EXHIBIT 10.58

EXECUTION COPY

 

 

PARENT GUARANTEE AGREEMENT

between

NOVASTAR FINANCIAL, INC.,

as Parent Guarantor,

and

THE BANK OF NEW YORK MELLON TRUST COMPANY,

NATIONAL ASSOCIATION,

as Guarantee Trustee

Dated as of February 18, 2009

NOVASTAR MORTGAGE, INC.

 

 

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TABLE OF CONTENTS

 

        Page ARTICLE I        Interpretation and Definitions   1

SECTION 1.1.

  Interpretation.   1

SECTION 1.2.

  Definitions.   2 ARTICLE II        Reports   4

SECTION 2.1.

  List of Holders.   4

SECTION 2.2.

  Periodic Reports to the Guarantee Trustee.   5

SECTION 2.3.

  Event of Default; Waiver.   5

SECTION 2.4.

  Event of Default; Notice.   5 ARTICLE III        Powers, Duties and Rights of
the Guarantee Trustee   6

SECTION 3.1.

  Powers and Duties of the Guarantee Trustee.   6

SECTION 3.2.

  Certain Rights of the Guarantee Trustee.   7

SECTION 3.3.

  Compensation.   8

SECTION 3.4.

  Indemnity.   8

SECTION 3.5.

  Securities.   9 ARTICLE IV        Guarantee Trustee   9

SECTION 4.1.

  Guarantee Trustee; Eligibility.   9

SECTION 4.2.

  Appointment, Removal and Resignation of the Guarantee Trustee.   9 ARTICLE
V        Parent Guarantee   10

SECTION 5.1.

  Parent Guarantee.   10

SECTION 5.2.

  Waiver of Notice and Demand.   10

SECTION 5.3.

  Obligations Not Affected.   11

SECTION 5.4.

  Rights of Holders, the Note Holders and the Trust.   11

SECTION 5.5.

  Guarantee of Payment.   12

SECTION 5.6.

  Subrogation.   12

 

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SECTION 5.7.

  Independent Obligations.   12

SECTION 5.8.

  Enforcement.   12 ARTICLE VI         Subordination   13

SECTION 6.1.

  Subordination.   13

SECTION 6.2.

  Pari Passu Guarantees.   13 ARTICLE VII        Termination   13

SECTION 7.1.

  Termination.   13 ARTICLE VIII        Miscellaneous   13

SECTION 8.1.

  Successors and Assigns.   13

SECTION 8.2.

  Amendments.   14

SECTION 8.3.

  Notices.   14

SECTION 8.4.

  Benefit.   15

SECTION 8.5.

  Governing Law.   16

SECTION 8.6.

  Submission to Jurisdiction.   16

SECTION 8.7.

  Counterparts.   16

SECTION 8.8.

  The Indenture.   16 ARTICLE IX        Consolidation, Merger, Conveyance,
Transfer or Lease and Ownership of the Company   16

SECTION 9.1.

  Parent Guarantor May Consolidate, etc., Only on Certain Terms   16

SECTION 9.2.

  Dividends, Distributions and Payments.   17

SECTION 9.3.

  Successor Company Substituted.   17

SECTION 9.4.

  Ownership of the Company.   18 ARTICLE X        Representations and Warranties
  18

SECTION 10.1.

  Representations and Warranties of Parent Guarantor.   18

 

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This PARENT GUARANTEE AGREEMENT, dated as of February 18, 2009, executed and
delivered by NOVASTAR FINANCIAL, INC., a Maryland corporation (the “Parent
Guarantor”) having its principal office at 2114 Central Street, Suite 600,
Kansas City, Missouri 64108, and THE BANK OF NEW YORK MELLON TRUST COMPANY,
NATIONAL ASSOCIATION, a national banking association, as trustee (in such
capacity, the “Guarantee Trustee”), for the benefit of the Trust (as defined
herein), the Holders (as defined herein) and the Note Holders (as defined
herein) from time to time of the Notes (as defined herein) of NovaStar Mortgage,
Inc., a Virginia corporation (the “Company”).

WITNESSETH:

WHEREAS, pursuant to an Indenture, dated as of the date hereof (the
“Indenture”), among the Company, the Parent Guarantor and The Bank of New York
Mellon Trust Company, National Association, as trustee, the Company is issuing
Fifty-One Million Five Hundred Fifty Thousand Dollars ($51,550,000) aggregate
principal amount of its junior subordinated notes (the “Notes”) having the terms
set forth in the Indenture to NOVASTAR CAPITAL TRUST I/B, a Delaware statutory
trust (the “Trust”), evidencing indebtedness of the Company to the Trust in
connection with the issuance of undivided preferred beneficial interests in the
assets of the Trust (the “Preferred Securities”), and undivided common
beneficial interests in the assets of the Trust (collectively, together with the
Preferred Securities, the “Trust Securities”) and the exchange of the Preferred
Securities for certain undivided preferred beneficial interests in the assets of
NovaStar Capital Trust I (the “Exchange”);

WHEREAS, the Parent Guarantor owns one hundred percent (100%) of the outstanding
capital stock of the Company, and will substantially benefit from the Exchange;
and

WHEREAS, as incentive for the Holders (as defined herein) to consummate the
Exchange, the Parent Guarantor desires irrevocably and unconditionally to agree,
to the extent set forth herein, to pay to the Note Holders (as defined herein)
the Parent Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein.

Now, THEREFORE, in consideration of the exchange by each Holder of all of the
undivided preferred beneficial interests in the assets of NovaStar Capital Trust
I for the Preferred Securities, the Parent Guarantor executes and delivers this
Parent Guarantee Agreement to provide as follows for the benefit of the Holders
and the Note Holders (as defined herein):

ARTICLE I

INTERPRETATION AND DEFINITIONS

SECTION 1.1. Interpretation.

In this Parent Guarantee Agreement, unless the context otherwise requires:

(a) capitalized terms used in this Parent Guarantee Agreement but not defined in
the preamble hereto have the respective meanings assigned to them in
Section 1.2;

(b) the words “include”, “includes” and “including” shall be deemed to be
followed by the phrase “without limitation”;

(c) all references to “the Parent Guarantee Agreement” or “this Parent Guarantee
Agreement” are to this Parent Guarantee Agreement, as modified, supplemented or
amended from time to time;

 

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(d) all references in this Parent Guarantee Agreement to articles and sections
are to articles and sections of this Parent Guarantee Agreement unless otherwise
specified;

(e) the words “hereby”, “herein”, “hereof” and “hereunder” and other words of
similar import refer to this Parent Guarantee Agreement as a whole and not to
any particular Article, Section or other subdivision;

(f) a reference to the singular includes the plural and vice versa;

(g) the masculine, feminine or neuter genders used herein shall include the
masculine, feminine and neuter genders.

SECTION 1.2. Definitions.

As used in this Parent Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings:

“Affiliate” of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
“control” when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing.

“Beneficiaries” means the Guarantee Trustee, the Delaware Trustee, the Property
Trustee, the Administrative Trustees and any successors thereof.

“Board of Directors” means either the board of directors of the Parent Guarantor
or any duly authorized committee of that board.

“Common Securities” means the securities representing common undivided
beneficial interests in the assets of the Trust.

“Debt” means with respect to any Person, whether recourse is to all or a portion
of the assets of such Person, whether currently existing or hereafter incurred,
and whether or not contingent and without duplication, (i) every obligation of
such Person for money borrowed; (ii) every obligation of such Person evidenced
by bonds, debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of such Person with respect to letters of
credit, bankers’ acceptances or similar facilities issued for the account of
such Person; (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable arising in the ordinary course of business); (v) every capital lease
obligation of such Person; (vi) all indebtedness of such Person, whether
incurred on or prior to the date of this Parent Guarantee Agreement or
thereafter incurred, for claims in respect of derivative products, including
interest rate, foreign exchange rate and commodity forward contracts, options,
swaps and similar arrangements; (vii) every obligation of the type referred to
in clauses (i) through (vi) of another Person and all dividends of another
Person the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor or otherwise; and
(viii) any renewals, extensions, refundings, amendments or modifications of any
obligation of the type referred to in clauses (i) through (vii).

 

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“Event of Default” means a default by the Parent Guarantor on any of its payment
or other obligations under this Parent Guarantee Agreement; provided, that
except with respect to a default in payment of any Parent Guarantee Payments,
such default shall not be an Event of Default unless the Parent Guarantor shall
have received notice of such default in accordance with the terms herein from
the Guarantee Trustee, the Trust or any Holder and shall have failed to cure
such default within thirty (30) days after receipt of such notice.

“Guarantee Trustee” means The Bank of New York Mellon Trust Company, National
Association, until a Successor Guarantee Trustee, as defined below, has been
appointed and has accepted such appointment pursuant to the terms of this Parent
Guarantee Agreement, and thereafter means each such Successor Guarantee Trustee,
in any case solely in its capacity as guarantee trustee and not in its
individual capacity.

“Holder” means any holder, as registered on the books and records of the Trust,
of any Preferred Securities; provided, that in determining whether the holders
of the requisite percentage of Preferred Securities have given any request,
notice, consent or waiver hereunder, “Holder” shall not include the Parent
Guarantor, the Guarantee Trustee or any Affiliate of the Parent Guarantor or the
Guarantee Trustee.

“List of Holders” has the meaning specified in Section 2.1.

“Majority in Liquidation Amount of the Preferred Securities” means a vote by the
Holder(s), voting separately as a class, of more than fifty percent (50%) of the
aggregate Liquidation Amount of all then outstanding Preferred Securities issued
by the Trust.

“Majority in Principal Amount of the Notes” means a vote by the Note Holder(s),
voting separately as a class, of more than fifty percent (50%) of the aggregate
principal amount of all then outstanding Notes.

“Note Holder” means any holder, as registered on the books and records of the
Trustee (as defined in the Indenture), of any Notes; provided, that, in
determining whether the holders of the requisite percentage of Notes have given
any request, notice, consent or waiver hereunder, “Note Holder” shall not
include either the Parent Guarantor, the Company, the Guarantee Trustee or any
Affiliate of either of the Parent Guarantor or the Guarantee Trustee unless all
of the Notes are held by such Persons.

“Officers’ Certificate” means, with respect to any Person, a certificate signed
by the Chief Executive Officer, President or a Vice President of such Person,
and by the Chief Financial Officer, Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of such Person, and delivered to the
Guarantee Trustee. Any Officers’ Certificate delivered with respect to
compliance with a condition or covenant provided for in this Parent Guarantee
Agreement (other than the certificate provided pursuant to Section 2.2) shall
include:

(a) a statement that each officer signing the Officers’ Certificate has read the
covenant or condition and the definitions relating thereto;

(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers’ Certificate;

(c) a statement that each officer has made such examination or investigation as,
in such officer’s opinion, is necessary to enable such officer to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and

 

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(d) a statement as to whether, in the opinion of each officer, such condition or
covenant has been complied with.

“Parent Guarantee Payments” means the following payments or distributions,
without duplication, with respect to the Notes, to the extent not fully and
promptly paid or made by the Company immediately after the expiration of any
grace or cure period applicable to the Company under the terms of the Indenture:
(a) any accrued and unpaid payments of interest or principal, or other amounts,
required to be paid on the Notes; and (b) payment of any other amounts to be
paid by the Company under the Indenture, including all amounts due to any
Beneficiary by the Company.

“Person” means a legal person, including any individual, corporation, estate,
partnership, joint venture, association, joint stock company, limited liability
company, company, trust, unincorporated association or government or any agency
or political subdivision thereof or any other entity of whatever nature.

“Responsible Officer” means, with respect to the Guarantee Trustee, the officer
in the Institutional Trust Services Department of the Trustee having direct
responsibility for the administration of this Parent Guarantee Agreement.

“Senior Debt” means the principal of and any premium, if any, and interest on
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Parent Guarantor whether or not
such claim for post-petition interest is allowed in such proceeding) all Debt of
the Parent Guarantor, whether incurred on or prior to the date of the Indenture
or thereafter incurred, unless it is provided in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, that such
obligations are not superior in right of payment to the Notes.

“Trust Indenture Act” means the Trust Indenture Act of 1939, as amended and as
in effect on the date of this Parent Guarantee Agreement.

“Successor Guarantee Trustee” means a successor Guarantee Trustee possessing the
qualifications to act as Guarantee Trustee under Section 4.1.

Capitalized or otherwise defined terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Indenture as in effect on
the date hereof.

ARTICLE II

REPORTS

SECTION 2.1. List of Holders.

The Parent Guarantor shall furnish or cause to be furnished to the Guarantee
Trustee at such times as the Guarantee Trustee may request in writing, within
thirty (30) days after the receipt by the Parent Guarantor of any such request,
a list, in such form as the Guarantee Trustee may reasonably require, of the
names and addresses of the Holders or Note Holders (each a “List of Holders”) as
of a date not more than fifteen (15) days prior to the time such list is
furnished, in each case to the extent such information is in the possession or
control of the Parent Guarantor or the Company and is not identical to a
previously supplied List of Holders or has not otherwise been received by the
Guarantee Trustee in its capacity as such. The Guarantee Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.

 

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SECTION 2.2. Periodic Reports to the Guarantee Trustee.

(a) The Parent Guarantor shall deliver to the Guarantee Trustee, within ninety
(90) days after the end of each fiscal year of the Parent Guarantor ending after
the date of this Parent Guarantee Agreement, an Officers’ Certificate covering
the preceding fiscal year, stating whether or not to the knowledge of the
signers thereof the Parent Guarantor is in default in the performance or
observance of any of the terms or provisions or any of the conditions of this
Parent Guarantee Agreement (without regard to any period of grace or requirement
of notice provided hereunder) and, if the Parent Guarantor shall be in default
thereof, specifying all such defaults and the nature and status thereof of which
they have knowledge.

(b) The Parent Guarantor shall furnish (i) to the Guarantee Trustee; (ii) to
Taberna Capital Management, LLC, 1818 Market Street, 28th Floor, Philadelphia,
Pennsylvania 19103 (or such other address as designated by Taberna Capital
Management, LLC); and (iii) any Owner of the Preferred Securities reasonably
identified to the Company and the Trust (which identification may be made either
by such Owner or by Taberna Capital Management, LLC) a duly completed and
executed certificate substantively and substantially in the form attached hereto
as Exhibit A, including the financial statements referenced in such Exhibit,
which certificate and financial statements shall be so furnished by the Parent
Guarantor not later than forty five (45) days after the end of each of the first
three fiscal quarters of each fiscal year of the Parent Guarantor and not later
than ninety (90) days after the end of each fiscal year of the Parent Guarantor.

SECTION 2.3. Event of Default; Waiver.

Neither the Trust nor the Note Holders shall have the right to waive any past
Event of Default without the consent of the Holders of a Majority in Liquidation
Amount of the Preferred Securities. The Holders of a Majority in Liquidation
Amount of the Preferred Securities may, on behalf of the Holders, the Trust or
the Note Holders, waive any past Event of Default and its consequences. Upon
such waiver, any such Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Parent Guarantee Agreement, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
therefrom.

SECTION 2.4. Event of Default; Notice.

(a) The Guarantee Trustee shall, within ninety (90) days after the occurrence
hereunder of a default, transmit to the Trust, the Note Holders, the Company and
the Holders notices of all defaults actually known to the Guarantee Trustee,
unless such defaults have been cured or waived before the giving of such notice.
For the purpose of this Section 2.4, the term “default” means any event that is,
or after notice or lapse of time or both would become, an Event of Default.

(b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of
Default unless the Guarantee Trustee shall have received written notice, or a
Responsible Officer charged with the administration of this Parent Guarantee
Agreement shall have obtained written notice, of such Event of Default from the
Parent Guarantor, the Company, a Note Holder or a Holder.

 

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ARTICLE III

POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE

SECTION 3.1. Powers and Duties of the Guarantee Trustee.

(a) This Parent Guarantee Agreement shall be held by the Guarantee Trustee for
the benefit of the Holders, the Note Holders and the Trust, and the Guarantee
Trustee shall not transfer this Parent Guarantee Agreement to any Person except
a Holder or Note Holder exercising its rights pursuant to Section 5.4(d) or to a
Successor Guarantee Trustee upon acceptance by such Successor Guarantee Trustee
of its appointment to act as Successor Guarantee Trustee. The right, title and
interest of the Guarantee Trustee shall automatically vest in any Successor
Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its
appointment hereunder, and such vesting and succession of title shall be
effective whether or not conveyancing documents have been executed and delivered
pursuant to the appointment of such Successor Guarantee Trustee.

(b) The rights, immunities, duties and responsibilities of the Guarantee Trustee
shall be as provided by this Parent Guarantee Agreement and there shall be no
other duties or obligations, express or implied, of the Guarantee Trustee.
Notwithstanding the foregoing, no provisions of this Parent Guarantee Agreement
shall require the Guarantee Trustee to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. Whether or not herein
expressly so provided, every provision of this Parent Guarantee Agreement
relating to the conduct or affecting the liability of or affording protection to
the Guarantee Trustee shall be subject to the provisions of this Section 3.1. To
the extent that, at law or in equity, the Guarantee Trustee has duties and
liabilities relating to the Trust, the Parent Guarantor or the Note Holders or
the Holders, the Guarantee Trustee shall not be liable to any Note Holders or
the Holder for the Guarantee Trustee’s good faith reliance on the provisions of
this Parent Guarantee Agreement. The provisions of this Parent Guarantee
Agreement, to the extent that they restrict the duties and liabilities of the
Guarantee Trustee otherwise existing at law or in equity, are agreed by the
Parent Guarantor and the Note Holders or the Holders to replace such other
duties and liabilities of the Guarantee Trustee.

(c) No provision of this Parent Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action,
negligent failure to act or own willful misconduct, except that:

(i) the Guarantee Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be
proved that the Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made; and

(ii) the Guarantee Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the Note Holders of not less than a Majority in Principal Amount of the Notes
or, in the case of a waiver under Section 2.3, the Holders of not less than a
Majority in Liquidation Amount of the Preferred Securities relating to the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Parent Guarantee Agreement.

 

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SECTION 3.2. Certain Rights of the Guarantee Trustee.

(a) Subject to the provisions of Section 3.1:

(i) the Guarantee Trustee may conclusively rely, and shall be fully protected in
acting or refraining from acting in good faith and in accordance with the terms
hereof, upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document reasonably believed by it to
be genuine and to have been signed, sent or presented by the proper party or
parties;

(ii) any direction or act of the Parent Guarantor contemplated by this Parent
Guarantee Agreement shall be sufficiently evidenced by an Officers’ Certificate
unless otherwise prescribed herein;

(iii) the Guarantee Trustee may consult with counsel, and the advice of such
counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted to be taken by it hereunder in good faith
and in reliance thereon and in accordance with such advice. Such counsel may be
counsel to the Guarantee Trustee, the Parent Guarantor or any of their
respective Affiliates and may be one of the Guarantee Trustee’s employees. The
Guarantee Trustee shall have the right at any time to seek instructions
concerning the administration of this Parent Guarantee Agreement from any court
of competent jurisdiction;

(iv) the Guarantee Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Parent Guarantee Agreement at the request
or direction of any Holder or Note Holder, unless such Holder or Note Holder
shall have provided to the Guarantee Trustee reasonable security or indemnity
against the costs, expenses (including reasonable attorneys’ fees and expenses)
and liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided, that, nothing contained in this Section 3.2(a)(iv)
shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event
of Default, of its obligation to exercise the rights and powers vested in it by
this Parent Guarantee Agreement; and provided, further, that nothing contained
in this Section 3.2(a)(iv) shall prevent the Guarantee Trustee from exercising
its rights under Section 4.2 hereof;

(v) the Guarantee Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Guarantee Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and if the Guarantee
Trustee shall determine to make such inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Parent Guarantor,
personally or by agent or attorney;

(vi) the Guarantee Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through its agents,
attorneys, custodians or nominees and the Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent,
attorney, custodian or nominee appointed with due care by it hereunder;

(vii) whenever in the administration of this Parent Guarantee Agreement the
Guarantee Trustee shall deem it desirable to receive instructions with respect
to enforcing any remedy or right hereunder, the Guarantee Trustee (A) may
request instructions

 

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from the Trust, the Note Holders of a Majority in Principal Amount of the Notes
or the Holders of a Majority in Liquidation Amount of the Preferred Securities,
(B) may refrain from enforcing such remedy or right or taking such other action
until such requested instructions are received and (C) shall be protected in
acting in accordance with such instructions; provided, that the Guarantee
Trustee must first obtain the consent of the Holders of a Majority in
Liquidation Amount of the Preferred Securities prior to taking any action upon
the direction of the Trust;

(viii) except as otherwise expressly provided by this Parent Guarantee
Agreement, the Guarantee Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Parent Guarantee
Agreement; and

(ix) whenever, in the administration of this Parent Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved or established
before taking, suffering or omitting to take any action hereunder, the Guarantee
Trustee (unless other evidence is herein specifically prescribed) may, in the
absence of bad faith on its part, request and rely upon an Officers’ Certificate
which, upon receipt of such request from the Guarantee Trustee, shall be
promptly delivered by the Parent Guarantor.

(b) No provision of this Parent Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the Guarantee Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Guarantee Trustee
shall be construed to be a duty to act in accordance with such power and
authority.

SECTION 3.3. Compensation.

The Parent Guarantor agrees to pay to the Guarantee Trustee from time to time
reasonable compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provisions of law in regard to the
compensation of a trustee of an express trust) and to reimburse the Guarantee
Trustee upon request for all reasonable expenses, disbursements and advances
(including the reasonable fees and expenses of its attorneys and agents)
incurred or made by the Guarantee Trustee in accordance with any provisions of
this Parent Guarantee Agreement.

SECTION 3.4. Indemnity.

The Parent Guarantor agrees to indemnify and hold harmless the Guarantee Trustee
and any of its Affiliates and any of their officers, directors, shareholders,
employees, representatives or agents from and against any loss, damage,
liability, tax (other than income, franchise or other taxes imposed on amounts
paid pursuant to Section 3.3), penalty, expense or claim of any kind or nature
whatsoever incurred without negligence, bad faith or willful misconduct on its
part, arising out of or in connection with the acceptance or administration of
this Parent Guarantee Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee Trustee will
not claim or exact any lien or charge on any Parent Guarantee Payments as a
result of any amount due to it under this Parent Guarantee Agreement. This
indemnity shall survive the termination of this Parent Guarantee Agreement or
the resignation or removal of the Guarantee Trustee.

 

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In no event shall the Guarantee Trustee be liable for any indirect, special,
punitive or consequential loss or damage of any kind whatsoever, including, but
not limited to, lost profits, even if the Guarantee Trustee has been advised of
the likelihood of such loss or damage and regardless of the form of action.

In no event shall the Guarantee Trustee be liable for any failure or delay in
the performance of its obligations hereunder because of circumstances beyond its
control, including, but not limited to, acts of God, flood, war (declared or
undeclared), terrorism, fire, riot, embargo, government action, including any
laws, ordinances, regulations, governmental action or the like which delay,
restrict or prohibit the providing of the services contemplated by this Parent
Guarantee Agreement.

SECTION 3.5. Securities.

The Guarantee Trustee or any other agent of the Guarantee Trustee, in its
individual or any other capacity, may become the owner or pledgee of the Notes.

ARTICLE IV

GUARANTEE TRUSTEE

SECTION 4.1. Guarantee Trustee; Eligibility.

(a) There shall at all times be a Guarantee Trustee which shall:

(i) not be an Affiliate of the Parent Guarantor or the Company; and

(ii) be a corporation organized and doing business under the laws of the United
States or of any State thereof, authorized to exercise corporate trust powers,
having a combined capital and surplus of at least fifty million dollars
($50,000,000), subject to supervision or examination by Federal or State
authority and having an office within the United States. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of such supervising or examining authority, then, for the purposes
of this Section 4.1, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published.

(b) If at any time the Guarantee Trustee shall cease to be eligible to so act
under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).

(c) If the Guarantee Trustee has or shall acquire any “conflicting interest”
within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee
Trustee shall either eliminate such interest or resign in the manner and with
the effect set out in Section 4.2(c).

SECTION 4.2. Appointment, Removal and Resignation of the Guarantee Trustee.

(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or removed
without cause at any time by the Parent Guarantor, except during an Event of
Default.

(b) The Guarantee Trustee shall not be removed until a Successor Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Guarantee Trustee and delivered to the
Parent Guarantor.

 

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(c) The Guarantee Trustee appointed hereunder shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Parent Guarantor, which resignation shall
not take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Parent Guarantor and the resigning
Guarantee Trustee.

(d) If no Successor Guarantee Trustee shall have been appointed and accepted
appointment as provided in this Section 4.2 within thirty (30) days after
delivery to the Parent Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Parent Guarantor, any
court of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any, as it
may deem proper, appoint a Successor Guarantee Trustee.

ARTICLE V

PARENT GUARANTEE

SECTION 5.1. Parent Guarantee.

(a) The Parent Guarantor irrevocably and unconditionally agrees to pay in full
to the Note Holders and/or the Beneficiaries, as the case may be, the Parent
Guarantee Payments (without duplication of amounts theretofore timely paid by or
on behalf of the Company), as and when due, regardless of any defense (except
for the defense of timely payment by the Company), right of set-off or
counterclaim which the Company may have or assert. The Parent Guarantor’s
obligation to make a Parent Guarantee Payment may be satisfied by direct payment
of the required amounts by the Parent Guarantor to the Note Holders and/or the
Beneficiaries, as the case may be, or by causing the Company to pay such amounts
to the Note Holders and/or the Beneficiaries, as the case may be. The Parent
Guarantor shall give prompt written notice to the Guarantee Trustee in the event
the Parent Guarantor makes any direct payment to the Note Holders and/or the
Beneficiaries, as the case may be.

(b) The Parent Guarantor expressly agrees that the guarantee set forth in the
immediately preceding paragraph includes, but is not limited to, the guarantee
of the full and prompt payment of the Parent Guarantor’s obligation to make any
and all interest payments on the Notes which would be required to be made by the
Company under the Indenture, including, without limitation, any amounts of
Additional Interest, the Optional Redemption Price, Liquidation Amount, the
Special Redemption Price, Additional Tax Sums, or any other amount set forth in
the Indenture or the Notes.

(c) All Parent Guarantee Payments made from time to time with respect to this
Parent Guarantee Agreement shall be in U.S. dollars.

SECTION 5.2. Waiver of Notice and Demand.

The Parent Guarantor hereby waives notice of acceptance of the Parent Guarantee
Agreement and of any liability to which it applies or may apply, presentment,
demand for payment, any right to require a proceeding first against the
Guarantee Trustee, the Company, the Trust, the Note Holders or any other Person
before proceeding against the Parent Guarantor, protest, notice of nonpayment,
notice of dishonor, notice of redemption and all other notices and demands.

 

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SECTION 5.3. Obligations Not Affected.

The obligations, covenants, agreements and duties of the Parent Guarantor under
this Parent Guarantee Agreement shall be absolute and unconditional, and shall
in no way be affected or impaired by reason of the happening from time to time
of any of the following:

(a) the release or waiver, by operation of law or otherwise, of the performance
or observance by the Company of any express or implied agreement, covenant, term
or condition relating to the Notes to be performed or observed by the Company;

(b) the extension of time for the payment by the Company of all or any portion
of the obligations under the Notes (including the extension of any interest
payment period on the Notes as provided in the Indenture) or any other sums
payable under the terms of the Notes or the extension of time for the
performance of any other obligation under, arising out of, or in connection
with, the Notes;

(c) any failure, omission, delay or lack of diligence on the part of the Trust
or the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Trust or the Holders pursuant to the terms of the Notes,
or any action on the part of the Company granting indulgence or extension of any
kind;

(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Company or any of the assets of the
Company;

(e) any invalidity of, or defect or deficiency in, the Notes;

(f) the settlement or compromise of any obligation guaranteed hereby or hereby
incurred; or

(g) any other circumstance whatsoever that might otherwise constitute a legal or
equitable discharge or defense of a guarantor, it being the intent of this
Section 5.3 that the obligations of the Parent Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.

There shall be no obligation of the Holders, the Note Holders or the Trust to
give notice to, or obtain the consent of, the Parent Guarantor with respect to
the happening of any of the foregoing. No set-off, counterclaim, reduction or
diminution of any obligation, or any defense of any kind or nature that the
Parent Guarantor has or may have shall be available hereunder to the Parent
Guarantor against the Trust, any Holder or any Note Holder to reduce the
payments thereto under this Parent Guarantee Agreement.

SECTION 5.4. Rights of Holders, the Note Holders and the Trust.

The Parent Guarantor expressly acknowledges that: (a) this Parent Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of the Holders, the Note Holders and the Trust; (b) the Guarantee
Trustee has the right to enforce this Parent Guarantee Agreement on behalf of
the Holders, the Note Holders and the Trust; (c) the Holders of a Majority in
Liquidation Amount of the Preferred Securities, the Note Holders of a Majority
in Principal Amount of the Notes and the Trust have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee in respect of this Parent Guarantee Agreement or
exercising any trust or power conferred upon the Guarantee Trustee under this
Parent Guarantee Agreement (provided, the Trust shall not exercise such right
without the consent of the Holders of a Majority in

 

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Liquidation Amount of the Preferred Securities); and (d) the Trust, any Note
Holder or any Holder may institute a legal proceeding directly against the
Parent Guarantor to enforce their respective rights under this Parent Guarantee
Agreement, without first instituting a legal proceeding against the Guarantee
Trustee, the Company or any other Person.

SECTION 5.5. Guarantee of Payment.

This Parent Guarantee Agreement creates a guarantee of payment and not of
collection. This Parent Guarantee Agreement will not be discharged except by
payment of the Parent Guarantee Payments in full (without duplication of amounts
theretofore paid by the Company) or upon payment in full of the Notes and all
amounts owed by the Company under the Indenture to the Note Holders or
beneficiary thereof.

SECTION 5.6. Subrogation.

The Parent Guarantor shall be subrogated to all (if any) rights of the Trust,
the Note Holders and the Holders against the Company in respect of any amounts
paid to the Trust or the Note Holders by the Parent Guarantor under this Parent
Guarantee Agreement and shall have the right to waive payment by the Company
pursuant to Section 5.1; provided, that the Parent Guarantor shall not (except
to the extent required by mandatory provisions of law) be entitled to enforce or
exercise any rights it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under this
Parent Guarantee Agreement, if, at the time of any such payment, any amounts are
due and unpaid under this Parent Guarantee Agreement. If any amount shall be
paid to the Parent Guarantor in violation of the preceding sentence, the Parent
Guarantor agrees to hold such amount in trust for the Holders, Note Holders and
the holders of any beneficial interests thereof and to pay over such amount to
the appropriate Note Holder or Holder, as applicable.

SECTION 5.7. Independent Obligations.

The Parent Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Company with respect to the Notes, any other guarantee
agreement and with respect to any obligations of the Parent Guarantor, the Trust
or the Company with respect to the Notes and the Preferred Securities and that
the Parent Guarantor shall be liable as principal and as debtor hereunder to
make Parent Guarantee Payments pursuant to the terms of this Parent Guarantee
Agreement notwithstanding the occurrence of any event referred to in subsections
(a) through (g), inclusive, of Section 5.3.

SECTION 5.8. Enforcement.

A Beneficiary or a Note Holder may enforce the Obligations of the Parent
Guarantor contained in Section 5.1(c) directly against the Parent Guarantor, and
the Parent Guarantor waives any right or remedy to require that any action be
brought against the Company or any other person or entity before proceeding
against the Parent Guarantor.

 

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ARTICLE VI

SUBORDINATION

SECTION 6.1. Subordination.

(a) The obligations of the Parent Guarantor under this Parent Guarantee
Agreement will constitute unsecured obligations of the Parent Guarantor and will
rank subordinate and junior in right of payment to all Senior Debt of the Parent
Guarantor.

(b) The right of the Parent Guarantor to participate in any distribution of
assets of any of its subsidiaries upon any such subsidiary’s liquidation or
reorganization or otherwise is subject to the prior claims of creditors of that
subsidiary, except to the extent the Parent Guarantor may itself be recognized
as a creditor of that subsidiary. This Parent Guarantee Agreement does not limit
the incurrence or issuance of other or unsecured debt by the Parent Guarantor.

SECTION 6.2. Pari Passu Guarantees.

The obligations of the Parent Guarantor under this Parent Guarantee Agreement
shall rank pari passu with the obligations of the Parent Guarantor under any
similar guarantee agreements issued by the Parent Guarantor with respect to
notes (if any) similar to the Notes, issued by the Company or other Affiliate of
the Parent Guarantor and related to trusts other than the Trust established or
to be established by the Company (if any), in each case similar to the Trust; or
any notes issued by the Parent Guarantor similar to the Notes.

ARTICLE VII

TERMINATION

SECTION 7.1. Termination.

This Parent Guarantee Agreement shall terminate and be of no further force and
effect upon (a) full payment of the Redemption Price of all Preferred Securities
or (b) full payment of the Notes and all amounts payable in accordance with the
Indenture upon liquidation of the Trust. Notwithstanding the foregoing, this
Parent Guarantee Agreement will continue to be effective or will be reinstated,
as the case may be, if at any time any Holder, the Note Holder or the Trust must
restore payment of any sums paid with respect to Preferred Securities. The
obligations of the Parent Guarantor under Sections 3.3 and 3.4 shall survive any
such termination or the resignation and removal of the Guarantee Trustee.

ARTICLE VIII

MISCELLANEOUS

SECTION 8.1. Successors and Assigns.

All guarantees and agreements contained in this Parent Guarantee Agreement shall
bind the successors, assigns, receivers, trustees and representatives of the
Parent Guarantor and shall inure to the benefit of the Trust and the Holders or
the Note Holders. Except in connection with a consolidation, merger or sale
involving the Parent Guarantor that is permitted under Article IX hereof, and
pursuant to which the successor or assignee agrees in writing to perform the
Parent Guarantor’s obligations hereunder, the Parent

 

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Guarantor shall not assign its rights or delegate its obligations hereunder
without the prior approval of the Holders of a Majority in Liquidation Amount of
the Preferred Securities.

SECTION 8.2. Amendments.

Except with respect to any changes that do not adversely affect the rights of
the Trust and of the Holders in any material respect (in which case no consent
of the Holders will be required), this Parent Guarantee Agreement may only be
amended with the prior approval of the Parent Guarantor, the Guarantee Trustee,
the Trust and the Holders of not less than a Majority in Liquidation Amount of
the Preferred Securities. The provisions of Article X of the Trust Agreement (as
defined in the Indenture) concerning meetings or consents of the Holders shall
apply to the giving of such approval.

SECTION 8.3. Notices.

Any notice, request or other communication required or permitted to be given
hereunder shall be in writing, duly signed by the party giving such notice, and
delivered, telecopied or mailed by first class mail as follows:

(a) if given to the Parent Guarantor, to the address or facsimile number set
forth below or such other address, facsimile number or to the attention of such
other Person as the Parent Guarantor may give notice to the Guarantee Trustee
and the Holders:

NovaStar Financial, Inc.

2114 Central Street

Suite 600

Kansas City, Missouri 64108

Facsimile No.: (816) 237-7515

Attention: Chief Executive Officer

(b) if given to the Trust, at the address or facsimile number set forth below or
such other address, facsimile number or to the attention of such other Person as
the Trust may give notice to the Guarantee Trustee and the Holders:

NovaStar Financial, Inc.2114 Central Street

Suite 600

Kansas City, Missouri 64108

Facsimile No.: (816) 237-7515

Attention: Chief Executive Officer

(c) if given to the Company, at the address or facsimile number set forth below
or such other address, facsimile number or to the attention of such other Person
as the Company may give notice to the Guarantee Trustee and the Holders:

NovaStar Financial, Inc.

2114 Central Street

Suite 600

Kansas City, Missouri 64108

Facsimile No.: (816) 237-7515

Attention: Chief Executive Officer

 

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(d) if given to the Guarantee Trustee, at the address or facsimile number set
forth below or such other address, facsimile number or to the attention of such
other Person as the Guarantee Trustee may give notice to the Parent Guarantor
and the Holders:

The Bank of New York Mellon Trust Company, National Association

601 Travis, 16th floor

Houston, Texas 77002

Facsimile No.: (713) 483-6001

Attention: Global Corporate Trust

(e) if given to any Note Holder, at the address set forth on the books and
records of the Trustee (as defined in the Indenture), and if to any Holder, at
the address set forth in the books and records of the Trust.

All notices hereunder shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

The Guarantee Trustee may, but is not required to, rely upon and comply with
instructions and directions sent by email or facsimile, (or any other reasonable
means of communication) by persons believed by the Guarantee Trustee in good
faith to be authorized to provide such instructions or direction; provided,
however, that the Guarantee Trustee may require such additional evidence,
confirmation or certification from any such party or parties as the Guarantee
Trustee, in its reasonable discretion, deems necessary or advisable before
acting or refraining from acting upon any such instruction or direction.

The Guarantee Trustee agrees to accept and act upon instructions or directions
pursuant to this Agreement sent by unsecured email, facsimile transmission or
other similar unsecured electronic methods, provided, however, that any Person
providing such instructions or directions shall provide to the Guarantee Trustee
an incumbency certificate listing such designated persons, which incumbency
certificate shall be amended whenever a person is to be added or deleted from
the listing. If such Person elects to give the Guarantee Trustee email or
facsimile instructions (or instructions by a similar electronic method) and the
Guarantee Trustee in its discretion elects to act in good faith upon such
instructions, the Guarantee Trustee’s reasonable understanding of such
instructions shall be deemed controlling. The Guarantee Trustee shall not be
liable for any losses, costs or expenses arising directly or indirectly from the
Guarantee Trustee’s good faith and reasonable reliance upon and compliance with
such instructions notwithstanding such instructions conflict or are inconsistent
with a subsequent written instruction received by the Guarantee Trustee after
such compliance. Each Person providing instructions or directions to the
Guarantee Trustee hereunder agrees to assume all risks arising out of the use of
such electronic methods to submit instructions and directions to the Guarantee
Trustee, including without limitation the risk of the Guarantee Trustee acting,
in good faith, on unauthorized instructions, and the risk of interception and
misuse by third parties.

SECTION 8.4. Benefit.

This Parent Guarantee Agreement is solely for the benefit of the Trust, the Note
Holders and the Holders and is not separately transferable from the Notes.

 

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SECTION 8.5. Governing Law.

This Parent Guarantee Agreement and the rights and obligations of each party
hereto, shall be construed and enforced in accordance with and governed by the
laws of the State of New York without reference to its conflict of laws
provisions (other than Section 5-1401 of the General Obligations Law).

SECTION 8.6. Submission to Jurisdiction.

ANY LEGAL ACTION OR PROCEEDING BY OR AGAINST ANY PARTY HERETO OR WITH RESPECT TO
OR ARISING OUT OF THIS PARENT GUARANTEE AGREEMENT MAY BE BROUGHT IN OR REMOVED
TO THE COURTS OF THE STATE OF NEW YORK, IN AND FOR THE COUNTY OF NEW YORK, OR OF
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK (IN EACH CASE
SITTING IN THE BOROUGH OF MANHATTAN). BY EXECUTION AND DELIVERY OF THIS PARENT
GUARANTEE AGREEMENT, EACH PARTY ACCEPTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS (AND COURTS OF APPEALS THEREFROM) FOR LEGAL PROCEEDINGS ARISING OUT OF OR
IN CONNECTION WITH THIS PARENT GUARANTEE AGREEMENT.

SECTION 8.7. Counterparts.

This instrument may be executed in any number of counterparts, each of which so
executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.

SECTION 8.8. The Indenture.

Each of the parties hereto hereby acknowledges that it is familiar with the
terms of the Indenture. The Indenture shall be deemed to be specifically
described in this Parent Guarantee Agreement.

ARTICLE IX

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE AND OWNERSHIP OF THE
COMPANY

SECTION 9.1. Parent Guarantor May Consolidate, etc., Only on Certain Terms.

The Parent Guarantor shall not consolidate with or merge into any other Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Parent Guarantor or convey, transfer or lease its properties and assets
substantially as an entirety to the Parent Guarantor, unless:

(a) if the Parent Guarantor shall consolidate with or merge into another Person
or convey, transfer or lease its properties and assets substantially as an
entirety to any Person, the entity formed by such consolidation or into which
the Parent Guarantor is merged or the Person that acquires by conveyance or
transfer, or that leases, the properties and assets of the Parent Guarantor
substantially as an entirety shall be an entity organized and existing under the
laws of the United States of America or any State or Territory thereof or the
District of Columbia unless otherwise approved by Holders of a Majority
Liquidation Amount of the Preferred Securities and shall expressly assume, in
writing, executed and delivered to the Guarantee Trustee, in form reasonably
satisfactory to the Guarantee Trustee, the due and punctual payment of the
Parent Guarantee Payments required hereunder and the performance of every
covenant

 

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and obligation of the Parent Guarantor to be performed under this Parent
Guarantee Agreement on the part of the Parent Guarantor to be performed or
observed;

(b) immediately after giving effect to such transaction, no Event of Default,
and no event that, after notice or lapse of time, or both, would constitute an
Event of Default, shall have happened and be continuing; and

(c) the Parent Guarantor has delivered to the Guarantee Trustee an Officers’
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, conveyance, transfer or lease and, if a written agreement evidencing any
assignment or assumption is required in connection with such transaction, any
such agreement complies with this Article IX and that all conditions precedent
herein provided for relating to such transaction have been complied with; and
the Trustee may rely upon such Officers’ Certificate and Opinion of Counsel as
conclusive evidence that such transaction complies with this Section 9.1.

SECTION 9.2. Dividends, Distributions and Payments.

So long as any Notes or Preferred Securities remain outstanding, if there shall
have occurred and be continuing an Event of Default, then the Parent Guarantor
shall not and shall not permit the Company to (a) declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make liquidation payment
with respect to, any of its respective capital stock (other than payments of
dividends or distributions by the Company to the Parent Guarantor, its successor
or any of its Subsidiaries, provided that such Subsidiary is wholly-owned,
directly or indirectly, by the Parent Guarantor) or (b) make any payment of
principal of or any interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company or the Parent Guarantor that rank pari
passu in all respects with or junior in interest to the Notes (other than
(i) repurchases, redemptions or other acquisitions of shares of capital stock of
the Company or the Parent Guarantor by either the Company or the Parent
Guarantor in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of any one of more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company or the Parent Guarantor (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the occurrence of such Event of Default or the
applicable Extension Period, (ii) as a result of an exchange or conversion of
any class or series of the Company’s or the Parent Guarantor’s capital stock (or
any capital stock of a subsidiary of either the Company or the Parent Guarantor)
for any class or series of the Company’s or the Parent Guarantor’s capital stock
or any class of series of the Company’s or the Parent Guarantor’s indebtedness
for any class or series of the Company’s or the Parent Guarantor’s capital
stock, (iii) the purchase of fractional interests in shares of the Company’s or
the Parent Guarantor’s capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) any declaration of a dividend in connection with any rights plan, the
issuance of rights, stock or other property under any rights plan or the
redemption or repurchase of rights pursuant thereto or (v) any dividend in the
form of stock, warrants, options or other rights where the dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with
or junior to such stock.

SECTION 9.3. Successor Company Substituted.

Upon any consolidation or merger by the Parent Guarantor with or into any other
Person, or any conveyance, transfer or lease by the Parent Guarantor of its
properties and assets substantially as an entirety to any Person in accordance
with Section 9.1 and the execution and delivery to the Trustee of the written
agreement described in Section 9.1(a), the successor entity formed by such

 

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consolidation or into which the Parent Guarantor is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Parent Guarantor under this
Parent Guarantee Agreement with the same effect as if such successor Person had
been named as the Parent Guarantor herein; and in the event of any such
conveyance, or transfer, or lease following the execution and delivery of such
written agreement, the Parent Guarantor shall be discharged from all obligations
and covenants under the Parent Guarantee Agreement and the Notes.

SECTION 9.4. Ownership of the Company.

At all times while this Parent Guarantee Agreement is in effect and while any of
the obligations of the Parent Guarantor hereunder remain outstanding, one
hundred percent (100%) of the outstanding capital stock of the Company shall be
owned by the Parent Guarantor.

ARTICLE X

REPRESENTATIONS AND WARRANTIES

SECTION 10.1. Representations and Warranties of Parent Guarantor.

The Parent Guarantor hereby represents and warrants for the benefit of the Note
Holders and the Holders that:

(a) the Parent Guarantor is a corporation duly organized, validly existing and
in good standing under the laws of Maryland;

(b) the Parent Guarantor has full corporate power, authority and legal right to
execute, deliver and perform its obligations under this Parent Guarantee
Agreement and has taken all necessary action to authorize the execution,
delivery and performance by it of this Parent Guarantee Agreement;

(c) this Parent Guarantee Agreement has been duly authorized, executed and
delivered by the Parent Guarantor and constitutes the legal, valid and binding
agreement of the Parent Guarantor enforceable against the Parent Guarantor in
accordance with its terms, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors’ rights generally and to general principles of
equity;

(d) the execution, delivery and performance of this Parent Guarantee Agreement
have been duly authorized by all necessary corporate or other action on the part
of the Parent Guarantor and do not require any approval of stockholders of the
Parent Guarantor and such execution, delivery and performance will not
(i) violate the articles or certificate of incorporation or by-laws (or other
organizational documents) of the Parent Guarantor or (ii) violate any applicable
law, governmental rule or regulation governing the Parent Guarantor, any
material agreement to which it is a party or any material portion of its
property or any order, judgment or decree applicable to the Company or the
Parent Guarantor, respectively, or any material portion of its property;

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the undersigned have executed this Parent Guarantee
Agreement as of the date first above written.

 

NOVASTAR FINANCIAL, INC. as Parent Guarantor By:  

 

  Name:   Title: THE BANK OF NEW YORK MELLON TRUST COMPANY, NATIONAL
ASSOCIATION, as Guarantee Trustee By:  

 

  Name:   Title:

--------------------------------------------------------------------------------

Officer’s Financial Certificate

The undersigned, the [Chairman/Vice Chairman/Chief Executive
Officer/President/Vice President/Chief Financial Officer/Treasurer/Assistant
Treasurer], hereby certifies pursuant to Section 2.2(b) of the Parent Guarantee
Agreement, dated as of February 18, 2009 (the “Parent Guarantee Agreement”),
between NovaStar Financial, Inc. (the “Parent Guarantor”), The Bank of New York
Mellon Trust Company, National Association, as guarantee trustee, that, as of
[date], [20    ].

[FOR FISCAL YEAR END: Attached hereto are the audited consolidated financial
statements (including the balance sheet, income statement and statement of cash
flows, and notes thereto, together with the report of the independent
accountants thereon) of the Parent Guarantor and its consolidated subsidiaries
for the three years ended             , 20    .]

[FOR FISCAL QUARTER END: Attached hereto are the unaudited consolidated and
consolidating financial statements (including the balance sheet and income
statement) of the Parent Guarantor and its consolidated subsidiaries for the
fiscal quarter ended [date], 20    .]

The financial statements fairly present in all material respects, in accordance
with U.S. generally accepted accounting principles (“GAAP”), the financial
position of the Parent Guarantor and its consolidated subsidiaries, and the
results of operations and changes in financial condition as of the date, and for
the [quarter] [annual] period ended [date], 20    , and such financial
statements have been prepared in accordance with GAAP consistently applied
throughout the period involved (expect as otherwise noted therein).

IN WITNESS WHEREOF, the undersigned has executed this Officer’s Financial
Certificate as of this         day of             , 20    .

 

NovaStar Financial, Inc. By:  

 

Name:  

 

NovaStar Financial, Inc.

2114 Central Street

Suite 600

Kansas City, Missouri 64108

Facsimile No.: (816) 237-7515 Attention: Chief Executive Officer