COLLATERAL SECURITY, SETOFF AND NETTING AGREEMENT
THIS COLLATERAL SECURITY, SETOFF AND NETTING AGREEMENT, dated as of April
18, 2007 (as amended, supplemented and otherwise modified from time to time, the
"Agreement") is made collectively among:
WACHOVIA BANK, NATIONAL ASSOCIATION ("WBNA"), WACHOVIA INVESTMENT HOLDINGS,
LLC ("Wachovia Investment") and WACHOVIA CAPITAL MARKETS, LLC ("Wachovia
Capital"; together with WBNA and Wachovia Investment, "Wachovia"), and, any
Person who, directly or indirectly, is in control of, or is controlled by, or is
under common control with, WBNA, Wachovia Investment or Wachovia Capital (each
such Person, a "Wachovia Affiliate") (WBNA, Wachovia Investment or Wachovia
Capital and its respective parent, subsidiaries and Wachovia Affiliates,
individually a "Wachovia Entity" and collectively the "Wachovia Group"), on the
one hand,
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NOVASTAR FINANCIAL INC. ("Novastar Financial") and any Person (including,
without limitation, NOVASTAR MORTGAGE, INC. ("Novastar Mortgage")) who, directly
or indirectly, is controlled by Novastar Financial, but not any "upstream"
controlling party of Novastar Financial (each such Person, a "Novastar
Affiliate") (Novastar Financial and Novastar Affiliates, individually a
"Novastar Entity" and collectively the "Novastar Group"), on the other hand.
R E C I T A L S:
WHEREAS, from time to time, WBNA, Wachovia Investment, Wachovia Capital or
any other Wachovia Entity have engaged and may continue to engage in
Transactions with Novastar Financial and/or the Novastar Group, involving the
purchase, repurchase, sale, swap, lease, loan or borrowing of securities,
servicing rights, servicing advances and mortgage loans;
WHEREAS, certain Wachovia Entities are acting as Buyers and certain
Novastar Entities are acting as Sellers and/or Guarantors under the Master
Repurchase Agreements identified on Exhibit A attached hereto (the "Repurchase
Agreements");
WHEREAS, certain Novastar Entities are issuing the Guaranties identified on
Exhibit B attached hereto (the "Guaranties") for the benefit of Wachovia, each
dated as of the date hereof, to guarantee the obligations of the applicable
Novastar Entities under the related Repurchase Agreement.
WHEREAS, to induce Wachovia or any other Wachovia Entity to enter into the
Program Documents, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Novastar Entities have
agreed to secure their present and future obligations to the Wachovia Entities
by pledging and granting a security interest in certain collateral to the
Wachovia Entities hereunder.
A G R E E M E N T:
Section 1. Definitions. As used herein, unless otherwise stated in this
Agreement, all defined terms shall: (i) have the same meaning ascribed to them
in the Repurchase Agreements; and (ii) be read either as singular or plural as
appropriate, and where necessary the singular form of any word used herein shall
include the plural and vice versa.
"Agreement" has the meaning set forth in the preamble.
"Bankruptcy Code" means Title 11 of the United States Code, as amended
from time to time.
"Collateral" has the meaning set forth in Section 2.
"Event of Default" has the meaning set forth in Section 4.
"Guaranty" has the meaning set forth in the preamble.
"Obligations" has the meaning set forth in Section 2.
"Person" shall mean an individual, corporation, trust, business trust,
statutory trust, partnership, limited liability company, joint venture or
similar business association.
"Repurchase Agreements" has the meaning set forth in the preamble.
"Securities" means, collectively, cash or cash equivalents,
securities, commodities, instruments, loans, receivables, currencies or contract
rights or interests, options or rights in or in respect of any thereof,
including any collateral of every kind delivered with respect thereto.
"Settlement Amount" has the meaning set forth in Section 5.
"Termination Date" for this Agreement means the date on which all
Obligations have been satisfied in full.
"Transaction Documents" means this Agreement and all other agreements,
documents, forms, confirmations and other writings entered into or delivered
pursuant to or in connection with any Transactions, including, but not limited
to those set forth on Exhibit A hereto.
"Transactions" means, without limitation, purchases or sales of
Securities on a long, short or forward basis, loan transactions, repurchase and
reverse repurchase transactions, arbitrage transactions, swaps, collars, caps,
floors and purchases or sales of options to purchase or sell Securities entered
into in connection with any of the Transaction Documents.
Section 2. Collateral.
A. Each Novastar Entity on behalf of itself and each Novastar Entity hereby
grants to each Wachovia Entity a continuing security interest in and first lien
on, and a right of setoff with respect to, all of their respective securities,
notes, mortgages, instruments, financial assets, monies, trust receipts,
servicing rights, servicing advances or other property whenever acquired and all
distributions thereon and
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proceeds thereof, whenever the same is held or carried for any Novastar Entity
by any Wachovia Entity (other than in a third-party custodial capacity for fees)
or any of such entity's agents or pledged, lent or sold in a Transaction by such
Novastar Enitty to each Wachovia Entity entered into heretofore or at any time
in the future (collectively the "Collateral"). The Collateral secures the prompt
and full payment and performance when due of any and all present and future
obligations and liabilities of any Novastar Entity to any Wachovia Entity,
whether pledged or transferred pursuant to a Transaction Document or otherwise
(including without limitation obligations and liabilities under any
Transactions), whether matured, unmatured, liquidated, unliquidated, fixed or
contingent (together with interest at the rate provided under any agreement
evidencing the same (or if not so provided, at the rate described in Section
6(B)), and any allowed costs and fees, the "Obligations").
B. All property of the Novastar Group held by the Wachovia Group (other
than in a third-party custodial capacity for fees) shall be held in the nature
of a deposit for security. Except to the extent otherwise expressly provided in
a Transaction Document, Collateral held by or for the benefit of, or pledged or
transferred to WBNA, Wachovia Investment, Wachovia Capital or any other Wachovia
Entity, shall be deemed held by or for the benefit of, or pledged or transferred
to, such entity for its own account or as agent and/or custodian for the account
of another Wachovia Entity (or Wachovia Entities), as applicable.
Notwithstanding the foregoing, this provision shall not be construed in a manner
which conflicts with WBNA, Wachovia Investment, Wachovia Capital or any other
Wachovia Entity's requirement to obtain or maintain a certain level of margin
with respect to any Transaction.
Section 3. Periodic Netting and Setoff.
A. Each of the parties hereto acknowledges that all Transactions have been
and will be entered into, among other things, in consideration of each other.
B. Effective as of the date of this Agreement, each Wachovia Entity shall
have the right, from time-to-time in its sole business discretion and without
prior notice, to aggregate, setoff and net any payment obligations owing to any
Wachovia Entity from any Novastar Entity against any payment owing to any
Novastar Entity from any Wachovia Entity, in each case, arising under any
Transaction. The parties specifically agree that netting in respect of two or
more Transactions may occur upon the election of any Wachovia Entity. This
periodic netting process shall be handled as set forth within this Section 3 for
all Collateral subject to Transactions. Accordingly,
(1) If any Novastar Entity owes obligations to any Wachovia Entity
pursuant to any of the Transactions, any Wachovia Entity may,
without prior notice, aggregate, setoff and net the amount of
such obligations against: (a) any Collateral pledged or
transferred by any Novastar Entity to any Wachovia Entity; (b)
any Collateral required to be paid or returned by any Wachovia
Entity to any Novastar Entity; and (c) any payment due any
Novastar Entity from any Wachovia Entity. Specifically, WBNA,
Wachovia Investment, Wachovia Capital or any other Wachovia
Entity may net (a) amounts owed to any Novastar Entity by any
Wachovia Entity under the Transactions; and (b) amounts owed by
any Novastar Entity to any Wachovia Entity under the Transactions
to satisfy any Obligations of any Novastar Entity to any Wachovia
Entity.
(2) If amounts owed by all parties are equal, no party shall make a
payment under this Section 3.
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(3) All payments due pursuant to this Section 3 shall be made on the
payment date, which shall be no later than the first business day
after the netting. All payments shall be made by wire transfer.
(4) Upon satisfaction of all obligations under a Transaction (whether
by setoff or otherwise), each of the parties agrees to reflect on
its books and records that such netted Transaction has been
discharged fully.
(5) Any Wachovia Entity may sell at private or public sale any
Collateral and apply the proceeds thereof against any
Obligations, or retain and apply any Collateral in satisfaction
of any such Obligations to any Wachovia Entity;
(6) Any Wachovia Entity may setoff any obligations of any Wachovia
Entity to any Novastar Entity against any Obligations of any
Novastar Entity to any Wachovia Entity; and
(7) Any Wachovia Entity may collect from any Novastar Entity any
losses, costs or expenses incurred by such Wachovia Entity or any
other Wachovia Entity in taking any of the above-mentioned
actions (including commissions and reasonable legal fees and
expenses), all of which will be secured by the Collateral.
C. In the event that the Obligations to be netted are not fixed, WBNA,
Wachovia Investment, Wachovia Capital or any other Wachovia Entity may net and
setoff pursuant to this Section 3 amounts owning by any Wachovia Entity to any
Novastar Entity against 100% of the good faith estimate of such Wachovia Entity
of the Obligations due from the Novastar Entity and including contractual and/or
statutory interest, costs and anticipated attorney's fees.
D. Any netting Wachovia Entity shall have the right to net and/or setoff
Obligations and Transactions in any order it chooses.
Section 4. Default Netting and Setoff.
A. An "Event of Default" shall have the respective meaning assigned to such
terms in the relevant Transaction Documents.
B. In addition to all other rights and remedies available, an Event of
Default shall give each Wachovia Entity the netting and setoff rights specified
in Section 3.
Section 5. Close-Out Netting and Setoff.
A. Upon termination of this Agreement, without limiting any other provision
of this Agreement or any Transaction Document, WBNA, Wachovia Investment,
Wachovia Capital or any other Wachovia Entity may aggregate, setoff and net
against any Obligations of any Novastar Entity any Collateral, or the value
thereof, pledged by or required to be delivered or paid by any Novastar Entity
to any Wachovia Entity in connection with such terminated Transactions. In
addition, upon termination under this Agreement, WBNA, Wachovia Investment,
Wachovia Capital or any other Wachovia Entity may aggregate, setoff and net
against any Obligations of any Novastar Entity any Collateral, or the value
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thereof, pledged by or required to be delivered or paid by WBNA, Wachovia
Investment, Wachovia Capital or any other Wachovia Entity to any Novastar Entity
in connection with such terminated Transactions. Thereupon, the only delivery
obligation of any of the parties in connection with such Transactions will be
for the parties to deliver such Collateral or a net cash payment, as the case
may be, as may be required after giving effect to such aggregation, netting and
setoff.
B. The method by which the parties hereto will value such Collateral for
such netting and setoff purposes will be determined by the method prescribed in
the applicable agreement or, in the absence of a prescribed method, by the
Wachovia Entities in a commercially reasonable manner.
C. In the alternative, WBNA, Wachovia Investment, Wachovia Capital or any
other Wachovia Entity may net and setoff amounts pursuant to this Section in
accordance with the netting and setoff rights specified in Section 3.
D. Each Wachovia Entity shall aggregate any gains, losses and costs with
respect to all transactions into a single net amount (the "Settlement Amount").
It is expressly agreed that the Wachovia Entities shall not be required to enter
into replacement transactions in order to determine the Settlement Amount. The
Wachovia Group and the Novastar Group will provide one another with a statement
showing, in reasonable detail, their calculations of gains, losses and costs,
including all relevant quotations and specifying any amount payable, and giving
details of the relevant account to which any amount payable is to be paid.
Section 6. Remedies.
A. None of the rights and remedies of WBNA, Wachovia Investment, Wachovia
Capital or any other Wachovia Entity shall be exclusive of any other available
right or remedy, and each remedy shall be cumulative and in addition to any
other right or remedy of WBNA, Wachovia Investment, Wachovia Capital or any
other Wachovia Entity. WBNA, Wachovia Investment, Wachovia Capital or any other
Wachovia Entity shall be entitled to exercise its rights and remedies against
the Novastar Group in such order and to such extent as it, in its sole
discretion, deems appropriate. It is understood that a prior demand or call, or
prior notice of the time and place of such sale or purchase, shall not be
considered a waiver of the right of WBNA, Wachovia Investment, Wachovia Capital
or any other Wachovia Entity to sell the Collateral without demand or notice.
Each Novastar Entity acknowledges that all of the Collateral (other than cash)
is of a type that may decline rapidly in value and/or is customarily sold on or
in a recognized market (including the whole loan market), and therefore, the
Novastar Group is not entitled to prior notification of any intended sale or
other disposition thereof. The Novastar Group shall remain liable for any and
all Obligations it owes to WBNA, Wachovia Investment, Wachovia Capital or any
other Wachovia Entity remaining unpaid or unsatisfied after the application of
the Collateral and the exercise of all rights hereunder.
B. All Obligations shall bear interest equal in value to the rate specified
in the applicable Transaction Documents or, if no rate is specified, in respect
of each day, the overnight Federal Funds (Effective) Rate for such day that is
quoted the next Local Business Day on Telerate Page 118 under the caption
"Effective" for such day, or, if that rate is unavailable, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day as published by the
Federal Reserve Bank of New York on the next Local Business Day.
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C. The rights and remedies granted hereby to the Wachovia Group are in
addition to any rights and remedies, and supercede any limitations on such
rights and remedies that are inconsistent herewith, that they may have under any
existing or future agreements with any Novastar Entity unless, in the case of
any future agreements, any inconsistent provision therein is stated explicitly
to supercede this Agreement. Without limiting the generality of the foregoing,
nothing herein shall be construed as a requirement that WBNA, Wachovia
Investment, Wachovia Capital or any other Wachovia Entity cause Collateral held
on account of a particular Transaction to be attributed (in whole or in part) to
any other Transaction in determining whether that WBNA, Wachovia Investment,
Wachovia Capital or any other Wachovia Entity is entitled to make a demand or
call upon the Novastar Entity for additional securities, monies or other
property under any such other Transaction.
Section 7. Multiple Party Setoff.
A. Each Wachovia Entity and each Novastar Entity agrees to engage in a
triangular or multi-party setoff pursuant to this Agreement if necessary. Each
WBNA, Wachovia Investment, Wachovia Capital or any other Wachovia Entity and
each Novastar Entity agrees that, at the option of any party to this Agreement,
and without prior notice to any other party, any and all amounts payable
pursuant to Section 3, Section 4 or Section 5 to any party may be reduced or
satisfied by a setoff against any other amounts payable by or to any other party
to this Agreement. For purposes of this Agreement, the parties agree that all of
the Wachovia Entities constitute a single unit and all of the Novastar Entities
constitute a single unit for purposes of setoff.
B. This right of setoff, recognized in New York law and ss. 553 of the
Bankruptcy Code, shall be held by all parties to this Agreement. If any amounts
are so set off, these amounts are to be discharged promptly and in all respects.
Section 8. Recoupment.
The rights of the Wachovia Group contained herein are in addition to any
and all recoupment rights that the Wachovia Group may have at law or in equity
against the Novastar Group.
Section 9. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY NEW YORK LAW WITHOUT REFERENCE TO
CHOICE OF LAW DOCTRINE.
Section 10. SUBMISSION TO JURISDICTION; WAIVERS.
EACH NOVASTAR ENTITY HEREBY WAIVES TRIAL BY JURY. EACH NOVASTAR ENTITY
HEREBY IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY COURT OF
THE STATE OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, ARISING OUT OF OR RELATING TO THE PROGRAM DOCUMENTS IN ANY
ACTION OR PROCEEDING. EACH NOVASTAR ENTITY HEREBY SUBMITS TO, AND WAIVES ANY
OBJECTION EACH NOVASTAR ENTITY MAY HAVE TO, NON-EXCLUSIVE PERSONAL JURISDICTION
AND VENUE IN XXX XXXXXX XX XXX XXXXX XX XXX XXXX AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT TO ANY DISPUTES
ARISING OUT OF OR RELATING TO THE PROGRAM DOCUMENTS.
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Section 11. Assignment; Modification.
This Agreement may not be amended or modified except in a written
instrument executed by each of the parties hereto. The rights and obligations of
the parties under this Agreement and under any transaction or agreement
(including any Transaction between the parties) may not be assigned without the
prior written consent of the other party and any purported assignment without
such consent shall be null and void. Subject to the foregoing, this Agreement
shall be binding on the parties and their successors and assigns. If any
provisions of this Agreement shall not be enforceable, the parties agree that
the remaining provisions of this Agreement shall constitute the binding
Agreement between the parties.
Section 12. Representations, Warranties and Covenants.
Each party represents and warrants to the other party that it has all
requisite power to execute, deliver and perform its obligations under this
Agreement; that this Agreement constitutes a legal, valid and binding agreement
enforceable in accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights generally and subject, as to
enforceability, to general principals of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law); that neither the
execution and delivery of this Agreement by the party, nor the performance of
its obligations hereunder, (A) conflicts or will conflict with, results or will
result in a breach or violation of, or constitutes or will constitute a default
under: (i) its articles of incorporation or by-laws (or equivalent documents);
(ii) the terms of any agreement, obligation or instrument to which it is a
party; or (iii) any statute, law, decree, order, rule or regulation applicable
to it, or (B) requires any authorization, approval, consent, order, filing, or
other action except such as has previously been obtained.
Novastar Financial represents and warrants as of the date of this Agreement
that it has no "upstream" controlling parties.
Section 13. Recordings of Communications.
The Wachovia Entities and the Novastar Entities shall have the right (but
not the obligation) from time to time to make or cause to be made tape
recordings of communications between its employees and those of the other party
with respect to Transactions. The Wachovia Entities and the Novastar Entities
consent to the admissibility of such tape recordings in any court, arbitration
or other proceedings. The parties agree that a duly authenticated transcript of
such a tape recording shall be deemed to be a writing conclusively evidencing
the parties' agreement.
Section 14. Enforcement Costs and Expenses.
The Novastar Entities shall jointly and severally reimburse all Wachovia
Entities for any damages, claims, liabilities, expenses, attorney's fees, etc.,
arising out of the enforcement of this Agreement or any other Transaction
Document.
Section 15. Cooperation.
Each party agrees that it will deliver such documents and take such action
as are required to implement the terms of this Agreement.
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Section 16. Counterparts.
This Agreement may be executed in counterparts all of which taken together
shall constitute the Agreement.
Section 17. Notice.
In the event that any Wachovia Entity aggregates, sets-off and nets any
payment obligations owing to any Wachovia Entity from any Novastar Entity
against any payment owing to any Novastar Entity from any Wachovia Entity as set
forth in this Agreement, such Wachovia Entity shall provide the related Novastar
Entity with reasonable notice after the occurrence of such aggregation, set-off
and netting.
[REMAINDER OF PAGE BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Collateral Security,
Setoff and Netting Agreement as of the date first written above.
NOVASTAR FINANCIAL, INC., for itself WACHOVIA BANK, NATIONAL
and on behalf for the Novastar Group ASSOCIATION, for itself and on behalf
for the Wachovia Group
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxxx
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Name: Xxxxxxx X. Xxxxxxx Name: Xxxxxx X. Xxxxx
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Title: Executive Vice President Title: Director
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WACHOVIA CAPITAL MARKETS, LLC, for WACHOVIA INVESTMENT HOLDINGS LLC, for
itself and on behalf for the Wachovia itself and on behalf of the Wachovia
Group Group
By: /s/ Xxxxx Xxxxxxx By: /s/ Xxxxxx Zahoos
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Name: Xxxxx Xxxxxxx Name: Xxxxxx Zahoos
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Title: Vice President Title: Vice President
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