Exhibit 10.66

EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”) is made and entered into as of May 03,
2007, by and between NovaStar Financial, Inc. (the “Company”) and Todd Phillips
(the “Employee”).

 

1. EMPLOYMENT BY THE COMPANY

1.1 Employment. The Company hereby employs Employee, and Employee hereby accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement.

1.2 Duties. Employee initially shall be employed by the Company in the position
of VP—Controller-CAO. Employee shall perform for and on behalf of the Company
such duties as the chief executive officer or Board of Directors of the Company
shall assign from time to time, and shall perform such duties in accordance with
the Company’s policies and practices, including, but not limited to, its
employment policies and practices.

1.3 Efforts. Employee hereby agrees that he or she will devote all of his or her
working time and attention and give his or her diligent effort and skill
exclusively to the business and interests of Company, and that he or she will
perform such services as may from time to time be assigned to Employee, and
shall do his or her utmost to further enhance and develop the best interests and
welfare of the Company in all respects. Employee agrees that he or she will give
full attention and fully comply with the rules and procedures as may from time
to time be promulgated by Company in its sole discretion.

1.4 Conflicts. Employee shall not, without prior written consent of the Company,
at any time during his or her employment with the Company: (a) accept employment
with, or render services of a business, professional or commercial nature to any
person other than the Company; (b) engage in, own or provide financial or other
assistance to any person, venture or activity which the Company may in good
faith consider to be competitive with or adverse to the Company, whether
directly or indirectly, alone or with any other person as a principle, agent,
shareholder, participant, partner, promoter, director, officer, manager,
employee, consultant, sales representative or otherwise; or (c) engage in any
venture or activity that the Company may in good faith consider to interfere
with Employee’s performance of his or her duties.

1.5 Authority. Employee represents that he or she has not entered into any
agreement that is effective at the time of the execution of this Agreement which
would prevent Employee from performing his or her duties to the Company.
Employee is not authorized by the Company to take, use, disclose or otherwise
misappropriate any confidential, business proprietary, trade secret and/or other
any other business information from any of Employee’s former employers to
perform his or her job duties with the Company, and Employee hereby covenants
and agrees that Employee shall not use or disclose any such information to the
Company in performing his or her job duties for the Company or otherwise.

 

2. COMPENSATION

2.1 Base Salary. The Company agrees to pay Employee an annual base salary (“Base
Salary”) of $136,792, payable in accordance with the Company’s regular payroll
schedule and subject to applicable deductions and withholdings. The Company may
increase or decrease Employee’s Base Salary at any time in its sole discretion,
subject to the rights of Employee under Section 5 of this Agreement.

2.2 Performance Bonus. Employee shall be eligible to receive incentive
compensation (“Incentive Pay”) based upon goals established by the Company from
time to time. The Company may

 

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increase or decrease Employee’s Incentive Pay and any Incentive Pay target
amount thereof, and may modify any Incentive Pay program or structure, at any
time in its sole discretion. Incentive Pay for any calendar year or portion
thereof shall be deemed earned only at the end of such calendar year. Should the
Employee no longer be employed by the Company on the date on which any Incentive
Pay is deemed pursuant to the foregoing to be earned, Employee shall not be
eligible or entitled to such Incentive Pay or to any pro-rata portion thereof.

2.3 Benefits. Employee shall be entitled to participate in any employee benefits
plans, perquisites and fringe benefits that the Company extends generally from
time to time to employees of the Company at the level of Employee. Separate
written descriptions of available benefits will be provided or made available
from time to time, and the Company reserves, in its sole and absolute
discretion, the right to modify these benefits in whole or in part at any time.

2.4 Vacation. Employee shall be entitled to 120 hours weeks of paid vacation per
calendar year, with such vacation to be accrued and taken in accordance with the
Company’s standard vacation policies.

2.5 Business Expenses. The Company shall reimburse Employee for any and all
necessary, customary and usual expenses, properly receipted in accordance with
the Company’s policies and procedures, incurred by Employee on behalf of the
Company.

2.6 Equity Awards. Equity or equity-based compensation awards including, without
limitation, stock options and/or restricted stock (“Equity Awards”) may be
offered to certain employees of the Company from time to time, at the sole
discretion of the Company. Such Equity Awards, if any, shall be governed solely
by one or more separate agreements and the provisions of any plan governing such
awards.

 

3. AT WILL EMPLOYMENT

Employee and the Company acknowledge that there is no agreement, express or
implied, between them for any specified term or period of employment, nor for
continuing or long-term employment. The employment relationship between Employee
and the Company is completely and, in all respects, at-will. Each of Employee
and the Company has the separate and absolute right to terminate the employment
relationship, at any time, with or without cause, for any reason or no reason
and no reason need be given. The fact that other sections of this Agreement
provide differential post-termination benefits to Employee on the basis of
whether Employee is terminated with Cause or without Cause, as defined below,
and the fact that the other rights and obligations set forth in this Agreement
remain in effect for a specified period of time, do not undermine the at-will
nature of the employment relationship. This is the entire agreement between
Employee and the Company regarding the matters set forth in this paragraph.

 

4. TERMINATION OF EMPLOYMENT BY THE COMPANY

4.1 Termination For Cause. Employee’s employment may be terminated by the
Company for Cause at any time. For purposes of this Agreement, “Cause” shall
mean the existence of or a good faith belief by the Company in the existence of
facts which constitute a basis for termination of Employee’s employment in view
of relevant factors and circumstances, which may include, but are not limited
to, Employee’s duties, responsibilities, conduct on the job or otherwise, job
performance, and employment record. Acts or omissions that constitute Cause
include, but are not limited to:

(a) Breach of any of the terms of this Agreement;

 

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(b) Failure to perform material duties in accordance with the standards from
time to time established by the Company;

(c) Neglect in performance of or failure to attend to the performance of
material duties;

(d) Insubordination or willful breach of policies and procedures of the Company;

(e) Breach of fiduciary duties; or

(f) Conduct that the Company determines in good faith may impair or tend to
impair the integrity of the Company, including but not limited to commission of
a felony, theft, misappropriation, embezzlement, dishonesty, or criminal
misconduct.

4.2 Termination For Death or Disability. Employee’s employment shall be
terminated by the Company upon the death of Employee, and may be terminated by
the Company upon the disability of Employee, consistent with any rights or
obligations of the Company and the Employee under the Americans with
Disabilities Act, or any other applicable constitutional provision or statute.
Termination for death or disability is separate and distinct from termination
with Cause or Good Reason and from termination without Cause or Good Reason, and
will give rise only to the rights and obligations expressly provided in
Section 6.3 hereof.

4.3 Termination Without Cause. Employee’s employment may be terminated by the
Company without Cause at any time and at its sole discretion.

 

5. TERMINATION OF EMPLOYMENT BY EMPLOYEE

5.1 Termination for Good Reason. Employee’s employment may be terminated by
Employee at any time for Good Reason. For purposes of this Agreement, “Good
Reason” shall mean the occurrence, without the Employee’s consent, of any one or
more of the following events:

(a) Except in connection with the Company’s termination of Employee’s employment
for Cause pursuant to Section 4.1 or as a result of Employee’s death or
disability: (i) a reduction in Employee’s Base Salary; or (ii) a decrease in the
responsibilities of Employee to a level that, on the whole, is materially
inconsistent with the position for which Employee is then employed by the
Company; or

(b) The Company requires that Employee relocate more than fifty (50) miles from
the location at which Employee is employed by the Company on the date hereof,
and the Employee objects to such relocation in writing prior to Employee’s
actual relocation.

(c) The Company’s material breach of any of the provisions of this Agreement.

5.2 Notice and Cure. Notwithstanding the foregoing, a termination of employment
by Employee shall not be considered as having occurred for Good Reason unless
Employee provides written notice of his or her objection to the event
constituting Good Reason within thirty (30) days following the occurrence
thereof, specifying that Employee believes such event to constitute Good Reason,
and the Company has been afforded a period of at least thirty (30) days
following delivery of such notice to remedy the event constituting Good Reason
and has not done so.

 

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5.3 Termination Without Good Reason. Employee’s employment may be terminated by
Employee without Good Reason at any time.

 

6. TREATMENT OF COMPENSATION AND BENEFITS UPON TERMINATION

6.1 For Cause or Without Good Reason. If Employee is terminated by the Company
for Cause or if Employee terminates his or her employment without Good Reason:

(a) Employee shall not be entitled to any continuation of Base Salary, other
than Base Salary accrued but unpaid at the date of termination of Employee’s
employment;

(b) Employee shall not be entitled to Incentive Pay not earned prior to the date
of termination of Employee’s employment;

(c) Employee shall be entitled to receive reimbursement for business expenses
incurred prior to the date of termination of Employee’s employment to the extent
provided in Section 2.5 hereof;

(d) Employee shall not be entitled to continue to receive any benefits from the
Company after the date of termination of Employee’s employment, except as
otherwise required by the applicable benefit plan or applicable law.

6.2 Other than for Cause; for Good Reason. If Employee’s employment is
terminated by the Company other than for Cause, or by the Employee for Good
Reason:

(a) Employee shall receive compensation during the Consulting Period at the same
rate as Employee’s Base Salary in effect on the date of termination of
Employee’s employment, for the period commencing on the date of termination and
continuing until the date that is 6 months following the date of termination of
Employee’s employment, pursuant to a “Consultancy Agreement” between Employee
and the Company, the terms and conditions of which are outlined in Section 8.4
of this Agreement;

(b) Employee shall not be entitled to Incentive Pay not earned prior to the date
of termination of Employee’s employment;

(c) Employee shall be entitled to receive reimbursement for business expenses
incurred prior to the date of termination of Employee’s employment to the extent
provided in Section 2.5 hereof;

(d) Employee shall not be entitled to continue to receive any benefits from the
Company after the date of termination of Employee’s employment, except as
otherwise required by the applicable benefit plan or applicable law.

6.3 For Death or Disability. If Employee’s employment is terminated by reason of
the death or disability of Employee:

(a) Employee shall not be entitled to any continuation of Base Salary, other
than Base Salary accrued but unpaid at the date of termination of Employee’s
employment;

(b) Employee shall not be entitled to Incentive Pay not earned prior to the date
of termination of Employee’s employment;

 

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(c) Employee shall be entitled to receive reimbursement for business expenses
incurred prior to the date of termination of Employee’s employment to the extent
provided in Section 2.5 hereof;

(d) Employee shall not be entitled to continue to receive any benefits from the
Company after the date of termination of Employee’s employment, except as
otherwise required by the applicable benefit plan or applicable law.

6.4 After Change in Control by Company Other than for Cause or by Employee for
Good Reason

If Employee’s employment shall be terminated after a Change in Control, as
defined in Section 6.5, (a) by Company other than for Cause, or (b) by Employee
for Good Reason, Employee shall be entitled to the following additional
benefits:

(a) Employee shall be paid an amount (the “Severance Amount”) equal to 1.0 times
the Employee’s combined current year Base Salary and actual Incentive Pay for
the preceding fiscal year; provided, however, the Severance Amount shall not be
less than Two Hundred Thousand Dollars ($200,000.00) nor more (once the minimum
is reached) than one percent (1.0%) of the book value of Company (i.e., the
amount reported on Company’s balance sheet prepared in accordance with generally
accepted accounting principles as stockholder’s equity). The Severance Amount
shall be paid in a single lump sum (i) as soon as possible in event Employee’s
employment shall be terminated by the Company other than for Cause or (ii) six
months following Employee’s termination of employment due to Good Reason.

(b) Vesting for Equity Awards will accelerate to the date of termination. In
other words, Employee shall immediately be vested with all Equity Awards awarded
by Company which have not been exercised prior to the termination date. The
provisions of the agreements and/or plans governing the stock options and
restricted stock will otherwise be controlling.

6.5 Change in Control. A “Change in Control” shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have been
satisfied.

(a) Any “person” as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the “Exchange Act”) (other than Company; any
trustee or other fiduciary holding securities under an executive benefit plan of
Company; or any company owned, directly or indirectly, by the stockholders of
Company in substantially the same proportions as their ownership of the stock of
Company), is or becomes the “beneficial owner” (as defined by Rule 13d-3 under
the Exchange Act), directly or indirectly, of the securities of Company (not
including any securities acquired directly from Company or from a transferor in
a transaction expressly approved or consented to by the Board of Directors)
representing more than 25% of the combined voting power of Company’s then
outstanding securities; or

(b) During any period of two consecutive years (not including any period prior
to the execution of the Agreement), individuals who at the beginning of such
period constitute the Board of Directors and any new director (other than a
director designated by a person who has entered into an agreement with Company
to effect a transaction described in clause (a), (c) or (d) of this section),
(i) whose election by the Board of Directors or nomination for election by
Company’s stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved or (ii) whose election is to replace a person who ceases to be a
director due to death, disability or age, cease for any reason to constitute a
majority thereof; or

 

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(c) The stockholders of Company approve a merger or consolidation of Company
with another corporation, other than (i) a merger or consolidation which would
result in the voting securities of Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities under an
executive benefit plan of Company, at least 75% of the combined voting power of
the voting securities of Company or such surviving entity outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of Company (or similar
transaction) in which no person acquires more than 50% of the combined voting
power of Company’s then outstanding securities; or

(d) The stockholders of Company approve a plan of complete liquidation of
Company or an agreement for the sale or disposition by Company of all or
substantially all Company’s assets.

6.6 Section 409A Requirements. Notwithstanding any provision in this Agreement
to the contrary, in the event Employee is a key employee as defined in
Section 416(i) of the Internal Revenue Code of 1986, as amended (the “Code”) (or
any successor provision thereof), payments of any and all amounts under this
Agreement following termination of employment shall be delayed for a period of
six months following Employee’s separation from service to the extent required
by Section 409A of the Code. Any payments required to be delayed pursuant to the
foregoing shall be accumulated and paid, without interest, in a lump sum
following the end of such six month period.

 

7. NON-COMPETITION

7.1 During Employment. Employee agrees that, during his or her employment by the
Company, he or she will not engage directly or indirectly, at any location
within the United States, in any business of the same or similar nature to the
business of the Company or of any Affiliate thereof or to any business in which
the Company or any Affiliate thereof is engaged in developing, nor will Employee
participate directly or indirectly in the ownership or management of any
enterprise engaged in such a business within the United States, including
ownership or management as defined by the Sarbanes-Oxley Act of 2002. As used in
this Agreement, an “Affiliate” of any person or entity means any other person or
entity that controls, is controlled by, or is under common control with such
first person or entity, with “control” of an entity meaning direct or indirect
ownership of fifty percent (50%) or more of the voting power or economic
interests of such entity.

 

8. ADDITIONAL OBLIGATIONS

8.1 Non-Interference. Employee agrees that during the term of his or her
employment with the Company and for a period of one (1) year after termination
of employment with the Company for any reason, Employee shall not interfere with
the business of the Company or any of its Affiliates.

8.2 Non-Solicitation. Employee agrees that during the term of his or her
employment with the Company and for a period of one (1) year after termination
of employment with the Company for any reason, Employee shall not directly or
indirectly solicit or encourage any of the employees of the Company or of any
Affiliate thereof to leave such employment and/or to work for another company or
business, whether or not the solicited employee would commit any breach of his
or her own employment terms by leaving the service of the Company or of such
Affiliate.

 

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8.3 Non-Disparagement. Employee agrees that he or she will not, at any time
during the term of his or her employment with the Company or thereafter, in any
way disparage the Company or any of its Affiliates (or any of their respective
directors, officers, managers, employees or other representatives), and will not
make or solicit any comments, statements, or the like to others that are
derogatory or detrimental to the good name or business reputation of the Company
or of any Affiliate thereof.

8.4 Consultancy Agreement.

(a) Employee shall enter into, and shall be conclusively deemed to have entered
into, a consultancy agreement with Company upon the terms of this Section 8.4
(i) immediately upon termination of Employee’s employment without Cause by the
Company or for Good Reason by Employee, or (ii) at the Company’s sole
discretion, immediately upon the Company’s request following termination of
Employee’s employment with Cause by the Company or without Good Reason by
Employee. The term of the consultancy will commence on the date of termination
of Employee’s employment and shall continue until the date that is six months
following the date of termination of Employee’s employment (the “Consulting
Period”). In exchange for Employee’s consulting services, Employee shall receive
compensation during the Consulting Period at the same rate as Employee’s Base
Salary in effect on the date of termination of Employee’s employment
(“Consultancy Pay”), payable in equal monthly installments (subject to
Section 6.6).

(b) During the Consulting Period, Employee agrees to make himself or herself
available to the Company for up to ten (10) hours per week, whether by
telephone, e-mail, or in person, on an as-needed basis to consult with respect
to matters that were within Employee’s job description during the course of
Employee’s employment. Employee agrees to respond promptly, reasonably and
cooperatively to the Company’s requests for assistance. Barring special
circumstances, the consulting hours shall not be cumulative; accordingly, hours
not used within a given week will be waived by the Company, but Employee will
receive his or her full pay under Section 8.4(a). However, the Company reserves
the right to require Employee to provide more than ten (10) hours of service per
week in the event that special circumstances arise in which Employee’s unique
assistance is required by the Company. (Examples of special circumstances
include, but are not limited to assistance in litigation or responding to
regulatory inquiries).

(c) In order to protect the Company’s confidential and trade secret information
from use or disclosure to a party other than the Company, and to enable the
Company to be able to obtain the benefits of Employee’s consulting obligations
hereunder, Employee agrees that during the Consulting Period, Employee owes the
Company a duty of loyalty and (i) shall not accept employment or consulting work
in any capacity with, or invest in, any business opportunity or activity that is
engaged at any location in the United States in any activity in which the
Company or any of its Affiliates in then engaged, and (ii) will continue to
abide by the provisions of paragraphs 8.1, 8.2 and 8.3 above, and (iii) shall
not directly or indirectly contact, solicit, divert or take away, or attempt to
contact, solicit, divert, or take away, the business or patronage of any of the
clients, customers, or accounts, or prospective clients, customers, or accounts
of the Company or of any of its Affiliates.

 

9. CONFIDENTIALITY/TRADE SECRETS

9.1 Confidential Information. For the purpose of this Agreement, “Confidential
Information” means any technology, ideas, concepts, design, devices or other
information belonging to or relating to the affairs of the Company or any
Affiliate thereof, including, but not limited to, (a) all trade secrets,
unpublished proprietary or other information with respect to any business
conducted or proposed to be

 

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conducted by the Company or any Affiliate thereof, (b) any present or proposed
services or products, (c) all lending policies and procedures, contracts and
agreements with lenders, investors, and other clients, and information regarding
lenders, investors, loan applicants, and borrowers, (d) the manner in which
business is conducted, sales techniques, and methods of data processing, and
(e) budgets, forecasts, and financial information; provided, however, that
Confidential Information shall not include any information that has entered or
enters the public domain through no fault of Employee.

9.2 Value and Secrecy. Employee acknowledges and agrees that the Confidential
Information has independent actual or potential economic value from not being
generally known to the public or to other persons who can obtain economic value
from its disclosure or use, is not readily available or independently
ascertainable through any source other than Company and its Affiliates, and is
subject to reasonable efforts to maintain its secrecy.

9.3 Ownership. Employee understands and agrees that any and all Confidential
Information produced or used by Employee during the period of employment belongs
to the Company and its Affiliates and not to Employee.

9.4 Restrictions on Use and Disclosure. In recognition that the business of the
Company and that the nature of Employee’s work will require Employee to have
access to Confidential Information which, if disclosed in an unauthorized
manner, could be highly prejudicial to the Company, its Affiliates, and/or their
respective clients:

(a) Employee agrees not to make any use whatsoever, directly or indirectly, at
any time, of any Confidential Information, except as required in the course of
his or her employment with the Company.

(b) Employee agrees not to disclose in any manner any Confidential Information,
directly or indirectly, during employment with the Company or following
termination of employment, except as required in the course of his or her
employment with the Company.

(c) Employee agrees to take all precautions reasonably necessary to prevent the
unauthorized use, disclosure, or dissemination of Confidential Information
during his or her employment with the Company and following termination of
employment.

(d) Upon termination of employment, Employee will immediately turn over to the
Company all Confidential Information, including all copies thereof, created or
obtained by, or otherwise in the possession of, Employee.

9.5 Other Rights. Employee recognizes and acknowledges that none of the above
provisions, nor the Company’s exercise of any rights under this Agreement, shall
limit the rights of the Company under applicable statutes and common law rules
regarding trade secrets, including, without limitation, the Uniform Trade
Secrets Act.

 

10. MISCELLANEOUS

10.1 Specific Performance. Employee understands and expressly acknowledges that
the provisions of Sections 7, 8 and 9 of this Agreement are material terms of
this Agreement. Employee acknowledges that any breach of the provisions of
Section 7, 8 or 9 of this Agreement shall result in serious and irreparable
injury to the Company for which the Company cannot be adequately compensated by
monetary damages alone. Employee agrees, therefore, that, in addition to any
other remedies it may have, the Company shall be entitled to enforce the
specific performance of this Agreement and to seek both temporary and permanent
injunctive relief (to the extent permitted by law).

 

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10.2 Successors and Assigns. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Company. Employee cannot assign any right or obligation under
this Agreement without the prior written consent of the Company.

10.3 Entire Agreement; Amendment. Except for Equity Award agreements and any
other agreements referenced herein, this Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supercedes any prior or contemporaneous agreement by and between
the parties with respect to the subject matter hereof. This Agreement can be
modified only by a written instrument executed by Employee and an officer of the
Company duly authorized to do so by the Board of Directors of the Company.

10.4 Waiver. Failure to insist upon compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver of or relinquishment of such right or power at any other time or
times.

10.5 Headings. Section headings in this Agreement are included for convenience
of reference only and shall not constitute a part of this Agreement for any
purpose.

10.6 Severability. In the event that one or more of the provisions contained
herein are held to be invalid by a court of competent jurisdiction, the
remainder of the contract will continue in full force and effect.

10.7 Attorney’s Fees. The prevailing party in any action or dispute between the
Company and Employee shall be entitled to recover reasonable attorneys’ fees and
other costs incurred in that action or proceeding in addition to any other
relief to which the prevailing party may be entitled.

10.8 Negotiation. The parties warrant and agree that the terms of this Agreement
were the subject of negotiations between them. Employee acknowledges that he has
read this Agreement and has had full opportunity to seek independent legal
advice before signing it.

10.9 Governing Law; Consent to Jurisdiction. This Agreement and the legal
relations thus created between the parties hereto shall be governed by and
construed under and in accordance with the laws of the State of Missouri,
without regard to conflicts of laws principles. FOR PURPOSES OF DETERMINING ANY
CONTROVERSY ARISING UNDER THIS AGREEMENT, EACH OF THE PARTIES HEREBY CONSENTS TO
THE NON-EXCLUSIVE JURISDICTION, PERSONAL AND OTHERWISE, OF THE FEDERAL AND STATE
COURTS OF THE STATE OF MISSOURI, AND HEREBY WAIVES ANY OBJECTIONS OF ANY NATURE
TO VENUE IN SUCH COURTS.

[Signatures on following page.]

 

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IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date first written above.

 

EMPLOYEE:  

/s/ Todd Phillips

Name:   Todd Phillips COMPANY: NOVASTAR FINANCIAL, INC. By:  

/s/ Scott F. Hartman

Name:   Scott F. Hartman Title:   Chairman and Chief Executive Officer

 

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