**Exhibit 10.66**

**EMPLOYMENT AGREEMENT**

This Employment Agreement (“Agreement”) is made and enteredinto as of May 03, 2007, by and between NovaStar Financial, Inc. (the “Company”) and Todd Phillips (the “Employee”). 

 

1.1 Employment. TheCompany hereby employs Employee, and Employee hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement. 

1.2 Duties. Employee initially shall be employed by the Company in the position of VP—Controller-CAO. Employee shall perform for and on behalf of the Company such duties as the chief executiveofficer or Board of Directors of the Company shall assign from time to time, and shall perform such duties in accordance with the Company’s policies and practices, including, but not limited to, its employment policies and practices.

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

1.4 Conflicts. Employee shall not, without prior written consent of the Company, at any time during his or her employment with the Company:(a) accept employment with, or render services of a business, professional or commercial nature to any person other than the Company; (b) engage in, own or provide financial or other assistance to any person, venture or activity which theCompany may in good faith consider to be competitive with or adverse to the Company, 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 that the Company may in good faith consider to interfere with Employee’s performance of his or her duties. 

1.5 Authority. Employee represents that he or she has not entered into any agreement that is effective at the time of the execution of thisAgreement which would prevent Employee from performing his or her duties to the Company. Employee is not authorized by the Company to take, use, disclose or otherwise misappropriate any confidential, business proprietary, trade secret and/or otherany other business information from any of Employee’s former employers to perform his or her job duties with the Company, and Employee hereby covenants and agrees that Employee shall not use or disclose any such information to the Company inperforming his or her job duties for the Company or otherwise. 

 

2.1 Base Salary. The Company agreesto pay Employee an annual base salary (“Base Salary”) of $136,792, payable in accordance with the Company’s regular payroll schedule and subject to applicable deductions and withholdings. The Company may increase or decreaseEmployee’s Base Salary at any time in its sole discretion, subject to the rights of Employee under Section 5 of this Agreement. 

2.2 Performance Bonus. Employee shall be eligible to receive incentive compensation (“Incentive Pay”) based upon goals established by the Company from time to time. The Company may 

 

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increase or decrease Employee’s Incentive Pay and any Incentive Pay target amount thereof, and may modify any Incentive Pay program or structure, at anytime in its sole discretion. Incentive Pay for any calendar year or portion thereof shall be deemed earned only at the end of such calendar year. Should the Employee no longer be employed by the Company on the date on which any Incentive Pay isdeemed pursuant to the foregoing to be earned, Employee shall not be eligible or entitled to such Incentive Pay or to any pro-rata portion thereof. 

2.3 Benefits. Employee shall be entitled to participate in any employee benefits plans, perquisites and fringe benefits that the Company extends generally from time to time to employees of the Company at the level of Employee.Separate written descriptions of available benefits will be provided or made available from time to time, and the Company reserves, in its sole and absolute discretion, the right to modify these benefits in whole or in part at any time. 

2.4 Vacation. Employee shall be entitled to 120 hours weeks of paid vacation per calendar year, with such vacation to be accrued and taken inaccordance with the Company’s standard vacation policies. 

2.5 Business Expenses. The Company shall reimburse Employee for anyand all necessary, customary and usual expenses, properly receipted in accordance with the Company’s policies and procedures, incurred by Employee on behalf of the Company. 

2.6 Equity Awards. Equity or equity-based compensation awards including, without limitation, stock options and/or restricted stock(“Equity Awards”) may be offered to certain employees of the Company from time to time, at the sole discretion of the Company. Such Equity Awards, if any, shall be governed solely by one or more separate agreements and theprovisions of any plan governing such awards. 

 
3.AT WILL EMPLOYMENT 
Employee and the Company acknowledgethat 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 the Company is completely and, in all respects,at-will. Each of Employee and the Company has the separate and 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 thisAgreement provide differential post-termination benefits to Employee on the basis of whether Employee is terminated with Cause or without Cause, as defined below, and the fact that the other rights and obligations set forth in this Agreement remainin effect for a specified period of time, do not undermine the at-will nature of the employment relationship. This is the entire agreement between Employee and the Company regarding the matters set forth in this paragraph. 

 
4.TERMINATION OF EMPLOYMENT BY THE COMPANY 
4.1Termination For Cause. Employee’s employment may be terminated by the Company for Cause at any time. For purposes of this Agreement, “Cause” shall mean the existence of or a good faith belief by the Company in theexistence 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 orotherwise, job performance, and employment record. Acts or omissions that constitute Cause include, but are not limited to: 

(a) Breach of any of the terms of this Agreement; 

 

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(b) Failure to perform material duties in accordance with the standards from time to timeestablished by the Company; 

(c) Neglect in performance of or failure to attend to the performance of material duties;

(d) Insubordination or willful breach of policies and procedures of the Company; 

(e) Breach of fiduciary duties; or 

(f) Conduct that the Company determines in good faith may impair or tend to impair the integrity of the Company, including but not limited to commission of a felony, theft, misappropriation, embezzlement, dishonesty,or criminal misconduct. 

4.2 Termination For Death or Disability. Employee’s employment shall be terminated by the Company uponthe death of Employee, and may be terminated by the Company upon the disability of Employee, consistent with any rights or obligations of the Company and the Employee under the Americans with Disabilities Act, or any other applicable constitutionalprovision or statute. Termination for death or disability is separate and distinct from termination with Cause or Good Reason and from termination without Cause or Good Reason, and will give rise only to the rights and obligations expressly providedin Section 6.3 hereof. 

4.3 Termination Without Cause. Employee’s employment may be terminated by the Company withoutCause at any time and at its sole discretion. 

 
5.TERMINATION OF EMPLOYMENT BY EMPLOYEE 
5.1 Terminationfor Good Reason. Employee’s employment may be terminated by Employee at any time for Good Reason. For purposes of this Agreement, “Good Reason” shall mean the occurrence, without the Employee’s consent, of any one ormore of the following events: 

(a) Except in connection with the Company’s termination of Employee’s employmentfor Cause pursuant to Section 4.1 or as a result of Employee’s death or disability: (i) a reduction in Employee’s Base Salary; or (ii) a decrease in the responsibilities of Employee to a level that, on the whole, ismaterially inconsistent with the position for which Employee is then employed by the Company; or 

(b) The Company requiresthat Employee relocate more than fifty (50) miles from the location at which Employee is employed by the Company on the date hereof, and the Employee objects to such relocation in writing prior to Employee’s actual relocation. 

(c) The Company’s material breach of any of the provisions of this Agreement. 

5.2 Notice and Cure. Notwithstanding the foregoing, a termination of employment by Employee shall not be considered as having occurred for GoodReason unless Employee provides written notice of his or her objection to the event constituting Good Reason within thirty (30) days following the occurrence thereof, specifying that Employee believes such event to constitute Good Reason, andthe Company has been afforded a period of at least thirty (30) days following delivery of such notice to remedy the event constituting Good Reason and has not done so. 

 

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5.3 Termination Without Good Reason. Employee’s employment may be terminated by Employeewithout Good Reason at any time. 

 
6.TREATMENT OF COMPENSATION AND BENEFITS UPON TERMINATION 
6.1 For Cause or Without Good Reason. If Employee is terminated by the Company for Cause or if Employee terminates his or her employment without Good Reason: 

(a) Employee shall not be entitled to any continuation of Base Salary, other than Base Salary accrued but unpaid at the date oftermination of Employee’s employment; 

(b) Employee shall not be entitled to Incentive Pay not earned prior to the dateof termination of Employee’s employment; 

(c) Employee shall be entitled to receive reimbursement for business expensesincurred prior to the date of termination of Employee’s employment to the extent provided in Section 2.5 hereof; 

(d) Employee shall not be entitled to continue to receive any benefits from the Company after the date of termination of Employee’s employment, except as otherwise required by the applicable benefit plan or applicable law. 

6.2 Other than for Cause; for Good Reason. If Employee’s employment is terminated by the Company other than for Cause, or by the Employeefor Good Reason: 

(a) Employee shall receive compensation during the Consulting Period at the same rate as Employee’sBase Salary in effect on the date of termination of Employee’s employment, for the period commencing on the date of termination and continuing until the date that is 6 months following the date of termination of Employee’s employment,pursuant to a “Consultancy Agreement” between Employee and the Company, the terms and conditions of which are outlined in Section 8.4 of this Agreement; 

(b) Employee shall not be entitled to Incentive Pay not earned prior to the date of termination of Employee’s employment; 

(c) Employee shall be entitled to receive reimbursement for business expenses incurred prior to the date of termination ofEmployee’s employment to the extent provided in Section 2.5 hereof; 

(d) Employee shall not be entitled tocontinue to receive any benefits from the Company after the date of termination of Employee’s employment, except as otherwise required by the applicable benefit plan or applicable law. 

6.3 For Death or Disability. If Employee’s employment is terminated by reason of the death or disability of Employee: 

(a) Employee shall not be entitled to any continuation of Base Salary, other than Base Salary accrued but unpaid at the date oftermination of Employee’s employment; 

(b) Employee shall not be entitled to Incentive Pay not earned prior to the dateof termination of Employee’s employment; 

 

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(c) Employee shall be entitled to receive reimbursement for business expenses incurredprior to the date of termination of Employee’s employment to the extent provided in Section 2.5 hereof; 

(d)Employee shall not be entitled to continue to receive any benefits from the Company after the date of termination of Employee’s employment, except as otherwise required by the applicable benefit plan or applicable law. 

6.4 After Change in Control by Company Other than for Cause or by Employee for Good Reason 

If Employee’s employment shall be terminated after a Change in Control, as defined in Section 6.5, (a) by Company other than for Cause, or (b) byEmployee for Good Reason, Employee shall be entitled to the following additional benefits: 

(a) Employee shall be paid an amount (the“Severance Amount”) equal to 1.0 times the Employee’s combined current year Base Salary and actual Incentive Pay for the preceding fiscal year; provided, however, the Severance Amount shall not be less than Two Hundred ThousandDollars ($200,000.00) nor more (once the minimum is reached) than one percent (1.0%) of the book value of Company (i.e., the amount reported on Company’s balance sheet prepared in accordance with generally accepted accounting principles asstockholder’s equity). The Severance Amount shall be paid in a single lump sum (i) as soon as possible in event Employee’s employment shall be terminated by the Company other than for Cause or (ii) six months followingEmployee’s termination of employment due to Good Reason. 

(b) Vesting for Equity Awards will accelerate to the date of termination. Inother words, Employee shall immediately be vested with all Equity Awards awarded by Company which have not been exercised prior to the termination date. The provisions of the agreements and/or plans governing the stock options and restricted stockwill otherwise be controlling. 

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

(a) Any “person” as such term is used inSections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) (other than Company; any trustee or other fiduciary holding securities under an executive benefit plan of Company; or any company owned, directly orindirectly, by the stockholders of Company in substantially the same proportions as their ownership of the stock of Company), is or becomes the “beneficial owner” (as defined by Rule 13d-3 under the Exchange Act), directly or indirectly,of the securities of Company (not including any securities acquired directly from 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 ofCompany’s then outstanding securities; or 

(b) During any period of two consecutive years (not including any period prior to theexecution 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 Company to effect a transactiondescribed in clause (a), (c) or (d) of this section), (i) whose election by the Board of Directors or nomination for election by Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directorsthen 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 

 

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

(d) The stockholders of Company approve a plan of complete liquidation of Companyor an agreement for the sale or disposition by Company of all or substantially all Company’s assets. 

6.6 Section 409ARequirements. Notwithstanding any provision in this Agreement to the contrary, in the event Employee is a key employee as defined in Section 416(i) of the Internal Revenue Code of 1986, as amended (the“Code”) (or any successor provision thereof), payments of any and all amounts under this Agreement following termination of employment shall be delayed for a period of six months following Employee’s separation from service tothe extent required by Section 409A of the Code. Any payments required to be delayed pursuant to the foregoing shall be accumulated and paid, without interest, in a lump sum following the end of such six month period. 

 
7.NON-COMPETITION 
7.1 During Employment. Employeeagrees that, during his or her employment by the Company, he or she will not engage directly or indirectly, at any location within the United States, in any business of the same or similar nature to the business of the Company or of any Affiliatethereof or to any business in which the Company or any Affiliate thereof 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 UnitedStates, including ownership or management as defined by the Sarbanes-Oxley Act of 2002. As used in this Agreement, an “Affiliate” of any person or entity means any other person or entity that controls, is controlled by, or is undercommon control with such first person or entity, with “control” of an entity meaning direct or indirect ownership of fifty percent (50%) or more of the voting power or economic interests of such entity. 

 
8.ADDITIONAL OBLIGATIONS 
8.1 Non-Interference.Employee agrees that during the term of his or her employment with the Company and for a period of one (1) year after termination of employment with the Company for any reason, Employee shall not interfere with the business of the Company orany of its Affiliates. 

8.2 Non-Solicitation. Employee agrees that during the term of his or her employment with the Company and fora period of one (1) year after termination of employment with the Company for any reason, Employee shall not directly or indirectly solicit or encourage any of the employees of the Company or of any Affiliate thereof to leave such employmentand/or to work for another company 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 or of such Affiliate. 

 

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8.3 Non-Disparagement. Employee agrees that he or she will not, at any time during the term of hisor her employment with the Company or thereafter, in any way disparage the Company or any of its Affiliates (or any of their respective directors, officers, managers, employees or other representatives), and will not make or solicit any comments,statements, or the like to others that are derogatory or detrimental to the good name or business reputation of the Company or of any Affiliate thereof. 

8.4 Consultancy Agreement. 

(a) Employee shall enter into, and shall be conclusivelydeemed to have entered into, a consultancy agreement with Company upon the terms of this Section 8.4 (i) immediately upon termination of Employee’s employment without Cause by the Company or for Good Reason by Employee, or(ii) at the Company’s sole discretion, immediately upon the Company’s request following termination of Employee’s employment with Cause by the Company or without Good Reason by Employee. The term of the consultancy will commenceon the date of termination of Employee’s employment and shall continue until the date that is six months following the date of termination of Employee’s employment (the “Consulting Period”). In exchange for Employee’sconsulting services, Employee shall receive compensation during the Consulting Period at the same rate as Employee’s Base Salary in effect on the date of termination of Employee’s employment (“Consultancy Pay”), payable inequal monthly installments (subject to Section 6.6). 

(b) During the Consulting Period, Employee agrees to make himselfor herself 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 Employee’s job description during the course ofEmployee’s employment. Employee 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 usedwithin a given week will be waived by the Company, but Employee will receive his or her full pay under Section 8.4(a). However, the Company reserves the right to require Employee to provide more than ten (10) hours of service per week inthe event that special circumstances arise in which Employee’s unique assistance is required by the Company. (Examples of special circumstances include, but are not limited to assistance in litigation or responding to regulatory inquiries).

(c) In order to protect the Company’s confidential and trade secret information from use or disclosure to a partyother than the Company, and to enable the Company to be able to obtain the benefits of Employee’s consulting obligations hereunder, Employee agrees that during the Consulting Period, Employee owes the Company a duty of loyalty and(i) shall not accept employment or consulting work in any capacity with, or invest in, any business opportunity or activity that is engaged at any location in the United States in any activity in which the Company or any of its Affiliates inthen engaged, and (ii) will continue to abide by the provisions of paragraphs 8.1, 8.2 and 8.3 above, and (iii) shall not directly or indirectly contact, solicit, divert or take away, or attempt to contact, solicit, divert, or take away,the business or patronage of any of the clients, customers, or accounts, or prospective clients, customers, or accounts of the Company or of any of its Affiliates. 

 
9.CONFIDENTIALITY/TRADE SECRETS 
9.1 ConfidentialInformation. For the purpose of this Agreement, “Confidential Information” means any technology, ideas, concepts, design, devices or other information belonging to or relating to the affairs of the Company or any Affiliatethereof, including, but not limited to, (a) all trade secrets, unpublished proprietary or other information with respect to any business conducted or proposed to be 

 

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conducted by the Company or any Affiliate thereof, (b) any present or proposed services or products, (c) all lending policies and procedures,contracts and agreements with lenders, investors, and other clients, and information regarding lenders, investors, loan applicants, and borrowers, (d) the manner in which business is conducted, sales techniques, and methods of data processing,and (e) budgets, forecasts, and financial information; provided, however, that Confidential Information shall not include any information that has entered or enters the public domain through no fault of Employee. 

9.2 Value and Secrecy. Employee acknowledges and agrees that the Confidential Information has independent actual or potential economic value fromnot being generally known to the public or to other persons who can obtain economic value from its disclosure or use, is not readily available or independently ascertainable through any source other than Company and its Affiliates, and is subject toreasonable efforts to maintain its secrecy. 

9.3 Ownership. Employee understands and agrees that any and all ConfidentialInformation produced or used by Employee during the period of employment belongs to the Company and its Affiliates and not to Employee. 

9.4 Restrictions on Use and Disclosure. In recognition that the business of the Company and that the nature of Employee’s work will require Employee to have access to Confidential Information which, if disclosed in anunauthorized manner, could be highly prejudicial to the Company, its Affiliates, and/or their respective clients: 

(a)Employee agrees not to make any use whatsoever, directly or indirectly, at any time, of any Confidential Information, except as required in the course of his or her employment with the Company. 

(b) Employee agrees not to disclose in any manner any Confidential Information, directly or indirectly, during employment with the Companyor following termination of employment, except as required in the course of his or her employment with the Company. 

(c)Employee agrees to take all precautions reasonably necessary to prevent the unauthorized use, disclosure, or dissemination of Confidential Information during his or her employment with the Company and following termination of employment. 

(d) Upon termination of employment, Employee will immediately turn over to the Company all Confidential Information, including allcopies thereof, created or obtained by, or otherwise in the possession of, Employee. 

9.5 Other Rights. Employee recognizes andacknowledges that none of the above provisions, nor the Company’s exercise of any rights under this Agreement, shall limit the rights of the Company under applicable statutes and common law rules regarding trade secrets, including, withoutlimitation, the Uniform Trade Secrets Act. 

 
10.MISCELLANEOUS 
10.1 Specific Performance. Employeeunderstands and expressly acknowledges that the provisions of Sections 7, 8 and 9 of this Agreement are material terms of this Agreement. Employee acknowledges that any breach of the provisions of Section 7, 8 or 9 of this Agreement shallresult in serious and irreparable injury to the Company for which the Company cannot be adequately compensated by monetary damages alone. Employee agrees, therefore, that, in addition to any other remedies it may have, the Company shall be entitledto enforce the specific performance of this Agreement and to seek both temporary and permanent injunctive relief (to the extent permitted by law). 

 

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10.2 Successors and Assigns. The rights and obligations of the Company under this Agreement shallinure to the benefit of and be binding upon the successors and assigns of the Company. Employee cannot assign any right or obligation under this Agreement without the prior written consent of the Company. 

10.3 Entire Agreement; Amendment. Except for Equity Award agreements and any other agreements referenced herein, this Agreement constitutes theentire agreement between the parties with respect to the subject matter of this Agreement and supercedes any prior or contemporaneous agreement by and between the parties with respect to the subject matter hereof. This Agreement can be modified onlyby a written instrument executed by Employee and an officer of the Company duly authorized to do so by the Board of Directors of the Company. 

10.4 Waiver. 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 insistupon 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. 

10.5 Headings. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreementfor any purpose. 

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

10.7 Attorney’s Fees.The prevailing party in any action or dispute between the Company 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 prevailingparty may be entitled. 

10.8 Negotiation. The parties warrant and agree that the terms of this Agreement were the subject ofnegotiations between them. Employee acknowledges that he has read this Agreement and has had full opportunity to seek independent legal advice before signing it. 

10.9 Governing Law; Consent to Jurisdiction. 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 Stateof Missouri, without regard to conflicts of laws principles. **FOR PURPOSES OF DETERMINING ANY CONTROVERSY ARISING UNDER THIS AGREEMENT, EACH OF THE PARTIES HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION, PERSONAL AND OTHERWISE, OF THE FEDERALAND STATE COURTS OF THE STATE OF MISSOURI, AND HEREBY WAIVES ANY OBJECTIONS OF ANY NATURE TO VENUE IN SUCH COURTS.**

[Signatures onfollowing page.] 

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first writtenabove. 

 
**EMPLOYEE:** 
/s/ Todd Phillips
Name: Todd Phillips**COMPANY:**NOVASTAR FINANCIAL, INC.By: 
/s/ Scott F. Hartman
Name: Scott F. HartmanTitle: Chairman and Chief Executive Officer
 

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