Document:

ex10-2.htm

    

    Exhibit
      10.2

    

    RETENTION
      BONUS AGREEMENT

     

    

    This
      Agreement is made as of the 2nd
      day of  January
      2008 by and between Wilber National Bank, a national corporation with its
      principal office in Oneonta, N.Y. 13820 (the "Bank") and Brian M. Bisaccio, a
      resident of  Manlius, New York 13104  (the
      "Employee").

     

    The
      Bank
      and employee agree that the execution of this agreement by both parties shall
      terminate and render void any previous Retention Bonus Agreements that may
      have
      been in effect on the date hereof.

     

     

    
      	
              RECITALS
                

            

    

     

     

    
      	
              A.

            	
              The
                Bank is a wholly owned subsidiary of The Wilber Corporation, a New
                York corporation
                and
                registered bank holding company with its principal office in Oneonta,
                N.Y.
                13820 (the "Holding Company"). 

            

    

     

    
      	
              B.

            	
              The
                Bank and the Employee acknowledge the ownership consolidation that
                is
                occurring in the financial institutions industry, particularly among
                community banks, and the Bank and Employee acknowledge that at some
                point
                it may be appropriate for the Holding Company and/or the Bank to
                participate in this industry consolidation.

            

    

     

    
      	
              C.

            	
              The
                Bank recognizes the value of the Employee's services to the Bank
                and
                desires to insure that the Employee has adequate incentive to continue
                in
                the employment with the Bank in his/her present position or in a
                similar
                position with enhanced responsibilities.

            

    

     

    
      	
              D.

            	
              Given
                the current consolidation occurring within the financial institutions
                industry, the Employee desires to continue in the employment of the
                Bank
                with appropriate financial incentives.

            

    

    
 

    NOW,
      THEREFORE, in consideration of the foregoing Recitals and of the promises and
      mutual agreements set forth below, and for other good and valuable
      consideration, the receipt and sufficiency of which are acknowledged, the Bank
      and Employee agree as follows:

     

    
      	
               

            	
              1
                .

            	
              Definitions.  For
                purposes of this Agreement, the following terms shall have the meanings
                indicated: 

            

    

     

    
      	
              (a)

            	
              "Misconduct":
                

            

    

     

    
      	
              (i)

            	
              the
                willful and continued failure of the Employee to substantially perform
                his/her duties with the Bank (other than any such failure resulting
                from
                incapacity due to physical or mental illness) after a written demand
                for
                substantial performance is delivered to the Employee which specifically
                identifies the manner in which the Employee has not substantially
                performed his/her duties; 

            

    

     

    
      	
              (ii)

            	
              the
                willful engaging by the Employee in illegal conduct or gross misconduct
                that is materially and demonstrably injurious to the Bank;
                

            

    

     

    
      	
              (iii)

            	
              personal
                dishonesty or breach of fiduciary duty to the Bank that in either
                case was
                intended to result in personal profit to the Employee at the expense
                of
                the Bank; 

            

    

     

    
      	
              (iv)

            	
              willful
                violation of any law, rule, or regulation (other than traffic violations,
                misdemeanors or similar offenses) or cease-and-desist order, court
                order,
                judgment or supervisory agreement which violation is materially and
                demonstrably injurious to the Bank;

            

    

     

    
      	
              (v)

            	
              the
                Employee directly or indirectly, alone or as a member of a partnership,
                or
                as an officer, director, member or principal shareholder of any other
                entity, engages in or is concerned with any other commercial duties
                or
                pursuits whatsoever that might conflict with the Bank's business,
                or
                materially affect the Employee's ability to perform his duties or
                create
                an appearance of conflict, except as may be approved in writing by
                the
                President. 

            

    

     

    
      	
              (b)

            	
              "Change
                in Control": 

            

    

     

    For
      purposes of this Agreement, a
      change in Control shall be deemed to have occurred (unless Employee shall have
      agreed in writing to the contrary) if (i) there shall be consummated (x) any
      consolidation or merger of the Holding Company or of Bank in which Holding
      Company or Bank is not the continuing or surviving corporation or pursuant
      to
      which shares of Holding Company's or Bank's Common Stock would be converted
      into
      cash, securities or other property, other than a merger of the Holding Company
      or of Bank in which the holders of the Holding Company's or Bank's Common Stock
      immediately prior

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    to
      the
      merger have the same proportionate ownership of Common Stock of the surviving
      corporation immediately after the merger, or (y) any sale, lease, exchange
      or
      other transfer (in one transaction or a series of related
      transactions)  of all, or substantially all, of the assets of the
      Holding Company or of Bank, or (ii) the stockholders of the Holding Company
      or
      of Bank approved any plan or proposal for the liquidation or dissolution of
      the
      Holding Company or of Bank, or   (iii) any person  (as
      defined above), other than the Holding Company, shall become the beneficial
      owner (as defined above) of 50% or more of Bank's outstanding Common
      Stock.

     

    
      	
              (c)

            	
              "Coincident
                With" shall mean any time within nine months prior to the consummation
                of
                a Change in Control. 

            

    

     

    
      	
              (d)

            	
              "Current
                Annual Salary" for exempt personnel shall mean current gross annual
                salary, excluding incentive payments, profit sharing payments and
                commissions. "Current Annual Salary" for non-exempt personnel shall
                mean
                an amount determined by multiplying the current hourly rate times
                1950
                hours, and excludes incentive payments, profit sharing payments and
                commissions. 

            

    

     

    
      	
              2.

            	
              Change
                in Control and Retention
                Bonus.  If a Change in Control is consummated and on the
                date of the consummation of the Change in Control, the Employee is
                employed by Bank (in a position having the same level of responsibilities
                as the position that employee held on the date hereof (or in a similar
                position with enhanced responsibilities), Bank or its successor shall
                pay
                to the Employee in a lump sum, in cash, within five days following
                the
                date of the Change in Control, a Retention Bonus of  100%
                of his/her
                Current Annual Salary as defined above in paragraph 1(d).
                

            

    

     

    
      	
              2.1

            	
              If
                the lump sum payment under this Section 2, either alone or together
                with
                other payments, which the Employee has the right to receive from
                the
                Company, would constitute a "parachute payment", as defined in Section
                28OG of the Internal Revenue Code of 1986, as amended, (the "Code"),
                such
                lump sum payment shall be reduced to the largest amount as will result
                in
                no portion of the lump sum payment under this Section 2 being subject
                to
                the excise tax imposed by Section 4999 of the Code. The determination
                of
                any reduction in the lump sum payment under this Section 2, pursuant
                to
                the foregoing provision, shall be made by the Company in good faith.
                

            

    

     

    
      	
              2.2

            	
              The
                Bank and employee acknowledges that pursuant to Section 10.4,
                “Termination”, of the current Personnel Handbook of the Bank, current or
                as amended, Employee may be entitled to receive certain benefits
                if the
                Employee's services are terminated.  Nothing contained herein is
                intended to alter these benefits in the event of termination.
                

            

    

     

    
      	
              3.

            	
              Termination
                by Company not for
                Misconduct, Coincident with a Change in Control.  If
                coincident with a change in control, unless in furtherance of a Business
                Plan adopted in good faith, earlier than nine months of a change
                in
                control, and in the event the Employee's employment is terminated
                by
                action of the Bank not for Misconduct, Coincident With a Change in
                Control, and the Employee at the date of termination held a position
                having the same level of responsibilities as the position
                

            

    

     

    Employee
      held on the date hereof (or held a similar position with enhanced
      responsibilities), the Bank shall pay the Employee within five days following
      the consummation of the Change in Control, the same Retention Bonus in amount
      and manner described in Section 2 above.  In the event of the
      Employee's termination pursuant to this Section 3, the Employee shall not be
      subject to the non-compete restriction described in Section 4 below.

     

    
      	
              4.

            	
              Termination
                of Employment by
                Employee/Non-Competition Agreement.  In the event the
                Employee voluntarily terminates his own employment within six (6)months
                of the date of consummation of the Change in Control and subsequent
                to
                receipt of the Retention Bonus provided for in paragraph 2 above,
                the
                Employee agrees not to compete, directly or indirectly, with the
                Bank or
                any successor as an employee, officer, director, independent contractor,
                consultant, or shareholder of any financial services company or any
                other
                entity providing financial services, including but not limited to
                lending,
                securities, brokerage, trust or insurance products or services within
                a
                (75)
                mile
                radius of the main office of the Bank, or such other office of the
                Bank at
                which such Employee was physically located during the majority of
                Employee's work tenure for the Bank, for a period of  90
                days
                following the date of such termination.

            

    

     

    
      	
              5.

            	
              Withholding. All
                payments made
                by the Bank hereunder to the Employee shall be subject to the withholding
                of such amounts, if any, relating to tax and other payroll deductions
                as
                the Bank may reasonably determine should be withheld pursuant to
                any
                applicable law or regulation. 

            

    

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    
      	
              6.

            	
              Non-Disclosure.  During
                the term of his/her employment with the Bank, or at any time thereafter,
                the Employee shall not disclose or use (except in the course of his
                employment hereunder) any Bank customer information or any confidential
                or
                proprietary information or data of the Bank or the Holding Company
                or any
                of their subsidiaries or affiliates, including any such information
                with
                respect to a sale or merger of the Bank or Holding Company, regardless
                of
                whether such information or data is embodied in writing or other
                physical
                form. 

            

    

     

    
      	
              7.

            	
              Successors;
                Binding
                Agreement.  This Agreement shall be binding upon and
                inure to the benefit of the Bank and the Employee and their respective
                successors, assigns, personal or legal representatives, executors,
                administrators, heirs, distributees, devisees and legatees.  If
                the Employee should die while any amount would still be payable to
                him
                hereunder if he had continued to live, all such amounts shall be
                paid in
                accordance with the terms of this Agreement to his devisee, legatee
                or
                other designee, or if there be no such designee, to the Employee's
                estate.
                

            

    

     

    
      	
              8.

            	
              Modification,
                Waiver or
                Discharge.  No provision of this Agreement may be
                modified, waived or discharged unless such waiver, modification or
                discharge is agreed to in writing and signed by the Employee and
                authorized officers of the Bank.  No waiver by any party hereto
                at any time of any breach by the other party hereto of, or compliance
                

            

    

     

    
      	
               

            	
              with,
                any condition or provision of this Agreement to be performed by such
                other
                party 

            

    

     

    
      	
               

            	
              shall
                be deemed a waiver of similar or dissimilar provisions or conditions
                at
                the same or at any prior or subsequent time. No agreements or
                representations, oral or otherwise,

            

    

     

    
      	
               

            	
              express
                or implied, with respect to the subject matter hereof have been made
                by
                either party which are not expressly set forth in this Agreement;
                provided, however, that this Agreement shall not supersede or, except
                as
                expressly set forth herein, in any way limit the rights, duties,
                or
                obligations that the Employee or the Bank may have under any
                

            

    

     

    
      	
               

            	
              other
                written agreement between such parties, under any employee pension
                benefit
                plan, or employee welfare benefit plan as defined in the Employee
                Retirement Income Security Act of 1974 as amended, of the Bank, or
                under
                any established personnel practice or policy applicable to the Employee.
                

            

    

     

    
      	
              9.

            	
              Termination
of
                Agreement.  Notwithstanding any other provisions of this
                Agreement, the rights, duties and obligations of all parties to this
                Agreement shall cease, and this Agreement shall terminate on December
                31,
                2012, provided, however, that this Agreement shall be extended
                after said date, up to nine (9) months, from the date of the first
                announcement prior to said date of an ownership consolidation which
                might
                result in a Change in Control provided further that said announced
                ownership consolidation is consummated in a Change of Control on
                a date
                within nine (9) months from the date of said announcement.
                

            

    

     

    
      	
              10.

            	
              Governing
                Law.  The validity, interpretation, construction and
                performance of this Agreement shall be governed by the laws of the
                State
                of New York to the extent federal law does not apply.
                

            

    

     

    
      	
              11.

            	
              Validity.  The
                invalidity or unenforceability of any provision of this Agreement
                shall
                not affect the validity or enforceability of the other provisions
                of this
                Agreement, which latter provisions shall remain in full force and
                effect.
                

            

    

     

    
      	
              12.

            	
              Arbitration;
                Specific
                Performance.  Any controversy or claim arising out of, or
                relating to, this Agreement or its breach, shall be settled by arbitration
                in accordance with the governing rules of the American Arbitration
                Association to be held in Oneonta, New York with New York law
                applying.  Judgment upon the award may be rendered in any court
                of competent jurisdiction.  The Bank and the Employee recognize
                that each party shall have no adequate remedy at law for breach by
                the
                other of any of the agreements contained herein, and in the event
                of any
                such breach, the Bank and the Employee hereby agree and consent that
                the
                other shall be entitled in arbitration to a decree of specific
                performance, mandamus, injunction or other appropriate remedy to
                enforce
                performance of such agreements. 

            

    

     

    
      	
              13.

            	
              Non-Assignability.  No
                right benefit or interest hereunder shall be subject to anticipation,
                alienation, sale, assignment, encumbrance, charge, pledge, hypothecation,
                or set-off in respect of any claim, debt or obligation, or to execution,
                attachment, levy or similar process, or assignment by operation of
                law.  Any attempt, voluntary or involuntary, to
                

            

    

     

    
      	
               

            	
              effect
                any action specified in the immediately preceding sentence shall,
                to the
                full extent permitted by law, be null, void and of no effect. Any
                of the
                foregoing to the contrary notwithstanding, this provision shall not
                preclude the Employee from designating one or more beneficiaries
                to
                receive any amount that may be payable after death, and shall not
                preclude
                the legal representative of the Employee's estate from transferring
                any
                right hereunder to the person or persons entitled thereto under Employee's
                will or, in the case of intestacy, as applicable, to Employee's estate.
                

            

    

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

     

    
      	
              14.

            	
              Counterparts.  This
                Agreement may be executed in one or more counterparts, each of which
                shall
                be deemed an original, but of which together will constitute one
                and the
                same instrument. 

            

    

     

    
      	
              15.

            	
              Right
                to
                Attorney.  Employee acknowledges that he/she has had the
                opportunity to consult with an attorney prior to signing this Agreement
                and that nothing contained herein will be construed against the Bank
                as
                draftsman. 

            

    

     

    
      	
              16.

            	
              Notices.  All
                notices, requests, demands and other communications provided for
                by this
                Agreement shall be in writing and shall be sufficiently given if
                and when
                mailed in the continental United States by Registered or Certified
                Mail,
                or personally delivered to the party entitled thereto at the address
                stated below or to such changed address as the addressee may have
                given by
                similar notice. 

            

    

     

    to
      the
      Bank:

     

    Chief
      Executive Officer

    Wilber
      National Bank

    245
      Main Street

    Oneonta,
      NY 13820

    

    to
      the Employee:

     

    Brian
      M.
      Bisaccio

    8222
      Penstock Way

    Manlius,
      NY  13104

    

    Executed
      and effective as of the date first above written.

     

    
      
        	 	
                WILBER
                  NATIONAL BANK

                
                

              
	 	 	 
	 	
                By:

                
                

              	
                      /s/
                  Douglas C.
                  Gulotty      

                
                

              
	 	 	 
	 	 	
                     
                  /s/ Brian M. Bisaccio     
                   

                
                

              
	 	 	
                EmployeeExhibit 10.1

                       SEPARATION AND CONSULTING AGREEMENT

     This Separation and Consulting  Agreement (the "Agreement") is entered into
as of the 3rd day of January 2008, by and between NovaStar  Financial,  Inc., on
behalf of itself  and all of its direct and  indirect  subsidiaries  (all of the
foregoing, collectively, the "Company") and Gregory Metz ("Consultant").

     WHEREAS,  the Company and Consultant are parties to an Employment Agreement
dated  January 15,  2004,  as amended  December  20,  2006 (as so  amended,  the
"Employment  Agreement"),  which provides for certain  benefits and  obligations
upon  termination by the Company of  Consultant's  employment  with the Company,
without cause;

     WHEREAS,  Consultant's  employment by the Company will be terminated by the
Company,  without  "cause" (as  described in the  Employment  Agreement),  as of
January 3, 2008 (the  "Termination  Date") pursuant to this  Agreement,  and the
Company  desires  to ensure a smooth  and  orderly  transition  of  business  by
reserving the right to obtain Consultant's services for a limited period of time
as provided herein.

     NOW,  THEREFORE,  in  consideration  of the mutual covenants and agreements
contained herein, the Company and Consultant agree as follows:

1.   Termination of Employment.

     1.1  Termination.   Consultant's   employment  by  the  Company  is  hereby
terminated  by the Company,  without  "cause" (as  described  in the  Employment
Agreement), effective as of the Termination Date. Except to the extent expressly
provided  herein,  the  rights  and  obligations  set  forth  in this  Agreement
supersede  all  rights  and  obligations  of the  parties  under the  Employment
Agreement  that  otherwise  would  arise  upon or be  applicable  following  the
Termination Date, including but not limited to severance  compensation and other
benefits;  provided,  however,  that neither this  Agreement  nor any  provision
hereof  shall  be  deemed  to  supersede  or  otherwise  affect  any  rights  to
indemnification,  defense, or similar rights under the Employment  Agreement or,
for the avoidance of doubt, under any other written  agreement,  the certificate
of  incorporation,  bylaws  or other  organizational  documents  of the  Company
(including  NovaStar  Financial,  Inc.  and  each  of its  direct  and  indirect
subsidiaries), or any policy of directors and officers or other insurance.

     1.2 Resignation as Officer and Director. In connection with and as a result
of the termination of Consultant's employment by the Company,  Consultant hereby
resigns  from all  positions  as an  officer,  manager,  and/or  director of the
Company (including NovaStar Financial,  Inc., and all of its direct and indirect
subsidiaries),  effective as of the Termination Date. Consultant and the Company
agree that this Agreement  constitutes notice of such resignation,  and that the
Company shall immediately take any and all additional  actions necessary to give
effect to each such resignation.

     1.3 Accrued Wages,  Vacation,  and Business  Expenses.  Consultant shall be
entitled to payment,  in accordance with the Company's  normal payroll  schedule
following  the  Termination  Date,  of (a) all wages accrued from the end of the
period covered by Consultant's  paycheck  immediately  preceding the Termination
Date to the  Termination  Date,  and (b) all  accrued  and  unused  vacation  of
Consultant as of the Termination Date. In addition,  the Company shall reimburse
Consultant, whether on or following the Termination Date, in accordance with the
normal  expense  reimbursement   policies  of  the  Company,  for  any  and  all
reasonable, customary and usual expenses incurred by Consultant on behalf of the
Company prior to the Termination Date.

                                       1

     1.4  Outstanding Awards.

          (a) Immediately upon termination of employment on the Termination Date
     in accordance  with this Agreement,  Consultant  shall be fully vested with
     respect to all stock options,  restricted  stock, and accumulated  dividend
     equivalent rights that, in the case of each of the foregoing,  were awarded
     or granted prior to the Termination Date and that would have been vested at
     the end of the  year in  which  the  termination  occurred  had  Consultant
     remained  an employee  of the  Company  through  the end of such year.  The
     vesting of all other  stock  options,  restricted  stock,  and  accumulated
     dividend equivalent rights shall cease upon the Termination Date.

          (b)  Accumulated   dividend  equivalent  rights  that  vest  upon  the
     Termination  Date  pursuant  to Section  1.4(a)  above shall be paid by the
     Company to Consultant in cash upon the Termination Date, subject to Section
     6.2 below.

          (c) Except as expressly  provided in Section 1.4(a) and Section 1.4(b)
     above, all rights and obligations with respect to stock options, restricted
     stock,  and  dividend  equivalent  rights  awarded or granted  prior to the
     Termination  Date shall be governed by the terms of the applicable plan and
     the applicable grant or award agreement.

     1.5 Waiver of Incentive Compensation. Consultant and the Company agree that
Consultant shall not receive,  and Consultant hereby relinquishes and waives any
and all right to any cash bonus from the Company that has not been paid prior to
the  Termination  Date (including any cash bonus that otherwise would be payable
as a result of or following the termination of Consultant's  employment with the
Company).

     1.6 Health  Benefits.  Consultant  shall be  entitled  to  continue  health
benefits coverage upon and following the Termination Date pursuant to and to the
extent  provided  by the terms of COBRA.  Consultant  shall not be  entitled  to
receive,  and  hereby  waives  any and all right to,  continued  life  insurance
coverage from the Company, as of the Termination Date.

     1.7 Financial and Tax Planning Services Reimbursement.  Consultant shall be
entitled to  reimbursement  in  accordance  with the Company's  normal  policies
applicable to Consultant prior to the Termination Date for expenses  incurred by
Consultant  for  financial  and  tax  planning  services,  whether  prior  to or
following  the  Termination  Date,  provided  that  Consultant  submits a proper
request for such  reimbursement  with all required  documentation  within thirty
(30) days following the Termination  Date. Such  reimbursement  shall be paid to
Consultant  within ten (10) business days  following  submission of all required
documentation.

     1.8 Other Rights and Benefits.  All rights with respect to benefits accrued
under any benefit  plan of the Company that is not  expressly  addressed by this
Agreement  shall be governed  by the terms of such plan,  subject to Section 6.2
hereof.

2.   Consulting Services.

     2.1.  Consulting.  During the period commencing on the Termination Date and
ending on February 28, 2009 (the "Consulting Period"), Consultant agrees to make
himself  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  Consultant's  job description  during the course of

                                       2

Consultant's employment with the Company. Consultant 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 Consultant will receive  Consultant's full consulting  compensation for such
week under Section 2.2 below. However, the Company reserves the right to require
Consultant  to provide more than ten (10) hours of service per week in the event
that special  circumstances  arise in which  Consultant's  unique  assistance is
required by the Company. (Examples of special circumstances include, but are not
limited to, assistance in litigation or responding to government  inquiries.) 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  Consultant's  consulting  obligations
hereunder,  Consultant  agrees that so long as he is accepting  consulting  fees
pursuant to this Agreement,  Consultant will abide by the provisions of Sections
3 and 4 below.  Notwithstanding  the  foregoing,  in the event  that  Consultant
accepts  employment  or other  consulting  work  within the  Consulting  Period,
Consultant  will be  required  to spend no more  than  five (5)  hours  per week
consulting with the Company.

     2.2. Consulting Fees;  Expenses.  In consideration of the services provided
by  Consultant  during  the  Consulting   Period,  the  Company  agrees  to  pay
Consultant,  each month during the Consulting  Period, a monthly  consulting fee
equal to one-twelfth of  Consultant's  base salary from the Company  immediately
prior to the Termination Date. The Company will pay the consulting fee by direct
deposit to an account designated from time to time by Consultant. The consulting
fee  shall  be  paid  by  the  Company  monthly  in  advance,  beginning  on the
Termination Date. In addition to the consulting fee, the Company shall reimburse
Consultant for all reasonable  out-of-pocket  expenses incurred by Consultant in
providing  cooperation  and assistance to the Company,  within ten (10) business
days following receipt by the Company of reasonable documentation thereof.

     2.3. Consultant's Status;  Taxes.  Consultant's status under this Agreement
during the Consulting  Period shall be that of an independent  contractor to the
Company,  and not that of an agent or employee of the Company. The Company shall
not withhold federal or state taxes for Consultant on any amounts received under
this  Agreement.  Consultant is solely  responsible for and agrees to report and
pay all taxes on any income received under this Agreement.  Consultant agrees to
indemnify  and to hold  harmless  the Company from and against any and all taxes
and/or  penalties  with which  Consultant  is  assessed,  if any, as a result of
Consultant's non-payment of taxes on any amounts received under this Agreement.

     2.4.  No  Authority  to Bind the  Company.  The  Consultant  shall  have no
authority to enter into  contracts or  agreements on behalf of the Company or to
otherwise  legally bind the Company,  and shall not represent to any person that
Consultant has any such authority.

     2.5  Waiver  of  Non-Compete.   The  Company  hereby  waives  any  and  all
obligations,  including  but not limited to the  provisions of Section 11 of the
Employment  Agreement,  that  restrict  Consultant's  right to compete  with the
Company or to accept employment with or compensation from, manage, own an equity
interest in, consult with, or otherwise operate freely with respect to any other
person or  entity,  including  but not  limited  to any  person  or entity  that
competes with the Company, and agrees that such provisions and obligations shall
have no further force or effect from and after the Termination Date.

                                       3

3.   Non-Solicitation.

     Consultant agrees that, during the Consulting  Period: (a) Consultant shall
not  interfere  with the business of the Company;  and (b) except with the prior
consent of an executive officer of NovaStar Financial,  Inc., shall not directly
or indirectly solicit any of the Company's employees to leave the Company and/or
to work for another employer 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.

4.   Company Materials; Confidentiality.

     4.1 Company Materials.  Consultant agrees that all styles,  designs, lists,
materials,  books, files, reports,  correspondence,  records and other documents
used or prepared by Consultant in the scope of his  employment  with the Company
or made available to Consultant by the Company (all of the  foregoing,  "Company
Materials"),  are and will  remain the  property of the  Company.  Except to the
extent  and for  such  time as  reasonably  necessary  for  the  performance  of
consulting  services  to the Company  hereunder,  Consultant  shall  immediately
return all Company  Materials  to the Company and  Consultant  shall not make or
retain any copies thereof.

     4.2 Confidential Information.  Consultant acknowledges that the Company has
created,  developed  and adopted,  itself and through one or more third  parties
acting on its behalf, confidential,  proprietary and/or trade secret information
("Confidential  Information").  Confidential  Information  includes,  but is not
limited to: (a) the  Company's  lending,  brokering,  servicing,  and  investing
policies and procedures;  (b) lists of and information  regarding past,  present
and potential brokers, lenders, investors, suppliers, loan applicants, borrowers
and other customers and clients  ("Clients");  (c) contracts and agreements with
Clients;  (d) the manner in which  business is conducted  by the  Company,  with
particular Clients and otherwise; (e) business plans, strategies,  processes and
methodologies;  (f) financial  information,  budgets,  forecasts,  and financial
statements,  (g)  portfolio  data;  (h) sales  techniques;  (i)  methods of data
processing;  and  (j)  information  concerning  employees  and  their  salaries,
performance  and personnel  file  information.  Notwithstanding  the  foregoing,
Confidential  Information  shall not include any information to the extent known
by or made available to the public generally, other than as a direct or indirect
result of unauthorized disclosure thereof by Consultant.

     4.3   Non-Disclosure.   Consultant   acknowledges   and  agrees   that  the
Confidential Information belongs to the Company and not to Consultant,  that the
Confidential Information has independent actual or potential economic value from
not being generally known to the public or other persons who can obtain economic
value from its disclosure or use, that the  Confidential  Information is subject
to  reasonable  efforts  by the  Company  to  maintain  its  secrecy,  and  that
disclosure of Confidential Information in an unauthorized manner could be highly
prejudicial  to the Company  and/or its Clients.  Except to the extent as may be
expressly  authorized  by the Company in writing  from time to time or as may be
reasonably  necessary  in the course of  providing  consulting  services  to the
Company  hereunder,  Consultant  agrees  not to be  disclose  in any  manner any
Confidential  Information  to any third party,  either  directly or  indirectly,
except to the extent required to do so by applicable law, judicial or regulatory
process,  or other  governmental  authority.  Consultant  shall take  reasonable
precautions to prevent the  unauthorized  use,  disclosure,  or dissemination of
Confidential Information in Consultant's possession or control.

     4.4 Legally Required  Disclosure.  In the event that Consultant is required
by  applicable  law,  judicial  or  regulatory  process,  or other  governmental
authority to disclose any  Confidential  Information,  Consultant shall promptly
notify the Company of such required  disclosure and shall  reasonably  cooperate
with the Company,  at the  Company's  expense,  in any attempt by the Company to
obtain an order or other

                                       4

assurance  that  confidential  treatment  will be accorded  to any  Confidential
Information required to be disclosed.

5.   Release and Waiver of Claims.

     5.1 Release and Waiver. In exchange for this Agreement, effective as of the
date hereof,  Consultant (on behalf of Consultant and anyone claiming through or
on behalf of Consultant) releases the Company, its affiliated entities,  each of
their  respective  successors and assigns,  and the past and present  employees,
officers, directors, managers, members, stockholders, representatives and agents
of any of the  foregoing  from,  and  hereby  waives,  any  and all  claims  and
potential  claims,  demands and causes of action,  whether  known or unknown and
whether  or not  matured  or  contingent,  that  Consultant  has or may have had
against any of them arising out of  Consultant's  service or employment with the
Company  through the date hereof or out of the termination of such employment in
accordance with this Agreement,  including claims,  demands and causes of action
not currently  known to or  contemplated  by the parties,  to the maximum extent
permitted  by law.  This  release  includes,  but is not limited to, any and all
claims,  demands and causes of action through and including the date hereof that
arise  under or out of,  relate to, or  concern:  any oral or  written  promise,
agreement or undertaking concerning or relating to Consultant's  employment with
the Company;  compensation  or benefits;  discrimination  under local,  state or
federal law;  Title VII of the Civil Rights Act of 1964; the Civil Rights Act of
1991;  the  Americans  With  Disabilities  Act; the Employee  Retirement  Income
Security Act of 1974; the Family and Medical Leave Act; any tort,  including but
not  limited  to  invasion  or  privacy,  defamation,  fraud and  infliction  of
emotional distress; and all other claims, demands, and causes of action, whether
they arise in the United  States of  America  or  elsewhere,  that arise out of,
relate to, or concern Consultant's  service as an officer,  director or employee
of the Company or the termination of Consultant's  employment in accordance with
this Agreement.

     5.2 Exclusions.  Notwithstanding Section 5.1 or any other provision of this
Agreement,  nothing  in this  Agreement  shall be deemed to  release or waive or
otherwise compromise, limit or restrict: (a) any rights or benefits provided for
under this Agreement;  (b) any rights to  indemnification,  defense,  or similar
benefits under the certificate of incorporation,  bylaws or other organizational
documents of the Company  (including  NovaStar  Financial,  Inc. and each of its
direct and indirect subsidiaries),  under any written indemnification agreement,
or under any policy of  directors  and officers or other  insurance;  or (c) any
claims,  demands or causes of action  arising  under or out of,  relating to, or
concerning any of the foregoing.

6.   Compliance.

     6.1  Securities  Laws.  Consultant  agrees  to comply  with all  applicable
federal and state  securities  laws in connection  with the purchase and sale of
shares of the Company's capital stock arising by reason of or in connection with
the former employment relationship of the Consultant with the Company, including
but not limited to compliance with Rule 10b-5  promulgated  under Securities and
Exchange Act of 1934, as amended.

     6.2 Section 409A of the Internal  Revenue Code.  To the extent  applicable,
this Agreement and the Employment Agreement shall be interpreted,  construed and
operated in  accordance  with the Section 409A of the  Internal  Revenue Code of
1986, as amended (the "Code"),  and the Treasury  regulations and other guidance
issued  thereunder.  If on the date of the Consultant's  separation from service
(as  defined  in  Treasury  Regulation  ss.1.409A-1(h))  with  the  Company  the
Consultant is a specified employee (as defined in Code Section 409A and Treasury
Regulation   ss.1.409A-1(i)),   no  payment   constituting   the   "deferral  of
compensation" within the meaning of Treasury Regulation ss.1.409A-1(b) and

                                       5

after   application   of  the   exemptions   provided  in  Treasury   Regulation
ss.ss.1.409A-1(b)(4) and 1.409A-1(b)(9)(iii)  shall be made to Consultant at any
time during the six (6) month period following the Consultant's  separation from
service,  and any such amounts  shall instead be paid in a lump sum on the first
payroll  payment date  following  expiration of such six (6) month  period.  For
purposes of conforming the Employment Agreement to Section 409A of the Code, the
parties  agree  that  the  definition  of "Good  Reason"  under  the  Employment
Agreement is hereby amended to conform with the IRS safe harbor definition under
Treasury  Regulation  ss.1.409A-1(n)(2)(ii)  and that the  Company  shall have a
period of thirty (30) days to remedy any conditions giving rise to a Good Reason
termination. Consultant understands and acknowledges that payment of the portion
of Consultant's  benefit under the Company's Deferred  Compensation Plan that is
subject to Section 409A of the Code and that has not been  distributed  prior to
the  Termination  Date is  required to be delayed for a period of six (6) months
following the Termination Date.

7.   Miscellaneous Provisions.

     7.1  Governing  Law and Consent to  Jurisdiction.  This  Agreement  and all
disputes relating to the  interpretation/enforcement  of this Agreement shall be
subject to,  governed by, and construed in accordance with the laws of the State
of Missouri,  notwithstanding  any authority to the contrary.  Each party hereby
expressly  submits  and  consents to the  exclusive  personal  jurisdiction  and
exclusive venue of the federal and state courts of competent jurisdiction in the
State of Missouri,  irrespective of the fact that one or both of the parties now
is or may  become a  resident  of a  different  state  and  notwithstanding  any
authority to the contrary.

     7.2 Entire  Agreement.  This  Agreement  constitutes  the entire  agreement
between the parties with respect to the subject  matter hereof and supersede all
prior agreements or understandings,  if any, between the parties with respect to
such matters;  provided,  however, that neither this Agreement nor any provision
hereof  shall  be  deemed  to  supersede  or  otherwise  affect  any  rights  to
indemnification,   defense,   or  similar  benefits  under  the  certificate  of
incorporation,   bylaws  or  other  organizational   documents  of  the  Company
(including  NovaStar  Financial,  Inc.  and  each  of its  direct  and  indirect
subsidiaries),  under any written indemnification agreement, or under any policy
of directors and officers or other insurance.

     7.3  Amendment.  This  Agreement  may be  modified  or  amended  only by an
agreement in writing signed by both parties.

     7.4 No Waiver.  The failure of either party to insist on the performance of
any of the terms or conditions of this  Agreement,  or failure to enforce any of
the  provisions  of this  Agreement,  shall  not be  construed  as a waiver or a
relinquishment  of any such  provision.  Any waiver or failure to enforce on any
one occasion is effective only in that instance,  and the  obligations of either
party with respect of any  provision in this  Agreement  shall  continue in full
force and effect.

     7.5  Severability.  The provisions of this Agreement  shall be severable in
the event that any of the  provisions  hereof are held by a court with competent
jurisdiction to be invalid, void or otherwise  enforceable,  and other remaining
provisions shall remain enforceable to the fullest extent permitted by the law.

     7.6 Construction of Agreement. This Agreement is the product of negotiation
by and between the parties  and shall not be  strictly  construed  or  otherwise
interpreted  against either party. In construing  this  Agreement,  any court of
competent  jurisdiction/arbitrator  shall  give  effect  to  the  intent  of the
parties.

                                       6

     7.7 Counterparts; Signatures. This Agreement may be executed in one or more
counterparts, and by original or facsimile signature, which taken together shall
constitute one and the same original agreement.

     IN WITNESS  WHEREOF,  the  parties  have  executed  and  entered  into this
Agreement,  with the intent to be legally bound by the provisions  hereof, as of
the date first set forth above.

                                       CONSULTANT:

                                       /s/ Gregory S. Metz
                                       -----------------------------------------
                                       Gregory S. Metz

                                       COMPANY:

                                       NOVASTAR FINANCIAL, INC.,
                                       for itself and on behalf of all of its
                                       direct and indirect subsidiaries

                                       By:  /s/ W. Lance Anderson
                                           -------------------------------------

                                       Name:  W. Lance Anderson
                                             -----------------------------------

                                       Title:  President
                                              ----------------------------------

                                       7

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