SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NOVASTAR FINANCIAL, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or Item
22(a)(2) of Schedule 14A.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applies:
_____________________________________________________________________________
2. Aggregate number of securities to which transaction applies:
_____________________________________________________________________________
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined:
_____________________________________________________________________________
4. Proposed maximum aggregate value of transaction:
_____________________________________________________________________________
5. Total fee paid:
_____________________________________________________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1. Amount Previously Paid: _________________________________________________
2. Form, Schedule or Registration No.:______________________________________
3. Filing Party: ___________________________________________________________
4. Date Filed: _____________________________________________________________
<PAGE>
NOVASTAR
NOVASTAR FINANCIAL, INC.
1901 West 47th Place, Suite 105
Westwood, Kansas 66205
(913) 362-1090
(913) 514-3500
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of NovaStar Financial, Inc.:
You are cordially invited to attend the Annual Meeting of Stockholders of
NovaStar Financial, Inc., a Maryland corporation (the "Company"), to be held on
Wednesday, May 13, 1998 at 3:00 p.m., Central Daylight Time, at the Crowne
Plaza, 4445 Main Street, Kansas City, Missouri, for the following purposes:
1. The election of Class II Directors of the Company's Board of Directors
to serve until the Company's Annual Meeting of Stockholders to be held
in 2001 or until such directors' successors are elected and qualified;
2. Ratification of the selection of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year ended
December 31, 1998;
3. To consider and act upon a proposal to approve technical amendments to
the Company's Charter (i) to conform to the requirements of the New
York Stock Exchange and (ii) to clarify the application of the
Company's 9.8% REIT-qualifying stock ownership restriction; and
4. To transact such other business as may properly come before the Annual
Meeting or at any adjournments thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. The Board of Directors has fixed the close
of business on March 16, 1998 as the record date for determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting.
In order that your shares may be represented at the Annual Meeting,
management requests that you date, execute and promptly mail the enclosed proxy
in the accompanying postage-paid envelope. A proxy may be revoked by a
shareholder by notice in writing to the Secretary of the Company at any time
prior to its use, by presentation of a later-dated proxy, or by attending the
Annual Meeting and voting in person.
By Order of the Board of Directors
SCOTT F. HARTMAN
Westwood, Kansas Chairman of the Board and Secretary
March 30, 1998
WORD:NNN/NOV0225A.NOT
-------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE.
-------------------------------------------
<PAGE>
NOVASTAR
NOVASTAR FINANCIAL, INC.
1901 West 47th Place, Suite 105
Westwood, Kansas 66205
(913) 362-1090
(913) 514-3500
----------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 13, 1998
To Our Stockholders:
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of NovaStar Financial, Inc., a Maryland
corporation (the "Company"), for use at the Annual Meeting of Stockholders of
the Company (the "Annual Meeting") to be held on Wednesday, May 13, 1998 at 3:00
p.m., Central Daylight Time, at the Crowne Plaza, 4445 Main Street, Kansas City,
Missouri, and any adjournments thereof. This Proxy Statement, the accompanying
proxy card and the Notice of Annual Meeting are being provided to stockholders
beginning on or about March 30, 1998.
GENERAL INFORMATION
Solicitation of Proxies
The enclosed proxy is solicited by the Board of Directors of the Company.
The costs of this solicitation will be borne by the Company. Proxy solicitations
will be made by mail, and also may be made by personal interview, telephone,
facsimile transmission and telegram on behalf of the Company by directors and
officers of the Company. Banks, brokerage house nominees and other fiduciaries
will be requested to forward the proxy soliciting material to the beneficial
owners and to obtain authorization for the execution of proxies. The Company
will, upon request, reimburse such parties for their reasonable expenses in
forwarding proxy materials to their beneficial owners. The Company does not
expect to engage an outside firm to solicit votes, but if such a firm is engaged
subsequent to the date of this Proxy Statement, the cost is estimated to be less
than $5,000 plus reasonable out-of-pocket expenses.
Voting Rights
Holders of shares of the Company's common stock, par value $0.01 per share
("Common Stock"), at the close of business on March 16, 1998, the record date,
are entitled to notice of, and to vote at, the Annual Meeting. On that date,
7,828,665 shares of Common Stock were outstanding. Each share of Common Stock
outstanding on the record date is entitled to one vote on each matter presented
at the Annual Meeting. The presence, in person or by proxy, of stockholders
representing 50% or more of the issued and outstanding stock entitled to vote
constitutes a quorum for the transaction of business at the Annual Meeting. If a
quorum is present, (i) a plurality of the votes cast at the Annual Meeting is
required for election of a director, (ii) the affirmative vote of the majority
of the outstanding shares of the Company is required to amend the Company's
Charter as described herein, and (iii) the affirmative vote of the majority of
the shares present, in person or by proxy, at the Annual Meeting and entitled to
vote is required for all other matters. Cumulative voting in the election of
directors is not permitted. Abstentions are considered shares present and
entitled to vote, and therefore have the same legal effect as a vote against all
matters presented at the Annual Meeting other than the election of directors.
Any shares held in street name for which the broker or nominee receives no
instructions from the beneficial owner, and as to which such broker or nominee
does not have discretionary voting authority under applicable New York Stock
Exchange rules, will be considered as shares not entitled to vote and will
therefore not be considered in the tabulation of the votes. Accordingly, a
broker non-vote will
1
<PAGE>
have no effect on items (i) and (iii) above but will have the same effect as a
vote against item (ii) which requires the approval of the majority of
outstanding shares.
Voting of Proxies
Shares of the Common Stock represented by all properly executed proxies
received in time for the Annual Meeting will be voted in accordance with the
choices specified in the proxies. Unless contrary instructions are indicated on
the proxy, the shares will be voted FOR the election of the nominees named in
this proxy statement as directors, FOR the appointment of KPMG Peat Marwick LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 1998, and FOR the adoption of certain amendments to the Company's
Charter as described herein.
The management and the Board of Directors of the Company know of no matters
to be brought before the Annual Meeting other than as set forth herein. To date,
no stockholders' proposals have been received by the Company. However, if any
other matter of which the management and Board of Directors of the Company are
not now aware is presented properly to the stockholders for action, it is the
intention of the proxy holders named in the enclosed proxy to vote in their
discretion on all matters on which the shares represented by such proxy are
entitled to vote.
Revocability of Proxy
The giving of the enclosed proxy does not preclude the right to vote in
person should the stockholder giving the proxy so desire. A proxy may be revoked
at any time prior to its exercise by delivering a written statement to the
Secretary of the Company that the proxy is revoked, by presenting to the Company
a later-dated proxy, or by attending the Annual Meeting and voting in person.
Annual Report
The 1997 Annual Report including financial statements for the year ended
December 31, 1997, which is being mailed to stockholders together with the Proxy
Statement, contains financial and other information about the activities of the
Company, but is not incorporated into this Proxy Statement and is not to be
considered a part of these proxy soliciting materials.
ITEM 1 - ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes, designated
Class I, Class II and Class III, with one class standing for election at the
annual meeting of stockholders each year. Class II directors are to be elected
at this year's Annual Meeting. The nominees for Class II directors of the Board
of Directors are set forth below. The proxy holders intend to vote all proxies
received by them in the accompanying form for the nominee for directors listed
below unless otherwise specified by the stockholder. In the event any nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them for the nominees listed below and against any other
nominees. As of the date of this Proxy Statement, the Board of Directors is not
aware of any nominee who is unable or will decline to serve as director. The
nominees listed below already serve as directors of the Company.
The election to the Board of Directors of the nominees identified in the
Proxy Statement will require the affirmative vote of a plurality of the
outstanding shares of Common Stock present in person or represented by proxy at
the Annual Meeting.
The Board of Directors unanimously recommends that stockholders vote FOR
the nominees identified below.
2
<PAGE>
Nominees to Board of Directors
Name Position with the Company
---- -------------------------
W. Lance Anderson President and Chief Operating Officer
Gregory T. Barmore Director
Class II - Nominees
W. Lance Anderson, age 37, is a co-founder of the Company, President and
Chief Operating Officer of the Company and has been a member of the Board of
Directors since 1996. His primary responsibility is to manage the Company's
mortgage origination and servicing operations. Prior to NovaStar, Mr. Anderson
most recently served as Executive Vice President of Dynex Capital, Inc. (Dynex)
formerly Resource Mortgage Capital, Inc., a New York Stock Exchange listed Real
Estate Investment Trust. In addition, Mr. Anderson was President and Chief
Executive Officer of Dynex' single-family mortgage operation, Saxon Mortgage.
Gregory T. Barmore, age 56, was most recently Chairman of the Board of GE
Capital Mortgage Corporation (GECMC), a subsidiary of General Electric Capital
Corporation (GE Capital) headquartered in Raleigh, North Carolina. He has served
on the Board of Directors since 1996. He was responsible for overseeing the
strategic development of GECMC's residential real estate-affiliated financial
business, including mortgage insurance, mortgage services and mortgage funding.
Prior to joining GECMC in 1986, Mr. Barmore was Chief Financial Officer of
Employers Reinsurance Corporation (ERC), one of the nation's largest property
and casualty reinsurance companies and also a subsidiary of GE Capital. He also
serves as Chairman of the Board of Trustees of the National Institute for
Community Empowerment and is a trustee for Bennett College and the Maine
Maritime Museum. Mr. Barmore was selected to serve on the Company's Board as an
Independent Director without regard to the GE Capital investment in the Company
and accordingly there are no arrangements with GE Capital or its affiliates
regarding his term of office or other aspects of his service on the Board.
Class III Directors - Terms Expiring 1999
Scott F. Hartman, age 38, is a co-founder of the Company, Chairman of the
Board of Directors since 1996 and Chief Executive Officer. His primary
responsibilities are to interact with the capital markets and oversee the
Company's portfolio of investments and the securitization of the Company's
mortgage loan production. Mr. Hartman most recently served as Executive Vice
President of Dynex. His responsibilities while at Dynex included managing a $4
billion investment portfolio, overseeing the securitization of mortgage loans
originated through Dynex' mortgage operation and the administration of the
securities issued by Dynex.
Jenne K. Britell, age 55, has been a member of the Board of Directors since
1996. Ms. Britell served in 1996 and 1997 as President and General Manager of
G.E. Capital Mortgage Services, Inc. (GECMS) and currently serves as Group Vice
President, Central and Eastern Europe, GE Capital. Before joining GE Capital,
she was Executive Vice President and Chief Lending Officer of Dime Savings Bank
of New York, FSB, the nation's fifth largest thrift, for three years. Prior to
these positions, she was Chairman and Chief Executive Officer of HomePower, Inc.
an international consulting firm, from March 1990 to April 1993. She also served
as President of the Polish American Mortgage Bank, Warsaw, Poland, the first
private residential construction and mortgage lending institution based on
Western model, in Eastern Europe and is currently vice chairman of its
supervisory board.
Class I Director - Term Expiring 2000
Edward W. Mehrer, age 59, has been a member of the Board of Directors since
1996. He is presently the Chief Financial Officer of Cydex, a pharmaceutical
company based in Overland Park, Kansas. Mr. Mehrer was previously associated
with Hoechst Marion Roussel (Marion), formerly Marion Merrell Dow, Inc., an
international pharmaceutical company, for approximately ten years until his
retirement in December 1995. From December 1991, he served as Executive Vice
President and Chief Financial Officer and a Director of Marion. Prior to that
position, he served in a number of financial and administrative positions. Prior
to joining Marion, Mr. Mehrer was a partner with the public accounting firm of
Peat, Marwick, Mitchell & Co., the predecessor firm to KPMG Peat Marwick LLP, in
Kansas City, Missouri.
3
<PAGE>
Committees of the Board
Audit Committee. The Audit Committee is composed of Mr. Mehrer and Ms.
Britell. The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of any audits, reviews other professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee is composed of Mr.
Barmore and Mr. Mehrer. The Compensation Committee determines the compensation
of the Company's executive officers.
During the year ended December 31, 1997 there were ten meetings of the
Board of Directors, two meetings of the Audit Committee, and three meetings of
the Compensation Committee. Each director participated in at least 75% of the
total number of Board of Directors meetings and the committees on which they
served, except for Jenne Britell who attended 60%.
Compensation of Directors
The Company pays directors who are not employed by the Company
("Independent Directors") $10,000 per year plus $500 for each meeting attended
in person. In addition, each Independent Director has been granted options to
purchase 5,000 shares of Common Stock at the fair market value of the Common
Stock upon becoming a director and options to purchase 2,500 shares at the fair
market value of the Common Stock on the day after each annual meeting of
stockholders. In addition, Mr. Barmore and Mr. Mehrer were granted options to
purchase 5,000 shares of Common Stock at $18 per share in connection with the
Company's 1997 initial public offering of Common Stock. However, as the GE
Capital nominee and pursuant to GE Capital's internal policy, Ms. Britell does
not receive any compensation (including fees and stock options) for her services
on the Board of Directors. All Directors receive reimbursement of reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors.
Management Of The Company
The executive officers of the Company and their positions are as follows:
Name Position With The Company Age
---- ------------------------- ---
Scott F. Hartman Chairman of the Board and Chief
Executive Officer 38
W. Lance Anderson President and Chief Operating Officer 37
Mark J. Kohlrus Senior Vice President, Treasurer and
Chief Financial Officer 38
The executive officers serve at the discretion of the Company's Board of
Directors. Biographical information regarding Mr. Hartman and Mr. Anderson is
provided above. Biographical information regarding Mr. Kohlrus is set forth
below.
Mark J. Kohlrus, age 38, is Senior Vice President, Treasurer and Chief
Financial Officer. In that role, Mr. Kohlrus is responsible for all accounting
and finance functions, including external reporting and compliance with REIT
regulations. Prior to his joining the Company in December 1996, Mr. Kohlrus was
employed by the public accounting firm of KPMG Peat Marwick LLP (KPMG) in Kansas
City, Missouri, for nearly 15 years. During his tenure with KPMG, Mr. Kohlrus
worked extensively in the firm's Financial Services practice and was involved in
several public stock and debt offerings.
4
<PAGE>
Beneficial Ownership of Common Stock by Large Securityholders
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
December 31, 1997 by each person other than members of management known to the
Company to beneficially own more than five percent (5%) of the Company's Common
Stock. Unless otherwise indicated in the footnotes to the table, the beneficial
owners named have, to the knowledge of the Company, sole voting and investment
power with respect to the shares beneficially owned, subject to community
property laws where applicable.
Beneficial Ownership
of Common Stock(1)
Name and Address of Beneficial Owner Shares Percent
---------------------------------------- ------ -------
Wellington Management Company(2)
75 State Street
Boston, MA 02109 1,608,400 18.93%
Lindner Dividend Fund(3)
7711 Carondolet Avenue,
Suite 700 St. Louis, MO 63104 1,583,334 18.64
General Electric Capital Corporation(4)
260 Long Ridge Road
Stamford, CT 06927 1,333,332 15.69
First Financial Fund, Inc.(5)
c/o Wellington Management Company
75 State Street
Boston, MA 02109 933,400 11.25
Wallace R. Weitz & Company(6)
1125 South 103rd Street
Suite 600 Omaha, NE 68124-6008 916,666 11.23
- ----------
(1) Assuming no exercise of Warrants (except by the Securityholder named,
separately).
(2) Consists of 466,700 shares of Common Stock currently outstanding, and
466,700 shares of Common Stock issuable upon the exercise of Warrants, in
each case beneficially owned by First Financial Fund, Inc., for whom
Wellington Management Company ("Wellington") acts as investment advisor and
over which Wellington has shared investment power; 200,000 shares of Common
Stock currently outstanding, and 200,000 shares of Common Stock issuable
upon the exercise of Warrants, in each case beneficially owned by Bay Pond
Partners, L.P., for whom Wellington acts as investment advisor and over
which Wellington has shared voting and investment power.
(3) Includes 666,667 shares of Common Stock issuable upon the exercise of
Warrants.
(4) Includes 666,666 shares of Common Stock issuable upon the exercise of
Warrants.
(5) Includes 466,700 shares of Common Stock issuable upon the exercise of
Warrants. Wellington acts as investment advisor and shares investment power
with First Financial Fund, Inc. See footnote 2.
(6) Consists of 205,000 shares of Common Stock currently outstanding, and
205,000 shares of Common Stock issuable upon the exercise of Warrants, in
each case beneficially owned by Weitz Series Fund, Inc.; 65,000 shares of
Common Stock currently outstanding, and 65,000 shares of Common Stock
issuable upon the exercise of Warrants, in each case beneficially owned by
Weitz Partners, Inc,; and 63,333 shares of Common Stock issuable upon the
exercise of Warrants, in each case beneficially owned by Weitz Partners III
Limited Partnership. Wallace R. Weitz, as President of Weitz Series Fund,
Inc. and Weitz Partners, Inc. and as general partner of Weitz Parterres III
Limited Partnership, may be deemed to beneficially own such shares of
Common Stock.
5
<PAGE>
Beneficial Ownership of Common Stock by Directors and Management
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
December 31, 1997, by (i) each director, (ii) the Company's executive officers,
and (iii) all directors and executive officers as a group. Unless otherwise
indicated in the footnotes to the table, the beneficial owners named have, to
the knowledge of the Company, sole voting and investment power with respect to
the shares beneficially owned, subject to community property laws where
applicable.
Beneficial Ownership
Name of Beneficial Owner of Common Stock(1)
- ------------------------ -------------------
Number Percent
Scott F. Hartman(2) 509,665 6.29
W. Lance Anderson(3) 520,065 6.42
Edward W. Mehrer(4) 37,250 *
Gregory T. Barmore(5) 1,250 *
Jenne K. Britell -- --
Mark J. Kohlrus(6) 8,200 *
All Directors and Executive
Officers as a Group (6 persons) 1,076,430 13.31
- ----------
* Less than one percent.
(1) Assuming no exercise of the Warrants and exercisable options (except by the
Securityholder named, separately).
(2) Consists of 236,666 shares of Common Stock and 128,333 warrants, including
20,000 of each owned jointly with his wife, and 144,666 shares of Common
Stock issuable upon the exercise of options.
(3) Consists of 241,866 shares of Common Stock and 133,533 warrants, all of
which are owned jointly with his wife, and 144,666 shares of Common Stock
issuable upon the exercise of options.
(4) Consists of 24,000 shares of Common Stock and 12,000 Warrants, including
2,000 of each owned by his wife, and 1,250 shares of Common Stock issuable
upon the exercise of options.
(5) Consists of 1,250 shares of Common Stock issuable upon the exercise of
options.
(6) Consists of 6,700 shares of Common Stock and 1,500 Warrants.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and holders of more than 10% of the Company's
Common Stock, to file with the Securities and Exchange Commission (the "SEC")
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Such officers, directors and 10%
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on its review of such forms
that it received, or written representations from reporting persons that no Form
5s were required for such persons, the Company believes that, during fiscal
1995, all Section 16(a) filing requirements were satisfied on a timely basis.
Compensation Committee Interlocks
No interlocking relationship exists between the Company's Board of
Directors or officers responsible for compensation decisions and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past.
6
<PAGE>
Executive Compensation
Executive Officer Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
----------------------
Securities
Other Annual Underlying All Other
Name and Position Year Salary Bonus Compensation Options(#) DER's(3) Compensation
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott F. Hartman(1) 1997 $130,833 -- $549,635(4) 40,000 --
1996 $ 70,000 -- -- 144,666 --
Chairman of the Board,
Secretary and Chief Executive Officer
W. Lance Anderson(1) 1997 $130,833 -- $549,635(4) 40,000 --
1996 70,000 -- -- 144,666 --
President and Chief Operating Officer
Mark J. Kohlrus(2) 1997 $100,000 $ 90,000 -- 20,000 700 --
1996 4,000 -- -- 10,000 -- --
Senior Vice President, Treasurer and
Chief Financial Officer
</TABLE>
- ----------
(1) Mr. Hartman and Mr. Anderson were reimbursed by the Company for services
provided by them that were necessary and prudent in connection with the
formation of the Company and its Private Placement in 1996, including
payments in lieu of salary and for expenses directly attributable to the
formation of the Company. Mr. Hartman and Mr. Anderson are each employed by
the Company at a base salary $185,000 per year.
(2) Mr. Kohlrus' employment with the Company began on December 16, 1996. He
currently has an annual base salary of $120,000 per year. Mr. Kohlrus is
eligible to receive an annual bonus of up to 75 percent of his annual
salary.
(3 Options granted to Mr. Hartman and Mr. Anderson which vested on the closing
of the initial public offering were granted without Dividend Equivalent
Rights ("DERs"). Options granted to Mr. Kohlrus which began to vest in
December 1997 were granted with DERs.
(4) Represents forgiveness of one tranche of founders' forgivable debt.
Bonus Incentive Compensation Plan. A bonus incentive compensation plan has
been established for certain executive and key officers of the Company and its
affiliates, effective commencing with the fiscal year beginning January 1, 1998.
The annual bonus pursuant to the bonus incentive compensation plan will be paid
one-half in cash and one-half in shares of Common Stock of the Company,
annually, following receipt of the audit for the related fiscal year. This
program will award bonuses annually to those officers out of a total pool
determined by stockholder return on equity ("ROE") as follows:
<TABLE>
<CAPTION>
ROE(1) in Excess of Base Rate(2) By: Bonus as percent of Average Net Worth(3) Outstanding
- -------------------------------------- -----------------------------------------------------
<S> <C>
zero or less 0%
greater than 0% but less than 6% 10% x (actual ROE - Base Rate)
Greater than 6% (10% x 6%) + 15% x (Actual ROE - (Base Rate + 6%))
</TABLE>
Of the amount so determined, one-half will be deemed contributed to the total
pool in cash and the other half deemed contributed to the total pool in the form
of shares of Common Stock, with the number of shares to be calculated based on
the average price per share during the preceding year. The total pool may not
exceed $1 million for fiscal years ending December 31, 1998, and December 31,
1999.
7
<PAGE>
- ----------
(1) "ROE" is determined for the fiscal year by averaging the monthly ratios
calculated each month by dividing the Company's monthly Net Income
(adjusted to an annual rate) by its Average Net Worth for such month. For
such calculations, the "Net Income" of the Company means the net income or
net loss of the Company determined according to GAAP, but after deducting
any dividends paid or payable on preferred stock that may be issued before
giving effect to the bonus incentive compensation or any valuation
allowance adjustment to stockholders' equity. The definition "ROE" is used
only for purposes of calculating the bonus incentive compensation payable
pursuant to the bonus incentive compensation plan and is not related to the
actual distributions received by stockholders. The bonus payments will be
an operating expense of the Company.
(2) "Base Rate" is the average for each month of the Ten-Year U.S. Treasury
Rate, plus four percent.
(3) "Average Net Worth" for any month means the arithmetic average of the sum
of (i) the net proceeds from all offerings of equity securities by the
Company since formation including exercise of Warrants and stock options
and pursuant to the proposed DRP (but excluding any offerings of preferred
stock in the future), after deducting any underwriting discounts and
commissions and other expenses and costs relating to the offerings, plus
(ii) the Company's retained earnings (without taking into account any
losses incurred in prior fiscal years, after deducting any amounts
reflecting taxable income to be distributed as dividends and without giving
effect to any valuation allowance adjustment to stockholders' equity)
computed by taking the daily average of such values during such period.
Units Acquired with Forgivable Debt. Messrs. Hartman and Anderson each
acquired 108,333 Units (each Unit consisting of one share of Preferred Stock
which converted to Common Stock at the closing of the Company's initial public
offering and one Warrant) which were acquired at the price of $15 per Unit on
December 9, 1996. Payment for such Units was made by delivering to the Company
promissory notes, each in the amount of $1,624,995, bearing interest at eight
percent per annum compounded annually and secured by the Units being acquired.
Interest began accruing during the first year and is added to principal due
under the note. The largest aggregate amount of indebtedness outstanding at any
time during 1997 was $3,525,000 of which $275,000 was accrued interest. The
aggregate amount outstanding at December 31, 1997 was $2,167,000. Thereafter,
interest became payable quarterly and upon forgiveness or at maturity of the
notes, which is at the end of the fifth fiscal period (as defined below).
The principal amount of the notes is divided into three equal tranches.
Payment of principal on each tranche will be forgiven by the Company, if the
following incentive performance tests are achieved:
o During the first five fiscal periods after issuance of the notes:
-- One tranche will be forgiven for each fiscal period as to which
the Company generates a total return to investors in Units equal
to or greater than 15 percent. The debt on the first tranche was
forgiven and the Company recognized a non-cash charge against
earnings of $1,083,330 for the fiscal period ending December 31,
1997.
-- At the end of each of the five fiscal periods, all remaining
tranches will be forgiven if the Company has generated a total
cumulative return to investors in Units (from date of initial
issuance of the notes) equal to or greater than 100 percent.
o For purposes of calculating the returns to such investors:
-- The term "fiscal period" will refer to each of five periods. The
first period commenced with the closing of the Private Placement
on December 9, 1996, and ended on December 31, 1997, and,
thereafter, each succeeding fiscal period extends for twelve
months and ends on each December 31.
o The term "return" for each fiscal period will mean the sum of (on a
per Unit basis) (a) all cash dividends paid during (or declared with
respect to) such fiscal period per share of Preferred Stock (or per
share of Common Stock following conversion of the Preferred Stock upon
completion of the initial public offering), (b) any increase or
decrease in the price per share of Preferred Stock (or resulting
Common Stock) during such fiscal period, measured by using the price
per Unit to investors in the Private Placement as the starting price
($15.00), and using the average public trading price during the last
90 days of each succeeding fiscal period for such succeeding periods
(except such shorter period as the Common Stock was traded in 1997),
and (c) any increase or decrease in the price per Warrant during such
fiscal period, determined in the same manner as in (b). For purposes
of the fiscal period 15 percent return test, the total return for a
given period will be equal to the sum of (a), (b) and (c) during the
period, and for purposes of the cumulative 100 percent return test,
the amounts in (a), (b) and (c) will all be measured from the
beginning of the first fiscal period. The amount of that "return" will
then be measured as a percentage of the investor's investment in the
Units (on a per Unit basis) without regard to timing of receipt of
dividends or timing of increases in per share or per Warrant prices.
8
<PAGE>
o If one of the incentive tests is met, the amount of loan forgiveness
for each tranche will be the principal amount of such tranche of the
note. In addition, a loan will be made by the Company to Messrs.
Hartman and Anderson in the amount of (i) personal tax liability
resulting from the forgiveness of debt, and (ii) interest accrued
during the first year of the forgiven tranches. The note will bear
interest at a floating market rate, will be secured by that
proportionate number of Units that had secured the forgiven tranche of
the note and will mature upon the earlier of the sale of those Units
(or the underlying securities) or the termination of the officer's
employment with the Company.
Stock Option Plan. Options to acquire 334,332 shares of Common Stock were
granted prior to the closing of the Company's initial public offering under the
Company's 1996 Stock Option Plan. Of these options, 10,000 were granted to two
non-employee directors and an additional 35,000 were granted to current
employees (excluding the founders) and vested 25 percent on September 1, 1997
and will vest 25 percent on each anniversary of such date thereafter. Options
granted to non-employee directors are exercisable at $0.01 per share. The 35,000
options granted to employees are exercisable at $2.50 per share. All such
options were granted with related DERs. The remaining options were granted to
the founders, exercisable at $15 per share, and vested upon closing of the
initial public offering. These options were granted without DERs.
The following table sets forth information concerning stock options granted
during 1997 for each of the Board of Director members and Executive Officers.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------------- Value at Assumed
Percent of Annual Rates of
Total Options Stock Price
Granted to Exercise Appreciation for
Employees Price or Option Term
No. During the Base Price Expiration ----------------------------------
Name Granted(1) Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Scott F. Hartman 40,000 18.55% $ 18.00 11/4/07 $1,172,804.13 $1,867,494.57
W. Lance Anderson 40,000 18.55% $ 18.00 11/4/07 $1,172,804.13 $1,867,949.57
Gregory T. Barmore 5,000 2.32% $ 18.00 11/4/07 $ 146,600.52 $ 233,438.82
Edward W. Mehrer 5,000 2.32% $ 18.00 11/4/07 $ 146,600.52 $ 233,438.82
Mark J. Kohlrus 20,000 9.27% $ 18.00 11/4/07 $ 588,402.07 $ 933,747.29
Total to Directors
and Executive Officers 110,000 51.01%
Total shares granted 215,640
- ----------
(1) 25 percent of the options granted will vest in 1998 and 25 percent in each
year thereafter.
9
<PAGE>
The following table sets forth certain information with respect to the
value of the options as of December 31, 1997 held by the named directors and
executive officers.
Fiscal Year End Option Value
Shares Acquired Number of Securities Value of Unexercised
On Exercise Underlying Unexercised In-the-Money(1)
Options as of Options as of
Value Realized(2) December 31, 1997 December 31, 1997(3)
Name (# of shares) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Scott F. Hartman -- -- 144,666 40,000 $117,541 --
W. Lance Anderson -- -- 144,666 40,000 117,541 --
Gregory T. Barmore -- -- 1,250 8,750 19,753 $59,259
Edward W. Mehrer -- -- 1,250 8,750 19,753 59,259
Mark J. Kohlrus 2,500 $33,275 -- 27,500 -- 99,844
</TABLE>
(1) "In-the-Money" options are options whose exercise price was less than the
market price of Common Stock at December 31, 1997.
(2) The "value realized" represents the difference between the exercise price
of the option shares and the market price of the option shares on the date
the option was exercised. The value realized was determined without
considering any taxes which may have been owed.
(3) Assuming a stock price of $15.8125 per share, which was the closing price
of a share of Common Stock reported for the New York Stock
Exchange--Composite Transactions on December 31, 1997.
Employment Agreements. The Company has entered into employment agreements
with the founders, Mr. Hartman and Mr. Anderson. Each employment agreement
provides for a term through December 31, 2001, and will be automatically
extended for an additional year at the end of each year of the agreement, unless
either party provides a prescribed prior written notice to the contrary. Each
employment agreement provides for the annual base salary described above and for
participation by the subject officer in the bonus incentive compensation plan.
Each employment agreement provides for the subject officer to receive his annual
base salary and bonus compensation to the date of the termination of employment
by reason of death, disability or resignation and to receive base compensation
to the date of the termination of employment by reason of a termination of
employment for cause as defined in the agreement. Each employment agreement also
provides for the subject officer to receive, if the subject officer resigns for
"good reason" or is terminated without cause after a "Change in Control" of the
Company as those terms are defined in the agreement, an amount, 50 percent
payable immediately and 50 percent payable in monthly installments over the
succeeding twelve months, equal to three times such officer's combined maximum
base salary and actual bonus compensation for the preceding year, subject in
each case to a maximum amount of one percent of the Company's book equity value
(exclusive of valuation adjustments) and a minimum of $360,000. In that
instance, the subject officer is prohibited from competing with the Company for
a period of one year. In addition, all outstanding options granted to the
subject officer under the 1996 Stock Option Plan shall immediately vest. Section
280G of the Code may limit the deductibility of the payments to such officer by
the Company for federal income tax purposes. "Change of Control" for purposes of
the agreements would include a merger or consolidation of the Company, a sale of
all or substantially all of the assets of the Company, changes in the identity
of a majority of the members of the Board of Directors of the Company (other
than due to the death, disability or age of a director) or acquisitions of more
than 25 percent of the combined voting power of the Company's capital stock,
subject to certain limitations. Absent a "Change in Control," if the Company
terminates the officer's employment without cause, or if the officer resigns for
"good reason," the officer receives an amount, payable immediately, equal to
such officer's combined maximum base salary and actual bonus compensation for
the preceding year, subject in each case to a maximum amount of one percent of
the Company's book value (exclusive of valuation adjustments) and a minimum of
$120,000. If the officer resigns for any other reason, there is no severance
payment and the officer is prohibited from competing with the Company for a
period of one year following the resignation.
10
<PAGE>
Certain Transactions
Transactions with Management. In May 1996, Messrs. Hartman and Anderson
formed NovaStar Mortgage, Inc. ("NovaStar Mortgage") for the purpose of engaging
in the subprime lending business. Following the Company's Private Placement,
NovaStar Mortgage began obtaining required licenses and permits, developing
guidelines for the origination of mortgage loans through its wholesale lending
channel and hiring critical senior personnel to put in place the infrastructure
for its mortgage lending and servicing operations.
Following the close of the Private Placement of Units in December 1996, the
Company moved to implement the portion of its business strategy to be conducted
through taxable affiliates. In February 1997, NFI Holding Corporation ("NFI
Holding") was formed to serve as a holding company for such taxable affiliates.
In March 1997, Messrs. Hartman and Anderson acquired all of the outstanding
non-voting common stock of NFI Holding for a total price of $20,000 and the
Company acquired all of the outstanding non-voting preferred stock of NFI
Holding for a total price of $1,980,000. The voting common stock is entitled to
one percent of the dividend distributions of NFI Holding and the preferred stock
is entitled to 99 percent of such distributions. At the time of acquisition of
the common stock, Messrs. Hartman and Anderson entered into an agreement of
shareholders, to which the Company is a party, which contains certain management
and control provisions and restrictions on transfer of the common stock. The
obligations of Messrs. Hartman and Anderson under the agreement of shareholders
are secured by the pledge of their common stock in NFI Holding. In February
1997, NFI Holding acquired all of the outstanding common stock of NovaStar
Mortgage from Messrs. Hartman and Anderson. NovaStar Mortgage thereby became a
wholly-owned subsidiary of Holding. Through NFI Holding, the Company thus owns a
beneficial interest in 99 percent of the future dividend distributions
attributable to NovaStar Mortgage.
The Company has entered into a loan purchase agreement with NovaStar
Mortgage pursuant to which the Company agrees to buy from time to time and
NovaStar Mortgage agrees to sell to the Company mortgage loans originated or
acquired by NovaStar Mortgage. The loan purchase agreement is non-exclusive as
to both parties and provides for a fair market value transfer of mortgage loans,
generally on a servicing-released basis. The Company and NovaStar Mortgage also
entered into a loan servicing agreement under which NovaStar Mortgage agrees to
service mortgage loans for the Company initially for a fixed dollar fee per loan
based on the fee in comparable arrangements. The servicing agreement became
effective with the commencement of NovaStar Mortgage's servicing operation in
July 1997. The Company and NovaStar Mortgage further entered into an
administrative services outsourcing agreement, dated as of June 30, 1997,
pursuant to which NovaStar Mortgage provides to the Company on a fee basis
certain administrative services, including consulting with respect to the
development of mortgage loan products, loan underwriting, loan funding and
quality control.
Indebtedness of Management. Messrs. Hartman and Anderson are indebted to
the Company pursuant to forgivable promissory notes as described above.
Certain Business Relationships. In connection with a commitment from
General Electric Capital Corporation ("GE Capital") to purchase Units in the
Company's Private Placement of Units in 1996, the Company agreed that so long as
GE Capital owns at least ten percent of the outstanding Common Stock, assuming
full exercise of all Warrants, GE Capital will have the right to appoint one
director (of up to six authorized directors) or, alternatively, to have board
observation rights so long as it maintains more than 20 percent of its initial
investment in the Company. The current director serving pursuant to these
provisions is Jenne K. Britell, who was elected to serve as an Independent
Director with a term running until the 1999 annual meeting of stockholders.
The Company also agreed, unless GE Capital waives its compliance, (i) to
give GE Capital's insurance affiliate FGIC three years' right of first offer to
issue credit enhancements on the Company's securitizations, (ii) to permit GE
Capital's mortgage company affiliate GE Capital Mortgage Corporation to sell
subprime mortgage loans, conforming to underwriting guidelines, to the Company
on an arm's-length basis, and (iii) to pay, subject to the subsequent closing of
the Private Placement, GE Capital's reasonable legal and consulting fees up to
$40,000 incurred in the Private Placement. To ensure that any purchases of
subprime mortgage loans from GE Capital Mortgage Corporation are executed at
arms-length, the Company will obtain two independent prices related to any such
transaction.
11
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the following
report and the Performance Graph shall not be incorporated by reference into any
such filings.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors, which is comprised
exclusively of independent outside directors, administers the Company's
executive compensation program.
NovaStar's compensation programs are designed to help attract and retain
qualified and motivated individuals that will provide the leadership required to
achieve our strategic goals, which includes sustaining long-term value based
growth for stockholders. Our philosophy is to link management's compensation to
the Company's profitability (return on stockholder equity, or ROE) and stock
price. Our philosophy is also intended to encourage stock ownership by not only
management, but all levels of employees. We believe a significant percentage of
total executive compensation should be provided through incentive equity
compensation that aligns management's interests with those of stockholders. Our
goal is to make our executives' personal net worth heavily dependent on
appreciation in the value of NovaStar stock over the long-term and their income
dependent on the Company's dividends.
The Company strives to integrate (i) reasonable levels of base salary, (ii)
annual incentive equity bonus awards tied to operating performance, and (iii)
stock option awards, to ensure management has a continuing stake in the
long-term success of NovaStar.
The Committee believes that senior management's base salaries are
relatively low as compared to other comparable companies with whom the Company
competes for management personnel. However, these executives have significant
compensation potential if there are substantial returns generated to
stockholders. Executive officers are eligible to receive equity-based
compensation through the Company's incentive bonus plan. The bonus is paid
annually one-half in cash and one-half in common stock. The program awards
bonuses to executive officers out of a total pool determined by stockholder
return on equity. The bonus pool is determined as follows:
<TABLE>
<CAPTION>
ROE in excess of Base Rate Bonus as a percent of Average Equity
- -------------------------- ------------------------------------
<S> <C>
Greater than 0% but less than 6% 10% x (Actual ROE - Base Rate)
Greater than 6% (10% x 6%) 15% x (Actual ROE - (Base Rate + 6%)
</TABLE>
Base Rate is the average Ten Year U.S. Treasury Rate plus 4%
Under the Company's 1996 Stock Option Plan, annual grants of stock options
are awarded to officers and other key employees to retain and motivate such
persons to sustain and improve long-term stock performance. Stock options are
granted at the prevailing market value and have value to the holders only if
NovaStar's stock price increases. Typically, grants become exercisable in four
equal annual increments.
Compensation Committee
Gregory T. Barmore
Edward W. Mehrer
12
<PAGE>
PERFORMANCE GRAPH
The following graph presents a total return comparison of the Company's
Common Stock, since the Company's initial public offering on October 30, 1997
through December 31, 1997, to the S&P Composite-500 Stock Index and the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") Mortgage REIT
Index. The total returns reflects stock price appreciation and the value of
dividends of the Company's Common Stock and for each of the comparative indices.
The information has been obtained from sources believed to be reliable but
neither its accuracy nor its completeness is guaranteed. The total return
performance shown on the graph is not necessarily indicative of future total
return performance of the Company's Common Stock.
Total Return Comparison Since the Company's Initial Public Offering
Through December 31, 1997*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
October 31, December 31,
1997 1997
NovaStar Financial, Inc. $ 100.00 $ 88.42
S&P Composite-500 Index 100.00 106.43
NAREIT Mortgage REIT Index 100.00 94.17
* $100 invested on October 31, 1997 in stock or index, including reinvestment
of dividends.
ITEM 2 - RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the accounting firm of KPMG Peat
Marwick LLP to audit the Company's financial statements for, and otherwise act
as the Company's independent certified public accountants with respect to the
year ending December 31, 1998. The Board of Director's selection of KPMG Peat
Marwick LLP for the current fiscal year is being presented to stockholders for
ratification at the Annual Meeting. To the Company's knowledge, neither KPMG
Peat Marwick LLP nor any of its partners has any direct financial interest or
any material indirect financial interest in the Company, or has had any
connection since the inception of the Company in the capacity of promoter,
underwriter, voting trustee, director, officer or employee. A representative of
KPMG Peat Marwick LLP will be present at the Annual Meeting.
The Board of Directors recommends that the shareholders vote "FOR" the proposal
to select KPMG Peat Marwick LLP as the Company's independent certified public
accountants.
13
<PAGE>
ITEM 3 - PROPOSAL TO APPROVE TECHNICAL AMENDMENTS TO THE
COMPANY'S CHARTER (I) TO CONFORM TO THE REQUIREMENTS OF THE
NEW YORK STOCK EXCHANGE AND (II) TO CLARIFY THE APPLICATION OF THE
COMPANY'S 9.8% REIT-QUALIFYING STOCK OWNERSHIP RESTRICTIONPRIVATE
The Board of Directors has unanimously approved proposed amendments to the
Company's Articles of Amendment and Restatement (the "Charter") and recommends
the shareholders approve the adoption of the amendments.
First, Section 11.2.10 would be amended to read as follows:
"Section 11.2.10 Settlements. Nothing contained in this
Article XI or in any provision hereof shall preclude the
settlement of any transaction entered into through the facilities
of the NYSE or any other national securities exchange or
automated inter-dealer quotation system. Following settlement,
any transferee in such transaction shall be subject to all the
provisions and limitations set forth in this Article XI."
This change in the above-referenced Section will conform the language of
the Section to the requirements of the New York Stock Exchange. It will not
affect in any way the validity or transferability of stock certificates
currently outstanding, nor will the change affect in any way the capital
structure of the Company.
Second, the definition of "Beneficial Ownership" contained in Section 11.1
would be amended to read as follows:
"Section 11.1 Beneficial Ownership. The term "Beneficial
Ownership" shall mean beneficial ownership as determined under
Rule 13d-3, as amended from time to time, adopted pursuant to the
Securities Exchange Act of 1934 (the "1934 Act") of Capital Stock
by a Person, whether the interest in the shares of Capital Stock
is held directly or indirectly (including by a nominee) and shall
include interests that would be treated as owned through the
application of Section 544 of the Code, as modified by Section
856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
Beneficially Owns" and "Beneficially Owned" shall have the
correlative meanings."
This change in the above-referenced Section will clarify the definition of
"Beneficial Ownership" in order to remove any ambiguity in the application of
the 9.8% REIT-qualifying stock ownership restriction. At present, the definition
is ambiguous and requires the Board of Directors to interpret its application.
The change will provide an objective reference for determining beneficial
ownership that investors may rely upon in advance in making their purchase
decisions. In addition, the reference adopted, Rule 13d-3, is already being
applied for 1934 Act reporting purposes by all investors with significant
holdings that might be in danger of exceeding the Charter's ownership
limitations. The definition of beneficial ownership, when read with the
REIT-qualifying provisions in the Charter restricting the ownership of capital
stock, may limit opportunities for stockholders to receive a premium for their
securities that might otherwise exist if any person were to attempt to assemble
a block of shares in excess of the number of shares permitted under the Charter.
The amendment will not affect in any way the validity or transferability of
stock certificates currently outstanding, and nor will the change affect in any
way the capital structure of the Company.
The adoption of the proposal to amend the language in the above-referenced
Sections requires the affirmative vote of the majority of the shares of Common
Stock of the Company which are outstanding and eligible to vote. If the
amendments are adopted by the shareholders, they will become effective upon the
filing of the certificate of amendment of the Charter with the Maryland
Department of Assessments and Taxation. Such filing is expected to be
accomplished immediately after the annual meeting of shareholders.
The Board of Directors recommends that the shareholders vote "FOR" the
proposal to amend these Sections of the Charter.
14
<PAGE>
OTHER BUSINESS
The Board of Directors knows of no other matters which may be presented for
stockholder action at the meeting. However, if other matters do properly come
before the meeting, it is intended that the persons named in the proxies will
vote upon them in accordance with their best judgments.
15
<PAGE>
STOCKHOLDER PROPOSALS - 1999 ANNUAL MEETING
Stockholders are entitled to present proposals for action at a forthcoming
stockholder's meeting if they comply with the requirements of the proxy rules.
Any proposals intended to be presented at the 1999 Annual Meeting of
Stockholders of the Company must be received at the Company's offices on or
before November 30, 1998 in order to be considered for inclusion in the
Company's proxy statement and form proxy relating to such meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Scott F. Hartman
Chairman of the Board and Secretary
Westwood, Kansas
March 30, 1998
<PAGE>
NOVASTAR FINANCIAL, INC.
REVOCABLE PROXY
For Annual Meeting of Shareholders on May 13, 1998
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Scott F. Hartman and Mark J. Kohirus, and
each of them, with full power of substitution to act as attorneys and proxies
for the undersigned to vote, as designated on the reverse side of this proxy,
all shares of the Common Stock of NovaStar Financial, Inc. (the "Company") which
the undersigned is entitled to vote at the Company's 1998 Annual Meeting of
Shareholders to be held at the Crowne Plaza Hotel, 4445 Main Street, Kansas
City, MO on May 13, 1998 at 3:00 p.m., Central Daylight Time, and at any and all
adjournments thereof.
Item 1 - ELECTION OF DIRECTORS.
The Board recommends a vote FOR each of the listed items
|_| FOR the nominees listed below |_| WITHHOLD authority to vote for the
nominees listed below.
Nominees: W. Lance Anderson & Gregory T. Barmore
INSTRUCTION: To withhold authority to vote for any individual nominee, check the
"FOR" box and strike a line through that nominee's name.
Item 2 - RATIFICATION OF KPMG PEAT MARWICK as independent public accountants for
the fiscal year ending December 31, 1998.
FOR AGAINST ABSTAIN
|_| |_| |_|
Item 3 - TECHNICAL AMENDMENTS TO COMPANY'S CHARTER to conform to New York Stock
Exchange requirements and clarify REIT stock ownership restriction.
FOR AGAINST ABSTAIN
|_| |_| |_|
(Please See Reverse Side)
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR AND FOR EACH PROPOSAL. IN
THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS
MAY PROPERLY COME BEFORE THE MEETING. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
Date:_____________________________, 1998
________________________________________
Signature
________________________________________
Signature
(Please sign exactly as name appears on
stock certificate. Where stock is
registered jointly, all owners must
sign. Corporate owners should sign full
corporate name by an authorized person.
Executors, administrators, trustees or
guardians should indicate their status
when signing.)
Please complete, sign and date this
proxy and return it in the enclosed
envelope.
