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Exhibit 10.6

ISDA ®

International Swaps and Derivatives Association, Inc.

NOVATION AGREEMENT

dated as of November 30, 2006 among:

DEUTSCHE BANK AG, NEW YORK BRANCH (the “ Remaining Party ”),

NOVASTAR MORTGAGE, INC. (the “ Transferor ”)

AND

NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-6 (the “ Transferee ”).

The Remaining Party and NovaStar Financial, Inc. are parties to a 1992 Master dated as of November 30, 2004 (the “ NFI/DB Master Agreement ”). The Remaining Party and NovaStar Financial, Inc. originally entered into certain transactions (each an “ Old Transaction ”) under the NFI/DB Master Agreement, each evidenced by a Confirmation (an “ Old Confirmation ”) attached hereto as Exhibit I. The Old Transactions were transferred by novation to the Transferor pursuant to the Novation Agreement dated July 19, 2006, among NovaStar Finanacial, Inc., the Remaining Party and the Transferor, and made subject to a 1992 ISDA Master Agreement dated as of July 19, 2006, between the Remaining Party and the Transferor (the “ Old Agreement ”).

The Remaining Party and the Transferee are simultaneously entering into a 1992 ISDA Master Agreement dated as of the date hereof in the form attached hereto as Exhibit II (the “ New Agreement ”) relative to the New Transactions (defined below).

With effect from and including November 30, 2006 (the “ Novation Date ”) the Transferor wishes to transfer by novation to the Transferee, and the Transferee wishes to accept the transfer by novation of, all the rights, liabilities, duties and obligations of the Transferor under and in respect of each Old Transaction, with the exception of the Excluded Rights and Obligations referred to below with the effect that the Remaining Party and the Transferee will enter into a new transaction (each a “ New Transaction ” and, collectively, the “ New Transactions ”) between them having terms identical to those of each applicable Old Transaction, subject to the same exceptions and as more particularly described below.

The Remaining Party wishes to accept the Transferee as its sole counterparty with respect to each of the New Transactions.

The Transferor and the Remaining Party wish to have released and discharged, as a result and to the extent of the transfer described above, their respective obligations under and in respect of the Old Transactions.

Accordingly, the parties agree as follows: —

 

1.

Definitions.

Terms defined in the ISDA Master Agreement (Multicurrency-Cross Border) as published in 1992 by the International Swaps and Derivatives Association, Inc. (the “ 1992 ISDA Master Agreement ”) are used herein as so defined, unless otherwise provided herein. For purposes of this Novation Agreement, “Excluded Rights and


Obligations ” means all obligations of each of the Transferor and the Remaining Party to Transfer (as defined in the Credit Support Annex to the Old Agreement) Eligible Collateral (as so defined) in respect of the Old Transactions and all related rights of the Remaining Party and the Transferor under the Old Agreement.

 

2.

Transfer, Release, Discharge and Undertakings.

Subject to the execution and delivery of the New Agreement by each of the parties thereto to the other, with effect from and including the Novation Date and in consideration of the mutual representations, warranties and covenants contained in this Novation Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties):

 

 

(a)

on the Novation Date, subject to Section 2(d) of this Novation Agreement, the Transferor hereby transfers all of its rights, liabilities, duties and obligations, with the exception of the Excluded Rights and Obligations, relative to, and in connection with the Old Transaction to the Transferee.

 

 

(b)

subject to Section 2(d) of this Novation Agreement, the Remaining Party and the Transferor are each hereby released and discharged from further obligations to each other with respect to each Old Transaction and their respective rights against each other thereunder are cancelled, provided that such release and discharge shall not affect any rights, liabilities or obligations of the Remaining Party or the Transferor with respect to payments or other obligations due and payable or due to be performed prior to the Novation Date, and all such payments and obligations shall be paid or performed by the Remaining Party or the Transferor in accordance with the terms of the Old Transaction;

 

 

(c)

in respect of each New Transaction, the Remaining Party and the Transferee each hereby undertake liabilities and obligations towards the other and acquire rights against each other identical in their terms to each corresponding Old Transaction (and, for the avoidance of doubt, as if the Transferee were the Transferor and with the Remaining Party remaining the Remaining Party, save for the Excluded Rights and Obligations and any other rights, liabilities or obligations of the Remaining Party or the Transferor with respect to payments or other obligations due and payable or due to be performed prior to the Novation Date);

 

 

(d)

each New Transaction shall be governed by, form part of, and be subject to the New Agreement and the relevant Old Confirmation (which, in conjunction and as deemed modified to be consistent wit


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