Novastar Financial Inc - Current report filing (8-K)

 UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 FORM 8-K


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

 January 2, 2007
 Date of Report (Date of earliest event reported)



 NOVASTAR FINANCIAL, INC.
 (Exact name of registrant as specified in its charter)

 Maryland 001-13533 74-2830661
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(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)


 8140 Ward Parkway, Suite 300, Kansas City, MO 64114
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 (Address of principal executive offices)
 (Zip Code)

 [phone]
 --------------
 (Registrant's telephone number, including area code)

 Not Applicable
 --------------
 (Former Name or Former Address, if Changed Since Last Report)



Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17
 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
 Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
 Exchange Act (17 CFR 240.13e-4(c))

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Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Gregory Metz

As previously reported, Gregory Metz's employment as the Chief Financial Officer
of NovaStar Financial, Inc. (the "Company") was terminated by the Company
effective as of January 3, 2008. Such termination was without "cause" and was
part of a restructuring intended to reduce management personnel to a level in
line with the needs of the Company in light of changes in the business
environment and operations of the Company.

Rodney Schwatken, a former Treasurer and Controller (Chief Accounting Officer)
of the Company and most recently its Vice President - Strategic Initiatives,
assumed the responsibilities of Chief Financial Officer of the Company upon Mr.
Metz's termination.

In connection with Mr. Metz's termination, the Company and Mr. Metz entered into
a Separation and Consulting Agreement pursuant to which Mr. Metz will provide
consulting services to the Company and its affiliates upon the Company's request
up to 10 hours per week, or up to 5 hours per week after Mr. Metz accepts
subsequent employment with a third party, and will receive consulting
compensation at an annual rate equal to his most recent base salary of $263,533,
all as provided for in Mr. Metz's employment agreement with the Company. The
consulting term will continue for 14 months, which is comprised of an initial
period of two months in accordance with the Company's practice with regard to
the federal Worker Adjustment and Retraining Notification Act, and a subsequent
period of 12 months pursuant to Mr. Metz's employment agreement.

Under the Separation and Consulting Agreement, Mr. Metz waived all rights that
he had under his employment agreement to the payment of incentive compensation
upon or following the termination of his employment. In addition, the Company
waived Mr. Metz's non-compete obligations under his employment agreement and
otherwise, and Mr. Metz released all claims, if any, against the Company and its
affiliates arising out of Mr. Metz's employment by the Company and the
termination of his employment, other than rights to indemnification. Mr. Metz is
subject to certain non-solicitation obligations during the consulting term, and
to certain ongoing confidentiality obligations in favor of the Company and its
affiliates.

In accordance with Mr. Metz's employment agreement, the stock options and
restricted stock previously awarded by the Company to Mr. Metz that would have
vested in 2008 became fully vested upon termination of his employment, and all
other unvested stock options and restricted stock were forfeited. Pursuant to
the Separation and Consulting Agreement, the same vesting and forfeiture
treatment applies to dividend equivalent rights previously awarded to Mr. Metz
in respect of his stock options and restricted stock. In addition, the
Separation and Consulting Agreement provides for continued


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reimbursement by the Company of certain financial and tax planning expenses
incurred by Mr. Metz within 30 days following the termination of his employment.

The foregoing is a summary of the terms of the Separation and Consulting
Agreement. This summary is qualified in its entirety by reference to the full
text of the Separation and Consulting Agreement, which is attached hereto as
Exhibit 10.1 and is incorporated herein by reference.

Scott Hartman

As previously reported, Scott Hartman's employment as the Chief Executive
Officer of the Company was terminated by the Company effective as of January 3,
2008. Such termination was without "cause" and was part of a management
restructuring intended to reduce management personnel to a level in line with
the needs of the Company in light of changes in the business environment and
operations of the Company.

Negotiations of a separation agreement with Mr. Hartman have concluded with a
determination by each of the parties that the applicable provisions of Mr.
Hartman's employment agreement are acceptable to each party. Accordingly, Mr.
Hartman will receive the rights and benefits specified in his employment
agreement as applicable following termination of employment without cause. A
copy of Mr. Hartman's employment agreement, as previously amended, is on file
with the Securities and Exchange Commission.








Item 9.01 Financial Statement and Exhibits



(d) Exhibits.

Exhibit No. Document


10.1 Separation and Consulting Agreement, dated as of January 3,
 2008, by and between NovaStar Financial, Inc. and Gregory
 Metz.



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 SIGNATURE

 Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Dated: January 8, 2008 NOVASTAR FINANCIAL, INC.


 /s/ W. Lance Anderson
 -----------------------------------------
 W. Lance Anderson,
 Chairman and Chief Executive Officer


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 Index of Exhibits




Exhibit No. Document


10.1 Separation and Consulting Agreement, dated as of January 3,
 2008, by and between NovaStar Financial, Inc. and Gregory
 Metz.



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