NOVATION COMPANIES, INC. (OTCMKTS:NOVCQ) Files An 8-K Bankruptcy or Receivership
Item 1.03 Bankruptcy or Receivership.
As previously disclosed by Novation Companies, Inc. (the Company)
in filings with the Securities and Exchange Commission (the SEC),
the Company and its subsidiaries NovaStar Mortgage Funding
Corporation, NovaStar Mortgage, LLC and 2114 Central, LLC (the
Subsidiaries, and together with the Company, the Debtors) filed
voluntary petitions (the cases commenced thereby, the Bankruptcy
Cases) in the United States Bankruptcy Court for the District of
Maryland (Baltimore Division) (the Bankruptcy Court) seeking
relief under chapter 11 of the United States Bankruptcy Code (the
Bankruptcy Code). The Company and NovaStar Mortgage, LLC (the
Plan Debtors) subsequently filed with the Bankruptcy Court, and
amended, a plan of reorganization for the resolution of the
outstanding claims against and interests in the Plan Debtors to
Section 1121(a) of the Bankruptcy Code (as amended and
supplemented, the Plan) and a related disclosure statement.
On June 12, 2017, the Bankruptcy Court entered an order
confirming the Plan (the Confirmation Order) with respect to the
Company (NovaStar Mortgage, LLC elected not to proceed with the
Plan). The Company expects that the effective date of the Plan
will occur as soon as all conditions precedent to effectiveness
have been satisfied or waived (the Effective Date). Although the
Company is seeking to cause the Effective Date to occur as
promptly as practicable, there can be no assurance as to when, or
if, the Effective Date will occur.
As of the date hereof there are 92,844,907 shares of the Companys
common stock issued and outstanding.
Summary of the Plan
The following is a summary of the material terms of the Plan.
This summary highlights only certain substantive provisions of
the Plan and is not intended to be a complete description of the
Plan. This summary is qualified in its entirety by reference to
the full text of the second amended plan of reorganization
amending the Plan filed by the Plan Debtors in the Bankruptcy
Court on May 17, 2017, a plan supplement including copies of
certain documents relating to the Plan filed by the Plan Debtors
in the Bankruptcy Court on May 19, 2017 (the Plan Supplement),
and the Confirmation Order, which are attached hereto as Exhibits
99.1, 99.2 and 99.3, respectively, and incorporated by reference
herein. Capitalized terms used but not otherwise defined herein
have the meanings given to them in the Plan.
Treatment of Claims and Interests
The legal, equitable and contractual rights of the holders of
Priority Non-Tax Claims (Class 1) are unaltered by the Plan.
Under the Plan and a proposed settlement with the Noteholders
(Class 2), the Noteholders will receive: (a) a lump sum payment
to the Indenture Trustee in an amount equal to accrued and unpaid
interest on account of such Noteholder Claims in the amount of
approximately $5,800,000 so long as the Effective Date occurs on
or before July 31, 2017; thereafter interest will accrue and be
payable to the Noteholders at the Full Rate as defined and set
forth in the Indentures; (b) the Amended Senior Notes in
principal amounts equal to the existing principal amounts under
the Indentures, which will accrue non-default interest at LIBOR
350 basis points (as LIBOR is determined under the Amended Senior
Notes), have a maturity date of March 20, 2033, and be secured
with first priority liens covering all assets of the Company and,
subject to further Bankruptcy Court approval at a hearing which
is scheduled for June 20, 2017,all Subsidiary Guarantors whether
existing now or at any future date, excluding (x) accounts
receivable and (y) inventory of any existing and future operating
businesses of the Company or any Subsidiary Guarantor; and (c)
$500,000 in the aggregate on account of reimbursement of
outstanding fees and expenses of the Noteholders respective
counsel through the Effective Date, payable to the respective
Noteholders counsel directly.
Each holder of a General Unsecured Claim (Class 3) will be paid
in full over a one year period as follows: (a) one half of such
claim on the Effective Date and (b) the remaining half in equal
monthly installments over twelve months following the Effective
Date, together with interest at the Federal Judgment Rate.
Each holder of an RMBS Litigation Claim (Class 4) will receive,
in full and complete satisfaction, settlement and release of and
in exchange for such Claim, (x) to the extent such claim is
covered by an insurance policy, payment solely from and to the
extent of the applicable coverage under such insurance policies
and the Interim Funding Agreement or (y) in the event such claim
is not covered by an insurance policy, payment will be paid in
full in cash once allowed by Final Order payable over ten years
in quarterly installments, together with interest thereon at the
Federal Judgement Rate.
The holders of existing equity interests in the Company (Class 5)
will retain their interests.
Conditions to Effectiveness
The following conditions must be satisfied or waived for the
Effective Date to occur:
| a) |
the Confirmation Order, in form and substance satisfactory to the Company, becomes a Final Order; |
| b) |
the Plan and related documents, in form and substance satisfactory to the Company, have been executed and delivered, and any conditions contained therein have been satisfied or waived in accordance therewith; |
| c) |
the Company and Butler America, LLC (Butler) have executed all documents and entered into all agreements as may be necessary and appropriate in connection with the transactions contemplated by that certain Stock Purchase Agreement (the Purchase Agreement) by and between the Company, Novation Holding, Inc., a wholly-owned subsidiary of the Company (NHI), and Butler, providing for NHIs purchase from Butler of 100% of the outstanding voting securities of Healthcare Staffing, Inc. (HCS); |
| d) |
there are sufficient funds to fund the distributions to holders of Allowed Claims under the Plan; |
| e) |
the Board of Directors of the reorganized Company have been selected and have agreed to serve; and |
| f) | the closing of the Amended Senior Notes have occurred. |
Under the terms of the Plan, the Company and NHI will use
available cash on hand to acquire the stock of HCS from Butler to
the terms of the Purchase Agreement. The Companys entry into the
Purchase Agreement and its terms were previously disclosed in a
Current Report on Form 8-K filed by the Company with the SEC on
February 3, 2017.
The Plan contemplates a settlement of dispute between the Company
and the Creditors Committee and the Noteholders (the Noteholder
Settlement). A hearing to consider approval of the Noteholder
Settlement is scheduled for June 20, 2017. At the hearing, the
Company will seek approval of the grant of liens upon and
guarantees from the Subsidiary Guarantors, which the Plan defines
to include NovaStar Mortgage LLC, NovaStar Mortgage Funding
Corporation, 2114 Central, LLC and all subsidiaries of any
Debtors whether existing now or at any future date, including
without limitation NHI and HCS. Approval of the Noteholder
Settlement is also a condition to the Plan becoming effective.
Without approval of the Noteholder Settlement, the Creditors
Committee and the Noteholders may object to the implementation of
the Plan and seek to force a liquidation of all of the Debtors.
There can be no assurance that the Company will satisfy these
conditions and emerge from chapter 11, within the Companys
anticipated timeframe or at all.
Post-Effective Governance and Management
The Confirmation Order authorized and approved the adoption of
the Companys Articles of Amendment and Restatement (the New
Charter) and Second Amended and Restated Bylaws (the New Bylaws)
annexed as Exhibit A and Exhibit B, respectively, to the Plan
Supplement. The New Charter amends the Companys existing Articles
of Amendment and Restatement by (a) providing for the annual
election of the Companys directors beginning at its 2017 annual
meeting of shareholders, (b) eliminating supermajority voting
requirements related to charter amendments, and (c) changing the
breakdown of the Companys 120,000,000 authorized shares of
capital stock to 100,000,000 shares of common stock and
20,000,000 shares of preferred stock. The New Bylaws amend the
Companys existing bylaws to conform to the New Charter. The New
Charter will become effective upon its filing with the Secretary
of State of Maryland following the Effective Date, and the New
Bylaws will become effective promptly thereafter.
As of the Effective Date, the sole officer of the Company will be
Rodney E. Schwatken, and the current members of the Board of
Directors of the Company, which consist of Howard M. Amster,
Jeffrey E. Eberwein, Charles M. Gillman, Barry A. Igdaloff and
Robert G. Pearse, will serve for the remainder of the terms for
which they have been elected and until their successors are
elected and qualify.
Releases and Exculpation
The Plan provides certain customary release provisions that
include releases for the benefit of parties, including the
Companys directors, officers, employees, agents, members,
shareholders, advisors and professionals; Butler (except for
claims arising under the Purchase Agreement); the Noteholders;
and the Creditors Committee and its members, advisors and
professionals, with the exception of fraud, gross negligence or
willful misconduct.
The Plan also provides certain customary exculpation provisions,
which include a full exculpation from liability in favor of each
of the Company; the reorganized Company; the Disbursing Agent;
the Creditors Committee; Butler; the Noteholders; and each of
their respective directors, officers, employees, members,
attorneys, consultants, advisors, and agents, to any holder of
any claim or interest for any act or omission up to and including
the Effective Date in connection with, related to, or arising out
of the Companys restructuring and the Bankruptcy Cases, with the
exception of fraud, gross negligence or willful misconduct.
Item 9.01 Financial Statements and Exhibits.
(d)Exhibits.
| Exhibit No. | Description |
| 99.1 |
Second Amended Joint Chapter 11 Plan of Reorganization of Novation Companies, Inc. and NovaStar Mortgage LLC, dated as of May 17, 2017. |
| 99.2 |
Notice of Filing of Certain Supplement Documents and Schedules Relating to the Second Amended Chapter 11 Plan of Reorganization of Novation Companies, Inc. and NovaStar Mortgage LLC, dated as of May 19, 2017. |
| 99.3 |
Findings of Fact, Conclusions of Law and Order Confirming the Second Amended Chapter 11 Plan of Reorganization of Novation Companies, Inc. |
About NOVATION COMPANIES, INC. (OTCMKTS:NOVCQ)
Novation Companies, Inc. is seeking to acquire operating businesses or make other investments. The Company has not identified any specific acquisition targets. The Company owned Corvisa LLC (Corvisa), a developer and seller of cloud-based communication software under the CorvisaOne brand, telecommunications services, and implementation consulting services. The Company’s subsidiaries include Novation Holdings, Inc., NovaStar CDO Holdings, Inc., NCIP Holdings, LLC and 2114 Central, LLC.