SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1998.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to
________.
Commission File Number: 1-14103
NB CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-2063921
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 West 55TH Street
New York, New York 10019
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 632-8532
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
8.35% Noncumulative Exchangeable Preferred Stock, Series A, par
value $ .01 per share,traded in the form of Depositary Shares, each
representing a one-fortieth interest therein
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of December 31, 1998, all Common Stock, par value $ .01 per share,
was held by an affiliate.
As of December 31, 1998, the number of shares of Common Stock
outstanding was 100.
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FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements and information
relating to NB Capital Corporation (the "Company" or "NB Capital") that are
based on the beliefs of the Company`s management as well as assumptions made by
and information currently available to the Company`s management. When used in
this report, the words "anticipate", "believe", "estimate", "expect" and similar
expressions, as they relate to the Company or the Company`s management, are
intended to identify forward-looking statements. Such statements reflect the
current view of the Company`s management with respect to future events and the
Company`s future performance and are subject to certain risks, uncertainties and
assumptions. Should management`s current view of the future or underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
The Company does not intend to update these forward-looking statements.
EXCHANGE RATE
References to $ are to United States dollars; references to C$ are to
Canadian dollars. As of December 31, 1998, the Canadian dollar exchange rate was
C$1.5333 = $1.00 and certain amounts stated herein reflect such exchange rate.
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PART I
ITEM 1: BUSINESS
General
On August 20, 1997, NB Capital Corporation (the "Company") was
incorporated under the laws of the State of Maryland for the purposes of
providing U.S. investors with the opportunity to invest in Canadian residential
mortgages and other real estate assets. The Company began operations on
September 3, 1997 with the consummation of an offering of 300,000 shares of its
8.35% Noncumulative Exchangeable Preferred Stock, Series A (the "Series A
Preferred Shares"). The Series A Preferred Shares trade on the New York Stock
Exchange in the form of Depositary Shares, each representing a one-fortieth
interest in a Series A Preferred Share (the "Depositary Shares"). National Bank
of Canada (the "Bank") owns all of the Company's issued and outstanding common
stock, par value $.01 per share (the "Common Stock"). Accordingly, the Company
is a wholly owned subsidiary of the Bank.
The Company's principal business objective is to acquire, hold, finance
and manage assets consisting of obligations secured by real property ("Mortgage
Assets"), as well as certain other qualifying real estate investment trust
("REIT") assets. The Mortgage Assets currently consist of eighteen
"hypothecation" loans issued to the Company by NB Finance, Ltd. ("NB Finance"),
a Bermuda corporation and a wholly owned subsidiary of the Bank, that are
recourse only to the "Mortgage Loans." Hypothecation loans are loans secured by
the pledge of mortgages as security therefor. The Mortgage Loans consist of
eighteen pools of, at December 31, 1998, an aggregate 11,896 residential first
mortgages insured by Canada Mortgage and Housing Corporation, an agency of the
Government of Canada ("CMHC"), that are secured by real property located in
Canada. The Company has acquired and expects to continue to acquire 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 pursuant
to an Advisory Agreement, dated September 3, 1997, between the Bank and the
Company (the "Advisory Agreement"). The Bank also services the Mortgage Loans
pursuant to a Servicing Agreement, dated September 3, 1997, between the Bank and
NB Finance (the "Servicing Agreement"). Pursuant to an Assignment Agreement, NB
Finance has assigned to the Company all of its right, title and interest in the
Servicing Agreement.
In order to preserve the Company's status as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), substantially all of the assets
of the Company consist of the Mortgage Assets issued by NB Finance and other
real estate assets that are of the type set forth in Section 856(c)(6)(B) of the
Code.
For information regarding the Company's revenue and operating profit,
see the Company's financial statements, beginning on page F-1.
Automatic Exchange
Each Series A Preferred Share will be exchanged automatically for one
newly issued 8.45% Noncumulative First Preferred Share, Series Z, of the Bank (a
"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 on 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 of Financial
Institutions Canada (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").
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Upon an Exchange Event, the holders of the Series A Preferred Shares shall be
unconditionally obligated to surrender to the Bank the certificates representing
the 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.
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
Series A Preferred Shares will be deemed canceled without any further action by
the Company, all rights of the holders of the Series A Preferred Shares as
stockholders of the Company will cease, and such 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 Series A 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 Series A
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
Maryland General Corporation Law 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 Series A Preferred
Shares shall be deemed for all purposes to represent the Bank Preferred Shares.
Once an Exchange Event occurs, no action will be required to be taken by holders
of the Series A Preferred Shares, by the Bank or by the Company in order to
effect an automatic exchange as of the Time of Exchange.
Holders of the Series A Preferred Shares, by purchasing the Series A
Preferred Shares have agreed to be bound by the unconditional obligation to
exchange such Series A Preferred Shares for the Bank Preferred Shares upon the
occurrence of an Exchange Event. The obligation of the holders of the Series A
Preferred Shares to surrender such shares and the obligation of the Bank to
issue the Bank Preferred Shares in exchange for the Series A Preferred Shares
shall be enforceable by the Bank and such holders, respectively, against the
other.
Upon the occurrence of an Exchange Event, the Bank Preferred Shares to
be issued as part of an 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 Series A Preferred Shares (except that there would be no redemption
for certain tax related events). Any accrued and unpaid dividends on the Series
A 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 the Bank Preferred Shares
would develop or be maintained.
Holders of the Series A Preferred Shares cannot exchange the Series A
Preferred Shares for the Bank Preferred Shares voluntarily. In addition, absent
the occurrence of an automatic exchange, holders of the Series A Preferred
Shares will have no dividend, voting, liquidation preference or other rights
with respect to the Bank or any security of the Bank.
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Advisory Agreement
The Company entered into the Advisory Agreement with the Bank to
administer the day-to-day operations of the Company. The Bank 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 (an
"NHA-Approved Lender"). As long as any Series A Preferred Shares and,
accordingly, any Depositary Shares remain outstanding, the Company may not
renew, terminate, or modify the Advisory Agreement without the approval of a
majority of the Board of Directors of the Company (the "Board of Directors") as
well as of a majority of the Independent Directors. 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 Bank
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 Bank will not, in connection with the subcontracting of any
of its obligations under the Advisory Agreement, be discharged or relieved in
any respect from any of its obligations under the Advisory Agreement. As of the
date of this Form 10-K, the Bank has not subcontracted any of its obligations
under the Advisory Agreement.
The Advisory Agreement had an initial term of one year, and has been
renewed for an additional one-year period. The Advisory Agreement may be
terminated by the Company at any time upon 60 days' prior written notice. As
long as any of the Series A Preferred Shares or Depositary 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 Bank is entitled to
receive an advisory fee equal to US$25,000 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 Series A Preferred Shares and, accordingly, the Depositary Shares.
Servicing Agreement
The Mortgage Loans are serviced by the Bank pursuant to the terms of
the Servicing Agreement. The Bank receives a fee equal to 0.25% per annum on the
principal balances of the loans serviced.
The Servicing Agreement requires the Bank 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 Bank 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 Bank
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 Bank also
provides accounting and reporting services with respect to such Mortgage Loans.
The Servicing Agreement requires the Bank 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 Bank 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 Bank 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 obligations under the Servicing Agreement. As of the date of this
Form 10-K, the Bank has not subcontracted any of its obligations under the
Servicing Agreement.
The Bank is required to pay all expenses related to the performance of
its duties under the Servicing Agreement. The Bank 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
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advances are made, the Bank generally will be reimbursed prior to the Company
being reimbursed out of the payments with respect to such Mortgage Loan. The
Bank 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 Bank is responsible
to the Company for any loss suffered as a result of the Bank's failure to make
and pursue timely claims or as a result of actions taken or omissions made by
the Bank which cause the policies to be canceled by the insurer. Subject to
approval by the Company, the Bank 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 Bank 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 Bank'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. The termination fee will be based on the aggregate
outstanding principal amount of the Mortgage Loans then serviced under the
Servicing Agreement.
As is customary in the mortgage loan servicing industry, the Bank is
entitled to retain any late payment charges, penalties and assumption fees
collected in connection with the Mortgage Loans serviced by it. The Bank 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 Bank 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 Bank is prohibited from exercising the "due-on-sale" clause
under certain circumstances related to the security 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 Bank as additional servicing
compensation.
Investment Policy
The Company's principal business objective is to acquire, hold, finance
and manage Mortgage Assets as well as certain other qualifying REIT assets. The
Company's current investment policy is to invest at least 90% of its portfolio
in Mortgage Assets issued by NB Finance and the remainder in any other assets
eligible to be held by a REIT. Such other assets include Mortgage Loans,
residential mortgage loans, mortgage-backed securities, commercial mortgage
loans, partnership interests, cash, cash equivalents, government securities and
shares or interests in other REITs. As of December 31, 1998, Mortgage Assets
issued by NB Finance comprised 93.6% of the Company's portfolio.
The Company expects to continue to follow the foregoing investment
policy. However, this policy 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. Subject to the foregoing and other than with respect to
commercial mortgage loans which cannot comprise more than 5% of the Company's
portfolio, there is no specific policy with respect to the amount or percentage
of assets which will be invested in any specific property. All investments will
be made primarily for income.
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Description of the Mortgage Assets
The Mortgage Assets issued by NB Finance are comprised of eighteen
hypothecation loans issued by NB Finance to the Company. As of December 31,
1998, the principal amount of the Mortgage Assets was approximately US$452
million. Each of the eighteen hypothecation loans comprising the Mortgage Assets
issued by NB Finance is secured by a pool of Mortgage Loans. As of December 31,
1998, the Mortgage Loans were comprised of, in the aggregate, 11,896 Mortgage
Loans in an aggregate amount of approximately C$795 million (US$518 million).
The value of each pool of Mortgage Loans comprising the Mortgage Loans exceeds
the principal amount of the hypothecation loan that it secures. Accordingly, the
Mortgage Assets issued by NB Finance are overcollateralized by the Mortgage
Loans. The aggregate amount of such overcollateralization is, as of December 31,
1998, US$66 million. The Company acquired the Mortgage Assets issued by NB
Finance pursuant to the terms of a loan agreement with NB Finance.
Each Mortgage Asset issued by NB Finance is recourse only to the
Mortgage Loans securing such Mortgage Asset. Each pool of Mortgage Loans is
comprised of entirely CMHC-insured residential first mortgages. Each Mortgage
Asset issued by NB Finance is further secured by the residential real properties
underlying such CMHC-insured first mortgages. Such residential real properties
are located primarily in Quebec, Ontario and New Brunswick. Since the Mortgage
Loans are insured, the Company expects little or no loss of principal or
interest. However, CMHC insurance does not guarantee timely payment of interest
and principal. The Mortgage Assets have maturities ranging from June 1999 to
December 2001. The Mortgage Assets pay interest at rates ranging from 6.57% to
8.46%, with an average rate of approximately 7.53% per annum.
Payments of interest are made monthly out of payments on the Mortgage
Loans. Pursuant to an agreement between the Company and NB Finance (the
"Mortgage Loan Assignment Agreement"), dated September 3, 1997, the Company
receives all scheduled payments made on the Mortgage Loans, retains a portion of
any such payments equal to the amount due and payable on the Mortgage Assets
issued by NB Finance and remits the balance, if any, to NB Finance. The Company
also retains a portion of any prepayments of principal in respect of the
Mortgage Loans equal to the proportion of such prepayments that the outstanding
principal amount of the Mortgage Loan bears to the outstanding principal amount
of the Mortgage Assets issued by NB Finance, which amount would be applied to
reduce the outstanding principal amount of the Mortgage Assets issued by NB
Finance. Repayment of the Mortgage Assets issued by NB Finance is secured by an
assignment of the Mortgage Loans to the Company pursuant to the Mortgage Loan
Assignment Agreement, which is governed by the laws of Bermuda.
The assignment of the Mortgage Loans by NB Finance to the Company is
without recourse. The Company has a security interest in the real property
securing the Mortgage Loans and, subject to fulfilling certain procedural
requirements under applicable Canadian law, is entitled to enforce payment on
the 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 a Mortgage Loan, the
amount of the Mortgage Assets issued by NB Finance will be reduced by an amount
equal to the portion thereof allocable to the defaulting mortgage.
Following repayment of the Mortgage Assets issued by NB Finance, the
Company will reassign any outstanding Mortgage Loans (without recourse) and
deliver them to, or as directed by, NB Finance. All payments in respect of the
Mortgage Loans are made in Canadian dollars. The amounts due on the Mortgage
Assets issued by NB Finance 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.
Description of the Mortgage Loans
All of the Mortgage Loans were originated in accordance with
underwriting policies customarily employed by the Bank, or with underwriting
policies acceptable to the Bank. With respect to its underwriting policies, the
Bank
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will not make any residential mortgage loans that exceed a loan to value ratio
of 75% unless such loan is insured. If the residential mortgage loan is
CMHC-insured (i) a cash down payment of between 5% and 24.9% is required, (ii)
the monthly payment for capital, interest, taxes and heating must not exceed 32%
of the gross monthly revenue of the borrower and (iii) the monthly payment for
capital, interest, taxes, heating and all other monthly payments (including,
without limitation, personal loans, lease payments and credit card debt service)
must not exceed 40% of the net monthly revenue of the borrower. Additionally,
for all mortgage loans, an external credit check must be positive. When a loan
is insured, an additional amount may be added to the principal amount of the
mortgage loan representing the premium related thereto. The premium rates vary
in accordance with the principal amount of the loan. Generally, the greater the
loan to value ratio, the greater the premium rate. As is generally the case in
the Canadian residential mortgage business, such underwriting policies are
derived from CMHC - approved underwriting criteria.
As a CMHC - approved lender, the Bank has access to the National
Housing Act mortgage insurance program. All of the 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 Mortgage Loans are balloon mortgages. Accordingly, the
Mortgage Loans do not provide for the amortization of the principal balance
thereof equally over their term to maturity and a principal payment equal to the
original balance less any principal amount paid will be due on each Mortgage
Loan at maturity. 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 relatively rare. Moreover, although the Bank offers
monthly, semi-monthly and weekly pay mortgages, all of the Mortgage Loans are
monthly pay mortgages. In general, loans are amortized over a period not
exceeding 25 years.
The Mortgage Loans provide for limited prepayment rights. For example,
typically up to 10% of the original principal amount of a Mortgage Loan may be
prepaid once annually without penalty. Moreover, a 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 Mortgage
Loan. In most other circumstances, prepayments or renegotiations of either the
interest rate or the term of a 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.
The Company intends and has the ability to hold the Mortgage Loans to
maturity unless there is a prepayment by the customer or a Mortgage Loan is
impaired.
Tax Status
The Company has elected to be taxable as a REIT under Sections 856
through 860 of the Code. 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 its Common Stock and its preferred stock, including the Series A
Preferred Shares and, accordingly, Depositary Shares, and maintains its
qualification as a REIT.
As a REIT, the Company 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." REIT taxable income
is essentially taxable income, as determined in accordance with the Code, with
certain adjustments. The most significant of such adjustments are (i) no
deduction is allowed for dividends received, (ii) a deduction is allowed for
dividends paid (other than the portion of any dividend attributable to net
income from foreclosure property) and for taxes imposed for failing to satisfy
certain statutory REIT requirements, and (iii) net income from foreclosure
property and net income derived from prohibited transactions is excluded from
the determination.
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Employees
The Company has six employees. The Company does not anticipate that it
will require any additional employees because the Company retains the Bank to
perform certain functions pursuant to the Advisory Agreement. Each employee of
the Company is currently also an officer and/or director of the Bank and/or an
affiliate 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.
As of October 31, 1998, the Bank held more than C$14 billion of
residential mortgage assets. Slightly more than 76% of such mortgages were
located in Quebec, the Bank's principal place of business. The major competitor
of the Bank in Quebec is the Caisses Populaires Desjardins (a credit union). The
market share of the Bank for such mortgages in Quebec is approximately 18.3%
compared with a significantly greater market share for Caisses Populaires
Desjardins.
ITEM 2: PROPERTIES
General
The principal executive offices of the Company are located in the U.S.
branch office of the Bank at 125 West 55th Street, New York, New York 10019. The
Company neither owns nor leases any properties.
ITEM 3: LEGAL PROCEEDINGS
The Company is not the subject of any material litigation. The Company
is not currently involved in nor, to the Company's knowledge, currently
threatened with any material litigation with respect to the Mortgage Assets
issued by NB Finance or the Mortgage Loans, other than routine litigation
arising in the ordinary course of business, most of which is expected to be
covered by liability insurance.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since the incorporation of the Company, the Bank has owned, and expects
to continue to own, all of the issued and outstanding shares of the Common Stock
of the Company. The Common Stock is the Company's only class of common equity
issued and outstanding. Accordingly, there is no established public trading
market for the Company's common equity.
For the four months ended December 31, 1997, the Company did not pay
any dividends with respect to the Common Stock. For the year ended December 31,
1998, the Company paid three dividends with respect to the Common Stock in the
aggregate amount of $9,702,093.
On January 19, 1998, the Company sold in a nonpublic offering 110
shares of its Adjustable Rate Cumulative Senior Preferred Shares, par value $.01
per share (the "Senior Preferred Shares"). The Senior Preferred Shares are not
registered under the Securities Act of 1933, as amended (the "Securities Act").
The offering of the Senior Preferred Shares was not underwritten. The Senior
Preferred Shares were offered to (a) accredited investors (as defined in Rule
501(a) of Regulation D under the Securities Act) in reliance on an exemption
from registration pursuant to Section 4(2) of the Securities Act relating to
transactions not involving a public offering and (b) certain directors and
officers of the Company and its affiliates resident in Canada who were able to
make certain representations and warranties. Investors were required to complete
an Investor Questionnaire to verify their status as (a) an accredited investor
or (b) a resident in Canada in the provinces of Quebec or Ontario. The Senior
Preferred Shares are not convertible or exchangeable. The Senior Preferred
Shares were offered and sold for $3,000 each or $330,000 in the aggregate and
the proceeds were used to meet the working capital needs of the Company.
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
September 3,
Year Ended 1997
December 31, to
1998 December 31,
1997
<S> <C> <C>
Statement of Income Data:
Operating Revenues..................................................... US$ 38,802,112 US$ 12,993,939
Income from Operations Before Income Taxes............................. 36,728,402 11,993,093
Income Taxes (Recovery)................................................ (675) 80,000
------------------- -------------------
Income from Operations................................................. 36,729,077 11,913,093
Income from Operations per Common Share................................ 367,291 119,131
Balance Sheet Data:
Total assets........................................................... US$ 482,746,016 US$ 481,022,332
Total liabilities...................................................... 837,634 885,857
Stockholders' Equity................................................... 481,908,382 480,136,475
Cash Dividends Declared per Common Share............................... 10,202 -
</TABLE>
8
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
General
The Company's principal business objective is to acquire, hold, finance
and manage Mortgage Assets as well as other qualifying REIT assets. The Company
has elected to be taxed as a REIT under the Code and, accordingly, is generally
not liable for United States federal income tax to the extent that it
distributes at least 95% of its taxable income, subject to certain adjustments,
to its stockholders.
Results of Operations
The Company commenced its operations on September 3, 1997 and,
accordingly, only certain comparative information is available.
Income from continuing operations for the year ended December 31, 1998
increased $24,815,984 or 308% over the prior period ended December 31, 1997.
Inclusion of a full year of operating activities substantially accounted for
such increase. Operating revenues for the year ended December 31, 1998 and the
period ended December 31, 1997, which were comprised entirely of interest
income, were $38,802,112 and $12,993,939, respectively, and expenses were
$2,073,710 and $1,000,846, respectively. Since the Company has elected to be
taxed as a REIT, no income tax was recorded during the period. In connection
with the reversal of a provision for income taxes previously reserved by the
Company, a $675 recovery was recognized during the year ended December 31, 1998.
Ninety-four percent of revenues were derived from the Mortgage Assets
issued by NB Finance. The Mortgage Assets issued by NB Finance are
collateralized by the Mortgage Loans that consist of eighteen pools of
residential first mortgages insured by CMHC and which are secured by real
property located in Canada. The balance of the revenues resulted from interest
on bank deposits and short-term investments (i.e., commercial paper of National
Bank of Canada and U.S. Treasury bills).
Expenses for the year ended December 31, 1998 and the period ended
December 31, 1997 totaled $2,073,710 and $1,000,846, respectively, of which
$1,293,533 and $548,297, respectively, represent servicing and advisory fees
paid to the Bank pursuant to the Servicing Agreement and the Advisory Agreement,
whereby the Bank performs all necessary operations in connection with
administering the Mortgage Assets issued by NB Finance and the Mortgage Loans.
Other professional fees include payment to the transfer agent, external
accounting fees and miscellaneous expenses.
During the year ended December 31, 1998, the Board of Directors of the
Company authorized dividends of, in the aggregate, $25,084,711 on Preferred
Stock (i.e., Senior Preferred Shares and the Series A Preferred Shares and,
accordingly, the Depositary Shares) and a dividend of $10,202,093 on Common
Stock.
Capital Resources and Liquidity
The Company's revenues are derived from its Mortgage Assets. As of
December 31, 1998, US$452 million of Mortgage Assets issued by NB Finance were
over-collateralized by the C$795 million ($518 million) of Mortgage Loans. The
Company believes that the amounts generated from the payment of interest and
principal on such Mortgage Loans will provide more than sufficient funds to make
full payments with respect to the Mortgage Assets issued by NB Finance and that
such payments will provide the Company with sufficient funds to meet its
operating expenses and to pay quarterly dividends on the Senior Preferred Shares
and the Series A Preferred Shares and, accordingly, the Depositary Shares. To
the extent that the cash flow from its Mortgage Assets exceeds those amounts,
the Company will use the excess to fund the acquisition of additional Mortgage
Assets and make distributions on the Common Stock.
The Company does not require any capital resources for its operations
and, therefore, it is not expected to acquire any capital assets in the
foreseeable future.
9
<PAGE>
As at December 31, 1998, the Company had cash resources of $22,178,668,
which represent 4.6% of total assets compared to $20,003,943 or 4.2% of total
assets as at December 31, 1997. The increase in liquidity is attributable to
cash received in repayment of Mortgage Assets. It is expected that the Company
will invest in additional Mortgage Assets when cash resources reach 10% of total
assets. The liquidity level is sufficient for the Company to pay fees and
expenses pursuant to the Servicing Agreement and the Advisory Agreement.
The Company's principal short-term and long-term liquidity needs are to
pay quarterly dividends on the Senior Preferred Shares and the Series A
Preferred Shares and, accordingly, the Depositary Shares, to pay fees and
expenses of the Bank pursuant to the Servicing Agreement and the Advisory
Agreement, and to pay franchise fees and expenses of advisors, if any, to the
Company.
The Company does not have any indebtedness (current or long-term),
other material capital expenditures, balloon payments or other payments due on
other long-term obligations. No negative covenants have been imposed on the
Company.
Year 2000
The Company does not believe that it has a material problem resulting
from the inability of computer programs to properly recognize a year that begins
with "20" instead of "19." Pursuant to the Advisory Agreement, the Bank
administers the day-to-day activities of the Company. Pursuant to the Servicing
Agreement, the Bank services the Mortgage Loans and performs all necessary
operations in connection with such servicing. The Company does not independently
maintain either information technology or non-information technology systems.
Accordingly, the Company does not believe that it has or will have a material
Year 2000 issue.
The Bank has formulated a detailed plan to address the Year 2000
issue. As at January 31, 1999, all of the scheduled Year 2000 preparations have
been carried out as scheduled. All of the Bank's equipment and over 90% of its
major systems have been certified Year 2000 compliant. Steps have been taken to
request assurances from the Bank's main suppliers that their systems are Year
2000 compliant. Special programs have been introduced to ensure that commercial
clients work to minimize their risks in the transition to the Year 2000. In
addition, the Bank is preparing a contingency plan providing for the
implementation of backup systems and operating procedures.
Projected costs of $40 million will be charged to income as they are
incurred. As of December 31, 1998, the total costs of this project were $21.8
million.
In the opinion of management of the Bank, the Bank has adopted measures
which serve to minimize the uncertainty and risk associated with the transition
to the Year 2000. Its approach of keeping its commercial clients informed and
following up with them allows the Bank to believe that neither the credit risk
of its portfolio nor its results will be materially affected by the arrival of
the Year 2000. However, management of the Bank cannot be certain that the
transition to the Year 2000 will not cause any inconvenience, particularly in
light of factors that are beyond its control and which depend on the diligence
of clients, suppliers and other parties.
Pursuant to an order of The Office of the Superintendent of Financial
Institutions Canada, NB Finance is prohibited from engaging in any business
activities other than the ownership of the Mortgage Loans and activities
incidental thereto. Pursuant to the Mortgage Loan Assignment Agreement, NB
Finance assigned its entire right, title and interest in, to and under the
Mortgage Loans to the Company and permits the Company to administer, perform and
enforce the Mortgage Loans. Pursuant to the Servicing Agreement, the Mortgage
Loans are serviced by the Bank. NB Finance does not independently maintain
either information technology or non-information technology systems.
Accordingly, the Company does not believe that NB Finance has or will have a
material Year 2000 issue.
The Company maintains relationships with other party service providers;
however, the Company does not consider the services received therefrom to be
material to its operations.
10
<PAGE>
At this time, the Company believes that its most reasonably likely
worst case Year 2000 scenario would be a delay by NB Finance in making payments
of principal and interest to the Company when due, causing the Company to be
unable to meet its short-term liquidity needs. Although the Company believes
that it is unlikely that such scenario would occur, it has developed a
contingency plan pursuant to which it would obtain a cash advance from NB
Finance, in an amount approximating previous payments of principal and interest,
in time to meet its short-term liquidity requirements. Accordingly, at this
time, the Company does not believe that it would experience a material adverse
effect as a result of the occurrence of the most reasonably likely worst case
Year 2000 scenario.
Disclosure About Market Risk
Any market risk to which the Company would be exposed would result from
fluctuations in (a) interest rates and (b) currency exchange rates effecting
the interest payments received by the Company in respect of the Mortgage Assets
issued by NB Finance. Since the Mortgage Assets are significantly
overcollateralized by the Mortgage Loans, interest rate fluctuations should not
present significant market risk. The Company expects that the interest and
principal generated by the Mortgage Loans should enable full payment by NB
Finance of all of its obligations as they come due. Since the Mortgage Loans are
guaranteed by a fixed ratio of exchange predetermined on the date of purchase
and applicable until the maturity of the Mortgage Loans pursuant to the Mortgage
Loan Assignment Agreement, fluctuations in currency exchange rates should not
present significant market risk.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are contained on pages F-1 through F-9 of this
Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
11
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MANAGEMENT
Directors and Executive Officers
The Board of Directors of the Company consists of the individuals set
forth below. Messrs. Hanley and Michel are Independent Directors. The Company
currently has six employees and does not anticipate that it will require
additional employees.
As of December 31, 1998, the persons who are directors and executive
officers of the Company are as follows:
Name Age Position and Offices Held Director Since
- ---- --- ------------------------------ --------------
Michael Hanley 33 Director 1997
Alain Michel 49 Director 1997
Harvey Brooks 57 Director; Chairman of the
Board; Chief Executive Officer;
President 1998
Thomas Doss 52 Director; Chief Financial
Officer; Treasurer 1998
Pierrette Lacroix 50 Director; Vice President 1998
James J. Hanks, Jr. (Secretary), Marie-Claude Tellier (Assistant
Secretary) and Jean Dagenais (Vice President) are the only other employees of
the Company. The following is a summary of the experience of the executive
officers and current directors of the Company:
Mr. Hanley has been Director of Finance of Alcan Aluminium Inc. since
June 1998. Prior to that he was 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. since November 1995 and Corporate Controller
since June 1994. Prior to that, Mr. Hanley was Manager, Financial Analysis, of
Avenor Inc. since May 1993 and Internal Auditor since September 1990.
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. He is Vice-Chairman of the Board of Optel Inc.
Ms. Pierrette Lacroix joined the Montreal Head Office of National Bank
of Canada in 1975. As senior officer, she has been involved in various functions
related to the Treasury area of the Bank and has, over the years, participated
in several task forces within the Bank. She came to the United States in May of
1993 to assume the position of Senior Vice President and Treasurer of the USA
Division. As such, she is responsible for the management of all Treasury related
activities for the USA, including asset/liability management. She is also a
member of the USA Division's Management Committee.
12
<PAGE>
Mr. Doss joined the Bank in 1981 and was elected Vice President, Credit
(U.S.) in 1988. He is an officer of several of the Bank's U.S. subsidiaries and
is a director of National Canada Finance Corp. and NB Finance. He is also a
member of the Board of Trustees for Soundview Preparatory School.
Mr. Brooks has been Senior Vice President, United States, of the Bank
since July 15, 1998. Mr. Brooks joined the Bank in 1982 and previously occupied
the positions within the Bank of Vice President, National Accounts-Western
Canada (1982-1985), Vice President, Banking-Western Canada (1985-1986), Vice
President, Energy and Western Canada (1986-1993) and Senior Vice President,
Ontario and Western Canada (1993-1998). He is also a member of the Board of
Directors of several of the Bank's subsidiaries.
The Company pays the Independent Directors fees for their services. 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. The Company also pays the directors who comprise the audit committee
a fee for their additional services. The audit committee is comprised of the
Independent Directors. Each Independent Director receives annual compensation of
$1,500 per year plus a fee of $750 for attendance (in person or by telephone) at
each meeting of the audit committee. Additionally, Mr. Michel receives annual
compensation of $1,000 for acting as President of the audit committee.
The Company does not pay any compensation to its officers or employees
or to directors who are not Independent Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Mr. Hanley, Mr. Michel, Mr. Doss, Ms. Lacroix and John Richter (former
Chief Executive Officer, President and Director of the Company) failed to timely
file an Initial Statement of Beneficial Ownership of Securities on Form 3 ("Form
3"). Each of the foregoing filed a delinquent Form 3 on a timely filed Annual
Statement of Beneficial Ownership of Securities on Form 5. Each of the foregoing
were required to file a Form 3 solely as a result of holding a directorship in
the Company. None of the foregoing owned at any time or currently owns any
securities of the Company. No other reports were delinquent.
ITEM 11: EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------------
Other Securities
Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation SARs(#) Compensation
--------------------------- ---------- -------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Harvey Brooks, CEO(1), (3) 1998 $109,958 $86,956 $41,675(4) 12,000 -
John Richter, CEO(2), (3) 1998 $158,032 $25,000 $3,991(5) 6,500 -
- --------------------------
<FN>
(1) Mr. Brooks was appointed CEO of the Company in December 1998.
(2) Mr. Richter was appointed CEO of the Company in January 1998 and held such office until replaced by Mr.
Brooks in December 1998.
</FN>
</TABLE>
13
<PAGE>
(3) Compensation disclosed in this table for Mr. Brooks and Mr. Richter was
paid in consideration for all of Mr. Brooks' and Mr. Richter's
respective services to the Bank and its subsidiaries. Only a portion of
such compensation is attributable to their respective services to the
Company, which portion was charged back to the Company by the Bank
pursuant to the terms of the Advisory Agreement. No executive officer
of the Company was paid more than US$100,000 of compensation for the
fiscal year ended December 31, 1998 that would be attributable to
services performed for the Company and its subsidiaries and thus are
not included in this table.
(4) Represents an allowance for housing.
(5) Represents the imputed income related to a mortgage loan at a preferred
interest rate.
SAR Grants in Last Fiscal Year
The following table provides information about stock appreciation
rights ("SARs") awarded to Harvey Brooks and John Richter during the fiscal year
ended December 31, 1998:
SAR Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants(1)
----------------------------------
% of Potential
Total Realizable Value at
Number of SARs Assumed Annual
Securities Granted Rates of Stock Price
Underlying to Appreciation
SARs Employees Base for SAR Term(2)
Granted in Fiscal Price Expiration --------------------------
Name (#) Year (C$/Sh) Date 5% 10% (C$)
- ---- --------------- ---------- --------- ------------ --- ---------------
(C$)
<S> <C> <C> <C> <C> <C> <C>
Harvey Brooks 12,000 1.0% $25.00 Dec. 31, 15,000 30,000
2008
John Richter 6,500 0.5% $25.00 Dec. 31, 8,125 16,250
2008
- ------------------
<FN>
(1) The SARs granted to Harvey Brooks and John Richter vest in four equal annual installments commencing on the first
anniversary of their date of grant.
(2) Potential gains on SARs are net of base price, but before taxes associated with exercise.
</FN>
</TABLE>
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
Canadian Dollars -------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35
- ------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
C$100,000 C$26,382 C$34,993 C$43,605 C$52,407 C$61,382
125,000 32,299 40,910 49,521 58,323 67,298
150,000 38,216 46,827 55,438 64,240 73,215
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
175,000 44,132 52,743 61,355 70,157 79,132
200,000 50,049 58,660 67,271 76,073 85,048
225,000 55,966 64,577 73,188 81,990 90,965
250,000 61,882 70,493 79,105 87,907 96,882
300,000 61,882 70,493 79,105 87,907 96,882
</TABLE>
The above table illustrates the estimated annual retirement benefit
payable on a straight line annuity basis to participating employees at normal
retirement age (generally age 60), in the earnings and years of service
classifications indicated, under the defined benefit pension plan sponsored by
the Bank (the "Bank Pension Plan") and an excess benefit plan which covers
certain employees of the Bank and its subsidiaries. For each year of service
credited to a participant in the Bank Pension Plan, a participant will be
entitled to 2% of his or her annual eligible earnings, less the amount earned
under the Canada or Quebec pension plans while participating in the Bank Pension
Plan. Annual eligible earnings is defined as a participant's average earnings
for such participant's 60 highest-paid consecutive months, based on salary and
25% of bonus.
In addition to the Bank Pension Plan, certain employees of the Bank and
its subsidiaries, including those of the Company, may also participate in an
excess benefit plan for participants in the Bank Pension Plan whose benefits are
reduced pursuant to limitations on pensions imposed by the Income Tax Act
(Canada). Employees covered by the excess benefit plan receive a benefit equal
to the amount of benefit disallowed under the Pension Plan due to such
limitations.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Common Stock is the only voting security of the Company issued and
outstanding. As of December 31, 1998, 100 shares of Common Stock were issued and
outstanding and 100% were beneficially owned directly by the Bank. The Bank's
address is National Bank Tower, 600 de La Gauchetiere West, Montreal, Quebec,
H3B 4L2. No officer or director beneficially owns more than five percent of any
class of the Company's securities.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank administers the day-to-day operations of the Company pursuant
to the Advisory Agreement. See "Business - Advisory Agreement." The Bank also
services the Mortgage Loans pursuant to the Servicing Agreement. See "Business -
Servicing Agreement."
15
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) The report of independent auditors and financial
statements appearing in Item 8.
(2) The Company is not filing separately financial
statement schedules because of the absence of
conditions under which they are required or because
the required information is included in the financial
statements or the notes thereto.
(3) The exhibits required by this item are listed in the
Exhibit Index which appears elsewhere in this Form
10-K and is incorporated herein by reference. The
Company is not a party to any management contracts or
compensation plans or arrangements required to be
filed as exhibits to this Form 10-K.
(b) During the quarter ended December 31, 1998, the Company did not
file any Current Reports on Form 8-K.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
NB CAPITAL CORPORATION
(Registrant)
By: /s/ Harvey Brooks
----------------------------------------
Harvey Brooks
Chief Executive Officer, President
(Principal Executive Officer)
By: /s/ Thomas Doss
----------------------------------------
Thomas Doss
Chief Financial Officer, Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March, 1999.
By: /s/ Alain Michel
----------------------------------------
Alain Michel
Director
By: /s/ Michael Hanley
----------------------------------------
Michael Hanley
Director
By: /s/ Pierrette Lacroix
----------------------------------------
Pierrette Lacroix
Director
By: /s/ Harvey Brooks
----------------------------------------
Harvey Brooks
Director
By: /s/ Thomas Doss
----------------------------------------
Thomas Doss
Director
17
<PAGE>
NB CAPITAL CORPORATION
Table of contents
- --------------------------------------------------------------------------------
Independent Auditor's Report.................................................F-2
Balance sheets...............................................................F-3
Statements of income.........................................................F-4
Statements of stockholders' equity...........................................F-5
Statements of cash flows.....................................................F-6
Notes to the financial statements.....................................F-7 to F-9
<PAGE>
Deloitte & Touche LLP
Chartered Accountants
1 Place Ville-Marie Telephone: (514) 393-7115
Suite 3000 Facsimile: (514) 390-4112
Montreal QC H3B 4T9
Independent Auditor's Report
To the Board of Directors and Stockholders of
NB Capital Corporation
We have audited the accompanying balance sheets of NB Capital Corporation as of
December 31, 1998 and 1997 and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and 1997
and the results of its operations and its cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States
of America.
Chartered Accountants
Montreal, Canada
January 20, 1999
F-2
<PAGE>
NB CAPITAL CORPORATION
Balance sheets
as of December 31, 1998 and 1997
(in U.S. dollars)
<TABLE>
<CAPTION>
=======================================================================================================================
1998 1997
- -----------------------------------------------------------------------------------------------------------------------
$ $
<S> <C> <C>
Assets
Cash 22,178,668 20,003,943
Due from an affiliated company 8,667,391 4,504,564
Promissory notes 451,899,957 456,513,825
- -----------------------------------------------------------------------------------------------------------------------
482,746,016 481,022,332
=======================================================================================================================
Liabilities
Due to the parent company 303,777 548,297
Accounts payable 33,857 257,560
Dividend payable 500,000 --
Income taxes payable -- 80,000
- -----------------------------------------------------------------------------------------------------------------------
837,634 885,857
=======================================================================================================================
Stockholders' equity
Preferred stock, $0.01 par value per share;
10,000,000 shares authorized,
300,000 Series A shares issued and paid 3,000 3,000
110 Senior preferred shares issued and paid 1 --
Common stock, $0.01 par value per share;
1,000 shares authorized
100 shares issued and paid 1 1
Additional paid-in capital 476,761,014 476,431,381
Retained earnings 5,144,366 3,702,093
- --------------------------------------------------------------------------------------------------- -------------------
481,908,382 480,136,475
- --------------------------------------------------------------------------------------------------- -------------------
482,746,016 481,022,332
=======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
NB CAPITAL CORPORATION
Statements of income
years ended December 31, 1998 and 1997
(in U.S. dollars)
<TABLE>
<CAPTION>
=====================================================================================================================
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
$ $
(12 months) (4 months)
<S> <C> <C>
Revenue
Interest income
Short-term investments 741,571 133,403
Promissory notes 36,290,389 12,760,418
Bank interest 1,770,152 100,118
- ---------------------------------------------------------------------------------------------------------------------
38,802,112 12,993,939
=====================================================================================================================
Expenses
Legal 314,886 226,144
Other professional fees 465,291 226,405
Servicing fees 1,268,533 539,964
Advisory fees 25,000 8,333
- ---------------------------------------------------------------------------------------------------------------------
2,073,710 1,000,846
=====================================================================================================================
Income before income taxes 36,728,402 11,993,093
(Recovery) income taxes (675) 80,000
- ---------------------------------------------------------------------------------------------------------------------
Net income 36,729,077 11,913,093
Preferred stock dividends 25,084,711 8,211,000
- ---------------------------------------------------------------------------------------------------------------------
Income available to common stockholders 11,644,366 3,702,093
=====================================================================================================================
Weighted average number of common shares outstanding 100 100
Earnings per common share - basic 116,444 37,021
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NB CAPITAL CORPORATION
Statements of stockholders' equity
as of December 31, 1998 and 1997
(in U.S. dollars)
<TABLE>
<CAPTION>
====================================================================================================================================
Series A Senior Additional
Preferred Preferred Common Paid-in Retained
Stock Stock Stock Capital Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity as of
December 31, 1997 $ 3,000 $ -- $ 1 $ 476,431,381 $ 3,702,093 $ 480,136,475
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of senior preferred stock,
net of issuance costs of $366 -- 1 -- 329,633 -- 329,634
Net income -- -- -- -- 36,729,077 36,729,077
Dividends on senior preferred stock
and Series A preferred stock -- -- -- -- (25,084,711) (25,084,711)
Dividend on common stock -- -- -- -- (10,202,093) (10,202,093)
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity as of
December 31, 1998 $ 3,000 $ 1 $ 1 $ 476,761,014 $ 5,144,366 $ 481,908,382
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NB CAPITAL CORPORATION
Statements of cash flows
years ended December 31, 1998 and 1997
(in U.S. dollars)
<TABLE>
<CAPTION>
=====================================================================================================================
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
(12 months) (4 months)
<S> <C> <C>
Operating activities
Net income $ 36,729,077 $ 11,913,093
Items not affecting cash resources
Due from an affiliated company (4,162,827) (4,504,564)
Due to the parent company (244,520) 548,297
Accounts payable and income taxes payable (303,703) 337,560
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,018,027 8,294,386
- ---------------------------------------------------------------------------------------------------------------------
Investing activities
Investment in promissory notes (55,716,724) (476,588,453)
Repayments of promissory notes 60,330,592 20,074,628
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 4,613,868 (456,513,825)
=====================================================================================================================
Financing activities
Issue of senior preferred stock, net of costs 329,634 --
Issue of common stock -- 183,338,454
Issue of Series A preferred stock, net of discount
and fees -- 293,095,928
Dividends (34,786,804) (8,211,000)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (34,457,170) 468,223,392
- ---------------------------------------------------------------------------------------------------------------------
Cash position, beginning of year 20,003,943 --
- ---------------------------------------------------------------------------------------------------------------------
Cash position, end of year $ 22,178,668 $ 20,003,943
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 1998 and 1997
(in U.S. dollars)
================================================================================
1. Incorporation and nature of operations
NB Capital Corporation (the "Company") was incorporated in the state of
Maryland on August 20, 1997. The Company's principal business is to
acquire, hold, finance and manage mortgage assets. The Company issued,
through an Offering Circular dated August 22, 1997, $300 million of
preferred stock and simultaneously, National Bank of Canada, the parent
company, made a capital contribution in the amount of $183 million. The
Company used the aggregate net proceeds of $477 million to acquire
promissory notes of NB Finance, Ltd., a wholly-owned subsidiary of
National Bank of Canada.
2. Significant accounting policies
Financial statements
The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America and are
expressed in U.S. dollars.
Income taxes
The Company has elected to be taxable as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended, and
accordingly is generally not liable for United States federal income
tax to the extent that it distributes at least 95% of its taxable
income to its stockholders, maintains its qualification as a REIT and
complies with certain other requirements.
Per share data
Basic earnings per share with respect to the Company for the year ended
December 31, 1998 and the four-month period ended December 31, 1997 are
computed based upon the weighted average number of common shares
outstanding during the year.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting year.
Actual results could differ from those estimates.
3. Promissory notes
The Company entered into loan agreements evidenced by promissory notes
with NB Finance, Ltd., an affiliated company. The promissory notes are
collateralized only by mortgage loans which are secured by residential
first mortgages and insured by the Canada Mortgage and Housing
Corporation.
F-7
<PAGE>
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 1998 and 1997
(in U.S. dollars)
================================================================================
The promissory notes have maturities ranging from June 1999 to December
2001, at rates ranging from 6.90% to 9.77%, with a weighted average
rate of approximately 8.38% per annum.
These rates approximate market interest rates for loans of similar
credit and maturity provisions and, accordingly, management believes
that the carrying value of the promissory notes receivable approximates
their fair value.
1998 1997
-----------------------------------
$ $
Promissory notes, beginning of year 456,513,825 --
Acquisition 55,716,724 476,588,453
Principal repayments (60,330,592) (20,074,628)
- --------------------------------------------------------------------------------
Promissory notes, end of year 451,899,957 456,513,825
================================================================================
The scheduled principal repayments are as follows:
1999 $ 69,881,353
2000 175,863,404
2001 206,155,200
4. Transactions with an affiliated company
During the year, the Company earned interest from NB Finance, Ltd. in
an amount of $36,290,389 ($12,760,418 in 1997) (see Note 3).
The amounts due from an affiliated company as of December 31, 1998 and
1997 represent interest and principal repayments due on the promissory
notes from NB Finance, Ltd.
5. Transactions with the parent company
In 1997, the Company entered into agreements with National Bank of
Canada in relation to the administration of the Company's operations.
The agreements are as follows:
Advisory agreement
In exchange for a fee equal to $25,000 per year, payable in equal
quarterly instalments, National Bank of Canada will furnish advice and
recommendations with respect to all aspects of the business and affairs
of the Company.
Servicing agreement
F-8
<PAGE>
NB CAPITAL CORPORATION
Notes to the financial statements
years ended December 31, 1998 and 1997
(in U.S. dollars)
================================================================================
National Bank of Canada will service and administer the promissory
notes and the collateralized mortgage loans and will perform all
necessary operations in connection with such servicing and
administration.
The fee will equal one-twelfth (1/12) of 0.25% per annum of the
aggregate outstanding balance of the collateralized mortgage loans as
of the last day of each calendar month. The average outstanding balance
of the collateralized mortgage loans amounted to $540,268,000
($581,350,000 in 1997). During the year, fees of $1,268,533 ($539,964
in 1997) were charged to the Company.
Custodian agreement
National Bank of Canada will hold all documents relating to the
collateralized mortgage loans. During the years ended December 31, 1998
and 1997, no fee was charged to the Company.
6. Income taxes
For the four-month period ended December 31, 1997, the Company was
subject to a 4% non-deductible excise tax on undistributed taxable
income amounts.
7. Stockholders' equity
Common stock
The Company is authorized to issue up to 1,000 shares of $0.01 par
value common stock.
Preferred stock
The Company is authorized to issue up to 10,000,000 shares of $0.01 par
value preferred stock as follows:
300,000 shares classified as 8.35% Non-cumulative Exchangeable
Preferred Stock, Series A, non-voting, ranked senior to the
common stock and junior to the Adjustable Rate Cumulative
Senior Preferred Shares, with a liquidation value of $1,000
per share, redeemable at the Company's option on or after
September 3, 2007, except upon the occurrence of certain
changes in tax laws in the United States of America and in
Canada, on or after September 3, 2002.
1,000 shares classified as Adjustable Rate Cumulative Senior
Preferred Shares, non-voting, ranked senior to the common
stock and to the 8.35% Non-cumulative Exchangeable Preferred
Stock, with a liquidation value of $3,000 per share,
redeemable at the Company's option at any time and retractable
at the holders' option on December 30, 2007 and every ten-year
anniversary thereof.
F-9
<PAGE>
INDEX TO EXHIBITS
Page
Exhibit Number Description Number
- -------------- ----------- ------
3.1.1 Articles of Incorporation and Articles of Amendment
and Restatement and Articles Supplementary of NB
Capital Corporation*
3.2.1 Bylaws 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*
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*
10.5 Deed of Sale of Mortgage Loans dated September 3,
1997 between National Bank of Canada and NB
Finance, Ltd.*
10.6 Mortgage Loan Assignment Agreement dated
September 3, 1997 among National Bank of Canada,
NB Capital Corporation and NB Finance, Ltd.*
10.7 Promissory Notes representing the sixteen
hypothecation loans executed by NB Finance, Ltd. in
favor of NB Capital Corporation*
10.8 Deposit Agreement among NB Capital Corporation,
National Bank of Canada and The Bank of Nova Scotia
Trust Company of New York, including Form of
Depositary Receipt*
10.9 First Supplemental Servicing Agreement dated
December 4, 1998 between National Bank of Canada
and NB Capital Corporation**
<PAGE>
10.10 Loan Agreement dated as of December 4, 1998 between
NB Finance, Ltd. and NB Capital Corporation**
10.11 Custodial Agreement dated as of December 4, 1998
between NB Capital Corporation and National Bank of
Canada**
10.12 Deed of Sale of Mortgage Loans dated December 4,
1998 between National Bank of Canada and NB
Finance, Ltd.**
10.13(i) Mortgage Loan Assignment Agreement dated as of
December 4, 1998 among NB Finance, Ltd., NB Capital
Corporation and National Bank of Canada**
10.13(ii) Mortgage Loan Assignment Agreement dated as of
December 4, 1998 among NB Finance, Ltd., NB Capital
Corporation and National Bank of Canada**
10.14(i) Promissory Note representing $25,836,597.23 executed
by NB Finance, Ltd. in favor of NB Capital
Corporation**
10.14(ii) Promissory Note representing $29,880,126.51 executed
by NB Finance, Ltd. in favor of NB Capital
Corporation**
27 Financial Data Schedule**
* As previously filed on the Registration Statement on Form S-11 of the
Company (Registration Statement No. 333-47157).
** As filed herewith.
<PAGE>
FIRST SUPPLEMENTAL SERVICING AGREEMENT
-- between --
NATIONAL BANK OF CANADA
-- and --
NB CAPITAL CORPORATION
=============================================================================
December 4, 1998
=============================================================================
<PAGE>
FIRST SUPPLEMENTAL SERVICING AGREEMENT
First Supplemental Servicing Agreement (the " First Supplemental Servicing
Agreement ") entered into as of December 4, 1998.
BETWEEN: NATIONAL BANK OF CANADA, a Canadian
chartered bank;
(the " Servicer ")
AND: NB CAPITAL CORPORATION, a Maryland
corporation;
(the " Company ")
WHEREAS NB Finance, Ltd., a Bermuda Corporation, (the " Purchaser ") and
National Bank of Canada, acting as seller (the " Seller "), entered into a deed
of sale of mortgage loans dated as of September 3, 1997 (the " Purchase
Agreement ") pursuant to which the Purchaser agreed to purchase from the Seller
certain Canada Mortgage and Housing Corporation insured residential first
mortgage loans as set forth on Exhibit A (the " Mortgage Loans ");
WHEREAS the Purchaser and the Company entered into assignment agreements dated
as of September 3, 1997 (the "Mortgage Loan Assignment Agreements") pursuant to
which the Purchaser assigned all of its right, title and interest in, to and
under the Mortgage Loans to the Company;
WHEREAS the Company intends to remain qualified as a "real estate investment
trust" (" REIT ") under the Internal Revenue Code of 1986, as amended;
WHEREAS the Company and the Servicer have entered into a servicing agreement
dated as of September 3, 1997 (the " Servicing Agreement ") establishing the
terms and conditions on which the Servicer services and administers the Mortgage
Loans;
WHEREAS the Purchaser and the Seller entered into a further deed of sale of
mortgage loans dated as of December 4, 1998, pursuant to which the Purchaser
agreed to purchase
<PAGE>
from the Seller certain additional Canada Mortgage and
Housing Corporation insured residential first mortgage loans as set forth on
Exhibit B (the " 1998 Mortgage Loans ");
WHEREAS the Purchaser and the Company entered into assignment agreements dated
as of December 4, 1998, pursuant to which the Purchaser assigned all of its
right, title and interest in, to and under the 1998 Mortgage Loans to the
Company;
WHEREAS the Company also desires to have the Servicer service and administer the
1998 Mortgage Loans, the Servicer also desires to service and administer the
1998 Mortgage Loans on behalf of the Company, and the parties desire to set
forth the terms and conditions on which the Servicer will service and administer
the 1998 Mortgage Loans.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein and
for other good and valuable, the receipt and the sufficiency are hereby
acknowledged, the parties hereto agree as follows:
1. The preamble forms an integral part of this Agreement.
2. From the date hereof, the Servicer, as provider of services, shall service
and administer the 1998 Mortgage Loans in accordance with the Servicing
Agreement and all terms and conditions thereof shall apply mutatis mutandis
to the 1998 Mortgage Loans, except as expressly herein modified or amended.
3. The " Closing Date " with respect to the 1998 Mortgage Loans shall mean
December 4, 1998.
4. The " Cut-off Date " with respect to the 1998 Mortgage Loans shall mean
December 4, 1998.
5. The first Remittance Date with respect to the 1998 Mortgage Loans shall be
January 15, 1999.
6. The parties hereto confirm that the present agreement has been drawn in the
English language at their request. Les parties aux presentes confirment que
la presente convention a ete redigee en langue anglaise a leur demande.
- --------------------------------------------------------------------------------
Page 2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above
NATIONAL BANK OF CANADA
By /s/ Benoit Dagenais
-----------------------------------
Benoit Dagenais, Manager, Treasury,
Cash Management
(Department Manager)
By /s/ Raymond Cote
-----------------------------------
Raymond Cote, Manager, Treasury,
Matching
(Department Manager)
NB CAPITAL CORPORATION
By /s/ Martin Ouellet
-----------------------------------
Martin Ouellet, Vice-President
- --------------------------------------------------------------------------------
Page 3
<PAGE>
EXHIBIT A
MORTGAGE LOANS
Originals of the listings of the Mortgage Loans remain annexed to the Deed of
Sale of Mortgage Loans executed before Mtre. Bertrand Ducharme, notary, on
September 3, 1997, under his minute number 9014.
- --------------------------------------------------------------------------------
Page 4
<PAGE>
EXHIBIT B
1998 MORTGAGE LOANS
- --------------------------------------------------------------------------------
Page 5
LOAN AGREEMENT
Dated as of December 4, 1998
Between
NB FINANCE, LTD.
as Borrower,
and
NB CAPITAL CORPORATION
as Lender
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1. Certain Defined Terms..................................................1
1.2 Computation of Time Periods............................................5
1.3. Accounting Terms.......................................................5
ARTICLE 2
AMOUNT AND TERMS OF THE LOANS
2.1. The Loans..............................................................5
2.2. Use of Proceeds........................................................6
2.3. Repayment of Principal.................................................6
2.4. Prepayments............................................................6
2.5. Interest...............................................................7
2.6. Payments and Computations..............................................7
2.7. Security for the Loans.................................................7
2.8. Late Charge............................................................8
2.9. Taxes..................................................................8
2.10. Loan to Principal Ratio................................................8
ARTICLE 3
CONDITIONS OF LENDING
3.1. Conditions Precedent to Closing........................................9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of Borrower............................10
ARTICLE 5
COVENANTS OF BORROWER
5.1. Affirmative Covenants.................................................12
5.2. Negative Covenants....................................................12
5.3. Reporting Requirements................................................13
<PAGE>
ARTICLE 6
EVENTS OF DEFAULT
6.1. Events of Default.....................................................13
ARTICLE 7
MISCELLANEOUS
7.1. Amendments, Etc.......................................................15
7.2. Notices, Etc..........................................................15
7.3. No Waiver; Remedies...................................................15
7.4. Costs, Expenses; Indemnity............................................15
7.5. Binding Effect........................................................16
7.6. Non Recourse..........................................................16
7.7. Execution in Counterparts.............................................16
7.8. Jurisdiction, Etc.....................................................17
7.9. Governing Law.........................................................17
7.10. Waiver of Jury Trial..................................................17
7.11. Compliance with Usury Laws............................................17
7.12. Exhibits..............................................................17
7.13. Further Assurances....................................................18
EXHIBITS
Exhibit A The Loans
Exhibit B Form of Note
Exhibit C-1 1998 Series 1 Mortgage Loans
Exhibit C-2 1998 Series 2 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 December 4, 1998
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 1.1 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.$55,716,723.74 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 1
Definitions and Accounting Terms
Section 1.1. 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):
"1998 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 1998 Series 1 Mortgage Loans (as well as the real property
securing such 1998 Series 1 Mortgage Loans) as more particularly
described in the 1998 Series 1 Mortgage Loan Assignment Agreement and
the other applicable Loan Documents.
"1998 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 evidenced by the applicable Note and secured
by the 1998 Series 2 Mortgage Loans (as well as the real property
securing such 1998 Series 2 Mortgage Loans) as more particularly
described in the 1998 Series 2 Mortgage Loan Assignment Agreement and
the other applicable Loan Documents.
"1998 Series 1 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-1 hereof.
"1998 Series 2 Mortgage Loans" means the Mortgage Loans set
forth on Exhibit C-2 hereof.
<PAGE>
2
"1998 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 1998 Series 1 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1998 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 1998 Series 2 Loan made to Borrower, as
the same may be amended, replaced, restated, supplemented or otherwise
modified from time to time.
"1998 Series 1 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1998
Series 1 Loan, as the same may be amended, replaced, restated,
supplemented or otherwise modified from time to time.
"1998 Series 2 Note" means that certain Note dated as of the
date hereof made by Borrower in favor of Lender evidencing the 1998
Series 2 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.
"Closing Date" means the fourth (4th) day of December nineteen
hundred and ninety-eight (1998).
"Collateral" means all property referred to as "Collateral" in
the Collateral Documents and all other property that is or 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.
"Default Rate" has the meaning specified in Section 2.5(c).
<PAGE>
3
"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 6.1.
"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 5.3.
"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.
"Indemnified Party" has the meaning specified in Section
7.4(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 2.5(b).
<PAGE>
4
"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 1998 Series 1 Loan
or the 1998 Series 2 Loan, and collectively, the 1998 Series 1 Loan and
the 1998 Series 2 Loan.
"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)
powers 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 and Exhibit C-2.
"Mortgage Loan Assignment Agreements" means, collectively, the
1998 Series 1 Mortgage Loan Assignment Agreement and the 1998 Series 2
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 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.
<PAGE>
5
"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 2.9(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.
Section 1.2. 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 1.3. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP.
Article 2
Amount and Terms of the Loans
Section 2.1. The Loans.
(a) Subject to the terms and conditions set forth in this
Agreement, Lender hereby agrees to make the Loan 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 7.6.
<PAGE>
6
(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 re-borrowed.
(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 2.2. Use of Proceeds. Borrower shall use the proceeds
of the Loans disbursed to it pursuant to Section 2.1 solely to acquire the
Mortgage Loans.
Section 2.3. Repayment of Principal. Subject to the provisions
of Section 2.4, Borrower shall repay to Lender the outstanding principal amount
on each Loan in full on the applicable Maturity Date.
Section 2.4. Prepayments.
(a) Voluntary. Other than the mandatory prepayments of
principal in accordance with Section 2.4(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.
<PAGE>
7
(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 December 18, 1998, 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 U.S. Dollar Equivalent of the aggregate outstanding
principal balances of the Mortgage Loans securing such Loan as of the Closing
Date.
Section 2.5. Interest.
(a) Scheduled Interest. Subject to the provisions of Section
2.5(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 Rate. 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 (the "Default Rate") 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 of Lender.
Section 2.6 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 2.7. Security for the Loans. Each Loan shall be
secured by (a) the applicable Mortgage Loans as well as the real property
securing such Mortgage Loans as more particularly
<PAGE>
8
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 2.8. 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 2.9. Taxes.
(a) Any and all payments by Borrower under the Notes shall be
made, in accordance with Section 2.6 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 2.9) 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 2.9, 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
7.2, 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 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
2.4(b)(C).
<PAGE>
9
Article 3
Conditions of LEnding
Section 3.1. 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) 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;
(iv) 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;
(v) A Certificate of Compliance in respect of Borrower
issued by the Registrar of Companies of Bermuda dated reasonably near
to the Closing Date; and
(vi) 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.
<PAGE>
10
Article 4
Representations and Warranties
Section 4.1. 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 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 Documents 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 legality, validity or
enforceability of this Agreement or any other Loan Document or the consummation
of the transactions contemplated hereby.
<PAGE>
11
(f) 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).
(g) 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.
(h) 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.
(i) 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.
(j) 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).
(k) 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.
(l) Attached hereto as Exhibits C-1 and C-2 are complete 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 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).
(m) As of December 4, 1998, the U.S. Dollar Equivalent of the
aggregate outstanding principal balance of each Mortgage Loan is the amount set
forth in Exhibit E.
<PAGE>
12
Article 5
Covenants of Borrower
Section 5.1. 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 its 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;
(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 5.2. 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;
<PAGE>
13
(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).
Section 5.3. 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 (5) 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 Statements. 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
accountant 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
situation of the 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 6
EVENTS OF DEFAULT
Section 6.1. 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
(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
<PAGE>
14
(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 5.2; 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 thirty (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
(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>
15
Article 7
MISCELLANEOUS
Section 7.1. 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 7.2. 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: Chief Executive Officer; 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, except that notices and communications to Lender
pursuant to Article 2 or Article 3 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 7.3. 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 7.4. 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 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
<PAGE>
16
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 7.4(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.
(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 Section 2.8, Section 2.9 and this Section
7.4 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
Section 7.5. 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 7.6. 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 7.7. 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
<PAGE>
17
counterpart signature by telecopier shall, however, be promptly followed by
delivery of a manually executed counterpart.
Section 7.8. 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 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 7.9. 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 waive 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 be
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.
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.
<PAGE>
18
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 may 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.
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 /s/ Sophie Clermont
-------------------------------------------
Sophie Clermont, Assistant Secretary
LENDER:
NB CAPITAL CORPORATION
By /s/ Martin Ouellet
-------------------------------------------
Martin Ouellet, Vice-President
<PAGE>
EXHIBIT A
THE LOANS
- --------------------------------------------------------------------------------
Loan Amount Interest Rate Maturity Date
- --------------------------------------------------------------------------------
1998 Series 1 Loan $29,880,126.51 8.371% June 15, 2001
- --------------------------------------------------------------------------------
1998 Series 2 Loan $25,836,597.23 8.371% December 15, 2001
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
FORM OF NOTE
PROMISSORY NOTE
(this "Note")
U.S. $______________ December 4, 1998
FOR VALUE RECEIVED, NB FINANCE, LTD., a Bermuda corporation,
having its registered office in Clarendon House, 2 Church Street, Hamilton,
Bermuda (hereinafter referred to as "Borrower"), promises to pay to the order of
NB CAPITAL CORPORATION, a Maryland corporation, at its principal place of
business at 125 West 55th Street, New York, New York 10019 (hereinafter referred
to as "Lender"), or at such other place as the holder thereof may from time to
time designate in writing, the principal sum of ________________________
(U.S.$_______________) (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
non-usurious rate permitted by applicable law and (ii) _________ percent (___%)
calculated monthly on a 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 December 31, 1998. "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 "Maturity Date") in whole.
Section 1. Incorporation by Reference. All of the terms,
covenants and conditions contained in the Mortgage Loan Assignment Agreement 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.
<PAGE>
2
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 Maturity Date 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 6.1(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
6.1(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, 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.
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
<PAGE>
3
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 of
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.
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 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.
<PAGE>
4
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: Chief Executive Officer; 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 an account or accounts Lender may designate from time to time 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.
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:
LENDER:
NB CAPITAL CORPORATION
By
-------------------------------------
<PAGE>
EXHIBIT C-1
1998 SERIES 1 MORTGAGE LOANS
<PAGE>
EXHIBIT C-2
1998 SERIES 2 MORTGAGE LOANS
<PAGE>
EXHIBIT D
FORM OF MORTGAGE LOAN ASSIGNMENT AGREEMENT
<PAGE>
EXHIBIT E
MORTGAGE LOAN BALANCES
1998 Series 1 Mortgage Loans US$37,350,158.14
1998 Series 2 Mortgage Loans US$32,295,746.54
NB CAPITAL CORPORATION
-- Company --
-- and --
NATIONAL BANK OF CANADA
-- Custodian --
-- and --
NATIONAL BANK OF CANADA
-- Servicer --
================================================================================
CUSTODIAL AGREEMENT
Dated as of December 4, 1998
================================================================================
<PAGE>
CUSTODIAL AGREEMENT
THIS CUSTODIAL AGREEMENT, dated as of December 4, 1998 (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 two (2) loans (the "Loans") to NB Finance,
Ltd., a Bermuda company ("Borrower"), pursuant to a Loan Agreement, dated as of
December 4, 1998 (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 December 4, 1998, 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 as supplemented by the First
Supplemental Servicing Agreement dated as of December 4, 1998 by and between
Servicer and Company (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 December 4, 1998
(the "Delivery Date"), in accordance with the terms and conditions hereof.
<PAGE>
Custodial Agreement
- --------------------------------------------------------------------------------
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 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 acknowledgement 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,
- --------------------------------------------------------------------------------
Page 2
<PAGE>
Custodial Agreement
- --------------------------------------------------------------------------------
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 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
- --------------------------------------------------------------------------------
Page 3
<PAGE>
Custodial Agreement
- --------------------------------------------------------------------------------
arising out of or relating to this Agreement, or for the recognition or
enforcement of any judgement, 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 judgement 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 out 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 defense
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.
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 to
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Page 4
<PAGE>
Custodial Agreement
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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 matter
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Page 5
<PAGE>
Custodial Agreement
- --------------------------------------------------------------------------------
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.
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Page 6
<PAGE>
Custodial Agreement
- --------------------------------------------------------------------------------
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: /s/ Martin Ouellet
---------------------------------
Martin Ouellet, Vice-President
SERVICER:
NATIONAL BANK OF CANADA
By: /s/ Raymond Cote
---------------------------------
By: /s/ Benoit Dagenais
---------------------------------
CUSTODIAN:
NATIONAL BANK OF CANADA
By: /s/ Raymond Cote
---------------------------------
By: /s/ Benois Dagenais
---------------------------------
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Page 7
DEED OF SALE OF MORTGAGE LOANS
ON THE FOURTH (4th) day of DECEMBER NINETEEN HUNDRED AND NINETY-EIGHT (1998)
BEFORE Mtre Richard Trudeau, the undersigned notary for the Province of Quebec,
practising in the City of Montreal;
APPEARED: NATIONAL BANK OF CANADA, a bank incorporated under the terms of the
Bank Act (S.C. 1991, Chapter 46) and having its head office at 600 de La
Gauchetiere West, Montreal, Quebec H3B 4L2, herein acting and represented by
Benoit Dagenais, its Manager, Treasury, Cash Management, and by Raymond Cote,
its Manager, Treasury, Matching, duly authorized in virtue of a resolution of
its Board of Directors adopted on October 22, 1998, a certified copy of which
remains hereto annexed after having been acknowledged true and signed for
identification by the said representative in the presence of the undersigned
Notary.
(hereinafter called the "Bank")
AND: NB FINANCE, LTD., a corporation formed under the laws of Bermuda, having
its head office and registered office at Clarendon House, 2 Church Street,
Hamilton, HM 11, Bermuda, herein acting and represented by Martin Ouellet, its
President, and by Sophie Clermont, its Assistant Secretary, duly authorized in
virtue of a resolution of its Board of Directors adopted on December 3, 1998, a
certified copy of which remains hereto annexed after having been acknowledged
true and signed for identification by the said representative in the presence of
the undersigned Notary.
(hereinafter called "NB Finance")
<PAGE>
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NOW THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Unless the context otherwise requires, the following expressions shall have
the following meanings:
1.1 "CMHC" means the Canada Mortgage and Housing Corporation;
1.2 "Mortgage Loans" means collectively all contractual rights, claims and
rights of action arising from or pursuant to the terms of the mortgage
loans and hypothecary loans listed in Schedule A, which Schedule is
annexed hereto after having been acknowledged true and signed for
identification by the representatives of the parties hereto in presence
of the undersigned Notary, and, without limitation, all claims for
principal, interest, costs, expenses and other sums which are due and
outstanding or become due to the Bank under the terms thereof;
1.3 "Mortgage Loan File" means collectively all of the agreements, deeds
and proceedings evidencing the Mortgage Loans and the Security, as well
as any architectural and engineering report, title report, survey,
insurance policy and other information and material with respect to the
real property securing the Mortgage Loans and, with respect to each
Mortgage Loan, all of the agreements, deeds and proceedings evidencing
such Mortgage Loan and the Security relating thereto as well as any
architectural and engineering report, title report, survey, insurance
policy and other information and material with respect to the real
property securing such Mortgage Loan;
<PAGE>
-3-
1.4 "Security" means collectively the moveable and immoveable security
securing the Mortgage Loans and set forth in the Mortgage Loan File,
including, without limitation, any moveable and immoveable hypothecs,
guarantees, pledges, mortgages, notes, bonds, letters of credit and
similar instruments, or other property in any other personal rights
securing the Mortgage Loans;
1.5 "Servicing Agreement" means that certain servicing agreement entered
into as of September 3, 1997 as supplemented by the first supplemental
servicing agreement entered into as of the date hereof between the Bank,
as servicer, and NB Capital Corporation that set forth the terms and
conditions under which the Bank will service and administer the Mortgage
Loans.
2. In consideration of the sale price of One Hundred Eight Million Eight Hundred
Ninety-Four Thousand Fifteen Dollars and Ninety Cents (Can.$108,894,015.90)
(calculated based on the aggregate outstanding principal balances of the
Mortgage Loans as of December 3, 1998 multiplied by 101.9558%) including
estimated accrued interest as of the date hereof ("Sale Price"), the receipt
and sufficiency of which is hereby acknowledged by the Bank, whereof quit,
the Bank hereby sells, assigns, conveys and transfers absolutely, as and from
the date hereof, to NB Finance, hereto accepting, and hereby subrogates NB
Finance in, all right, title and interest of the Bank in and to the Mortgage
Loans, the Security and the Mortgage Loan File (including all rights and
obligations arising under the documents contained therein), as well as in all
right, title and interest of the Bank in and to the insurance policies issued
by CMHC under the National Housing Act (R.S. c.N-10, s.1) with respect to the
<PAGE>
-4-
Mortgage Loans and the personal property and real property subject to the
Security. On or prior to December 15, 1998, the Sale Price of the Mortgage
Loans shall be adjusted to reflect the decrease in the aggregate outstanding
principal balances of the Mortgage Loans between December 3, 1998 and the
date hereof, and the exact accrued interest as of December 4, 1998. The Bank
or NB Finance, as applicable, shall pay, on or prior to December 15, 1998 an
amount equal to the difference between (i) Can.$108,894,015.90 and (ii) an
amount representing the sum of (a) the amount of accrued interest on the
Mortgage Loans as of December 4, 1998 and (b) the product of the outstanding
balances of the Mortgage Loans as of December 4, 1998 and 101.9558%, the
whole together with the interest accrued on such amount at a rate per annum
equal to 5.000% from the date hereof until the payment of such amount.
3. NB Finance hereby assumes, as and from the date hereof, to the complete and
entire exoneration of the Bank, all of the covenants, obligations and
liabilities of the Bank arising from or pursuant to the terms of the Mortgage
Loans, the Security and any document contained in the Mortgage Loan File, the
whole for a period commencing on the date hereof.
4. The Bank represents and warrants as of the date hereof, unless specifically
indicated otherwise, as follows:
4.1 The Bank is a bank duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation.
4.2 The execution, delivery and performance by the Bank of this Deed have
been duly authorized by all necessary corporate action, and do not
contravene the Bank Act (Canada), being
<PAGE>
-5-
the Charter of the Bank, or its by-law, and do not violate any law or
governmental regulation or permit applicable to the Bank.
4.3 The Bank (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 pursuant to this
Deed, and (iii) has not pledged, collaterally assigned or otherwise
hypothecated any interest therein or agreed to do so, other than pursuant
to this Deed.
4.4 The Bank has in its possession duly executed originals of all mortgage
loans and hypothecary loans listed in Schedule A as well as the Mortgage
Loan File. From and after the date of this Deed, the Bank shall no longer
hold the Mortgage Loan File as owner thereof but as custodian for NB
Finance or its successors or assigns pursuant to the terms of the
Servicing Agreement and as provided therein, the Mortgage Loan File shall
be appropriately identified in the Bank's books and records to clearly
reflect the sale of the Mortgage Loans to NB Finance.
4.5 Each of the Mortgage Loans is an existing and valid CMHC-insured
residential first mortgage or hypothecary loan enforceable in accordance
with its terms. The Mortgage Loans have been fully advanced, have not
been amended or modified and are in full force and effect.
4.6 To the knowledge of the Bank, there has not occurred an event which, if
uncured or uncorrected, constitutes or would
<PAGE>
-6-
constitute, with the giving of notice, passage of time or both, a
material default under any Mortgage Loan.
4.7 As of December 4, 1998, the aggregate outstanding principal balance of
the Mortgage Loans was One Hundred Six Million Six Hundred Forty-Eight
Thousand Seven Hundred Seventy-Three Dollars and Eighty-Three Cents
(Can.$106,648,773.83).
4.8 The Bank is an approved lender in good standing as this expression is
defined in the National Housing Act (R.S. c.N-10, s.1).
4.9 None of the Mortgage Loans is secured by real estate 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).
4.10 There are no provisions in the Mortgage Loans restricting the
assignability of the Bank's rights thereunder.
4.11 The law governing relations between the mortgagors and/or hypothecary
debtors under each Mortgage Loan is the law of the province of Canada
where the real estate property securing each such Mortgage Loan is
situated.
4.12 Each of the Mortgage Loans has been administered by the Bank in
accordance with the Bank's usual servicing practises and the CMHC Guide
(as this expression is defined in the Servicing Agreement) and there has
been no default by the Bank thereunder.
<PAGE>
-7-
4.13 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 the due execution, delivery, recordation,
filing or performance by the Bank of this Deed.
5. NB Finance shall be the sole owner of the property and rights herein sold,
assigned and transferred, as of the date hereof, with possession as at the
same date. In virtue of this Deed, NB Finance shall have the right to collect
the sums due under the Mortgage Loans from the person liable therefor, to
grant acquittance for all sums received including any such sum received prior
to the date hereof by the Bank, with or without consideration to grant
mainlevee or discharge of the said hypothecs and mortgages, to exercise all
legal recourses in order to recover the sums due thereunder, in its own name
or in the name of the Bank, and for this purpose the Bank irrevocably
appoints NB Finance as its true and lawful attorney in this regard with full
power of substitution, to pursue to completion the legal proceedings
commenced with respect thereto, if any, to enforce any judgment obtained
against the defendants to any such proceedings, to hypothecate, pledge or
further assign the Mortgage Loans and generally to perform such acts and to
execute such documents, with or without consideration, as NB Finance, in its
entire discretion, shall consider necessary or useful, the whole without
further notice to or intervention on the part of the Bank, except in its role
as servicer or custodian under the Servicing Agreement.
6. The Bank and NB Finance hereby agree to do all further things and execute
such further documents as may be necessary in order to give full effect to
the present sale; to that effect, NB Finance shall have the irrevocable right
to execute on behalf of the Bank, any other
<PAGE>
-8-
documents or deeds required or necessary in order to have this sale
published at the land registry or title registry offices where the immovable
properties affected by the Mortgage Loans are located.
7. Simultaneously herewith, the Bank and NB Capital Corporation have entered
into a First Supplemental Servicing Agreement pursuant to which NB Capital
Corporation has retained the Bank as an independent contract servicer of the
Mortgage Loans.
8. The Bank hereby undertakes, in accordance with the provisions of the
National Housing Act and the National Housing Loan regulations, to
administer the Mortgage Loans hereby transferred, until their respective
maturity, in accordance with the National Housing Act and the said
regulations, and to carry out that administration in accordance with normal
and prudent mortgage practice and in accordance with the Servicing
Agreement.
9. This Deed will be governed by the laws of the Province of Quebec and the
laws of Canada applicable therein.
10. Each of the parties hereto irrevocably and unconditionally submits, for
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 Deed, 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
Deed shall affect any right that any party may otherwise have to bring any
action
<PAGE>
-9-
or proceeding relating to this Deed 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 Deed 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 any such court. NB Finance hereby irrevocably
appoints General Trust of Canada, 1100 University Street, Montreal, Quebec,
Canada H3B 2G7 ("NB Finance's Process Agent"), as its agent to receive, on
behalf of NB Finance, 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 NB Finance's Process Agent at NB Finance's Process Agent's above address.
NB Finance 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.
11. The Bank hereby undertakes to timely deliver, upon demand from NB Finance or
NB Capital Corporation, the Mortgage Loan File to NB Finance or, as the case
may be, to NB Capital Corporation.
12. The parties hereto have requested that this Deed be drawn up in the English
language. Les parties aux presentes ont requis que cet acte soit redige en
langue anglaise.
<PAGE>
-10-
WHEREOF ACTE, in Montreal, province of Quebec, under number
( ) of the minutes of the undersigned notary.
AND AFTER DUE READING, the parties have signed in the presence of the
undersigned notary.
NATIONAL BANK OF CANADA
per: /s/ Benoit Dagenais
---------------------------------------------------
Benoit Dagenais, Manager, Treasury, Cash Management
Department Manager
per: /s/ Raymond Cote
---------------------------------------------------
Raymond Cote, Manager, Treasury, Matching
Department Manager
NB FINANCE, LTD.
per: /s/ Martin Ouellet
---------------------------------------------------
Martin Ouellet, President
per: /s/ Sophie Clermont
---------------------------------------------------
Sophie Clermont, Assistant Secretary
/s/ Richard Trudeau
---------------------------------------------------------
Richard Trudeau, Notary
<PAGE>
SCHEDULE A
Mortgage Loans and Hypothecary Loans
1998 MORTGAGE LOAN ASSIGNMENT AGREEMENT
THIS MORTGAGE LOAN ASSIGNMENT AGREEMENT (this "Assignment") made as of
the fourth (4th) day of December, 1998, 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,
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 1998 Series 2 Loan (as defined in the Loan Agreement), a principal amount
of U.S. $ 25,836,597.23 to Assignor on the same date.
WHEREAS, to evidence and secure its obligations with respect to the 1998
Series 1 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
Document") 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").
(b) Assignee hereby accepts the foregoing assignment, on
behalf of itself and its respective successors and assigns.
<PAGE>
-2-
(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
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
<PAGE>
-3-
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 or 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;
(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 mortgage 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);
<PAGE>
-4-
(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 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, instalment 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
<PAGE>
-5-
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 Loan 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;
(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
<PAGE>
-6-
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 December 4, 1998 by and between the Bank and
Assignee and (ii) the Servicing Agreement dated as of September 3rd, 1997 and
the First Supplemental Servicing Agreement dated as of December 4, 1998 by and
between the Bank and Assignee.
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 March 31, 1998 such documents or instruments which are
necessary or desirable to register legal title to each Mortgage Loan
in the name of Assignee in the appropriate land registry or other
office of public record, and (ii) in registering legal title to each
Mortgage Loan in the name of Assignee 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 the 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: Chief Executive Officer; 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
<PAGE>
-7-
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 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
<PAGE>
-8-
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 or 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 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 Assignee 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 Assignor.
17. 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.
18. National Housing Act. Subject to the terms and provisions of the
Servicing Agreement as supplemented by the First Supplemental 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>
-9-
IN WITNESS WHEREOF, the Assignor and each other party hereto has duly
executed the Mortgage Loan Assignment Agreement as of the fourth day of
December, 1998.
ASSIGNOR
NB FINANCE, LTD.
By /s/ Sophie Clermont
---------------------------------
Sophie Clermont, Assistant
Secretary
ASSIGNEE
NB CAPITAL CORPORATION
By /s/ Martin Ouellet
----------------------------------
Martin Ouellet, Vice-President
BANK
NATIONAL BANK OF CANADA
By /s/ Benoit Dagenais
---------------------------------
Benoit Dagenais, Manager,
Treasury,
Cash Management
Department Manager
By /s/ Raymond Cote
---------------------------------
Raymond Cote, Manager,
Treasury,
Matching
Department Manager
<PAGE>
-10-
PROVINCE OF QUEBEC )
) ss.:
DISTRICT OF MONTREAL )
On the fourth December, 1998, before me personally came SOPHIE CLERMONT to
me know, who, being by me duly sworn, did depose and say that she resides at 40
Querbes, Apartment 9, Outremont, Province of Quebec, that she is the Assistant
Secretary 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.
/s/ Commissary of Oath
---------------------------------------------
Commissary of Oath for Province of Quebec, No.
<PAGE>
-11-
PROVINCE OF QUEBEC )
)
DISTRICT OF MONTREAL )
On the seventh day of December, 1998, before me personally came Martin
Ouellet to me known, who, being by me duly sworn, did depose and say that he
resides at 338 de l'Epee, Outremont, Province of Quebec, that he is
Vice-President 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.
/s/ Nadine Landry
------------------------------
Nadine Landry
Lawyer
<PAGE>
-12-
PROVINCE OF QUEBEC )
)
DISTRICT OF MONTREAL )
On the seventh day of December, 1998, before me personally came Benoit
Dagenais to me known, who, being by me duly sworn, did depose and say that he
resides at 2930 du Valais, Laval, Province of Quebec, that he is Manager,
Treasury, Cash Management (Department Manager) 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 bank.
/s/ Nadine Landry
------------------------------
Nadine Landry
Lawyer
<PAGE>
-13-
PROVINCE OF QUEBEC )
)
DISTRICT OF MONTREAL )
On the seventh day of December, 1998, before me personally came Raymond
Cote to me known, who, being by me duly sworn, did depose and say that he
resides at 199 De Lorraine, St-Lambert, Province of Quebec, that he is Manager,
Treasury, Matching (Department Manager) 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 bank.
/s/ Nadine Landry
------------------------------
Nadine Landry
Lawyer
<PAGE>
-14-
Exhibit A
Mortgage Loans
1998 MORTGAGE LOAN ASSIGNMENT AGREEMENT
THIS MORTGAGE LOAN ASSIGNMENT AGREEMENT (this "Assignment") made as
of the fourth (4th) day of December, 1998, 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, 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 1998 Series 1 Loan (as defined in the Loan Agreement), a
principal amount of U.S.
$ 29,880,126.51 to Assignor on the same date.
WHEREAS, to evidence and secure its obligations with respect to the
1998 Series 1 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 Document") 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").
(b) Assignee hereby accepts the foregoing assignment, on behalf
of itself and its respective successors and assigns.
<PAGE>
-2-
(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 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
<PAGE>
-3-
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 or 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;
(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 mortgage 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);
<PAGE>
-4-
(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 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, instalment 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
<PAGE>
-5-
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 Loan 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;
(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
<PAGE>
-6-
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 December 4, 1998 by and between the Bank and
Assignee and (ii) the Servicing Agreement dated as of September 3rd, 1997 and
the First Supplemental Servicing Agreement dated as of December 4, 1998 by and
between the Bank and Assignee.
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 March 31, 1998 such documents or
instruments which are necessary or desirable to register legal title
to each Mortgage Loan in the name of Assignee in the appropriate
land registry or other office of public record, and (ii) in
registering legal title to each Mortgage Loan in the name of
Assignee 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 the
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: Chief
Financial Officer; 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
<PAGE>
-7-
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 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
<PAGE>
-8-
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 or 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 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 Assignee 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 Assignor.
17. 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.
18. National Housing Act. Subject to the terms and provisions of the
Servicing Agreement as supplemented by the First Supplemental 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>
-9-
IN WITNESS WHEREOF, the Assignor and each other party hereto has duly executed
the Mortgage Loan Assignment Agreement as of the fourth day of December, 1998.
ASSIGNOR
NB FINANCE, LTD.
By: /s/ Sophie Clermont
-----------------------------------------
Sophie Clermont, Assistant Secretary
ASSIGNEE
NB CAPITAL CORPORATION
By: /s/ Martin Ouellet
-----------------------------------------
Martin Ouellet, Vice-President
BANK
NATIONAL BANK OF CANADA
By: /s/ Benoit Dagenais
-----------------------------------------
Benoit Dagenais, Manager, Treasury,
Cash Management
Department Manager
By: /s/ Raymond Cote
-----------------------------------------
Raymond Cote, Manager, Treasury,
Matching
Department Manager
<PAGE>
PROVINCE OF QUEBEC )
) ss.:
DISTRICT OF MONTREAL )
On the fourth day of December, 1998, before me personally came SOPHIE
CLERMONT to me know, who, being by me duly sworn, did depose and say that she
resides at 40 Querbes, Apartment 9, Outremont, Province of Quebec, that she is
the Assistant Secretary 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.
/s/ Commissary of Oath
----------------------------------------------
Commissary of Oath for Province of Quebec, No.
<PAGE>
Exhibit A
Mortgage Loans
PROMISSORY NOTE
(this "Note")
U.S. $ 25,836,597.23 December 4, 1998
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 from time to time
designate in writing, the principal sum of twenty-five million eight hundred
thirty-six thousand five hundred ninety-seven U.S. dollars and twenty-three
cents (U.S.$25,836,597.23) (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
non-usurious rate permitted by applicable law and (ii) eight and three hundred
and seventy-one thousandths of a percent (8.371%) calculated monthly on a
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
December 31, 1998. "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 November 15,
2001 (the " Maturity Date") in whole.
Section 1. Incorporation by Reference. All of the terms, covenants
and conditions contained in the Mortgage Loan Assignment Agreement 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.
<PAGE>
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 Maturity Date 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 6.1(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
6.1(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, 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.
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
<PAGE>
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 of
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.
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 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.
<PAGE>
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: Chief
Executive Officer; 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 an account or accounts Lender may designate from time to time 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.
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 /s/ Sophie Clermone
-----------------------------------
Name: Sophie Clermont
Title: Assistant Secretary
LENDER:
NB CAPITAL CORPORATION
By /s/ Martin Ouellet
-----------------------------------
Martin Ouellet, Vice-President
PROMISSORY NOTE
(this "Note")
U.S. $ 29,880,126.51 December 4, 1998
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 from time to time
designate in writing, the principal sum of twenty-nine million eight hundred
eighty thousand one hundred twenty-six U.S. dollars and fifty-one cents
(U.S.$29,880,126.51) (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
non-usurious rate permitted by applicable law and (ii) eight and three hundred
and seventy-one thousandths of a percent (8.371%) calculated monthly on a
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
December 31, 1998. "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 May 15, 2001
(the " Maturity Date") in whole.
Section 1. Incorporation by Reference. All of the terms, covenants
and conditions contained in the Mortgage Loan Assignment Agreement 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.
<PAGE>
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 Maturity Date 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 6.1(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
6.1(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, 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.
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
<PAGE>
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 of
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.
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 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.
<PAGE>
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: Chief
Executive Officer; 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 an account or accounts Lender may designate from time to time 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.
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 /s/ Sophie Clermont
-----------------------------------
Name: Sophie Clermont
Title: Assistant Secretary
LENDER:
NB CAPITAL CORPORATION
By /s/ Martin Ouellet
-----------------------------------
Martin Ouellet, Vice-President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NB CAPITAL
CORPORATION'S 12/31/98, 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001049551
<NAME> NB Capital
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,178,668
<SECURITIES> 0
<RECEIVABLES> 460,567,348
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 482,746,016
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 482,746,016
<CURRENT-LIABILITIES> 837,634
<BONDS> 0
0
3,001
<COMMON> 1
<OTHER-SE> 481,908,382
<TOTAL-LIABILITY-AND-EQUITY> 482,746,016
<SALES> 0
<TOTAL-REVENUES> 38,802,112
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,073,710
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,728,402
<INCOME-TAX> (675)
<INCOME-CONTINUING> 36,729,077
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,729,077
<EPS-PRIMARY> 116,444
<EPS-DILUTED> 116,444
</TABLE>
