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\ue000\ue000
UNITED\ue000 STATES
SECURITIES\ue000 AND\ue000 EXCHANGE\ue000 COMMISSION
Washington,\ue000 D.C.\ue000 20549
\ue000
\ue000
FORM\ue000 8-K
\ue000
\ue000

CURRENT\ue000 REPORT
PURSUANT\ue000 TO\ue000 SECTION\ue000 13\ue000 OR\ue000 15(d)\ue000 OF\ue000 THE
SECURITIES\ue000 EXCHANGE\ue000 ACT\ue000 OF\ue000 1934

February\ue000 18,\ue000 2009
Date\ue000 of\ue000 Report\ue000 (Date\ue000 of\ue000 earliest\ue000 event\ue000 reported)
\ue000
\ue000
NOVASTAR\ue000 FINANCIAL,\ue000 INC.
(Exact\ue000 name\ue000 of\ue000 registrant\ue000 as\ue000 specified\ue000 in\ue000 its\ue000 charter)
\ue000
\ue000
\ue000
Maryland
\ue000
001-13533
\ue000
74-2830661
(State\ue000 or\ue000 other\ue000 jurisdiction\ue000 of
incorporation\ue000 or\ue000 organization)
\ue000
(Commission\ue000 File\ue000 Number)
\ue000
(I.R.S.\ue000 Employer
Identification\ue000 No.)
2114\ue000 Central\ue000 Street,\ue000 Suite\ue000 600,\ue000 Kansas\ue000 City,\ue000 MO\ue000 64108
(Address\ue000 of\ue000 principal\ue000 executive\ue000 offices)\ue000 (Zip\ue000 Code)
(816)\ue000 237-7000
(Registrant\u2019s\ue000 telephone\ue000 number,\ue000 including\ue000 area\ue000 code)
Not\ue000 Applicable
(Former\ue000 Name\ue000 or\ue000 Former\ue000 Address,\ue000 if\ue000 Changed\ue000 Since\ue000 Last\ue000 Report)
\ue000
\ue000
Check\ue000 the\ue000 appropriate\ue000 box\ue000 below\ue000 if\ue000 the\ue000 Form\ue000 8-K\ue000 filing\ue000 is\ue000 intended\ue000 to\ue000 simultaneously\ue000 satisfy\ue000 the\ue000 filing\ue000 obligation\ue000 of\ue000 the\ue000 registrant\ue000 under\ue000 any\ue000 of
the\ue000 following\ue000 provisions\ue000 (see\ue000 General\ue000 Instruction\ue000 A.2.\ue000 below):
\ue000
\u00ae
Written\ue000 communications\ue000 pursuant\ue000 to\ue000 Rule\ue000 425\ue000 under\ue000 the\ue000 Securities\ue000 Act\ue000 (17\ue000 CFR\ue000 230.425)
\ue000
\u00ae
Soliciting\ue000 material\ue000 pursuant\ue000 to\ue000 Rule\ue000 14a-12\ue000 under\ue000 the\ue000 Exchange\ue000 Act\ue000 (17\ue000 CFR\ue000 240.14a-12)
\ue000
\u00ae
Pre-commencement\ue000 communications\ue000 pursuant\ue000 to\ue000 Rule\ue000 14d-2(b)\ue000 under\ue000 the\ue000 Exchange\ue000 Act\ue000 (17\ue000 CFR\ue000 240.14d-2(b))
\ue000
\u00ae
Pre-commencement\ue000 communications\ue000 pursuant\ue000 to\ue000 Rule\ue000 13e-4(c)\ue000 under\ue000 the\ue000 Exchange\ue000 Act\ue000 (17\ue000 CFR\ue000 240.13e-4(c))
\ue000
\ue000\ue000
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INFORMATION\ue000 TO\ue000 BE\ue000 INCLUDED\ue000 IN\ue000 THE\ue000 REPORT
Item\ue000 1.01\ue000 \u2013\ue000 Entry\ue000 into\ue000 a\ue000 Material\ue000 Definitive\ue000 Agreement

On\ue000 February\ue000 18,\ue000 2009,\ue000 NovaStar\ue000 Financial,\ue000 Inc.\ue000 (\u201cNFI\u201d)\ue000 and\ue000 certain\ue000 of\ue000 its\ue000 affiliates\ue000 entered\ue000 into\ue000 the\ue000 agreements\ue000 described\ue000 below\ue000 to\ue000 settle
claims\ue000 arising\ue000 from\ue000 the\ue000 failure\ue000 of\ue000 NovaStar\ue000 Mortgage,\ue000 Inc.\ue000 (\u201cNMI\u201d)\ue000 to\ue000 make\ue000 scheduled\ue000 quarterly\ue000 interest\ue000 payments\ue000 on\ue000 unsecured\ue000 junior
subordinated\ue000 notes\ue000 issued\ue000 by\ue000 NMI\ue000 in\ue000 the\ue000 aggregate\ue000 principal\ue000 amount\ue000 of\ue000 $51,550,000\ue000 in\ue000 2005\ue000 (the\ue000 \u201c2005\ue000 Junior\ue000 Subordinated\ue000 Notes\u201d)\ue000 to
NovaStar\ue000 Capital\ue000 Trust\ue000 I\ue000 (the\ue000 \u201cTaberna\ue000 Trust)\ue000 and\ue000 unsecured\ue000 junior\ue000 subordinated\ue000 notes\ue000 issued\ue000 by\ue000 NMI\ue000 in\ue000 the\ue000 aggregate\ue000 principal\ue000 amount\ue000 of
$28,995,000\ue000 in\ue000 2006\ue000 (the\ue000 \u201c2006\ue000 Junior\ue000 Subordinated\ue000 Notes\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 2005\ue000 Junior\ue000 Subordinated\ue000 Notes,\ue000 the\ue000 \u201cExisting\ue000 Notes\u201d)\ue000 to
NovaStar\ue000 Capital\ue000 Trust\ue000 II\ue000 (the\ue000 \u201cKodiak\ue000 Trust\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 Taberna\ue000 Trust,\ue000 the\ue000 \u201cExisting\ue000 Trusts\u201d).\ue000 The\ue000 Existing\ue000 Notes\ue000 secure\ue000 trust
preferred\ue000 securities\ue000 that\ue000 were\ue000 issued\ue000 by\ue000 the\ue000 Taberna\ue000 Trust\ue000 to\ue000 Taberna\ue000 Preferred\ue000 Funding\ue000 I,\ue000 Ltd.\ue000 and\ue000 Taberna\ue000 Preferred\ue000 Funding\ue000 II,\ue000 Ltd.
(collectively,\ue000 the\ue000 \u201cTaberna\ue000 Preferred\ue000 Securities\ue000 Holders\u201d)\ue000 and\ue000 by\ue000 the\ue000 Kodiak\ue000 Trust\ue000 to\ue000 Kodiak\ue000 CDO\ue000 I,\ue000 Ltd.\ue000 (the\ue000 \u201cKodiak\ue000 Preferred\ue000 Securities
Holder\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 Taberna\ue000 Preferred\ue000 Securities\ue000 Holders,\ue000 the\ue000 \u201cPreferred\ue000 Securities\ue000 Holders\u201d).\ue000 As\ue000 part\ue000 of\ue000 the\ue000 settlement,\ue000 the
Preferred\ue000 Securities\ue000 Holders\ue000 have\ue000 agreed\ue000 to\ue000 dismiss\ue000 the\ue000 petition\ue000 for\ue000 involuntary\ue000 Chapter\ue000 7\ue000 bankruptcy\ue000 entitled\ue000 In\ue000 re\ue000 NovaStar\ue000 Mortgage,\ue000 Inc.
(the\ue000 \u201cInvoluntary\ue000 Petition\u201d)\ue000 filed\ue000 in\ue000 the\ue000 United\ue000 States\ue000 Bankruptcy\ue000 Court\ue000 for\ue000 the\ue000 District\ue000 of\ue000 Delaware\ue000 (the\ue000 \u201cBankruptcy\ue000 Court\u201d),\ue000 Case\ue000 No.\ue000 08-
12125\ue000 (the\ue000 \u201cBankruptcy\ue000 Case\u201d).

Settlement\ue000 Agreement

NMI,\ue000 NFI\ue000 and\ue000 the\ue000 Preferred\ue000 Securities\ue000 Holders\ue000 entered\ue000 into\ue000 a\ue000 Settlement\ue000 Agreement\ue000 dated\ue000 as\ue000 of\ue000 February\ue000 18,\ue000 2009\ue000 (the\ue000 \u201cSettlement
Agreement\u201d).\ue000 Pursuant\ue000 to\ue000 the\ue000 terms\ue000 of\ue000 the\ue000 Settlement\ue000 Agreement,\ue000 upon\ue000 the\ue000 satisfaction\ue000 of\ue000 the\ue000 conditions\ue000 described\ue000 below,\ue000 the\ue000 Preferred
Securities\ue000 Holders\ue000 will\ue000 waive\ue000 all\ue000 events\ue000 of\ue000 defaults\ue000 under\ue000 the\ue000 Junior\ue000 Subordinated\ue000 Indenture\ue000 dated\ue000 as\ue000 of\ue000 September\ue000 20,\ue000 2005\ue000 (the\ue000 \u201cTaberna
Indenture\u201d)\ue000 and\ue000 the\ue000 Junior\ue000 Subordinated\ue000 Indenture\ue000 dated\ue000 as\ue000 of\ue000 April\ue000 18,\ue000 2006\ue000 (the\ue000 \u201cKodiak\ue000 Indenture\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 Taberna
Indenture,\ue000 the\ue000 \u201cExisting\ue000 Indentures\u201d)\ue000 existing\ue000 as\ue000 of\ue000 the\ue000 date\ue000 of\ue000 the\ue000 Settlement\ue000 Agreement\ue000 and\ue000 annul\ue000 the\ue000 declarations\ue000 of\ue000 acceleration\ue000 with
respect\ue000 to\ue000 the\ue000 events\ue000 of\ue000 default.\ue000 In\ue000 exchange\ue000 for\ue000 the\ue000 waiver\ue000 of\ue000 events\ue000 of\ue000 defaults\ue000 and\ue000 annulment\ue000 of\ue000 the\ue000 declaration\ue000 of\ue000 acceleration\ue000 by\ue000 the
Preferred\ue000 Securities\ue000 Holders,\ue000 NMI\ue000 will\ue000 wire\ue000 to\ue000 WolfBlock\ue000 LLP\ue000 as\ue000 escrow\ue000 agent\ue000 (the\ue000 \u201cEscrow\ue000 Agent\u201d)\ue000 pursuant\ue000 to\ue000 the\ue000 Escrow\ue000 Agreement\ue000 dated
as\ue000 of\ue000 February\ue000 18,\ue000 2009\ue000 by\ue000 and\ue000 among\ue000 NMI,\ue000 NFI,\ue000 the\ue000 Preferred\ue000 Securities\ue000 Holders\ue000 and\ue000 the\ue000 Escrow\ue000 Agent\ue000 (the\ue000 \u201cEscrow\ue000 Agreement\u201d):

(i)\ue000 $3,316,921.08\ue000 (the\ue000 \u201cTaberna\ue000 Settlement\ue000 Amount\u201d)\ue000 (ii)\ue000 $2,005,738\ue000 (the\ue000 \u201cKodiak\ue000 Settlement\ue000 Amount\u201d);\ue000 and\ue000 (iii)\ue000 $387,000\ue000 (the\ue000 \u201cRestructuring
Costs\ue000 Amount\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 Taberna\ue000 Settlement\ue000 Amount\ue000 and\ue000 the\ue000 Kodiak\ue000 Settlement\ue000 Amount,\ue000 the\ue000 \u201cSettlement\ue000 Amount\u201d).

Upon\ue000 disbursement\ue000 by\ue000 the\ue000 Escrow\ue000 Agent\ue000 following\ue000 the\ue000 entry\ue000 of\ue000 a\ue000 final,\ue000 non-appealable\ue000 dismissal\ue000 order\ue000 of\ue000 the\ue000 Bankruptcy\ue000 Court
dismissing\ue000 the\ue000 Bankruptcy\ue000 Case\ue000 (the\ue000 \u201cDismissal\ue000 Order\u201d)\ue000 and\ue000 otherwise\ue000 in\ue000 accordance\ue000 with\ue000 the\ue000 terms\ue000 and\ue000 conditions\ue000 of\ue000 the\ue000 Escrow\ue000 Agreement,
the\ue000 Taberna\ue000 Settlement\ue000 Amount\ue000 will\ue000 be\ue000 applied\ue000 in\ue000 full\ue000 satisfaction\ue000 of\ue000 NMI\u2019s\ue000 and\ue000 NFI\u2019s\ue000 obligations\ue000 with\ue000 respect\ue000 to\ue000 all\ue000 outstanding\ue000 interest\ue000 due
on\ue000 the\ue000 Series\ue000 A\ue000 Securities\ue000 and\ue000 Series\ue000 B\ue000 Securities\ue000 (each\ue000 as\ue000 defined\ue000 in\ue000 the\ue000 Taberna\ue000 Indenture\ue000 and\ue000 collectively,\ue000 the\ue000 \u201cTaberna\ue000 Preferred
Securities\u201d)\ue000 through\ue000 December\ue000 31,\ue000 2008\ue000 (the\ue000 \u201cTaberna\ue000 Pre-Settlement\ue000 Interest\u201d),\ue000 the\ue000 Kodiak\ue000 Settlement\ue000 Amount\ue000 will\ue000 be\ue000 applied\ue000 in\ue000 full
satisfaction\ue000 of\ue000 NMI\u2019s\ue000 and\ue000 NFI\u2019s\ue000 obligations\ue000 with\ue000 respect\ue000 to\ue000 all\ue000 outstanding\ue000 interest\ue000 due\ue000 on\ue000 the\ue000 Securities\ue000 (as\ue000 defined\ue000 in\ue000 the\ue000 Kodiak\ue000 Indenture,
the\ue000 \u201cKodiak\ue000 Preferred\ue000 Securities\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 \u201cTaberna\ue000 Preferred\ue000 Securities,\ue000 the\ue000 \u201cExisting\ue000 Preferred\ue000 Securities\u201d)\ue000 through
December\ue000 31,\ue000 2008\ue000 (the\ue000 \u201cKodiak\ue000 Pre-Settlement\ue000 Interest\u201d),\ue000 and\ue000 the\ue000 Restructuring\ue000 Costs\ue000 Amount\ue000 will\ue000 be\ue000 applied\ue000 in\ue000 full\ue000 satisfaction\ue000 of\ue000 all\ue000 legal
fees,\ue000 costs\ue000 and\ue000 expenses\ue000 of\ue000 certain\ue000 trustees\ue000 named\ue000 therein\ue000 and\ue000 the\ue000 Preferred\ue000 Securities\ue000 Holders,\ue000 related\ue000 to\ue000 the\ue000 events\ue000 of\ue000 default\ue000 under\ue000 the
Indentures,\ue000 the\ue000 Bankruptcy\ue000 Case\ue000 and\ue000 the\ue000 negotiation\ue000 of\ue000 the\ue000 Settlement\ue000 Agreement,\ue000 the\ue000 Exchange\ue000 Agreement\ue000 (as\ue000 described\ue000 below)\ue000 and\ue000 the

documents\ue000 and\ue000 instruments\ue000 related\ue000 thereto.
The\ue000 Settlement\ue000 Agreement\ue000 is\ue000 effective\ue000 upon,\ue000 among\ue000 other\ue000 things:\ue000 (i)\ue000 the\ue000 execution\ue000 and\ue000 delivery\ue000 of\ue000 the\ue000 Exchange\ue000 Agreement\ue000 by\ue000 the

parties\ue000 thereto\ue000 and\ue000 the\ue000 satisfaction\ue000 of\ue000 the\ue000 conditions\ue000 precedent\ue000 set\ue000 forth\ue000 therein;\ue000 (ii)\ue000 the\ue000 exchange\ue000 of\ue000 the\ue000 Taberna\ue000 Preferred\ue000 Securities\ue000 for\ue000 the 2009\ue000 I/B\ue000 Preferred\ue000 Securities\ue000 (as\ue000 defined\ue000 below)\ue000 and\ue000 the\ue000 Kodiak\ue000 Preferred\ue000 Securities\ue000 form\ue000 the\ue000 2009\ue000 II/B\ue000 Preferred\ue000 Securities\ue000 (as\ue000 defined\ue000 below); and\ue000 (iii)\ue000 the\ue000 entry\ue000 of\ue000 the\ue000 Dismissal\ue000 Order,\ue000 by\ue000 April\ue000 30,\ue000 2009.\ue000 In\ue000 the\ue000 event\ue000 these\ue000 conditions\ue000 precedent\ue000 are\ue000 not\ue000 satisfied\ue000 by\ue000 April\ue000 30,\ue000 2009,\ue000 the Escrow\ue000 Agent\ue000 shall\ue000 return\ue000 the\ue000 full\ue000 amount\ue000 of\ue000 the\ue000 Settlement\ue000 Amount\ue000 to\ue000 NMI.

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Exchange\ue000 Agreement

NMI,\ue000 NFI,\ue000 NovaStar\ue000 Capital\ue000 Trust\ue000 I/B\ue000 (\u201cTrust\ue000 I/B\u201d),\ue000 NovaStar\ue000 Capital\ue000 Trust\ue000 II/B\ue000 (\u201cTrust\ue000 II/B\u201d)\ue000 and\ue000 the\ue000 Preferred\ue000 Securities\ue000 Holders
entered\ue000 into\ue000 an\ue000 Exchange\ue000 Agreement\ue000 dated\ue000 as\ue000 of\ue000 February\ue000 18,\ue000 2009\ue000 (the\ue000 \u201cExchange\ue000 Agreement\u201d).\ue000 Pursuant\ue000 to\ue000 the\ue000 terms\ue000 of\ue000 the\ue000 Exchange
Agreement,\ue000 upon\ue000 the\ue000 satisfaction\ue000 of\ue000 the\ue000 conditions\ue000 described\ue000 below,\ue000 NMI\ue000 will\ue000 (i)\ue000 issue\ue000 to\ue000 Trust\ue000 I/B\ue000 $51,550,000\ue000 in\ue000 aggregate\ue000 principal\ue000 amount
of\ue000 unsecured\ue000 junior\ue000 subordinated\ue000 notes\ue000 of\ue000 NMI\ue000 (the\ue000 \u201c2009\ue000 I/B\ue000 Junior\ue000 Subordinated\ue000 Notes\u201d)\ue000 and\ue000 cause\ue000 Trust\ue000 I/B\ue000 to\ue000 issue\ue000 (a)\ue000 50,000\ue000 preferred
securities\ue000 of\ue000 Trust\ue000 I/B\ue000 having\ue000 an\ue000 aggregate\ue000 liquidation\ue000 value\ue000 amount\ue000 of\ue000 $50,000,000\ue000 (the\ue000 \u201c2009\ue000 I/B\ue000 Preferred\ue000 Securities\u201d)\ue000 to\ue000 the\ue000 Taberna
Preferred\ue000 Securities\ue000 Holders\ue000 in\ue000 exchange\ue000 for\ue000 the\ue000 transfer\ue000 by\ue000 the\ue000 Taberna\ue000 Preferred\ue000 Securities\ue000 Holders\ue000 to\ue000 NMI\ue000 of\ue000 all\ue000 outstanding\ue000 Taberna
Preferred\ue000 Securities\ue000 and\ue000 (b)\ue000 1,550\ue000 common\ue000 securities\ue000 of\ue000 Trust\ue000 I/B,\ue000 having\ue000 an\ue000 aggregate\ue000 liquidation\ue000 amount\ue000 of\ue000 $1,550,000\ue000 (the\ue000 \u201c2009\ue000 I/B\ue000 Common
Securities\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 2009\ue000 I/B\ue000 Preferred\ue000 Securities,\ue000 the\ue000 \u201c2009\ue000 I/B\ue000 Securities\u201d)\ue000 to\ue000 NMI;\ue000 and\ue000 (ii)\ue000 issue\ue000 to\ue000 Trust\ue000 II/B\ue000 $28,995,000\ue000 in
aggregate\ue000 principal\ue000 amount\ue000 of\ue000 unsecured\ue000 junior\ue000 subordinated\ue000 notes\ue000 of\ue000 NMI\ue000 (the\ue000 \u201c2009\ue000 II/B\ue000 Junior\ue000 Subordinated\ue000 Notes\u201d)\ue000 and\ue000 cause\ue000 Trust\ue000 II/B
to\ue000 issue\ue000 (a)\ue000 28,125\ue000 preferred\ue000 securities\ue000 of\ue000 Trust\ue000 II/B,\ue000 having\ue000 an\ue000 aggregate\ue000 liquidation\ue000 amount\ue000 of\ue000 $28,125,000\ue000 (the\ue000 \u201c2009\ue000 II/B\ue000 Preferred
Securities\u201d)\ue000 to\ue000 the\ue000 Kodiak\ue000 Preferred\ue000 Securities\ue000 Holders\ue000 in\ue000 exchange\ue000 for\ue000 the\ue000 transfer\ue000 by\ue000 the\ue000 Kodiak\ue000 Preferred\ue000 Securities\ue000 Holders\ue000 to\ue000 NMI\ue000 of\ue000 all
outstanding\ue000 Kodiak\ue000 Preferred\ue000 Securities\ue000 and\ue000 (b)\ue000 870\ue000 common\ue000 securities\ue000 of\ue000 Trust\ue000 II/B,\ue000 having\ue000 an\ue000 aggregate\ue000 liquidation\ue000 amount\ue000 of\ue000 $870,000\ue000 (the
\u201c2009\ue000 II/B\ue000 Common\ue000 Securities\u201d\ue000 and\ue000 together\ue000 with\ue000 the\ue000 2009\ue000 II/B\ue000 Preferred\ue000 Securities,\ue000 the\ue000 \u201c2009\ue000 II/B\ue000 Securities\u201d).

Upon\ue000 receipt\ue000 of\ue000 Existing\ue000 Preferred\ue000 Securities,\ue000 NMI\ue000 will\ue000 surrender\ue000 such\ue000 Existing\ue000 Preferred\ue000 Securities\ue000 and\ue000 all\ue000 outstanding\ue000 common\ue000 securities
issued\ue000 by\ue000 the\ue000 Existing\ue000 Trusts\ue000 to\ue000 the\ue000 applicable\ue000 property\ue000 trustee\ue000 for\ue000 cancellation\ue000 thereof,\ue000 direct\ue000 the\ue000 applicable\ue000 property\ue000 trustee\ue000 and
administrative\ue000 trustees\ue000 of\ue000 the\ue000 Existing\ue000 Trust\ue000 to\ue000 dissolve\ue000 the\ue000 Existing\ue000 Trusts\ue000 and\ue000 to\ue000 surrender\ue000 the\ue000 Existing\ue000 Notes\ue000 to\ue000 the\ue000 applicable\ue000 indenture
trustees\ue000 for\ue000 cancellation\ue000 thereof\ue000 and\ue000 cause\ue000 the\ue000 Existing\ue000 Indentures\ue000 pursuant\ue000 to\ue000 which\ue000 the\ue000 Existing\ue000 Notes\ue000 were\ue000 issued\ue000 to\ue000 be\ue000 discharged.

The\ue000 Exchange\ue000 Agreement\ue000 is\ue000 subject\ue000 to\ue000 the\ue000 satisfaction\ue000 of\ue000 certain\ue000 conditions,\ue000 including,\ue000 among\ue000 others:\ue000 (i)\ue000 the\ue000 execution\ue000 and\ue000 delivery\ue000 of the\ue000 Escrow\ue000 Agreement\ue000 and\ue000 the\ue000 Settlement\ue000 Agreement\ue000 by\ue000 the\ue000 respective\ue000 parties\ue000 thereto;\ue000 (ii)\ue000 the\ue000 entry\ue000 of\ue000 the\ue000 Dismissal\ue000 Order\ue000 by\ue000 the\ue000 Bankruptcy Court;\ue000 and\ue000 (iii)\ue000 the\ue000 execution\ue000 and\ue000 delivery\ue000 of\ue000 indentures,\ue000 trust\ue000 agreements\ue000 and\ue000 guarantees\ue000 with\ue000 respect\ue000 to\ue000 the\ue000 issuance\ue000 of\ue000 the\ue000 2009\ue000 I/B

Securities,\ue000 2009\ue000 II/B\ue000 Securities,\ue000 2009\ue000 I/B\ue000 Junior\ue000 Subordinated\ue000 Notes\ue000 and\ue000 2009\ue000 I/B\ue000 Junior\ue000 Subordinated\ue000 Notes.
Issuance\ue000 of\ue000 2009\ue000 I/B\ue000 Securities,\ue000 2009\ue000 II/B\ue000 Securities,\ue000 2009\ue000 I/B\ue000 Junior\ue000 Subordinated\ue000 Notes\ue000 and\ue000 2009\ue000 II/B\ue000 Junior\ue000 Subordinated\ue000 Notes
The\ue000 terms\ue000 of\ue000 the\ue000 2009\ue000 I/B\ue000 Preferred\ue000 Securities\ue000 and\ue000 2009\ue000 II/B\ue000 Preferred\ue000 Securities\ue000 (together\ue000 with\ue000 the\ue000 2009\ue000 I/B\ue000 Preferred\ue000 Securities,\ue000 the\ue000 \u201c2009
Preferred\ue000 Securities\u201d)\ue000 are\ue000 governed\ue000 by\ue000 Amended\ue000 and\ue000 Restated\ue000 Trust\ue000 Agreements,\ue000 dated\ue000 February\ue000 18,\ue000 2009,\ue000 among\ue000 NMI\ue000 and\ue000 the\ue000 trustees
named\ue000 therein\ue000 (each,\ue000 a\ue000 \u201c2009\ue000 Trust\ue000 Agreement\u201d)\ue000 and\ue000 are\ue000 substantially\ue000 the\ue000 same.

Upon\ue000 issuance\ue000 pursuant\ue000 to\ue000 the\ue000 Exchange\ue000 Agreement,\ue000 the\ue000 2009\ue000 I/B\ue000 Preferred\ue000 Securities\ue000 (or\ue000 2009\ue000 II/B\ue000 Preferred\ue000 Securities,\ue000 as\ue000 the\ue000 case\ue000 may
be)\ue000 require\ue000 quarterly\ue000 distributions\ue000 of\ue000 interest\ue000 by\ue000 Trust\ue000 I/B\ue000 (or\ue000 Trust\ue000 II/B)\ue000 to\ue000 the\ue000 holders\ue000 of\ue000 the\ue000 2009\ue000 I/B\ue000 Preferred\ue000 Securities\ue000 (or\ue000 2009\ue000 II/B
Preferred\ue000 Securities)\ue000 at\ue000 a\ue000 rate\ue000 equal\ue000 of\ue000 1.0%\ue000 per\ue000 annum\ue000 beginning\ue000 January\ue000 1,\ue000 2009\ue000 through\ue000 December\ue000 31,\ue000 2009,\ue000 subject\ue000 to\ue000 reset\ue000 to\ue000 a\ue000 variable\ue000 rate
equal\ue000 to\ue000 the\ue000 three-month\ue000 LIBOR\ue000 plus\ue000 3.5%\ue000 upon\ue000 the\ue000 occurrence\ue000 of\ue000 an\ue000 \u201cInterest\ue000 Coverage\ue000 Trigger.\u201d\ue000 For\ue000 purposes\ue000 of\ue000 the\ue000 2009\ue000 Preferred
Securities,\ue000 an\ue000 Interest\ue000 Coverage\ue000 Trigger\ue000 occurs\ue000 when\ue000 the\ue000 ratio\ue000 of\ue000 EBITDA\ue000 for\ue000 any\ue000 quarter\ue000 ending\ue000 on\ue000 or\ue000 after\ue000 December\ue000 31,\ue000 2008\ue000 and\ue000 on\ue000 or\ue000 prior
to\ue000 December\ue000 31,\ue000 2009\ue000 to\ue000 the\ue000 product\ue000 as\ue000 of\ue000 the\ue000 last\ue000 day\ue000 of\ue000 such\ue000 quarter,\ue000 of\ue000 the\ue000 stated\ue000 liquidation\ue000 value\ue000 of\ue000 all\ue000 outstanding\ue000 2009\ue000 Preferred
Securities\ue000 (i)\ue000 multiplied\ue000 by\ue000 7.5%,\ue000 (ii)\ue000 multiplied\ue000 by\ue000 1.5\ue000 and\ue000 (iii)\ue000 divided\ue000 by\ue000 4,\ue000 equals\ue000 or\ue000 exceeds\ue000 1.00\ue000 to\ue000 1.00.\ue000 Beginning\ue000 January\ue000 1,\ue000 2010\ue000 until\ue000 the
earlier\ue000 of\ue000 February\ue000 18,\ue000 2019\ue000 or\ue000 the\ue000 occurrence\ue000 of\ue000 an\ue000 Interest\ue000 Coverage\ue000 Trigger,\ue000 the\ue000 unpaid\ue000 principal\ue000 amount\ue000 of\ue000 the\ue000 2009\ue000 I/B\ue000 Preferred\ue000 Securities
and\ue000 2009\ue000 II/B\ue000 Preferred\ue000 Securities\ue000 will\ue000 bear\ue000 interest\ue000 at\ue000 a\ue000 rate\ue000 of\ue000 1.0%\ue000 per\ue000 annum\ue000 and,\ue000 thereafter,\ue000 at\ue000 a\ue000 variable\ue000 rate,\ue000 reset\ue000 quarterly,\ue000 equal\ue000 to\ue000 the
three-month\ue000 LIBOR\ue000 plus\ue000 3.5%\ue000 per\ue000 annum.

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