sv3asr
As filed with the Securities and Exchange Commission on
January 20, 2006
Registration
No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
NOVASTAR FINANCIAL, INC.
(Exact name of registrant as specified in charter)
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Maryland |
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74-2830661 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
(816) 237-7000
(Address, including zip code, and telephone number, including
area code, of registrants principal executive offices)
Scott F. Hartman
Chairman of the Board and Chief Executive Officer
NOVASTAR FINANCIAL, INC.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
(816) 237-7000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Kirstin Pace Salzman
Blackwell Sanders Peper Martin, LLP
4801 Main Street, Suite 1000
Kansas City, Missouri 64112
Approximate date of commencement of proposed sale to the
public: At any time and from time to time after the
effective date of this registration statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box. o
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following
box. þ
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a registration statement pursuant to General
Instruction I.D. or a post-effective amendment thereto that
shall become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act, check the
following
box. þ
If this form is a post-effective amendment to a registration
statement filed pursuant to General Instruction I.D. filed
to register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities
Act, check the following
box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Amount of |
Title of Securities |
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Amount to be |
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Offering Price |
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Aggregate |
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Registration |
to be Registered |
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Registered |
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per Share |
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Offering Price(2) |
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Fee(3) |
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Common Stock, $0.01 par value per share
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286,645 shares |
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(1) |
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$10,881,044 |
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$1,165 |
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(1) |
Highest price, excluding interest, to be payable per share in
connection with the Rescission Offer covered by this
registration statement. The price per share will range from
$35.50 to $37.96, depending on the price originally paid by the
offeree. |
(2) |
Aggregate purchase price, excluding interest, estimated to be
payable if the Rescission Offer covered by this registration
statement is accepted in full. |
(3) |
Calculated pursuant to Rule 457(j) on the basis of the
amount at which such securities were sold. |
PROSPECTUS
NovaStar Financial, Inc.
286,645 Shares
Common Stock
Rescission Offer
We are offering, under the terms and conditions described in
this prospectus, to rescind (the Rescission Offer)
the previous purchase of 286,645 shares of our common
stock, par value $0.01 per share, by persons who acquired
such shares through our Direct Stock Purchase and Dividend
Reinvestment Plan (the Plan) on May 11, 2005,
May 23, 2005 or May 27, 2005 (the Applicable
Dates) at a price per share of $37.96, $36.04 and $35.50,
respectively.
If you purchased shares of our common stock pursuant to the Plan
on an Applicable Date and accept the Rescission Offer you will
receive:
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In the event you sold such shares at a loss, an amount equal to
the excess of the amount you paid for such shares over the
proceeds from the sale of the shares, plus interest, less
dividends that you received or that you are entitled to receive. |
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In the event you continue to hold such shares, an amount equal
to the amount you paid for such shares, plus interest from the
date of the purchase, less dividends that you received or that
you are entitled to receive. |
The Rescission Offer will expire at 5:00 p.m., Central
time, on February 21, 2006 (the Expiration
Date).
Our common stock is listed on the New York Stock Exchange under
the trading symbol NFI. The last reported sale price
of our common stock (as reported on the New York Stock Exchange)
on January 18, 2006 was $31.02 per share.
YOU MAY ELECT TO ACCEPT THE RESCISSION OFFER IN WHOLE OR IN
PART, AS SET FORTH IN THIS PROSPECTUS. YOU DO NOT NEED TO TAKE
ANY ACTION TO REJECT THE RESCISSION OFFER. IF YOU FAIL TO
RESPOND TO THE RESCISSION OFFER BY THE EXPIRATION DATE, YOU WILL
BE DEEMED BY US TO HAVE REJECTED THE RESCISSION OFFER.
ACCEPTANCE OR REJECTION OF THE RESCISSION OFFER MAY PREVENT YOU
FROM MAINTAINING AN ACTION AGAINST US IN CONNECTION WITH SHARES
OF OUR COMMON STOCK PURCHASED PURSUANT TO THE PLAN ON THE
APPLICABLE DATES.
Investing in our common stock involves risks. See Risk
Factors beginning on page 5.
The shares of our common stock subject to the Rescission Offer
may not have been registered under the Securities Act of 1933,
as amended (the Securities Act). These shares have
now been registered by means of a Registration Statement on
Form S-3 of which
this prospectus forms a part. Accordingly, whether or not you
accept the Rescission Offer, shares of our common stock subject
to the Rescission Offer will be properly registered under the
Securities Act, effective as of the date of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is January 20, 2006
TABLE OF CONTENTS
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with additional or different
information. If anyone provides you with additional or different
information, you should not rely on it. This prospectus is not
an offer to sell nor is it soliciting an offer to buy these
securities in any jurisdiction where such offer, solicitation or
sale is not permitted. You should assume that the information
contained in this prospectus is accurate only as of its date and
that any information incorporated by reference is accurate only
as of the date of the document incorporated by reference. Our
business, financial condition, results of operations and
prospects may have changed since those dates.
Unless otherwise stated or the context otherwise requires,
references in this prospectus to we, us,
and our refer to NovaStar Financial, Inc. and its
subsidiaries.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference
herein contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of
the Securities Exchange Act of 1934, as amended (the
Exchange Act). Forward-looking statements are those
that predict or describe future events or trends and that do not
relate solely to historical matters. You can generally identify
forward-looking statements as statements containing the words
believe, expect, will,
continue, anticipate,
intend, may, estimate,
project, plan, assume,
seek to or other similar expressions or the negative
of those terms, although not all forward-looking statements
contain these identifying words. Statements regarding the
following subjects contained or incorporated by reference in
this prospectus are forward-looking by their nature:
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our business strategy; |
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our ability to manage risk, including credit risk; |
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our understanding of our competition; |
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market trends; |
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projected sources and uses of funds from operations; |
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potential liability with respect to legal proceedings; and |
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potential effects of proposed legislation and regulatory action. |
You should not place undue reliance on our forward-looking
statements because the matters they describe are subject to
known and unknown risks, uncertainties and other unpredictable
factors, many of which are beyond our control. Our
forward-looking statements are based on the information
currently available to us and are applicable only as of the date
on the cover of this prospectus or, in the case of
forward-looking statements incorporated by reference, as of the
date of the filing that includes the statement. New risks and
uncertainties arise from time to time, and it is impossible for
us to predict these matters or how they may affect us. Over
time, our actual results, performance or achievements will
likely differ from the anticipated results, performance or
achievements that are expressed or implied by our
forward-looking statements, and such difference might be
significant and materially adverse to our stockholders. Such
factors include, but are not limited to:
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those identified under the Risk Factors section of
this prospectus; |
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those identified from time to time in our public filings with
the Securities and Exchange Commission (the
Commission); |
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our ability to generate sufficient liquidity on favorable terms; |
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the size and frequency of our securitizations; |
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interest rate fluctuations on our assets that differ from those
on our liabilities; |
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increases in prepayment or default rates on our mortgage assets; |
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changes in assumptions regarding estimated loan losses and fair
value amounts; |
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changes in origination and resale pricing of mortgage loans; |
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growth in markets which we serve; |
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our compliance with applicable local, state and federal laws and
regulations and the impact of new local, state or federal
legislation or regulations or court decisions on our operations; |
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the initiation of a margin call under our credit facilities; |
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the ability of our servicing operations to maintain high
performance standards and to maintain appropriate ratings from
rating agencies; |
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our ability to expand origination volume while maintaining an
acceptable level of overhead; |
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our ability to attract and retain qualified employees,
including, in particular, our senior executives; |
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our ability to adapt to and implement technological changes; |
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the stability of residential property values; |
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the outcome of litigation or regulatory actions pending against
us; and |
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the impact of general economic conditions. |
We have no duty to, and do not intend to, update or revise the
forward-looking statements in this prospectus after the date of
this prospectus, even if subsequent events cause us to become
aware of new risks or cause our expectations to change regarding
the forward-looking matters discussed or incorporated by
reference in this prospectus. We have identified some of the
important factors that could cause future events to differ from
our current expectations and they are described in this
prospectus under the caption Risk Factors and in our
Quarterly Report on
Form 10-Q for the
quarter ended September 30, 2005, including under the
captions Risk Factors and Safe Harbor
Statement, which you should review carefully. Please
consider our forward-looking statements in light of those risks
as you read this prospectus.
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QUESTIONS AND ANSWERS ABOUT THE RESCISSION OFFER
Why are you making the Rescission Offer?
On December 9, 2003, we filed a registration statement on
Form S-3 with the Commission covering the sale and issuance
of our common stock under the Plan. In June 2005, we
determined that 286,645 shares of our common stock sold under
the Plan may not have been properly registered in accordance
with the Securities Act. Accordingly, we suspended further sales
and issuances of our common stock under the Plan until a new
registration statement could be filed and declared effective. On
July 19, 2005, we filed a registration statement on
Form S-3 covering the sale and issuance of an additional
2,500,000 shares of our common stock under the Plan, which
registration statement has been declared effective by the
Commission.
We are making the Rescission Offer with regard to 286,645 shares
of our common stock sold pursuant to the Plan on the Applicable
Dates. We are making the Rescission Offer to ensure compliance
with the Securities Act and to limit any contingent liability we
may have as a result of possible noncompliance with applicable
federal registration requirements in connection with the
purchase of such shares of our common stock. Our directors and
current executive officers, who purchased shares of our common
stock pursuant to the Plan on the Applicable Dates do not intend
to participate in the Rescission Offer.
What will I receive if I accept the Rescission Offer?
The answer to this question depends on whether you still hold
the shares of our common stock purchased pursuant to the Plan on
the Applicable Dates:
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If you have sold such shares at a loss, we will pay you an
amount equal to the amount you paid for such shares less the
proceeds from the sale of the shares, plus interest, less
dividends that you received or that you were entitled to receive
prior to such sale. Interest will be paid on the amount
originally paid for the shares during the period from the date
of purchase of the shares until the date of the sale of the
shares and on the loss realized from the sale of the shares from
the date of sale through the date that payment is made. |
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If you continue to hold such shares and the market price of the
shares as of the Expiration Date is less than the price you paid
for the shares, plus interest from the date of purchase of the
shares through the date that payment is made by us, less
dividends that you received or that you are entitled to receive,
we will repurchase the shares and will pay you an amount equal
to the amount you paid for such shares, plus interest from the
date of purchase of the shares through the date that payment is
made by us, less dividends that you received or that you are
entitled to receive. |
What dividends have been paid since the first Applicable
Date?
We have paid the following cash dividends since the first
Applicable Date:
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Record Date |
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Dividend per Share | |
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May 13, 2005
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1.40 |
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August 12, 2005
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1.40 |
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November 8, 2005
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1.40 |
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December 30, 2005
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1.40 |
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The amount and timing of future dividends are determined by our
Board of Directors based on REIT tax requirements and business
trends at the time.
1
When will I receive payment for my shares if I properly
accept the Rescission Offer?
If you properly accept the Rescission Offer, we will mail you a
check for the proceeds to which you are entitled on or before
March 3, 2006. If you hold shares subject to the Rescission
Offer through a DTC participant, we will mail the check for the
proceeds to the DTC participant, and you should contact your DTC
participant about having the proceeds properly credited to your
account.
Am I legally required to accept the Rescission Offer?
No. You are not legally required to accept the Rescission
Offer.
What considerations should I take into account in deciding
whether to accept the Rescission Offer?
The answer to this question depends on whether you still hold
the shares of our common stock purchased pursuant to the Plan on
an Applicable Date.
If you no longer hold such shares, you should determine whether
any such shares were sold for less than you paid for them. You
are not entitled to accept the Rescission Offer with respect to
any shares you sold at a price equal to or higher than the price
you paid for them. If any of the shares you purchased on the
Applicable Dates were sold at a loss, acceptance of the
Rescission Offer, with regard to those shares, may be
economically beneficial to you. The extent to which acceptance
of the Rescission Offer is beneficial depends on the amount of
the loss, the amount of interest to which you are entitled and
the amount of dividends you received or that you are entitled to
receive in connection with such shares. Generally, if the amount
of dividends that you received or that you are entitled to
receive with respect to shares subject to the Rescission Offer
exceeds the amount of the loss you incurred upon the sale of
such shares, then you will not be entitled to accept the
Rescission Offer with respect to such shares.
If you continue to hold such shares, acceptance of the
Rescission Offer is not economically beneficial unless the
market value of the shares, as of the Expiration Date, is less
than the amount you paid for such shares on an Applicable Date,
plus interest, less dividends that you received or that you are
entitled to receive.
If you no longer hold all the shares of our common stock
acquired pursuant to the Plan on the Applicable Dates, we will
only repurchase those shares that are not deemed sold. Shares
are deemed sold in the order in which you purchased them. In
order to determine which shares are eligible for repurchase, all
shares acquired on your behalf pursuant to the Plan on the
Applicable Dates will be matched against all sales of shares on
or after the Applicable Dates by matching the first share
acquired with the first share sold. Only those purchases that do
not have matching sales are eligible for repurchase as part of
the Rescission Offer. You are entitled to payment for those
shares that are deemed sold at a loss. In order to determine the
amount payable with respect to shares that are sold, the
Rescission Administrator will use the same procedure as is used
to determine which shares are eligible for repurchase.
May I accept the Rescission Offer in part?
Yes. You may accept the Rescission Offer in part by indicating
on the Rescission Offer Acceptance Form the shares of our common
stock that were purchased on the Applicable Dates for which you
are accepting the Rescission Offer.
If you accept the Rescission Offer in part, you will be deemed
to have rejected the Rescission Offer with respect to the shares
of our common stock that were purchased on the Applicable Dates
for which you do not accept the Rescission Offer. See What
happens if I do not return the Rescission Offer Acceptance
Form? for the effect of such rejection.
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When does the Rescission Offer expire?
The Rescission Offer expires at 5:00 p.m., Central time, on
February 21, 2006.
What do I need to do now to accept the Rescission Offer?
You should complete, sign and date the accompanying Rescission
Offer Acceptance Form, included as Appendix A, and return
it to:
NovaStar Financial, Inc.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention: Jeffrey D. Ayers
WE MUST RECEIVE YOUR PROPERLY COMPLETED RESCISSION OFFER
ACCEPTANCE FORM AND ALL OTHER REQUIRED DOCUMENTATION BEFORE THE
EXPIRATION DATE. OTHERWISE, YOU WILL BE DEEMED TO HAVE REJECTED
THE RESCISSION OFFER. WE WILL, IN OUR SOLE DISCRETION, DETERMINE
WHETHER YOUR RESCISSION OFFER ACCEPTANCE FORM HAS BEEN PROPERLY
COMPLETED AND WHETHER YOUR ACCEPTANCE OF THE RESCISSION OFFER
WILL BE ACCEPTED OR REJECTED.
Certain shares of our common stock sold pursuant to the Plan on
the Applicable Dates are registered in the name of the
Depository Trust Company or its nominee, which we refer to
in this prospectus as DTC. DTC facilitates the
clearance and settlement of transactions through electronic
book-entry changes in accounts of DTC participants. DTC
participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations.
If you purchased, and still hold, shares of our common stock
subject to the Rescission Offer through an account maintained by
a DTC participant and you desire to accept the Rescission Offer,
you should contact your DTC participant promptly and instruct it
to accept the Rescission Offer on your behalf.
If you currently own shares subject to the Rescission Offer and
you hold certificates for such shares, you must enclose with the
Rescission Offer Acceptance Form the certificates for the shares
to be repurchased by us, properly endorsed for transfer, with
your signature guaranteed by an eligible guarantor institution
such as a commercial bank, trust company, securities broker
dealer, credit union or savings & loan that is a member of
the Medallion Signature Guarantee Program. If UMB
Bank N.A., the administrator of the Plan (the Plan
Administrator), is presently holding certificates for the
shares to be repurchased by us, or the Plan Administrator holds
such shares in book-entry form, your signature on the Rescission
Offer Acceptance Form must be guaranteed as described above. If
you decide to accept the Rescission Offer and intend to use the
mail to return your stock certificates to us, we recommend that
you use insured registered mail, return receipt requested.
If you have already sold shares subject to the Rescission Offer
at a loss, you must enclose with the Rescission Offer Acceptance
Form proof reasonably satisfactory to us evidencing the bona
fide sale of such shares to a third party, including the sale
price for such shares. Satisfactory proof of the sale price of
such shares may take the form of a receipt from the broker,
dealer or other person conducting the sale. The sale price may
have been paid in either cash or property. If the sale price was
paid in property, the price will be deemed to be the fair market
value of such property at the time of sale. If the proof of the
sale price is not reasonably satisfactory to us, we may require
additional proof. In addition, we may require evidence that any
sale of such shares was a bona fide transfer to a third party.
Will I have to pay any fees or commissions if I accept the
Rescission Offer?
If you hold the shares of common stock subject to the Rescission
Offer through a broker or other nominee who accepts the
Rescission Offer on your behalf, your broker or nominee may
charge you a commission for doing so. You should consult with
your broker or nominee to determine whether any charges will
apply.
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What do I need to do now to reject the Rescission Offer?
You do not need to take any action to reject the Rescission
Offer.
What happens if I do not return the Rescission Offer
Acceptance Form?
If you do not return the Rescission Offer Acceptance Form and
all other required documentation before the Expiration Date, you
will be deemed to have rejected the Rescission Offer. If you
reject the Rescission Offer, you will not receive any payment
with respect to shares of our common stock subject to the
Rescission Offer. In addition, the shares that you now own that
are subject to the Rescission Offer will be properly registered
under the Securities Act, effective as of the date of this
prospectus and, unless you are deemed to be an
affiliate of us, such shares will be freely tradable
in the public market as of the Expiration Date. Those shares
owned by our affiliates will be subject to the restrictions on
resale provided in Rule 144 under the Securities Act.
If you fail to accept the Rescission Offer, it is unclear
whether or not your federal rights of rescission and damages
will remain preserved. The staff of the Commission takes the
position that a persons federal right of rescission may
survive a rescission offer. However, federal courts in the past
have ruled that a person who rejects or fails to accept a
rescission offer is precluded from later seeking similar relief.
Generally, the federal statute of limitations for non-compliance
with the requirement to register securities under the Securities
Act is one year after a violation has occurred, but in no event
more than three years after the security was bona fide offered
to the public.
We believe all the sales of shares of our common stock that are
the subject of the Rescission Offer were exempt from
registration under state law, and thus you may not be entitled
to any state law remedies. However, under state law, acceptance
or rejection of the Rescission Offer may preclude you from
maintaining an action against us in connection with the shares
of our common stock purchased on the Applicable Dates. We do not
make any representation as to the compliance of this Rescission
Offer with applicable state law.
Can I change my mind after I have mailed my signed Rescission
Offer Acceptance Form?
Yes. You can change your decision about accepting or rejecting
the Rescission Offer at any time before the Expiration Date. If
you change your decision and want to accept the Rescission Offer
with respect to shares of our common stock for which you did not
originally elect to accept, you can do this by completing and
submitting another Rescission Offer Acceptance Form for such
shares. If you change your decision and want to reject the
Rescission Offer, in whole or in part, after having submitted
the Rescission Offer Acceptance Form then you may reject the
Rescission Offer by sending a notice that includes your name,
signature, address, social security number or taxpayer
identification number, a clear indication that you are rejecting
the Rescission Offer and the shares to which the rejection
relates to:
NovaStar Financial, Inc.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention: Jeffrey D. Ayers
THIS NOTICE OF REJECTION MUST BE RECEIVED AT THE ABOVE ADDRESS
BEFORE THE EXPIRATION DATE. OTHERWISE YOU WILL BE DEEMED TO HAVE
ACCEPTED THE RESCISSION OFFER PURSUANT TO YOUR ELECTIONS ON THE
RESCISSION OFFER ACCEPTANCE FORM(S).
If a DTC participant accepted the Rescission Offer on your
behalf by submitting a Rescission Offer Acceptance Form and you
want to reject the Rescission Offer, then you must instruct the
DTC participant to submit a notice of rejection on your behalf.
If we receive a notice of rejection before the Expiration Date
and you had enclosed certificates for shares of common stock
with your Rescission Offer Acceptance Form, we will promptly
return the certificates to you.
Who can help answer my questions?
If you have questions regarding the Rescission Offer, you may
call Jeffrey D. Ayers (the Rescission
Administrator) at the following number,
(816) 237-7000, Monday through Friday between the hours of
9:00 a.m. and 5:00 p.m., Central time, prior to the
Expiration Date.
4
RISK FACTORS
An investment in our common stock involves risks. You should
carefully consider the following risk factors relating to the
Rescission Offer in addition to the risks identified in
Cautionary Statement Regarding Forward-Looking
Statements above and the risks identified in our Quarterly
Report on
Form 10-Q for the
quarter ended September 30, 2005, including those risks
identified under the captions Risk Factors and
Safe Harbor Statement.
The Rescission Offer may not bar claims relating to our
possible non-compliance with securities laws and we may continue
to be contingently liable for rescission or damages in an
indeterminate amount.
It is not certain that the Rescission Offer will have the effect
of barring claims relating to our possible non-compliance with
applicable federal and state securities laws. If a person
accepts the Rescission Offer, we believe our potential liability
to that person will be eliminated. Should the Rescission Offer
be rejected, we may continue to be contingently liable for
rescission or damages, which could result in an adverse effect
on our financial condition. In addition, the Rescission Offer
will not prevent regulators from pursuing enforcement actions or
imposing penalties and fines against us with respect to any
violations of securities laws.
Your right of rescission under federal and state law may not
survive if you affirmatively reject or fail to accept the
Rescission Offer.
The rights remaining to the recipients of a rescission offer are
not clearly delineated under the federal or most state
securities laws. If you affirmatively reject or fail to accept
the Rescission Offer, it is unclear whether your federal right
of rescission will remain preserved. The staff of the Commission
takes the position that a persons federal right of
rescission may survive a rescission offer. However, federal
courts in the past have ruled that a person who rejects or fails
to accept a rescission offer is precluded from later seeking
similar relief. Generally, the federal statute of limitations
for non-compliance with the requirement to register securities
under the Securities Act is one year after a violation has
occurred, but in no event more than three years after the
security was bona fide offered to the public.
The Rescission Offer may also affect your right of rescission
and your right to damages under state law. Statutes of
limitations under state laws vary by state, with the limitation
time period under many state statutes not typically beginning
until the facts giving rise to a violation are known. We may
assert, among other defenses, in any litigation initiated by a
person eligible to participate in the Rescission Offer who
accepts or rejects the Rescission Offer, that such person is
estopped from asserting such claims. Our Rescission Offer is not
an admission that we did not comply with any federal securities
registration requirements or federal and state disclosure
requirements nor is it a waiver by us of any applicable statute
of limitations or any potential defenses that we may have.
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THE COMPANY
We are a specialty finance company that originates, purchases,
sells, invests in and services residential nonconforming loans.
We offer a wide range of mortgage loan products to borrowers,
commonly referred to as nonconforming borrowers, who
generally do not satisfy the credit, collateral, documentation
or other underwriting standards prescribed by conventional
mortgage lenders and loan buyers, including federal
government-sponsored entities such as Fannie Mae or Freddie Mac.
We retain significant interests in the nonconforming loans we
originate and purchase through our mortgage securities
investment portfolio. Through our servicing platform, we then
service all of the loans in which we retain interests, in order
to better manage the credit performance of those loans.
We have elected to be taxed as a real estate investment trust (a
REIT) under the Internal Revenue Code of 1986, as
amended, (the Code). We believe that the
tax-advantaged structure of a REIT maximizes the after-tax
returns from our mortgage assets. We must meet numerous rules
established by statute to retain our status as a REIT. In
summary, among others, they require us to:
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restrict investments to certain real estate related assets; |
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avoid certain investment trading and hedging activities; and |
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distribute at least 90% of taxable income to stockholders. |
As long as we maintain our REIT status, distributions to our
stockholders will generally be deductible by us for income tax
purposes. This deduction effectively eliminates corporate level
income taxes. NovaStar Mortgage, Inc. (NovaStar
Mortgage) and certain other of our subsidiaries are
operated as taxable REIT subsidiaries under the REIT
tax rules. As such, any earnings that we derive through NovaStar
Mortgage and our other taxable REIT subsidiaries are effectively
subject to a corporate level tax. We believe the REIT structure
is one of the most desirable for owning loans and mortgage
securities and conducting mortgage operations. We believe we
have met, and will continue to meet, the requirements to
maintain our REIT status.
We are self-advised and self-managed. We do not need to rely and
do not rely, on a third-party advisor to provide portfolio
investment advice or third party manager for the
day-to-day
administration of our business operations. We believe that our
structure favorably distinguishes us from other mortgage REITs.
NovaStar Financial, Inc. (NovaStar Financial) was
incorporated in the State of Maryland on September 13, 1996
and began operations in December 1996. Our principal executive
offices are located at 8140 Ward Parkway, Suite 300, Kansas
City, Missouri 64114. Our telephone number is
(816) 237-7000.
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THE RESCISSION OFFER
Background and Reasons for the Rescission Offer
On December 9, 2003, we filed a registration statement on
Form S-3 with the
Commission covering the sale and issuance of our common stock
under the Plan. In June 2005, we determined that
286,645 shares of our common stock sold under the Plan may
not have been properly registered in accordance with the
Securities Act. Accordingly, we suspended further sales or
issuances of our common stock under the Plan until a new
registration statement could be filed and declared effective. On
July 19, 2005, we filed a registration statement on
Form S-3 covering
the sale and issuance of an additional 2,500,000 shares of
our common stock under the Plan, which registration statement
has been declared effective by the Commission.
We are making this Rescission Offer with regard to
286,645 shares of our common stock sold pursuant to the
Plan on the Applicable Dates. Our board of directors has
approved the Rescission Offer in order to ensure compliance with
the Securities Act and to limit any contingent liability we may
have as a result of possible noncompliance with applicable
federal registration requirements in connection with the
purchase of such shares of our common stock. Our directors and
current executive officers, who purchased shares of our common
stock pursuant to the Plan on the Applicable Dates do not intend
to participate in the Rescission Offer.
Effect of the Rescission Offer
If you affirmatively reject, or fail to accept in full, the
Rescission Offer before the Expiration Date, you will not
receive any payment for the shares of our common stock subject
to the Rescission Offer for which you do not accept. In
addition, such shares that you now own that are subject to the
Rescission Offer, for purposes of applicable federal securities
law, will be registered securities as of the date of this
prospectus and, unless you are deemed to be an
affiliate (as defined in Rule 144 under the
Securities Act) of us, such shares will be freely tradable in
the public market as of the Expiration Date. Those shares owned
by our affiliates will be subject to the restrictions on resale
provided in Rule 144 under the Securities Act.
We believe that your acceptance of the Rescission Offer will,
under general theories of estoppel, preclude you from later
seeking similar relief. For federal securities law purposes,
nonacceptance of the Rescission Offer may not terminate your
right to bring a civil action against us for failure to register
the shares under the Securities Act before expiration of the
applicable statute of limitations. The staff of the Commission
takes the position that a persons federal right of
rescission may survive a rescission offer. However, federal
courts in the past have ruled that a person who rejects or fails
to accept a rescission offer is precluded from later seeking
similar relief. The statute of limitations for enforcement of
such statutory rights by a stockholder is one year commencing on
the date of the sale of common stock sold in violation of the
federal registration requirements, but in no event later than
three years after the common stock was bona fide offered to the
public.
The above discussion relates primarily to your potential
rescission rights and does not address in detail the antifraud
provisions of applicable securities laws or rights under state
securities laws, common law or equity. We believe that all the
sales of shares of our common stock that are the subject of the
Rescission Offer were exempt from registration under state laws.
Furthermore, we believe that the Rescission Offer is exempt from
registration under the laws of such states and thus need not
comply with the laws of such states regulating such offers. We,
however, do not make any representation as to the compliance of
the Rescission Offer with state law. Under state law, acceptance
or rejection of the Rescission Offer may preclude you from
maintaining an action against us in connection with the shares
of our common stock purchased on the Applicable Dates. You may
wish to consult with an attorney regarding all of your legal
rights and remedies before deciding whether or not to accept the
Rescission Offer.
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Terms of the Rescission Offer
If you elect to accept the Rescission Offer with respect to
shares that you have already sold at a loss, you will receive an
amount equal to the amount you paid for the shares less the
proceeds of the sale, plus interest, less dividends that you
received or that you were entitled to receive prior to such
sale. Interest will be paid on the amount originally paid for
the shares during the period from the date of purchase of the
shares until the date of sale of such shares. Interest will also
be paid on the loss realized from the date of sale of the shares
through the date that payment is made.
The interest rate will be determined according to federal law
because we believe that no violation of state securities laws
occurred in connection with the purchases and sales of our
common stock subject to the Rescission Offer. The interest rate
will be the weekly average 1-year constant maturity
Treasury yield, as published by the Board of Governors of the
Federal Reserve System, for the calendar week which includes the
Expiration Date. For the week ending January 13, 2006, the
interest rate would have been 4.41%.
If you elect to accept the Rescission Offer with respect to
shares that you continue to hold, you will receive an amount
equal to the amount you paid for the shares, plus interest for
the period from the date you purchased the shares through the
date payment is made, less dividends that you received or that
you are entitled to receive.
If you no longer hold all the shares of our common stock
acquired pursuant to the Plan on the Applicable Dates, we will
only repurchase those shares that are not deemed sold. Shares
are deemed sold in the order in which you purchased them. In
order to determine which shares are eligible for repurchase, all
shares acquired on your behalf pursuant to the Plan on the
Applicable Dates will be matched against all sales of shares on
or after the Applicable Dates by matching the first share
acquired with the first share sold. Only those purchases that do
not have matching sales are eligible for repurchase as part of
the Rescission Offer. You are entitled to payment for those
shares that are deemed sold at a loss. In order to determine the
amount payable with respect to shares that are sold, the
Rescission Administrator will use the same procedure as is used
to determine which shares are eligible for repurchase.
Since the first Applicable Date, we have paid cash dividends of
$1.40 per share to holders of record of our common stock on
each of May 13, 2005, August 12, 2005,
November 8, 2005 and December 30, 2005. The amount and
timing of future dividends are determined by our Board of
Directors based on REIT tax requirements and business trends at
the time.
The Rescission Offer will expire at 5:00 p.m., Central
time, on February 21, 2006.
If you properly accept the Rescission Offer, we will mail you a
check for the proceeds to which you are entitled on or before
March 3, 2006 If you hold shares subject to the Rescission
Offer through a DTC participant, we will mail the check for the
proceeds to the DTC participant, and you should contact your DTC
participant about having the proceeds properly credited to your
account.
As of January 18, 2006, the closing sale price of our
common stock (as reported on the New York Stock Exchange) was
$31.02 per share. For the fifty-two week period ending on
such date, the per share sales price of our common stock ranged
from a high of $48.60 to a low of $25.27.
How to Accept or Reject the Rescission Offer
YOU ARE NOT LEGALLY REQUIRED
TO ACCEPT THE RESCISSION OFFER.
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How to accept the Rescission Offer |
Acceptance of the Rescission Offer is optional if you purchased
shares of our common stock pursuant to the Plan on an Applicable
Date. Generally, acceptance of the Rescission Offer is
economically beneficial only if you have sold shares purchased
on an Applicable Date at a loss and the loss you incurred
exceeds the amount of dividends which you received or that you
were entitled to receive in connection
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with such shares, or if you continue to hold shares purchased on
the Applicable Dates, the market value of our common stock on
the Expiration Date is less than the price you paid on the
Applicable Dates, plus interest, less dividends that you
received or that you are entitled to receive. You may accept the
Rescission Offer in whole or in part. If you accept the
Rescission Offer in part and change your decision and want to
accept the Rescission Offer with respect to additional shares of
our common stock, you can do this by completing and submitting
another Rescission Offer Acceptance Form for such additional
shares. In the event you elect to accept the Rescission Offer,
you must complete the Rescission Offer Acceptance
Form and return it to the attention of NovaStar Financial,
Inc., 8140 Ward Parkway, Suite 300, Kansas City, Missouri
64114, Attention: Jeffrey D. Ayers. We must receive your
properly completed Rescission Offer Acceptance Form and all
other required documentation before the Expiration Date.
Otherwise, you will be deemed to have rejected the Rescission
Offer. We will, in our sole discretion, determine whether your
Rescission Offer Acceptance Form has been properly completed and
whether your acceptance of the Rescission Offer will be accepted
or rejected.
Certain shares of our common stock sold pursuant to the Plan on
the Applicable Dates were registered in the name of the
Depository Trust Company or its nominee, which we refer to in
this prospectus as DTC. DTC facilitates the
clearance and settlement of transactions through electronic
book-entry changes in accounts of DTC participants. DTC
participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations.
If you purchased, and still hold, shares of our common stock
subject to the Rescission Offer through an account maintained by
a DTC participant and you desire to accept the Rescission Offer,
you should contact your DTC participant promptly and instruct it
to accept the Rescission Offer on your behalf. See Special
procedures for DTC participants below.
If you currently own shares subject to the Rescission Offer and
you hold certificates for such shares, you must enclose with the
Rescission Offer Acceptance Form the certificates for the shares
to be repurchased by us, properly endorsed for transfer, with
your signature guaranteed by an eligible guarantor institution
such as a commercial bank, trust company, securities broker
dealer, credit union or savings & loan that is a member
of the Medallion Signature Guarantee Program. If the Plan
Administrator is presently holding certificates for the shares
to be repurchased by us, or the Plan Administrator holds such
shares in book-entry form, your signature on the Rescission
Offer Acceptance Form must be guaranteed as described above. If
you decide to accept the Rescission Offer and intend to use the
mail to return your stock certificates to us, we recommend that
you use insured registered mail, return receipt requested.
If you have already sold shares subject to the Rescission Offer
at a loss, you must enclose with the Rescission Offer Acceptance
Form proof reasonably satisfactory to us evidencing the bona
fide sale of such shares to a third party, including the sale
price for such shares. Satisfactory proof of the sale price of
such shares may take the form of a receipt from the broker,
dealer or other person conducting the sale. The sale price may
have been paid in either cash or property. If the sale price was
paid in property, the price will be deemed to be the fair market
value of such property at the time of sale. If the proof of the
sale price is not reasonably satisfactory to us, we may require
additional proof. In addition, we may require evidence that any
sale of such shares was a bona fide transfer to a third party.
If you hold the shares of common stock subject to the Rescission
Offer through a broker or other nominee who accepts the
Rescission Offer on your behalf, your broker or nominee may
charge you a commission for doing so. You should consult with
your broker or nominee to determine whether any charges will
apply.
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How to reject the Rescission Offer |
You do not need to take any action to reject the Rescission
Offer. If you change your decision and want to reject the
Rescission Offer, in whole or in part, after having submitted
the Rescission Offer Acceptance Form then you may reject the
Rescission Offer by sending a notice that includes your name,
signature, address, social security number or taxpayer
identification number, a clear indication that you are rejecting
the Rescission Offer and the shares to which the rejection
relates to the attention of NovaStar Financial, Inc.,
8140 Ward Parkway, Suite 300, Kansas City,
Missouri 64114, Attention: Jeffrey D. Ayers. We
must receive this notice of rejection before the Expiration
Date. Otherwise, you will be deemed to have accepted the
Rescission Offer pursuant to your elections on the Rescission
Offer Acceptance Form(s).
If a DTC participant accepted the Rescission Offer on your
behalf by submitting a Rescission Offer Acceptance Form and you
want to reject the Rescission Offer, then you must instruct the
DTC participant to submit a notice of rejection according to the
procedure described above.
If we receive a notice of rejection before the Expiration Date
and you had enclosed certificates for shares of common stock
with your Rescission Offer Acceptance Form, we will promptly
return the certificates to you.
IF YOU FAIL TO NOTIFY US IN WRITING OF YOUR ACCEPTANCE OF THE
RESCISSION OFFER ON OR PRIOR TO THE EXPIRATION DATE (OR ONLY
ACCEPT THE RESCISSION OFFER IN PART), YOU WILL BE DEEMED TO HAVE
REJECTED THE RESCISSION OFFER WITH RESPECT TO THE SHARES OF
COMMON STOCK THAT YOU DID NOT ACCEPT. ACCEPTANCE OR REJECTION OF
THE RESCISSION OFFER MAY NOT TERMINATE YOUR RIGHT TO BRING A
CIVIL ACTION AGAINST US FOR FAILURE TO REGISTER THE SHARES UNDER
FEDERAL SECURITIES LAWS. HOWEVER, FEDERAL LAW DOES PROVIDE THAT
YOU MAY LOSE ANY RESCISSION RIGHTS UNDER FEDERAL SECURITIES LAWS
ONE YEAR FROM THE DATE OF PURCHASE OF SUCH SHARES AND THREE
YEARS FROM THE DATE SUCH SHARES WERE BONA FIDE OFFERED TO THE
PUBLIC.
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Special procedures for DTC participants |
To accept the Rescission Offer on behalf of a beneficial owner
of shares of our common stock registered in the name of DTC, a
DTC participant must:
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complete the Rescission Offer Acceptance Form and return it to
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for all shares you want us to rescind that have been previously
sold at a loss, proof reasonably satisfactory to us evidencing
the bona fide sale of such shares to a third party, including
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initiate a Deposit/ Withdrawal At Custodian (DWAC)
transaction to transfer to us the shares of our common stock
that are registered in the name of DTC and being repurchased by
us pursuant to the Rescission Offer. We will notify the DTC
participant of the date that the DWAC transaction should be
initiated. Upon instruction from us, the Plan Administrator will
approve DWAC transactions to effect the transfer of such shares. |
Satisfactory proof of sale may take the form of a receipt from
the broker, dealer or other person conducting the sale. The
signature of a DTC participant on the Rescission Offer
Acceptance Form is not required to be guaranteed if the DTC
participant is a member of the Medallion Signature Guarantee
Program and the DTC participant affixes its Medallion stamp on
the Rescission Offer Acceptance Form.
IF A DTC PARTICIPANT FAILS TO NOTIFY US IN WRITING OF YOUR
ACCEPTANCE OF THE RESCISSION OFFER ON OR PRIOR TO THE EXPIRATION
DATE, YOU WILL BE DEEMED TO HAVE REJECTED THE RESCISSION OFFER.
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Accounting for the Rescission Offer
We intend to account for the Rescission Offer by recording the
fair market value of the shares of our common stock purchased by
us as a charge to additional
paid-in-capital based
on the quoted market price of our common stock at the close of
business on the Expiration Date. Any amounts paid by us pursuant
to the Rescission Offer in excess of the fair market value of
such shares, and any amounts paid by us with respect to shares
of our common stock that were sold at a loss, will be recorded
as other expense included in general and administrative expenses
in our consolidated statement of income.
Use of Stock Purchased by Us in Rescission Offer
The shares of our common stock purchased by us pursuant to the
Rescission Offer, if any, will become authorized but unissued
shares of common stock, and may be issued by us in accordance
with our charter and Maryland law.
Funding the Rescission Offer
We have sufficient funds available to pay for the purchase of
any shares of common stock that may be tendered to us as a
result of the Rescission Offer.
Questions about the Rescission Offer
If you have questions about the Rescission Offer, you may call
Jeffrey D. Ayers, the Rescission Administrator, at
(816) 237-7000, Monday through Friday between
9:00 a.m. and 5:00 p.m., Central time, prior to the
Expiration Date.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
Federal Income Tax Considerations Related to the Rescission
Offer
The following discussion summarizes the material federal income
tax considerations relating to the Rescission Offer. This
discussion is based on current law. The following discussion is
not exhaustive of all possible tax consequences. It does not
give a detailed discussion of any state, local or foreign tax
consequences, nor does it discuss all of the aspects of federal
income taxation that may be relevant to a holder in light of
such holders particular circumstances or to special
classes of holders, including persons who are not citizens or
residents of the United States, subject to particular treatment
under federal income tax laws.
You are urged to consult with your own tax advisor regarding the
specific consequences to you of the Rescission Offer, including
the federal, state, local, foreign and other tax consequences
and the potential changes in applicable tax laws.
The discussion assumes that a person holds the shares of our
common stock subject to the Rescission Offer as capital assets,
or, as to a person who accepts the Rescission Offer with respect
to shares of our common stock previously sold by such person,
that such person held such shares as capital assets. The
U.S. federal income tax law applicable to the Rescission
Offer is unclear. We have not obtained, nor do we intend to
obtain, a ruling from the Internal Revenue Service
(IRS) with respect to the tax consequences to anyone
accepting the Rescission Offer. The IRS is not precluded from
asserting a position contrary to the positions summarized in
this discussion or otherwise recharacterizing a rescission
transaction in whole or in part.
Irvine Law Group, P.C., tax counsel to NovaStar Financial,
has advised NovaStar Financial in connection with the federal
income tax considerations related to the Rescission Offer. In
the opinion of tax counsel, this section of the prospectus
identifies and fairly summarizes the federal income tax
consequences related to the Rescission Offer that are likely to
be material to a holder of our common stock and to the extent
such summaries involve matters of law, such statements of law
are correct under
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the Code. Tax counsels opinions are based on various
assumptions and on the factual representations of NovaStar
Financial concerning its business and assets.
Pursuant to U.S. Treasury Department Circular 230, we
are informing you that (a) this discussion is not intended
to be used, was not written to be used, and cannot be used, by
any taxpayer for the purpose of avoiding penalties under the
U.S. federal tax laws that may be imposed on the taxpayer,
(b) this discussion was written in connection with the
promotion or marketing by us of the Rescission Offer, and
(c) each taxpayer should seek advice based on his, her or
its particular circumstances from an independent tax advisor.
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Cash payment treated as a redemption payment |
We intend to treat common stock repurchases under the Rescission
Offer as a taxable redemption of shares, with the redemption
price equal to the amount paid by us for such shares (and
including in the redemption price the amount treated for state
law purposes as interest on the original purchase price of such
shares). The IRS is not precluded from characterizing common
stock repurchases under the Rescission Offer as the return of
the original purchase price, which would be nontaxable because
there would be no taxable gain or loss, plus the payment of
interest, which would be taxable to you as ordinary income and
would be deductible by us. This alternative treatment, however,
would require that your original purchase of shares of our
common stock be treated as a loan to us for U.S. federal
income tax purposes. This seems unlikely because, among other
reasons, you have the option to either accept or reject the
Rescission Offer.
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Determining if the redemption is a sale or a
distribution |
If the redemption payment is treated as made for shares of our
common stock, the tax treatment of the redemption payment will
differ depending on whether the redemption of shares of our
common stock under the Rescission Offer is treated as a sale or
exchange of such shares or, alternatively, as a distribution.
The redemption should be treated as a sale or exchange, and not
as a distribution, if it (a) results in a complete
redemption of your interest in our capital stock;
(b) is substantially disproportionate with
respect you; or (c) is not essentially equivalent to
a dividend as such terms are defined by applicable
authorities. These three tests, which are more fully described
below, are collectively referred to in this discussion as the
Redemption Tests.
The Redemption Tests are applied on a person-by-person
basis. If a redemption does not satisfy any of the Redemption
Tests, the payment of the proceeds from the sale will be treated
as a distribution. Because the Redemption Tests are applied
independently to each person, it is possible that some persons
accepting the Rescission Offer will be subject to sale or
exchange treatment and others will receive distribution
treatment. BECAUSE THE APPLICATION OF THE REDEMPTION TESTS IS
APPLIED ON A PERSON-BY-PERSON BASIS, YOU SHOULD CONSULT YOUR OWN
TAX ADVISOR IN CONNECTION WITH THE POSSIBLE FEDERAL INCOME TAX
TREATMENT THAT MAY APPLY IN YOUR PARTICULAR CASE.
For purposes of determining whether any of the Redemption Tests
are satisfied, you are treated as owning not only shares of our
capital stock that you actually own, but also shares of our
capital stock that are treated as constructively owned by you.
You may be deemed to constructively own shares of our capital
stock actually owned, and in some cases constructively owned, by
certain related individuals or entities treated as related to
you and shares of our capital stock that you have the right to
acquire by exercise of an option, warrant or a conversion right.
Contemporaneous or related transactions in our capital stock or
stock options may also affect the Redemption Tests.
The redemption will result in a complete redemption
of all of your shares of our capital stock if either
(a) all of such shares actually and constructively owned by
you are sold pursuant to the Rescission Offer or (b) all of
such shares actually owned by you are sold pursuant to the
Rescission Offer and you are eligible to waive and effectively
waive constructive ownership of such shares.
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The redemption will be substantially
disproportionate with respect to you if (a) the
percentage of our voting stock owned by you immediately after
the redemption (taking into account all shares of our common
stock purchased by us pursuant to the Rescission Offer) equals
less than eighty percent of the percentage of our voting stock
owned by you immediately before the redemption; (b) the
percentage of our common stock owned by you after the redemption
(taking into account the effect of all shares of our common
stock purchased by us pursuant to the Rescission Offer) equals
less than eighty percent of the percentage of our common stock
you own immediately before the redemption; and (c) after
the redemption you own less than fifty percent of the total
combined voting power of all classes of our voting stock
entitled to vote (taking into account the effect of all shares
of our common stock purchased by us pursuant to the Rescission
Offer).
The redemption will satisfy the not essentially equivalent
to a dividend test with respect to you if, in light of
your particular circumstances (including your relative interest
in our capital stock), your sale of shares of our common stock
pursuant to the Rescission Offer results in a meaningful
reduction of your interest in our capital stock (taking
into account the effect of all shares of our common stock
purchased by us pursuant to the Rescission Offer). This test may
be satisfied irrespective of your failure to satisfy the
complete redemption or substantially disproportionate tests.
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Consequences if your redemption is a sale or
exchange |
Assuming that our treatment of a repurchase under the Rescission
Offer as a taxable redemption is correct, and if the redemption
is a sale or exchange under one of the Redemption Tests
described above, you will have capital gain or loss equal to the
difference between the amount you receive pursuant to the
Rescission Offer (including the portion of such amount equal to
the interest on the original purchase price of the shares of our
common stock) and your federal income tax basis in such shares.
Unless your purchases of our common stock being redeemed
occurred more than one year ago, the gain or loss will be
short-term capital gain or loss.
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Consequences if your redemption is a distribution |
If your redemption fails to qualify for sale or exchange
treatment under the Redemption Tests described above, the
gross proceeds you receive pursuant to the Rescission Offer will
be characterized as a dividend distribution to the extent of our
accumulated and/or current earnings and profits (on a pro rata
basis with other persons whose redemptions fail to so qualify).
The portion, if any, of the proceeds received by you in excess
of the amount treated as a dividend will be treated first as a
tax-free recovery of your basis in the redeemed shares and then
as capital gain from a sale or exchange. If you receive proceeds
that are taxed as a dividend, you should generally be able to
transfer any unrecovered tax basis in the redeemed shares to any
shares of our capital stock retained by you, or possibly to
shares constructively owned by you if you do not retain any
shares of our capital stock. The maximum rate of income tax for
individuals on dividends paid by most types of tax-paying
U.S. corporations is 15%. Dividends paid by REITs, like us,
are not eligible for such treatment except in limited
circumstances which we do not expect will apply in the case of
payments pursuant to the Rescission Offer. Accordingly, payments
by us pursuant to the Rescission Offer will be treated as
ordinary income for stockholders subject to tax to the extent
that Rescission payments do not qualify as a redemption.
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Payments with respect to shares previously sold |
If you previously sold shares of our common stock subject to the
Rescission Offer, we believe that the amount paid to you
pursuant to the Rescission Offer with respect to such shares
that you previously sold (including the portion of the payment
treated for state law purposes as interest on the original
purchase price of such shares) will be treated as capital gain
at least to the extent of any losses incurred by you on such
prior sales, although any payment in excess of such prior losses
may be treated as a distribution taxable as ordinary income, as
discussed under the heading Consequences if your
redemption is a distribution. To the extent the payment is
taxable as capital gain, such gain should be short-term.
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Under the terms of the Rescission Offer, you may receive in
redemption of the subject shares the difference between the
amount that you paid for the subject shares and any dividends
that we paid on those shares. You should be aware that your
federal tax basis in the subject shares would not be reduced by
the amount of the dividends paid, with the result that the
amount of gain or loss that you would recognize if your
redemption qualifies for sale or exchange treatment may differ
from the total amount that you are entitled to receive pursuant
to the terms of the Rescission Offer.
Under the U.S. federal income tax backup withholding rules,
28% of the gross proceeds payable to a person pursuant to the
Rescission Offer must be withheld and remitted to the United
States Treasury unless you (a) are an exempt recipient and,
if required, establish your right to an exemption or
(b) provide your taxpayer identification number, certify
that you are not currently subject to backup withholding, and
otherwise comply with applicable requirements of the backup
withholding rules. You may generally avoid backup withholding by
furnishing a completed Substitute
Form W-9 included
as part of the Rescission Offer Acceptance Form. Backup
withholding is not an additional tax; any amount withheld under
these rules will be creditable against your U.S. federal
income tax liability, and you may be entitled to a refund
provided the required information is furnished to the IRS.
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Federal Income Tax Considerations for a Holder of Our Common
Stock |
The following discussion summarizes the material federal income
tax considerations that may be relevant to you, as a holder of
our common stock. This discussion is based on current law. The
following discussion is not exhaustive of all possible tax
consequences. It does not give a detailed discussion of any
state, local or foreign tax consequences, nor does it discuss
all of the aspects of federal income taxation that may be
relevant to a holder in light of such holders particular
circumstances or to special classes of holders, including
persons who are not citizens or residents of the United States,
who are subject to particular treatment under federal income tax
laws.
You are urged to consult with your own tax advisor regarding the
specific consequences to you of the ownership of our common
stock, including the federal, state, local, foreign and other
tax consequences of such ownership and the potential changes in
applicable tax laws.
The Code provides special tax treatment for organizations that
qualify and elect to be taxed as REITs. The discussion below
summarizes the material provisions applicable to NovaStar
Financial as a REIT for federal income tax purposes and to its
stockholders in connection with their ownership of shares of
stock of NovaStar Financial. However, it is impractical to set
forth in this prospectus all aspects of federal, state, local
and foreign tax law that may have tax consequences with respect
to an investors ownership of the common stock. The
discussion of various aspects of federal taxation contained
herein is based on the Code, administrative regulations,
judicial decisions, administrative rulings and practice, all of
which are subject to change. In brief, if detailed conditions
imposed by the Code are met, entities that invest primarily in
real estate assets, including mortgage loans, and that otherwise
would be taxed as corporations, with limited exceptions, are not
taxed at the corporate level on their taxable income that is
currently distributed to their stockholders. This treatment
eliminates most of the double taxation, at the
corporate level and then again at the stockholder level when the
income is distributed, that typically results from the use of
corporate investment vehicles. A qualifying REIT, however, may
be subject to certain excise and other taxes, as well as normal
corporate tax, on taxable income that is not currently
distributed to its stockholders.
NovaStar Financial elected to be taxed as a REIT under the Code
commencing with its taxable year ended December 31, 1996.
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Irvine Law Group, P.C., tax counsel to NovaStar Financial,
has advised NovaStar Financial in connection with the formation
of NovaStar Financial and NovaStar Financials election to
be taxed as a REIT. Based on existing law and factual
representations made to tax counsel by NovaStar Financial, tax
counsel is of the opinion that NovaStar Financial, exclusive of
any taxable affiliates, operated in a manner consistent with its
qualifying as a REIT under the Code since the beginning of its
taxable year ended December 31, 1996 through
September 30, 2005, the date of the unaudited balance sheet
and income statement made available to tax counsel, and the
organization and contemplated method of operation of NovaStar
Financial are such as to enable it to continue to so qualify
throughout the balance of 2005 and in subsequent years. The
opinion of tax counsel applies only to NovaStar Financial and
its qualified REIT subsidiaries and not to NFI Holding
Corporation (NFI Holding), NovaStar Mortgage and its
subsidiaries, which operate as taxable entities. However,
whether NovaStar Financial will in fact so qualify will depend
on actual operating results and compliance with the various
tests for qualification as a REIT relating to its income,
assets, distributions, ownership and administrative matters, the
results of which may not be reviewed by tax counsel. Moreover,
some aspects of NovaStar Financials operations have not
been considered by the courts or the Internal Revenue Service.
There can be no assurance that the courts or the Internal
Revenue Service will agree with this opinion. In addition,
qualification as a REIT depends on future transactions and
events that cannot be known at this time. In the opinion of tax
counsel, this section of the prospectus identifies and fairly
summarizes the federal income tax consequences that are likely
to be material to a holder of the common stock and to the extent
such summaries involve matters of law, such statements of law
are correct under the Code. Tax counsels opinions are
based on various assumptions and on the factual representations
of NovaStar Financial concerning its business and assets.
This summary deals only with stock that is held as a capital
asset, which generally means property that is held for
investment. In addition, except to the extent discussed below,
this summary does not address tax considerations applicable to
you if you are subject to special tax rules, such as:
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a dealer or trader in securities; |
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a financial institution; |
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an insurance company; |
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a stockholder that holds our stock as a hedge, part of a
straddle, conversion transaction or other arrangement involving
more than one position; |
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a stockholder whose functional currency is not the United States
dollar; or |
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a tax-exempt organization or foreign taxpayer. |
The opinions of tax counsel are also based upon existing law
including the Code, existing Treasury Regulations, Revenue
Rulings, Revenue Procedures, proposed regulations and case law,
all of which are subject to change either prospectively or
retroactively. Moreover, relevant laws or other legal
authorities may change in a manner that could adversely affect
NovaStar Financial or its stockholders. We urge you to consult
your own tax advisors regarding the tax consequences of
ownership of our stock, including the application to your
particular situation of the tax considerations discussed below,
as well as the application of state, local or foreign tax laws.
The statements of federal income tax law set out below are based
on the laws in force and their interpretation as of the date of
this prospectus, and are subject to changes occurring after that
date.
In the event NovaStar Financial does not qualify as a REIT in
any year, it will be subject to federal income tax as a domestic
corporation and its stockholders will be taxed in the same
manner as stockholders of ordinary corporations. To the extent,
as a consequence, NovaStar Financial would be subject to
potentially significant tax liabilities, the amount of earnings
and cash available for distribution to its stockholders would be
reduced.
15
To qualify for tax treatment as a REIT under the Code, NovaStar
Financial must meet certain tests which are described
immediately below.
Ownership of Stock. NovaStar Financial shares of stock
must be transferable and must be held by a minimum of 100
beneficial owners for at least 335 days of a 12 month
year or a proportionate part of a short tax year. Since the
closing of its private placement in 1996, NovaStar Financial has
had more than 100 stockholders of record. NovaStar
Financial must, and does, use the calendar year as its taxable
year. In addition, at all times during the second half of each
taxable year, no more than 50% in value of the shares of any
class of the stock of NovaStar Financial may be owned directly
or indirectly by five or fewer individuals. In determining
whether NovaStar Financial shares are held by five or fewer
individuals, attribution of stock ownership rules apply.
NovaStar Financials charter imposes certain repurchase
provisions and transfer restrictions to avoid more than 50% by
value of any class of stock being held by five or fewer
individuals, directly or constructively, at any time during the
last half of any taxable year. Such repurchase and transfer
restrictions will not cause the stock not to be treated as
transferable for purposes of qualification as a
REIT. NovaStar Financial has satisfied and intends to continue
satisfying both the 100 stockholder and 50%/5 stockholder
individual ownership limitations described above for as long as
it seeks qualification as a REIT.
Nature of Assets. On the last day of each calendar
quarter at least 75% of the value of assets owned by NovaStar
Financial must consist of qualified REIT assets, government
securities, cash and cash items, the 75% of assets
test. NovaStar Financial expects that substantially all of
its assets, other than qualified hedges, the stock of NFI
Holding and certain intercompany loans to NFI Holding or one of
its subsidiaries, will be qualified REIT assets.
Qualified REIT assets include interests in real property,
interests in mortgage loans secured by real property and
interests in real estate mortgage investment conduits
(REMICs). NovaStar Financial has complied with the
75% of assets test for each quarter since inception of its REIT
election. Qualified hedges generally are financial instruments
that a REIT enters into or acquires to protect against interest
rate risks on debt incurred to acquire or carry qualified REIT
assets, which the REIT has identified as a hedging transaction
under Code section 1221(a)(7).
On the last day of each calendar quarter, of the investments in
securities not included in the 75% of assets test, the value of
any one issuers securities may not exceed 5% by value of
total assets and NovaStar Financial may not own more than 10% of
any one issuers outstanding voting securities. Pursuant to
its compliance guidelines, NovaStar Financial intends to monitor
closely, on not less than a quarterly basis, the purchase and
holding of assets in order to comply with the above assets
tests. In particular, as of the end of each calendar quarter
NovaStar Financial intends to limit and diversify its ownership
of securities of any taxable affiliate, hedging contracts and
other mortgage securities that do not constitute qualified REIT
assets to not more than 25%, in the aggregate, by value of its
portfolio, to not more than 5% by value as to any single issuer,
and to not more than 10% of the voting stock and 10% of the
value of the outstanding stock of any single issuer,
collectively the 25% of assets limits. In addition,
as of the last day of any calendar quarter, not more than 20% of
the value of the assets of NovaStar Financial may be represented
by the securities of one or more taxable REIT subsidiaries, such
as NFI Holding. If such limits are ever exceeded, NovaStar
Financial intends to take appropriate remedial action to dispose
of such excess assets or otherwise come into compliance with the
quarterly asset tests within the thirty day period after the end
of the calendar quarter, as permitted under the Code. As of
September 30, 2005, NovaStar Financial complied with the
tests described in this paragraph. If NovaStar Financial were to
violate one or more quarterly asset tests by more than the de
minimis thresholds of (a) 1% of the total value of the
REITs assets as of the end of the quarter or
(b) $10 million, NovaStar Financial would have to
dispose of the offending assets or otherwise come into
compliance with the quarterly asset test within either thirty
days or six months after the end of the quarter, and in
addition, if the longer six month period were elected, would
have to pay a penalty tax of the greater of (a) $50,000 or
(b) the net income generated by the excess assets times
the highest corporate tax rate.
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REITs may directly own the stock of taxable subsidiaries. As
noted above, the value of the securities of all taxable
subsidiaries of a REIT will be limited to no more than 20% of
the total value of the REITs assets. In addition, a REIT
will be subject to a 100% penalty tax equal to any rents or
charges that the REIT imposed on the taxable subsidiary in
excess of the arms length price for comparable services.
When purchasing mortgage-related securities, NovaStar Financial
may rely on opinions of counsel for the issuer or sponsor of
such securities given in connection with the offering of such
securities, or statements made in related offering documents,
for purposes of determining whether and to what extent those
securities and the income therefrom constitute qualified REIT
assets and income for purposes of the 75% of assets test and the
source of income tests. If NovaStar Financial invests in a
partnership, NovaStar Financial will be treated as receiving its
share of the income and loss of the partnership and owning a
proportionate share of the assets of the partnership and any
income from the partnership will retain the character that it
had in the hands of the partnership.
Sources of Income. NovaStar Financial must meet two
separate income-based tests each year in order to qualify as a
REIT.
1. The 75% Test. At least 75% of gross income, the
75% of income test for the taxable year must be
derived from the following sources among others:
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interest on, other than interest based in whole or in part on
the income or profits of any person, and commitment fees to
enter into, obligations secured by mortgages on real property; |
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gains from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from
property held primarily for sale to customers in the ordinary
course of business; and |
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income from the operation, and gain from the sale, of property
acquired at or in lieu of a foreclosure of the mortgage secured
by such property or as a result of a default under a lease of
such property. |
The investments that NovaStar Financial intends to make will
give rise primarily to mortgage interest qualifying under the
75% of income test. As of September 30, 2005, NovaStar
Financial complied with the 75% income test on an annualized
basis for the 2005 taxable year.
2. The 95% Test. In addition to deriving 75% of its
gross income from the sources listed above, at least an
additional 20% of gross income for the taxable year must be
derived from those sources, or from dividends, interest or gains
from the sale or disposition of stock or other securities that
are not dealer property, the 95% of income test.
Income attributable to assets other than qualified REIT assets,
such as income from dividends on stock including any dividends
from a taxable affiliate like NFI Holding, interest on any other
obligations not secured by real property, and gains from the
sale or disposition of stock or other securities that are not
qualified REIT assets will constitute qualified income for
purposes of the 95% of income test only, but will not be
qualified income for purposes of the 75% of income test. Income
from hedging and gains from the disposition of hedging
instruments is excluded from computation of the 95% of income
test, meaning that hedging income may only affect NovaStar
Financials compliance with the 75% of income test. Hedging
income includes gains or payments received on interest rate swap
or cap agreements, options, futures contracts, forward rate
agreements or any other similar financial instrument entered
into by a REIT in a transaction to reduce the interest rate
risks for any indebtedness incurred or to be incurred by the
REIT to acquire or carry real estate assets. The definition of
hedging income includes income from a transaction entered into
to manage risks of interest rate or price change or currency
fluctuation if clearly identified as a hedging transaction under
Code section 1221(a)(7), the general hedging transaction
provisions of the Code. Income from mortgage servicing, loan
guarantee fees or other contracts under which NovaStar Financial
would earn fees for performing services and hedging other than
from qualified REIT assets will not qualify for either the 95%
or 75% of income tests. NovaStar Financial intends to severely
limit its acquisition of any assets or investments the income
from which does not qualify for purposes of the 95% of income
test. Moreover, in order to help ensure compliance with the 95%
of income test and the 75% of income test, NovaStar Financial
intends to limit
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substantially all of the assets that it acquires, other than the
stock of any taxable affiliate and qualified hedges, to
qualified REIT assets. The policy of NovaStar Financial to
maintain REIT status may limit the type of assets, including
hedging contracts, that NovaStar Financial otherwise might
acquire. As of September 30, 2005, NovaStar Financial
complied with the 95% income test on an annualized basis for the
2005 taxable year.
For purposes of determining whether NovaStar Financial complies
with the 75% of income test and the 95% of income test detailed
above, gross income does not include gross income from
prohibited transactions. A prohibited
transaction is one involving a sale of property in which
the seller is a dealer. A prohibited transaction does not
include a sale of dealer property by a REIT for which the
foreclosure property election is made. Net income from
prohibited transactions is subject to a 100% tax.
NovaStar Financial intends to maintain its REIT status by
carefully monitoring its income, including income from dividends
from NFI Holding and interest from loans not secured by
interests in real estate, among other items in order to comply
with the 75% of income test and the 95% of income test. In order
to help insure its compliance with the REIT requirements of the
Code, NovaStar Financial has adopted guidelines the effect of
which will be to limit its ability to earn certain types of
income, including income from hedging, other than hedging income
from qualified REIT assets and from qualified hedges.
Failure to satisfy one or both of the 75% or 95% of income tests
for any year may result in either (a) an excise tax on the
amounts of income by which it failed to comply with the 75% test
of income or the 95% of income test, reduced by estimated
related expenses, assuming such failure was for reasonable cause
and not willful neglect, or (b) loss of REIT status. There
can be no assurance that NovaStar Financial will always be able
to maintain compliance with the gross income tests for REIT
qualification despite continuous monthly monitoring procedures.
Moreover, there is no assurance that the relief provisions for a
failure to satisfy either the 95% or the 75% of income tests
will be available in any particular circumstance.
Distributions. NovaStar Financial must distribute to its
stockholders on a pro rata basis each year an amount equal to
90% of its taxable income before deduction of dividends paid and
excluding net capital gain, plus 90% of the excess of the net
income from foreclosure property over the tax imposed on such
income by the Code, less any excess noncash income.
NovaStar Financial intends to make distributions to its
stockholders in amounts sufficient to meet this 90% distribution
requirement. Such distributions must be made by the time that
NovaStar Financial files its corporate tax return for the year
to which the dividend distributions relate. If NovaStar
Financials taxable income were to materially exceed its
cash receipts, NovaStar Financial could be compelled to dispose
of mortgage assets, borrow or use available capital to satisfy
the distribution requirement.
A nondeductible excise tax, equal to 4% of the excess of such
required distributions over the amounts actually distributed
will be imposed for each calendar year to the extent that
dividends paid during the year, or declared during the last
quarter of the year and paid during January of the succeeding
year, are less than the sum of 85% of NovaStar Financials
ordinary income, 95% of NovaStar Financials
capital gain net income, and income (in excess of prior
years excise taxes) not distributed in earlier years.
Under its dividend policy, NovaStar Financial generally expects
that it may not distribute the portion of its taxable income
remaining after the distribution of the final regular quarterly
dividend each year within the time frame required to avoid being
subject to the nondeductible 4% excise tax described above.
Imposition of the excise tax on NovaStar Financial may reduce
the amount of cash ultimately available for distribution to
stockholders. NovaStar Financial expects to avoid regular income
tax on its net income by distributing dividends equal to
substantially all of its taxable income by the time that
NovaStar Financial files its tax return for the year to which
the income relates.
If NovaStar Financial fails to meet the 90% distribution test as
a result of an adjustment to tax returns by the Internal Revenue
Service, or due to NovaStar Financials filing of an
amended corporate tax return, NovaStar Financial by following
certain requirements set forth in the Code may pay a deficiency
dividend within a specified period which will be permitted as a
deduction in the taxable year to
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which the adjustment is made. NovaStar Financial would be liable
for interest based on the amount of the deficiency dividend. A
deficiency dividend is not permitted if the deficiency is due to
fraud with intent to evade tax or to a willful failure to file a
timely tax return. NovaStar Financial generally distributes
dividends equal to 100% of its taxable income to eliminate
corporate level tax. The Code provides for a $50,000 excise tax,
rather than disqualification as a REIT, for a REIT that violates
a REIT qualification test other than one of the annual gross
income tests or quarterly asset tests. The violation must be due
to reasonable cause and not willful neglect.
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Taxation of NovaStar Financial |
In any year in which NovaStar Financial qualifies as a REIT, it
generally will not be subject to federal income tax on that
portion of its taxable income or net capital gain which is
distributed to its stockholders. NovaStar Financial will,
however, be subject to tax at normal corporate rates upon any
net income or net capital gain not distributed. NovaStar
Financial intends to distribute substantially all of its taxable
income to its stockholders on a pro rata basis by the time it
files its tax return for the year to which the income relates.
In addition, NovaStar Financial will also be subject to a tax of
100% of net income from any prohibited transaction (a prohibited
transaction generally is a sale of property held primarily for
sale to customers in the ordinary course of business
other than foreclosure property) and will be subject to a 100%
tax on the greater of the amount by which it fails either the
75% or 95% of income tests, reduced by approximated expenses, if
the failure to satisfy such tests is due to reasonable cause and
not willful neglect and if certain other requirements are met.
NovaStar Financial may be subject to the alternative minimum tax
on certain items of tax preference.
If NovaStar Financial acquires any real property as a result of
foreclosure, or by a deed in lieu of foreclosure, it may elect
to treat such real property as foreclosure property. Net income
from the sale of foreclosure property is taxable at the maximum
federal corporate rate, currently 35%. Income from foreclosure
property will not be subject to the 100% tax on prohibited
transactions. NovaStar Financial will determine whether to treat
such real property as foreclosure property on the tax return for
the fiscal year in which such property is acquired. NovaStar
Financial expects to so elect.
NovaStar Financial may elect to retain, rather than distribute
as a capital gain dividend, its net long-term capital gains. In
such event, NovaStar Financial would pay tax on such retained
net long-term capital gains. In addition, to the extent
designated by NovaStar Financial, a stockholder generally would
(1) include his proportionate share of such undistributed
long-term capital gains in computing his long-term capital gains
for his taxable year in which the last day of NovaStar
Financials taxable year falls (subject to certain
limitations as to the amount so includable), (2) be deemed
to have paid the capital gains tax imposed on NovaStar Financial
on the designated amounts included in such stockholders
long-term capital gains, (3) receive a credit or refund for
such amount of tax deemed paid by the stockholder,
(4) increase the adjusted basis of his stock by the
difference between the amount of such includable gains and the
tax deemed to have been paid by him, and (5) in the case of
a stockholder that is a corporation, appropriately adjust its
earnings and profits for the retained capital gains in
accordance with U.S. Treasury regulations (which have not
yet been issued).
NovaStar Financial securitizes mortgage loans and sells such
mortgage loans through one or more taxable subsidiaries.
However, if NovaStar Financial itself were to sell such mortgage
assets on a regular basis, there is a substantial risk that it
would be deemed dealer property and that all of the
profits from such sales would be subject to tax at the rate of
100% as income from prohibited transactions. Such taxable
affiliate will not be subject to this 100% tax on income from
prohibited transactions, which is only applicable to REITs.
In addition, NovaStar Financial will be subject to a 100%
penalty tax equal to any rent or other charges that it imposed
on any taxable REIT subsidiary in excess of an arms-length
price for comparable services.
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NovaStar Financial will derive income from its taxable REIT
subsidiaries by way of dividends and interest on certain
intercompany loans. Such dividends and interest are non-real
estate source income for purposes of the 75% income test.
Therefore, when aggregated with NovaStar Financials other
non-real estate source income, such dividends and interest must
be limited to 25% of NovaStar Financials gross income each
year. NovaStar Financial will monitor the value of its
investment in its taxable REIT subsidiaries and the amount of
dividends and interest received from such subsidiaries to ensure
compliance with all applicable income and asset tests.
NovaStar Financials taxable REIT subsidiaries are
generally subject to corporate level tax on their net income and
will generally be able to distribute only net after-tax earnings
to its stockholders, including NovaStar Financial, as dividend
distributions.
As noted above, NovaStar Financial will be subject to the 4%
excise tax to the extent that it does not distribute 85% of its
REIT taxable income within the calendar year.
If NovaStar Financial acquires a built-in gain asset from a C
corporation in a transaction in which the basis of the asset is
determined by reference to the basis of the asset in the hands
of the C corporation and NovaStar Financial recognizes built-in
gain upon a disposition of such asset occurring within
10 years of its acquisition, then NovaStar Financial will
be subject to federal tax to the extent of any built-in gain at
the highest corporate income tax rate.
NovaStar Financial may also be subject to the corporate
alternative minimum tax, as well as other taxes in situations
not presently contemplated. If NovaStar Financial were to
recognize excess inclusion income and have stockholders who are
disqualified organizations (generally state, federal or foreign
agencies or instrumentalities not subject to tax), NovaStar
Financial may have to pay tax at the highest corporate rate on
the portion of the excess inclusion income allocable to the
stockholders that are disqualified organizations. NovaStar
Financial intends to avoid transactions that could generate
excess inclusion income for it and its stockholders.
Any taxable REIT subsidiary of NovaStar Financial, such as NFI
Holding, will be subject to taxation on net income and will make
distributions to us as its stockholder only on after-tax income.
As a publicly held corporation, NovaStar Financial will not be
allowed a deduction for applicable employee remuneration with
respect to any covered employee in excess of $1 million per
year. The million dollar limit on deductibility is subject to
certain exceptions, including the exception for
performance based compensation meeting each of the
following criteria:
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the terms of the agreement must have been approved in advance of
payment by the corporations stockholders; |
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the agreement must have been approved by a compensation
committee consisting solely of two or more non-employee
directors of the corporation; and |
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the performance based compensation payable to the employee must
be based on objective performance criteria and the meeting of
these criteria must have been certified by the compensation
committee consisting of two or more outside directors. |
Based on certain representations of NovaStar Financial, tax
counsel is of the opinion that it is more likely than not that
the deduction for compensation to the officers under the
agreements would not be disallowed under the million dollar
limit.
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Termination or revocation of REIT status |
The election to be treated as a REIT will be terminated
automatically if NovaStar Financial fails to meet the REIT
qualification requirements described above under the heading
Qualification as a REIT. In that event,
NovaStar Financial will not be eligible again to elect REIT
status until the fifth taxable
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year which begins after the year for which the election was
terminated unless all of the following relief provisions apply:
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NovaStar Financial did not willfully fail to file a timely
return with respect to the termination taxable year; |
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inclusion of incorrect information in such return was not due to
fraud with intent to evade tax; and |
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NovaStar Financial establishes that failure to meet requirements
was due to reasonable cause and not willful neglect. |
NovaStar Financial may also voluntarily revoke its election,
although it has no intention of doing so, in which event
NovaStar Financial will be prohibited, without exception, from
electing REIT status for the year to which the revocation
relates and the following four taxable years.
If NovaStar Financial failed to qualify for taxation as a REIT
in any taxable year, and the relief provisions did not apply,
NovaStar Financial would be subject to tax, including any
applicable alternative minimum tax, on its taxable income at
regular corporate rates. Distributions to stockholders with
respect to any year in which NovaStar Financial fails to qualify
as a REIT would not be deductible by NovaStar Financial nor
would they be required to be made. Failure to qualify as a REIT
would result in a reduction of its distributions to stockholders
in order to pay the resulting taxes. If, after forfeiting REIT
status, NovaStar Financial later qualifies and elects to be
taxed as a REIT again, NovaStar Financial could face significant
adverse tax consequences.
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Taxation of NovaStar Financials stockholders |
General. For any taxable year in which NovaStar Financial
is treated as a REIT for federal income purposes, amounts
distributed by NovaStar Financial to its stockholders out of
current or accumulated earnings and profits will be includible
by the stockholders as ordinary income for federal income tax
purposes unless properly designated by NovaStar Financial as
capital gain dividends. In the latter case, the distributions
will be taxable to the stockholders as long-term capital gains.
The maximum rate of income tax for individuals on dividends paid
by most types of tax-paying U.S. corporations is 15%.
Dividends paid by REITs are not eligible for such treatment
except in limited circumstances (such as to the extent of
dividend income received from NovaStar Financials taxable
subsidiaries) which NovaStar Financial does not expect will
apply to a material extent in its case. The Code also, in the
case of noncorporate taxpayers, generally imposes a maximum
long-term capital gains tax rate of 15% (for sales or exchanges
on or after May 6, 2003, through taxable years beginning
before January 1, 2009) and imposes a maximum tax rate on
ordinary income of 35%. Accordingly, the 15% tax rate for
long-term capital gains will generally apply to long-term
capital gains, if any, recognized by such a holder on the
disposition of our stock held for more than one year and on
NovaStar Financials distributions designated as long-term
capital gain dividends attributable to sales or exchanges on or
after May 6, 2003. In addition, the Code imposes backup
withholding at a rate of 28%.
Distributions will not be eligible for the dividends received
deduction available for non-REIT corporations. Stockholders may
not deduct any net operating losses or capital losses of
NovaStar Financial.
Any loss on the sale or exchange of shares of the stock held by
a stockholder for six months or less will be treated as a
long-term capital loss to the extent of any capital gain
dividend received on the stock held by such stockholders.
Any gain or loss on the taxable sale or other disposition of our
stock will be a capital gain or loss, and will be long-term
capital gain if our stock has been held for more than one year
at the time of the disposition. Noncorporate stockholders are
generally taxable at a maximum rate of 15% on long-term capital
gain. Proceeds received upon a sale or other disposition of our
stock may be subject to the information reporting and backup
withholding rules described below unless an exemption applies
and, if necessary, is properly established.
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If NovaStar Financial makes distributions to its stockholders in
excess of its current and accumulated earnings and profits,
those distributions will be considered first a tax-free return
of capital, reducing the tax basis of a stockholders
shares until the tax basis is zero. Any such distributions in
excess of the tax basis will be taxable as gain realized from
the sale of shares.
NovaStar Financial, exclusive of its taxable affiliates, does
not expect to acquire or retain residual interests issued by
REMICs. Such residual interests, if acquired by a REIT, would
generate excess inclusion income to stockholders of the REIT.
Excess inclusion income cannot be offset by net operating losses
of a stockholder. If the stockholder is a tax-exempt entity, the
excess inclusion income is fully taxable as unrelated trade or
business income as defined in Section 512 of the Code. If
allocated to a foreign stockholder, the excess inclusion income
is subject to Federal income tax withholding without reduction
pursuant to any otherwise applicable tax treaty. Excess
inclusion income realized by a taxable affiliate is not passed
through to stockholders. Potential investors, and in particular
tax exempt entities, are urged to consult with their tax
advisors concerning this issue.
NovaStar Financial will notify stockholders after the close of
the taxable year as to the portions of the distributions which
constitute ordinary income, return of capital and capital gain.
Dividends and distributions declared in the last quarter of any
year payable to stockholders of record on a specified date in
such month will be deemed to have been received by the
stockholders and paid on December 31 of the record year,
provided that such dividends are paid before February 1 of
the following year.
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Taxation of tax-exempt entities |
In general, a tax-exempt entity that is a stockholder of
NovaStar Financial is not subject to tax on distributions.
NovaStar Financial has consistently avoided, and intends to
continue to avoid, recognition of income that could cause an
investment in its stock to generate unrelated business income
for tax-exempt investors. NovaStar Financial does not intend to
cause its dividend distributions to be treated as representing
excess inclusion income which would be taxable as unrelated
business income for a tax-exempt entity holding NovaStar
Financial stock. The IRS has ruled that amounts distributed by a
REIT to an exempt employees pension trust do not
constitute unrelated trade or business income and thus should be
nontaxable to such a tax-exempt entity. Tax counsel is of the
opinion that indebtedness incurred by NovaStar Financial in
connection with the acquisition of real estate assets such as
mortgage loans will not cause dividends paid to a stockholder
that is a tax-exempt entity to be unrelated trade or business
income, provided that the tax-exempt entity has not financed the
acquisition of its stock with acquisition
indebtedness within the meaning of the Code. Under some
conditions, if a tax-exempt employee pension or profit sharing
trust were to acquire more than 10% of the stock of NovaStar
Financial, a portion of the dividends on such stock could be
treated as unrelated trade or business income.
For social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group
legal services plans exempt from federal income taxation under
Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, income from an investment in NovaStar Financial
will constitute unrelated trade or business income unless the
organization is able to properly deduct amounts set aside or
placed in reserve for certain purposes so as to offset the
unrelated trade or business income generated by its investment.
Such entities should review Code Section 512(a)(3) and
should consult their own tax advisors concerning these set
aside and reserve requirements.
The preceding discussion does not address the federal income tax
consequences to foreign investors, non-resident aliens and
foreign corporations as defined in the Code, of an investment in
NovaStar Financial. In general, foreign investors will be
subject to special withholding tax requirements on income and
capital gains distributions attributable to their ownership of
NovaStar Financial stock. A foreign stockholder of a REIT who
owns less than 5% of the REITs outstanding shares of a
class of stock with respect to which a distribution is made need
not treat the distribution as gain from a United States Real
Property Interest for purposes of the Foreign Investors in Real
Property Tax Act (codified at Code
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Section 897). Foreign investors should consult their own
tax advisors concerning the federal income tax consequences to
them of a purchase of shares of NovaStar Financial stock
including the federal income tax treatment of dispositions of
interests in, and the receipt of distributions from, REITs by
foreign investors. In addition, federal income taxes must be
withheld on certain distributions by a REIT to foreign investors
at a flat rate of 30% unless reduced or eliminated by an income
tax treaty between the United States and the foreign
investors country or unless the shares are held in
connection with the foreign investors U.S. business.
A foreign investor eligible for reduction or elimination of
withholding must file an appropriate form with NovaStar
Financial (or the appropriate withholding agent) in order to
claim such treatment.
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Recordkeeping requirement |
A REIT is required to maintain records regarding the actual and
constructive ownership of its shares, and other information, and
within 30 days after the end of its taxable year, to demand
statements from persons owning above a specified level of the
REITs shares, e.g., if NovaStar Financial has over 200 but
fewer than 2,000 stockholders of record, from persons holding 1%
or more of outstanding shares of stock and if NovaStar Financial
has 200 or fewer stockholders of record, from persons holding
1/2%
or more of the stock, regarding their ownership of shares.
NovaStar Financial must maintain, as part of its records, a list
of those persons failing or refusing to comply with this demand.
Stockholders who fail or refuse to comply with the demand must
submit a statement with their tax returns setting forth the
actual stock ownership and other information. NovaStar Financial
maintains the records and demand statements as required by these
regulations.
The Code imposes a modified form of backup
withholding for payments of interest and dividends. This
withholding applies only if a stockholder, among other things,
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fails to furnish NovaStar Financial with a properly certified
taxpayer identification number; |
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fails properly to report interest or dividends from any source;
or |
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under certain circumstances fails to provide NovaStar Financial
or the stockholders securities broker with a certified
statement, under penalty of perjury, that he or she is not
subject to backup withholding. |
The backup withholding rate is 28% of reportable
payments, which include dividends. Stockholders should
consult their tax advisors as to the procedure for insuring that
distributions to them will not be subject to backup withholding.
NovaStar Financial will report to its stockholders and the IRS
the amount of dividends paid during each calendar year and the
amount of tax withheld, if any.
State and local tax laws may not correspond to the federal
income tax principles discussed in this section. Accordingly,
you should consult your tax advisers concerning the state and
local tax consequences of an investment in our common stock.
A fiduciary of a pension, profit-sharing plan, stock bonus plan
or individual retirement account, including a plan for
self-employed individuals and their employees or any other
employee benefit plan subject to the prohibited transaction
provisions of the Code or the fiduciary responsibility
provisions of the Employee Retirement Income Security Act of
1974, commonly called ERISA, should consider
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whether the ownership of NovaStar Financials stock is in
accordance with the documents and instruments governing the plan; |
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whether the ownership of NovaStar Financials stock is
consistent with the fiduciarys responsibilities and
satisfies the requirements of Part 4 of Subtitle A of
Title I of ERISA, if applicable, and, in particular, the
diversification, prudence and liquidity requirements of
Section 404 of ERISA; |
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the prohibitions under ERISA on improper delegation of control
over, or responsibility for, plan assets and
ERISAs imposition of co-fiduciary liability on a fiduciary
who participates in, or permits, by action or inaction, the
occurrence of, or fails to remedy, a known breach of duty by
another fiduciary with respect to plan assets; and |
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the need to value the assets of the plan annually. |
Based on certain representations of NovaStar Financial, tax and
ERISA counsel is of the opinion that the common stock qualifies
as publicly offered securities within the meaning of
the regulations defining plan assets and therefore,
in most circumstances, the common stock, and not the underlying
assets of NovaStar Financial, will be considered the assets of a
plan investing in the common stock.
USE OF PROCEEDS
We will receive no proceeds from the Rescission Offer.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the Commission. Our Commission
filings are available to the public over the Internet at the
Commissions web site at http://www.sec.gov. You may also
read and copy any document we file at the Commissions
Public Reference Room at 100 F Street, N.E., Washington, DC
20549. Please call the Commission at
1-800-SEC-0330 for
information on the operation of the Public Reference Room.
We have filed a registration statement on
Form S-3, of which
this prospectus is a part, covering the securities offered
hereby. As allowed by Commission rules, this prospectus does not
contain all the information set forth in the registration
statement and the exhibits, financial statements and schedules
thereto. We refer you to the registration statement and the
exhibits, financial statements and schedules thereto for further
information. This prospectus is qualified in its entirety by
such other information.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Commission allows us to incorporate by reference
information into this prospectus, which means that we can
disclose important information to you by referring you to
another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of
this prospectus, except for any information superseded by
information in this prospectus, and information we file with the
Commission after the date of this prospectus and before the date
that the offering of securities by means of this prospectus is
terminated will automatically update and, where applicable,
supersede any information contained in this prospectus or
incorporated by reference in this prospectus.
We have filed the documents listed below with the Commission
under the Exchange Act and these documents are incorporated
herein by reference:
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our Annual Report on
Form 10-K for the
year ended December 31, 2004 (except for Items 6, 7
and 8, which have been updated in our Current Report on
Form 8-K filed on
January 19, 2006, as amended) (including the portions of
our Proxy Statement on Schedule 14A incorporated therein by
reference); |
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our Quarterly Reports on
Form 10-Q for the
quarters ended March 31, 2005, June 30, 2005 and
September 30, 2005; |
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all other reports filed pursuant to Section 13(a) or 15(d)
of the Exchange Act since December 31, 2004, except for
information furnished under Current Reports on
Form 8-K, which is
not deemed filed and not incorporated herein by
reference; and |
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the description of our common stock included in our registration
statements on
Form 8-A, and any
further amendments or reports filed for the purpose of updating
such description. |
Any documents we file pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering of the securities
to which this prospectus relates will automatically be deemed to
be incorporated by reference in this prospectus and to be part
hereof from the date of filing those documents.
You may obtain copies of all documents which are incorporated in
this prospectus by reference (excluding exhibits to those
documents unless the exhibits are specifically incorporated by
reference in such documents) without charge upon written or oral
request to Corporate Secretary, NovaStar Financial, Inc., 8140
Ward Parkway, Suite 300, Kansas City, Missouri 64114,
telephone (816) 237-7000. Additionally, you can get further
information about us on our website,
http://www.novastarmortgage.com. We do not, however,
intend for the information on our website to constitute part of
this prospectus.
LEGAL MATTERS
Certain matters of Maryland law, including the validity of the
securities offered hereby, will be passed on for us by Venable
LLP, Baltimore, Maryland. Certain tax matters will be passed on
for us by Irvine Law Group, P.C., Newport Beach, California.
EXPERTS
The consolidated financial statements of NovaStar Financial,
Inc. as of December 31, 2004 and 2003, and for each of the
years in the three-year period ended December 31, 2004
appearing in the Current Report on
Form 8-K filed
with the Securities and Exchange Commission on January 19,
2006, and managements report on the effectiveness of
internal control over financial reporting as of
December 31, 2004 appearing in the Annual Report on
Form 10-K for the
year ended December 31, 2004, incorporated by reference in
this prospectus, have been audited by Deloitte & Touche
LLP, an independent registered public accounting firm, as stated
in their reports incorporated by reference herein (which reports
(1) express an unqualified opinion on the financial
statements and include an explanatory paragraph referring to a
change in accounting principle, (2) express an unqualified
opinion on managements assessment regarding the
effectiveness of internal control over financial reporting, and
(3) express an unqualified opinion on the effectiveness of
internal control over financial reporting), and have been so
incorporated in reliance upon the reports of such firm given
upon their authority as experts in accounting and auditing.
25
APPENDIX A
RESCISSION OFFER ACCEPTANCE FORM
YOU MAY ELECT TO ACCEPT OR REJECT THE RESCISSION OFFER IN WHOLE
OR IN PART. IF YOU WISH TO REJECT THE RESCISSION OFFER, DO NOT
SIGN AND RETURN THIS FORM. YOU DO NOT NEED TO DO ANYTHING TO
REJECT THE RESCISSION OFFER.
IF YOU WISH TO ACCEPT THE RESCISSION OFFER, PLEASE SIGN AND
RETURN THIS FORM AND ALL OTHER REQUIRED DOCUMENTATION AND ENSURE
ITS RECEIPT BY 5:00 P.M., CENTRAL TIME, ON FEBRUARY 21, 2006
(THE EXPIRATION DATE), PURSUANT TO THE INSTRUCTIONS
BELOW.
Ladies and Gentlemen:
The undersigned acknowledges receipt of a prospectus dated
January 20, 2006 (the Prospectus), of NovaStar
Financial, Inc. (the Company), pursuant to which the
Company offers to rescind (the Rescission Offer) the
purchase of 286,645 shares of common stock of the Company (the
Shares) that were acquired through the
Companys Direct Stock Purchase and Dividend Reinvestment
Plan (the Plan) on May 11, 2005, May 23,
2005 or May 27, 2005 (the Applicable Dates).
1. The undersigned hereby accepts the Rescission Offer
for the Shares listed below, upon the terms and subject to the
conditions set forth in the Prospectus.
Provide the following information for all Shares you
purchased on the Applicable Dates
that you want us to rescind. If you have sold Shares after
the Applicable Dates,
include the information with respect to the original purchase
of such Shares.
(If you need additional space, please complete, sign and
attach an additional sheet.)
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Share |
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Share Certificate Held by the |
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Date of | |
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Certificate |
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Plan Administrator or Shares Registered in |
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Purchase | |
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Shares | |
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Enclosed |
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the Name of the Plan Administrator |
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the Name of DTC |
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YES o NO o
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YES o NO o
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YES o NO o
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YES o NO o
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YES o NO o
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A-1
Provide the following information with respect to Shares you
have sold since the Applicable Dates and for which you want us
to compensate you for the loss associated with such Shares.
(If you need additional space, please complete, sign and
attach an additional sheet.)
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Date of |
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Number of | |
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Gross Consideration Received |
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Sale |
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Shares Sold | |
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(prior to deduction for any commissions or fees) |
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Type of Consideration Other Than Cash |
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Note: If you have sold Shares to a third party prior to the
date hereof in a bona fide transaction, please enclose herewith
proof reasonably satisfactory to the Company evidencing the
sale. Satisfactory proof of sale may take the form of a receipt
from the broker, dealer or other person conducting the sale. If
the proof of a bona fide sale is not reasonably satisfactory to
the Company, the Company may require additional proof. In
addition, the Company may require evidence that any sale was a
bona fide transfer of such Shares.
2. Effective as of the Expiration Date, the undersigned
sells, assigns and transfers to the order of the Company all
right, title and interest in and to the Shares, and orders the
registration of any such Shares that are held by the Plan
Administrator or DTC transferred to the order of the Company.
The undersigned hereby represents that the undersigned is
conveying all interests in the Shares free and clear of all
liens and encumbrances of any kind, and that no such interest
has been previously or concurrently transferred in any manner to
any other person or entity.
A-2
SIGNATURES
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Print name of the undersigned and, (a) if Shares are held by a
partnership, corporation, trust or entity, the name and capacity
of the individual signing on its behalf, and (b) if Shares are
held as joint tenants or as community property, the name(s) of
the co- purchaser(s). |
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Printed Name |
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Dated:
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Signature |
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Tax I.D./Soc. Sec. No. |
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Dated:
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Signature (Co-Purchaser) |
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Tax I.D./Soc. Sec. No. (Co-Purchaser) |
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Street Address |
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City, State and Zip Code |
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Telephone Number/Facsimile Number |
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Mailing Address (if different from above) |
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City, State and Zip Code |
GUARANTEE OF SIGNATURES
(See Instruction 3 below)
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Dated:
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Authorized Guarantor Signature |
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Name(s) |
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Name of Firm |
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Address of Firm |
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City, State and Zip Code |
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Telephone Number |
A-3
INSTRUCTIONS TO RESCISSION OFFER ACCEPTANCE FORM
1. Accepting The Rescission Offer: In order to
accept the Rescission Offer, you must:
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A. Sign the Rescission Offer Acceptance Form (See
Instruction 2) and complete the name, address, phone
number, date, and Social Security Number or Taxpayer
Identification Number information below your signature; |
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B. If you hold certificates for any of the Shares you want
us to rescind, enclose such certificate(s) with the Rescission
Offer Acceptance Form. The certificates must be duly endorsed
for transfer or accompanied by an assignment separate from the
certificate(s) (See Instruction 3); |
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C. If you have sold any of the Shares you want us to
rescind at a loss, enclose your proof of loss on the sale(s) of
the Shares with the Rescission Offer Acceptance Form (such proof
of loss must be in a form acceptable to the Company, such as a
receipt from the broker, dealer or other person conducting the
sale); |
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D. Complete and sign the Substitute Form W-9 attached
to the Rescission Offer Acceptance Form (See
Instruction 5); and |
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E. Mail or return the Rescission Offer Acceptance Form and
all other required documentation for receipt before
5:00 p.m., Central time, on February 21, 2006 to: |
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NovaStar Financial, Inc.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention: Jeffrey D. Ayers |
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The Company recommends that you send Rescission Offer Acceptance
Form and all other required documentation by registered or
certified mail with return receipt requested. |
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F. A DTC participant must initiate a Deposit/ Withdrawal At
Custodian (DWAC) transaction to transfer to the
Company the Shares that are registered in the name of DTC and
being repurchased by us pursuant to the Rescission Offer
Acceptance Form. The Company will notify the DTC participants of
the date that the DWAC transaction should be initiated. |
2. Signatures: If the Rescission Offer
Acceptance Form is signed by a trustee, executor, administrator,
guardian, officer of a corporation, attorney-in-fact or any
other representative or fiduciary, including a DTC participant,
the person signing must give such persons full title in
such capacity and, if requested, appropriate evidence of
authority to act in such capacity must be forwarded to the
Company. If the Shares have been assigned by the original
registered holder, the Rescission Offer Acceptance Form should
be signed in exactly the same form as the name of the last
transferee indicated on the books of the Company or the Plan
Administrator or the transfers attached to or endorsed on the
certificates for such Shares.
3. Stock Certificates and Signature
Guarantees:
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A. If you have physical possession of any certificates
representing Shares you want us to rescind, such certificates
must be enclosed with the Rescission Offer Acceptance Form, duly
endorsed for transfer or accompanied by an assignment separate
from the certificates and in either case with your signature(s)
guaranteed by an eligible guarantor institution such as a
commercial bank, trust company, securities broker dealer, credit
union or savings & loan that is a member of the Medallion
Signature Guarantee Program. |
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B. If certificates for Shares you want us to rescind are
being held by the Plan Administrator and are not currently and
have never been in your physical possession, or the Shares are
registered in the name of the Plan Administrator, (i) your
signature(s) on the last page of the Rescission Offer Acceptance
Form must be guaranteed by in the space provided on the last
page of the Rescission Offer Acceptance Form by an eligible
guarantor institution such as a commercial bank, trust |
A-4
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company, securities broker dealer, credit union or savings &
loan that is a member of the Medallion Signature Guarantee
Program, and (ii) the Plan Administrator will transfer all
such Shares to the order of the Company with no further action
by you. |
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C. If Shares you want us to rescind are registered in the
name of DTC, the signature of a DTC participant on the last page
of the Rescission Offer Acceptance Form is not required to be
guaranteed, if the DTC participant is a member of the Medallion
Signature Guarantee Program and the DTC participant affixes its
Medallion stamp on the Rescission Offer Acceptance Form. |
4. Mutilated, Lost, Destroyed Or Stolen
Certificates: If any certificate which the undersigned
desires to tender to the Company for repurchase pursuant to the
Rescission Offer has been mutilated, lost, destroyed or stolen,
the holder should promptly notify the Company at
(816) 237-7000. The undersigned will then be directed as to
the steps that must be taken in order to replace the
certificate. The Rescission Offer Acceptance Form and related
documents cannot be processed until the procedures for replacing
lost, mutilated, destroyed or stolen certificate(s) have been
followed
5. Important Tax Information: Under federal
income tax law, any person who accepts the Rescission Offer is
required to provide the Company with such persons correct
Taxpayer Identification Number (TIN) on Substitute
Form W-9 below. The TIN is the persons social
security number or employer identification number. If the
Company is not provided with the correct TIN, the undersigned
may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to the undersigned
pursuant to the Rescission Offer may be subject to backup
withholding.
If backup withholding applies, the Company is required to
withhold 28% of any payments made to the undersigned (and any
state tax amount). Backup withholding is not an additional tax.
Rather, the tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be
obtained.
6. Questions: All questions with respect to
Rescission Offer Acceptance Form and the Rescission Offer
(including questions relating to the timeliness or effectiveness
of any election) will be determined by the Company, which
determination shall be final and binding. All questions
regarding our Rescission Offer can be directed to Jeffrey D.
Ayers at (816) 237-7000.
A-5
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SUBSTITUTE
Form W-9
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PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW |
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Part I Social Security Number OR
Employer Identification Number |
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Department of the Treasury
Internal Revenue Service |
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Name: Business
Name:
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(If awaiting TIN, write Applied For) |
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Payers Request For
Taxpayer Identification
Number (TIN) |
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Please check appropriate
box: o Individual/Sole
Proprietor o Partnership o Corporation o Other
Address
City, State, Zip Code |
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Part II For Payees exempt from backup
withholding, see the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9, check the
Exempt box below, and complete the Substitute Form W-9.
Exempt o
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Certification Under penalties of perjury, I
certify that: |
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(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued
to me), and |
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(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b) I have
not been notified by the Internal Revenue Service (IRS) that I
am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding, and |
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(3) I am a U.S. Person (including a U.S. Resident
alien). |
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Certification Instructions You must cross out
item (2) above if you have been notified by the IRS that
you are currently subject to backup withholding because you have
failed to report all interest and dividends on your tax return.
For real estate transactions, item (2) does not apply. For
mortgage interest paid, acquisition or abandonment of secured
property, cancellation of debt, contributions to an individual
retirement arrangement (IRA), and generally, payments other than
interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (Also see
instructions in the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.) |
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Signature:
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Date:
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NOTE: |
FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM
W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 28% OF ANY PAYMENTS MADE TO YOU PURSUANT
TO THE RESCISSION OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR
ADDITIONAL INSTRUCTIONS. |
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE
APPLIED FOR IN PART I OF THE SUBSTITUTE FORM
W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I
certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either
(1) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal
Revenue Service Center or Social Security Administration Office
or (2) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer
identification number within 60 days, 28% of all reportable
payments made to me will be withheld until I provide a taxpayer
identification number.
A-6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER
TO GIVE THE PAYER. Social Security numbers have nine digits
separated by two hyphens: i.e., 000-00-0000. Employer
Identification numbers have nine digits separated by only one
hyphen: i.e., 00-0000000. The table below will help determine
the number to give the Payer.
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For this type of account: |
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Give NAME and SOCIAL SECURITY number (SSN) of: |
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1.
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Individual |
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The individual |
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2.
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Two or more individuals (joint account) |
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The actual owner of the account or, if combined funds, the first
individual on the account(1) |
3.
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Custodian account of a minor (Uniform Gift to Minors Act) |
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The minor(2) |
4.
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(a) The usual revocable savings trust (grantor is also
trustee) |
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The grantor trustee(1) |
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(b) So-called trust account that is not a legal or valid
trust under state law |
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The actual owner(1) |
5.
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Sole proprietorship or single-owner LLC |
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The owner(3) |
6. |
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A valid trust, estate, or pension trust |
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The legal entity (Do not furnish the identifying number of the
personal representative or trustee unless the legal entity
itself is not designated in the account title.)(4) |
7.
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Corporation or LLC electing corporate status under Form 8832 |
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The corporation |
8.
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Association, club, religious, charitable, educational or other
tax-exempt organization |
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The organization |
9.
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Partnership |
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The partnership |
10.
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A broker or registered nominee |
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The broker or nominee |
11.
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Account with the Department of Agriculture in the name of a
public entity (such as State or local government, school
district, or prison) that receives agricultural program payments |
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The public entity |
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(1) |
List first and circle the name of the person whose number you
furnish. If only one person on a joint account has an SSN, that
persons number must be furnished. |
(2) |
Circle the minors name and furnish the minors SSN. |
(3) |
You must show your individual name, but you may also enter your
business or DBA name. You may use either your SSN or
EIN (if you have one). |
(4) |
List first and circle the name of the legal trust, estate, or
pension trust. |
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NOTE: |
If no name is circled when there is more than one name, the
number will be considered to be that of the first name listed. |
A-7
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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Item 14. |
Other Expenses of Issuance and Distribution. |
The following is an itemized statement of estimated expenses to
be paid by the registrant in connection with the Rescission
Offer. All amounts are estimates, except the registration fee.
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Commission registration fee
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$ |
1,165 |
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NYSE listing fees
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5,000 |
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Accounting fees and expenses
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8,500 |
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Printing fees
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12,000 |
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Legal fees and expenses
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50,000 |
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Miscellaneous
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1,000 |
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Total
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$ |
77,665 |
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Item 15. |
Indemnification of Directors and Officers |
The Maryland General Corporation Law (the MGCL)
permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages except
for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or
(b) active and deliberate dishonesty established by a final
judgment as being material to the cause of action. The charter
of the registrant contains such a provision which eliminates
such liability to the maximum extent permitted by Maryland law.
The charter of the registrant requires it, to the maximum extent
permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former director or officer
or (b) any individual who, while a director or officer of
the registrant and at the request of the registrant, serves or
has served another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of
such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his
or her service in any such capacity. The bylaws of the
registrant establish certain procedures for indemnification and
advancement of expenses pursuant to applicable law and the
registrants charter. The charter and bylaws also permit
the registrant to indemnify and advance expenses to any person
who served a predecessor of the registrant in any of the
capacities described above and to any employee or agent of the
registrant or a predecessor of the registrant.
The MGCL requires a corporation (unless its charter provides
otherwise, which the registrants charter does not) to
indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which
he or she is made, or threatened to be made, a party by reason
of his or her service in that capacity. The MGCL permits a
corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made, or
threatened to be made, a party by reason of their service in
those or other capacities unless it is established that
(a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and
(i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money,
property or services, or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under
the MGCL, a Maryland corporation may not indemnify for an
adverse judgment in a suit by or in the right of the corporation
or for a judgment of liability on the basis that personal
benefit was improperly received, unless in either case a court
orders
II-1
indemnification, and then only for expenses. In addition, the
MGCL permits a corporation to advance reasonable expenses to a
director or officer upon the corporations receipt of
(x) a written affirmation by the director or officer of his
or her good faith belief that he or she has met the standard of
conduct necessary for indemnification by the corporation and
(y) a written undertaking by him or her or on his or her
behalf to repay the amount paid or reimbursed by the corporation
if it shall ultimately be determined that the standard of
conduct was not met.
The registrant has entered into indemnification agreements with
certain of its directors and officers. Under the indemnification
agreements, the registrant will indemnify each indemnitee to the
maximum extent permitted by Maryland law for liabilities and
expenses arising out of the indemnitees service to the
registrant or other entity for which such indemnitee is or was
serving at the request of the registrant. The indemnification
agreements also provide (a) for the advancement of expenses
by the registrant, subject to certain conditions, (b) a
procedure for determining an indemnitees entitlement to
indemnification and (c) for certain remedies for the
indemnitee. In addition, the indemnification agreements require
the registrant to use its reasonable best efforts to obtain
directors and officers liability insurance on terms and
conditions deemed appropriate by the registrants Board of
Directors.
The registrant maintains insurance for its directors and
officers against certain liabilities, including liabilities
under the Securities Act, under insurance policies, the premiums
of which are paid by the registrant. The effect of these
insurance policies is to indemnify any directors or officers of
the registrant against expenses, judgments, attorneys fees
and other amounts paid in settlements incurred by a director or
officer upon a determination that such person acted in
accordance with the requirements of such insurance policy.
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Exhibit |
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Number |
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Description of Exhibit |
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4 |
.1 |
|
Articles of Amendment and Restatement of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-3 filed by the Registrant
on July 19, 2005 (File No. 333-126699)) |
|
4 |
.2 |
|
Certificate of Amendment to the Articles of Amendment and
Restatement of the Registrant (incorporated by reference to
Exhibit 3.1.1 to the Form 8-K filed by the Registrant
on July 6, 1998 (File No. 001-13533)) |
|
4 |
.3 |
|
Articles Supplementary of the Registrant adopted
January 15, 2004 (incorporated by reference to
Exhibit 3.5 to the Form 8-A/ A filed by the Registrant
on January 20, 2004 (File No. 001-13533)) |
|
5 |
.1 |
|
Opinion of Venable LLP as to legality (including consent of such
firm)* |
|
8 |
.1 |
|
Opinion of Irvine Law Group, P.C. as to certain tax matters
(including consent of such firm)* |
|
23 |
.1 |
|
Consent of Venable LLP (see item 5.1 above) |
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23 |
.2 |
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Consent of Irvine Law Group, P.C. (see item 8.1 above) |
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23 |
.3 |
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Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm* |
|
24 |
.1 |
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Power of Attorney (set forth on signature page) |
|
99 |
.1 |
|
Form of letter to Rescission Offer recipients* |
II-2
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
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(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; |
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(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of the securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement; |
|
|
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement; |
|
|
provided, however, that paragraphs (a)(1)(i),
(ii) and (iii) do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the
registration statement or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the
registration statement. |
|
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|
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. |
|
|
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering. |
|
|
(5) That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser, each prospectus
filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part
of and included in the registration statement as of the date it
is first used after effectiveness. Provided, however,
that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use |
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|
(6) That, for the purpose of determining liability of the
registrant under the Securities Act of 1933 to any purchaser in
the initial distribution of the securities, the undersigned
Registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following |
II-3
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|
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser: |
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|
(i) Any preliminary prospectus or prospectus of the
undersigned registration relating to the offering required to be
filed pursuant to Rule 424; |
|
|
(ii) Any free writing prospectus relating to the offering
prepared by or on behalf of the undersigned registrant or used
or referred to by the undersigned registrant; |
|
|
(iii) The portion of any other free writing prospectus
relating to the offering containing material information about
the undersigned registrant or its securities provided by or on
behalf of the undersigned registrant; and |
|
|
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the purchaser. |
(b) That, for purposes of determining liability under the
Securities Act of 1933, each filing of the registrants
annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
shall be deemed to be the initial bona fide offering thereof.
(h) That insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-3 and has
duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
City of Kansas City, State of Missouri, on January 18, 2006.
|
|
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Scott F. Hartman |
|
Chairman of the Board and |
|
Chief Executive Officer |
POWER OF ATTORNEY
Each of the undersigned directors and/or officers of NovaStar
Financial, Inc., do hereby constitute and appoint Scott F.
Hartman, W. Lance Anderson, Gregory S. Metz,
Jeffrey T. Ayers, Rodney E. Schwatken and Todd M.
Phillips, and each of them severally, his true and lawful
attorneys-in-fact and
agents, with full power of substitution and resubstitution to
act for him and in his name, place and stead, in his capacity as
a director and/or officer of NovaStar Financial, Inc., to sign
any and all amendments to this registration statement (including
post-effective amendments) and other documents in connection
with this registration statement, and to file the same, with all
exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said
attorneys-in-fact and
agents or any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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Signature |
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Position |
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Date |
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|
/s/ Scott F. Hartman
Scott F. Hartman |
|
Chairman of the Board, Chief Executive Officer and Director
(Principal Executive Officer) |
|
January 18, 2006 |
|
/s/ W. Lance Anderson
W. Lance Anderson |
|
President, Chief Operating Officer and Director |
|
January 18, 2006 |
|
/s/ Gregory S. Metz
Gregory S. Metz |
|
Senior Vice President and Chief Financial Officer (Principal
Financial Officer) |
|
January 18, 2006 |
|
/s/ Rodney E. Schwatken
Rodney E. Schwatken |
|
Vice President, Controller and Treasurer (Principal Accounting
Officer) |
|
January 18, 2006 |
|
/s/ Gregory T. Barmore
Gregory T. Barmore |
|
Director |
|
January 18, 2006 |
II-5
|
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Signature |
|
Position |
|
Date |
|
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|
/s/ Edward W. Mehrer
Edward W. Mehrer |
|
Director |
|
January 18, 2006 |
|
/s/ Art N. Burtscher
Art N. Burtscher |
|
Director |
|
January 18, 2006 |
|
/s/ Donald M. Berman
Donald M. Berman |
|
Director |
|
January 18, 2006 |
II-6
INDEX TO EXHIBITS
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Exhibit |
|
|
|
|
4 |
.1 |
|
Articles of Amendment and Restatement of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-3 filed by the Registrant
on July 19, 2005 (File No. 333-126699)) |
|
4 |
.2 |
|
Certificate of Amendment to the Articles of Amendment and
Restatement of the Registrant (incorporated by reference to
Exhibit 3.1.1 to the Form 8-K filed by the Registrant
on July 6, 1998 (File No. 001-13533)) |
|
4 |
.3 |
|
Articles Supplementary of the Registrant adopted
January 15, 2004 (incorporated by reference to
Exhibit 3.5 to the Form 8-A/A filed by the Registrant
on January 20, 2004 (File No. 001-13533)) |
|
5 |
.1 |
|
Opinion of Venable LLP as to legality (including consent of such
firm)* |
|
8 |
.1 |
|
Opinion of Irvine Law Group, P.C. as to certain tax matters
(including consent of such firm)* |
|
23 |
.1 |
|
Consent of Venable LLP (see item 5.1 above) |
|
23 |
.2 |
|
Consent of Irvine Law Group, P.C. (see item 8.1 above) |
|
23 |
.3 |
|
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm* |
|
24 |
.1 |
|
Power of Attorney (set forth on signature page) |
|
99 |
.1 |
|
Form of letter to Rescission Offer recipients* |
II-7