-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IaHMfLLPhFLouerdLXpMzKi00zQquQNU20HnKxve+Lp8zAKQrpS47CZDUq6errxf NjhhaR2fWLUjrJP+zFi/QA== 0000947871-99-000123.txt : 19990331 0000947871-99-000123.hdr.sgml : 19990331 ACCESSION NUMBER: 0000947871-99-000123 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NB CAPITAL CORP CENTRAL INDEX KEY: 0001049551 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14103 FILM NUMBER: 99578425 BUSINESS ADDRESS: STREET 1: 125 W 55TH ST CITY: NEW YORK STATE: NY ZIP: 10019 MAIL ADDRESS: STREET 1: 125 WEST 55TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 10-K 1 ANNUAL REPORT 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. 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. 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"). 1 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. 2 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 3 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. 4 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 5 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. 6 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. 7 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 $330,000 in the aggregate and the proceeds were used to meet the working capital needs of the Company. ITEM 6: SELECTED FINANCIAL DATA
September 3, Year Ended 1997 December 31, to 1998 December 31, 1997 Statement of Income Data: Operating Revenues..................................................... US$ 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 -
8 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 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 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 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 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
Long Term Compensation Annual Compensation Awards ------------------- ------------ Other Securities Annual Underlying All Other Name and Principal Position Year Salary Bonus Compensation SARs(#) Compensation --------------------------- ---------- -------------- ----------- ------------ ------------- ------------- 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 - - -------------------------- (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.
13 (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$100,000 of compensation for the fiscal year ended December 31, 1998 that would be attributable to services performed for the Company and its subsidiaries and thus are not included in this table. (4) Represents an allowance for housing. (5) Represents the imputed income related to a mortgage loan at a preferred interest rate. SAR Grants in Last Fiscal Year The following table provides information about stock appreciation rights ("SARs") awarded to Harvey Brooks and John Richter during the fiscal year ended December 31, 1998: SAR Grants in the Last Fiscal Year
Individual Grants(1) ---------------------------------- % of Potential Total Realizable Value at Number of SARs Assumed Annual Securities Granted Rates of Stock Price Underlying to Appreciation SARs Employees Base for SAR Term(2) Granted in Fiscal Price Expiration -------------------------- Name (#) Year (C$/Sh) Date 5% 10% (C$) - ---- --------------- ---------- --------- ------------ --- --------------- (C$) 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 - ------------------ (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.
Pension Plan Table
Years of Service Canadian Dollars ------------------------------------------------------------------------------------- Remuneration 15 20 25 30 35 - ------------------------- ------------------------------------------------------------------------------------- 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
14
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
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 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 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 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 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 NB CAPITAL CORPORATION Balance sheets as of December 31, 1998 and 1997 (in U.S. dollars)
======================================================================================================================= 1998 1997 - ----------------------------------------------------------------------------------------------------------------------- $ $ 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 =======================================================================================================================
See accompanying notes to financial statements. F-3 NB CAPITAL CORPORATION Statements of income years ended December 31, 1998 and 1997 (in U.S. dollars)
===================================================================================================================== 1998 1997 - --------------------------------------------------------------------------------------------------------------------- $ $ (12 months) (4 months) 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 =====================================================================================================================
See accompanying notes to financial statements. F-4 NB CAPITAL CORPORATION Statements of stockholders' equity as of December 31, 1998 and 1997 (in U.S. dollars)
==================================================================================================================================== Series A Senior Additional Preferred Preferred Common Paid-in Retained Stock Stock Stock Capital Earnings Total - ------------------------------------------------------------------------------------------------------------------------------------ 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 ====================================================================================================================================
See accompanying notes to financial statements. F-5 NB CAPITAL CORPORATION Statements of cash flows years ended December 31, 1998 and 1997 (in U.S. dollars)
===================================================================================================================== 1998 1997 - --------------------------------------------------------------------------------------------------------------------- (12 months) (4 months) 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 =====================================================================================================================
See accompanying notes to financial statements. F-6 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 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 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 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** 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. EX-10.9 2 FIRST SUPPLEMENTAL SERVICING AGREEMENT FIRST SUPPLEMENTAL SERVICING AGREEMENT -- between -- NATIONAL BANK OF CANADA -- and -- NB CAPITAL CORPORATION ============================================================================= December 4, 1998 ============================================================================= 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 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 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 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 EXHIBIT B 1998 MORTGAGE LOANS - -------------------------------------------------------------------------------- Page 5 EX-10.10 3 LOAN AGREEMENT LOAN AGREEMENT Dated as of December 4, 1998 Between NB FINANCE, LTD. as Borrower, and NB CAPITAL CORPORATION as Lender 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 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 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. 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). 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). 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. 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. 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. 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 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). 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. 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. 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. 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; 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 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. 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 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 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. 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 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 - -------------------------------------------------------------------------------- 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. 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 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. 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 ------------------------------------- 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 1998 Series 1 Mortgage Loans US$37,350,158.14 1998 Series 2 Mortgage Loans US$32,295,746.54 EX-10.11 4 CUSTODIAL AGREEMENT NB CAPITAL CORPORATION -- Company -- -- and -- NATIONAL BANK OF CANADA -- Custodian -- -- and -- NATIONAL BANK OF CANADA -- Servicer -- ================================================================================ CUSTODIAL AGREEMENT Dated as of December 4, 1998 ================================================================================ 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. 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 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 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 - -------------------------------------------------------------------------------- Page 4 Custodial Agreement - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- Page 5 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. - -------------------------------------------------------------------------------- Page 6 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 --------------------------------- - -------------------------------------------------------------------------------- Page 7 EX-10.12 5 DEED OF SALE OF MORTGAGE LOANS 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") -2- 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; -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 -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 -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 -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. -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 -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 -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. -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 SCHEDULE A Mortgage Loans and Hypothecary Loans EX-10.13(I) 6 1998 MORTGAGE LOAN ASSIGNMENT AGREEMENT 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. -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 -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); -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 -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 -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 -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 -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). -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 -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. -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 -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 -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 -14- Exhibit A Mortgage Loans EX-10.13(II) 7 1998 MORTGAGE LOAN ASSIGNMENT AGREEMENT 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. -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 -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); -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 -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 -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 -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 -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). -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 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. Exhibit A Mortgage Loans EX-10.14(I) 8 PROMISSORY NOTE 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. 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 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. 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 EX-10.14(II) 9 PROMISSORY NOTE 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. 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 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. 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 EX-27 10 FINANCIAL DATA SCHEDULE
5 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. 0001049551 NB Capital 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 22,178,668 0 460,567,348 0 0 482,746,016 0 0 482,746,016 837,634 0 0 3,001 1 481,908,382 482,746,016 0 38,802,112 0 0 2,073,710 0 0 36,728,402 (675) 36,729,077 0 0 0 36,729,077 116,444 116,444
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