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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
January 1, 2001
Date of Report (Date of earliest event reported)
NOVASTAR FINANCIAL, INC.
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(Exact Name of Registrant as Specified in Charter)
Maryland 001-135333 74-2830661
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
(of Incorporation) Identification No.)
1901 West 47th Place
Suite 105
Westwood, Kansas 66205
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(Address of Principal Executive Offices) (Zip Code)
(913) 362-1090
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(Registrant's Telephone Number,
Including Area Code)
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events
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The REIT Modernization Act, enacted December 15, 1999, permits a REIT
to own, after December 31, 2000, 100% of the outstanding voting
securities of a taxable subsidiary. Previously, to comply with REIT
rules, NovaStar Financial, Inc. owned all of the preferred stock of
its taxable affiliate NFI Holding Corporation which represented a
nonvoting 99% economic interest in NFI Holding. The common voting
stock of NFI Holding was owned by the two founders of NovaStar
Financial, Scott F. Hartman and W. Lance Anderson. Effective January
1, 2001, NovaStar Financial acquired the common voting stock of NFI
Holding from the two founders for $370,000. Following the acquisition
of the common voting stock of NFI Holding, NovaStar Financial
exchanged all of its preferred stock for additional common voting
stock of NFI Holding. As a result, NovaStar Financial will own 100%
of the common voting stock of NFI Holding. NovaStar Financial's
consolidated financial statements beginning with fiscal year 2001 will
include NFI Holding as a consolidated wholly-owned subsidiary.
In related transactions approved by the Audit and Compensation
Committees of the Board of Directors, NovaStar Financial, Inc.
restructured the promissory notes given in connection with the initial
issuance of NFI Holding common stock and three other outstanding
promissory notes given by each of the founders arising out of the
acquisition of units in our 1997 private placement as previously
described in the notes to our financial statements. NovaStar
Financial acquired 72,222 shares of its common stock held by the
founders at an aggregate purchase price of $270,833 ($3.75 per share).
The promissory notes, aggregating to $1,541,267, were cancelled in
exchange for the proceeds of the two stock sales (totaling $640,833)
and new 10-year nonrecourse noninterest-bearing promissory notes
executed by Mr. Hartman and Mr. Anderson. Finally, NovaStar Financial
accepted the return of 288,332 shares of common stock issued upon the
exercise of options by Mr. Hartman and Mr. Anderson in satisfaction of
indebtedness of $4,339,980 incurred in connection with that exercise,
with $492,774 of accrued interest added to the principal amount of the
10-year promissory notes.
The new 10-year notes aggregate to $1,393,208. The founders have each
pledged 72,222 shares of NovaStar Financial common stock as security
for each note and the notes will be forgiven in equal annual
installments over a 10-year period so long as the founders remain in
the employ of NovaStar Financial. A bonus will be paid in the amount
of personal tax liability resulting from the forgiveness of debt in
excess of the after-tax value to each founder of dividends paid on the
common stock securing the note. In addition, the notes will be
forgiven in the event of a change of control of NovaStar Financial,
termination other than for cause or resignation for good reason as
those terms are defined in each founder's employment agreement. There
is no financial impact to NovaStar Financial from these transactions
for the year ending December 31, 2000. If the notes are forgiven over
the anticipated 10-year period, there will be an annual charge to
earnings of $139,321 plus any personal tax liability bonuses.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: January 2, 2001
NOVASTAR FINANCIAL, INC.
By: /s/ Rodney E. Schwatken
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Rodney E. Schwatken
Vice President, Treasurer and Controller
