Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT - NOVATION COMPANIES, INC. | novastar_8k.htm |
IN
THE CIRCUIT COURT OF JACKSON COUNTY, MISSOURI
| ROBERT O'BRIEN, Derivatively on Behalf of | ) | Case No. 0816-CV02978 | |||
| NOVASTAR FINANCIAL, INC., | ) | (Consolidated with case no. 0816- | |||
| ) | CV04731) | ||||
| Plaintiff, | ) | ||||
| ) | Division 12 | ||||
| ) | |||||
| vs. | ) | Judge: Honorable Edith L. Messina | |||
| ) | |||||
| SCOTT F. HARTMAN, W. LANCE | ) | NOTICE OF PENDENCY AND | |||
| ANDERSON, GREGORY T. BARMORE, | ) | PROPOSED SETTLEMENT OF | |||
| EDWARD W. MEHRER, ART N. | ) | DERIVATIVE ACTIONS | |||
| BURTSCHER, DONALD M. BERMAN, | ) | ||||
| GREGORY S. METZ and DAVID A. PAZGAN, | ) | ||||
| ) | |||||
| Defendants, | ) | ||||
| ) | |||||
| -and- | ) | ||||
| ) | |||||
| NOVASTAR FINANCIAL, INC., a Maryland | ) | ||||
| corporation, | ) | ||||
| ) | |||||
| Nominal Defendant. | ) | ||||
| ) | |||||
TO: ALL OWNERS OF NOVASTAR
FINANCIAL, INC. ("NOVASTAR") COMMON STOCK AS OF NOVEMBER 24, 2009 ("CURRENT
NOVASTAR SHAREHOLDERS").
PLEASE READ THIS NOTICE
CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE AFFECTED.
This notice has been
published pursuant to an Order of the Circuit Court of Jackson County, Division
12, Missouri (the "Court"). The purpose of the notice is to advise you of the
proposed settlement (the "Settlement"), as set forth in a Stipulation of
Settlement dated as of November 24, 2009 (the "Stipulation"), of the
consolidated shareholder derivative litigation pending before the Court (the
"State Action"), and of the federal shareholder derivative litigation styled
Iaccarino v. Hartman, et
al., Case
No. 4:08-cv-469-ODS pending in the United States District Court for the Western
District of Missouri (the "Federal Action," collectively, with the State Action,
the "Derivative Actions"), and to advise you of the Settlement Hearing (as
defined below in Section V). The Settlement will fully resolve the Derivative
Actions on the terms set forth in the Stipulation and summarized in this notice,
including the dismissal of the Derivative Actions with prejudice. For a more
detailed statement of the matters involved in the Derivative Actions, the
Settlement, and the terms discussed in this notice, the Stipulation may be
inspected at the Office of the Clerk of the Circuit Court of Jackson County
located at 415 E. 12th Street, Kansas City, MO, during regular business hours of
each business day. A copy of the Stipulation is also available at www.robbinsumeda.com and www.novastarfinancial.com.
You may have the right to
object to the Settlement in the manner provided in this Notice. If you fail to
object in the manner provided at least fourteen (14) calendar days before the
Settlement Hearing, you will be deemed to have waived your objections and will
be bound by the Judgment to be entered and the releases to be given, unless
otherwise ordered by the Court.
This notice is not intended
to be an expression of any opinion by the Court with respect to the merits of
the claims made in the Derivative Actions, but is merely to advise you of the
pendency and settlement of the Derivative Actions.
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I. DEFINITIONS USED IN THIS
NOTICE
1. "Current NovaStar
Shareholders" means persons who owned NovaStar common stock as of November 24,
2009, and who continue to hold their NovaStar common stock as of the date of the
final settlement approval hearing, excluding the Individual Defendants, the
officers and directors of NovaStar, members of their immediate families, and
their legal representatives, heirs, successors, or assigns, and any entity in
which Individual Defendants have or had a controlling interest.
2. "Defendants" means,
collectively, NovaStar and the Individual Defendants.
3. "Effective Date" means the
first date by which all of the events and conditions specified in Section IV,
¶5.1 of the Stipulation have been met and have occurred.
4. "Federal Plaintiff" means
Iris Iaccarino, individually and derivatively on behalf of NovaStar.
5. "Federal Plaintiff's Counsel"
means, collectively, Arnold, Newbold, Winter & Jackson, P.C., 1125 Grand
Boulevard, Suite 1600, Kansas City, MO 64106, telephone (816) 421-5788, and
Saxena White P.A., 2424 North Federal Highway, Suite 257, Boca Raton, FL 33431,
telephone (561) 394-3399.
6. "Fee and Expense Award" means
the agreed upon Fee and Expense Award that NovaStar shall pay or cause
its insurers to pay to Plaintiffs' Counsel, as defined below, for attorneys'
fees and reimbursement of expenses incurred in the Derivative Actions and in
recognition of the substantial benefit conferred on NovaStar by the agreed-to
corporate governance reforms.
7. "Individual Defendants"
means, collectively, Scott F. Hartman, W. Lance Anderson, Gregory T. Barmore, Edward W.
Mehrer, Art N. Burtscher, Donald M. Berman, Gregory S. Metz, and David A.
Pazgan.
8. "Judgment" means the judgment
to be rendered by the Court, substantially in the form attached to the
Stipulation as Exhibit A, or as modified pursuant to the agreement of the
Settling Parties.
9. "Plaintiffs" means,
collectively, State Plaintiffs and Federal Plaintiff as defined herein.
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10. "Plaintiffs' Counsel" means,
collectively, State Plaintiffs' Counsel and Federal Plaintiff's Counsel as
defined herein.
11. "Related Persons" means each
of an Individual Defendant's or NovaStar's past or present agents, attorneys,
advisors, insurers, co-insurers, reinsurers, heirs, executors, personal
representatives, estates, administrators, predecessors, successors and assigns,
together with each and all of the respective past and present officers,
directors, employees, agents, attorneys, accountants, advisers, insurers,
co-insurers, re-insurers, heirs, executors, personal representatives, estates,
administrators, predecessors, successors and assigns of any of them.
12. "Released Claims" means,
collectively, any and all claims, rights, actions, causes of action, damages,
costs, expenses and attorney's fees, whether based on federal, state, local,
statutory or common law or any other law, rule, or regulation, including,
without limitation, Unknown Claims (as defined below in ¶17) that have been or
could have been asserted derivatively by Plaintiffs, or any other NovaStar
shareholders on behalf of NovaStar, or by NovaStar, against the Released Persons
(as defined below in ¶13) that are based upon, arise from, or relate to the
allegations made in the complaints filed in the Derivative
Actions.
13. "Released Persons" means,
collectively, each and all of the Defendants and their Related Persons.
14. "Settling Parties" means,
collectively, Defendants and Plaintiffs.
15. "State Plaintiffs" means,
collectively, Robert O'Brien and Andrew A. Allison, individually and
derivatively on behalf of NovaStar.
16. "State Plaintiffs' Counsel"
means, collectively, Robbins Umeda LLP, 600 B Street, Suite 1900, San Diego, CA
92101, telephone: (619) 525-3990; Yonke & Pottenger, LLC, 100 Main Street,
Suite 2450, Kansas City, MO 64105, telephone: (816) 221-6000; and Law Offices of
Alfred G. Yates, Jr., 519 Allegheny Building, 429 Forbes Avenue, Pittsburgh, PA
15219, telephone: (412) 391-5164.
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17. "Unknown Claims" means any
and all Released Claims which the Settling Parties do not know or suspect to
exist in his, her or its favor at the time of the release of the Released
Persons, which if known by him, her or it might have affected his,
her or its decision not to object to the Stipulation. With respect to any and
all claims, the Settling Parties stipulate and agree that upon final approval,
the Plaintiffs shall, expressly and derivatively, be deemed to have, and by
operation of the Judgment, shall have, expressly waived any and all provisions,
rights and benefits conferred by any law of any state or territory of the United
States, or any other state, sovereign or jurisdiction, principle of common law
which is similar, comparable or equivalent to California Civil Code §1542 which
provides:
A
general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor.
Upon the Effective Date, the Settling Parties each
shall expressly waive, and by operation of the Judgment shall have, expressly
waived any and all provisions, rights, and benefits conferred by any law of any
state or territory of the United States, or principle of common law, which is
similar, comparable or equivalent to California Civil Code §1542. The Settling
Parties each may hereafter discover facts in addition to or different from those
that he, she, or it now knows or believes to be true with respect to the subject
matter of the Released Claims, but, upon the Effective Date, the Settling
Parties each shall be deemed to have, and by operation of the Judgment shall
have, fully, finally, and forever settled and released any and all Released
Claims. The Settling Parties each acknowledge that the foregoing waiver was
separately bargained for and a key element of the Settlement of which this
release is a part.
II. THE DERIVATIVE
ACTIONS
On January 31, 2008,
plaintiff Robert O'Brien filed a complaint in the Circuit Court of Jackson
County, Missouri, on behalf of NovaStar against certain of its current and
former officers and directors captioned O'Brien v. Hartman, et
al., Case
No. 0816-CV02978 ("O'Brien Action"). That same day,
plaintiff Andrew A. Allison also filed a complaint in the Circuit Court of
Jackson County, Missouri, on behalf of NovaStar captioned Allison v. Hartman, et
al, Case
No. 0816-CV04731 ("Allison Action").
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Both the O'Brien Action and Allison Action alleged that the
Individual Defendants breached their fiduciary duties by allowing the
Company's internal accounting and lending controls to deteriorate while issuing
improper statements that incorrectly stated NovaStar's exposure to the subprime
mortgage crisis. On July 15, 2008, the Court entered an order: (i) consolidating
the O'Brien Action and Allison Action (the "State Action");
(ii) designating the complaint in the O'Brien Action as the operative
complaint; and (iii) appointing Robbins Umeda LLP (f/k/a Robbins, Umeda & Fink,
LLP) as lead counsel.
On June 24, 2008, plaintiff
Iris Iaccarino filed a complaint in the United States District Court for the
Western District of Missouri on behalf of NovaStar against certain of its
current and former officers and directors captioned Iaccarino v. Hartman, et
al., No.
4:08-cv-469-ODS (the "Federal Action"). Though based on similar underlying
facts, unlike the State Action, the Federal Action alleged that the Individual
Defendants violated federal securities laws. Further, the Federal Action was
filed after NovaStar's Board of Directors (the "Board") allegedly failed to
respond to plaintiff Iris Iaccarino's formal demand, made on October 25, 2007,
that the Board investigate and bring appropriate legal action against those
responsible for the harm allegedly caused to the Company.
On September 10, 2008, State
Plaintiffs' Counsel notified counsel for the Defendants of State Plaintiffs'
intent to file an amended complaint as a matter of right under Missouri Rule of
Civil Procedure 55.33(a) . Shortly thereafter on September 25, 2008, Plaintiffs'
Counsel sent Defendants' counsel a settlement demand letter. The demand letter
set forth a summary of the damages Plaintiffs believe the Individual Defendants
inflicted on the Company as well as Plaintiffs' initial demand for corporate
reforms. Defendants' counsel agreed to review and respond to Plaintiffs' demand
letter. Consequently, the Settling Parties agreed to extend the briefing
schedule in existence at the time so that they could focus on settlement
negotiations.
Beginning in April, 2009, the
Settling Parties met and conferred in good faith about Plaintiffs' settlement
demand. The Settling Parties, however, did not reach an agreement at that time.
On April 28, 2009, State Plaintiffs' filed their Verified Consolidated Amended
Shareholder Derivative Complaint ("CAC").
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On May 18, 2009, Plaintiffs'
Counsel sent Defendants' counsel a supplemental settlement demand letter
reflecting their prior settlement discussions. The supplemental settlement
letter focused on the additional corporate governance reforms that Plaintiffs
believed would strengthen the Company, including the appointment of a lead
independent director, the responsibilities of the lead independent director,
changes to the audit committee charter, creation of a loan compliance officer,
and creation of a process for shareholders to nominate directors. On June 11,
2009, Defendants' counsel responded in writing to the supplemental settlement
demand letter, agreeing to many, but not all of Plaintiffs' settlement demands.
Plaintiffs' Counsel replied to Defendants' response on July 2, 2009. Over the
next two weeks the Settling Parties engaged in numerous communications in an
attempt to resolve the Derivative Actions. Unable to reach a mutually agreeable
resolution, the Defendants filed their motion to dismiss State Plaintiffs' CAC
and the complaint in the Federal Action on July 13, 2009.
Thereafter, the Settling Parties nonetheless continued to engage in good faith
settlement negotiations. On August 19, 2009, the Settling Parties reached an
agreement in principal, the terms and conditions of which are set forth herein
(the "Settlement"). In October 2009, a special committee of the Board consisting
of non-defendant directors approved the Settlement on behalf of NovaStar, and
the full Board approved the corporate governance changes required by the
Settlement to become effective on the Effective Date (as defined in ¶3 of
Section I herein).
III. PLAINTIFFS' CLAIMS AND
BENEFITS OF SETTLEMENT
Plaintiffs believe that the
claims asserted in the Derivative Actions have merit. However, Plaintiffs'
Counsel recognize and acknowledge the expense and length of continued
proceedings necessary to prosecute the Derivative Actions against the Defendants
through trial and, potentially, through appeals. Plaintiffs' Counsel also have
taken into account the uncertain outcome inherent in any litigation, especially
in complex actions such as this Derivative Actions, as well as the difficulties
and delays of such litigation. Plaintiffs' Counsel are also mindful of the
inherent problems of proof under, and possible defenses to, the claims asserted
in the Derivative Actions. Plaintiffs' Counsel believe that the Settlement set
forth in this Stipulation confers substantial benefits upon NovaStar. Based on
their evaluation, Plaintiffs' Counsel have determined that the Settlement is
fair, reasonable, and adequate, and in the best interests of Plaintiffs,
NovaStar, and NovaStar's stockholders.
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IV. DEFENDANTS' DENIALS OF
WRONGDOING AND LIABILITY
The Defendants have denied
and continue to deny each and all of the claims alleged by Plaintiffs in the
Derivative Actions. The Defendants have expressly denied and continue to deny
the allegations of wrongdoing, liability and/or violations of any laws, and/or
any damage whatsoever by reason of any of the matters complained of in the
Derivative Actions, contend that they acted properly and lawfully at all times
and deny that Plaintiffs or NovaStar have been damaged. By agreeing to the
Settlement and entering into this Stipulation, the Defendants do not admit any
alleged fact, wrongdoing, liability and/or violations of any laws and/or any
damage whatsoever.
Nonetheless, the Defendants
have concluded that further conduct of the Derivative Actions would be
protracted and expensive, and that it is desirable that the Derivative Actions
be fully and finally settled in the manner and upon the terms and conditions set
forth in this Stipulation. The Defendants also have taken into account the
uncertainty and risks inherent in any litigation, especially in complex cases
such as the Derivative Actions. Therefore, the Defendants have determined that
it is desirable, beneficial, and in the best interests of NovaStar and the
Individual Defendants that the Derivative Actions be settled in the manner and
upon the terms and conditions set forth in this Stipulation.
V. THE SETTLEMENT HEARING
The Settlement Hearing will
be held before the Honorable Edith L. Messina on April 5, 2010 at 9:30 a.m. at
the Circuit Court of Jackson County, Missouri, Division 12 for the purpose of
determining: (i) whether the Settlement is fair, reasonable, and adequate, and
should be finally approved by the Court; (ii) whether a Judgment should be
entered dismissing the State Action with prejudice; and (iii) whether
Plaintiffs' Counsel's agreed-to Fee and Expense Award should be approved. The
Settlement Hearing may be continued by the Court at the Settlement Hearing or at
any adjourned session thereof without further notice to Current NovaStar
Shareholders.
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VI. THE SETTLEMENT
On August 19, 2009, the
Settling Parties reached an agreement in principal, the terms and conditions of
which are set forth in the Stipulation. After further negotiations, the Settling
Parties executed the Stipulation. The terms and conditions of the Settlement are
fully set forth in the Stipulation. The Stipulation has been filed with the
Court and is also available for viewing on the websites www.robbinsumeda.com and
www.novastarfinancial.com. The following is only a summary of its terms.
Defendants acknowledge that
the filing and prosecution of the Derivative Actions were material and
substantial factors in causing the Company to agree to adopt the corporate
governance reforms and remedial measures described in Corporate Governance Term
Sheet attached to the Stipulation as Exhibit B. NovaStar has agreed to maintain
these corporate governance measures in place for a period of five (5) years
after the Effective Date.
In summary, the corporate
governance reforms and remedial measures provide, among other things: (i) the
designation of a lead independent director to assure compliance with the
Company's corporate governance guidelines; (ii) amendments to NovaStar's Board's
audit committee's charter to improve oversight over the Company's loan business
and strategic and financial plans; (iii) the designation a loan compliance
officer to oversee the origination, underwriting and servicing of loans; and
(iv) the implementation of a shareholder nominated director process. These
corporate governance reforms represent and will continue to represent a
substantial benefit for NovaStar.
VII. DISMISSAL AND RELEASES
In connection with the
Court's approval of the Settlement, Plaintiffs will request a dismissal with
prejudice of all claims asserted by Plaintiffs on behalf of NovaStar against the
Individual Defendants in the Derivative Actions.
Upon the entry of the
Judgment (as defined above in Section I, ¶8), Plaintiffs, on their own behalf
individually and derivatively on behalf of NovaStar, Plaintiffs' Counsel, and
NovaStar shall have, and by operation of the Judgment shall be deemed to have,
fully, finally, and forever released, relinquished and discharged all Released
Claims (including Unknown Claims) and any and all claims arising out of,
relating to, or in connection with the Settlement or resolution of the
Derivative Actions against the Defendants and the Released
Persons.
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Upon the entry of the
Judgment, each of the Defendants and Released Persons shall be deemed to have,
and by operation of the Judgment shall have, fully, finally, and forever
released, relinquished and discharged Plaintiffs and Plaintiffs' Counsel from
all claims, arising out of, relating to, or in connection with their
institution, prosecution, assertion, settlement or resolution of the Derivative
Actions or the Released Claims.
VIII. THE FEE AND EXPENSE AWARD
In recognition of the benefit
conferred on NovaStar through the adoption and/or continued adherence to the
corporate governance measures delineated in Exhibit B to the Stipulation, the
Settling Parties agreed that NovaStar, upon Court approval, shall pay or cause
its insurers to pay to Plaintiffs' Counsel $300,000 for attorneys' fees and
reimbursement of expenses.
IX. THE RIGHT TO OBJECT AND/OR BE
HEARD AT THE HEARING
Any Current NovaStar
Shareholder may object and/or appear and show cause, if he, she, or it has any
concern, why the Settlement of the Derivative Actions should not be approved as
fair, reasonable, and adequate, or why the Judgment should not be entered
thereon or why the Fee and Expense Award should not be awarded to Plaintiffs'
Counsel; provided, however, unless otherwise ordered by the Court, no Current
NovaStar Shareholder shall be heard or entitled to contest the approval of the
terms and conditions of the Settlement, or, if approved, the Judgment to be
entered thereon approving the same, or the Fee and Expense Award to Plaintiffs'
Counsel unless that shareholder has, at least fourteen (14)
calendar days prior to the Settlement Hearing: (1) filed with the Clerk of
the Court a written objection to the Settlement setting forth: (a) the nature of
the objection; (b) proof of ownership of NovaStar common stock through the date
of the Settlement Hearing, including the number of shares of NovaStar common
stock and the date of purchase; and (c) any documentation in support of such
objection; and (2) if a Current NovaStar Shareholder intends to appear and
requests to be heard at the Settlement Hearing, such shareholder must have, in
addition to the requirements of (1) above, filed with the Clerk of the Court:
(a) a written notice of such shareholder's intention to appear; (b) a statement
that indicates the basis for such appearance; and (c) the identities of any
witnesses the shareholder intends to call at the Settlement Hearing and the
subjects of their testimony. If a Current NovaStar Shareholder files a written
objection and/or written notice of intent to appear, such shareholder must also
simultaneously serve copies of such notice, proof, statement and documentation,
together with copies of any other papers or briefs such shareholder files with
the Court (either by hand delivery or by first class mail) upon each of the
following:
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| CLERK OF THE COURT | ORRICK, HERRINGTON |
| Circuit Court of Jackson County, | & SUTCLIFFE LLP |
| Division 12 | WILLIAM F. ALDERMAN |
| 415 E. 12th Street | NANCY E. HARRIS |
| Kansas City, MO 61406 | JUSTIN MANUEL ARAGON |
| The Orrick Building | |
| 405 Howard Street | |
| ROBBINS UMEDA LLP | San Francisco, CA 94105 |
| BRIAN J. ROBBINS | Telephone: (415) 773-5700 |
| FELIPE J. ARROYO | Facsimile: (415) 773-5759 |
| GREGORY E. DEL GAIZO | |
| 600 B Street, Suite 1900 | HUSCH BLACKWELL SANDERS, LLP |
| San Diego, CA 92101 | MICHAEL THOMPSON |
| Telephone: (619) 525-3990 | 4801 Main Street |
| Facsimile: (619) 525-3991 | Suite 1000 |
| Kansas City, MO 64112 | |
| Lead Counsel for State Plaintiffs | Telephone: (816) 983-8000 |
| Facsimile: (816) 983-8080 | |
| YONKE & POTTENGER, LLC | |
| JASON POTTENGER | Counsel for State and Federal Defendants |
| 1100 Main Street, Suite 2450 | |
| Kansas City, MO 64105 | |
| Telephone: (816) 221-6000 | |
| Facsimile: (816) 221-6400 | |
| Liaison Counsel for State Plaintiffs | |
| LAW OFFICES OF ALFRED | |
| G. YATES, JR. | |
| ALFRED G. YATES | |
| 519 Allegheny Building | |
| 429 Forbes Avenue | |
| Pittsburgh, PA 15219 | |
| Telephone: (412) 391-5164 | |
| Facsimile: (412) 471-1033 | |
| Counsel for State Plaintiff Allison | |
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| ARNOLD, NEWBOLD, WINTER |
| & JACKSON, P.C. |
| LINDA N. WINTER |
| PAUL E. TORLINA |
| 1125 Grand Boulevard, Suite 1600 |
| Kansas City, MO 64106 |
| Telephone: (816) 421-5788 |
| Facsimile: (816) 471-5574 |
| SAXENA WHITE P.A. |
| MAY SAXENA |
| JOSEPH W. WHITE III |
| CHRISTOPHER JONES |
| LESTER R. HOOKER |
| 2424 North Federal Highway, Suite 257 |
| Boca Raton, FL 33431 |
| Telephone: (561) 394-3399 |
| Facsimile: (561) 394-3082 |
Counsel for Federal Plaintiff
Any Current NovaStar
Shareholder who does not make his, her, or its objection in the manner provided
herein shall be deemed to have waived such objection and shall forever be
foreclosed from making any objection to the fairness, reasonableness, or
adequacy of the Settlement as incorporated in the Stipulation and to the Fee and
Expense Award to Plaintiffs' Counsel but shall otherwise be bound by the
judgment to be entered and the releases to be given.
X. CONDITIONS FOR SETTLEMENT
The Settlement is conditioned
upon the occurrence of certain events described in the Stipulation. Those events
include the occurrence of the Effective Date, which requires, among other
things: (1) entry of the requested Judgment by the Court; (2) expiration of the
time to appeal from or alter or amend the Judgment; and (3) dismissal of the
Federal Action with prejudice. If, for any reason, any one of the conditions
described in the Stipulation is not met and the Effective Date does not occur,
the Stipulation might be terminated and, if terminated, will become null and
void, and the parties to the Stipulation will be restored to their respective
positions in the Derivative Actions as of the date before the Stipulation was
fully executed.
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XI. EXAMINATION OF PAPERS AND
INQUIRIES
This notice contains only a
summary of the terms of the Settlement. For a more detailed statement of the
matters involved in the Derivative Actions, reference is made to the Stipulation
which may be inspected at the Office of the Clerk, Circuit Court of
Jackson County, Division 12 located at 415 E. 12th Street, Kansas City, MO,
during business hours of each business day. The Stipulation is also available
for viewing at the websites of www.robbinsumeda.com and
www.novastarfinancial.com.
Any other inquiries regarding
the Settlement or the Derivative Actions should be addressed in writing to one
of the counsel named in Section IX above.
PLEASE DO NOT TELEPHONE
THE COURT OR NOVASTAR REGARDING THIS NOTICE
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