Exhibit 10.1
FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (this "Agreement"), dated as of April 29, 2008,
is among NOVASTAR MORTGAGE, INC., a Virginia corporation (the "Company");
NOVASTAR FINANCIAL, INC., a Maryland corporation (the "Guarantor"); THE BANK OF
NEW YORK TRUST COMPANY, NATIONAL ASSOCIATION (as successor to JPMorgan Chase
Bank, National Association), as Trustee under the Indenture defined below (the
"Indenture Trustee"); NOVASTAR CAPITAL TRUST I, a statutory trust created under
the laws of the State of Delaware (the "Trust"); THE BANK OF NEW YORK TRUST
COMPANY, NATIONAL ASSOCIATION (as successor to JPMorgan Chase Bank, National
Association), as property trustee of the Trust (the "Property Trustee"); W.
Xxxxx Xxxxxxxx, Xxxxxx X. Xxxxxxxxx and Xxxx X. Xxxxxxxx, as administrative
trustees of the Trust (collectively, the "Administrative Trustees"); TABERNA
PREFERRED FUNDING I, LTD., a Cayman company, and TABERNA PREFERRED FUNDING II,
LTD., a Cayman company, as the preferred securities holders (the "Preferred
Securities Holders"); and THE BANK OF NEW YORK TRUST COMPANY, NATIONAL
ASSOCIATION (as successor to JPMorgan Chase Bank, National Association), as
trustee under the Guaranty defined below (the "Guaranty Trustee").
WHEREAS, pursuant to that certain NovaStar Mortgage, Inc. Floating Rate
Series A Junior Subordinated Note due 2035, in the principal amount of
$25,775,000, dated September 20, 2005 (the "Series A Note"), and that certain
NovaStar Mortgage, Inc. Floating Rate Series B Junior Subordinated Note due
2035, in the principal amount of $25,775,000, dated September 20, 2005 (the
"Series B Note" and, together with the Series A Note, the "Notes"), the Company
promised to pay interest on the principal amount of the Notes quarterly in
arrears;
WHEREAS, the Guarantor guaranteed the obligations of the Company under the
Notes and the Indenture pursuant to that certain Parent Guarantee Agreement,
dated as of March 15, 2005, by the Guarantor and the Guarantee Trustee (the
"Guaranty");
WHEREAS, the Company failed to pay the interest due on the principal amount
of the Series A Note on March 30, 2008 (the "Existing Default") and expects to
fail to pay the interest due on the principal amount of the Series B Note on
April 30, 2008 (together with the Existing Default, the "Designated Defaults");
WHEREAS, each Designated Default constitutes an Event of Default under and
as defined in that certain Amended and Restated Junior Subordinated Indenture,
dated as of September 20, 2005, among the Company and the Indenture Trustee (the
"Indenture");
WHEREAS, by reason of the existence of the Designated Defaults, the
Indenture Trustee, the Trust, the Preferred Securities Holders, and the Guaranty
Trustee have or will have full legal right to exercise their rights and remedies
under the Indenture and the Guaranty;
WHEREAS, the Company is the legal and beneficial holder of all of the
common securities issued by the Trust, and the Preferred Securities Holders are
the legal and beneficial holders of all of the preferred securities issued by
the Trust; and
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WHEREAS, the Company and the Guarantor have requested that the Indenture
Trustee, the Trust, the Property Trustee, the Administrative Trustees, the
Preferred Securities Holders, and the Guaranty Trustee forbear for a period of
time from exercising their rights and remedies with respect to the Designated
Defaults.
NOW THEREFORE, in consideration of the Recitals, the mutual promises and
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined herein,
including the Recitals, shall have the meanings assigned to them in the
Indenture.
2. Forbearance. During the period commencing on the date hereof and ending
without any notice from or other action by any Person on May 30, 2008 (the
"Forbearance Period"), the Indenture Trustee, the Trust, the Property Trustee,
the Administrative Trustees, the Preferred Securities Holders, and the Guaranty
Trustee will forbear in the exercise of their rights and remedies under the
Indenture, the Notes or any other document or instrument with respect to the
Designated Defaults. Without limiting the generality of the foregoing, during
the Forbearance Period, the Indenture Trustee, the Trust, the Property Trustee,
the Administrative Trustees, the Preferred Securities Holders, and the Guaranty
Trustee will not (i) accelerate the maturity of the Notes or initiate
proceedings for the collection of the principal amount of, any interest on, or
any other amount with respect to the Notes or the Indenture; (ii) file or join
in filing any involuntary petition in bankruptcy with respect to the Company or
the Guarantor, or otherwise initiate or participate in similar insolvency,
reorganization, or moratorium proceedings for the benefit of creditors of the
Company or the Guarantor; or (iii) demand payment pursuant to the Guaranty; in
each case, with respect to the Designated Defaults. Notwithstanding anything
herein to the contrary, with respect to any Event of Default other than the
Designated Defaults, the Indenture Trustee, the Trust, the Property Trustee, the
Administrative Trustees, the Preferred Securities Holders, and the Guaranty
Trustee reserve and preserve all of their rights and remedies under the
Indenture, the Notes and any other document or instrument.
3. Conditions to Forbearance. In consideration of the forbearance set forth
in Section 2 hereof, the Company acknowledges and agrees as follows:
(a) Indebtedness. During the Forbearance Period, the Company will not
incur any additional indebtedness, other than ordinary trade accounts
payable.
(b) Sale of Assets. During the Forbearance Period, other than in the
ordinary course of business, the Company will not convey, transfer or lease
any of its properties and assets, and no Person shall receive or lease any
of the Company's properties and assets.
(c) Consolidation or Merger. During the Forbearance Period, the
Company will not consolidate with or merge into any other Person, and no
Person shall consolidate with or merge into the Company.
(d) Senior Debt. As of the date hereof, the total amount of
outstanding borrowings and any remaining fees due under those certain
Master Repurchase Agreement
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(2007 Whole Loan), Master Repurchase Agreement (2007 Investment Grade) and
Master Repurchase Agreement (2007 Non-Investment Grade), each expiring May
29, 2008, and including any amendments, modifications or waivers with
respect thereto (collectively, the "Wachovia Facility") is $11,879,613.66.
(e) Senior Debt Repayment. On or before May 30, 2008, the Company
shall fully repay 100% of all outstanding borrowings and any remaining fees
due under the Wachovia Facility.
4. Representations and Warranties. Each party hereto hereby represents and
warrants to each other party hereto as follows:
(a) Power; Authorization. Such Person has the corporate, limited
liability, or trust power and authority and has been duly authorized by all
requisite corporate, limited liability, trust or other action to execute
and deliver this Agreement and to perform such Person's obligations
hereunder. This Agreement has been duly executed and delivered by such
Person.
(b) Enforceability. This Agreement is the legal, valid, and binding
obligation of such Person, enforceable against such Person in accordance
with its terms.
5. Direction of Trustees. By execution of this Agreement, each of the
Administrative Trustees, on behalf of the Trust, as the legal and beneficial
holder of 100% in aggregate principal amount of the Outstanding Securities, and
the Preferred Securities Holders, as the legal and beneficial holders of 100% in
aggregate Liquidation Amount of the outstanding Preferred Securities, hereby (a)
consents to the execution and delivery of this Agreement by the Indenture
Trustee, the Property Trustee, and the Guaranty Trustee (collectively, the
"Directed Trustees"), (b) directs each Directed Trustee to execute and deliver
this Agreement, and (c) agrees to and does hereby release each Directed Trustee
for any action taken or to be taken by any Directed Trustee in connection with
its execution and delivery of this Agreement and for any liability or
responsibility arising in connection herewith. None of the Directed Trustees
shall be responsible in any manner whatsoever to any person for the validity or
sufficiency of this Agreement or the due execution hereof by the Company, the
Administrative Trustees or any Holder of Outstanding Securities or Preferred
Securities, for any circumstance resulting from its execution of this Agreement
or for or in respect of the recitals and statements of fact contained herein,
all of which recitals and statements of fact are made solely by the Company, the
Guarantor, the Administrative Trustees, and the Preferred Securities Holders,
respectively.
6. Miscellaneous.
(a) Benefit of Agreement. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties hereto and their
successors and assigns. No other Person shall be entitled to claim any
right or benefit hereunder, including the status of a third-party
beneficiary of this Agreement.
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(b) Entire Agreement. Except as expressly set forth herein, there are
no agreements or understandings, written or oral, among the parties hereto
relating to this Agreement that are not fully and completely set forth
herein.
(c) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal substantive laws of the State
of New York applicable to contracts made and performed in that state,
without regard to the choice of law principles thereof to the extent such
principles would provide for the application of the substantive laws of a
jurisdiction other than the State of New York, and any applicable laws of
the United States of America.
(d) Section Titles. The Section titles of this Agreement are and shall
be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
(e) Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts and by different parties to this Agreement on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile or other
electronic transmission shall be deemed to be an original signature hereto.
(f) Amendment. No amendment or modification of any provision of this
Agreement shall be effective, unless the same shall be in writing and
signed by the parties hereto.
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IN WITNESS WHEREOF, the parties hereto duly executed this Agreement as of
the date first written above.
NOVASTAR MORTGAGE, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
------------------------------------
Title: SVP, Chief Financial Officer and
Secretary
-----------------------------------
NOVASTAR FINANCIAL, INC.
By: /s/ Xxxxxx X. Xxxxxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
------------------------------------
Title: SVP, Chief Financial Officer and
Secretary
-----------------------------------
/s/ W. Xxxxx Xxxxxxxx
-----------------------------------------
W. Xxxxx Xxxxxxxx, as the Administrative
Trustee
/s/ Xxxxxx X. Xxxxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxxxx, as the
Administrative Trustee
/s/ Xxxx X. Xxxxxxxx
-----------------------------------------
Xxxx X. Xxxxxxxx, as the Administrative
Trustee
NOVASTAR CAPITAL TRUST I
By: /s/ W. Xxxxx Xxxxxxxx
-------------------------------------
Name: W. Xxxxx Xxxxxxxx
-----------------------------------
Title: Administrative Trustee
----------------------------------
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THE BANK OF NEW YORK TRUST COMPANY,
NATIONAL ASSOCIATION, as the Indenture
Trustee, the Property Trustee, and the
Guaranty Trustee
By: /s/ Xxxxx X. Xxxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxxx
------------------------------------
Title: Vice President
-----------------------------------
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TABERNA PREFERRED FUNDING I, LTD.
By: TABERNA CAPITAL MANAGEMENT,
LLC, as Collateral Manager
By: /s/ Raphael Lict
--------------------------------------
Name: Xxxxxxx Xxxxx
Title: Secretary
TABERNA PREFERRED FUNDING II, LTD.
By: TABERNA CAPITAL MANAGEMENT,
LLC, as Collateral Manager
By: /s/ Xxxxxxx Xxxxx
--------------------------------------
Name: Xxxxxxx Xxxxx
Title: Secretary
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