Form 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
March 17, 2008
Date of Report (Date of earliest event reported)
NOVASTAR FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Maryland 001-13533 74-2830661
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(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
8140 Ward Parkway, Suite 300, Kansas City, MO 64114
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(Address of principal executive offices)
(Zip Code)
(816) 237-7000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
On March 17, 2008, NovaStar Financial, Inc. ("NFI"), NovaStar Mortgage, Inc.
("NMI"), NFI Holding Corp. ("NFI Holding") and NovaStar Home Mortgage, Inc.
("NHMI" and, with NFI, NMI and NFI Holding, the "NovaStar Entities") and
American Interbanc Mortgage, LLC ("Plaintiff") entered into a Confidential
Settlement Term Sheet Agreement (the "Settlement Terms") with respect to the
actions, judgments and claims described below.
In March 2002, Plaintiff filed an action against NHMI in Superior Court of
Orange County, California entitled American Interbanc Mortgage LLC v. NovaStar
Home Mortgage, Inc. et. al. (the "California Action").
In the California Action, Plaintiff alleged that NHMI and two other mortgage
companies ("Defendants") engaged in false advertising and unfair competition
under certain California statutes and interfered intentionally with Plaintiff's
prospective economic relations. On May 4, 2007, a jury returned a verdict by a
9-3 vote awarding Plaintiff $15.9 million. The court trebled the award, made
adjustments for amounts paid by settling Defendants, and entered a $46.1 million
judgment against Defendants on June 27, 2007. The award is joint and several
against the Defendants, including NHMI. It is unknown if the other two
Defendants, one of which has filed a bankruptcy petition, have the financial
ability to pay any of the award.
NHMI's motion for the trial court to overturn or reduce the verdict was denied
on August 20, 2007, and NHMI appealed that decision (the "Appeal"). Pending the
Appeal, Plaintiff commenced enforcement actions in the states of Missouri (the
"Kansas City Action") and Delaware, and obtained an enforcement judgment in
Delaware (the "Delaware Judgment"). On January 23, 2008, Plaintiff filed an
involuntary petition for bankruptcy against NHMI under 11 U.S.C. Sec. 303, in
the United States Bankruptcy Court for the Western District of Missouri (the
"Involuntary"). Plaintiff was joined by two individuals alleging claims totaling
$150 in the Involuntary filing. NHMI filed an answer and contested the standing
of Plaintiff and the individuals to be petitioning creditors in bankruptcy.
On March 17, 2008, the NovaStar Entities and Plaintiff entered into the
Settlement Terms with respect to the California Action, the Judgment, the Kansas
City Action, the Delaware Judgment, the Involuntary, and all related claims. The
parties agreed to negotiate a longer-form definitive settlement agreement to
replace the Settlement Terms but, absent execution of such an agreement by March
24, 2008, the Settlement Terms become the final, binding settlement agreement
between the parties.
Under the Settlement Terms, the parties agreed to move to dismiss the
Involuntary. Within ten (10) business days after notice of entry of the
dismissal of the Involuntary, the NovaStar Entities will pay Plaintiff
$2,000,000 plus the balance in an account established by order of the Bankruptcy
Court in an amount no less than $50,000 (but not anticipated to be greater than
$65,000 at the time of payment), with NHMI obligated to otherwise satisfy
obligations to its identified creditors up to $48,000. The parties also agreed
to extend the Appeal briefing period pending finalization of the settlement of
the other actions, judgments and claims, as described below.
The Settlement Terms provide that, subject to payment of the amounts described
above and satisfaction of certain other conditions, the parties will dismiss the
California Action as to NHMI and the Kansas City Action and Delaware Judgment,
effect notice of satisfaction of the Judgment, and effect a mutual release of
all claims that were or could have been raised in any of the foregoing or that
are related to the subject matter thereof, upon the earliest of the following:
(i) July 1, 2010, (ii) a waiver by Wachovia of Wachovia's right to file an
involuntary bankruptcy proceeding against any of the NovaStar Entities prior to
July 1, 2010, (iii) an extension of the maturity date of NFI's indebtedness to
Wachovia until at least July 1, 2010, or (iv) delivery to Plaintiff of written
documentation evidencing the full satisfaction of NFI's current indebtedness to
Wachovia.
In addition to the initial payments to be made to the Plaintiff following
dismissal of the Involuntary, NFI will pay Plaintiff $5.5 million if, prior to
July 1, 2010, (i) NFI's average common stock market capitalization is at least
$94.4 million over a period of five (5) consecutive business days, or (ii) the
holders of NFI's common stock are paid $94.4 in net asset value as a result of
any sale of NFI or its assets. If NFI is sold prior to July 1, 2010 for less
than $94.4 million and ceases to be a public company, then NFI will obligate the
purchaser either to immediately pay $2 million to Plaintiff, or to pay Plaintiff
$5.5 million in the event the value of the company exceeds $94.4 million prior
to July 1, 2010 as determined by an independent valuation company.
NFI makes no assurances with regard to its ability to satisfy any of the
conditions described or referenced herein. Without limiting the foregoing, NFI
has obtained no commitment from Wachovia with regard to any action that may be
required of Wachovia in order to effect, prior to July 1, 2010, the dismissals
and releases described above. Nothing herein or in the Settlement Terms should
be construed as a belief, projection, assumption, or indication of intent of NFI
or its management regarding any future event, any industry or market conditions,
or NFI's financial condition, stock price, or business plans or strategies.
Information concerning NFI, including without limitation, NFI's assets and
results of operations, its business plans and strategies, and its financing
arrangements with Wachovia, is contained in NFI's periodic filings with the
Securities and Exchange Commission (the "SEC").
Statements in this report regarding NFI and its subsidiaries that are not
historical facts are "forward-looking statements" within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. Forward looking
statements are those that predict or describe future events and that do not
relate solely to historical matters and include statements regarding
management's future plans. Words such as "expect," "plan," and other expressions
or words of similar meanings, as well as future or conditional verbs such as
"will," "would," "should," "could," or "may" are generally intended to identify
forward-looking statements. Actual results or events may vary materially from
those discussed herein. Some important factors that could cause actual results
or events to differ materially from those anticipated include: our ability to
continue as a going concern and avoid seeking the protection of applicable
bankruptcy laws; our ability to generate positive cash flow; our ability to
reduce expenses from our discontinued operations; increases in the credit losses
on mortgage loans held in our portfolio or underlying our mortgage securities;
our ability to repay all amounts owed to Wachovia in a manner and time period
acceptable to Wachovia; our ability to obtain necessary waivers of, or
amendments to, the documents governing our indebtedness; increases in prepayment
or default rates on our mortgage assets; and the risks that are from time to
time included in our filings with the SEC. Other factors not presently
identified may also cause actual results to differ. This report on Form 8-K
speaks only as of its date and we expressly disclaim any duty to update the
information herein except as required by federal securities laws.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NOVASTAR FINANCIAL, INC.
DATE: March 20, 2008 /s/ Rodney Schwatken
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Rodney Schwatken
Chief Financial Officer