Document:

EX-10.26

 [####] Certain information in this document has been omitted from this exhibit because it is both (i) not
material and (ii) would be competitively harmful if publicly disclosed. 
 Exhibit 10.26 

Private & Confidential 
  

 
  

									
		  	Dated	  		  	23 January 2021	  	

 Z FACTOR LIMITED 

AND 
 INITIAL
PARTICIPANTS 
 AND 

UNITED MEDICINES BIOPHARMA LIMITED 

INCENTIVISATION DEED 

relating to 
 Z FACTOR LIMITED

 Private & Confidential 

 
  

TABLE OF CONTENTS 
  

							
		  		  	 	Page	 
			
	1.	  	 Definitions
	  	 	1	 
			
	2.	  	 Interpretation
	  	 	5	 
			
	3.	  	 Success Payments
	  	 	6	 
			
	4.	  	 Disqualified Participants
	  	 	7	 
			
	5.	  	 New Participants
	  	 	8	 
			
	6.	  	 Tax
	  	 	8	 
			
	7.	  	 Further Assurance
	  	 	8	 
			
	8.	  	 Confidentiality
	  	 	9	 
			
	9.	  	 Costs and expenses
	  	 	9	 
			
	10.	  	 Cumulative remedies
	  	 	9	 
			
	11.	  	 Waiver
	  	 	9	 
			
	12.	  	 Entire agreement
	  	 	9	 
			
	13.	  	 Effectiveness; Termination
	  	 	10	 
			
	14.	  	 Amendments
	  	 	11	 
			
	15.	  	 Set Off
	  	 	11	 
			
	16.	  	 No partnership
	  	 	11	 
			
	17.	  	 Assignment and transfer
	  	 	11	 
			
	18.	  	 Rights of third parties
	  	 	12	 
			
	19.	  	 Counterparts; No originals
	  	 	12	 
			
	20.	  	 Notices
	  	 	12	 
			
	21.	  	 Severance
	  	 	12	 
			
	22.	  	 Governing law
	  	 	13	 
			
	23.	  	 Jurisdiction
	  	 	13	 
		
	 SCHEDULE 1 : THE INITIAL PARTICIPANTS
	  	 	14	 
		
	 SCHEDULE 2 : DEED OF ADHERENCE
	  	 	15	 

DATE                        
            23 January 2021 
 PARTIES 

 

	(1)	 Z FACTOR LIMITED, a private company limited by shares incorporated in England with company number
09274181 with its registered office at C/O The Cambridge Partnership Limited The Dorothy Hodgkin Building, Babraham Research Campus, Babraham, Cambridge, United Kingdom, CB22 3AT (the “Company”); 

 

	(2)	 THE INITIAL PARTICIPANTS whose names and addresses are set out in columns 1 and 2 of Schedule 1
(together the “Initial Participants”); and 

  

	(3)	 UNITED MEDICINES BIOPHARMA LIMITED, a private company limited by shares incorporated in England with
company number 12973576 and with its registered office at The Dorothy Hodgkin Building, Babraham Research Campus, Babraham, Cambridge, United Kingdom, CB22 3FH (“UM”). 

INTRODUCTION 
  

	(A)	 At Completion, UM shall acquire the entire issued share capital of the Company in consideration for the
issuance of new shares in UM pursuant to a contribution agreement entered into on or about the date of this Deed by UM, the Company and the selling shareholders of the Company (the “Contribution Agreement”). 

 

	(B)	 The parties have entered into this Deed to incentivise the Participants to reach the Company’s milestones
and/or achieve an Exit (as defined below). 

 AGREED TERMS 

 

	1.	 DEFINITIONS 

In this Deed, except where a different interpretation is necessary in the context, the words and expressions set out below shall have the
following meanings: 
 “Act” means the Companies Act 2006, as amended and/or superseded from time to time; 

“Acting in Concert” has the given to it in The City Code on Takeovers and Mergers published by the Panel on Takeovers and
Mergers (as amended and/or superseded from time to time); 
 “Active Participants” means those Participants who are
Employees at the relevant time; 
 “Adverse Event” means any milestone set out in the Business Plan not being achieved
within the specified time period and the UM Representative (acting reasonably and following consultation with the Active Participants) determining that the missed milestone should not be waived and/or the specified time period should not be extended
pursuant to the terms of the Portfolio Company Agreement; 
 “Asset Sale” means the sale or other disposal (in one
transaction or a series of related transactions) by the Company and/or any other member of the Group of the Lead Asset. For these purposes a “disposal” may include, without limitation, the grant by the Company and/or any other member of
the Group of an exclusive licence in respect of the Lead Asset; 
 “Bad Leaver” means a person who ceases to be an Employee
(and does not otherwise continue to be an Employee) as a consequence of: 
  

	 	(a)	 that person’s dismissal as an Employee for Cause; or 

  
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	 	(b)	 such person’s resignation as an Employee in circumstances where the Company would be entitled to dismiss
the Employee for Cause; 

 and, for the avoidance of doubt, if a person ceases to be an Employee (and does not otherwise
continue to be an Employee) as a consequence of a reason other than as set out in (a) or (b), such person shall not be a Bad Leaver but may still be an Intermediate Leaver and/or a Disqualified Participant; 

“Board” means the board of directors of the Company designated by UM and any committee of the board as constituted from time
to time; 
 “Business Day” means a day (which is not a Saturday, Sunday or a public or bank holiday in the following
location) on which banks generally are open in the City of London (England); 
 “Business Plan” means the business plan of
the Company set out in the schedule to the Portfolio Company Agreement; 
 “Cause” means the lawful termination of that
person’s contract of employment or consultancy without notice or payment in lieu of notice as a consequence of that person’s fraud, gross misconduct or material breach of any of his Restrictive Covenants; 

“Completion” has meaning set out in the Contribution Agreement (as defined in the Introduction); 

“Contingent Consideration” means any contingent consideration payable after completion of the Share Sale or Asset Sale (as
applicable) which is contingent on the occurrence of an event, [####]. 
 “Controlling Interest” means an interest in
shares giving to the holder or holders control of the Company within the meaning of section 1124 of the CTA 2010; 
 “CTA 2010”
means the Corporation Tax Act 2010; 
 “Deed of Adherence” means the deed of adherence substantially in the form set
out in Schedule 2 (or in such other form as approved by UM and a Participant Majority); 
 “Disqualification Date” means in
the case of a Participant who becomes a Disqualified Participant: (a) as a result of being a Bad Leaver or an Intermediate Leaver, the Effective Termination Date; and (b) as a result of a material breach of any Restrictive Covenant, the
date on which the person first materially breaches any Restrictive Covenant after having ceased to be an Employee; 
 “Disqualified
Participant” means with regards to any Participant, where he: 
  

	 	(a)	 is a Bad Leaver; 

  

	 	(b)	 is an Intermediate Leaver; or 

 

	 	(c)	 has materially breached any of his Restrictive Covenants (in the case of a Participant who is an Employee, only
after such Participant has ceased to be an Employee); 

 “Effective Termination Date” means the date on
which the Participant’s employment or consultancy terminates; 
 “Employee” means an individual who is employed by, or
who provides direct or indirect consultancy services to, the Company or any Group Company; 

  
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 “Exit” means a Share Sale or an Asset Sale, in each case excluding any such
event undertaken for tax planning purposes or pursuant to a bona fide restructuring; 
 [####] 

 

	 	[####]	 

  

	 	[####]	 

[####] 
  

	 	[####]	 

  

	 	[####]	 

[####] 
 “Good
Leaver” means any Participant who ceases to be an Employee (and does not otherwise continue to be an Employee) by reason of: (a) death; (b) permanent incapacity; (c) the termination of the Participant’s contract of employment
or consultancy by the Company other than for Cause; or (d) UM determining in its sole discretion that such Participant is a Good Leaver; 

“Group Companies” means the Company and each and any of the Subsidiaries from time to time, and “Group Company”
shall mean any one of them and “Group” shall be construed accordingly; 
 “Initial Pro Rata Entitlement”
means, with respect to any Participant, such Participant’s pro rata proportion set out against his name in column 4 of the table set out in Schedule 2 hereto; 

“Intermediate Leaver” means any Participant who ceases to be an Employee (and does not otherwise continue to be an Employee)
at any time during the Relevant Period other than where such person is a Good Leaver or a Bad Leaver; 
 “Lead Asset” means
the clinical lead, ZF874, and related molecules, the formal backup, ZF887, and related molecules, or as otherwise agreed in writing by UM and all of the Participants from time to time; 

“Listing” means the admission of (or in the case of admission to NASDAQ, the initial public offering of) all or any of the
shares in the Company (or the shares of a holding company of the Company, excluding UM and United Medicines Biopharma (Midco) Limited) or securities representing those shares (including without limitation depositary interests, American depositary
receipts, American depositary shares and/or other instruments) to trading on NASDAQ or the Official List of the United Kingdom Listing Authority or the AIM Market operated by the London Stock Exchange Plc or any other recognised investment exchange
(as defined in section 285 of the Financial Services and Markets Act 2000); 

  
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 [####] 

“Major Market Countries” means the United States, France, Germany, Italy, Spain and the United Kingdom, and “Major
Market Country” means any of them; 
 “Marketing Approval” means, with respect to the Lead Asset in a particular
country or jurisdiction, all approvals, licences, permits, certifications, registrations or authorisations necessary for the sale or supply of the Lead Asset in such country or jurisdiction for human use outside of clinical trials, but excluding
pricing or reimbursement approvals; 
 “Milestone” means Marketing Approval of the Lead Asset in any Major Market Country
and, for the avoidance of doubt, the Milestone can only be achieved once; 
 “Milestone Payment” means the sum of
$20,000,000 (USD twenty million); 
 “Month” means the period of time between the same dates in successive calendar months
and if there is no such same date, the last day of the calendar month in question; 
 “New Participant” means any person
who becomes a party to this Deed as a “New Participant” by signing a Deed of Adherence in accordance with clause 5 (New Participants); 

“Participant Majority” means Active Participants who together hold at least fifty per cent. (50%) of the aggregate Pro Rata
Entitlements held by the Active Participants from time to time; 
 “Participants” means each of: (a) the Initial
Participants; and (b) the New Participants, but excluding any Disqualified Participants; 
 “Personal Representative”
shall mean the legal personal representative(s) of a Participant (being either the executors of the will or the duly appointed administrator(s) of the estate) who has provided to the Board evidence of their appointment as such; 

“Portfolio Company Agreement” means the portfolio company agreement entered into by the Company, UM and the Initial
Leadership Team (each as defined therein) on or about the date of this Deed (as amended and/or superseded from time to time); 

“Pro Rata Entitlement” means, with respect to any Participant, such Participant’s pro rata proportion of any Success
Payment, which as at the date of this Deed shall be the Initial Pro Rata Entitlement, as amended and/or superseded in accordance with the terms of this Deed; 

[####] 
 “Restrictive
Covenants” means any obligations of a Participant in respect of confidentiality, intellectual property, non-solicitation, non-dealing, non-poaching and/or non-competition given in favour of any Group Company or UM in the Portfolio Company Agreement or his/her employment or consultancy agreement with any Group
Company, any settlement agreement or other agreement to which he/she is a party with the Company, any member of the Group and/or UM; 

“Share Sale” means the sale of any of the shares (in one transaction or as a series of transactions) which results in the
purchaser of the shares and persons Acting in Concert with him together acquiring a Controlling Interest in the Company, except where following 

  
 4 

 
completion of the sale, the shareholders and the proportion of shares held by each of them are the same as the shareholders and their shareholdings in the Company immediately prior to the sale;

 “Shares” means the entire issued share capital of the Company; 

“Subsidiary” means any subsidiary (as defined in section 1159 of the Act) of the Company from time to time; 

[####] 
 “UM
Representative” means the chief executive officer of UM, being at the date of this Deed Saurabh Saha, or such other person(s) as decided by the board of directors of UM and notified to the Company and the Active Participants in writing;

 [####] 
 [####] 

 

	 	[####]	 

  

	 	[####]	 

[####] 
  

	2.	 INTERPRETATION 

 

	2.1	 The clause and paragraph headings and the table of contents used in this Deed are inserted for ease of
reference only and shall not affect construction. 

  

	2.2	 Words and expressions which are defined in the Act shall have the meanings attributed to them therein when used
in this Deed unless otherwise defined or the context otherwise requires. 

  

	2.3	 References to a “clause” or “Schedule” is, unless the context specifically
requires otherwise, to the corresponding clause of or Schedule or appendix to this Deed, and reference to a “paragraph” is, unless the context specifically requires otherwise, a reference to the corresponding paragraph of the
provision in which that reference occurs. 

  

	2.4	 References to persons shall include any natural person, individual, company, bodies corporate, unincorporated
association, firm, corporation, partnership, trust, joint venture or consortium, government, state or agency of a state, and any undertaking, in each case whether or not having separate legal personality and irrespective of the jurisdiction in or
under the laws of which it was incorporated or exists. 

  
 5 

	2.5	 Reference to a “party” or “parties” is to a party or parties of this Deed and
shall include any person that has signed a Deed of Adherence. 

  

	2.6	 References to “writing” and “written” include any non-transitory form of visible reproduction of words. 

  

	2.7	 References to those of the parties that are individuals include their respective legal Personal Representatives
and any person or entity to whom the rights of this Deed have been assigned under clause 17. 

  

	2.8	 References to the word “include” or “including” (or any similar term) are not
to be construed as implying any limitation and general words introduced by the word “other” (or any similar term) shall not be given a restrictive meaning by reason of the fact that they are preceded or followed by words indicating
a particular class of acts, matters or things. 

  

	2.9	 Except where the context specifically requires otherwise, words importing one gender shall be treated as
importing any gender, words importing individuals shall be treated as importing corporations and vice versa and words importing the singular shall be treated as importing the plural and vice versa. 

 

	2.10	 In this Deed, the term “consultant” includes: 

 

	 	(a)	 a person engaged directly by any Group Company to provide services to any of them; and 

 

	 	(b)	 a person (an “Indirect Consultant”) employed or engaged by a third party (a “Service
Company”) to work in, including but not limited to, the provision of services on behalf of such Service Company to any Group Company, where that Service Company is engaged by any Group Company to provide such services,

 and the term “consultancy services ” shall include services provided by a consultant directly
and/or as an Indirect Consultant. 
  

	2.11	 Where any sum, amount or liability denominated in one currency as at a particular date is to be translated into
another currency on such date for the purposes of interpreting or giving effect to this Deed, the prevailing foreign currency spot exchange rate published in the Financial Times, London edition, as at that date (or, if not published on such date,
the nearest preceding Business Day) shall apply (or such other exchange rate as the Company, UM and the Participants may agree in writing). 

  

	[####]	 

  

	[####]	 

  

	[####]	 

  

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	 	[####]	 

[####] 

  
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	[####]	 

  

	 	[####]	 

  

	 	[####]	 

  

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	 	[####]	 

  

	[####]	 

  

	[####]	 

  

	[####]	 

  

	4.	 DISQUALIFIED PARTICIPANTS 

 

	4.1	 In the event that a Participant becomes a Disqualified Participant, the Disqualified Participant shall:

  

	 	(a)	 no longer be entitled to any portion of any Success Payment and his Pro Rata Entitlement shall be zero per
cent. (0%); and 

  

	 	(b)	 cease to be a party to this Deed, 

and, for the avoidance of doubt, in such case the Pro Rata Entitlement of the remaining Participants shall remain the same. 

  
 7 

	4.2	 A Disqualified Participant shall: 

 

	 	(a)	 subject to clause 4.2(b), be under no obligation to repay to the Company, UM, any other Participant or any
other third party any Success Payments received prior to the Disqualification Date; 

  

	 	(b)	 repay to the Company forthwith any Success Payments received after the Disqualification Date (for the avoidance
of doubt, no Participant shall be entitled to any amount of any Success Payment repaid to the Company or UM); and 

  

	 	(c)	 no longer be entitled to any portion of any Success Payment, regardless of whether any Success Payment was
payable (but not yet paid) as at the Disqualification Date. 

  

	4.3	 A Disqualified Participant shall have no claim against the Company, any Group Company and/or UM in respect of
his termination of his contract of employment or consultancy in relation to any provision of this Deed which has the effect of requiring the Disqualified Participant to lose their Pro Rata Entitlement of any Success Payment. 

 

	5.	 NEW PARTICIPANTS 

 

	5.1	 Following consultation with the Active Participants, the Board shall have absolute discretion to allocate the
Unallocated Pro Rata Entitlement to any Participant or New Participant and admit any such New Participant to this Deed by such person signing a Deed of Adherence which shall set out such New Participant’s Pro Rata Entitlement. In such case the
Pro Rata Entitlements of the existing Participants shall remain unchanged. 

  

	5.2	 In addition to the right to admit New Participants in clause 5.1, the Board may admit New Participants where
there is insufficient Unallocated Pro Rata Entitlement (provided it has the consent of the Participants (save that no Participant shall unreasonably withhold, delay and/or condition their consent if Participants amounting to a Participant Majority
have provided their consent)) by such person signing a Deed of Adherence which shall set out such New Participant’s Pro Rata Entitlement. In such case the Pro Rata Entitlements of the existing Participants shall decrease by such amount pro rata
to their respective Pro Rata Entitlement so as to allocate the required Pro Rata Entitlement to the New Participant (unless the Participants (with the consent of the Board, which shall not be unreasonably withheld or delayed) unanimously determine
otherwise). 

  

	5.3	 A New Participant who has entered into a Deed of Adherence pursuant to this Deed shall have the benefit of and
be subject to the burden of all the provisions to this Deed as if he were a Participant, and this Deed shall be interpreted accordingly. Nothing in this clause shall be construed as requiring any New Participant to perform again any obligation or
discharge again any liability already performed or discharged or entitle any New Participant to receive again any benefit already enjoyed by the Participants prior to the New Participant becoming a party to this Deed; and nothing herein shall be
construed or interpreted to result in any Participant being obliged to make any compensation payments to the New Participant with respect to any Success Payment that has been paid to a Participant (including a Disqualified Participant) or has become
payable as a result of the achievement of a Milestone or the occurrence of an Exit prior to the date of the relevant Deed of Adherence. 

  

	6.	 TAX 

To the extent applicable, the Company shall be entitled to deduct: (a) any income tax due under PAYE and/or any employee national
insurance contributions or any equivalent tax in the relevant jurisdiction; and (b) any other deduction or withholding required by any law or regulation applicable to any Participant (and all and any other deductions required by law) with
respect to any Success Payment paid to such Participant pursuant to this Deed. 
  

	7.	 FURTHER ASSURANCE 

The parties shall at their own cost use all reasonable endeavours from time to time, on being required to do so by any other party, to do or
procure the doing of all such acts and/or executeor 

  
 8 

 
procure the execution of all such documents in a form reasonably satisfactory to the other party for giving full effect to this Deed and securing to the other parties the full benefit of the
rights, powers, privileges and remedies conferred upon any party in this Deed. 
  

	8.	 CONFIDENTIALITY 

 

	8.1	 The parties shall (and shall procure, where relevant, that each other member of its group and their respective
officers, employees, agents and advisers shall) preserve the confidentiality of the existence, the terms of this Deed and any information with respect to an Exit provided to the Participants in accordance clause 3.4, and, subject to clause 8.2, not
directly or indirectly reveal or disclose such information. 

  

	8.2	 Notwithstanding any other provision in this Deed, the parties may disclose the existence and the terms and
conditions of this Deed if and to the extent: 

  

	 	(a)	 required by applicable law or for the purpose of any judicial or arbitral proceedings; 

 

	 	(b)	 required by any securities exchange on which such party’s securities are listed or 

 

	 	(c)	 required by any regulatory or governmental or other authority with relevant powers to which such party is
subject or submits (whether or not the requirement has the force of law); 

  

	 	(d)	 required by its professional advisers (including auditors), officers, employees, consultants, sub-contractors or agents to provide their services (and subject always to similar duties of confidentiality) and any member of its group and their respective officers, employees, agents and advisers;

  

	 	(e)	 the Company has given its prior written consent to the disclosure; 

 

	 	(f)	 it is necessary to obtain any relevant tax clearances from or otherwise to disclose to comply with any
legislation, regulations, concessions, guidance or practice of any appropriate tax authority; or 

  

	 	(g)	 such information becomes publicly available (other than through a breach of this clause 8
(Confidentiality)). 

  

	9.	 COSTS AND EXPENSES 

The parties shall bear their own costs and disbursements incurred in the negotiations leading up to and in the preparation of this Deed and of
matters incidental to this Deed. 
  

	10.	 CUMULATIVE REMEDIES 

The rights, powers, privileges and remedies conferred upon the parties in this Deed are cumulative and are not exclusive of any other rights,
powers, privileges or remedies provided by law. 
  

	11.	 WAIVER 

The express or implied waiver by any party to this Deed of any of its rights or remedies arising under this Deed or by law shall not constitute
a continuing waiver of the right or remedy waived or a waiver of any other right or remedy. 
  

	12.	 ENTIRE AGREEMENT 

 

	12.1	 This Deed and the documents referred to or incorporated in it constitute the entire agreement between the
parties relating to the subject matter of this Deed and supersede and extinguish 

  
 9 

 any prior drafts, agreements, undertakings, representations, warranties and arrangements of
any nature whatsoever, whether or not in writing, between the parties in relation to the subject matter of this Deed. 
  

	12.2	 Each of the parties acknowledges and agrees that it has not entered into this Deed in reliance on any statement
or representation of any person (whether a party to this Deed or not) other than as expressly incorporated in this Deed and the documents referred to or incorporated in this Deed. 

 

	12.3	 Without limiting the generality of the foregoing, each of the parties irrevocably and unconditionally waives
any right or remedy it may have to claim damages and/or to rescind this Deed by reason of any misrepresentation (other than a fraudulent misrepresentation) having been made to it by any person (whether party to this Deed or not) and upon which it
has relied in entering into this Deed (other than as expressly incorporated in this Deed and the documents referred to or incorporated in this Deed). 

  

	12.4	 Each of the parties acknowledges and agrees that damages alone may not be an adequate remedy for the breach of
any of the undertakings or obligations as set out in this Deed. Accordingly, without prejudice to any other rights and remedies the parties may have, the parties shall be entitled to seek the remedies of injunction, specific performance or other
equitable relief for any threatened or actual breach of the terms of this Deed. 

  

	12.5	 Nothing contained in this Deed or in any other document referred to or incorporated in it shall be read or
construed as excluding any liability or remedy as a result of fraud. 

  

	13.	 EFFECTIVENESS; TERMINATION 

 

	13.1	 The effectiveness of all rights and obligations under or in connection with this Deed shall be subject to the
condition precedent of the occurrence of Completion and all rights and obligations shall apply as from the date that such condition precedent is fulfilled; provided that if Completion has not occurred by the Longstop Date Deed shall automatically
terminate with immediate effect. 

  

	13.2	 Subject to clause 13.3, this Deed shall terminate and be of no further force or effect upon the earlier of:

  

	 	[####]	 

  

	 	[####]	 

  

	 	[####]	 

[####] 
  

	 	[####]	 

  

	 	[####]	 

  

	 	[####]	 

  
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	13.3	 On termination of this Deed, clause 8 (Confidentiality) shall survive and continue in full force and
effect but all other rights and obligations of the parties shall cease immediately. Termination shall not affect the parties’ accrued rights and obligations as at such termination, in particular as set out in clauses 13.1 and 13.2 above.

  

	13.4	 For the avoidance of doubt, the occurrence of an Adverse Event shall not constitute grounds for any party to
terminate this Deed for cause or otherwise. 

  

	14.	 AMENDMENTS 

  

	14.1	 Subject to clauses 3.5 and 14.2, all and any of the provisions of this Deed may only be deleted, varied,
supplemented, restated or otherwise changed in any way at any time with the prior written consent of the Company, UM and Participants holding at least a majority of the aggregate Pro Rata Entitlements, in which event such change shall be binding
against all the parties hereto provided that if such change would impose any new obligations on any Participant(s) that is not imposed on all other Participants or increase any existing obligation of any Participant(s) that is not increased for all
other Participants, the consent of the affected Participant(s) to such amendment shall be specifically required. 

  

	14.2	 The Pro Rata Entitlements of the Participants may only be amended with the consent in writing of all of the
Participants (and the Board, which shall not be unreasonably withheld or delayed) or as otherwise provided for in accordance with clauses 3.5,4 (Disqualified Participants) or 5.2. 

 

	15.	 SETOFF 

The Company may at any time set off any actual liability of any Participant to the Company (as applicable) against any actual liability of the
Company to the Participant, whether either liability is present or future, liquidated or unliquidated, and whether or not either liability arises under this Deed. Ifthe liabilities to be set off are expressed in different currencies, the Company may
convert either liability at a market rate of exchange for the purpose of set-off. Any exercise by the Company of its rights under this clause shall not limit or affect any other rights or remedies available to
it under this Deed or otherwise. 
  

	16.	 NO PARTNERSHIP 

Nothing in this Deed is intended to or shall be construed as establishing or implying any partnership of any kind between the parties. 

 

	17.	 ASSIGNMENT AND TRANSFER 

 

	17.1	 Subject to clauses 17.3 and 17.4, this Deed is personal to the parties and no party shall:

  

	 	(a)	 assign any of its rights under this Deed; 

 

	 	(b)	 transfer any of its obligations under this Deed; 

 

	 	(c)	 sub-contract or delegate any of its obligations under this Deed; or

  

	 	(d)	 charge or deal in any other manner with this Deed or any of its rights or obligations. 

 

	17.2	 Subject to clauses 17.3 and 17.4, any purported assignment, transfer,
sub-contracting, delegation, charging or dealing in contravention of clause 17.1 shall be ineffective. 

  

	17.3	 A Participant’s rights under this Deed shall be assigned automatically to their Personal Representative on
death and the Personal Representative shall notify UM of such assignment as soon as reasonably practical. 

  

	17.4	 A Participant or their Personal Representative can assign any rights under this Deed with consent in writing
from UM and on such terms and as determined by UM in its absolute 

  
 11 

	 	
discretion (save that in the case of a Personal Representative, UM’s consent shall not be unreasonably withheld, conditioned or delayed provided that the obligations and/or liability of the
Company and/or UM is not increased as a result of the assignment). 

  

	18.	 RIGHTS OF THIRD PARTIES 

This Deed does not confer any rights on any person or party (other than the parties) pursuant to the Contracts (Rights of Third Parties) Act
1999. 
  

	19.	 COUNTERPARTS; NO ORIGINALS 

This Deed may be executed in any number of counterparts, each of which shall constitute an original, and all the counterparts shall together
constitute one and the same agreement. The exchange of a fully executed version of this Deed (in counterparts or otherwise) by electronic transmission (including pdf or other digital format including any electronic signature complying with the
Electronic Signatures in Global and National Commerce Act 2000, e.g., www.docusign.com) and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes and shall be sufficient to
bind the parties to the terms and conditions of this Deed. No exchange of original signatures is necessary. 
  

	20.	 NOTICES 

  

	20.1	 To be valid, any communication and/or information to be given in connection with this Deed must be in writing
in English and either be delivered by hand or sent by first class post, email or other electronic form: 

  

	 	(a)	 to any body corporate which is a party at its registered office; or 

 

	 	(b)	 to any Participant at the address of that Participant shown in Schedule 1, 

or in each such case other address as the recipient may notify to the other parties for such purpose in accordance with the clause 20
(Notices). 
  

	20.2	 A communication sent according to clause 20.1 shall be deemed to have been received: 

 

	 	(a)	 if delivered by hand, at the time of delivery; 

 

	 	(b)	 if sent by pre-paid first class post, on the second day after posting;
or 

  

	 	(c)	 if sent by email or other electronic form, at the time of completion of transmission by the sender;

 except that if a communication is received between 17:30 on a Business Day and 09:30 on the next Business Day, it shall
be deemed to have been received at 09:30 on the second of such Business Days. 
  

	21.	 SEVERANCE 

  

	21.1	 If any provision of this Deed is held to be invalid or unenforceable by any judicial or other competent
authority, all other provisions of this Deed will remain in full force and effect and will not in any way be impaired. 

  

	21.2	 If any provision of this Deed is held to be invalid or unenforceable but would be valid or enforceable if some
part of the provision were deleted or modified, the provision in question will apply with the minimum modifications necessary to make it valid and enforceable. 

  
 12 

	22.	 GOVERNING LAW 

This Deed (and any dispute or claim relating to it or its subject matter (including non-contractual
claims)) is governed by and is to be construed in accordance with English law. 
  

	23.	 JURISDICTION 

The parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction to settle any claim, dispute or issue
(including non-contractual claims) which may arise out of or in connection with this Deed. 

[Intentionally left blank, the schedules and signature pages follow.] 

  
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 SCHEDULE 1 : [####] 

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 This Deed has been executed and delivered as a deed on the date shown on the first page. 

 

					
	Executed and delivered as a Deed by	  	)	  	
	 UNITED MEDICINES BIOPHARMA
	  	)	  	
	LIMITED	  	)	  	[####]
		  		  	[####]
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	Executed and delivered as a Deed by	  	)	  	
	Z FACTOR LIMITED	  	)	  	
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	acting by:	  		  	Signature
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	Signature of Witness	  		  	  

		  		  	
	Name of Witness	  		  	  

		  		  	
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	Name of Witness	  		  	  

		  		  	
	Address of Witness	  		  	  

		  		  	
	Occupation of Witness	  		  	  

  
 16 

 This Deed has been executed and delivered as a deed on the date shown on the first page. 

 

					
	Executed and delivered as a DEED by	  	)	  	
	 UNITED MEDICINES BIOPHARMA
	  	)	  	
	LIMITED	  	)	  	
                     
  

		  		  	Signature
	acting by:	  		  	
	Position:	  		  	
		  		  	
	 In the presence of:
	  		  	
		  		  	
	Signature of Witness	  		  	
                   

		  		  	
	Name of Witness	  		  	
                   

		  		  	
	Address of Witness	  		  	
                   

		  		  	
	Occupation of Witness	  		  	
                   

		  		  	
	Executed and delivered as a DEED by	  	)	  	
	Z FACTOR LIMITED	  	)	  	
		  	)	  	[####]
	acting by: [####]	  		  	[####]
	Position: [####]	  		  	
		  		  	
	In the presence of:	  		  	
		  		  	
	Signature of Witness	  		  	[####]
			
	Name of Witness 	  		  	[####]
			
	Address of Witness	  		  	[####]
			
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	Name of Witness	  		  	[####]
			
	Address of Witness	  		  	[####]
			
	Occupation of Witness	  		  	[####]

  
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	Executed and delivered as a DEED by	  	)	  	
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	Address of Witness	  		  	[####]
			
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	Address of Witness	  		  	 [####]

			
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	Name of Witness	  		  	 [####]

			
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	Occupation of Witness	  		  	 [####]

  
 18Document

Note: Certain identified information (marked with [^^^]) has been excluded from this exhibit because it is both not material and is the type that the Federal Home Loan Bank of Boston treats as private or confidential.

FEDERAL HOME LOAN BANK OF BOSTON 

2021 EXECUTIVE INCENTIVE PLAN 

Purpose:

The Federal Home Loan Bank of Boston (Bank) has established an Executive Incentive Plan (EIP) to:

•promote achievement of the Bank’s financial plan and strategic objectives as spelled out in the 2021 Strategic Business Plan;
•provide a total rewards package that is competitive with other financial institutions in the employment markets in which the Bank competes, including other Federal Home Loan Banks; and
•facilitate the retention and commitment of corporate officers or a select group of management or highly compensated employees.

Guiding Principles:

The 2021 EIP is intended to:

•Reflect a reasonable assessment of the Bank’s financial situation and prospects while rewarding achievement of the Bank’s financial plan and strategic objectives as spelled out in the Bank’s 2021 Strategic Business Plan.
•Reinforce and reward the Bank’s commitment to conservative, prudent, sound risk management practices and preservation of the par value of the Bank’s capital stock.
•Tie a significant percentage of incentive awards to the long-term financial condition and performance of the Bank.
•Recognize the importance of individual performance through metrics linked to the Bank’s strategic goals and/or objectives of the participant’s principal functions and independent of the areas that they monitor.
1

Incentive Goals for Participants Outside Enterprise Risk Management:

The incentive goals for all participants, with the exception of those participants in Enterprise Risk Management, are summarized in the following table with more detail in Appendix A. Levels of achievement for the Pre-Assessment Core Return on Capital Stock goal have been rounded. Year-end results will be rounded for award calculations.

																					
	Goal	Weight	Threshold	Target	Excess
		Pres.	Tier I	Tiers II & III			
	Pre-assessment Core Return on Capital Stock, subject to risk limits	30%	30%	30%	3.93%, as adjusted for interest rates1
	4.37%, as adjusted for interest rates1
	5.25%, as adjusted for interest rates1

	Insurance Member Advances Outstanding	10%	10%	10%	$4.25 billion	$4.40 billion	$4.55 billion
	Insurance Membership	10%	10%	10%	3 new members	4 new members	6 new members
	Core Mission Goal	20%	20%	20%	CMA Ratio = 65.87%	CMA Ratio = 70.87%	CMA Ratio = 75.87%
	Voluntary Subsidy Programs	10%	10%	10%	Disburse $4.0 million in subsidy by 12/31/2021	Disburse $4.5 million in subsidy by 12/31/2021 
 
	Disburse $5.0 million in subsidy by 12/31/2021
	Operational Efficiency	20%	20%	20%	2021 Core Operating Expenses do not exceed the 2021 Core Operating Expense Budget approved by the board of directors.	2021 Core Operating Expenses do not exceed 97.0% of the 2021 Core Operating Expense Budget approved by the board of directors.	2021 Core Operating Expenses do not exceed 93.0% of the 2021 Core Operating Expense Budget approved by the board of directors.

1     Each of the performance levels will be adjusted up/(down) by 1.2 basis point for every basis point by which the average daily federal funds rate is greater than/(less than) the 0.06 % rate assumed in the 2021 Rebaseline Forecast.

Incentive Goals for Participants from Enterprise Risk Management:

Incentive goals for Enterprise Risk Management participants in Tiers I, II and III are summarized in the following table with more detail in Appendix A. Year-end results will be rounded for award calculations.

2

																		
	Goal	Weight	Threshold	Target	Excess
		Tier I	Tiers II & III			
	Bank wide ERM initiatives	25%	30%	As documented in Appendix A	As documented in Appendix A	As documented in Appendix A
	Pre-assessment Core Return on Capital Stock, subject to risk limits	25%	25%	3.93%, as adjusted for interest rates1
	4.37%, as adjusted for interest rates1
	5.25%, as adjusted for interest rates1

	Remediation of 2020 Report of Examination Matters Requiring Attention (MRAs) and recommendations	20%	15%	Clear all MRAs and [^^^] of [^^^] recommendations
	Clear all MRAs and recommendations	Target plus receive an upgrade in at least [^^^]

	Voluntary Subsidy Programs	10%	10%	Disburse $4.0 million in subsidy by 12/31/2021	Disburse $4.5 million in subsidy by 12/31/2021 

	Disburse $5.0 million in subsidy by 12/31/2021
	Operational Efficiency	20%	20%	2021 Core Operating Expenses do not exceed the 2021 Core Operating Expense Budget approved by the board of directors.	2021 Core Operating Expenses do not exceed 97.0% of the 2021 Core Operating Expense Budget approved by the board of directors.
	2021 Core Operating Expenses do not exceed 93.0% of the 2021 Core Operating Expense Budget approved by the board of directors.

1     Each of the performance levels will be adjusted up/(down) by 1.2 basis point for every basis point by which the average daily federal funds rate is greater than/(less than) the 0.06% rate assumed in the 2021 Rebaseline Forecast.

Incentive Opportunity:

Eligible participants will be assigned an incentive award opportunity that is expressed as a percentage of the incumbent’s 2021 base salary at year-end, as illustrated in the chart below.

												
		Incentive Opportunity as a Percent of Base Salary1
		Threshold	Target	Excess
	President	50.00%	75.00%	100.00%
	Tier I	30.00%	50.00%	70.00%
	Tier II	17.50%	35.00%	52.50%
	Tier III	12.50%	25.00%	37.50%

Goal achievement and individual awards for the goals on pages two and three will be calculated at the conclusion of 2021 based on results as of December 31, 2021. Participants in the President and Tier I will be eligible to receive fifty (50) percent of such award in a cash payment, participants in Tier II 

1 Maximum incentive payable in March of any year equals 100% of the plan year base salary.
3

will be eligible to receive sixty (60) percent of such award in a cash payment, subject to the final approval of the board of directors and the review of the Federal Housing Finance Agency (FHFA), if required, between March 1 and March 15, 2022. The remaining portion will be treated as a deferred award. Except as otherwise described under EIP Administration, the participant must be employed by the Bank on the date of payment of the award to receive the award. 

Deferred Award Payable after Year-End 2023:

Equal to the remaining deferred portion of the 2021 award multiplied by (1 + the cumulative 3-year Pre-assessment Core Return on Capital Stock as measured between January 1, 2021 and December 31, 2023). The Pre-assessment Core Return on Capital Stock will be measured as the total Pre-assessment Core Net Income earned between January 1, 2021 and December 31, 2023 divided by the daily average capital stock including mandatorily redeemable capital stock outstanding between January 1, 2021 and December 31, 2023.

In addition, the following conditions must be satisfied for participants to receive the deferred award 

•The participant is in employment with the Bank on the payment date or otherwise meets employment-related requirements described below in EIP Administration, and
•Subject to the discretion of the board of directors, the deferred award calculated above may be reduced (but not to a number that is less than zero) for all participants or for an individual participant, as applicable, if, during calendar years 2022 and/or 2023, any of the following occur such that if it had occurred prior to the year-end 2021 calculations, it would have negatively impacted the goal results and reduced the associated payout calculation:
◦operational errors or omissions resulting in material revisions to (A) the 2021 financial results, (B) information submitted to FHFA supporting the goal results or payout calculation, or (C) other data used to determine the combined award at year-end 2021;
◦submission of significant information to the SEC, Office of Finance and/or FHFA materially beyond any deadline or applicable grace period, other than late submissions that are caused by acts of God or other events beyond the reasonable control of the participants; or
◦failure by the Bank to make sufficient progress, as determined by the FHFA, in the timely remediation of examination and other supervisory findings relevant to the goal results or payout calculation.
•All deferred award payouts shall be subject to the final approval of the board of directors and review and non-objection by the FHFA (to the extent required by FHFA).

Eligible Participants:

The Executive Incentive Plan is intended to be an integral component of the Bank’s Total Reward Philosophy. All Corporate Officers are eligible to participate in the 2021 Executive Incentive Plan, at participation tier levels, and subject to any limitations on participation, as may be set by the Human Resources and Compensation Committee herein and/or by separate action.

4

Other members of management or highly compensated employees (i.e. non-Corporate Officers) may 
also be selected for participation in the 2021 Executive Incentive Plan: (i) by the Committee, for participation in Tiers I and II, or (ii) by the President and CEO, for participation in Tier III. Any such participation shall be subject to any limitations as may be set by the Human Resources and Compensation Committee herein and/or by separate action.

EIP Administration:

The EIP is administered by the Human Resources and Compensation Committee of the Board of Directors (Committee), which shall have full power and binding authority to construe, interpret, and administer the EIP, and to adjust it for extraordinary circumstances. Extraordinary circumstances may include changes in business strategy, termination or commencement of business lines, impact of severe economic fluctuations, significant growth or consolidation of the membership base, or significant regulatory or other changes impacting the Bank or Bank System. The Committee shall not make adjustments for extraordinary circumstances that include changes to goals, weights, or levels of achievement without re-submission to FHFA.

The Committee reserves the right at any time to amend, suspend or terminate the EIP in whole or in part, for any reason, and without the consent of any EIP participant but will not do so without re-submission to FHFA.

The Bank’s President and Chief Executive Officer will determine participation in the EIP with the concurrence of the Committee.

EIP awards shall not be considered earned or payable, in whole or in part, to any participant for any reason until they are finally determined by the Bank’s President and Chief Executive Officer with the concurrence of the Committee following the end of the plan years and following the non-objection of the FHFA (to the extent required by the FHFA).

Participants must receive a performance rating of “Meets Expectations” or better for 2021 in order to be eligible to receive an EIP payout.

Any individual hired into an eligible position during 2021 who is granted an award shall have any such incentive award prorated based on actual base salary paid during the plan year providing he/she has served a minimum of three months in that role in 2021 and otherwise satisfies the EIP’s requirements.

If an individual becomes a participant of the EIP during the plan year, e.g. due to a job change or promotion, then any EIP award will be prorated based on days in the EIP, provided he/she serves a minimum of three months in the EIP and otherwise satisfies the plan's requirements.

Except as described below, any EIP participant who terminates employment for any reason, whether voluntarily or involuntarily, before the applicable award payment date will not be entitled to any award, except as otherwise determined by the Bank’s President and Chief Executive Officer, with the concurrence of the Committee, at their sole discretion and subject to review of the FHFA, if required2.

2 Where the EIP refers to the participant's termination of employment for purposes of receiving any payment, whether such a termination has occurred will be determined in accordance with Section 409A of the Internal Revenue Code and applicable regulations thereunder.                    
5

•EIP participants who terminate employment with the Bank by reason of death or disability prior to the March 2022 current award payment date, or who terminate employment prior to the current award payment date and are eligible to retire3 from employment with the Bank may receive a pro rata payment of the current incentive opportunity as determined and recommended by the Bank’s President and Chief Executive Officer, with the concurrence of the Committee and at their sole discretion and subject to the review of the FHFA, if required, based on the days of completed service as an EIP participant during 2021. To be eligible, the participant must complete at least six months of service in 2021 and otherwise satisfy the EIP’s requirements. A minimum of six months advanced notice to the Bank will be required, and it must be determined that there has been an effective transition of responsibilities leading to the retirement date. 

•EIP participants who terminate employment with the Bank by reason of death or disability prior to the 2021 deferred award payment date in March 2024, or who terminate employment prior to the deferred award payment date and are eligible to retire3 from employment with the Bank, may become eligible to receive a payment of the deferred award, subject to the granting of awards based on 2023 year-end results described above. Participants who die, become disabled, or retire3 (and meet the eligibility requirements described above) during 2021 may be eligible to receive a pro rata payment of the deferred awardas determined and recommended by the Bank’s President and Chief Executive Officer, with the concurrence of the Committee and at their sole discretion, and subject to review of the FHFA, if required.

Awards granted to terminated (who met retirement criteria3) or disabled participants or beneficiaries of deceased participants will be paid at the same time as awards to all active participants. Beneficiary means the participant’s (i) surviving spouse; or (ii) duly appointed and qualified executor or personal representative or estate. The Administrator may permit participants to designate other persons as beneficiaries, but no designation of a beneficiary shall be effective unless made in accordance with the procedure specified by the Administrator and actually received by the Administrator prior to the participant’s death.

The Bank may make such provisions, as it deems appropriate, for withholding payroll taxes in connection with payment of EIP awards.

Appendix A - Goal Definitions

Pre-assessment Core Return on Capital Stock:

The metric for this goal is defined below. The required performance level for Target is based on the 2021 Strategic Business Plan Base Case projection.

To account for the expected sensitivity of Pre-Assessment Core Return on Capital Stock to changes in interest rates, the required performance levels for Threshold, Target and Excess for 2021 will be adjusted upward or downward by 1.2 basis point for every basis point by which the average daily federal funds rate deviates from the 0.06% assumed in the Rebaselined 2021 forecast for the 2021 Business Plan.

3 Eligibility to retire is defined as employees who are i) eligible for normal retirement as defined in the Pentegra Defined Benefit Plan for Financial Institutions or ii) meet the Rule of 70 as defined in the Pentegra Defined Benefit Plan for Financial Institutions, including credited service in the FHLB system, but excluding any other credited service at another Pentegra participating employer.
6

Achievement of the goal is subject to compliance with the Bank’s Market Value of Equity to Par Stock ratio and internal unfloored Duration of Equity limits for at least 10 of the 12 months of the year. If this requirement is not met, the board of directors may use its discretion to reduce or eliminate payouts for this goal of the EIP.

Pre - assessment Core Return on Capital Stock =

Pre - assessment Core Net Income
Average Daily Outstanding Balance of Capital Stock
including Mandatorily Redeemable Capital Stock

Pre - assessment Core Net Income =

Net Income —
Prepayment Fees + Historical Prepayment Fee Amortization
+Debt Retirement Costs — Historical Debt Retirement Cost Amortization
—Net Fair Value Adjustments
+Imputed Amortization of Net Premiums on Investment Securities Classified as Trading Securities
+AHP Expense + Subsidy Program Expense — PLMBS Litigation Income
+Interest Expense on Mandatorily Redeemable Capital Stock

Net Income = 2021 net income reported in accordance with accounting principles generally accepted in the United States of America (GAAP).

Prepayment Fees = Fee income resulting from the exercise of prepayment options on financial instruments, net of hedge unwind gain/loss.

Historical Prepayment Fee Amortization = the current-period, straight-line amortization of all historical prepayment fees (whether recognized at time of prepayment or as a yield adjustment on a modified loan) over the original remaining lives of the prepaid assets.

Debt Retirement Costs = Losses incurred under GAAP when outstanding debt is purchased for retirement, net of hedge unwind gain/loss.

Historical Debt Retirement Cost Amortization = the current-period, straight-line amortization of all historical debt retirement costs over the original remaining lives of the retired liabilities.

Net Fair Value Adjustments = the net unrealized gains and losses as recognized under GAAP attributable to derivatives and hedging activities, whether economic hedges or ASC 815-qualifying hedge relationships, plus net unrealized gains and losses on trading securities.

Imputed Amortization of Net Premiums on Investment Securities Classified as Trading Securities = the level-yield amortization (or accretion) of purchase price premiums (or discounts) on investment securities classified as Trading Securities for which premium amortization (or discount accretion) is not recorded under GAAP but is instead imbedded within changes in fair value of the investment securities.

7

AHP Expense = the Bank’s required set aside of 10% of net income before AHP Expense, plus any additional voluntary contribution to the Affordable Housing Program, as recognized for the full Plan calendar year(s).

Voluntary Subsidy Program Expense = subsidy amounts expensed through the Bank’s Jobs for New England and Helping to House New England programs.

PLMBS Litigation Income = Net income resulting from settlements or judgments stemming from the Bank’s lawsuits against certain defendants alleging fraud and misrepresentation surrounding private-label mortgage-backed securities (PLMBS) sold to the Bank.

Interest Expense on Mandatorily Redeemable Capital Stock = Dividends declared payable to Class B Stock that has been classified as Mandatorily Redeemable Capital Stock and are thus recorded in interest expense under GAAP.

In the event that the Bank is required to adjust current period net income to correct prior period accounting errors, positive adjustments to net income resulting from the correction of prior period accounting errors are to be excluded from Pre-Assessment Core Return on Capital Stock, while negative adjustments are to be retained in Pre-Assessment Core Return on Capital Stock.

Rationale for the Adjustments noted above:

•The exclusion of prepayment fee income and associated debt retirement and hedge unwind gain/loss from the Pre-Assessment Core Return on Capital Stock metric removes the potential for “windfall” compensation in the event of heavy prepayment fee income and removes a potential disincentive to prudently respond to prepayment events by excluding the otherwise punitive cost of debt retirement and swap unwind expense. 
•The exclusion of net unrealized fair value adjustments is consistent with the way that management projects its financial performance and reflects the fact that these adjustments are merely timing adjustments to net income that have no net impact to the Bank’s net income if gains or losses are never realized. 
•PLMBS Litigation Income is excluded as it represents recovery of Credit Losses on PLMBS, which were excluded in previous years. 
•The imputed amortization (accretion) of premiums (discounts) on Trading Securities is added to recognize the level-yield expense (or income) associated with purchase price premiums (or discounts) that is otherwise imbedded within the net fair value adjustment for these securities.

The Bank may make additional adjustments, subject to approval by the board of directors and non-objection by the FHFA, for extraordinary items such as unbudgeted voluntary pension plan contributions, which are expected to be made only if the Bank earns sufficient PLMBS litigation income to cover the unbudgeted portion of such contributions.

8

Core Mission Goal:

Core Mission Asset Ratio or CMA Ratio is:
1.The average annual par amount of the sum of Advances and MPF Loans owned by the Bank, divided by
2.The result obtained by subtracting the average annual amount of U.S. Treasury securities classified as Trading Securities or Available-for-Sale Securities from the average annual par amount of Consolidated Obligation Debt owed by the Bank.

The average annual par amount is measured as the par amount outstanding on each calendar day of 2021 divided by the number of calendar days in the year.

Insurance Member Advances Outstanding:

This goal is defined as the average daily balance of all advances to insurance members in 2021. 

Insurance Membership:

The number of insurance companies approved for membership during the calendar year 2021 qualify toward the achievement of this goal if the member’s asset size is greater than $200 million as of December 31, 2020, or at any quarter-end period in 2021. Applications from insurance companies that are affiliated and submitted within a 90-day period will count as separate memberships if each applicant’s net admitted assets are greater than $200 million.

Voluntary Subsidy Programs:

$5.0 million of subsidy will be allocated to fund the combined programs offered under the Jobs for New England and Helping to House New England programs.

•Disbursement of $4.0 million of JNE/HHNE subsidy will meet the threshold goal. 
•Disbursement of $4.5 million of JNE/HHNE subsidy will meet the target goal. 
•Disbursement of $5.0 million of JNE/HHNE subsidy will achieve the excess goal.

Operational Efficiency:

Core Operating Expenses and Core Operating Expense Budget are defined as normal expenses associated with enabling the Bank to conduct business operations, but excluding significant discretionary expenses approved by the board of directors in an amount not to exceed judgment or settlement income associated with the Bank’s ongoing PLMBS litigation, provided that they are incurred in the plan year(s). Items excluded from Core Operating Expenses will also be excluded from the Core Operating Expense Budget for purposes of calculating goal results. The board of directors establishes an operating expense budget for each calendar year and may amend the budget as needed at their sole discretion.

 
9

Bank-wide ERM Initiatives: 

35% Goal: [^^^] Replacement Research effort:
Completion of a report/analysis documenting the results of a research project intended to explore the feasibility of utilizing existing in-house bank systems to replace current [^^^] related business needs.  The analysis will address:
•Projected net cost savings to be achieved,
•Limitations, if any of the challenger systems from a product capability and operational perspective, 
•Potential limitations on business decisions given challenger system capabilities relative to [^^^], and
•Potential risk management or regulatory implications given (if) any uncovered limitations of the challenger systems.

This report/analysis will be presented to the Bank Technology Governance Committee by:

Excess - September 30, 2021
Target - October 31, 2021
Threshold - November 30, 2021
 
15% Goal: Ops Risk Policy Framework:
Operational Risk Management will develop a framework for second line oversight of all policy exceptions Bank-wide to meet the following objective: ensure that policy owners identify, analyze, document, and if warranted, approve exceptions to policy giving appropriate consideration to prudent risk management practices and the Bank’s risk appetite. This framework will be presented to the Bank’s Operational Risk Committee by:

Excess – March 31, 2021
Target – April 30, 2021
Threshold – May 31, 2021

15% Goal: Ops Risk Policy Oversight Repository:
Operational Risk Management will establish a mechanism for policy owners to report and centrally register approved policy exceptions in order to aggregate and monitor risk at the enterprise level. An overview of the reporting and implementation of the repository will be presented to the Bank’s Operational Risk Committee by:

Excess – September 30, 2021
Target – October 31, 2021
Threshold – November 30, 2021

35% Goal:  Collateral Liquidation Timeframes:
Assess the reasonableness of the current assumed liquidation timeframes for all collateral types and the 20% add-on for specific lien pledges and recommend changes as warranted.  Assessment of liquidation timeframes should address not only collateral types, but how portfolio size of each can 
10

affect time to liquidate.  Assessment of the 20% add-on should consider not only the absence of a blanket lien, but members subject to voidable preference. Assessment and recommendations should be completed and presented to the Bank’s Credit Committee by:

Excess – August 31, 2021
Target – October 31, 2021
Threshold – December 31, 2021

Remediation of 2020 Report of Exam Findings:

The 2020 Examination by the Federal Housing Finance Agency noted [^^^] Matters Requiring Attention (MRA) and [^^^] recommendations. The target goal established for the remediation of these MRAs requires management to receive clearance of the MRAs, defined as non-reoccurrence of the MRA during the 2021 examination due to either addressing or by having in place an acceptable action plan to address the MRA and clearance of all recommendations. The threshold goal is the successful remediation of all the MRAs and clearance of [^^^] of the recommendations. The excess level of achievement for this goal is to achieve the target level of achievement plus an upgrade in at least [^^^] in the 2021 examination by the Federal Housing Finance Agency.
11

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