Amended and Restated
 
Servicing Agreement
 
— between —
 
National Bank of Canada
 
— and —
 
NB Capital Corporation

       
 
June 28, 2007
 
 

 

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TABLE OF CONTENTS
 

     
Page
       
1.
DEFINITIONS
2
 
1.1
Definitions
2
     
2.
SERVICING
6
 
2.1
Duties of Servicer
6
 
2.2
Liquidation of Mortgage Loans
8
 
2.3
Collection of Mortgage Loan Payments
9
 
2.4
Establishment of and Deposits to Custodial Account
9
 
2.5
Permitted Withdrawals from Custodial Account
10
 
2.6
Establishment of and Deposits to Escrow Account
10
 
2.7
Permitted Withdrawals from Escrow Account
11
 
2.8
Protection of Accounts
12
 
2.9
Maintenance of Hazard Insurance
12
 
2.10
Maintenance of Mortgage Impairment Insurance
13
 
2.11
Maintenance of Fidelity Bond
13
 
2.12
Inspections
14
 
2.13
Restoration of Mortgaged Property
14
 
2.14
Title, Management and Disposition of REO Property
14
 
2.15
Permitted Withdrawals with respect to REO Property
16
 
2.16
Real Estate Owned Reports
16
     
3.
PAYMENTS TO THE COMPANY
16
 
3.1
Remittances
16
 
3.2
Statements to the Company
16
     
4.
GENERAL SERVICING PROCEDURES
17
 
4.1
Transfers of Mortgaged Property
17
 
4.2
Satisfaction of Mortgages and Release of Mortgage Files
18
 
4.3
Servicing Compensation
18
 
4.4
Annual Statement as to Compliance
18
 
4.5
Annual Independent Chartered Accountants Servicing Report
18
 
4.6
Right to Examine Servicer Records
19
     
5.
SERVICER TO COOPERATE
19
 
5.1
Provision of Information
19
     
6.
TERMINATION
19
 
6.1
Agency Suspension
19
 
6.2
Damages
19
 
6.3
Termination
19
 
6.4
Termination without Cause
20

 
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7.
BOOKS AND RECORDS
20
 
7.1
Possession of Servicing Files
20
     
8.
INDEMNIFICATION AND ASSIGNMENT
21
 
8.1
Indemnification
21
 
8.2
Limitation on Liability of Servicer and Others
21
 
8.3
Limitation on Registration and Assignment by Servicer
22
 
8.4
Assignment by the Company
22
 
8.5
Merger or Consolidation of the Servicer
22
 
8.6
Successor to the Servicer
23
     
9.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
24
 
9.1
Due Organization and Authority
24
 
9.2
No Conflicts
24
 
9.3
Ability to Perform
24
 
9.4
No Litigation Pending
24
 
9.5
No Consent Required
25
     
10.
REPRESENTATIONS AND WARRANTIES OF SERVICER
25
 
10.1
Qualification as a REIT
25
 
10.2
Due Organization and Authority
25
 
10.3
Ordinary Course of Business
25
 
10.4
No Conflicts
26
 
10.5
Ability to Service
26
 
10.6
Ability to Perform
26
 
10.7
No Litigation Pending
26
 
10.8
No Consent Required
26
 
10.9
No Untrue Information
27
 
10.10
Reasonable Servicing Fee
27
 
10.11
Conflict of Interest
27
 
10.12
Confirmation of Original Servicing Agreement
27
     
11.
DEFAULT
27
 
11.1
Events of Default
27
 
11.2
Waiver of Defaults
29
     
12.
MISCELLANEOUS PROVISIONS
29
 
12.1
Notices
29
 
12.2
Waivers
30
 
12.3
Entire Agreement — Amendment
30
 
12.4
Execution — Binding Effect
30
 
12.5
Headings
30
 
12.6
Governing Law
30
 
12.7
Relationship of Parties
31
 
12.8
Quebec Sales Tax and Goods and Services Tax
31
 
12.9
Severability of Provisions
31
 
12.10
Recordation of Assignments of Mortgage
32
 
12.11
Exhibits
32

 
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12.12
English Language
32

 
EXHIBITS
 
Exhibit 1
Custodial Account Certification
   
Exhibit 2
Custodial Account Letter Agreement
   
Exhibit 3
Escrow Account Certification
   
Exhibit 4
Escrow Account Letter Agreement

 
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AMENDED AND RESTATED
SERVICING AGREEMENT
 
Amended and Restated Servicing Agreement (the "Servicing Agreement" or
the "Agreement") entered into on June 28, 2007.

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 various deeds of
sale of mortgage loans including, without limitation, the deeds of sale of
mortgage loans dated as of September 3, 1997, December 4, 1998, September 28,
1999, April 14, 2000, January 30, 2001, June 12, 2001, September 24, 2001,
January 29, 2002, June 20, 2002, December 16, 2002, May 27, 2003, October 21,
2003, April 28, 2004, August 26, 2004, February 24, 2005, August 29, 2005,
February 22, 2006, August 17, 2006 and February 22, 2007 (collectively,
the "Purchase Agreement") pursuant to which the Purchaser purchased from the
Seller the Mortgage Loans (as hereinafter defined);
 
WHEREAS the Purchaser and the Company entered into various assignment agreements
including, without limitation, the assignment agreements dated as of
September 3, 1997, December 4, 1998, September 28, 1999, April 14, 2000, January
30, 2001, June 12, 2001, September 24, 2001, January 29, 2002, June 20, 2002,
December 16, 2002, May 27, 2003, October 21, 2003, April 28, 2004, August 26,
2004, February 24, 2005, August 29, 2005, February 22, 2006, August 17, 2006 and
February 22, 2007 (the "Mortgage Loan Assignment Agreement") 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 is qualified and intends to remain qualified as a "real
estate investment trust" ("REIT") under the Internal Revenue Code of 1986, as
amended;
 
WHEREAS this Agreement amends and restates the servicing agreement dated as of
September 3, 1997, as supplemented by a first supplemental servicing agreement,
a second supplemental servicing agreement and a third supplemental servicing
agreement dated as of December 4, 1998, September 28, 1999 and April 14, 2000 as
well as an amended and restated servicing agreement once a year after the latter
date, renewing the Agreement for additional one-year periods, respectively,
entered into by the Company and the Servicer (collectively, the "Original
Servicing Agreement") establishing the terms and conditions on which the
Servicer services and administers the Mortgage Loans;

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WHEREAS the parties hereto wish to confirm that all the Mortgage Loans have been
serviced and administered by the Servicer in accordance with the terms and
conditions of the Original Servicing Agreement;
 
WHEREAS the Company desires to continue to have the Servicer service and
administer the Mortgage Loans, the Servicer desires to continue to service and
administer the Mortgage Loans on behalf of the Company, and the parties desire
to set forth the terms and conditions on which the Servicer will continue to
service and administer the Mortgage Loans.
 
NOW, THEREFORE, in consideration of the mutual agreements set forth herein and
for other good and valuable consideration, the receipt and the sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
 
1.
DEFINITIONS

 
1.1
Definitions

 
The following terms are defined as follows:
 

 
1.1.1
"Accepted Servicing Practices" means, with respect to any Mortgage Loan, those
mortgage servicing practices (i) provided for in the CMHC Guide and in the NHA,
(ii) established by the Company, and (iii) subject to the terms of this
Agreement, those normal mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loans in the jurisdiction where the related Mortgaged Property is located to the
extent such normal mortgage servicing practices do not conflict with the
practices established by the CMHC Guide, the NHA and the Company;

 

 
1.1.2
"Ancillary Income" means all late payment charges, penalties and assumption
fees, non-sufficient funds fees ("NSF"), escrow account benefits, reinstatement
fees and other miscellaneous and similar types of fees arising from or in
connection with any Mortgage Loan to the extent not otherwise payable to the
Mortgagor under applicable law or pursuant to the terms of any applicable loan
document contained in the related Mortgage Loan File;

 

 
1.1.3
"CDIC" means The Canadian Deposit Insurance Corporation, or any successor
thereto;

 

 
1.1.4
"Closing Date" means, with respect to each Mortgage Loan, the date upon which
the assignment of such Mortgage Loan in favour of the Company becomes effective
between the parties to the Mortgage Loan Assignment Agreement relating to such
Mortgage Loan, or such other date as is mutually agreed upon by the parties
hereto;

 
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1.1.5
"CMHC" means the Canada Mortgage and Housing Corporation;

 

 
1.1.6
"CMHC Guide" means the CMHC Mortgage Loan Insurance Handbook and all amendments
or additions thereto, a copy of which is delivered to the Company concurrently
with the execution hereof;

 

 
1.1.7
"Condemnation Proceeds" means all awards or settlements in respect of a
Mortgaged Property, whether permanent or temporary, partial or entire, by
exercise of the power of eminent domain, expropriation or condemnation, to the
extent not required to be released to a Mortgagor in accordance with the terms
of the related Mortgage Loan File;

 

 
1.1.8
"Custodial Account" or "Custodial Accounts" means the separate account or
accounts created and maintained pursuant to Section 2.4;

 

 
1.1.9
"Determination Date" means one (1) Business Day prior to the related Remittance
Date;

 

 
1.1.10
"Due Period" means, with respect to each Remittance Date, the calendar month
preceding the Remittance Date;

 

 
1.1.11
"Escrow Account" or "Escrow Accounts" means the separate account or accounts
created and maintained pursuant to Section 2.6;

 

 
1.1.12
"Escrow Payment" or "Escrow Payments" means, with respect to any Mortgage Loan,
the amounts constituting real estate tax payments and any other payments
required to be escrowed by the Mortgagor under the applicable documents
contained in the Mortgage Loan File;

 

 
1.1.13
"Event of Default" means any one of the conditions or circumstances enumerated
in Section 11.1;

 

 
1.1.14
"Fidelity Bond" means a fidelity bond to be maintained by the Servicer pursuant
to Section 2.11;

 

 
1.1.15
"Insurance Proceeds" means, with respect to each Mortgage Loan, proceeds of
insurance policies insuring the Mortgage Loan or the related Mortgaged Property;

 

 
1.1.16
"Liquidation Proceeds" means cash received in connection with the liquidation of
a defaulted Mortgage Loan, whether through the sale of such Mortgage Loan,
foreclosure sale or otherwise, or the sale of the related Mortgaged Property if
the Mortgaged Property is acquired in satisfaction of the Mortgage Loan;

 

 
1.1.17
"Monthly Remittance Advice" means the monthly remittance advice to be provided
to the Company pursuant to Section 3.2;

 
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1.1.18
"Mortgage Impairment Insurance Policy" means a mortgage impairment or blanket
hazard insurance policy as described in Section 2.10;

 

 
1.1.19
"Mortgage Loan Assignment Agreement" has the meaning set forth in the recitals;

 

 
1.1.20
"Mortgage Loan File" or "Mortgage Loan Files" 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;

 

 
1.1.21
"Mortgage Loan" or "Mortgage Loans" means the Canada Mortgage and Housing
Corporation insured residential first mortgage loans assigned on or before the
date hereof by the Purchaser in favour of the Company together with all other
Canada Mortgage and Housing Corporation insured residential first mortgage loans
assigned in the future in favour of the Company by the Purchaser;

 

 
1.1.22
"Mortgaged Property" means, with respect to each Mortgage Loan, the real or
immoveable property mortgaged, charged or hypothecated pursuant to such Mortgage
Loan, including all fixtures attached thereto;

 

 
1.1.23
"Mortgagor" or "Mortgagors" means the mortgagor or hypothecary debtor under the
Mortgage Loans;

 

 
1.1.24
"NHA" means the National Housing Act (Canada) as amended from time to time, and
the regulations promulgated thereunder;

 

 
1.1.25
"Non-recoverable Advance" means any Servicing Advance previously made or
proposed to be made in respect of a Mortgage Loan which, in the good faith
judgement of the Servicer, will not or, in the case of a proposed Servicing
Advance, would not, be ultimately recoverable from related Insurance Proceeds,
Liquidation Proceeds or otherwise. The determination by the Servicer that it has
made a Non-recoverable Advance or that any proposed Servicing Advance, if made,
would constitute a Non-recoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Company;

 

 
1.1.26
"Officer's Certificate" means a certificate signed by the Senior Vice-President,
Internal Audit of the Servicer, and delivered to the Company as required by this
Agreement;

 
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1.1.27
"Original Servicing Agreement" has the meaning set forth in the recitals;

 

 
1.1.28
"Principal Prepayment" or "Principal Prepayments" means any payment or other
recovery of principal on a Mortgage Loan which is received in advance of its
scheduled maturity date, including any prepayment penalty or premium thereon,
and which is not accompanied by an amount of interest representing scheduled
interest due on any date or dates in any month or months subsequent to the month
of prepayment;

 

 
1.1.29
"Purchase Agreement" has the meaning set forth in the recitals;

 

 
1.1.30
"Qualified Depository" means a depository the accounts of which are insured by
the CDIC;

 

 
1.1.31
"Qualified Insurer" means an insurance company duly qualified to carry on
business as such under the laws of the provinces in which the Mortgaged
Properties are located, duly authorized and licensed in such provinces to engage
in the applicable insurance business and to sell policies of insurance and
provide the coverages set forth in such policies provided, and approved by CMHC
as an insurer with respect to hazard insurance and flood insurance;

 

 
1.1.32
"Remittance Date" means at the latest, on the 15th day (or if such 15th day is
not a Business Day, the first Business Day immediately following) of any month,
beginning with the first Remittance Date following the date hereof;

 

 
1.1.33
"REO Property" means a Mortgaged Property acquired by the Servicer on behalf of
the Company through foreclosure or by deed in lieu of foreclosure or by taking
in payment, as described in Section 2.14;

 

 
1.1.34
"Required Servicing Practices" means, with respect to any Mortgage Loan, those
mortgage servicing practices (i) provided for in the CMHC Guide and in the NHA
and (ii) where not inconsistent with the CMHC Guide and the NHA, established in
writing by the Company;

 

 
1.1.35
"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, mortgages and similar
instruments securing the Mortgage Loans;

 

 
1.1.36
"Servicer Employees" has the meaning set forth in Section 2.11;

 

 
1.1.37
"Servicing Advance" or "Servicing Advances" means all customary, reasonable and
necessary "out of pocket" costs and expenses (including reasonable attorneys'
fees and disbursements) incurred in the performance by the Servicer of its
servicing obligations, including, but not limited to, the cost of (a) the
preservation, restoration and protection of the Mortgaged Property, (b) any
enforcement or judicial proceedings, including foreclosures or the exercise of
the hypothecary rights contemplated in the Civil Code of Québec, and (c) the
management and liquidation of the Mortgaged Property if the Mortgaged Property
is acquired in satisfaction of the Mortgage Loan;

 
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1.1.38
"Servicing Agreement" means this agreement between the Company and the Servicer
for the servicing and administration of the Mortgage Loans;

 

 
1.1.39
"Servicing Fee" or "Servicing Fees" means the amount of the annual fee the
Company shall pay to the Servicer, which shall, for a period of one (1) full
month, be equal to the sum of (i) one-twelfth of the product of the Servicing
Fee Rate and the aggregate outstanding balance of the Mortgage Loans as of the
last day of each calendar month, and (ii) any amounts not required to be
deposited in the Custodial Account pursuant to Section 2.4. Such fee shall be
payable quarterly, in US dollars and shall be computed on the basis of the same
principal amount and period in respect of which any related interest payment on
a Mortgage Loan is computed and shall be pro rated for any portion of a month
during which the Mortgage Loan is serviced by the Servicer under this Agreement;
and

 

 
1.1.40
"Servicing Fee Rate" means, with respect to each Mortgage Loan, a rate of 0.25%
per annum or such other rate to which the parties may mutually agree.

 
2.
SERVICING

 
2.1
Duties of Servicer

 
From and after the date hereof, the Servicer, as provider of services, shall
service and administer the Mortgage Loans in strict compliance with the
servicing provisions of the CMHC Guide and the NHA and shall, subject to such
serving provisions, do all things in connection with such servicing and
administration which are consistent with the terms of this Agreement and
Required Servicing Practices. In the event of any conflict, inconsistency or
discrepancy between any of the servicing provisions of this Agreement and any of
the servicing provisions of the CMHC Guide and/or of the NHA, the provisions of
the CMHC Guide and the NHA shall control and be binding upon the Servicer.
Consistent with the terms of this Agreement, but in strict compliance with the
CMHC Guide and the NHA, the Servicer shall, if so instructed in writing by the
Company, waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant any
indulgence to any Mortgagor. For greater certainty, unless the Servicer has
obtained the consent of CMHC and the Company, the Servicer shall not permit any
modification with respect to any Mortgage Loan that would change the mortgage
interest rate, defer or forgive the payment of principal or interest, reduce or
increase the outstanding principal balance (except for actual payments of
principal) or change the final maturity date on such Mortgage Loan. Without
limiting the generality of the foregoing, the Servicer shall, in accordance with
Required Servicing Practices, execute and deliver all instruments of
satisfaction or cancellation, or of partial or full release, discharge and all
other comparable instruments, with respect to the Mortgage Loans and with
respect to the Mortgaged Properties.

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In servicing and administering the Mortgage Loans, the Servicer shall employ
procedures (including collection procedures) consistent with the provisions of
this Agreement, in compliance with Required Servicing Practices and exercise the
same care that it customarily employs and exercises in servicing and
administering mortgage and hypothecary loans for its own account, giving due
consideration to Accepted Servicing Practices and the Company's reliance on the
Servicer.
 
The Servicer shall keep at its servicing office books and records (including
electronic records) in which, subject to such reasonable regulations as it may
prescribe, the Servicer shall note sales and transfers of Mortgage Loans. No
sale or transfer of a Mortgage Loan may be made unless such transfer is approved
in writing by the Company, and is in compliance with the terms hereof and the
NHA. For the purposes of this Agreement, the Servicer shall be under no
obligation to deal with any person with respect to this Agreement or the
Mortgage Loans unless the Servicer has been notified of such transfers as
provided in this Section 2.1. The Company may sell and transfer, in whole or in
part, the Mortgage Loans, provided that no such sale and transfer shall be
binding upon the Servicer unless such transferee shall agree in writing to be
bound by the terms of this Agreement, and an executed copy of the same shall
have been delivered to the Servicer. Upon receipt thereof, the Servicer shall
mark its books and records to reflect the ownership of the Mortgage Loans by
such assignee, and the Company shall be released from its obligations hereunder.
The Servicer shall be required to remit all amounts required to be remitted to
the Company hereunder to said transferee, and said transferee shall succeed to
all rights of the Company hereunder, commencing with the first Remittance Date
falling after receipt of said copy of the related assignment and assumption
agreement provided that the Servicer receives said copy no later than
fifteen (15) Business Days immediately prior to the first day of the month of
the related Remittance Date.
 
Upon request by the Company, or as provided in Section 2.9, the Mortgage Loan
File retained by the Servicer pursuant to this Agreement shall be amended to
clearly record the sale of the related Mortgage Loan to the Company. The
Servicer shall release from its custody the contents of the Mortgage Loan File
retained by it only in accordance with this Agreement.
 
The Servicer covenants that it has established an internal quality control
program that is capable of evaluating and monitoring the overall quality of its
servicing activities. The program shall ensure that the Mortgage Loans are
(i) serviced in accordance with Accepted Servicing Practices and generally
accepted accounting principles; (ii) guard against dishonest, fraudulent or
negligent acts; and (iii) guard against errors and omissions by officers,
employees or other authorized persons.
 
For greater certainty, the Company and the Servicer acknowledge that in acting
hereunder, the Servicer shall have only such authority to act on behalf of the
Company as is expressly conferred in this Agreement and more specifically, this
Agreement does not provide the Servicer with the authority to conclude or modify
contracts in the name of the Company and the Servicer shall not hold itself out
as having any such authority.

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2.2
Liquidation of Mortgage Loans

 
In the event that any payment due under any Mortgage Loan and not postponed
pursuant to Section 2.1 is not paid when the same becomes due and payable, or in
the event the Mortgagor fails to perform any other covenant or obligation under
the Mortgage Loan File and such failure continues beyond any applicable grace
period, the Servicer shall take such administrative action as is consistent with
Required Servicing Practices.
 
In the event that any payment due under any Mortgage Loan is not postponed
pursuant to Section 2.1 and remains delinquent beyond the expiration of any
grace or cure period (or such other period as is required by law in the
jurisdiction where the related Mortgaged Property is located), the Servicer
shall commence foreclosure proceedings as directed by the Company in accordance
with Required Servicing Practices. The Servicer shall transmit to the Company
copies of the notices given to, and received from, CMHC with respect thereto. In
such connection, the Servicer shall from its own funds make all necessary and
proper Servicing Advances, provided, however, that the Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the restoration or preservation of any Mortgaged Property, unless it shall
determine:
 
(a)
that such preservation, restoration and/or foreclosure will increase the
proceeds of liquidation of the Mortgage Loan to Company after reimbursement to
itself for such expenses, and

 
(b)
that such expenses will be recoverable by it either through Liquidation Proceeds
(in respect of which it shall have priority for purposes of withdrawals from the
Custodial Account pursuant to Section 2.5) or through Insurance Proceeds (in
respect of which it shall have similar priority).

 
Notwithstanding anything to the contrary contained herein, in connection with a
foreclosure, in the event the Servicer has reasonable cause to believe that a
Mortgaged Property is contaminated by hazardous or toxic substances or wastes,
or if CMHC otherwise requests an environmental inspection or review of such
Mortgaged Property to be conducted by a qualified inspector, the Servicer shall
immediately notify the Company and, upon receipt of instructions from the
Company, the Servicer shall cause the Mortgaged Property to be so inspected at
the expense of the Company. Upon completion of the inspection, the Servicer
shall promptly provide the Company with a written report of the environmental
inspection.
 
After reviewing the environmental inspection report, the Company, subject to the
rights of CMHC under the NHA, shall determine how the Servicer shall proceed
with respect to the Mortgaged Property. In the event:
 
(a)
the environmental inspection report indicates that the Mortgaged Property is
contaminated by hazardous or toxic substances or wastes, and

 
(b)
the Company and/or CMHC directs the Servicer, in writing, to proceed with
foreclosure or acceptance of a deed in lieu of foreclosure,

 
the Servicer shall be reimbursed for all reasonable costs associated with such
foreclosure or acceptance of a deed in lieu of foreclosure and any related
environmental clean up costs, as applicable, from the related Liquidation
Proceeds, or if the Liquidation Proceeds are insufficient to fully reimburse the
Servicer, the Servicer shall be entitled to be reimbursed from amounts in the
Custodial Account pursuant to Section 2.5 hereof and to the extent amounts in
the Custodial Account are insufficient to fully reimburse the Servicer, the
Servicer shall be entitled to be reimbursed by the Company for such deficiencies
(upon presentation of satisfactory evidence of such deficiency). In the event
the Company and/or CMHC directs the Servicer, in writing, not to proceed with
foreclosure or acceptance of a deed in lieu of foreclosure, the Servicer shall
be reimbursed for all Servicing Advances made with respect to the related
Mortgaged Property from the Custodial Account pursuant to Section 2.5 hereof.
 
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2.3
Collection of Mortgage Loan Payments

 
Continuously from the Closing Date, the Servicer shall proceed diligently to
collect all payments due under each of the Mortgage Loans when the same shall
become due and payable and shall take special care in ascertaining and
estimating Escrow Payments and all other charges that will become due and
payable with respect to the Mortgage Loans and each related Mortgaged Property,
to the end that the instalments payable by the Mortgagors will be sufficient to
pay such charges if and when they become due and payable.
 
2.4
Establishment of and Deposits to Custodial Account

 
The Servicer shall segregate and hold the hereinafter mentioned funds collected
and received pursuant to the Mortgage Loans separate and apart from any of its
own funds and general assets and shall establish and maintain one or more
Custodial Accounts, in the form of term deposit or demand accounts, titled
"National Bank of Canada in trust for NB Capital Corporation" (or similar
designation with respect to any subsequent Company). The Custodial Account shall
be established with a depository acceptable to the Company. If the Custodial
Account is held at a depository the deposit accounts of which are insured by
CDIC, any funds deposited in the Custodial Account shall at all times be insured
to the full extent permitted under applicable law. Funds deposited in the
Custodial Account may be drawn on by the Servicer in accordance with
Section 2.5. The creation of any Custodial Account shall be evidenced by a
certificate in the form of Exhibit 2 hereto. A copy of such certificate shall be
furnished to the Company and, upon request, to any subsequent company.
 
The Servicer shall deposit in the Custodial Account and retain therein, the
following collections received by the Servicer and payments made by the Servicer
after the Closing Date, other than payments of principal and interest due on or
before the Closing Date, or received by the Servicer prior to the Closing Date
but allocable to a period subsequent thereto:
 

 
2.4.1
all payments on account of principal on the Mortgage Loans, including all
Principal Prepayments;

 

 
2.4.2
all payments on account of interest on the Mortgage Loans;

 

 
2.4.3
all Liquidation Proceeds and any amount received with respect to REO Property;

 

 
2.4.4
all Insurance Proceeds including amounts required to be deposited pursuant to
Section 2.9 (other than proceeds to be held in the Escrow Account and applied to
the restoration or repair of the Mortgaged Property or released to the Mortgagor
in accordance with Section 2.13);

 
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2.4.5
all Condemnation Proceeds which are not applied to the restoration or repair of
the Mortgaged Property or released to the Mortgagor in accordance with
Section 2.13; and

 

 
2.4.6
any amount required to be deposited in the Custodial Account pursuant to
Sections 2.14 or 3.1.

 
The collections mentioned in Sections 2.4.1 and 2.4.2 shall be deposited in the
Custodial Account within one (1) Business Day of receipt by the Servicer. The
collections mentioned in Sections 2.4.3 to 2.4.6 inclusive shall be deposited
within thirty (30) Business Days of receipt.
 
2.5
Permitted Withdrawals from Custodial Account

 
Subject to Section 2.14 hereof, the Servicer shall, from time to time, withdraw
funds from the Custodial Account for the following purposes:
 

 
2.5.1
to make payments to the Company in the amounts and in the manner provided for in
Section 3.1;

 

 
2.5.2
to reimburse itself for unreimbursed Servicing Advances (except to the extent
reimbursed pursuant to Section 2.7), any accrued but unpaid Servicing Fees and
for unreimbursed advances of Servicer funds made pursuant to Section 2.14, the
Servicer's right to reimburse itself pursuant to this subparagraph 2.5.2 with
respect to any Mortgage Loan being limited to related Liquidation Proceeds,
Condemnation Proceeds, Insurance Proceeds and such other amounts as may be
collected by the Servicer from the Mortgagor or otherwise relating to the
Mortgage Loan, it being understood that, in the case of any such reimbursement,
the Servicer's right thereto shall be subordinate to the right of the Company;

 

 
2.5.3
to pay to the person entitled thereto any amounts deposited in error; and

 

 
2.5.4
to clear and terminate the Custodial Account upon the termination of this
Agreement.

 
On each Remittance Date, the Servicer shall withdraw all funds from the
Custodial Account except for those amounts which, pursuant to Section 3.1, the
Servicer is not obligated to remit on such Remittance Date. The Servicer may use
such withdrawn funds only for the purposes described in this Section 2.5.
 
2.6
Establishment of and Deposits to Escrow Account

 
The Servicer shall segregate and hold all funds collected and received pursuant
to a Mortgage Loan constituting Escrow Payments separate and apart from any of
its own funds and general assets and shall establish and maintain one or more
Escrow Accounts, in the form of term deposit or demand accounts. The Escrow
Account or Accounts shall be established with a Qualified Depository. If the
Escrow Account is held at a Qualified Depository the deposit accounts of which
are insured by CDIC, any funds deposited in the Escrow Account shall at all
times be insured to the full extent permitted under applicable law. Funds
deposited in the Escrow Accounts may be drawn on by the Servicer in accordance
with Section 2.7. The creation of any Escrow Account shall be evidenced by a
certification in the form of Exhibit 4 hereto. A copy of such certificate shall
be furnished to the Company and, upon request, to any subsequent Company.

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The Servicer shall deposit in the Escrow Account or Accounts within one Business
Day of receipt, and retain therein all Escrow Payments collected on account of
the Mortgage Loans, for the purpose of effecting timely payment of any such
items as required under the terms of this Agreement. The Servicer shall deposit
in the Escrow Account or Accounts as soon as possible, but within a maximum of
five (5) Business Days of receipt, all amounts representing Insurance Proceeds
or Condemnation Proceeds which are to be applied to the restoration or repair of
any Mortgaged Property.
 
The Servicer shall make withdrawals from the Escrow Account only to effect such
payments as are required under this Agreement, as set forth in Section 2.7. The
Servicer shall be entitled to retain any interest paid on, or other income
generated by and paid on, funds deposited in the Escrow Account by the
depository institution, other than interest on escrowed funds required by law of
the Mortgage Loan File to be paid to the Mortgagor. To the extent required by
law, the Servicer shall pay from its own funds interest on escrowed funds to the
Mortgagor notwithstanding that the Escrow Account may be non-interest bearing or
that interest paid thereon is insufficient for such purposes.
 
2.7
Permitted Withdrawals from Escrow Account

 
Withdrawals from each Escrow Account may be made by the Servicer only:
 

 
2.7.1
to effect timely payments of taxes, assessments, mortgage insurance premiums,
condominium charges or other items constituting Escrow Payments for the related
Mortgage Loan;

 

 
2.7.2
to refund to the related Mortgagor any funds found to be in excess of the
amounts required under the terms of the related Mortgage Loan or applicable
federal or provincial law or judicial or administrative ruling;

 

 
2.7.3
for transfer to the Custodial Account and application to reduce the principal
balance of the Mortgage Loan in accordance with the terms of the related
Mortgage Loan File;

 

 
2.7.4
for application to restoration or repair of the related Mortgaged Property in
accordance with the procedures outlined in Section 2.13;

 

 
2.7.5
to pay to the Servicer, or any Mortgagor to the extent required by law, any
interest paid on the funds deposited in the Escrow Account;

 

 
2.7.6
to pay to the person entitled thereto any amounts deposited in error; and

 
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2.7.7
to clear and terminate the Escrow Account on the termination of this Agreement.

 
2.8
Protection of Accounts

 
The Servicer may transfer the Custodial Account or the Escrow Account to a
different depository from time to time. Such transfer shall be made only upon
obtaining the written consent of the Company. The Servicer shall bear any
expenses, losses or damages sustained by the Company because the Custodial
Account and/or the Escrow Account are not demand deposit accounts.
 
2.9
Maintenance of Hazard Insurance

 
The Servicer shall cause to be maintained for each Mortgage Loan hazard
insurance such that all buildings upon the Mortgaged Property are insured
against loss by fire, hazards of extended coverage and such other hazards as are
required to be insured pursuant to Required Servicing Practices.
 
If at any time during the term of the Mortgage Loan, the Servicer determines in
accordance with applicable law and pursuant to the CMHC Guide that a Mortgaged
Property is located in a special flood hazard area and is not covered by flood
insurance satisfactory to CMHC, the Servicer shall notify the related Mortgagor
(to the extent permitted by the applicable Mortgage Loan File) that the
Mortgagor must obtain such flood insurance coverage, and if said Mortgagor fails
to obtain the required flood insurance coverage within forty-five (45) days
after such notification, the Servicer shall immediately purchase the required
flood insurance on the Mortgagor's behalf.
 
The Servicer shall cause to be maintained on each Mortgaged Property such other
or additional insurance as may be required pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance, or pursuant to the requirements of CMHC Guide. All
policies required hereunder shall name the Servicer and its successors and
assigns as mortgagee and shall provide for at least thirty (30) days' prior
written notice of any cancellation, reduction in amount or material change in
coverage.
 
The Servicer shall not interfere with the Mortgagor's freedom of choice in
selecting either his insurance carrier or agent, provided, however, that the
Servicer shall not accept any such insurance policies from insurance companies
which do not meet or exceed applicable requirements of the CMHC Guide. The
Servicer shall determine that such policies provide sufficient risk coverage and
amounts as required pursuant to the CMHC Guide, that they insure the property
owner, and that they properly describe the property address. To the extent
reasonably possible the Servicer shall furnish to the Mortgagor a formal notice
of expiration of any such insurance in sufficient time for the Mortgagor to
arrange for renewal coverage by the expiration date; provided, however, that in
the event that no such notice is furnished by the Servicer, the Servicer shall
ensure that replacement insurance policies are in place in the required
coverages and the Servicer shall be solely liable for any losses in the event
such coverage is not provided.

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Pursuant to Section 2.4, any amounts collected by the Servicer under any such
policies (other than amounts to be deposited in the Escrow Account and applied
to the restoration or repair of the related Mortgaged Property, or property
acquired in liquidation of the Mortgage Loan, or to be released to the Mortgagor
as specified in Section 2.13) shall be deposited in the Custodial Account
subject to withdrawal pursuant to Section 2.5.
 
2.10
Maintenance of Mortgage Impairment Insurance

 
In the event that the Servicer shall obtain and maintain a blanket policy
insuring against losses arising from fire and hazards covered under extended
coverage on all of the Mortgage Loans, then, to the extent such policy provides
coverage in an amount equal to the amount required pursuant to Section 2.9 and
otherwise complies with all other requirements of Section 2.9, it shall
conclusively be deemed to have satisfied its obligations as set forth in
Section 2.9. Any amounts collected by the Servicer under any such policy
relating to a Mortgage Loan shall be deposited in the Custodial Account subject
to withdrawal pursuant to Section 2.5. Such policy may contain a deductible
clause, in which case, in the event that there shall not have been maintained on
the related Mortgaged Property a policy complying with Section 2.9, and there
shall have been a loss which would have been covered by such policy, the
Servicer shall deposit in the Custodial Account at the time of such loss the
amount not otherwise payable under the blanket policy because of such deductible
clause, such amount to be deposited from the Servicer's funds, without
reimbursement therefor. Upon request of the Company, the Servicer shall cause to
be delivered to the Company a certified true copy of such policy and a statement
from the insurer thereunder that such policy shall in no event be terminated or
materially modified without thirty (30) days' prior written notice to the
Company.
 
2.11
Maintenance of Fidelity Bond

 
The Servicer shall maintain with responsible companies, at its own expense, a
blanket Fidelity Bond, with broad coverage on all officers, employees or other
persons acting in any capacity requiring such persons to handle funds, money,
documents or papers relating to the Mortgage Loans ("Servicer Employees"). Any
such Fidelity Bond and Errors and Omissions Insurance Policy shall be in the
form of the Mortgage Banker's Blanket Bond and shall protect and insure the
Servicer against losses, including forgery, theft, embezzlement, fraud, errors
and omissions and negligent acts of such Servicer Employees. Such Fidelity Bond
also shall protect and insure the Servicer against losses in connection with the
release or satisfaction of a Mortgage Loan without having obtained payment in
full of the indebtedness secured thereby. No provision of this Section 2.11
requiring such Fidelity Bond shall diminish or relieve the Servicer from its
duties and obligations as set forth in this Agreement. The minimum coverage
under any such Fidelity Bond shall be at least equal to the corresponding
amounts required by Accepted Servicing Practices. Upon the request of the
Company, the Servicer shall cause to be delivered to the Company a certified
true copy of such Fidelity Bond and a statement from the surety that such
Fidelity Bond shall in no event be terminated or materially modified without
thirty (30) days' prior written notice to the Company. In the event that the
surety charges the Servicer a fee for providing such evidence, the Company shall
reimburse the Servicer for the reasonable expense incurred by the Servicer in
furnishing such evidence.
 
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2.12
Inspections

 
The Servicer shall inspect the Mortgaged Property as often as deemed necessary
by the Servicer to assure itself that the value of the Mortgaged Property is
being preserved, the whole in accordance with Accepted Servicing Practices. The
Servicer shall keep a written report of each such inspection.
 
2.13
Restoration of Mortgaged Property

 
The Servicer need not obtain the approval of the Company prior to releasing any
Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be applied to
the restoration or repair of the Mortgaged Property if such release is in
accordance with the applicable Mortgage Loan File. The Servicer shall comply
with the CMHC Guide and the NHA and, to the extent they do not contravene the
CMHC Guide and NHA, with the following conditions in connection with any such
release of Insurance Proceeds or Condemnation Proceeds:
 

 
2.13.1
the Servicer shall receive satisfactory independent verification of completion
of repairs and issuance of any required approvals with respect thereto;

 

 
2.13.2
the Servicer shall take all steps necessary to preserve the priority of the lien
securing the Mortgage Loan, including, but not limited to, requiring waivers or
releases with respect to mechanics' and materialmen's liens or legal hypothecs
in favour of the persons having taken part in the renovation of the Mortgaged
Property;

 

 
2.13.3
the Servicer shall verify that the Mortgage Loan is not in default; and

 

 
2.13.4
pending repairs or restoration, the Servicer shall place the Insurance Proceeds
or Condemnation Proceeds in the Escrow Account.

 
If the Company is named as an additional mortgagee, the Servicer shall, in
accordance with CMHC Guide and the NHA, endorse any loss draft issued in respect
of such a claim in the name of the Company.
 
2.14
Title, Management and Disposition of REO Property

 
In the event that title to any Mortgaged Property is acquired in foreclosure or
by deed in lieu of foreclosure, the deed or certificate of sale shall be taken
in the name of the Company.
 
The Servicer shall manage, conserve, protect and operate each REO Property for
the Company solely for the purpose of its prompt disposition and sale (unless
otherwise directed in writing by the Company). The Servicer, either itself or
through an agent selected by the Servicer and reasonably acceptable to the
Company and CMHC, shall manage, conserve, protect and operate the REO Property
in accordance with Required Servicing Practices and to the extent it does not
contravene the Accepted Servicing Practices, in the same manner that it manages,
conserves, protects and operates other foreclosed property for its own account,
and in the same manner that similar property in the same locality as the
REO Property is managed.

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The Servicer shall use its best efforts to dispose of the REO Property as soon
as possible and shall sell such REO Property in any event within one year after
title has been taken to such REO Property (unless otherwise directed by CMHC or
otherwise directed in writing by the Company). If a period longer than one (1)
year is permitted under the foregoing sentence and is necessary to sell any
REO Property, the Servicer shall report monthly to the Company as to the
progress being made in selling such REO Property.
 
The Servicer shall also maintain on each REO Property fire and hazard insurance
with extended coverage in an amount which is at least equal to the maximum
insurable value of the improvements which are a part of such property, liability
insurance and, to the extent required and available, flood insurance in the
amount required above.
 
The disposition of REO Property shall be carried out by the Servicer at such
price, and upon such terms and conditions, as the Servicer deems appropriate
(subject to approval by CMHC and the Company). The proceeds of sale of the
REO Property shall be promptly deposited in the Custodial Account. As soon as
practical thereafter the expenses of such sale shall be paid and the Servicer
shall reimburse itself pursuant to Section 2.5.3 hereof, as applicable, for any
related unreimbursed Servicing Advances, unpaid Servicing Fees and unreimbursed
advances made pursuant to this Section, and on the Remittance Date immediately
following the Due Period in which such sale proceeds are received the net cash
proceeds of such sale remaining in the Custodial Account shall be distributed to
the Company; provided that such distribution shall, in any event, be made within
ninety (90) days from and after the closing of the sale of such REO Property.
 
In addition to the Servicer's obligations set forth in this Section 2.14, the
Servicer shall deliver to the Company, upon request, whenever title to any
Mortgaged Property is acquired in foreclosure or by deed in lieu of foreclosure
copies of all notices transmitted to, and received from, CMHC with respect
thereto, together with a copy of the appraisal, if any, of the related Mortgaged
Property obtained by the Servicer on or prior to the date of such acquisition.
Notwithstanding anything to the contrary contained herein, the Company may, at
the Company's sole option, terminate the Servicer as servicer of any such
REO Property without payment of any Termination Fee with respect thereto,
provided that (i) the Company gives the Servicer notice of such termination
within ten (10) Business Days of receipt of said copies of notices from the
Servicer which termination shall be effective no more than fifteen (15) Business
Days from and after the date of said notice from the Company and (ii) the
Servicer shall on the date said termination takes effect be reimbursed by
Company for any unreimbursed advances of the Servicer's funds made pursuant to
Section 3.2 and any unreimbursed Servicing Advances in each case relating to the
Mortgage Loan underlying such REO Property. In the event of any such
termination, the provisions of Section 8.6 hereof shall apply to said
termination and the transfer of servicing responsibilities with respect to such
REO Property to the Company.
 
With respect to each REO Property, the Servicer shall deposit all funds
collected and received in connection with the operation of the REO Property in
the Custodial Account. The Servicer shall cause to be deposited on a daily basis
upon the receipt thereof in the Custodial Account all revenues received with
respect to the conservation and disposition of the related REO Property.

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2.15
Permitted Withdrawals with respect to REO Property

 
For so long as the Servicer is acting as servicer of any Mortgage Loan relating
to any REO Property, the Servicer shall withdraw funds on deposit in the
Custodial Account with respect to each related REO Property necessary for the
proper operation, management and maintenance of the REO Property, including the
cost of maintaining any hazard insurance pursuant to Section 2.9 and the fees of
any managing agent acting on behalf of the Servicer. The Servicer shall make
monthly distributions on each Remittance Date to the Company of the net cash
flow from the REO Property (which shall equal the revenues from such
REO Property net of the expenses described in Section 2.14 and of any reserves
reasonably required from time to time to be maintained to satisfy anticipated
liabilities for such expenses).
 
2.16
Real Estate Owned Reports

 
For so long as the Servicer is acting as servicer of any Mortgage Loan relating
to any REO Property, the Servicer shall submit to the Company all reports with
respect to such Mortgaged Property which it is obligated to submit to the CMHC
pursuant to Required Servicing Practices.
 
3.
PAYMENTS TO THE COMPANY

 
3.1
Remittances

 
On each Remittance Date, the Servicer shall remit by wire transfer of
immediately available funds to the Company:
 
(a)
all amounts deposited in the Custodial Account as of the close of business on
the Determination Date, minus

 
(b)
any amounts payable to the Servicer under Article 2 of this Agreement.

 
With respect to any remittance received by the Company after the fifth day
following the Business Day on which such payment was due, the Servicer shall pay
to the Company a "late charge" in an amount equal to 5% of such late payment.
Such late charge shall be deposited in the Custodial Account by the Servicer on
the date such late payment is made for each day/week which such payment remains
outstanding. Such late charge shall be remitted along with the distribution
payable on the next succeeding Remittance Date. The payment by the Servicer of
any such late charge shall not be deemed an extension of time for payment or a
waiver of any Event of Default by the Servicer.
 
3.2
Statements to the Company

 
Not later than the fifteenth day of each month, the Servicer shall furnish to
the Company in a mutually-acceptable format the reports required by the Company,
together with a Monthly Remittance Advice showing the scheduled payments of
principal and interest, the principal prepayments and the prepayment penalties.

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In addition, the Servicer shall furnish to the Company an annual statement in
accordance with the requirements of applicable income tax laws as to the
aggregate of remittances for the applicable portion of such year. Such
obligation of the Servicer shall be deemed to have been satisfied to the extent
that substantially comparable information shall be provided by the Servicer
pursuant to any requirements of the governmental taxing authority as from time
to time are in force.
 
The Servicer shall prepare and file, with respect to each Mortgage Loan, any and
all tax returns, information statements or other filings required to be
delivered to any governmental taxing authority or to the Company pursuant to any
applicable law with respect to the Mortgage Loans and the transactions
contemplated hereby. In addition, the Servicer shall provide the Company with
such information concerning the Mortgage Loans as is necessary for the Company
to prepare any applicable income tax returns as the Company may reasonably
request from time to time.
 
4.
GENERAL SERVICING PROCEDURES

 
4.1
Transfers of Mortgaged Property

 
The Servicer shall be required, consistent with Required Servicing Practices, to
enforce on behalf of the Company any "due-on-sale" provision contained in any
Mortgage Loan File and to deny assumption by the person to whom the Mortgaged
Property has been or is about to be sold whether by absolute conveyance or by
contract of sale, whether or not the Mortgagor remains liable on the Mortgage
Loan. When the Mortgaged Property has been conveyed by the Mortgagor, the
Servicer shall, to the extent it has knowledge of such conveyance, exercise its
rights on behalf of the Company to accelerate the maturity of such Mortgage Loan
under the "due-on-sale" clause applicable thereto, provided, however, that the
Servicer shall not exercise such rights if the Servicer determines in good faith
that it is prohibited by law from doing so or if, subject to written
confirmation of the Company, the exercise of such rights would impair or
threaten to impair any recovery under the related CMHC insurance policy issued
with respect to such Mortgage Loan, if any.
 
If the Servicer reasonably believes it is unable under applicable law to enforce
"due-on-sale" clause, the Servicer, in the Company's name and with the prior
written consent of the Company, shall, to the extent permitted by applicable
law, enter into (i) an assumption and modification agreement with the person to
whom such property has been conveyed, pursuant to which such person becomes
liable under the Mortgage Loan and the original Mortgagor remains liable thereon
or (ii) in the event the Servicer is unable under applicable law to require that
the original Mortgagor remain liable under the Mortgage Note and the Servicer
has the prior consent of the CMHC and the Company, a substitution of liability
agreement with the purchaser of the Mortgaged Property pursuant to which the
original Mortgagor is released from liability and the purchaser of the Mortgaged
Property is substituted as Mortgagor and becomes liable under the Mortgage Loan.
In connection with any such assumption, neither the mortgage interest rate borne
by the related Mortgage Loan, the term of the Mortgage Loan nor the outstanding
principal amount of the Mortgage Loan shall be changed.

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To the extent that any Mortgage Loan is assumable, the Servicer shall inquire
diligently into the creditworthiness of the proposed transferee, and shall use
the underwriting criteria for approving the credit of the proposed transferee
which are used by CMHC with respect to underwriting mortgage loans of the same
type as the Mortgage Loans. If the credit of the proposed transferee does not
meet such underwriting criteria, the Servicer diligently shall, to the extent
permitted by the Mortgage Loan File and by applicable law (and unless otherwise
directed by the Company), accelerate the maturity of the Mortgage Loan.
 
4.2
Satisfaction of Mortgages and Release of Mortgage Files

 
Upon the payment in full of any Mortgage Loan, or the receipt by the Servicer of
a notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer shall notify the Company in the Monthly Remittance
Advice as provided in Section 3.2 and may request the release of any Mortgage
Loan File from the Company in accordance with this Section 4.2 hereof. The
Servicer shall obtain discharge of the related Mortgage Loan as of record within
any related time limit required by applicable law.
 
4.3
Servicing Compensation

 
As consideration for servicing the Mortgage Loans hereunder, the Servicer shall
deduct the Servicing Fee with respect to each Mortgage Loan from payments as
received from Mortgagors and shall remit the net balance into the Custodial
Account.
 
Additional servicing compensation in the form of Ancillary Income shall be
retained by the Servicer as and when collected. The Servicer shall be required
to pay all expenses incurred by it in connection with its servicing activities
hereunder and shall not be entitled to reimbursement thereof except as
specifically provided for herein.
 
4.4
Annual Statement as to Compliance

 
The Servicer shall deliver to the Company, on or before March 1st of each year
beginning March 1, 2002, an Officer's Certificate, stating that (i) a review of
the activities of the Servicer during its preceding fiscal year and of
performance under this Agreement has been made under such officer's supervision,
and (ii) the Servicer has complied in all material respects with the provisions
of Article 2 and Article 3, and (iii) to the best of such officer's knowledge;
based on such review, the Servicer has fulfilled all its obligations under this
Agreement throughout such year or part thereof, or, if there has been a default
in the fulfilment of any such obligation, specifying each such default known to
such officer and the nature and status thereof and the action being taken by the
Servicer to cure such default.
 
4.5
Annual Independent Chartered Accountants Servicing Report

 
On or before March 1st of each year, beginning with March 1, 2002, the Servicer
at its expense shall cause a firm of independent chartered accountants (who may
also render other services to the Servicer or any affiliate thereof) which is a
member of the "Ordre des comptables agréés du Québec" (Corporation of the
Chartered Accountants of Québec) to furnish a report to the Company to the
effect that such firm has, in addition to their examination of the financial
statements of the Servicer, performed specified auditing procedures to financial
information, other than financial statements relating to Mortgage Loans serviced
by the Servicer in accordance with the requirements of the Chapter 9100 of the
Canadian Institute of Chartered Accounts Handbook and that, as the results of
applying the procedures, any exceptions were disclosed.

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4.6
Right to Examine Servicer Records

 
The Company shall have the right to examine and audit any and all of the books,
records, or other information of the Servicer, whether held by the Servicer or
by another on its behalf, with respect to or concerning this Agreement or the
Mortgage Loans.
 
5.
SERVICER TO COOPERATE

 
5.1
Provision of Information

 
During the term of this Agreement, the Servicer shall furnish to the Company
such periodic, special, or other reports or information, whether or not provided
for herein, as the Company shall request. The Servicer shall execute and deliver
all such instruments and take all such action as the Company may reasonably
request from time to time, in order to effectuate the purposes and to carry out
the terms of this Agreement.
 
6.
TERMINATION

 
6.1
Agency Suspension

 
Should the Servicer at any time during the term of this Agreement have its right
to service temporarily or permanently suspended by CMHC or otherwise cease to be
an approved servicer of conventional residential mortgage loans for CMHC, then
the Company may immediately terminate this Agreement without assessment of any
termination fee.
 
6.2
Damages

 
The Company shall have the right at any time to seek and recover from the
Servicer any damages or losses suffered by it as a result of any failure by the
Servicer to observe or perform any duties, obligations, covenants or agreements
herein contained, or as a result of the Servicer's failure to remain an approved
CMHC mortgage servicer.
 
6.3
Termination

 
The respective obligations and responsibilities of the Servicer shall terminate
upon:
 

 
6.3.1
the earlier of the final payment or other liquidation (or any advance with
respect thereto) of the last Mortgage Loan serviced by the Servicer, the
remittance of all funds due hereunder or the first anniversary of this
Agreement; or

 
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6.3.2
by mutual consent of the Servicer and the Company in writing, unless earlier
terminated pursuant to this Agreement.

 
6.4
Termination without Cause

 
The Company, may, at its sole option, upon not less than sixty (60) days' prior
written notice to the Servicer terminate any rights the Servicer may have
hereunder with respect to any or all of the Mortgage Loans, without cause, upon
written notice, provided that the Servicer shall have an additional period of
not more than sixty (60) days from and after the date of said notice from the
Company within which to effect the related transfer of servicing. Any such
notice of termination shall be in writing and delivered to the Servicer as
provided in Section 12.1 of this Agreement. In the event of such termination,
the Servicer shall be entitled to a termination fee, equal to the product of
0.0002% of the then current aggregate unpaid principal balance of the related
Mortgage Loans and the number of months remaining until the first anniversary of
this Agreement, provided, however, that the successor servicer is not an
affiliate of the Servicer.
 
7.
BOOKS AND RECORDS

 
7.1
Possession of Servicing Files

 
The contents of each Servicing File are and shall be held by the Servicer for
the benefit of the Company as the owner thereof. The Servicer shall maintain in
the Servicing File a copy (which may be in microfiche form) of the contents of
each Mortgage Loan File and the originals of the required documents in each
Mortgage Loan File not delivered to the Company. The possession of the Servicing
File by the Servicer is at the will of the Company for the sole purpose of
servicing the related Mortgage Loan, pursuant to this Agreement, and such
retention and possession by the Servicer is in its capacity as Servicer only and
at the election of the Company. The Servicer shall release its custody of the
contents of any Servicing File only in accordance with written instructions from
the Company or other termination of the Servicer with respect to the related
Mortgage Loans, unless such release is required as incidental to the Servicer's
servicing of the Mortgage Loans pursuant to this Agreement.
 
The Servicer shall be responsible for maintaining, and shall maintain, a
complete set of books and records (including electronic records) for each
Mortgage Loan which shall be marked clearly to reflect the ownership of each
Mortgage Loan by the Company. In particular, the Servicer shall maintain in its
possession, available for inspection by the Company during normal business
hours, and shall deliver to the Company upon reasonable notice, evidence of
compliance with all federal, provincial and local laws, rules and regulations,
and requirements of CMHC, documentation evidencing insurance coverage and
eligibility of any condominium project for approval by CMHC and periodic
inspection reports as required by Section 2.12 and Accepted Servicing Practices.
 
To the extent that original documents are not required for purposes of
realisation of Liquidation Proceeds or Insurance Proceeds, documents maintained
by the Servicer may be in the form of microfilm or microfiche so long as the
Servicer complies with the requirements of Accepted Servicing Practices.

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The Servicer shall keep at its servicing office books and records (including
electronic records) in which, subject to such reasonable regulations as it may
prescribe, the Servicer shall note transfers of Mortgage Loans. No transfer of a
Mortgage Loan may be made unless such transfer is in compliance with the terms
hereof. For the purposes of this Agreement, the Servicer shall be under no
obligation to deal with any person with respect to this Agreement or the
Mortgage Loans unless the books and records show such person as the owner of the
Mortgage Loan. The Company may, subject to the terms of this Agreement, sell or
transfer one or more of the Mortgaged Loan. The Company also shall advise the
Servicer of the transfer. Upon receipt of notice of the transfer, the Servicer
shall record the ownership of the Mortgage Loans of such assignee in its books
and records, and shall release the Company from its obligations hereunder with
respect to the Mortgage Loans sold or transferred.
 
8.
INDEMNIFICATION AND ASSIGNMENT

 
8.1
Indemnification

 
The Servicer agrees to indemnify and hold the Company harmless from any
liability, claim, loss or damage (including, without limitation, any reasonable
legal fees, judgements or expenses relating to such liability, claim, loss or
damage) to the Company directly or indirectly resulting from the Servicer's
failure to observe and perform any or all of Servicer's duties, obligations,
covenants, agreements, warranties or representations contained in this Agreement
or the Servicer's failure to comply with all applicable requirements with
respect to the transfer of servicing rights as set forth herein.
 
The Servicer shall notify the Company as soon as reasonably possible if a claim
is made by a third party with respect to this Agreement.
 
8.2
Limitation on Liability of Servicer and Others

 
Neither the Servicer nor any of the directors, officers, employees or agents of
the Servicer shall be under any liability to the Company for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgement, provided, however, that this provision
shall not protect the Servicer or any such person against any breach of
warranties or representations made herein, or failure to perform its obligations
in material compliance with any standard of care set forth in this Agreement, or
any liability which would otherwise be imposed by reason of any breach of the
terms and conditions of this Agreement. The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any person with respect to
any matter arising hereunder. The Servicer shall not be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
duties to service the Mortgage Loans in accordance with this Agreement and which
in its opinion may involve it in any expense or liability, provided, however,
that the Servicer may, with the prior written consent of the Company, undertake
any such action which it may deem necessary or desirable in respect to this
Agreement and the rights and duties of the parties hereto. In such event, the
Servicer shall be entitled to reimbursement from the Company of the reasonable
legal expenses and costs of such action.

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8.3
Limitation on Registration and Assignment by Servicer

 
The Company has entered into this Agreement with the Servicer in reliance upon
the representations as to the adequacy of its servicing facilities, plant,
personnel, records and procedures, its integrity, reputation and financial
standing, and the continuance thereof. Therefore, the Servicer shall not
(i) assign this Agreement or the servicing hereunder or (ii) delegate any
substantial part of its rights or duties hereunder without the prior written
consent of the Company, which consent shall not be unreasonably withheld or
conditioned provided that (a) any delegation of such rights or duties shall not
release the Servicer from its obligations hereunder and the Servicer shall
remain responsible hereunder for all acts and omissions of any delegee as if
such acts or omissions were those of the Servicer and (b) any such assignee or
designee shall satisfy the requirements for a successor or surviving person set
forth in Section 8.5 and Section 8.6 hereof. The Servicer shall notify the
Company in writing at least 30 days prior to selling or otherwise disposing of
all or substantially all of its assets and receipt of such notice shall entitle
the Company to terminate this Agreement, without payment of any termination fee,
except as set forth in Section 8.5 hereof.
 
The Servicer shall not resign from the obligations and duties hereby imposed on
it except by mutual consent of the Servicer and the Company or upon the
determination that its duties hereunder are no longer permissible under
applicable law and such incapacity cannot be cured by the Servicer. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an opinion of counsel of the Servicer to such effect delivered to the Company
which opinion of counsel shall be in form and substance acceptable to the
Company. No such resignation shall become effective until a successor approved
by the CMHC shall have assumed the Servicer's responsibilities and obligations
hereunder in the manner provided in Section 8.6.
 
Without in any way limiting the generality of this Section 8.3, in the event
that the Servicer either shall assign this Agreement or the servicing
responsibilities hereunder or delegate its duties hereunder or any portion
thereof without (i) satisfying the requirements set forth herein or (ii) the
prior written consent of the Company, then the Company shall have the right to
terminate this Agreement as set forth in Section 6.4, without any payment of any
penalty or damages and without any liability whatsoever to the Servicer (other
than with respect to accrued but unpaid Servicing Fees and Servicing Advances
remaining unpaid) or any third party.
 
8.4
Assignment by the Company

 
The Company shall have the right, without the consent of the Servicer, to
assign, in whole or in part, its interest under this Agreement with respect to
some or all of the Mortgage Loans and designate any person to exercise any
rights of the Company hereunder, by executing an assignment and assumption
agreement and the assignee or designee shall accede to the rights and
obligations hereunder of the Company with respect to such Mortgage Loans. All
references to the Company in this Agreement shall be deemed to include its
assignee or designee.
 
8.5
Merger or Consolidation of the Servicer

 
The Servicer will keep in full effect its existence and rights as a bank under
the laws of its jurisdiction of incorporation except as permitted herein.

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Any person into which the Servicer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any person succeeding to the business of the
Servicer, shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the successor or surviving person shall be (i) obligated to
service the Mortgage Loans in accordance with this Agreement and Required
Servicing Practices, (ii) an institution whose deposits are insured by CDIC and
(iii) a CMHC-approved servicer in good standing.
 
8.6
Successor to the Servicer

 
Prior to termination of Servicer's responsibilities and duties under this
Agreement pursuant to Sections 2.14, 6.1, 6.4, 8.3 or 11.1, the Company shall
appoint a successor which shall succeed to all rights and assume all of the
responsibilities, duties and liabilities of the Servicer under this Agreement.
In connection with such appointment and assumption, the Company may make such
arrangements for the compensation of such successor out of payments on Mortgage
Loans as it and such successor shall agree. In the event that the Servicer's
duties, responsibilities and liabilities under this Agreement should be
terminated pursuant to the aforementioned sections, the Servicer shall discharge
such duties and responsibilities during the period from the date it acquires
knowledge of such termination until the effective date thereof with the same
degree of diligence and prudence which it is obligated to exercise under this
Agreement, and shall take no action whatsoever that might impair or prejudice
the rights or financial condition of its successor. The resignation or removal
of Servicer pursuant to the aforementioned Sections shall not become effective
until a successor shall be appointed pursuant to this Section 8.6 and shall in
no event relieve the Servicer of the representations, warranties and covenants
made pursuant to and the remedies available to the Company with respect thereto,
it being understood and agreed that the provisions of Article 10 shall be
applicable to the Servicer notwithstanding any such resignation or termination
of the Servicer, or the termination of this Agreement.
 
Any successor appointed as provided herein shall execute, acknowledge and
deliver to the Servicer and to the Company, an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Servicer, with like effect as if originally named as a party to this Agreement.
Any termination of this Agreement pursuant to Sections 2.14, 6.1, 6.4, 8.3 or
11.1 shall not affect any claims that the Company may have against the Servicer
arising prior to any such termination or resignation.
 
The Servicer shall timely deliver to the successor the funds in the Custodial
Account and the Escrow Account and the Mortgage Loan Files and related documents
and statements held by it hereunder and the Servicer shall account for all
funds. The Servicer shall execute and deliver such instruments and do such other
things all as may reasonably be required to more fully and definitely vest and
confirm in the successor all such rights, powers, duties, responsibilities,
obligations and liabilities of the Servicer. The successor shall make
arrangements as it may deem appropriate to reimburse the Servicer for amounts
the Servicer actually expended pursuant to this Agreement which the successor is
entitled to retain hereunder and which would otherwise have been recovered by
the Service pursuant to this Agreement but for the appointment of the successor
servicer.

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Upon a successor's acceptance of appointment as such, the Servicer shall notify
by mail the Company of such appointment.
 
9.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY

 
As of the date hereof, the Company warrants and represents to, and covenants and
agrees with, the Servicer as follows:
 
9.1
Due Organization and Authority

 
The Company is a corporation duly organized, validly existing and in good
standing under the laws of Maryland. The Company has the full corporate power
and authority to execute and deliver this Agreement and to perform in accordance
therewith; the execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement evidences the valid, binding and
enforceable obligation of the Company; and all requisite corporation action has
been taken by the Company to make this Agreement valid and binding upon the
Company in accordance with its terms.
 
9.2
No Conflicts

 
Neither the execution and delivery of this Agreement, nor the fulfilment of or
compliance with the terms and conditions of this Agreement, will conflict with
or result in a breach of any of the terms, conditions or provisions of the
Company's charter or by-laws or any legal restrictions or any agreement or
instrument to which the Company is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgement or decree
to which the Company or its property is subject.
 
9.3
Ability to Perform

 
The Company does not believe, nor does it have any reason or cause to believe,
that it cannot perform each and every covenant made by it in this Agreement.
 
9.4
No Litigation Pending

 
There is no action, suit proceeding or investigation pending or threatened
against the Company, before any court, administrative agency or other tribunal
asserting the invalidity of this Agreement, seeking to prevent the consummation
of any of the transactions contemplated by this Agreement or which, either in
any one instance or in the aggregate, may result in any material adverse change
in the business, operations, financial condition, properties or assets of the
Company, or in any material impairment of the right or ability of the Company to
carry on its business substantially as now conducted, or in any material
liability on the part of the Company, or which would draw into question the
validity of this Agreement or of any action taken or to be taken in connection
with the obligations of the Company contemplated herein.

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9.5
No Consent Required

 
No consent, approval, authorization or order of any court or governmental agency
or body is required for the execution, delivery and performance by the Company
of, or compliance by the Company with, this Agreement as evidenced by the
consummation of the transactions contemplated by this Agreement, or if required,
such approval has been obtained prior to the date hereof.
 
10.
REPRESENTATIONS AND WARRANTIES OF SERVICER

 
As of the date hereof, the Servicer warrants and represents to, and covenants
and agrees with, the Company as follows:
 
10.1
Qualification as a REIT

 
The Servicer shall not take any action which would cause the Company not to
qualify as a REIT under the Internal Revenue Code of 1986, as amended.
 
10.2
Due Organization and Authority

 
The Servicer is a Canadian chartered bank duly organized, validly existing and
in good standing under the laws of Canada, and is licensed, qualified and in
good standing in each jurisdiction where a Mortgaged Property is located if
applicable laws require licensing or qualification in order to conduct business
of the type conducted by the Servicer, and in any event the Servicer is in
compliance with the laws of any such jurisdiction to the extent necessary to
ensure the enforceability of the related Mortgage Loan in accordance with the
terms of this Agreement; the Servicer has the full corporate power and authority
to execute and deliver this Agreement and to perform in accordance herewith; the
execution, delivery and performance of this Agreement (including all instruments
of transfer to be delivered pursuant to this Agreement) by the Servicer and the
consummation of the transactions contemplated hereby have been duly and validly
authorized; this Agreement evidences the valid, legal, binding and enforceable
obligation of the Servicer subject to bankruptcy laws and other similar laws of
general application affecting rights of creditors, including those respecting
the availability of specific performance, none of which will materially
interfere with the realisation of the benefits provided thereunder, and all
requisite corporate action has been taken by the Servicer to make this Agreement
valid and binding upon the Servicer in accordance with its terms.
 
10.3
Ordinary Course of Business

 
The consummation of the transactions contemplated by this Agreement are in the
ordinary course of business of the Servicer.
 
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10.4
No Conflicts

 
Neither the execution and delivery of this Agreement, nor the fulfilment of or
compliance with the terms and conditions of this Agreement, will conflict with
or result in a breach of any of the terms, conditions or provisions of the
Servicer's charter or by-laws or any legal restriction or any agreement or
instrument to which the Servicer is now a party or by which it is bound, or
constitute a default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgement or decree
to which the Servicer or its property is subject, or impair the ability of the
Company to realize on the Mortgage Loans, impair the value of the Mortgage
Loans, or impair the ability of the Company to realize the full amount of any
mortgage insurance benefits accruing pursuant to this Agreement.
 
10.5
Ability to Service

 
The Servicer is an approved servicer of CMHC residential mortgage loans in
accordance with the NHA, with the facilities, procedures and experienced
personnel necessary for the sound servicing of mortgage loans of the same type
as the Mortgage Loans. The Servicer is duly qualified, licensed, registered and
otherwise authorized under all applicable federal, provincial and municipal
laws, regulations and by-laws, if applicable, and is in good standing to
enforce, originate, sell mortgage loans to, and service mortgage loans in the
jurisdictions wherein the Mortgaged Properties are located and no event has
occurred, including but not limited to a change in insurance coverage, which
would make the Servicer unable to comply with either CMHC eligibility
requirements or which would require notification to CMHC.
 
10.6
Ability to Perform

 
The Servicer can and shall perform each and every covenant contained in this
Agreement.
 
10.7
No Litigation Pending

 
There is no action, suit, proceeding or investigation pending or threatened
against the Servicer, before any court, administrative agency or other tribunal
asserting the invalidity of this Agreement, seeking to prevent the consummation
of any of the transactions contemplated by this Agreement or which, either in
any one instance or in the aggregate, may result in any material adverse change
in the business, operations, financial condition, properties or assets of the
Servicer, or in any material impairment of the right or ability of the Servicer
to carry on its business substantially as now conducted, or in any material
liability on the part of the Servicer, or which would draw into question the
validity of this Agreement or the Mortgage Loans or of any action taken or to be
taken in connection with the obligations of the Servicer contemplated herein, or
which would be likely to impair materially the ability of the Servicer to
perform under the terms of this Agreement.
 
10.8
No Consent Required

 
No consent, approval, authorization or order of any court or governmental agency
or body is required for the execution, delivery and performance by the Servicer
of or compliance by the Servicer with this Agreement or the servicing of the
Mortgage Loans as evidenced by the consummation of the transactions contemplated
by this Agreement, or if required, such approval has been obtained prior to the
date hereof.

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10.9
No Untrue Information

 
Neither this Agreement nor any statement, tape, diskette, form, report or other
document furnished or to be furnished pursuant to this Agreement or in
connection with the transactions contemplated hereby contains any untrue
statement of fact or omits to state a fact necessary to make the statements
contained therein not misleading.
 
10.10
Reasonable Servicing Fee

 
The Servicer acknowledges and agrees that the Servicing Fee represents
reasonable compensation for performing such services and that the entire
Servicing Fee shall be treated by the Servicer, for accounting and tax purposes,
as compensation for the servicing and administration of the Mortgage Loans
pursuant to this Agreement.
 
10.11
Conflict of Interest

 
The Servicer agrees that it shall service the Mortgage Loans hereunder solely
with a view toward the interests of the Company, and without regard to the
interests of the Seller or its other affiliates.
 
10.12
Confirmation of Original Servicing Agreement

 
The Servicer represents and warrants that all the Mortgage Loans assigned by the
Purchaser in favour of the Company on or before the date hereof have been
serviced and administered by the Servicer in accordance with the terms and
conditions of the Original Servicing Agreement and that it has fulfilled all of
its obligations under the Original Servicing Agreement up to and including the
date hereof.
 
11.
DEFAULT

 
11.1
Events of Default

 
The following shall constitute an Event of Default under this Agreement on the
part of the Servicer:
 

 
11.1.1
any failure by the Servicer to remit to the Company any payment required to be
made under the terms of this Agreement which continues unremedied for a period
of five (5) Business Days after the date upon which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Servicer by the Company; or

 

 
11.1.2
the failure by the Servicer to duly observe or perform in any material respect
any other of the covenants or agreements on the part of the Servicer set forth
in this Agreement which continues unremedied for a period of thirty (30) days
(except that such number of days shall be fifteen (15) in the case of a failure
to pay any premium for any insurance policy required to be maintained under this
Agreement) after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the Company; or

 
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11.1.3
a decree or order of a court or agency or supervisory authority having
jurisdiction for the appointment of a receiver or liquidator in any insolvency,
bankruptcy, similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Servicer and such decree or order
shall have remained in force undischarged or unstayed for a period of sixty (60)
days; or

 

 
11.1.4
the Servicer shall consent to the appointment of a receiver or liquidator in any
insolvency, bankruptcy, or similar proceedings of or relating to the Servicer of
or relating to all or substantially all of its property; or

 

 
11.1.5
the Servicer shall admit in writing its inability to pay its debts generally as
they become due, file a petition to take advantage of any applicable insolvency
or reorganization statute, make an assignment for the benefit of its creditors,
or voluntarily suspend payment of its obligations; or

 

 
11.1.6
the Servicer loses temporarily or permanently its qualification as an approved
lender under the NHA.

 

 
11.1.7
the Servicer, without the consent of the Company (other than as permitted by
Sections 8.3 or 8.5 hereof), attempts to assign this Agreement or the servicing
responsibilities hereunder or to delegate any substantial part of its duties
hereunder or any portion thereof; or

 

 
11.1.8
the Servicer fails to maintain its licence to do business or service residential
mortgage loans in any jurisdiction where the Mortgaged Properties are located
and such failure results in a material adverse effect on the Mortgage Loans, the
servicing of the Mortgage Loans, or the Company's rights with respect to the
Mortgage Loans.

 

 
11.1.9
The Servicer carries out servicing, administration or other duties and
obligations imposed on it under this Agreement without first seeking and
obtaining, in writing, instructions, directions or confirmation from the Company
as required by Section 2 of this Agreement.

 
In each and every such case, so long as an Event of Default shall not have been
remedied, in addition to whatsoever rights the Company may have at law or equity
to damages, including injunctive relief and specific performance, the Company,
by notice in writing to the Servicer, may terminate without compensation or
reimbursement (other than Servicing Fees previously earned but remaining unpaid
and Servicing Advances remaining unreimbursed) all the rights and obligations of
the Servicer under this Agreement and in and to the Mortgage Loans and the
proceeds thereof.

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Upon receipt by the Servicer of such written notice, all authority and power of
the Servicer under this Agreement, whether with respect to the Mortgage Loans or
otherwise, shall pass to and be vested in the successor appointed pursuant to
Section 8.6. Upon written request from the Company, the Servicer shall prepare,
execute and deliver any and all documents and other instruments reasonably
requested by the Company, place in such successor's possession all Mortgage Loan
Files (to the extent not properly delivered to the Company by the Servicer
previously), and do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise, at the Servicer's sole expense. The Servicer
agrees to reasonably cooperate with the Company and such successor in effecting
the termination of the Servicer's responsibilities and rights hereunder,
including, without limitation, the transfer to such successor for administration
by it of all cash amounts which shall at the time be credited by the Servicer to
the Custodial Account or Escrow Account or thereafter received with respect to
the Mortgage Loans.
 
11.2
Waiver of Defaults

 
The Company may waive any default by the Servicer in the performance of its
obligations hereunder and its consequences. Upon any such waiver of a past
default, such default shall cease to exist, and any Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon except to the extent expressly so waived.
 
12.
MISCELLANEOUS PROVISIONS

 
12.1
Notices

 
All notices, requests, demands and other communications which are required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given upon the delivery or mailing thereof, as the case
may be, sent by registered or certified mail, return receipt requested:
 

 
12.1.1
If to the Company to:

 
NB CAPITAL CORPORATION
65 East - 55th Street
New York, NEW YORK 10022
U.S.A.
 
Attention: Chairman of the Board and President

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12.1.2
If to the Servicer to:

 
NATIONAL BANK OF CANADA
600 De La Gauchetière Street West
Montreal, Quebec
H3B 4L2
 
Attention: Vice-President and Chief Accountant
 
12.2
Waivers

 
Either the Servicer or the Company may upon consent of all parties, by written
notice to the others:
 

 
12.2.1
waive compliance with any of the terms, conditions or covenants required to be
complied with by the others hereunder; and

 

 
12.2.2
waive or modify performance of any of the obligations of the others hereunder.

 
The waiver by any party hereto of a breach of any provisions of this Agreement
shall not operate or be construed as a waiver of any other subsequent breach.
 
12.3
Entire Agreement — Amendment

 
This Agreement constitutes the entire agreement between the parties with respect
to servicing of the Mortgage Loans. This Agreement may be amended and any
provision hereof waived but, only in writing signed by the party against whom
such enforcement is sought.
 
12.4
Execution — Binding Effect

 
This Agreement may be executed in one or more counterparts and by different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed to be an original; such counterparts, together, shall constitute one
and the same agreement. Subject to Sections 8.3 and 8.4, this Agreement shall
inure to the benefit of and be binding upon the Servicer and the Company and
their respective successors and assigns.
 
12.5
Headings

 
Headings of the Articles and Sections in this Agreement are for reference
purposes only and shall not be deemed to have any substantive effect.
 
12.6
Governing Law

 
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Québec and the obligations, rights and remedies hereunder shall
be determined in accordance with the substantive laws of the Province of Québec.

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Each of the parties hereto irrevocably and unconditionally submits, for itself
and its property, to the non exclusive jurisdiction of the Quebec courts, and
any appellate court thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the parties hereto hereby irrevocably and unconditionally agrees
that all claims in respect of any such action or proceeding may be heard and
determined in such court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to this Agreement
in the courts of any jurisdiction. Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement in the
courts of the Province of Quebec. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defence of an inconvenient
forum to the maintenance of such action or proceeding in any such court. The
Company hereby irrevocably appoints National Bank Trust Inc., 1100 University
Street, Montreal, Québec, Canada, H3B 2G7 ("Company's Process Agent"), as its
agent to receive, on behalf of the 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 the Company's Process Agent at the Company's Process Agent's
above address. The Company hereby irrevocably authorizes and directs its agent
to accept such service on its behalf. The parties hereto hereby agree that the
final judgment in any such action or proceeding shall be conclusive and may be
in force in any other jurisdiction by suit on the judgment or in any other
manner provided by law.
 
12.7
Relationship of Parties

 
Nothing herein contained shall be deemed or construed to create a partnership or
joint venture between the parties. The duties and responsibilities of the
Servicer shall be rendered by it as a provider of services and not as a general
purpose agent of the Company. The Servicer shall have full control of all of its
acts, doings, proceedings, relating to or requisite in connection with the
discharge of its duties and responsibilities under this Agreement.
 
12.8
Quebec Sales Tax and Goods and Services Tax

 
The Servicer shall collect from the Company the Goods and Services Tax ("GST")
and the Quebec Sales Tax ("QST") on the Servicing Fee, and shall remit them to
the appropriate tax authorities, if applicable.
 
12.9
Severability of Provisions

 
If any one or more of the covenants, agreements, provisions or terms of this
Agreement shall be held invalid for any reason whatsoever, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Agreement.

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12.10
Recordation of Assignments of Mortgage

 
Until the Company or its assignee registers its title to the Mortgage Loans, the
Seller will hold the registered title to the Mortgage Loans for and on behalf of
the Company and its assignee. Notwithstanding any provision herein to the
contrary, in the event that any of the issued and outstanding senior, unsecured
indebtedness of National Bank of Canada is rated "Baa3," or less, by Moody's
Investors Service, Inc., or "BBB-," or less, by Standard & Poor's Ratings
Services, the Servicer will promptly cause any mortgage loans to which the
Servicer holds title on behalf of the Company, to be registered in the name of
the Company.
 
12.11
Exhibits

 
The exhibits to this Agreement are hereby incorporated and made a part hereon
and are integral parts of this Agreement.
 
12.12
English Language

 
The parties hereto confirm that the present Agreement has been drawn up in the
English language at their request. Les parties aux présentes confirment que la
présente convention a été rédigée en langue anglaise à leur demande.
 
 
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
 
NB CAPITAL CORPORATION

By:
     
Donna Goral
 

NATIONAL BANK OF CANADA

By:
     
Jean Dagenais
 

 
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EXHIBIT 1
 
Custodial Account Certification
 
_______________________________, l
 
National Bank of Canada hereby certified that it has established the account
described below as a Custodial Account pursuant to Section 2.4 of the Servicing
Agreement, dated as of l, l.
 
Title of Account:
National Bank of Canada., in trust for NB Capital Corporation,
 
and various Mortgagors
   
Depository:
______________________________________________

Account Number:
 
Address of Depository at which the Account is maintained:
 
_____________________________________________________________________________________
 
_____________________________________________________________________________________
 
 
NATIONAL BANK OF CANADA
 
By:
         
Name:
         
Title:
   

 

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EXHIBIT 2
 
Custodial Account Letter Agreement
 
_______________________________, l
 
To: __________________________________________________ (the "Depository")
 
As Servicer under the Servicing Agreement dated as of l, l (the "Agreement"), we
hereby authorize and request you to establish an account, as a Custodial Account
pursuant to Section 2.4 of the Agreement, to be designated as "National Bank of
Canada, in trust for NB Capital Corporation and various Mortgagors". All
deposits in the account shall be subject to withdrawal therefrom by order signed
by National Bank of Canada. This letter is submitted to you in duplicate. Please
execute and return one original to us.
 
 
NATIONAL BANK OF CANADA
 
By:
         
Name:
         
Title:
   

 
The undersigned, as Depository, hereby certified that the above described
account has been established under Account Number
_______________________________, at the office of the Depository indicated
above, and agrees to honour withdrawals on such account as provided above.
 
 
DEPOSITORY
 
By:
         
Name:
         
Title:
   

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EXHIBIT 3
 
Escrow Account Certification
 
_______________________________, l
 
National Bank of Canada hereby certified that it has established the account
described below as an Escrow Account pursuant to Section 2.6 of the Servicing
Agreement, dated as of l, l.
 
Title of Account:
National Bank of Canada., in trust for NB Capital Corporation, and various
Mortgagors
   
Depository:
______________________________________________

Account Number:
 
Address of Depository at which the Account is maintained:
 
_____________________________________________________________________________________
 
_____________________________________________________________________________________
 
 
NATIONAL BANK OF CANADA
 
By:
         
Name:
         
Title:
   

 

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EXHIBIT 4
 
Escrow Account Letter Agreement
 
_______________________________, l
 
To: __________________________________________________ (the "Depository")
 
As Servicer under the Servicing Agreement dated as of l, l (the "Agreement"), we
hereby authorize and request you to establish an account, as an Escrow Account
pursuant to Section 2.6 of the Agreement, to be designated as "National Bank of
Canada, in trust for NB Capital Corporation and various Mortgagors". All
deposits in the account shall be subject to withdrawal therefrom by order signed
by National Bank of Canada. This letter is submitted to you in duplicate. Please
execute and return one original to us.
 
 
NATIONAL BANK OF CANADA
 
By:
         
Name:
         
Title:
   

 
The undersigned, as Depository, hereby certified that the above described
account has been established under Account Number
_______________________________, at the office of the Depository indicated
above, and agrees to honour withdrawals on such account as provided above.
 
 
DEPOSITORY
 
By:
         
Name:
         
Title:
   

 

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