Exhibit 10.32

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (“Agreement”) is made and entered into as of the date
below, by and between NOVASTAR FINANCIAL, INC. (the “EMPLOYER”) and Mike Bamburg
(the “EMPLOYEE”). The EMPLOYER hereby agrees to employ EMPLOYEE and EMPLOYEE
hereby accepts employment upon the terms and conditions set forth below.

 

1.

EMPLOYMENT BY THE COMPANY

EMPLOYEE shall be employed by the EMPLOYER in the position of Executive
Vice-President and Chief Investment Officer, hereinafter referred to as “EVP,
Chief Investment Officer”. EMPLOYEE shall be responsible to direct and control
all corporate portfolio activity with final authority on portfolio policies and
procedures as well as other duties/territories, which shall be assigned at the
sole discretion of the EMPLOYER. Reports to the Chief Executive Officer.

EMPLOYEE warrants and agrees that he/she has the skill, aptitude, and ability to
perform the services for which he/she is being employed, and that he/she will
adhere to the standards of performance for the fulfillment of those duties,
which EMPLOYER shall in its discretion from time to time prescribe. EMPLOYEE
represents that he/she has not entered into any agreements which are effective
at the time of execution of this Agreement which would prevent him/her from
performing his/her duties as EVP-Chief Investment Officer, including but not
limited to, any non-competition or non-disclosure agreement with former
employers.

EMPLOYEE hereby agrees that he/she will devote all of his/her working time and
attention and give his/her diligent effort and skill exclusively to the business
and interests of EMPLOYER, and that he/she will perform such services, as may
from time to time be assigned to him/her, and shall do his/her utmost to further
enhance and develop the best interests and welfare of the EMPLOYER in all
respects. EMPLOYEE agrees that he/she will give full attention and fully comply
with the rules and procedures as may from time to time be promulgated by
EMPLOYER in its sole discretion.

 

 

 

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EMPLOYEE shall not, without prior written consent of the EMPLOYER, at any time
during the term of this Agreement: (a) accept employment with, or render
services of a business, professional or commercial nature to any person other
than the EMPLOYER; (b) engage in, own or provide financial or other assistance
to any person, venture or activity which the EMPLOYER may in good faith consider
to be competitive with or adverse to the EMPLOYER, whether directly or
indirectly, alone or with any other person as a principle, agent, shareholder,
participant, partner, promoter, director, officer, manager, employee,
consultant, sales representative or otherwise; or (c) engage in any venture or
activity which the Officers or the Board of Directors of the EMPLOYER may in
good faith consider to interfere with EMPLOYEE’S performance of his duties.

 

2.

COMPENSATION

 

A.

Base Salary. The EMPLOYER agrees to pay EMPLOYEE an annual base salary of
$414,400.00. Base salary is payable in equal bi-weekly installments or at such
other time or times as the EMPLOYER’S policies and practices provide. EMPLOYEE
will be eligible to receive annual salary increases during the term of this
Agreement at the sole discretion of the EMPLOYER. Any such increases shall
automatically become part of this Agreement and shall not alter any other terms
of this Agreement.

 

B.

Performance Bonus. EMPLOYEE shall be eligible to receive a performance bonus,
hereinafter referred to as “Bonus,” with a target of up to 100% of base salary
(pro-rata over the portion of year employed), not to exceed 200% of base salary,
based upon predetermined goals approved by NovaStar’s Compensation Committee.

 

C.

Benefits. EMPLOYEE shall be entitled to participate in any benefit programs
adopted from time to time by EMPLOYER for the benefit of its employees at an
appropriate level for the duties of EMPLOYEE, and EMPLOYEE shall be entitled to
receive such other fringe benefits as may be granted from time to time by the
EMPLOYER’S Board of Directors or its Compensation Committee for the benefit of
its employees and/or employees at an appropriate level of duties of EMPLOYEE.
EMPLOYEE shall be entitled to participate in any benefits plans available to
other executive employees of EMPLOYER at an appropriate level for the duties of
the office, subject to any restrictions (including waiting periods) specified in
such plans. Separate written descriptions of available benefits will be provided
from time to time, and the EMPLOYER reserves, in its sole and absolute
discretion, the right to modify these benefits in whole or in part at any time.

 

 

 

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D.

Vacation. EMPLOYEE shall be entitled to four (4) weeks of paid vacation on an
annual basis, with such vacation to be accrued and taken in accordance with
EMPLOYER’S standard vacation policies.

 

E.

Business Expenses. EMPLOYER shall reimburse EMPLOYEE for any and all necessary,
customary and usual expenses, properly receipted in accordance with EMPLOYER’S
policies and procedures, incurred by EMPLOYEE on behalf of EMPLOYER.

 

F.

Options and Restricted Stock. Company Stock Options and/or restricted stock, may
from time to time be offered to Company Executives. Such offerings shall be
governed by a separate document and the decision to offer options or restricted
stock is at the sole discretion of EMPLOYER.

 

3.

AT WILL EMPLOYMENT

EMPLOYEE and EMPLOYER acknowledge that there is no agreement, express or
implied, between them for any specified term or period of employment, nor for
continuing or long-term employment. The employment relationship between EMPLOYEE
and EMPLOYER is completely and, in all respects, at-will. Either EMPLOYEE or
EMPLOYER has the absolute right to terminate the employment relationship, at any
time, with or without cause, for any reason or no reason and no reason need be
given. The fact that other sections of this Agreement provide differential
post-termination benefits to EMPLOYEE on the basis of whether EMPLOYEE is
termination With Cause or Without Cause, as defined, below, does not undermine
the at-will nature of the employment relationship. This is the entire agreement
between EMPLOYEE and EMPLOYER regarding the matters set forth in this paragraph.

 

4.

TERMINATION OF EMPLOYMENT BY EMPLOYER

Termination For Cause. For purposes of this Agreement, Termination for Cause
shall mean the existence of or a belief by the EMPLOYER in the existence of
facts which constitute a basis for termination of employee’s employment in view
of relevant factors and circumstances, which may include, but are not limited
to, EMPLOYEE’S duties, responsibilities, conduct on the job or otherwise, job
performance, and employment record. Acts or omissions which could constitute a
basis for termination for Cause include, but are not limited to:

 

(a)

Breach of any of the terms of this Agreement;

 

(b)

Failure to perform duties in accordance with the standards from time to time
established by the EMPLOYER or conduct which the EMPLOYER determines may impair
or tend to impair the integrity of the EMPLOYER, including but not limited to:

 

 

 

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(1)

Insubordination;

 

(2)

Gross misconduct;

 

(3)

Theft, Misappropriation or Embezzlement;

 

(4)

Dishonesty;

 

(5)

Neglect in performance of or failure to attend to the performance of duties;

 

(6)

Employee’s breach of fiduciary duty;

 

(7)

Any inaccurate, incomplete, or misleading oral or written statements made by the
EMPLOYEE at any time, including but not limited to, any such statements in
interviews, resumes, curriculum vitae, job application, or other related oral or
written communications; and

 

(c)

Any act or omission, which is inconsistent with the business interests of the
EMPLOYER.

Termination for Death of Disability. EMPLOYEE’S employment may be terminated by
EMPLOYER upon the death or disability of EMPLOYEE, consistent with any rights or
obligations of the EMPLOYER and EMPLOYEE under the Americans with Disabilities
Act, or any other applicable constitutional provision or statute;

Termination Without Cause. EMPLOYEE’S employment may be terminated by EMPLOYER
without cause at any time and at its sole discretion.

 

5.

TERMINATION OF EMPLOYMENT BY EMPLOYEE FOR GOOD REASON.

The EMPLOYEE shall have the right to terminate this Agreement for Good Reason.
For purposes of this Agreement, “Good Reason” shall mean the occurrence, without
the EMPLOYEE’S written consent, of any one or more of the following events:

 

(a)

A reduction in title and/or compensation of the EMPLOYEE or the assignment of
duties to the EMPLOYEE not consistent with those of an executive of the Company,
except in connection with the Company’s termination of the EMPLOYEE’S employment
for Cause pursuant to Section 4 or as otherwise expressly contemplated herein;

 

(b)

The Company’s material breach of any of the provisions of this Agreement,
including, but not limited to, a reduction by the Company in the EMPLOYEE’S Base
Salary in effect as of the Effective Date; or a material change in the
conditions of the EMPLOYEE’S employment; or

 

(c)

The relocation of the Company’s principal executive offices to a location more
than fifty (50) miles from its location as of the Effective Date or the
Company’s requiring the EMPLOYEE to be based anywhere other than the Company’s
principal executive offices, except for

 

 

 

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requiring travel on the Company’s business to an extent substantially consistent
with the EMPLOYEE’S duties hereunder.

The EMPLOYEE agrees to provide the Company with thirty (30) days’ prior written
notice of any termination for Good Reason.

 

6.

TREATMENT OF COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT BY
EMPLOYER FOR CAUSE OR BY EMPLOYEE WITHOUT GOOD REASON.

Salary Continuation. EMPLOYEE is not entitled to any continuation of salary or
other base pay if EMPLOYEE is either terminated by EMPLOYER for Cause or if
EMPLOYEE resigns his/her employment.

Incentive Pay. EMPLOYEE is not entitled to Incentive Pay if EMPLOYEE is either
terminated by EMPLOYER for Cause or if EMPLOYEE resigns his/her employment.

Health Benefits. EMPLOYEE is entitled to continue Health Benefits coverage
pursuant to the terms of COBRA if EMPLOYEE is either terminated by EMPLOYER for
Cause or if EMPLOYEE resigns his/her employment.

Stock Options and Restricted Stock. The vesting period ceases immediately upon
EMPLOYEE’S termination by EMPLOYER for Cause or if EMPLOYEE resigns his/her
employment. The provisions of the Stock Option Agreement will otherwise be
controlling.

 

7.

TREATMENT OF COMPENSATION AND BENEFITS UPON TERMINATION OF EMPLOYMENT BY
EMPLOYER AFTER CHANGE IN CONTROL OTHER THAN FOR CAUSE, OR BY EMPLOYEE FOR GOOD
REASON

If the EMPLOYEE’S employment shall be terminated after a Change in Control as
defined by Section 10, (a) by the Company other than for Cause, or (b) by the
EMPLOYEE for Good Reason, the EMPLOYEE shall be entitled to the following
benefits:

Severance Payment. EMPLOYEE shall be paid an amount equal to three times the
Executive’s combined current year Base Salary and actual Bonus compensation for
the preceding fiscal year; provided, however, the severance amount shall not be
less than Five Hundred Thousand Dollars ($500,000.00) nor more (once the minimum
is reached, than one percent (1.0%) of the book value of the Company (i.e., the
amount reported on the Company’s balance sheet prepared in accordance with
generally accepted accounting principles as stockholder’s equity). The severance
payment shall be paid in a single lump sum (i) as soon as possible in event
EMPLOYEE’S employment shall be terminated by the EMPLOYER other than for Cause
or (ii) six months following EMPLOYEE’S termination of employment due to Good
Reason.

 

 

 

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Health Benefits. EMPLOYEE is entitled to continue Health Benefits coverage
pursuant to the terms of COBRA if EMPLOYEE is either terminated by EMPLOYER
after a Change in Control or if EMPLOYEE terminates employment with Good Reason.

Stock Options and Restricted Stock. Vesting will accelerate to the date of
termination. In other words, after a Change in Control, if EMPLOYEE is either
terminated by EMPLOYER, other than for Cause, or if EMPLOYEE terminates
employment with Good Reason, EMPLOYEE shall immediately be vested with all stock
options and restricted stock awarded by the Company which have not been
exercised prior to the termination date. The provisions of the Stock Option
Agreement will otherwise be controlling.

Section 280G Adjustments. In the event that the severance payment and all other
benefits provided for in this Agreement or otherwise payable to the EMPLOYEE
(excluding for this purpose any payments that may be made under this paragraph)
(the “Company Payments”) constitute “parachute payments” within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and
will be subject to the excise tax imposed by Section 4999 of the Code (the
“Excise Tax”), then the EMPLOYER shall pay to the EMPLOYEE, at the time
specified below, an additional amount (the “Gross-Up Payment”) such that the net
amount retained by the EMPLOYEE, after deduction of any Excise Tax on the
Company Payments and any payments made pursuant to this paragraph and after
deduction of any U.S. federal, state and local income or payroll tax on the
payments made pursuant to this paragraph, shall be equal to the Company
Payments. For purposes of calculating the Gross-Up Payment, the EMPLOYEE shall
be deemed to pay income taxes at the highest applicable effective federal, state
and local income tax marginal rates for the calendar year in which the Gross-Up
Payment is to be made.

 

 

 

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Unless the EMPLOYER and the EMPLOYEE otherwise agree in writing, the
determination of the EMPLOYEE’s Excise Tax liability and the amount required to
be paid pursuant to the foregoing shall be made promptly in writing by the
EMPLOYER’s independent public accountants or such other tax experts as
reasonably agreed to by the EMPLOYER and the EMPLOYEE (the “Accountants”) and
such amount shall be paid to the EMPLOYEE promptly, but not before 10 days after
such determination. In the event that the Excise Tax incurred by the EMPLOYEE is
determined by the Internal Revenue Service to be greater or lesser than the
amount so determined by the Accountants, the EMPLOYER and the EMPLOYEE agree to
promptly pay such differential as the Accountants reasonably determine is
appropriate, including interest and any tax penalties, to the other party. For
purposes of making the foregoing calculations, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on interpretations of the Code for which there is “substantial authority”
tax reporting position. The EMPLOYER and the EMPLOYEE shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make such determination. The EMPLOYER shall bear all costs
the Accountants may reasonably incur in connection with any calculations
contemplated by this paragraph. For purposes of the computations herein, the
Accountants shall assume that the EMPLOYEE’s income is subject to income taxes
at the highest applicable effective Federal, state and local income tax marginal
rates for the calendar year for which a particular computation relates.

In the event of any proposed adjustment with the Internal Revenue Service (or
other applicable taxing authority) with respect to the Excise Tax which would
result in an increase in the amount of the Gross-Up Payment, the EMPLOYEE shall
permit the EMPLOYER to control the issues related to the Excise Tax (at the
EMPLOYER’s expense), provided that such issues do not potentially adversely
affect the EMPLOYEE. In the event issues are interrelated, the EMPLOYEE and the
EMPLOYER shall in good faith cooperate so as to not jeopardize resolution of
either issue. In the event of any conference with any taxing authority as to the
Excise Tax or associated income taxes, the EMPLOYEE shall permit the
representative of the EMPLOYER to accompany the EMPLOYEE and the EMPLOYEE and
the EMPLOYEE’s representative shall cooperate with the EMPLOYER and its
representative.

 

 

8.

TREATMENT OF COMPENSATION AND BENEFITS UPON TERMINATION BY EMPLOYER FOR DEATH OR
DISABILITY

Salary Continuation. EMPLOYEE is not entitled to any continuation of salary or
other base pay if EMPLOYEE is terminated by EMPLOYER due to EMPLOYEE’S death or
disability.

Incentive Pay. EMPLOYEE is not entitled to Incentive Pay if EMPLOYEE is
terminated by EMPLOYER due to EMPLOYEE’S death or disability.

 

 

 

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Health Benefits. EMPLOYEE (or EMPLOYEE’S family) is entitled to continue Health
Benefits coverage pursuant to the terms of COBRA if EMPLOYEE is terminated by
EMPLOYER due to death or disability.

Stock Options and Restricted Stock. The vesting period continues without
acceleration upon EMPLOYEE’S termination by EMPLOYER due to disability. All
stock options and restricted stock shall immediately and completely vest upon
EMPLOYEE’S termination due to death. The provisions of the Stock Option
Agreement will otherwise be controlling.

 

9.

TREATMENT OF COMPENSATION AND BENEFITS UPON TERMINATION BY EMPLOYER WITHOUT
CAUSE OR BY EMPLOYEE FOR GOOD REASON.

Consultancy Agreement. In the event EMPLOYEE is terminated without Cause or by
EMPLOYEE for GOOD REASON, EMPLOYEE and EMPLOYER shall immediately enter into an
independent contractor/consultant agreement pursuant to which EMPLOYEE shall
receive pay in an amount equal to twelve (12) months base salary only
(hereinafter “Consultancy Pay”) in exchange for consulting services. The term of
the consultancy will be for 12 months after the date of EMPLOYEE’S termination
(“Consulting Period”). EMPLOYEE agrees to make himself or herself available to
EMPLOYER 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 EMPLOYEE’S job description during the course of EMPLOYEE’S employment.
EMPLOYEE agrees to respond promptly, reasonably and cooperatively to EMPLOYER’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 EMPLOYER, but EMPLOYEE will receive his or her full pay under this
paragraph. However, EMPLOYER reserves the right to require EMPLOYEE to provide
more than ten (10) hours of service per week in the event that special
circumstances arise in which EMPLOYEE’S unique assistance is required by
EMPLOYER. (Examples of special circumstances include, but are not limited to
assistance in litigation or responding to government inquiries). In order to
protect EMPLOYER’S confidential and trade secret information from use or
disclosure to a party other than the EMPLOYER, and to enable the Company to be
able to obtain the benefits of EMPLOYEE’S consulting obligations hereunder,
EMPLOYEE agrees that so long as he is accepting Consultancy Pay pursuant to this
section, he (a) will not accept employment or consulting work in any capacity
with any competitor of EMPLOYER; and (b) will continue to abide by the
provisions of paragraphs 8, and 9, below. In the event that EMPLOYEE accepts
subsequent employment or other consulting work within the Consulting Period,
EMPLOYEE will be required to spend no more than five (5) hours per week
consulting with EMPLOYER. EMPLOYEE understands that this a material term of this
Agreement.

 

 

 

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Incentive Pay. In the event EMPLOYEE is terminated without Cause, EMPLOYEE, at
EMPLOYER’S discretion, shall be entitled to Incentive Pay in an amount equal to
the pro-rata portion of incentive pay for the period of employment beginning
January 1st of the year in which the termination occurs and ending the date of
termination. The full amount, at EMPLOYER’S discretion, of pro-rated Incentive
Pay will be paid to EMPLOYEE in one lump sum payment made within thirty (30)
days after the EMPLOYEE’S termination date.

Health Benefits. EMPLOYEE is entitled to continue Health Benefits coverage
pursuant to the terms of COBRA if EMPLOYEE is terminated by EMPLOYER without
cause.

Stock Options and Restricted Stock. The vesting period for the year in which the
termination occurs will accelerate to the date of termination. In other words,
upon termination without cause, EMPLOYEE shall immediately be vested with all
stock options and restricted stock that would have been vested at the end of the
year in which the termination occurred. All other vesting ceases upon
termination. The provisions of the Stock Option Agreement will otherwise be
controlling.

 

10.

CHANGE IN CONTROL. A “Change in Control” shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied.

 

(a)

Any “person” as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the “Exchange Act”) (other than the Company; any trustee
or other fiduciary holding securities under an Executive benefit plan of the
Company; or any company owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of the
stock of the Company), is or becomes the “beneficial owner” (as defined by Rule
13d-3 under the Exchange Act), directly or indirectly, of the securities of the
Company (not including securities beneficially owned by such person, any
securities acquired directly from the Company or from a transferor in a
transaction expressly approved or consented to by the Board of Directors)
representing more than 25% of the combined voting power of the Company’s then
outstanding securities; or

 

 

 

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(b)

During any period of two consecutive years (not including any period prior to
the execution of the Agreement), individuals who at the beginning of such period
constitute the Board of Directors and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c) or (d) of this section), (i)
whose election by the Board of Directors or nomination for election by the
Company’s stockholders was approved by a vote of at least (2/3) of the directors
then still in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved or (ii)
whose election is to replace a person who ceases to be a director due to death,
disability or age, cease for any reason to constitute a majority thereof; or

 

(c)

The shareholders of the Company approve a merger or consolidation of the Company
with another corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in combination with
the ownership of any trustee or other fiduciary holding securities under an
Executive benefit plan of the Company, at least 75% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than 50% of the combined
voting power of the Company’s then outstanding securities; or

 

(d)

The shareholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all the Company’s assets.

 

11.

NON-COMPETITION PROVISION

During Employment. EMPLOYEE agrees that during his/her employment by EMPLOYER
he/she will not engage directly or indirectly in any location within the United
States, in any business of the same or similar nature to the business of
EMPLOYER or any business in which EMPLOYER is engaged in developing, nor will
EMPLOYEE participate directly or indirectly in the ownership or management of
any enterprise engaged in such a business within the United States, including
ownership or management as defined by the Sarbanes-Oxley Act of 2002. This
provision acts in concert with Section 1, Employment by Company, which requires
EMPLOYEE to devote all of EMPLOYEE’S effort and skill exclusively to EMPLOYER.

 

 

 

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Upon Termination of Employment. EMPLOYEE agrees that he/she will not seek or
accept employment with any business in direct competition with EMPLOYER for a
period of one year after termination of the employment relationship, anywhere in
the United States. EMPLOYEE further agrees that for a period of one year, he/she
will neither contact nor solicit business from any employee, customer or
independent contractor, past, present or future, of the EMPLOYER.

 

12.

NON-INTERFERENCE AND NON-SOLICITATION PROVISION

EMPLOYEE agrees that during the term of his/her employment with EMPLOYER and for
a period of one (1) year after termination of employment with EMPLOYER for any
reason: (1) EMPLOYEE shall not either directly or indirectly interfere with the
business of EMPLOYER or any of its subsidiaries or affiliates; and (2) EMPLOYEE
shall not directly or indirectly solicit any of EMPLOYER’S employees to leave
EMPLOYER 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 EMPLOYER. Thus, EMPLOYEE agrees that he/she will not
either directly or indirectly initiate any communications or direct others to
initiate any communications with EMPLOYER’S employees regarding the possibility
of employment elsewhere during the term of this non-solicitation provision.

 

13.

CONFIDENTIALITY/TRADE SECRET PROVISION

EMPLOYER has created, developed, and adopted confidential, proprietary and/or
trade secret information. Additionally, EMPLOYER has entered into agreements
with third parties whereby these third parties produce confidential, proprietary
and/or trade secret information for EMPLOYER. Such 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, and
is not readily available or independently ascertainable through any source other
than EMPLOYER. Such information is subject to reasonable efforts to maintain its
secrecy.

 

 

 

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The trade secrets of EMPLOYER include, but are not limited to, EMPLOYER’S
lending policies and procedures, contracts and agreements with lenders,
investors, and other clients (“Clients”), information regarding the Clients
(including but not limited to Client Lists and potential Client Lists), loan
applicants, borrowers and other customers, budgets, forecasts, financial
statements, broker lists, client contracts, the particular needs of each client
and broker, the manner in which business is conducted with each client and
broker, records, sales techniques, methods of data processing, forecasts,
information concerning employees and their salaries, performance and personnel
file information, and various financial information of EMPLOYER. EMPLOYEE
further understands and agrees that any and all of the above produced or used by
EMPLOYEE during the period of employment belongs to EMPLOYER and not to
EMPLOYEE.

In recognition that the business of EMPLOYER and the nature of EMPLOYEE’S work
will require EMPLOYEE to have access to confidential, proprietary, and/or trade
secret information of EMPLOYER and/or its clients which, if disclosed in an
unauthorized manner, could be highly prejudicial to EMPLOYER and/or its clients:

 

1.

EMPLOYEE agrees not to disclose in any manner any confidential, proprietary,
and/or trade secret information, either directly or indirectly, either during
employment with EMPLOYER or following termination of employment, except as
required in the course of employment with EMPLOYER.

 

2.

EMPLOYEE agrees to take all precautions reasonably necessary to prevent the
unauthorized use, disclosure, or dissemination of confidential proprietary,
and/or trade secret information either during employment with EMPLOYER or
following termination of employment.

 

3.

Upon termination, EMPLOYEE will immediately turn over to EMPLOYER all
confidential, proprietary, and/or trade secret documents, lists and records, or
other writings or personal property relating to the business of the EMPLOYER in
any manner obtained during the term of employment. EMPLOYEE hereby agrees and
understands that all loans, loan files, loan documentation, client lists and
potential client lists are the possession and property of EMPLOYER. Upon
termination, EMPLOYEE shall cease using, shall immediately return, and shall not
misappropriate or use any loans, loan files, loan documentation, client lists or
potential client lists. In addition, upon termination, EMPLOYEE shall leave in
possession of EMPLOYER all equipment, furniture and supplies owned or leased by
EMPLOYER.

 

 

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EMPLOYEE recognizes and acknowledges that none of the above provisions or
EMPLOYER’S exercise of any rights thereunder shall limit the rights of EMPLOYER
under applicable statutes and common law rules regarding trade secrets,
including, without limitation, the Uniform Trade Secrets Act.

 

14.

ASSIGNMENT; SUCCESSORS

The rights, which accrue to the EMPLOYER under this Agreement, shall pass to its
successors and assigns. EMPLOYEE may not assign any right under this Agreement
with respect to the employment relationship, commencement, and termination of
the employment relationship.

 

15.

ENTIRE AGREEMENT BETWEEN THE PARTIES

This Agreement constitutes the entire agreement (“Entire Agreement”) of the
parties and supersedes any prior or contemporaneous agreement by and between the
parties, except Stock Option Agreements as discussed herein. The Entire
Agreement can be modified only by a written instrument executed by EMPLOYEE and
EMPLOYER’S President, on behalf of the EMPLOYER. Section Headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.

 

16.

SEVERABILITY

In the event that one or more of the paragraphs contained herein are held to be
invalid by a court of competent jurisdiction, the remainder of the contract will
continue in full force and effect.

 

17.

GOVERNING LAW

This Agreement and the legal relations thus created between the parties hereto
shall be governed by and construed under and in accordance with the laws of the
State of Missouri.

 

 

 

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18.

ARBITRATION PROVISION

Any controversy, dispute or claim (“Claim”) whatsoever between EMPLOYEE on the
one hand, and EMPLOYER, or any of its employees, officers, and agents
(collectively “COMPANY PARTIES”) on the other hand, including but not limited to
any dispute about the validity, interpretation, effect or alleged violation of
this Agreement, must be settled by binding arbitration, at the request of either
party, in accordance with the Employment Dispute Resolution Procedures of the
American Arbitration Association or other similar organization in the County and
State in which EMPLOYEE is employed. The claims covered by this Agreement
include, but are not limited to, claims for wages and other compensation, claims
for breach of contract (express or implied), tort claims, claims for
discrimination (including, but not limited to, race, sex, sexual orientation,
religion, national origin, age, marital status, medical condition, and
disability), and claims for violation of any federal, state, or other
governmental law, statute, regulations, or ordinance, except for claims for
worker’s compensation or unemployment insurance benefits.

The Arbitrator shall apply the chosen State’s applicable substantive law and
Evidence Code to the proceeding. The arbitration shall take place in the County
and State in which EMPLOYEE is or was employed by EMPLOYER. The parties shall be
entitled to conduct discovery. The Arbitrator shall prepare in writing and
provide to the parties a decision and award, which includes factual findings and
the reasons upon which the decision is based. The decision of the Arbitrator
shall be binding and conclusive on the parties and unreviewable for error of law
or legal reasoning of any kind, except as otherwise required by law. Judgment
upon the award rendered by the Arbitrator may be entered in any court having
proper jurisdiction. The fees for the Arbitrator shall be paid by the EMPLOYER.
Each party shall bear its or his/her own fees and costs incurred in connection
with the Arbitration, except for any attorneys’ fees or costs, which are awarded
to a party by the Arbitrator pursuant to statute or contract which provides for
recovery of such fees and/or costs from the other party.

The Arbitration agreement between EMPLOYEE and EMPLOYER Parties constitutes the
entire agreement between the parties with respect to the matters referenced
herein. This Arbitration agreement can be modified only by a written instrument
executed by the EMPLOYEE and the current President of the EMPLOYER.

Both the EMPLOYER and the EMPLOYEE understand and agree that by using
arbitration to resolve any Claims between them or any or all of the EMPLOYER
Parties they are giving up any right that they may have to a judge or jury trial
with regard to those Claims. Both EMPLOYER and EMPLOYEE understand and agree
that each is entering into this Agreement voluntarily.

 

 

 

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19.

ATTORNEY’S FEES

The prevailing party in any action or dispute between EMPLOYER and EMPLOYEE
shall be entitled to recover reasonable attorneys’ fees and other costs incurred
in that action or proceeding in addition to any other relief to which the
prevailing party may be entitled.

 

20.

WAIVER; MODIFICATION

Failure to insist upon compliance with any of the terms, covenants or conditions
hereof shall not be deemed a waiver of such term, covenant or condition, nor
shall any waiver or relinquishment of, or failure to insist upon strict
compliance with, any right or power hereunder at any one or more times be deemed
a waiver of or relinquishment of such right or power at any other time or times.

 

21.

NEGOTIATION

The parties warrant and agree that the terms of this Agreement were the subject
of negotiations between them. EMPLOYEE acknowledges that he/she has read this
Agreement and has had full opportunity to seek independent legal advice before
signing it.

 

22.

CODE SECTION 409A

To the extent applicable, this Agreement shall be interpreted in accordance with
Section 409A of the Code and the applicable U.S. Treasury regulations and other
interpretative guidance issued thereunder. Notwithstanding any provision of the
Agreement to the contrary, the EMPLOYER may adopt such amendments to the
Agreement or adopt other policies and procedures, or take any other actions,
that the EMPLOYER determines is necessary or appropriate to exempt any benefits
under the Agreement from Section 409A of the Code and/or to preserve the
intended tax treatment of the benefits provided hereunder, and/or to comply with
the requirements of Section 409A and related U.S. Treasury guidance.

 

 

 

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EMPLOYEE

 

 

 

 

 

Date:

March 23, 2007

 

 

/s/ Mike Bamburg

 

 

 

 

Mike Bamburg

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOVASTAR FINANCIAL, INC.

 

 

 

 

 

Date:

March 23, 2007

 

By

/s/ Scott Hartman

 

 

 

 

Scott Hartman

 

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

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