shall not represent to any person that
Consultant has any such authority.
2.5 Waiver of Non-Compete. The Company hereby waives any and all
obligations, including but not limited to the provisions of Section 11 of the
Employment Agreement, that restrict Consultant's right to compete with the
Company or to accept employment with or compensation from, manage, own an equity
interest in, consult with, or otherwise operate freely with respect to any other
person or entity, including but not limited to any person or entity that
competes with the Company, and agrees that such provisions and obligations shall
have no further force or effect from and after the Termination Date.
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3. Non-Solicitation.
Consultant agrees that, during the Consulting Period: (a) Consultant shall
not interfere with the business of the Company; and (b) except with the prior
consent of an executive officer of NovaStar Financial, Inc., shall not directly
or indirectly solicit any of the Company's employees to leave the Company and/or
to work for another employer or business, whether or not the solicited employee
would commit any breach of his or her own employment terms by leaving the
service of the Company.
4. Company Materials; Confidentiality.
4.1 Company Materials. Consultant agrees that all styles, designs, lists,
materials, books, files, reports, correspondence, records and other documents
used or prepared by Consultant in the scope of his employment with the Company
or made available to Consultant by the Company (all of the foregoing, "Company
Materials"), are and will remain the property of the Company. Except to the
extent and for such time as reasonably necessary for the performance of
consulting services to the Company hereunder, Consultant shall immediately
return all Company Materials to the Company and Consultant shall not make or
retain any copies thereof.
4.2 Confidential Information. Consultant acknowledges that the Company has
created, developed and adopted, itself and through one or more third parties
acting on its behalf, confidential, proprietary and/or trade secret information
("Confidential Information"). Confidential Information includes, but is not
limited to: (a) the Company's lending, brokering, servicing, and investing
policies and procedures; (b) lists of and information regarding past, present
and potential brokers, lenders, investors, suppliers, loan applicants, borrowers
and other customers and clients ("Clients"); (c) contracts and agreements with
Clients; (d) the manner in which business is conducted by the Company, with
particular Clients and otherwise; (e) business plans, strategies, processes and
methodologies; (f) financial information, budgets, forecasts, and financial
statements, (g) portfolio data; (h) sales techniques; (i) methods of data
processing; and (j) information concerning employees and their salaries,
performance and personnel file information. Notwithstanding the foregoing,
Confidential Information shall not include any information to the extent known
by or made available to the public generally, other than as a direct or indirect
result of unauthorized disclosure thereof by Consultant.
4.3 Non-Disclosure. Consultant acknowledges and agrees that the
Confidential Information belongs to the Company and not to Consultant, that the
Confidential Information has independent actual or potential economic value from
not being generally known to the public or other persons who can obtain economic
value from its disclosure or use, that the Confidential Information is subject
to reasonable efforts by the Company to maintain its secrecy, and that
disclosure of Confidential Information in an unauthorized manner could be highly
prejudicial to the Company and/or its Clients. Except to the extent as may be
expressly authorized by the Company in writing from time to time or as may be
reasonably necessary in the course of providing consulting services to the
Company hereunder, Consultant agrees not to be disclose in any manner any
Confidential Information to any third party, either directly or indirectly,
except to the extent required to do so by applicable law, judicial or regulatory
process, or other governmental authority. Consultant shall take reasonable
precautions to prevent the unauthorized use, disclosure, or dissemination of
Confidential Information in Consultant's possession or control.
4.4 Legally Required Disclosure. In the event that Consultant is required
by applicable law, judicial or regulatory process, or other governmental
authority to disclose any Confidential Information, Consultant shall promptly
notify the Company of such required disclosure and shall reasonably cooperate
with the Company, at the Company's expense, in any attempt by the Company to
obtain an order or other
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assurance that confidential treatment will be accorded to any Confidential
Information required to be disclosed.
5. Release and Waiver of Claims.
5.1 Release and Waiver. In exchange for this Agreement, effective as of the
date hereof, Consultant (on behalf of Consultant and anyone claiming through or
on behalf of Consultant) releases the Company, its affiliated entities, each of
their respective successors and assigns, and the past and present employees,
officers, directors, managers, members, stockholders, representatives and agents
of any of the foregoing from, and hereby waives, any and all claims and
potential claims, demands and causes of action, whether known or unknown and
whether or not matured or contingent, that Consultant has or may have had
against any of them arising out of Consultant's service or employment with the
Company through the date hereof or out of the termination of such employment in
accordance with this Agreement, including claims, demands and causes of action
not currently known to or contemplated by the parties, to the maximum extent
permitted by law. This release includes, but is not limited to, any and all
claims, demands and causes of action through and including the date hereof that
arise under or out of, relate to, or concern: any oral or written promise,
agreement or undertaking concerning or relating to Consultant's employment with
the Company; compensation or benefits; discrimination under local, state or
federal law; Title VII of the Civil Rights Act of 1964; the Civil Rights Act of
1991; the Americans With Disabilities Act; the Employee Retirement Income
Security Act of 1974; the Family and Medical Leave Act; any tort, including but
not limited to invasion or privacy, defamation, fraud and infliction of
emotional distress; and all other claims, demands, and causes of action, whether
they arise in the United States of America or elsewhere, that arise out of,
relate to, or concern Consultant's service as an officer, director or employee
of the Company or the termination of Consultant's employment in accordance with
this Agreement.
5.2 Exclusions. Notwithstanding Section 5.1 or any other provision of this
Agreement, nothing in this Agreement shall be deemed to release or waive or
otherwise compromise, limit or restrict: (a) any rights or benefits provided for
under this Agreement; (b) any rights to indemnification, defense, or similar
benefits under the certificate of incorporation, bylaws or other organizational
documents of the Company (including NovaStar Financial, Inc. and each of its
direct and indirect subsidiaries), under any written indemnification agreement,
or under any policy of directors and officers or other insurance; or (c) any
claims, demands or causes of action arising under or out of, relating to, or
concerning any of the foregoing.
6. Compliance.
6.1 Securities Laws. Consultant agrees to comply with all applicable
federal and state securities laws in connection with the purchase and sale of
shares of the Company's capital stock arising by reason of or in connection with
the former employment relationship of the Consultant with the Company, including
but not limited to compliance with Rule 10b-5 promulgated under Securities and
Exchange Act of 1934, as amended.
6.2 Section 409A of the Internal Revenue Code. To the extent applicable,
this Agreement and the Employment Agreement shall be interpreted, construed and
operated in accordance with the Section 409A of the Internal Revenue Code of
1986, as amended (the "Code"), and the Treasury regulations and other guidance
issued thereunder. If on the date of the Consultant's separation from service
(as defined in Treasury Regulation ss.1.409A-1(h)) with the Company the
Consultant is a specified employee (as defined in Code Section 409A and Treasury
Regulation ss.1.409A-1(i)), no payment constituting the "deferral of
compensation" within the meaning of Treasury Regulation ss.1.409A-1(b) and
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after application of the exemptions provided in Treasury Regulation
ss.ss.1.409A-1(b)(4) and 1.409A-1(b)(9)(iii) shall be made to Consultant at any
time during the six (6) month period following the Consultant's separation from
service, and any such amounts shall instead be paid in a lump sum on the first
payroll payment date following expiration of such six (6) month period. For
purposes of conforming the Employment Agreement to Section 409A of the Code, the
parties agree that the definition of "Good Reason" under the Employment
Agreement is hereby amended to conform with the IRS safe harbor definition under
Treasury Regulation ss.1.409A-1(n)(2)(ii) and that the Company shall have a
period of thirty (30) days to remedy any conditions giving rise to a Good Reason
termination. Consultant understands and acknowledges that payment of the portion
of Consultant's benefit under the Company's Deferred Compensation Plan that is
subject to Section 409A of the Code and that has not been distributed prior to
the Termination Date is required to be delayed for a period of six (6) months
following the Termination Date.
7. Miscellaneous Provisions.
7.1 Governing Law and Consent to Jurisdiction. This Agreement and all
disputes relating to the interpretation/enforcement of this Agreement shall be
subject to, governed by, and construed in accordance with the laws of the State
of Missouri, notwithstanding any authority to the contrary. Each party hereby
expressly submits and consents to the exclusive personal jurisdiction and
exclusive venue of the federal and state courts of competent jurisdiction in the
State of Missouri, irrespective of the fact that one or both of the parties now
is or may become a resident of a different state and notwithstanding any
authority to the contrary.
7.2 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements or understandings, if any, between the parties with respect to
such matters; provided, however, that neither this Agreement nor any provision
hereof shall be deemed to supersede or otherwise affect any rights to
indemnification, defense, or similar benefits under the certificate of
incorporation, bylaws or other organizational documents of the Company
(including NovaStar Financial, Inc. and each of its direct and indirect
subsidiaries), under any written indemnification agreement, or under any policy
of directors and officers or other insurance.
7.3 Amendment. This Agreement may be modified or amended only by an
agreement in writing signed by both parties.
7.4 No Waiver. The failure of either party to insist on the performance of
any of the terms or conditions of this Agreement, or failure to enforce any of
the provisions of this Agreement, shall not be construed as a waiver or a
relinquishment of any such provision. Any waiver or failure to enforce on any
one occasion is effective only in that instance, and the obligations of either
party with respect of any provision in this Agreement shall continue in full
force and effect.
7.5 Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof are held by a court with competent
jurisdiction to be invalid, void or otherwise enforceable, and other remaining
provisions shall remain enforceable to the fullest extent permitted by the law.
7.6 Construction of Agreement. This Agreement is the product of negotiation
by and between the parties and shall not be strictly construed or otherwise
interpreted against either party. In construing this Agreement, any court of
competent jurisdiction/arbitrator shall give effect to the intent of the
parties.
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7.7 Counterparts; Signatures. This Agreement may be executed in one or more
counterparts, and by original or facsimile signature, which taken together shall
constitute one and the same original agreement.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement, with the intent to be legally bound by the provisions hereof, as of
the date first set forth above.
CONSULTANT:
/s/ Xxxxxxx X. Xxxx
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Xxxxxxx X. Xxxx
COMPANY:
NOVASTAR FINANCIAL, INC.,
for itself and on behalf of all of its
direct and indirect subsidiaries
By: /s/ W. Xxxxx Xxxxxxxx
-------------------------------------
Name: W. Xxxxx Xxxxxxxx
-----------------------------------
Title: President
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