sv3asr
As filed with the Securities and Exchange Commission on
April 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
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate
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Registration
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Securities to be
Registered
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Registered
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per Share
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Offering Price
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Fee
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Common Stock, $0.01 par value per
share
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(1)
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(1)(2)
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(1)(2)
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(1)(2)
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(1)
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An indeterminate aggregate initial
offering price or number of shares of common stock is being
registered as may from time to time be issued at indeterminate
prices. Pursuant to Rule 416 under the Securities Act, the
shares being registered hereunder also include such
indeterminate number of securities as may be issuable with
respect to the shares being registered hereunder as a result of
stock splits, stock dividends or similar transactions. In
accordance with Rules 456(b) and 457(r), the registrant is
deferring payment of the registration fee, except for $16,665 to
cover 5,000,000 shares of common stock, of which $1,175 has
already been paid with respect to shares of common stock that
were previously registered pursuant to Registration Statement
No.
333-126699
filed on July 19, 2005, and were not sold thereunder.
Accordingly, a total of $15,490 is being paid concurrently with
the filing of this registration statement.
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(2)
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Estimated based on the average of
the high and low sales price of our common stock on the New York
Stock Exchange on April 12, 2006, which was $31.15 per
share, solely for the purposes of determining the registration
fee to cover 5,000,000 shares of common stock.
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PROSPECTUS
Direct
Stock Purchase and Dividend Reinvestment Plan
NovaStar Financial,
Inc.
Common Stock
Please
read this prospectus carefully before investing and retain it
for your future reference.
We are offering an indeterminate number of shares of our common
stock to existing holders of our common stock and new investors
through our Direct Stock Purchase and Dividend Reinvestment Plan
(the Plan). The Plan is designed to be an economical
and convenient method for existing stockholders to increase
their holdings of our common stock and for new investors to make
an initial investment in our common stock.
If you currently hold our common stock, you may elect to have
all or a percentage of your cash dividends automatically
invested in additional shares of common stock at a discount from
the market price that may range from 0% to 3%, generally without
payment of any brokerage commission or service charge.
If you are either an existing holder of our common stock or a
new investor, you may purchase shares of common stock with
optional cash payments of $100 to $10,000 per month at a
discount from the market price that may range from 0% to 3% and
without payment of any brokerage commission or service charge.
Optional cash payments of more than $10,000 require our prior
approval.
Our common stock is listed on the New York Stock Exchange and
trades under the ticker symbol NFI.
Investing in our common stock involves risk. You should
consider carefully the risk factors set forth on page 5 of
this prospectus before enrolling in the Plan.
To ensure we qualify as a real estate investment trust, no
person may own more than 9.8% (in value or in number of shares,
whichever is more restrictive) of the aggregate outstanding
shares of our common stock, unless our Board of Directors waives
this limitation.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities offered under the Plan or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Our principal executive offices are located at 8140 Ward
Parkway, Suite 300, Kansas City, Missouri 64114,
telephone
(816) 237-7000.
The date of this prospectus is April 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.
i
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 of 1933, as amended (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.
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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, frequency and structure of our securitizations;
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interest rate fluctuations on our assets that differ from 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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our compliance with applicable local, state and federal laws and
regulations or opinions of counsel relating thereto and the
impact of new local, state or federal legislation or regulations
or opinions of counsel relating thereto 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 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 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 or other legal contingencies;
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the impact of losses resulting from natural disasters;
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the impact of general economic conditions; and
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the risks that are outlined from time to time in our filings
with the Commission, including this annual report.
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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
periodic filings with the Commission, including
Form 10-Q
or 10-K that
we have filed, which you should review carefully. Please
consider our forward-looking statements in light of those risks
as you read this prospectus.
iii
SUMMARY
The following summary description of our Direct Stock
Purchase and Dividend Reinvestment Plan (the Plan)
is qualified by reference to the full text of the Plan which
appears in this prospectus. Capitalized terms have the meanings
given to them in the Plan.
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Our Company |
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NovaStar Financial, Inc. is a Maryland corporation operating as
a specialty finance company that originates, purchases, sells,
invests in and services residential nonconforming loans. We have
elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the Code). We generally intend to
distribute substantially all of our taxable income (which does
not ordinarily equal net income as calculated in accordance with
generally accepted accounting principals) to our stockholders to
comply with the REIT provisions of the Code. |
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Purpose of the Plan |
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The primary purpose of the Plan is to provide our existing
stockholders and interested new investors with a convenient and
economical method of purchasing shares of our common stock and
investing all or a percentage of their cash dividends in
additional shares of our common stock. The Plan can also provide
us with a means of raising additional capital through the direct
sale of our common stock. |
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Source of Purchase of Shares |
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Shares of common stock purchased through the Plan will be
purchased either directly from us as newly issued shares or on
the open market or through privately negotiated transactions, or
by a combination of such purchases, at our option. |
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Investment Options |
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If you are eligible, you may begin participating in the Plan by
completing an enrollment form and returning it to the Plan
Administrator. Brokers, banks or other nominees may reinvest
dividends and make Optional Cash Payments on behalf of
beneficial owners. Enrollment in the Plan is entirely voluntary
and you may terminate your participation at any time. |
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You may choose from the following investment options: |
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Full Dividend Reinvestment: The Plan
Administrator will apply all cash dividends relating to all
shares of common stock owned by you and subject to the Plan
toward the purchase of additional shares of our common stock. |
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Partial Dividend Reinvestment: The Plan
Administrator will apply the cash dividends on a percentage,
specified by you, of shares of common stock owned by you and
subject to the Plan to purchase additional shares of our common
stock. The Plan Administrator will pay the dividends on the
remaining shares of common stock to you in cash. |
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Optional Cash Payments Only: You will continue
to receive cash dividends on shares of common stock owned by you
in the usual manner. You may make Optional Cash Payments to
invest in additional shares of our common stock in accordance
with the Plan. |
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If you do not select an investment option, you be enrolled in
the Full Dividend Reinvestment opion. You may change your |
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investment options at any time by submitting a new enrollment
form to the Plan Administrator. |
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Optional Cash Payments |
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Each Optional Cash Payment is subject to a minimum purchase of
$100 per month and a maximum per month purchase limit of
$10,000. Optional Cash Payments of more than $10,000 require our
prior approval pursuant to a Request for Waiver. |
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Requests for Waiver |
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Optional Cash Payments of more than $10,000 per month may
only be made upon our acceptance of a completed Request for
Waiver, specifying the proposed investment amount, Pricing
Period, method of calculating the purchase price, Maximum Price
and the Investment Date. All shares purchased pursuant to
Requests for Waiver will be purchased directly from us. We may
approve Requests for Waiver in our sole discretion; provided,
that we will only approve one Request for Waiver per Participant
per month. We expect to grant Requests for Waiver to financial
intermediaries, including brokers and dealers, and other
Participants from time to time. |
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Threshold Price |
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Prior to the commencement of the Pricing Period for an Optional
Cash Payment pursuant to a Request for Waiver, we may establish
a Threshold Price, which is the minimum price at which our
common stock must trade on a given day during the Pricing Period
to be included in the determination of the Market Price for such
investment. Your investment will be proportionately reduced, and
will be returned to you without interest, for each Trading Day
in the Pricing Period that our common stock does not at least
equal the Threshold Price. |
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Maximum Price |
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You may specify a Maximum Price for an Optional Cash Payment
pursuant to a Request for Waiver. If the Market Price less the
Waiver Discount exceeds the Maximum Price, no purchase will be
made and your Optional Cash Payment will be returned to you
without interest. |
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Cash Discounts |
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With respect to common stock purchased with reinvested
dividends, we will establish on each dividend declaration date
established by our Board of Directors, a discount from the
Market Price between 0% to 3%. The discount may vary with
respect to each dividend declaration date, but once established
will apply uniformly to all shares purchased directly from us
with respect to a particular common stock dividend payment. |
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Each month, we will establish a discount between 0% and 3% from
the Market Price applicable to Optional Cash Payments of $10,000
or less. The discount may vary each month but once established
will apply uniformly to all purchases made using Optional Cash
Payments of $10,000 or less during that month. |
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Prior to the commencement of the Pricing Period for an Optional
Cash Payment pursuant to a Request for Waiver, we will establish
a discount from the Market Price between 0% and 3% for purchases
made pursuant to that Request for Waiver. |
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Investment Date |
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With respect to dividend reinvestment: |
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The Investment Date will be (i) in the case of shares
acquired directly from us, the dividend payment date set by our
Board of Directors, or if such date is not a business day, the
next business day immediately thereafter, or (ii) in the
case of open market purchases or privately negotiated
transactions, the date(s) between the dividend payment date and
the next 10 business days thereafter that the Plan Administrator
makes purchases, in each case, as market conditions permit,
except where completion at a later date is necessary or
advisable under any applicable federal or state securities laws;
provided, that in no event will an Investment Date for Optional
Cash Payments be the same date as an Investment Date for the
reinvestment of dividends. A business day is defined as any day
other than a Saturday, Sunday or legal holiday on which the NYSE
is closed or a day on which we or the Plan Administrator is
authorized or obligated by law to close. |
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With respect to Optional Cash Payments (other than pursuant to
Requests for Waiver): |
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The Investment Date will be (i) in the case of shares
acquired directly from us, the 21st day of each month, or
if such date is not a business day, the next business day
immediately thereafter, or (ii) in the case of open market
purchases or privately negotiated transactions, the date(s)
between the 21st and the next 10 business days thereafter
that the Plan Administrator makes purchases, in each case, as
market conditions permit, except where completion at a later
date is necessary or advisable under any applicable federal or
state securities laws; provided, that in no event will an
Investment Date for Optional Cash Payments be the same date as
an Investment Date for the reinvestment of dividends. |
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With respect to Optional Cash Payments pursuant to Requests for
Waiver, the Investment Date will be the date specified in the
Request for Waiver; provided, that in no event will such
Investment Date be the same date as an Investment Date for the
reinvestment of dividends. |
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Purchase Price |
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Whether the shares are acquired directly from us, in the open
market or in privately negotiated transactions, they will be
purchased under the Plan at the Market Price, less any
applicable discount. In no event shall the purchase price of
shares acquired with respect to reinvested dividends be less
than 95% of the fair market value of our common stock on the
Investment Date. If this 95% test is not satisfied, we may be
forced to eliminate any Dividend Reinvestment Discount and
adjust the Market Price so that the purchase price per share is
not less than 95% of the fair market value per share on the
Investment Date. Fair market value means the closing
price, computed to three decimal places, on the NYSE, as
reported by Bloomberg. |
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The Market Price, in the case of shares purchased directly from
us (other than for Optional Cash Payments made pursuant to a
Request for Waiver), will be the average of the daily closing
prices, computed to three decimal places, of our common stock on
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NYSE, as reported on Bloomberg, during the relevant Pricing
Period for such purchases. The Pricing Period (other than for
Optional Cash Payments pursuant to a Request for Waiver) is the
period of 10 Trading Days immediately preceding the relevant
Investment Date. The Market Price for shares purchased pursuant
to a Request for Waiver will be either the average of the daily
closing prices, computed to three decimal places, of our common
stock on the NYSE, as reported on Bloomberg, during the Pricing
Period specified on the Request for Waiver or a price determined
using a different method of calculation specified on the Request
for Waiver. |
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In the case of shares purchased on the open market or in
privately negotiated transactions, the Market Price will be the
weighted average of the actual prices paid, net of any brokerage
commissions or service charges, computed to three decimal places. |
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Expenses |
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There are no brokerage commissions or service fees on shares of
common stock purchased from us. We will pay any brokerage
commissions or service charges in connection with the purchase
of shares pursuant to Optional Cash Payments. In the case of
shares purchased pursuant to the reinvestment of dividends, we
will pay any brokerage commissions or service charges that when
combined with the applicable Dividend Reinvestment Discount do
not exceed 5% of the fair market value of the shares purchased,
subject to federal income tax requirements that the purchase
price per share not be less than 95% of the fair market value
per share on the Investment Date. We will pay all other costs of
administration of the Plan. If you request that the Plan
Administrator sell all or any percentage of your shares will be
responsible for a nominal service charge per transaction, any
related brokerage commissions or service charges and applicable
stock transfer taxes. |
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No Interest Pending Investment |
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No interest will be paid on cash dividends pending reinvestment
or Optional Cash Payments pending investment under the terms of
the Plan. |
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Withdrawal |
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You may withdraw from the Plan with respect to all or a
percentage of your shares subject to the Plan at any time by
notifying the Plan Administrator in writing. |
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Certain Tax Treatment |
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Participants in the Dividend Reinvestment Program under the Plan
will be treated for federal income tax purposes as having
received, generally on the Investment Date, a distribution in an
amount equal to the fair market value on such date of the shares
acquired with reinvested dividends. Such shares will have a tax
basis equal to the same amount and the holding period for such
shares will begin on the day following the Investment Date. The
fair market value on the Investment Date may vary from the
Market Price determined under the Plan for such shares. You will
be taxed on the full amount of dividends deemed paid to you even
though they will not be receiving a corresponding cash
distribution from us. |
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If you are a Participant in the Dividend Reinvestment Program
and you make Optional Cash Payments, you may be treated as
having received a dividend distribution in an amount equal to
the excess, |
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if any, of the fair market value of the shares acquired on the
Investment Date over the amount you paid for shares purchased
pursuant to Optional Cash Payments. We have attempted to avoid
this treatment by structuring the Plan so that Investment Dates
for the reinvestment of Dividends and Optional Cash Payments
will not occur on the same date. A Participant who makes
Optional Cash Payments but does not participate in the Dividend
Reinvestment Program would not be subject to the potential
dividend treatment on the discounted purchase price. Shares
acquired under the Stock Purchase Program will have a tax basis
equal to the amount of the Optional Cash Payment plus the
dividend income, if any, recognized as a result. Your holding
period for shares of Common Stock acquired pursuant to the Plan
will begin on the day following the Investment Date. |
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Amount Offered |
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We have registered under the Securities Act an indeterminate
number of shares of common stock to be issued under the Plan and
such indeterminate number of additional shares as may be
issuable in connection with stock splits, stock dividends or
similar transactions. Our Board of Directors has authorized up
to 5,000,000 shares of common stock for issuance under the
Plan. Because we expect to continue the Plan indefinitely, we
expect to authorize for issuance additional shares from time to
time as necessary for purposes of the Plan. |
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Plan Administrator |
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UMB Bank, n.a. is the Plan Administrator. All correspondence
regarding the Plan or your Plan account should be directed to
the Plan Administrator as follows: |
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UMB Bank, n.a. |
Securities Transfer Division
P O Box 419064
Kansas City, Missouri
64141-6064
Telephone
(800) 884-4225
or
(816) 860-7891
http://www.umb.com/business/shareholder
email: stock.transfer@umb.com
RISK
FACTORS
An investment in our common stock involves risks. You should
carefully consider the risks identified in Cautionary
Statement Regarding Forward-Looking Statements above and
the risks identified in our periodic filings with the
Commission, including any
Form 10-Q
or 10-K that
we have filed.
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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 REIT under 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.
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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
PLAN
The Direct Stock Purchase and Dividend Reinvestment Plan (the
Plan) was adopted by our Board of Directors on
January 29, 2003, became effective on May 28,
2003, and was amended as of July 6, 2005 and April 10,
2006.
The following series of questions and answers explains and
constitutes the Plan in its entirety. Stockholders who do not
participate in the Plan will receive cash dividends, as
authorized and declared by our Board of Directors and paid in
the usual manner.
PURPOSE
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What is
the purpose of the Plan?
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The primary purpose of the Plan is to provide holders of shares
of our common stock (Common Stock) and interested
new investors with a convenient and economical method of
investing cash dividends in, or making Optional Cash Payments
(as defined in Question 2) to purchase, or both, additional
shares of Common Stock, generally without payment of any
brokerage commission or service charge and at a discount ranging
from 0% to 3% from the Market Price (as defined in Question 10).
We may also use the Plan to raise additional capital through the
sale each month of Common Stock to our stockholders and
interested new investors (including brokers or dealers) who, in
connection with any resales of such shares, may be deemed to be
underwriters. Our ability to waive certain limitations
applicable to the Optional Cash Payment feature of the Plan will
allow for these sales.
Under the Plan, if you purchase Common Stock directly from us,
the net proceeds of the sale of those shares will be used to
purchase additional mortgage assets and for general corporate
purposes.
The Plan is intended for the benefit of our investors and not
for individuals or investors who engage in transactions which
may cause aberrations in the price or trading volume of shares
of Common Stock. From time to time, financial intermediaries may
engage in positioning transactions to benefit from the discount
from the Market Price of the shares of Common Stock acquired
through the reinvestment of dividends or Optional Cash Payments
under the Plan. Those transactions may cause fluctuations in the
price or trading volume of the shares of Common Stock. We
reserve the right to modify, suspend or terminate participation
in the Plan by otherwise eligible stockholders or interested new
investors to eliminate practices which are, in our sole
discretion, not consistent with the purposes or operation of the
Plan or which adversely affect the price of the shares of Common
Stock.
AVAILABLE
OPTIONS
|
|
2.
|
What
options are available under the Plan?
|
Stock
Purchase Program
Each month, you may elect to make a cash purchase of additional
shares of Common Stock, subject to a minimum purchase of $100
and a maximum purchase of $10,000 per month (Optional
Cash Payment). We may permit Optional Cash Payments of
more than $10,000 per month pursuant to a Request for
Waiver (as defined in Question 15). You may make an Optional
Cash Payment each month even if you do not reinvest dividends.
Dividend
Reinvestment Program
Holders of Common Stock and interested new investors who make an
initial investment through the Stock Purchase Program described
above and who wish to participate in the Plan (each a
Participant) may elect to have all, a percentage, or
none of their cash dividends paid on their shares of Common
Stock automatically reinvested in additional shares of Common
Stock through the Dividend Reinvestment Program. Cash dividends
7
are paid on Common Stock when and as authorized and declared by
our Board of Directors, generally on a quarterly basis. Subject
to the availability of shares of Common Stock registered for
issuance under the Plan and subject to certain ownership
limitations contained in our charter, there is no limitation on
the amount of dividends you may reinvest through the Dividend
Reinvestment Program.
BENEFITS
AND DISADVANTAGES
|
|
3.
|
What are
the benefits and disadvantages of the Plan?
|
Benefits
The primary benefits of the Plan are:
(a) The Plan provides you with the opportunity to
automatically reinvest cash dividends paid on all or a
percentage of your Common Stock in additional shares of Common
Stock, generally without payment of any brokerage commission or
service charge and at a discount from the Market Price ranging
from 0% to 3%.
(b) Whether you are a current stockholder or a new
investor, the Plan provides you with the opportunity to make
monthly Optional Cash Payments, subject to minimum and maximum
amounts, for the purchase of additional shares of Common Stock,
generally without payment of any brokerage commission or service
charge and at a discount from the Market Price ranging from 0%
to 3%.
(c) All cash dividends paid on Common Stock subject to the
Dividend Reinvestment Program can be fully invested in
additional shares of Common Stock because the Plan permits
fractional shares to be credited to Plan accounts. Dividends on
such fractional shares, as well as on whole shares, will also be
reinvested in additional shares of Common Stock, which will be
credited to Plan accounts.
(d) The Plan Administrator (as defined in Question 4), at
no charge to you will maintain your ownership of Common Stock
purchased under the Plan on its records in uncertificated form
as part of your Plan account.
(e) You may also elect to deposit with the Plan
Administrator, at no charge, Common Stock certificates
registered in your name for safekeeping. Because you bear the
risk of loss in sending certificates to the Plan Administrator,
certificates should be sent by registered mail, return receipt
requested, and properly insured to the Plan Administrator at the
address specified in Question 4.
(f) The Plan Administrator will provide you with periodic
statements reflecting all current activity in your Plan account,
including purchases, sales and your account balance, which
should simplify your record keeping.
Disadvantages
The primary disadvantages of the Plan are:
(a) Neither we nor the Plan Administrator will pay interest
on dividends or Optional Cash Payments held pending investment.
In addition, Optional Cash Payments of less than $100 and the
amount of any Optional Cash Payment which exceeds the maximum
monthly purchase limit of $10,000, unless such maximum purchase
limit has been waived by us pursuant to a Request for Waiver,
may be subject to return to you without interest. In addition,
if the Threshold Price, if any, with respect to Optional Cash
Payments pursuant to a Request for Waiver is not met or the
Maximum Price (as defined in Question 15) you
specified, if any, is exceeded, a portion or all of your
Optional Cash Payment may be subject to return to you without
interest. See Question 15.
(b) Generally, with respect to Optional Cash Payments, the
actual number of shares to be credited to your Plan account will
not be determined until after the end of the relevant Pricing
Period in the case of shares purchased directly from us or until
after the Plan Administrator has completed the purchases of
Common Stock in the case of shares purchased in the open market.
Therefore, you will not know the
8
actual number of shares, if any, you have purchased until after
the relevant Investment Date (as defined in Question 9). See
Question 9.
(c) While the Plan provides for a discount from the Market
Price, the Market Price of shares acquired under the Plan may
exceed the fair market value (as defined in Question 10) of
Common Stock on the Investment Date, when the shares are issued
or thereafter. The fair market value on the Investment Date
generally governs the amount of taxable income to stockholders.
(d) Because Optional Cash Payments must be received by the
Plan Administrator on or before the Optional Cash Payment Due
Date (as defined in Question 14), such payments may be exposed
to changes in market conditions for a longer period of time than
in the case of typical secondary market transactions. In
addition, Optional Cash Payments received by the Plan
Administrator will not be returned to you unless the Plan
Administrator receives a telephone or written request from you
on or before the Optional Cash Payment Due Date with respect to
that payment. See Question 14.
(e) There is a nominal fee per transaction, brokerage
commission and applicable share transfer taxes that you may be
required to pay to the Plan Administrator if you request that
the Plan Administrator sell some or all or your shares of Common
Stock credited to your Plan account. See Question 22.
(f) If you chose to reinvest cash dividends, you will be
treated for federal income tax purposes as having received a
distribution in cash on the Investment Date. You will have to
use other funds (or sell a percentage of the Common Stock
received) to fund the resulting tax liability. See Question 32.
Prospective investors should carefully consider the matters
described in the Risk Factors section of this prospectus and the
Risk Factors identified in our periodic filings with the
Securities and Exchange Commission, which are incorporated by
reference into this prospectus, before making an investment in
Common Stock.
ADMINISTRATION
|
|
4.
|
Who
Administers the Plan?
|
We have retained UMB Bank, n.a., as the Plan Administrator, to
administer the Plan, keep records, send statements of account
activity, and perform other duties relating to the Plan. The
mailing address, telephone number, and website and email
addresses for the Plan Administrator are:
UMB Bank,
n.a.
Securities Transfer Division
P O Box 419064
Kansas City, Missouri
64141-6064
Telephone
(800) 884-4225
or
(816) 860-7891
http://www.umb.com/business/shareholder
email: stock.transfer@umb.com
Shares of Common Stock purchased by a Participant pursuant to
the Plan will be recorded in uncertificated form in the
Participants Plan account by the Plan Administrator, and
will be registered in the Plan Administrators name (or its
nominee) as agent for each Participant in the Plan, unless and
until the Participant requests that the Plan Administrator issue
a stock certificate for the Participants shares. As record
holder for the Plan shares, the Plan Administrator will
(a) receive dividends for Plan shares held on a dividend
Record Date, (b) credit such dividends to
Participants accounts on the basis of whole or fractional
shares held in such accounts, and (c) automatically
reinvest such dividends in additional shares of Common Stock
according to the percentage selected by each Participant. Any
remaining percentage of cash dividends not designated for
reinvestment will be sent to you.
If the Plan Administrator resigns or otherwise ceases to act as
Plan Administrator, we will appoint a new Plan Administrator to
administer the Plan. We may also appoint a successor
administrator under the Plan at any time. You will be informed
of any such appointment.
The Plan Administrator also acts as dividend disbursing agent,
transfer agent, and registrar for the Common Stock.
9
PARTICIPATION
|
|
5.
|
Who is
eligible to participate?
|
A Record Owner (which means a stockholder who owns
shares of Common Stock in his, her or its own name) or a
Beneficial Owner (which means a stockholder who
beneficially owns shares of Common Stock that are registered in
a name other than his, her or its own name, for example, in the
name of a broker, bank, or other nominee) may participate in the
Dividend Reinvestment Program or Stock Purchase Program under
the Plan. A Record Owner may participate directly in the Plan. A
Beneficial Owner must either become a Record Owner by having one
or more shares of Common Stock transferred into his, her or its
own name or by coordinating with his, her or its broker, bank,
or other nominee to participate in the Plan on his, her or its
behalf. A broker, bank, or other nominee acting on behalf of a
Beneficial Owner must have a separate account for each
Beneficial Owner who is a Participant in the Plan and for whom
it acts. In addition, interested investors who are not
stockholders may participate in the Plan through the Stock
Purchase Program.
We may terminate, by written notice, at any time, any
Participants participation in the Plan if that
participation would or could be in violation of the restrictions
contained in our charter. Among other things, those restrictions
prohibit any person or group of persons from acquiring or
holding, directly or indirectly, (a) shares of Common Stock
in excess of 9.8% (in value or number of shares, whichever is
more restrictive) of the aggregate of the outstanding shares of
Common Stock or (b) shares of our capital stock in excess
of 9.8% in value of the aggregate of the outstanding shares of
our capital stock. The meanings given to the terms
group and beneficial ownership may cause
a person who individually owns less than 9.8% of the shares
outstanding to be deemed to be holding shares in excess of the
foregoing limitation. Under our charter, transfers or attempted
transfers that would violate the foregoing restrictions or
otherwise jeopardize our qualification as a real estate
investment trust (REIT) for tax purposes will be
null and void. Our charter further provides that if any transfer
of shares of capital stock occurs which, if effective, would
result in any person beneficially or constructively owning
shares of capital stock in excess or in violation of the
ownership limitations referred to above, then that number of
shares of capital stock, the beneficial or constructive
ownership of which otherwise would cause such person to violate
such limitations, rounded to the nearest whole shares, shall be
automatically transferred to the trustee of a trust for the
exclusive benefit of one or more charitable beneficiaries, and
the intended transferee shall not acquire any rights in such
shares.
ENROLLMENT
|
|
6.
|
How do I
enroll in the Plan?
|
Record Owners may enroll in the Plan by completing and signing
an enrollment form and returning it to the Plan Administrator at
the address set forth in Question 4. Enrollment forms may be
obtained at any time from the Plan Administrator or on our
website at http://www.novastarmortgage.com.
Beneficial Owners who wish to enroll in the Plan must instruct
their bank, broker, or other nominee in whose name their shares
are held to participate in the Plan on their behalf. The bank,
broker, or other nominee should then make arrangements with its
securities depository and the securities depository will provide
the Plan Administrator with the information necessary to allow
the Beneficial Owner to participate in the Plan. Beneficial
Owners are cautioned to ensure that their broker, bank, or other
nominee passes along the proceeds of any applicable discount to
the beneficiarys account.
Alternatively, a Beneficial Owner may request that its bank,
broker, or other nominee register the number of shares the
Beneficial Owner wishes to be enrolled in the Plan in the
Beneficial Owners name as Record Owner to allow for direct
participation in the Plan by the Beneficial Owner.
New investors may enroll in the Plan by making an initial
investment in an amount not less than $100 nor more than
$10,000, unless we approve a Request for Waiver. New investors
should complete the section on the enrollment form indicating
that he, she or it is a new investor wishing to become a
Participant by designating the amount for initial purchase of
Common Stock. At the same time, the new investor may
10
designate all, a percentage, or none of the dividends on the
shares purchased to be reinvested in additional shares of Common
Stock. The enrollment form should be returned to the Plan
Administrator along with payment for the initial investment and,
if applicable, a Request for Waiver form.
You may enroll in the Plan at any time. Once enrolled, you
remain a Participant in the Plan until you withdraw, we or the
Plan Administrator terminate your participation or we terminate
the Plan.
|
|
7.
|
What does
the enrollment form provide?
|
If you elect (or your bank, broker, or other nominee elects on
your behalf) to reinvest dividends, the enrollment form appoints
the Plan Administrator as your agent and directs us to pay to
the Plan Administrator cash dividends on all or a specified
percentage of shares of Common Stock that you own (as a Record
Owner or Beneficial Owner, as applicable) on a Record Date (as
defined in Question 11). The enrollment form directs the Plan
Administrator to purchase for your account on each applicable
Investment Date additional shares of Common Stock with cash
dividends
and/or
Optional Cash Payments, if any, made by you.
The enrollment form provides for the following investment
options:
(1) If the Full Dividend Reinvestment option is
elected, the Plan Administrator will apply all cash dividends
relating to all shares of Common Stock owned by you and subject
to the Plan toward the purchase of additional shares of Common
Stock.
(2) If the Partial Dividend Reinvestment option
is elected, the Plan Administrator will apply a percentage,
specified by you, of cash dividends relating to shares of Common
Stock owned by you and subject to the Plan toward the purchase
of additional shares of Common Stock. We will pay dividends on
the remaining shares of Common Stock to you in cash.
(3) If the Optional Cash Payments Only option
is elected, you will continue to receive cash dividends in the
usual manner on shares of Common Stock owned by you. You may
make Optional Cash Payments to invest in additional shares of
Common Stock in accordance with the Plan.
You may change your investment election at any time by
submitting a new enrollment form to the Plan Administrator at
the address set forth in Question 4.
If you return a properly executed enrollment form to the Plan
Administrator without electing an investment option, you will be
enrolled as having selected the Full Dividend Reinvestment
option.
|
|
8.
|
When will
my participation in the Plan begin?
|
If an enrollment form requesting reinvestment of dividends is
received by the Plan Administrator at least two business days
before the Record Date established for a particular dividend,
reinvestment will commence with that dividend. If an enrollment
form is received less than two business days before the Record
Date established for a particular dividend, the reinvestment of
dividends will begin on the dividend Investment Date following
the next Record Date. A business day is defined as any day other
than a Saturday, Sunday or legal holiday on which the New York
Stock Exchange (the NYSE) is closed or a day on
which we or the Plan Administrator is authorized or obligated by
law to close.
If an enrollment form and full payment of an Optional Cash
Payment (other than pursuant to a Request for Waiver) is
received by the Plan Administrator on or before the Optional
Cash Payment Due Date established for an Investment Date,
investment will commence on that Investment Date. Otherwise,
investment will commence on the next Investment Date, unless the
Plan Administrator receives a request from you on or before the
Optional Cash Payment Due Date established for the next
Investment Date to return your Optional Cash Payment.
11
PURCHASES
|
|
9.
|
When will
dividends and Optional Cash Payments be invested?
|
The Investment Date is the date shares of Common
Stock are acquired by the Plan Administrator and will vary for
both dividend reinvestments and Optional Cash Payments,
depending on whether the shares are purchased from us or in the
open market or through privately negotiated transactions. When
shares are purchased from us, the Investment Date for dividend
reinvestment will be the Common Stock dividend payment date set
by our Board of Directors, and the Investment Date for Optional
Cash Payments of $10,000 or less will be the 21st day of a
month, or if such date is not a business day, the next business
day immediately thereafter, except where completion at a later
date is necessary or advisable under applicable federal or state
securities laws, as determined by the Plan Administrator or us;
provided, that in no event will an Investment Date for Optional
Cash Payments be the same date as an Investment Date for the
reinvestment of dividends.
In the case of open market or privately negotiated purchases for
dividend reinvestment, the Investment Date will be the date(s)
that the Plan Administrator makes purchases within 10 business
days following the Common Stock dividend payment date, as market
conditions permit, except where completion at a later date is
necessary or advisable under any applicable federal or state
securities laws, as determined by the Plan Administrator or us;
provided, that in no event will an Investment Date for Optional
Cash Payments be the same date as an Investment Date for the
reinvestment of dividends.
In the case of open market or privately negotiated purchases for
Optional Cash Payments of $10,000 or less, the Investment Date
will be the date(s) that the Plan Administrator makes purchases
within 10 business days following the 21st day of a month,
as market conditions permit, except where completion at a later
date is necessary or advisable under applicable federal or state
securities laws, as determined by the Plan Administrator or us;
provided, that in no event will an Investment Date for Optional
Cash Payments be the same date as an Investment Date for an
reinvestment of dividends.
If we approve a Request for Waiver for an Optional Cash Payment
of more than $10,000, the Investment Date will be the date
specified in the Request for Waiver; provided, that in no event
will such Investment Date be the same date as an Investment Date
for the reinvestment of dividends.
When the Plan Administrator makes purchases of Common Stock in
the open market or in privately negotiated transactions, the
purchases may be subject to such terms with respect to price,
delivery, and other matters as agreed to by the Plan
Administrator. Neither we nor you will have any authorization or
power to direct the time or price at which the Plan
Administrator purchases shares of Common Stock or the selection
of the broker or dealer through or from whom the Plan
Administrator makes purchases.
The Plan Administrator will allocate shares and credit shares of
Common Stock, computed to four decimal places, to your Plan
account as follows: (a) shares purchased from us will be
allocated and credited as of the appropriate Investment Date;
and (b) shares purchased in open market transactions or
through privately negotiated transactions will be allocated and
credited on the last Investment Date for purchases on behalf of
participants with dividends to be reinvested or Optional Cash
Payments, as the case may be, during the month.
No interest will be paid on (a) cash dividends pending
reinvestment, or (b) Optional Cash Payments pending
investment under the terms of the Plan. Because no interest is
paid on cash held by the Plan Administrator, it normally will be
in your best interest to defer Optional Cash Payments until
shortly before the Optional Cash Payment Due Date.
|
|
10.
|
What will
be the price to Participants of shares purchased under the
Plan?
|
With respect to dividend reinvestment purchases:
|
|
|
|
|
If the shares are purchased directly from us, the purchase price
will be the Market Price (as defined below), less any Dividend
Reinvestment Discount (as defined below) as we shall determine
in our sole discretion, subject to federal income tax
requirements that the purchase price not be less than 95% of
|
12
the fair market value of the shares on the Investment Date. No
brokerage commissions or service charges will apply to such
purchases.
|
|
|
|
|
If the shares are purchased in the open market or in privately
negotiated transactions, the purchase price will be the Market
Price, less any Dividend Reinvestment Discount as we shall
determine in our sole discretion, subject to federal income tax
requirements that the purchase price not be less than 95% of the
fair market value of the shares on the Investment Date. We will
pay any brokerage commissions or service charges, subject to
such federal income tax requirements.
|
With respect to Optional Cash Payments of $10,000 or less:
|
|
|
|
|
If the shares are purchased directly from us, the purchase price
will be the Market Price, less any Optional Cash Discount (as
defined below) as we shall determine in our sole discretion. No
brokerage commissions or service charges will apply to such
purchases.
|
|
|
|
If the shares are purchased in the open market or in privately
negotiated transactions, the purchase price will be the Market
Price, less any Optional Cash Discount as we shall determine in
our sole discretion. We will pay any brokerage commissions or
service charges.
|
With respect to Optional Cash Payments of more than $10,000 made
pursuant to a Request for Waiver:
|
|
|
|
|
The purchase price will be the Market Price, less any Waiver
Discount (as defined in Question 15) as we shall determine
in our sole discretion. No brokerage commissions or service
charges will apply to such purchases.
|
We will establish on each corresponding dividend declaration
date established by our Board of Directors a discount between 0%
and 3% (the Dividend Reinvestment Discount) from the
Market Price applicable to shares purchased with respect to
reinvested dividends and will notify the Plan Administrator of
our decision. The Dividend Reinvestment Discount may vary with
respect to each dividend declaration date established, but once
established will apply uniformly to all shares purchased
directly from us with respect to a particular Common Stock
dividend payment.
Each month, at least three business days before the Optional
Cash Payment Due Date, we will establish a discount between 0%
and 3% (the Optional Cash Discount) from the Market
Price applicable to Optional Cash Payments (other than Optional
Cash Payments made pursuant to a Request for Waiver) for that
month and will notify the Plan Administrator of our decision.
The Optional Cash Discount may vary each month but once
established will apply uniformly to all shares purchased
directly from us with respect to Optional Cash Payments (other
than Optional Cash Payments made pursuant to a Request for
Waiver) for that month. The discount will be established in our
sole discretion after a review of current market conditions, the
level of participation in the Plan, and our current and
projected capital needs. Neither we nor the Plan Administrator
will be required to provide any written notice to you as to the
Optional Cash Discount. Setting the Optional Cash Discount for a
month will not determine the Optional Cash Discount for any
subsequent month. See Question 15 for a discussion of the
Waiver Discount for Optional Cash Payments made pursuant to
Requests for Waiver.
In the case of shares purchased in the open market or in
privately negotiated transactions pursuant to the reinvestment
of dividends, we will pay any brokerage commissions or service
charges that when combined with the applicable Dividend
Reinvestment Discount do not exceed 5% of the fair market value
on the Investment Date of the shares purchased, subject to
federal income tax requirements that the purchase price per
share not be less than 95% of the fair market value per share on
the Investment Date.
To obtain the current Dividend Reinvestment Discount or Optional
Cash Discount, please visit our website at
http://www.novastarmortgage.com or contact our investor
relations department at
(816) 237-7000.
The information on our website does not constitute a part of
this prospectus.
The Market Price, in the case of shares purchased directly from
us (other than for Optional Cash Payments made pursuant to a
Request for Waiver), will be the average of the daily closing
prices, computed to three decimal places, of Common Stock on the
NYSE, as reported on Bloomberg, during the Pricing Period for
such purchases. The Pricing Period (other than for
Optional Cash Payments made pursuant to a Request
13
for Waiver) is the 10 days on which the NYSE is open and
for which trades in Common Stock are reported (each a
Trading Day) immediately preceding the relevant
Investment Date. The Market Price for shares purchased pursuant
to a Request for Waiver will be either the average of the daily
closing prices, computed to three decimal places, of Common
Stock on the NYSE, as reported on Bloomberg, during the Pricing
Period specified on the Request for Waiver or a price determined
using a different method of calculation specified on the Request
for Waiver. In the case of shares purchased on the open market
or in privately negotiated transactions, the Market Price will
be the weighted average of the actual prices paid, net of any
brokerage commissions and service charges, computed to three
decimal places. The Internal Revenue Service (the
IRS) has taken the position that for federal tax
purposes the amount of the discount and the basis of the stock
received are determined based on the fair market value of the
stock on the Investment Date regardless of the mechanism we
employ to determine the number of shares purchased. Fair
market value means the closing price, computed to three
decimal places, on the NYSE, as reported by Bloomberg.
The Market Price per share, less any Dividend Reinvestment
Discount, may not be less than 95% of the fair market value per
share on the Investment Date in the case of shares purchased
pursuant to the reinvestment of dividends. If this 95% test is
not satisfied, we may be forced to eliminate any Dividend
Reinvestment Discount and adjust the Market Price so that the
purchase price per share is not less than 95% of the fair market
value per share on the Investment Date.
With respect to open market purchases and privately negotiated
transactions, neither we nor you will have any authorization or
power to direct the time or price at which the Plan
Administrator purchases shares of Common Stock or the selection
of the broker or dealer through or from whom the Plan
Administrator makes the purchases.
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|
11.
|
What is
the Record Date for dividend reinvestment?
|
For the reinvestment of dividends, the Record Date
is the date set by our Board of Directors for determining which
stockholders are entitled to receive Common Stock dividends. 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.
|
|
12.
|
How will
the number of shares of Common Stock purchased be
determined?
|
Your Plan account will be credited with the number of shares,
including fractions computed to four decimal places, equal to
(a) the total dollar amount to be invested on your behalf
divided by (b) the Market Price per share, less the
applicable discount from the Market Price per share. The total
dollar amount to be invested with respect to dividend
reinvestments will depend on the amount of any dividends paid,
the number of shares of Common Stock that you have enrolled in
the Dividend Reinvestment Program on the applicable Record Dates
and whether you have elected to reinvest all or a percentage of
cash dividends toward the purchase of additional shares of
Common Stock. The total dollar amount invested with respect to
Optional Cash Payments will depend on the amount you deliver to
the Plan Administrator for investment on the related Investment
Dates.
|
|
13.
|
What is
the source of shares of Common Stock purchased under the
Plan?
|
Shares of Common Stock credited to your Plan account will be
purchased either directly from us, on the open market or through
privately negotiated transactions, or by a combination of the
foregoing, at our option, after a review of current market
conditions and our current and projected capital needs. We will
determine the source of the shares of Common Stock to be
purchased under the Plan at least three business days before the
relevant Record Date, in the event of a dividend, or Optional
Cash Payment Due Date in the event of Optional Cash Payments,
and will notify the Plan Administrator of our decision. Subject
to the availability of shares of Common Stock registered for
issuance under the Plan and subject to certain ownership
limitations contained in our charter, there is no limit to the
number of shares available for issuance by us under the Plan.
Neither we nor the Plan Administrator will be required to
provide any written notice to you as to the source of the shares
of Common Stock to be purchased under the Plan, but information
regarding the source of the shares of Common Stock may be
obtained by contacting our investor relations department at
(816) 237-7000.
14
|
|
14.
|
How does
the Optional Cash Payment (other than pursuant to Requests for
Waiver) feature of the Plan work?
|
Each month, we will establish the Optional Cash Discount as
described in Question 10. All Record Owners and interested new
investors who have timely submitted signed enrollment forms
indicating their intention to participate in the Optional Cash
Payment feature, and all Beneficial Owners whose brokers, banks,
or other nominees have timely submitted signed enrollment forms
indicating their intention to participate in the Optional Cash
Payment feature are eligible to make Optional Cash Payments
during any month, whether or not a dividend is declared. The
Plan Administrator must receive a check, money order or wire
transfer by the applicable Optional Cash Payment Due Date and
that check, money order or wire transfer must have cleared on or
before the 21st day of the month, regardless of whether the
shares are acquired from us or in the open market or through
privately negotiated transactions. Wire transfers may be used
only if the Plan Administrator approves it verbally in advance.
Checks and money orders are accepted subject to timely
collection as good funds and verification of compliance with the
terms of the Plan. Checks or money orders should be made payable
to UMB Bank, n.a. and submitted together with,
initially, the enrollment form or, subsequently, the form for
additional Optional Cash Payments attached to your Plan
statements and available on our website at
http://www.novastarmortgage.com. Checks returned for any
reason will not be resubmitted for collection. A fee will be
charged for each returned check.
No interest will be paid by us or the Plan Administrator on
Optional Cash Payments held pending investment. We will hold
Optional Cash Payments received after the Optional Cash Payment
Due Date in any month for investment during the following month,
unless you provide the Plan Administrator with a telephone or
written request on or before the Optional Cash Payment Due Date
during the following month to return the Optional Cash Payment
to you. Each month the Plan Administrator will apply any
Optional Cash Payment received from you no later than the
Optional Cash Payment Due Date to the purchase of additional
shares of Common Stock for your account and will reinvest all, a
percentage or none of the dividends on such shares as directed
on the enrollment form.
The Optional Cash Payment Due Date each month is one
business day before commencement of that months Pricing
Period for Optional Cash Payments of $10,000 or less, regardless
of whether the shares are acquired from us or on the open market
or through privately negotiated transactions. For a schedule of
expected Optional Cash Payment Due Dates and Investment Dates,
visit our website
at http://www.novastarmortgage.com.
You are not obligated to participate in the Stock Purchase
Program of the Plan. Optional Cash Payments need not be in the
same amount each month.
|
|
15.
|
What
limitations apply to Optional Cash Payments?
|
Minimum/Maximum
Limits
Each Optional Cash Payment is subject to a minimum purchase of
$100 and a maximum per month purchase limit of $10,000.
Generally, Optional Cash Payments of less than $100 and that
portion of any Optional Cash Payment that exceeds the maximum
monthly purchase limit of $10,000, unless we approve a Request
for Waiver, will be returned to you without interest.
You may make Optional Cash Payments of up to $10,000 each month
without our prior approval, subject to our right to modify,
suspend or terminate participation in the Plan by otherwise
eligible holders of shares of Common Stock or interested new
investors to eliminate practices which are, in our sole
discretion, not consistent with the purposes or operation of the
Plan or which adversely affect the price of the shares of Common
Stock.
Requests
for Waiver
Optional Cash Payments of more than $10,000 per month may
only be made upon our acceptance of a completed Request for
Waiver form (a Request for Waiver). All shares
purchased pursuant to Requests for Waiver will be purchased
directly from us. Subject to the availability of shares of
Common Stock registered
15
for issuance under the Plan and subject to certain ownership
limitations contained in our charter, there is no
pre-established maximum limit applicable to Optional Cash
Payments that may be made pursuant to accepted Requests for
Waivers. We expect to grant Requests for Waiver to financial
intermediaries, including brokers and dealers, and other
Participants from time to time. To submit an Optional Cash
Payment of more than $10,000 for any monthly period, a
Participant must submit a written Request for Waiver, specifying
the proposed investment amount, Pricing Period, method of
calculating the purchase price, Maximum Price and the Investment
Date prior to the commencement of the requested Pricing Period.
The terms of each Request for Waiver may vary by Participant.
The Pricing Period for Optional Cash Payments pursuant to
Requests for Waiver will be the day or days set forth in the
Request for Waiver, which may be the Investment Date or up to 10
Trading Days prior to and including an Investment Date. If you
are interested in obtaining Request for Waiver forms or further
information about a Request for Waiver, you should contact our
investor relations department at
(816) 237-7000
or the Plan Administrator. A Request for Waiver form can also be
obtained on our website at
http://www.novastarmortgage.com.
A Request for Waiver will be considered on the basis of a
variety of factors, which may include (a) our current and
projected capital needs, (b) the alternatives available to
us to meet those needs, (c) prevailing market prices for
shares of Common Stock, (d) general economic and market
conditions, (e) expected aberrations in the price or
trading volume of the shares of Common Stock, (f) the
potential disruption of the price of the shares of Common Stock
caused by the resale of our Common Stock by a Participant,
(g) the number of shares of Common Stock that you hold,
(h) your past actions under the Plan, (i) the
aggregate amount of Optional Cash Payments for which Requests
for Waivers have been submitted, (j) the terms of your
request and (k) the administrative constraints associated
with granting your request. Approval of Requests for Waiver will
be made in our sole discretion; provided, that we will only
approve one Request for Waiver per Participant per month.
If we approve your Request for Waiver, we will notify you and
send the Plan Administrator a copy of the Request for Waiver
form, and you must send the Plan Administrator your Optional
Cash Payment in good funds.
Threshold
Price
Unless we waive our right to do so, we may establish for each
Pricing Period pursuant to a Request for Waiver a minimum price
(the Threshold Price) applicable to the investment
of the Optional Cash Payment pursuant the Request for Waiver, to
provide us with the ability to set a minimum price at which
shares of Common Stock will be sold. Prior to the commencement
of each Pricing Period pursuant to a Request for Waiver, we will
determine whether to establish a Threshold Price and, if a
Threshold Price is established, its amount and so notify the
Plan Administrator. The determination whether to establish a
Threshold Price and, if a Threshold Price is established, its
amount, will be made by us at our discretion after a review of
current market conditions, the level of participation in the
Plan, and our current and projected capital needs.
The Threshold Price, if any, for an Optional Cash Payment made
pursuant to a Request for Waiver will be a minimum price at
which Common Stock must trade on a given day on the NYSE during
the applicable Pricing Period to be included in the
determination of Market Price for such investment. In the event
that the Threshold Price is not satisfied for a Trading Day in
the Pricing Period, then the closing price for such day will be
excluded from the computation of the Market Price for such
period and the investment made pursuant to the Request for
Waiver will be proportionately reduced. Similarly, a pro rata
portion of the Participants Optional Cash Payment will be
returned if there are fewer Trading Days prior to the Investment
Date than are specified as the Pricing Period in the Request for
Waiver or if no trades in Common Stock are reported on the NYSE
for a Trading Day during the Pricing Period, due to a market
disruption or for any other reason. Thus, for example, if the
Pricing Period established pursuant to a Request for Waiver is
10 Trading Days and the Threshold Price is not satisfied for
three of the 10 Trading Days in a Pricing Period,
3/10th of
your Optional Cash Payment made pursuant to a Request for Waiver
will be returned to you by check, without interest, as soon as
practicable after the end of the applicable Pricing Period. The
Plan Administrator expects to mail such checks within five to 10
business days after the applicable Investment Date. This return
procedure will only apply when we have set a Threshold Price
with respect to the relevant Pricing Period.
16
Setting a Threshold Price for a Pricing Period will not affect
the setting of a Threshold Price for any subsequent Pricing
Period. The Threshold Price concept and return procedure
discussed above apply only to Optional Cash Payments made
through Requests for Waiver. For any Pricing Period, we may
waive our right to set a Threshold Price for Optional Cash
Payments made through Requests for Waivers.
Maximum
Price
Your Optional Cash Payments made pursuant to a Request for
Waiver may specify a maximum price (the Maximum
Price) per share that you are willing to pay, and if the
Market Price less the Waiver Discount exceeds such Maximum
Price, your investment will not be made and your Optional Cash
Payment will instead be returned to you without interest.
Waiver
Discount
Prior to the commencement of the Pricing Period for an Optional
Cash Payment pursuant to a Request for Waiver, we will establish
a discount from the Market Price for purchases made pursuant to
that Request for Waiver (the Waiver Discount) and
notify the Plan Administrator. The Waiver Discount will be
between 0% and 3% of the Market Price. The Waiver Discount will
be established in our sole discretion after a review of current
market conditions, the level of participation in the Plan, and
current and projected capital needs. Setting a Waiver Discount
for Pricing Period will not affect the setting of a Waiver
Discount for any subsequent Pricing Period. The Waiver Discount
feature described above applies only to Optional Cash Payments
made through Requests for Waiver.
|
|
16.
|
Under
what circumstances will Optional Cash Payments be
returned?
|
Optional Cash Payments of less than $100 and that portion of any
Optional Cash Payment that exceeds $10,000 (unless we approve a
Request for Waiver) will be returned to you as soon as
practicable. You may request an Optional Cash Payment to be
returned to you by submitting a telephone or written request to
the Plan Administrator, which must be received on or before the
Optional Cash Payment Due Date with respect to that payment.
Such Optional Cash Payments will be returned to you as soon as
practicable. Requests received after the Optional Cash Payment
Due Date will not be returned, but instead will be invested on
the next Investment Date. Additionally, with respect to Optional
Cash Payments made pursuant to Requests for Waiver, if the
shares are being purchased from us and we have established a
Threshold Price, a portion of each Optional Cash Payment will be
returned by check, without interest, as soon as practicable
after the end of the Pricing Period for each Trading Day on
which the Market Price does not meet the Threshold Price.
Similarly, if the Market Price less any applicable Waiver
Discount exceeds the requested Maximum Price, all your funds
delivered pursuant to a Request for Waiver will be returned to
you. Each Optional Cash Payment, to the extent that it does not
either conform to the limitations, or clear within the time
limits, described above, will be subject to return to you as
soon as practicable.
No interest will be paid by us or the Plan Administrator on
Optional Cash Payments held pending investment. Because no
interest is paid on cash held by the Plan Administrator, it
normally will be in your best interest to defer Optional Cash
Payments until shortly before the Optional Cash Payment Due
Date.
|
|
17.
|
Is
automatic monthly investment of Optional Cash Payments available
under the Plan?
|
You can automatically invest a specified monthly amount (not
less than $100 and not more than $10,000 per month)
deducted directly from your U.S. bank account by completing
the Automatic Monthly Deduction section on the
enrollment form and returning it to the Plan Administrator.
Funds will be transferred from your account three business days
prior to the Optional Cash Payment Due Date each month. You can
change or stop automatic monthly investments by completing and
returning a new enrollment form or by sending written
notification to the Plan Administrator. The Plan Administrator
must receive your instructions
17
and authorization 10 business days prior to the monthly Optional
Cash Payment Due Date in order to stop your automatic monthly
investment for that month. Otherwise, you automatic monthly
investment will be stopped during the following month.
|
|
18.
|
Will I
incur any expenses in connection with my participation in the
Plan?
|
There are no brokerage commissions or service fees on shares of
Common Stock purchased from us. We will pay any brokerage
commissions or service charges in connection with the purchase
of shares pursuant to Optional Cash Payments. In the case of
shares purchased pursuant to the reinvestment of dividends, we
will pay any brokerage commissions or service charges that when
combined with the applicable Dividend Reinvestment Discount do
not exceed 5% of the fair market value of the shares purchased,
subject to federal income tax requirements that the purchase
price per share not be less than 95% of the fair market value
per share on the Investment Date. We may have to adjust the
Market Price so that the purchase price is not less than 95% of
the fair market value on the Investment Date . We will pay all
other costs of administration of the Plan. If you request that
the Plan Administrator sell all or any percentage of your shares
will be responsible for a nominal service charge per
transaction, any related brokerage commissions or service
charges and applicable stock transfer taxes.
ACCOUNT
STATEMENTS
|
|
19.
|
What kind
of statements will I receive?
|
If you are a Record Owner, you will receive a statement of your
account following each purchase or sale transaction and
following any withdrawal of shares from your Plan account. These
statements are your continuing record of the cost of your
purchases and should be retained for income tax purposes. In
addition, Record Owners will receive copies of other
communications that we send to our stockholders, including our
annual report to stockholders, the notice of annual meeting and
proxy statement in connection with our annual meeting of
stockholders, and IRS information for reporting dividends paid.
If you are a Beneficial Owner, you should contact your broker,
bank or other nominee to obtain information on your account
activity.
STOCK
CERTIFICATES
|
|
20.
|
Will
certificates be issued for shares purchased?
|
No. Shares of Common Stock purchased by a Participant will be
recorded in uncertificated form in the Participants Plan
account. However, at any time and without charge, you may
request that the Plan Administrator issue a certificate to you
for some or all of the whole shares credited to your Plan
account. You should mail this request to the Plan Administrator
at the address set forth in Question 4. If you are a Beneficial
Owner, you should place the request through your banker, broker,
or other nominee. You will also receive a stock certificate if
your participation in the Plan is terminated. See Question 23.
Each certificate issued will be registered in the name or names
in which your account is maintained, unless you otherwise
instruct the Plan Administrator in writing. If a certificate is
to be issued in a name other than the name on your account, you
must have your signature guaranteed by a commercial bank or a
broker. Any remaining whole shares and any fractions of shares
will remain credited to your Plan account. Certificates for
fractional shares will not be issued under any circumstances.
You may deposit currently held Common Stock certificates
registered in your name with the Plan Administrator for credit
to your account under the Plan, at no cost to you, thus
protecting your shares against loss, theft or destruction of the
certificate. To deposit Common Stock certificates with the Plan
Administrator, you must send the certificates along with a
Certificate Deposit Form to the Plan Administrator. The
certificates should not be endorsed. Because you bear the risk
of loss in sending the certificates to the Plan Administrator,
certificates should be sent by registered mail, return receipt
requested, and properly insured. You may obtain a
18
copy of a Certificate Deposit Form by contacting the Plan
Administrator. A Certificate Deposit Form can also be obtained
on our website at http://www.novastarmortgage.com. You
may not pledge or assign shares of Common Stock credited to your
Plan account and any attempted pledge or assignment will be
void. If you wish to pledge shares credited to your Plan
account, you must first withdraw those shares from the Plan
account.
WITHDRAWALS
AND TERMINATION
|
|
21.
|
When may
I withdraw from the Plan?
|
You may withdraw from the Plan with respect to all or a portion
of your shares subject to the Plan at any time.
If you participate in the Dividend Reinvestment Program and your
request to withdraw is received by the Plan Administrator before
an ex-dividend date with respect to a dividend, the request will
be processed within three business days following the Plan
Administrators receipt of the request.
If the Plan Administrator receives your request to withdraw on
or after an ex-dividend date with respect to a dividend, but
before a Common Stock dividend payment date, the Plan
Administrator, in its sole discretion, may either pay such
dividend in cash or reinvest it in shares for your account. The
request for withdrawal will then be processed as promptly as
possible following such Common Stock dividend payment date. All
dividends paid with respect to Common Stock subsequent to such
Common Stock dividend payment date will be paid in cash unless
you re-enroll in the Plan, which may be done at any time.
Any Optional Cash Payments which have been sent to the Plan
Administrator before a request for withdrawal will be invested
on the next Investment Date unless you expressly request return
of that payment in the request for withdrawal, and the Plan
Administrator receives the request for withdrawal on or before
the Optional Cash Payment Due Date with respect to which
Optional Cash Payments have been delivered to the Plan
Administrator.
|
|
22.
|
How do I
withdraw from the Plan?
|
If you wish to withdraw from the Plan with respect to all or a
portion of your shares subject to the Plan, you must notify the
Plan Administrator in writing at its address set forth in
Question 4.
Upon withdrawal from the Plan, you may also request in writing
that the Plan Administrator sell all or part of the shares
credited to your Plan account. The Plan Administrator will sell
the shares as requested within 10 business days after processing
the request for withdrawal. The timing and price of the sale are
at the sole discretion of the Plan Administrator. The Plan
Administrator will send a check for the proceeds of the sale,
less a nominal transaction fee, any brokerage commissions and
service charges paid by the Plan Administrator and any
applicable share transfer taxes, generally within five business
days of the sale. Cash will be paid in lieu of any fraction of a
share, based on the fair market value of the shares on the date
the shares are sold.
|
|
23.
|
How can
my participation in the Plan be terminated?
|
Your participation in the Plan will be terminated if all whole
shares of Common Stock have been disbursed from your Plan
account, leaving only a fractional share, or if we have reason
to believe that your continued participation may cause your
share ownership to violate our charter limits on share
ownership. See Question 5.
We reserve the right to modify, suspend or terminate
participation in the Plan by our stockholders or interested new
investors to eliminate practices which are, in our sole
discretion, not consistent with the purposes or operation of the
Plan or which adversely affect the price of the shares of Common
Stock.
Upon any such termination, unless you have requested in writing
that the Plan Administrator sell all of the shares credited to
your Plan account, you will receive a certificate for the whole
shares of Common Stock
19
held in your Plan account and a check for any fractional shares
based on the fair market value of such Common Stock less any
brokerage commissions.
OTHER
INFORMATION
|
|
24.
|
What
happens if the Company declares a stock dividend or a stock
split?
|
Any Common Stock distributed by us as a result of a stock
dividend or stock split in respect of shares credited to your
Plan account will be credited to your account. Any Common Stock
distributed by us as a result of a stock dividend or stock split
which is attributable to shares registered in your own name and
not in your Plan account will be mailed directly to you as in
the case of stockholders not participating in the Plan.
|
|
25.
|
How will
shares held by the Plan Administrator be voted at meetings of
stockholders?
|
Participants will receive a proxy card for the shares of Common
Stock that they own and that are registered in the Plan
Administrators name. If a proxy is returned properly
signed (unless returned electronically) and marked for voting,
all the shares covered by the proxy will be voted as marked. If
a proxy is returned properly signed (unless returned
electronically) but no voting instructions are given, all the
shares covered by the proxy will be voted in accordance with
recommendations of our Board of Directors, unless prohibited by
applicable laws. If the proxy is not returned, or if it is
returned unexecuted or improperly executed (unless returned
electronically) or improperly completed, shares of Common Stock
registered in the Plan Administrators name may only be
voted in person.
|
|
26.
|
What are
the responsibilities of the Company and the Plan Administrator
under the Plan?
|
We and the Plan Administrator will not be liable in
administering the Plan for any act done in good faith or
required by applicable law or for any good faith omission to act
including, without limitation, any claim of liability arising
out of failure to terminate a Participants account upon
his or her death, with respect to the prices at which shares are
purchased
and/or the
times when such purchases are made or with respect to any
fluctuation in the fair market value before or after purchase or
sale of shares. Notwithstanding the foregoing, nothing contained
in the Plan limits our liability with respect to alleged
violations of federal and state securities laws.
We and the Plan Administrator will be entitled to rely on
completed forms and the proof of due authority to participate in
the Plan, without further responsibility of investigation or
inquiry.
|
|
27.
|
May the
Plan be changed or terminated?
|
We may amend, modify, suspend or terminate the Plan at any time.
We will send you written notice of any such action as soon as
practicable after we take such action.
|
|
28.
|
Who bears
the risk of market fluctuations in our shares of common
stock?
|
Your investment in shares held in the Plan account is no
different from your investment in directly held shares. You bear
the risk of any loss and enjoy the benefits of any gain from
market price changes with respect to those shares.
|
|
29.
|
Who
should I contact with questions about the Plan?
|
All correspondence regarding the Plan or your Plan account
should be directed to the Plan Administrator pursuant to the
contact information set forth in Question 4.
20
|
|
30.
|
How is
the Plan interpreted?
|
Any question of interpretation arising under the Plan will be
determined by us, in our sole discretion, and any such
determination will be final. The Plan and its operation will be
governed by the laws of the State of Missouri.
|
|
31.
|
What are
some of my responsibilities under the Plan?
|
Shares of Common Stock credited to your Plan account are subject
to escheat to the state in which you reside in the event that
such shares are deemed, under such states laws, to have
been abandoned by you. You, therefore, should notify the Plan
Administrator promptly in writing of any change of address.
Account statements and other communications to you will be
addressed to you at the last address of record that you provide
to the Plan Administrator.
You will have no right to draw checks or drafts against your
Plan account or to instruct the Plan Administrator with respect
to any shares of Common Stock or cash held by the Plan
Administrator except as expressly provided in the Plan.
CERTAIN
FEDERAL INCOME TAX CONSEQUENCES FOR PLAN PARTICIPANTS
|
|
32.
|
What are
the federal income tax consequences of participation in the
Plan?
|
The following summarizes certain federal income tax
considerations to Participants in the Plan. New investors and
current stockholders should also consult the general discussion
under the caption Material Federal Income Tax
Considerations for a summary of federal income tax
considerations related to the ownership of Common Stock.
The following summary is based upon an interpretation of current
federal tax law. It is important that you consult your own tax
advisors to determine particular tax consequences, including
state income tax (and non-income tax, such as stock transfer
tax) consequences, which vary from state to state and which may
result from participation in the Plan and the subsequent
disposition of shares of Common Stock acquired pursuant to the
Plan. Income tax consequences to Participants residing outside
the United States will vary from jurisdiction to jurisdiction.
Irvine Venture Law Firm, LLP, our tax and ERISA counsel, has
rendered an opinion that the following are the material federal
income tax consequences of participating in the Plan. However,
the opinions of counsel are not binding on the IRS or on the
courts, and no assurance can be given that the conclusions
reached by Irvine Venture Law Firm, LLP would be sustained in
court.
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 our Common Stock, and
(c) each taxpayer should seek advice based on his, her or
its particular circumstances from an independent tax advisor.
Dividend
Reinvestment Program
Participants in the Dividend Reinvestment Program under the Plan
will be treated for federal income tax purposes as having
received, generally on the Investment Date, a distribution in an
amount equal to the fair market value on such date of the shares
acquired with reinvested dividends. Such shares will have a tax
basis equal to the same amount and the holding period for such
shares will begin on the day following the Investment Date. The
fair market value on the Investment Date may vary from the
Market Price determined under the Plan for such shares.
Participants should be aware that they will be taxed on the full
amount of dividends deemed paid to them even though they will
not be receiving a corresponding cash distribution from us. The
amount of the taxable dividend that a Participant receives as
measured by the value of the shares acquired for the Participant
21
generally will differ somewhat from the amount of dividend
income that a non-participating stockholder who receives the
dividend in the form of cash.
Example
1:
The following example may be helpful to illustrate the federal
income tax consequences of the reinvestment of dividends at a 2%
discount (the discount may range from 0% to 3%) from the Market
Price where the fair market value of Common Stock on the
Investment Date is the same as the Market Price.
|
|
|
|
|
|
|
|
|
Cash dividends reinvested
|
|
|
|
|
|
$
|
100.00
|
|
Market Price*
|
|
$
|
30.00
|
|
|
|
|
|
Less 2% discount per share
|
|
$
|
(0.60
|
)
|
|
|
|
|
Net purchase price per share
|
|
$
|
29.40
|
|
|
|
|
|
Number of shares purchased
($100.00/$29.40)
|
|
|
3.4014
|
|
|
|
|
|
Total taxable dividend resulting
from transaction (30.00 x 3.4014)
|
|
|
|
|
|
$
|
102.04
|
|
|
|
|
* |
|
The Market Price for determining the cost to a Participant of
the shares under the Plan may differ from the fair market value
of the shares on the Investment Date. The fair market value on
the Investment Date is used for federal income tax purposes to
determine the amount of the discount realized by a Participant.
We may have to adjust the discount or Market Price so that the
purchase price is not less than 95% of the fair market value on
the Investment Date. Note that the taxable dividend of $102.04
exceeds the cash dividend of $100.00 because of the effect of
the discounted purchase price. |
Stock
Purchase Program
If you are a Participant in the Dividend Reinvestment Program
and you make Optional Cash Payments, you may be treated as
having received a dividend distribution in an amount equal to
the excess, if any, of the fair market value of the shares
acquired on the Investment Date over the amount you paid for
shares purchased pursuant to Optional Cash Payments. We have
attempted to avoid this treatment by structuring the Plan so
that Investment Dates for the reinvestment of Dividends and
Optional Cash Payments will not occur on the same date. A
Participant who makes Optional Cash Payments but does not
participate in the Dividend Reinvestment Program would not be
subject to the potential dividend treatment on the discounted
purchase price.
Shares acquired under the Stock Purchase Program will have a tax
basis equal to the amount of the Optional Cash Payment plus the
dividend income, if any, recognized as a result. Your holding
period for shares of Common Stock acquired pursuant to the Plan
will begin on the day following the Investment Date.
Example
2:
The following example may be helpful to illustrate the federal
income tax consequences of the Optional Cash Payment feature at
a 2% discount (the discount may range from 0% to 3%) from the
Market Price where the fair market value of Common Stock on the
Investment Date differs from the Market Price.
|
|
|
|
|
|
|
|
|
Optional Cash Payment
|
|
|
|
|
|
$
|
100.00
|
|
Market Price*
|
|
$
|
30.00
|
|
|
|
|
|
Less 2% discount per share
|
|
$
|
(0.60
|
)
|
|
|
|
|
Net purchase price per share
|
|
$
|
29.40
|
|
|
|
|
|
Fair market value on Investment
Date
|
|
$
|
30.50
|
|
|
|
|
|
Number of shares purchased
($100.00/$29.40)
|
|
|
3.4014
|
|
|
|
|
|
Total taxable dividend resulting
from transaction (3.4014 × $30.50 − $100.00)**
|
|
|
|
|
|
$
|
3.74
|
|
|
|
|
* |
|
The Market Price for determining the cost to a Participant of
the shares under the Plan may differ from the fair market value
of the shares on the Investment Date. The fair market value on
the Investment Date is used for federal income tax purposes to
determine the amount of the discount realized by a Participant. |
22
|
|
|
|
|
Note that the taxable dividend of $103.74 exceeds the cash
dividend of $100.00 because of the effect of the discounted
purchase price. |
|
** |
|
Assumes closing price on Investment Date equals $30.50. |
You will not realize any taxable income upon receipt of
certificates for whole shares of Common Stock credited to your
account, either upon your request for certain of those shares of
Common Stock or upon your termination of participation in the
Plan. You will recognize gain or loss upon the sale or exchange
of shares of Common Stock acquired under the Plan. You will also
recognize gain or loss upon receipt, following termination of
participation in the Plan, of a cash payment for any fractional
share equivalent credited to your account. The amount of any
such gain or loss will be the difference between the amount that
you received for the shares of Common Stock or fractional share
equivalent and the tax basis thereof.
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33.
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How are
income tax withholding provisions applied to me?
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If you fail to provide certain federal income tax certifications
in the manner required by law, distributions on shares of Common
Stock, proceeds from the sale of fractional shares and proceeds
from the sale of shares of Common Stock held for your account
will be subject to federal income tax backup withholding imposed
at 28%. If withholding is required for any reason, the
appropriate amount of tax will be withheld before investment or
payment. Certain stockholders (including most corporations) are,
however, exempt from the above withholding requirements.
If you are a foreign stockholder, you may avoid imposition of
back-up
withholding by providing us the required federal income
certifications to establish your status as a foreign
stockholder. You may claim the benefit of exemptions from
federal income tax withholding or reduced withholding rates
under a treaty or convention entered into between the United
States and your country of residence by providing us or your
withholding agent a Form 4224 with the appropriate
information. Generally, distributions to a foreign stockholder
are subject to federal income tax withholding at 30% (or a lower
treaty rate if applicable). Certain distributions or portion of
a distribution to a foreign stockholder may still be subject to
federal income tax withholding even when the distribution or
that portion of the distribution is not treated as dividend
under federal income tax laws. If you are a foreign stockholder
whose distributions are subject to federal income tax
withholding, the appropriate amount will be withheld and the
balance will be credited to your account to purchase shares of
Common Stock.
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MATERIAL
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income
tax considerations that may be relevant to you, as a prospective
purchaser 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 prospective investor in light of such
investors particular circumstances or to special classes
of investors, including insurance companies, tax-exempt
entities, financial institutions, broker/dealers, foreign
corporations and 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 purchase, ownership and sale
of our common stock, including the federal, state, local,
foreign and other tax consequences of such purchase, ownership
and sale and the potential changes in applicable tax laws.
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 our common stock, and
(c) each taxpayer should seek advice based on his, her or
its particular circumstances from an independent tax advisor.
General
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 purchase 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.
Opinion
of tax counsel
Irvine Venture Law Firm, LLP, tax and ERISA counsel to NovaStar
Financial, has advised NovaStar Financial in connection with the
formation of NovaStar Financial, this offering 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 December 31, 2005, the date of the audited
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 2006 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
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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 IRS.
There can be no assurance that the courts or the IRS 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.
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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 an
investment in 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.
Qualification
as a REIT
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.
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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
December 31, 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.
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.
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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.
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The investments that NovaStar Financial intends to make will
give rise primarily to mortgage interest qualifying under the
75% of income test. As of December 31, 2005, NovaStar
Financial complied with the 75% of income test 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.
Effective for transactions entered into in 2005 and thereafter,
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. For
hedging transactions entered into before 2005, the income or
gain qualified for the 95% of income test, but not 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 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
December 31, 2005, NovaStar Financial complied with the 95%
of income test 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 income from
qualified REIT assets and from REIT qualified hedges.
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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 IRS, 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 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.
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
corresponding
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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, interest or other charges that it
imposed on any taxable REIT subsidiary in excess of an
arms-length price for comparable services.
NovaStar Financial will derive income from its taxable REIT
subsidiaries by way of dividends and interest on certain
intercompany loans. Novastar Financial has treated such
dividends and interest as 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, and have been, limited to
25% or less 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
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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 historically
has avoided transactions that could generate excess inclusion
income for it and its stockholders. However, for 2006 and
possibly for subsequent years, NovaStar Financial expects to
engage in securitizations of mortgage pools that likely will
generate excess inclusion income. NovaStar Financial is unable
to predict the amount of excess inclusion income that may be
recognized and the extent to which such excess inclusion income
will have to be allocated to 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.
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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 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.
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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.
Taxation
of NovaStar Financial 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
30
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. To be tax
deductible by NovaStar Financial, dividends must be made on a
pro rata basis among the stockholders of a class of stock
eligible to receive dividends.
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.
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 historically has avoided transactions that
could generate excess inclusion income for it and its
stockholders. However, for 2006 and possibly for subsequent
years, NovaStar Financial expects to engage in securitizations
of mortgage pools that likely will generate excess inclusion
income. NovaStar Financial is unable to predict the amount of
excess inclusion income that may be recognized and the extent to
which such excess inclusion income will have to be allocated to
stockholders. 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.
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 recognition of
income that could cause an
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investment in its stock to generate unrelated business income
for tax-exempt investors. NovaStar Financial historically has
avoided transactions that could generate excess inclusion income
for it and its stockholders. However, for 2006 and possibly for
subsequent years, NovaStar Financial expects to engage in
securitizations of mortgage pools that likely will generate
excess inclusion income. NovaStar Financial is unable to predict
the amount of excess inclusion income that may be recognized and
the extent to which such excess inclusion income will have to be
allocated to stockholders. If NovaStar Financial causes its
dividend distributions to be treated as representing excess
inclusion income, that income would be taxable as unrelated
business income for a tax-exempt entity holding NovaStar
Financial stock.
Apart from the potential for recognizing excess inclusion income
for tax-exempt entities, NovaStar Financial does not anticipate
that it or its stockholders that are tax-exempt entities are
likely to recognize unrelated business income from holding
shares of NovaStar Financial, 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.
Foreign
Investors
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 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. NovaStar Financial historically
has avoided transactions that could generate excess inclusion
income for it and its stockholders. However, for 2006 and
possibly for subsequent years, NovaStar Financial expects to
engage in securitizations of mortgage pools that likely will
generate excess inclusion income. NovaStar Financial is unable
to predict the amount of excess inclusion income that may be
recognized and the extent to which such excess inclusion income
will have to be allocated to stockholders. Excess inclusion
income is not eligible for reduction in withholding tax
otherwise authorized by a treaty.
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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 2,000
stockholders of record, from persons holding 5% or more of
outstanding shares of 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.
Backup
Withholding
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.
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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 Taxes
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.
ERISA
Investors
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.
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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.
33
DIVIDENDS
We generally intend to distribute substantially all of our
taxable income with respect to each year (which does not
ordinarily equal net income as calculated in accordance with
generally accepted accounting principles) to our stockholders so
as to comply with the REIT provisions of the Code. We intend to
make dividend distributions quarterly and to distribute any
taxable income remaining after the distribution of the final
regular quarterly dividend each year together with the regular
quarterly dividend payments of the following taxable year or in
a special dividend distributed prior thereto. Our dividend
policy is subject to revision at the discretion of our Board of
Directors. All distributions will be made at the discretion of
our Board of Directors and will depend on our taxable income,
our financial condition, maintenance of REIT status and other
factors as our Board of Directors deems relevant.
Distributions to stockholders will generally be subject to tax
as ordinary income, although a portion of the distributions may
be designated by us as capital gain or may constitute a tax-free
return of capital. We generally do not intend to declare
dividends that would result in a return of capital for tax
purposes. Annually, our transfer agent will furnish to each of
our stockholders a statement of distributions paid during the
preceding year and their characterization as ordinary income,
capital gains or return of capital.
USE OF
PROCEEDS
We do not know either the number of shares of common stock that
will be ultimately sold pursuant to the Plan or the prices at
which such shares will be sold. We will receive proceeds from
the purchase of shares of common stock through the Plan only to
the extent that such purchases are made directly from us and not
pursuant to open market purchases by the Plan Administrator. We
will bear the costs relating to the registration of the common
stock being offered pursuant to this prospectus. We intend to
use the net proceeds from the sale of such shares of our common
stock for the acquisition of additional mortgage assets and for
other general corporate purposes. Pending any such uses, we may
invest the net proceeds from the sale of any securities or may
use such proceeds to reduce short-term or adjustable-rate
indebtedness.
PLAN OF
DISTRIBUTION
Except to the extent the Plan Administrator purchases common
stock in open market transactions or in privately negotiated
transactions, we will sell directly to the Plan Administrator
the common stock acquired under the Plan. Subject to the
availability of shares of common stock registered for issuance
under the Plan and subject to certain ownership limitations
contained in our charter, there is no total maximum number of
shares of common stock that can be issued pursuant to the Plan.
In connection with the administration of the Plan, we may be
requested to approve Optional Cash Payments in amounts greater
than the allowable maximum dollar amount pursuant to Requests
for Waiver on behalf of Participants, including those engaged in
the securities business. In deciding whether to approve such a
request, we will consider relevant factors including, but not
limited to (a) our current and projected capital needs,
(b) the alternatives available to us to meet those needs,
(c) prevailing market prices for shares of our common
stock, (d) general economic and market conditions,
(e) expected aberrations in the price or trading volume of
the shares of our common stock, (f) the potential
disruption of the price of the shares of our common stock caused
by the resale of our common stock by a Participant, (g) the
number of shares of our common stock that you hold,
(h) your past actions under the Plan, (i) the
aggregate amount of Optional Cash Payments for which Requests
for Waivers have been submitted, (j) the terms of your
request and (k) the administrative constraints associated
with granting your request.
Persons who acquire shares of common stock through the Plan and
resell them shortly after acquiring them, including to cover
short positions, under certain circumstances, may be
participating in a distribution of securities that would require
compliance with Regulation M under the Exchange Act and may
be considered to be underwriters within the meaning of the
Securities Act. In addition, the difference between the price
such persons pay to us for shares of common stock acquired under
the Plan, after deduction of the applicable discount from the
Market Price, and the price at which such shares are resold, may
be deemed to constitute
34
underwriting commissions. We will not extend to any such person
any rights or privileges other than those to which such person
would be entitled as a Participant, nor will we enter into any
agreement with any person regarding their purchase of shares or
any resale or distribution of shares. We may, however, accept
investments made pursuant to Requests for Waiver by such
persons. We may approve Requests for Waiver in our sole
discretion, provided, that we will only approve one Request for
Waiver per Participant per month.
From time to time, financial intermediaries, including brokers
and dealers, and other persons may engage in positioning
transactions to benefit from the discount from the Market Price
of common stock acquired under the Plan. Those transactions may
cause fluctuations in the trading volume of our common stock.
Financial intermediaries and such other persons who engage in
positioning transactions may be deemed to be underwriters. We
have no arrangements or understandings, formal or informal, with
any person relating to the sale of shares of our common stock to
be received under the Plan. We reserve the right to modify,
suspend or terminate participation in the Plan by otherwise
eligible persons to eliminate practices that are inconsistent
with the purpose of the Plan. We also reserve the right to
exclude from participation in the Plan persons who use the Plan
to engage in short-term trading activities that cause
aberrations in the trading of our common stock.
We will pay any and all fees, brokerage commissions, service
charges and related expenses incurred in connection with
purchases of common stock under the Plan, subject to federal
income tax requirements that the purchase price per share not be
less than 95% of the fair market value per share on the date of
purchase. Upon withdrawal by a Participant from the Plan by the
sale of common stock held under the Plan, the Participant will
receive the proceeds of such sale less a nominal fee per
transaction paid to the Plan Administrator (if such resale is
made by the Plan Administrator at the request of a participant),
any related brokerage commissions and service charges and
applicable transfer taxes.
Common stock may not be available under the Plan in all
jurisdictions. This prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any common stock or
other securities in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
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 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, 2005 (including the
portions of our Proxy Statement on Schedule 14A
incorporated therein by reference);
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all other reports filed pursuant to Section 13(a) or 15(d)
of the Exchange Act since December 31, 2005, 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.
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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, including
information and forms refered to in the Plan, 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 Blackwell
Sanders Peper Martin LLP, Kansas City, Missouri. Certain tax
matters will be passed on for us by Irvine Venture Law Firm,
LLP, Newport Beach, California.
EXPERTS
The consolidated financial statements and managements
report on the effectiveness of internal control over financial
reporting incorporated in this prospectus by reference from the
Companys Annual Report on
Form 10-K
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their reports, which are incorporated herein by reference, and
have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
36
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the securities in any state where the
offer is not permitted.
We do not claim that the information in this prospectus is
accurate as of any date other than the date stated on the
cover.
NovaStar Financial,
Inc.
Common Stock
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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Item 14.
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Other
Expenses of Issuance and Distribution.
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The following is an itemized statement of estimated expenses to
be paid by the registrant in connection with the issuance and
sale of the securities being registered under this registration
statement.
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Commission registration fee
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$
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16,665
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*
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NYSE listing fees
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60,000
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Accounting fees and expenses
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8,500
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Printing fees
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20,000
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Legal fees and expenses
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50,000
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Transfer agent and registrar fees
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45,000
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Miscellaneous
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10,000
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Total
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$
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210,165
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* |
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The registrant is deferring payment of the registration fee in
reliance on Rule 456(b) and Rule 457(r) under the
Securities Act, except for $16,665 to cover
5,000,000 shares of common stock, of which $1,175 has
already been paid with respect to shares of common stock that
were previously registered pursuant to Registration Statement
No. 333-126699
filed July 19, 2005, and were not sold thereunder. |
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Item 15.
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Indemnification
of Directors and Officers
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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
II-1
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 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
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.1
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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))
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4
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.2
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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))
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4
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.3
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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))
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5
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.1
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Opinion of Blackwell Sanders Peper
Martin LLP as to legality (including consent of such firm)*
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8
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.1
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Opinion of Irvine Venture Law
Firm, LLP as to certain tax matters (including consent of such
firm)*
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23
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.1
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Consent of Blackwell Sanders Peper
Martin LLP (see item 5.1 above)
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23
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.2
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Consent of Irvine Venture Law
Firm, LLP (see item 8.1 above)
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23
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.3
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Consent of Deloitte &
Touche LLP, Independent Registered Public Accounting Firm*
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24
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.1
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Power of Attorney (set forth on
signature page)
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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:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
II-2
(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.
(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 Act to any purchaser:
(i) Each prospectus filed by a registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was
deemed part of and included in the registration
statement; and
(ii) Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(i), (vii) or
(x) for the purpose of providing the information required
by Section 10(a) of the Securities Act of 1933 shall be
deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first
used after effectiveness or the date of the first contract of
sale of securities in the offering described in the prospectus.
As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such
date shall be deemed to be a new effective date of the
registration statement relating to the securities in the
registration statement to which that prospectus relates, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof. 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
effective date, 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 effective date.
(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
II-3
offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell
such securities to such purchaser:
(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 April 14, 2006.
NOVASTAR FINANCIAL, INC.
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
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Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
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April 14, 2006
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/s/ W. Lance
Anderson
W.
Lance Anderson
|
|
President, Chief Operating Officer
and Director
|
|
April 14, 2006
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/s/ Gregory S. Metz
Gregory
S. Metz
|
|
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
|
|
April 14, 2006
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/s/ Todd M. Phillips
Todd
M. Phillips
|
|
Vice President, Controller and
Treasurer (Principal Accounting Officer)
|
|
April 14, 2006
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/s/ Gregory T.
Barmore
Gregory
T. Barmore
|
|
Director
|
|
April 14, 2006
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II-5
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Signature
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Position
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Date
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/s/ Edward W. Mehrer
Edward
W. Mehrer
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Director
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April 14, 2006
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/s/ Art N. Burtscher
Art
N. Burtscher
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Director
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April 14, 2006
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/s/ Donald M. Berman
Donald
M. Berman
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Director
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April 14, 2006
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II-6
INDEX TO
EXHIBITS
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Exhibit
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Number
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Description of Exhibit
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4
|
.1
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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))
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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))
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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))
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5
|
.1
|
|
Opinion of Blackwell Sanders Peper
Martin LLP as to legality (including consent of such firm)*
|
|
|
|
|
|
|
|
|
|
|
|
8
|
.1
|
|
Opinion of Irvine Venture Law
Firm, LLP as to certain tax matters (including consent of such
firm)*
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.1
|
|
Consent of Blackwell Sanders Peper
Martin LLP (see item 5.1 above)
|
|
|
|
|
|
|
|
|
|
|
|
23
|
.2
|
|
Consent of Irvine Venture Law
Firm, LLP (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)
|