As filed with the Securities and Exchange Commission on November __, 1997
Registration No. 333-____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
NB Capital Corporation
(Exact name of Registrant as Specified in Its Charter)
Maryland 6798 52-2063921
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Classification Identification)
of organization) Code Number)
125 West 55th Street
New York, New York 10019
(212) 632-8500
(Address, including zip code, and telephone number,
including area code, of each registrant's principal executive offices)
Francois Bourassa
Vice President - Legal
National Bank of Canada
National Bank Tower
600 de La Gauchetiere West
Montreal, Quebec H3B 4L2
(514) 394-8370
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Copy to:
Robert Evans III
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
(212) 848-4000
-------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of the Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number on the earlier effective registration
statement for the same offering. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount to be Offering Price Per Aggregate Offering Amount of Registration
to be Registered Registered Share Price Fee (1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8.35% Noncumulative
Exchangeable Preferred 300,000 shares US$1,000 US$300,000,000 US$90,910
Stock, Series A
================================================================================================================================
<FN>
(1) Calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on $300,000,000 book value of 8.35%
Noncumulative Exchangeable Preferred Stock, Series A, to be received by the Registrant in exchange
for the shares of 8.35% Noncumulative Exchangeable Preferred Stock, Series A, offered hereby.
</FN>
</TABLE>
-------------------------
The Registrants hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement on Form S-4 (this "Registration
Statement") relates to the registration of 300,000 shares of 8.35% Noncumulative
Exchangeable Preferred Stock, Series A (the "New Preferred Shares"), of NB
Capital Corporation. The New Preferred Shares will be offered in exchange (the
"Exchange Offer") for up to 300,000 shares of 8.35% Noncumulative Exchangeable
Preferred Stock, Series A, of NB Capital Corporation currently outstanding (the
"Old Preferred Shares"). The New Preferred Shares are identical in all respects
to the Old Preferred Shares, except that the New Preferred Shares will not bear
legends restricting transfer and therefore, will be freely transferrable.
Upon the occurrence of an Exchange Event (as defined in the
Prospectus relating to the New Preferred Shares and forming part of this
Registration Statement), each New Preferred Share will be automatically
exchanged for one newly issued 8.45% Noncumulative First Preferred Share, Series
Z (the "Series Z Preferred Shares"), of National Bank of Canada. This
Registration Statement will be amended, as soon as practicable, to register the
Series Z Preferred Shares pursuant to a Registration Statement on Form F-9.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1997
- ----------------------------------------------
PRELIMINARY PROSPECTUS
- ----------------------
NB Capital Corporation
Offer to Exchange
8.35% Noncumulative Exchangeable Preferred Stock, Series A
for up to 300,000 shares of
8.35% Noncumulative Exchangeable Preferred Stock, Series A
NB Capital Corporation (the "Company") hereby offers, upon the terms and subject
to the conditions set forth in this Prospectus (the "Prospectus") and in the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange up to 300,000 shares of its 8.35% Noncumulative
Exchangeable Preferred Stock, Series A, par value US$.01 per share (the "New
Preferred Shares") for up to all of the outstanding shares of its 8.35%
Noncumulative Exchangeable Preferred Stock, Series A, par value US$.01 per share
(the "Old Preferred Shares") at the rate of one New Preferred Share for each Old
Preferred Share. As of the date of this Prospectus, the aggregate number of the
Old Preferred Shares outstanding is 300,000. The form and terms of the New
Preferred Shares are identical in all material respects to the form and terms of
the Old Preferred Shares, except that the New Preferred Shares have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and, therefore, will not bear legends restricting their transfer.
The Old Preferred Shares were issued on September 3, 1997 (the "Issue Date") in
a transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Old
Preferred Shares may not be offered or sold unless registered under the
Securities Act or unless offered or sold pursuant to an exemption from, or in a
transaction not subject to, the Securities Act. The New Preferred
<PAGE>
Shares are being offered hereby to satisfy certain obligations of the Company
contained in the Registration Rights Agreement (as defined). Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties, the
Company believes that the New Preferred Shares issued pursuant to the Exchange
Offer in exchange for Old Preferred Shares may be offered for resale, resold or
otherwise transferred by any holder thereof (other than any holder that is a
broker-dealer or an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Preferred Shares are acquired in the ordinary course of such holder's business,
such holder has no arrangement or understanding with any person to participate
in the distribution of such New Preferred Shares and neither such holder nor any
such other person is engaging in or intends to engage in a distribution of New
Preferred Shares. However, the Company has not sought, and does not intend to
seek, its own no-action letter, and there can be no assurance that the
Commission or its staff would make a similar determination with respect to the
Exchange Offer. Notwithstanding the foregoing, each broker-dealer that receives
New Preferred Shares for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Preferred Shares. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with any resale of New Preferred Shares
received in exchange for Old Preferred Shares where such Old Preferred Shares
were acquired by such broker-dealer as a result of market-making activities or
other trading activities (other than Old Preferred Shares acquired directly from
the Company). The Company has agreed that, for a period of six months after the
date of this Prospectus, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale.
The Exchange Offer is not conditioned upon any minimum aggregate number
of Old Preferred Shares being tendered for exchange. The Company will accept for
exchange any and all validly tendered Old Preferred Share not withdrawn prior to
5:00 p.m. New York City time on 1998, unless the Company, in its
sole discretion, extends the period of time during which the Exchange Offer is
open (the "Expiration Date"). The Company does not currently intend to extend
the Expiration Date. The date of acceptance and exchange of the Old Preferred
Shares will be the business day following the Expiration Date. Tenders of
Old Preferred Shares may be withdrawn at any time prior to the Expiration Date.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay certain expenses incident to the Exchange Offer.
Dividends on the New Preferred Shares are payable at the rate of 8.35%
per annum of the liquidation preference (an amount equal to US$83.50 per annum
per share), if, when and as authorized and declared by the Board of Directors of
the Company. Dividends are
ii
<PAGE>
not cumulative and, if declared, are payable quarterly in arrears on the 30th
day of March, June, September and December in each year, commencing December 30,
1997. If no dividend is declared on the New Preferred Shares for a quarterly
dividend period, holders of the New Preferred Shares will have no right to
receive a dividend for that period, and the Company will have no obligation to
pay a dividend for that period, whether or not dividends are declared and paid
for any future period. Dividends in each dividend period shall accrue from the
first day of such period, whether or not declared or paid in the prior period.
Each of the New Preferred Shares will be exchanged automatically for one newly
issued 8.45% Noncumulative First Preferred Share, Series Z (a "Bank Preferred
Share"), of National Bank of Canada (the "Bank"), on the occurrence of an
Exchange Event (as defined).
See "Risk Factors" commencing on page 21 for a discussion of certain
factors that should be considered by potential holders of New Preferred Shares,
including the following:
o A significant decline in interest rates or in the value of the Canadian
dollar could have an adverse effect on the Company;
o Dividends on the New Preferred Shares are not cumulative;
o The Company's assets principally consist of, and in the future are
expected to, principally consist of limited recourse obligations and
all of the real property securing those obligations are, and in the
future are expected to be, located outside the United States;
o The New Preferred Shares will be exchanged automatically for
the Bank Preferred Shares in the event that the Bank
experiences certain financial difficulties and in certain
other circumstances;
o Banking authorities could impose restrictions on the operations of the
Company, including the Company's ability to pay dividends;
o The Company may not qualify as a REIT (as defined) for United
States federal income tax purposes and may, therefore, be
subject to United States federal income tax at normal
corporate tax rates; and
o Because of the relationship between the Company and the Bank, conflicts
of interest may arise between the Company and the Bank.
The New Preferred Shares are not redeemable prior to September 3, 2007
(except upon the occurrence of a Tax Event, as described herein, on or after
September 3, 2002). On and after September 3, 2007, the New Preferred Shares may
be redeemed for cash at the option of the Company, in whole or in part, at the
redemption prices set forth herein, plus the quarterly accrued and unpaid
dividend, if any, thereon. The Company may not redeem the New Preferred Shares
without prior approval from The Office of the Superintendent of Financial
Institutions Canada (the "Superintendent"). The New Preferred Shares are not
subject to any sinking fund or mandatory redemption and are not convertible into
any other securities of the Company.
iii
<PAGE>
Each of the New Preferred Shares will be exchanged automatically (the
"Automatic Exchange") for one Bank Preferred Share (i) immediately prior to such
time, if any, at which the Bank fails to declare and pay or set aside for
payment when due any dividend on any issue of its cumulative First Preferred
Shares or the Bank fails to pay or set aside for payment when due any declared
dividend on any of its non-cumulative First Preferred Shares, (ii) in the event
that the Bank has a Tier 1 risk-based capital ratio of less than 4.0% or a total
risk-based capital ratio of less than 8.0%, (iii) in the event that the
Superintendent takes control of the Bank pursuant to the Bank Act (Canada), as
amended (the "Bank Act"), or proceedings are commenced for the winding-up of the
Bank pursuant to the Winding-up and Restructuring Act (Canada), or (iv) in the
event that the Superintendent, by order, directs the Bank to act pursuant to
subsection 485(3) of the Bank Act and the Bank elects to cause the exchange
(each, an "Exchange Event"). See "Risk Factors--Certain Risks Associated with
the Bank." CONSEQUENTLY, THE NEW PREFERRED SHARES COULD BE REPLACED, WITHOUT ANY
ACTION BY THE HOLDER THEREOF, BY BANK PREFERRED SHARES AT A TIME WHEN THE BANK'S
FINANCIAL CONDITION IS DETERIORATING OR WHEN THE SUPERINTENDENT HAS TAKEN
CONTROL OF THE BANK OR PROCEEDINGS FOR THE WINDING-UP OF THE BANK HAVE BEEN
COMMENCED. POTENTIAL HOLDERS OF NEW PREFERRED SHARES SHOULD, THEREFORE,
CAREFULLY CONSIDER THE DESCRIPTION OF THE BANK SET FORTH ELSEWHERE IN THIS
PROSPECTUS. The Bank believes, however, that based on various factors, including
the Bank's financial condition, the potential effect of non-payment of dividends
on the Bank's business and the Bank's understanding of the Superintendent's
policies and procedures, the likelihood of an Exchange Event occurring is
extremely remote. In the event of the Automatic Exchange, the Bank Preferred
Shares would constitute a new series of First Preferred Shares of the Bank,
would have the same liquidation preference and would be subject to redemption on
the same terms as the New Preferred Shares (except that there would be no
redemption upon the occurrence of a Tax Event) and would rank pari passu, in
terms of dividend payments and liquidation preference, with, or senior to, any
other outstanding preferred shares of the Bank. The Bank Preferred Shares would
not entitle the holders to vote except in certain circumstances. Dividends on
the Bank Preferred Shares would be non-cumulative and payable at the rate of
8.45% per annum of the liquidation preference, if, when and as declared by the
Board of Directors of the Bank. Holders of the New Preferred Shares cannot
exchange the New Preferred Shares for the Bank Preferred Shares voluntarily and,
absent the occurrence of the Automatic Exchange, holders of the New Preferred
Shares will have no dividend, voting, liquidation preference or other rights
with respect to the Bank or any security of the Bank. See "Description of New
Preferred Shares--Automatic Exchange."
The Company was formed for the purpose of providing investors with the
opportunity to invest in Canadian residential mortgages and other real estate
assets. The Company's principal business objective is to acquire, hold, finance
and manage assets consisting of obligations secured by real property, as well as
certain other qualifying REIT assets
iv
<PAGE>
("Mortgage Assets"). Currently, the Mortgage Assets of the Company consist of
obligations issued by NB Finance, Ltd., a corporation formed under the laws of
Bermuda that is a wholly owned subsidiary of the Bank ("NB Finance"), that are
recourse only to the Initial Mortgage Loans (as defined) and that are secured by
real property that is located in Canada (the "Initial Mortgage Assets"). The
"Initial Mortgage Loans" consist of Canada Mortgage and Housing Corporation
("CMHC") insured residential first mortgages ("Mortgage Loans") acquired from
the Bank. The principal amount of the Initial Mortgage Assets is equal to
approximately 80% of the principal amount of the Initial Mortgage Loans. All of
the shares of the Company's common stock, par value US$.01 per share (the
"Common Stock"), are owned by the Bank. See "Business and Strategy--Description
of the Initial Mortgage Assets" and "Business and Strategy--Description of the
Initial Mortgage Loans."
The Company expects to qualify as a real estate investment trust
("REIT") for United States federal income tax purposes, commencing with its
taxable year ending December 31, 1997. Under the Company's charter (the
"Charter"), no individual is permitted to beneficially own more than 5% of any
series of preferred stock of the Company, including the New Preferred Shares.
---------------------------
THE SECURITIES DESCRIBED HEREIN HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The date of this Prospectus is ______________ ,1997.
v
<PAGE>
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and
other informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). As a result of the Exchange Offer, the Company
will be required to file reports and other information with the Commission
pursuant to the informational requirements of the Exchange Act.
This Prospectus constitutes a part of a registration statement on Form
S-4 (the "Registration Statement") filed by the Company with the Commission
under the Securities Act. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained in
the Registration Statement and the exhibits and schedules thereto, and reference
is hereby made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the New
Preferred Shares. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
The Registration Statement may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, or at its regional offices located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can be
obtained from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates and may also be
accessed electronically by means of the Commission's website at
(http://www.sec.gov).
vi
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY........................................................... 1
The Company............................................................ 1
The Bank............................................................... 4
Business and Strategy.................................................. 4
Tax Status of the Company.............................................. 7
Risk Factors........................................................... 7
The Exchange Offer..................................................... 10
The New Preferred Shares............................................... 14
Selected Financial Data................................................ 20
RISK FACTORS................................................................. 21
Consequences of Failure to Exchange Old Preferred Shares............... 21
Interest Rate Risk..................................................... 21
Currency Exchange Rate Risk............................................ 22
Dividends Not Cumulative............................................... 22
Real Estate Market Conditions.......................................... 22
Limited Recourse Nature of Certain Mortgage Assets; Limitations on
CMHC Insurance.................................................... 23
All of the Real Property Securing the Initial Mortgage Assets Is
Located Outside of the United States.............................. 23
Canadian Legal Considerations.......................................... 24
Certain Risks Associated with the Bank................................. 24
Dividend and Other Regulatory Restrictions on Operations of the
Company........................................................... 25
Tax Risks.............................................................. 26
Relationship with the Bank and Its Affiliates; Conflicts of Interest... 28
Dependence upon the Advisor and the Servicer........................... 29
Risk of Future Revisions in Policies and Strategies by Board of
Directors......................................................... 29
No Third Party Valuation of the Mortgage Assets; No Arm's-Length
Negotiations with Affiliates...................................... 29
THE COMPANY.................................................................. 30
USE OF PROCEEDS.............................................................. 31
CAPITALIZATION............................................................... 31
THE EXCHANGE OFFER........................................................... 32
General................................................................ 32
Purpose of the Exchange Offer.......................................... 32
Terms of the Exchange.................................................. 33
Expiration Date; Extension; Termination; Amendment..................... 34
Procedures for Tendering Old Preferred Shares.......................... 34
Terms and Conditions of the Letter of Transmittal...................... 37
Withdrawal Rights...................................................... 38
vii
<PAGE>
Page
----
Acceptance of Old Preferred Shares for Exchange; Delivery of New
Preferred Shares.................................................. 39
Certain Conditions to the Exchange Offer............................... 40
Exchange Agent......................................................... 42
Solicitation of Tenders; Fees and Expenses............................. 42
Transfer Taxes......................................................... 43
Accounting Treatment................................................... 44
Consequences of Failure to Exchange.................................... 44
Resale of New Preferred Shares......................................... 44
BUSINESS AND STRATEGY........................................................ 46
General................................................................ 46
Dividend Policy........................................................ 46
Liquidity and Capital Resources........................................ 47
General Description of Mortgage Assets; Investment Policy.............. 47
Description of the Initial Mortgage Assets............................. 49
Management Policies and Programs....................................... 50
Description of the Initial Mortgage Loans.............................. 53
Servicing.............................................................. 55
Employees.............................................................. 57
Competition............................................................ 57
Legal Proceedings...................................................... 57
MANAGEMENT................................................................... 58
Directors and Executive Officers....................................... 58
Independent Directors.................................................. 59
Audit Committee........................................................ 59
Compensation of Directors and Officers................................. 59
Limitation of Liability and Indemnification of Directors and Officers.. 60
The Advisor............................................................ 61
DESCRIPTION OF NEW PREFERRED SHARES.......................................... 62
General................................................................ 62
Dividends.............................................................. 62
Automatic Exchange..................................................... 64
Ranking................................................................ 66
Voting Rights.......................................................... 66
Redemption............................................................. 67
Rights upon Liquidation................................................ 70
Independent Director Approval.......................................... 71
EXCHANGE OFFER; REGISTRATION RIGHTS.......................................... 71
DESCRIPTION OF CAPITAL STOCK................................................. 75
Common Stock........................................................... 75
viii
<PAGE>
Page
----
Preferred Stock........................................................ 76
Power to Issue Additional Shares of Common Stock and Preferred Stock... 78
Restrictions on Ownership and Transfer................................. 78
Super-Majority Director Approval....................................... 80
Business Combinations.................................................. 80
Control Share Acquisitions............................................. 80
Form, Denomination, Book-Entry Procedures and Transfer................. 81
Depositary Procedures.................................................. 82
Certificated New Preferred Shares...................................... 84
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.............................. 84
Tax Impact of the Exchange Offer....................................... 85
Qualification of the Company as a REIT................................. 85
Taxation of the Company................................................ 88
Tax Treatment of Automatic Exchange.................................... 88
Taxation of New Preferred Shares....................................... 89
Taxation of Tax-Exempt Entities........................................ 90
State and Local Taxes.................................................. 91
Taxation of Bank Preferred Shares...................................... 91
Certain United States Federal Income Tax Considerations Applicable
to Foreign Holders................................................. 91
Information Reporting and Backup Withholding........................... 92
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS................................... 93
Automatic Exchange..................................................... 93
Taxation of Dividends.................................................. 93
Disposition of Bank Preferred Shares................................... 94
Redemption of Bank Preferred Shares.................................... 94
ERISA CONSIDERATIONS......................................................... 94
Status Under Plan Asset Regulations.................................... 94
Publicly-Offered Security Exception.................................... 96
Exemptions from Prohibited Transactions................................ 97
Unrelated Business Taxable Income...................................... 98
RATINGS .................................................................... 99
PLAN OF DISTRIBUTION......................................................... 99
LEGAL MATTERS................................................................100
ix
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus which are not
historical facts contain forward-looking information with respect to the
Company's plans, projections or future performance, the occurrence of which
involve certain risks and uncertainties that could cause the Company's actual
results or plans to differ materially from those expected by the Company.
All written or oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by the foregoing cautionary
statement.
x
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus. The offering by NB Capital
Corporation (the "Company") of up to 300,000 shares of its 8.35% Noncumulative
Exchangeable Preferred Stock, Series A, par value US$.01 per share (the "New
Preferred Shares") in exchange for up to all the outstanding shares of 8.35%
Noncumulative Exchangeable Preferred Stock, Series A, par value US$.01 per share
(the "Old Preferred Shares"), of the Company is referred to herein as the
"Exchange Offer." References to dollars and US$ are to United States dollars;
references to C$ and $ are to Canadian dollars. As of , 1997, the
Canadian dollar exchange rate was C$ =US$1.00 and certain amounts stated
herein reflect such exchange rate.
The Company
The Company is a Maryland corporation incorporated on August 20, 1997.
The Company's principal business objective is to acquire, hold, finance and
manage Mortgage Assets. The Company will elect to be taxable as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"), and generally will not
be liable for United States federal income tax to the extent that it distributes
its income to its stockholders and maintains its qualification as a REIT. All of
the common stock, par value $.01, of the Company (the "Common Stock") is owned
by the Bank. The Bank has indicated to the Company that, for as long as any of
the New Preferred Shares are outstanding, the Bank intends to continue to own
all of the outstanding shares of the Common Stock. The Company was formed to
provide investors with the opportunity to invest in Canadian residential
mortgages and other real estate assets and to provide the Bank with a
cost-effective means of raising capital.
The Old Preferred Shares were issued on September 3, 1997 pursuant to
the Purchase Agreement (the "Purchase Agreement"), dated September 3, 1997,
among the Company, the Bank and Merrill Lynch, Pierce, Fenner & Smith & Co.
Incorporated (the "Initial Purchaser"). Pursuant to the Purchase Agreement, the
Company, the Bank and the Initial Purchaser entered into the Registration Rights
Agreement (the "Registration Rights Agreement") dated September 3, 1997. The
Exchange Offer is being effected by the Company in order to satisfy certain
obligations of the Company under the Registration Rights Agreement.
Each of the New Preferred Shares will be exchanged automatically for
one Bank Preferred Share (i) immediately prior to such time, if any, at which
the Bank fails to declare and pay or set aside for payment when due any dividend
on any issue of its cumulative First Preferred Shares or the Bank fails to pay
or set aside for payment when due any declared dividend on any of its
non-cumulative First Preferred Shares, (ii) in the event that the Bank has a
Tier 1 risk-based capital ratio of less than 4.0% or a total risk-based capital
ratio of less than 8.0%, (iii) in the event that the Superintendent takes
control of the Bank pursuant to the Bank Act or proceedings are commenced for
the winding-up of the Bank pursuant to the Winding-up
<PAGE>
and Restructuring Act (Canada), or (iv) in the event that the Superintendent, by
order, directs the Bank to act pursuant to subsection 485(3) of the Bank Act and
the Bank elects to cause the exchange. CONSEQUENTLY, THE NEW PREFERRED SHARES
COULD BE REPLACED, WITHOUT ANY ACTION BY THE HOLDER THEREOF, BY BANK PREFERRED
SHARES AT A TIME WHEN THE BANK'S FINANCIAL CONDITION IS DETERIORATING OR WHEN
THE SUPERINTENDENT HAS TAKEN CONTROL OF THE BANK OR PROCEEDINGS FOR THE
WINDING-UP OF THE BANK HAVE BEEN COMMENCED. POTENTIAL HOLDERS OF NEW PREFERRED
SHARES SHOULD, THEREFORE, CAREFULLY CONSIDER THE DESCRIPTION OF THE BANK SET
FORTH ELSEWHERE IN THIS PROSPECTUS. The Bank believes, however, that based on
various factors, including the Bank's financial condition, the potential effect
of non-payment of dividends on the Bank's business and the Bank's understanding
of the Superintendent's policies and procedures, the likelihood of an Exchange
Event occurring is extremely remote.
The authorized preferred capital of the Bank consists of an unlimited
number of First Preferred Shares and up to 15 million Second Preferred Shares
which may be issued for a maximum aggregate consideration of C$1 billion and
C$300 million, respectively, or the equivalent thereof in other currencies. The
Board of Directors of the Bank may by resolution establish the terms of series
of preferred shares. The Bank currently has six series of First Preferred Shares
outstanding with an aggregate liquidation preference as of October 31, 1997 of
C$376 million.
Under Canadian law, the Bank is required to maintain adequate capital
in relation to its operations. The Superintendent has issued guidelines
concerning the maintenance of adequate capital (the "Capital Guideline") and has
statutory authority to direct the Bank to increase its capital even if the Bank
is in compliance with the Capital Guideline. Pursuant to the Capital Guideline,
requirements are applied to the Bank on a consolidated basis including all
subsidiaries except insurance subsidiaries or other regulated financial
institutions whose leverage is inappropriate for a deposit-taking institution
and which, because of their size, would have a material impact on the leverage
of the consolidated entity. Under the Capital Guideline, it is expected that the
Bank's total assets, including specified off-balance sheet items, should be no
greater than 20 times the Bank's total capital. It is also expected that the
Bank's total capital not be less than 8% of risk-weighted assets and
risk-weighted off-balance sheet items, unless a higher ratio is prescribed by
the Superintendent. The Capital Guideline prescribes risk-weighting and the
treatment of off-balance sheet items. The ratio of total capital to
risk-weighted off-balance sheet items is the "risk-based capital ratio" and is
based upon standards adopted by the Bank for International Settlement. The
Capital Guideline recognizes two tiers of capital. Tier 1 capital comprises the
highest quality capital elements based upon the attributes of permanence,
freedom from mandatory fixed charges against earnings and subordination to the
rights of depositors and other creditors. Tier 2 capital contributes to the
overall strength of a bank as a going concern, but falls short in meeting the
first two capital attributes described for Tier 1 capital. Tier 2 capital
differentiates between Tier 2A hybrid (debt/equity) instruments
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and Tier 2B limited life instruments. Tier 1 capital elements consist of common
shareholders equity, qualifying non-cumulative perpetual preferred shares and
qualifying non-controlling interests in subsidiaries arising on consolidation
from Tier 1 capital instruments. Tier 1 capital instruments and preferred shares
qualifying as hybrid instruments in Tier 2A are intended to be permanent. Where
the share or instrument provides for redemption by the issuer after 5 years with
supervisory approval, the Superintendent would not normally prevent such
redemption by a healthy and viable bank where the instrument is or has been
replaced by equal or higher quality capital including an increase in retained
earnings, or if the bank is downsizing. All capital instruments must be issued
and fully paid for in money or, with the approval of the Superintendent, in
property. Net of amortization, the amount of Tier 2 capital may not exceed 100%
of Tier 1 capital after deducting goodwill and, consequently, the Capital
Guideline requires the amount of Tier 1 capital to be not less than 4% of
risk-weighted assets and risk-weighted off-balance sheet items, unless a higher
ratio is prescribed by the Superintendent. Also under the Capital Guideline, the
amount of Tier 2B capital net of amortization shall not exceed 50% of Tier 1
capital after deducting goodwill.
At June 30, 1997, the Tier 1 risk-based capital ratio and total
risk-based capital ratio levels of the Bank were 6.8% and 9.7%, respectively.
After giving effect to the issuance of the Old Preferred Shares on September 3,
1997, the Tier 1 risk-based capital ratio and total risk-based capital ratio
levels of the Bank as of that date were 8.0% and 10.8%, respectively. The Bank's
Tier 1 risk-based capital ratio and total risk-based capital ratio were 6.9% and
10.2% at October 31, 1996, 6.8% and 10.4% at October 31, 1995 and 6.9% and 11.1%
at October 31, 1994.
Upon the Superintendent taking control of the Bank pursuant to the Bank
Act or upon the commencement of proceedings for the winding-up of the Bank
pursuant to the Winding-up and Restructuring Act (Canada), each of the New
Preferred Shares will be automatically exchanged for one Bank Preferred Share.
Section 485 of the Bank Act requires Canadian banks to maintain
adequate capital and adequate and appropriate forms of liquidity and to comply
with related regulations. Under subsection 485(3), the Superintendent may, by
order, direct a bank to increase its capital or to provide additional liquidity
in such forms and amounts as the Superintendent may require. The Superintendent
may act under subsection 485(3) even if a bank is in compliance with all
applicable guidelines and regulations.
The Mortgage Assets of the Company consist of obligations issued by NB
Finance, that are recourse only to the Initial Mortgage Loans and that are
secured by real property. NB Finance was organized solely for the purpose of
acquiring Mortgage Loans and issuing the Initial Mortgage Assets, and other
similar obligations, to the Company. All of the ordinary shares of NB Finance
are owned by the Bank. The Bank has indicated to the Company that it intends to
maintain 100% ownership of the ordinary shares of NB Finance so long as the
Initial Mortgage
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Assets or any other obligations of NB Finance are owned by the Company. NB
Finance is not permitted to incur any indebtedness or engage in any business
activities other than the ownership of Mortgage Loans and activities incidental
thereto. See "Business and Strategy--Description of the Initial Mortgage Loans."
The Initial Mortgage Assets will mature semi-annually beginning in 2000 and the
proceeds thereof (net of distributions and expenses) are expected to be
reinvested in additional Mortgage Assets as described under "Business and
Strategy--General Description of Mortgage Assets; Investment Policy."
The principal executive offices of the Company are located at 125 West
55th Street, New York, New York 10019. The telephone number of the Company is
(212) 632-8500.
The Bank
The Bank was formed through a series of amalgamations and its roots
date back to 1859 with the founding of the Banque Nationale in Quebec City. The
Bank is a Schedule I bank under the Bank Act. Its head office and principal
place of business is located at the National Bank Tower, 600 de La Gauchetiere
West, Montreal, Quebec, H3B 4L2, and its telephone number is (514) 394-5000.
The Bank, which ranks sixth among Canadian banks in terms of total
assets, is present in each of Canada's provinces. It delivers an extensive range
of financial services to individuals, commercial enterprises, financial
institutions and governments both in Canada and abroad.
The Bank Preferred Shares will be issued only upon the occurrence of an
Exchange Event. In connection with the Exchange Offer, the Bank Preferred Shares
will be registered with the Commission.
Business and Strategy
General. The Company's principal business objective is to acquire,
hold, finance and manage Mortgage Assets that will generate net income for
distribution to stockholders. The sole Mortgage Assets of the Company consist
of, and in the future are expected to consist of, obligations issued by NB
Finance that are recourse only to the Initial Mortgage Loans and that are
secured by real property. The Company has acquired substantially all of its
Mortgage Assets from the Bank and/or affiliates of the Bank on terms that are
comparable to those that could be obtained by the Company if such Mortgage
Assets were purchased from unrelated third parties. The Company may also from
time to time acquire Mortgage Assets from unrelated third parties. As of the
date of this Prospectus, the Company has not entered into any agreements with
third parties with respect to the purchase of Mortgage Assets. Other than with
respect to the temporary investment
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of payments of interest and principal on its Mortgage Assets, the Company
anticipates that it will purchase Mortgage Assets from unrelated third parties
only if neither the Bank nor any affiliate of the Bank has an amount or type of
Mortgage Assets sufficient to meet the requirements of the Company.
The Company maintains, and in the future expects to maintain, at least
90% of its portfolio in Mortgage Assets consisting of the Initial Mortgage
Assets and obligations that are comparable to the Initial Mortgage Assets. The
Company may, however, invest in other assets eligible to be held by a REIT. The
Company's current policy prohibits the acquisition of any Mortgage Asset
constituting an interest in a Mortgage Loan (other than an interest resulting
from the acquisition of Mortgage-Backed Securities), if the Mortgage Loan is
delinquent in the payment of principal or interest. Additional Mortgage Assets
purchased prior to the consummation of the Exchange Offer or the effectiveness
of a Shelf Registration Statement will be invested in Canadian or U.S.
government guaranteed, mortgage-backed certificates and other Canadian or U.S.
government obligations which will be purchased on the open market or from
entities unaffiliated with the Bank or the Company. In the event that the New
Preferred Shares are not treated as "publicly-offered securities" as of the date
on which the Exchange Offer is consummated or a Shelf Registration Statement is
declared effective, then during the period commencing on such date and ending on
the date on which the New Preferred Shares become "publicly-offered securities,"
any investment by the Company in any Mortgage Assets in a transaction with the
Bank and/or affiliates of the Bank will be made only upon the decision of the
Independent Fiduciary. See "ERISA Considerations."
Formation. Simultaneously with the consummation of the offering of Old
Preferred shares (the "Offering"), the Bank, as owner of the Common Stock, made
a capital contribution to the Company equal to approximately US$177 million.
Simultaneously with the consummation of the Offering, the Bank also made an
additional capital contribution equal to the amount of the Initial Purchaser's
discount (the "Initial Purchaser's Discount") and all expenses incurred by the
Company in connection with the Offering and in connection with the Company's
formation. The Company used the aggregate net proceeds of approximately US$477
million received in connection with both the Offering and such capital
contributions by the Bank in connection with the acquisition of the Initial
Mortgage Assets. Concurrently with the consummation of the Offering, the Bank
conveyed the Initial Mortgage Loans to NB Finance pursuant to the Mortgage Loan
Sales Agreement. See "Business and Strategy--Description of the Initial Mortgage
Loans."
The Company and the Bank believe that the fair market value of the
Initial Mortgage Assets are at least equal to the amount (approximately US$477
million) that the Company paid for the Initial Mortgage Assets. However, no
third party valuations of the Initial Mortgage Assets were or will be obtained
for purposes of the Exchange Offer. See "Risk Factors--No Third Party Valuation
of the Initial Mortgage Assets; No Arm's-Length Negotiations with Affiliates."
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Servicing Agreement. The Bank services the Initial Mortgage Loans on
behalf of, and as agent for, the Company and is entitled to receive fees in
connection with the servicing thereof pursuant to the Servicing Agreement. The
Bank in its role as servicer under the terms of the Servicing Agreement is
hereinafter referred to as the "Servicer." See "Business and
Strategy--Servicing."
Advisory Agreement. The Company has entered into an advisory agreement
with the Bank (the "Advisory Agreement") pursuant to which the Bank administers
the day-to-day operations of the Company. The Bank in its role as advisor under
the terms of the Advisory Agreement is hereinafter referred to as the "Advisor."
The Advisor is responsible for (i) monitoring the credit quality of Mortgage
Assets held by the Company, (ii) advising the Company with respect to the
reinvestment of income from and payments on, and with respect to the
acquisition, management, financing and disposition of, Mortgage Assets held by
the Company, (iii) holding documents relating to the Company's Mortgage Assets
as custodian, (iv) monitoring the Company's compliance with the requirements
necessary to qualify as a REIT and (v) maintaining its status as a lender
approved by the National Housing Act (a "NHA Approved Lender"). The Advisor may,
with the approval of a majority of the Board of Directors, and a majority of the
Independent Directors, subcontract all or a portion of its obligations under the
Advisory Agreement to one or more related or unrelated third parties. An
"Independent Director" is a director who is not a current officer or employee of
the Company or a current director, officer or employee of the Bank or any
affiliate of the Bank. The Advisor will not, in connection with the
subcontracting of any of its obligations under the Advisory Agreement, be
discharged or relieved in any respect from its obligations under the Advisory
Agreement. The Advisor and its personnel have substantial experience in mortgage
finance and in the administration of Mortgage Assets.
The Advisory Agreement has an initial term of one year, and may be
renewed for additional one-year periods. The Advisory Agreement may be
terminated by the Company at any time upon 60 days' prior written notice. As
long as any of the New Preferred Shares remain outstanding, any decision by the
Company to renew, terminate or modify the Advisory Agreement must be approved by
a majority of the Board of Directors and a majority of the Independent
Directors. The Advisor is entitled to receive an advisory fee equal to C$50,000
per year, payable in equal quarterly installments. See "Management--The
Advisor."
Additional Investments. The Company may from time to time purchase
additional Mortgage Assets out of the proceeds of the issuance of additional
shares of Preferred Stock or additional capital contributions with respect to
the Common Stock. The Company has issued shares of Senior Preferred Stock (as
defined) ranking senior to the New Preferred Shares. Except for the Senior
Preferred Stock, additional shares of preferred stock ranking senior to the New
Preferred Shares may not be issued without the approval of holders of at least
two-thirds of the New Preferred Shares. Additional shares of Preferred Stock
ranking on a parity with the New Preferred Shares may not be issued by the
Company without the approval of a majority of the Board of Directors and a
majority of the Independent Directors (as defined). See "Description of New
Preferred Shares--Independent Director Approval." The Company does not currently
intend to issue any additional shares of Preferred Stock unless it
simultaneously receives additional capital contributions from the Bank equal to
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approximately 59% of the offering price of such additional Preferred Stock, plus
the Company's expenses (including any discounts or placement fees) incurred in
connection with the issuance of such additional shares of Preferred Stock.
Management. The Board of Directors is composed of five members, two of
whom are Independent Directors. Pursuant to the terms of the New Preferred
Shares, the Independent Directors must consider the interests of the holders of
both the Preferred Stock and the Common Stock in determining whether any
proposed action requiring their approval is in the best interests of the
Company. The Company currently has five employees and does not anticipate that
it will require additional employees. See "Management."
Tax Status of the Company
The Company will elect to be taxable as a REIT under sections 856
through 860 of the Code, commencing with its taxable year ending December 31,
1997. As a REIT, the Company generally will not be liable for United States
federal income tax to the extent that it distributes its income to the holders
of the Common Stock and the Preferred Stock, including the New Preferred Shares,
and maintains its qualification as a REIT.
A REIT is subject to a number of organizational and operational
requirements, including a requirement that it currently distribute to
stockholders at least 95% of its "REIT taxable income" (not including capital
gains). Notwithstanding its election to be taxable as a REIT, the Company may be
subject to federal, state and/or local tax. See "Risk Factors--Tax Risks" and
"United States Federal Income Tax Considerations."
Risk Factors
Prospective exchanging stockholders should carefully consider, in
addition to the other information set forth elsewhere in this Prospectus, the
Risk Factors set forth below:
o Because the dividend rate on the New Preferred Shares is
fixed, a significant decline in interest rates could have an
adverse effect on the Company's cash flow and its ability to
pay dividends on the New Preferred Shares, especially
following the maturity of the Initial Mortgage Assets.
o Because the Initial Mortgage Loans are denominated in Canadian
dollars and the Initial Mortgage Assets are denominated in
U.S. dollars, a significant decrease in the value of the
Canadian dollar could have an adverse effect on the Company's
cash flow and its ability to pay dividends on the New
Preferred Shares.
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o Dividends on the New Preferred Shares are not cumulative.
Consequently, if the Board of Directors of the Company (the
"Board of Directors") does not authorize and declare a
dividend on the New Preferred Shares for a particular
quarterly dividend period, the holders of the New Preferred
Shares would not be entitled to recover such dividend even if
funds are, or subsequently become, available for payment
thereof. The Board of Directors, the members of which have
been elected by the Bank, may determine, in its business
judgment, that it would be in the best interests of the
Company to pay less than the full amount of the stated
dividend on the New Preferred Shares even if funds are
available to pay such dividend. To remain qualified as a REIT,
however, the Company must distribute annually at least 95% of
its "REIT taxable income" (not including capital gains) to
stockholders and the Company expects that the Board of
Directors will authorize and declare dividends on the New
Preferred Shares quarterly.
o The Initial Mortgage Assets are recourse only to the Initial
Mortgage Loans. Accordingly, in the event of a default on the
Initial Mortgage Loans, the Company may not receive sufficient
payments on the Initial Mortgage Assets to pay dividends on
the New Preferred Shares. All of the real property securing
the Initial Mortgage Assets is located in Canada, primarily in
Quebec, and any actions taken by or on behalf of the Company
with respect to such real property will, therefore, be
dependent upon the laws of the province in which such real
property is located.
o An imminent failure to pay dividends on First Preferred Shares
of the Bank when due, a decline in the capital levels of the
Bank or an act of the Superintendent could result in the New
Preferred Shares being exchanged automatically for the Bank
Preferred Shares. The Bank Preferred Shares would represent an
investment in the Bank and not in the Company. An investment
in the Bank is subject to certain risks that are distinct from
the risks associated with an investment in the Company.
o As a subsidiary of the Bank, the Company is subject to the
risk that the Superintendent will restrict the ability of the
Company to transfer assets, to engage in transactions with the
Bank and its affiliates, to make distributions to stockholders
(including dividends to the holders of the New Preferred
Shares) or to redeem shares of preferred stock of the Company
(the "Preferred Stock"). Under certain circumstances, certain
of these restrictions could result in the Company failing to
qualify as a REIT.
o If the Company fails to maintain its status as a REIT for
United States federal income tax purposes, it will be subject
to United States federal income tax at
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normal corporate tax rates.
o Because of the relationship between the Company and the Bank
and its affiliates, conflicts of interest may arise between
the Company and the Bank and its affiliates.
o The Company will be dependent in virtually every phase of its
operations on the diligence and skill of the Bank and other
agents acting on behalf of the Company.
o Payments of dividends on the Common Stock will reduce the
Company's assets which generate income from which dividends on
the New Preferred Shares are paid.
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The Exchange Offer
For a more complete description of the terms of the New Preferred
Shares specified in the following summary, see "Description of New Preferred
Shares."
The Exchange Offer The Company is offering to exchange pursuant to the Exchange
Offer up to 300,000 shares of its New Preferred Shares for
up to all of its outstanding Old Preferred Shares at a rate
of one New Preferred Share for each Old Preferred Share. The
form and terms of the New Preferred Shares (including the
dividend rate, liquidation preference and redemption rights)
are identical in all material respects to the form and terms
of the Old Preferred Shares, except that the New Preferred
Shares have been registered under the Securities Act, and
therefore, will not bear legends restricting their transfer.
Further, the holders of New Preferred Shares will not be
entitled to certain rights of holders of Old Preferred
Shares under the Registration Rights Agreement, which rights
with respect to the Old Preferred Shares will terminate upon
consummation of the Exchange Offer. The issuance of the New
Preferred Shares is intended to satisfy certain obligations
of the Company contained in the Registration Rights
Agreement. Subject to certain conditions, a holder of Old
Preferred Shares who wishes to tender must transmit a
properly completed and duly executed Letter of Transmittal
to The Bank of Nova Scotia Trust Company of New York (the
"Exchange Agent") on or prior to the Expiration Date. For
procedures related to tendering, see "The Exchange Offer."
As of the date hereof, 300,000 shares of Old Preferred Stock
were outstanding.
Minimum Condition The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Preferred Shares being
tendered for exchange.
Expiration Date The Exchange Offer will expire at 5:00 p.m., New York City
Withdrawal time, on the "Expiration Date." As used herein, the term
"Expiration Date" means 5:00 p.m., New York City time, on
, 1998; unless the Company, in its sole discretion,
extends the period of time for which the Exchange Offer is
to remain open. The tender of Old Preferred Shares pursuant
to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date by sending a written notice of
withdrawal to the Exchange Agent.
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Any Old Preferred Shares so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Preferred Shares not accepted for
exchange for any reason will be returned without expense to
the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
See "The Exchange Offer--Expiration Date; Extension;
Termination; Amendment" and "--Withdrawal Rights."
Exchange Date The date of acceptance and exchange for the Old Preferred
Shares will be the business day following the
Expiration Date.
Conditions to the The Exchange Offer is subject to certain customary
Exchange Offer conditions which may be waived by the Company. The Company
currently expects that each of these conditions will be
satisfied and that no waivers will be necessary. See "The
Exchange Offer--Certain Conditions to the Exchange Offer."
The Company reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration Date upon
the occurrence of any such condition.
Procedure for Each holder of Old Preferred Shares wishing to accept
Tendering the Exchange Offer must complete, sign and date the Letter
Old Preferred of Transmittal, or a facsimile thereof, in accordance with
Shares the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, together with
the Old Preferred Shares and any other required
documentation, to the Exchange Agent at the address set
forth herein. See "The Exchange Offer--Procedures for
Tendering Old Preferred Shares" and "Plan of Distribution."
Use of Proceeds There will be no proceeds to the Company from the exchange
of Old Preferred Shares pursuant to the Exchange Offer.
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Special Procedures Any beneficial owner whose Old Preferred Shares are
for Beneficial registered in the name of a broker, dealer, commercial bank,
Owners trust company or other nominee who wishes to tender should
contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's own
behalf. If such beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial owner must,
prior to completing and executing the Letter of Transmittal
and delivering the Old Preferred Shares, either make
appropriate arrangements to register ownership of the Old
Preferred Shares in such beneficial owner's name or obtain a
properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable
time. See "The Exchange Offer--Procedure for Tendering Old
Preferred Shares."
Guaranteed Holders of Old Preferred Shares who wish to tender their Old
Delivery Preferred Shares and whose Old Preferred Shares are not
Procedures entirely available or who cannot deliver their Old Preferred
Shares, the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date must tender their Old Preferred
Shares according to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedure for Tendering Old
Preferred Shares."
Acceptance of the The Company will accept for exchange any and all Old
Old Preferred Preferred Shares which are properly tendered in the Exchange
Shares and Delivery Offer prior to 5:00 p.m., New York City time, on the
of the New Expiration Date. The New Preferred Shares issued pursuant to
Preferred Shares the Exchange Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Procedures for
Tendering Old Preferred Shares."
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Effect on the As a result of the making of, and upon acceptance for
Holders of Old exchange of all validly tendered Old Preferred Shares
Preferred Shares pursuant to the terms of, the Exchange Offer, the Company
will have fulfilled the covenant contained in the
Registration Rights Agreement (the "Registration Rights
Agreement") dated September 3, 1997 among the Company, the
Bank and the Initial Purchasers and, accordingly, there
will be no liquidated damages pursuant to the terms of the
Registration Rights Agreement, and the holders of the Old
Preferred Shares will have no further registration or other
rights under the Registration Rights Agreement. Holders of
the Old Preferred Shares who do not tender their Old
Preferred Shares in the Exchange Offer will continue to hold
such Old Preferred Shares without any rights under the
Registration Rights Agreement that, by their terms,
terminate or cease to have further effectiveness as a result
of the making of, and the acceptance for exchange of all
validly tendered Old Preferred Shares pursuant to, the
Exchange Offer. To the extent that the Old Preferred Shares
are tendered and accepted in the Exchange Offer, the trading
market for untendered Old Preferred Shares could be
adversely affected.
Consequence of Holders of Old Preferred Shares who do not exchange for New
Failure to Exchange Preferred Shares pursuant to the Exchange Offer will
Securities Offered continue to be subject to the restrictions on transfer of
such Old Preferred Shares as set forth in the legend thereon
as a consequence of the offer or sale of the Old Preferred
Shares pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the
Securities Act and the applicable state securities laws. The
Company does not currently anticipate that they will
register any Old Preferred Shares which are not exchanged
pursuant to the Exchange Offer under the Securities Act
after the Expiration Date.
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The New Preferred Shares
Issuer NB Capital Corporation, a Maryland corporation.
Securities Offered 300,000 Noncumulative Exchangeable Preferred Shares, Series
A.
Ranking The New Preferred Shares rank senior to the Common Stock
with respect to dividend rights and rights upon liquidation.
The Company has issued shares of a series of cumulative,
senior preferred stock ("Senior Preferred Stock") with an
aggregate liquidation preference of up to US$450,000 to meet
the 100 person ownership requirement for REIT status. Except
for the Senior Preferred Stock, additional shares of
preferred stock ranking senior to the New Preferred Shares
may not be issued without the approval of holders of at
least two-thirds of the New Preferred Shares. Additional
shares of preferred stock ranking on a parity with the New
Preferred Shares may not be issued without the approval of a
majority of the Board of Directors and a majority of the
Independent Directors (as defined).
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Dividends Dividends on the New Preferred Shares are payable at the
rate of 8.35% per annum of the liquidation preference (an
amount equal to US$83.50 per annum per share), if, when and
as authorized and declared by the Board of Directors. If
authorized and declared, dividends are payable quarterly in
arrears on the 30th day of March, June, September and
December in each year, commencing June 30, 1998. Except for
the initial period, which shall commence on and include
, 1998 and end on 1998, dividends
accrue in each quarterly period from the first day of such
period, whether or not dividends were paid with respect to
the preceding period. Dividends on the New Preferred Shares
are not cumulative and, accordingly, if no dividend is
authorized and declared on the New Preferred Shares by the
Board of Directors for a quarterly dividend period, holders
of the New Preferred Shares will have no right to receive a
dividend for that period, and the Company will have no
obligation to pay a dividend for that period, whether or not
dividends are authorized, declared and paid for any future
period with respect to either the New Preferred Shares or
the Common Stock. If no dividend is paid on the New
Preferred Shares for a quarterly dividend period, the
payment of dividends on the Common Stock will be prohibited
for that period and at least the following three quarterly
dividend periods. See "Description of New Preferred
Shares--Dividends."
Liquidation The liquidation preference for each of the New Preferred
Preference Shares is US$1,000. Upon liquidation, holders of the New
Preferred Shares will also be entitled to receive an amount
equal to the quarterly accrued and unpaid dividend, if any,
thereon to the date of liquidation. See "Description of New
Preferred Shares--Rights Upon Liquidation."
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Registration Rights The Old Preferred Shares were sold by the Company on
Agreement September 3, 1997 pursuant to the Purchase Agreement.
Pursuant to the Purchase Agreement, the Company and the
Initial Purchaser entered into the Registration Rights
Agreement. This Exchange Offer is intended to satisfy
certain rights under the Registration Rights Agreement,
which terminate upon the consummation of the Exchange Offer.
The holders of the New Preferred Shares are not entitled to
any exchange or registration rights with respect to the New
Preferred Shares. The Old Preferred Shares are subject to
the payment of additional interest under certain
circumstances if the Company is not in compliance with its
obligations under the Registration Rights Agreement. See
"Exchange Offer; Registration Rights."
Description of the The form and terms of the New Preferred Shares are the same
New Preferred as the form and terms of the Old Preferred Shares except
Shares that (i) the New Preferred Shares will be registered under
the Securities Act and therefore the New Preferred Shares
will not bear legends restricting the transfer thereof and
(ii) holders of the New Preferred Shares will not be
entitled to certain rights of holders of the Old Preferred
Shares under the Registration Rights Agreement, which rights
with respect to Old Preferred Shares will terminate upon the
consummation of the Exchange Offer. See "Description of the
New Preferred Shares."
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Redemption The New Preferred Shares are not redeemable prior to
September 3, 2007 (except upon the occurrence of a Tax
Event, as defined in "Description of New Preferred Shares--
Redemption", on or after September 3, 2002). On and after
September 3, 2007, the New Preferred Shares may be redeemed
for cash at the option of the Company, in whole or in part,
at any time and from time to time, at the redemption prices
set forth herein, plus the quarterly accrued and unpaid
dividend, if any, thereon to the date of redemption. Upon
the occurrence of a Tax Event, on or after September 3,
2002, the Company will have the right to redeem the New
Preferred Shares in whole (but not in part) at a redemption
price equal to the Make-Whole Amount (as defined), plus the
quarterly accrued and unpaid dividend, if any, thereon to
the date of redemption. Any redemption is subject to the
prior written approval of the Superintendent. See
"Description of New Preferred Shares-- Redemption." The New
Preferred Shares are not subject to any sinking fund or
mandatory redemption and are not convertible into any other
securities of the Company.
Automatic Exchange Each of the New Preferred Shares will be exchanged
automatically for one Bank Preferred Share upon the
occurrence of an Exchange Event. See "Description of New
Preferred Shares Automatic Exchange."
Voting Rights Holders of the New Preferred Shares will not have any voting
rights, except as expressly provided herein. On any matter
on which holders of the New Preferred Shares may vote, each
of the New Preferred Shares will be entitled to one vote.
See "Description of New Preferred Shares--Voting Rights."
Ownership Limits Beneficial ownership by any individual of more than 5% of
any outstanding series of Preferred Stock, including the
New Preferred Shares offered hereby, is restricted in order
to preserve the Company's status as a REIT for United States
federal income tax purposes. See "Description of Capital
Stock--Restrictions on Ownership and Transfer."
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Ratings The New Preferred Shares will be rated "a2" by Moody's
Investors Service, Inc. and "BBB+" by Standard & Poor's
Ratings Services. A security rating is not a
recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the
assigning rating organization.
Use of Proceeds There will be no proceeds to the Company from the exchange
pursuant to the Exchange Offer.
Federal Income Tax For federal income tax purposes, the exchange pursuant to
Consequences the Exchange Offer will not result in any income gain or
loss to the holders or the Company. See "United States
Federal Income Tax Considerations."
Exchange Agent The Bank of Nova Scotia Trust Company of New York is
serving as Exchange Agent in connection with the Exchange
Offer.
ERISA Each holder of the New Preferred Shares will, by exchanging
Considerations its Old Preferred Shares for New Preferred Shares, be deemed
to have directed the Company to invest in the Initial
Mortgage Assets (as well as the other assets held by the
Company and identified at the time of purchase) and
represented and agreed that either (A) no part of the assets
to be used by it to acquire and hold such New Preferred
Shares constitutes the assets of any (I) employee benefit
plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) subject
to Title I of ERISA, (II) plan (as defined in section
4975(e)(1) of the Code) or (III) entity whose underlying
assets include "plan assets" under Department of Labor
Regulation 29 C.F.R. Section 2510.3-101 (collectively,
"Plans") or (B) one or more prohibited transaction statutory
or class exemptions apply such that the use of such plan
assets to acquire and hold such New Preferred Shares will
not constitute a non-exempt prohibited transaction under
ERISA or the Code.
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In addition, in the event that the New Preferred Shares are
not treated as "publicly-offered securities" (within the
meaning of the above-referenced regulations) as of the date
on which the Exchange Offer is consummated or (if no
Exchange Offer is consummated) a Shelf Registration
Statement is declared effective, then during the period
commencing on such date and ending on the date on which the
New Preferred Shares become "publicly-offered securities",
each Plan purchaser will be deemed to have appointed an
independent fiduciary (the "Independent Fiduciary"), which
will be identified by the Company to exercise any
discretionary authority with respect to transactions
involving both the Company and the Bank or any Bank
affiliate. The Independent Fiduciary will be identified
prior to any such transaction and will be subject to removal
and replacement by a majority of the holders of the New
Preferred Shares.
Any Plan fiduciary that proposes to cause a Plan to exchange
New Preferred Shares for Old Preferred Shares should consult
with its counsel with respect to the potential applicability
of ERISA and the Code to such investment and whether any
exemption or exemptions would be applicable and determine on
its own whether all conditions of such exemption or
exemptions have been satisfied. Any such Plan fiduciary
should also determine whether the exchange of New Preferred
Shares for Old Preferred Shares is permitted under the
governing Plan instruments and is appropriate for the Plan
in view of the overall investment policy and the composition
and diversification of its portfolio.
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Selected Financial Data
The selected financial data presented below as of and for the period
from August 20, 1997 (date of inception) to September 30, 1997 are derived from
and are qualified by reference to the Financial Statements contained elsewhere
in this Prospectus. The selected financial data presented below as of and for
the period August 20, 1997 (date of inception) to September 30, 1997, have been
derived from the unaudited financial statements of the Company which, in the
opinion of management, include all adjustments, which consist only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for such period. The following financial
data should be read in conjunction with the Financial Statements contained
elsewhere in this Prospectus.
August 20, 1997
(date of inception) to
September 30, 1997
Statement of Income Data:
Revenue................................................ $ 3,053,269
Operating expenses..................................... 0
-----------------
Operating profit....................................... 3,053,269
Other income (expense):
Income tax............................................. 1,221,307
-----------------
Net income............................................. $ 1,831,962
Balance Sheet Data:
Total assets........................................... $ 480,391,723
Total liabilities...................................... 2,346,307
8.35% Noncumulative Exchangeable
Preferred stock, Series A.............................. 300,000,000
Common stock........................................... 183,338,454
Stockholder deficiency................................. (5,293,038)
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RISK FACTORS
Prospective exchanging stockholders should carefully consider the
following information in conjunction with the other information contained in
this Prospectus before exchanging Old Preferred Shares for the New Preferred
Shares in the Exchange Offer. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include those discussed
below.
Consequences of Failure to Exchange Old Preferred Shares
The New Preferred Shares will be issued in exchange for Old Preferred
Shares only after timely receipt by the Exchange Agent of such Old Preferred
Shares, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of Old Preferred Shares desiring to
tender such Old Preferred Shares in exchange for New Preferred Shares should
allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor
the Company is under any duty to give notification of defects or irregularities
with respect to tenders of Old Preferred Shares for exchange. Holders of Old
Preferred Shares who do not exchange their Old Preferred Shares for New
Preferred Shares pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Preferred Shares as set forth in the
legends thereon as a consequence of the issuance of the Old Preferred Shares
pursuant to exemption from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Old Preferred Shares may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable securities laws of
states and other jurisdictions. In addition, any holder of Old Preferred Shares
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Preferred Shares will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Preferred Shares for its own account in exchange for Old Preferred Shares, where
such Old Preferred Shares were acquired by such broker-dealer as a result of
market-making activities or any other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Preferred
Shares.
Interest Rate Risk
The Company's income consists principally of interest payments from the
Initial Mortgage Assets and obligations which are comparable to the Initial
Mortgage Assets. If there is a significant decline in interest rates at a time
when the Company must reinvest payments of interest and principal in respect of
its Mortgage Assets, the Company may find it difficult to purchase additional
Mortgage Assets which generate sufficient income to
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support the payment of dividends on the New Preferred Shares. Because the rate
at which dividends on the New Preferred Shares, if, when and as authorized and
declared, are payable is fixed, there can be no assurance that an interest rate
environment in which there is a significant decline in interest rates would not
adversely affect the Company's ability to pay dividends on the New Preferred
Shares.
Currency Exchange Rate Risk
The Company's income consists principally of interest payments from the
Initial Mortgage Assets and obligations which are comparable to the Initial
Mortgage Assets. While the Initial Mortgage Assets are, and the Company's future
Mortgage Assets likely will be, denominated in United States dollars, Mortgage
Loans are denominated and payable in Canadian dollars. If there is a significant
decrease in the value of the Canadian dollar, the value in U.S. dollars of the
cash flow from Mortgage Loans assigned to the Company by NB Finance (including
principal payments) may decrease, which may adversely affect the cash flow to
the Company and the Company's ability to pay the dividends on the New Preferred
Shares. From the beginning of 1994 to and including , 1998, the
exchange rate of the Canadian dollar to the United States dollar has ranged from
C$ to US$1.00 on to C$ to US$1.00 on ; with an
average for such period of C$ to US$1.00.
Dividends Not Cumulative
Dividends on the New Preferred Shares are not cumulative. Consequently,
if the Board of Directors does not authorize and declare a dividend on the New
Preferred Shares for a quarterly dividend period, the holders of the New
Preferred Shares would not be entitled to recover such dividend, even if funds
are, or subsequently become, available for payment thereof. The Board of
Directors may determine, in its business judgment, that it would be in the best
interests of the Company to pay less than the full amount of the stated dividend
on the New Preferred Shares or no dividend for any quarterly dividend period,
notwithstanding that funds are available to pay such dividend. Factors that may
be considered by the Board of Directors in making this determination are the
Company's financial condition and capital needs, legal or regulatory
requirements, economic conditions, and such other factors as the Board may deem
relevant. Notwithstanding the foregoing, to remain qualified as a REIT, the
Company must distribute annually at least 95% of its "REIT taxable income" (not
including capital gains) to stockholders. See "--Tax Risks" below and "United
States Federal Income Tax Considerations--Taxation of the Company."
Real Estate Market Conditions
The results of the Company's operations will be affected by various
factors, many of which are beyond the control of the Company, such as: (i) local
and other economic and political conditions affecting real estate values,
particularly in Quebec, (ii) the level of interest income generated by the
Company's Mortgage Assets, (iii) the market value of the Company's Mortgage
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Assets and (iv) the supply of and demand for the Company's Mortgage Assets.
Further, there can be no assurance that the value of the Initial Mortgage
Assets, or the value of the real property securing the Initial Mortgage Assets,
will remain at the levels existing on the dates of origination of the Initial
Mortgage Assets. These factors may also have an effect on the business and
financial condition of the Bank and may affect the likelihood of an Exchange
Event.
Limited Recourse Nature of Certain Mortgage Assets; Limitations on CMHC
Insurance
The Initial Mortgage Assets consist of obligations issued by NB
Finance. The Initial Mortgage Assets are recourse only to the Initial Mortgage
Loans, which have been assigned to the Company by NB Finance, and are secured by
real property. In the event of nonpayment of interest or other default on the
Initial Mortgage Loans, the Company's only recourse will be to exercise its
rights under the Initial Mortgage Loans (principally through foreclosure on the
real property securing the Initial Mortgage Assets), either directly or through
the Bank as Servicer. It is anticipated that additional Mortgage Assets acquired
by the Company will consist of similar limited recourse obligations. The CMHC
insurance with respect to the Initial Mortgage Loans is not a guarantee of
timely payment of principal and interest on such Mortgage Loans. Typically, CMHC
will only make payments pursuant to its insurance after the approved lender has
taken certain actions which may be time consuming and can cause delays in the
receipt of such payments. In addition, the CMHC insurance will cease to be in
force if any such Initial Mortgage Loan is sold to a person other than a lender
approved by CMHC unless such Initial Mortgage Loan continues to be administered
by CMHC or a lender approved by CMHC. The regulations of the CMHC stipulate that
the terms of repayment of Mortgage Loans shall not be altered and that no
derogation from the rights of the mortgagee against the mortgaged property by
way of postponement, partial discharge or otherwise shall be granted without
first obtaining the approval of the CMHC.
All of the Real Property Securing the Initial Mortgage Assets Is Located Outside
of the United States
All of the real property securing the Initial Mortgage Assets is
located in Canada, primarily in Quebec, and the real property securing
additional Mortgage Assets acquired by the Company is also expected to be
located in Canada. Any actions taken by or on behalf of the Company with respect
to such real property will therefore be dependent upon the laws of the
jurisdictions in which such real property is located. In addition, from time to
time Canada experiences weaker economic conditions and housing markets than the
United States which may adversely affect the value of real property and
mortgages thereon. Thus, the Initial Mortgage Assets may be subject to a greater
risk of default than comparable obligations secured by U.S. real property.
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Canadian Legal Considerations
A mortgagee (referred to in the Province of Quebec as a "hypothecary
creditor") holding a mortgage (referred to in the Province of Quebec as a
"hypothec") on a residential property located in the Province of Quebec may,
when the mortgagor is in default and the mortgagee's claim is due and payable,
take possession of such residential property in payment of its claim or have the
property sold by judicial authority. Such mortgagee must notify the mortgagor at
least 60 days prior to taking any action and register such notice at the
appropriate registry office for the residential property before it may seek any
remedies. If at the time the mortgagee's prior notice is registered the
mortgagor has discharged at least one-half of the obligations secured by the
mortgage, the mortgagee must obtain court authorization prior to exercising its
remedy of taking the property in payment. Subsequent mortgagees or the mortgagor
may, within the 60-day period following the registration of the mortgagee's
notice, require the mortgagee to abandon its remedy of taking the property in
payment and, instead, have the property sold by judicial authority. In order to
exercise this right, a subsequent mortgagee must furnish a bond guaranteeing
that the price at which the property will be sold at a judicial sale will
satisfy in full the prior mortgagee's claim.
Under Quebec law, until a mortgagor is notified of the transfer of the
mortgagee's interest in the mortgage, the mortgagor or any third party,
including a trustee in bankruptcy, may not be bound by such transfer.
Furthermore, until such transfer is registered at the registry office where the
mortgaged property is located, and a certified statement of registration is
furnished to the mortgagor, the transferee's rights may be subject to the
rights, title and interest of a subsequent assignee of the mortgage that has
properly registered its interest therein and notified the mortgagor thereof.
For residential properties outside the Province of Quebec, remedial
proceedings in the nature of foreclosure or sale by power of sale may be taken
to enforce the rights of a mortgagee when a mortgagor is in default, provided
that there has been compliance with the laws of the local jurisdiction.
Most provinces in Canada, including Quebec, have laws, public policy
and general principles of equity relating to the protection of mortgagors.
Depending on the provisions of the applicable law and the specific facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Company to collect all or part of the principal of or
interest on the Initial Mortgage Loans, may entitle mortgagors to a refund of
amounts previously paid and, in addition, could subject the Company to damages
and administrative sanctions.
Certain Risks Associated with the Bank
The exchange of Old Preferred Shares for New Preferred Shares involves
risks to the holders of New Preferred Shares with respect to the performance and
capital levels of the Bank. An imminent failure to pay dividends on preferred
shares of the Bank when due, a decline in
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<PAGE>
the capital levels of the Bank or an act of the Superintendent could result in
the New Preferred Shares being exchanged automatically for the Bank Preferred
Shares. The Bank Preferred Shares would be an investment in the Bank and not in
the Company. As a result of an Exchange Event, holders of the New Preferred
Shares would become preferred shareholders of the Bank at a time when the Bank's
financial condition was deteriorating or when the Bank had been taken over by
the Superintendent or proceedings for the winding-up of the Bank had been
commenced. An Exchange Event includes the Superintendent electing to cause the
Automatic Exchange. An investment in the Bank is also subject to certain risks
that are distinct from the risks associated with an investment in the Company,
including the general risks inherent in equity investments in depository
institutions. In the event of a winding-up of the Bank, the claims of depositors
and secured, senior, general and subordinated creditors of the Bank would be
entitled to a priority of payment over the claims of holders of equity
interests, such as the Bank Preferred Shares. As a result, if the Bank were to
be wound up, the holders of the New Preferred Shares likely would receive, if
anything, substantially less than they would have received had the New Preferred
Shares not been exchanged for the Bank Preferred Shares. If an Exchange Event
occurs, the Bank would likely be prohibited from paying dividends on the Bank
Preferred Shares. The Bank's ability to pay dividends on the Bank Preferred
Shares would also be subject to various restrictions under applicable
regulations and certain contractual provisions. In addition, dividends on the
Bank Preferred Shares owned by U.S. investors will generally be subject to
Canadian nonresident withholding tax. The Bank currently has outstanding three
series of cumulative First Preferred Shares and three series of non-cumulative
First Preferred Shares. The Bank may not, without the approval of the holders of
all such series and any future series, create or issue any shares ranking in
priority to or pari passu therewith if any cumulative dividends have not been
declared and paid or set aside for payment or any declared and unpaid
non-cumulative dividends have not been paid or set aside for payment.
Immediately prior to any failure by the Bank to declare and pay or set aside for
payment, the New Preferred Shares will be automatically exchanged for Bank
Preferred Shares. See "Canadian Federal Income Tax Considerations." Potential
holders of the New Preferred Shares should carefully consider the foregoing.
Dividend and Other Regulatory Restrictions on Operations of the Company
Because the Company and NB Finance are subsidiaries of the Bank, the
Superintendent has the right to examine the Company and NB Finance and their
respective activities. Under certain circumstances, including any determination
that the Bank's relationship with the Company or NB Finance results in an unsafe
and unsound banking practice, the Superintendent has the authority to restrict
the ability of the Company or NB Finance to transfer assets, to engage in
transactions with the Bank, to make distributions to their stockholders
(including dividends to the holders of the New Preferred Shares, as described
below), or to redeem shares of Preferred Stock. The Superintendent could also
require the Bank to sever its relationship with or divest its ownership of the
Company. Such actions could potentially result in the Company's failure to
qualify as a REIT. In addition, as subsidiaries of the Bank, the Company and NB
Finance are subject to supervision by U.S. bank regulators.
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<PAGE>
Tax Risks
Adverse Consequences of Failure to Qualify as a REIT. The Company
operates so as to qualify as a REIT under the Code. Although the Company
believes that it will be owned and organized and will operate in such a manner,
and Shearman & Sterling has rendered certain opinions, described under "United
States Federal Income Tax Considerations" below, regarding the Company's
qualification as a REIT, no transaction closely comparable to that contemplated
herein has been the subject of any administrative pronouncement or judicial
decision and no assurance can be given that the Company will be able to operate
in such a manner so as to qualify as a REIT or to remain so qualified.
Qualification as a REIT involves the application of highly technical and complex
Code provisions for which there are only limited judicial and administrative
interpretations. The determination of various factual matters and circumstances
not entirely within the Company's control, and not addressed by the opinion of
Shearman & Sterling, may affect the Company's ability to qualify as a REIT.
Although the Company is not aware of any proposal in Congress to amend the tax
laws in a manner that would materially and adversely affect the Company's
ability to operate as a REIT, no assurance can be given that new legislation or
new regulations, or future administrative interpretations or court decisions,
will not significantly change the tax laws with respect to qualification as a
REIT or the United States federal income tax consequences of such qualification.
The Company has issued shares of a series of cumulative, senior preferred stock
with an aggregate liquidation preference of up to US$450,000 (the "Senior
Preferred Stock") to meet the 100 person ownership requirement for REIT status.
The Company is relying on the opinion of Shearman & Sterling, counsel
to the Company, regarding various issues affecting the Company's ability to
qualify, and retain qualification, as a REIT. Such legal opinion is not binding
on the Internal Revenue Service (the "IRS") or the courts and no assurance can
be given that such opinion will not be challenged by the IRS.
If in any taxable year the Company fails to qualify as a REIT, the
Company would not be allowed a deduction for distributions to stockholders in
computing its taxable income and would be subject to United States federal
income tax on its taxable income in the same manner as a regular, domestic
corporation. As a result, the amount available for distribution to the Company's
stockholders, including the holders of the New Preferred Shares, would be
reduced for the year or years involved. In addition, unless entitled to relief
under certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
REIT qualification was lost. The failure of the Company to qualify as a REIT
would not necessarily give the Company the right to redeem the New Preferred
Shares, nor would it give the holders of the New Preferred Shares the right to
have their shares redeemed. See "Description of New Preferred
Shares--Redemption."
Notwithstanding the fact that the Company currently operates in a
manner designed to enable it to qualify as a REIT, future economic, market,
legal, tax and other considerations may cause the Board of Directors to
determine that it is in the best interests of the Company and the holders of the
Common Stock and the New Preferred Shares to revoke the
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Company's REIT election. As long as any of the New Preferred Shares are
outstanding, any such determination by the Company may not be made without the
approval of a majority of the Independent Directors. United States federal
income tax law prohibits the Company from electing to be taxable as a REIT for
the four taxable years following the year of such revocation.
See "United States Federal Income Tax Considerations."
REIT Requirements with Respect to Stockholder Distributions. To qualify
as a REIT under the Code, the Company is generally required each year to
distribute as dividends to its stockholders at least 95% of its "REIT taxable
income" (excluding capital gains). Failure to comply with this requirement would
result in the Company being subject to tax at normal corporate rates. In
addition, the Company would be subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions considered as paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
for the calendar year, 95% of its capital gains net income for the calendar year
and any undistributed taxable income from prior periods. Under certain
circumstances, the Superintendent may restrict the ability of the Company, as a
subsidiary of the Bank, to make distributions to its stockholders. Such a
restriction could result in the Company's failing to satisfy the REIT
requirements with respect to stockholder distributions. See "--Dividend and
Other Regulatory Restrictions on Operations of the Company."
Redemption upon Occurrence of a Tax Event. At any time following the
occurrence of a Tax Event on or after September 3, 2002, even if such Tax Event
occurs prior to September 3, 2007, the Company will have the right to redeem the
New Preferred Shares in whole but not in part, subject to the prior written
approval of the Superintendent. The occurrence of a Tax Event will not, however,
give the holders of the New Preferred Shares any right to have such shares
redeemed. See "Description of New Preferred Shares--Redemption."
Automatic Exchange upon Occurrence of an Exchange Event. Upon the
occurrence of an Exchange Event, the outstanding New Preferred Shares will be
exchanged automatically on a one-for-one basis for Bank Preferred Shares. See
"Description of New Preferred Shares--Automatic Exchange." The Automatic
Exchange will be a taxable event, and each holder of the New Preferred Shares
will have a gain or loss, as the case may be, equal to the difference between
the basis of such holder in the New Preferred Shares and the fair market value
of the Bank Preferred Shares received in the Automatic Exchange. See "United
States Federal Income Tax Considerations--Tax Treatment of Automatic Exchange."
Changes in Tax Law. Under current tax law, payments on the Initial
Mortgage Loans and the Initial Mortgage Assets are not subject to any imposition
of withholding tax. There can be no assurance, however, that as a result of any
change in any applicable law, treaty, rule or regulation or any interpretation
thereof, the payments on the Initial Mortgage Loans or the Initial Mortgage
Assets might not in the future become subject to withholding tax. In the event
that any withholding tax is imposed on payments of interest on the Initial
Mortgage Loans, neither NB Finance nor the Company will be entitled to receive
additional amounts to compensate for such withholding tax and accordingly, such
tax would reduce the amount available to make
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payments on the Initial Mortgage Assets. There can be no assurance that the
remaining payments on the Initial Mortgage Assets would be sufficient to make
timely payments of dividends on the New Preferred Shares.
Ownership of the New Preferred Shares. If the possibility of the
occurrence of the Automatic Exchange caused the Bank to be viewed from the date
of issuance of the New Preferred Shares as the holder for U.S. federal income
tax purposes of the New Preferred Shares, distributions on the New Preferred
Shares would be subject to withholding of United States federal income tax at a
30 percent rate. The Company, as withholding agent, would be liable for the
payment of such tax, which would reduce the amount available to pay dividends on
the New Preferred Shares.
Relationship with the Bank and Its Affiliates; Conflicts of Interest
The Bank and its affiliates are involved in virtually every aspect of
the Company's existence. The Bank is the sole holder of the Common Stock and
administers the day-to-day activities of the Company in its role as Advisor
under the Advisory Agreement. The Bank also services Mortgage Loans on behalf of
the Company under the Servicing Agreement. In addition, other than the
Independent Directors, all of the officers and directors of the Company are also
officers and/or directors of the Bank and/or affiliates of the Bank. As the
holder of all of the outstanding voting stock of the Company, the Bank will have
the right to elect all directors of the Company, including the Independent
Directors.
The Bank and its affiliates may have interests which are not identical
to those of the Company. Consequently, conflicts of interest may arise with
respect to transactions, including, without limitation, the issuance of the
Initial Mortgage Assets; future acquisitions of Mortgage Assets from the Bank
and/or affiliates of the Bank; servicing of Mortgage Loans (including the
Initial Mortgage Loans); future dispositions of Mortgage Assets to the Bank or
affiliates of the Bank; and the renewal, termination or modification of the
Advisory Agreement or the Servicing Agreement. It is the intention of the
Company and the Bank that any agreements and transactions between the Company,
on the one hand, and the Bank and/or its affiliates, on the other hand, be fair
to all parties and consistent with market terms, including the prices paid and
received for Mortgage Assets or in connection with the servicing of Mortgage
Loans. The requirement in the Charter that certain actions of the Company be
approved by a majority of the Independent Directors is also intended to ensure
fair dealings between the Company and the Bank and its affiliates. However,
there can be no assurance that such agreements or transactions will be on terms
as favorable to the Company as those that could have been obtained from
unaffiliated third parties. See "Business and Strategy--Management Policies and
Programs--Conflict of Interest Policies."
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Dependence upon the Advisor and the Servicer
The Company is dependent for the selection, structuring and monitoring
of its Mortgage Assets on the diligence and skill of the officers and employees
of the Advisor. See "Management." In addition, the Company is dependent upon the
expertise of the Servicer for the servicing of Mortgage Loans. The Advisor may
subcontract all or a portion of its obligations under the Advisory Agreement,
and the Servicer may subcontract all or a portion of its obligations under the
Servicing Agreement, to one or more affiliates, and under certain conditions to
non-affiliates, involved in the business of managing Mortgage Assets. In the
event the Advisor or the Servicer subcontracts its obligations in such a manner,
the Company will be dependent upon the subcontractor to provide services. See
"Management--The Advisor" and "Business and Strategy--Servicing."
Risk of Future Revisions in Policies and Strategies by Board of Directors
The Board of Directors has established the investment policies and
operating policies and strategies of the Company, certain of which are described
in this Prospectus. These policies may be amended or revised from time to time
at the discretion of the Board of Directors (in certain circumstances subject to
the approval of a majority of the Independent Directors) without a vote of the
Company's stockholders, including holders of the New Preferred Shares. The
ultimate effect of any change in the policies and strategies of the Company on a
holder of the New Preferred Shares may be positive or negative. See "Business
and Strategy--Management Policies and Programs."
No Third Party Valuation of the Mortgage Assets; No Arm's-Length Negotiations
with Affiliates
The Company and the Bank believe that the fair market value of the
Initial Mortgage Assets was at least equal the amount (approximately US$477
million) that the Company paid for the Initial Mortgage Assets. However, no
third party valuations were obtained for purposes of the Exchange Offer and
there can be no assurance that the fair market value of the Initial Mortgage
Assets did not differ from the amount that the Company paid for the Initial
Mortgage Assets.
In addition, it is not anticipated that any third party valuations will
be obtained in connection with future acquisitions and dispositions of Mortgage
Assets even in circumstances where an affiliate of the Company is selling such
Mortgage Assets to, or purchasing such Mortgage Assets from, the Company.
Accordingly, although the Company and the Bank intend that future acquisitions
or dispositions of Mortgage Assets will be on a fair market value basis, there
can be no assurance that the consideration to be paid (or received) by the
Company to (or from) the Bank or any of its affiliates in connection with future
acquisitions or dispositions of Mortgage Assets will not differ from the fair
market value of such Mortgage Assets.
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THE COMPANY
The Company is a Maryland corporation created for the purpose of
providing U.S. investors with the opportunity to invest in Canadian residential
mortgages and other real estate assets. The Company's principal business
objective is to acquire, hold, finance and manage Mortgage Assets that will
generate net income for distribution to stockholders. At least 90% of the
Company's Mortgage Assets consist of obligations that are recourse only to
Mortgage Loans and that are secured by real property.
Generally, the Company acquired its Mortgage Assets from the Bank and
affiliates of the Bank. The Company may also from time to time, however, acquire
Mortgage Assets from unrelated third parties. The Bank administers the
day-to-day operations of the Company in its role as Advisor under the Advisory
Agreement. All of the Common Stock is owned by the Bank. The Company will elect
to be taxable as a REIT under the Code and will generally not be liable for
United States federal income tax to the extent that it distributes its income to
its stockholders and maintains its qualification as a REIT. For a further
description of the operations of the Company, see "Business and Strategy,"
"Management," "Risk Factors" and "United States Federal Income Tax
Considerations."
The New Preferred Shares will be exchanged automatically on a
one-for-one basis for the Bank Preferred Shares upon the occurrence of the
Exchange Event. CONSEQUENTLY, THE NEW PREFERRED SHARES COULD BE REPLACED,
WITHOUT ANY ACTION BY THE HOLDER THEREOF, BY THE BANK PREFERRED SHARES AT A TIME
WHEN THE BANK'S FINANCIAL CONDITION IS DETERIORATING OR WHEN THE SUPERINTENDENT
HAS TAKEN CONTROL OF THE BANK OR PROCEEDINGS FOR THE WINDING-UP OF THE BANK HAVE
BEEN COMMENCED. See "Description of New Preferred Shares--Automatic Exchange."
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USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to
the Exchange Offer.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis and (ii) as adjusted to reflect the
sale of the Old Preferred Shares by the Company and the application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
September 30, 1997
(In thousands, except
share data)
<S> <C>
Debt
Total long-term debt.......................................................................... US$ --
Stockholders' Equity
Preferred Stock, US$.01 par value per share; none authorized,
issued and outstanding, actual; and 10,000,000 shares authorized, 300,000 shares
issued and outstanding, as adjusted.................................................. 3
Common Stock, US$.01 par value per share; 1,000 shares
authorized, 100 shares issued and outstanding, actual and as adjusted................ (1)
--------
Additional paid-in capital.................................................................... 483,335
Total stockholders' equity.................................................................... 483,338(1)
Total Capitalization.......................................................................... US$483,338
==========
<FN>
- -----------------
(1) The Company was formed with an initial capitalization of US$1,000. Contemporaneously with the
consummation of the Offering, the Bank made capital contributions to the Company equal to
US$177,000,000 plus an amount sufficient to pay the Initial Purchaser's Discount of US$6,000,000 and the
expenses of the Offering and the formation of the Company payable by the Company, estimated by the
Company to be approximately US$750,000. The additional paid-in capital of US$483,335,000 represents
(i) the total capital contributions made by the Bank to the Company minus the aggregate Initial Purchaser's
Discount and the expense of the Offering and the formation of the Company payable by the Company and
(ii) the full US$300,000,000 of proceeds of the Offering minus the aggregate US$3,000 par value of the Old
Preferred Shares.
</FN>
</TABLE>
31
<PAGE>
THE EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the Exchange Offer), to exchange up to 300,000 New
Preferred Shares for a like number of Old Preferred Shares properly tendered on
or prior to the Expiration Date and not withdrawn as permitted pursuant to the
procedures described below. The Exchange Offer is being made with respect to all
of the Old Preferred Shares.
As of the date of this Prospectus, the aggregate number of the Old
Preferred Shares outstanding is 300,000. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1997, to all
holders of Old Preferred Shares known to the Company. The Company's obligation
to accept Old Preferred Shares for exchange pursuant to the Exchange Offer is
subject to certain conditions set forth under "--Certain Conditions to the
Exchange Offer" below. The Company currently expects that each of the conditions
will be satisfied and that no waivers will be necessary.
Purpose of the Exchange Offer
The Old Preferred Shares were issued on September 3, 1997 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Old Preferred Shares may not be reoffered, resold, or otherwise
transferred unless registered under the Securities Act or any applicable
securities law or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.
In connection with the issuance and sale of the Old Preferred Shares,
the Company entered into the Registration Rights Agreement, which requires (i)
the Company to file with the Commission a registration statement relating to the
Exchange Offer not later than 150 days after the date of issuance of the Old
Preferred Shares, (ii) the Company to use its best efforts to cause the
registration relating to the Exchange Offer to become effective under the
Securities Act not later than 180 days after the date of issuance of the Old
Preferred Shares and (iii) the Exchange Offer to be consummated not later than
30 days after the date of the effectiveness of the Registration Statement (or,
if the Company is not permitted to effect the Exchange Offer, to use its best
efforts to cause to become effective as promptly as practicable a shelf
registration statement with respect to resales of the Old Preferred Shares). A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
The Exchange Offer is being made by the Company to satisfy certain of
its obligations under the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Preferred
Shares are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Preferred Shares are held of record by The
32
<PAGE>
Depository Trust Company. Other than pursuant to the Registration Rights
Agreement, the Company is not required to file any registration statement to
register any outstanding Old Preferred Shares. Holders of Old Preferred Shares
who do not tender their Old Preferred Shares or whose Old Preferred Shares are
tendered but not accepted would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act, if they
wish to sell their Old Preferred Shares.
Terms of the Exchange
The Company hereby offers to exchange, subject to the conditions set
forth herein and in the Letter of Transmittal accompanying this Prospectus, each
New Preferred Share for each Old Preferred Share. The terms of the New Preferred
Shares are identical in all material respects to the terms of the Old Preferred
Shares for which they may be exchanged pursuant to this Exchange Offer, except
that the New Preferred Share will generally be freely transferable by holders
thereof and will not be subject to any covenant regarding registration. See
"Description of New Preferred Shares."
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Preferred Shares being tendered for exchange.
The Company is making the Exchange Offer in reliance on the position of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letters, and there can be no assurance that the Commission would
make a similar determination with respect to the New Preferred Shares. Based on
these interpretations by the staff of the Commission, the Company believes that
New Preferred Shares issued pursuant to the Exchange Offer in exchange for Old
Preferred Shares may be offered for sale, resold and otherwise transferred by
any holder of such New Preferred Shares (other than any such holder that is a
broker-dealer or an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Preferred Shares are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such New Preferred Shares and neither such
holder nor any other such person is engaging in or intends to engage in a
distribution of such New Preferred Shares. Since the Commission has not
considered the Exchange Offer in the context of a no-action letter, there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. See "--Resale of New Preferred Shares" and
"Plan of Distribution."
Dividends on the New Preferred Shares, if, when and as authorized and
declared by the Board of Directors, shall accrue from the next business day
after the last day of the last quarterly period on which dividends were paid on
the Old Preferred Shares so surrendered.
Tendering holders of the Old Preferred Shares shall not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with
33
<PAGE>
respect to the exchange of the Old Preferred Shares pursuant to the Exchange
Offer.
Expiration Date; Extension; Termination; Amendment
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997 (the "Expiration Date"). The Expiration Date will be at least 20
business days after the commencement of the Exchange Offer in accordance with
Rule 14e-1(a) under the Exchange Act. The Company expressly reserves the right,
at any time or from time to time, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange of any Old
Preferred Shares, by giving oral or written notice to the Exchange Agent and by
giving written notice of such extension to the holders thereof or by timely
public announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. During any such
extension, all Old Preferred Shares previously tendered will remain subject to
the Exchange Offer unless properly withdrawn. The Company does not anticipate
extending the Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not to accept for exchange any Old Preferred Shares not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "--Certain Conditions to the Exchange Offer" which have not been waived by
the Company and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Old Preferred
Shares, whether before or after any tender of the Old Preferred Shares. If any
such termination or amendment occurs, the Company will notify the Exchange Agent
and will either issue a press release or give oral or written notice to the
holders of the Old Preferred Shares as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day
other than Saturday, Sunday or a date on which banking institutions are required
or authorized by New York State law to be closed, and consists of the time
period from 12:01 a.m. through 12:00 midnight, New York City time. Unless the
Company terminates the Exchange Offer prior to 5:00 p.m., New York City time, on
the Expiration Date, the Company will exchange the New Preferred Shares for the
Old Preferred Shares on the Exchange Date.
Procedures for Tendering Old Preferred Shares
The tender to the Company of Old Preferred Shares by a holder thereof
as set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.
A holder of Old Preferred Shares may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Old Preferred Shares being tendered
34
<PAGE>
and any required signature guarantees and any other documents required by the
Letter of Transmittal, to the Exchange Agent at its address set forth below on
or prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
The method of delivery of Old Preferred Shares, Letters of Transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, it is recommended that registered mail, properly
insured, with return receipt requested, be used. In all cases, sufficient time
should be allowed to insure timely delivery. No Old Preferred Shares or Letters
of Transmittal should be sent to the Company.
If tendered Old Preferred Shares are registered in the name of the
signer of the Letter of Transmittal and the New Preferred Shares to be issued in
exchange therefor are to be issued (and any untendered Old Preferred Shares are
to be reissued) in the name of the registered holder (which term, for the
purposes described herein, shall include any participant in The Depository Trust
Company (also referred to as a "book-entry transfer facility") whose name
appears on a security listing as the owner of Old Preferred Shares), the
signature of such signer need not be guaranteed. In any other case, the tendered
Old Preferred Shares must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the registered
holder, and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution (each an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Exchange Act. If the New Preferred Shares and/or Old
Preferred Shares not exchanged are to be delivered to an address other than that
of the registered holder appearing on the preferred stock register for the Old
Preferred Shares, the signature in the Letter of Transmittal must be guaranteed
by an Eligible Institution.
The Exchange Agent will establish accounts with respect to the Old
Preferred Shares at the book-entry transfer facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Old Preferred Shares by
causing such book-entry transfer facility to transfer such Old Preferred Shares
into the Exchange Agent's account with respect to the Old Preferred Shares in
accordance with the book-entry transfer facility's procedures for such transfer.
Although delivery of Old Preferred Shares may be effected through book-entry
transfer into the Exchange Agent's account at the book-entry transfer facility,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Preferred Shares to reach the Exchange
Agent before the Expiration Date or
35
<PAGE>
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if the Exchange Agent has received at its address set
forth below, on or prior to the Expiration Date, a letter by hand or mail, or
sent by facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) from an Eligible Institution setting
forth the name and address of the tendering holder, the names in which the Old
Preferred Shares are registered and, if possible, the certificate numbers of the
Old Preferred Shares to be tendered, and stating that the tender is being made
thereby and guaranteeing that within three business days after the Expiration
Date, the Old Preferred Shares in proper form for transfer (or a confirmation of
book-entry transfer of such Old Preferred Shares into the Exchange Agent's
account at the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Preferred Shares
being tendered by the above-described method are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed Letter of Transmittal and any other required documents), the
Company may, at its option, reject the tender. Copies of the notice of
guaranteed delivery ("Notice of Guaranteed Delivery") which may be used by
Eligible Institutions for the purposes described in this paragraph are available
from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i)
the tendering holder's properly completed and duly executed Letter of
Transmittal accompanied by the Old Preferred Shares is received by the Exchange
Agent, or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Preferred Shares in exchange
for Old Preferred Shares tendered pursuant to a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
by an Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Old Preferred
Shares (or a confirmation of book-entry transfer of such Old Preferred Shares
into the Exchange Agent's account at the book-entry transfer facility).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal or Old Preferred Shares
tendered for exchange will be determined by the Company in its sole discretion,
which determination shall be final and binding. The Company reserves the
absolute right to reject any and all tenders of any particular Old Preferred
Shares not properly tendered and not to accept any particular Old Preferred
Shares for exchange which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities as to any particular Old Preferred Shares or
conditions of the Exchange Offer either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Preferred Shares in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Preferred Shares for exchange must be cured within such reasonable period
of time as the Company shall determine. None of the Company, the Exchange Agent
nor any other person shall be under any duty to give notification of any defect
or irregularity with respect to
36
<PAGE>
any tender of Old Preferred Shares for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other
than the registered holder or holders of Old Preferred Shares, such Old
Preferred Shares must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders appear on the Old Preferred Shares.
If the Letter of Transmittal or any Old Preferred Shares or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder will represent to the Company that, among
other things, (a) New Preferred Shares acquired pursuant to the Exchange Offer
are being acquired in the ordinary course of business of the person receiving
such New Preferred Shares, whether or not such person is the holder, (b) neither
the holder nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such New Preferred Shares and
(c) neither the holder nor any such other person is an "affiliate" of the
Company as defined under Rule 405 of the Securities Act, or if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. Any holder of Old
Preferred Shares using the Exchange Offer to participate in a distribution of
the New Preferred Shares (i) cannot rely on the position of the staff of the
Commission enunciated in its interpretive letter with respect to Exxon Capital
Holdings Corporation (available April 13, 1989) or similar letters and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives New Preferred Shares for its own
account in exchange for Old Preferred Shares where such Old Preferred Shares
were acquired by such broker-dealer as a result of market-making activities or
other trading activities must acknowledge that it will deliver a prospectus in
connection with any resale of such New Preferred Shares. See "Plan of
Distribution."
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Preferred Shares for exchange (the
"Transferor") exchanges, assigns and transfers the Old Preferred Shares to the
Company and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Old Preferred Shares to be
assigned, transferred and exchanged. The Transferor represents and warrants that
it has full power and authority to tender, exchange, assign and transfer the Old
37
<PAGE>
Preferred Shares and to acquire New Preferred Shares issuable upon the exchange
of such tendered Old Preferred Shares, and that, when the same are accepted for
exchange, the Company will acquire good and unencumbered title to the tendered
Old Preferred Shares, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Preferred Shares or
transfer ownership of such Old Preferred Shares on the account books maintained
by a book-entry transfer facility. The Transferor further agrees that acceptance
of any tendered Old Preferred Shares by the Company and the issuance of New
Preferred Shares in exchange therefor shall constitute performance in full by
the Company of certain of its obligations under the Registration Rights
Agreement. All authority conferred by the Transferor will survive the death or
incapacity of the Transferor, and every obligation of the Transferor shall be
binding upon the heirs, legal representatives, successors, assigns, executors
and administrators of such Transferor.
The Transferor certifies that neither it, nor the person receiving the
New Preferred Shares, whether or not such person is the Transferor, (a) is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act, (b) is acquiring the New Preferred Shares offered hereby in the ordinary
course of such Transferor's business and (c) has an arrangement with any person
to participate in the distribution of such New Preferred Shares. Each holder,
other than a broker-dealer, must acknowledge that it is not engaged in, and does
not intend to engage in, a distribution of New Preferred Shares. Each Transferor
which is a broker-dealer receiving New Preferred Shares for its own account must
represent that the Old Preferred Shares to be exchanged for New Preferred Shares
were acquired by it as a result of market-making activities or other trading
activities and acknowledge that it will deliver a prospectus in connection with
any resale of such New Preferred Shares. By so acknowledging and by delivering a
prospectus meeting the requirements of the Securities Act, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New
Preferred Shares received in exchange for Old Preferred Shares where such Old
Preferred Shares were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company will, for a
period of up to six months after the Expiration Date, make copies of this
Prospectus available to any broker-dealer or other persons, if any, subject to
similar prospectus delivery requirements, for use in connection with any such
resale.
Withdrawal Rights
Tenders of Old Preferred Shares may be withdrawn at any time prior to
the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent
by telegram, facsimile transmission (receipt confirmed by telephone) or letter
must be received by the Exchange Agent at the address set forth herein prior to
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having tendered the Old Preferred Shares to
38
<PAGE>
be withdrawn (the "Depositor"), (ii) identify the Old Preferred Shares to be
withdrawn (including the certificate number), (iii) specify the number of Old
Preferred Shares to be withdrawn, (iv) include a statement that such holder is
withdrawing his election to have such Old Preferred Shares exchanged, (v) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Preferred Shares were tendered or as otherwise
described above (including any required signature guarantees) and (vi) specify
the name in which any such Old Preferred Shares are to be registered, if
different from that of the Depositor. The Exchange Agent will return the
properly withdrawn Old Preferred Shares promptly following receipt of notice of
withdrawal. If Old Preferred Shares have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the book-entry transfer facility to be credited with
the withdrawn Old Preferred Shares or otherwise comply with the book-entry
transfer facility procedure. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Company and
such determination will be final and binding on all parties.
Any Old Preferred Shares so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old
Preferred Shares which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder (or, in the case of Old Preferred Shares tendered by book-entry
transfer into the Exchange Agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, such Old
Preferred Shares will be credited to an account with such book-entry transfer
facility specified by the holder) as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Preferred Shares may be retendered by following one of the procedures described
under "--Procedures for Tendering Old Preferred Shares" above at any time on or
prior to the Expiration Date.
Acceptance of Old Preferred Shares for Exchange; Delivery of New Preferred
Shares
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, on the Exchange Date, all Old Preferred Shares
properly tendered and will issue the New Preferred Shares promptly after such
acceptance. See "--Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Preferred Shares for exchange when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
For each Old Preferred Share accepted for exchange, the holder of such
Old Preferred Share will receive a New Preferred Share.
In all cases, issuance of New Preferred Shares for Old Preferred Shares
that are accepted for exchange pursuant to the Exchange Offer will be made only
after timely receipt by the Exchange Agent of certificates for such Old
Preferred Shares or a timely book-entry confirmation of such Old Preferred
Shares into the Exchange Agent's account at the book-entry transfer facility, a
properly completed and duly executed Letter of Transmittal and all other
required
39
<PAGE>
documents. If any tendered Old Preferred Shares are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or if Old Preferred
Shares are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Preferred Shares will be returned
without expense to the tendering holder thereof (or, in the case of Old
Preferred Shares tendered by book-entry transfer into the Exchange Agent's
account at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such non-exchanged Old Preferred Shares will be
credited to an account maintained with such book-entry transfer facility) as
promptly as practicable after the expiration of the Exchange Offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company shall not be required to accept for
exchange, or to issue New Preferred Shares in exchange for, any Old Preferred
Shares and may terminate or amend the Exchange Offer (by oral or written notice
to the Exchange Agent or by a timely press release) if at any time before the
acceptance of such Old Preferred Shares for exchange or the exchange of the New
Preferred Shares for such Old Preferred Shares, any of the following events
occur:
(a) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency or regulatory
authority or any injunction, order or decree is issued with respect to
the Exchange Offer which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer or have a material adverse effect on the contemplated
benefits of the Exchange Offer to the Company; or
(b) any change (or any development involving a prospective
change) shall have occurred or be threatened in the business,
properties, assets, liabilities, financial condition, operations,
results of operations or prospects of the Company that is or may be
adverse to the Company, or the Company shall have become aware of facts
that have or may have adverse significance with respect to the value of
the Old Preferred Shares or the New Preferred Shares or that may
materially impair the contemplated benefits of the Exchange Offer to
the Company; or
(c) any law, rule or regulation or applicable interpretations
of the staff of the Commission is issued or promulgated which, in the
good faith determination of the Company, do not permit the Company to
effect the Exchange Offer; or
(d) any governmental approval has not been obtained, which
approval the Company, in its sole discretion, deems necessary for the
consummation of the Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any
law, statute, rule or regulation (or an amendment to any existing law,
statute, rule or regulation) which, in the sole judgment of the
Company, might materially impair the ability of the Company
40
<PAGE>
to proceed with the Exchange Offer or have a material adverse effect
on the contemplated benefits of the Exchange Offer to the Company; or
(f) there shall occur a change in the current interpretation
by the staff of the Commission which permits the New Preferred Shares
issued pursuant to the Exchange Offer in exchange for Old Preferred
Shares to be offered for resale, resold and otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Preferred
Shares are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in
the distribution of such New Preferred Shares; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in
securities on any national securities exchange or in the
over-the-counter market (whether or not mandatory), (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or state
authorities in the United States (whether or not mandatory), (iv) a
commencement of a war, armed hostilities or other international or
national crisis directly or indirectly involving the United States, (v)
any limitation (whether or not mandatory) by any governmental authority
on, or other event having a reasonable likelihood of affecting, the
extension of credit by banks or other lending institutions in the
United States, or (vi) in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof.
The Company expressly reserves the right to terminate the Exchange
Offer and not accept for exchange any Old Preferred Shares upon the occurrence
of any of the foregoing conditions (which represent all of the material
conditions to the acceptance by the Company of properly tendered Old Preferred
Shares). In addition, the Company may amend the Exchange Offer at any time prior
to the Expiration Date if any of the conditions set forth above occur. Moreover,
regardless of whether any of such conditions has occurred, the Company may amend
the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to holders of the Old Preferred Shares.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time. If the Company waives or amends
the foregoing conditions, it will, if required by law, extend the Exchange Offer
for a minimum of five business days from the date that the Company first gives
notice, by public announcement or otherwise,
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of such waiver or amendment, if the Exchange Offer would otherwise expire within
such five business-day period. Any determination by the Company concerning the
events described above will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Preferred
Shares tendered, and no New Preferred Shares will be issued in exchange for any
such Old Preferred Shares, if at such time any stop order shall be threatened or
in effect with respect to the Registration Statement of which this Prospectus
constitutes a part. In any such event, the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum number of Old
Preferred Shares being tendered for exchange.
Exchange Agent
The Bank of Nova Scotia Trust Company has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below:
By Hand/Overnight Courier: By Mail:
The Bank of Nova Scotia The Bank of Nova Scotia
Trust Company of New York Trust Company of New York
One Liberty Plaza, 23rd Floor One Liberty Plaza, 23rd Floor
New York, New York 10006 New York, New York 10006
Attn: Reorganization Section Attn: Reorganization Section
By Facsimile: (212) 225-5436
By Telephone: (212) 225-5422
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS
OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN THE ONES SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others for
soliciting acceptances of the Exchange Offer. The Company will, however, pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in
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connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and other related documents to the
beneficial owners of the Old Preferred Shares and in handling or forwarding
tenders for their customers.
The estimated cash expenses to be incurred in connection with the
Exchange Offer will be paid by the Company and are estimated in the aggregate to
be approximately US$ , which includes fees and expenses of the Exchange
Agent, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Old Preferred Shares in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, the
Company may, at its discretion, take such action as it may deem necessary to
make the Exchange Offer in any such jurisdiction and extend the Exchange Offer
to holders of Old Preferred Shares in such jurisdiction. In any jurisdiction in
which the securities laws or blue sky laws of which require the Exchange Offer
to be made by a licensed broker or dealer, the Exchange Offer is being made on
behalf of the Company by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
Transfer Taxes
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Preferred Shares pursuant to the Exchange Offer. If, however,
certificates representing New Preferred Shares are to be delivered to, or are to
be issued in the name of, any person other than the registered holder of the Old
Preferred Shares tendered, or if tendered Old Preferred Shares are registered in
the name of any person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of Old
Preferred Shares pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
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Accounting Treatment
The New Preferred Shares will be recorded at the carrying value of the
Old Preferred Shares as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company upon the exchange of New Preferred Shares for Old
Preferred Shares. Expenses incurred in connection with the issuance of the New
Preferred Shares will be amortized over the term of the New Preferred Shares.
Consequences of Failure to Exchange
Holders of Old Preferred Shares who do not exchange their Old Preferred
Shares for New Preferred Shares pursuant to the Exchange Offer will continue to
be subject to the restrictions on transfer of such Old Preferred Shares as set
forth in the legend thereon. Old Preferred Shares not exchanged pursuant to the
Exchange Offer will continue to remain outstanding in accordance with their
terms. In general, the Old Preferred Shares may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Preferred Shares under the Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Old
Preferred Shares should carefully consider whether to participate. Holders of
the Old Preferred Shares are urged to consult their financial and tax advisors
in making their decision with respect to tendering.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Preferred Shares pursuant to the terms of, this Exchange
Offer, the Company will have fulfilled a covenant contained in the Registration
Rights Agreement. Holders of Old Preferred Shares who do not tender their Old
Preferred Shares in the Exchange Offer will continue to hold such Old Preferred
Shares and will not be entitled to any rights under the Registration Rights
Agreement that, by their terms, terminate or cease to have further effectiveness
as a result of the making of this Exchange Offer. To the extent that Old
Preferred Shares are tendered and accepted in the Exchange Offer, the trading
market for untendered Old Preferred Shares could be adversely affected.
Resale of New Preferred Shares
The Company is making the Exchange Offer in reliance on the position of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter, and there can be no assurance that the Commission would
make a similar determination with respect to the Exchange Offer as it has in
such interpretive letters to third parties. Based on these interpretations by
the staff of the Commission, the Company believes that the New Preferred Shares
issued pursuant to the Exchange Offer in exchange for Old Preferred Shares may
be offered for resale, resold and otherwise transferred by a holder (other than
any Holder that is a broker-dealer)
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without further compliance with the registration and prospectus delivery
requirements of the Securities Act. However, any holder who is an "affiliate" of
the Company or who has an arrangement or understanding with respect to the
distribution of the New Preferred Shares to be acquired pursuant to the Exchange
Offer, or any broker-dealer who purchased Old Preferred Shares from the Company
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act (i) cannot rely on the applicable interpretations of the staff of
the Commission and (ii) will not be entitled to tender its Old Preferred Shares
in the Exchange Offer, and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act. A broker-dealer who
holds Old Preferred Shares that were acquired for its own account as a result of
market-making or other trading activities may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of New Preferred Shares. Each such broker-dealer that receives New
Preferred Shares for its own account in exchange for Old Preferred Shares, where
such Old Preferred Shares were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge in the
Letter of Transmittal that it will deliver a prospectus in connection with any
resale of such New Preferred Shares. See "Plan of Distribution."
In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Preferred Shares may not be offered or
sold unless they have been registered or qualified for sale in such jurisdiction
or an exemption from registration or qualification is available and is complied
with.
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BUSINESS AND STRATEGY
General
The Company's principal business objective is to acquire, hold, finance
and manage Mortgage Assets that will generate net income for distribution to
stockholders. The Company acquired the Initial Mortgage Assets for an aggregate
purchase price of approximately US$477 million. See "Certain Transactions
Constituting the Formation--The Formation."
In order to preserve its status as a REIT under the Code, substantially
all of the assets of the Company consist of the Initial Mortgage Assets and
other real estate assets that are of the type set forth in Section 856(c)(6)(B)
of the Code. See "United States Federal Income Tax Considerations."
Dividend Policy
The Company expects to pay an aggregate amount of dividends with
respect to its outstanding shares of stock equal to not less than 100% of the
Company's "REIT taxable income" (excluding capital gains). In order to remain
qualified as a REIT, the Company must distribute annually at least 95% of its
"REIT taxable income" (excluding capital gains) to stockholders. The Company
anticipates that none of the dividends on the New Preferred Shares and none or
no material portion of the dividends on the Common Stock will constitute
non-taxable returns of capital.
Dividends will be authorized and declared at the discretion of the
Board of Directors after considering the Company's distributable funds and
financial requirements, tax considerations and other factors. There are,
however, several limitations on the Company's ability to pay dividends on the
Common Stock (none of which should adversely affect the legal right of the
Company to pay dividends on the New Preferred Shares). First, under the
Company's current dividend policy, the Company may not make any distribution in
respect of the Common Stock to the extent that, after taking into account such
proposed distribution, total cash or property distributions on the Company's
outstanding shares of Preferred Stock and Common Stock in any year would exceed
105% of the Company's "REIT taxable income" (excluding capital gains) for that
year, plus net capital gains of the Company for that year. This policy regarding
the limitation on payment of dividends on the Common Stock may not be modified
without the approval of a majority of the Independent Directors. Second, if the
Company fails to authorize and declare and pay the stated dividend on the New
Preferred Shares in any dividend period, the Company may not pay any dividends
with respect to the Common Stock until such time as dividends on all outstanding
New Preferred Shares have been (i) authorized and declared and paid for three
consecutive dividend periods and (ii) authorized and declared and paid or
authorized and declared and a sum sufficient for the payment thereof set apart
for the fourth consecutive dividend period. See "Description of New Preferred
Shares--Dividends." Third, the Maryland General Corporation Law ("MGCL")
provides that dividends may be paid on the stock of a corporation only if, after
payment of the distribution, (i) the corporation would be able to pay its
indebtedness
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as such indebtedness becomes due in the usual course of business and (ii) the
corporation's total assets would not be less than the sum of its total
liabilities plus, unless the corporation's charter provides otherwise (which the
Charter does), the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights on
dissolution of stockholders whose rights on dissolution are superior to those
receiving the distribution. It is possible that these limitations on the
Company's ability to pay dividends on the Common Stock could affect the ability
of the Company to qualify as a REIT under the Code. See "United States Federal
Income Tax Considerations--Taxation of the Company."
Liquidity and Capital Resources
The Company's principal liquidity needs are to pay quarterly dividends
on the New Preferred Shares, to pay fees and expenses of the Advisor and the
Servicer, and to pay franchise fees and expenses of other advisors, if any, to
the Company. To the extent that the cash flow from its Mortgage Assets exceeds
those amounts, the excess will be used to fund the acquisition of additional
Mortgage Assets and make distributions on the Common Stock. The Company does not
have any other material expenditures. The Company believes that the amounts
generated from the payment of interest and principal on the Initial Mortgage
Loans will enable full payments to be made on the Initial Mortgage Assets and
that such payments will provide the Company with sufficient funds to meet its
operating expenses and to pay dividends in accordance with the requirements to
qualify as a REIT under the Code.
General Description of Mortgage Assets; Investment Policy
Initial Mortgage Assets. The Company's assets currently consist solely
of obligations issued by NB Finance that are recourse only to the Initial
Mortgage Loans and that are secured by real property (the "Initial Mortgage
Assets"). See "--Description of the Initial Mortgage Assets."
Mortgage Loans. While no Mortgage Loans are included in the Initial
Mortgage Assets, the Company may from time to time acquire Mortgage Loans from
the Bank or other NHA-Approved Lenders. Mortgage Loans will consist of CMHC
insured residential first mortgages. See "--Description of the Initial Mortgage
Loans."
Residential Mortgage Loans. While no residential mortgages are included
in the Initial Mortgage Assets, the Company may from time to time acquire
individual residential mortgages other than Mortgage Loans ("Residential
Mortgage Loans"). These Residential Mortgage Loans are expected to meet the
requirements for sale to governmental or private mortgage conduit programs or
other investors in the secondary mortgage market. While Mortgage Loans benefit
from CMHC insurance, there can be no assurance that any Residential Mortgage
Loans acquired by the Company will be similarly protected.
Mortgage-Backed Securities. While no Mortgage-Backed Securities are
included in the Initial Mortgage Assets, the Company may from time to time
acquire fixed-rate or variable-rate Mortgage-Backed Securities representing
interests in pools of mortgage loans such as a NHA
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Mortgage-Backed Security ("NHA MBS") that evidences an undivided interest in a
pool of first mortgages originated by certain approved financial institutions in
Canada and insured by CMHC. A portion of any NHA MBS that the Company purchases
may have been originated by the Bank by exchanging pools of Mortgage Loans for
the Mortgage-Backed Securities. The Company does not intend to acquire any
interest-only, principal-only or similar speculative Mortgage-Backed Securities.
Commercial Mortgage Loans. While no Commercial Mortgage Loans are
included in the Initial Mortgage Assets, the Company may from time to time
acquire Commercial Mortgage Loans secured by industrial and warehouse
properties, recreational facilities, office buildings, retail space and shopping
malls, hotels and motels, nursing homes or senior living centers. The Company's
current policy is not to acquire any interest in a Commercial Mortgage Loan if
Commercial Mortgage Loans would constitute more than 5% of the total book value
of the Company's Mortgage Assets immediately following such acquisition. Unlike
Mortgage Loans and Residential Mortgage Loans, Commercial Mortgage Loans
generally lack standardized terms. Commercial Mortgage Loans may also not be
fully amortizing, meaning that they may have a significant principal balance or
"balloon" payment due on maturity. Moreover, commercial properties, particularly
industrial and warehouse properties, are generally subject to relatively greater
environmental risks than non-commercial properties, generally giving rise to
increased costs of compliance with environmental laws and regulations. There is
no requirement regarding the percentage of any commercial real estate property
that must be leased at the time the Company acquires a Commercial Mortgage Loan
secured by such commercial real estate property, and there is no requirement
that Commercial Mortgage Loans have third party guarantees.
Commercial Mortgage Loans will not be CMHC insured and the credit
quality of a Commercial Mortgage Loan may depend on, among other factors, the
existence and structure of underlying leases, the physical condition of the
property (including whether any maintenance has been deferred), the
creditworthiness of tenants, the historical and anticipated level of vacancies
and rents on the property and on other comparable properties located in the same
region, potential or existing environmental risks, the availability of credit to
refinance Commercial Mortgage Loans at or prior to maturity and the local and
regional economic climate in general. Foreclosures of defaulted Commercial
Mortgage Loans are generally subject to a number of complicating factors,
including environmental considerations, which are generally not present in
foreclosures of Residential Mortgage Loans.
Partnership Interests. While no partnership interests are included in
the Initial Mortgage Assets, the Company may from time to time acquire limited
partnership interests in partnerships the only activities of which are the
purchase and ownership of Mortgage Loans ("Partnership Interests").
Other Real Estate Assets. The Company may invest up to 10% of the total
value of its portfolio in assets eligible to be held by REITs other than those
described above. Such assets could include cash, cash equivalents and
securities, including shares or interests in other REITs.
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Description of the Initial Mortgage Assets
The Company acquired the Initial Mortgage Assets pursuant to the terms
of a loan agreement with NB Finance (the "NB Finance Loan Agreement"). Each
Initial Mortgage Asset is recourse only to the Initial Mortgage Loans securing
such Initial Mortgage Asset and is secured by real property located primarily in
Quebec. The Initial Mortgage Assets consist of a series of loans with maturities
ranging from January 2000 to July 2001. The principal amount of the Initial
Mortgage Assets equal approximately US$477 million. The Initial Mortgage Assets
pay interest at rates ranging from 6.90% to 9.77%, with an average rate of
approximately 8.40% per annum.
The following table summarizes the Initial Mortgage Assets:
Initial Mortgage Assets
Outstanding Maturity Interest Monthly
Amount Date Rate* Interest Payments
US$ 24,175,420 Jan. 2000 6.895% US$ 136,954
23,250,351 Jan. 2000 7.471% 142,550
48,236,245 Jan. 2000 8.047% 318,171
16,364,955 Jan. 2000 8.622% 115,524
43,894,121 July 2000 6.895% 248,660
29,713,817 July 2000 7.471% 182,178
7,246,742 July 2000 8.622% 51,156
9,511,225 July 2000 8.047% 62,737
33,305,900 Jan. 2001 9.198% 250,531
46,882,784 Jan. 2001 9.774% 374,309
5,257,516 Jan. 2001 8.047% 34,679
6,342,462 Jan. 2001 8.622% 44,773
22,146,227 July 2001 8.047% 146,079
104,830,848 July 2001 8.622% 740,026
23,008,093 July 2001 9.198% 173,070
32,421,747 July 2001 9.774% 258,853
US$ 476,588,453 8.404% US$ 3,280,250
- ---------------
* All rates quoted on a 30/360 semiannual basis
Payments of interest are made monthly out of payments on the Initial
Mortgage Loans. Pursuant to an agreement between the Company and NB Finance (the
"Mortgage Loan Assignment Agreement"), the Company receives all scheduled
payments made on the Initial Mortgage Loans, retains a portion of any such
payments equal to the amount due and payable on the Initial Mortgage Assets and
remits the balance, if any, to NB Finance. The Company also retains a portion of
any prepayments of principal in respect of the Initial Mortgage Loans equal to
the proportion of such prepayments that the outstanding principal amount of the
Initial Mortgage Loans bears to the outstanding principal amount of the Initial
Mortgage Assets, which
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amount would be applied to reduce the outstanding principal amount of the
Initial Mortgage Assets. Repayment of the Initial Mortgage Assets is secured by
an assignment of the Initial Mortgage Loans to the Company pursuant to the
Mortgage Loan Assignment Agreement, which will be governed by the laws of
Bermuda. The assignment of the Initial Mortgage Loans by NB Finance to the
Company is without recourse. The Company has a security interest in the real
property securing the Initial Mortgage Loans and, subject to fulfilling certain
procedural requirements under applicable Canadian law, is entitled to enforce
payment on the Initial Mortgage Loans in its own name if a mortgagor should
default thereon. In the event of such a default, the Company has the same rights
as NB Finance to force a sale of the mortgaged property and satisfy the
obligations of NB Finance out of the proceeds. In the event of a default in
respect of an Initial Mortgage Loan, the amount of the Initial Mortgage Assets
will be reduced by an amount equal to the portion thereof allocable to
defaulting mortgage. The Initial Mortgage Loans are administered by the
Servicer, as agent of the Company, and the Company has the right to perfect its
security interest in the Initial Mortgage Loans by notice and registration.
Following repayment of the Initial Mortgage Assets, the Company will reassign
any outstanding Initial Mortgage Loans (without recourse) and deliver them to,
or as directed by, NB Finance. All payments in respect of the Initial Mortgage
Loans are made in Canadian dollars. The amounts due on the Initial Mortgage
Assets are retained by the Company free and clear of and without withholding or
deduction for or on account of any present or future taxes imposed by or on
behalf of Bermuda or any political subdivision thereof or therein.
Management Policies and Programs
In administering the Company's Mortgage Assets, the Advisor has a high
degree of autonomy. The Board of Directors has, however, adopted certain
policies to guide the Company and the Advisor with respect to the acquisition
and disposition of assets, use of capital and leverage, credit risk management
and certain other activities. These policies, which are discussed below, may be
amended or revised from time to time at the discretion of the Board of Directors
(in certain circumstances subject to the approval of a majority of the
Independent Directors) without a vote of the Company's stockholders, including
holders of the New Preferred Shares. See also "--Dividend Policy."
Asset Acquisition and Disposition Policies. The Company may, from time
to time, use payments of interest and principal in respect of its Mortgage
Assets to purchase additional Mortgage Assets and may also purchase additional
Mortgage Assets out of the proceeds from the issuance of additional shares of
Preferred Stock or the contribution of additional capital by the Bank; provided,
however, that (i) to the extent that the investment of such payments or proceeds
occurs prior to the consummation of the Exchange Offer, such payments or
proceeds will be invested in Canadian or U.S. government guaranteed,
mortgage-backed certificates and other Canadian or U.S. government obligations
which will be purchased on the open market or from entities unaffiliated with
the Bank or the Company or banks that are not affiliated with the Bank and (ii)
in the event that the New Preferred Shares are not treated as "publicly-offered
securities" as of the date on which the Exchange Offer is consummated, then
during the period commencing on such date and ending on the date on which the
New Preferred Shares become "publicly-offered
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securities," any investment by the Company in any Mortgage Assets in a
transaction with the Bank and/or affiliates of the Bank will be made only upon
the decision of the Independent Fiduciary. The Company has acquired all or
substantially all of such Mortgage Assets from the Bank and/or affiliates of the
Bank, on terms that are comparable to those that could be obtained by the
Company if such Mortgage Assets were purchased from unrelated third parties. The
Company may also from time to time, however, acquire Mortgage Assets from
unrelated third parties. As of the date of this Prospectus, the Company has not
entered into any agreements with any third parties with respect to the purchase
of Mortgage Assets. Other than with respect to the temporary investment of
payments of interest and principal on its Mortgage Assets, the Company
anticipates that it would purchase Mortgage Assets from unrelated third parties
only if neither the Bank nor any affiliate of the Bank had an amount or type of
Mortgage Assets sufficient to meet the requirements of the Company.
At least 90% of the Company's portfolio will consist of the Initial
Mortgage Assets and obligations which are comparable to the Initial Mortgage
Assets. The Company may, however, invest in other assets eligible to be held by
REITs. The Company's current policy prohibits the acquisition of an interest in
any Mortgage Loan (other than an interest resulting from the acquisition of
Mortgage-Backed Securities or a Partnership Interest) which is delinquent in the
payment of principal or interest at the time of proposed acquisition.
Capital and Leverage Policies. To the extent that the Board of
Directors determines that additional funding is required, the Company may raise
such funds through additional equity offerings, or retention of cash flow (after
consideration of the provisions of the Code requiring the distribution by a REIT
of a certain percentage of its income annually and taking into account taxes
that would be imposed on the Company's undistributed taxable income), or a
combination of these methods. The Company will have no debt outstanding
following consummation of the Exchange Offer and its ability to incur any
indebtedness in the future will be extremely limited.
In order to qualify as a REIT, the Company has issued Senior Preferred
Shares with an aggregate liquidation preference of up to US$450,000. Except for
such Senior Preferred Shares, the Company may not issue additional shares of
Preferred Stock senior to the New Preferred Shares either in the payment of
dividends or in the distribution of assets in liquidation, without the consent
of holders of at least two-thirds of the outstanding shares of Preferred Stock
at that time, including the New Preferred Shares, and the Company may not issue
additional shares of Preferred Stock on a parity with the New Preferred Shares
either in the payment of dividends or in the distribution of assets in
liquidation without the approval of a majority of the Independent Directors. The
Company does not currently intend to issue any additional series of Preferred
Stock unless it simultaneously receives additional capital contributions from
the Bank equal to the sum of 59% of the aggregate offering price of such
additional Preferred Stock and the Company's expenses in connection with the
issuance of such additional shares of Preferred Stock. Prior to its issuance of
additional shares of Preferred Stock, the Company will take into consideration
the Bank's regulatory capital requirements and the cost of raising and
maintaining that capital at the time.
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Credit Risk Management Policies. The Company intends that each Mortgage
Loan, if any, acquired from the Bank, an affiliate of the Bank, or an unrelated
third party in the future will represent a first lien position, will be covered
by valid CMHC insurance and will be originated in the ordinary course of the
originator's real estate lending activities based on the underwriting standards
generally applied (at the time of origination) for the originator's own account.
The Company also expects that all Mortgage Loans held by the Company directly or
indirectly will be serviced pursuant to the Servicing Agreement, or a similar
agreement which requires servicing in conformity with accepted secondary market
standards, with any servicing guidelines promulgated by the Company and with
relevant government agency guidelines and procedures.
Conflict of Interest Policies. Because of the nature of the Company's
relationship with the Bank and its affiliates, it is likely that conflicts of
interest will arise with respect to certain transactions, including, without
limitation, the Company's acquisition of Mortgage Assets from, or disposition of
Mortgage Assets to, the Bank or its affiliates and the renewal, termination or
modification of the Advisory Agreement or the Servicing Agreement. It is the
Company's policy that the terms of any dealings with the Bank and its affiliates
will be consistent with those available from third parties. In addition, neither
the Advisory Agreement nor the Servicing Agreement may be renewed, terminated or
modified by the Company without the approval of a majority of the Independent
Directors.
Conflicts of interest between the Company and the Bank and its
affiliates may also arise in connection with making decisions that bear upon the
credit arrangements that the Bank or one of its affiliates may have with a
borrower. Conflicts could also arise in connection with actions taken by the
Bank as a controlling stockholder in the Company. It is the intention of the
Company and the Bank that any agreements and transactions between the Company,
on the one hand, and the Bank or its affiliates, on the other hand, including,
without limitation, the Servicing Agreement, be fair to all parties and
consistent with market terms for such types of transactions. The Servicing
Agreement provides that foreclosures and dispositions in connection with
Mortgage Loans will be performed with a view toward maximizing the recovery by
the Company of amounts due on its Mortgage Assets and the Servicer will be
required to service Mortgage Loans solely with a view toward the interests of
the Company, and without regard to the interests of the Bank or any of its other
affiliates. The requirement in the terms of the New Preferred Shares that
certain actions of the Company be approved by a majority of the Independent
Directors is also intended to ensure fair dealings between the Company and the
Bank and its affiliates. However, there can be no assurance that any such
dealings will be on terms as favorable to the Company as would have been
obtained from unaffiliated third parties.
There are no provisions in the Charter limiting any officer, director,
security holder or affiliate of the Company from having any direct or indirect
pecuniary interest in any Mortgage Asset to be acquired or disposed of by the
Company or in any transaction in which the Company has an interest or from
engaging in acquiring, holding and managing Mortgage Assets. As described
herein, the Bank and its affiliates have direct interests in transactions with
the Company (including without limitation the issuance of Mortgage Assets to the
Company); however, none of the officers or directors of the Company will have
any interests in such Mortgage Assets.
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Other Policies. The Company operates in a manner that will not subject
it to regulation under the Investment Company Act of 1940, as amended, including
by investing primarily in mortgages and other interests in and liens on real
estate.
The Company intends to distribute to stockholders annual reports
containing financial statements prepared in accordance with generally accepted
accounting principles and certified by the Company's independent public
accountants. The Charter provides that following the consummation of the
Exchange Offer the Company shall maintain its status as a reporting company
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for
as long as any of the New Preferred Shares are outstanding.
The Company makes investments and operates its business at all times in
such a manner as to comply with the requirements of the Code to qualify as a
REIT. However, future economic, market, legal, tax or other considerations may
cause the Board of Directors, subject to approval by a majority of the
Independent Directors, to determine that it is in the best interests of the
Company and its stockholders to revoke the Company's REIT status.
Description of the Initial Mortgage Loans
Information with respect to the Initial Mortgage Loans is presented as
of August 8, 1997.
The detailed information set forth in this Prospectus with respect to
the Initial Mortgage Loans applies only to the mortgages purchased by NB
Finance.
The Initial Mortgage Loans consist of first mortgages originated by the
Bank or acquired by the Bank from other CMHC approved lenders and are secured by
real property located in Canada, primarily in Quebec. See "Risk Factors--All of
the Real Property Securing the Initial Mortgage Assets is Located Outside of the
United States."
Payments on the Initial Mortgage Loans are due monthly in arrears on
the 1st day of each month through July 2001 or such earlier date on which
payment in full of the Initial Mortgage Loans is made (the "Final Payment Date")
or, if the 1st day of a month is not a business day, on the first business day
following the 1st day of such month (a "Monthly Payment Date"). Payments of
interest and principal on the Initial Mortgage Loans are made in Canadian
dollars.
The Initial Mortgage Loans mature monthly beginning in 1999 and bear
interest at rates ranging from approximately 6.0% to 8.99% with an average
interest rate of 7.53% per annum. The Final Payment Date may occur at an earlier
date if final payment on the Initial Mortgage Loans occurs earlier than such
date, because of unscheduled prepayments.
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The following table summarizes the Initial Mortgage Loans:
<TABLE>
<CAPTION>
Initial Mortgage Loans
Outstanding Maturity Min. Max. Avg. Min. Max. Avg. Number
Amount* -------- ---- ---- ---- ---- ---- ---- of Loans
---------------- --------
Interest rate** Remaining Term (months)
--------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 42,004,792 Jan. 2000 6.000% 6.499% 6.225% 24.00 29.00 28.15 644
40,397,485 Jan. 2000 6.500% 6.999% 6.772% 24.00 29.00 27.79 547
83,810,476 Jan. 2000 7.000% 7.499% 7.166% 24.00 29.00 27.57 1,318
28,434,108 Jan. 2000 7.500% 7.999% 7.791% 24.00 29.00 25.38 411
76,266,035 July 2000 6.000% 6.499% 6.199% 30.00 35.00 32.80 1,083
51,627,757 July 2000 6.500% 6.999% 6.639% 30.00 35.00 33.42 848
12,591,214 July 2000 7.500% 7.999% 7.608% 30.00 35.00 32.03 166
16,525,754 July 2000 7.000% 7.499% 7.188% 30.00 35.00 30.84 251
9,134,934 Jan. 2001 7.000% 7.499% 7.234% 36.00 41.00 39.50 130
11,020,027 Jan. 2001 7.500% 7.999% 7.776% 36.00 41.00 39.14 135
57,869,002 Jan. 2001 8.000% 8.499% 8.287% 36.00 41.00 38.85 697
81,458,837 Jan. 2001 8.500% 8.999% 8.718% 36.00 41.00 38.17 1,266
38,479,070 July 2001 7.000% 7.499% 7.299% 42.00 47.00 44.84 417
182,143,599 July 2001 7.500% 7.999% 7.768% 42.00 47.00 44.81 2,561
39,976,562 July 2001 8.000% 8.499% 8.204% 42.00 47.00 45.17 546
56,332,785 July 2001 8.500% 8.999% 8.523% 42.00 47.00 45.89 1,081
$ 828,072,438 7.310% 7.809% 7.526% 34.34 39.34 37.32 12,101
<FN>
- -----------------------
* All amounts quoted in Canadian $
** All rates quoted on a 30/360 semiannual basis
</FN>
</TABLE>
All of the Initial Mortgage Loans were originated in accordance with
underwriting policies customarily employed by the Bank, or with underwriting
policies acceptable to the Bank. As is generally the case in the Canadian
residential mortgage business, the Bank's underwriting policies are derived from
CMHC approved underwriting criteria, and they focus on the borrower's ability to
repay the mortgage loan and the adequacy of the proposed security.
As a CMHC approved lender, the Bank has access to the National Housing
Act (NHA) mortgage insurance program. All of the Initial Mortgage Loans are
insured by CMHC pursuant to that program. The bulk of those loans were insured
at origination. Whether a loan is insured at origination or through the CMHC
portfolio insurance program, the insurance is valid until the expiration of the
loan.
All of the Initial Mortgage Loans are balloon mortgages. Balloon
mortgages are the most prevalent type of mortgage offered by Canadian mortgage
lenders. At the expiration of the term, the mortgage is generally renewed, based
on then current market conditions, for a new term. Although the Bank offers
terms varying from 3 months to 10 years, terms exceeding 5 years are
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relatively rare. Moreover, although the Bank offers monthly, semi-monthly and
weekly pay mortgages, all of the Initial Mortgage Loans are monthly pay
mortgages. In general, loans are amortized over a period not exceeding 25 years.
The Initial Mortgage Loans provide for limited prepayment rights. For
example, typically up to 10% of the original principal amount of an Initial
Mortgage Loan may be prepaid without penalty. Moreover, an Initial Mortgage Loan
may also be prepaid without penalty if the mortgaged property is sold and the
mortgagor enters into a new mortgage with the same terms and conditions as the
Initial Mortgage Loan. In most other circumstances, prepayments or
renegotiations of either the interest rate or the term of an Initial Mortgage
Loan will be subjected to prepayment penalties. During the first three years
following the most recent interest adjustment date, such penalties are
tantamount to a yield maintenance clause. After three years, such penalties will
be limited to three months of interest.
On the date of purchase, the Initial Mortgage Loans have an aggregate
principal amount of approximately C$828 million (US$596 million) and a fair
market value of approximately C$848 million (US$610 million). The Initial
Mortgage Loans mature monthly beginning in 1999, with an average maturity of
approximately September 2000.
Servicing
The Initial Mortgage Loans, and certain other Mortgage Loans, are
serviced by the Bank pursuant to the terms of the Servicing Agreement. The Bank
in its role as servicer under the terms of the Servicing Agreement is herein
referred to as the "Servicer." The Servicer receives a fee equal to 0.25% per
annum on the principal balances of the loans serviced. Payment of such fees is
subordinated to payments of dividends on the New Preferred Shares.
The Servicing Agreement requires the Servicer to service Mortgage Loans
in a manner generally consistent with normal mortgage servicing practices of
prudent mortgage lending institutions which service mortgage loans of the same
type as the Mortgage Loans, with any servicing guidelines promulgated by the
Company and with relevant government agency guidelines and procedures. The
Servicing Agreement requires the Servicer to service Mortgage Loans solely with
a view toward the interests of the Company and without regard to the interests
of the Bank or any of its other affiliates (including NB Finance). The Servicer
collects and remits principal and interest payments, administers mortgage escrow
accounts, submits and pursues mortgage insurance claims and supervises
foreclosure proceedings on any Mortgage Loans it services. The Servicer also
provides accounting and reporting services with respect to such Mortgage Loans.
The Servicing Agreement requires the Servicer to follow such collection
procedures as are customary in normal mortgage servicing practices of prudent
mortgage lending institutions which service mortgage loans of the same type as
the Mortgage Loans. The Servicer may from time to time subcontract all or a
portion of its servicing obligations under the Servicing Agreement to a third
party subject to the prior written approval of the Company. The Servicer will
not, in connection with subcontracting any of its obligations under the
Servicing Agreement, be discharged or relieved in any respect from its
obligation to the Company to perform its
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<PAGE>
obligations under the Servicing Agreement.
The Servicer is required to pay all expenses related to the performance
of its duties under the Servicing Agreement. The Servicer is required to make
advances of taxes and required insurance premiums that are not collected from
mortgagors with respect to any Mortgage Loan serviced by it, unless it
determines that such advances are nonrecoverable from the mortgagor, insurance
proceeds or other sources with respect to such Mortgage Loan. If such advances
are made, the Servicer generally will be reimbursed prior to the Company being
reimbursed out of the payments with respect to such Mortgage Loan. The Servicer
also is entitled to reimbursement for expenses incurred by it in connection with
the liquidation of defaulted Mortgage Loans serviced by it and in connection
with the restoration of mortgaged property. The Servicer is responsible to the
Company for any loss suffered as a result of the Servicer's failure to make and
pursue timely claims or as a result of actions taken or omissions made by the
Servicer which cause the policies to be cancelled by the insurer. Subject to
approval by the Company, the Servicer may institute foreclosure proceedings,
exercise any power of sale contained in any Mortgage Loan or deed of trust,
obtain a deed in lieu of foreclosure or otherwise acquire title to a mortgaged
property underlying a Mortgage Loan by operation of law or otherwise in
accordance with the terms of the Servicing Agreement. The Servicer does not,
however, have the authority to conclude contracts in the name of the Company.
The Company may terminate the Servicing Agreement upon the occurrence
of one or more events specified in the Servicing Agreement. Such events relate
generally to the Servicer's proper and timely performance of its duties and
obligations under the Servicing Agreement. In addition, the Company may also
terminate the Servicing Agreement without cause upon 60 days' notice and payment
of a termination fee equal to the product of 0.0002% of the then current
aggregate unpaid principal balance of the Mortgage Loans and the number of
months remaining until the first anniversary of the Servicing Agreement. The
termination fee will be based on the aggregate outstanding principal amount of
the Mortgage Loans then serviced under the Servicing Agreement. As long as any
of the New Preferred Shares remain outstanding, the Company may not renew,
terminate, or modify the Servicing Agreement without the approval of a majority
of the Independent Directors.
As is customary in the mortgage loan servicing industry, the Servicer
is entitled to retain any late payment charges, penalties and assumption fees
collected in connection with the Mortgage Loans serviced by it. The Servicer
will receive any benefit derived from interest earned on collected principal and
interest payments between the date of collection and the date of remittance to
the Company and, to the extent permitted by law, from interest earned on tax and
insurance impound funds with respect to Mortgage Loans serviced by it.
When any mortgaged property underlying a Mortgage Loan is conveyed by a
mortgagor, the Servicer generally will enforce any "due-on-sale" clause
contained in the Mortgage Loan, to the extent permitted under applicable law and
governmental regulations. The terms of a particular Mortgage Loan or applicable
law, however, may provide that the Servicer is prohibited from exercising the
"due-on-sale" clause under certain circumstances related to the security
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<PAGE>
underlying the Mortgage Loan and the buyer's ability to fulfill the obligations
thereunder. Upon any assumption of a Mortgage Loan by a transferee, a nominal
fee is typically required, which sum will be retained by the Servicer as
additional servicing compensation.
Employees
The Company has six employees. Information regarding the executive
officers of the Company is provided below under "Management--Directors and
Executive Officers." The Company does not anticipate that it will require any
additional employees because it retains the Advisor to perform certain functions
pursuant to the Advisory Agreement as described below under "Management--The
Advisor." Each employee of the Company currently is also an officer and/or
director of the Bank and/or affiliates of the Bank. The Company maintains
corporate records and audited financial statements that are separate from those
of the Bank and of any of the Bank's affiliates.
Competition
The Company does not engage in the business of originating Mortgage
Assets. While the Company will purchase additional Mortgage Assets, it
anticipates that such Mortgage Assets will be purchased from the Bank and/or
affiliates of the Bank. Accordingly, the Company does not compete with mortgage
conduit programs, investment banking firms, savings and loan associations,
banks, thrift and loan associations, finance companies, mortgage bankers or
insurance companies in acquiring its Mortgage Assets.
Legal Proceedings
The Company is not the subject of any material litigation. None of the
Company, the Bank or any affiliate of the Bank is currently involved in nor, to
the Company's knowledge, currently threatened with any material litigation with
respect to the Initial Mortgage Assets or the Initial Mortgage Loans, other than
routine litigation arising in the ordinary course of business, most of which is
expected to be covered by liability insurance.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The Board of Directors consists of the individuals set forth below.
Messrs. Hanley and Michel are Independent Directors. Pursuant to the terms of
the New Preferred Shares, the Independent Directors will consider the interests
of the holders of both the New Preferred Shares and the Common Stock in
determining whether any proposed action requiring their approval is in the best
interests of the Company. The Company currently has five employees and does not
anticipate that it will require additional employees. See "Business and
Strategy--Employees."
The persons who are current directors and executive officers of the
Company are as follows:
Name Position and Offices Held
- ---- -------------------------
Michael Hanley Director
Alain Michel Director
Roger Smock Director; President
Real Raymond Director; Chief Financial Officer; Treasurer
Francois Bourassa Director; Vice President--Legal; Secretary
Martin Ouellet, Tom Doss and John Richter, each a Vice-President, are
the only other employees of the Company. The following is a summary of the
experience of the executive officers and current and proposed directors of the
Company:
Mr. Hanley has been Vice President and Chief Financial Officer of Gaz
Metropolitain since June 1997. Prior to that he was Vice President, Finance of
St. Laurent Paperboard Inc., a company spun off from Canadian Pacific Forest
Products Ltd. (now known as Avenor Inc.), and a Senior Advisor for Arthur
Andersen & Co., an international firm of accountants and management consultants.
Mr. Hanley is a chartered accountant and a member of the Ordre des comptables
agrees du Quebec.
Mr. Michel has been Senior Vice President and Chief Financial Officer
of Le Groupe Videotron Ltee since September 1994. Prior to that, he was Vice
President Finance and Treasurer of Videotron since July 1992. Mr. Michel is a
member of the Board of Directors of Group Goyette Inc., a public transportation
company, and is Vice-Chairman of the Board and Chairman of the Audit Committee
of Optel Inc., its U.S. division.
Mr. Smock has been Senior Vice-President, United States of the Bank
since 1988. In this position, he functions as the Bank's senior representative
in the United States. Mr. Smock is Chairman of the Board of several of the
Bank's U.S. subsidiaries, including National Canada Finance Corp. and National
Canada Corporation. He is also Chairman of the Bank's Management Committee in
the United States.
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<PAGE>
Mr. Raymond has been Senior Executive Vice-President, Corporate
Finance, of Levesque Beaubien Geoffrion Inc., a subsidiary of the Bank, since
November 1, 1997. Prior to that he was Senior Vice-President, Treasury and
Financial Markets of the Bank since 1992. Prior to that he was a Vice-President
of the Bank and the Senior Vice-President, Corporate Banking and Real Estate,
Canada. Mr. Raymond is a member of the Board of Directors of the Foundation of
the University of Quebec (Montreal), the St. Mary's Hospital Foundation and the
Quebec Tourism Circle. He is Chairman of the Board of Cancap Preferred
Corporation. Mr. Raymond is also a member of the Professional Society of the
Fellows of the Institute of Canadian Bankers.
Mr. Bourassa has been Senior Advisor, Legal Affairs of the Bank since
1989. Prior to joining the Bank, Mr. Bourassa was engaged in the practice of law
in Montreal.
Independent Directors
The terms of the New Preferred Shares require that, as long as any New
Preferred Shares are outstanding, certain actions by the Company must be
approved by a majority of the Independent Directors. See "Description of New
Preferred Shares--Independent Director Approval." Mr. Hanley and Mr. Michel are
Independent Directors. As long as there are only two Independent Directors, any
action that requires the approval of a majority of Independent Directors must be
approved by both the Independent Directors.
If at any time the Company fails to declare and pay a quarterly
dividend on the New Preferred Shares, the number of directors then constituting
the Board of Directors will be increased by at least two at the Company's next
annual meeting and the holders of the New Preferred Shares, voting together as a
single class with the holders of any other outstanding series of Preferred Stock
entitled to vote on the matter, including the Senior Preferred Shares, will be
entitled to elect two additional directors to serve on the Board of Directors.
Any member of the Board of Directors elected by holders of Preferred Stock will
be deemed to be an Independent Director for purposes of the actions requiring
the approval of a majority of the Independent Directors. The Company expects
that the Bank will elect a majority of the Board of Directors. See "Description
of New Preferred Shares--Voting Rights."
Audit Committee
The Board of Directors has established an audit committee which reviews
the engagement of independent accountants and their independence. The audit
committee also reviews the adequacy of the Company's internal accounting
controls. The audit committee is comprised of Mr. Hanley and Mr. Michel.
Compensation of Directors and Officers
The Company pays the Independent Directors fees for their services as
directors. The Independent Directors receive annual compensation of $10,000 plus
a fee of $750 for attendance (in person or by telephone) at each meeting of the
Board of Directors.
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The Company does not pay any compensation to its officers or employees
or to directors who are not Independent Directors.
Limitation of Liability and Indemnification of Directors and Officers
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of the corporation's directors and officers to
the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a director, officer, partner or trustee of such corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his or her status as a present or
former director or officer of the Company. The Bylaws of the Company (the
"Bylaws") obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity or
(b) any individual who, while a director of the Company and at the request of
the Company, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Charter and Bylaws
also permit the Company to indemnify and advance expenses to any person who
served a predecessor of the Company in any of the capacities described above and
to any employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause
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to believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL requires the
Company, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company and (b) a
written statement by or on his behalf to repay the amount paid or reimbursed by
the Company if it shall ultimately be determined that the standard of conduct
was not met.
The Advisor
The Company entered into the Advisory Agreement with the Bank to
administer the day-to-day operations of the Company. The Bank in its role as
advisor under the terms of the Advisory Agreement is hereinafter referred to as
the "Advisor." The Advisor is responsible for (i) monitoring the credit quality
of Mortgage Assets held by the Company, (ii) advising the Company with respect
to the reinvestment of income from and payments on, and with respect to the
acquisition, management, financing and disposition of, Mortgage Assets held by
the Company, (iii) holding documents relating to the Company's Mortgage Assets
as custodian, (iv) monitoring the Company's compliance with the requirements
necessary to qualify as a REIT and (v) maintaining its status as a NHA Approved
Lender. The Advisor may, with the approval of a majority of the Board of
Directors as well as a majority of the Independent Directors, subcontract all or
a portion of its obligations under the Advisory Agreement to one or more related
or unrelated third parties. The Advisor will not, in connection with the
subcontracting of any of its obligations under the Advisory Agreement, be
discharged or relieved in any respect from its obligations under the Advisory
Agreement.
The Advisor and its affiliates have substantial experience in mortgage
finance and in the administration of Mortgage Assets.
The Advisory Agreement has an initial term of one year, and may be
renewed for additional one-year periods. The Advisory Agreement may be
terminated by the Company at any time upon 60 days' prior written notice. As
long as any of the New Preferred Shares remain outstanding, any decision by the
Company to renew, terminate or modify the Advisory Agreement must be approved by
a majority of the Board of Directors, as well as by a majority of the
Independent Directors. The Advisor is entitled to receive an advisory fee equal
to C$50,000 payable in equal quarterly installments with respect to the advisory
and management services provided by it to the Company. Payment of such fees is
subordinated to payments of dividends on the New Preferred Shares.
As a result of the relationship between the Bank and the Company,
certain conflicts of interest may arise. See "Risk Factors--Relationship with
the Bank and its Affiliates; Conflicts of Interest." In addition, under certain
circumstances, The Independent Fiduciary will exercise the discretionary
authority reserved to the Company with respect to transactions involving both
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the Company and the Bank or any Bank affiliate. See "ERISA Considerations."
The principal executive offices of the Advisor are located at 600 de La
Gauchetiere West, Montreal, Quebec, H3B 4L2, and its telephone number is (514)
394-5000.
DESCRIPTION OF NEW PREFERRED SHARES
The following summary of the material terms and provisions of the New
Preferred Shares does not purport to be complete and is qualified in its
entirety by reference to Maryland law and to the terms and provisions of the
Charter establishing the New Preferred Shares and the other provisions of the
Charter, a copy of which is available from the Company upon request. See
"Description of Capital Stock."
General
The New Preferred Shares form a series of Preferred Stock, which
Preferred Stock may be issued from time to time in one or more series with such
designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption as are determined by the Board of
Directors. The Board of Directors has authorized the Company to issue the New
Preferred Shares.
When issued, the New Preferred Shares will be validly issued, fully
paid and nonassessable. The holders of the New Preferred Shares will have no
preemptive rights with respect to any shares of the stock of the Company or any
other securities of the Company convertible into or carrying rights or options
to purchase any such shares. The New Preferred Shares are perpetual and will not
be convertible into shares of Common Stock or any other class or series of stock
of the Company and will not be subject to any sinking fund or other obligation
of the Company for their repurchase or retirement. The New Preferred Shares will
be exchanged automatically on a one-for-one basis for the Bank Preferred Shares
upon the occurrence of an Exchange Event.
The transfer agent, registrar and dividend disbursement agent for the
New Preferred Shares will be The Bank of Nova Scotia Trust Company of New York.
The registrar for shares of New Preferred Shares will send notices to
shareholders of any meetings at which holders of the New Preferred Shares have
the right to elect directors of the Company or to vote on any other matter.
Dividends
Holders of the New Preferred Shares shall be entitled to receive, if,
when and as authorized and declared by the Board of Directors out of assets of
the Company legally available therefor, noncumulative cash dividends at the rate
of 8.35% per annum of the liquidation
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preference (equivalent to US$83.50 per share per annum). If authorized and
declared, dividends on the New Preferred Shares shall be payable quarterly in
arrears on the 30th day of March, June, September and December (or, if any such
day is not a business day, on the next business day) of each year, at such
annual rate, commencing , 1998. Except for the initial period, which
shall commence on and include , 1998 and end on , 1998, dividends in
each quarterly dividend period will accrue from the first day of such period,
whether or not authorized, declared or paid for the prior quarterly period. Each
authorized and declared dividend shall be payable to holders of record as they
appear at the close of business on the stock register of the Company on such
record dates, not exceeding 45 calendar days nor less than 10 calendar days
preceding the payment dates thereof, as shall be fixed by the Board of
Directors. Dividends payable on the New Preferred Shares for any dividend period
greater or less than a full dividend period shall be computed on the basis of
twelve 30-day months, a 360-day year and the actual number of days elapsed in
the period; provided, however, that in the event of the Automatic Exchange, any
accrued and unpaid dividends on the New Preferred Shares as of the Time of
Exchange (as defined) shall be deemed to be accrued and unpaid dividends on the
Bank Preferred Shares.
The right of holders of the New Preferred Shares to receive dividends
is noncumulative. Accordingly, if the Board of Directors fails to authorize or
declare a dividend on the New Preferred Shares for a quarterly dividend period,
then holders of the New Preferred Shares will have no right to receive a
dividend for that period, and the Company will have no obligation to pay a
dividend for that period, whether or not dividends are authorized and declared
and paid for any future period with respect to either the Preferred Stock or the
Common Stock authorized. If the Company fails to pay or authorize and set aside
for payment a quarterly dividend on the New Preferred Shares, holders of
Preferred Stock, including the New Preferred Shares and the Senior Preferred
Shares, will be entitled to elect two directors. See "--Voting Rights."
If full dividends on the New Preferred Shares for any dividend period
shall not have been authorized, declared and paid, or authorized, declared and a
sum sufficient for the payment thereof set apart for such payments, no dividends
shall be authorized, declared or paid or set aside for payment with respect to
the Common Stock or any other stock of the Company ranking junior to or on a
parity with the New Preferred Shares as to dividends or amounts upon
liquidation, nor shall any Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the New Preferred Shares as to
dividends or amounts upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any monies to be paid to or made available
for a sinking fund for the redemption of any such stock) by the Company (except
by conversion into or exchange for other stock of the Company ranking junior to
the New Preferred Shares as to dividends and amounts upon liquidation), until
such time as dividends on all outstanding New Preferred Shares have been (i)
authorized, declared and paid for three consecutive dividend periods and (ii)
authorized, declared and paid or authorized, declared and a sum sufficient for
the payment thereof has been set apart for payment for the fourth consecutive
dividend period.
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When dividends are not paid in full (or a sum sufficient for such full
payment is not set apart) upon the New Preferred Shares and the shares of any
other series of stock ranking on a parity as to dividends with the New Preferred
Shares, all dividends authorized and declared upon the New Preferred Shares and
any other series of stock ranking on a parity as to dividends with the New
Preferred Shares shall be authorized and declared pro rata so that the amount of
dividends authorized and declared per New Preferred Share and such other series
of stock shall in all cases bear to each other the same ratio that full
dividends, for the then-current dividend period, per New Preferred Share (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods) and full dividends, including required or permitted
accumulations, if any, on such other series of stock bear to each other.
For a discussion of the tax treatment of distributions to stockholders,
see "United States Federal Income Tax Considerations--Taxation of United States
Stockholders" and "--Taxation of Foreign Stockholders," and for a discussion of
certain potential regulatory limitations on the Company's ability to pay
dividends, see "Risk Factors--Dividend and Other Regulatory Restrictions on
Operations of the Company."
Automatic Exchange
Each New Preferred Share will be exchanged automatically for one newly
issued Bank Preferred Share (i) immediately prior to such time, if any, at which
the Bank fails to declare and pay or set aside for payment when due any dividend
on any issue of its cumulative First Preferred Shares or the Bank fails to pay
or set aside for payment when due any declared dividend on any of its
non-cumulative First Preferred Shares, (ii) in the event that the Bank has a
Tier 1 risk-based capital ratio of less than 4.0% or a total risk-based capital
ratio of less than 8.0%, (iii) in the event that the Superintendent takes
control of the Bank pursuant to the Bank Act or proceedings are commenced for
the winding-up of the Bank pursuant to the Winding-up and Restructuring Act
(Canada), or (iv) in the event that the Superintendent, by order, directs the
Bank to act pursuant to subsection 485(3) of the Bank Act and the Bank elects to
cause the exchange. Upon an Exchange Event, each holder of the New Preferred
Shares shall be unconditionally obligated to surrender to the Bank the
certificates representing each New Preferred Share held by such holder, and the
Bank shall be unconditionally obligated to issue to such holder in exchange for
each such New Preferred Share a certificate representing one Bank Preferred
Share. Any New Preferred Shares purchased or redeemed by the Company prior to
the Time of Exchange (as defined below) shall be deemed not to be outstanding
and shall not be subject to the Automatic Exchange.
The Automatic Exchange shall occur as of 8:00 a.m. Eastern Time on the
date for such exchange set forth in the requirements of the Superintendent or,
if such date is not set forth in such requirements as of 8:00 a.m. on the
earliest possible date such exchange could occur consistent with such
requirements (the "Time of Exchange"), as evidenced by the issuance by the Bank
of a press release prior to such time. As of the Time of Exchange, all of the
New Preferred Shares will be deemed cancelled without any further action by the
Company, all rights of the holders of the New Preferred Shares as stockholders
of the Company will cease, and such
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persons shall thereupon and thereafter be deemed to be and shall be for all
purposes holders of Bank Preferred Shares. The Company will mail notice of the
occurrence of an Exchange Event to each holder of the New Preferred Shares
within 30 days of such event, and the Bank will deliver to each such holder
certificates for the Bank Preferred Shares upon surrender of such holder's
certificates for the New Preferred Shares. The Charter provides that,
immediately after the delivery of such notice, the existence of the Company
shall terminate and the Company will be liquidated and its affairs wound up in
accordance with the procedures of the MGCL relating to forfeiture of the charter
of a corporation and expiration of corporate existence. Until such replacement
stock certificates are delivered (or in the event such replacement certificates
are not delivered), certificates previously representing the New Preferred
Shares shall be deemed for all purposes to represent the Bank Preferred Shares.
All corporate action necessary for the Bank to issue the Bank Preferred Shares
has been taken by the Bank. Accordingly, once an Exchange Event occurs, no
action will be required to be taken by holders of the New Preferred Shares, by
the Bank or by the Company in order to effect the Automatic Exchange as of the
Time of Exchange.
Holders of the New Preferred Shares, by purchasing such New Preferred
Shares, will be deemed to have agreed to be bound by the unconditional
obligation to exchange such New Preferred Shares for the Bank Preferred Shares
upon the occurrence of an Exchange Event. The obligation of the holders of the
New Preferred Shares to surrender such shares and the obligation of the Bank to
issue the Bank Preferred Shares in exchange for the New Preferred Shares shall
be enforceable by the Bank and such holders, respectively, against the other.
Absent the occurrence of an Exchange Event, no Bank Preferred Shares
will be issued. Upon the occurrence of an Exchange Event, the Bank Preferred
Shares to be issued as part of the Automatic Exchange would constitute a newly
issued series of First Preferred Shares of the Bank and would constitute 100% of
the issued and outstanding Bank Preferred Shares. The Bank Preferred Shares
would have the same liquidation preference and be subject to redemption on the
same terms as the New Preferred Shares (except that there would be no redemption
for a Tax Event). Any accrued and unpaid dividends on the New Preferred Shares
as of the Time of Exchange would be accounted for as accrued and unpaid
dividends on the Bank Preferred Shares. The Bank Preferred Shares would rank
pari passu, in terms of dividend payments and liquidation preference, with, or
senior to, any outstanding First Preferred Shares of the Bank. The Bank
Preferred Shares would not entitle the holders to vote except in certain
circumstances. Dividends on the Bank Preferred Shares would be non-cumulative
and payable at the rate of 8.45% per annum of the liquidation preference, if,
when and as declared by the Board of Directors of the Bank. The Bank does not
intend to apply for listing of the Bank Preferred Shares on any national
securities exchange or for quotation of the Bank Preferred Shares through the
National Association of Securities Dealers Automated Quotation System. Absent
the occurrence of an Exchange Event, however, the Bank will not issue any Bank
Preferred Shares, although the Bank will be able to issue First Preferred Shares
in series other than that of the Bank Preferred Shares. There can be no
assurance as to the liquidity of the trading markets for the Bank Preferred
Shares, if issued, or that an active public market for
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the Bank Preferred Shares would develop or be maintained.
Holders of the New Preferred Shares cannot exchange the New Preferred
Shares for the Bank Preferred Shares voluntarily. In addition, absent the
occurrence of the Automatic Exchange, holders of the New Preferred Shares will
have no dividend, voting, liquidation preference or other rights with respect to
the Bank or any security of the Bank.
Ranking
The New Preferred Shares will rank prior to the Common Stock and to all
other classes and series of equity securities of the Company now or hereafter
issued, other than the Senior Preferred Shares or any other series of equity
securities of the Company expressly designated as being on a parity with
("Parity Stock") or senior to the New Preferred Shares as to dividend rights and
rights upon liquidation, winding up or dissolution. The Company has the power to
create and issue additional Preferred Stock or other classes of stock ranking on
a parity with the New Preferred Shares, or ranking junior to the New Preferred
Shares, without any approval or consent of the holders of New Preferred Shares.
So long as any New Preferred Shares remain outstanding, additional shares of
Senior Stock may not be issued without the approval of the holders of at least
two-thirds of the New Preferred Shares. See "--Voting Rights." So long as any
New Preferred Shares remain outstanding, additional shares of Parity Stock may
not be issued without the approval of a majority of the Board of Directors and a
majority of the Independent Directors. See "--Independent Director Approval."
Voting Rights
Except as indicated below, the holders of the New Preferred Shares will
not be entitled to vote. In the event the holders of the New Preferred Shares
are entitled to vote as indicated below, each New Preferred Share will be
entitled to one vote on matters on which holders of the New Preferred Shares are
entitled to vote.
If, at the time of any annual meeting of the Company's stockholders for
the election of directors, the Company has failed to pay or failed to authorize
and declare and set aside for payment a quarterly dividend on any series of
Preferred Stock of the Company, including the New Preferred Shares, the number
of directors then constituting the Board of Directors will be increased by at
least two (if not already increased by two due to a default in preference
dividends), and the holders of the New Preferred Shares and the holders of
Senior Preferred Shares, voting together with the holders of all other series of
Preferred Stock as a single class, will be entitled to elect such two additional
directors to serve on the Board of Directors at each such annual meeting. Each
director elected by the holders of shares of the Preferred Stock shall continue
to serve as a director until the later of (i) the full term for which he or she
shall have been elected or (ii) the payment of one quarterly dividend on the
Preferred Stock, including the New Preferred Shares. Any such director may be
removed by, and shall not be removed except by, the vote of the holders of
record of the outstanding the New Preferred Shares and Parity Stock entitled to
vote, voting together as a single class with the holders of all other series of
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Preferred Stock entitled to vote on the matter, at a meeting of the Company's
stockholders, or of the holders of the New Preferred Shares and Parity Stock so
entitled to vote thereon, called for that purpose. As long as dividends on the
New Preferred Shares shall not have been paid for the preceding quarterly
dividend period, (i) any vacancy in the office of any such director may be
filled (except as provided in the following clause (ii)) by a person designated
in an instrument in writing signed by any such remaining director and filed with
the Company, and (iii) in the case of the removal of any such director, the
vacancy may be filled by the vote of the holders of the outstanding New
Preferred Shares and Parity Stock entitled to vote, voting together as a single
class with the holders of all other series of Preferred Stock entitled to vote
on the matter, at the same meeting at which such removal shall be voted.
The affirmative vote or consent of the holders of at least two-thirds
of the outstanding shares of each series of Preferred Stock, including the New
Preferred Shares, will be required (a) to create any class or series of stock
(other than the Senior Preferred Stock) which shall, as to dividends or
distribution of assets, rank prior to or on a parity with any outstanding series
of Preferred Stock other than a series which shall not have any right to object
to such creation or (b) alter or change the provisions of the Charter (including
the terms of the New Preferred Shares) so as to adversely affect the voting
powers, preferences or special rights of the holders of a series of Preferred
Stock to any material extent; provided that if such amendment shall not
adversely affect all series of Preferred Stock, such amendment need only be
approved by at least two-thirds of the holders of shares of all series of
Preferred Stock adversely affected thereby.
Redemption
The New Preferred Shares are not redeemable prior to September 3, 2007
(except upon the occurrence of a Tax Event on or after September 3, 2002). On or
after such date, the New Preferred Shares may be redeemed at the option of the
Company, or its successor or any acquiring or resulting entity with respect to
the Company (including by any parent or subsidiary of the Company, any such
successor, or any such acquiring or resulting entity), as applicable, in whole
or in part, at any time or from time to time on not less than 30 nor more than
60 days' notice by mail, at the following redemption prices (expressed as a
percentage of the US$1,000 per share liquidation preference), if redeemed during
the 12-month period beginning September 3 of the years indicated below, plus the
quarterly accrued and unpaid dividend to the date of redemption, if any,
thereon:
Year Redemption Price
- ---- ----------------
2007 104.1750%
2008 103.7575
2009 103.3400
2010 102.9225
2011 102.5050
2012 102.0875
2013 101.6700
2014 101.2525
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2015 100.8350
2016 100.4175
and thereafter at a redemption price of US$1,000 per share, plus the quarterly
accrued and unpaid dividend to the date of redemption, if any, thereon.
In the event that fewer than all the outstanding New Preferred Shares
are to be redeemed, the number of New Preferred Shares to be redeemed shall be
determined by the Board of Directors, and the shares to be redeemed shall be
determined by lot or pro rata as may be determined by the Board of Directors or
by any other method as may be determined by the Board of Directors in its sole
discretion to be equitable, provided that such method satisfies any applicable
requirements of any securities exchange on which the New Preferred Shares are
then listed.
Any such redemption must comply with applicable capital distribution
regulations of the Superintendent, which may prohibit a redemption and will
require the Superintendent's prior written approval. Unless full dividends on
the New Preferred Shares have been, or contemporaneously are, authorized,
declared and paid or authorized and declared and a sum sufficient for the
payment thereof set apart for payment for the then-current dividend period, no
New Preferred Shares shall be redeemed unless all outstanding New Preferred
Shares are redeemed and the Company shall not purchase or otherwise acquire any
New Preferred Shares; provided, however, that the Company may purchase or
acquire New Preferred Shares pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding New Preferred Shares.
Furthermore, the Company may, at its option, on or after September 3,
2002 and prior to September 3, 2007, redeem the New Preferred Shares, in whole
but not in part, at any time upon a Tax Event, at a redemption price per share
equal to the sum of (i) the quarterly accrued and unpaid dividend to the date of
redemption plus (ii) the Make-Whole Amount (as defined herein).
"Make-Whole Amount" means, with respect to a New Preferred Share, the
greater of (i) 100% of the Maturity Amount of such New Preferred Share and (ii)
the sum of the present values of the remaining scheduled payments of dividends
on such New Preferred Share to September 3, 2007, plus the present value of the
Maturity Amount at September 3, 2007, discounted to the date fixed for
redemption of such New Preferred Share (the "redemption date") on a quarterly
basis (assuming a 360-day year consisting of 30-day months), computed using a
discount rate equal to the Adjusted Treasury Rate.
"Adjusted Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue (as defined herein), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined herein) for such prepayment
date plus 0.50%.
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"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
Make-Whole Term that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the Make-Whole Term.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release published by the Federal Reserve Bank of New York and
designated "Composite 3:30 p.m. Quotation for U.S. Government Securities" (or
any successor release) or (ii) if such release is not published or does not
contain such prices on such Business Day, (a) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (b) if the Company
obtains fewer than three such Reference Treasury Dealer Quotations, the average
of all such Quotations.
"Make-Whole Term" means the period from the redemption date to
September 3, 2007.
"Maturity Amount" means the liquidation preference of the New Preferred
Shares.
"Quotation Agent" means the Reference Treasury Dealer (as defined
herein) appointed by the Company.
"Reference Treasury Dealer" means (i) Merrill Lynch Government
Securities, Inc. and their respective successors; provided, however, that if the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer, and (ii) any other Primary Treasury Dealer
selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third Business Day preceding such redemption date.
"Tax Event" means the receipt by the Company of an opinion of a
nationally recognized law firm experienced in such matters to the effect that,
as a result of (i) any amendment to, clarification of, or change (including any
announced prospective change) in, the laws or treaties (or any regulations
thereunder) of the United States or Canada, or any political subdivision or
taxing authority thereof or therein, affecting taxation, (ii) any judicial
decision, official administrative pronouncement, published or private ruling,
regulatory procedure, notice or announcement (including any notice or
announcement of intent to adopt such procedures or regulations) ("Administrative
Action") or (iii) any amendment to, clarification of, or change in the official
position or the interpretation of such Administrative Action or any
interpretation or
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pronouncement that provides for a position with respect to such Administrative
Action that differs from the theretofore generally accepted position, in each
case, by any legislative body, court, governmental authority or regulatory body,
irrespective of the manner in which such amendment, clarification or change is
made known, which amendment, clarification or change is effective or such
pronouncement or decision is announced on or after the date of this Prospectus,
there is more than an insubstantial risk that (a) dividends paid or to be paid
by the Company with respect to the stock of the Company are not, or will not be,
fully deductible by the Company for United States federal income tax purposes or
(b) the Company is, or will be, subject to more than a de minimis amount of
other taxes, duties or other governmental charges and shall include an
assessment by the Internal Revenue Service that (a) dividends paid or to be paid
by the Company with respect to the stock of the Company are not, or will not be,
fully deductible by the Company for United States federal income tax purposes or
(b) the Company is, or will be, subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
Rights upon Liquidation
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holders of the New Preferred Shares at the
time outstanding will be entitled to receive out of assets of the Company
legally available for distribution to stockholders under applicable law, before
any distribution of assets is made to holders of Common Stock or any other class
of stock ranking junior to the New Preferred Shares upon liquidation, and
subject to the rights of the holders of any class or series of equity securities
having preference with respect to distribution upon liquidation and the rights
of the Company's general creditors, liquidating distributions in the amount of
US$1,000 per share, plus the quarterly accrued and unpaid dividend thereon, if
any, to the date of liquidation, without interest.
After payment of the full amount of the liquidation distributions to
which they are entitled, the holders of the New Preferred Shares will have no
right or claim to any of the remaining assets of the Company. In the event that,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the available assets of the Company are insufficient to pay the amount of the
liquidation distributions on all the outstanding New Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of stock
of the Company ranking on a parity with the New Preferred Shares in the
distribution of assets upon any liquidation, dissolution or winding up of the
affairs of the Company, then the holders of the New Preferred Shares and such
other classes or series of stock shall share ratably in any such distribution of
assets in proportion to the full liquidation distributions to which they would
otherwise be respectively entitled.
For such purposes, the consolidation or merger of the Company with or
into any other entity, or the sale, lease or conveyance of all or substantially
all of the property or business of the Company, shall not be deemed to
constitute liquidation, dissolution or winding up of the Company.
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Independent Director Approval
The terms of the New Preferred Shares require that, as long as any New
Preferred Shares are outstanding, certain actions by the Company be approved by
a majority of the Independent Directors. Mr. Hanley and Mr. Michel are the
Independent Directors. See "Management--Independent Directors." As long as there
are only two Independent Directors, any action that requires the approval of a
majority of the Independent Directors must be approved by both Independent
Directors. In order to be considered "independent," a director must not be a
current officer or employee of the Company or a current director, officer or
employee of the Bank or any other affiliate of the Bank. In addition, any
members of the Board of Directors elected by holders of Preferred Stock,
including the New Preferred Shares, will be deemed to be Independent Directors
for purposes of approving actions requiring the approval of a majority of the
Independent Directors. The actions which require approval of a majority of the
Independent Directors include (i) the issuance of additional Preferred Stock
ranking on a parity with the New Preferred Shares, (ii) the modification of the
Company's general distribution policy or the authorization of any distribution
in respect of the Common Stock for any year if, after taking into account any
such proposed distribution, total distributions on the New Preferred Shares and
the Common Stock would exceed an amount equal to the sum of 105% of the
Company's "REIT taxable income" (excluding capital gains) for such year plus net
capital gains of the Company for that year, (iii) the acquisition of Mortgage
Assets other than obligations which are comparable to the Initial Mortgage
Assets, Mortgage Loans, interests in Mortgage Loans and Partnership Interests,
(iv) the redemption of any shares of Common Stock, (v) the renewal, termination
or modification of the Advisory Agreement or the Servicing Agreement or the
subcontracting of any duties thereunder to third parties unaffiliated with the
Bank, and (vi) the determination to revoke the Company's REIT status. The
Charter requires that, in determining whether any proposed action requiring
their approval is in the best interests of the Company, the Independent
Directors will consider the interests of holders of both the Common Stock and
the Preferred Stock, including, without limitation, holders of the New Preferred
Shares.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Bank entered into a registration rights agreement
with the Initial Purchaser (the "Registration Rights Agreement") for the benefit
of the holders of the Old Preferred Shares wherein the Company and the Bank
agreed, for the benefit of the holders of the Old Preferred Shares, (i) to use
their best efforts to file with the Commission within 150 days after the Issue
Date the Exchange Offer Registration Statement relating to the Exchange Offer
for the New Preferred Shares, and (ii) to use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act within
180 days after the Issue Date. Promptly after the Registration Statement has
been declared effective, the Company will exchange the New Preferred Shares for
surrender of the Old Preferred Shares. The Company will keep the Exchange Offer
open for not less than 30 days (or longer if required by applicable law) after
the date notice of the Exchange Offer has been mailed to the holders of the Old
Preferred Shares. For each Old Preferred Share validly tendered to the Company
pursuant to the Exchange Offer
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and not validly withdrawn by the holder thereof, the holder of such Old
Preferred Share will receive a New Preferred Share having a liquidation
preference equal to the liquidation preference of the tendered Old Preferred
Share. Dividends on each New Preferred Share will accrue from the first day of
the dividend period in which the Exchange Offer is consummated.
Based on existing interpretations of the Securities Act by the Staff
set forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that the New Preferred
Shares issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by the holders thereof (other than holders who are
broker-dealers) without further compliance with the registration and prospectus
delivery provisions of the Securities Act. However, any prospective holder of
New Preferred Shares who is an affiliate of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the New
Preferred Shares, or any broker-dealer who purchased the Old Preferred Shares
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, (i) will not be able to rely on the
interpretation of the Staff set forth in the above-mentioned no-action letters,
(ii) will not be entitled to tender its Old Preferred Shares in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Old Preferred Shares unless such sale or transfer is made pursuant to an
exemption from such requirements. The Company does not intend to seek its own
no-action letter and there can be no assurance that the Staff would make a
similar determination with respect to the New Preferred Shares as it has in such
no-action letters to third parties.
Each holder of the Old Preferred Shares (other than certain specified
holders) who wishes to exchange the Old Preferred Shares for New Preferred
Shares in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) the New Preferred Shares to be received by it
were acquired in the ordinary course of its business and (iii) at the time of
the Exchange Offer, it has no arrangement with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Preferred
Shares. In addition, in connection with any resales of New Preferred Shares, any
broker-dealer (a "Participating Broker-Dealer") who acquired the New Preferred
Shares for its own account as a result of market-making or other trading
activities must deliver a prospectus meeting the requirements of the Securities
Act. The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the New Preferred
Shares (other than a resale of an unsold allotment from the original sale of the
Old Preferred Shares) with this Prospectus. Under the Registration Rights
Agreement, the Company is required to allow Participating Broker-Dealers and
other persons, if any, subject to similar prospectus delivery requirements to
use this Prospectus in connection with the resale of such New Preferred Shares
for a period of up to six months.
If, because of any change in law or in the applicable interpretations
of the Staff, the Company is not permitted to effect the Exchange Offer on the
terms set forth herein, or if for any reason the Registration Statement is not
declared effective within 180 days of the Issue Date, or in certain other
circumstances, including upon the request of the Initial Purchaser, then in
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addition to or in lieu of effecting the registration of the New Preferred Shares
pursuant to the Registration Statement, the Company will, at the Company's sole
expense, (a) as promptly as practicable, file a shelf registration covering
resales of the Old Preferred Shares (and underlying interests in the Bank
Preferred Shares) (the "Shelf Registration Statement"), (b) use its best efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep effective the Shelf
Registration Statement until the earlier of two years after the Issue Date (six
months in the case of a Shelf Registration Statement filed at the request of the
Initial Purchaser) or such time as all of the Old Preferred Shares have been
sold thereunder or otherwise cease to be registrable securities within the
meaning of the Registration Rights Agreement. The Company will, in the event
that a Shelf Registration Statement is filed, provide to each holder copies of
the prospectus that is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Preferred Shares. A holder that sells Old Preferred Shares pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification rights and obligations). In addition,
if required by the Staff, each holder of Old Preferred Shares will be required
to deliver information to be used in connection with the Shelf Registration
Statement in order to have their Old Preferred Shares included in the Shelf
Registration Statement and to benefit from the provisions of the second
succeeding paragraph.
Each Old Preferred Share contains a legend to the effect that the
holder thereof, by its acceptance thereof, is deemed to have agreed to be bound
by the provisions of the Registration Rights Agreement. In that regard, each
holder is deemed to have agreed that, upon receipt of notice from the Company of
the occurrence of any event which makes such statement in the prospectus which
is part of the Shelf Registration Statement (or, in the case of Participating
Broker-Dealers, this Prospectus) untrue in any material respect or which
requires the making of any changes in such prospectus in order to make the
statements therein not misleading or of certain other events specified in the
Registration Rights Agreement, such holder (or Participating Broker-Dealer, as
the case may be) will suspend the sale of Old Preferred Shares pursuant to such
prospectus until the Company has amended or supplemented such prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such holder (or Participating Broker-Dealer, as the
case may be) or the Company has given notice that the sale of the Old Preferred
Shares may be resumed, as the case may be.
If the Company shall give such notice to suspend the sale of the Old
Preferred Shares, it shall extend the relevant period referred to above during
which the Company is required to keep effective the Shelf Registration Statement
(or the period during which Participating Broker-Dealers are entitled to use
this Prospectus in connection with the resale of New Preferred Shares) by the
number of days during the period from and including the date of the giving of
such notice to and including the date when holders shall have received copies of
the supplemented or amended prospectus necessary to permit resales of the Old
Preferred Shares or to and including
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the date on which the Company has given notice that the sale of Old Preferred
Shares may be resumed, as the case may be.
If the Company fails to comply with the Registration Rights Agreement
or if the Registration Statement or the Shelf Registration Statement fails to
become effective, then, an additional amount ("Liquidated Damages") shall become
payable in respect of the Old Preferred Shares as follows:
(i) if (A) neither the Registration Statement nor a Shelf
Registration Statement is filed with the Commission on or prior to the
150th day after the Issue Date or (B) notwithstanding that the Company
has consummated or will consummate the Exchange Offer, the Company is
required to file a Shelf Registration Statement and such Shelf
Registration Statement is not filed on or prior to the date required by
the Registration Rights Agreement, then commencing on the day after
either such required filing date, Liquidated Damages shall be payable
to the holders of the Old Preferred Shares at a rate of 0.25% per annum
(US$2.50 per share); or
(ii) if (A) neither the Registration Statement is declared
effective by the Commission on or prior to the 180th day after the
Issue Date nor a Shelf Registration Statement is declared effective by
the Commission on or prior to the later of the 30th day after the
applicable required filing date or the 180th day after the Issue Date
or (B) notwithstanding that the Company has consummated or will
consummate the Exchange Offer, the Company is required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the later of the
30th day after the date such Shelf Registration Statement was required
to be filed or the 180th day after the Issue Date, then, commencing on
the 181st day after the Issue Day with respect to the Exchange Offer
Registration Statement or the 31st day after the applicable required
filing date (or the 181st day of the Issue Date, if later), Liquidated
Damages shall be payable to the holders of the Old Preferred Shares at
a rate of 0.25% per annum (US$2.50 per share); or
(iii) if (A) the Company has not exchanged New Preferred
Shares for all Old Preferred Shares validly tendered in accordance with
the terms of the Exchange Offer on or prior to the 45th day after the
date on which the Registration Statement was declared effective or (B)
if applicable, the Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be available
for use by holders of the Old Preferred Shares at any time prior to the
second anniversary of the Issue Date (other than after such time as all
Old Preferred Shares have been disposed of thereunder or otherwise
cease to be registrable securities within the meaning of the
Registration Rights Agreement), and such event continues for a period
exceeding 30 consecutive days or 90 days in any 360-day period, whether
or not consecutive, then Liquidated Damages shall be payable to the
holders of the New Preferred Shares at a rate of 0.25% per annum
(US$2.50 per share) commencing on (x) the 31st day after such effective
date, in the case of (A) above, or (y) the 31st consecutive day or 91st
day in any 360-day period following
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the day such Shelf Registration Statement ceases to be available in the
case of (B) above;
provided, however, that the Liquidated Damages rate on the liquidation
preference of the Old Preferred Shares may not exceed in the aggregate 0.25% per
annum; provided further, however, that (1) upon the filing of the Registration
Statement or a Shelf Registration Statement (in the case of clause (i) above),
(2) upon the effectiveness of the Registration Statement or a Shelf Registration
Statement (in the case of clause (ii) above), or (3) upon the exchange of New
Preferred Shares for all Old Preferred Shares tendered (in the case of clause
(iii) (A) above), or upon the availability of the Shelf Registration Statement
which had ceased to be available (in the case of clause (iii) (B) above),
Liquidated Damages as a result of such clause (or the relevant subclause
thereof) shall cease to accrue.
Any amounts of Liquidated Damages due pursuant to clause (i), (ii) or
(iii) above will be payable in cash quarterly on the 30th day of March, June,
September and December of each year to the Holders of record on the immediately
preceding 15th day of such month.
The Company will also agree that until such time as (a) all Old
Preferred Shares tendered are exchanged for New Preferred Shares or (b) a Shelf
Registration Statement is available, it will invest any payments received on
Initial Mortgage Loans prior to each quarterly dividend payment date in U.S.
government obligations.
The Registration Rights Agreement is governed by, and construed in
accordance with, the laws of the State of New York. The summary herein of
certain provisions of the Registration Rights Agreement does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Registration Rights Agreement, a form of which is
available upon request to the Company. See "Available Information." In addition,
the information set forth above concerning certain interpretations of and
positions taken by the Staff is not intended to constitute legal advice, and
prospective investors should consult their own legal advisors with respect to
such matters.
DESCRIPTION OF CAPITAL STOCK
The following summary of the material terms of the stock of the Company
does not purport to be complete and is qualified in its entirety by reference to
Maryland law and to the Charter and By-laws of the Company, copies of which are
available upon request to the Company.
Common Stock
General. The Company is authorized by the Charter to issue up to 1,000
shares of Common Stock. The Company has outstanding 100 shares of Common Stock,
all of which are held by the Bank. In addition, the Bank currently intends that,
so long as any New Preferred Shares are outstanding, it will maintain direct or
indirect ownership of all of the outstanding
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shares of the Common Stock.
Dividends. Holders of the Common Stock are entitled to receive
dividends if, when, and as authorized and declared by the Board of Directors out
of assets legally available therefor, provided that, if the Company fails to
authorize, declare and pay full dividends on the New Preferred Shares or the
Senior Preferred Shares in any dividend period, the Company may not make any
dividend payments with respect to the Common Stock until such time as dividends
on all outstanding Senior Preferred Shares and New Preferred Shares have
been (i) authorized, declared and paid for three consecutive dividend periods or
(ii) authorized, declared and a sum sufficient for the payment thereof set apart
for payment for the fourth consecutive dividend period.
Voting Rights. Subject to the rights, if any, of the holders of any
class or series of Preferred Stock, including Senior Preferred Stock and New
Preferred Shares, all voting rights are vested in the Common Stock. The holders
of the Common Stock are entitled to one vote per share. All of the issued and
outstanding shares of the Common Stock are currently held by the Bank.
As the holder of all of the outstanding shares of the Common Stock, the
Bank will be able, subject to the terms of the New Preferred Shares and of any
other class or series of stock subsequently issued by the Company, to elect and
remove directors, amend the Charter and approve other actions requiring
stockholder approval under the MCGL or otherwise.
Rights upon Liquidation. In the event of the liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, after there have
been paid or set aside for the holders of all series of Preferred Stock the full
preferential amounts to which such holders are entitled, the holders of the
Common Stock will be entitled to share equally and ratably in any assets
remaining after the payment of all debts and liabilities.
Preferred Stock
The Company is authorized by the Charter to issue up to 10,000,000
shares of Preferred Stock. Assuming exchange of all outstanding shares of the
Old Preferred Shares, 300,000 shares of New Preferred Shares will be
outstanding. Subject to limitations prescribed by Maryland law and the Charter,
the Board of Directors or, if then constituted, a duly authorized committee
thereof, is authorized to issue, from the authorized but unissued shares of
stock of the Company, Preferred Stock in such classes or series as the Board of
Directors may determine and to establish, from time to time, the number of
shares of Preferred Stock to be included in any such class or series and to fix
the designation and any preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption of the shares of any such class or
series, and such other subjects or matters as may be fixed by resolution of the
Board of Directors.
Shares of Preferred Stock, upon issuance against full payment of the
purchase price therefor and in the manner authorized by the Board of Directors,
will be fully paid and
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nonassessable. The specific terms of a particular class or series of Preferred
Stock are described in the Charter.
The terms of the Charter relating to each class or series of Preferred
Stock set forth the preferences and other terms of such class or series,
including, without limitation, the following, as applicable: (1) the designation
of such class or series; (2) the number of shares of such class or series
offered and the liquidation preference per share of such class or series; (3)
the dividend rate(s), period(s), and/or payment date(s) or method(s) of
calculation thereof for such class or series; (4) whether dividends on such
class or series of Preferred Stock are cumulative or not and, if cumulative, the
date from which dividends on such class or series shall accumulate; (5) the
provision for a sinking fund, if any, for such class or series; (6) the terms
and conditions of redemption, if applicable, of such class or series; (7) any
limitations on direct or beneficial ownership and restrictions on transfer, in
each case as may be appropriate to preserve the status of the Company as a REIT
or as otherwise deemed appropriate by the Board of Directors; (8) the relative
ranking and preferences of such class or series as to dividend rights and rights
upon liquidation, dissolution or winding up of the affairs of the Company; (9)
any limitations on issuance of any class or series of Preferred Stock ranking
senior to or on a parity with such class or series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; (10) any other specific terms, preferences, rights,
limitations or restrictions of such class or series; and (11) any voting powers
of such class or series.
Senior Preferred Stock. The shares of the Senior Preferred Stock are
validly issued, fully paid and nonassessable and will entitle the holders
thereof to cumulative, quarterly dividends. The shares of the Senior Preferred
Stock are redeemable, at any time in whole, but not in part, at the option of
the Company at a price equal to the liquidation preference thereof plus accrued
and unpaid dividends thereon through the redemption date. On the December 30th
following each ten year anniversary of the issuance of the Senior Preferred
Stock, each holder of Senior Preferred Stock may require the Company to purchase
such holder's Senior Preferred Stock at the liquidation preference thereof plus
accrued and unpaid dividends thereon through the date of redemption. The Senior
Preferred Stock rank senior to the Common Stock and the New Preferred Shares as
to dividend rights and rights upon liquidation, winding up or dissolution.
Except as provided below, holders of the Senior Preferred Stock have no voting
rights. If at any time the Company shall have failed to pay all accrued and
unpaid dividends on the Senior Preferred Stock when due, the Company may not pay
dividends on, or make certain other payments with respect to, the New Preferred
Shares or the Common Stock or any other series of stock ranking junior to the
Senior Preferred Stock. If, at the time of any annual meeting of the Company's
stockholders for the election of directors, the Company has failed to pay or
failed to authorize and declare and set aside for payment a quarterly dividend
on any series of Preferred Stock, including the Senior Preferred Shares, the
number of directors then constituting the Board of Directors will be increased
by at least two (if not already increased by two due to a default in preference
dividends), and the holders of the Senior Preferred Shares, voting together with
the holders of all other series of Preferred Stock as a single class, will be
entitled to elect such two additional directors to serve on the Board of
Directors at each such annual meeting.
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Power to Issue Additional Shares of Common Stock and Preferred Stock
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Common Stock or Preferred Stock and
thereafter to cause the Company to use such classified or reclassified shares of
stock will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Except as set forth under "Description of New Preferred
Shares--Voting Rights," the additional shares of stock will be available for
issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded.
Restrictions on Ownership and Transfer
The Charter contains certain restrictions on the number of shares of
Preferred Stock that individual stockholders may directly or beneficially own.
For the Company to qualify, and to continue to qualify, as a REIT under the
Code, no more than 50% of the value of its outstanding shares of capital stock
may be owned, directly or indirectly, by five or fewer individuals (defined by
the Code to include certain entities) during the last half of a taxable year
(other than the first year) or during a proportionate part of a shorter taxable
year (the "Five or Fewer Test"). The Five or Fewer Test is applied using certain
consecutive ownership rules. The stock of the Company must also be beneficially
owned by 100 or more persons during at least 335 days of a taxable year (other
than the first year) or during a proportionate part of a shorter taxable year
(the "One Hundred Persons Test"). Absent the restrictions on the number of
shares of Preferred Stock that individual stockholders may acquire and own
(directly or indirectly), there would be a possibility that the Company might
fail the Five or Fewer Test. The Company issued the Senior Preferred Stock in
order to ensure compliance with the One Hundred Persons Test. The provisions of
the Senior Preferred Stock include a restriction that if any transfer of shares
of such stock would cause the shares of such series to be owned by fewer than
100 persons, such transfer shall be null and void and the intended transferee
will acquire no rights to the stock.
Subject to certain exceptions specified in the Charter, no natural
person or entity which is considered to be an individual under Section 542(a)(2)
of the Code is permitted to own (including shares deemed to be owned by virtue
of the relevant attribution provisions of the Code), more than 5% (the
"Ownership Limit") of any issued and outstanding class or series of Preferred
Stock. The Board of Directors may (but in no event will be required to), upon
receipt of a ruling from the IRS or an opinion of counsel satisfactory to it,
raise or waive the Ownership Limit with respect to a holder if such holder's
ownership will not then or in the future jeopardize the Company's status as a
REIT.
The Charter provides that shares of any class or series of Preferred
Stock owned, or deemed to be owned, by, or transferred to, a stockholder in
violation of the Ownership Limit, or which would otherwise cause the Company to
fail to qualify as a REIT (the "Excess Shares"),
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will automatically be transferred, by operation of law, to a trustee in trust
for the exclusive benefit of a charity to be named by the Company as of the day
prior to the day the prohibited transfer took place. Any distributions paid with
respect to such Excess Shares prior to the discovery of the prohibited transfer
or ownership are to be repaid by the original transferee to the Company and by
the Company to the trustee; subject to applicable law, any vote of the Excess
Shares while the Excess Shares were held by the original transferee prior to the
Company's discovery of the prohibited transfer shall be void ab initio and the
original transferee shall be deemed to have given its proxy to the trustee. In
liquidation, the original transferee's ratable share of the Company's assets
would be limited to the price paid by the original transferee for the Excess
Shares or, if no value was given, the price per share equal to the closing
market price on the date of the purported transfer. The trustee of the trust
shall promptly sell the Excess Shares to any person whose ownership thereof is
not prohibited, whereupon the interest of the trust shall terminate. Proceeds of
such sale shall be paid to the original transferee up to its purchase price (or,
if the original transferee did not purchase the shares, the value on the date of
the purported transfer) and any remaining proceeds shall be paid to the
beneficiary of the trust.
The constructive ownership rules of the Code are complex and may cause
Preferred Stock owned, directly or indirectly, by a group of related individuals
and/or entities to be deemed to be constructively owned by a particular
individual or entity. As a result, the acquisition or ownership of less than 5%
of a class or series of issued and outstanding Preferred Stock (or the
acquisition or ownership of an interest in an entity that owns shares of such
series of Preferred Stock) by an individual or entity could cause that
individual or entity (or another individual or entity) to own constructively in
excess of 5% of such class or series of Preferred Stock, and thus subject such
stock to the applicable Ownership Limit. Direct or constructive ownership in
excess of the Ownership Limit would cause ownership of the shares in excess of
the limit to be transferred to the trustee.
The Ownership Limit will not be automatically removed even if the REIT
Provisions (as defined herein) are changed so as to eliminate any ownership
concentration limitation or if the ownership concentration limitation is
increased. The foregoing restrictions on transferability and ownership will not
apply, however, if the Board of Directors determines that it is no longer in the
best interests of the Company to attempt to qualify, or to continue to qualify,
as a REIT.
The Charter requires that any person who beneficially owns 0.5% (or
such lower percentage as may be required by the Code or the Treasury
Regulations) of the outstanding shares of any class or series of Preferred Stock
must provide certain information to the Company within 30 days of June 30 and
December 31 of each year. In addition, each such stockholder shall upon demand
be required to disclose to the Company in writing such information as the
Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership on the Company's status as a
REIT and to ensure compliance with the Ownership Limit.
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Super-Majority Director Approval
The Charter requires approval by two-thirds of the Board of Directors
in order for the Company to file a voluntary petition of bankruptcy.
Business Combinations
Under MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns, directly or indirectly, 10% or
more of the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of the corporation (an "Interested Stockholder")
or an affiliate of such an Interested Stockholder are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be (i)
approved by the board of directors of such corporation and (ii) approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of voting shares other than voting shares held by
the Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the statute) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. The Bank beneficially
owns more than 10% of the Company's voting shares and would, therefore, together
with its affiliates, be subject to the business combination provision of the
MGCL. However, pursuant to the statute, the Company has exempted any business
combinations involving the Bank and any present or future affiliate thereof and,
consequently, the five-year prohibition and the super-majority vote requirements
will not apply to business combinations between any of them and the Company. As
a result, the Bank and any present or future affiliate thereof may be able to
enter into business combinations with the Company that may not be in the best
interest of its stockholders without compliance by the Company with the
super-majority vote requirements and the other provisions of the statute.
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast by
stockholders, excluding shares owned by the acquiror and officers and directors
who are employees of the corporation. "Control shares" are shares which, if
aggregated with all other shares previously acquired which the person is
entitled to vote, would entitle the acquiror to vote (i) 20% or more but less
than one-third; (ii) one-third or
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more but less than a majority; or (iii) a majority of the outstanding shares.
Control shares do not include shares that the acquiring person is entitled to
vote on the basis of prior stockholder approval. A "control share acquisition"
means the acquisition of control shares subject to certain exemptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors of the corporation to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without regard
to the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquiror or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or to acquisitions approved or excepted by the charter or bylaws
of the corporation prior to a control share acquisition.
The Bylaws of the Company contain a provision exempting from the
control share statute any shares of stock owned by the Bank or any affiliate of
the Bank.
Form, Denomination, Book-Entry Procedures and Transfer
The New Preferred Shares will be issued only as fully registered
securities registered in the name of Cede & Co. (as nominee for The Depositary
Trust Company ("DTC")). One or more fully registered global New Preferred Share
certificates (the "Global Certificate") representing the New Preferred Shares
exchanged for Old Preferred Shares will be deposited with DTC for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Certificate may be transferred,
in whole and not in part, only to another nominee of DTC or to a successor of
DTC or its nominee, and such transfer shall be effective only when reflected in
the securities register maintained by or on behalf of the Company. Beneficial
interests in the Global Certificate may not be exchanged for the New Preferred
Shares in certificated form.
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Depositary Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures
established by it, (i) upon deposit of the Global Certificate, DTC will credit
the accounts of Participants designated by the Exchange Agent with portions
of the liquidation preference of the Global Certificate and (ii) ownership of
such interests in the Global Certificate will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interests in the Global
Certificate).
Investors in the Global Certificate may hold their interests therein
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system. All interests in
the Global Certificate may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery in
certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Certificate to such persons will be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having beneficial interests in the Global Certificate to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests. For certain
other restrictions on the transferability of the New Preferred Shares, see
"Certificated New Preferred Shares."
Except as described below, owners of interests in the Global
Certificate will not have New Preferred Shares registered in their name, will
not receive physical delivery of New Preferred Shares in certificated form and
will not be considered the registered owners or holders thereof for any purpose.
Payments in respect of the Global Certificate registered in the name of
DTC or its nominee will be payable to DTC in its capacity as the registered
holder. The transfer agent will treat the persons in whose names the New
Preferred Shares, including the Global Certificate, are
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registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the transfer
agent nor any agent thereof has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global Certificate, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Certificate
or (ii) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants. DTC has advised the Company that its
current practice, upon receipt of any payment in respect of securities such as
the New Preferred Shares, is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in liquidation preference of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of New
Preferred Shares will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the transfer agent, or
the Company. Neither the Company nor the transfer agent will be liable for any
delay by DTC or any of its Participants in identifying the beneficial owners of
the New Preferred Shares, and the Company and the transfer agent may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Secondary market trading activity in interests in the Global
Certificates will settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its participants. Transfers between
Participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of New Preferred Shares only at the direction of one or
more Participants to whose account with DTC interests in the Global Certificate
are credited and only in respect of such portion of the liquidation preference
of the New Preferred Shares as to which such Participant or Participants has or
have given such direction.
The information in this section concerning DTC and its book-entry
systems has been obtained from sources that the Company believes to be reliable,
but the Company does not take responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interest in the Global Certificates among participants in DTC, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Company nor the
transfer agent will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
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Certificated New Preferred Shares
The Global Certificate is exchangeable for New Preferred Shares in
registered certificated form if (i) DTC (x) notifies the Company that it is
unwilling or unable to continue as Depositary for the Global Certificate and the
Company thereupon fails to appoint a successor Depositary within 90 days or (y)
has ceased to be a clearing agency registered under the Exchange Act or (ii) the
Company in its sole discretion elects to cause the issuance of the New Preferred
Shares in certificated form. In all cases, certificated New Preferred Shares
delivered in exchange for the Global Certificate or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the Depositary (in accordance with its customary
procedures).
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material United States federal income tax
considerations with respect to the Exchange Offer is for general information
only and is not tax advice. The discussion set forth below, to the extent that
it constitutes a summary of legal matters or legal conclusions, has been
reviewed by Shearman & Sterling, and it is such firm's opinion that such
discussion is accurate in all material respects. In rendering such opinion,
Shearman & Sterling has relied on Desjardins Ducharme Stein Monast, with respect
to certain matters of Quebec law, Osler Hoskin & Harcourt, with respect to
certain matters of Ontario law, and Conyers Dill & Pearman, with respect to
certain matters of Bermuda law. The discussion below is based on the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Regulations issued thereunder, and administrative and judicial interpretations
thereof, all as of the date hereof and all of which are subject to change,
possibly with retroactive effect. The discussion below does not address all
aspects of taxation that may be relevant in the particular circumstances of each
stockholder or to certain types of stockholders (including insurance companies,
tax-exempt entities, financial institutions or broker-dealers persons that hold
stock in the Company other than as a capital asset, foreign corporations and
persons who are not citizens or residents of the United States, except to the
extent discussed) subject to special treatment under the United States federal
income tax laws.
EACH PROSPECTIVE EXCHANGING STOCKHOLDER IS URGED TO CONSULT HIS OR HER
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE EXCHANGE OFFER,
OWNERSHIP AND SALE OF THE NEW PREFERRED SHARES AND OF THE COMPANY'S ELECTION TO
BE TAXABLE AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE UNITED STATES
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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Tax Impact of the Exchange Offer
The Exchange Offer will not have a United States federal income tax
impact.
Qualification of the Company as a REIT
General. The Company will elect to be taxable as a REIT under sections
856 through 860 of the Code and the applicable Treasury Regulations (the "REIT
Requirements" or the "REIT Provisions"), commencing with its taxable year ending
December 31, 1997. The Company believes that, commencing with its taxable year
ending December 31, 1997, it will be owned and organized and will operate in
such a manner as to qualify for taxation as a REIT. While the Company intends to
continue to operate in such a manner, no assurance can be given that it will
operate in a manner so as to qualify or remain qualified as a REIT.
The REIT Requirements are technical and complex. The following
discussion sets forth only the material aspects of those requirements. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
In the opinion of Shearman & Sterling, commencing with the Company's
taxable year ending December 31, 1997, the Company will be organized in
conformity with the requirements for qualification as a REIT, and its proposed
method of operation will enable it to meet the requirements for qualification
and taxation as a REIT under the Code. However, no transaction closely
comparable to that contemplated herein has been the subject of any
administrative pronouncement or judicial decision and this opinion is based on
certain factual assumptions relating to the organization and operation of the
Company and is conditioned upon certain representations made by the Company as
to factual matters, such as the organization and expected manner of operation of
the Company. In addition, this opinion is based upon the factual representations
of the Company concerning its business and Mortgage Assets set forth in this
Offering Memorandum and certain legal opinions provided by Canadian and
Bermudian counsel to the Bank. Such qualification and taxation as a REIT,
moreover, depends upon the Company's ability to meet, through actual annual
operating results, distribution levels, diversity of stock ownership and the
REIT Requirements discussed below, the satisfaction of which will not be
reviewed by Shearman & Sterling on a continuing basis. No assurance can be given
that the actual results of the Company's operation for any one taxable year will
satisfy such requirements. See "Tax Risks Adverse Consequences of Failure to
Qualify as a REIT."
There can be no assurance that the Company will continue to qualify as
a REIT in any particular taxable year, given the highly complex nature of the
rules governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in the circumstances of the Company. If the
Company were not to qualify as a REIT in any particular year, it would be
subject to United States federal income tax as a regular, domestic corporation
and its stockholders would be subject to tax in the same manner as stockholders
of such a corporation. In this event, the Company would likely be subject to a
substantial United States
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federal income tax liability in respect of each taxable year that it fails to
qualify as a REIT and the income available for distribution to the holders of
the New Preferred Shares could be significantly reduced or eliminated.
The following is a brief summary of certain of the technical
requirements that the Company must meet on an ongoing basis in order to qualify,
and remain qualified, as a REIT under the Code:
Stock Ownership Tests
The capital stock of the Company must be held by at least 100 persons
during approximately 90% or more of the taxable year and no more than 50% of the
value of such capital stock may be owned, directly or indirectly, by five or
fewer individuals at all times during the last half of the taxable year. Under
the Code, certain tax-exempt entities, such as private foundations and certain
unemployment compensation trusts, are treated as individuals for purposes of the
latter test. These stock ownership requirements must be satisfied in the
Company's second taxable year and in each subsequent taxable year. The Charter
provides restrictions regarding the transfer of the Company's shares in order to
aid in meeting the stock ownership requirements. See "Description of Capital
Stock Restrictions on Ownership and Transfer." The Company has also issued
shares of Senior Preferred Stock to meet the 100 person ownership requirement
for REIT status.
Asset Tests
The Company must generally meet the following asset tests (the "REIT
Asset Tests") at the close of each quarter of each taxable year:
(a) at least 75% of the value of the Company's total assets
must consist of Qualified REIT Real Estate Assets, Government
securities, cash, and cash items (the "75% Asset Test"); and
(b) not more than 25% of the Company's total assets may
consist of securities other than those taken into account for purposes
of the 75% Asset Test and, of those securities, (i) the value of the
securities of any one issuer (other than another REIT) may not exceed
5% of the value of the Company's total assets and, (ii) the Company may
not own more than 10% of the outstanding voting securities of any such
issuer.
The Company expects that the Initial Mortgage Assets will be a
Qualified REIT Real Estate Asset. In addition, the Company does not expect that
the value of any security (other than a Qualified REIT Real Estate Asset) of any
one entity would ever exceed 5% of the Company's total assets, and the Company
does not expect to own more than 10% of any one issuer's voting securities.
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Gross Income Tests
The Company must generally meet the following gross income tests (the
"REIT Gross Income Tests") for each taxable year.
(a) at least 75% of the Company's gross income must be derived
from certain specified sources including interest on obligations
secured by mortgages on real property, gain from the disposition of
Qualified REIT Real Estate Assets or "qualified temporary investment
income" (i.e., income derived from "new capital" within one year of the
receipt of such capital) (the "75% Gross Income Test"); and
(b) at least 95% of the Company's gross income must consist of
income qualifying for the 75% Gross Income Test, dividends, interest,
and gains from the sale of stock or other securities (including certain
interest rate swap and cap agreements entered into to hedge variable
rate debt incurred to acquire Qualified REIT Real Estate Assets) not
held for sale in the ordinary course of business (the "95% Gross Income
Test").
The Company intends to maintain its REIT status by carefully monitoring
its income, including income from sales of Mortgage Assets, to comply with the
REIT Gross Income Tests. Under certain circumstances, such as an unanticipated
decrease in the qualifying income of the Company, which may result in the
Company's nonqualifying income exceeding 5% of its gross income, the Company may
be unable to comply with certain of the REIT Gross Income Tests. See "Taxation
of the Company" for a discussion of the tax consequences of a failure to comply
with the REIT Gross Income Tests.
Distribution Requirement
The Company must generally distribute dividends (other than capital
gain dividends) to its stockholders in an amount at least equal to (A) the sum
of (i) 95% of the Company's REIT taxable income (which is defined generally as
the taxable income of the Company computed without regard to the dividends paid
deduction and the Company's net capital gain) plus (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. Such distributions must be paid in the taxable year to
which they relate or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration.
The Company intends to monitor on an ongoing basis its compliance with
the REIT requirements described above. In order to maintain its REIT status, the
Company will be required to limit the types of assets that it might otherwise
acquire, or hold certain assets at times when it might otherwise have determined
that the sale or other disposition of such assets would be desirable.
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Taxation of the Company
In any year in which the Company qualifies as a REIT, the Company will
generally not be subject to United States federal income tax on that portion of
its REIT taxable income or capital gain which is distributed to its
stockholders. The Company will, however, be subject to United States federal
income tax at normal corporate income tax rates upon any undistributed REIT
taxable income or capital gain.
Notwithstanding its qualification as a REIT, the Company may be subject
to tax in certain circumstances. If the Company fails to satisfy either the 75%
Gross Income Test or the 95% Gross Income Test, but nonetheless maintains its
qualification as a REIT because certain other requirements are met, it will
generally be subject to a 100% tax on the greater of the amount by which the
Company fails either the 75% Gross Income Test or the 95% Gross Income Test
(multiplied by a fraction intended to reflect the Company's profitability). The
Company will also be subject to a tax of 100% on net income derived from any
"prohibited transaction" and, if the Company has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying net
income from foreclosure property, it will be subject to United States federal
income tax on such income at the highest corporate income tax rate. In addition,
if the Company fails to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital
gain net income for such year, and (iii) any undistributed taxable income from
prior periods, the Company would be subject to a 4% United States federal excise
tax on the excess of such required distribution over the amounts actually
distributed during the year. The Company may also be subject to the corporate
alternative minimum tax, as well as other taxes in certain situations not
presently contemplated.
If the Company fails to qualify as a REIT in any taxable year and
certain relieving provisions of the Code do not apply, the Company would be
subject to United States federal income tax (including any applicable
alternative minimum tax) in the same manner as a regular, domestic corporation.
Distributions to stockholders in any year in which the Company fails to qualify
as a REIT would not be deductible by the Company and would generally not be
required to be made under the Code. Further, unless entitled to relief under
certain provisions of the Code, the Company would be disqualified from
re-electing REIT status for the four taxable years following the year during
which it became disqualified.
Tax Treatment of Automatic Exchange
Upon the occurrence of an Exchange Event, the outstanding New Preferred
Shares will be automatically exchanged on a one-for-one basis for the Bank
Preferred Shares. See "Description of New Preferred Shares--Automatic Exchange."
The Automatic Exchange will be a taxable exchange with respect to which each
holder of the New Preferred Shares will recognize a gain or loss, as the case
may be, measured by the difference between the adjusted basis of such holder in
its New Preferred Shares and the fair market value of the Bank Preferred Shares
received in the Automatic Exchange. Assuming that such holder's New Preferred
Shares were
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held as capital assets prior to the Automatic Exchange, any such gain or loss
will be capital gain or loss. The basis of a holder in the Bank Preferred Shares
received in the Automatic Exchange will be their fair market value at the time
of the Automatic Exchange.
Taxation of New Preferred Shares
Distributions (including constructive distributions) made to holders of
the New Preferred Shares other than tax-exempt entities, will generally be
subject to United States federal income tax as ordinary income to the extent of
the Company's current and accumulated earnings and profits as determined for
United States federal income tax purposes. If the amount distributed to a holder
of the New Preferred Shares exceeds the holder's allocable share of such
earnings and profits, the excess will be treated first as a nontaxable return of
capital to the extent of such holder's adjusted basis in the New Preferred
Shares and, thereafter, as a gain from the sale or exchange of a capital asset.
Distributions designated by the Company as capital gain dividends will
generally be subject to tax as long-term capital gain to the extent that the
distribution does not exceed the Company's actual net capital gain for the
taxable year (although corporations may be required to treat up to 20% of
certain capital gain dividends as ordinary income). Distributions by the
Company, whether characterized as ordinary income or as capital gain, are not
eligible for the corporate dividends received deduction. In the event that the
Company realizes a loss for a taxable year, holders of the New Preferred Shares
will not be permitted to deduct any share of that loss. Future Treasury
Regulations may require that holders of the New Preferred Shares take into
account, for purposes of computing their individual alternative minimum tax
liability, certain tax preference items of the Company.
Dividends declared during the last quarter of a calendar year and
actually paid during January of the following year will generally be treated as
having been received by the holders of New Preferred Shares on December 31st of
the year in which the dividends were declared and not on the date actually
received. In addition, the Company may elect to treat certain other dividends
distributed after the close of a taxable year as having been paid during such
taxable year, but holders of the New Preferred Shares will be treated as having
received such dividends in the taxable year in which the distribution is made.
Upon a sale or other disposition of the New Preferred Shares, a holder
of the New Preferred Shares will generally recognize a capital gain or loss in
an amount equal to the difference between the amount realized and such holder's
adjusted basis in such stock, which gain or loss will be long-term if the stock
has been held for more than the applicable holding period. Any loss on the sale
or exchange of the New Preferred Shares held by the holder thereof for six
months or less will generally be treated as a long-term capital loss to the
extent of any long-term capital gain dividends received by such holder.
In any year in which the Company does not qualify as a REIT,
distributions made to its stockholders would be taxable in the same manner
discussed above, except that (i) no
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distributions could be designated as capital gain dividends, (ii) distributions
would be eligible for the corporate dividends received deduction, (iii) the
excess inclusion income rules would not apply, and (iv) stockholders would not
receive any share of the Company's tax preference items. In such event, however,
the Company would likely be subject to a substantial United States federal
income tax liability, and the amount of income available for distribution to its
stockholders (including holders of the New Preferred Shares) would be
significantly reduced or eliminated.
The Company is required under Treasury Regulations to demand annual
written statements from the record holders of designated percentages of its
stock disclosing the actual and constructive ownership of such stock and to
maintain permanent records showing the information it has received as to the
actual and constructive ownership of such stock and a list of those persons
failing or refusing to comply with such demand.
Taxation of Tax-Exempt Entities
Subject to the discussion below regarding a "pension-held REIT," a
tax-exempt holder of the New Preferred Shares will generally not be subject to
tax on distributions from the Company or gain realized on the sale of the New
Preferred Shares, provided that such holder has not incurred indebtedness to
purchase or hold its New Preferred Shares, that such shares are not otherwise
used in an unrelated trade or business of such holder, and that the Company,
consistent with its present intent, does not hold a residual interest in a REMIC
that gives rise to "excess inclusion" income as defined under section 860E of
the Code.
If a qualified pension trust (i.e., any pension or other retirement
trust that qualifies under section 401(a) of the Code) holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a substantial portion of the dividends paid to the qualified pension trust
by such REIT may constitute UBTI. For these purposes, a "pension-held REIT" is
any REIT (i) that would not have qualified as a REIT but for the provisions of
the Code which look through qualified pension trust stockholders in determining
ownership of stock of the REIT and (ii) in which at least one qualified pension
trust holds more than 25% by value of the interests in the REIT or one or more
qualified pension trusts (each owning more than a 10% interest by value in the
REIT) hold in the aggregate more than 50% by value of the interests in the REIT.
Assuming compliance with the Ownership Limit described in "Description of
Capital Stock Restrictions on Ownership and Transfer," it is unlikely that
pension plans will accumulate sufficient stock to cause the Company to be
treated as a pension-held REIT.
Distributions to certain types of stockholders exempt from United
States federal income taxation under sections 501(c)(7), (c)(9), (c)(17), and
(c)(20) of the Code may also constitute UBTI, and such prospective investors
should consult their tax advisors concerning the applicable "set aside" and
reserve requirements.
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State and Local Taxes
The Company and its stockholders may be subject to state or local
taxation in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and its
stockholders may not conform to the United States federal income tax
consequences discussed above. Consequently, prospective holders of New Preferred
Shares should consult their tax advisors regarding the effect of state and local
tax laws on an investment in the New Preferred Shares.
Taxation of Bank Preferred Shares
Dividends on the Bank Preferred Shares (including any Canadian
nonresident withholding tax with respect thereto) generally will be includible
in the gross income of a holder of the Bank Preferred Shares as ordinary income
at the time such dividends are received. Dividends on the Bank Preferred Shares
will be foreign source income and, subject to certain limitations and
conditions, a holder of the Bank Preferred Shares will be eligible to claim a
foreign tax credit (or, alternatively, a deduction) in respect of any Canadian
nonresident withholding tax imposed thereon. Dividends on the Bank Preferred
Shares will not be eligible for a corporate dividends received deduction.
Holders of the Bank Preferred Shares will generally recognize gain or
loss upon the sale or exchange of the Bank Preferred Shares equal to difference
between the amount realized on the sale or exchange and the holder's adjusted
basis in the Bank Preferred Shares. Any gain realized on the sale or exchange of
the Bank Preferred Shares will generally be U.S. source.
The Bank does not believe that it is currently, for United States
federal income tax purposes, a passive foreign investment company (a "PFIC"),
and does not expect to become a PFIC in the future. If, however, the Bank does
become a PFIC, holders of the Bank Preferred Shares could be subject to
additional United States federal income tax with respect to certain
distributions on, or gains from the disposition of, the Bank Preferred Shares.
Certain United States Federal Income Tax Considerations Applicable to Foreign
Holders
The following discussion summarizes certain United States federal
income tax consequences of the acquisition, ownership and disposition of the New
Preferred Shares by an exchanging stockholder that, for United States federal
income tax purposes, is not a "United States person" (a "Non-United States
Holder"). For purposes of this discussion, a "United States person" means: a
citizen or individual resident of the United States; a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof; an estate the income of which is
includible in gross income for United States federal income tax purposes
regardless of its source; or a trust if both: (i) a United States court is able
to exercise primary supervision over the administration of the trust, and (ii)
one or more United States trustees or fiduciaries have the authority to control
all substantial decisions of the trust. This discussion is necessarily of a
general nature and does not consider any specific facts
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or circumstances that may apply to a particular Non-United States Holder.
Prospective investors are urged to consult their tax advisors regarding the
United States federal tax consequences of acquiring, holding and disposing of
the New Preferred Shares as well as any tax consequences that may arise under
the laws of any foreign, state, local or other taxing jurisdiction.
Dividends. Dividends paid by the Company out of current and accumulated
earnings and profits, as determined for United States federal income tax
purposes, to a Non-United States Holder will generally be subject to withholding
of United States federal income tax at the rate of 30%, unless reduced or
eliminated by an applicable tax treaty or unless such dividends are treated as
effectively connected with a United States trade or business of the Non-United
States Holder. Distributions paid by the Company in excess of its current and
accumulated earnings and profits will be treated first as a nontaxable return of
capital to the extent of the holder's adjusted basis in his New Preferred Shares
and, thereafter, as gain from the sale or exchange of a capital asset as
described " Gain on Disposition." If it cannot be determined at the time a
distribution is made whether such distribution will exceed the current and
accumulated earnings and profits of the Company, the distribution will be
subject to withholding at the same rate as dividends. Amounts so withheld,
however, will be refundable or creditable against the Non-United States Holder's
United States federal income tax liability if it is subsequently determined that
such distribution was, in fact, in excess of the current and accumulated
earnings and profits of the Company. If the receipt of a dividend is treated as
being effectively connected with the conduct of a United States trade or
business by a Non-United States Holder, the dividend received by such holder
will be subject to United States federal income tax in the same manner as United
States persons generally (and, in the case of a corporate holder, possibly the
branch profits tax).
Gain on Disposition. A Non-United States Holder will generally not be
subject to United States federal income tax on gain recognized on a sale or
other disposition of the New Preferred Shares unless (i) the gain is effectively
connected with the conduct of a United States trade or business by the
Non-United States Holder, (ii) in the case of a Non-United States Holder who is
a nonresident alien individual and holds the New Preferred Shares as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year and certain other requirements are met, or (iii) the New Preferred
Shares constitute "United States real property interests" ("USRPIs"). The
Company does not believe that the New Preferred Shares are, or are likely to
become, USRPIs. Gain that is effectively connected with the conduct of a United
States trade or business by a Non-United States Holder will be subject to United
States federal income tax in the same manner as United States persons generally
(and, in the case of a corporate holder, possibly the branch profits tax) but
will not be subject to withholding. Non-United States Holders should consult
applicable treaties, which may provide for different rules.
Information Reporting and Backup Withholding
A holder of the New Preferred Shares may be subject to information
reporting and to backup withholding at a rate of 31% in respect of dividends on,
or proceeds from the sale or disposition of, the New Preferred Shares. Certain
holders of the New Preferred Shares (such as corporations and tax-exempt
entities) are not subject to backup withholding.
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Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules from a payment to a holder of the New Preferred
Shares will generally be allowed as a refund or a credit against such holder's
United States federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Desjardins Ducharme Stein Monast, the following
summary describes, as of the date hereof, the material Canadian federal income
tax consequences that would generally be applicable to a holder of the Bank
Preferred Shares in the event that the New Preferred Shares of the Company are
exchanged for the Bank Preferred Shares pursuant to the Automatic Exchange. See
"Description of New Preferred Shares--Automatic Exchange." The discussion is
based on the assumption that the holder of the Bank Preferred Shares, for the
purpose of the Income Tax Act (Canada) (the "Income Tax Act") and at all
relevant times, is not a resident of Canada, deals at arm's length with the
Bank, does not use or hold and is not deemed to use or hold the Bank Preferred
Shares in carrying on a business in Canada and is not an insurer that carries on
an insurance business in Canada.
This summary is based on the current provisions of the Income Tax Act
and the regulations thereunder, our understanding of the current administrative
practices of Revenue Canada and all specific proposals to amend the Income Tax
Act and the regulations thereunder announced by the Minister of Finance prior to
the date hereof. This summary does not otherwise take into account any changes
in governing law, nor does it take into account tax legislation or
considerations of any province or territory of Canada or any jurisdiction other
than Canada.
This summary is of general nature only and is not intended to be, and
should not be interpreted as, legal or tax advice to any particular holder of
the Bank Preferred Shares. Holders of the New Preferred Shares are advised to
consult their own tax advisors with respect to their particular tax position.
Automatic Exchange
In the event of the Automatic Exchange, the exchange will not give rise
to any immediate Canadian income tax consequences to a holder of the New
Preferred Shares. The Bank Preferred Shares received pursuant to the Automatic
Exchange will have a cost, for Canadian tax purposes, equal to their fair market
value at the time of the Automatic Exchange, expressed in Canadian dollars.
Taxation of Dividends
Dividends paid on the Bank Preferred Shares to a non-resident of Canada
will be subject to Canadian withholding tax at the general rate of 25% or such
lesser rate as may be provided by an applicable income tax treaty. Pursuant to
the Canada-United States Income Tax Convention
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(1980) (the "Treaty"), dividends paid by the Bank to a holder of the Bank
Preferred Shares that is resident in the United States for purposes of the
Treaty would generally be subject to withholding tax at the rate of 15%.
Dividends paid to an "Exempt Organization," as defined in the Treaty, would
generally be exempt from Canadian withholding tax.
Disposition of Bank Preferred Shares
A disposition or deemed disposition of the Bank Preferred Shares by a
resident of the United States for purposes of the Treaty, will generally not
result in any Canadian income or capital gains taxes being payable by the
holder.
Redemption of Bank Preferred Shares
A redemption of the Bank Preferred Shares could result in a deemed
dividend to the holder, equal to the excess of the amount paid for the Bank
Preferred Shares over their paid-up capital. The "paid-up capital" would
generally be considered to be the fair market value of the New Preferred Shares
received by the Bank at the time of the Automatic Exchange. A deemed dividend
would be subject to Canadian withholding tax, as described above under "Taxation
of Dividends."
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code, impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) subject to Title I of ERISA, (b)
plans described in Section 4975(e)(1) of the Code, including individual
retirement accounts or Keogh plans, (c) any entities whose underlying assets
include "plan assets" under the Plan Asset Regulation (as defined below) (each a
"Plan") and (d) persons and entities who have certain specified relationships to
such Plans ("Parties-in-Interest" under ERISA and "Disqualified Persons" under
the Code). Moreover, based on the reasoning of the United States Supreme Court
in John Hancock Mutual Life Insurance Co. v. Harris Trust & Savings Bank, 114 S.
Ct. 517 (1993), an insurance company's general account may be deemed to include
assets of the Plans investing in the general account (e.g., through the purchase
of an annuity contract), and the insurance company might be treated as a
Party-in-Interest or Disqualified Person with respect to a Plan by virtue of
such investment. ERISA also imposes certain duties on persons who are
fiduciaries of Plans subject to ERISA, and ERISA and the Code prohibit certain
transactions between a Plan and Parties-in-Interest or Disqualified Persons with
respect to such Plan.
Status Under Plan Asset Regulations
The Department of Labor has issued a regulation (29 C.F.R. ss.
2510.3-101) concerning the definition of what constitutes the assets of a Plan
(the "Plan Asset Regulation"). The Plan Asset Regulation provides that, as a
general rule, the underlying assets and properties of
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corporations, partnerships, trusts and certain other entities in which a Plan
purchases an equity interest will be deemed for purposes of ERISA and Section
4975 of the Code to be assets of the investing Plan unless certain exceptions
apply. Under one such exception, the assets of such an entity are not considered
to be Plan assets where a Plan makes an investment in an equity interest that is
a "publicly-offered security." As described in more detail below, the Company
anticipates that the New Preferred Shares will, following the consummation of
the Exchange Offer or the effectiveness of a Shelf Registration Statement be
"publicly-offered securities" for purposes of the Plan Asset Regulation. Prior
to the consummation of the Exchange Offer or (if no Exchange Offer is
consummated) the effectiveness of a Shelf Registration Statement, however, the
New Preferred Shares will not be "publicly-offered securities" and, accordingly,
the assets of the Company may be treated as assets of a Plan that purchases the
New Preferred Shares.
Under the terms of the Plan Asset Regulation, if the Company were
deemed to hold plan assets by reason of a Plan's investment in the New Preferred
Shares, such plan assets would include an undivided interest in the assets held
by the Company including the Mortgage Assets. In such event, the persons
providing services, or exercising any discretionary authority or control, with
respect to the assets of the Company may become Parties-in-Interest or
Disqualified Persons with respect to such an investing Plan and may be subject
to the fiduciary responsibility provisions of Title I of ERISA (including the
general prohibition against maintaining the indicia of ownership of Plan assets
outside the jurisdiction of the U.S. district courts) and the prohibited
transaction provisions of ERISA and Section 4975 of the Code with respect to
transactions involving such assets. In this regard, if the person or persons
with discretionary responsibilities with respect to the Mortgage Assets were
affiliated with the Company, any such discretionary actions taken with respect
to such Mortgage Assets could be deemed to constitute a prohibited transaction
under ERISA or the Code (e.g., the use of such fiduciary authority or
responsibility in circumstances under which such persons have interests that may
conflict with the interests of the Plans for which they act and affect the
exercise of their best judgment as fiduciaries). In order to avoid such
prohibited transactions or other breaches of fiduciary duty, and to delineate
fiduciary responsibility appropriately, each investing Plan, by purchasing the
New Preferred Shares, will be deemed to have (i) directed the Company to invest
in the Initial Mortgage Assets (as well as the other assets held by the Company
and identified at the time of purchase) and (ii) in the event that the New
Preferred Shares are not treated as "publicly-offered securities" as of the date
on which the Exchange Offer is consummated or (if no Exchange Offer is
contemplated) a Shelf Registration Statement is declared effective, then during
the period commencing on such date and ending on the date on which the New
Preferred Shares become "publicly-offered securities," appointed the Independent
Fiduciary (an entity unaffiliated with and independent of the Bank and the
Company) as a fiduciary of such Plan to exercise any discretionary authority
reserved to the Company, to the extent that the duties of such entity involve
discretionary authority or control respecting transactions with the Bank or the
Bank's affiliates. The Independent Fiduciary will be identified by the Company
prior to any such transaction and will be subject to removal and replacement by
a majority of the holders of the New Preferred Shares.
The Company may from time to time invest the proceeds received in
connection with the repayment or disposition of the Initial Mortgage Assets, the
issuance of additional shares of
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Preferred Stock or additional capital contributions with respect to the Common
Stock. To the extent that the investment of such proceeds occurs prior to the
consummation of the Exchange Offer or (if no Exchange Offer is contemplated) the
effectiveness of a Shelf Registration Statement, such proceeds will be invested
in Canadian or U.S. government guaranteed, mortgage-backed certificates and
other Canadian or U.S. government obligations, which will be purchased on the
open market or from entities unaffiliated with the Bank or the Company. In
addition, in the event that the New Preferred Shares are not treated as
"publicly-offered securities" as of the date on which the Exchange Offer is
consummated or (if no Exchange Offer is contemplated) a Shelf Registration
Statement is declared effective, then during the period commencing on such date
and ending on the date on which the New Preferred Shares become
"publicly-offered securities," such proceeds may be invested in additional
Mortgage Assets, provided that, to the extent any such proceeds are invested in
Mortgage Assets in a transaction with the Bank or any Bank affiliate, any
discretionary authority reserved to the Company in respect of such transaction
will be exercised by the Independent Fiduciary.
Publicly-Offered Security Exception
For purposes of the Plan Asset Regulation, a "publicly-offered
security" is a security that is (a) "freely transferable," (b) part of a class
of securities that is "widely held," and (c) sold to the Plan as part of an
offering of securities to the public pursuant to an effective registration
statement under the Securities Act and part of a class of securities that is
registered under the Exchange Act within 120 days (or such later time as may be
allowed by the Commission) after the end of the fiscal year of the issuer during
which the offering of such securities to the public occurred. It is anticipated
that, in connection with the Exchange Offer, the New Preferred Shares will be
registered under the Securities Act and the Exchange Act within the time periods
specified in the Plan Asset Regulation.
The Plan Asset Regulation provides that a security is "widely held"
only if it is a part of the class of securities that is owned by 100 or more
investors independent of the issuer and of one another. A security will not fail
to be "widely held" because the number of independent investors falls below 100
subsequent to the initial offering as a result of events beyond the control of
the issuer. The Company anticipates that the New Preferred Shares will be
"widely held" upon the consummation of the Exchange Offer or (if no Exchange
Offer is contemplated) the effectiveness of a Shelf Registration Statement.
The Plan Asset Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all the
relevant facts and circumstances. The Plan Asset Regulation further provides
that when a security is part of an offering in which the minimum investment is
US$10,000 or less, as is expected to be the case with respect to the Exchange
Offer or a Shelf Registration Statement, certain restrictions ordinarily will
not, alone or in combination, affect the finding that such securities are
"freely transferable." The Company believes that any restrictions imposed on the
transfer of the New Preferred Shares following the consummation of the Exchange
Offer or (if no Exchange Offer is contemplated) the effectiveness of a Shelf
Registration Statement, will be limited to the restrictions on transfer
generally
96
<PAGE>
permitted under the Plan Asset Regulation and are not likely to result in the
failure of the New Preferred Shares to be "freely transferable."
Exemptions from Prohibited Transactions
Any purchaser that is an insurance company using the assets of an
insurance company general account should note that the Small Business Job
Protection Act of 1996 added new Section 401(c) of ERISA relating to the status
of the assets of insurance company general accounts under ERISA and Section 4975
of the Code. Pursuant to Section 401(c), the Department of Labor is required to
issue final regulations (the "General Account Regulations") not later than
December 31, 1997 with respect to insurance policies issued on or before
December 31, 1998 that are supported by an insurer's general account. The
General Account Regulations are to provide guidance on which assets held by the
insurer constitute "Plan Assets" for purposes of the fiduciary responsibility
provisions of ERISA and Section 4975 of the Code. Section 401(c) also provides
that, except in the case of avoidance of the General Account Regulations and
actions brought by the Secretary of Labor relating to certain breaches of
fiduciary duties that also constitute breaches of state or federal criminal law,
until the date that is 18 months after the General Account Regulations become
final, no liability under the fiduciary responsibility and prohibited
transaction provisions of ERISA and Section 4975 of the Code may result on the
basis of a claim that the assets of the general account of an insurance company
constitute Plan Assets. The Plan Asset status of insurance company separate
accounts is unaffected by new Section 401(c) of ERISA, and separate account
assets continue to be treated as the assets of any such Plan invested in a
separate account except to the extent provided in the Plan Asset Regulation.
In addition, if the Bank, or in certain circumstances an obligor with
respect to a Mortgage Asset or other debt instrument held by the Company, is a
Party-in-Interest or Disqualified Person with respect to an investing Plan, such
Plan's investment could be deemed to constitute a transaction prohibited under
Title I of ERISA or Section 4975 of the Code (e.g., the extension of credit or
sale of property between a Plan and a Party-in-Interest or Disqualified Person).
Such transactions may, however, be subject to a statutory or administrative
exemption such as Prohibited Transaction Class Exemption ("PTCE") 90-1, which
exempts certain transactions involving insurance company pooled separate
accounts; PTCE 95-60, which exempts certain transactions involving insurance
company general accounts; PTCE 91-38, which exempts certain transactions
involving bank collective investment funds; PTCE 84-14, which exempts certain
transactions effected on behalf of a Plan by a "qualified professional asset
manager"; and PTCE 96-23, which exempts certain transactions effected on behalf
of a Plan by an "in-house asset manager"; or pursuant to any other available
exemption. Such exemptions may not, however, apply to all of the transactions
that could be deemed prohibited transactions in connection with such Plan's
investment.
Each exchanging stockholder will, by its exchange of Old Preferred
Shares for New Preferred Shares, be deemed to have represented and agreed that
either (i) no part of the assets to be used by it to acquire and hold such New
Preferred Shares constitutes the assets of any Plan
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<PAGE>
or (ii) one or more prohibited transaction statutory or class exemptions applies
such that the use of such assets to acquire and hold the New Preferred Shares
will not constitute a non-exempt prohibited transaction under ERISA or the Code.
Any Plan fiduciary that proposes to cause a Plan to acquire New Preferred Shares
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment and whether any exemption would be
applicable and determine on its own whether all conditions of such exemption or
exemptions have been satisfied such that the acquisition and holding of New
Preferred Shares by the purchaser Plan are entitled to the full exemptive relief
thereunder. Any such Plan fiduciary should also determine whether the exchange
of New Preferred Shares is permitted under the governing Plan instruments and is
appropriate for the Plan in view of the overall investment policy and the
composition and diversification of its portfolio.
Unrelated Business Taxable Income
Plan fiduciaries should also consider the consequences of holding more
than 10% of the New Preferred Shares if the Company is "predominantly held" by
qualified trusts. See "United States Federal Income Tax Considerations Treatment
of Tax-Exempt Entities."
98
<PAGE>
RATINGS
The Old Preferred Shares are rated "a2" by Moody's Investors Service,
Inc. and "BBB+" by Standard & Poor's Ratings Services. A security rating is not
a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating organization. No person is
obligated to maintain any rating on the New Preferred Shares, and, accordingly,
there can be no assurance that the ratings assigned to the New Preferred Shares
upon exchange will not be lowered or withdrawn by the assigning rating
organization at any time thereafter.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Preferred Shares for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Preferred Shares. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Preferred Shares received
in exchange for Old Preferred Shares where such Old Preferred Shares were
acquired as a result of market-making activities or other trading activities. To
the extent any such broker-dealer participates in the Exchange Offer, the
Company has agreed that for a period of up to six months after the consummation
of the Exchange Offer, it will make this Prospectus, as amended or supplemented,
available to such broker-dealer for use in connection with any such resale, and
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents.
The Company will not receive any proceeds from any sale of New
Preferred Shares by broker-dealers. New Preferred Shares received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Preferred
Shares or a combination of such methods of resale, at prevailing market prices
at the time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers or any
such New Preferred Shares. Any broker-dealer that resells New Preferred Shares
that were received by it for its own account pursuant to the Exchange Offer and
any broker or dealer that participates in a distribution of such New Preferred
Shares may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any such resale of New Preferred Shares and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay certain expenses incident to the Exchange
Offer and will indemnify the holders of the Old Preferred Shares against certain
liabilities, including certain
99
<PAGE>
liabilities that may arise under the Securities Act.
LEGAL MATTERS
The validity of the New Preferred Shares offered hereby will be passed
upon for the Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland,
with respect to certain matters governed by Maryland law.
---------------------------
100
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Unaudited Interim Financial Statements
Balance Sheet............................................................F-2
Statement of Income......................................................F-3
Statement of Retained Earnings (Deficit).................................F-4
Statement of Changes in Financial Position...............................F-5
F-1
<PAGE>
BALANCE SHEET
as at September 30, 1997
(in dollars)
- --------------------------------------------------------------------------------
(Unaudited)
Assets
Cash $ 3,667,213
Hypothecation note with affiliated company 473,681,802
Accrued interest hypothecation note 3,042,708
-----------
$ 480,391,723
===========
Liabilities
Other liabilities
Accrued dividends $ 1,875,000
Income tax payable 471,307 $ 2,346,307
-------------
Equity
Preferred stock 300,000,000
Common stock 183,338,454
Accumulated deficit (5,293,038)
-----------
$ 480,391,723
===========
F-2
<PAGE>
STATEMENT OF INCOME
for the period from September 3, 1997 to September 30, 1997
(in dollars)
- --------------------------------------------------------------------------------
(Unaudited)
Interest income
Hypothecation note $ 3,042,708
Bank interest 10,561
------------
TOTAL $ 3,053,269
Expenses
Other Fees 0
------------
Income before income taxes 3,053,269
Income taxes 1,221,307
------------
NET INCOME $ 1,831,962
============
F-3
<PAGE>
STATEMENT OF RETAINED EARNINGS (DEFICIT)
For the period from September 3, 1997 to September 30, 1997
(in dollars)
- --------------------------------------------------------------------------------
(Unaudited)
Beginning of the period $ -
Net income 1,831,962
Expenses related to shares issued 6,000,000
Dividends on preferred shares net of $750,000 income taxes (1,125,000)
-----------
End of the period $ (5,293,038)
===========
F-4
<PAGE>
STATEMENT OF CHANGES IN FINANCIAL POSITION
For the period from September 3, 1997 to September 30, 1997
(in dollars)
- --------------------------------------------------------------------------------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 1,831,962
Items note affecting cash:
accrued interest receivable (3,042,708)
accrued liabilities 2,346,307
income taxes charged to retained earnings 750,000
-----------
$ 1,885,561
===========
FINANCING ACTIVITIES
Issue of common stock $ 300,000,000
Issue of preferred stock 183,338,454
Expenses related to shares issued (6,000,000)
Dividends (1,875,000)
-----------
$ 475,463,454
===========
INVESTING ACTIVITIES
Hypothecation note, net of repayment $ 3,667,213
-----------
INCREASE IN CASH $ 3,667,213
Cash, at inception -
-----------
Cash at end of period $ 3,667,213
F-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Indemnification under Maryland Law and under the Company's Charter
and Bylaws
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of the
corporation's directors and officers to the corporation and its stockholders for
money damages except for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or (b) active and
deliberate dishonesty established by a final judgment as being material to the
cause of action. The Charter contains such a provision which eliminates such
liability to the maximum extent permitted by the MGCL.
The Charter authorizes the Company, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her status as
a present or former director or officer of the Company. The Bylaws of the
Company (the "Bylaws") obligate it, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The Charter
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor of
the Company.
The MGCL requires a corporation (unless its charter provides
otherwise, which the Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made
II-1
<PAGE>
a party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse judgment
in a suit by or in the right of the corporation or for a judgment of liability
on the basis that personal benefit was improperly received, unless in either
case a court orders indemnification and then only for expenses. In addition, the
MGCL requires the Company, as a condition to advancing expenses, to obtain (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company and
(b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the standard
of conduct was not met.
II-2
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
3(i) -- Articles of Incorporation and Articles of Amendment and Restatement
of NB Capital Corporation
3(ii) -- By-Laws of NB Capital Corporation
4.1 -- Registration Rights Agreement dated as of September 3, 1997 by and
among NB Capital Corporation, National Bank of Canada and Merrill
Lynch, Pierce, Fenner & Smith Incorporated
8.1 -- Tax Opinion of Shearman & Sterling
10.1 -- Advisory Agreement dated as of September 3, 1997 between National
Bank of Canada and NB Capital Corporation
10.2 -- Servicing Agreement dated as of September 3, 1997 between National
Bank of Canada and NB Finance, Ltd.*
10.3 -- Loan Agreement dated as of September 3, 1997 between NB Finance,
Ltd. and NB Capital Corporation
10.4 -- Custodial Agreement dated as of September 3, 1997 between National
Bank of Canada and NB Capital Corporation
99.1 -- Letter of Transmittal
- --------------------------
* To be filed by amendment.
Item 22. Undertakings
The undersigned hereby undertakes:
(a) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by
II-3
<PAGE>
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
(d) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on
NB CAPITAL CORPORATION
By:
-----------------------
Roger Smock
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
----------------------- President and Director
Roger Smock (Principal Executive
Officer)
----------------------- Chief Financial Officer,
Real Raymond Treasurer and Director
(Principal Financial Officer
and Accounting Director)
----------------------- Vice President -- Legal,
Francois Bourassa Secretary and Director
----------------------- Director
Michael Hanley
----------------------- Director
Alain Michel
NB CAPITAL CORPORATION
ARTICLES OF INCORPORATION
THIS IS TO CERTIFY THAT:
FIRST: The undersigned, James J. Hanks, Jr., whose address is
300 East Lombard Street, Baltimore, Maryland 21202, being at least eighteen (18)
years of age, does hereby form a corporation under the general laws of the State
of Maryland.
SECOND: The name of the corporation (which is hereinafter
called the "Corporation") is:
NB Capital Corporation
THIRD: The Corporation is formed for the purpose of carrying
on any lawful business.
FOURTH: The address of the principal office of the Corporation
in this State is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202, Attention: James J. Hanks, Jr.
FIFTH: The name and address of the resident agent of the
Corporation are James J. Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, 300
East Lombard Street, Baltimore, Maryland 21202. The resident agent is a citizen
of and resides in the State of Maryland.
SIXTH: The total number of shares of stock which the
Corporation has authority to issue is 1,000 shares, $.01 par value per share,
all of one class. The aggregate par value of all authorized shares having a par
value is $10.00.
SEVENTH: The Corporation shall have a board of one director
unless the number is increased or decreased in accordance with the Bylaws of
the-Corporation. However, the number of directors shall never be less than the
minimum number required by the Maryland General Corporation Law. The initial
director is:
Real Raymond
EIGHTH: (a) The Corporation reserves the right to make any
amendment of the charter, now or hereafter authorized by law, including any
amendment which alters the contract rights, as expressly set forth in the
charter, of any shares of outstanding stock.
(b) The Board of Directors of the Corporation may
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter
<PAGE>
-2-
authorized, or securities convertible into shares of its stock of any class,
whether now or hereafter authorized, for such consideration as the Board of
Directors may deem advisable, subject to such restrictions or limitations, if
any, as may be set forth in the Bylaws of the Corporation.
(c) The Board of Directors of the Corporation may, by
articles supplementary, classify or reclassify any unissued stock from time to
time by setting or changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the stock.
NINTH: No holder of shares of stock of any class shall have
any preemptive right to subscribe to or purchase any additional shares of any
class, or any bonds or convertible securities of any nature; provided, however,
that the Board of Directors may, in authorizing the issuance of shares of stock
of any class, confer any preemptive right that the Board of Directors may deem
advisable in connection with such issuance.
TENTH: To the maximum extent that Maryland law in effect from
time to time permits limitation of the liability of directors and officers, no
director or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this
Article, nor the adoption or amendment of any other provision of the charter or
Bylaws inconsistent with this Article, shall apply to or affect in any respect
the applicability of the preceding sentence with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation and acknowledge the same to be my act, on this 20th day of August,
1997.
/s/ James J. Hanks, Jr.
----------------------------
James J. Hanks, Jr.
<PAGE>
NB CAPITAL CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: NB Capital Corporation, a Maryland corporation (the
"Corporation"), desires to amend and restate its charter as currently in effect
and as hereinafter amended.
SECOND: The following provisions are all the provisions of the
charter currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATION
The undersigned, James J. Hanks, Jr., whose address is c/o
Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland
21202, being at least 18 years of age, does hereby form a corporation under the
general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
NB Capital Corporation
ARTICLE III
PURPOSE AND DURATION
The purposes for which the Corporation is formed are to engage
in any lawful act or activity (including, without limitation or obligation,
engaging in business as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, or any successor statute (the "Code")) for
which corporations may be organized under the general laws of the State of
Maryland as now or hereafter in force. For purposes of these Articles, "REIT"
means a real estate investment trust under Sections 856 through 860 of the Code.
The Corporation's existence will be perpetual, except that
effective as of the close of business on the date that the Corporation delivers
the notice of an Exchange Event (as defined herein) pursuant to Section 6.6.4(d)
hereof, without the need for any approval by the Board of Directors of the
Corporation (the "Board of Directors") or the stockholders of the Corporation,
the existence of the Corporation shall terminate and the Corporation will be
liquidated and its affairs wound up in accordance with the procedures set forth
in Title 3,
<PAGE>
2
Subtitle 5 of the Maryland General Corporation Law (the "MGCL") relating to
forfeiture of the charter of a corporation and expiration of corporate
existence.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the
State of Maryland is c/o Ballard Spahr Andrews Ingersoll, 300 East Lombard
Street, Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name of
the resident agent of the Corporation in the State of Maryland is James J.
Hanks, Jr., whose post address is c/o Ballard Spahr Andrews & Ingersoll, 300
East Lombard Street, Baltimore, Maryland 21202. The resident agent is a citizen
of and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number of Directors. The business and affairs of
the Corporation shall be managed under the direction of the Board of Directors.
The number of directors of the Corporation initially shall be five, which number
may be increased or decreased pursuant to the Bylaws, but shall never be less
than the minimum number required by the MGCL. At all times that any shares of
Series A Preferred Stock (as defined herein) are outstanding, at least two of
the directors shall be Independent Directors (as defined herein). The names of
the directors who shall serve until their successors are duly elected and
qualify are:
Michael Hanley
Alain Michel
Real Raymond
Francois Bourassa
Roger Smock
These directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors occurring before the first annual meeting of stockholders
in the manner provided in the Bylaws.
Section 5.2 Extraordinary Actions. Except as specifically
provided in Section 6.6, notwithstanding any provision of law permitting or
requiring any action to be taken or approved by the affirmative vote of the
holders of shares entitled to cast a greater number of
<PAGE>
3
votes, any such action shall be effective and valid if taken or approved by the
affirmative vote of holders of shares entitled to cast a majority of all the
votes entitled to be cast on the matter.
Section 5.3 Authorization by Board of Certain Matters.
Section 5.3.1 Stock Issuance. The Board of Directors may
authorize the issuance from time to time of shares of stock of the Corporation
of any class or series, whether now or hereafter authorized, or securities or
rights convertible into shares of its stock of any class or series, whether now
or hereafter authorized, for such consideration as the Board of Directors may
deem advisable (or without consideration in the case of a stock split or stock
dividend), subject to such restrictions or limitations, if any, as may be set
forth in the Charter or the Bylaws.
Section 5.3.2 Filing Voluntary Petition of Bankruptcy.
Approval by two thirds of the members of the Board of Directors is required in
order for the Corporation to file a voluntary petition of bankruptcy.
Section 5.4 Preemptive Rights. Except as may be provided by
the Board of Directors in setting the terms of classified or reclassified shares
of stock pursuant to Section 6.4, no holder of shares of stock of the
Corporation shall, as such holder, have any preemptive right to purchase or
subscribe for any additional shares of stock of the Corporation or any other
security of the Corporation which it may issue or sell.
Section 5.5 Indemnification. The Corporation shall have the
power, to the maximum extent permitted by Maryland law in effect from time to
time, to obligate itself to indemnify, and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to, (a) any individual
who is a present or former director or officer of the Corporation or (b) any
individual who, while a director of the Corporation and at the request of the
Corporation, serves or has served as a director, officer, partner or trustee of
another corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or any other enterprise from and against any claim
or liability to which such person may become subject or which such person may
incur by reason of his status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board of Directors, to provide such indemnification and advancement of expenses
to a person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a precedecessor of the Corporation.
Section 5.6 Determinations by Board. The determination as to
any of the following matters, made in good faith by or pursuant tothe direction
of the Board of Directors consistent with the Charter and in the absence of
actual receipt of an improper benefit in money, property or services or active
and deliberate dishonesty established by a court, shall be
<PAGE>
4
final and conclusive and shall be binding upon the Corporation and every holder
of shares of its stock: the amount of the net income of the Corporation for any
period and the amount of assets at any time legally available for the payment of
dividends, redemption of its stock or the payment of other distributions on its
stock; the amount of paid-in surplus, net assets, other surplus, annual or other
net profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; the amount, purpose, time of creation,
increase or decrease, alteration or cancellation of any reserves or charges and
the propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
the fair value, or any sale, bid or asked price to be applied in determining the
fair value, of any asset owned or held by the Corporation; any matter relating
to the acquisition, holding and disposition of any assets by the Corporation; or
any other matter relating to the business and affairs of the Corporation.
Section 5.7 REIT Qualification. If the Corporation elects to
qualify for federal income tax treatment as a REIT, the Board of Directors shall
use its reasonable best efforts to take such actions as are necessary or
appropriate to preserve the status of the Corporation as a REIT; however, if the
Board of Directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code; provided, however, that as long as any shares of
Series A Preferred Stock (as defined in Section 6.1) remain outstanding, any
such determination may not be made without the approval of a majority of the
Independent Directors. The Board of Directors also may determine that compliance
with any restriction or limitation on stock ownership and transfers set forth in
Article VII is no longer required for REIT qualification.
Section 5.8 Removal of Directors. Subject to the rights of
holders of one or more classes or series of Preferred Stock to elect one or more
directors, any director, or the entire Board of Directors, may be removed from
office at any time, but only by the affirmative vote of at least two thirds of
the votes entitled to be cast in the election of directors.
Section 5.9 Advisory Agreements. Subject to such approval of
stockholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the Board of Directors may authorize the execution
and performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the Board
of Directors, any such other person, corporation, association, company, trust,
partnership (limited or general) or other organization shall render or make
available to the Corporation managerial, investment, advisory and/or related
services, office space and other services and facilities (including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments of the Corporation) upon such terms and conditions as may be
provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by the
Corporation).
<PAGE>
5
ARTICLE VI
STOCK
Section 6.1 Authorized Shares. Subject to the last sentence of
this paragraph, the Corporation has authority to issue 10,001,000 shares of
stock, consisting of 1,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and 10,000,000 shares of Preferred Stock, $.01 par value per
share ("Preferred Stock"), of which 300,000 shares are classified as 8.35%
Noncumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred
Shares"), with the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption as set forth in Section 6.6; and 1,000
shares are classified as Adjustable Rate Cumulative Senior Preferred Stock (the
"Senior Preferred Shares"), with the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption as set forth in Section
6.7. The aggregate par value of all authorized shares of stock having par value
is $100,010. If shares of one class of stock are classified or reclassified into
shares of another class of stock pursuant to Sections 6.2, 6.3 and 6.4, the
number of authorized shares of the former class shall be automatically decreased
and the number of shares of the latter class shall be automatically increased,
in each case by the number of shares so classified or reclassified, so that the
aggregate number of shares of stock of all classes that the Corporation has
authority to issue shall not be more than the total number of shares of stock
set forth in the first sentence of this paragraph.
Section 6.2 Common Stock. Subject to the provisions of Article
VII, each share of Common Stock shall entitle the holder thereof to one vote.
The Board of Directors may reclassify any unissued shares of Common Stock from
time to time in one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may
classify any unissued shares of Preferred Stock and reclassify any previously
classified but unissued shares of Preferred Stock of any series from time to
time, in one or more series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to
issuance of classified or reclassified shares of any class or series, the Board
of Directors by resolution shall: (a) designate that class or series to
distinguish it from all other classes and series of stock of the Corporation;
(b) specify the number of shares to be included in the class or series; (c) set
or change, subject to the provisions of Article VII and subject to the express
terms of any class or series of stock of the Corporation outstanding at the
time, the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each class or series; and (d) cause the Corporation
to file articles supplementary with the State Department of Assessments and
<PAGE>
6
Taxation of Maryland ("SDAT"). Any of the terms of any class or series of stock
set or changed pursuant to clause (c) of this Section 6.4 may be made dependent
upon facts or events ascertainable outside the Charter (including determinations
by the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
class or series of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire
stock in the Corporation shall acquire the same subject to the provisions of the
Charter and the Bylaws.
Section 6.6 Series A Preferred Shares.
Section 6.6.1 Liquidation Value and Rank. Each Series A
Preferred Share shall have a stated liquidation value of $1,000.00 per share,
plus an amount per share equal to the quarterly accrued and unpaid dividend, if
any, thereon to the date of liquidation, without interest. The Series A
Preferred Shares shall rank prior to all classes or series of common stock of
the Corporation (collectively, "Common Stock") and to all other classes and
series of equity securities of the Corporation now or hereafter authorized,
issued or outstanding (the Common Stock and such other classes and series of
equity securities of the Corporation are collectively referred to herein as the
"Junior Stock"), other than any class or series of equity securities of the
Corporation expressly designated as ranking on a parity with (the "Parity
Stock") or senior to (the "Senior Stock") the Series A Preferred Shares as to
dividend rights and rights upon voluntary or involuntary liquidation, winding up
or dissolution of the Corporation. The Series A Preferred Shares shall be junior
to the Senior Preferred Shares and the creditors of the Corporation. The Series
A Preferred Shares shall be subject to the creation of Senior Stock, Parity
Stock and Junior Stock to the extent not expressly prohibited by the Charter.
Section 6.6.2 Dividends.
(a) Payment of Dividends. Holders of Series A Preferred Shares
shall be entitled to receive, if, when and as authorized and declared by the
Board of Directors, out of assets of the Corporation legally available therefor,
noncumulative cash dividends at an annual rate of 8.35% of the $1,000.00 stated
liquidation preference per share ($83.50 per share per annum), and no more. Such
noncumulative cash dividends shall be payable, if authorized and declared,
quarterly in arrears on March 30, June 30, September 30 and December 30 of each
year, or, if such day is not a Business Day (as defined herein), on the next
Business Day (each such date, a "Dividend Payment Date"). Each authorized and
declared dividend shall be payable to holders of record of the Series A
Preferred Shares as they appear on the stock books of the Corporation at the
close of business on such record dates, not more than 45 calendar days nor less
than ten calendar days preceding the Dividend Payment Date therefor, as
<PAGE>
7
determined by the Board of Directors (each such date, a "Record Date");
provided, however, that if the date fixed for redemption of any of the Series A
Preferred Shares occurs after a dividend is authorized and declared but before
it is paid, such dividend shall be paid as part of the redemption price to the
person to whom the redemption price is paid. Quarterly dividend periods (each, a
"Dividend Period") shall commence on and include the first day, and shall end on
and include the last day, of the calendar quarter in which the corresponding
Dividend Payment Date occurs; provided, however, that the first Dividend Period
(the "Initial Dividend Period") shall commence on and include September 3, 1997
and shall end on and include December 31, 1997.
The amount of dividends payable on each share outstanding on a
Record Date for the Series A Preferred Shares for each full Dividend Period
shall be $20.875. The amount of dividends payable for the Initial Dividend
Period and for any other Dividend Period which, as to a share of Series A
Preferred Shares (determined by reference to the issuance date and the
redemption or retirement date thereof), is greater or less than a full Dividend
Period shall be computed on the basis of the number of days elapsed in the
period using a 360-day year composed of twelve 30-day months, provided, however,
that in the event of the Automatic Exchange (as defined herein), any accrued and
unpaid dividends on the Series A Preferred Shares as of the Time of Exchange (as
defined herein) shall be deemed to be accrued and unpaid dividends on the Bank
Preferred Shares (as defined herein).
Holders of the Series A Preferred Shares shall not be entitled
to any interest, or any sum of money in lieu of interest, in respect of any
dividend payment or payments on the Series A Preferred Shares authorized and
declared by the Board of Directors which may be unpaid. Any dividend payment
made on the Series A Preferred Shares shall first be credited against the
earliest authorized and declared but unpaid cash dividend with respect to the
Series A Preferred Shares.
(b) Dividends Noncumulative. The right of holders of Series A
Preferred Shares to receive dividends is noncumulative. Accordingly, if the
Board of Directors does not authorize or declare a dividend payable in respect
of any Dividend Period, holders of Series A Preferred Shares shall have no right
to receive a dividend in respect of such Dividend Period, and the Corporation
shall have no obligation to pay a dividend in respect of such Dividend Period,
whether or not dividends are authorized and declared payable in respect of any
future Dividend Period.
(c) Priority as to Dividends. If full dividends on the Series
A Preferred Shares for any dividend period shall not have been authorized,
declared and paid, or authorized, declared and a sum sufficient for the payment
thereof set apart for such payments, no dividends shall be authorized, declared
or paid or set aside for payment with respect to the Common Stock or any other
stock of the Corporation ranking junior to or on parity with the Series A
Preferred Shares as to dividends or amounts upon liquidation, nor shall any
Common Stock or
<PAGE>
8
any other stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Shares as to dividends or amounts upon liquidation be
redeemed, purchased or otherwise acquired for any consideration (or any monies
to be paid to or made available for a sinking fund for the redemption of any
such stock) by the Corporation (except by conversion into or exchange for other
stock of the Corporation ranking junior to the Series A Preferred Shares as to
dividends and amounts upon liquidation), until such time as dividends on all
outstanding Series A Preferred Shares have been (i) authorized, declared and
paid for three consecutive dividend periods and (ii) authorized, declared and
paid or authorized, declared and a sum sufficient for the payment thereof set
apart for payment for the fourth consecutive dividend period.
When dividends are not paid in full (or a sum sufficient for
such full payment is not so set apart) for any Dividend Period on the Series A
Preferred Shares and any Parity Stock, dividends authorized and declared on the
Series A Preferred Shares and Parity Stock shall be authorized and declared pro
rata so that the amount of dividends authorized and declared per Series A
Preferred Share and such Parity Stock shall in all cases bear to each other the
same ratio that full dividends, for the then current Dividend Period, per Series
A Preferred Share (which shall not include any accumulation in respect of unpaid
dividends for prior Dividend Periods) and full dividends, including required or
permitted accumulations, if any, on such Parity Stock bear to each other.
No dividend shall be paid or set aside for holders of Series A
Preferred Shares for any Dividend Period unless full dividends have been paid or
set aside for the holders of each class or series of equity securities of the
Corporation, if any, ranking prior to the Series A Preferred Shares as to
dividends for such Dividend Period.
(d) Any reference to "dividends" or "distributions" in this
Section 6.6.2 shall not be deemed to include any distribution made in connection
with any voluntary or involuntary dissolution, liquidation or winding up of the
Corporation.
Section 6.6.3 Optional Redemption.
(a) General. The Series A Preferred Shares are not subject to
mandatory redemption, and except as hereinafter provided in Section 6.6.3(b),
are not subject to optional redemption by the Corporation prior to September 3,
2007. On or after September 3, 2007, the Series A Preferred Shares may be
redeemed by the Corporation or its successor or any acquiring or resulting
entity with respect to the Corporation (including by any parent or subsidiary of
the Corporation, any such successor, or any such acquiring or resulting entity),
as applicable, at its option, in whole or in part, at any time or from time to
time, upon notice as provided in subsection (c) of this Section 6.6.3, at the
redemption prices (expressed as a percentage of the $1,000.00 per share
liquidation preference) set forth below in cash, plus the
quarterly accrued and unpaid dividend, if any, thereon to the date fixed for
redemption, without interest:
<PAGE>
9
If Redeemed During Redemption Price Per
the 12-month Period Share of the Series A
Beginning September 3, Preferred Shares
- ---------------------- ---------------------
2007................................................. 104.1750%
2008................................................. 103.7575
2009................................................. 103.3400
2010................................................. 102.9225
2011................................................. 102.5050
2012................................................. 102.0875
2013................................................. 101.6700
2014................................................. 101.2525
2015................................................. 100.8350
2016................................................. 100.4175
2017 and thereafter.................................. 100.0000
The aggregate redemption price payable to each holder of
record of Series A Preferred Shares to be redeemed shall be rounded to the
nearest cent ($.01).
If less than all of the outstanding Series A Preferred Shares
are to be redeemed, the Corporation will select those shares to be redeemed pro
rata, by lot or by such other methods as the Board of Directors in its sole
discretion determines to be equitable, provided that such method satisfies any
applicable requirements of any securities exchange on which the Series A
Preferred Shares are then listed.
Any such redemption must comply with applicable capital
distribution regulations of The Office of the Superintendent of Financial
Institutions of Canada (the "Superintendent"), which may prohibit a redemption
and will require the Superintendent's prior written approval. Unless full
dividends on the Series A Preferred Shares have been, or contemporaneously are,
authorized, declared and paid or authorized and declared and a sum sufficient
for the payment thereof set apart for payment for the then current Dividend
Period, no Series A Preferred Shares shall be redeemed unless all outstanding
Series A Preferred Shares are redeemed and the Corporation shall not purchase or
otherwise acquire any Series A Preferred Shares; provided, however, that the
Corporation may purchase or acquire Series A Preferred Shares pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Series A Preferred Shares.
If redemption is being effected by the Corporation, on and
after the date fixed for redemption, dividends shall cease to accrue on the
Series A Preferred Shares called for redemption, and such shares shall be deemed
to cease to be outstanding, provided that the redemption price (including the
quarterly accrued and unpaid dividends, if any, thereon to the date fixed for
redemption, without interest) has been duly paid or provided for. If redemption
<PAGE>
10
is being effected by an entity other than the Corporation, on and as of the date
fixed for redemption, such entity shall be deemed to own the Series A Preferred
Shares being redeemed for all purposes of this Charter, provided that the
redemption price (including the amount of any authorized and declared but unpaid
dividends to the date fixed for redemption, without interest) has been duly paid
or provided for.
(b) Tax Event. The Corporation will have the right, on or
after September 3, 2002 and prior to September 3, 2007, at any time upon the
occurrence of a Tax Event (as defined herein), to redeem the Series A Preferred
Shares, in whole, but not in part, upon notice as provided in subsection (c) of
this Section 6.6.3, at a redemption price per share equal to the sum of (i) the
quarterly accrued and unpaid dividend to the date of redemption plus (ii) the
Make-Whole Amount (as defined herein). Any such redemption must comply with
applicable capital contribution regulations of the Superintendent, which may
prohibit a redemption and will require the Superintendent's prior written
approval.
"Adjusted Treasury Rate" means, with respect to any Redemption
Date, the rate per annum equal to the semi-annual equivalent yield to maturity
of the Comparable Treasury Issue (as defined herein), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined herein) for such prepayment
date plus 0.50%.
"Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent (as defined herein) as having a
maturity comparable to the Make- Whole Term (as defined herein) that would be
utilized, at the time of selection and -in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the Make-Whole Term.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third Business Day preceding such Redemption Date, as set forth in the
daily statistical release published by the Federal Reserve Bank of New York and
designated "Composite 3:30 p.m. Quotation for U.S. Government Securities" (or
any successor release) or (ii) if such release is not published or does not
contain such prices on such Business Day, (a) the average of the Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (b) if the Corporation
obtains fewer than three such Reference Treasury Dealer Quotations, the average
of all such Quotations.
"Make-Whole Amount" means, with respect to a Series A
Preferred Share, the greater of (i) 100% of the Maturity Amount of such Series A
Preferred Share and (ii) the sum of the present values of the remaining
scheduled payments of dividends on such Series A Preferred Share to September 3,
2007, plus the present value of the Maturity Amount at
<PAGE>
11
September 3, 2007, discounted to the date fixed for redemption of such Series A
Preferred Share (the "Redemption Date") on a quarterly basis (assuming a 360-day
year consisting of 30- day months), computed using a discount rate equal to the
Adjusted Treasury Rate.
"Make-Whole Term" means the period from the Redemption Date to
September 3, 2007.
"Maturity Amount" means the liquidation preference of the
Series A Preferred Shares.
"Quotation Agent" means the Reference Treasury Dealer (as
defined herein) appointed by the Corporation.
"Reference Treasury Dealer" means (i) Merrill Lynch Government
Securities, Inc. and their respective successors; provided, however, that if the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), the Corporation shall substitute
therefor another Primary Treasury Dealer, and (ii) any other Primary Treasury
Dealer selected by the Corporation.
"Reference Treasury Dealer Quotation" means, with respect to
each Reference Treasury Dealer and any Redemption Date, the average, as
determined by the Corporation, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
quoted in writing to the Corporation by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such Redemption
Date.
"Tax Event" means the receipt by the Corporation of an opinion
of a nationally recognized legal counsel to the Corporation, experienced in such
matters to the effect that, as a result of (i) any amendment to, clarification
of, or change (including any announced prospective change) in, the laws or
treaties (or any regulations thereunder) of the United States or Canada, or any
political subdivision or taxing authority thereof or therein, affecting
taxation, (ii) any judicial decision, official administrative pronouncement,
published or private ruling, regulatory procedure, notice or announcement
(including any notice or announcement or intent to adopt such procedures or
regulations) (each, an "Administrative Action") or (iii) any amendment to,
clarification of, or change in the official position or the interpretation of
any such Administrative Action or any interpretation or pronouncement that
provides for a position with respect to any such Administrative Action that
differs from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory body, irrespective
of the manner in which such amendment, clarification or change is made known,
which amendment, clarification or change is effective or such pronouncement or
decision is announced on or after August 22, 1997, there is more than an
insubstantial risk that (A) dividends paid or to be paid by the Corporation with
respect to the stock of the
<PAGE>
12
Corporation are not, or will not be, fully deductible by the Corporation for
United States federal income tax purposes or (B) the corporation is, or will be,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges and shall include an assessment by the Internal Revenue
Service that (a) dividends paid or to be paid by the Corporation with respect to
the stock of the Corporation are not, or will not be, fully deductible by the
Corporation for United States federal income tax purposes or (b) the Corporation
is, or will be, subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
(c) Notice of Optional Redemption. Notice of any optional
redemption, setting forth (i) the date and place fixed for said redemption, (ii)
the redemption price and (iii) a statement that dividends on the Series A
Preferred Shares (A) to be redeemed by the Corporation will cease to accrue on
such redemption date, or (B) to be redeemed by an entity other than the
Corporation will thereafter accrue solely for the benefit of such entity, shall
be mailed at least 30 days, but not more than 60 days, prior to said date fixed
for redemption to each holder of record of Series A Preferred Shares to be
redeemed at his or her address as the same shall appear on the stock ledger of
the Corporation. If less than all of the Series A Preferred Shares owned by such
holder are then to be redeemed, such notice shall specify the number of shares
thereof that are to be redeemed and the numbers of the certificates representing
such shares. Notice of any redemption shall be given by first class mail,
postage prepaid. Neither failure to mail such notice, nor any defect therein or
in the mailing thereof, to any particular holder shall affect the sufficiency of
the notice or the validity of the proceedings for redemption with respect to the
other holders. Any notice which was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives such notice.
If such notice of redemption shall have been so mailed, and
if, on or before the date fixed for redemption specified in such notice, all
funds necessary for such redemption shall have been set aside by the Corporation
(or other entity as provided in subsection (a) of this Section 6.6.3) separate
and apart from its other funds in trust for the account of the holders of Series
A Preferred Shares to be redeemed (so as to be and continue to be available
therefor) or delivered to the redemption agent with irrevocable instructions to
effect the redemption in accordance with the relevant notice of redemption,
then, on and after said redemption date, notwithstanding that any certificate
for Series A Preferred Shares so called for redemption shall not have been
surrendered for cancellation or transfer, the Series A Preferred Shares (i) so
called for redemption by the Corporation shall be deemed to be no longer
outstanding and all rights with respect to such Series A Preferred Shares so
called for redemption shall forthwith cease and terminate, or (ii) so called for
redemption by an entity other than the Corporation shall be deemed owned for all
purposes of this Charter by such entity, except in each case for the right of
the holders thereof to receive, out of the funds so set aside in trust, the
amount payable on redemption thereof, but without interest, upon surrender (and
endorsement or assignment for transfer, if required by the Corporation or such
other entity) of their certificates.
<PAGE>
13
In the event that holders of Series A Preferred Shares that
shall have been redeemed shall not within two years (or any longer period if
required by law) after the redemption date claim any amount deposited in trust
with a bank or trust company for the redemption of such shares, such bank or
trust company shall, upon demand and if permitted by applicable law, pay over to
the Corporation (or other entity that redeemed the shares) any such unclaimed
amount so deposited with it, and shall thereupon be relieved of all
responsibility in respect thereof, and thereafter the holders of such shares
shall, subject to applicable escheat laws, look only to the Corporation (or
other entity that redeemed the shares) for payment of the redemption price
thereof, but without interest from the date fixed for redemption.
(d) Status of Shares Redeemed. Series A Preferred Shares
redeemed pursuant to this Section 6.6.3, purchased or otherwise acquired for
value by the Corporation shall, after such acquisition, have the status of
authorized and unissued shares of Preferred Stock and may be reissued by the
Corporation at any time as shares of any series of Preferred Stock other than as
Series A Preferred Shares.
Section 6.6.4 Automatic Exchange.
(a) General. Subject to the terms and conditions of this
Section 6.6.4, each Series A Preferred Share will be exchanged automatically
(the "Automatic Exchange") for one newly issued share of 8.45% Noncumulative
First Preferred Shares, Series Z, without par value (a "Bank Preferred Share"),
of National Bank of Canada (the "Bank"). The issuance of the Bank Preferred
Shares has been duly authorized by the Board of Directors of the Bank. The
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of the
Bank Preferred Shares shall be as set forth in the resolutions adopted by the
Board of Directors of the Bank on August 15, 1997, which have been filed with
the Superintendent. All corporate action necessary for the Bank to issue the
Bank Preferred Shares as of the Time of Exchange was completed prior to or
immediately following completion of the offering of the Series A Preferred
Shares.
(b) Conditions of Exchange. The Automatic Exchange will occur
(i) immediately prior to such time, if any, at which the Bank fails to declare
and pay or set aside for payment when due any dividend on any issue of its
cumulative First Preferred Shares or the Bank fails to pay or set aside for
payment when due any declared dividend on any of its non-cumulative First
Preferred Shares, (ii) in the event that the Bank has a Tier 1 risk-based
capital ratio, as defined in guidelines issued by the Superintendent, of less
than 4.0% or a total risk- based capital ratio of less than 8.0%, (iii) in the
event that the Superintendent takes control of the Bank pursuant to the Bank Act
(Canada), as amended (the "Bank Act"), or proceedings are commenced for the
winding-up of the Bank pursuant to the Winding-up and Restructuring Act
(Canada), or (iv) in the event that the Superintendent, by order, directs the
Bank to act pursuant to subsection 485(3) of the Bank Act and the Bank elects to
cause the exchange (each, an "Exchange Event").
<PAGE>
14
(c) Surrender of Certificates. Upon an Exchange Event, each
holder of Series A Preferred Shares shall be unconditionally obligated to
surrender to the Bank the certificates representing each Series A Preferred
Share held by such holder, and the Bank shall be unconditionally obligated to
issue to such holder in exchange for each such Series A Preferred Share a
certificate representing one Bank Preferred Share.
(d) Effectiveness of and Procedure for Exchange. The Automatic
Exchange shall occur as of 8:00 a.m. Eastern Time on the effective date of an
Exchange Event as set forth in the requirements of the Superintendent, or, if
such date is not set forth in such requirements, as of 8:00 a.m. Eastern Time on
the earliest possible date such exchange could occur consistent with such
requirements (the "Time of Exchange"), as evidenced by the issuance by the Bank
of a press release prior to such time. As of the Time of Exchange, all of the
Series A Preferred Shares will be deemed canceled without any further action on
the part of the Corporation or any other Person, all rights of the holders of
the Series A Preferred Shares as stockholders of the Corporation shall cease,
and such persons shall thereupon and thereafter be deemed to be and shall be for
all purposes the holders of Bank Preferred Shares. Notice of the occurrence of
the Exchange Event shall be given by first-class mail, postage prepaid, mailed
within 30 days of such event, to each holder of record of the Series A Preferred
Shares, at such holder's address as the same appears on the stock register of
the Corporation. Each such notice shall indicate the place or places where
certificates for the Series A Preferred Shares are to be surrendered by the
holders thereof, and the Bank shall deliver to each such holder certificates for
Bank Preferred Shares upon surrender of certificates for the Series A Preferred
Shares. Until such replacement share certificates are delivered (or in the event
such replacement certificates are not delivered), certificates previously
representing the Series A Preferred Shares shall be deemed for all purposes to
represent Bank Preferred Shares.
(e) Status of Shares Redeemed; Treatment of Dividends. Any
Series A Preferred Shares purchased or redeemed by the Corporation in accordance
with Section 6.6.3 hereof prior to the Time of Exchange shall not be deemed
outstanding and shall not be subject to the Automatic Exchange. In the event of
the Automatic Exchange, any accrued and unpaid dividends on the Series A
Preferred Shares as of the Time of Exchange shall be deemed to be accrued and
unpaid dividends on the Bank Preferred Shares.
Section 6.6.5 Liquidation Value.
(a) Liquidating Distributions. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series A Preferred shares shall be entitled to
receive for each share thereof, out of the assets of the Corporation legally
available for distribution to stockholders under applicable law, or the proceeds
thereof, before any payment or distribution of the assets shall be made to
holders of shares of Common Stock or any other Junior Stock (subject to the
rights of the holders of any class or series of equity securities having
preference with respect to distributions upon
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15
liquidation and the Corporation's general creditors), liquidating distributions
in the amount of $1,000.00 per share, plus an amount per share equal to the
quarterly accrued and unpaid dividend, if any, thereon to the date of
liquidation, without interest.
If the amounts available for distribution in respect of Series
A Preferred Shares and any outstanding Parity Stock upon any such voluntary or
involuntary liquidation, dissolution or winding up are not sufficient to satisfy
the full liquidation rights of all of the outstanding Series A Preferred Shares
and such Parity Stock, then the holders of such outstanding shares shall share
ratably in any such distribution of assets in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of Series A Preferred Shares will not be entitled to any further participation
in any liquidating distribution of any remaining assets by the Corporation. All
distributions made in respect of Series A Preferred Shares in connection with
such a liquidation, dissolution or winding up of the Corporation shall be made
pro rata to the holders entitled thereto.
(b) Consolidation, Merger or Certain Other Actions. Neither
the consolidation, merger or other business combination of the Corporation with
or into any other person, nor the sale of all or substantially all of the assets
of the Corporation shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this Section 6.6.5.
Section 6.6.6 Voting Rights.
(a) General. Except as expressly provided in this Section
6.6.6, holders of Series A Preferred Shares shall have no voting rights. When
the holders of Series A Preferred Shares are entitled to vote, each Series A
Preferred Share will be entitled to one vote.
(b) Right to Elect Directors. If, at the time of any annual
meeting of the Corporation's stockholders for the election of directors, the
Corporation has failed to pay or failed to authorize and declare and set aside
for payment a quarterly dividend on any series of Preferred Stock of the
Company, including the Series A Preferred Shares, the maximum authorized number
of directors of the Corporation shall thereupon be increased by two if not
already increased by two pursuant to this Section 6.6.6(b). Subject to
compliance with any requirement for regulatory approval of (or non-objection to)
persons serving as directors, the holders of Series A Preferred Shares, voting
together as a class with the holders of outstanding shares of each series of
Preferred Stock entitled to vote on the matter, shall have the exclusive right
to elect the two additional directors (each a "Preferred Director") to serve on
the Board of Directors at each such annual meeting. Each Preferred Director
elected by the holders of shares of the Preferred Stock shall continue to serve
as a director until the later of (i) the full term for which he or she shall
have been elected or (ii) the payment of one quarterly dividend on the Preferred
Stock, including the Series A Preferred Shares. Any Preferred Director may
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16
be removed by, and shall not be removed except by, the vote of the holders of
record of the outstanding Series A Preferred Shares entitled to vote, voting
together as a single class with the holders of all other series of Preferred
Stock entitled to vote on the matter, at a meeting of the Corporation's
stockholders, or of the holders of the Series A Preferred Shares and all other
series of Preferred Stock so entitled to vote thereon, called for that purpose.
As long as dividends on the Series A Preferred Shares shall not have been paid
for the preceding quarterly Dividend Period, (i) any vacancy in the office of
any Preferred Director may be filled (except as provided in the following clause
(ii)) by an instrument in writing signed by the remaining Preferred Director and
filed with the Corporation, and (ii) in the case of the removal of any Preferred
Director, the vacancy may be filled by the vote of the holders of the
outstanding Series A Preferred Shares and Parity Stock entitled to vote, voting
together as a single class with the holders of all other series of Preferred
Stock entitled to vote on the matter, at the same meeting at which such removal
shall be voted. Each director appointed as aforesaid by the remaining Preferred
Director shall be deemed, for all purposes hereof, to be a Preferred Director.
Any Preferred Director will be deemed to be an Independent Director for purposes
of the actions requiring the approval of a majority of the Independent
Directors.
(c) Certain Voting Rights. The affirmative vote or consent of
the holders of at least two-thirds of the outstanding shares of each series of
Preferred Stock, including the Series A Preferred Shares, will be required (i)
to create any class or series of stock, other than the Senior Preferred Shares,
which shall, as to dividends or distribution of assets, rank prior to or on a
parity with any outstanding series of Preferred Stock other than a series which
shall not have any right to object to such creation or (ii) to alter or change
the provisions of the Charter (including the terms of the Series A Preferred
Shares) so as to adversely affect the preferences, conversion, exchange or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemptions of the
holders of a series of Preferred Stock to any material extent; provided that if
such amendment shall not adversely affect all series of Preferred Stock, such
amendment need only be approved by at least two-thirds of the holders of shares
of all series of Preferred Stock adversely affected thereby.
(d) Notwithstanding the provisions of Section 6.6.6(c), the
holders of Series A Preferred Shares shall have no voting rights in connection
with the Board of Directors' exercise of its authority pursuant to Section 6.7
to set the preferences, conversion, exchange or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption of the Senior Preferred Shares.
Section 6.6.7 Independent Directors.
(a) Number; Definition. As long as any Series A Preferred
Shares are outstanding, at least two directors on the Board of Directors shall
be Independent Directors. As used herein, "Independent Director" means any
director of the Corporation who is either (i) not
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17
a current officer or employee of the Corporation or a current director, officer
or employee of the Bank or any affiliate of the Bank, or (ii) a Preferred
Director.
(b) Approval of Independent Directors. As long as any Series A
Preferred Shares are outstanding, the Corporation may not take the following
actions without first obtaining the approval of a majority of the Independent
Directors: (i) the issuance of additional Preferred Stock ranking on a parity
with the Series A Preferred Shares as to dividend rights and rights upon
voluntary or involuntary liquidation, winding up or dissolution of the
Corporation, (ii) the modification of the Corporation's general distribution
policy or the authorization of any distribution in respect of the Common Stock
for any year if, after taking into account any such proposed distribution, total
distributions on the Series A Preferred Shares and the Common Stock would exceed
an amount equal to the sum of 105% of the Corporation's "REIT taxable income,"
as defined in Section 857(b)(2) of the Code (excluding capital gains), for such
year plus net capital gains of the Corporation for that year, (iii) the
acquisition of Mortgage Assets other than obligations which are comparable to
the Initial Mortgage Assets, Mortgage Loans, interests in Mortgage Loans and
Partnership Interests, (iv) the redemption of any shares of Common Stock, (v)
the renewal, termination or modification of the Advisory Agreement or the
Servicing Agreement or the subcontracting of any duties thereunder to third
parties unaffiliated with the Bank, and (vi) the determination to revoke the
Corporation's status as a real estate investment trust under Sections 856
through 860 of the Code. So long as the number of Independent Directors is two,
the foregoing actions must be approved by both of the Independent Directors.
"Initial Mortgage Assets" means Mortgage Assets consisting of
obligations issued by NB Finance, Ltd., a corporation formed under the laws of
Bermuda that is a wholly owned subsidiary of the Bank, that are recourse only to
the Initial Mortgage Loans and that are secured by real property that is located
in Canada.
"Initial Mortgage Loans" means Mortgage Loans acquired from
the Bank.
"Mortgage Assets" means obligations secured by real property,
as well as certain other assets eligible to be held by REITs, such as cash, cash
equivalents and securities, including shares or interests in other REITs.
"Mortgage Loans" means loans consisting of Canada Mortgage and
Housing Corporation insured residential first mortgages.
"Partnership Interests" means limited partnership interests
which the Corporation may from time to time acquire in partnerships the only
activities of which are the purchase and ownership of Mortgage Loans.
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18
(c) Determination by Independent Directors. In determining
whether any proposed action requiring their consent is in the best interests of
the Corporation, the Independent Directors shall consider the interests of
holders of both the Common Stock and the Preferred Stock, including, without
limitation, the holders of the Series A Preferred Shares. In considering the
interests of the holders of the Preferred Stock, including, without limitation,
holders of the Series A Preferred Shares, the Independent Directors shall owe
the same duties that the Independent Directors owe with respect to holders of
shares of Common Stock.
Section 6.6.8 No Conversion Rights. The holders of Series A
Preferred Shares shall not have any rights to convert such shares into shares of
any other class or series of stock or into any other securities of, or any
interest in, the Corporation.
Section 6.6.9 No Sinking Fund. No sinking fund shall be
established for the retirement or redemption of Series A Preferred Shares.
Section 6.6.10 Preemptive or Subscription Rights. No holder of
Series A Preferred Shares of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any additional shares of stock of
the Corporation or any other security of the Corporation which it may issue or
sell.
Section 6.6.11 No Other Rights. The Series A Preferred Shares
shall not have any designations, preferences or relative, participating,
optional or other special rights except as set forth in the Charter or as
otherwise required by law.
Section 6.6.12 Compliance with Applicable Law. Declaration by
the Board of Directors and payment by the Corporation of dividends to holders of
the Series A Preferred Shares and repurchase, redemption or other acquisition by
the Corporation (or another entity as provided in subsection (a) of Section
6.6.3 hereof) of Series A Preferred Shares shall be subject in all respects to
any and all restrictions and limitations placed on dividends, redemptions or
other distributions by the Corporation (or any such other entity) under (i)
laws, regulations and regulatory conditions or limitations applicable to or
regarding the Corporation (or any such other entity) from time to time and (ii)
agreements with federal banking authorities with respect to the Corporation (or
any such other entity) from time to time in effect.
Section 6.7 Senior Preferred Shares. The Board of Directors
may, prior to the issuance of Senior Preferred Shares, (i) set or change,
subject to the provisions of Article VII, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of the Senior Preferred
Shares; and (ii) cause the Corporation to file articles supplementary relating
thereto with the State Department of Assessments and Taxation of Maryland
("SDAT").
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19
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII,
the following terms shall have the following meanings:
Beneficial Ownership. The term "Beneficial Ownership" shall
mean ownership of Capital Stock by a Person, whether the interest in
the shares of Capital Stock is held directly or indirectly (including
by a nominee), and shall include interests that would be treated as
owned through the application of Section 544 of the Code, as modified
by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns," "Beneficially Own" and "Beneficially Owned" shall
have the correlative meanings.
Business Day. The term "Business Day" shall mean any day,
other than a Saturday or Sunday, that is neither a legal holiday nor a
day on which banking institutions in New York City are authorized or
required by law, regulation or executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes
or series of stock of the Corporation, including, without limitation,
Common Stock and Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary"
shall mean one or more beneficiaries of the Trust as determined
pursuant to Section 7.3.6, provided that each such organization must be
described in Section 501(c)(3) of the Code and contributions to each
such organization must be eligible for deduction under each of Sections
170(b)(1)(A), 2055 and 2522 of the Code.
Charter. The term "Charter" shall mean the charter of the
Corporation, as that term is defined in the MGCL.
Constructive Ownership. The term "Constructive Ownership"
shall mean ownership of Capital Stock by a Person, whether the interest
in the shares of Capital Stock is held directly or indirectly
(including by a nominee), and shall include interests that would be
treated as owned through the application of Section 318(a) of the Code,
as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns," "Constructively Own" and "Constructively
Owned" shall have the correlative meanings.
Excepted Holder. The term "Excepted Holder" shall mean a
stockholder of the Corporation for whom an Excepted Holder Limit is
created by the Charter or by the Board of Directors pursuant to Section
7.2.7.
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20
Excepted Holder Limit. The term "Excepted Holder Limit" shall
mean, provided that the affected Excepted Holder agrees to comply with
the requirements established by the Board of Directors pursuant to
Section 7.2.7, and subject to adjustment pursuant to Section 7.2.8, the
percentage limit established by the Board of Directors pursuant to
Section 7.2.7.
Initial Date. The term "Initial Date" shall mean the date upon
which the Articles of Amendment and Restatement containing this Article
VII are filed with the SDAT.
Market Price. The term "Market Price" on any date shall mean,
with respect to any class or series of outstanding shares of Capital
Stock, the Closing Price for such Capital Stock on such date. The
"Closing Price" on any date shall mean the last sale price for such
Capital Stock, regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way,
for such Capital Stock, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the NYSE or, if such Capital Stock is
not listed or admitted to trading on the NYSE, as reported on the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on
which such Capital Stock is listed or admitted to trading or, if such
Capital Stock is not listed or admitted to trading on any national
securities exchange, the last quoted price, or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotation system that may then be in use
or, if such Capital Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a
professional market maker making a market in such Capital Stock
selected by the Board of Directors of the Corporation or, in the event
that no trading price is available for such Capital Stock, the fair
market value of the Capital Stock, as determined in good faith by the
Board of Directors of the Corporation.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Ownership Limit. The term "Ownership Limit" shall mean not
more than five percent in value of any issued and outstanding class or
series of Preferred Stock. The value of the outstanding shares of
Preferred Stock shall be determined by the Board of Directors of the
Corporation in good faith, which determination shall be conclusive for
all purposes hereof.
Person. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust qualified
under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the
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21
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint
stock company or other entity and also includes a group as that term is
used for purposes of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, and a group to which an Excepted Holder Limit
applies.
Prohibited Owner. The term "Prohibited Owner" shall mean, with
respect to any purported Transfer, any Person who, but for the
provisions of Section 7.2.1, would Beneficially Own or Constructively
Own shares of Capital Stock, and if appropriate in the context, shall
also mean any Person who would have been the record owner of the shares
that the Prohibited Owner would have so owned.
REIT. The term "REIT" shall mean a real estate investment
trust within the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction
Termination Date" shall mean the first day after the Initial Date on
which the Corporation determines pursuant to Section 5.7 of the Charter
that it is no longer in the best interests of the Corporation to
attempt to, or continue to, qualify as a REIT or that compliance with
the restrictions and limitations on Beneficial Ownership, Constructive
Ownership and Transfers of shares of Capital Stock set forth herein is
no longer required in order for the Corporation to qualify as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition, as well as any
other event that causes any Person to acquire Beneficial Ownership or
Constructive Ownership, or any agreement to take any such actions or
cause any such events, of Preferred Stock or the right to vote or
receive dividends on Preferred Stock, including (a) the granting or
exercise of any option (or any disposition of any option), (b) any
disposition of any securities or rights convertible into or
exchangeable for Preferred Stock or any interest in Preferred Stock or
any exercise of any such conversion or exchange right and (c) Transfers
of interests in other entities that result in changes in Beneficial or
Constructive Ownership of Preferred Stock; in each case, whether
voluntary or involuntary, whether owned of record, Constructively Owned
or Beneficially Owned and whether by operation of law or otherwise. The
terms "Transferring" and "Transferred" shall have the correlative
meanings.
Trust. The term "Trust" shall mean any trust provided for in
Section 7.3.1.
Trustee. The term "Trustee" shall mean the Person unaffiliated
with the Corporation and a Prohibited Owner, that is appointed by the
Corporation to serve as trustee of the Trust.
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22
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period
commencing on the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) Except as otherwise provided in Section 7.2.7, (1) no
Person, other than an Excepted Holder, shall Beneficially Own or
Constructively Own shares of Preferred Stock in excess of the Ownership
Limit and (2) no Excepted Holder shall Beneficially Own or
Constructively Own shares of Preferred Stock in excess of the Excepted
Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own shares
of Capital Stock to the extent that such Beneficial or Constructive
Ownership of Capital Stock would result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code
(without regard to whether the ownership interest is held during the
last half of a taxable year), or otherwise failing to qualify as a REIT
(including, but not limited to, Beneficial or Constructive Ownership
that would result in the Corporation owning (actually or
Constructively) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by the Corporation from
such tenant would cause the Corporation to fail to satisfy any of the
gross income requirements of Section 856(c) of the Code).
(iii) After December 31, 1997, notwithstanding any other
provisions contained herein (except Section 7.4), any Transfer of
shares of Capital Stock (whether or not such Transfer is the result of
a transaction entered into through the facilities of the NYSE or any
other national securities exchange or automated inter-dealer quotation
system) that, if effective, would result in the Capital Stock being
beneficially owned by less than 100 Persons (determined under the
principles of Section 856(a)(5) of the Code) shall be void ab initio,
and the intended transferee shall acquire no rights in such shares of
Capital Stock.
(b) Transfer in Trust. If any Transfer of shares of Capital
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE or any other national securities exchange or
automated inter-dealer quotation system) occurs which, if effective, would
result in any Person Beneficially Owning or Constructively Owning shares of
Capital Stock in violation of Section 7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock the
Beneficial Ownership or Constructive Ownership of which otherwise would
cause such Person to violate Section 7.2.1(a)(i) or (ii) (rounded up to
the nearest whole share) shall be automatically
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23
transferred to a Trust for the benefit of a Charitable Beneficiary, as
described in Section 7.3, effective as of the close of business on the
Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i) of
this sentence would not be effective for any reason to prevent the
violation of Section 7.2.1(a)(i) or (ii), then the Transfer of that
number of shares of Capital Stock that otherwise would cause any Person
to violate Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the
intended transferee shall acquire no rights in such shares of Capital
Stock.
Section 7.2.2 Remedies for Breach. If the Board of Directors
of the Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 7.2.1 or that a Person intends to acquire or
has attempted to acquire Beneficial Ownership or Constructive Ownership of any
shares of Capital Stock in violation of Section 7.2.1 (whether or not such
violation is intended), the Board of Directors or a committee thereof shall take
such action as it deems advisable to refuse to give effect to or to prevent such
Transfer or other event, including, without limitation, causing the Corporation
to redeem shares, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other event;
provided, however, that any Transfer or attempted Transfer or other events in
violation of Section 7.2.1 shall automatically result in the transfer to the
Trust described above, and, where applicable, such Transfer (or other event)
shall be void ab initio as provided above irrespective of any action (or
nonaction) by the Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who
acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of shares of Capital Stock that will or may violate Section 7.2.1(a)
or any Person who would have owned shares of Capital Stock that resulted in a
transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall
immediately give written notice to the Corporation of such event, or in the case
of such a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer on the Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the
Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than 0.5% (or such lower percentage as
required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding shares of any class or series of
Preferred Stock, within 30 days after June 30 and December 31 of each
year, shall give written notice to the Corporation stating the name and
address of such owner, the number of shares of Preferred Stock
Beneficially Owned and a
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24
description of the manner in which such shares are held. Each such
owner shall provide to the Corporation such additional information as
the Corporation may request in order to determine the effect, if any,
of such Beneficial Ownership on the Corporation's status as a REIT and
to ensure compliance with the ownership Limit; and
(b) each Person who is a Beneficial Owner or Constructive
Owner of Capital Stock and each Person (including the stockholder of
record) who is holding Capital Stock for a Beneficial Owner or
Constructive Owner shall provide to the Corporation such information as
the Corporation may request, in good faith, in order to determine the
Corporation's status as a REIT and to comply with requirements of any
taxing authority or government authority or to determine such
compliance.
Section 7.2.5 Remedies Not Limited. Subject to Section 5.7 of
the Charter, nothing contained in this Section 7.2 shall limit the authority of
the Board of Directors of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.2, Section 7.3, or any
definition contained in Section 7.1, the Board of Directors of the Corporation
shall have the power to determine the application of the provisions of this
Section 7.2 or Section 7.3 with respect to any situation based on the facts
known to it. In the event Section 7.2 or 7.3 requires an action by the Board of
Directors and the Charter fails to provide specific guidance with respect to
such action, the Board of Directors shall have the power to determine the action
to be taken so long as such action is not contrary to the provisions of Sections
7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of Directors of
the Corporation, in its sole discretion, may exempt a Person from the Ownership
Limit and may establish or increase an Excepted Holder Limit for such Person if:
(i) the Board of Directors obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain
that no individual's Beneficial Ownership or Constructive Ownership of
such shares of Capital Stock will violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not own,
actually or Constructively, an interest in a tenant of the Corporation
(or a tenant of any entity owned or controlled by the Corporation) that
would cause the Corporation to own, actually or Constructively, more
than a 9.9% interest (as set forth in Section
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25
856(d)(2)(B) of the Code) in such tenant and the Board of Directors
obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain this fact (for this purpose, a tenant
from whom the Corporation (or an entity owned or controlled by the
Corporation) derives (and is expected to continue to derive) a
sufficiently small amount of revenue such that, in the opinion of the
Board of Directors of the Corporation, rent from such tenant would not
adversely affect the Corporation's ability to qualify as a REIT, shall
not be treated as a tenant of the Corporation); and
(iii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action
which is contrary to the restrictions contained in Sections 7.2.1
through 7.2,6) will result in such shares of Preferred Stock being
automatically transferred to a Trust in accordance with Sections
7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section
7.2.7(a), the Board of Directors of the Corporation may require a ruling from
the Internal Revenue Service, or an opinion of counsel, in either case in form
and substance satisfactory to the Board of Directors in its sole discretion, as
it may deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT. Notwithstanding the receipt of any ruling or
opinion, the Board of Directors may impose such conditions or restrictions as it
deems appropriate in connection with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an underwriter which
participates in a public offering or a private placement of Preferred Stock (or
securities convertible into or exchangeable for Preferred Stock) may
Beneficially Own or Constructively Own shares of Preferred Stock (or securities
convertible into or exchangeable for Preferred Stock) in excess of the Ownership
Limit, but only to the extent necessary to facilitate such public offering or
private placement.
(d) The Board of Directors may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such Excepted
Holder at any time, or (2) pursuant to the terms and conditions of the
agreements and undertakings entered into with such Excepted Holder in connection
with the establishment of the Excepted Holder Limit for that Excepted Holder. No
Excepted Holder Limit shall be reduced to a percentage that is less than the
Ownership Limit.
Section 7.2.8 Increase in Aggregate Stock Ownership and Common
Stock Ownership Limits. The Board of Directors may from time to time increase
the Ownership Limit.
Section 7.2.9 Legend. Each certificate for shares of Preferred
Stock shall bear substantially the following legend:
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26
The shares represented by this certificate are subject to
restrictions on Beneficial Ownership and Constructive
Ownership and Transfer for the purpose of the Corporation's
maintenance of its status as a Real Estate Investment Trust
under the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to certain further restrictions and except as
expressly provided in the Corporation's Charter, (i) no Person
may Beneficially Own or Constructively Own shares of Preferred
Stock of the Corporation in excess of five percent of the
value of any issued and outstanding class or series of
Preferred Stock of the Corporation, unless such Person is an
Excepted Holder (in which case the Excepted Holder Limit shall
be applicable); (ii) no Person may Beneficially Own or
Constructively Own Capital Stock that would result in the
Corporation being "closely held" under Section 856(h) of the
Code or otherwise cause the Corporation to fail to qualify as
a REIT; and (iii) no Person may Transfer shares of Capital
Stock if such Transfer would result in the Preferred Stock of
the Corporation being owned by fewer than 100 Persons. Any
Person who Beneficially or Constructively Owns or attempts to
Beneficially or Constructively Own shares of Capital Stock
which causes or will cause a Person to Beneficially or
Constructively Own shares of Capital Stock in excess or in
violation of the above limitations must immediately notify the
Corporation. If any of the restrictions on transfer or
ownership are violated, the shares of Capital Stock
represented hereby will be automatically transferred to a
Trustee of a Trust for the benefit of one or more Charitable
Beneficiaries. In addition, upon the occurrence of certain
events, attempted Transfers in violation of the restrictions
described above may be void ab initio. All capitalized terms
in this legend have the meanings defined in the charter of the
Corporation, as the same may be amended from time to time, a
copy of which, including the restrictions on transfer and
ownership, will be furnished to each holder of Capital Stock
of the Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state
that the Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
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27
Section 7.3 Transfer of Capital Stock in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer
or other event described in Section 7.2.1(b) that would result in a transfer of
shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed
to have been transferred to the Trustee as trustee of a Trust for the exclusive
benefit of one or more Charitable Beneficiaries. Such transfer to the Trustee
shall be deemed to be effective as of the close of business on the Business Day
prior to the purported Transfer or other event that results in the transfer to
the Trust pursuant to Section 7.2.1(b). The Trustee shall be appointed by the
Corporation and shall be a Person unaffiliated with the Corporation and any
Prohibited Owner. Each Charitable Beneficiary shall be designated by the
Corporation as provided in Section 7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee. Shares of
Capital Stock held by the Trustee shall be issued and outstanding shares of
Capital Stock of the Corporation. The Prohibited Owner shall have no rights in
the shares held by the Trustee. The Prohibited Owner shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends or other distributions and shall not possess any
rights to vote or other rights attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall
have all voting rights and rights to dividends or other distributions with
respect to shares of Capital Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or other distribution paid prior to the discovery by the Corporation that the
shares of Capital Stock have been transferred to the Trustee shall be paid by
the recipient of such dividend or distribution to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when due
to the Trustee. Any dividend or distribution so paid to the Trustee shall be
held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to shares held in the Trust and, subject to Maryland
law, effective as of the date that the shares of Capital Stock have been
transferred to the Trustee, the Trustee shall have the authority (at the
Trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Owner prior to the discovery by the Corporation that the shares of Capital Stock
have been transferred to the Trustee and (ii) to recast such vote in accordance
with the desires of the Trustee acting for the benefit of the Charitable
Beneficiary; provided, however, that if the Corporation has already taken
irreversible corporate action, then the Trustee shall not have the authority to
rescind and recast such vote. Notwithstanding the provisions of this Article
VII, until the Corporation has received notification that shares of Capital
Stock have been transferred into a Trust, the Corporation shall be entitled to
rely on its share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings, determining the
validity and authority of proxies and otherwise conducting votes of
stockholders.
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28
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held in
the Trust to a person, designated by the Trustee, whose ownership of the shares
will not violate the ownership limitations set forth in Section 7.2.1(a). Upon
such sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner and to the Charitable Beneficiary as provided in this Section
7.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by
the Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be held
in the Trust (e.g., in the case of a gift, devise or other such transaction),
the Market Price of the shares on the day of the event causing the shares to be
held in the Trust and (2) the price per share received by the Trustee from the
sale or other disposition of the shares held in the Trust. Any net sales
proceeds in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary. If, prior to the discovery by
the Corporation that shares of Capital Stock have been transferred to the
Trustee, such shares are sold by a Prohibited Owner, then (i) such shares shall
be deemed to have been sold on behalf of the Trust and (ii) to the extent that
the Prohibited Owner received an amount for such shares that exceeds the amount
that such Prohibited Owner was entitled to receive pursuant to this Section
7.3.4, such excess shall be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Stock Transferred to the
Trustee. Shares of Capital Stock transferred to the Trustee shall be deemed to
have been offered for sale to the Corporation, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
held in the Trust pursuant to Section 7.3.4. Upon such a sale to the
Corporation, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Prohibited Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By
written notice to the Trustee, the Corporation shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Trust such that (i) the shares of Capital Stock held in the Trust would not
violate the restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in
Section 501(c)(3) of the Code and contributions to each such organization must
be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of
the Code.
Section 7.4 NYSE Transactions. Nothing in this Article VII
shall preclude the settlement of any transaction entered into through the
facilities of the NYSE or any other national securities exchange or automated
inter-dealer quotation system. The fact that the
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29
settlement of any transaction is so permitted shall not negate the effect of any
other provision of this Article VII and any transferee in such a transaction
shall be subject to all of the provisions and limitations set forth in this
Article VII.
Section 7.5 Enforcement. The Corporation is authorized
specifically to seek equitable relief, including injunctive relief, to enforce
the provisions of this Article VII.
Section 7.6 Non-Waiver. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of Directors,
as the case may be, except to the extent specifically waived in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make
any amendment to its Charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
Charter, of any shares of outstanding stock. All rights and powers conferred by
the Charter on stockholders, directors and officers are granted subject to this
reservation. Subject to the rights of the holders of shares of Series A
Preferred Stock set forth in Section 6.6, any amendment to the Charter shall be
valid only if approved by the affirmative vote of a majority of all the votes
entitled to be cast on the matter. Any amendment to Section 6.6 of the Charter
shall be valid only if approved as provided therein.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article IX, nor the adoption or amendment of any other provision
of the Charter or Bylaws inconsistent with this Article IX, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
THIRD: The amendment to and restatement of the charter as
hereinabove set forth have been duly advised by the Board of Directors and
approved by the stockholders of the Corporation as required by law.
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30
FOURTH: The current address of the principal office of the
Corporation is as set forth in Article IV of the foregoing amendment and
restatement of the charter.
FIFTH: The name and address of the Corporation's current
resident agent is as set forth in Article IV of the foregoing amendment and
restatement of the charter.
SIXTH: The number of directors of the Corporation and the
names of those currently in office are as set forth in Article V of the
foregoing amendment and restatement of the charter.
SEVENTH: The total number of shares of stock which the
Corporation had authority to issue immediately prior to this amendment and
restatement was 1,000 shares, $.01 par value per share, all of one class. The
aggregate par value of all shares of stock having par value was $10.00.
EIGHTH: The total number of shares of stock which the
Corporation has authority to issue pursuant to the foregoing amendment and
restatement of the charter is 10,001,000, consisting of 1,000 shares of Common
Stock, $.01 par value per share, and 10,000,000 shares of Preferred Stock, $.01
par value per share, of which 300,000 shares are classified as Series A
Preferred Shares, and 1,000 shares are classified as Senior Preferred Shares.
The aggregate par value of all authorized shares of stock having par value is
$100,010.
NINTH: The amendment to and restatement of the charter as
hereinabove set forth shall be effective as of 9:00 a.m., New York City time, on
Wednesday, September 3, 1997.
TENTH: The undersigned Vice President acknowledges these
Articles of Amendment and Restatement to be the corporate act of the Corporation
and as to all matters or facts required to be verified under oath, the
undersigned Vice President acknowledges that to the best of his knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.
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31
IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment and Restatement to be signed in its name and on its behalf by its
Vice-President and attested to by its Vice-President - Legal and Secretary on
this 28th day of August, 1997.
ATTEST: NB CAPITAL CORPORATION
/s/ Francois Bourassa By:/s/ Martin Ouellet ((SEAL)
- ------------------------------------ --------------------------
Francois Bourassa Martin Ouellet
Vice-President - Legal and Secretary Vice-President
NB CAPITAL CORPORATION
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the
Corporation shall be located at such place or places as the Board of Directors
may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have
additional offices at such places as the Board of Directors may from time to
time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held
at the principal office of the Corporation or at such other place within the
United States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the
stockholders for the election of directors and the transaction of any business
within the powers of the Corporation shall be held on a date and at the time set
by the Board of Directors during the month of May in each year.
Section 3. SPECIAL MEETINGS. The president, chief executive
officer or Board of Directors may call special meetings of the stockholders.
Special meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
Section 4. NOTICE. Not less than ten nor more than 90 days
before each meeting of stockholders, the secretary shall give to each
stockholder entitled to vote at such meeting and to each stockholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is
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called, either by mail or by presenting it to such stockholder personally or by
leaving it at his residence or usual place of business. If mailed, such notice
shall be deemed to be given when deposited in the United States mail addressed
to the stockholder at his post office address as it appears on the records of
the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation
may be transacted at an annual meeting of stockholders without being
specifically designated in the notice, except such business as is required by
any statute to be stated in such notice. No business shall be transacted at a
special meeting of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the
chairman of the board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the chairman of the board, one of the
following officers present shall conduct the meeting in the order stated: the
vice chairman of the board, if there be one, the president, the vice presidents
in their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the vote which all stockholders present in person
or by proxy are entitled to cast, shall act as chairman, and the secretary, or,
in his absence, an assistant secretary, or in the absence of both the secretary
and assistant secretaries, a person appointed by the chairman shall act as
secretary.
Section 7. QUORUM. At any meeting of stockholders, the
presence in person or by proxy of stockholders entitled to cast a majority of
all the votes entitled to be cast at such meeting shall constitute a quorum; but
this section shall not affect any requirement under any statute or the charter
of the Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a
meeting of stockholders duly called and at which a quorum is present shall be
sufficient to elect a director. Each share may be voted for as many individuals
as there are directors to be elected and for whose election the share is
entitled to be voted. A majority of the votes cast at a meeting of stockholders
duly called and at which a quorum is present shall be sufficient to approve any
other matter which may properly come before the meeting, unless more than a
majority of the votes cast is required by statute or by the charter of the
Corporation. Unless otherwise provided in the charter, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may cast the votes entitled
to be cast by the shares of the stock owned of record by him either in person or
by proxy executed in writing
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by the stockholder or by his duly authorized attorney in fact. Such proxy shall
be filed with the secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly
owned by it shall not be voted at any meeting and shall not be counted in
determining the total number of outstanding shares entitled to be voted at any
given time, unless they are held by it in a fiduciary capacity, in which case
they may be voted and shall be counted in determining the total number of
outstanding shares at any given time.
The Board of Directors may adopt by resolution a procedure by
which a stockholder may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation and any other provisions with respect to the procedure which the
Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Notwithstanding any other provision of the charter of the
Corporation or these Bylaws, Title 3, Subtitle 7 of the Corporations and
Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of stock of
the Corporation. This section may be repealed, in whole or in part, at any time,
whether before or after an acquisition of control shares and, upon such repeal,
may, to the extent provided by any successor bylaw, apply to any prior or
subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the
chairman of the meeting may appoint one or more persons as inspectors for such
meeting. Such inspectors shall ascertain and report the number of shares
represented at the meeting based upon their determination of the validity and
effect of proxies, count all votes, report the results and perform
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such other acts as are proper to conduct the election and voting with
impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by
him or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order or any
stockholder shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular
meeting or at any special meeting called for that purpose, a majority of the
entire Board of Directors may establish, increase or decrease the number of
directors, provided that the number thereof shall never be less than the minimum
number required by the Maryland General Corporation Law, nor more than 15, and
further provided that the tenure of office of a director shall not be affected
by any decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of
the Board of Directors shall be held immediately after and at the same place as
the annual meeting of stockholders, no notice other than this Bylaw being
necessary. The Board of Directors may provide, by resolution, the time and
place, either within or without the State of Maryland, for the holding of
regular meetings of the Board of Directors without other notice than such
resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board,
president or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board
of Directors shall be delivered personally or by telephone, facsimile
transmission, United States mail or courier to each director at his business or
residence address. Notice by personal delivery, by
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telephone or a facsimile transmission shall be given at least two days prior to
the meeting. Notice by mail shall be given at least five days prior to the
meeting and shall be deemed to be given when deposited in the United States mail
properly addressed, with postage thereon prepaid. Telephone notice shall be
deemed to be given when the director is personally given such notice in a
telephone call to which he is a party. Facsimile transmission notice shall be
deemed to be given upon completion of the transmission of the message to the
number given to the Corporation by the director and receipt of a completed
answer-back indicating receipt. Neither the business to be transacted at, nor
the purpose of, any annual, regular or special meeting of the Board of Directors
need be stated in the notice, unless specifically required by statute or these
Bylaws.
Section 6. QUORUM. A majority of the directors shall
constitute a quorum for transaction of business at any meeting of the Board of
Directors, provided that, if less than a majority of such directors are present
at said meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice, and provided further that if, pursuant
to the charter of the corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute, the Charter or these Bylaws.
Section 8. TELEPHONE MEETINGS. Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required
or permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 10. VACANCIES. If for any reason any or all the
directors cease to be directors, such event shall not terminate the Corporation
or affect these Bylaws or the powers of the remaining directors hereunder (even
if fewer than three directors remain). Any vacancy on the Board of Directors for
any cause other than an increase in the number of directors shall be filled by a
majority of the remaining directors, even if such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as
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director shall hold office until the next annual meeting of stockholders and
until his successor is elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any
stated salary for their services as directors but, by resolution of the Board of
Directors, may receive compensation per year and/or per meeting and/or per visit
to real property or other facilities owned or leased by the Corporation and for
any service or activity they performed or engaged in as directors. Directors may
be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.
Section 13. SURETY BONDS. Unless required by law, no director
shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 14. RELIANCE. Each director, officer, employee and
agent of the Corporation shall, in the performance of his duties with respect to
the Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon an opinion of counsel or upon reports made to
the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board of
Directors or officers of the corporation, regardless of whether such counsel or
expert may also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES
AND AGENTS. The directors shall have no responsibility to devote their full time
to the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of
Directors may appoint from among its members an Executive Committee, an Audit
Committee
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and other committees, composed of one or more directors, to serve at the
pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to
committees appointed under Section 1 of this Article any of the powers of the
Board of Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be
given in the same manner as notice for special meetings: of the Board of
Directors. A majority of the members of the committee shall constitute a quorum
for the transaction of business at any meeting of the committee. The act of a
majority of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two members of any committee may fix the time and place of
its meeting unless the Board shall otherwise provide. In the absence of any
member or any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required
or permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the
Board of Directors shall have the power at any time to change the membership of
any committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation
shall include a president, a secretary and a treasurer and may include a
chairman of the board, a vice chairman of the board, one or more vice
presidents, a chief operating officer, a chief financial officer, one or more
assistant secretaries and one or more assistant treasurers. In addition, the
Board of Directors may from time to time appoint such other officers with such
powers and
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duties as they shall deem necessary or desirable. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of
stockholders, except that the chief executive officer may appoint one or more
vice presidents, assistant secretaries and assistant treasurers. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except president and
vice president may be held by the same person. In its discretion, the Board of
Directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of
the Corporation may be removed by the Board of Directors if in its judgment the
best interests of the Corporation would be served thereby, but such removal
shalt be without prejudice to the contract rights, if any, of the person so
removed. Any officer of the Corporation may resign at any time by giving written
notice of his resignation to the Board of Directors, the chairman of the board,
the president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation. Such resignation shall be without prejudice to the
contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by
the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board shall be the chief executive officer of the Corporation.
The chief executive officer shall have general responsibility for implementation
of the policies of the Corporation, as determined by the Board of Directors, and
for the management of the business and affairs of the Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board. The chairman of the board shall preside over
the meetings of the Board of Directors and of the stockholders at which he shall
be present. The chairman
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of the board shall perform such other duties as may be assigned to him or them
by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive
officer, as the case may be, shall in general supervise and control all of the
business and affairs of the Corporation. In the absence of a designation of a
chief operating officer by the Board of Directors, the president shall be the
chief operating officer. He may execute any deed, mortgage, bond, contract or
other instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the Board of Directors from time to
time.
Section 9. VICE PRESIDENTS. In the absence of the president or
in the event of a vacancy in such office, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall perform the duties of the president
and when so acting shall have all the powers of and be subject to all the
restrictions upon the president; and shall perform such other duties as from
time to time may be assigned to him by the president or by the Board of
Directors. The Board of Directors may designate one or more vice presidents as
executive vice president or as vice president for particular areas of
responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the
minutes of the proceedings of the stockholders, the Board of Directors and
committees of the Board of Directors in one or more books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation; (d) keep a register of the
post office address of each stockholder which shall be furnished to the
secretary by such stockholder; (e) have general charge of the share transfer
books of the Corporation; and (f) in general perform such other duties as from
time to time may be assigned to him by the chief executive officer, the
president or by the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of
the funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever
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it may so require, an account of all his transactions as treasurer and of the
financial condition of the Corporation.
If required by the Board of Directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The assistant secretaries and assistant treasurers, in general, shall perform
such duties as shall be assigned to them by the secretary or treasurer,
respectively, or by the president or the Board of Directors. The assistant
treasurers shall, if required by the Board of Directors, give bonds for the
faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of
the officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances. Any agreement, deed, mortgage,
lease or other document executed by one or more of the directors or by an
authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors may designate.
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ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to
a certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chief executive officer, the president or a vice
president and countersigned by the secretary or an assistant secretary or the
treasurer or an assistant treasurer and may be sealed with the seal, if any, of
the Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the
transfer agent of the Corporation of a stock certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Notwithstanding the foregoing, transfers of shares of any
class of stock will be subject in all respects to the charter of the Corporation
and all of the terms and conditions contained therein.
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Section 3. REPLACEMENT CERTIFICATE. Any officer designated by
the Board of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
The Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are
not closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
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Section 5. STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to
time, to fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions
upon the stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or
other distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
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ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation,
the Board of Directors may from time to time adopt, amend, revise or terminate
any policy or policies with respect to investments by the Corporation as it
shall deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the
adoption of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is
permitted or required to affix its seal to a document, it shall be sufficient to
meet the requirements of any law, rule or regulation relating to a seal to place
the word "(SEAL)" adjacent to the signature of the person authorized to execute
the document on behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from
time to time, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or officer
of the Corporation and who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of such corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The
Corporation may, with the approval of its Board of Directors, provide such
indemnification and advance for expenses to a person who served a predecessor of
the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.
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Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or charter of the
Corporation inconsistent with this Article, shall apply to or affect in any
respect the applicability of the preceding paragraph with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
charter of the Corporation or these Bylaws or pursuant to applicable law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where such
person attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.
ARTICLE XIV
REGISTRATION OF LOANS IN NAME OF CORPORATION
In the event that any of the issued and outstanding senior,
unsecured indebtedness of National Bank of Canada (the "Bank") is rated "Baa3,"
or less, by Moody's Investors Service, Inc., or "BBB-," or less, by Standard &
Poor's Ratings Services, the Corporation will cause any mortgage loans to which
the Bank holds title on behalf of the Corporation, to be registered in the name
of the Corporation.
ARTICLE XV
AMENDMENT OF BYLAWS
Except as provided in the last sentence of this Article XV,
the Board of Directors shall have the exclusive power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws. Notwithstanding the
foregoing provisions of this Article XV, the amendment of Article XIV of these
Bylaws shall require either (i) the affirmative vote of a majority of the Board
of Directors (including a majority of the Independent Directors (as defined in
the Charter)), or (ii) the affirmative vote of a majority of the holders of the
Series A Preferred Shares (as defined in the Charter).
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REGISTRATION RIGHTS AGREEMENT
Dated as of September 3, 1997
by and among
NB CAPITAL CORPORATION
and
NATIONAL BANK OF CANADA
and
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
as Initial Purchaser
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of September 3, 1997 by and among NB CAPITAL CORPORATION, a
Maryland corporation (the "Company"), National Bank of Canada, a Canada
chartered bank (the "Bank") and the 100% owner of all the issued and outstanding
common stock of the Company, and MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED ("Merrill Lynch" or the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement
dated as of August 22, 1997 by and among the Company, the Bank and the Initial
Purchaser (the "Purchase Agreement"), which provides for, among other things,
the sale by the Company to the Initial Purchaser of 300,000 shares of the
Company's 8.35% Noncumulative Exchangeable Preferred Stock, Series A (each, a
"Security" and together, "Securities"), each of which will automatically be
exchanged, upon the occurrence of certain events, for one of the Bank's 8.45%
Noncumulative First Preferred Share, Series Z (a "Bank Preferred Share"). In
order to induce the Initial Purchaser to enter into the Purchase Agreement, the
Company and the Bank have agreed to provide to the Initial Purchaser and their
direct and indirect transferees the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a condition to the
closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following
capitalized defined terms shall have the following meanings:
"Advice" shall have the meaning set forth in the last
paragraph of Section 3 hereof.
"Applicable Period" shall have the meaning set forth in
Section 3(r) hereof.
"Business Day" shall mean a day that is not a Saturday, a
Sunday, or a day on which banking institutions in New York, New
York are required to be closed.
"Closing Time" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble
to this Agreement and also includes the Company's successors and
permitted assigns.
"Depositary" shall mean The Depository Trust Company, or any
other depositary appointed by the Company; provided, however,
that such depositary must have an address in the Borough of
Manhattan, in The City of New York.
"Effectiveness Period" shall have the meaning set forth in
Section 2(b) hereof.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Exchange Offer" shall mean the exchange offer by the
Company and the Bank of Exchange Securities for Securities
pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration
under the Securities Act effected pursuant to Section 2(a)
hereof.
<PAGE>
"Exchange Offer Registration Statement" shall mean an
exchange offer registration statement on Form S-1 or S-4 (or, if
applicable, on another appropriate form), and all amendments and
supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in
Section 2(a) hereof.
"Exchange Securities" shall mean the 8.35% Noncumulative
Exchangeable Preferred Stock, Series A, issued by the Company
identical to the Securities (except that the transfer
restrictions thereon shall be eliminated) to be offered to
Holders of Securities in exchange for Exchange Securities
pursuant to the Exchange Offer.
"Holder" shall mean the Initial Purchaser, for so long as it
owns any Registrable Securities, and each of their successors,
assigns and direct and indirect transferees who become registered
owners of Registrable Securities.
"Initial Purchaser" shall have the meaning set forth in the
preamble to this Agreement.
"Inspectors" shall have the meaning set forth in Section
3(n) hereof.
"Issue Date" shall mean the date of original issuance of the
Securities.
"Liquidated Damages" shall have the meaning and set forth in
Section 2(e) hereof.
"Majority Holders" shall mean the Holders of a majority of
the aggregate number of shares of outstanding Registrable
Securities.
"Offering Memorandum" shall mean the Offering Memorandum
relating to the Securities dated as of August 22, 1997.
"Participating Broker-Dealer" shall have the meaning set
forth in Section 3(r) hereof.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency
or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and
any such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the
terms of the offering of any portion of the Registrable
Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including
post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Records" shall have the meaning set forth in Section 3(m)
hereof.
"Registrable Securities" shall mean each Security until (i)
the date on which such Security has been exchanged by a Person
(ii) the date on which such Security has been effectively
registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement, (iii) the date on which
such Security is eligible for distribution to the public pursuant
to Rule 144(k) under the Securities Act (or any similar provision
then in force, but not Rule 144A under the Securities Act), (iv)
the date such Security shall have been otherwise transferred by
the holder thereof and a new Security not bearing
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a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of such
Security shall not require registration or qualification under
the Securities Act or any similar state law then in force or (v)
such Security ceases to be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company and the
Bank with this Agreement, including without limitation: (i) all
SEC, stock exchange or National Association of Securities
Dealers, Inc. (the "NASD") registration and filing fees, (ii) all
fees and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees and
disbursements of one counsel for any underwriters or the Initial
Purchaser in connection with blue sky qualification of any of the
Exchange Securities or Registrable Securities) and compliance
with the rules of the NASD, (iii) all expenses of any Persons
(other than the Holders or Persons acting on the request of the
Holders) in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any
Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing
any underwriting agreements, securities sales agreements and
other documents relating to the performance of and compliance
with this Agreement, (iv) all rating agency fees, (v) the fees
and disbursements of counsel for the Company and of the
independent certified public accountants of the Company,
including the expenses of any "cold comfort" letters required by
or incident to such performance and compliance, (vi) the fees and
expenses of the Transfer Agent, and any exchange agent or
custodian, (vii) all fees and expenses incurred in connection
with the listing, if any, of any of the Registrable Securities on
any securities exchange or exchanges, (viii) the fees and
expenses of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden,
Arps"), counsel for the Initial Purchaser and the Holders in
connection with a Shelf Registration Statement hereunder, and
(ix) any fees and disbursements of any underwriter customarily
required to be paid by Company or sellers of securities and the
reasonable fees and expenses of any special experts retained by
the Company in connection with any Registration Statement, but
excluding fees of counsel to the Initial Purchaser and
underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of Registrable
Securities by a Holder.
"Registration Statement" shall mean any registration
statement of the Company and the Bank which covers any of the
Exchange Securities or Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall have the meaning set forth in the
preamble to this Agreement and shall be deemed to included the
interest of the Holder thereof in the Bank Preferred Shares.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Senior Preferred Shares" shall mean the Adjustable Rate
Cumulative Senior Preferred Shares of the Company.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company and the Bank pursuant to
the provisions of Section 2(b) hereof which covers all of the
Registrable Securities or all of the Private Exchange Securities,
as the case may be, on an appropriate form under Rule 415 under
the Securities Act, or any similar rule that may be adopted by
the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
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"Transfer Agent" shall mean the Bank of Nova Scotia Trust
Company of New York.
2. Registration Under the Securities Act.
(a) Exchange Offer. To the extent not prohibited by any
applicable law or applicable SEC policy, the Company and the Bank shall, for the
benefit of the Holders, at the Company's cost (i) use their best efforts to file
with the SEC within 150 days after the Issue Date an Exchange Offer Registration
Statement on an appropriate form or forms under the Securities Act covering the
offer by the Company to the Holders to exchange all of the Registrable
Securities for a like number of Exchange Securities, (ii) use their best efforts
to cause such Exchange Offer Registration Statement to be declared effective
under the Securities Act by the SEC within 180 days after the Issue Date, (iii)
use their best efforts to have such Registration Statement remain effective for
no fewer than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer has been mailed to the Holders and (iv) commence
the Exchange Offer and use its best efforts to issue Exchange Securities in
exchange for all Securities properly tendered prior thereto in the Exchange
Offer not later than 45 days after the date on which the Exchange Offer
Registration Statement was declared effective by the SEC. Upon the effectiveness
of the Exchange Offer Registration Statement, the Company and the Bank shall
promptly commence the Exchange Offer, it being the objective of such Exchange
Offer to enable each Holder eligible and electing to exchange Registrable
Securities for Exchange Securities (assuming that such Holder is not an
affiliate of the Company within the meaning of Rule 405 under the Securities Act
and is not a broker-dealer tendering Registrable Securities acquired directly
from the Company for its own account as a result of market making activities or
other trading activities, acquires the Exchange Securities in the ordinary
course of such Holder's business and has no arrangements or understandings with
any Person to participate in the Exchange Offer for the purpose of distributing
(within the meaning of the Securities Act) the Exchange Securities) to transfer
such Exchange Securities from and after their receipt without any limitations or
restrictions under the Securities Act and without material restrictions under
state securities or blue sky laws.
In connection with the Exchange Offer, the Company and the
Bank shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with
an appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for acceptance for a
period of not less than 30 days after the date notice thereof is
mailed to the Holders (or longer if required by applicable law)
(such period referred to herein as the "Exchange Period");
(iii) utilize the services of the Depositary for the
Exchange Offer, if permitted by the Depositary;
(iv) permit Holders to withdraw tendered Securities at any
time prior to the close of business, New York time, on the last
Business Day of the Exchange Period, by sending to the
institution specified in the notice, a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the
number of Securities delivered for exchange, and a statement that
such Holder is withdrawing such Holder's election to have such
Securities exchanged;
(v) notify each Holder that any Security not tendered will
remain outstanding and continue to receive dividends, if, when
and as declared by the Company's Board of Directors, but will not
retain any rights under this Agreement (except in the case of the
Initial Purchaser and Participating Broker-Dealers as provided
herein); and
(vi) otherwise comply in all respects with all applicable
laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer
the Company and the Bank shall:
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(i) accept for exchange all Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange
Offer; and
(ii) deliver, or cause to be delivered, to the Exchange
Agent for cancellation all Securities so accepted for exchange,
and issue, and cause the Transfer Agent under the Transfer Agent
Agreement to promptly authenticate and deliver to each Holder, a
new Exchange Security equal in number to the number of the
Securities surrendered by such Holder and accepted for exchange.
Each Holder of Registrable Securities who wishes to exchange
such Registrable Securities for Exchange Securities in the Exchange Offer will
be required to make certain customary representations in connection therewith,
including representations that such Holder is not an affiliate of the Company
within the meaning of Rule 405 under the Securities Act, that any Exchange
Securities to be received by it will be acquired in the ordinary course of
business and that at the time of the commencement of the Exchange Offer it has
no arrangement with any Person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Securities.
Upon consummation of the Exchange Offer in accordance with
this Section 2(a), the provisions of this Agreement shall continue to apply,
mutatis mutandis, solely with respect to Registrable Securities that are held by
the Initial Purchaser and Exchange Securities held by Participating
Broker-Dealers, and the Company shall have no further obligation to register
Registrable Securities and the Liquidated Damages shall no longer apply pursuant
to Section 2(b) hereof.
(b) Shelf Registration. In the event that (i) the Company or
the Bank is not permitted to file the Exchange Offer Registration Statement or
to consummate the Exchange Offer because the Exchange Offer is not permitted by
a change in law or applicable interpretation of the SEC, (ii) the Exchange Offer
Registration Statement is not declared effective within 180 days after the Issue
Date, (iii) any holder of Securities notifies the Company within 30 days after
the commencement of the Exchange Offer that (a) due to a change in law or policy
it is not entitled to participate in the Exchange Offer, (b) due to a change in
law or policy it may not resell the Exchange Securities acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such holder or (c) it is a broker-dealer and owns
Securities acquired directly from the Company or an affiliate of the Company or
(d) the holders of a majority of the Securities may not resell the Exchange
Securities acquired by them in the Exchange Offer to the public without
restriction under the Securities Act and without restriction under applicable
blue sky or state securities laws or (e) the Company requests the Initial
Purchaser pursuant to Section 7(b) hereof to effect the public distribution of
Securities, then the Company and the Bank shall, at their cost, file as promptly
as practicable after such determination or date, in addition or in lieu of
effecting the registration of the Exchange Securities pursuant to the Exchange
Offer Registration Statement, and, in any event, prior to the later of (A) 180
days after the Issue Date or (B) 30 days after such filing obligation arises
(provided, however, that if the Company and the Bank have not consummated the
Exchange offer within 150 days after the Issue Date, then the Company and the
Bank shall file the Shelf Registration Statement with the SEC on or prior to the
180th day after the Issue Date), a Shelf Registration Statement providing for
the sale by the Holders of Registrable Securities, and shall use their best
efforts to cause such Shelf Registration Statement declared effective by the SEC
as soon as practicable and, in any event, on or prior to 60 days after the
obligation to file the Shelf Registration Statement arises. No Holder of
Registrable Securities may include any of its Registrable Securities in any
Shelf Registration filed pursuant to clause (e) above or any other Shelf
Registration pursuant to this Agreement unless and until such Holder furnishes
to the Company in writing, within 15 days after receipt of a request therefor,
such information as the Company may, after conferring with counsel with regard
to information relating to Holders that would be required by the SEC to be
included in such Shelf Registration Statement or Prospectus included therein,
reasonably request for inclusion in any Shelf Registration Statement or
Prospectus included therein. Each Holder as to which any Shelf Registration is
being effected agrees to furnish to the Company all information with respect to
such Holder necessary to make any information previously furnished to the
Company by such Holder not materially misleading.
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<PAGE>
The Company and the Bank agree to use their best efforts to
keep the Shelf Registration Statement continuously effective, supplemented and
amended for a period of up to two years after the Issue Date (six months in the
case of a Shelf Registration Statement filed at the request of the Initial
Purchaser) (or such shorter period provided for in any amendment to Rule 144(k)
under the Securities Act (or any successor provision other than Rule 144A) upon
the expiration of which securities are eligible for distribution to the public)
from the Issue Date or such shorter period that will terminate when all the
Registrable Securities covered by the Shelf Registration Statement have been
sold pursuant thereto (subject to extension pursuant to the last paragraph of
Section 3 hereof) or otherwise cease to be Registrable Securities (the
"Effectiveness Period"). The Company and the Bank shall not permit any
securities other than Registrable Securities to be included in the Shelf
Registration. The Company and the Bank further agree, if necessary, to
supplement or amend the Shelf Registration Statement, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company and the Bank for such Shelf Registration Statement or by the Securities
Act or by any other rules and regulations thereunder for shelf registrations,
and the Company and the Bank agree to furnish to the Holders of Registrable
Securities copies of any such supplement or amendment promptly after its being
used or filed with the SEC.
(c) Expenses. The Company shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) or 2(b) hereof and
Skadden, Arps, as counsel for the Holders to act as counsel for the Holders of
the Registrable Securities in connection with a Shelf Registration Statement.
Except as provided in the preceding sentence, each Holder shall pay all expenses
of its counsel, underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC; provided, however,
that if, after it has been declared effective, the offering of Registrable
Securities pursuant to a Shelf Registration Statement is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have been effective during the period of such interference, until the offering
of Registrable Securities may legally resume.
(e) Liquidated Damages. If (i) (A) the Company and the Bank
fail to file an Exchange Offer Registration Statement or a Shelf Registration
Statement on or before the 150th day after the Issue Date or (B) notwithstanding
that the Company has consummated or will consummate an Exchange Offer, the
Company is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not filed on or prior to the date required by Section
2(b) hereof, then commencing on the day after either such required filing date,
an additional amount being liquidated damages shall be payable to the holders of
the Securities at a rate of 0.25% of the liquidation preference per annum; or
(ii) if (A) neither the Exchange Offer Registration
Statement is declared effective by the SEC on or prior to the
180th day after the Issue Date nor a Shelf Registration Statement
is declared effective by the SEC on or prior to the later of the
30th day after the applicable required filing date or the 180th
day after the Issue Date or (B) notwithstanding that the Company
has consummated or will consummate an Exchange Offer, the Company
is required to file a Shelf Registration Statement and such Shelf
Registration Statement is not declared effective by the SEC on or
prior to the later of the 30th day after the date such Shelf
Registration Statement was required to be filed or the 180th day
after the Issue Date, then, commencing on the 181st day after the
Issue Date with respect to the Exchange Offer Registration
Statement or the 31st day after the applicable required filing
date (or the 181st day of the Issue Date, if later), an
additional amount being liquidated damages shall be payable to
the holders of the Securities at a rate of 0.25% of the
liquidation preference per annum; or
(iii) if (A) the Company has not exchanged Exchange
Securities for all Securities validly tendered in accordance with
the terms of the Exchange Offer on or prior to the 45th day after
the date on
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<PAGE>
which the Exchange Offer Registration Statement was declared
effective or (B) if applicable, the Shelf Registration Statement
has been declared effective and such Shelf Registration Statement
ceases to be available for use by holders of the Securities at
any time prior to the second anniversary of the Issue Date (other
than after such time as all Securities have been disposed of
thereunder or otherwise cease to be Registrable Securities), and
such event continues for a period exceeding 30 consecutive days
or 90 days in any 360-day period, whether or not consecutive,
then, an additional amount being liquidated damages, shall be
payable to the holders of the Securities at a rate of 0.25% of
the liquidation preference per annum commencing on (x) the 31st
day after such effective date, in the case of (A) above, or (y)
the 31st consecutive day or 91st day in any 360-day period
following the day such Shelf Registration Statement ceases to be
available in the case of (B) above.
provided, however, that the liquidated damages rate on the liquidation
preference of the Securities may not exceed in the aggregate 0.25% per annum
calculated on the basis of the number of days elapsed in a 360-day year of
twelve 30-day months; provided, further, however, that (1) upon the filing of
the Exchange Offer Registration Statement or a Shelf Registration Statement (in
the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer
Registration Statement or a Shelf Registration Statement (in the case of clause
(ii) above), or (3) upon the exchange of Exchange Securities for all Securities
tendered (in the case of clause (iii) (A) above), or upon the availability of
the Shelf Registration Statement which had ceased to be available (in the case
of clause (iii) (B) above), liquidated damages on the liquidation preference of
the Securities as a result of such clause (or the relevant subclause thereof)
shall cease to accrue.
Any amounts of Liquidated Damages due pursuant to clause (i),
(ii) or (iii) above will be payable in cash quarterly on the 30th day of March,
June, September and December of each year to the Holders of record on the
immediately preceding 15th day of such month.
(f) Specific Enforcement. Without limiting the remedies
available to the Initial Purchaser and the Holders, the Company and the Bank
acknowledge that any failure by the Company or the Bank to comply with its
obligations under Section 2(a) and Section 2(b) hereof may result in material
irreparable injury to the Initial Purchaser or the Holders for which there is no
adequate remedy at law, that it would not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchaser or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Bank's obligations under Section 2(a)
and Section 2(b) hereof.
3. Registration Procedures. In connection with the obligations
of the Company and the Bank with respect to the Registration Statements pursuant
to Sections 2(a) and 2(b) hereof, the Company and the Bank shall:
(a) prepare and file with the SEC a Registration Statement
or Registration Statements as prescribed by Sections 2(a) and
2(b) hereof within the relevant time period specified in Section
2 hereof on the appropriate form or forms under the Securities
Act, which form (i) shall be selected by the Company and the
Bank, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the
selling Holders thereof and (iii) shall comply as to form in all
material respects with the requirements of the applicable form
and include or incorporate by reference all financial statements
required by the SEC to be filed therewith; and use their best
efforts to cause such Registration Statement to become effective
and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may
be necessary under applicable law to keep such Registration
Statement effective for the Effectiveness Period or the
Applicable Period, as the case may be; and cause each Prospectus
to be supplemented by any required prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 (or any similar
provision then in force) if required pursuant to Rule 424 (or any
similar provision then in force) under the Securities Act; and
comply with the provisions of the
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<PAGE>
Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder applicable to it with respect
to the disposition of all securities covered by each Registration
Statement during the Effectiveness Period or the Applicable
Period, as the case may be, in accordance with the intended
method or methods of distribution by the selling Holders thereof
described in this Agreement (including sales by any Participating
Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each
Holder of Registrable Securities to be covered by such Shelf
Registration Statement, at least three Business Days prior to
filing, that a Shelf Registration Statement with respect to the
Registrable Securities is being filed and advising such Holder
that the distribution of Registrable Securities will be made in
accordance with the method selected by the Majority Holders; and
(ii) furnish to each Holder of Registrable Securities and to each
underwriter of an underwritten offering of Registrable
Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary prospectus, and any
amendment or supplement thereto and such other documents as such
Holder or underwriter may reasonably request, in order to
facilitate the public sale or other disposition of the
Registrable Securities; and (iii) subject to the last paragraph
of Section 3 hereof, hereby consent to the use of the Prospectus
or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering
and sale of the Registrable Securities covered by the Prospectus
or any amendment or supplement thereto;
(d) in the case of a Shelf Registration, use their best
efforts to register or qualify the Registrable Securities under
all applicable state securities or "blue sky" laws of such
jurisdictions by the time the applicable Registration Statement
is declared effective by the SEC as any Holder of Registrable
Securities covered by a Registration Statement and each
underwriter of an underwritten offering of Registrable Securities
shall reasonably request in writing in advance of such date of
effectiveness, and do any and all other acts and things which may
be reasonably necessary or advisable to enable such Holder or
underwriter to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder;
provided, however, that neither the Company nor the Bank shall be
required to (i) qualify as a foreign corporation or as a dealer
in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d) or (ii) take any
action which would subject it to general service of process or to
taxation in any such jurisdiction if it is not so subject;
(e) in the case of (1) a Shelf Registration or (2)
Participating Broker-Dealers who have notified the Company and
the Bank that they will be utilizing the Prospectus contained in
the Exchange Offer Registration Statement as provided in Section
3(r) hereof, notify each Holder of Registrable Securities, or
such Participating Broker-Dealers, as the case may be, their
counsel and confirm such notice in writing (i) when a
Registration Statement has become effective and when any
post-effective amendments and supplements thereto become
effective, (ii) of any request by the SEC or any state securities
authority for post-effective amendments and supplements to a
Registration Statement or Prospectus or for additional
information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) in the case of a Shelf
Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of the
Company and the Bank contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any,
relating to such offering (but not including the Purchase
Agreement or this Agreement) cease to be true and correct in all
material respects, (v) if the Company or the Bank receives any
notification with respect to the suspension of effectiveness of a
Registration Statement or the qualification of the Registrable
Securities or the Exchange Securities to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction
described in Section 3(d) hereof or the initiation of any
proceeding for such purpose, (vi) of the happening of any event
or the failure of any event to occur or the discovery of any
facts or otherwise during the Effectiveness Period or Applicable
Period, as the case may be, which makes any statement made in a
Registration Statement or the related Prospectus untrue in any
material respect or
8
<PAGE>
which causes such Registration Statement or Prospectus to
omit to state a material fact necessary to make the statements
therein (in the case of the Prospectus, in the light of the
circumstances under which they were made) not misleading and
(vii) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be
appropriate;
(f) make reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement
as soon as practicable;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, without charge, at least one
conformed copy of each Registration Statement relating to such
Shelf Registration and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits
thereto, unless requested in writing);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive
legends; and cause such Registrable Securities to be in such
permitted denominations and registered in such names as the
selling Holders or the underwriters may reasonably request at
least two Business Days prior to the closing of any sale of
Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence
of any circumstance contemplated by Section 3(e)(ii), 3(e)(iii),
3(e)(v), 3(e)(vi) or 3(e)(vii) hereof, use their best efforts to
prepare a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required
document (subject to Section 3(a)) so that, as thereafter
delivered to the purchasers of the Registrable Securities or
Exchange Securities to whom a Prospectus is being delivered by a
Participating Broker-Dealer who has notified the Company that it
will be utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in Section 3(r) hereof, such
Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading; and to notify each Holder or
Participating Broker-Dealer, as the case may be, to suspend use
of the Prospectus as promptly as practicable after the occurrence
of such an event, and each Holder and Participating Broker-Dealer
hereby agrees to suspend use of the Prospectus until the Company
have amended or supplemented the Prospectus to correct such
misstatement or omission;
(j) in the case of a Shelf Registration, upon the filing of
any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after the initial filing
of a Registration Statement, provide a reasonable number of
copies of such document to the Holders of Securities registrable
thereunder;
(k) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement, and provide the
transfer agent with certificates for the Exchange Securities or
the Registrable Securities, as the case may be, in a form
eligible for deposit with the Depositary;
(l) in the case of a Shelf Registration, enter into such
agreements (including underwriting agreements) as are customary
in underwritten offerings and take all such other appropriate
actions as are reasonably requested in order to expedite or
facilitate the registration or the disposition of such
Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration: (i) make such
representations and warranties to Holders of such Registrable
Securities and the underwriters (if any), with respect to the
business of the Company and the Bank and its subsidiaries as then
conducted or proposed to be
9
<PAGE>
conducted and the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by
issuers to underwriters in underwritten offerings, and confirm
the same if and when requested; (ii) obtain opinions of counsel
to the Bank and the Company and updates thereof in form and
substance reasonably satisfactory to the managing underwriters
(if any) and the Holders of a majority in principal amount of the
Registrable Securities being sold, addressed to each selling
Holder and the underwriters (if any) covering the matters
customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested
by such Holders and underwriters; (iii) obtain "cold comfort"
letters and updates thereof in form and substance reasonably
satisfactory to the managing underwriters (if any) from the
independent certified public accountants of the Bank and the
Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any
business acquired by the Bank or the Company for which financial
statements and financial data are, or are required to be,
included in the Registration Statement), addressed to the selling
Holders of Registrable Securities and to each of the underwriters
(if any), such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters
in connection with underwritten offerings and such other matters
as reasonably requested by such selling Holders and underwriters;
and (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures no less
favorable than those set forth in Section 4 hereof (or such other
less favorable provisions and procedures acceptable to Holders of
a majority in aggregate principal amount of Registrable
Securities covered by such Registration Statement and the
managing underwriters or agents) with respect to all parties to
be indemnified pursuant to said Section (including, without
limitation, such underwriters and selling Holders). The above
shall be done at each closing under such underwriting agreement
upon the request of the Majority Holders, or as and to the extent
required thereunder;
(m) if (1) a Shelf Registration is filed pursuant to Section
2(b) or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Securities during the
Applicable Period, upon the request of the Initial Purchaser,
make available for inspection by a representative or
representatives (reasonably acceptable to the Bank) of the
selling Holders of such Registrable Securities being sold, or
each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable
Securities, if any, (collectively, the "Inspectors"), at the
offices where normally kept, during reasonable business hours,
all financial and other records, pertinent corporate documents
and properties of the Company, the Bank and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees
of the Company or the Bank and its subsidiaries to supply all
information in each case reasonably requested by any such
Inspector in connection with such Registration Statement. Records
which the Company or the Bank determines, in good faith, to be
confidential or any Records which they notify the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary in connection with
the Inspectors' assertion of any claims or actions or with their
establishment of any defense in an action then pending before a
court of competent jurisdiction, (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) the information in such Records
has been made generally available to the public. Each selling
Holder of such Registrable Securities and each such Participating
Broker-Dealer will be required to agree that information obtained
by it as a result of such inspections shall be deemed
confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or the Bank
unless and until such is made generally available to the public.
Each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to further agree
that it will, prior to disclosure of such Records pursuant to
clause (i) or (ii) above, give prompt notice to the Company and
the Bank and allow the Company and the Bank at their expense to
undertake appropriate action to prevent disclosure to the public
of the Records deemed confidential;
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(n) comply with all applicable rules and regulations of the
SEC and make generally available to their securityholders
earnings statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) as promptly as practicable;
(o) cooperate with each seller of Registrable Securities
covered by any Registration Statement and each underwriter, if
any, participating in the disposition of such Registrable
Securities and their respective counsel in connection with any
filings required to be made with the NASD;
(p) in the case of the Exchange Offer Registration Statement
(i) include in the Exchange Offer Registration Statement a
section entitled "Plan of Distribution," which section shall be
reasonably acceptable to the Initial Purchaser or another
representative of the Participating Broker-Dealers, and which
shall contain a summary statement of the positions taken or
policies made by the staff of the SEC with respect to the
potential "underwriter" status of any broker-dealer (a
"Participating Broker-Dealer") that holds Registrable Securities
acquired for its own account as a result of market-making
activities or other trading activities and that will be the
beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of Exchange Securities to be received by such broker-dealer
in the Exchange Offer, whether such positions or policies have
been publicly disseminated by the staff of the SEC or such
positions or policies, in the reasonable judgment of the Initial
Purchaser or such other representative, represent the prevailing
views of the staff of the SEC, including a statement that any
such broker-dealer who receives Exchange Securities for
Registrable Securities pursuant to the Exchange Offer may be
deemed a statutory underwriter and must deliver a prospectus
meeting the requirements of the Securities Act in connection with
any resale of such Exchange Securities, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company the
notice referred to in Section 3(e), without charge, as many
copies of each Prospectus included in the Exchange Offer
Registration Statement, including any preliminary prospectus, and
any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request, (iii) subject to the last
paragraph of this Section 3 hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration
Statement or any amendment or supplement thereto, by any Person
subject to the prospectus delivery requirements of the SEC,
including all Participating Broker-Dealers, in connection with
the sale or transfer of the Exchange Securities covered by the
Prospectus or any amendment or supplement thereto, for a period
of up to six months, (iv) use their best efforts to keep the
Exchange Offer Registration Statement effective and to amend and
supplement the Prospectus contained therein in order to permit
such Prospectus to be lawfully delivered by all Persons subject
to the prospectus delivery requirements of the Securities Act for
such period of time as such Persons must comply with such
requirements in order to resell the Exchange Securities;
provided, however, that such period shall not be required to
exceed 180 days (or such longer period if extended pursuant to
the last sentence of Section 3 hereof) (the "Applicable Period"),
and (iv) include in the transmittal letter or similar
documentation to be executed by an exchange offeree in order to
participate in the Exchange offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding
Registrable Securities acquired for its own account as a
result of market-making activities or other trading
activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any
resale of Exchange Securities received in respect of such
Registrable Securities pursuant to the Exchange Offer";
and (y) a statement to the effect that by a Participating
Broker-Dealer making the acknowledgment described in clause (x)
and by delivering a Prospectus in connection with the exchange of
Registrable Securities, such Participating Broker-Dealer will not
be deemed to admit that it is an underwriter within the meaning
of the Securities Act.
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<PAGE>
The Company and the Bank may require each seller of
Registrable Securities as to which any registration is being
effected to furnish to the Company and the Bank such information
regarding such seller and the proposed distribution of such
Registrable Securities, as the Company or the Bank may from time
to time reasonably request in writing. The Company and the Bank
may exclude from such registration the Registrable Securities of
any seller who fails to furnish any such information which the
Company or the Bank reasonably requires in order for the Shelf
Registration Statement to comply with applicable law and SEC
policy within a reasonable time after receiving such request and
shall be under no obligation to compensate any such seller for
any lost income, interest or other opportunity foregone, or any
liability incurred, as a result of the Company's or the Bank's
decision to exclude such seller.
In the case of (1) a Shelf Registration Statement or (2)
Participating Broker-Dealers who have notified the Company and the Bank that
they will be utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in Section 3(r) hereof that are seeking to
sell Exchange Securities and are required to deliver Prospectuses, each Holder
or Participating Broker-Dealer, as the case may be, agrees that, upon receipt of
any notice from the Company or the Bank of the happening of any event of the
kind described in Section 3(e)(ii), 3(e)(iii), 3(e)(v), 3(e)(vi) or 3(e)(vii)
hereof, such Holder or Participating Broker-Dealer, as the case may be, will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement or Exchange Securities, as the case may be, until such
Holder's or Participating Broker-Dealer's, as the case may be, receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 3(i)
hereof or until it is advised in writing (the "Advice") by the Company that the
use of the applicable Prospectus may be resumed, and, if so directed by the
Company, such Holder or Participating Broker-Dealer, as the case may be, will
deliver to the Company (at the Company's expense) all copies in such Holder's or
Participating Broker-Dealer's, as the case may be, possession, other than
permanent file copies then in such Holder's or Participating Broker-Dealer's, as
the case may be, possession, of the Prospectus covering such Registrable
Securities or Exchange Securities, as the case may be, current at the time of
receipt of such notice. If the Company or the Bank shall give any such notice to
suspend the disposition of Registrable Securities or Exchange Securities, as the
case may be, pursuant to a Registration Statement, (x) the Company and the Bank
shall use their best efforts to file and have declared effective (if an
amendment) as soon as practicable an amendment or supplement to the Registration
Statement and, in the case of an amendment, have such amendment declared
effective as soon as practicable; provided, however, that the Company or the
Bank may postpone the filing of such amendment or supplement for a period not to
extend beyond the earlier to occur of (I) 30 days after the date of the
determination of the Board of Directors referred to below and (II) the day after
the cessation of the circumstances described below upon which such postponement
is based, if the Board of Directors of the Company or the Bank determines
reasonably and in good faith that such filing would require disclosure of
material information which the Company or the Bank has a bona fide purpose for
preserving as confidential; provided, further, however, that the Company shall
be entitled to such postponement only once during any 12-month period and the
exercise by the Company of its rights under this provision shall not relieve it
of any obligation to pay liquidated damages under Section 2(e); and (y) the
Company and the Bank shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days in the period from and including the date of the giving of such notice
to and including the date when the Company or the Bank shall have made available
to the Holders or Participating Broker-Dealers, as the case may be, (x) copies
of the supplemented or amended Prospectus necessary to resume such dispositions
or (y) the Advice.
4. Indemnification and Contribution. (a) The Company and the
Bank shall, jointly and severally, indemnify and hold harmless the Initial
Purchaser, each Holder, including Participating Broker-Dealers, each underwriter
who participates in an offering of Registrable Securities, their respective
affiliates, each Person, if any, who controls any of such parties within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
and each of their respective directors, officers, employees and agents, as
follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment or
supplement thereto), covering Registrable Securities or
12
<PAGE>
Exchange Securities, including all documents incorporated
therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement
of a material fact contained in any Prospectus (or any amendment
or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the prior written
consent of the Company and the Bank; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of one counsel
chosen by all indemnified parties with respect to any single
claim (except to the extent otherwise expressly provided in
Section 4(c) hereof)), reasonably incurred in investigating,
preparing or defending against any litigation, or any
investigation or proceeding by any court or governmental agency
or body, commenced or threatened, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission (i) made in reliance upon and
in conformity with written information furnished in writing to the Company or
the Bank by the Initial Purchaser, such Holder, such Participating Broker-Dealer
or any underwriter with respect to such Initial Purchaser, Holder, Participating
Broker-Dealer or underwriter, as the case may be, expressly for use in the
Registration Statement (or any amendment or supplement thereto) or any
Prospectus (or any amendment or supplement thereto) or (ii) contained in any
Prospectus if such Initial Purchaser, such Holder, including Participating
Broker-Dealers or such underwriter failed to send or deliver a copy of the
Prospectus (as amended or supplemented) to the Person asserting such losses,
claims, damages or liabilities on or prior to the delivery of written
confirmation of any sale of securities covered thereby to such Person in any
case where such delivery is required by the Securities Act and a court of
competent jurisdiction in a judgment not subject to appeal or final review shall
have determined that such Prospectus would have corrected such untrue statement
or omission. Any amounts advanced by the Company or the Bank to an indemnified
party pursuant to this Section 4 as a result of such losses shall be returned to
the Company or the Bank if it shall be finally determined by such a court in a
judgment not subject to appeal or final review that such indemnified party was
not entitled to indemnification by the Company or the Bank.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Bank, the Initial Purchaser, each
underwriter who participates in an offering of Registrable Securities and the
other selling Holders and each of their respective directors, officers
(including each officer of the Company or the Bank who signed the Registration
Statement), employees and agents and each Person, if any, who controls the
Company, the Bank, the Initial Purchaser, any underwriter or any other selling
Holder within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, against any and all loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 4(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company or the
Bank by such selling Holder expressly for use in the Registration Statement (or
any supplement thereto), or any such Prospectus (or any amendment or supplement
thereto); provided, however, that, in the case of the Shelf Registration
Statement, no such Holder shall be liable for any claims hereunder in excess of
the amount of net proceeds received by such Holder from the sale or other
disposition of Registrable Securities pursuant to such Shelf Registration
Statement.
13
<PAGE>
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 4(a) above, counsel to the indemnified
parties shall be selected by the Initial Purchaser, and, in the case of parties
indemnified pursuant to Section 4(b) above, counsel to the indemnified parties
shall be selected by the Company and the Bank. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for reasonable fees and
expenses of counsel to which such indemnified party is entitled pursuant to
Section 4(a) or (b), such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 4(a)(ii) effected without
its written consent if (i) such settlement is entered into more than 215 days
after receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement (other than
reimbursement for fees and expenses that the indemnifying party is contesting in
good faith).
(e) If any of the indemnity provisions set forth in this
Section 4 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company and the Bank and
the Holders, including participating Broker-Dealers shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company, the Bank, the
Initial Purchaser, the Holders and the Participating Broker-Dealers; provided,
however, that no Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person that was not guilty of such fraudulent
misrepresentation. As between the Company and the Holders, such parties shall
contribute to such aggregate loses, liabilities, claims, damages, and expenses
of the nature contemplated by such indemnity agreement incurred by such
indemnified party, as incurred, in such proportion as shall be appropriate to
reflect the relative fault of the Company and the Bank on the one hand and of
the Holder of Registrable Securities, the Participating Broker-Dealer or the
Initial Purchaser, as the case may be, on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company and the Bank on the one hand
and the Holders of Registrable Securities, including Participating
Broker-Dealers or the Initial Purchaser, as the case may be, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and the
Bank, or by such Holder of Registrable Securities, the Participating
Broker-Dealer or the Initial
14
<PAGE>
Purchaser, as the case may be, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Bank and the Holders of the Registrable
Securities and the Initial Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 4.
For purposes of this Section 4, each affiliate of the Initial
Purchaser or any Holder, and each director, officer, employee, agent and Person,
if any, who controls a Holder of Registrable Securities, the Initial Purchaser
or a Participating Broker-Dealer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such other Person, and each director of the Company, the Bank,
each officer of the Company or the Bank who signed the Registration Statement,
and each director, officer, employee, agent and Person, if any, who controls the
Company or the Bank within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Company and the Bank.
5. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements. The Company and the
Bank shall be under no obligation to compensate any Holder for lost income,
interest or other opportunity foregone, or other liability incurred, as a result
of the Company's or the Bank's decision to exclude such Holder from any
underwritten registration if such Holder has not complied with the provisions of
this Section 5 in all material respects following 5 business days' written
notice of non-compliance and the Company's or the Bank's decision to exclude
such Holder.
6. Selection of Underwriters. The Holders of Registrable
Securities covered by the Shelf Registration Statement who desire to do so may
sell the securities covered by such Shelf Registration in an underwritten
offering. In any such underwritten offering, the underwriter or underwriters and
manager or managers that will administer the offering will be selected by the
Majority Holders of the Registrable Securities included in such offering;
provided, however, that such underwriters and managers must be reasonably
satisfactory to the Company and the Bank.
7. Miscellaneous.
(a) Rule 144 and Rule 144A. For so long as the Company or the
Bank is subject to the reporting requirements of Section 13 or 15 of the
Exchange Act and any Registrable Securities remain outstanding, each of the
Company and the Bank covenants that it will file the reports required to be
filed by it under the Securities Act and Section 13(a) or 15(d) of the Exchange
Act and the rules and regulations adopted by the SEC thereunder, that if it
ceases to be so required to file such reports, it will upon the request of any
Holder of Registrable Securities (a) make publicly available such information as
is necessary to permit sales pursuant to Rule 144 under the Securities Act, (b)
deliver such information to a prospective purchaser as is necessary to permit
sales pursuant to Rule 144A under the Securities Act, and (c) take such further
action that is reasonable in the circumstances, in each case, to the extent
required from time to time to enable such Holder to sell its Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, (ii) Rule 144A under the Securities Act,
as such rule may be amended from time to time, or (iii) any similar rules or
regulations hereafter adopted by the SEC. Upon the reasonable written request of
any Holder of Registrable Securities, the Company and the Bank will deliver to
such Holder a written statement as to whether it has complied with such
requirements.
15
<PAGE>
(b) The Initial Purchaser hereby undertakes on a best efforts
basis to distribute the Senior Preferred Shares to a minimum of 100 holders
independent of the Company and of one another.
(c) No Inconsistent Agreements. Neither the Company nor the
Bank have entered into nor will the Company or the Bank on or after the date of
this Agreement enter into any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Bank's other issued and outstanding
securities under any such agreements.
(d) Amendments and Waivers. The provisions of this Agreement,
including provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, otherwise than with the prior written consent of the Company
and the Bank and the Majority Holders affected by any such amendment,
modification or supplement; provided, however, that no amendment, modification,
or supplement or waiver or consent to the departure with respect to the
provisions of Section 4 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder of
Registrable Securities.
(e) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder (other than the Initial Purchaser), at the most
current address set forth in the records of the Registrar, (ii) if to the
Initial Purchaser, at the most current address given by the Initial Purchaser to
the Company by means of a notice given in accordance with the provisions of this
Section 7(d), the address set forth in the Purchase Agreement and (iii) if to
the Company or the Bank, initially at the address set forth in the Purchase
Agreement and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 7(e).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties hereto, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement. If
any transferee of any Holder shall acquire Registrable Securities, in any
manner, whether by operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding such Registrable Securities, such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement, including the restrictions on resale set forth in this Agreement
and, if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(g) Third Party Beneficiary. The Holders shall be third party
beneficiaries of the agreements made hereunder between the Company and the Bank,
on the one hand, and the Initial Purchaser, on the other hand, and shall have
the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder.
(h) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
16
<PAGE>
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Specified times
of day refer to New York City time.
(k) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(l) Securities Held by the Company, the Bank or any of their
Affiliates. Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder, Registrable
Securities held by the Company, the Bank or any of their affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(m) Submission to Jurisdiction. By execution and delivery of
this Agreement, the Bank (i) acknowledges that it has irrevocably designated and
appointed the Company as its agent in The City of New York upon whom process may
be served in any suit or proceeding arising out of or relating to this Agreement
that may be instituted in the Supreme Court of the State of New York or the
United States District Court for the Southern District of New York, in either
case in the Borough of Manhattan, The City of New York, and acknowledges that
the Company has accepted such designation, (ii) submits to the nonexclusive
jurisdiction of any such court in any such suit or proceeding, and (iii) agrees
that service of process upon the Company and written notice of said service to
the Bank (mailed or delivered in each case as specified in Section 7 (e) hereof)
shall be deemed in every respect effective service of process upon the Bank in
any such suit or proceeding. The Bank further agrees to take any and all action,
including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and appointment of
the Company in full force and effect so long as this Agreement shall be in full
force and effect.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
NB CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
NATIONAL BANK OF CANADA
By:
------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
----------------------------
Name:
Title:
0178142.05-01S3a
[Shearman & Sterling letterhead]
November __, 1997
Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center-North Tower
250 Vesey Street, 7th Floor
New York, New York 10281
NB Capital Corporation
8.35% Noncumulative Exchangeable Preferred Stock, Series A
----------------------------------------------------------
Ladies and Gentlemen:
At the request of NB Capital Corporation (the "Company"), we
hereby confirm as of the date hereof our opinion that the statements set forth
under the caption "United States Federal Taxation" in the Prospectus dated
November __, 1997 contained in the Company's Registration Statement on Form S-4
(Registration No. 333-______) (the "Registration Statement"), insofar as such
statements relate to statements of law or legal conclusions under the laws of
the United States or matters of United States law, fairly present the
information called for and fairly summarize the matters referred to therein.
Very truly yours,
PHB/LMB/DRM
Advisory Agreement
-- between --
NB Capital Corporation
-- and --
National Bank of Canada
September 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS.........................................................-1-
2. DUTIES OF THE ADVISOR...............................................-2-
3. COMPENSATION OF THE ADVISOR.........................................-4-
4. EXPENSES OF THE ADVISOR.............................................-4-
5. RECORDS.............................................................-4-
6. REIT QUALIFICATION AND COMPLIANCE...................................-4-
7. TERM: TERMINATION..................................................-5-
8. OTHER ACTIVITIES OF THE ADVISOR.....................................-5-
9. BINDING EFFECT: ASSIGNMENT.........................................-5-
10. SUBCONTRACTING......................................................-6-
11. LIABILITY AND INDEMNITY OF THE ADVISOR..............................-6-
12. ACTION UPON NOTICE OF NON-RENEWAL OR TERMINATION....................-6-
13. NO JOINT VENTURE OR PARTNERSHIP.....................................-7-
14. NOTICES.............................................................-7-
15. SEVERABILITY........................................................-8-
16. GOVERNING LAW.......................................................-8-
17. AMENDMENTS..........................................................-8-
18. HEADINGS............................................................-9-
-i-
<PAGE>
ADVISORY AGREEMENT
Advisory Agreement (the "Agreement") entered into as of September 3, 1997
BETWEEN: NB CAPITAL CORPORATION, a Maryland
corporation,
(the "Company")
AND: NATIONAL BANK OF CANADA, a Canadian
chartered bank;
(the "Advisor")
WHEREAS the Company intends to qualify as a "real estate investment
trust" ("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code");
AND WHEREAS the Company desires to avail itself of the experience and
assistance of the Advisor and to have the Advisor undertake, on the Company's
behalf, the duties and responsibilities hereinafter set forth, subject to the
control and supervision of the Board of Directors of the Company (the "Board of
Directors") as provided for herein;
AND WHEREAS the Advisor desires to render such services to the Company
subject to the control and supervision of the Board of Directors, on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS
1.1 Definitions
As used herein, the following terms shall have the respective meanings
set forth below:
1.1.1 "Advisor" has the meaning set forth in the forepart of this Agreement.
1.1.2 "Advisor Termination Date" means the date on which this Agreement
terminates.
1.1.3 "Agreement" means this Advisory Agreement, as amended, modified and
supplemented from time to time.
1.1.4 "Board of Directors" has the meaning set forth in the forepart of this
Agreement.
<PAGE>
1.1.5 "Company" has the meaning set forth in the forepart of this Agreement.
1.1.6 "Independent Directors" means the members of the Board of Directors
who are not current officers or employees the Company or current
directors, employees or officers of the Advisor or any affiliate of
the Advisor.
1.1.7 "Operating Expenses" for any period means all of the operating
expenses of the Company (with the exception of those expenses to be
borne by the Advisor in accordance with Section 4 hereof).
1.1.8 "Person" means and includes individuals, corporations, limited
partnerships, general partnerships, joint stock companies or
associations, limited liability companies, joint ventures,
associations, consortia, companies, trusts, banks, trust companies,
land trusts, common laws trusts, business trusts or other entities,
governments and agencies and political subdivisions thereof.
1.1.9 "REIT" has the meaning set forth in the forepart of this Agreement.
2. DUTIES OF THE ADVISOR
The Advisor shall consult with the Board of Directors and the officers
of the Company and shall, at the request of the Board of Directors and/or the
officers of the Company, furnish advice and recommendations with respect to all
aspects of the business and affairs of the Company. Subject to the control and
discretion and at the request of the Board of Directors, the Advisor shall:
(a) administer the day-to-day operations and affairs of the Company,
including, without limitation, the performance or supervision of
the functions described in this Section 2;
(b) monitor the credit quality of the real estate mortgage assets
held by the Company;
(c) advise the Company with respect to the acquisition, management,
financing and disposition of the Company's real estate mortgage
assets;
(d) represent the Company in its day-to-day dealings with Persons
with whom the Company interacts, including, without limitation,
stockholders of the Company, the transfer agent of the Company,
consultants, accountants, attorneys, servicers of the Company's
mortgage loans, custodians, insurers and banks;
(e) establish and provide necessary services for the Company,
including executive, administrative, accounting, stockholder
relations, secretarial, recordkeeping, copying, telephone,
mailing and distribution facilities;
-2-
<PAGE>
(f) maintain communications and relations with the stockholders of
the Company, including, but not limited to, responding to
inquiries, proxy solicitations, providing reports to stockholders
and arranging and coordinating all meetings of stockholders;
(g) monitor and supervise the performance of all parties who have
contracts to perform services for the Company, provided that the
Advisor shall have no duty to assume the obligations or guarantee
the performance of such parties under such contracts;
(h) arrange for the execution and delivery of such documents and
instruments by the officers of the Company as may be required in
order to perform the functions herein described and to take any
other required action contemplated by the terms of this
Agreement;
(i) maintain proper books and records of the Company's affairs and
furnish or cause to be furnished to the Board of Directors such
periodic reports and accounting information as may be required
from time to time by the Board of Directors, including, but not
limited to, quarterly reports of all income, expenses and
distributions of the Company;
(j) consult and work with legal counsel for the Company in
implementing Company decisions and undertaking measures
consistent with all pertinent federal, provincial and local laws
and rules or regulations of governmental or quasi-governmental
agencies, including, but not limited to, federal and provincial
securities laws and tax laws, as it relates to the Company's
qualification as a REIT, and the regulations promulgated under
each of the foregoing;
(k) consult and work with accountants for the Company in connection
with the preparation of financial statements, annual reports and
tax returns;
(l) prepare and distribute, in consultation with the accountants for
the Company, annual reports to stockholders which will contain
audited financial statements;
(m) furnish reports to the Board of Directors and provide research,
economical and statistical data in connection with the Company's
investments; and
(n) as reasonably requested by the Company, make reports to the
Company of its performance of the foregoing services and furnish
advice and recommendations with respect to other aspects of the
business of the Company.
-3-
<PAGE>
3. COMPENSATION OF THE ADVISOR
The Company shall pay to the Advisor, for services rendered by the
Advisor hereunder, an advisory fee equal to TWENTY-FIVE THOUSAND Dollars
($25,000) per year, payable in equal quarterly installments.
4. EXPENSES OF THE ADVISOR
(a) Without regard to the compensation received pursuant to Section 3
hereof, the Advisor shall bear the following expenses:
(i) employment expenses of the personnel employed by the
Advisor, including, without limitation, salaries, wages,
payroll taxes and the cost of employee benefit plans; and
(ii) rent, telephone equipment, utilities, office furniture and
equipment and machinery and other office expenses of the
Advisor incurred in connection with the maintenance of any
office facility of the Advisor.
(b) The Company shall reimburse the Advisor within 30 days of a
written request by the Advisor for any Operating Expenses paid or
incurred by the Advisor on behalf of the Company.
5. RECORDS
The Advisor shall maintain appropriate books of account and records
relating to services performed hereunder, and such books of account and records
shall be accessible for inspection by the Board of Directors and representatives
of the Company at all times.
6. REIT QUALIFICATION AND COMPLIANCE
The Advisor shall consult and work with the Company's legal counsel in
maintaining the Company's qualification as a REIT. Notwithstanding any other
provisions of this Agreement to the contrary, the Advisor shall refrain from any
action which, in its reasonable judgment or in the judgment of the Board of
Directors (of which the Advisor has received written notice), may adversely
affect the qualification of the Company as a REIT or which would violate any
laws, rule or regulation of any governmental body or agency having jurisdiction
over the Company or its securities, or which would otherwise not be permitted by
the articles of incorporation or by-laws of the Company. Furthermore, the
Advisor shall take any action which, in its judgment or the judgment of the
Board of Directors (of which the Advisor has received written notice), may be
necessary to maintain the qualification of the Company as a
-4-
<PAGE>
REIT or prevent the violation of any law or regulation of any governmental body
or agency having jurisdiction over the Company or its securities.
7. TERM: TERMINATION
This Agreement shall be in full force and effect for a term beginning
on the date hereof with an initial term of one year, and may be renewed for
additional one-year periods at the election of the Company. Notwithstanding the
foregoing, at any time after the initial term, the Company may terminate this
Agreement at any time upon 60 days' prior written notice; provided, however,
that as long as any shares of the Company's 8.35% Non Cumulative Exchangeable
Preferred Stock, Series A, par value US$.01 per share, remain outstanding, any
decision by the Company to renew, terminate or modify this Agreement must be
approved by a majority of the Board of Directors, as well as by a majority of
the Independent Directors.
8. OTHER ACTIVITIES OF THE ADVISOR
(a) Nothing herein contained shall prevent the Advisor, an affiliate
of the Advisor or an officer, director, employee or stockholder
of the Advisor from engaging in any activity, including, without
limitation, originating, purchasing and managing real estate
mortgage assets, rendering of services and investment advice
with respect to real estate investment opportunities to any
other Person (including other REITs) and managing other
investments (including the investments of the Advisor and its
affiliates).
(b) Officers, directors, employees, stockholders and agents of the
Advisor or of any affiliate of the Advisor may serve as
officers, directors, employees or agents of the Company, but
shall receive no compensation (other than reimbursement for
expenses) from the Company for such service.
9. BINDING EFFECT: ASSIGNMENT
This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns. Neither party
may assign this Agreement or any of its respective rights hereunder (other than
an assignment to a successor organization which acquires substantially all of
the property of such party or, in the case of the Advisor, to an affiliate of
the Advisor) without the prior written consent of the other party to this
Agreement.
-5-
<PAGE>
10. SUBCONTRACTING
The Advisor may at any time subcontract all or a portion of its
obligations under this Agreement to one or more affiliates of the Advisor that
are involved in the business of managing real estate mortgage assets without the
consent of the Company. If no affiliate of the Advisor is engaged in the
business of managing real estate mortgage assets, the Advisor may, with the
approval of a majority of the Board of Directors, as well as a majority of the
Independent Directors, subcontract all or a portion of its obligations under
this Agreement to unrelated third parties. Notwithstanding the foregoing, the
Advisor will not, in connection with subcontracting any of its obligations under
this Agreement, be discharged or relieved in any respect from its obligations
under this Agreement.
11. LIABILITY AND INDEMNITY OF THE ADVISOR
The Advisor assumes no responsibilities under this Agreement other than
to perform the services called for hereunder in good faith. Neither the Advisor
nor any of its affiliates, stockholders, directors, officers or employees will
have any liability to the Company, stockholders of the Company or others except
by reason of acts or omissions constituting gross negligence or willful breach
of any of the Advisor's material obligations under this Agreement. The Company
shall indemnify and reimburse (if necessary) the Advisor, its stockholders,
directors, officers, employees and agents for any and all expenses (including,
without limitation, attorneys' fees and expenses), losses, damages, liabilities,
demands and charges of any nature whatsoever in respect of or arising from any
acts or omissions by the Advisor pursuant to this Agreement, provided that the
conduct against which the claim is made was determined by such Person, in good
faith, to be in the best interests of the Company and was not the result of
gross negligence by such Person or willful breach of any of such Person's
material obligations by such Person. The Advisor agrees that any such
indemnification is recoverable only from the assets of the Company and not from
the stockholders.
12. ACTION UPON NOTICE OF NON-RENEWAL OR TERMINATION
Forthwith upon giving of notice of non-renewal of this Agreement by the
Company or of termination of this Agreement by the Company, the Advisor shall
not be entitled to compensation after the Advisor Termination Date for further
services under this Agreement, but shall be paid all compensation accruing to
the Advisor Termination Date and shall be reimbursed for all expenses of the
Company paid or incurred by the Advisor as of the Advisor Termination Date which
are reimbursable by the Company under this Agreement. The Advisor shall promptly
after the Advisor Termination Date:
(a) deliver to the Company all assets and documents of the Company
then in the custody of the Advisor; and
-6-
<PAGE>
(b) cooperate with the Company and take all reasonable steps
requested to assist the Board of Directors in making an orderly
transfer of the administrative functions of the Company.
13. NO JOINT VENTURE OR PARTNERSHIP
Nothing in this Agreement shall be deemed to create a joint venture or
partnership between the parties, whether for purposes of taxation or otherwise.
Furthermore, nothing in this Agreement conveys to, or otherwise grants, the
Advisor the authority to conclude contracts in the name of the Company.
14. NOTICES
Unless expressly provided otherwise herein, all notices, requests,
demands and other communications required or permitted under this Agreement
shall be in writing and shall be made by hand delivery, certified mail,
overnight courier service, telex or telecopier. Any notice shall be duly
addressed to the parties as follows:
(a) If to the Company:
NB CAPITAL CORPORATION
125 West 55th Street
New York, New York 10019
Attention: Roger Smock
(b) If to the Advisor:
NATIONAL BANK OF CANADA
600 de la Gauchetiere Street West
Montreal (Quebec)
H3B 4L2
Attention: Senior Vice-President, Treasury and Financial Markets
Either party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with the
provisions of this Section 14 for the giving of notice.
-7-
<PAGE>
15. SEVERABILITY
If any term or provision of this Agreement or the application thereof
with respect to any Person or circumstance shall, to any extent, be invalid or
unenforceable (other than Section 13), the remainder of this Agreement, or the
application of that term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
16. GOVERNING LAW
Each of the parties hereto irrevocably and unconditionally submits, for
itself and its property, to the non exclusive jurisdiction of the Quebec courts,
and any appellate court thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Agreement
in the courts of any jurisdiction. Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement in the
courts of the Province of Quebec. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defence of an inconvenient
forum to the maintenance of such action or proceeding in any such court. The
Company hereby irrevocably appoints Montreal Trust, Place Montreal Trust, 1800
McGill College Avenue, Montreal, Quebec, H3A 3K9 ("Company's Process Agent"), as
its agent to receive, on behalf of the Company, service of copies of the summons
and complaint and in any other process that may be served in any such action or
proceeding. Any such service may be made by mailing or delivering a copy of such
process, in care of the Company's Process Agent at the Company's Process Agent's
above address. The Company hereby irrevocably authorizes and directs its agent
to accept such service on its behalf. The parties hereto hereby agree that the
final judgment in any such action or proceeding shall be conclusive and may be
in force in any other jurisdiction by suit on the judgment or in any other
manner provided by law.
17. AMENDMENTS
This Agreement shall not be amended, changed, modified, terminated or
discharged in whole or in part except by an instrument in writing signed by both
parties hereto or their respective successors or assigns, or otherwise as
provided herein.
-8-
<PAGE>
18. HEADINGS
The section headings herein have been inserted for convenience of
reference only and shall not be construed to affect the meaning, construction or
effect of this Agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized as of the date first
written above.
NB CAPITAL CORPORATION
By:
--------------------------------
NATIONAL BANK OF CANADA
By:
--------------------------------
LOAN AGREEMENT
Dated as of September 3, 1997
Between
NB FINANCE, LTD.
as Borrower,
and
NB CAPITAL CORPORATION
as Lender
<PAGE>
T A B L E O F C O N T E N T S
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01. Certain Defined Terms................................................. 1
1.02. Computation of Time Periods........................................... 15
1.03. Accounting Terms...................................................... 15
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
2.01. The Loans............................................................. 15
2.02. Use of Proceeds....................................................... 16
2.03. Repayment of Principal................................................ 16
2.04. Prepayments........................................................... 16
2.05. Interest.............................................................. 17
2.06. Payments and Computations............................................. 18
2.07. Security for the Loan................................................. 18
2.08. Late Charge........................................................... 18
2.09. Taxes................................................................. 18
2.10. Loan to Principal Ratio................................................19
ARTICLE III
CONDITIONS OF LENDING
3.01. Conditions Precedent to Closing....................................... 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of Borrower............................ 21
ARTICLE V
COVENANTS OF BORROWER
5.01. Affirmative Covenants................................................. 23
5.02. Negative Covenants.................................................... 24
5.03. Reporting Requirements................................................ 25
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default..................................................... 26
ARTICLE VII
MISCELLANEOUS
7.01. Amendments, Etc....................................................... 28
7.02. Notices, Etc.......................................................... 28
7.03. No Waiver; Remedies................................................... 28
7.04. Costs, Expenses; Indemnity............................................ 28
7.05. Binding Effect........................................................ 30
7.06. Non Recourse.......................................................... 30
7.07. Execution in Counterparts............................................. 30
7.08. Jurisdiction, Etc..................................................... 30
7.09. Governing Law......................................................... 31
7.10. Waiver of Jury Trial.................................................. 31
7.11. Compliance with Usury Laws............................................ 31
7.12. Exhibits.............................................................. 32
7.13. Further Assurances.................................................... 32
EXHIBITS
Exhibit A The Loans
Exhibit B Form of Note
Exhibit C-1 1997 Series 1 Mortgage Loans
Exhibit C-2 1997 Series 2 Mortgage Loans
Exhibit C-3 1997 Series 3 Mortgage Loans
Exhibit C-4 1997 Series 4 Mortgage Loans
Exhibit C-5 1997 Series 5 Mortgage Loans
Exhibit C-6 1997 Series 6 Mortgage Loans
Exhibit C-7 1997 Series 7 Mortgage Loans
Exhibit C-8 1997 Series 8 Mortgage Loans
Exhibit C-9 1997 Series 9 Mortgage Loans
Exhibit C-10 1997 Series 10 Mortgage Loans
Exhibit C-11 1997 Series 11 Mortgage Loans
<PAGE>
Exhibit C-12 1997 Series 12 Mortgage Loans
Exhibit C-13 1997 Series 13 Mortgage Loans
Exhibit C-14 1997 Series 14 Mortgage Loans
Exhibit C-15 1997 Series 15 Mortgage Loans
Exhibit C-16 1997 Series 16 Mortgage Loans
Exhibit D Form of Mortgage Loan Assignment Agreement
Exhibit E Mortgage Loan Balances
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT (this "Agreement") dated as of September 3,
1997 between NB FINANCE, LTD., a corporation organized under the laws of Bermuda
("Borrower"), and NB CAPITAL CORPORATION, a corporation organized under the laws
of Maryland (the "Lender").
All capitalized terms used herein shall have the respective
meanings set forth in Section 1.01 hereof.
WITNESSETH:
WHEREAS, Borrower intends to acquire from National Bank of
Canada the Mortgage Loans.
WHEREAS, Borrower has requested that Lender lend to Borrower
an aggregate amount of U.S.$ 476,588,453.00 in order to acquire such Mortgage
Loans.
WHEREAS, Lender has indicated its willingness to lend such
amount on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"1997 Series 1 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 1 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 1 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 2 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement
<PAGE>
2
evidenced by the applicable Note and secured by the 1997 Series 2
Mortgage Loans (as well as the real property securing such Mortgage
Loans) as more particularly described in the 1997 Series 2 Mortgage
Loan Assignment Agreement and the other applicable Loan Documents.
"1997 Series 3 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 3 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 3 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 4 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 4 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 4 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 5 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 5 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 5 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 6 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 6 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 6 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 7 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 7 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 7 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 8 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement
<PAGE>
3
evidenced by the applicable Note and secured by the 1997 Series 8
Mortgage Loans (as well as the real property securing such Mortgage
Loans) as more particularly described in the 1997 Series 8 Mortgage
Loan Assignment Agreement and the other applicable Loan Documents.
"1997 Series 9 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 9 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 9 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 10 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 10 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 10 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 11 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 11 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 11 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 12 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 12 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 12 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 13 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 13 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 13 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 14 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement
<PAGE>
4
evidenced by the applicable Note and secured by the 1997 Series 14
Mortgage Loans (as well as the real property securing such Mortgage
Loans) as more particularly described in the 1997 Series 14 Mortgage
Loan Assignment Agreement and the other applicable Loan Documents.
"1997 Series 15 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 15 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 15 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 16 Loan" means the loan in the original principal
amount as set forth on Exhibit A to be made by Lender to Borrower
pursuant to this Agreement evidenced by the applicable Note and secured
by the 1997 Series 16 Mortgage Loans (as well as the real property
securing such Mortgage Loans) as more particularly described in the
1997 Series 16 Mortgage Loan Assignment Agreement and the other
applicable Loan Documents.
"1997 Series 1 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-1 hereof.
"1997 Series 2 Mortgage Loans" means the Montage Loans set
forth on Exhibit C-2 hereof.
"1997 Series 3 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-3 hereof.
"1997 Series 4 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-4 hereof.
"1997 Series 5 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-5 hereof.
"1997 Series 6 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-6 hereof.
"1997 Series 7 Mortgage Loans" means the Montage Loans set
forth on Exhibit C-7 hereof.
"1997 Series 8 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-8 hereof.
<PAGE>
5
"1997 Series 9 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-9 hereof.
"1997 Series 10 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-10 hereof.
"1997 Series 11 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-11 hereof.
"1997 Series 12 Mortgage Loans" means the Montage Loans set
forth on Exhibit C-12 hereof.
"1997 Series 13 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-13 hereof.
"1997 Series 14 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-14 hereof.
"1997 Series 15 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-15 hereof.
"1997 Series 16 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-16 hereof.
"1997 Series 1 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-1, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 1 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 2 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-2, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 2 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 3 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as
<PAGE>
6
of the date hereof, executed and delivered by Borrower assigning the
Mortgage Loans listed on Exhibit C-3, including Borrower's interest in
the real property securing those Mortgage Loans, to Lender as security
for the 1997 Series 3 Loan made to Borrower, as the same may be
amended, replaced, restated, supplemented or otherwise modified from
time to time.
"1997 Series 4 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-4, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 4 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 5 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-5, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 5 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 6 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-6, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 6 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 7 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-7, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 7 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 8 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-8, including
Borrower's interest in the real property securing those
<PAGE>
7
Mortgage Loans, to Lender as security for the 1997 Series 8 Loan
made to Borrower, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 9 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-9, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 9 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 10 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-10, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 10 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 11 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-11, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 11 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 12 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-12, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 12 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 13 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-13, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 13 Loan made to
<PAGE>
8
Borrower, as the same may be amended, replaced, restated, supplemented
or otherwise modified from time to time.
"1997 Series 14 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-14, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 14 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 15 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-15, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 15 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 16 Mortgage Loan Assignment Agreement" means that
certain mortgage loan assignment agreement substantially in the form of
Exhibit D, dated as of the date hereof, executed and delivered by
Borrower assigning the Mortgage Loans listed on Exhibit C-16, including
Borrower's interest in the real property securing those Mortgage Loans,
to Lender as security for the 1997 Series 16 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 1 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 1 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 2 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 2 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 3 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 3 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 4 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 4 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
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9
"1997 Series 5 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 5 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 6 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 6 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 7 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 7 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 8 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 8 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 9 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 9 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 10 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 10 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 11 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 11 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 12 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 12 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 13 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 13 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 14 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 14 Loan, as the
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10
same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1997 Series 15 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 15 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1997 Series 16 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1997
Series 16 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling," "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 10% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Agreement" has the meaning specified in the first paragraph
of this Agreement.
"Borrower" has the meaning specified in the first paragraph
of this Agreement.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in Maryland, Bermuda and Quebec.
"Collateral" means all property referred to as "Collateral" in
the Collateral Documents and all other property that is or is intended
to be subject to any Lien in favor of Lender.
"Collateral Documents" means, with respect to each Loan, the
applicable Mortgage Loan Assignment Agreement, and any other agreement
that creates or purports to create a Lien in favor of Lender to secure
such Loan and, collectively, all such agreements for all the Loans.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
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11
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, any Environmental Permit or Hazardous Material or arising from
alleged injury or threat to health, safety or the environment,
including, without limitation, (a) by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or
other actions or damages and (b) by any governmental or regulatory
authority or third party for damages, contribution, indemnification,
cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree or judicial or agency interpretation, policy or
guidance relating to pollution or protection of the environment,
health, safety or natural resources, including, without limitation,
those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974 (United States), as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Loan Amount" has the meaning specified in Section
2.10.
"Fiscal Year" means a fiscal year of Borrower ending on
October 31 in any calendar year or such other fiscal year as Borrower
may select from time to time in accordance with the terms of this
Agreement.
"GAAP" means generally accepted accounting principles
consistently applied and consistent with those applied in the
preparation of the financial statements referred to in Section 5.03.
"Hazardous Materials" means (a) refined petroleum products,
by-products or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
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12
"Indemnified Party" has the meaning specified in Section
7.04(b).
"Interest Payment Date" means, with respect to each Loan and
with respect to each Interest Period, the fifteenth (15th) day of the
calendar month immediately following such Interest Period; provided,
however, that if such Interest Payment Date is not a Business Day, such
Interest Payment Date shall be the immediately succeeding Business Day.
"Interest Period" means with respect to each Loan, each
calendar month or portion thereof during the term of such Loan or, in
the case of the initial Interest Period, the Closing Date through the
last day of the calendar month in which the Closing Date occurs.
"Interest Rate" has the meaning specified in Section 2.05(b).
"Internal Revenue Code" means the Internal Revenue Code of
1986 (United States), as amended from time to time, and the regulations
promulgated thereunder.
"Laws" means all present and future applicable laws, statutes,
codes, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, determinations, awards and court orders of any federal,
state, local or foreign government, governmental authority, regulatory
agency or authority.
"Lender" has the meaning specified in the first paragraph of
this Agreement.
"Lien" means any lien, security interest mortgage, deed of
trust, priority, negative pledge, charge, conditional sale, title
retention agreement, financial lease or other encumbrance or similar
right of others, or any agreement to give any of the foregoing.
"Loan" and "Loans" means, individually, the 1997 Series 1
Loan, the 1997 Series 2 Loan, the 1997 Series 3 Loan, the 1997 Series 4
Loan, the 1997 Series 5 Loan, the 1997 Series 6 Loan, the 1997 Series 7
Loan, the 1997 Series 8 Loan, the 1997 Series 9 Loan, the 1997 Series
10 Loan, the 1997 Series 11 Loan, the 1997 Series 12 Loan, the 1997
Series 13 Loan, the 1997 Series 14 Loan, the 1997 Series 15 Loan, or
the 1997 Series 16 Loan, and collectively, the 1997 Series 1 Loan, the
1997 Series 2 Loan, the 1997 Series 3 Loan, the 1997 Series 4 Loan and
the 1997 Series 5 Loan, the 1997 Series 6 Loan, the 1997 Series 7 Loan,
the 1997 Series 8 Loan, the 1997 Series 9 Loan, the 1997 Series 10
Loan, the 1997 Series 11 Loan, the 1997 Series 12 Loan, the 1997 Series
13 Loan, the 1997 Series 14 Loan, the 1997 Series 15 Loan and the 1997
Series 16 Loan.
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13
"Loan Documents" means with respect to each Loan (i) this
Agreement, (ii) the applicable Note, (iii) the applicable Mortgage Loan
Assignment Agreement, (iv) the applicable Collateral Documents; (v) the
Power of Attorney dated the date hereof by Borrower appointing Lender
as its attorney-in-fact and (vi) any other written agreement, document
or instrument evidencing, securing or otherwise related to such Loan,
and, collectively, means all of the Loan Documents for all of the
Loans, in each case as amended or otherwise modified from time to time.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means a change which results in a
Material Adverse Effect.
"Material Adverse Effect" means a material adverse effect on
(a) the rights and remedies of Lender under any Loan Document or (b)
the ability of Borrower to perform its obligations under any Loan
Document to which it is or is to be a party.
"Maturity Date" means with respect to each Loan, the date set
forth on Exhibit A, or such earlier date on which the final payment of
principal of the related Note becomes due and payable whether by
declaration, acceleration, or otherwise.
"Mortgage Loans" means, collectively, all mortgage loans
listed on Exhibit C-1, Exhibit C-2, Exhibit C-3, Exhibit C-4, Exhibit
C-5, Exhibit C-6, Exhibit C- 7, Exhibit C-8, Exhibit C-9, Exhibit C-10,
Exhibit C-11, Exhibit C-12, Exhibit C- 13, Exhibit C-14, Exhibit C-15
and Exhibit C-16.
"Mortgage Loan Assignment Agreements" means, collectively, the
1997 Series 1 Mortgage Loan Assignment Agreement, the 1997 Series 2
Mortgage Loan Assignment Agreement, the 1997 Series 3 Mortgage Loan
Assignment Agreement, the 1997 Series 4 Mortgage Loan Assignment
Agreement, the 1997 Series 5 Mortgage Loan Assignment Agreement, the
1997 Series 6 Mortgage Loan Assignment Agreement, the 1997 Series 7
Mortgage Loan Assignment Agreement, the 1997 Series 8 Mortgage Loan
Assignment Agreement, the 1997 Series 9 Mortgage Loan Assignment
Agreement, the 1997 Series 10 Mortgage Loan Assignment Agreement, the
1997 Series 11 Mortgage Loan Assignment Agreement, the 1997 Series 12
Mortgage Loan Assignment Agreement, the 1997 Series 13 Mortgage Loan
Assignment Agreement, the 1997 Series 14 Mortgage Loan Assignment
Agreement, the 1997 Series 15 Mortgage Loan Assignment Agreement and
the 1997 Series 16 Mortgage Loan Assignment Agreement.
"Mortgage Loan File" means, with respect to each Mortgage
Loan, the loan documents pertaining to such Mortgage Loan and any
architectural and engineering
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14
report, title report, survey, insurance policy and other information
and materials with respect to the real property securing such Mortgage
Loan.
"Note" means, with respect to each Loan, a promissory note of
Borrower payable to the order of Lender, in substantially the form
attached hereto as Exhibit B evidencing the indebtedness of Borrower to
Lender resulting from such Loan made by Lender.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"Regulation U" means Regulation U of the Board of Governors of
the United States Federal Reserve System, as in effect from time to
time.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether at the time
capital stock of any other class or classes of such corporation shall
or might have voting power upon the occurrence of any contingency), (b)
the interest in the capital or profits of such partnership, joint
venture or limited liability company or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Taxes" has the meaning specified in Section 2.09(a).
"U.S. Dollar Equivalent" means the U.S. dollar equivalent of
any amount of money determined in Canadian dollars calculated by
reference to National Bank of Canada's spot mid-rate of exchange for
Canadian dollars against U.S. dollars at 11.00 a.m. (Eastern Standard
time) on any relevant day.
"Voting Stock" means the share capital or capital stock issued
by a corporation, or equivalent interests in any other Person, the
holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of directors (or persons performing
similar functions) of such Person, even if the right so to vote has
been suspended by the happening of such a contingency.
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15
SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
ARTICLE II
AMOUNT AND TERMS OF THE LOANS
SECTION 2.01. The Loans. (a) Subject to the terms and
conditions set forth in this Agreement, Lender hereby agrees to make the Loans
to Borrower on the Closing Date, which Loans are in the original principal
amounts set forth on Exhibit A and shall mature on the applicable Maturity Date
as set forth on Exhibit A. Borrower hereby agrees to accept the Loans on the
Closing Date, subject to and upon the terms and conditions set forth in this
Agreement.
(b) Each Loan shall be recourse only to the Mortgage Loans
securing such Loan as provided in Section 7.06.
(c) Borrower may request and receive only one borrowing
hereunder with respect to each of the Loans and any amount borrowed and repaid
or prepaid hereunder in respect of any Loan may not be reborrowed.
(d) Borrower's obligation to pay the principal of and interest
on each Loan shall be evidenced by a Note, duly executed and delivered by
Borrower on the Closing Date in the original principal amount of such Loan and
shall mature on the applicable Maturity Date. Each Note shall be payable as to
principal, interest and all other amounts due under the Loan Documents, as
specified in this Agreement, the applicable Note, and the other applicable Loan
Documents.
SECTION 2.02. Use of Proceeds. Borrower shall use the
proceeds of the Loans disbursed to it pursuant to Section 2.01 solely to acquire
the Mortgage Loans.
SECTION 2.03. Repayment of Principal. Subject to the
provisions of Section 2.04, Borrower shall repay to Lender the outstanding
principal amount on each Loan in full on the applicable Maturity Date.
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16
SECTION 2.04. Prepayments. (a) Voluntary. Other than the
mandatory prepayments of principal in accordance with Section 2.04 (b), Borrower
shall not have the right to prepay (in whole or in part) any Loan.
(b) Mandatory.
(A) In the event of a payment of all or any portion
of principal on any Mortgage Loan (both scheduled payments or unscheduled
mandatory or voluntary prepayments), Borrower shall prepay, on the Interest
Payment Date immediately following the date of such repayment or prepayment,
without premium, the Loan secured by such Mortgage Loan in an amount equal to
(i) the U.S. Dollar Equivalent of the amount repaid or prepaid, multiplied by
(ii) a ratio, the numerator of which is the outstanding principal balance of the
Loan secured by such Mortgage Loan and the denominator of which is the U.S.
Dollar Equivalent of the aggregate outstanding principal balances of all
Mortgage Loans securing such Loan as determined immediately prior to such
repayment or prepayment.
(B) Upon an event of default under any Mortgage Loan,
Borrower shall be deemed to have prepaid, without prepayment premium, the Loan
secured by such Mortgage Loan in an amount equal to (i) the U.S. Dollar
Equivalent of the outstanding principal balance of such defaulted Mortgage Loan,
multiplied by (ii) a ratio, the numerator of which is the outstanding principal
balance of the Loan secured by such Mortgage Loan and the denominator of which
is the U.S. Dollar Equivalent of the aggregate outstanding principal balances of
all Mortgage Loans securing such Loan as determined immediately prior to such
default, and the outstanding principal balance of such Loan shall be reduced by
such amount, and the obligation of Lender, pursuant to the applicable Mortgage
Loan Assignment Agreement, to assign any outstanding Mortgage Loans securing
such Loan to Borrower upon satisfaction in full of such Loan, shall terminate
with respect to such defaulted Mortgage Loan; provided, however, that to the
extent any amounts collected by Lender with respect to such defaulted Mortgage
Loan exceed an amount equal to the sum of (i) the amount by which the principal
amount of the Loan secured by such defaulted Mortgage Loan was reduced pursuant
to this Section, (ii) any interest accrued on such amount at the applicable
Interest Rate compounded monthly until the date of collection of such amounts,
and (iii) the amount of any collection expenses (including legal fees), such
excess shall be applied against the Excess Loan Amount and any remaining amount
shall be remitted to Borrower.
(C) With respect to each Loan, Borrower shall prepay,
without premium, the Excess Loan Amount (if any), in accordance with Section
1(e) of the applicable Mortgage Loan Assignment Agreement.
(D) On or prior to September 17, 1997, Borrower shall
prepay, without premium, each Loan in an amount equal to the amount by which the
outstanding principal balance of such Loan as of the Closing Date, exceeded
eighty percent (80%) of the
<PAGE>
17
U.S. Dollar Equivalent of the aggregate outstanding principal balances of the
Mortgage Loans securing such Loan as of the Closing Date.
SECTION 2.05. Interest. (a) Scheduled Interest Subject to the
provisions of Section 2.05 (c), Borrower shall pay interest at the applicable
Interest Rate on the unpaid principal amount of each Loan from the Closing Date
until payment in full of the principal amount of the applicable Loan. Except as
expressly provided herein, all interest on the Loans shall be paid in arrears on
the Interest Payment Date for the relevant Interest Period.
(b) Interest Rate. The interest rate applicable to each Loan
from the Closing Date and for each Interest Period thereafter shall be a rate
per annum (the "Interest Rate") equal to the lesser of (i) the maximum
non-usurious rate permitted by applicable Law and (ii) the rate set forth
opposite such Loan on Exhibit A hereto.
(c) Default Interest. If Borrower shall default in any payment
of principal or interest in respect of any Loan, or any other amount owed by
Borrower under this Loan Agreement, Borrower shall pay interest on the unpaid
principal amount of such Loan, payable in arrears on each Interest Payment Date
and on demand, at a rate per annum equal at all times to the lesser of (x) the
maximum non-usurious rate permitted by applicable Law or (y) three percent (3%)
per annum above the applicable Interest Rate until such defaulted amount has
been paid by Borrower, together with interest thereon at the Default Rate.
Payment or acceptance of the increased rate as provided in this Section is not a
permitted alternative for timely payment and shall not constitute a waiver of a
Default or an Event of Default or an amendment to this Agreement or any other
Loan Document and shall not otherwise prejudice or limit any rights or remedies
or Lender.
SECTION 2.06. Payments and Computations. (a) Borrower shall
make each payment hereunder and under the Notes, irrespective of any right of
counterclaim or set-off, not later than 11:00 a.m. (Eastern Standard time) on
each Interest Payment Date in United States dollars to Lender at an account or
accounts Lender may designate from time to time in same day funds.
(b) All computations of interest shall be made by Lender (or
any Person designated by Lender) on the basis of a year of 360 days consisting
of twelve (12) months of thirty (30) days each. Each determination by Lender (or
any Person designated by Lender) of interest hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(c) Whenever any payment hereunder or under any Note shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day.
SECTION 2.07. Security for the Loans. Each Loan shall be
secured by (a)
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18
the applicable Mortgage Loans as well as the real property securing such
Mortgage Loans as more particularly described in the applicable Mortgage Loan
Assignment Agreement, (b) the other applicable Collateral Documents and (c) the
applicable security interests and Liens granted in this Agreement and in the
other Loan Documents with respect to such Loan.
SECTION 2.08. Late Charge. Subject to Section 7.11, in the
event that any installment of interest or principal with respect to any Loan
shall become overdue for a period in excess of five (5) days, a "late charge" in
an amount equal to five percent (5%) of the amount so overdue may be charged to
Borrower by Lender for the purpose of defraying the expenses incident to
handling such delinquent payments. Subject to Section 7.11, such late charge
shall be in addition to, and not in lieu of, any other remedy Lender may have
and is in addition to Lender's right to collect reasonable fees and charges of
any agents or attorneys which Lender may employ in connection with any Default.
SECTION 2.09. Taxes. (a) Any and all payments by Borrowe
under the Notes shall be made, in accordance with Section 2.06 and the terms of
such Note, free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings imposed by
Bermuda or any political subdivision or taxing authority thereof or therein, and
all liabilities with respect thereto (all such taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable under the Notes to Lender (i) the sum payable shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.09) Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) Borrower shall make such deductions and (iii)
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) Borrower shall indemnify Lender for and hold it harmless
against the full amount of Taxes, and for the full amount of taxes of any kind
imposed by any jurisdiction on amounts payable under this Section 2.09, imposed
on or paid by Lender and any liability (including penalties, additions to tax,
interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within thirty (30) days from the date Lender makes
written demand therefor.
(c) Within thirty (30) days after the date of any payment of
Taxes, Borrower shall furnish to Lender, at its address referred to in Section
7.02, the original or a certified copy of a receipt evidencing such payment.
SECTION 2.10. Loan to Principal Ratio. On January 31 and
August 31 of each calendar year in which any portion of any Loan is outstanding,
Lender shall determine
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19
with respect to each Loan the ratio, expressed as a percentage, the numerator of
which is the amount of the outstanding principal balance of such Loan as of such
determination date and the denominator of which is the U.S. Dollar Equivalent of
the aggregate outstanding principal balances of the Mortgage Loans securing such
Loan as of such determination date. In the event the ratio with respect to any
Loan exceeds eighty percent (80%), Lender shall determine the amount by which
the outstanding principal balance of such Loan as of the determination date
exceeds eighty percent (80%) of the U.S. Dollar Equivalent of the aggregate
outstanding principal balances of the Mortgage Loans securing such Loan as of
the determination date (the "Excess Loan Amount") and Borrower shall prepay such
amount in accordance with Section 2.04(b)(C).
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Closing. The obligations
of Lender under this Agreement, including the obligation to make the Loans
hereunder, are subject to the fulfillment by Borrower or waiver by Lender of the
following conditions precedent no later than the Closing Date:
(a) Lender shall have completed a due diligence investigation
of Borrower and the Mortgage Loans and determined, in its sole
discretion, that Borrower and the Mortgage Loans meet Lender's
underwriting standards, which due diligence investigation may include,
without limitation review of the Mortgage Loan File for each Mortgage
Loan.
(b) Lender shall have received the following, each in form and
substance satisfactory to Lender (unless otherwise specified):
(i) The Notes to the order of Lender, duly
executed by Borrower;
(ii) The Mortgage Loan Assignment Agreements duly
executed by Borrower sufficient to grant Lender a valid
security interest in the applicable Mortgage Loans and the
real property securing such Mortgage Loans;
(iii) A favorable opinion of Conyers Dill & Pearman,
counsel for Borrower, as to the enforceability of this
Agreement and the Loan Documents, in form and substance
satisfactory to Lender, and a favorable opinion of Dejardins
Ducharme Stein Monast, counsel for National Bank of Canada;
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20
(iv) Certified copies of the resolutions of the Board
of Directors of Borrower approving and authorizing the
execution and delivery and performance of all Loan Documents
required to be executed and delivered by Borrower with respect
to this Agreement and the other Loan Documents;
(v) A copy of the organizational documents of
Borrower together with each amendment thereto, and, where
applicable, certified by the Registrar of Companies of Bermuda
as being a true and correct copy thereof;
(vi) A Certificate of Compliance in respect of
Borrower issued by the Registrar of Companies of Bermuda date
reasonably near to the Closing Date; and
(vii) A certificate of the Secretary or an Assistant
Secretary of Borrower certifying the names and true signatures
of the officers of Borrower authorized to sign this Agreement
and each other Loan Document to which Borrower is or is to be
a party and the other documents to be delivered hereunder and
thereunder.
(c) The representations and warranties of Borrower contained
in each Loan Document shall be true and correct on and as of the
Closing Date, before and after giving effect to the making of the
applicable Loan by Lender and to the application of the proceeds
therefrom, as though made on and as of such date.
(d) No event shall have occurred and be continuing, or would
result from the making of the Loans by Lender or from the application
of the proceeds therefrom, that constitutes a Default.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of Borrower.
Borrower represents and warrants as follows:
(a) Borrower (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing in each
other jurisdiction in which the conduct of its business requires it to
so qualify or be licensed except where the failure to so qualify or be
licensed would not have a Material Adverse Effect and (iii) has all
requisite power and authority (including, without limitation, all
governmental licenses, permits
<PAGE>
21
and other approvals) to own the Mortgage Loans and to carry on its
business as now conducted and as proposed to be conducted.
(b) The execution, delivery and performance by Borrower of
this Agreement and each other Loan Document to which it is or is to be
a party, and the consummation of the transactions contemplated hereby,
are within Borrower's corporate powers, have been duly authorized by
all necessary corporate action, and do not (i) contravene Borrower's
certificate of incorporation, memorandum of association or by-laws,
(ii) violate any applicable Law or governmental regulation or permit
applicable to Borrower, (iii) conflict with or result in the breach of,
or constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or
affecting Borrower (iv) except for the Liens created under the Loan
Documents, result in or require the creation or imposition of any Lien
upon or with respect to any of the properties of Borrower. Borrower is
not in violation of any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or in breach of
any such contract, loan agreement, indenture, mortgage, deed of trust,
lease or other instrument, the violation or breach of which is
reasonably likely to have a Material Adverse Effect.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by Borrower of this
Agreement or any other Loan Document to which it is or is to be a
party, or for the consummation of the transactions contemplated hereby,
(ii) the grant by Borrower of the Liens granted by it pursuant to the
Collateral Documents, (iii) the perfection or maintenance of the Liens
created by the Collateral Documents (including the first priority
nature thereof), other than registration with the Registrar of
Companies of Bermuda or (iv) the exercise by Lender of its rights under
the Loan Documents or the remedies in respect of the Collateral
pursuant to the Collateral Documents, other than compliance with
certain registration formalities in Canada.
(d) This Agreement and each other Loan Document has been duly
executed and delivered by Borrower. This Agreement and each other Loan
Document to which Borrower is a party are the legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with
its terms except as enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the rights of creditors
generally.
(e) There is no action, suit, investigation, litigation or
proceeding affecting Borrower or any of its Subsidiaries, including any
Environmental Action, pending or threatened before any court,
governmental agency or arbitrator that (i) would be reasonably likely
to have a Material Adverse Effect or (ii) purports to affect the
<PAGE>
22
legality, validity or enforceability of this Agreement or any other
Loan Document or the consummation of the transactions contemplated
hereby.
(h) No proceeds of any Loan will be used to acquire any equity
security of a class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934 (United States).
(i) Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Loan will be used to purchase or carry any Margin Stock
or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock.
(j) Borrower is not (i) an "investment company" or a company
"controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940 (United States), as amended, (ii) a
"holding company" or a "subsidiary company" of a "holding company" or
an "affiliate" of either a "holding company" or a "subsidiary company"
within the meaning of the Public Utility Holding Company Act of 1935
(United States), as amended, or (iii) subject to any other Law that
purports to restrict or regulate its ability to borrow money.
(k) Borrower and each of its Subsidiaries and Affiliates has
filed, has caused to be filed or has been included in all material tax
returns (federal, state, local and foreign) required to be filed and
has paid all taxes shown thereon to be due, together with applicable
interest and penalties.
(l) The proceeds of the Loans shall be used solely to finance
Borrower's acquisition of the Mortgage Loans. No proceeds of the Loans
will be used to acquire any security in any transaction which is
subject to Sections 13 and 14 of the Security Exchange Act of 1934
(United States).
(m) Borrower (i) is the sole owner of the Mortgage Loans and
such ownership is free and clear of any lien, security interest or
other encumbrance, (ii) has not granted, and will not grant, any
participation or other interest or assignment, other option or rights
to the Mortgage Loans, other than pursuant to this Agreement and the
other Loan Documents, and (iii) has not pledged, collaterally assigned
or otherwise hypothecated any interest therein, and will at no time do
so or agree to do so, other than pursuant to this Agreement and the
other Loan Documents.
(n) Attached hereto as Exhibits C-1, C-2, C-3, C-4, C-5, C-6,
C-7, C-8, C-9, C-10, C-11, C-12, C-13, C-14, C-15, C-16 are compete
lists of all Mortgage Loans, duly executed originals of which have
previously been delivered to National Bank of Canada, as custodian for
Lender, and (i) the Mortgage Loans have not been
<PAGE>
23
amended or modified and are in full force and effect, (ii) to the
knowledge of Borrower, there has not occurred an event which, if
uncured or uncorrected, constitutes or would constitute, with the
giving of notice, passage of time or both, a material default under any
such Mortgage Loan, (iii) there are no provisions in the Mortgage Loans
restricting the assignability of the lender's rights thereunder, (iv)
the law governing the relations between mortgagors and/or hypothecary
debtors under each Mortgage Loan is the law of the province of Canada
where the real property securing each such Mortgage Loan is situated,
and (v) none of the Mortgage Loans is secured by real property in
respect of which the registration of mortgages or hypothecs is governed
by the federal laws of Canada including, without limitation, lands
governed by the Indian Act (Canada) and the Railway Act (Canada)
(o) As of August 8, 1997, the U.S. Dollar Equivalent of the
aggregate outstanding principal balance of each Mortgage Loan 1997
Series is the amount set forth in Exhibit E.
ARTICLE V
COVENANTS OF BORROWER
SECTION 5.01. Affirmative Covenants. So long as any portion
of any Loan shall remain unpaid, Borrower will:
(a) Payment of Taxes, Etc. Pay and discharge, before the same
shall become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all
lawful claims that, if unpaid, might by law become a Lien upon any of
it property; provided, however, that Borrower shall not be required to
pay or discharge any such tax, assessment, charge or claim that is
being contested in good faith and by proper proceedings and as to
which appropriate reserves are being maintained, unless and until any
Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors;
(b) Preservation of Existence, Etc. Preserve and maintain its
existence, legal structure, legal name, rights (charter and statutory),
permits, licenses, approvals, privileges and franchises; provided,
however, that Borrower shall not be required to preserve any right,
permit, license, approval, privilege or franchise if the Board of
Directors of Borrower shall determine that the preservation thereof is
no longer desirable in the conduct of the business of Borrower, as the
case may be, and that the loss thereof is not disadvantageous in any
material respect to Borrower or Lender;
<PAGE>
24
(c) Keeping of Books. Keep proper books of record and account,
in which full and correct entries shall be made of all financial
transactions and the assets and business of Borrower in accordance with
generally accepted accounting principles in effect from time to time;
(d) Performance by Borrower. Observe, perform and satisfy, in
a timely manner, all the terms, provisions, covenants and conditions
of, and pay when due all costs, fees and expenses to the extent
required under the Loan Documents and delivered by, or applicable to
Borrower; and
(e) Assistance. Render any assistance that Lender may
reasonably request to perfect Lender's security interest in, and
enforce Lender's rights under, any Mortgage Loan or to otherwise enable
Lender to qualify as a real estate investment trust under the Internal
Revenue Code.
SECTION 5.02. Negative Covenants. So long as any portion of any Loan
shall remain unpaid, Borrower will not, at any time:
(a) Diminish Value of Mortgage Loans. Take any affirmative
action, or expressly consent to any action which would have the effect
of impairing or diminishing the value of the Mortgage Loans or the
priority of the Liens or security interest in the collateral securing
such Mortgage Loans;
(b) Sale of Mortgage Loans. Sell or enter into an agreement to
sell all or a portion of the Mortgage Loans or interest therein, other
than pursuant to the Loan Documents, or release any borrower or
guarantor or any portion of the collateral, except as expressly
provided in the Mortgage Loans, or pledge, collaterally assign or
otherwise hypothecate any interest in the Mortgage Loan, other than
pursuant to the Loan Documents;
(c) Change in Nature of Business. Make any material change in
the nature of its business as carried on at the date hereof;
(d) ERISA. Engage in any transaction which would cause any
obligation, or action taken or to be taken, hereunder (or the exercise
by Lender of any of its rights under this Agreement and the Loan
Documents) to be a nonexempt (under a statutory or administrative class
exemption) prohibited transaction under ERISA; or
(e) Domicile. Take any action to change its place of
incorporation, residence or domicile (other than with the prior
written consent of Lender).
<PAGE>
25
SECTION 5.03. Reporting Requirements. So long as any portion
of any Loan shall remain unpaid, Borrower will furnish to Lender:
(a) Default Notice. As soon as possible and in any event
within five days after the occurrence of each Default or any event,
development or occurrence reasonably likely to have a Material Adverse
Effect continuing on the date of such statement, a statement of
Borrower setting forth details of such Default and the action that
Borrower has taken and proposes to take with respect thereto;
(b) Annual Financial. As soon as available and in any event
within 120 days after the end of each Fiscal Year, a balance sheet of
Borrower as of the end of such Fiscal Year and a statement of income
and a statement of cash flows of Borrower for such Fiscal Year, in each
case accompanied by an opinion acceptable to Lender of an independent
public accountants of recognized standing acceptable to Lender, and a
certificate of the chief financial officer of Borrower stating that no
Default has occurred and is continuing or, if a Default has occurred
and is continuing, a statement as to the nature thereof and the action
that Borrower has taken and proposes to take with respect thereto;
(c) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign,
affecting Borrower, and promptly after the occurrence thereof, notice
of any adverse change in the status or the financial effect on
Borrower; and
(d) Other Information. Such other information respecting the
business, condition (financial or otherwise), operations, performance,
properties or prospects of Borrower as Lender may from time to time
reasonably request.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. With respect to each Loan,
if any of the following events ("Events of Default") shall occur and be
continuing:
(a) Borrower shall fail to make any payment of principal
of or interest on such Loan when the same shall become due and payable
or
<PAGE>
26
(b) Borrower fails to pay all or any portion of any other
amount payable by Borrower pursuant to this Agreement; or
(c) any representation or warranty made by Borrower under or
in connection with any Loan Document shall prove to have been incorrect
in any material respect when made; or
(d) any provision of the organizational documents affecting
the purpose for which Borrower is formed is amended or modified in any
manner which is reasonably likely to result in a Material Adverse
Effect, or if Borrower fails to perform or enforce the provisions of
the organizational documents in a manner that is reasonably likely to
result in a Material Adverse Effect or attempt to dissolve Borrower; or
(e) Borrower shall violate or fail to comply with any of the
provisions of Section 5.02; or
(f) Borrower shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 30 days after the
earlier of the date on which (A) Borrower becomes aware of such failure
or (B) written notice thereof shall have been given to such Borrower by
Lender; or
(g) Borrower shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against
Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee or other similar official for it or
for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is
being diligently contested by it in good faith, either such proceeding
shall remain undismissed or unstayed for a period of sixty (60) days
or any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or any substantial part of its property) shall occur;
or Borrower shall take any corporate action to authorize any of the
actions set forth above in this subsection (g); or
(h) any provision of any Loan Document after delivery thereof
shall for any reason cease to be valid and binding on or enforceable
against Borrower, or Borrower shall so state in writing; or
<PAGE>
27
(i) any Collateral Document after delivery thereof shall for
any reason (other than pursuant to the terms thereof) cease to create a
valid and perfected first priority lien on and security interest in the
Collateral purported to be covered thereby.
then, and in any such event (other than an Event of Default described in
subsection (g) above) and at any time, Lender may, in addition to any other
rights or remedies available to it pursuant to this Agreement and the other Loan
Documents, or at law or in equity, take such action, without notice or demand,
that Lender deems advisable to protect and enforce its rights against Borrower
and in any of the Collateral, including, without limitation, by notice to
Borrower, declare the applicable Note, all interest thereon and all other
amounts payable with respect to such Note under this Agreement and the other
Loan Documents with respect to such Note to be forthwith due and payable,
whereupon such Note, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by Borrower, and
may enforce or avail itself of any or all rights or remedies provided in the
Loan Documents against the Borrower and/or the Collateral (including selling the
applicable Mortgage Loans); and upon an Event of Default described in subsection
(g) above, the Notes, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by Borrower.
<PAGE>
28
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement, the Notes or any other Loan Document, nor consent
to any departure by Borrower therefrom, shall in any event be effective unless
the same shall be in writing and signed by Lender, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 7.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy or telex communication) and mailed, telegraphed,
telecopied, telexed or delivered, if to Borrower, at its address c/o Conyers
Dill & Pearman, Clarendon House, 2 Church Street, Hamilton, HM 11 Bermuda,
Attention: Roger Burgess; and if to Lender, at its address at 125 West 55th
Street, New York, New York 10019, Attention: Roger Smock; with a copy to
National Bank of Canada, National Bank Tower, 600 de La Gauchetiere West,
Montreal, Quebec H3B 4L2 or as to each other party, at such other address as
shall be designated by such party in a written notice to Borrower and Lender.
All such notices and communications shall, when mailed, telegraphed, telecopied
or telexed, be effective when deposited in the mails, delivered to the telegraph
company, transmitted by telecopier or confirmed by telex answerback,
respectively, except that notices and communications to Lender pursuant to
Article II or III shall not be effective until received by Lender. Delivery by
telecopier of an executed counterpart of any amendment or waiver of any
provision of this Agreement, the Note or of any Exhibit hereto to be executed
and delivered hereunder shall be effective as delivery of a manually executed
counterpart thereof.
SECTION 7.03. No Waiver; Remedies. No failure on the part of
Lender to exercise, and no delay in exercising, any right hereunder or under any
Note or any other Loan Documents shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 7.04. Costs, Expenses; Indemnity. (a) Borrower agrees
to pay on demand (i) all reasonable costs and expenses of Lender in connection
with the preparation, execution, delivery, administration, modification and
amendment of the Loan Documents (including, without limitation, (A) all due
diligence, collateral review, transportation, computer, duplication, appraisal,
Lender audit, insurance, consultant, search, filing and recording fees and
expenses and (B) the reasonable fees and expenses of counsel for Lender
<PAGE>
29
with respect to advising Lender as to its rights and responsibilities, or the
perfection, protection or preservation of rights or interests, under the Loan
Documents, with respect to negotiations with Borrower or with other creditors of
Borrower or any of its Subsidiaries arising out of any Default or any events or
circumstances that may give rise to a Default and with respect to presenting
claims in or otherwise participating in or monitoring any bankruptcy, insolvency
or other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto) and (ii) all costs and expenses of Lender in
connection with the enforcement of the Loan Documents, whether in any action,
suit or litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally (including, without limitation, the
reasonable fees and expenses of counsel for Lender and with respect thereto).
(b) Borrower agrees to indemnify and hold harmless Lender and
its Affiliates and their officers, directors, employees, agents and advisors
(each, an "Indemnified Party") from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, reasonable fees
and expenses of counsel) that may be incurred by or asserted or awarded against
any Indemnified Party, in each case arising out of or in connection with or by
reason of (including, without limitation, in connection with any investigation,
litigation or proceeding or preparation of a defense in connection therewith)
the Loans, the actual or proposed use of the proceeds of the Loans, the Loan
Documents or any of the transactions contemplated thereby, except to the extent
such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this Section 7.04(b) applies, such indemnity shall be effective whether or
not such investigation, litigation or proceeding is brought by Borrower, its
directors, shareholders or creditors or an Indemnified Party or any Indemnified
Party is otherwise a party thereto and whether or not the transactions
contemplated hereby are consummated. Borrower also agrees not to assert any
claim against Lender or any of its Affiliates, or any of their respective
officers, directors, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Loans, the actual or proposed use of the
proceeds of the Loans, the Loan Documents or any of the transactions
contemplated thereby. THE FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS
EXPRESSLY APPLIES, WITHOUT LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.
(c) If Borrower fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may be
paid on behalf of such Borrower by Lender, in its sole discretion.
<PAGE>
30
(d) Without prejudice to the survival of any other agreement
of Borrower hereunder or under any other Loan Document, the agreements and
obligations of Borrower contained in Sections 2.08 and 2.09 and this Section
7.04 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 7.05. Binding Effect. This Agreement shall become
effective when it shall have been executed by Borrower and Lender and thereafter
shall be binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower shall not have the right
to assign its rights hereunder or any interest herein without the prior written
consent of Lender.
SECTION 7.06. Non Recourse. Except as otherwise provided
herein and in the other Loan Documents, Lender shall not enforce the liability
and obligation of Borrower to perform and observe the obligations contained
herein and in the other Loan Documents by any action or proceeding wherein a
money judgment shall be sought against Borrower, except that Lender may bring an
action or proceeding to enable Lender to enforce and realize upon this Agreement
and the other Loan Documents, and the interest in the Mortgage Loans and in any
Collateral given to Lender created by this Agreement or the other Loan
Documents, provided, however, that any judgment in any action or proceeding
shall be enforceable against Borrower only to the extent of Borrower's interest
in the Mortgage Loans and other Collateral given to Lender. The provisions of
this Section shall not however (i) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Notes or the other Loan Documents,
(ii) affect the validity or enforceability of any indemnity made in connection
with this Agreement or the other Loan Documents, or (iii) impair the enforcement
of the Mortgage Loan Assignment Agreements.
SECTION 7.07. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement. Any delivery of a counterpart signature by
telecopier shall, however, be promptly followed by delivery of a manually
executed counterpart.
SECTION 7.08. Jurisdiction, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any court sitting in Bermuda, and
any appellate court thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Loan Documents to which it is a
party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such
<PAGE>
31
action or proceeding may be heard and determined in any such Bermuda court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or any of the other Loan
Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any Bermuda court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court. Lender hereby irrevocably appoints Conyers Dill
and Pearman, Clarendon House, Church Street, Hamilton HM CX, Bermuda ("Lender's
Process Agent"), as its agent to receive, on behalf of Lender, service of copies
of the summons and complaint and any other process that may be served in any
such action or proceeding. Any such service may be made by mailing or delivering
a copy of such process, if to Lender, in care of Lender's Process Agent at
Lender's Process Agent's above address. Lender hereby irrevocably authorizes and
directs its respective process agent to accept such service on its behalf.
SECTION 7.09. Governing Law. This Agreement and the other
Loan Documents shall be governed by, and construed in accordance with, the laws
of Bermuda.
SECTION 7.10. Waiver of Jury Trial. To the maximum extent
permitted by law, Borrower and Lender irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to any of the Loan Documents, the Loans
or the actions of Lender in the negotiation, administration, performance or
enforcement thereof.
SECTION 7.11. Compliance with Usury Laws. It is expressly
stipulated and agreed to be the intent of Borrower and Lender that each Loan
made hereunder comply with the applicable usury and other laws relating to the
Loan Documents now or hereafter in effect. If any such applicable laws render
usurious any amount called for under any of the Loan Documents, or contracted
for, charged or received with respect to any Loan, or if the acceleration of the
maturity of any Loan or if any prepayment by Borrower results in Borrower having
paid any interest in excess of that permitted by law, then it is the express
intent of the parties that all excess amounts theretofore collected by Lender
refunded to Borrower, and the provisions of the applicable Loan Documents
immediately be deemed reformed and the amounts thereafter collected under such
Loan Documents reduced, without the necessity of the execution of any new
document, so as to comply with the then applicable law, but so as to permit the
recovery of the fullest amount otherwise called for under the applicable Loan
Documents.
<PAGE>
32
SECTION 7.12. Exhibits. The Exhibits attached hereto are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
SECTION 7.13. Further Assurances. The Borrower shall, at its
sole expense and without expense to Lender, do such further acts and execute and
deliver such further documents as Lender from time to time my reasonably require
for the purpose of assuring and confirming unto Lender the rights hereby created
or intended now or hereafter so to be, or for carrying out the intention or
facilitating the performance of the terms of any Loan Document, or for assuring
the validity of any security interest or Lien under any Collateral Document.
* * *
[SIGNATURES ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
BORROWER:
NB FINANCE, LTD.
By________________________________
[SIGNATURE PAGE CONTINUES ON NEXT PAGE]
<PAGE>
LENDER:
NB CAPITAL CORPORATION
By________________________________
Real Raymond
Chief Financial Officer &
Treasurer
<PAGE>
EXHIBIT A
THE LOANS
================================================================================
Outstanding Amount* Maturity Date Interest Rate**
- ------------------------------------------------------------------------------
1997 Series 1 Loan $24,175,420 15-Jan-2000 6.895%
- ------------------------------------------------------------------------------
1997 Series 2 Loan $23,250,351 15-Jan-2000 7.471%
- ------------------------------------------------------------------------------
1997 Series 3 Loan $48,236,245 15-Jan-2000 8.047%
- ------------------------------------------------------------------------------
1997 Series 4 Loan $16,364,955 15-Jan-2000 8.622%
- ------------------------------------------------------------------------------
1997 Series 5 Loan $33,305,900 15-Jan-2001 9.198%
- ------------------------------------------------------------------------------
1997 Series 6 Loan $46,882,784 15-Jan-2001 9.774%
- ------------------------------------------------------------------------------
1997 Series 7 Loan $43,894,121 15-Jul-2000 6.895%
- ------------------------------------------------------------------------------
1997 Series 8 Loan $29,713,817 15-Jul-2000 7.471%
- ------------------------------------------------------------------------------
1997 Series 9 Loan $9,511,225 15-Jul-2000 8.047%
- ------------------------------------------------------------------------------
1997 Series 10 Loan $22,146,227 15-Jul-2001 8.047%
- ------------------------------------------------------------------------------
1997 Series 11 Loan $104,830,848 15-Jul-2001 8.622%
- ------------------------------------------------------------------------------
1997 Series 12 Loan $23,008,093 15-Jul-2001 9.198%
- ------------------------------------------------------------------------------
1997 Series 13 Loan $32,421,747 15-Jul-2001 9.774%
- ------------------------------------------------------------------------------
1997 Series 14 Loan $7,246,742 15-Jul-2000 8.622%
- ------------------------------------------------------------------------------
1997 Series 15 Loan $5,257,516 15-Jan-2001 8.047%
- ------------------------------------------------------------------------------
1997 Series 16 Loan $6,342,462 15-Jan-2001 8.622%
- ------------------------------------------------------------------------------
TOTAL $476,588,453 8.404%
- ------------------------------------------------------------------------------
===============================================================================
- --------
* In United States Dollars
** all rates are quoted on a semi-annual basis.
<PAGE>
EXHIBIT B
FORM OF NOTE
PROMISSORY NOTE
(this "Note")
U.S. $________________ September 3, 1997
FOR VALUE RECEIVED, NB FINANCE, LTD., a Bermuda corporation,
having its registered office in Clarendon House, 2 Church Street, Hamilton,
Bermuda (hereinafter referred to as "Borrower"), promises to pay to the order of
NB CAPITAL CORPORATION, a Maryland corporation, at its principal place of
business at 125 West 55th Street, New York, New York 10019 (hereinafter referred
to as "Lender"), or at such other place as the holder thereof may form time to
time designate in writing, the principal sum of ___________________
(U.S.$____________________) (the Original Principal Amount") in lawful money of
the United States of America with interest on the principal amount outstanding
from time to time to be computed from the date hereof until such principal
amount is paid in full at an annual rate equal to the lesser of (i) the maximum
nonusurious rate permitted by applicable law and (ii) _______ percent (__% )
calculated monthly on an semi-annual basis (the "Interest Rate"), said Original
Principal Amount and interest to be paid as follows:
(i) With respect to each Interest Period, interest payments
shall be paid in arrears on the fifteenth (15th) day of each
calendar month immediately following such Interest Period;
provided, however, that if such day is not a Business Day,
interest payments shall be made on the immediately succeeding
Business Day (the "Interest Payment Date"). "Interest Period"
means each calendar month or portion thereof during the term
of the Note or, in the case of the initial Interest Period,
the date hereof through September 30, 1997. "Business Day"
means a day of the year on which banks are not required or
authorized by law to close in Maryland, Bermuda and Quebec.
(ii) The Original Principal Amount shall be due and payable,
unless otherwise accelerated or prepaid in accordance with the
terms of this Note or the Loan Agreement, dated as of the date
hereof, between Borrower and Lender (the "Loan Agreement") on
________15,____ (the "Stated Maturity") in whole.
<PAGE>
2
Section 1. Incorporation by Reference. All of the terms,
covenants and conditions contained in the Mortgage Loan Assignment Agreement (as
defined herein) and the Loan Agreement with respect to the indebtedness
evidenced by this Note are hereby made a part of this Note to the same extent
and with the same force as if they were fully set forth herein.
Section 2. Security. The indebtedness evidenced by this Note
is secured pursuant to that certain mortgage loan assignment agreement of even
date herewith (the "Mortgage Loan Assignment Agreement"), assigning the mortgage
loans more particularly described therein as well as Borrower's interest in the
real property securing such Mortgage Loans (the "Mortgage Loans") as security to
Lender, subject to a reassignment upon satisfaction in full of any indebtedness
evidenced by this Note.
Section 3. Prepayment. The Original Principal Amount of this
Note is not subject to optional prepayment but is subject to mandatory
prepayment prior to the Stated Maturity upon the terms and conditions specified
in the Loan Agreement.
Section 4. Default and Acceleration. If an Event of Default
(as defined in the Loan Agreement), other than an Event of Default described in
Section 6.01(g) of the Loan Agreement has occurred and is continuing, Lender may
at any time, in addition to any other rights or remedies available to it
pursuant to this Note, the Loan Agreement and the Mortgage Loan Assignment
Agreement, or at law or in equity, take such action, without notice or demand,
that Lender deems advisable to protect and enforce its rights against Borrower
and in any of the Collateral (as defined in the Loan Agreement), including,
without limitation, by notice to Borrower, declare the Debt to be forthwith due
and payable, whereupon such Debt shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by Borrower, and may enforce or avail itself of any
or all rights or remedies provided in this Note, the Loan Agreement and the
Mortgage Assignment Agreement against Borrower and/or the Collateral (including
selling the Mortgage Loans); and upon an Event of Default described in Section
6.01(g) of the Loan Agreement, the Debt shall automatically become and be due
and payable, without presentment, demand, protest or any notice of any kind, all
of which are hereby expressly waived by Borrower. "Debt" means (a) the
outstanding principal balance of this Note, (b) interest, default interest at
the Default Rate (as defined herein), late charges and other sums, as provided
in this Note, the Loan Agreement or the Mortgage Loan Assignment Agreement, (c)
all other monies agreed or provided to be paid by Borrower in this Note, the
Loan Agreement or the Mortgage Loan Assignment Agreement, and (e) all sums
advanced and costs and expenses incurred by Lender in connection with the Debt
or any part thereof, any renewal, extension, or change of or substitution of the
Debt or any part thereof, or the acquisition or perfection of the security
therefor, whether made or incurred at the request of Borrower or Lender.
<PAGE>
3
Section 5. Savings Clause. It is expressly stipulated and
agreed to be the intent of Borrower and Lender that this Note complies with the
applicable usury and other laws relating to this Note now or hereafter in
effect. If any such applicable laws render usurious any amount called for under
this Note, or contracted for, charged or received with respect to this Note, or
if the acceleration of the maturity of this Note or if any prepayment by
Borrower results in Borrower having paid any interest in excess of that
permitted by applicable law, then it is the express intent of the parties that
all excess amounts theretofore collected by Lender be refunded to Borrower, and
the provisions of this Note immediately be deemed reformed and the amounts
thereafter collected under this Note reduced, without the necessity of the
execution of any new document, so as to comply with the then applicable law, but
so as to permit the recovery of the fullest amount otherwise called for under
this Note.
Section 6. Late Charges; Mortgage Default Interest Rate. (a)
Subject to Section 5, in the event that any installment of interest or principal
shall become overdue for a period in excess of five (5) days, a "late charge" in
an amount equal to five percent (5%) of the amount so overdue may be charged to
Borrower by Lender for the purpose of defraying the expenses incident to
handling such delinquent payments. Subject to Section 5, such late charge shall
be in addition to, and not in lieu of, any other remedy Lender may have and is
in addition to Lender's right to collect reasonable fees and charges of any
agents or attorneys which Lender may employ in connection with any default.
(b) If Borrower shall default in any payment of principal or
interest, or any other amount owed by Borrower under this Note, the Loan
Agreement or the Mortgage Loan Assignment Agreement, Borrower shall pay interest
on the unpaid principal amount of this Note, payable in arrears on each Interest
Payment Date and on demand, at a rate per annum equal at all times to the lesser
of (x) the maximum non-usurious rate permitted by applicable Law or (y) three
percent (3%) per annum above the applicable Interest Rate until such defaulted
amount has been paid by Borrower, together with interest thereon at the Default
Rate. Payment or acceptance of the increased rate as provided in this Section is
not a permitted alternative for timely payment and shall not constitute a waiver
of a Default or an Event of Default or an amendment to this Note, the Loan
Agreement or the Mortgage Loan Assignment Agreement and shall not otherwise
prejudice or limit any rights or remedies or Lender.
Section 7. No Oral Change. This Note may not be modified,
amended, waived, extended, changed, discharged or terminated orally or by act or
failure to act on the part of Borrower or Lender, but only by an agreement in
writing signed by the party against whom enforcement of any modification,
amendment, waiver, extension, change, discharge or termination is sought.
<PAGE>
4
Section 8. Waivers. Except for any notices expressly provided
for in this Note, the Loan Agreement or the Mortgage Loan Assignment Agreement,
Borrower and all others who may become liable for the payment of all or any part
of the Debt do hereby severally waive presentment and demand for payment, notice
of dishonor, protest and notice of protest and non-payment and all other notices
of any kind. No release of any security for the Debt or extension of time for
payment of this Note or any installment hereof, and no alteration, amendment or
waiver of any provision of this Note, the Loan Agreement or the Mortgage Loan
Assignment Agreement between Lender or any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower, and any other person or entity who may become liable for
the payment of all or any part of the Debt, under this Note, the Loan Agreement
or the Mortgage Loan Assignment Agreement. No notice to or demand on Borrower
shall be deemed to be a waiver of the obligation of Borrower or of the right of
Lender to take further action without further notice or demand as provided for
in this Note, the Loan Agreement or the Mortgage Loan Assignment Agreement. Any
failure of Lender to insist upon strict performance by Borrower of any of the
provisions of this Note, the Loan Agreement or the Mortgage Loan Assignment
Agreement shall not be deemed a waiver of any of the terms or provisions of this
Note, the Loan Agreement or the Mortgage Loan Assignment Agreement, and Lender
shall have the right thereafter to insist upon strict performance by Borrower of
any and all of them.
Section 9. Non Recourse. Except as otherwise provided herein
and the Loan Agreement and the Mortgage Loan Assignment Agreement, Lender shall
not enforce the liability and obligation of Borrower to perform and observe the
obligations contained in this Note, the Loan Agreement and the Mortgage Loan
Assignment Agreement by any action or proceeding wherein a money judgment shall
be sought against Borrower, except that Lender may bring an action or proceeding
to enable Lender to enforce and realize upon this Note, the Loan Agreement and
the Mortgage Loan Assignment Agreement, and the interest in the Mortgage Loans
and in any Collateral (as defined in the Loan Agreement) given to Lender created
by this Note, the Loan Agreement or the Mortgage Loan Assignment Agreement,
provided, however, that any judgment in any action or proceeding shall be
enforceable against Borrower only to the extent of Borrower's interest in the
Mortgage Loans and other Collateral given to Lender. The provisions of this
Section shall not however (i) constitute a waiver, release or impairment of any
obligation evidenced or secured by this Note, the Loan Agreement or the Mortgage
Loan Assignment Agreement, (ii) affect the validity or enforceability of any
indemnity made in connection with this Note, the Loan Agreement or the Mortgage
Loan Assignment Agreement, or (iii) impair the enforcement of the Mortgage Loan
Assignment Agreement.
Section 10. Authority. Borrower (and the undersigned
representative of Borrower, if any) represents that Borrower has full power,
authority and legal right to execute and deliver this Note, the Loan Agreement
and the Mortgage Loan Assignment Agreement
<PAGE>
5
and that this Note, the Loan Agreement and the Mortgage Loan Assignment
Agreement are valid and binding in accordance with their terms.
Section 11. Applicable Law. This Note shall be governed,
construed, applied and enforced in accordance with the Laws of Bermuda.
Section 12. Counsel Fees. In the event that it should become
necessary to employ counsel to collect the Debt or to protect or foreclose the
security therefor, Borrower also agrees to pay all reasonable fees and expenses
of Lender, including, without limitation, reasonable attorney's fees for the
services of such counsel whether or not suit be brought.
Section 13. Notices. All notices and other communications
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered,
if to Borrower, at its address c/o Conyers Dill & Pearman, Clarendon House, 2
Church Street, Hamilton, HM 11, Bermuda, Attention: Roger Burgess; and if to
Lender, at its address at 125 West 55th Street, New York, New York 10019,
Attention: Roger Smock; with a copy to National Bank of Canada, as servicer of
Lender, at National Bank Tower, 600 de La Gauchetiere West, Montreal, Quebec H3B
4L2 or as to each other party, at such other address as shall be designated by
such party in a written notice to Borrower and Lender. All such notices and
communications shall, when mailed, telegraphed, telecopied or telexed, be
effective when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively.
Section 14. Payment. Borrower shall make each payment,
irrespective of any right of counterclaim or set-off, not later than 11:00 a.m.
(Eastern Standard time) on each Interest Payment Date in United States dollars
to Lender at Lender's Account in same day funds. All computations of interest
and fees shall be made by Lender on the basis of a year of 360 days consisting
of twelve (12) months of thirty (30) days each. Each determination by Lender of
interest or fees hereunder shall be conclusive and binding for all purposes,
absent manifest error.
* * *
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this instrument to be
duly executed on the date in the year first above written.
NB FINANCE, LTD.
By:___________________
Name:
Title:
<PAGE>
EXHIBIT C-1
1997 SERIES 1 MORTGAGE LOANS
<PAGE>
EXHIBIT C-2
1997 SERIES 2 MORTGAGE LOANS
<PAGE>
EXHIBIT C-3
1997 SERIES 3 MORTGAGE LOANS
<PAGE>
EXHIBIT C-4
1997 SERIES 4 MORTGAGE LOANS
<PAGE>
EXHIBIT C-5
1997 SERIES 5 MORTGAGE LOANS
<PAGE>
EXHIBIT C-6
1997 SERIES 6 MORTGAGE LOANS
<PAGE>
EXHIBIT C-7
1997 SERIES 7 MORTGAGE LOANS
<PAGE>
EXHIBIT C-8
1997 SERIES 8 MORTGAGE LOANS
<PAGE>
EXHIBIT C-9
1997 SERIES 9 MORTGAGE LOANS
<PAGE>
EXHIBIT C-10
1997 SERIES 10 MORTGAGE LOANS
<PAGE>
EXHIBIT C-11
1997 SERIES 11 MORTGAGE LOANS
<PAGE>
EXHIBIT C-12
1997 SERIES 12 MORTGAGE LOANS
<PAGE>
EXHIBIT C-13
1997 SERIES 13 MORTGAGE LOANS
<PAGE>
EXHIBIT C-14
1997 SERIES 14 MORTGAGE LOANS
<PAGE>
EXHIBIT C-15
1997 SERIES 15 MORTGAGE LOANS
<PAGE>
EXHIBIT C-16
1997 SERIES 16 MORTGAGE LOANS
<PAGE>
EXHIBIT D
FORM OF MORTGAGE LOAN ASSIGNMENT AGREEMENT
THIS MORTGAGE LOAN ASSIGNMENT AGREEMENT (this "Assignment")
made as of the 3rd day of September, 1997, constitutes an assignment from NB
FINANCE, LTD., a Bermuda corporation (the "Assignor"), to NB CAPITAL
CORPORATION, a Maryland corporation, (the "Assignee"), and an agreement by and
among Assignor, Assignee and NATIONAL BANK OF CANADA, a Canadian chartered bank,
as custodian and servicer on behalf of Assignee (the "Bank").
W I T N E S S E T H :
WHEREAS, Assignor has entered into a certain Loan Agreement,
of even date herewith, by and between Assignor and Assignee (such Loan
Agreement, as it may be amended or modified from time to time, the "Loan
Agreement"), pursuant to which Assignee has agreed, subject to the terms and
conditions thereof, to lend, with respect to the 1997 Series __ Loan (as defined
in the Loan Agreement), a principal amount of U.S.$ ___________ to Assignor on
the date hereof.
WHEREAS, to evidence and secure its obligations with respect
to the 1997 Series __ Loan under the Loan Agreement, Assignor shall execute and
deliver as of the date hereof, certain Loan Documents (as defined in the Loan
Agreement).
WHEREAS, Assignee has required and Assignor has agreed that
Assignor shall assign all of its right, title and interest in, to and under the
mortgage loans listed on Exhibit A attached hereto (the "Mortgage Loans"), each
such Mortgage Loan evidenced by certain agreements, deeds and proceedings (the
"Mortgage Loan Documents") to Assignee and permit Assignee or its agents, to
administer, perform and enforce the Mortgage Loans upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the transactions
hereinabove described, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Assignment. (a) Assignor as beneficial owner hereby
assigns, charges and sets over to Assignee, and its successors and assigns,
without recourse to Assignor, all of Assignor's right, title and interest now or
hereafter acquired in, to and under the Mortgage Loans and all of the real
property (together with any proceeds (including, but not limited to, any
insurance, casualty and mortgage insurance proceeds), products, substitutions,
additions or replacements of any collateral mortgaged, assigned or pledged under
the Mortgage Loans) described therein (collectively, the "Collateral").
<PAGE>
2
(b) Assignee hereby accepts the foregoing assignment, on
behalf of itself and its respective successors and assigns.
(c) Assignor hereby appoints Assignee the true and lawful
attorney-in-fact of Assignor, with full power of substitution, in its own name,
both before and/or after any Event of Default (as defined in the Loan
Agreement), to take any action under or in connection with the Mortgage Loans.
This power shall be deemed to be coupled with an interest and shall be
irrevocable.
(d) Assignor agrees that the assignment herein provided is
absolute and from and after the date hereof, subject to Section 16, Assignee
shall obtain legal title to the Mortgage Loans and Assignor shall not have, and
shall not exercise, any rights in and to the Collateral, including, without
limitation, any rights as payee, mortgagee or assignee under any of the Mortgage
Loan Documents, or any rights to receive any payments or to exercise or omit to
exercise, waive, compromise or make any other actions or determinations or give
or receive any notices under or in respect of the Mortgage Loan Documents,
except such as Assignee may direct in order to better effectuate the rights,
remedies and security herein provided or contemplated.
(e) Assignee, as payee under the Mortgage Loans, shall have
the right, both before and after an Event of Default (as defined in the Loan
Agreement) to collect and receive all payments of principal and interest and any
other amounts due and payable under the Mortgage Loan Documents. On each
Interest Payment Date (as defined in the Loan Agreement), Assignee shall apply
the U.S. Dollar Equivalent (as defined in the Loan Agreement) of the funds
collected under the Mortgage Loan Documents (i) first, to the payment of any
interest due and payable under the Loan Documents, (ii) second, to the payment
of any scheduled or unscheduled principal payments due and payable under the
Loan Documents, (iii) third, to the payment of any Excess Loan Amount (as
defined in the Loan Agreement) and (iv) fourth, to any other amounts due and
payable under the Loan Documents and shall, to the extent available after
payment of the amounts in clauses (i), (ii), (iii) and (iv) above, remit the
balance of any collections or payments to Assignor.
TO HAVE AND TO HOLD the same unto Assignee, and its successors
and assigns.
2. Representations and Warranties of Assignor. Assignor
represents and warrants as follows:
(a) Assignor (i) is the sole owner of the Mortgage Loans and
such ownership is free and clear of any lien, security interest or
other encumbrance, (ii) has not granted any participation or other
interest or assignment, other option or rights to the Mortgage Loans,
other than to Assignee, and (iii) has not pledged, collaterally
<PAGE>
3
assigned or otherwise hypothecated any interest therein or agreed to do
so, other than to Assignee.
(b) The registered office and principal place of business of
the Assignor is located in Hamilton, Bermuda.
(c) The execution, delivery and performance of this Assignment
by Assignor are within Assignor's power and authority, have been duly
authorized by all necessary action and do not and will not (i) require
any authorization which has not been obtained, (ii) contravene the
articles of incorporation or by-laws of the Assignor, any applicable
laws or any agreement or restriction binding on or affecting Assignor
or its property, or (iii) result in or require the creation or
imposition of any lien or right of others upon or with respect to any
property now or in the future owned by Assignor (other than liens
created in favor of Assignee hereunder). No authorization which has not
been obtained is required for the assignment hereunder or the
enforcement by Assignee of its remedies under this Assignment. This
Assignment, when executed and delivered, will constitute the legal,
valid and binding obligation of Assignor enforceable against Assignor
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency or other similar laws affecting the rights of
creditors generally.
(d) The originals (including duplicate originals, if any) of
all the Mortgage Loan Documents, have been simultaneously herewith
delivered to the Bank as custodian for Assignee (except for any loan
documents which have been or will be submitted to public officials for
filing or recording and policies of title or other insurance which have
not yet been received by Assignor, which in either case will be
delivered directly to the Bank or forthwith turned over to the Bank as
and when received by the Assignor).
3. Servicing. Until the satisfaction in full of all
obligations of Assignor under the Loan Agreement shall have occurred:
(a) Assignee or its agents, shall have the sole power and
authority to do or refrain from doing any act under or in connection
with the Mortgage Loan Documents and the property described therein
and/or this Assignment, including, without limitation, the sole power
and authority in its sole discretion, to (i) advance funds thereunder,
(ii) determine that all conditions to the advance of funds thereunder
have been satisfied (or to waive some or all of the conditions to
advance thereunder), and (iii) determine that a default or event of
default has occurred thereunder and to give any notice, demand or
protest in respect thereof;
<PAGE>
4
(b) Assignor acknowledges that (i) the Bank, as agent of
Assignee, shall be named as mortgagee and loss payee on all fire,
extended coverage and other hazard insurance policies required under
the Mortgage Loan Documents, to the extent set forth therein and (ii)
Assignor and any mortgagor and all other parties obligated to Assignor
under the Mortgage Loan Documents shall deal solely with the Bank,
acting on behalf of Assignee, under the Mortgage Loan Documents and
this Assignment, Assignor and all other parties so obligated shall be
entitled to rely on their actions so taken with respect to the Bank and
upon the action taken by the Bank, acting on behalf of Assignee, with
respect to them until the satisfaction in full of all obligations of
Assignor under the Loan Agreement or until Assignee shall appoint
another person to act on its behalf (or otherwise revoke the Bank's
authority to act on behalf of Assignee);
(c) Assignor agrees that Assignee or it agents shall have the
full power and authority, in its discretion, to take, or defer from
taking, any and all actions with respect to the administration and
enforcement of the Loan Documents, in order to effectuate the purposes
contemplated herein and therein, including the right, power and
authority to exercise any and all of the rights, remedies and options
reserved to Assignee or its agents in, or given by law or equity to
Assignee or it agents as holder of the Mortgage Loan Documents, to
enforce the Mortgage Loan Documents, and to take such other actions for
the protection and preservation of the lien of the Mortgages, and
protect and preserve all property described therein should Assignee or
its agents become the owner thereof by foreclosure or otherwise as may
be necessary and/or appropriate.
4. Event of Default; Remedies. If an event of default shall
occur under any Mortgage Loan (an "Event of Default"), Assignee or its agents
shall have all the rights and remedies which would be available to Assignor (but
for this Assignment) under the Mortgage Loan Documents as set forth therein and
as permitted thereunder or otherwise available to Assignor (but for this
Assignment) in law or in equity, including, without limitation but in each
instance to the extent provided in and as conditioned by the Mortgage Loan
Documents, the right:
(a) To accelerate the maturity of such Mortgage Loan and all
other amounts due under the applicable Mortgage Loan Documents and to
declare the same to be or become immediately due and payable and
enforce payment thereof upon the happening of any Event of Default by
the mortgagor under such Mortgage Loan, as permitted therein, after the
giving of such applicable notice and/or the passage of such time as may
be provided for in such Mortgage Loan;
(b) To take such steps, institute and prosecute such actions
and proceedings and do or omit such acts which, in its judgment, are
advisable in order to enforce
<PAGE>
5
payment of all amounts due under the Mortgage Loan Documents and
realize upon the security provided therefor, including, without
limitation, (i) to select any of the remedies available under the
Mortgage Loan Documents or otherwise available at law or in equity,
(ii) to enter into or consent to any amendment, modification and/or
extension of the Mortgage Loan Documents, (iii) to enter into or
consent to any release, substitution or exchange of all or any part of
any security for such Mortgage Loan, (iv) to waive any claim against
the mortgagor or any person or entity obligated under the Loan
Documents and (v) to defer, extend, increase or decrease any payment,
installment or other sum required or on account of such Mortgage Loan
and/or the applicable Mortgage Loan Documents;
(c) To discontinue any such action or proceeding
commenced as provided in subsection 4(b) above or to stay, delay,
defer, discontinue or withdraw the same;
(d) To enter or cause to be entered a bid at any foreclosure
sale of the property mortgaged securing such Mortgage Loan pursuant to
the applicable Mortgage Loan Documents (each such property a "Mortgaged
Property") or any portion thereof;
(e) To acquire title in and to any Mortgaged Property or any
portion thereof in any foreclosure proceeding in its name or the name
of its nominee or designee;
(f) To accept a deed to any Mortgaged Property or any portion
thereof in lieu of foreclosure and to release the mortgagor from its
obligations under the Mortgage in consideration of such deed in lieu of
foreclosure;
(g) To operate, manage and/or develop, or hire agents to
operate, manage and/or develop, any foreclosed or acquired Mortgaged
Property and to lease all or any portion thereof upon such terms and
conditions as it deems to be in the best interests of Assignee;
(h) To sell any foreclosed or acquired Mortgaged Property or
any portion thereof, upon such terms as it may deem to be in the best
interests of Assignee, including, without limitation, the right to take
back one or more purchase money notes and mortgages;
(i) To make advances for the payment for taxes, assessments,
water, sewer and vault charges, and all interest and penalties thereon,
insurance premiums and other similar or dissimilar items relating to
any Mortgaged Property, to the extent permitted by the applicable
Mortgage Loan Documents;
<PAGE>
6
(j) To make advances for the account of the mortgagor under
such Mortgage Loan, to the extent permitted by the applicable Mortgage
Loan Documents;
(k) To collect, sue for, receive and, subject to applicable
provisions of law, settle or compromise any claims for loss or damage
covered by insurance and/or condemnation of all or any portion of any
Mortgaged Property and to exercise its discretion in the proper
application and disposition of the net proceeds of such insurance
and/or condemnation award;
(l) To sell the Mortgage Loan at a fair market value; and
(m) Generally to do and take any and all actions which, but
for this Assignment, the Assignor would be entitled to do and take
under or with respect to the applicable Mortgage Loan Documents; it
being understood and agreed that this Assignment does not confer upon
the Assignee any greater rights with respect to the Mortgage Loan
Documents than granted to Assignor or expand or extend such rights, the
purpose of this Assignment being, inter alia, to assign, transfer and
allocate such rights and not to create new rights against any mortgagor
under the applicable Mortgage Loan, or to limit the rights or expand
the obligations of any such mortgagor, and in the event of any conflict
between the provisions of this Assignment and the provisions of the
Mortgage Loan Documents, the provisions of the Mortgage Loan Documents,
shall control.
5. Possession of Mortgage Loan Documents. From and after the
date of this Assignment, the Bank shall no longer hold the duly executed
originals of the Mortgage Loan Documents on its own behalf or as custodian for
Assignor, but shall hold the same as custodian for Assignee, pursuant to the
terms of (i) the custodial agreement dated as of September 3, 1997 by and
between the Bank and Assignee and (ii) the Servicing Agreement dated as of
September 3, 1997 by and between the Bank and Assignor, as assigned to Assignee
pursuant to an Assignment of Servicing Agreement dated as of September 3, 1997.
6. Further Assurances. (a) Assignor agrees that at any time
and from time to time, at the expense of Assignor, Assignor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that Assignee may reasonably
request, to effectuate the purpose or provisions of this Assignment or to
confirm or perfect any transaction described or contemplated herein or to enable
Assignee or its agents to exercise and enforce its rights and remedies hereunder
with respect to any Mortgage Loan Document. Assignor and Assignee agree that
Borrower shall reasonably cooperate (i) in preparing, executing, delivering or
having prepared, delivered and executed by January 1, 1998 such documents or
instruments which are necessary or desirable to register legal title to each
Mortgage Loan in the name of Lender in the appropriate land
<PAGE>
7
registry or other office of public record, and (ii) in registering legal title
to each Mortgage Loan in the name of Lender in the event the credit rating of
the Bank (or such other agent as may hold the Mortgage Loans on behalf of
Assignee) will fall below either "BBB-" by Standard & Poor's Rating Services or
"Baa" by Moody's Investor Service, Inc.
(b) Assignor hereby authorizes Assignee or its agents to file
and record one or more financing or continuation statements and amendments
thereto, relative to all or any part of the Loan Documents without the signature
of Assignor where permitted by law.
7. Assignment. This Assignment shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
8. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered, if to
Assignor, at its address at c/o Conyers Dill & Pearman, Clarendon House, 2
Church Street, Hamilton, HM 11, Bermuda, Attention: Roger Burgess; and if to
Assignee, at its address at 125 West 55th Street, New York, New York 10019,
Attention: Roger Smock; or as to each other party, at such other address as
shall be designated by such party in a written notice to Assignee and Assignor.
All such notices and communications shall, when mailed, telegraphed, telecopied
or telexed, be effective when deposited in the mails, delivered to the telegraph
company, transmitted by telecopier or confirmed by telex answerback,
respectively.
9. Governing Law. This Assignment and Agreement shall be
governed by and construed in accordance with the laws of Bermuda.
10. Jurisdiction. (a) Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any court sitting in Bermuda, and any appellate
court thereof, in any action or proceeding arising out of or relating to this
Assignment, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
Bermuda court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Assignment shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Assignment in the courts
of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Assignment in any
Bermuda court. Each of the parties hereto hereby irrevocably waives, to
<PAGE>
8
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court. Assignee hereby
irrevocably appoints Conyers Dill & Pearman, Clarendon House, Church Street,
Hamilton HM CX, Bermuda ("Assignee's Process Agent"), as its agent to receive,
on behalf of Assignee, service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding. Any such
service may be made by mailing or delivering a copy of such process, if to
Assignee, in care of Assignee's Process Agent at Assignee's Process Agent's
above address. Assignee hereby irrevocably authorizes and directs its respective
process agent to accept such service on its behalf.
11. Counterparts. This Assignment may be executed in one or
more counterparts, each of which shall be considered an original. Delivery of an
executed counterpart of a signature page to this Assignment by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment.
Any delivery of a counterpart signature by telecopier shall, however, be
promptly followed by delivery of a manually executed counterpart.
12. Change and Modifications. This Assignment may not be
changed, terminated or modified orally or in any manner other than by an
agreement in writing signed by the party sought to be charged therewith.
13. No Waiver. No waiver by any party of any provision of this
Assignment or any right, remedy or option hereunder shall be controlling, nor
shall it prevent or estop such party from thereafter enforcing such provision,
right, remedy or option, and the failure or refusal of any party hereto to
insist in any one or more instances upon the strict performance of any of the
terms or provisions of this Assignment by any other party hereto shall not be
construed as a waiver or relinquishment for the future of any such term or
provision, but the same shall continue in full force and effect, it being
understood and agreed that the rights, remedies and options of Assignee or the
Bank, acting as servicer on behalf of Assignee, hereunder are and shall be
cumulative and in addition to all other rights, remedies and options of Assignee
or the Bank, acting as servicer on behalf of Assignee, in law or in equity or
under any other agreement.
14. Recitals. All of the recitals hereinabove set forth are
incorporated in this Assignment by reference.
15. Paragraph Headings, etc. The headings of paragraphs
contained in this Assignment are provided for convenience only. They form no
part of this Assignment and shall not affect its construction or interpretation.
All references to paragraphs or subparagraphs of this Assignment refer to the
corresponding paragraphs and subparagraphs of this Assignment. All words used
herein shall be construed to be of such gender or number as the circumstances
require. This "Assignment" shall each mean this Assignment as a whole
<PAGE>
9
and as the same may from time to time hereafter be amended or modified. The
words "herein," "hereby," "hereof," "hereto," "hereinabove" and "hereinbelow,"
and words of similar import, refer to this Assignment as a whole and not to any
particular paragraph, clause or other subdivision hereof, unless otherwise
specifically noted.
16. Termination. Upon satisfaction in full of all obligations
of Assignor under the Loan Documents, this Assignment shall terminate and be of
no further force and effect and Assignee shall execute documents evidencing the
assignment of any outstanding Mortgage Loans to Assignor (without recourse),
provided however, that in the event an Event of Default under any Mortgage Loan
occurs, Assignee's obligation to assign such defaulted Mortgage Loan back to
Assignor as provided in this Section shall terminate, provided, further,
however, that to the extent any amounts collected by Lender with respect to such
defaulted Mortgage Loan exceed an amount equal to the sum of (i) the amount by
which the principal amount of the Loan secured by such defaulted Mortgage Loan
was reduced pursuant to Section 2.04(b)(B) of the Loan Agreement, (ii) any
interest accrued on such amount at the applicable Interest Rate (as defined in
the Loan Agreement) compounded monthly, and (iii) the amount of any collection
expenses (including legal fees), such excess shall be applied against the Excess
Loan Amount and any remaining amount shall be remitted to Borrower.
19. Partial Invalidity. In case any provision in this
Assignment shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
20. National Housing Act. Subject to the terms and provisions
of the Servicing Agreement, the Mortgage Loans hereby assigned will be
administered and serviced by the Bank, as agent of Assignee, in accordance with
the National Housing Act (Canada) and National Housing Regulations (Canada).
<PAGE>
10
IN WITNESS WHEREOF, the Assignor and each other party hereto
has duly executed this Assignment and Agreement as of the __ day of __________,
1997,
ASSIGNOR
NB FINANCE, LTD.
By: ___________________________
Name:
Title:
ASSIGNEE
NB CAPITAL CORPORATION
By: ___________________________
Name:
Title:
BANK
NATIONAL BANK OF CANADA
By: ___________________________
Name:
Title:
<PAGE>
PROVINCE OF QUEBEC )
) ss.:
DISTRICT OF MONTREAL )
On the ___ day of __________, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at ______________________, that he is a ___________ of NB
Finance, Ltd., the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by authority of the board of
directors of said corporation.
--------------------------------
Commissary of Oath for Province of
Quebec, No.
PROVINCE OF QUEBEC )
) ss.:
DISTRICT OF MONTREAL )
On the ___ day of __________, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at ______________________, that he is a ___________ of NB
Capital Corporation, the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by authority of the
board of directors of said corporation.
--------------------------------
Commissary of Oath for Province of
Quebec, No.
<PAGE>
PROVINCE OF QUEBEC )
) ss.:
DISTRICT OF MONTREAL )
On the ___ day of __________, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he resides at ______________________, that he is a ___________ of
National Bank of Canada, the bank described in and which executed the foregoing
instrument; and that he signed his name thereto by authority of the board of
directors of said corporation.
-----------------------------
Commissary of Oath for Province of
Quebec, No.
<PAGE>
EXHIBIT E
MORTGAGE LOAN BALANCES
================================================================================
Outstanding Amount*
- --------------------------------------------------------------------
1997 Series 1 Mortgage Loans $30,219,275
- --------------------------------------------------------------------
1997 Series 2 Mortgage Loans $29,062,939
- --------------------------------------------------------------------
1997 Series 3 Mortgage Loans $60,295,306
- --------------------------------------------------------------------
1997 Series 4 Mortgage Loans $20,456,193
- --------------------------------------------------------------------
1997 Series 5 Mortgage Loans $41,632,375
- --------------------------------------------------------------------
1997 Series 6 Mortgage Loans $58,603,480
- --------------------------------------------------------------------
1997 Series 7 Mortgage Loans $54,867,651
- --------------------------------------------------------------------
1997 Series 8 Mortgage Loans $37,142,271
- --------------------------------------------------------------------
1997 Series 9 Mortgage Loans $11,889,032
- --------------------------------------------------------------------
1997 Series 10 Mortgage Loans $27,682,784
- --------------------------------------------------------------------
1997 Series 11 Mortgage Loans $131,038,560
- --------------------------------------------------------------------
1997 Series 12 Mortgage Loans $28,760,116
- --------------------------------------------------------------------
1997 Series 13 Mortgage Loans $40,527,184
- --------------------------------------------------------------------
1997 Series 14 Mortgage Loans $9,058,428
- --------------------------------------------------------------------
1997 Series 15 Mortgage Loans $6,571,895
- --------------------------------------------------------------------
1997 Series 16 Mortgage Loans $7,928,077
- --------------------------------------------------------------------
Total $595,735,567
====================================================================
- --------
* In United States dollars
NB CAPITAL CORPORATION
Company,
and
NATIONAL BANK OF CANADA,
Custodian,
and
NATIONAL BANK OF CANADA
Servicer
--------------------
CUSTODIAL AGREEMENT
Dated as of September 3, 1997
--------------------
<PAGE>
CUSTODIAL AGREEMENT
THIS CUSTODIAL AGREEMENT, dated as of September 3, 1997, (this
"Agreement") by and between NB CAPITAL CORPORATION, a Maryland corporation,
having an office at 125 West 55th Street, New York, New York 10019 ("Company"),
NATIONAL BANK OF CANADA, a Canadian chartered bank, having an address at
National Bank Tower, 600 de La Gauchetiere West, Montreal, Quebec H3B 4L2,
("Custodian"), and NATIONAL BANK OF CANADA, a Canadian chartered bank, having an
address at National Bank Tower, 600 de La Gauchetiere West, Montreal, Quebec H3B
4L2 ("Servicer").
W I T N E S S E T H
WHEREAS, Company has made a series of loans (the "Loans") to
NB Finance, Ltd., a Bermuda company ("Borrower"), pursuant to a Loan Agreement,
dated as of September 3, 1997 (the "Loan Agreement");
WHEREAS, as security for each such Loan, Borrower has assigned
to Company certain mortgage loans (and the real property securing such mortgage
loans) pursuant to and more particularly described in the applicable Mortgage
Loan Assignment Agreement, dated as of September 3, 1997, between NB Finance and
Company (collectively, the "Mortgage Loans");
WHEREAS, Servicer is to service the Mortgage Loans pursuant to
a Servicing Agreement dated as of September 3, 1997 by and between Servicer and
Borrower, as assigned pursuant to an Assignment of Servicing Agreement dated as
of September 3, 1997, by Borrower to Company (as assigned, the "Servicing
Agreement");
WHEREAS, Custodian is a bank incorporated under the terms of
the Bank Act (Canada) (S.C. 1991, Chapter 46) and validly existing and in good
standing under the laws of and regulated by the laws of its jurisdiction of
incorporation, and is otherwise authorized to act as Custodian pursuant to this
Agreement; and
WHEREAS, Company desires to have Custodian take possession of
the Mortgage File (as defined below) as custodian of Company on September 3,
1997 (the "Delivery Date"), in accordance with the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual undertakings
herein expressed, the parties hereto hereby agree as follows:
Section 1. Delivery of Mortgage File. (a) On the Delivery
Date, Company shall deliver, or cause to be delivered, to Custodian, or to the
extent already in possession of Custodian, Custodian shall continue to hold, the
mortgage file containing all the agreements, deeds and proceedings evidencing
the Mortgage Loans and the real property
<PAGE>
securing such Mortgage Loans, as well as any architectural and engineering
reports, title reports, surveys, insurance policies and other information
material with respect to the Mortgage Loans or the real property securing the
Mortgage Loans (the "Mortgage File"), to be held on behalf of Company.
Custodian's signature to this Agreement shall serve as an acknowledgement of the
receipt of the Mortgage File, subject to Section 1(b) hereof.
(b) With respect to any documents that have been sent for
recording by Company on the Delivery Date, Company shall deliver or cause to be
delivered such original documents or acknowledgement copies thereof with
evidence of recording thereon to Custodian upon receipt and Custodian shall have
no responsibility for such recording. Custodian shall hold such original
recorded documents or acknowledgment copies delivered to it in trust for the
benefit of Company in accordance with the terms hereof.
Section 2. Obligations of Custodian. Custodian shall hold all
documents received by it constituting the Mortgage File and shall make
disposition thereof only in accordance with the instructions of Company and the
terms of this Agreement. The Mortgage File shall be appropriately marked and
identified to clearly reflect that such documents are held by Custodian, as
agent on behalf of Company.
Section 3. Release for Servicing. From time to time and as
appropriate for the foreclosure or other servicing of the Mortgage Loans,
Custodian is hereby authorized, to release to Servicer the Mortgage File or any
document contained in the Mortgage File. All documents so released to Servicer
shall be held by Servicer in trust and shall be returned to Custodian when
Servicer's need therefor in connection with such foreclosure or servicing no
longer exists. Upon the payment in full of all obligations under a Loan,
Custodian shall, upon receipt by Custodian of a request, promptly release the
Mortgage File with respect to such Loan to Servicer to be delivered to Borrower.
Section 4. Fees of Custodian. Custodian may charge such fees
for its services under this Agreement as are customary, the payment of which
fees, together with Custodian's expenses in connection herewith, shall be the
obligation of Company.
Section 5. Removal of Custodian. Company may upon at least 30
days' notice remove and discharge Custodian from the performance of its duties
under this Agreement by written notice from Company to Custodian, with a copy to
Servicer. In the event of any such removal, Custodian shall promptly transfer to
Company, or as otherwise directed by the Company, the Mortgage File. Such
removal of Custodian shall not affect the obligations and duties of Servicer
under the Servicing Agreement.
Section 6. Insurance of Custodian. At its own expense,
Custodian shall maintain at all times during the existence of this Agreement and
keep in full force and effect such fidelity bonds and/or insurance policies in
amounts, with standard coverage and subject
2
<PAGE>
to deductibles, all as are customarily maintained by banks which act as
custodian and as required under the Servicing Agreement.
Section 7. Counterparts. For the purpose of facilitating the
execution of this Agreement as herein provided and for other purposes, this
Agreement may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original and all of such counterparts
together shall constitute and be one and the same instrument. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.
Any delivery of a counterpart signature by telecopier shall, however, be
promptly followed by delivery of a manually executed counterpart.
Section 8. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Province of Quebec and the
obligations, rights and remedies hereunder shall be determined in accordance
with the substantive laws of the Province of Quebec. Each of the parties hereto
irrevocably and unconditionally submits itself and its property, to the
non-exclusive jurisdiction of any provincial court of Canada, and any appellate
court thereof in any action or proceeding arising out of or relating to this
Agreement, or for the recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgement or in any other matter provided by law.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement in the courts
of any jurisdiction. Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection they may now or hereafter have to the laying of venue of any suit,
action or proceeding arising our or relating to this Agreement in any provincial
court of Canada. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defence of an inconvenient forum to the
maintenance of such action or proceeding in such court. Company hereby
irrevocably appoints Montreal Trust, Place Montreal Trust, 1800 McGill College
Avenue, Montreal, Quebec, Canada H3A 2K9 ("Company's Process Agent"), as its
agent to receive, on behalf of Company, service of copies of the summons and
complaint and any other process that may be served in any such action or
proceeding. Any such service may be made by mailing or delivering a copy of such
process, in care of Company at Company's Process Agent's above address. Company
hereby irrevocably authorizes and directs its agent to accept such service on
its behalf.
Section 9. Provisions Separable. The provisions of this
Agreement are independent of and separable from each other, and no provision
shall be affected or rendered invalid or unenforceable by virtue of the fact
that for any reason any other provision or provisions may be invalid or
unenforceable in whole or in part.
3
<PAGE>
Section 10. Termination by Custodian. Custodian may terminate
its obligations under this Agreement upon at least 30 days' notice to Company.
Such termination shall not affect the duties and obligations of Servicer under
the Servicing Agreement. Any termination by Custodian shall not be effective
until a successor custodian has been appointed and the Mortgage File has been
appropriately transferred.
Section 11. Term of Agreement. Unless terminated pursuant to
Section 5 or Section 10 hereof, this Agreement shall terminate upon the final
payment or other liquidation of the Mortgage Loans, and the final remittance of
all funds due Custodian. In such event, all documents remaining in the Mortgage
File shall be released in accordance with the written instructions of Company.
Section 12. Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered if personally delivered, mailed by certified or registered mail,
postage-prepaid, return receipt requested, or sent by overnight courier or
telecopied to the addresses set forth in the first paragraph of this Agreement
and in the event of Company, to the attention of Chief Financial Officer, in the
event of Servicer or Custodian, to the attention of Senior
Vice-President-Treasury and Financial Markets or such other address and persons
as may hereafter be furnished to the other parties by like notice.
Section. 13. Successors and Assigns. This Agreement shall
inure to the benefit of the successors and permitted assigns of the parties
hereto.
Section 14. Exculpation of Custodian. Neither Custodian nor
any of its directors, officers, agents, employees or "controlling persons"
(within the meaning of the Securities Act of 1933 (United States), as amended)
shall be liable for any action taken or omitted to be taken by it or them
hereunder or in connection herewith in good faith and believed by it or them to
be within the purview of this Agreement, except for its or their own negligence,
lack of good faith or willful misconduct. In no event shall Custodian or its
directors, officers, agents, employees or controlling persons be held liable for
any special, indirect or consequential damages resulting from any action taken
or omitted to be taken by it or them hereunder or in connection herewith in good
faith and reasonably believed by it or them to be within the purview of this
Agreement.
Section 15. Reliance of Custodian. In the absence of bad faith
on the part of Custodian, Custodian may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
request, instructions, certificate, opinion or other document furnished to
Custodian, reasonably believed by Custodian to be genuine and to have been
signed or presented by the proper party or parties and conforming to the
requirements of this Agreement.
Section 16. Entire Agreement. This Agreement and the Servicing
Agreement contain the entire agreement among the parties hereto with respect to
the subject
4
<PAGE>
matter hereof, and supersede all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written
of any nature whatsoever with respect to the subject matter hereof. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof.
5
<PAGE>
IN WITNESS WHEREOF, Company, Servicer and Custodian have
caused their names to be duly signed hereto by their respective officers
thereunto duly authorized, all as of the date first above written.
COMPANY:
NB CAPITAL CORPORATION
By:________________________________
SERVICER:
NATIONAL BANK OF CANADA
By:________________________________
CUSTODIAN:
NATIONAL BANK OF CANADA
By:________________________________
LETTER OF TRANSMITTAL
for
8.35% Noncumulative Exchangeable Preferred Stock, Series A
of
NB CAPITAL CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
__________, 1997 (THE "EXPIRATION DATE") UNLESS EXTENDED BY NB
CAPITAL CORPORATION.
EXCHANGE AGENT:
THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW YORK
By Hand or Overnight Facsimile Transmissions: By Registered or Certified
Delivery: (Eligible Institutions Mail:
Only)
The Bank of Nova Scotia (212) 225-5436 The Bank of Nova Scotia
Trust Company of New York Trust Company of New York
One Liberty Plaza One Liberty Plaza
New York, New York 10006 New York, New York 10006
Attention: George Timmes Attention: George Timmes
To Confirm by Telephone
or for Information Call:
(212) 225-5422
Delivery of this Letter of Transmittal to an address other
than as set forth above or transmission via a facsimile transmission to a number
other than as set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the Prospectus dated
November __, 1997 (the "Prospectus") of NB Capital Corporation (the "Company")
and the National Bank of Canada (the "Bank"), and this Letter of Transmittal
(the "Letter of Transmittal"), which together describe the Company's offer (the
"Exchange Offer") to exchange $1,000 liquidation preference of its 8.35%
Noncumulative Exchangeable Preferred Stock, Series A, par value U.S.$.01 per
share (the "New Preferred Shares") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for each $1,000
liquidation preference of its 8.35%
<PAGE>
2
Noncumulative Exchangeable Preferred Stock, Series A (the "Old Preferred
Shares"). The terms of the New Preferred Shares are identical in all material
respects (including interest rate and maturity) to the terms of the Old
Preferred Shares for which they may be exchanged pursuant to the Exchange Offer,
except that the New Preferred Shares are freely transferable by holders thereof
(except as provided herein or in the Prospectus).
The undersigned has checked the appropriate boxes below and
signed this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND
THE PROSPECTUS CAREFULLY BEFORE CHECKING
ANY BOX BELOW.
<PAGE>
3
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Preferred Shares to which this Letter of
Transmittal relates. If the space provided below is inadequate, the Certificate
Numbers and the Number of Shares should be listed on a separate signed schedule
affixed hereto.
DESCRIPTION OF OLD PREFERRED SHARES TENDERED HEREWITH
<TABLE>
<CAPTION>
Liquidation Preference
Name(s) and Address(es) Aggregate Liquidation of Old Preferred
of Registered Holder(s) Certificate Preference of Shares
(Please fill in) Number(s)* Old Preferred Shares* Tendered**
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* Need not be completed by book-entry holders.
** Need not be completed if tendering for exchange all Old Preferred
Shared delivered to the Exchange Agent. All Old Preferred Shares
delivered shall be deemed tendered unless a lesser number is specified
in this column. See instruction 2.
This Letter of Transmittal is to be used either if
certificates representing Old Preferred Shares are to be forwarded herewith or
if delivery of Old Preferred Shares is to be made by book-entry transfer to an
account maintained by the Exchange Agent at The Depository Trust Company
("DTC"), pursuant to the procedures set forth in "The Exchange Offer--Procedures
for Tendering Old Preferred Shares" in the Prospectus. Delivery of documents to
the book-entry transfer facility does not constitute delivery to the Exchange
Agent.
Unless the context requires otherwise, the term "holder" for
purposes of this Letter of Transmittal means any person in whose name Old
Preferred Shares are registered or any other person who has obtained a properly
completed bond power from the registered holder or any person whose Old
Preferred Shares are held of record by DTC.
<PAGE>
4
Holders whose Old Preferred Shares are not immediately
available or who cannot deliver their Old Preferred Shares and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date must tender their Old Preferred Shares according to the guaranteed delivery
procedure set forth in the Prospectus under the caption "The Exchange
Offer--Procedures for Tendering Old Preferred Shares."
___ CHECK HERE IF TENDERED OLD PREFERRED SHARES ARE BEING
DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT
MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_______________________________________
The Depository Trust Company _______________________________________
Account Number _____________________________________________________
Transaction Code Number ____________________________________________
___ CHECK HERE IF TENDERED OLD PREFERRED SHARES ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND
COMPLETE THE FOLLOWING:
Name of Registered Holder(s)________________________________________
Name of Eligible Institution that Guaranteed Delivery ______________
Date of Execution of Notice of Guaranteed Delivery _________________
If Delivered by Book-Entry Transfer: _______________________________
Account Number ____________________________________________________
___ CHECK HERE IF NEW PREFERRED SHARES ARE TO BE DELIVERED TO
PERSON OTHER THAN PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name ______________________________________________________________
(Please Print)
Address ____________________________________________________________
(Including Zip Code)
___ CHECK HERE IF NEW PREFERRED SHARES ARE TO BE DELIVERED TO
ADDRESS DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER
OF TRANSMITTAL:
Address ____________________________________________________________
(Including Zip Code)
___ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO:
Name ______________________________________________________________
Address ____________________________________________________________
<PAGE>
5
If the undersigned, or the person receiving such New Preferred
Shares, whether or not such person is the undersigned, is not a broker-dealer,
the undersigned represents that neither it nor such person is engaged in, and
does not intend to engage in, a distribution of New Preferred Shares. If the
undersigned, or the person receiving such New Preferred Shares, whether or not
such person is the undersigned, is a broker-dealer that will receive New
Preferred Shares for its own account in exchange for Old Preferred Shares that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such person, as the case may
be, will deliver a prospectus in connection with any resale of such New
Preferred Shares; however, by so acknowledging and by delivering a prospectus,
neither the undersigned nor such person will be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. Any holder who is an
"affiliate" of the Company or who has an arrangement or understanding with
respect to the distribution of the New Preferred Shares to be acquired pursuant
to the Exchange Offer, or any broker-dealer who purchased Old Preferred Shares
from the Company to resell pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act, must comply with the
registration and prospectus delivery requirements under the Securities Act.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange
Offer, the undersigned hereby tenders to the Company the above described
aggregate liquidation preference of the Old Preferred Shares indicated above in
exchange for a like aggregate liquidation preference of the Old Preferred
Shares. Subject to, and effective upon, the acceptance for exchange of the Old
Preferred Shares tendered herewith, the undersigned hereby exchanges, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Preferred Shares. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the Company, in connection with the Exchange Offer)
to cause the Old Preferred Shares to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Preferred Shares and to acquire
New Preferred Shares issuable upon the exchange of such tendered Old Preferred
Shares, and that, when the same are accepted for exchange, the Company will
acquire good and unencumbered title to the tendered Old Preferred Shares, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of tendered Old Preferred Shares or transfer ownership of such Old
Preferred Shares on the account books maintained by the book-entry transfer
facility. The undersigned further agrees that acceptance of any and all validly
tendered Old Preferred Shares by the Company and the issuance of New Preferred
Shares in exchange therefor shall constitute performance in full by the Company
of its obligations
<PAGE>
6
under the Registration Rights Agreement (as defined in the Prospectus) and that
the Company shall have no further obligations or liabilities thereunder except
as provided in the first paragraph of Section 2 of said agreement.
The Exchange Offer is subject to certain conditions as set
forth in the Prospectus under the caption "The Exchange Offer--Certain
Conditions to the Exchange Offer." The undersigned recognizes that as a result
of these conditions (which may be waived, in whole or in part, by the Company),
as more particularly set forth in the Prospectus, the Company may not be
required to exchange any of the Old Preferred Shares tendered hereby and, in
such event, the Old Preferred Shares not exchanged will be returned to the
undersigned at the address shown above. In addition, the Company may amend the
Exchange Offer at any time prior to the Expiration Date if any of the conditions
set forth under "The Exchange Offer--Certain Conditions to the Exchange Offer"
occur.
By tendering, each holder represents to the Company that,
among other things, (a) the New Preferred Shares acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Preferred Shares, whether or not such person is the
holder, (b) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Preferred Shares and (c) neither the holder nor any such other person is an
"affiliate" of the Company as defined under Rule 405 of the Securities Act, or
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. Any holder
of Old Preferred Shares using the Exchange Offer to participate in a
distribution of the New Preferred Shares (i) cannot rely on the position of the
staff of the Securities and Exchange Commission (the "Commission") enunciated in
its interpretive letter with respect to Exxon Capital Holdings Corporation
(available April 13, 1989) or similar letters and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
If the undersigned, or the person receiving such New Preferred
Shares, whether or not such person is the undersigned, is not a broker-dealer,
the undersigned represents that neither it nor such person is engaged in, and
does not intend to engage in, a distribution of New Preferred Shares. If the
undersigned, or the person receiving such New Preferred Shares, whether or not
such person is the undersigned, is a broker-dealer that will receive New
Preferred Shares for its own account in exchange for Old Preferred Shares that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such person, as the case may
be, will deliver a prospectus in completion with any resale of such New
Preferred Shares; however, by so acknowledging and by delivering a prospectus,
neither the undersigned nor such person will be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, legal representatives,
successors, assigns, executors and administrators of the undersigned. Tendered
Old Preferred Shares may be withdrawn at any
<PAGE>
7
time prior to the Expiration Date in accordance with the terms of this Letter
of Transmittal. See Instruction 2.
Certificates for all New Preferred Shares delivered in
exchange for tendered Old Preferred Shares and any Old Preferred Shares
delivered herewith but not exchanged, and in each case registered in the name of
the undersigned, shall be delivered to the undersigned at the address shown
below the signature of the undersigned.
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
_______________________________________________________________________________
_______________________________________________________________________________
Signature(s) of Holder(s)
Dated _____________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Preferred Shares. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s) _______________________________________________________________________
_______________________________________________________________________________
(Please Print)
Capacity (full title) _________________________________________________________
Address _______________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ___________________________________________________
Taxpayer Identification No. ___________________________________________________
GUARANTEE OF SIGNATURE(S) (If
Required See Instruction 3)
Authorized Signature _________________________________________________________
Name _________________________________________________________________________
Title ________________________________________________________________________
Address ______________________________________________________________________
Name of Firm _________________________________________________________________
Area Code and Telephone No. __________________________________________________
Dated ________________________________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
<PAGE>
8
1. Delivery of this Letter of Transmittal and Certificates.
A holder of Old Preferred Shares may tender the same by (i)
properly completing and signing this Letter of Transmittal or a facsimile hereof
(all references in the Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Old Preferred Shares being tendered
and any required signature guarantees and any other documents required by this
Letter of Transmittal, to the Exchange Agent at its address set forth above on
or prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
The method of delivery of this Letter of Transmittal, the Old
Preferred Shares and any other required documents is at the election and risk of
the holder, and except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. If such
delivery is by mail, it is suggested that registered mail with return receipt
requested, properly insured, be used. In all cases sufficient time should be
allowed to permit timely delivery. No Old Preferred Shares or Letters of
Transmittal should be sent to the Company.
If tendered Old Preferred Shares are registered in the name of
the signer of the Letter of Transmittal and the New Preferred Shares to be
issued in exchange therefor are to be issued (and any untendered Old Preferred
Shares are to be reissued) in the name of the registered holder (which term, for
the purposes described herein, shall include any participant in The Depository
Trust Company (also referred to as a "book-entry transfer facility") whose name
appears on a security listing as the owner of Old Preferred Shares), the
signature of such signer need not be guaranteed. In any other case, the tendered
Old Preferred Shares must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the registered
holder, and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit union, savings association,
clearing agency or other institution (each an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended. If the
New Preferred Shares and/or Old Preferred Shares not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Old Preferred Shares, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business
days after the date of receipt of this Prospectus to establish accounts with
respect to the Old Preferred Shares at the book-entry transfer facility for the
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the book-entry
transfer facility's system may make book-entry delivery of Old Preferred Shares
by causing such book-entry transfer facility to transfer such Old Preferred
Shares into the Exchange Agent's account with respect to the Old Preferred
Shares in accordance with the
<PAGE>
9
book-entry transfer facility's procedures for such transfer. Although delivery
of Old Preferred Shares may be effected through book-entry transfer into the
Exchange Agent's account at the book-entry transfer facility, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will
not permit a Letter of Transmittal or Old Preferred Shares to reach the Exchange
Agent before the Expiration Date or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if the Exchange Agent
has received on or prior to the Expiration Date, a letter, telegram or facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) from an Eligible Institution setting forth the
name and address of the tendering holder, the names in which the Old Preferred
Shares are registered and, if possible, the certificate numbers of the Old
Preferred Shares to be tendered, and stating that the tender is being made
thereby and guaranteeing that within three business days after the Expiration
Date, the Old Preferred Shares in proper form for transfer (or a confirmation of
book-entry transfer of such Old Preferred Shares into the Exchange Agent's
account at the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Old Preferred Shares
being tendered by the above-described method are deposited with the Exchange
Agent within the time period set forth above (accompanied or preceded by a
properly completed and duly executed Letter of Transmittal and any other
required documents), the Company may, at its option, reject the tender. Copies
of the notice of guaranteed delivery ("Notice of Guaranteed Delivery") which may
be used by Eligible Institutions for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date
when (i) the tendering holder's properly completed and duly executed Letter of
Transmittal accompanied by the Old Preferred Shares (or a confirmation of
book-entry transfer of such Old Preferred Shares into the Exchange Agent's
account at the book-entry transfer facility) is received by the Exchange Agent,
or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Preferred Shares in exchange
for Old Preferred Shares tendered pursuant to a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
by an Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Old Preferred
Shares (or a confirmation of book-entry transfer of such Old Preferred Shares
into the Exchange Agent's account at the book-entry transfer facility).
If the Letter of Transmittal signed by a person or persons
other than the registered holder or holders of Old Preferred Shares, such Old
Preferred Shares must be endorsed or accompanied by appropriate powers of
attorney in a form satisfactory to the
<PAGE>
10
Company, in either case signed exactly as the name or names of the registered
holder or holders appear on the Old Preferred Shares.
No alternative, conditional, irregular or contingent tenders
will be accepted. All tendering holders, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive notice of
the acceptance of the Old Preferred Shares for exchange.
2. Partial Tenders; Withdrawals.
If less than all of the shares of Old Preferred Shares
evidenced by a submitted certificate are tendered, the tendering holder should
fill in the liquidation preference of shares of Old Preferred Shares to be
tendered in the box entitled "Number of Shares." A newly issued certificate for
the number of shares of Old Preferred Shares submitted but not tendered will be
sent to such holder as soon as practicable after the Expiration Date. All Old
Preferred Shares delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise clearly indicated.
Tenders of Old Preferred Shares may be withdrawn at any time
prior to the Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal sent by telegram, facsimile transmission (receipt confirmed by
telephone) or letter must be received by the Exchange Agent at the address set
forth herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Old Preferred Shares to
be withdrawn (the "Depositor"), (ii) identify the Old Preferred Shares to be
withdrawn (including the certificate number or numbers of such Old Preferred
Shares, (iii) specify the number of shares of Old Preferred Shares to be
withdrawn, (iv) include a statement that such holder is withdrawing its election
to have such Old Preferred Shares exchanged, (v) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
Old Preferred Shares were tendered or as otherwise described above (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Transfer Agent under the Transfer Agent and Registrar
Agreement register the transfer of such Old Preferred Shares into the name of
the person withdrawing the tender and (vi) specify the name in which any such
Old Preferred Shares are to be registered, if different from that of the
Depositor. The Exchange Agent will return the properly withdrawn Old Preferred
Shares promptly following receipt of notice of withdrawal. If Old Preferred
Shares have been tendered pursuant to the procedure for book-entry transfer, any
notice of withdrawal must specify the name and number of the account at the
book-entry transfer facility to be credited with the withdrawn Old Preferred
Shares or otherwise comply with the book-entry transfer facility procedure. All
questions as to the validity of notices of withdrawals, including time of
receipt, will be determined by the Company and such determination will be final
and binding on all parties.
Any Old Preferred Shares so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer. Any
Old Preferred
<PAGE>
11
Shares which have been tendered fox exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Old Preferred Shares tendered by book-entry transfer into the
Exchange Agent's account at the book-entry transfer facility pursuant to the
book-entry transfer procedures described above, such Old Preferred Shares will
be credited to an account with such book-entry transfer facility specified by
the holder) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Withdrawals of tenders of Old Preferred
Shares may not be rescinded; however, properly withdrawn Old Preferred Shares
may be retendered by following one of the procedures described under the caption
"The Exchange Offer--Procedures for Tendering Old Preferred Shares" in the
Prospectus at any time on or prior to the Expiration Date.
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures.
If this Letter of Transmittal is signed by the registered
holder(s) of the Old Preferred Shares tendered hereby, the signature must
correspond with the name(s) as written on the face of the certificates without
alteration, enlargement or any change whatsoever.
If any of the Old Preferred Shares tendered hereby are owned
of record by two or more joint owners, all such owners must sign this Letter of
Transmittal.
If a number of Old Preferred Shares registered in different
names are tendered, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of Old Preferred Shares.
When this Letter of Transmittal is signed by the registered
holder or holders (which term, for the purposes described herein, shall include
the book-entry transfer facility whose name appears on a security listing as the
owner of the Old Preferred Shares) of Old Preferred Shares listed and tendered
hereby, no endorsements of certificates or separate written instruments of
transfer or exchange are required.
If this Letter of Transmittal is signed by a person other than
the registered holder or holder of the Old Preferred Shares listed, such Old
Preferred Shares must be endorsed or accompanied by separate written instruments
of transfer or exchange in form satisfactory to the Company and duly executed by
the registered holder, in either case signed exactly as the name or names of the
registered holder or holders appear(s) on the Old Preferred Shares.
If this Letter of Transmittal, any certificates or separate
written instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
<PAGE>
12
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 3 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be
guaranteed by an Eligible Institution, provided the Old Preferred Shares are
tendered: (i) by a registered holder of such Old Preferred Shares, for the
holder of such Old Preferred Shares; or (ii) for the account of an Eligible
Institution.
4. Transfer Taxes.
The Company shall pay all transfer taxes, if any, applicable
to the transfer and exchange of Old Preferred Shares pursuant to the Exchange
Offer. If, however, certificates representing New Preferred Shares or Old
Preferred Shares for shares not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Preferred Shares tendered, or if tendered Old
Preferred Shares are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Old Preferred Shares pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering holder.
Except as provided in this Instruction 4, it will not be
necessary for transfer tax stamps to be affixed to the Old Preferred Shares
listed in this Letter of Transmittal.
5. Waiver of Conditions.
The Company reserves the right to waive in its reasonable
judgment, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6. Mutilated, Lost, Stolen or Destroyed Old Preferred Shares.
Any holder whose Old Preferred Shares have been mutilated,
lost, stolen or destroyed, should contact the Exchange Agent at the address
indicated above for further instructions.
7. Substitute Form W-9.
Each holder of Old Preferred Shares whose Old Preferred Shares
are accepted for exchange (or other payee) is required to provide a correct
taxpayer identification number ("TIN"), generally the holder's Social Security
or federal employer identification number, and certain other information, on
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify that the holder (or other payee) is not subject to
<PAGE>
13
backup withholding. Failure to provide the information on the Substitute Form
W-9 may subject the holder (or other payee) to a $50 penalty imposed by the
Internal Revenue Service and 31% federal income tax backup withholding on
payments made in connection with the New Preferred Shares. The box in Part 3 of
the Substitute Form W-9 may be checked if the holder (or other payee) has not
been issued a TIN and has applied for a TIN or intends to apply for a TIN in the
near future. If the box in Part 3 is checked and a TIN is not provided by the
time any payment is made in connection with the New Preferred Shares, 31% of all
such payments will be withheld until a TIN is provided.
8. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as
requests for additional copies of the Prospectus and this Letter of Transmittal,
may be directed to the Exchange Agent at the address and telephone number set
forth above. In addition, all questions relating to the Exchange Offer, as well
as requests for assistance or additional copies of the Prospectus and this
Letter of Transmittal, may be directed to NB Capital Corporation, 125 West 55th
Street, New York, New York 10019, Attention: Investor Relations (telephone (212)
632-8500).
9. Special Issuance and Delivery Instructions.
If New Preferred Shares are to be issued in the name of a
person other than the signer of this Letter of Transmittal, or if New Preferred
Shares are to be sent to someone other than the signer of this Letter of
Transmittal or to an address other than that shown above, the appropriate boxes
on this Letter of Transmittal should be completed. Certificates for Old
Preferred Shares not exchanged will be returned by mail or , if tendered by
book-entry transfer, by crediting the account indicated above maintained at DTC.
10. Irregularities.
The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Preferred Shares,
which determination shall be final and binding on all parties. The Company
reserves the absolute right to reject any and all tenders determined by either
of them not to be in proper form or the acceptance of which, or exchange for
which, may, in the view of counsel to the Company, be unlawful. The Company also
reserves the absolute right, subject to applicable law, to waive any of the
conditions of the Exchange Offer set forth in the Prospectus under "The Exchange
Offer--Certain Conditions to the Exchange Offer" or any conditions or
irregularities in any tender of Old Preferred Shares of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Old Preferred Shares will be
deemed to have been validly made until all irregularities with respect to such
tender have been cured or waived. The Company, any affiliates or assigns of the
Company, the
<PAGE>
14
Exchange Agent, or any other person shall not be under any duty to give
notification of any irregularities in tenders or incur any liability for failure
to give such notification.
IMPORTANT: This Letter of Transmittal or a facsimile hereof
(together with certificates for Old Preferred Shares (or confirmation of
book-entry transfer) and all other required documents) or a Notice of Guaranteed
Delivery must be received by the Exchange Agent on or prior to the Expiration
Date.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Old Preferred
Shares whose Old Preferred Shares are accepted for exchange may be subject to
backup withholding unless the holder provides The Bank of Nova Scotia Trust
Company of New York (as payor) (the "Paying Agent"), through the Exchange Agent,
with either (i) such holder's correct taxpayer identification number ("TIN") on
Substitute Form W-9 attached hereto, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such holder of Old Preferred Shares is
awaiting a TIN) and that (A) the holder of Old Preferred Shares has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Old Preferred Shares
that he or she is no longer subject to backup withholding; or (ii) an adequate
basis for exemption from backup withholding. If such holder of Old Preferred
Shares is an individual, the TIN is such holder's social security number. If the
Paying Agent is not provided with the correct TIN, the holder of Old Preferred
Shares may be subject to certain penalties imposed by the Internal Revenue
Service.
Certain holders of Old Preferred Shares (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. However, exempt holders of
Old Preferred Shares should indicate their exempt status on Substitute Form W-9.
For example, a corporation must complete the Substitute Form W-9, providing its
TIN and indicating that it is exempt from backup withholding. In order for a
foreign individual to qualify as an exempt recipient, the holder must submit a
Form W-8, signed under penalties of perjury, attesting to that individual's
exempt status. A Form W-8 can be obtained from the Paying Agent. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for more instructions.
If backup withholding applies, the Paying Agent is required to
withhold 31% of any such payments made to the holder of Old Preferred Shares or
other payee. Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if
the surrendering holder of Old Preferred Shares has not been issued a TIN and
has applied for a
<PAGE>
15
TIN or intends to apply for a TIN in the near future. If the box in Part 3 is
checked, the holder of Old Preferred Shares or other payee must also complete
the Certificate of Awaiting Taxpayer Identification Number below in order to
avoid backup withholding. Notwithstanding that the box in Part 3 is checked and
the Certificate of Awaiting Taxpayer Identification Number is completed, the
Paying Agent will withhold 31%, of all payments made prior to the time a
properly certified TIN is provided to the Paying Agent.
The holder of Old Preferred Shares is required to give the
Paying Agent the TIN (e.g., Social Security number or employer identification
number) of the record owner of the Old Preferred Shares. If the Old Preferred
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
PAYOR'S NAME: THE BANK OF NOVA SCOTIA TRUST COMPANY OF NEW
YORK, AS PAYING AGENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1 PLEASE PROVIDE YOUR Social Security number(s) or
TIN IN THE BOX AT RIGHT Employer Identification
AND CERTIFY BY SIGNING Number(s)
AND DATING BELOW
-------------------------------
-----------------------------------------------------------------------------------
<S> <C>
Form W-9 Part 2 Certification Under penalties of perjury, I certify that:
Department of the (1) The number shown on this form is my correct taxpayer
Treasury Internal identification number (or I am waiting for a number to be
Revenue Service issued for me), and
(2) I am not subject to backup withholding
because: (a) I am exempt from backup
withholding, or (b) I have not been
notified by the Internal Revenue Service
(IRS) that I am subject to backup
withholding as a result of a failure to
report all interest or dividends, or (c)
the IRS has notified me that I am no
longer subject to backup withholding.
Payor's Request for Certification Instructions. You must cross out item (2)
Taxpayer above if you have been notified by the IRS that you are currently
Identification subject to backup withholding because of underreporting interest
Number ("TIN") or dividends on your tax return.
--------------------------------------------------
Signature Part 3 Awaiting TIN --
----------------------------------------
Date
--------------------------------------------
</TABLE>
<PAGE>
16
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50
PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security Administration
Officer or (2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the time
of payment, 31% of all reportable cash payments made to me thereafter will be
withheld until I provide a taxpayer identification number.
- ---------------------------- ----------------------------
Signature Date
