Document:

EX-10.4

 Exhibit 10.4 

EXECUTION COPY 
  

 
  

CALIFORNIA REPUBLIC AUTO RECEIVABLES TRUST 2017-1, 

as Issuer, 
 MECHANICS BANK, 

as Servicer 
 and 

CENTER STREET FINANCE, LP, 
 as
Asset Representations Reviewer 
  
  

ASSET REPRESENTATIONS REVIEW AGREEMENT 

Dated as of February 1, 2017 
  

 
  

 
  

 TABLE OF CONTENTS 
  

							
		 		  	 	Page	 
	
	ARTICLE ONE	 
	
	USAGE AND DEFINITIONS	 
			
	Section 1.01.	 	Usage and Definitions	  	 	1	 
	Section 1.02.	 	Additional Definitions	  	 	1	 
	Section 1.03.	 	Review Materials and Test Definitions	  	 	2	 
	
	ARTICLE TWO	 
	
	ENGAGEMENT OF ASSET REPRESENTATIONS REVIEWER	 
			
	Section 2.01.	 	Engagement; Acceptance	  	 	3	 
	Section 2.02.	 	Confirmation of Status	  	 	3	 
	
	ARTICLE THREE	 
	
	ASSET REPRESENTATIONS REVIEW PROCESS	 
			
	Section 3.01.	 	Review Notices	  	 	4	 
	Section 3.02.	 	Identification of Review Receivables	  	 	4	 
	Section 3.03.	 	Review Materials	  	 	4	 
	Section 3.04.	 	Performance of Reviews	  	 	4	 
	Section 3.05.	 	Review Reports	  	 	5	 
	Section 3.06.	 	Review Representatives	  	 	5	 
	Section 3.07.	 	Dispute Resolution	  	 	6	 
	Section 3.08.	 	Limitations on Review Obligations	  	 	6	 
	
	ARTICLE FOUR	 
	
	ASSET REPRESENTATIONS REVIEWER	 
			
	Section 4.01.	 	Representations and Warranties	  	 	8	 
	Section 4.02.	 	Covenants	  	 	9	 
	Section 4.03.	 	Fees and Expenses	  	 	9	 
	Section 4.04.	 	Limitation on Liability	  	 	10	 
	Section 4.05.	 	Indemnification by Asset Representations Reviewer	  	 	10	 
	Section 4.06.	 	Indemnification of Asset Representations Reviewer	  	 	10	 
	Section 4.07.	 	Inspections of Asset Representations Reviewer	  	 	11	 
	Section 4.08.	 	Delegation of Obligations	  	 	11	 
	Section 4.09.	 	Confidential Information	  	 	12	 
	Section 4.10.	 	Personally Identifiable Information	  	 	13	 

  
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	ARTICLE FIVE	 
	
	RESIGNATION AND REMOVAL;	 
	SUCCESSOR ASSET REPRESENTATIONS REVIEWER	 
			
	Section 5.01.	 	Eligibility Requirements for Asset Representations Reviewer	  	 	16	 
	Section 5.02.	 	Resignation and Removal of Asset Representations Reviewer	  	 	16	 
	Section 5.03.	 	Successor Asset Representations Reviewer	  	 	16	 
	Section 5.04.	 	Merger, Consolidation or Succession	  	 	17	 
	
	ARTICLE SIX	 
	
	OTHER AGREEMENTS	 
	Section 6.01.	 	Independence of Asset Representations Reviewer	  	 	18	 
	Section 6.02.	 	No Petition	  	 	18	 
	Section 6.03.	 	Limitation of Liability of Owner Trustee	  	 	18	 
	Section 6.04.	 	Termination of Agreement	  	 	18	 
	
	ARTICLE SEVEN	 
	
	MISCELLANEOUS PROVISIONS	 
	Section 7.01.	 	Amendments	  	 	19	 
	Section 7.02.	 	Assignment; Benefit of Agreement; Third Party Beneficiaries	  	 	19	 
	Section 7.03.	 	Notices	  	 	20	 
	Section 7.04.	 	GOVERNING LAW	  	 	20	 
	Section 7.05.	 	Submission to Jurisdiction	  	 	20	 
	Section 7.06.	 	WAIVER OF JURY TRIAL	  	 	20	 
	Section 7.07.	 	No Waiver; Remedies	  	 	20	 
	Section 7.08.	 	Severability	  	 	21	 
	Section 7.09.	 	Headings	  	 	21	 
	Section 7.10.	 	Counterparts	  	 	21	 

							
	
	SCHEDULES	 
			
	SCHEDULE A  –	 	REVIEW MATERIALS	  	 	SA-1	 
	SCHEDULE B  –	 	REPRESENTATIONS AND WARRANTIES AND TESTS	  	 	SB-1	 

  
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 This ASSET REPRESENTATIONS REVIEW AGREEMENT, dated as of February 1, 2017 (as amended,
restated or otherwise modified from time to time, this “Agreement”), is between California Republic Auto Receivables Trust 2017-1, a Delaware statutory trust, as issuer (the “Issuer”), Mechanics Bank, a California corporation
authorized to transact a banking business, as servicer (the “Servicer”), and Center Street Finance, LP, a Texas limited partnership, as asset representations reviewer (the “Asset Representations Reviewer”). 

WHEREAS, in the normal course of its business, Mechanics Bank purchases retail installment sale contracts secured by new and used cars, light
trucks and utility vehicles from motor vehicle dealers; 
 WHEREAS, in connection with a securitization transaction sponsored by Mechanics
Bank, Mechanics Bank sold a pool of Receivables consisting of retail installment sale contracts to the Depositor, who sold them to the Issuer; 

WHEREAS, the Issuer has granted a security interest in the pool of Receivables to the Indenture Trustee, for the benefit of the Secured
Parties, as security for the Notes issued by the Issuer under the Indenture; and 
 WHEREAS, the Issuer has determined to engage the Asset
Representations Reviewer to perform reviews of certain Receivables for compliance with the representations and warranties made by Mechanics Bank and the Depositor about the Receivables in the pool. 

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: 

ARTICLE ONE 
 USAGE AND
DEFINITIONS 
 Section 1.01. Usage and Definitions. Capitalized terms used in this Agreement that are not otherwise defined shall
have the meanings ascribed thereto in Appendix A to the Sale and Servicing Agreement, dated as of February 1, 2017, among the Issuer, California Republic Funding, LLC, the Servicer and U.S. Bank National Association, which
Appendix is hereby incorporated into and made a part of this Agreement. Appendix A also contains rules as to usage applicable to this Agreement. 

Section 1.02. Additional Definitions. The following terms have the meanings given below: 

“Confidential Information” has the meaning stated in Section 4.09(b). 

“Contract” has the meaning stated in Schedule A. 

“Information Recipients” has the meaning stated in Section 4.09(a). 

“Indemnified Person” has the meaning stated in Section 4.06(a). 

  
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 “Issuer PII” has the meaning stated in Section 4.10(a). 

“Personally Identifiable Information” or “PII” has the meaning stated in Section 4.10(a). 

“Review” means the performance by the Asset Representations Reviewer of the testing procedures for each Test and each Review
Receivable according to Section 3.04. 
 “Review Fee” has the meaning stated in Section 4.03(b). 

“Review Materials” means, for a Review and a Review Receivable, the documents and other materials listed in Schedule A,
as applicable. 
 “Review Report” means, for a Review, the report of the Asset Representations Reviewer as described in
Section 3.05. 
 “Test” has the meaning stated in Section 3.04(a). 

“Test Complete” has the meaning stated in Section 3.04(c). 

“Test Fail” has the meaning stated in Section 3.04(a). 

“Test Pass” has the meaning stated in Section 3.04(a). 

Section 1.03. Review Materials and Test Definitions. Capitalized terms or terms or phrases in quotation marks used in the Tests, if not
defined in Appendix A to the Sale and Servicing Agreement or in this Agreement, including Schedule A to this Agreement, refer to sections, titles or terms in the Contract or other Review Materials. 

  
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 ARTICLE TWO 

ENGAGEMENT OF ASSET REPRESENTATIONS REVIEWER 

Section 2.01. Engagement; Acceptance. The Issuer engages Center Street Finance, LP to act as the Asset Representations Reviewer for the
Issuer. Center Street Finance, LP accepts the engagement and agrees to perform the obligations of the Asset Representations Reviewer on the terms in this Agreement. 

Section 2.02. Confirmation of Status. The parties confirm that the Asset Representations Reviewer is not responsible for
(a) reviewing the Receivables for compliance with the representations and warranties under the Basic Documents, except as described in this Agreement, (b) determining whether noncompliance with the representations or warranties constitutes
a breach of the Basic Documents or (c) determining if any Receivable is required to be repurchased. 

  
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 ARTICLE THREE 

ASSET REPRESENTATIONS REVIEW PROCESS 

Section 3.01. Review Notices. On receipt of a Review Notice from the Indenture Trustee according to Section 7.05 of the Indenture,
the Asset Representations Reviewer will start a Review. The Asset Representations Reviewer will not be obligated to start a Review until a Review Notice is received. 

Section 3.02. Identification of Review Receivables. Within ten Business Days after receipt of a Review Notice, the Servicer will
deliver to the Asset Representations Reviewer and the Indenture Trustee a list of the Review Receivables. 
 Section 3.03. Review
Materials. 
 (a) Access to Review Materials. The Servicer will give the Asset Representations Reviewer access to the Review
Materials for all of the Review Receivables within 60 days after receipt of the Review Notice in one or more of the following ways: (i) by providing access to the Servicer’s receivables systems, either remotely or at an office of the
Servicer, (ii) by electronic posting to a password-protected website to which the Asset Representations Reviewer has access, (iii) by providing originals or photocopies at an office of the Servicer where the Receivable Files are located or
(iv) in another manner agreed by the Servicer and the Asset Representations Reviewer. The Servicer may redact or remove Personally Identifiable Information from the Review Materials without changing the meaning or usefulness of the Review
Materials for the Review. 
 (b) Missing or Insufficient Review Materials. The Asset Representations Reviewer will review the Review
Materials to determine if any Review Materials are missing or insufficient for the Asset Representations Reviewer to perform any Test. If the Asset Representations Reviewer determines any missing or insufficient Review Materials, the Asset
Representations Reviewer will notify the Servicer promptly, and in any event no less than 20 days before completing the Review. The Servicer will have 15 days to give the Asset Representations Reviewer access to the missing Review
Materials or other documents or information to correct the insufficiency. If the missing Review Materials or other documents have not been provided by the Servicer within 15 days, the related Review Receivable will have a Test Fail for the Test
or Tests that require use of the missing or insufficient Review Materials. If the Contract for any Review Receivable is not provided or is illegible, the Asset Representations Reviewer will be unable to perform any Tests and the related Review
Receivable will have an overall Test Fail for all Tests. In either of these cases, the Test or Tests will be considered completed and the Review Report will report a Test Fail for the related Review Receivable or applicable representation or
warranty and the reason for the Test Fail. 
 Section 3.04. Performance of Reviews. 

(a) Test Procedures. For a Review, the Asset Representations Reviewer will perform for each Review Receivable the procedures listed
under “Tests” in Schedule B for each representation and warranty (each, a “Test”), using the Review Materials necessary to perform 

  
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the procedures as stated in the Test. For each Test and Review Receivable, the Asset Representations Reviewer will determine if the Test has been satisfied (a “Test Pass”) or if the
Test has not been satisfied (a “Test Fail”). 
 (b) Review Period. The Asset Representations Reviewer will complete the
Review of all of the Review Receivables within 60 days after receiving access to the Review Materials under Section 3.03(a). However, if missing or additional Review Materials are provided to the Asset Representations Reviewer under

Section 3.03(b) or the Asset Representations Reviewer requires clarification of any Review Materials or testing procedures, the Review period will be extended for an additional 30 days. 

(c) Completion of Review for Certain Review Receivables. Following the delivery of the list of the Review Receivables and before the
delivery of the Review Report by the Asset Representations Reviewer, the Servicer may notify the Asset Representations Reviewer if a Review Receivable is paid in full by the Obligor or purchased from the Issuer by Mechanics Bank, the Depositor or
the Servicer according to the Basic Documents. On receipt of notice, the Asset Representations Reviewer will immediately terminate all Tests of such Receivables and the Review of such Receivables will be considered complete (a “Test
Complete”). In this case, the Review Report will indicate a Test Complete for the Receivables and the related reason. 
 (d)
Duplicative Tests. If the same Test is required for more than one representation or warranty listed on Schedule B, the Asset Representations Reviewer will only perform the Test once for each Review Receivable but will report the results
of the Test for each applicable representation or warranty on the Review Report. 
 (e) Termination of Review. If a Review is in
process and the Notes will be paid in full on the next Payment Date, the Servicer will notify the Asset Representations Reviewer and the Indenture Trustee no less than ten days before that Payment Date. On receipt of notice, the Asset
Representations Reviewer will terminate the Review immediately and will not be obligated to deliver a Review Report. 
 Section 3.05.
Review Reports. Within five days after the end of the Review period under Section 3.04(b), the Asset Representations Reviewer will deliver to the Issuer, the Servicer and the Indenture Trustee a Review Report indicating for each Review
Receivable whether there was a Test Pass or a Test Fail for each Test, or whether the Review Receivable was an overall Test Fail (for a missing or illegible Contract) or a Test Complete. For each Test Fail, overall Test Fail or Test Complete, the
Review Report will indicate the related reason. The Review Report will contain a summary of the Review results to be included in the Issuer’s Form 10-D report for the Collection Period in which the Review Report is received. The Asset
Representations Reviewer will ensure that the Review Report does not contain any Issuer PII. On reasonable request of the Servicer, the Asset Representations Reviewer will provide additional detail on the Test results. 

Section 3.06. Review Representatives. 

(a) Servicer Representative. The Servicer will designate one or more representatives who will be available to assist the Asset
Representations Reviewer in performing the Review, 

  
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including responding to requests and answering questions from the Asset Representations Reviewer about access to Review Materials on the Servicer’s originations, receivables or other
systems, obtaining missing or insufficient Review Materials and/or providing clarification of any Review Materials or Tests. 
 (b) Asset
Representations Reviewer Representative. The Asset Representations Reviewer will designate one or more representatives who will be available to the Issuer and the Servicer during the performance of a Review. 

(c) Questions About Review. The Asset Representations Reviewer will make appropriate personnel available to respond in writing to
written questions or requests for clarification of any Review Report from the Indenture Trustee or the Servicer until the earlier of (i) the payment in full of the Notes and (ii) one year after the delivery of the Review Report. The Asset
Representations Reviewer will not be obligated to respond to questions or requests for clarification from Noteholders or any other Person and will direct such Persons to submit written questions or requests to the Servicer. 

Section 3.07. Dispute Resolution. If a Receivable that was Reviewed by the Asset Representations Reviewer is the subject of a dispute
resolution proceeding under Section 3.04 of the Sale and Servicing Agreement, the Asset Representations Reviewer will participate in the dispute resolution proceeding on request of a party to the proceeding. The reasonable expenses of the Asset
Representations Reviewer for its participation in any dispute resolution proceeding will be considered expenses of the requesting party for the dispute resolution and will be paid by a party to the dispute resolution as determined by the mediator or
arbitrator for the dispute resolution according to Section 3.04 of the Sale and Servicing Agreement. If not paid by a party to the dispute resolution, the expenses will be reimbursed by the Issuer according to Section 4.03(d). 

Section 3.08. Limitations on Review Obligations. 

(a) Review Process Limitations. The Asset Representations Reviewer is not obligated to: 

(i) determine whether a Delinquency Trigger has occurred or whether the required percentage of Noteholders has voted to direct
a Review under the Indenture, and may rely on the information in any Review Notice delivered by the Indenture Trustee; 

(ii) determine which Receivables are subject to a Review, and may rely on the lists of Review Receivables provided by the
Servicer; 
 (iii) obtain or confirm the validity of the Review Materials and will not be liable for any errors in the
Review Materials and may rely on the accuracy and completeness of the Review Materials; 
 (iv) obtain missing or
insufficient Review Materials from any party or any other source; or 

  
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 (v) take any action or cause any other party to take any action under any of the
Basic Documents or otherwise to enforce any remedies against any Person for noncompliance or breaches of representations or warranties about the Review Receivables. 

(b) Testing Procedure Limitations. The Asset Representations Reviewer will only be required to perform the testing procedures listed
under “Tests” in Schedule A, and will not be obligated to perform additional procedures on any Review Receivable or to provide any information other than a Review Report indicating for each Review Receivable whether there was a Test
Pass or a Test Fail for each Test, or whether the Review Receivable was a Test Complete and the related reason. However, the Asset Representations Reviewer may provide additional information about any Review Receivable that it determines in good
faith to be material to the Review. 

  
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 ARTICLE FOUR 

ASSET REPRESENTATIONS REVIEWER 

Section 4.01. Representations and Warranties. The Asset Representations Reviewer represents and warrants to the Issuer as of the
Closing Date: 
 (a) Organization and Qualification. The Asset Representations Reviewer is duly organized and validly
existing as a limited partnership in good standing under the laws of State of Texas. The Asset Representations Reviewer is qualified as a foreign entity in good standing and has obtained all necessary licenses and approvals in all jurisdictions in
which the ownership or lease of its properties or the conduct of its activities requires the qualification, license or approval, unless the failure to obtain the qualifications, licenses or approvals would not reasonably be expected to have a
material adverse effect on the Asset Representations Reviewer’s ability to perform its obligations under this Agreement. 

(b) Power, Authority and Enforceability. The Asset Representations Reviewer has the power and authority to execute,
deliver and perform its obligations under this Agreement. The Asset Representations Reviewer has authorized the execution, delivery and performance of this Agreement. This Agreement is the legal, valid and binding obligation of the Asset
Representations Reviewer enforceable against the Asset Representations Reviewer, except as may be limited by insolvency, bankruptcy, reorganization or other laws relating to the enforcement of creditors’ rights or by general equitable
principles. 
 (c) No Conflicts and No Violation. The completion of the transactions contemplated by this Agreement
and the performance of the Asset Representations Reviewer’s obligations under this Agreement will not (i) conflict with, or be a breach or default under, any indenture, mortgage, deed of trust, loan agreement, guarantee or similar document
under which the Asset Representations Reviewer is a debtor or guarantor, (ii) result in the creation or imposition of a Lien on the properties or assets of the Asset Representations Reviewer under the terms of any indenture, mortgage, deed of
trust, loan agreement, guarantee or similar document, (iii) violate the organizational documents of the Asset Representations Reviewer or (iv) violate a law or, to the Asset Representations Reviewer’s knowledge, an order, rule or
regulation of a Governmental Authority having jurisdiction over the Asset Representations Reviewer or its properties that applies to the Asset Representations Reviewer, which, in each case, would reasonably be expected to have a material adverse
effect on the Asset Representations Reviewer’s ability to perform its obligations under this Agreement. 
 (d) No
Proceedings. To the Asset Representations Reviewer’s knowledge, there are no proceedings or investigations pending or threatened in writing before a Governmental Authority having jurisdiction over the Asset Representations Reviewer or its
properties (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the completion of the transactions contemplated by this Agreement or (iii) seeking any determination or ruling that would reasonably be expected to
have a material adverse effect on the Asset Representations Reviewer’s ability to perform its obligations under, or the validity or enforceability of, this Agreement. 

  
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 (e) Eligibility. The Asset Representations Reviewer meets the eligibility
requirements in Section 5.01. 
 Section 4.02. Covenants. The Asset Representations Reviewer covenants and agrees that: 

(a) Eligibility. It will notify the Issuer and the Servicer promptly if it no longer meets the eligibility requirements
in Section 5.01. 
 (b) Review Systems; Personnel. It will maintain business process management and/or other
systems necessary to ensure that it can perform each Test and, on execution of this Agreement, will load each Test into these systems. The Asset Representations Reviewer will ensure that these systems allow for each Review Receivable and the related
Review Materials to be individually tracked and stored as contemplated by this Agreement. The Asset Representations Reviewer will maintain adequate staff that is properly trained to conduct Reviews as required by this Agreement. 

(c) Maintenance of Review Materials. It will maintain copies of any Review Materials, Review Reports and other
documents relating to a Review, including internal correspondence and work papers, for a period of two years after the termination of this Agreement. 

Section 4.03. Fees and Expenses. 

(a) Annual Fee. The Issuer will, or will cause the Servicer to, pay the Asset Representations Reviewer, as compensation for agreeing to
act as the Asset Representations Reviewer under this Agreement, an annual fee of $3,750.00. The annual fee will be paid as agreed by the Issuer and the Asset Representations Reviewer until this Agreement is terminated. 

(b) Review Fee. Following the completion of a Review and the delivery to the Indenture Trustee of the Review Report, or the termination
of a Review according to Section 3.04(e), and the delivery to the Servicer of a detailed invoice, the Asset Representations Reviewer will be entitled to a fee of up to $275.00 for each Review Receivable for which the Review was started (the
“Review Fee”). However, no Review Fee will be charged for any Review Receivable which was included in a prior Review or for which no Tests were completed prior to the Asset Representations Reviewer being notified of a termination of the
Review according to Section 3.04(e) or due to missing or insufficient Review Materials under Section 3.03(b). If the detailed invoice is submitted on or before the first day of a month, the Review Fee will be paid by the Issuer according
to the priority of payments in Section 5.04 of the Sale and Servicing Agreement starting on or before the Payment Date in that month. However, if a Review is terminated according to Section 3.04(e), the Asset Representations Reviewer must
submit its invoice for the Review Fee for the terminated Review no later than five Business Days before the final Payment Date to be reimbursed no later than the final Payment Date. 

  
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 (c) Reimbursement of Expenses. If the Servicer provides access to the Review Materials at
one of its properties, the Issuer will reimburse the Asset Representations Reviewer for its reasonable travel expenses incurred in connection with the Review upon receipt of a detailed invoice. In addition, the Servicer shall reimburse the Asset
Representations Reviewer for any reasonable out of pocket fees and expenses for opinions of counsel incurred in connection with the execution of this Agreement. 

(d) Dispute Resolution Expenses. If the Asset Representations Reviewer participates in a dispute resolution proceeding under
Section 3.07 and its reasonable expenses for participating in the proceeding are not paid by a party to the dispute resolution within 90 days after the end of the proceeding, the Issuer will reimburse the Asset Representations Reviewer for
such expenses upon receipt of a detailed invoice. 
 Section 4.04. Limitation on Liability. The Asset Representations Reviewer will
not be liable to any Person for any action taken, or not taken, in good faith under this Agreement or for errors in judgment. However, the Asset Representations Reviewer will be liable for its willful misconduct, bad faith or negligence in
performing its obligations under this Agreement. In no event will the Asset Representations Reviewer be liable for special, indirect or consequential losses or damages (including lost profit), even if the Asset Representations Reviewer has been
advised of the likelihood of the loss or damage and regardless of the form of action. 
 Section 4.05. Indemnification by Asset
Representations Reviewer. The Asset Representations Reviewer will indemnify each of the Issuer, the Depositor, the Servicer, the Owner Trustee and the Indenture Trustee and their respective directors, officers, employees, legal representatives
and agents for all fees, expenses, losses, damages and liabilities (including the reasonable fees and expenses incurred with the enforcement of any indemnification or obligation of the Asset Representations Reviewer) resulting from (a) the
willful misconduct, bad faith or negligence of the Asset Representations Reviewer in performing its obligations under this Agreement or (b) the Asset Representations Reviewer’s breach of any of its representations or warranties in this
Agreement. The Asset Representations Reviewer’s obligations under this Section 4.05 will survive the termination of this Agreement, the termination of the Issuer and the resignation or removal of the Asset Representations Reviewer. 

Section 4.06. Indemnification of Asset Representations Reviewer. 

(a) Indemnification. The Issuer will, or will cause the Administrator to, indemnify the Asset Representations Reviewer and its
officers, directors, employees and agents (each, an “Indemnified Person”), for all fees, expenses, losses, damages and liabilities resulting from the performance of its obligations under this Agreement (including the fees and expenses of
defending itself against any loss, damage or liability), but excluding any fee, expense, loss, damage or liability resulting from (i) the Asset Representations Reviewer’s willful misconduct, bad faith or negligence (other than errors in
judgment) or (ii) the Asset Representations Reviewer’s breach of any of its representations or warranties in this Agreement. 

(b) Proceedings. Promptly on receipt by an Indemnified Person of notice of a Proceeding against it, the Indemnified Person will, if a
claim is to be made under Section 4.06(a), notify the Issuer and the Administrator of the Proceeding. The Issuer or the Administrator may 

  
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participate in and assume the defense and settlement of a Proceeding at its expense. If the Issuer or the Administrator notifies the Indemnified Person of its intention to assume the defense of
the Proceeding with counsel reasonably satisfactory to the Indemnified Person, and so long as the Issuer or the Administrator assumes the defense of the Proceeding in a manner reasonably satisfactory to the Indemnified Person, the Issuer and the
Administrator will not be liable for fees and expenses of counsel to the Indemnified Person unless there is a conflict between the interests of the Issuer or the Administrator, as applicable, and an Indemnified Person. If there is a conflict, the
Issuer or the Administrator will pay for the reasonable fees and expenses of separate counsel to the Indemnified Person. No settlement of a Proceeding may be made without the approval of the Issuer and the Administrator and the Indemnified Person,
which approval will not be unreasonably withheld. 
 (c) Survival of Obligations. The Issuer’s and the Administrator’s
obligations under this Section 4.06 will survive the resignation or removal of the Asset Representations Reviewer and the termination of this Agreement. 

(d) Repayment. If the Issuer or the Administrator makes any payment under this Section 4.06 and the Indemnified Person later
collects any of the amounts for which the payments were made to it from others, the Indemnified Person will promptly repay the amounts to the Issuer or the Administrator, as applicable. 

Section 4.07. Inspections of Asset Representations Reviewer. The Asset Representations Reviewer agrees that, with reasonable prior
notice not more than once during any year, it will permit authorized representatives of the Issuer, the Servicer or the Administrator, during the Asset Representations Reviewer’s normal business hours, at such party’s expense, to examine
and review the books of account, records, reports and other documents and materials of the Asset Representations Reviewer relating to (a) the performance of the Asset Representations Reviewer’s obligations under this Agreement,
(b) payments of fees and expenses of the Asset Representations Reviewer for its performance and (c) a claim made by the Asset Representations Reviewer under this Agreement. In addition, the Asset Representations Reviewer will permit the
Issuer’s, the Servicer’s or the Administrator’s representatives to make copies and extracts of any of those documents, at such party’s expense, and to discuss them with the Asset Representations Reviewer’s officers and
employees. Each of the Issuer, the Servicer and the Administrator will, and will cause its authorized representatives to, hold in confidence the information except if disclosure may be required by law or if the Issuer, the Servicer or the
Administrator reasonably determines that it is required to make the disclosure under this Agreement or the other Basic Documents. The Asset Representations Reviewer will maintain all relevant books, records, reports and other documents and materials
for a period of at least two years after the termination of its obligations under this Agreement. 
 Section 4.08. Delegation of
Obligations. The Asset Representations Reviewer may not delegate or subcontract its obligations under this Agreement to any Person without the consent of the Issuer and the Servicer. 

  
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 Section 4.09. Confidential Information. 

(a) Treatment. The Asset Representations Reviewer agrees to hold and treat Confidential Information given to it under this Agreement in
confidence and under the terms and conditions of this Section 4.09, and will implement and maintain safeguards to further assure the confidentiality of the Confidential Information. The Confidential Information will not, without the prior
consent of the Issuer and the Servicer, be disclosed or used by the Asset Representations Reviewer, or its officers, directors, employees, agents, representatives or affiliates, including legal counsel (collectively, the “Information
Recipients”) other than for the purposes of performing Reviews of Review Receivables or performing its obligations under this Agreement. The Asset Representations Reviewer agrees that it will not, and will cause its Affiliates to not
(i) purchase or sell securities issued by Mechanics Bank or its Affiliates or special purpose entities on the basis of Confidential Information or (ii) use the Confidential Information for the preparation of research reports, newsletters
or other publications or similar communications. 
 (b) Definition. “Confidential Information” means oral, written and
electronic materials (irrespective of its source or form of communication) furnished before, on or after the date of this Agreement to the Asset Representations Reviewer for the purposes contemplated by this Agreement, including: 

(i) lists of Review Receivables and any related Review Materials; 

(ii) origination and servicing guidelines, policies and procedures, and form contracts; and 

(iii) notes, analyses, compilations, studies or other documents or records prepared by the Servicer, which contain information
supplied by or on behalf of the Servicer or its representatives. 
 However, Confidential Information will not include information that (A) is or
becomes generally available to the public other than as a result of disclosure by the Information Recipients, (B) was available to, or becomes available to, the Information Recipients on a non-confidential basis from a Person or entity other
than the Issuer or the Servicer before its disclosure to the Information Recipients who, to the knowledge of the Information Recipient is not bound by a confidentiality agreement with the Issuer or the Servicer and is not prohibited from
transmitting the information to the Information Recipients, (C) is independently developed by the Information Recipients without the use of the Confidential Information, as shown by the Information Recipients’ files and records or other
evidence in the Information Recipients’ possession or (D) the Issuer or the Servicer provides permission to the applicable Information Recipients to release. 

(c) Protection. The Asset Representations Reviewer will take reasonable measures to protect the secrecy of and avoid disclosure and
unauthorized use of Confidential Information, including those measures that it takes to protect its own confidential information and not less than a reasonable standard of care. The Asset Representations Reviewer acknowledges that Personally
Identifiable Information is also subject to the additional requirements in Section 4.10. 

  
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 (d) Disclosure. If the Asset Representations Reviewer is required by Applicable Law,
regulation, rule or order issued by a Governmental Authority to disclose part of the Confidential Information, it may disclose the Confidential Information. However, before a required disclosure, the Asset Representations Reviewer, if permitted by
law, regulation, rule or order, will use its reasonable efforts to provide the Issuer and the Servicer with notice of the requirement and will cooperate, at the Servicer’s expense, in the Issuer’s and the Servicer’s pursuit of a
proper protective order or other relief for the disclosure of the Confidential Information. If the Issuer or the Servicer is unable to obtain a protective order or other proper remedy by the date that the information is required to be disclosed, the
Asset Representations Reviewer will disclose only that part of the Confidential Information that it is advised by its legal counsel it is legally required to disclose. 

(e) Responsibility for Information Recipients. The Asset Representations Reviewer will be responsible for a breach of this Section by
its Information Recipients. 
 (f) Violation. The Asset Representations Reviewer agrees that a violation of this Agreement may cause
irreparable injury to the Issuer and the Servicer and the Issuer and the Servicer may seek injunctive relief in addition to legal remedies. If an action is initiated by the Issuer or the Servicer to enforce this Section, the prevailing party will be
reimbursed for its fees and expenses, including reasonable attorney’s fees, incurred for the enforcement. 
 Section 4.10.
Personally Identifiable Information. 
 (a) Definitions. “Personally Identifiable Information” or “PII”
means information in any format about an identifiable individual, including, name, address, phone number, e-mail address, account number(s), identification number(s), any other actual or assigned attribute associated with or identifiable to an
individual and any information that when used separately or in combination with other information could identify an individual. “Issuer PII” means PII furnished by the Issuer, the Servicer or their Affiliates to the Asset Representations
Reviewer and PII developed or otherwise collected or acquired by the Asset Representations Reviewer in performing its obligations under this Agreement. 

(b) Use of Issuer PII. The Issuer does not grant the Asset Representations Reviewer any rights to Issuer PII except as provided in this
Agreement. The Asset Representations Reviewer will use Issuer PII only to perform its obligations under this Agreement or as specifically directed in writing by the Issuer and will only reproduce Issuer PII to the extent necessary for these
purposes. The Asset Representations Reviewer must comply with all laws applicable to PII, Issuer PII and the Asset Representations Reviewer’s business, including any legally required codes of conduct, including those relating to privacy,
security and data protection. The Asset Representations Reviewer will protect and secure Issuer PII. The Asset Representations Reviewer will implement privacy or data protection policies and procedures that comply with Applicable Law and this
Agreement. The Asset Representations Reviewer will implement and maintain reasonable and appropriate practices, procedures and systems, including administrative, technical and physical safeguards to (i) protect the security, confidentiality and
integrity of Issuer PII, (ii) ensure against anticipated threats or hazards to the security or integrity of Issuer PII, (iii) protect against unauthorized access to or use of Issuer PII and (iv) otherwise comply with its obligations
under this Agreement. These safeguards include a written data 

  
 13 

 
security plan, employee training, information access controls, restricted disclosures, systems protections (e.g., intrusion protection, data storage protection and data transmission protection)
and physical security measures. 
 (c) Additional Limitations. In addition to the use and protection requirements described in
Section 4.10(b), the Asset Representations Reviewer’s disclosure of Issuer PII is also subject to the following requirements: 

(i) The Asset Representations Reviewer will not disclose Issuer PII to its personnel or allow its personnel access to Issuer
PII except (A) for the Asset Representations Reviewer personnel who require Issuer PII to perform a Review, (B) with the prior consent of the Issuer or (C) as required by Applicable Law. When permitted, the disclosure of or access to
Issuer PII will be limited to the specific information necessary for the individual to complete the assigned task. The Asset Representations Reviewer will inform personnel with access to Issuer PII of the confidentiality requirements in this
Agreement and train its personnel with access to Issuer PII on the proper use and protection of Issuer PII. 
 (ii) The
Asset Representations Reviewer will not sell, disclose, provide or exchange Issuer PII with or to any third party without the prior consent of the Issuer. 

(d) Notice of Breach. The Asset Representations Reviewer will notify the Issuer promptly in the event of an actual or reasonably
suspected security breach, unauthorized access, misappropriation or other compromise of the security, confidentiality or integrity of Issuer PII and, where applicable, immediately take action to prevent any further breach. 

(e) Return or Disposal of Issuer PII. Except where return or disposal is prohibited by Applicable Law, promptly on the earlier of the
completion of the Review or the request of the Issuer, all Issuer PII in any medium in the Asset Representations Reviewer’s possession or under its control will be (i) destroyed in a manner that prevents its recovery or restoration or
(ii) if so directed by the Issuer, returned to the Issuer without the Asset Representations Reviewer retaining any actual or recoverable copies, in both cases, without charge to the Issuer. Where the Asset Representations Reviewer retains
Issuer PII, the Asset Representations Reviewer will limit the Asset Representations Reviewer’s further use or disclosure of Issuer PII to that required by Applicable Law. 

(f) Compliance; Modification. The Asset Representations Reviewer will cooperate with and provide information to the Issuer regarding
the Asset Representations Reviewer’s compliance with this Section 4.10. The Asset Representations Reviewer and the Issuer agree to modify this Section 4.10 as necessary for either party to comply with Applicable Law. 

(g) Audit of Asset Representations Reviewer. The Asset Representations Reviewer will permit the Issuer and its authorized
representatives at such party’s expense to audit the Asset Representations Reviewer’s compliance with this Section 4.10 during the Asset Representations Reviewer’s normal business hours on reasonable advance notice to the Asset
Representations Reviewer, and not more than once during any year unless circumstances necessitate additional audits. The Issuer agrees to make reasonable efforts to schedule any audit described in this

  
 14 

 
Section 4.10 with the inspections described in Section 4.07. The Asset Representations Reviewer will also permit the Issuer during normal business hours on reasonable advance written
notice to audit any service providers used by the Asset Representations Reviewer to fulfill the Asset Representations Reviewer’s obligations under this Agreement. 

(h) Affiliates and Third Parties. If the Asset Representations Reviewer processes the PII of the Issuer’s Affiliates or a third
party when performing a Review, and if such Affiliate or third party is identified to the Asset Representations Reviewer, such Affiliate or third party is an intended third-party beneficiary of this Section 4.10, and this Agreement is intended
to benefit the Affiliate or third party. The Affiliate or third party may enforce the PII related terms of this Section 4.10 against the Asset Representations Reviewer as if each were a signatory to this Agreement. 

  
 15 

 ARTICLE FIVE 

RESIGNATION AND REMOVAL; 

SUCCESSOR ASSET REPRESENTATIONS REVIEWER 

Section 5.01. Eligibility Requirements for Asset Representations Reviewer. The Asset Representations Reviewer must be a Person who
(a) is not Affiliated with Mechanics Bank, the Depositor, the Servicer, the Indenture Trustee, the Owner Trustee or any of their Affiliates and (b) was not, and is not Affiliated with a Person that was, engaged by Mechanics Bank or any
Underwriter to perform any due diligence on the Receivables prior to the Closing Date. 
 Section 5.02. Resignation and Removal of Asset
Representations Reviewer. 
 (a) No Resignation. The Asset Representations Reviewer will not resign as Asset Representations
Reviewer unless it determines it is legally unable to perform its obligations under this Agreement and there is no reasonable action that it could take to make the performance of its obligations under this Agreement permitted under Applicable Law.
The Asset Representations Reviewer will deliver a notice of its resignation to the Issuer, the Servicer and the Indenture Trustee, together with an Opinion of Counsel supporting its determination. 

(b) Removal. If any of the following events occur, the Issuer, by notice to the Asset Representations Reviewer, may remove the Asset
Representations Reviewer and terminate its rights and obligations under this Agreement: 
 (i) the Asset Representations
Reviewer no longer meets the eligibility requirements in Section 5.01; or 
 (ii) the Asset Representations Reviewer
breaches any of its representations, warranties, covenants or obligations in this Agreement; or 
 (iii) an Insolvency Event
of the Asset Representations Reviewer occurs. 
 (c) Notice of Resignation or Removal. The Issuer will notify the Servicer, the Owner
Trustee and the Indenture Trustee of any resignation or removal of the Asset Representations Reviewer. 
 (d) Continue to Perform After
Resignation or Removal. No resignation or removal of the Asset Representations Reviewer will be effective, and the Asset Representations Reviewer will continue to perform its obligations under this Agreement, until a successor Asset
Representations Reviewer has accepted its engagement according to Section 5.03(b). 
 Section 5.03. Successor Asset Representations
Reviewer. 
 (a) Engagement of Successor Asset Representations Reviewer. Following the resignation or removal of the Asset
Representations Reviewer, the Issuer will engage a successor Asset Representations Reviewer who meets the eligibility requirements of Section 5.01. 

  
 16 

 (b) Effectiveness of Resignation or Removal. No resignation or removal of the Asset
Representations Reviewer will be effective until the successor Asset Representations Reviewer has executed and delivered to the Issuer, the Servicer and the Indenture Trustee an agreement accepting its engagement and agreeing to perform the
obligations of the Asset Representations Reviewer under this Agreement or entering into a new agreement with the Issuer on substantially the same terms as this Agreement. 

(c) Transition and Expenses. If the Asset Representations Reviewer resigns or is removed, the Asset Representations Reviewer will
cooperate with the Issuer and take all actions reasonably requested to assist the Issuer in making an orderly transition of the Asset Representations Reviewer’s rights and obligations under this Agreement to the successor Asset Representations
Reviewer. The Asset Representations Reviewer will pay the reasonable expenses of transitioning the Asset Representations Reviewer’s obligations under this Agreement and preparing the successor Asset Representations Reviewer to take on the
obligations on receipt of an invoice with reasonable detail of the expenses from the Issuer or the successor Asset Representations Reviewer. 

Section 5.04. Merger, Consolidation or Succession. Any Person (a) into which the Asset Representations Reviewer is merged or
consolidated, (b) resulting from any merger or consolidation to which the Asset Representations Reviewer is a party or (c) succeeding to the business of the Asset Representations Reviewer, if that Person meets the eligibility requirements
in Section 5.01, will be the successor to the Asset Representations Reviewer under this Agreement. Such Person will execute and deliver to the Issuer, the Servicer and the Indenture Trustee an agreement to assume the Asset Representations
Reviewer’s obligations under this Agreement (unless the assumption happens by operation of law). 

  
 17 

 ARTICLE SIX 

OTHER AGREEMENTS 
 Section 6.01.
Independence of Asset Representations Reviewer. The Asset Representations Reviewer will be an independent contractor and will not be subject to the supervision of the Issuer or the Owner Trustee for the manner in which it accomplishes the
performance of its obligations under this Agreement. Unless authorized by the Issuer or the Owner Trustee, respectively, the Asset Representations Reviewer will have no authority to act for or represent the Issuer or the Owner Trustee and will not
be considered an agent of the Issuer or the Owner Trustee. Nothing in this Agreement will make the Asset Representations Reviewer and either of the Issuer or the Owner Trustee members of any partnership, joint venture or other separate entity or
impose any liability as such on any of them. For avoidance of doubt, the Indenture Trustee will not be responsible for monitoring the performance by the Asset Representations Reviewer of its obligations under this Agreement. 

Section 6.02. No Petition. Each of the parties agrees that, before the date that is one year and one day (or, if longer, any applicable
preference period) after payment in full of (a) all securities issued by the Depositor or by a trust for which the Depositor was a depositor or (b) the Notes, it will not start or pursue against, or join any other Person in starting or
pursuing against (i) the Depositor or (ii) the Issuer, respectively, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other proceedings under any bankruptcy or similar law. This Section 6.02 will
survive the termination of this Agreement. 
 Section 6.03. Limitation of Liability of Owner Trustee. This Agreement has been signed
on behalf of the Issuer by Wilmington Trust, National Association not in its individual capacity but solely in its capacity as Owner Trustee of the Issuer. In no event will Wilmington Trust, National Association in its individual capacity or a
beneficial owner of the Issuer be liable for the Issuer’s obligations under this Agreement. For all purposes under this Agreement, the Owner Trustee will be subject to, and entitled to the benefits of, the Trust Agreement. 

Section 6.04. Termination of Agreement. This Agreement will terminate, except for the obligations under Section 4.06, on the
earlier of (a) the payment in full of all outstanding Notes and the satisfaction and discharge of the Indenture and (b) the date the Issuer is terminated under the Trust Agreement. 

  
 18 

 ARTICLE SEVEN 

MISCELLANEOUS PROVISIONS 

Section 7.01. Amendments. 

(a) The parties may amend this Agreement: 

(i) to clarify an ambiguity, correct an error or correct or supplement any term of this Agreement that may be defective or
inconsistent with the other terms of this Agreement or to provide for, or facilitate the acceptance of this Agreement by, a successor Asset Representations Reviewer, in each case without the consent of the Noteholders or any other Person; 

(ii) to add, change or eliminate terms of this Agreement, in each case without the consent of the Noteholders or any other
Person, if the Administrator delivers an Officer’s Certificate to the Issuer, the Owner Trustee and the Indenture Trustee stating that the amendment will not have a material adverse effect on the Noteholders; or 

(iii) to add, change or eliminate terms of this Agreement for which an Officer’s Certificate is not or cannot be
delivered under Section 7.01(a)(ii), with the consent of the Noteholders holding not less than 51% of the Note Balance of each Class of Notes Outstanding (with each affected Class voting separately, except that all Noteholders of Class A
Notes will vote together as a single class). 
 (b) Notice of Amendments. The Administrator will notify the Rating Agencies in
advance of any amendment. Promptly after the execution of an amendment, the Administrator will deliver a copy of the amendment to the Rating Agencies. 

(c) Consent of the Trustees. Notwithstanding anything to the contrary in this Section, any amendment to this Agreement that affects the
rights and obligations of either Trustee will require the consent of the Trustee so affected, such consent not to be unreasonably withheld. 

Section 7.02. Assignment; Benefit of Agreement; Third Party Beneficiaries. 

(a) Assignment. Except as stated in Section 5.04, this Agreement may not be assigned by the Asset Representations Reviewer without
the consent of the Issuer and the Servicer. 
 (b) Benefit of Agreement; Third-Party Beneficiaries. This Agreement is for the benefit
of and will be binding on the parties and their permitted successors and assigns. The Owner Trustee and the Indenture Trustee, for the benefit of the Noteholders, will be third-party beneficiaries of this Agreement and may enforce this Agreement
against the Asset Representations Reviewer and the Servicer. No other Person will have any right or obligation under this Agreement. 

  
 19 

 Section 7.03. Notices. 

(a) Notices to Parties. All notices, requests, demands, consents, waivers or other communications to or from the parties must be in
writing and will be considered given: 
 (i) for overnight mail, on delivery or, for registered first class mail, postage
prepaid, three days after deposit in the mail; 
 (ii) for a fax, when receipt is confirmed by telephone, reply email or
reply fax from the recipient; 
 (iii) for an email, when receipt is confirmed by telephone or reply email from the
recipient; and 
 (iv) for an electronic posting to a password-protected website to which the recipient has access, on
delivery of an email (without the requirement of confirmation of receipt) stating that the electronic posting has occurred. 
 (b) Notice
Addresses. Any notice, request, demand, consent, waiver or other communication will be addressed as stated in Section 10.03 of the Sale and Servicing Agreement or to another address as a party may give by notice to the other parties. 

Section 7.04. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. 
 Section 7.05. Submission to Jurisdiction.
Each party submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of the courts of the State of New York located in the Borough of Manhattan for legal proceedings relating to this
Agreement. Each party irrevocably waives, to the fullest extent permitted by law, any objection that it may now or in the future have to the venue of a proceeding brought in such a court and any claim that the proceeding has been brought in an
inconvenient forum. 
 Section 7.06. WAIVER OF JURY TRIAL. EACH PARTY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, THE RIGHT TO TRIAL BY JURY IN LEGAL PROCEEDING RELATING TO THIS AGREEMENT. 
 Section 7.07. No Waiver; Remedies.
No party’s failure or delay in exercising a power, right or remedy under this Agreement will operate as a waiver. No single or partial exercise of a power, right or remedy will preclude any other or further exercise of the power, right or
remedy or the exercise of any other power, right or remedy. The powers, rights and remedies under this Agreement are in addition to any powers, rights and remedies under law. 

  
 20 

 Section 7.08. Severability. If a part of this Agreement is held invalid, illegal or
unenforceable, then it will be deemed severable from the remaining Agreement and will not affect the validity, legality or enforceability of the remaining Agreement. 

Section 7.09. Headings. The headings in this Agreement are included for convenience and will not affect the meaning or interpretation
of this Agreement. 
 Section 7.10. Counterparts. This Agreement may be executed in multiple counterparts. Each counterpart will be
an original and all counterparts will together be one document. 

  
 21 

 IN WITNESS WHEREOF, the parties hereto have caused this Asset Representations Review Agreement to
be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. 
  

					
		 	CALIFORNIA REPUBLIC AUTO RECEIVABLES TRUST 2017-1
		
		 	By:WILMINGTON TRUST, NATIONAL ASSOCIATION,
		 		 	not in its individual capacity,
		 		 	but solely as Owner Trustee
			
		 	By:	 	 /s/ Anita Roselli Woolery

		 		 	Name: Anita Roselli Woolery
		 		 	Title: Vice President
		
		 	MECHANICS BANK
			
		 	By:	 	 /s/ Nathan Duda

		 		 	Name: Nathan Duda
		 		 	Title: EVP, CFO
		
		 	CENTER STREET FINANCE, LP
			
		 	BY:	 	CSTF, LLC
		 		 	a Texas limited liability company
		 		 	and its general partner
			
		 	By:	 	 /s/ Steven Burke

		 		 	Name: Steven Burke
		 		 	Title: Manager

  
 2017-1 Asset
Representations Review Agreement 

 SCHEDULE A 

REVIEW MATERIALS 
 1. A copy of
the Receivable File that includes the following documents, if applicable: 
  

	 	(a)	The retail installment sale contract or similar document that evidences the Receivable (the “Contract”) 

  

	 	(b)	The following documents related to the Contract (collectively, the “Amendments”): 

  

	 	(i)	Any correction notices to the Contract 

  

	 	(ii)	Any modification agreements completed by the parties to the Contract 

  

	 	(c)	The certificate of title, motor vehicle lien statement, application for title, application for registration for motor vehicle, certificate of origin or manufacturer statement of origin for a vehicle, or other evidence
(including eAtlas reporting for electronic titling states) showing the security interest in the Financed Vehicle (collectively, the “Title Documents”) 

  

	 	(d)	Any ancillary documents for credit insurance, service contracts or other products and services (collectively, the “Ancillary Documents”) 

 

	 	(e)	Military orders 

  

	 	(f)	The credit application 

  

	 	(g)	State specific documents related to the Contract 

 2. Copies of applicable Mechanics Bank
procedures, as of the date of the Contract, including: 
  

	 	(a)	Mechanics Bank’s procedure listing approved contract forms as of the date of the Contract (the “List of Approved Contract Forms”) 

 

	 	(b)	Mechanics Bank’s procedure listing acceptable name variations of Mechanics Bank (the “List of Acceptable Name Variations”) 

 

	 	(c)	Mechanics Bank’s procedure listing approved providers and form numbers for service contracts and other products (the “List of Approved Products”) 

 

	 	(d)	Mechanics Bank’s credit and underwriting guidelines (including exceptions and amendments thereto). 

  
 SA-1 

	 	(e)	Mechanics Bank’s procedure listing approved Dealers and Dealer Agreements (“List of Approved Dealers”) 

3. A copy of the Agreement to Terms of Assignment (the “Dealer Assignment”) 

4. Applicable screen prints from Mechanics Bank’s receivables systems 

5. The Schedule of Receivables consisting of an electronic data file containing all of the pertinent fields and information with respect to
each Receivable conveyed pursuant to the basic Documents. 

  
 2 

 SCHEDULE B 

REPRESENTATIONS AND WARRANTIES AND TESTS 

Representation: 
  

	 	(a)	Good Title. 

 No Receivable (including the right to receive payments
thereunder) has been sold, transferred, assigned, or pledged by the Seller to any Person other than the Purchaser. Immediately prior to the transfer and assignment herein contemplated, the Seller was the sole owner of and had good and marketable
title to the Receivables free and clear of any Lien and had full right and power to transfer and assign the Receivables to the Purchaser and immediately upon the transfer and assignment of the Receivables to the Purchaser, the Purchaser shall have
good and marketable title to the Receivable, free and clear of any Lien and the Purchaser’s interest in the Receivables resulting from the transfer will be as of the Closing Date perfected under the UCC. 

Test: Observe the Contract and confirm it was completed electronically or, if completed on paper, confirm the Dealer’s signature is present as
assignor either on the Contract or on a separate form. Observe the Receivable in Mechanics Bank’s receivables systems as of the end of the month in which the sale and assignment under the Basic Documents takes place and confirm that the
Receivable is marked as sold and the pool number identified matches the pool number for the transaction related to the Basic Documents. 

Representation: 
  

	 	(b)	No Assignment. 

 As of the Closing Date, the Seller shall not have taken
any action to convey any right to any Person that would result in such Person having a right to payments received under the insurance policies relating to the Financed Vehicles or Dealer Agreements, or payments due under the Receivables. 

Test: Review the Receivable File and Mechanics Bank’s receivables systems to confirm there is no evidence of the Seller having conveyed rights under
the Receivables or the related insurance policies other than the conveyances contemplated by this transaction. 
 Representation: 

 

	 	(c)	Past Due. 

 As of the Cutoff Date, no Receivable was more than 30 days
past due. 

  
 SB-1 

 Test: Review the Schedule of Receivables and Mechanics Bank’s receivables systems and confirm was that
the Receivable was not notated as being more than 30 days past due as of the Cutoff Date. 
 Representation: 

 

	 	(d)	Characteristics of Receivables. 

 Each Receivable 

(i) was originated by a Dealer in the ordinary course of such Dealer’s business and such Dealer had all necessary
licenses and permits to originate Receivables in the State where it was located; 
 (ii) was duly and properly executed by
the parties thereto, was purchased by the Seller from a Dealer under a Dealer Agreement pursuant to which the Seller acquires Receivables in the ordinary course of business and was validly assigned by such Dealer to the Seller; 

(iii) contains customary and enforceable provisions such as to render the rights and remedies of the holder thereof adequate
for realization against the collateral security; 
 (iv) is secured by a Financed Vehicle that, as of the Cutoff Date, has
not been repossessed; 
 (v) is fully amortizing and provides for level monthly payments (provided that the payment in the
first monthly period and the final monthly period of the life of the Receivable may be minimally different from the level payment) which, if made when due shall fully amortize the amount financed over the original term and yield interest at the rate
set forth on the Receivable; 
 (vi) is a fixed rate, simple interest loan; 

(vii) shall provide for, in the event that such Receivable is prepaid, a prepayment that fully pays the principal balance and
includes any accrued and unpaid interest due pursuant to the related contract through the date of prepayment in an amount at least equal to the rate set forth on the Receivable; and 

(viii) has not been amended or collections with respect to which waived, other than as evidenced in the Receivable File
related thereto. 
 Test: Review the Schedule of Receivables, the Contract, the List of Approved Dealers and Mechanics Bank’s receivables systems to
confirm that each of the characteristics listed in (i) through (viii) above is correct in all material respects. 

  
 SB-2 

 Representation: 
  

	 	(e)	Individual Characteristics. 

 The Receivables have the following
individual characteristics as of the Cutoff Date: 
 (i) each Receivable has an APR of not less than 0.001% and not more
than 24.00%; 
 (ii) each Receivable had an original term to maturity of not less than 12 months and not more than 75
months; 
 (iii) each Receivable has a remaining term to maturity, as of the Cutoff Date, of not less than 10 months and
not more than 75 months; 
 (iv) each Receivable has a Cutoff Date Principal Balance of not less than $1,000 and no more
than $95,000; 
 (v) no Obligor as to any Receivable had a non-zero FICO® score of less than 500; and 

(vi) as of the Cutoff Date, no Receivable had a scheduled maturity date later than May 16, 2023. 

Test: Review the Schedule of Receivables, the Contract, the Receivable File and Mechanics Bank’s receivables systems to confirm that each of the
characteristics listed in (i) through (vi) above is correct in all material respects. 
 Representation: 

 

	 	(f)	Compliance With Law. 

 All requirements of applicable federal, State and
(to the best knowledge of the Seller) local laws and regulations thereunder (including usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board’s Regulation “M,” the Consumer Financial Protection Bureau’s Regulations “B” and “Z”
applicable to consumer auto finance transactions, State unfair and deceptive practices and state adaptations of the National Consumer Act and of the Uniform Consumer Credit Code and other consumer credit laws and equal credit opportunity and
disclosure laws) in respect of all of the Receivables and the Financed Vehicles, have been complied with in all material respects, and each Receivable and the sale of the related Financed Vehicle complied at the time it was originated or made and
now complies in all material respects with all applicable legal requirements. 

  
 SB-3 

 Test: Review the Contract, the Schedule of Receivables, the Receivable File and Mechanics Bank’s
receivables system and confirm (i) the Contract form is on the List of Approved Contract Forms, (ii) the Contract is properly completed, (iii) the Amount Financed is properly calculated, (iv) the total sales price is properly
calculated, (v) the total of payments is properly calculated, (vi) the APR is properly calculated and (vii) the first payment due date as stated within the “when payments are due” section of the Truth in Lending section of
the Contract is within an acceptable timeframe of the Contract Date. 
 Representation: 

 

	 	(g)	Origination. 

 Each Receivable was originated in the United States to an
Obligor who is a natural person and who is not an Affiliate of any party to any of the Basic Documents. 
 Test: Review the Contract and confirm
(i) such Contract form is on List of Approved Contract Forms, (ii) the Dealer is located in the United States, (iii) such Contract does not indicate the Obligor is other than a natural person and (iv) the name of the Obligor does
not contain any wording to indicate it is a business, commercial entity or an Affiliate of any party to any of the Basic Documents and use online sources to confirm, if applicable. 

Representation: 
  

	 	(h)	Binding Obligation. 

 Each Receivable represents the genuine, legal,
valid and binding payment obligation in writing of the related Obligor, enforceable by the holder thereof in all material respects in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws affecting the enforcement of creditors’ rights generally and by equitable limitations on the availability of specific remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law; and all parties to each Receivable had full legal capacity to exercise and deliver such Receivable and all other documents related thereto and to grant the security interest purported to be granted thereby. 

Test: Confirm that the Contract form is on the List of Approved Contract Forms and that the Contract contains signature(s) in the “borrower”
space (and any co-borrower, and/or guarantor space(s), if applicable). 
 Representation: 

 

	 	(i)	No Government Obligor. 

  
 SB-4 

 No Obligor is the United States or any State or any agency, department,
subdivision or instrumentality thereof. 
 Test: Review the buyer section on the Contract and confirm a person’s or business name is reported. If
the buyer section on the Contract does not report a person’s or business name, confirm internet search results do not indicate the buyer to be a government agency, department, political subdivision or instrumentality. 

Representation: 
  

	 	(j)	Obligor Bankruptcy. 

 No Receivable is identified in the records of the
Servicer as relating to an Obligor who has filed for bankruptcy or is the subject of bankruptcy proceedings as of the Cutoff Date. 
 Test: Review the
Receivable File and any applicable servicing notes on Mechanics Bank’s receivables systems and confirm there is no indication of pending bankruptcy or insolvency proceedings. 

Representation: 
  

	 	(k)	Receivable Schedule. 

 The information regarding the Receivables set
forth in the Schedule of Receivables is true and correct in all material respects as of the close of business on the Cutoff Date. 
 Test: Review the
Receivable File and confirm each attribute of the Receivable as reflected in the Schedule of Receivables is accurate is all material respects. 

Representation: 
  

	 	(l)	Marking Records. 

 By the Closing Date, the Seller will have caused the
portions of the electronic ledger relating to the Receivables to be clearly and unambiguously marked to show that the Receivables have been transferred to the Purchaser or as otherwise required by the Purchaser. 

Test: Review Mechanics Bank receivables systems to confirm that such books, records and/or systems have been annotated to reflect such transfer of the
Receivables. 

  
 SB-5 

 Representation: 
  

	 	(m)	Chattel Paper. 

 As of the Cutoff Date, (i) the Receivables
constitute either “electronic chattel paper” or “tangible chattel paper” as such terms are defined in the relevant UCC, (ii) no more than 10% of the Pool Balance is represented by Receivables constituting “electronic
chattel paper” and (iii) at least 90% of the Pool Balance is represented by Receivables constituting “tangible chattel paper.” 

Test: Review the Receivable Files and the Schedule of Receivables to confirm (i) the Contract form is on the List of Approved Contract Forms,
(ii) the amount financed as reported on the Contract is greater than zero, (iii) there is documentation as of a lien against the financed vehicle; and (iv) that not more than 10% of the Pool Balance is represented by Receivables
constituting “electronic chattel paper.” 
 Representation: 
  

	 	(n)	One Original. 

 There is only one original executed copy of each
Receivable. 
  

	Test:	Confirm there is a final version of the Contract available for review and that the same contains signatures in the spaces for the buyer(s) and for the Dealer. 

Representation: 
  

	 	(o)	Receivable Files Complete. 

 There exists a Receivable File pertaining
to each Receivable and such Receivable File contains each of the documents referred to in the definition of such term in Appendix A of the Sale and Servicing Agreement. Each of such documents which is required to be signed by the Obligor has been
signed by the Obligor in the appropriate spaces. All applicable blanks on any form have been properly filled in and each form has otherwise been correctly prepared. The Receivable File for each Receivable currently is in the possession of the
Custodian. 
 Test: Review the Receivables File, Mechanics Bank’s receivables systems and the Custodian’s records to confirm that (i) the
Contract is executed by a party representing itself to be the Obligor listed on such Contract, (ii) that such Contract appears on it its face to have been completed and (iii) that the Custodian’s record reflecting receipt of the
related Receivable File does not indicate any omissions with respect to such Receivable File. 

  
 SB-6 

 Representation: 
  

	 	(p)	Receivables in Force. 

 As of the Cutoff Date, no Receivable has been
satisfied, subordinated or rescinded, and the Financed Vehicle securing each such Receivable has not been released from the lien of the related Receivable in whole or in part; no provisions of any Receivable have been waived, altered or modified in
any respect since its origination, except by instruments or documents identified in the Receivable File; and no Receivable has been modified as a result of application of the Servicemembers Civil Relief Act or the California Military Families
Financial Relief Act. 
 Test: Review Mechanics Bank’s receivables systems and the Receivables File (including title documents) and confirm that the
Receivables exists on the servicing system as an active Receivable, that such systems do not reflect any amendment, modifications or notations with respect to Servicemembers Civil Relief Act or the California Military Families Financial Relief Act
(or if so, then military orders are in notated in such systems) and that the title documents show the Seller or an entity listed on the List of Acceptable Name Variations as the first lienholder. 

Representation: 
  

	 	(q)	Lawful Assignment. 

 No Receivable was originated in, or is subject to
the laws of, any jurisdiction the laws of which would make unlawful, void or voidable the sale, transfer and assignment of such Receivable under this Agreement or to be entered into by the Purchaser. 

Test: Review the Contract, the Receivables File and the Mechanics Bank servicing system and confirm that the Contract was completed on a form of contract
listed on the List of Approved Contract Forms and that such Contract was properly and fully completed by the Dealer. 
 Representation: 

 

	 	(r)	Composition of Receivable. 

 No Receivable has a Principal Balance which
includes capitalized interest, late charges or amounts attributable to the payment of the premium for any insurance policy. 
 Test: Review Mechanics
Bank’s receivables systems and the Receivable File and recalculate the Principal Balance based on the original finance amount, the interest rate and the payments made to date with respect to such Receivable. 

  
 SB-7 

 Representation: 
  

	 	(s)	Security Interest in Financed Vehicle. 

 The Seller has a first priority
perfected security interest in all of the Financed Vehicles securing the Receivables, which security interest is assignable together with such Receivables and has been so assigned to the Purchaser. There are no Liens affecting a Financed Vehicle
which are or may be Liens prior or equal to the lien of the related Receivable. 
 Test: Review the Schedule of Receivables, the Receivable file and
Mechanics Bank’s receivables systems to confirm (i) the existence of the Receivable, (ii) the Seller or an entity listed on the List of Acceptable Name Variations is listed on the related title documents and (iii) that Mechanics
Bank’s receivables system has no notations or record of other Liens on the Financed Vehicle or the Receivable. 
 Representation: 

 

	 	(t)	Notations of Security Interest in Financed Vehicle. 

 With respect to
each Receivable, (i) if the related Financed Vehicle is located in a State in which notation of a security interest on the title document is required or permitted to perfect such security interest, the title document shows, or if a new or
replacement title document is being applied for with respect to such Financed Vehicle the title document will be received within 180 days of the date of origination of such Receivable and will show the Seller named as the original secured party
under each Receivable as the holder of a first priority security interest in such Financed Vehicle and (ii) if the related Financed Vehicle is located in a State in which the filing of a financing statement under the UCC is required or
permitted to perfect such security interest, such filings have been duly made and show the Seller named as the secured party. With respect to each Receivable for which the title document has not yet been returned from the applicable registrar of
titles, the Seller has (i) received written evidence from the related Dealer that such title document showing the Seller as first lienholder has been applied for or (ii) applied for such title document showing the Seller as first
lienholder. 
 Test: Review the related title and/or title application with respect to each related Receivable to confirm that the Seller is named as the
holder of a first priority perfected security interest, secured party or first lienholder (as applicable) with respect to the Financed Vehicle related to such Receivable. 

Representation: 
  

	 	(u)	No Impairment. 

  
 SB-8 

 The Seller has not done anything to convey any right to any Person that would
result in such Person having a right to payments due under the Receivable or otherwise to impair the rights of the Purchaser in any Receivable or the proceeds thereof. 

Test: Review the Schedule of Receivables and Mechanics Bank’s receivables system and confirm there is no indication or notation that the Seller has
conveyed any rights with respect to the Receivable other than the conveyance contemplated by this transaction. 
 Representation: 

 

	 	(v)	Receivable Not Assumable. 

 No Receivable is assumable by another Person
in a manner which would release the Obligor thereof from such Obligor’s obligations with respect to such Receivable. 
 Test: Review the Receivable
File and confirm the form of Contract is the List of Approved Contract Forms and the form of Contract contains no express language permitted the related Obligor to assign its obligation thereunder to a third party not listed on the Contract and
thereby release such Obligor of its obligations under the Receivable. 
 Representation: 

 

	 	(w)	No Defenses. 

 No Receivable is subject to any right of rescission,
setoff, counterclaim or defense and no such right has been asserted or threatened with respect to any Receivable. 
 Test: Review the Receivable File and
Mechanics Bank’s receivables systems and confirm there is no evidence of litigation, other attorney involvement or notice from or on behalf of an Obligor as of the Cutoff Date. 

Representation: 
  

	 	(x)	No Default. 

 There has been no default, breach, violation or event
permitting acceleration under the terms of any Receivable (other than a current payment delinquency of not more than 30 days as of the Cutoff Date) and no condition exists or event has occurred and is continuing that with notice, the lapse of time
or both would constitute a default, breach, violation or event permitting acceleration under the terms of any Receivable, and there has been no waiver of any of the foregoing. 

  
 SB-9 

 Test: Review Mechanics Bank’s receivables systems (including any transactions histories and collection
notes therein) related to such Receivable and confirm that is no indication of any default or breach of such Receivable. 
 Representation: 

 

	 	(y)	Insurance. 

 Each Receivable requires the related Obligor to maintain a
comprehensive and collision insurance policy (i) in an amount at least equal to the lesser of (A) its maximum insurable value or (B) the Principal Balance due from the Obligor under the related Receivable, (ii) naming the Seller
as loss payee and (iii) insuring against loss and damage due to fire, theft, transportation, collision and other risks generally covered by comprehensive and collision coverage. Each Receivable requires the Obligor to maintain physical loss and
damage insurance, naming the Seller and its successors and assigns as additional insured parties and each Receivable permits, but does not require, the holder thereof to obtain physical loss and damage insurance at the expense of the Obligor if the
Obligor fails to do so. No Receivable was subject to force-placed insurance as of the Cutoff Date. 
 Test: Review Schedule of Receivables, Mechanics
Bank’s receivables system and the Contract to confirm the Contract contains language that required the Obligor to obtain and maintain insurance against physical damage to the Financed Vehicle in the amounts and per the terms specified above.

 Representation: 
  

	 	(z)	Paid Ahead. 

 As of the Cutoff Date, any amounts paid ahead on the
Receivables have been applied to the Principal Balance of the Receivables, as reflected in the Schedule of Receivables. 
 Test: Review the Schedule of
Receivables and Mechanics Bank’s receivables systems with respect to such Receivable and recalculate the Principal Balance after taking into account all payments received with respect to such Receivable. 

Representation: 
  

	 	(aa)	Interest Payable. 

  
 SB-10 

 With respect to each Receivable, interest will be charged and payable on the
Principal Balance of the Receivable since the date of the last payment on the Receivable (and in all cases will be charged since the Cutoff Date). 

Test: Review the Schedule of Receivables and Mechanics Bank’s receivables systems, recalculate the amortization of such Receivable and confirm that
all payments with respect to interest and principal have been accurately allocated as per the Contract form. 
 Representation: 

 

	 	(bb)	Underwriting Guidelines. 

 Each Receivable has been originated in
accordance with the Seller’s underwriting guidelines. 
 Test: Review the Schedule of Receivables, the Receivable File, Mechanics Bank’s
receivables systems and Mechanics Bank’s policies and procedures with respect to the origination of new contracts as in effect as of the related Contract Date (including policies related to permitted exceptions thereto) and confirm the terms
and conditions expressed with respect to such receivable are in accordance with such policies and procedures (including permitted exceptions thereto). 

Representation: 
  

	 	(cc)	Geographic. 

 No Receivable was originated by a Dealer located in any
State other than California, Arizona, Texas, Nevada, Kansas, Missouri, Illinois, Oklahoma or Washington. 
 Test: Review each Contract and confirm that
the related Dealer lists its place of business address as any of the States of California, Arizona, Texas, Nevada, Kansas, Missouri, Illinois, Oklahoma or Washington. 

  
 SB-11Exhibit 10.01

 

SECOND AMENDMENT TO SECURITIES PURCHASE AGREEMENT

 

This
Second Amendment to Securities Purchase Agreement (this “Amendment”) is dated as of February 15, 2017, and
is by and among DISCOVERY ENERGY CORP., a Nevada corporation (the “Company”), DEC FUNDING LLC, a Texas limited
liability company (“Original Purchaser”) and TEXICAN ENERGY CORPORATION, a Texas corporation (“New
Purchaser”). The Company, Original Purchaser and New Purchaser are hereinafter sometimes collectively referred to as
the “Parties” and each individually as a “Party”.

 

WHEREAS, the Company and
Original Purchaser previously entered into that certain Securities Purchase Agreement dated May 27, 2016, as amended by the First
Amendment to Securities Purchase Agreement dated August 16, 2016 (such First Amendment, the “First Amendment”;
the Securities Purchase Agreement, as amended by the First Amendment, the “SPA”);

 

WHEREAS, each of Original
Purchase and New Purchaser desires purchase additional Debentures from time to time in accordance with the terms of this Amendment
and the SPA; and

 

WHEREAS, subject to the
satisfaction of the conditions precedent set forth herein, the Parties desire to amend the SPA and the First Amendment as set forth
herein to facilitate Original Purchaser’s and New Purchaser’s purchase of such additional Debentures.

 

NOW, THEREFORE, IN CONSIDERATION
of the mutual covenants contained in this Amendment, and for other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the Company, Original Purchaser and New Purchaser agree as follows:

 

1.          Definitions.
Capitalized terms used in this Amendment but not otherwise defined herein have the meanings given such terms in the SPA. The SPA,
as amended by this Amendment, is hereinafter referred to as the “Agreement”.

 

2.          Amendments
to SPA. Subject to the satisfaction of the conditions precedent set forth in Section 4,
each of the Company, Original Purchaser and New Purchaser agree to amend the SPA as follows:

 

(a)          The
definition of “Principal Amount” in Section 1.1 of the SPA is hereby amended by replacing the reference therein
to “$1,700,000” with “$2,850,000”.

 

(b)          The
definition of “Capital Raise” in Section 1.1 of the SPA is hereby amended and restated in its entirety to read
as follows: ““Capital Raise” shall mean any proposed new Indebtedness or equity issuances of Company.”

 

(c)          The
definitions “Exempt Capital Raise”, “Right of First Offer” and “Right of First Offer Termination
Date” in Section 1.1 of the SPA are hereby deleted in its entirety.

 

(d)          The
following are hereby added as new definitions in Section 1.1 of the SPA, in the appropriate alphabetical order:

 

““2017
Option” shall have the meaning ascribed to such term in Section 2.1(c).

 

“Additional
Option” shall have the meaning ascribed to such term in Section 2.1(d).

 

     

     

    

 

“Additional
Option Termination Date” means the later of (a) that date which is three (3) months after the date on which Original
Purchaser first receives a written certification from the Chief Executive Officer or the Chief Financial Officer of Company that
Company has drilled and completed, or otherwise suspended operations with respect to, the fourth (4th) well located
in the PEL 512 Area; or (b) March 31, 2018.”

 

(e)          Section
2.1(b) of the SPA is hereby amended by replacing the reference therein to “$1,700,000” with “$2,850,000”.

 

(f)          Section
2.1(c) of the SPA is hereby deleted in its entirety.

 

(g)          The
following are hereby added as new Sections 2.1(c) and 2.1(d) to the Agreement:

 

“(c)          After
the Closing Date through and including September 30, 2017, Original Purchaser shall have the option to purchase (without the consent
of the then current Purchasers), upon three (3) Trading Days’ advance notice to Company, up to an additional $10,000,000
in principal amount of the Debentures (the “2017 Option”) in a single additional closing upon the same terms
and conditions as one or more of the Debentures previously issued to Original Purchaser, with a conversion price of $0.20; provided,
that if during the period between January 31, 2017 and the exercise date of the 2017 Option, Company (i) issued additional Debentures
to another Purchaser (other than pursuant to Section 6 of the Second Amendment to this Agreement) or (ii) consummated an equity
issuance (excluding the issuance of any Debentures) with another Person preceding such exercise date and, in either case, the issuance
price of such Capital Raise was less than $0.20 per share, then the conversion price for the 2017 Option shall be such lesser price.
Upon an exercise of the 2017 Option, Original Purchaser shall deliver to Company or at Company’s written direction, via wire
transfer of immediately available funds, an amount up to $10,000,000, and Company shall deliver to Original Purchaser the additional
Debenture, and Company and such Purchaser shall deliver the other items set forth in Section 2.2 deliverable at each Supplemental
Closing.  Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3 with respect thereto, each
Supplemental Closing shall occur at the offices of Company Counsel or such other location as the parties shall mutually agree.

 

(d)          Until
the occurrence of the Additional Option Termination Date, following an exercise of the 2017 Option, Original Purchaser shall have
the option to purchase (without the consent of the then current Purchasers), upon three (3) Trading Days’ advance notice
to Company, up to an additional $10,000,000 in principal amount of the Debentures (the “Additional Option”)
in a single additional closing upon the same terms and conditions as one or more of the Debentures previously issued to Original
Purchaser, with a conversion price of $0.20; provided, that if during the period between January 31, 2017 and the exercise
date of the Additional Option, Company (i) issued additional Debentures to another Purchaser (other than pursuant to Section 6
of the Second Amendment to this Agreement) or (ii) consummated an equity issuance (excluding the issuance of any Debentures) with
another Person preceding such exercise date and, in either case, the issuance price of such Capital Raise was less than $0.20 per
share, then the conversion price for the Additional Option shall be such lesser price. Upon an exercise of the Additional Option,
Original Purchaser shall deliver to Company or at Company’s written direction, via wire transfer of immediately available
funds, an amount up to $10,000,000, and Company shall deliver to Original Purchaser the additional Debenture, and Company and such
Purchaser shall deliver the other items set forth in Section 2.2 deliverable at each Supplemental Closing.  Upon satisfaction
of the covenants and conditions set forth in Sections 2.2 and 2.3 with respect thereto, each Supplemental Closing shall occur at
the offices of Company Counsel or such other location as the parties shall mutually agree.”

 

    	 	- 2 -	 

     

    

 

(h)          Section
4.17 of the SPA is hereby amended by replacing the phrase therein to “or equity pursuant to its Right of First Offer
as set forth in Section 2.1(c)” with the phrase “pursuant to the exercise of the 2017 Option and the Additional Option”.

 

3.          Amendments
to SPA. Subject to the satisfaction of the conditions precedent set forth in Section 4,
each of the Company, Original Purchaser and New Purchaser agree to amend the First Amendment by replacing Exhibit C to the
First Amendment in its entirety with Exhibit C attached to this Amendment.

 

4.          Conditions
Precedent. This Amendment and the agreements of the Parties hereunder are subject to the satisfaction of the following conditions
precedent:

 

(a)          Each
Party shall have delivered an executed counterpart of its signature page to this Amendment to each other Party; and

 

(b)          The
Company shall have received the unanimous written consent from its Board of Directors, authorizing the Company’s entry into
this Amendment.

 

5.          Purchase
by Original Purchaser. On or prior to the expiration of ten (10) Business Days’ following the date of this Amendment,
the Company agrees to sell, and Original Purchaser agrees to purchase, a principal amount of $1,000,000 of Debentures, each in
the form of Exhibit C to the First Amendment (the “Subsequent DEC Purchase”). Within one (1) Business
Day following the Company’s receipt of the proceeds from the Subsequent DEC Purchase via wire transfer, the Company shall
deliver to Original Purchaser (i) a Debenture in a principal amount of $1,000,000, upon the same terms and conditions as one or
more of the Debentures previously issued to Original Purchaser, with a “Conversion Price” of $0.16 and (ii) a Warrant
registered in the name of Original Purchaser to purchase up to 3,750,000 shares of Common Stock, with an exercise price equal to
$0.20 per share of Common Stock, subject to adjustment as set forth therein, and an expiration date three (3) years from the date
of issuance thereof.

 

6.          Purchases
by New Purchaser. The Company agrees to sell, and New Purchaser agrees to purchase, Debentures each in the form of Exhibit
C to the Agreement in a principal amount equal to $150,000, payable monthly (beginning with the month of February 2017) in
an amount not less than $30,000, subject to and in accordance with the covenants and conditions applicable to each Supplemental
Closing Date set forth in Section 2.1(b) of the Agreement; provided that (i) for the purposes of Section 2.1(b)
of the Agreement, New Purchaser shall be deemed to have funded to the Company an amount equal to the Rincon Charges paid by New
Purchaser on and after the date of this Amendment, in full satisfaction of New Purchaser’s obligation to transfer to the
Company the principal amount of the respective Debentures so purchased under this Section 6 and (ii) the aggregate sales
and purchases under this Section 6 shall not exceed $150,000. “Rincon Charges” means the $30,000 monthly
amount owing from New Purchaser to Rincon Energy, LLC from time to time pursuant to the Consulting Agreement. “Consulting
Agreement” means a Consulting Agreement among Rincon Energy, LLC, New Purchaser, the Company and Discovery Energy SA
Pty Ltd, as amended from time to time.

 

    	 	- 3 -	 

     

    

 

7.          Representations
and Warranties.

 

(a)          As
of the date of the effectiveness of this Amendment, and after giving effect to the amendments in Section
2, the Company hereby represents and warrants to New Purchaser and Original Purchaser that the representations and warranties
of the Company and its Subsidiaries contained in the Agreement and in each other Transaction Document are true and correct on and
as of such date (unless as of a specific date therein in which case they shall be accurate as of such date).

 

(b)          As
of the date of the effectiveness of this Amendment, New Purchaser hereby represents and warrants to the Company that the representations
and warranties applicable to New Purchaser contained in the Agreement are true and correct on and as of such date.

 

8.          Waiver
of Australian Deposit Account Control Agreement. Each of the Original Purchaser and New Purchaser hereby agree and confirm
that, notwithstanding anything set forth in Section 2.4(b) of the Agreement, until such time as either (a) the average daily
balance of the Australian Subsidiary’s deposit accounts held in Australia exceeds $150,000 for thirty (30) consecutive days
or (b) an Event of Default has occurred and is continuing and any Purchaser delivers written request therefor, no Deposit Account
Control Agreements shall be required for any such deposit accounts of the Australian Subsidiary.

 

9.          Miscellaneous.

 

(a)          Each
of the Parties acknowledges and agrees that from and after the date of the effectiveness of this Amendment, each reference in the
SPA to “this Agreement”, “herein”, “hereof”, “hereunder” or other words of like
import shall mean and be a reference to the Agreement.

 

(b)          This
Amendment, the Agreement, the First Amendment (as amended hereby) and the other Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the Parties with respect to the subject matter hereof and thereof and
supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.

 

(c)          Sections
5.6 (Headings), 5.9 (Governing Law), 5.11 (Execution), 5.15 (Remedies), 5.18
(Independent Nature, etc.), 5.21 (Construction) and 5.22 (Waiver of Jury Trial) of the SPA are
hereby incorporated into this Amendment, mutatis mutandis, as a part hereof for all purposes.

 

[Signature Page Follows]

 

    	 	- 4 -	 

     

    

 

	COMPANY:	 
	 	 
	DISCOVERY ENERGY CORP.	 
	 	 
	By:	 	 
	 	Keith D. Spickelmier, Chairman	 
	 	 	 
	ORIGINAL PURCHASER:	 
	 	 
	DEC FUNDING LLC	 
	 	 
	By:	 	 
	 	Steven Webster, Manager	 

 

NEW PURCHASER:

 

TEXICAN ENERGY CORPORATION

 

	By:	 	 
	Name:	 	 
	Title:	 	 

 

Address for Notice:

 

One Allen Center, Ste. 1150

500 Dallas St.

Houston, Texas 77002

 

Signature Page to Second Amendment to Securities
Purchase Agreement

 

     

     

    

 

EXHIBIT C

 

Form of New Purchaser Debenture

 

(see attached)

 

     

     

    

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO
WHICH THIS SECURITY IS CONVERTIBLE HAS BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE
UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER
OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES
ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

	Original Issue Date: [        , 201_] 	[$                  ]

 

SENIOR SECURED CONVERTIBLE DEBENTURE

DUE MAY 27, 2021

 

THIS SENIOR SECURED CONVERTIBLE
DEBENTURE is one of a series of duly authorized and validly issued Senior Secured Convertible Debentures of Discovery Energy Corp.,
a Nevada corporation, (the “Company”), having its principal place of business at One Riverway Drive, Suite
1700, Houston, Texas 77056, designated as its Senior Secured Convertible Debentures due May 27, 2021 (this debenture, the “Debenture”
and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED, Company
promises to pay to [                                      ]
or its registered assigns (the “Holder” and collectively with the holders of the other Debentures, the “Holders”),
or shall have paid pursuant to the terms hereunder, the principal sum of [$                                          ]1
on May 27, 2021 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted
to be repaid as provided hereunder, and to pay interest to Holder on the aggregate unconverted and then outstanding principal
amount of this Debenture in accordance with the provisions hereof.  This Debenture is subject to the following additional
provisions:

 

Section 1.          Definitions.  For
the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the
following meanings:

 

“Alternate Consideration”
shall have the meaning set forth in Section 5(d).

 

“Annual License
Milestone Compliance Certificate” shall have the meaning set forth in Section 8(a)(x). 

 

 

1
NTD: Prior to issuance, parties to complete all bracketed items, including the Original Issue Date, Holder, principal
sum (including the reference on Schedule 1) and Conversion Price (see 4(b)).

    	 	- 7 -	 

     

    

 

“Bankruptcy Event”
means any of the following events: (a) Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation
S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Company or any Significant Subsidiary
thereof, (b) there is commenced against Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed
within 20 days after commencement, (c) Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any
order of relief or other order approving any such case or proceeding is entered, (d) Company or any Significant Subsidiary thereof
seeks or suffers any appointment of any administrator, receiver, custodian or the like for it or any substantial part of its property
that is not discharged or stayed within 20 calendar days after such appointment, (e) Company or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors, (f) Company or any Significant Subsidiary thereof calls a meeting of its
creditors or makes application to a court to call a meeting of its creditors with a view to arranging a composition, adjustment
or restructuring of its debts, (g) Company or any Significant Subsidiary becomes insolvent or is unable to pay its debts or fails
or admits in writing its inability generally to pay its debts as they become due or (h) Company or any Significant Subsidiary thereof,
by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes
any corporate or other action for the purpose of effecting any of the foregoing.

 

“Business Day”
means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Buy-In”
shall have the meaning set forth in Section 4(c)(v).

 

“Change of Control
Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual
or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control
(whether through legal or beneficial ownership of capital stock of Company, by contract or otherwise) of in excess of 50% of the
voting securities of the Company (other than by means of conversion or exercise of the Debentures and the Securities issued together
with the Debentures), (b) Company merges into or consolidates with any other Person, or any Person merges into or consolidates
with Company and, after giving effect to such transaction, the stockholders of Company immediately prior to such transaction own
less than 50% of the aggregate voting power of Company or the successor entity of such transaction, (c) Company sells or transfers
all or substantially all of its assets to another Person and the stockholders of Company immediately prior to such transaction
own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at
one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by
a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who
are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority
of the members of the Board of Directors who are members on the date hereof) or (e) the execution by Company of an agreement to
which Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

“Conversion Date”
shall have the meaning set forth in Section 4(a).

 

“Conversion Price”
shall have the meaning set forth in Section 4(b).

 

“Conversion Schedule”
means the Conversion Schedule in the form of Schedule 1 attached hereto.

 

“Conversion Shares”
means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

 

    	 	- 8 -	 

     

    

 

“Debenture Register”
shall have the meaning set forth in Section 2(b).

 

“Event of Default”
shall have the meaning set forth in Section 8(a).

 

“Exempt Issuance”
means the issuance of (a) shares of Common Stock or options to employees, officers or directors of Company pursuant to any stock
or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange
of or conversion of any Securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into
shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended
since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or
conversion price of such securities and (c) securities issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of Company, provided that any such issuance shall only be to a Person (or to the equityholders
of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset (including, but not primarily,
securities) in a business synergistic with the business of Company and shall provide to Company additional benefits in addition
to the investment of funds, but shall not include a transaction in which Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in securities, provided that such agreements have not been
amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange
price or conversion price of such securities.

 

“Fundamental Transaction”
shall have the meaning set forth in Section 5(d).

 

“Holder Optional
Redemption” shall have the meaning set forth in Section 6(a).

 

“Holder Optional
Redemption Date” shall have the meaning set forth in Section 6(a).

 

“Holder Optional
Redemption Notice” shall have the meaning set forth in Section 6(a).

 

“Holder Optional
Redemption Notice Date” shall have the meaning set forth in Section 6(a).

 

“Interest Settlement
Date” shall have the meaning set forth in Section 2(a)(i).

 

“Majority Holders”
means, at any time, one or more Holders holding over fifty percent (50%) in outstanding principal amount of the Debentures at such
time.

 

“Mandatory Default
Amount” means the sum of (a) 100% of the outstanding principal amount of this Debenture, (b) 100% of the accrued and
unpaid interest hereon and (c) 100% of the interest on the outstanding principal amount of this Debenture which would have been
payable under Section 2(a) between the date of the relevant Event of Default and the Maturity Date, plus all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.

 

“New York Courts”
shall have the meaning set forth in Section 9(d).

 

“Notice of Conversion”
shall have the meaning set forth in Section 4(a).

 

“Optional Redemption
Amount” means the sum of (a) 120% of the then outstanding principal amount of the Debenture and 100% of accrued and unpaid
interest on the outstanding principal amount of this Debenture, plus (b) all liquidated damages and other amounts due hereunder
in respect of the Debenture.

 

    	 	- 9 -	 

     

    

 

“Original Issue
Date” means the date of the first issuance of the first Debenture, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence all such Debentures.

 

“Permitted Indebtedness”
means (a) the indebtedness evidenced by the Debentures, (b) indebtedness incurred in connection with any inventory financing transaction
and any refinancing or modification of the terms thereof; provided, that such financing is secured only by inventory, (c) any indebtedness
permitted pursuant to the definition of Permitted Lien, (d) any indebtedness that has been expressly subordinated in right of payment
to the indebtedness under the Debentures, provided that the terms of such subordination have been approved by Majority Holders,
(e) the Liberty Debt and Shareholder Debt and (f) Capital Raises provided by Original Purchaser following the exercise of its Right
of First Offer (as defined in the Purchase Agreement).

 

“Permitted Lien”
means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges
or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and
by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Company) have been established
in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of Company’s business, such
as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens
arising in the ordinary course of Company’s business, and which (x) do not individually or in the aggregate materially detract
from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company
and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens
incurred by banks and other financial institutions on deposit and securities accounts and other accounts with such banks or financial
institutions not to exceed $100,000 at any time, (d) purchase money security interest in equipment (including capital leases),
(e) Liens securing judgments for the payment of money not constituting an Event of Default and (f) Liens incurred in connection
with indebtedness referred to in clause (a) or (b) of Permitted Indebtedness.

 

“Petroleum Exploration
License” means that certain Petroleum Exploration License issued to Australian Subsidiary by the Energy Resource Division
of the Department for Manufacturing, Innovation, Trade, Resources and Energy on October 26, 2012, otherwise referred to as PEL
512.

 

“Purchase Agreement”
means the Securities Purchase Agreement, dated as of May 27, 2016 among Company and the original Holders, as amended, modified
or supplemented from time to time in accordance with its terms.

 

“Purchase Right”
shall have the meaning set forth in Section 5(c).

 

“Registration
Rights Agreement” means the Registration Rights Agreement, dated as of May 27, 2016 among Company and the original Holders,
as amended, modified or supplemented from time to time in accordance with its terms.

 

“Registration
Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and
covering the resale of the Underlying Shares by Holder as provided for in the Registration Rights Agreement.

 

“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

    	 	- 10 -	 

     

    

 

“Share Delivery
Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Shareholder Debt”
means that certain Indebtedness (a) payable to Keith D. Spickelmier in the aggregate principal amount of $96,200.00, (b) payable
to William Begley in the aggregate principal amount of $33,153.00, and (c) payable to EMTEECO Holdings Ltd. in the aggregate principal
amount of $17,000.00, each as of the Closing Date.

 

“Successor Entity”
shall have the meaning set forth in Section 5(d).

 

“Trading Day”
means a day on which the principal Trading Market is open for trading.

 

“Trading Market”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange
or the OTC Bulletin Board or the OTCQB over-the-counter bulletin board service maintained by OTC Markets Group Inc. (or any successors
to any of the foregoing).

 

Section 2.          Interest
and Prepayment.

 

		a)	Interest.

 

i.            So
long as no Event of Default has occurred and is continuing, the aggregate unconverted and then outstanding principal amount of
this Debenture shall accrue interest from the Original Issue Date at the rate of eight percent (8%) per annum, compounded quarterly,
which accrued interest shall be added to the outstanding principal balance of this Debenture on the last day of each calendar quarter
(each such date, an “Interest Settlement Date”) (or, if such Interest Settlement Date is not a Business Day,
on the immediately succeeding Business Day) and shall thereafter itself, as part of the principal balance, accrue interest at the
rate set forth above, compounding quarterly on each Interest Settlement Date. All such accrued interest added to the principal
balance of this Debenture pursuant to the immediately preceding sentence shall be payable on the same terms and subject to the
same conditions set forth herein.

 

ii.           Notwithstanding
the foregoing clause (i), Company may provide Purchaser with written notice (each, a “Cash Pay Notice”) of its
intent to pay all or a portion of the interest which would otherwise accrue on the next succeeding Interest Settlement Date in
cash. Any Cash Pay Notice shall be delivered at least ten (10) Business Days prior to the applicable Interest Settlement Date and
shall be irrevocable.

 

iii.         Upon
the occurrence and during the continuance of an Event of Default, the aggregate unconverted and then outstanding principal amount
of this Debenture shall accrue interest at the rate of twelve percent (12%) per annum and otherwise shall accrue and/or be paid
in cash consistent with clauses (i) and (ii) above.

 

b)         Interest Calculations.
Interest shall be calculated on the basis of a 365-day year, and shall accrue daily commencing on the Original Issue Date until
payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts
which may become due hereunder, has been made.  Interest shall cease to accrue with respect to any principal amount converted,
provided that Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein.  Interest
hereunder will be paid to the Person in whose name this Debenture is registered in the records of Company regarding registration
and transfers of this Debenture (the “Debenture Register”).

 

    	 	- 11 -	 

     

    

 

c)         Prepayment.  Except
as otherwise set forth in this Debenture, Company may not prepay any portion of the principal amount of this Debenture without
the prior written consent of Holder.

 

Section 3.          Registration
of Transfers and Exchanges.

 

a)         Different Denominations.
This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as
requested by Holder surrendering the same.  No service charge will be payable for such registration of transfer or exchange.

 

b)         Investment Representations.
This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement
and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities
laws and regulations.

 

c)         Reliance on Debenture
Register. Prior to due presentment for transfer to Company of this Debenture, Company and any agent of Company may treat the
Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither Company nor any such
agent shall be affected by notice to the contrary.

 

Section 4.          Conversion.

 

a)         Voluntary
Conversion. This Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of Holder,
at any time and from time to time. Holder shall effect conversions by delivering to Company a Notice of Conversion, the form of
which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal
amount of this Debenture to be converted and, if Holder determines in its sole discretion to convert such accrued and unpaid interest
(or a portion thereof), the amount of accrued and unpaid interest thereon to be converted and the date on which such conversion
shall be effected; provided that Holder may only convert the portion of the accrued interest that corresponds to the principal
being converted (such date, the “Conversion Date”).  If no Conversion Date is specified in a Notice
of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  To
effect conversions hereunder, Holder shall not be required to physically surrender this Debenture to Company unless the entire
principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted or otherwise been repaid
to Holder. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount
equal to the principal amount converted in such conversion.   Holder and Company shall maintain records showing the
principal amount(s) converted and the date of such conversion(s).   Company may deliver an objection to any Notice of
Conversion within two (2) Business Days of delivery of such Notice of Conversion.  In the event of any dispute or discrepancy,
the records of Holder shall be controlling and determinative in the absence of manifest error. Holder, and any assignee by
acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated
on the face hereof.

 

b)         Conversion
Price.  The Conversion Price in effect on any Conversion Date shall be equal to [$0.__]2
and shall be subject to adjustment as provided in Section 5 (the “Conversion Price”).

 

 

2
NTD: For Debentures with an Original Issue Date occurring during the period of February, 2017 and June, 30, 2017,
(i) up to $150,000 of such Debentures will have a Conversion Price of $0.16 and (ii) for all principal amounts in excess of $150,000,
such respective Debentures will have a Conversion Price of $0.20. For each Debenture with an Original Issue Date on or after June
30, 2017 the Conversion Price will be $0.20.

 

    	 	- 12 -	 

     

    

 

c)        Mechanics of Conversion.

 

i.           Conversion
Shares Issuable Upon Conversion of Debenture.  The number of Conversion Shares issuable upon a conversion hereunder
shall be determined by the quotient obtained by dividing (x) the sum of (a) the outstanding principal amount of this Debenture
to be converted plus (b) any accrued and unpaid interest on the principal amount of this Debenture to be converted, by
(y) the Conversion Price.

 

ii.         Delivery
of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery
Date”), Company shall deliver, or cause to be delivered, to Holder a certificate or certificates representing the Conversion
Shares which, on a Legend Removal Qualification Event shall be free of restrictive legends and trading restrictions (other than
those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the
conversion of this Debenture. If (i) there is an effective registration statement permitting the issuance of Conversion Shares
to or resale of the Conversion Shares by Holder or (ii) following the six month anniversary of the Original Issue Date, the Conversion
Shares are eligible for sale under Rule 144 without volume or manner-of-sale restrictions and as of such date Company is in compliance
with the current public information required under Rule 144 as to such Conversion Shares, Company shall deliver any certificate
or certificates required to be delivered by Company under this Section 4(c) by causing such certificates to be transmitted by the
Transfer Agent to the Holder by crediting the account of Holder’s designated brokerage firm with The Depository Trust Company
through its Deposit or Withdrawal at Custodian (“DWAC”) system if Company is then a participant in such system
or another established clearing corporation performing similar functions.

 

iii.         Failure
to Deliver Certificates.  If, in the case of any Notice of Conversion, such certificate or certificates are not credited
to the account of Holder’s broker with The Depository Trust Company through its DWAC system or another established clearing
corporation performing similar functions, if Company is then a participant in any such system, or delivered to or as directed by
Holder by the Share Delivery Date, Holder shall be entitled to elect by written notice to Company at any time on or before such
crediting or its receipt of such certificate or certificates, to rescind such Conversion, in which event Company shall promptly
return to Holder any original Debenture delivered to Company and Holder shall promptly return to Company the Common Stock certificates
(or any shares of Common Stock received electronically) issued to Holder pursuant to the rescinded Conversion Notice.

 

    	 	- 13 -	 

     

    

 

iv.         Obligation
Absolute; Partial Liquidated Damages.  Company’s obligations to issue and deliver the Conversion Shares upon
conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or
inaction by Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by Holder or any other Person of any obligation to Company (other than Holder’s obligations hereunder
with respect to the conversion, including the delivery of a Notice of Conversion) or any violation or alleged violation of law
by Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Company
to Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall
not operate as a waiver by Company of any such action Company may have against Holder.  In the event Holder shall elect
to convert any or all of the outstanding principal amount hereof, Company may not refuse conversion based on any claim by Company
or any Affiliate thereof that Holder or anyone associated or affiliated with Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all
or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for benefit of the Holder in
the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall
remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable
to Holder to the extent it obtains judgment.  In the absence of such injunction, Company shall issue Conversion Shares
or, if applicable, cash, upon a properly noticed conversion.  If Company fails when required hereunder for any reason
to deliver to Holder such certificate or certificates pursuant to Section 4(c)(ii) by the third Trading Day following the Share
Delivery Date, the Company shall pay to Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal
amount being converted, $5 per Trading Day (increasing to $10 per Trading Day on the fifth (5th) Trading Day after such liquidated
damages begin to accrue) for each Trading Day commencing on the third Trading Day after such Share Delivery Date until such certificates
are delivered or Holder rescinds such conversion. Nothing herein shall limit Holder’s right to pursue actual damages (provided
such damages may be reduced by the payments previously made hereunder) or declare an Event of Default pursuant to Section 8 hereof
for Company’s failure to deliver Conversion Shares within the period specified herein and Holder shall have the right to
pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief.  The exercise of any such rights shall not prohibit Holder from seeking to enforce damages
pursuant to any other Section hereof or under applicable law.

 

v.          Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to Holder,
if Company fails for any reason to deliver to Holder such certificate or certificates by the Share Delivery Date pursuant to Section
4(c)(ii), and if after such Share Delivery Date Holder is required by its brokerage firm to purchase (in an open market transaction
or otherwise), or Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale
by Holder of the Conversion Shares which Holder was entitled to receive upon the conversion relating to such Share Delivery Date
(a “Buy-In”), then Company shall (A) pay in cash to Holder (in addition to any other remedies available to or
elected by Holder) the amount, if any, by which (x) Holder’s total purchase price (including any brokerage commissions) for
the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that Holder was entitled
to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase
obligation was executed (including any brokerage commissions) and (B) at the option of Holder, either reissue (if surrendered)
this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall
be deemed rescinded) or deliver to Holder the number of shares of Common Stock that would have been issued if Company had timely
complied with its delivery requirements under Section 4(c)(ii). For example, if Holder purchases Common Stock having a total purchase
price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale
price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000
under clause (A) of the immediately preceding sentence, Company shall be required to pay Holder $1,000. Holder shall provide Company
written notice indicating the amounts payable to Holder in respect of the Buy-In and, upon request of Company, evidence of the
amount of such loss. Nothing herein shall limit Holder’s right to pursue any other remedies available to it hereunder, at
law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Company’s
failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant
to the terms hereof.

 

    	 	- 14 -	 

     

    

 

vi.         Reservation
of Shares Issuable Upon Conversion. Company covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest
on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons
other than Holder (and any other holder of the Debentures), not less than such aggregate number of shares of the Common Stock as
shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments
and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest
hereunder. Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly
issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered
for public resale in accordance with such Registration Statement (subject to Holder’s compliance with its obligations under
the Registration Rights Agreement).

 

vii.        Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture.  As
to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, Company shall at its election,
either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion
Price or round up to the next whole share.

 

viii.       Transfer
Taxes.  The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made
without charge to Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery
of such certificates, provided that, Company shall not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture
so converted and Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting
the issuance thereof shall have paid to Company the amount of such tax or shall have established to the satisfaction of Company
that such tax has been paid.

 

Section 5.          Certain
Adjustments.

 

a)         Stock Dividends
and Stock Splits.  If Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common Stock issued by Company upon conversion of, or payment of
interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues,
in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Company, then the Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury
shares of Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

    	 	- 15 -	 

     

    

 

b)         Subsequent Equity
Sales. If, at any time while this Debenture is outstanding, Company or any Subsidiary, as applicable, sells or grants any option
to purchase or reprices or reduce the conversion or exercise price of any outstanding Securities, grants any right to reprice,
or otherwise disposes of or issues, any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common
Stock at an effective price per share that is lower than the then Conversion Price, other than in connection with any Common Stock
Equivalents outstanding on the Original Issue Date (such lower price, the “Base Conversion Price” and such issuances,
collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued
shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled
to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price
shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance.
If Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, Company shall
be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities
may be converted or exercised. Company shall notify Holder in writing, no later than the Trading Day following the issuance of
any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or
applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance
Notice”). For purposes of clarification, whether or not Company provides a Dilutive Issuance Notice pursuant to this
Section 5(b), upon the occurrence of any Dilutive Issuance, Holder is entitled to receive a number of Conversion Shares based upon
the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether Holder accurately refers to the
Base Conversion Price in the Notice of Conversion.

 

c)         Subsequent Rights
Offerings.  If Company, at any time while this Debenture is outstanding, shall issue rights, options or warrants
to all holders of Common Stock (and not to Holder) entitling them to subscribe for or purchase shares of Common Stock (the “Purchase
Rights”), then, upon any conversion of this Debenture, Holder will be entitled to acquire, upon the terms applicable
to such Purchase Rights, the aggregate Purchase Rights that Holder could have acquired if Holder had held the number of Conversion
Shares issued upon such conversion of this Debenture immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.

 

d)         Pro Rata Distributions.
If Company, at any time while this Debenture is outstanding, shall distribute to all holders of Common Stock (and not to Holder)
evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase
any security other than the Common Stock (a “Distribution”), then, upon any conversion of this Debenture, Holder
shall be entitled to participate in such Distribution to the same extent that Holder would have participated therein if Holder
had held the number of Conversion Shares issued upon such conversion of this Debenture immediately before the date on which a record
is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock
are to be determined for the participation in such Distribution.

 

    	 	- 16 -	 

     

    

 

e)         Fundamental Transaction.
If, at any time while this Debenture is outstanding, (i) Company, directly or indirectly, in one or more related transactions effects
any merger or consolidation of Company with or into another Person, (ii) Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other
securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) Company,
directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of
the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property, (v) Company, directly or indirectly, in one or more related transactions consummates a
stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization,
spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares
of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated
or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination)
(each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, Holder shall have
the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence
of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company,
if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable
as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible
immediately prior to such Fundamental Transaction.  For purposes of any such conversion, the determination of the Conversion
Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one (1) share of Common Stock in such Fundamental Transaction, and Company shall apportion the Conversion Price among
the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If
holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction,
then Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction.  Company shall cause any successor entity in a Fundamental Transaction in which
Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of Company
under this Debenture and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions
of this Section 5(d) pursuant to written agreements in form and substance reasonably satisfactory to Holder and approved by Holder
(without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver
to Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor
Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture
(without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion
price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value
of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number
of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately
prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to Holder.
Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that
from and after the date of such Fundamental Transaction, the provisions of this Debenture and the other Transaction Documents referring
to “Company” shall refer instead to the Successor Entity), and may exercise every right and power of Company and shall
assume all of the obligations of Company under this Debenture and the other Transaction Documents with the same effect as if such
Successor Entity had been named as Company herein.

 

    	 	- 17 -	 

     

    

 

e)         Calculations.  All
calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For
purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding any treasury shares of Company) issued and outstanding.

 

f)         Notice
to Holder.

 

i.           Adjustment
to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, Company
shall within 10 calendar days of such adjustment deliver to Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.

 

ii.         Notice
to Allow Conversion by Holder.  If (A) Company shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (B) Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C)
Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which Company is a party, any sale or transfer of
all or substantially all of the assets of Company, or any compulsory share exchange whereby the Common Stock is converted into
other securities, cash or property or (E) Company shall authorize the voluntary or involuntary dissolution, liquidation or winding
up of the affairs of Company, then, in each case, Company shall cause to be filed at each office or agency maintained for the purpose
of conversion of this Debenture, and shall cause to be delivered to Holder at its last address as it shall appear upon the Debenture
Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure
to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required
to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material,
non-public information regarding Company or any of its Subsidiaries, Company shall simultaneously file such notice with the Commission
pursuant to a Current Report on Form 8-K.   Holder shall remain entitled to convert this Debenture during the 20-day
period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise
be expressly set forth herein.

 

Section 6.           Redemption.

 

a)         Optional Redemption
at Election of Holder. Subject to the provisions of this Section 6, at any time after either (i) the date Company announces
a Change of Control Transaction or (ii) the date Company or any Subsidiary enters into an agreement providing for the sale of a
material portion of their respective assets, Holder may deliver a notice to Company (a “Holder Optional Redemption Notice”
and the date such notice is deemed delivered hereunder, the “Holder Optional Redemption Notice Date”) of its
irrevocable election to cause Company redeem some or all of the then outstanding principal amount of this Debenture for cash in
an amount equal to the Optional Redemption Amount on the later of (i) the 5th Trading Day following the Holder Optional Redemption
Notice Date or (ii) the date such applicable transaction triggering such redemption right is consummated (such date, the “Holder
Optional Redemption Date” and such redemption, the “Holder Optional Redemption”). The Optional Redemption
Amount is payable in full on the Holder Optional Redemption Date. Any Holder Optional Redemption shall be applied ratably to all
Holders that submit a Holder Optional Redemption based on their (or their predecessor’s) initial purchases of Debentures
pursuant to the Purchase Agreement. Company hereby agrees to publicly disclose any Change of Control Transaction or entry into
an asset sale agreement which would trigger a redemption right hereunder within one Trading Day from the date such agreement or
transaction is entered into.

 

    	 	- 18 -	 

     

    

 

b)         Redemption Procedure.  The
payment of cash pursuant to a Holder Optional Redemption shall be payable on the applicable Holder Optional Redemption Date.  If
any portion of the payment pursuant to a Holder Optional Redemption shall not be paid by Company by the Holder Optional Redemption
Date, interest shall accrue on the aggregate amount payable by Company at the Default Rate until such amount is paid in full.

 

Section 7.          Negative
Covenants. As long as any portion of this Debenture remains outstanding, unless Holder shall have otherwise given prior written
consent, Company shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)         other than for the
Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any Indebtedness;

 

b)         other than for Permitted
Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 

c)         amend its charter
documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially and adversely
affects any rights of Holder;

 

d)         repay, repurchase
or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or Common Stock
Equivalents other than as to the Conversion Shares or Warrant Shares as permitted or required under the Transaction Documents;

 

e)         repay, repurchase
or offer to repay, repurchase or otherwise acquire any Indebtedness using the proceeds of the Debentures issued on the Closing
Date;

 

f)         pay
cash dividends or distributions on any equity securities of Company;

 

g)         enter into any transaction
with any Affiliate of Company which would be required to be disclosed in any public filing with the Commission, unless such transaction
is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of Company (even if
less than a quorum otherwise required for board approval);

 

h)         issue any additional
Common Stock or securities of Company or any of its Subsidiaries other than (i) pursuant to an Exempt Capital Raise; (ii) up to
1,400,000 shares of Common Stock to employees and other service providers of Company as compensation for services provided to Company
provided that the issue price for such Common Stock exceeds the then effective Conversion Price; (iii) up to 1,150,895 shares of
Common Stock to Liberty in partial payment of the Liberty Debt pursuant to the terms of the Liberty Loan Documents or (iv) issuance
of stock options (or shares of Common Stock in exchange for such stock options) pursuant to Company’s stock option plan in
effect on the Closing Date;

 

    	 	- 19 -	 

     

    

 

i)         make
any investments other than (i) investments in cash and/or cash equivalents and (ii) investments by Company in the Australian Subsidiary;

 

j)         dissolve,
liquidate, merge, consolidate or otherwise alter or modify Company’s or any Subsidiaries’ corporate name, mailing address,
principal place of business, structure, status or existence or enter into or engage in any operation or activity materially different
from that presently conducted by Company or such Subsidiary; make any substantial change in its executive management, or form any
Subsidiary;

 

k)         sell, lease, transfer
or otherwise dispose of its properties, assets, rights, licenses and franchises to any Person, except sales of production or inventory
in the ordinary course of its business or turn over the management of, or enter a management contract with respect to, such properties,
assets, rights, licenses and franchises or enter into any arrangement, directly or indirectly, with any Person whereby it shall
sell or transfer any property, real, personal or mixed, used or useful in its business, whether now owned or hereafter acquired,
and thereafter rent or lease such property; or

 

l)         enter
into any agreement with respect to any of the foregoing.

 

Section 8.          Events
of Default.

 

a)         “Event of
Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such
event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court,
or any order, rule or regulation of any administrative or governmental body):

 

i.           any
default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing
to any Holder of a Debenture, as and when the same shall become due and payable (whether on an Interest Settlement Date, a Conversion
Date or the Maturity Date or by acceleration or otherwise), and solely with respect to payment of interest in cash after delivery
of a Cash Pay Notice such failure continues for three (3) Trading Days after an Interest Settlement Date;

 

ii.         Company
shall fail to observe or perform any other covenant or agreement contained in a Transaction Document (other than (x) a breach by
Company of its obligations to deliver shares of Common Stock to Holder upon conversion or a breach by Company of its obligations
to deliver shares of Common Stock to the holder of a Warrant upon exercise thereof which breaches are addressed in clause (vii)
below or (y) any failure by Company to observe or perform any covenant or agreement contained in the Registration Rights Agreement,
except as set forth in clause (x) below) which failure, unless a cure period is specifically provided with respect to such failure
to observe or perform, is not cured, if possible to cure, within the earlier to occur of (A) 4 Trading Days after notice of such
failure sent by Holder or by any other Holder to Company and (B) 7 Trading Days after Company has become or should have become
aware of such failure;

 

iii.         any
representation or warranty made in this Debenture or any other Transaction Documents, any written statement pursuant hereto or
thereto or any other report, financial statement or certificate made or delivered to Holder shall be untrue or incorrect in any
material respect as of the date when made or deemed made;

 

iv.         a
Bankruptcy Event shall occur;

 

    	 	- 20 -	 

     

    

 

v.          Company
or any Subsidiary shall default on any of its obligations under (A) the Liberty Debt or (B) any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that,
in the case of this clause (B): (1) involves an obligation greater than $75,000, whether such indebtedness now exists or shall
hereafter be created, and (2) results in such indebtedness becoming or being declared due and payable prior to the date on which
it would otherwise become due and payable;

 

vi.         Company
shall be a party to any Change of Control Transaction or a Fundamental Transaction or shall agree to sell or dispose of all or
in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute
a Change of Control Transaction);

 

vii.         Company
shall fail for any reason to deliver certificates to Holder prior to the third Trading Day after the Share Delivery Date pursuant
to Section 4(c) or fail to deliver certificates to a holder of Warrants prior to the third Trading Day after the Warrant Share
Delivery Date (as defined in the Warrants) or Company shall provide at any time notice to Holder, including by way of public announcement,
of Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof or exercise
of the Warrants in accordance with the terms thereof;

 

viii.       any
monetary judgment, writ or similar final process shall be entered against Company, any Subsidiary or any of their respective property
or other assets for more than $75,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed
for a period of 45 calendar days;

 

ix.         Company
fails to meet the current public information requirements under Rule 144 in respect of the Underlying Shares for more than 10 consecutive
Trading Days;

 

x.          Company
shall fail to pay when due any liquidated damages under the Registration Rights Agreement as and when the same shall become due
and payable and such failure continues for 30 calendar days;

 

xi.         Company
shall fail to deliver a certificate of a responsible officer of Company (each such certificate, an “Annual License Milestone
Certificate”) to Purchaser at least 90 days prior to the required completion date for each “minimum work requirement”
to be completed under the Petroleum Exploration License certifying (A) that Company has adequate funds to fulfill the applicable
annual minimum work requirement in accordance with the terms of the Petroleum Exploration License; (B) that Company expects to
be able to fulfill the applicable annual minimum work requirement in accordance with the terms of the Petroleum Exploration License
and (C) as to other matters relating to the Petroleum Exploration License as requested by Purchaser;

 

xii.        termination
of the Petroleum Exploration License; or

 

xiii.       either
(A) Company delivers an Annual License Milestone Certificate which indicates a prospective non-compliance with the certifications
required by subclauses (A) and/or (B) in clause (xi) above or (B) Company fails to meet any of the annual minimum work requirements
set forth in the Petroleum Exploration License.

 

    	 	- 21 -	 

     

    

 

b)         Remedies Upon
Event of Default. If any Event of Default has occurred and is continuing, the outstanding principal amount of this Debenture,
plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration,
shall become, at the Majority Holders’ election, immediately due and payable in cash at the Mandatory Default Amount.  Commencing
5 calendar days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, interest
on the Mandatory Default Amount shall accrue at the Default Rate.  Upon the payment in full of the Mandatory Default
Amount, Holder shall promptly surrender this Debenture to or as directed by Company.  In connection with such acceleration
described herein, Holder need not provide, and Company hereby waives, any presentment, demand, protest or other notice of any kind,
and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder
and all other remedies available to it under applicable law.  Such acceleration may be rescinded and annulled by Holder
at any time prior to payment hereunder and Holder shall have all rights as a holder of the Debenture until such time, if any, as
Holder receives full payment pursuant to this Section 8(b).  No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.

 

Section 9.          Miscellaneous.

 

a)         Notices.  Any
and all notices or other communications or deliveries to be provided by Holder hereunder, including, without limitation, any Notice
of Conversion, shall be in writing and delivered personally, by facsimile or email, or sent by an internationally recognized overnight
courier service, addressed to Company, set forth in the Purchase Agreement, or such other facsimile number, email address or address
as Company may specify for such purposes by notice to Holder delivered in accordance with this Section 9(a).  Any and
all notices or other communications or deliveries to be provided by Company hereunder shall be in writing and delivered, by facsimile
or email, or sent by an internationally recognized overnight courier service addressed to each Holder at the facsimile number,
email address or address of Holder appearing on the books of Company, or if no such facsimile number, email address or address
appears on the books of Company, at the principal place of business of Holder, as set forth in the Purchase Agreement.  Any
notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission,
if such notice or communication is delivered via facsimile or email at the facsimile number or email address set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile or email at the facsimile number or email address set forth on the signature
pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii)
the second Trading Day following the date of mailing, if sent by U.S. recognized overnight courier service or (iv) upon actual
receipt by the party to whom such notice is required to be given. If an email address is provided for a party on the signature
pages attached hereto, notice to such party given by other means hereunder shall also be given by email, provided, that failure
to deliver a duplicate notice by email shall not constitute a failure to deliver the applicable notice.

 

b)         Absolute Obligation.
Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of Company, which is absolute
and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time,
place, and rate, and in the coin or currency, herein prescribed.  This Debenture is a direct debt obligation of Company.
This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

 

c)         Lost or Mutilated
Debenture.  If this Debenture shall be mutilated, lost, stolen or destroyed, Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen
or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but
only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof and a lost Debenture
affidavit, reasonably satisfactory to Company.

 

    	 	- 22 -	 

     

    

 

d)         Governing Law.  All
questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws
thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions
contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York,
County of New York (the “New York Courts”) unless otherwise specified therein. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for
such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to
serve process in any other manner permitted by applicable law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS DEBENTURE
OR THE TRANSACTIONS CONTEMPLATED HEREBY. IF ANY PARTY SHALL COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS
DEBENTURE, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS ATTORNEYS FEES
AND OTHER COSTS AND EXPENSES INCURRED IN THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.

 

e)         Waiver.  Any
waiver by Company or Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of this Debenture.  The failure of Company
or Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture
on any other occasion.  Any waiver by Company or Holder must be in writing.

 

f)         Severability.  If
any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and
if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and
circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable
law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of
interest permitted under applicable law. Company covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law
or other law which would prohibit or forgive Company from paying all or any portion of the principal of or interest on this Debenture
as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance
of this Debenture, and Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted
to Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

    	 	- 23 -	 

     

    

 

g)         Next Business
Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.

 

h)         Headings.  The
headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit
or affect any of the provisions hereof.

 

i)         Secured
Obligation.  The obligations of Company under this Debenture are secured by all assets of Company and each Subsidiary
(other than the Petroleum Exploration License) pursuant to the Security Agreement and the Australian Security Agreement, each dated
as of May 27, 2016 among Company, the relevant Subsidiaries of Company and Agent.

 

j)         Amendments.  This
Debenture and each of the other Debentures issued under the Purchase Agreement may be amended upon the written consent of Company
and the Majority Holders.

 

(Signature Pages Follow)

 

    	 	- 24 -	 

     

    

 

IN WITNESS WHEREOF, Company has caused this
Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

	 	DISCOVERY ENERGY CORP.
	 	 	 
	 	By: 	 
	 	 	Keith D. Spickelmier, Chairman
	 	 	 
	 	
        Facsimile No. for delivery of Notices:

        (713) 622-1937

        Email address for delivery of Notices:

        kspickelmier1@comcast.net

        kjm@discoveryenergy.com

 

Signature Page to Senior Secured Convertible
Debenture (Texican)

 

     

     

    

 

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal
under the Senior Secured Convertible Debenture due May 27, 2021 of Discovery Energy Corp., a Nevada corporation (the “Company”),
into shares of common stock (the “Common Stock”), of Company according to the conditions hereof, as of the date
written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably
requested by Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such
transfer taxes, if any.

 

By the delivery of this Notice of Conversion,
the undersigned represents and warrants to the Company that the undersigned’s representations and warranties contained in
Section 3.2 of the Purchase Agreement (as defined in the Debenture), including that the undersigned is either (i) an “accredited
investor” as defined in Rule 501(a) under the Securities Act or (ii) a “qualified institutional buyer” as defined
in Rule 144A(a) under the Securities Act as of the giving of this Notice of Conversion, are true and correct as of the giving of
this Notice of Conversion.

 

The undersigned agrees to comply with the prospectus
delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

 

Conversion calculations:

 

Date to Effect Conversion:

 

Principal Amount of Debenture to be Converted:

 

Accrued and Unpaid Interest on Amount of Debenture to be Converted:

 

Number of shares of Common Stock to be issued:

 

	 	Signature:
	 	 
	 	Name:
	 	 
	 	Address for Delivery of Common Stock Certificates:

 

Or

 

DWAC Instructions:

 

Broker No:_________________________

Account No:_______________________

 

     

     

    

 

Schedule 1

 

CONVERSION SCHEDULE

 

The Senior Secured Convertible Debentures
due on May 27, 2021 in the aggregate principal amount of [$         ] issued
by Discovery Energy Corp., a Nevada corporation.  This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.

 

Dated:

 

	
        Date of Conversion

        (or for first entry, Original

        Issue Date)
	 	Amount of Conversion	 	Aggregate Principal

Amount Remaining

Subsequent to

Conversion

(or original Principal

Amount)	 	Company Attest
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

 

Exhibit C to Second Amendment to Securities
Purchase Agreement

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