Document:

ex4_7.htm

Exhibit 4.7

 

AMENDED AND RESTATED INTERCOMPANY

LOAN AGREEMENT

 

between

 

RBC COVERED BOND GUARANTOR LIMITED PARTNERSHIP

 

as the Guarantor LP

 

and

 

 

ROYAL BANK OF CANADA

 

as the Issuer and as Cash Manager

 

 

 

 

 

 

August 22, 2013

 

  

  

  

 

Contents

 

	 	 	 
	Section 	 	Page
	 	 	 
	
1

	
Interpretation

	
1

	 	 	 
	
2

	
Intercompany Loan

	
2

	 	 	 
	
3

	
Purpose and Nature of Intercompany Loan

	
2

	 	 	 
	
4

	
Conditions Precedent

	
4

	 	 	 
	
5

	
Advances

	
4

	 	 	 
	
6

	
Interest

	
5

	 	 	 
	
7

	
Repayment

	
7

	 	 	 
	
8

	
Taxes

	
8

	 	 	 
	
9

	
Illegality

	
8

	 	 	 
	
10

	
Mitigation

	
8

	 	 	 
	
11

	
Payments

	
9

	 	 	 
	
12

	
Further Provisions

	
12

	 	 	 
	
13

	
Governing Law

	
14

	 	 	 
	
SCHEDULE 1 – Form of Advance Request

	
S1-1

	 	 
	
SCHEDULE 2 – Asset Coverage Test

	
S2-1

  

  

  

 

AMENDED AND RESTATED

INTERCOMPANY LOAN AGREEMENT

 

THIS AMENDED AND RESTATED INTERCOMPANY LOAN AGREEMENT (this Agreement) is dated as of this 22nd day of August, 2013.

 

BETWEEN:

 

	
a.

	
RBC Covered Bond Guarantor Limited Partnership, a limited partnership existing under the law of the Province of Ontario, whose executive office is at 155 Wellington Street, West, 14th Floor, Toronto, Ontario, Canada M5V 3K7, Toronto, Ontario acting by its managing general partner RBC Covered Bond GP Inc. (referred to herein as the Guarantor LP); and

 

	
b.

	
Royal Bank of Canada, a bank named in Schedule I to the Bank Act (Canada), whose executive office is at Royal Bank Plaza, South Tower, 8th Floor, 200 Bay Street, Toronto, Ontario, Canada M5J 2J5, as the Issuer (referred to herein as the Issuer) and as the Cash Manager (hereinafter referred to as the Cash Manager).

 

WHEREAS:

 

	
A.

	
The parties hereto are parties to an Amended and Restated Intercompany Loan Agreement, dated as of June 24, 2013 (the Amended and Restated Intercompany Loan Agreement), and originally entered into on October 25, 2007.

 

	
B.

	
From time to time the Issuer has and will issue Covered Bonds pursuant to the Programme (as defined herein).

 

	
C.

	
The Issuer has made available to the Guarantor LP, on an unsecured basis, an aggregate amount of Cdn $25,000,000,000, pursuant to the terms of the Amended and Restated Intercompany Loan Agreement, for use by the Guarantor LP for the purposes permitted by the Amended and Restated Intercompany Loan Agreement.

 

	
D.

	
A portion of the total amount available to the Guarantor LP under the Amended and Restated Intercompany Loan Agreement was made available on an unsecured revolving basis, to the Guarantor LP to be used by the Guarantor LP for the purposes permitted by the terms of the Amended and Restated Intercompany Loan Agreement.

 

	
E.

	
The parties hereto desire to amend and restate the Amended and Restated Intercompany Loan Agreement on the terms set forth herein, in accordance with the terms of Section 12.7 of the Amended and Restated Intercompany Loan Agreement, by entering into this Agreement, to (i) increase to $40,000,000,000 (the Total Credit Commitment) the total amount available to the Guarantor LP hereunder; and (ii) provide that the Total Credit Commitment is available on an unsecured revolving basis.

 

IT IS AGREED as follows:

 

	
  1

	
Interpretation

 

	
1.1

	
The amended and restated master definitions and construction agreement dated as of July 25, 2013 (the Master Definitions and Construction Agreement) between the parties to the Transaction Documents (as defined therein), as the same may be amended, varied or supplemented from time to time with the consent of the parties thereto, is expressly and specifically incorporated into this Agreement and, accordingly, the expressions defined in the Master Definitions and Construction Agreement (as so amended, varied or supplemented) shall, except where the context otherwise requires and save where otherwise defined herein, have the same meanings in this Agreement, including the recitals hereto and this Agreement shall be construed in accordance with the interpretation provisions set out in Section 2 of the Master  Definitions and Construction Agreement.

 

  

1

  

 

	
1.2

	
All Advances (as defined in the Amended and Restated Intercompany Loan Agreement) and accrued and unpaid amounts (including interest and fees) owing by the Guarantor LP to the Issuer under the Amended and Restated Intercompany Loan Agreement that have not been paid on or prior to the date of this Agreement shall continue as Advances (as defined below) and accrued and unpaid amounts hereunder as of the date of this Agreement and shall be payable on the dates such amounts would have been payable pursuant to the Amended and Restated Intercompany Loan Agreement, and from and after the date of this Agreement, interest, fees and other amounts shall accrue as provided under this Agreement.

 

	
1.3

	
This Agreement shall amend and restate the Amended and Restated Intercompany Loan Agreement in its entirety, with the parties hereby agreeing that on the date of this Agreement, the rights and obligations of the parties under the Amended and Restated Intercompany Loan Agreement shall be subsumed and governed by this Agreement.

 

	
1.4

	
Following the date of this Agreement, the Intercompany Loan, Advances and Commitments under the Amended and Restated Intercompany Loan Agreement shall no longer be in effect and thereafter only the Intercompany Loan, Advances and Commitments under this Agreement shall be outstanding until otherwise terminated in accordance with the terms hereof.

 

	
  2

	
Intercompany Loan

 

Subject to the terms of this Agreement, the Issuer agrees to make available to the Guarantor LP an Intercompany Loan (the Intercompany Loan) in an aggregate amount equal to the Total Credit Commitment.  On any Business Day, the Guarantor LP may request that advances (each an Advance and collectively Advances) denominated in Canadian Dollars under the Intercompany Loan be made available to it, subject to the terms of this Agreement, on such Business Day (each such date, a Drawdown Date).

 

	
  3

	
Purpose and Nature of Intercompany Loan

 

	
3.1

	
Application of Advances by the Guarantor LP

 

Each Advance may only be used by the Guarantor LP:

 

	
  

	
(a)

	
to purchase Loans and their Related Security from Seller in accordance with the terms of the Mortgage Sale Agreement; and/or

 

	
  

	
(b)

	
to invest in Substitute Assets (in an amount up to but not exceeding the limit prescribed in Section 9.8 of the Guarantor LP Agreement); and/or

 

	
  

	
(c)

	
subject to written confirmation from the Guarantor LP that the Asset Coverage Test is met on the relevant Issue Date (both before and immediately following the making of the relevant Advance), to make a Capital Distribution to any Partner by way of distribution of that Partner’s equity in the Guarantor LP in an amount equal to the Advance or any part thereof, which shall be paid to the Partner on the relevant next Payment Date by wire transfer or as otherwise directed by the Partner; and/or

 

	
  

	
(d)

	
to make a deposit of the proceeds in the GIC Account (including, without limitation, to fund the Reserve Fund to an amount not exceeding the limit prescribed in Section 6.1 of the Guarantor LP Agreement).

 

  

2

  

 

	
3.2

	
Guarantee Loan and Demand Loan

 

The aggregate principal amount of Advances outstanding at any time shall be recorded in the Intercompany Loan Ledger in accordance with Section 5.4 and deemed to be comprised of:

 

	
  

	
(a)

	
a guarantee loan (the Guarantee Loan) portion in an amount equal to:

 

(X/Y) * Z

 

where,

 

X = the Adjusted Aggregate Asset Amount (see Schedule 2 for reference) at such time, but where A in the calculation of such amount is equal to the aggregate True Balance of the Loans in the Covered Bond Portfolio for the purposes of determining X;

 

Y = the maximum Canadian Dollar Equivalent of aggregate Principal Amount Outstanding of Covered Bonds that could be issued by the Issuer without contravening the Asset Coverage Test at such time based on the assets of the Guarantor LP at such time; and

 

Z = the actual Canadian Dollar Equivalent of aggregate Principal Amount Outstanding of the Covered Bonds at such time,

 

and

 

	
  

	
(b)

	
a demand loan (the Demand Loan) portion in the amount, if any, by which the aggregate principal amount of the Advances outstanding at that time exceeds the amount of the Guarantee Loan at such time;

 

provided that the Issuer may elect to deliver a Trigger Collateral Notice to the Guarantor LP upon the occurrence of a Trigger Event, and in the event the Issuer delivers a Trigger Collateral Notice, the Demand Loan shall be reduced by an amount, if any, equal to the Trigger Collateral Amount for so long as such Trigger Collateral Notice is outstanding. Any such Trigger Collateral Notice must be delivered, if at all, within ten (10) Business Days of the Trigger Event to which such notice relates.

 

	
3.3

	
Revolving

 

Any amount under the Total Credit Commitment repaid hereunder may be re-borrowed provided that (i) such re-borrowing is for the purposes set out in Section 3.1(b), (ii) each of the conditions set forth in Section 4 have been satisfied, (iii) such re-borrowing does not result in the Guarantor LP being unable to satisfy the Asset Coverage Test on a pro forma basis following such re-borrowing and the application of the proceeds thereof; and (iv) the aggregate outstanding amount of Advances after giving effect to such re-borrowing does not exceed the principal amount of the Covered Bond Portfolio unless the proceeds of such re-borrowing are being used to acquire Loans and their Related Security or to invest in Substitute Assets.

 

	
3.4

	
Maturity and Extension of Total Credit Commitment

 

Unless otherwise agreed in writing between the Guarantor LP and the Issuer, the Total Credit Commitment shall expire and terminate, and all Advances together with accrued and unpaid interest thereon shall become immediately payable on, the date that is 364 days after the date of this Agreement (or 364 days after the effective date of the most recent extension pursuant to this Section 3.4) unless (i) no more than 90 and no less than 60 days prior to such expiry and termination date, the Guarantor LP requests by notice in writing that the Issuer extend its Total Credit Commitment for a further period of 364 days effective as of the date such commitment would otherwise expire and terminate, and (ii) no less than 30 days prior to such expiry and termination date, the Issuer has accepted such request by notice in writing to the Guarantor LP.  For certainty, Total Credit Commitment may be extended pursuant to this Section 3.4 one or more times.

 

  

3

  

 

	
3.5

	
No obligation to monitor

 

Without prejudice to the obligations of the Guarantor LP under this Section 3, none of the Issuer, the Bond Trustee and any of the Secured Creditors shall be obliged to concern themselves as to the application of amounts drawn by the Guarantor LP under this Agreement.

 

	
  4

	
Conditions Precedent

 

	
4.1

	
Conditions Precedent for Advances

 

Save as the Issuer and the Guarantor LP may otherwise agree, each Advance will not be available unless on the date of the proposed Advance:

 

	
  

	
(a)

	
the Issuer shall have received a copy of a resolution duly passed by the board of directors of the managing partner of the Guarantor LP authorizing its execution, delivery and performance on behalf of Guarantor LP of this Agreement, such copy to be certified by an officer of such managing partner; and

 

	
  

	
(b)

	
such Advance does not result in the Guarantor LP being unable to satisfy the Asset Coverage Test on a pro forma basis following such Advance and the application of the proceeds thereof; and

 

	
  

	
(c)

	
the aggregate outstanding amount of all Advances after giving effect to such Advance does not exceed the Total Credit Commitment; and

 

	
  

	
(d)

	
no Issuer Event of Default, Guarantor LP Event of Default or Demand Loan Repayment Event has occurred.

 

	
  5

	
Advances

 

	
5.1

	
Giving of Advance Requests

 

Not later than 10:00 a.m. (Toronto Time) on each Drawdown Date (or such later time as may be agreed in writing between the Guarantor LP and the Issuer), the Guarantor LP shall give to the Issuer a duly completed request for Advance in writing (each an Advance Request) completed in the form attached hereto as Schedule 1.  Each Advance Request is irrevocable and (subject to the terms of this Agreement) obliges the Guarantor LP to borrow the whole amount specified in the Advance Request on the relevant Drawdown Date upon the terms and subject to the conditions of this Agreement.

 

	
5.2

	
Advances

 

On receipt of an Advance Request from the Guarantor LP and if the conditions set out in Section 4 (Conditions Precedent) have been met, the Issuer shall make the Advances set out in such Advance Request available to the Guarantor LP on the Drawdown Date.

 

  

4

  

 

	
5.3

	
Deemed Advances

 

	
  

	
(a)

	
If:

 

	
  

	
(i)

	
a Borrower takes a Payment Holiday in respect of a Loan in the Covered Bond Portfolio in accordance with the relevant Mortgage Conditions and each of the Deemed Advance Preconditions (as defined below) are satisfied at such time, the amount equal to the unpaid interest and principal associated with that Payment Holiday and any such payment shall be deemed to constitute an Advance; or

 

	
  

	
(ii)

	
there is any increase in the True Balance of a Loan due to the Seller making a Further Advance or Line of Credit Loan Drawing to a Borrower occurs, such increase shall be deemed to constitute an Advance if each of the Deemed Advance Preconditions set out below are satisfied at such time; or

 

	
  

	
(iii)

	
on any Calculation Date, there is an increase in the Outstanding Principal Balance of Loans in the immediately preceding Calculation Period (being the period between the last most recent Calculation Date and the current Calculation Date) due to Capitalized Interest and/or Capitalized Arrears accruing on a Loan shall be deemed to constitute an Advance if each of the Deemed Advance Preconditions set out below are satisfied at such time.

 

	
  

	
(b)

	
The preconditions to a Deemed Advance are the following (collectively the Deemed Advance Preconditions):

 

	
  

	
(i)

	
the aggregate amount of all Advances outstanding at such time after giving effect to such Deemed Advance does not exceed the Total Credit Commitment; and

 

	
  

	
(ii)

	
such Deemed Advance does not result in the Guarantor LP being unable to satisfy the Asset Coverage Test on a pro forma basis following such deemed Advance; and

 

	
  

	
(iii)

	
the aggregate outstanding amount of all Advances after giving effect to such deemed Advance does not exceed the Total Credit Commitment; and

 

	
  

	
(iv)

	
no Issuer Event of Default, Guarantor LP Event of Default or Demand Loan Repayment Event has occurred.

 

	
5.4

	
Intercompany Loan Ledger

 

The Cash Manager shall ensure that each Advance (including deemed Advances), each repayment, all payments of interest and repayments of each Advance hereunder and the amount of the Guarantee Loan and Demand Loan at each Calculation Date are recorded in the Intercompany Loan Ledger at the appropriate time (which in the case of the amount of the Guarantee Loan and the Demand Loan at least two days prior to the Guarantor LP Payment Date following such Calculation Date).

 

	
  6

	
Interest

 

	
6.1

	
Interest Periods

 

	
  

	
(a)

	
Each loan interest period (each a Loan Interest Period) will correspond to each Calculation Period and each date on which interest is payable hereunder (each a Loan Interest Payment Date) will correspond to each Guarantor LP Payment Date, provided that the Loan Interest Period for any Advance made during a Calculation Period shall commence on the date of such Advance.

 

  

5

  

 

	
  

	
(b)

	
Whenever it is necessary to compute an amount of interest in respect of an Advance for any period (including any Loan Interest Period), such interest shall be calculated on the basis of actual days elapsed in a 365 day year.

 

	
  

	
(c)

	
Subject to the applicable Priority of Payments, interest payable in respect of an Advance shall be payable in respect of the preceding Loan Interest Period for such Advance on each Loan Interest Payment Date following the Drawdown Date of that Advance.

 

	
6.2

	
Interest Rate

 

	
  

	
(a)

	
Subject to the applicable Priority of Payment, the rate of interest payable in respect of each Advance for each Loan Interest Period in respect of that Advance shall be the rate per annum notified in writing by the Issuer to the Guarantor LP from time to time.

 

	
  

	
(b)

	
With respect to each Loan Interest Period, the Issuer shall, as soon as practicable following the relevant Loan Interest Period, determine and notify the Cash Manager, the Guarantor LP and the Bond Trustee of the Canadian Dollar amount (the Intercompany Loan Interest Amount), in each case, payable in respect of such Loan Interest Period.  The Intercompany Loan Interest Amount in respect of each Advance shall be determined by applying the applicable rate of interest (determined in accordance with sub-section (a)) to the outstanding principal balance of the relevant Advance, multiplying the result of that calculation by the actual number of days in the applicable Loan Interest Period divided by 365 days and rounding the resultant figure to the nearest penny (half a penny being rounded upwards) provided that the amount of interest hereunder payable in respect of any Loan Interest Period shall not exceed the amount received by the Guarantor LP pursuant to the Interest Rate Swap Agreement less the sum of (i) two (2) basis points of the aggregate principal amount of the Advances then outstanding and (ii) an amount equal to the amount of the Guarantor LP Expenses for the corresponding Guarantor LP Calculation Period.

 

	
  

	
(c)

	
All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Section 6, shall (in the absence of wilful default, bad faith or proven error) be binding on the Guarantor LP and the Cash Manager and (in such absence as aforesaid) no liability to the Guarantor LP shall attach to the Cash Manager or the Issuer in connection with the exercise or non-exercise by them or any of them of their powers, duties and discretions hereunder.

 

	
  

	
(d)

	
Solely for the purposes of the Interest Act (Canada), whenever the amount of interest payable hereunder in respect of any Loan Interest Period is not the amount obtained by applying the applicable rate of interest to the outstanding principal balance of the relevant Advance and multiplying the result of that calculation by the actual number of days in the applicable Loan Interest Period divided by 365 days, the annual rate of interest payable hereunder in respect of such Loan Interest Period is equivalent to the product obtained when (i) the amount of interest payable hereunder in respect of such Loan Interest Period is divided by the sum of the daily average aggregate amount of Advances outstanding hereunder and the result of such division is multiplied by (ii) 365 divided by the number of calendar days in such Loan Interest Period.

 

  

6

  

 

	
  7

	
Repayment

 

	
7.1

	
Repayment of Demand Loan on Demand

 

Subject to the applicable Priorities of Payment, the principal amount of the Demand Loan (or any portion thereof for which demand is made by the Issuer in accordance with this Section) shall be due and payable by the Guarantor LP no later than the first Business Day following the date that is 60 days after the demand is made therefor by the Issuer by notice in writing to the Guarantor LP unless on such Business Day:

 

	
  

	
(a)

	
a Demand Loan Repayment Event has occurred and is continuing (in which case payment shall be made in accordance with Section 7.2); or

 

	
  

	
(b)

	
the Asset Coverage Test, as calculated by the Cash Manager, will not be satisfied after giving effect to such repayment; in which case only the amount, if any, which could be repaid while remaining in compliance with the Asset Coverage Test shall be due and payable on such Business Day; or

 

	
  

	
(c)

	
an Asset Coverage Test Breach Notice has been given on or prior to such Business Day and has not been revoked.

 

	
7.2

	
Mandatory Repayment Upon Demand Loan Repayment Event

 

	
  

	
(a)

	
Subject to Section 7.2(b) below, the Guarantor LP shall repay the amount, if any, by which the Demand Loan exceeds the Demand Loan Contingent Amount on the first Guarantor LP Payment Date following 60 days after the earlier of the date on which:

 

	
  

	
(i)

	
the Issuer is required to assign the Interest Rate Swap Agreement to a third party (or while Fitch is a Rating Agency, the Issuer fails to meet the ratings (being F2/BBB+) set out in Section 5(k)(ii)(3) of the ISDA Schedule to the Interest Rate Swap Agreement Master Agreement); and

 

	
  

	
(ii)

	
an Issuer Event of Default has occurred, notice of an Issuer Acceleration Notice has been given to the Issuer and notice of a Notice to Pay has been given to the Guarantor LP,

 

each of (i) and (ii) above a Demand Loan Repayment Event.

 

	
  

	
(b)

	
Following a Demand Loan Repayment Event, the Guarantor LP shall repay the full amount of the then outstanding Demand Loan on the date on which the Asset Percentage is next calculated (whether or not such calculation is a scheduled calculation or a calculation made at the request of the Issuer) provided that the Asset Coverage Test, as calculated by the Cash Manager, is met on the date of repayment after giving effect to such repayment.

 

	
7.3

	
Payments under Guarantee discharge obligations of Guarantor LP under this Agreement

 

To the extent that the Guarantor LP makes, or there is made on its behalf, a payment under the Covered Bond Guarantee, the Issuer will on such payment being made become indebted to the Guarantor LP for an amount equal to such payment. Any amounts owing by the Issuer to the Guarantor LP in respect of amounts paid by the Guarantor LP under the Covered Bond Guarantee shall be setoff automatically (and without any action being required by the Guarantor LP, the Issuer or the Bond Trustee) against any amounts repayable by the Guarantor LP under the terms of the Intercompany Loan Agreement.  The amount setoff shall be the Canadian Dollar Equivalent of the relevant payment made by the Guarantor LP under the Covered Bond Guarantee, which amount shall be applied to reduce amounts repayable under the Intercompany Loan in the following order of priority:

 

  

7

  

 

	
  

	
(a)

	
first, to reduce and discharge any amounts due and payable by the Guarantor LP to the Issuer under this Agreement other than interest and principal;

 

	
  

	
(b)

	
second, to reduce and discharge interest (including accrued interest) due and unpaid on the outstanding principal balance of the Advances; and

 

	
  

	
(c)

	
third, to reduce and discharge the outstanding principal balance of the Advances.

 

	
7.4

	
Repayment of Guaranteed Loan

 

The Guaranteed Loan shall be repaid in accordance with the applicable Priority of Payments and is subordinated to the Demand Loan in accordance with such Priority of Payments.

 

	
  8

	
Taxes

 

	
8.1

	
No gross up

 

All payments by the Guarantor LP under this Agreement shall be made without any deduction or withholding for or on account of and free and clear of, any Taxes, except to the extent that the Guarantor LP is required by law to make payment subject to any Taxes.

 

	
8.2

	
Not a Non-Resident

 

The Guarantor LP represents and warrants to the Issuer that it is, and covenants that it will at all times remain, a person that is not a Non-Resident.

 

	
8.3

	
Tax receipts

 

All Taxes required by law to be deducted or withheld by the Guarantor LP from any amounts paid or payable under this Agreement shall be paid by the Guarantor LP when due and the Guarantor LP shall, within 90 days of the payment being made, deliver to the Issuer evidence satisfactory to the Issuer (including all relevant Tax receipts) that the payment has been duly remitted to the appropriate authority.

 

	
  9

	
Illegality

 

If, at any time, it is unlawful for the Issuer to make, fund or allow to remain outstanding an Advance made or to be made by it under this Agreement, then the Issuer shall, promptly after becoming aware of the same, deliver to the Guarantor LP, the Bond Trustee and the Rating Agencies a legal opinion to that effect from reputable counsel and the Issuer may require the Guarantor LP to prepay, on any Guarantor LP Payment Date, having given not more than 60 days’ and not less than 30 days’ notice (or such shorter period as may be required by any relevant law) prior written notice to the Guarantor LP and the Bond Trustee, and while the relevant circumstances continue, the applicable Advance(s) without penalty or premium but subject to Article 5 (Exercise of Certain Rights) of the Security Agreement and Section 10 (Mitigation) of this Agreement.

 

	
  10

	
Mitigation

 

If circumstances arise in respect of the Issuer which would, or would upon the giving of notice, result in the prepayment of the Advances pursuant to Section 9 (Illegality), then, without in any way limiting, reducing or otherwise qualifying the obligations of the Guarantor LP under this Agreement, the Issuer shall:

 

  

8

  

 

	
  

	
(a)

	
promptly upon becoming aware of the circumstances, notify the Bond Trustee, the Guarantor LP and the Rating Agencies; and

 

	
  

	
(b)

	
upon written request from the Guarantor LP, take such steps as may be practical to mitigate the effects of those circumstances including (without limitation) the assignment of all its rights under this Agreement to, and assumption of all its obligations under this Agreement by, another person satisfactory to the Bond Trustee, which is willing to participate in the relevant Advances in its place and which is not subject to any illegality as referred to in Section 9 (Illegality),

 

provided that no such transfer or assignment and transfer may be permitted unless the Rating Agency Confirmation has been received in respect of such transfer or assignment as a result and the Guarantor LP indemnifies (subject to Article 5 of the Security Agreement) the Issuer for any reasonable costs and expenses properly incurred by them as a result of such transfer or assignment.

 

	
  11

	
Payments

 

	
11.1

	
Payment

 

	
  

	
(a)

	
Subject to the applicable Priorities of Payment, all amounts to be paid to the Issuer under this Agreement, excluding the repayment of the Demand Loan, shall be paid in Canadian Dollars for value by the Guarantor LP to such account as is notified to the Guarantor LP by the Issuer for this purpose by not less than five (5) Business Days prior notice on each Guarantor LP Payment Date

 

	
  

	
(b)

	
Subject to the applicable Priorities of Payment, the Guarantor LP may elect, at its sole discretion, to repay the Demand Loan (or any portion thereof) pursuant to Sections 7.1 or 7.2 of this Agreement in the following manner:

 

	
  

	
(i)

	
in Canadian Dollars for value by the Guarantor LP to such account as is notified to the Guarantor LP by the Issuer for this purpose, provided that any amount paid in Canadian Dollars pursuant to this Section 11.1(b)(i) shall not have been derived from the sale of any Loan and its Related Security by the Guarantor LP for less than the True Balance of such Loan at the time of such sale; or

 

	
  

	
(ii)

	
by selling, transferring and assigning to the Issuer all of the Guarantor LP’s right, title and interest in and to Randomly Selected Loans, and any Collections in respect of such Randomly Selected Loans from and after the date of the Payment in Kind Notice, in accordance with Section 11.1(c) and for the consideration of the reduction of the amount outstanding under the Demand Loan pursuant to Section 11.1(d) (Payment in Kind).

 

	
  

	
(c)

	
If the Guarantor LP elects to make a Payment in Kind, the Guarantor LP shall provide the Issuer with notice thereof (the Payment in Kind Notice) at least five (5) Business Days prior to the date of the Payment in Kind setting out the following information:

 

	
  

	
(i)

	
the date (the Payment in Kind Date) on which the transfer and assignment of the Loans and their Related Security identified in such Payment in Kind Notice is to take place (provided that such date shall not be more than 30 days following the date of such Payment in Kind Notice);

 

  

9

  

 

	
  

	
(ii)

	
the aggregate amount of the Demand Loan to be paid on the Payment in Kind Date (being either the Fair Market Value or the True Balance of the Loans listed in the Payment in Kind Notice as of the date of the Payment in Kind Notice in accordance with Section 11.1(d)); and

 

	
  

	
(iii)

	
a listing of the Randomly Selected Loans to be transferred and assigned to the Issuer on the Payment in Kind Date including:

 

	
  

	
(A)

	
for each such Loan:

 

	
  

	
(1)

	
the identification number for such Loan;

 

	
  

	
(2)

	
the name of the Borrower in respect of such Loan;

 

	
  

	
(3)

	
the municipal street address, city, province and postal code of the related mortgaged property forming part of the Related Security for such Loan;

 

	
  

	
(4)

	
the Current Balance (excluding Capitalized Interest and Capitalized Arrears) of such Loan as of the date of the Payment in Kind Notice;

 

	
  

	
(5)

	
the rate of interest chargeable on each such Loan as of the date of the Payment in Kind Notice;

 

	
  

	
(6)

	
if applicable, the date(s) on which adjustments in interest are to take place or may be effected by the lender pursuant to the Mortgage Terms in respect of such Loan;

 

	
  

	
(7)

	
the mortgage maturity date;

 

	
  

	
(8)

	
the remaining amortization period in respect of such Loan; and

 

	
  

	
(B)

	
the following information:

 

	
  

	
(1)

	
the current index, prime or other reference rate(s) applicable to such Loans as at the date of the Payment in Kind Notice;

 

	
  

	
(2)

	
the number of Loans identified in the Payment in Kind Notice; and

 

	
  

	
(3)

	
the aggregate Current Balance as of the date of the Payment in Kind Notice of such Loans.

 

	
  

	
(d)

	
Upon any Payment in Kind, the outstanding amount of the Demand Loan shall be reduced by:

 

	
  

	
(i)

	
in the case of Loans that are not Non-Performing Loans (A) prior to a Covered Bond Guarantee Activation Event, the Fair Market Value of the Loans which are the subject of the Payment in Kind; or (B) on or after a Covered Bond Guarantee Activation Event, the True Balance of the Loans which are the subject of the Payment in Kind; and

 

	
  

	
(ii)

	
in the case of Loans that are Non-Performing Loans, the Fair Market Value of the Loans which are the subject of the Payment in Kind.

 

  

10

  

 

	
  

	
(e)

	
If the Loans subject to the Payment in Kind reduce the Demand Loan by the True Balance of the Loans pursuant to Section 11.1(d), then upon such Portfolio Adjustment (and notwithstanding the terms of the Interest Rate Swap Agreement):

 

	
  

	
(i)

	
if the Issuer or an Affiliate of the Issuer is the Interest Rate Swap Provider, no Breakage Fees shall be payable in respect of such Portfolio Adjustment; and

 

	
  

	
(ii)

	
if the Issuer or an Affiliate of the Issuer is not the Interest Rate Swap Provider, (A) Breakage Fees (if any) payable by the Guarantor LP to the Interest Rate Swap Provider in respect of such Portfolio Adjustment shall be paid by the Issuer to the Interest Rate Swap Provider for and on behalf of the Guarantor LP; and (B) the Guarantor LP shall direct that Breakage Fees (if any) payable to the Guarantor LP by the Interest Rate Swap Provider in respect of such Portfolio Adjustment, shall be paid to the Issuer or such Person as the Issuer may direct in each case.

 

	
  

	
(f)

	
Upon the Payment in Kind Date, all of the Guarantor LP’s right, title and interest in and to the Loans set out in the Payment in Kind Notice and their Related Security from the date of the Payment in Kind shall be, sold, assigned and transferred by the Guarantor LP to the Issuer, effective as of such date, without recourse, representation or warranty (whether express, implied, statutory or otherwise) to, against, by or on behalf of the Guarantor LP, save and except that (x) such Loans and their Related Security and the proceeds thereof are free and clear of any Adverse Claim created by the Guarantor LP, and (y) the Guarantor LP has the power and authority to transfer and assign such Loans and their Related Security and the proceeds thereof as herein provided and the Guarantor LP shall deliver or cause to be delivered to the Issuer on the Payment in Kind Date an amount equal to the aggregate Collections received by or on behalf of the Guarantor LP after the date of the Payment in Kind Notice and prior to the Payment in Kind Date in respect of the Loans and their Related Security specified in the Payment in Kind Notice; and in consideration therefore, the amount owing on the Demand Loan shall be reduced in accordance with Section 11.1(b)(ii).

 

	
  

	
(g)

	
The Guarantor LP will, at the expense of the Issuer (i) execute and deliver such assignments or other instruments of conveyance, (ii) make such filings (including filings of financing statements), and (iii) with respect to the Related Security Files or other documents relating to the Loans and their Related Security sold, transferred and assigned to the Issuer on the relevant Payment in Kind Date (A) to the extent held by the Issuer, confirm that the Issuer shall cease to be under any further obligation to hold such Related Security Files or other documents relating to the Loans and their Related Security to the order of the Guarantor LP or the Bond Trustee; and (B) to the extent not held by the Issuer deliver to the Issuer such Loan and Related Security Files or other documents that are in its possession or under its control or held to its order to the Issuer or as the Issuer shall direct.

 

	
  

	
(h)

	
Without limiting anything in this Agreement, Payment in Kind shall constitute a discharge and release of the Issuer from any claims which the Guarantor LP or the Bond Trustee may have against the Issuer arising from the relevant Representations or Warranties in relation to any Loans and their Related Security sold, transferred and assigned to the Issuer on the relevant Payment in Kind Date, which were previously sold by the Issuer to the Guarantor LP.

 

	
11.2

	
Alternative payment arrangements

 

If, at any time, it shall become impracticable (by reason of any action of any governmental authority or any change in law, exchange control regulations or any similar event) for the Guarantor LP to make any payments under this Agreement in the manner specified in Section 11.1 (Payment), then the Guarantor LP shall make such alternative arrangements for the payment direct to the Issuer of amounts due under this Agreement as are acceptable to the Issuer and the Bond Trustee (acting reasonably).

 

  

11

  

 

	
  12

	
Further Provisions

 

	
12.1

	
No set-off by the Issuer

 

The Issuer agrees that it will advance the Advances to the Guarantor LP (subject to the terms of this Agreement, including without limitation, Sections 4 and 5) without set-off (including, without limitation, in respect of any amounts owed to it under any other Advance or in its capacity as a Partner in the Guarantor LP or in any other capacity under any of the Transaction Documents to which it is a party) or counterclaim.

 

	
12.2

	
Evidence of indebtedness

 

In any proceeding, action or claim relating to this Agreement a statement as to any amount due to the Issuer under this Agreement shall, unless otherwise provided in this Agreement, be prima facie evidence that such amount is in fact due and payable.

 

	
12.3

	
Rights cumulative, waivers

 

The respective rights of the Guarantor LP and the Issuer under this Agreement:

 

	
  

	
(a)

	
may be exercised as often as necessary;

 

	
  

	
(b)

	
are cumulative and not exclusive of its rights under the general law; and

 

	
  

	
(c)

	
may be waived only in writing and specifically.

 

No waiver of this Agreement shall be effective unless it is in writing and signed by (or by some person duly authorised by) each of the parties. Each proposed waiver of this Agreement that is considered by the Guarantor LP to be a material waiver shall be subject to Rating Agency Confirmation and the Guarantor LP (or the Cash Manager on its behalf) shall deliver notice to the Rating Agencies of any waiver which does not require Rating Agency Confirmation provided that failure to deliver such notice shall not constitute a breach of the obligations of the Guarantor LP under this Agreement.  No single or partial exercise of, or failure or delay in exercising, any right under this Agreement shall constitute a waiver or preclude any other or further exercise of that or any other right.

 

	
12.4

	
Severability

 

The invalidity or unenforceability of any provision of this Agreement in any jurisdiction shall not in any way affect or impair:

 

	
  

	
(a)

	
the validity or enforceability in that jurisdiction of any other provision of this Agreement; or

 

	
  

	
(b)

	
the validity or enforceability in other jurisdictions of that or any other provision of this Agreement.

 

	
12.5

	
Notices

 

	 	
12.5.1

	
Any notice, direction or other communication given under this Agreement shall be in writing and given by delivering it or sending it by prepaid first class mail to the registered office of such person set forth above unless an alternative address is provided below, in which case delivery shall be to the address provided below, or by facsimile transmission to facsimile number set forth below, as applicable:

 

  

12

  

 

	
  

	
(i)

	
in the case of the Guarantor LP, to:

 

RBC Covered Bond Guarantor Limited Partnership

155 Wellington Street West, 14th Floor

Toronto, Ontario

Canada M5V 3K7

Attention: Senior Manager, Securitization

Facsimile number: (416) 974-1368

 

	
  

	
(ii)

	
in the case of the Issuer or the Cash Manager, to:

 

Royal Bank of Canada

155 Wellington Street West, 14th Floor

Toronto, Ontario

Canada M5V 3K7

Attention: Senior Manager, Securitization

Facsimile number: (416) 974-1368

 

	 	
12.5.2

	
Any such communication will be deemed to have been validly and effectively given (i) if personally delivered, on the date of such delivery if such date is a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time) and otherwise on the next Business Day, (ii) in the case of first class post, when it would be received in the ordinary course of the post, or (ii) if transmitted by facsimile transmission on the Business Day following the date of transmission provided the transmitter receives a confirmation of successful transmission.

 

	 	
12.5.3

	
Any party may change its address for notice, or facsimile contact information for service from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to such party at its changed address, or facsimile contact information, as applicable.

 

	
12.6

	
Assignment

 

None of the Issuer, the Guarantor LP nor the Cash Manager may assign or transfer any of its rights or obligations under this Agreement, except as provided for in the Transaction Documents, including the pledge of rights under the Security Agreement by the Guarantor LP, and unless the Guarantor LP has obtained Rating Agency Confirmation for any such assignment.

 

	
12.7

	
Amendments and Variation

 

Subject to the terms of Section 7.3 of the Security Agreement, any amendments to this Agreement will be made only with the prior written consent of each party to this Agreement provided, for certainty, no such consent shall be required in connection with the amendment or other change to the rate of interest on Advances payable hereunder.  Each proposed amendment of this Agreement that is considered by the Guarantor LP to be a material amendment shall be subject to Rating Agency Confirmation and the Guarantor LP (or the Cash Manager on its behalf) shall deliver notice to the Rating Agencies of any amendment which does not require Rating Agency Confirmation provided that failure to deliver such notice shall not constitute a breach of the obligations of the Guarantor LP under this Agreement.

 

  

13

  

 

	
12.8

	
Non-Petition

 

The Issuer and Cash Manager agree that they shall not institute or join any other Person or entity in instituting against, or with respect to, the Guarantor LP, or any of the general partners of the Guarantor LP, any bankruptcy or insolvency event so long as any Covered Bonds issued by the Issuer under the Programme shall be outstanding or there shall not have elapsed one year plus one day since the last day on which any such Covered Bonds shall have been outstanding.  The foregoing provision shall survive the termination of this Agreement by any of the parties hereto.

 

	
12.9

	
Counterparts

 

This Agreement may be signed (manually or by facsimile) and delivered in more than one counterpart all of which, taken together, shall constitute one and the same Agreement.

 

	
12.10

	
Third Party Rights

 

This Agreement does not create any right which is enforceable by any person who is not a party to this Agreement.

 

	
12.11

	
Limitation of Liability

 

The Guarantor LP is a limited partnership formed under the Limited Partnerships Act (Ontario), a limited partner of which is, except as expressly required by law, only liable for any of its liabilities or any of its losses to the extent of the amount that the limited partner has contributed or agreed to contribute to its capital.

 

	
12.12

	
Further Assurances

 

Upon request of the Issuer, the Guarantor LP shall execute and deliver to the Issuer such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Issuer to carry out more effectually the provisions and purposes of this Agreement.

 

	
   13

	
Governing Law

 

This Agreement is governed by and shall be construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

 

[The remainder of this page is intentionally left blank]

 

  

14

  

 

IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed on the day and year appearing on Page 1.

 

 

	  	
RBC COVERED BOND GUARANTOR 

LIMITED PARTNERSHIP, acting by its 

managing general partner RBC COVERED 

BOND GP INC.

	 	 
	  	
Per:

	 	/s/ David Power
	  	  	 	
Name:  David Power

	  	  	 	
Title:  President

 

 

	  	
ROYAL BANK OF CANADA

	 	 
	  	
Per:

	 	/s/ James Salem
	  	  	 	
Name: James Salem

	  	  	 	
Title: Executive Vice-President and 

Treasurer

	  	  	 	  
	  	
Per:

	 	/s/ David Power
	  	  	 	
Name:  David Power

	  	  	 	
Title: Vice-President, Corporate 

Treasury

 

Amended and Restated Intercompany Loan Agreement (signature page)

 

  

 

SCHEDULE 1 – Form of Advance Request

 

ADVANCE REQUEST

 

 

	
From:

	
RBC Covered Bond Guarantor Limited Partnership (Guarantor LP)

 

	To:	Royal Bank of Canada (the Issuer)

 

	Date:	[    ]

 

Dear Sirs,

 

We refer to the amended and restated intercompany loan agreement between ourselves and you (as from time to time amended, varied, novated or supplemented (the Intercompany Loan Agreement)) originally entered into on October 25, 2007 and most recently amended and restated as of August [l], 2013 whereby an Intercompany Loan was made available to us.  Terms defined in the Intercompany Loan Agreement shall have the same meaning in this Advance Request.

 

We hereby give you notice that, pursuant to the Intercompany Loan Agreement and upon the terms and subject to the conditions contained therein, we wish the following Advance to be made available to us as follows:

 

	
  

	
(a)

	
Aggregate Amount: [   ].

 

	
  

	
(b)

	
Drawdown Date: [   ].

 

We confirm that as of the date hereof:

 

	
  

	
(i)

	
the undersigned has delivered a copy of a resolution duly passed by the board of directors of the managing general partner of the Guarantor LP authorizing its execution, delivery and performance on behalf of Guarantor LP of the Intercompany Loan Agreement certified by an officer of the managing general partner;

 

	
  

	
(ii)

	
the aggregate principal amount of the Advance requested herein will not result in the Guarantor LP being unable to satisfy the Asset Coverage Test on a pro forma basis following such Advance and the application of the proceeds thereof;

 

	
  

	
(iii)

	
the aggregate outstanding amount of Advances after giving effect to the Advance requested herein does not exceed the Total Credit Commitment; and

 

	
  

	
(iv)

	
no Issuer Event of Default, Guarantor LP Event of Default or Demand Loan Repayment Event has occurred.

 

The net proceeds of this drawdown should be credited to our account numbered [            ] with the [       ].

 

Yours faithfully,

 

  

S1-1

  

 

	  	
RBC Covered Bond Guarantor Limited 

Partnership, acting by its general partner 

RBC COVERED BOND GP INC.

	 	 
	  	
Per:

	 	  
	  	  	 	
Name:

	  	  	 	
Title:

 

 

 

 

 

 

Amended and Restated Intercompany Loan Agreement (signature page)

 

  

 

SCHEDULE 2 – Asset Coverage Test

 

ASSET COVERAGE TEST

(included for reference only)

 

N.B. The parties to this Intercompany Loan Agreement agree this Schedule 2 is included for reference only. To the extent of any inconsistency between this Schedule 2 and the Asset Coverage Test as set out in Schedule 2 – Part I to the Guarantor LP Agreement, the terms of Schedule 2 – Part I to the Guarantor LP Agreement shall govern. For defined terms used and not otherwise defined herein see the Master Definition and Construction Agreement.

 

	
  

	
(a)

	
The Asset Coverage Test is met if the Adjusted Aggregate Asset Amount (as defined below) shall be in an amount at least equal to the Canadian Dollar Equivalent of the aggregate Principal Amount Outstanding of the Covered Bonds as calculated on the relevant Calculation Date. For greater certainty, references in this Schedule to immediately preceding Calculation Date and previous Calculation Date are to the Calculation Period ending on the Calculation Date.

 

	
  

	
(b)

	
For the purposes of the Asset Coverage Test the Adjusted Aggregate Asset Amount means the amount calculated as at each Calculation Date as follows:

 

A+B+C+D+E-F

 

where,

 

A           =          the lower of (i) and (ii), where:

 

	 	
(i)

	
=          the sum of the LTV Adjusted True Balance of each Loan in the Covered Bond Portfolio, which shall be the lower of (1) the actual True Balance of the relevant Loan in the Covered Bond Portfolio on such Calculation Date, and (2) the Market Value of the Property subject to the Mortgage forming part of the Related Security relating to that Loan multiplied by M (where for all Eligible Loans that are Performing Loans M = 80% and for all Loans that are Non-Performing Loans or Non-Eligible Loans M = 0);

 

minus

 

the aggregate sum of the following deemed reductions to the aggregate LTV Adjusted True Balance of the Loans in the Covered Bond Portfolio if any of the following occurred during the previous Calculation Period:

 

	
  

	
(1)

	
a Loan (other than a Non-Performing Loan or Non-Eligible Loan) or its Related Security was, in the immediately preceding Calculation Period, in breach of the Representations and Warranties contained in the Mortgage Sale Agreement or subject to any other obligation of the Seller to repurchase the relevant Loan and its Related Security, and in each case the Seller has not repurchased such Loan or Loans of the relevant Borrower and its or their Related Security to the extent required by the terms of the Mortgage Sale Agreement. In this event, the aggregate LTV Adjusted True Balance of the Loans in the Covered Bond Portfolio on such Calculation Date will be deemed to be reduced by an amount equal to the LTV Adjusted True Balance of such Loan or Loans on such Calculation Date; and/or

 

  

S2-1

  

 

	
  

	
(2)

	
the Seller, in any preceding Calculation Period, was in breach of any other material warranty under the Mortgage Sale Agreement and/or the Servicer was, in any preceding Calculation Period, in breach of a material term of the Servicing Agreement. In this event, the aggregate LTV Adjusted True Balance of the Loans in the Covered Bond Portfolio on such Calculation Date will be deemed to be reduced by an amount equal to the resulting financial loss incurred by the Partnership in the immediately preceding Calculation Period (such financial loss to be calculated by the Cash Manager without double counting and to be reduced by any amount paid (in cash or in kind) to the Partnership by the Seller to indemnify the Partnership for such financial loss);

 

AND

 

	 	
(ii)

	
=          the aggregate Asset Percentage Adjusted True Balance of the Loans in the Covered Bond Portfolio which in relation to each Loan shall be the lower of (1) the actual True Balance of the relevant Loan as calculated on such Calculation Date, and (2) the Market Value of the Property subject to the Mortgage forming part of the Related Security relating to that Loan multiplied by N (where for all Eligible Loans that are Performing Loans, N = 1 and for all Loans that are Non-Performing Loans or Non-Eligible Loans N = 0);

 

minus

 

the aggregate sum of the following deemed reductions to the aggregate Asset Percentage Adjusted True Balance of the Loans in the Covered Bond Portfolio if any of the following occurred during the previous Calculation Period:

 

	
  

	
(1)

	
a Loan (other than a Non-Performing Loan or Non-Eligible Loan) or its Related Security was, in the immediately preceding Calculation Period, in breach of the Representations and Warranties contained in the Mortgage Sale Agreement or subject to any other obligation of the Seller to repurchase the relevant Loan and its Related Security, and in each case the Seller has not repurchased such Loan or Loans of the relevant Borrower and its or their Related Security to the extent required by the terms of the Mortgage Sale Agreement. In this event, the aggregate Asset Percentage Adjusted True Balance of the Loans in the Covered Bond Portfolio on such Calculation Date will be deemed to be reduced by an amount equal to the Asset Percentage Adjusted True Balance of such  Loan or Loans on such Calculation Date; and/or

 

	
  

	
(2)

	
the Seller, in any preceding Calculation Period, was in breach of any other material warranty under the Mortgage Sale Agreement and/or the Servicer was, in any preceding Calculation Period, in breach of a material term of the Servicing Agreement. In this event, the aggregate Asset Percentage Adjusted True Balance of the Loans in the Covered Bond Portfolio on such Calculation Date will be deemed to be reduced by an amount equal to the resulting financial loss incurred by the Partnership in the immediately preceding Calculation Period (such financial loss to be calculated by the Cash Manager without double counting and to be reduced by any amount paid (in cash or in kind) to the Partnership by the Seller to indemnify the Partnership for such financial loss),

 

  

S2-2

  

 

the result of the calculation in this paragraph (ii) being multiplied by the Asset Percentage (as defined below);

 

AND

 

	
  

	
(iii)

	
With respect to any such calculations, any Loan included in the Covered Bond Portfolio secured on a Property which also secures one or more other Loans included in the Covered Bond Portfolio, any breach of the Loan Representations and Warranties in respect of one such Loan will be deemed to be a breach in respect of all such Loans in the Covered Bond Portfolio secured on the same Property;

 

B           =           the aggregate amount of any Principal Receipts on the Loans in the Covered Bond Portfolio (excluding proceeds from any sale of such Loans)  up to such Calculation Date (as recorded in the Principal Ledger) which have not been applied as at such Calculation Date to acquire further Loans and their Related Security or otherwise applied;

 

C           =           the aggregate amount of any Cash Capital Contributions made by the Partners (as recorded in the Capital Account Ledger for each Partner of the Partnership) or proceeds advanced under the Intercompany Loan Agreement or proceeds from any sale of Loans or other cash exclusive of Revenue Receipts which have not been applied as at such Calculation Date provided such amount is not greater than the sum of (i) any such amounts received within such Calculation Period; and (ii) the amount necessary to meet the Partnership’s payment obligations in the six months immediately succeeding such Calculation Date pursuant to the provisions of the Transaction Documents or such greater amount as CMHC may permit;

 

D           =           the aggregate outstanding principal balance of any Substitute Assets;

 

E           =           the Reserve Fund balance, if applicable; and

 

F           =           the amount equal to the sum of:

 

	
  

	
(i)

	
the greater of the following amounts determined in respect of outstanding Covered Bonds issued prior to the CMHC Programme Registration Date: (A) the weighted average remaining maturity expressed in years of such Covered Bonds multiplied by the Canadian Dollar Equivalent of the aggregate Principal Amount Outstanding of such Covered Bonds multiplied by the Pre-Registration Negative Carry Factor; and (B) the amount determined in respect of such Covered Bonds pursuant to (ii) immediately below (without regard to such Covered Bonds having been issued prior to the CMHC Programme Registration Date). Pre-Registration Negative Carry Factor means (i) 0.5% if the weighted average margin of the interest rate payable on the Covered Bonds is less or equal to  0.1% per annum, or (ii) 0.5% plus that margin minus 0.1%, if that margin is greater than 0.1% per annum (provided that if the weighted average remaining maturity is less than one, the weighted average shall be deemed, for the purposes of this calculation, to be one), and

 

  

S2-3

  

 

	
  

	
(ii)

	
(A) nil, where cash flows are being exchanged under the Covered Bond Swap Agreement; and (B) where cash flows are not being exchanged under the Covered Bond Swap Agreement, the weighted average remaining maturity expressed in years of the Covered Bonds issued after the CMHC Programme Registration Date then outstanding (provided that if the weighted average remaining maturity is less than one, the weighted average shall be deemed, for the purposes of this calculation, to be one) multiplied by the Canadian Dollar Equivalent of the aggregate Principal Amount Outstanding of the Covered Bonds multiplied by the Negative Carry Factor where the Negative Carry Factor is, if the weighted average margin of the interest rate payable on the Covered Bonds relative to the interest rate receivable on the Covered Bond Portfolio is (i) less than or equal to 0.1% per annum, 0.5%, or (ii) greater than 0.1% per annum, then 0.5% plus such margin minus 0.1%.

 

 

 

 

 

S2-4United
American Petroleum Corp.

Exhibit
4.1

United
American Petroleum Corp.

 

2013
Stock Plan for Directors, Officers and Consultants

 

 

SECTION
1.  PURPOSE OF THE PLAN.  

 

The
purpose of the 2013 Stock Plan for Directors, Officers and Consultants (the "Plan") is to enhance the ability of United
American Petroleum Corp., a Nevada corporation (the "Company"), to attract and retain highly qualified and experienced
directors, employees and consultants and to give such directors, employees and consultants a continued proprietary interest in
the success of the Company.  In addition, the Plan is intended to encourage ownership of common stock of the Company by the
directors, employees and consultants of the Company and its Affiliates (as defined below) and to provide increased incentive for
such persons to render services and to exert maximum effort for the success of the Company's business.  

 

The
Plan provides eligible employees and consultants the opportunity to participate in the enhancement of shareholder value by the
grants of warrants, options, restricted common or convertible preferred stock , unrestricted common or convertible preferred stock
and other awards under this Plan and to have their bonuses and/or consulting fees payable in warrants, restricted common or convertible
preferred stock, unrestricted common or convertible preferred stock and other awards, or any combination thereof.  

 

In
addition, the Company expects that the Plan will further strengthen the identification of the directors, employees and consultants
with the stockholders.  Certain options and warrants to be granted under this Plan are intended to qualify as Incentive Stock
Options ("ISOs") pursuant to Section 422 of the Internal Revenue Code of 1986, as amended ("Code"), while
other options and warrants and preferred stock granted under this Plan will be nonqualified options or warrants which are not
intended to qualify as ISOs ("Nonqualified Options"), either or both as provided in the agreements evidencing the options
or warrants described in Section 5 hereof and shares of preferred stock, as provided in the designation described in Section 7.
 Employees, consultants and directors who participate or become eligible to participate in this Plan from time to time are
referred to collectively herein as "Participants".  As used in this Plan, the term "Affiliates" means
any "parent corporation" of the Company and any "subsidiary corporation" of the Company within the meaning
of Code Sections 424(e) and (f), respectively.

 

SECTION
2.  ADMINISTRATION OF THE PLAN.

 

(a)
Composition of Committee.  The Plan shall be administered by the Board of Directors of the Company (the "Board")
or to a committee of the Board to which responsibility for the administration of this Plan has been assigned on behalf of the
Board.  When acting in such capacity, the Board is herein referred to as the "Committee," and in such case, the
Board shall also designate the Chairman of the Committee.  

 

(b)
Committee Action.  The Committee shall hold its meetings at such times and places as it may determine.  A majority of
its members shall constitute a quorum, and all determinations of the Committee shall be made by not less than a majority of its
members.  Any decision or determination reduced
to writing and signed by a majority of the members shall be fully effective as if it had been made by a majority vote of its members
at a meeting duly called and held.  The Committee may designate the Secretary of the Company or other Company employees to
assist the Committee in the administration of the Plan, and may grant authority to such persons to execute award agreements or
other documents on behalf of the Committee and the Company.  Any duly constituted committee of the Board satisfying the qualifications
of this Section 2 may be appointed as the Committee.

 

    	1

    	 

    

 

(c)
Committee Expenses.  All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne
by the Company.  The Committee may employ attorneys, consultants, accountants or other persons.

 

SECTION
3.  STOCK RESERVED FOR THE PLAN.  

 

Subject
to adjustment as provided in Section 5(d)(xiii) hereof, the aggregate number of shares that may be optioned, subject to conversion
or issued under the Plan is 2,000,000 shares of common stock, warrants, options, preferred stock or any combination thereof.  The
shares subject to the Plan shall consist of authorized but unissued shares of common stock and such number of shares shall be
and is hereby reserved for sale for such purpose.  Any of such shares which may remain unsold and which are not subject to
issuance upon exercise of outstanding options or warrants or conversion of outstanding shares of preferred stock at the termination
of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan or the termination of the
last of the options or warrants granted under the Plan, whichever last occurs, the Company shall at all times reserve a sufficient
number of shares to meet the requirements of the Plan.  Should any option or warrant expire or be cancelled prior to its
exercise in full, the shares theretofore subject to such option or warrant may again be made subject to an option, warrant or
shares of convertible preferred stock under the Plan.

 

SECTION
4.  ELIGIBILITY.  

 

The
Participants shall include directors, employees, including officers, of the Company and its divisions and subsidiaries, and consultants
and attorneys who provide bona fide services to the Company.  Participants are eligible to be granted warrants, options,
restricted common or convertible preferred stock, unrestricted common or convertible preferred stock and other awards under this
Plan and to have their bonuses and/or consulting fees payable in warrants, restricted common or convertible preferred stock, unrestricted
common or convertible preferred stock and other awards.  A Participant who has been granted an option, warrant or preferred
stock hereunder may be granted an additional option, warrant options, warrants or preferred stock, if the Committee shall so determine.

 

SECTION
5.  GRANT OF OPTIONS OR WARRANTS.

 

(a)
Committee Discretion.  The Committee shall have sole and absolute discretionary authority (i) to determine, authorize, and
designate those persons pursuant to this Plan who are to receive warrants, options, restricted common or convertible preferred
stock, or unrestricted common or convertible preferred stock under the Plan, (ii) to determine the number of shares of common
stock to be covered by such grant or such options or warrants and the terms thereof, (iii) to determine the type of stock granted:
restricted common or convertible preferred stock, unrestricted common or convertible preferred stock or a combination of restricted
and unrestricted common or convertible  preferred
stock, and (iv) to determine the type of option or warrant granted: ISO, Nonqualified Option or a combination of ISO and Nonqualified
Options.  The Committee shall thereupon grant options or warrants in accordance with such determinations as evidenced by
a written option or warrant agreement.  Subject to the express provisions of the Plan, the Committee shall have discretionary
authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan, to prescribe and
amend the terms of the option or warrant agreements (which need not be identical) and to make all other determinations deemed
necessary or advisable for the administration of the Plan.

 

    	2

    	 

    

 

 

(b)
Stockholder Approval.  All ISOs granted under this Plan are subject to, and may not be exercised before, the approval of
this Plan by the stockholders prior to the first anniversary date of the Board meeting held to approve the Plan, by the affirmative
vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote
at the meeting, or by written consent in accordance with the laws of the State of Nevada, provided that if such approval by the
stockholders of the Company is not forthcoming, all options or warrants and stock awards previously granted under this Plan other
than ISOs shall be valid in all respects.

 

(c)
Limitation on Incentive Stock Options and Warrants.  The aggregate fair market value (determined in accordance with Section
5(d)(ii) of this Plan at the time the option or warrant is granted) of the common stock with respect to which ISOs may be exercisable
for the first time by any Participant during any calendar year under all such plans of the Company and its Affiliates shall not
exceed $25,000,000.

 

(d)
Terms and Conditions.  Each option or warrant granted under the Plan shall be evidenced by an agreement, in a form approved
by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions
as the Committee may deem appropriate:

 

   (i)
Option or Warrant Period.  The Committee shall promptly notify the Participant of the option or warrant grant and a written
agreement shall promptly be executed and delivered by and on behalf of the Company and the Participant, provided that the option
or warrant grant shall expire if a written agreement is not signed by said Participant (or his agent) and returned to the Company
within 60 days from date of receipt by the Participant of such agreement.  The date of grant shall be the date the option
or warrant is actually granted by the Committee, even though the written agreement may be executed and delivered by the Company
and the Participant after that date. Each option or warrant agreement shall specify the period for which the option or warrant
thereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option or warrant
shall expire at the end of such period. If the original term of an option or warrant is less than ten years from the date of grant,
the option or warrant may be amended prior to its expiration, with the approval of the Committee and the Participant, to extend
the term so that the term as amended is not more than ten years from the date of the original grant. However, in the case of an
ISO granted to an individual who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or its Affiliate ("Ten Percent Stockholder"), such period shall not exceed
five years from the date of grant.

 

   (ii)
Option or Warrant Price.  The purchase price of each share of common stock subject to each option or warrant granted
pursuant to the Plan shall be determined by the Committee at the time the option or warrant is granted and, in the case of
ISOs, shall not be less than 100% of the fair market value of a share of common stock on the date the option or warrant is
granted, as determined by the Committee.  In the case of an ISO granted to a Ten Percent Stockholder, the option or
warrant price shall not be less than 110% of the fair market value of a share of common stock on the date the option or
warrant is granted.  The purchase price of each share of common stock subject to a Nonqualified Option or Warrant under
this Plan shall be determined by the Committee prior to granting the option or warrant.  The Committee shall set the
purchase price for each share subject to a Nonqualified Option or Warrant at either the fair market value of each share on
the date the option or warrant is granted, or at such other price as the Committee in its sole discretion shall
determine.

 

    	3

    	 

    

 

At
the time a determination of the fair market value of a share of common stock is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it deems appropriate.

 

   (iii)
Exercise Period.  The Committee may provide in the option or warrant agreement that an option or warrant may be exercised
in whole, immediately, or is to be exercisable in increments.  In addition, the Committee may provide that the exercise of
all or part of an option or warrant is subject to specified performance by the Participant.

 

   (iv)
Procedure for Exercise.  Options or warrants shall be exercised in the manner specified in the option or warrant agreement.
The notice of exercise shall specify the address to which the certificates for such shares are to be mailed.  A Participant
shall be deemed to be a stockholder with respect to shares covered by an option or warrant on the date specified in the option
or warrant agreement.  As promptly as practicable, the Company shall deliver to the Participant or other holder of the warrant,
certificates for the number of shares with respect to which such option or warrant has been so exercised, issued in the holder's
name or such other name as the holder directs; provided, however, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such certificates with a carrier for overnight delivery, addressed
to the holder at the address specified pursuant to this Section 6(d). The proceeds from any such exercise shall be added to the
general funds of the Company and shall be used for general corporate purposes.

 

   (v)
Termination of Employment.  If an executive officer to whom an option or warrant is granted ceases to be employed by the
Company for any reason other than death or disability, any option or warrant which is exercisable on the date of such termination
of employment may be exercised during a period beginning on such date and ending at the time set forth in the option or warrant
agreement; provided, however, that if a Participant's employment is terminated because of the Participant's theft or embezzlement
from the Company, disclosure of trade secrets of the Company or the commission of a willful, felonious act while in the employment
of the Company (such reasons shall hereinafter be collectively referred to as "for cause"), then any option or warrant
or unexercised portion thereof granted to said Participant shall expire upon such termination of employment.  Notwithstanding
the foregoing, no ISO may be exercised later than three months after an employee's termination of employment for any reason other
than death or disability.

 

   (vi)
Disability or Death of Participant.  In the event of the determination of disability or death of a Participant under the
Plan while he or she is employed by the Company, the options or warrants previously granted to him may be exercised (to the extent
he or she would have been entitled to do so at the date of the determination of disability or death) at any time and from time
to time, within a  period
beginning on the date of such determination of disability or death and ending at the time set forth in the option or warrant agreement,
by the former employee, the guardian of his estate, the executor or administrator of his estate or by the person or persons to
whom his rights under the option or warrant shall pass by will or the laws of descent and distribution, but in no event may the
option or warrant be exercised after its expiration under the terms of the option or warrant agreement.  Notwithstanding
the foregoing, no ISO may be exercised later than one year after the determination of disability or death.  A Participant
shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing
services for the Company of the kind he or she was performing at the time the disability occurred by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. The
date of determination of disability for purposes hereof shall be the date of such determination by such physician.

 

    	4

    	 

    

 

   (vii)
Assignability.  An option or warrant shall be assignable or otherwise transferable, in whole or in part, by a Participant
as provided in the option, warrant or designation of the series of preferred stock.

 

   (viii)
Incentive Stock Options.  Each option or warrant agreement may contain such terms and provisions as the Committee may determine
to be necessary or desirable in order to qualify an option or warrant designated as an incentive stock option.

 

   (ix)
Restricted Stock Awards.  Awards of restricted stock under this Plan shall be subject to all the applicable provisions of
this Plan, including the following terms and conditions, and to such other terms and conditions not inconsistent therewith, as
the Committee shall determine:

 

      (A)
Awards of restricted stock may be in addition to or in lieu of option or warrant grants.  Awards may be conditioned on the
attainment of particular performance goals based on criteria established by the Committee at the time of each award of restricted
stock. During a period set forth in the agreement (the "Restriction Period"), the recipient shall not be permitted
to sell, transfer, pledge, or otherwise encumber the shares of restricted stock; except that such shares may be used, if the agreement
permits, to pay the option or warrant price pursuant to any option or warrant granted under this Plan, provided an equal number
of shares delivered to the Participant shall carry the same restrictions as the shares so used.  Shares of restricted stock
shall become free of all restrictions if during the Restriction Period, (i) the recipient dies, (ii) the recipient's directorship,
employment, or consultancy terminates by reason of permanent disability, as determined by the Committee, (iii) the recipient retires
after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a division or subsidiary,
or (iv) if provided in the agreement, there is a "change in control" of the Company (as defined in such agreement).
The Committee may require medical evidence of permanent disability, including medical examinations by physicians selected by it.
 Unless and to the extent otherwise provided in the agreement, shares of restricted stock shall be forfeited and revert to
the Company upon the recipient's termination of directorship, employment or consultancy during the Restriction Period for any
reason other than death, permanent disability, as determined by the Committee, retirement after attaining both 59 1/2 years of
age and five years of continuous service with the Company and/or a subsidiary or division, or, to the extent provided in the agreement,
a "change in control" of the Company (as defined in such agreement), except to the extent the Committee, in its sole
discretion, finds that such forfeiture might not be in the best interests of the Company and, therefore, waives all or part of
the application of this provision to the restricted stock held by such recipient. Certificates for restricted stock shall be registered
in the name of
the recipient but shall be imprinted with the appropriate legend and returned to the Company by the recipient, together with a
stock power endorsed in blank by the recipient.  The recipient shall be entitled to vote shares of restricted stock and shall
be entitled to all dividends paid thereon, except that dividends paid in common stock or other property shall also be subject
to the same restrictions.

 

    	5

    	 

    

 

      (B)
Restricted Stock shall become free of the foregoing restrictions upon expiration of the applicable Restriction Period and the
Company shall then deliver to the recipient common stock certificates evidencing such unrestricted stock.

 

Restricted
stock and any common stock received upon the expiration of the restriction period shall be subject to such other transfer restrictions
and/or legend requirements as are specified in the applicable agreement.

 

   (x)
Bonuses and Past Salaries and Fees Payable in Unrestricted Stock.

 

      (A)
In lieu of cash bonuses otherwise payable under the Company's or applicable division's or subsidiary's compensation practices
to employees and consultants eligible to participate in this Plan, the Committee, in its sole discretion, may determine that such
bonuses shall be payable in unrestricted common stock or partly in unrestricted common stock and partly in cash.  Such bonuses
shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares
of unrestricted common stock subject to such terms as the Committee may determine in its sole discretion. The number of shares
of unrestricted common stock payable in lieu of a bonus otherwise payable shall be determined by dividing such bonus amount by
the fair market value of one share of common stock on the date the bonus is payable, with fair market value determined as of such
date in  accordance with Section 5(d)(ii).

 

      (B)
In lieu of salaries and fees otherwise payable by the Company to employees, attorneys and consultants eligible to participate
in this Plan that were incurred for services rendered, the Committee, in its sole discretion, may determine that such unpaid salaries
and fees shall be payable in unrestricted common stock or partly in unrestricted common stock and partly in cash.  Such awards
shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares
of unrestricted common stock subject to such terms as the Committee may determine in its sole discretion.  The number of
shares of unrestricted common stock payable in lieu of salaries and fees otherwise payable shall be determined by dividing each
calendar month's of unpaid salary or fee amount by the average trading value of the common stock for the calendar month during
which the subject services were provided.

 

   (xi)
No Rights as Stockholder.  No Participant shall have any rights as a stockholder with respect to shares covered by an option
or warrant until the option or warrant is exercised as provided in clause (d) above.

 

   (xii)
Extraordinary Corporate Transactions.  The existence of outstanding options or warrants shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, exchanges, or other changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issuance of common stock or other securities or subscription rights thereto, or any
issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the common stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar character or otherwise.  If the Company
recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each
of the foregoing a "Fundamental Change"), then thereafter upon any exercise of an option or warrant theretofore
granted the Participant shall be entitled to purchase under such option or warrant, in lieu of the number of shares of common
stock as to which option or warrant shall then be exercisable, the number and class of shares of stock and securities to
which the Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such
Fundamental Change, the Participant had been the holder of record of the number of shares of common stock as to which such
option or warrant is then exercisable.  If (i) the Company shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of another entity), (ii) the Company sells all or substantially all of its
assets to any other person or entity (other than a wholly-owned subsidiary), (iii) any person or entity (including a
"group" as contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of
(including, without limitation, power to vote) more than 50% of the outstanding shares of common stock, (iv) the Company is
to be dissolved and liquidated, or (v) as a result of or in connection with a contested election of directors, the persons
who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event in
clauses (i) through (v) above is referred to herein as a "Corporate Change"), the Committee, in its sole
discretion, may accelerate the time at which all or a portion of a Participant's option or warrants may be exercised for a
limited period of time before or after a specified date.

 

    	6

    	 

    

   (xiii)
Changes in Company's Capital Structure.  If the outstanding shares of common stock or other securities of the Company, or
both, for which the option or warrant is then exercisable at any time be changed or exchanged by declaration of a stock dividend,
stock split, combination of shares, recapitalization, or reorganization, the number and kind of shares of common stock or other
securities which are subject to the Plan or subject to any options or warrants theretofore granted, and the option or warrant
prices, shall be adjusted proportionally unless otherwise provided in the option or warrant.

 

   (xiv)
Acceleration of Options and Warrants.  Except as hereinbefore expressly provided, (i) the issuance by the Company of shares
of stock or any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon
direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the
Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than common stock or
(iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment
by reason thereof shall be made with respect to, the number of shares of common stock subject to options or warrants theretofore
granted or the purchase price per share, unless the Committee shall determine, in its sole discretion, that an adjustment is necessary
to provide equitable treatment to a Participant.  Notwithstanding anything to the contrary contained in this Plan, the Committee
may, in its sole discretion, accelerate the time at which any option or warrant may be exercised, including, but not limited to,
upon the occurrence of the events specified in this Section 5, and is authorized at any time (with the consent of the Participant)
to purchase options or warrants pursuant to Section 6.

    	7

    	 

    

 

 

SECTION
6.  RELINQUISHMENT OF OPTIONS OR WARRANTS.

 

(a)
The Committee, in granting options or warrants hereunder, shall have discretion to determine whether or not options or warrants
shall include a right of relinquishment as hereinafter provided by this Section 6.  The Committee shall also have discretion
to determine whether an option or warrant agreement evidencing an option or warrant initially granted by the Committee without
a right of relinquishment shall be amended or supplemented to include such a right of relinquishment. Neither the Committee nor
the Company shall be under any obligation or incur any liability to any person by reason of the Committee's refusal to grant or
include a right of relinquishment in any option or warrant granted hereunder or in any option or warrant agreement evidencing
the same. Subject to the Committee's determination in any case that the grant by it of a right of relinquishment is consistent
with Section 1 hereof, any option or warrant granted under this Plan, and the option or warrant agreement evidencing such option
or warrant, may provide:

 

   (i)
That the Participant, or his or her heirs or other legal representatives to the extent entitled to exercise the option or warrant
under the terms thereof, in lieu of purchasing the entire number of shares subject to purchase thereunder, shall have the right
to relinquish all or any part of the then unexercised portion of the option or warrant (to the extent then exercisable) for a
number of shares of common stock to be determined in accordance with the following provisions of this clause (i):

 

      (A)
The written notice of exercise of such right of relinquishment shall state the percentage of the total number of shares of common
stock issuable pursuant to such relinquishment (as defined below) that the Participant elects to receive;

 

      (B)
The number of shares of common stock, if any, issuable pursuant to such relinquishment shall be the number of such shares, rounded
to the next greater number of full shares, as shall be equal to the quotient obtained by dividing (i) the Appreciated Value by
(ii) the purchase price for each of such shares specified in such option or warrant;

 

      (C)
For the purpose of this clause (C), "Appreciated Value" means the excess, if any, of (x) the total current market value
of the shares of common stock covered by the option or warrant or the portion thereof to be relinquished over (y) the total purchase
price for such shares specified in such option or warrant;

 

   (ii)
That such right of relinquishment may be exercised only upon receipt by the Company of a written notice of such relinquishment
which shall be dated the date of election to make such relinquishment; and that, for the purposes of this Plan, such date of election
shall be deemed to be the date when such notice is sent by registered or certified mail, or when receipt is acknowledged by the
Company, if mailed by other than registered or certified mail or if delivered by hand or by any telegraphic communications equipment
of the sender or otherwise delivered; provided, that, in the event the method just described for determining such date of election
shall not be or remain consistent with the provisions of Section 16(b) of the Exchange Act or the rules and regulations adopted
by the Commission thereunder, as presently existing or as may be hereafter amended, which regulations exempt from the operation
of Section 16(b) of the Exchange Act in whole or in part any such relinquishment transaction, then such date of election shall
be determined by such other method
consistent with Section 16(b) of the Exchange Act or the rules and regulations thereunder as the Committee shall in its discretion
select and apply;

 

    	8

    	 

    

 

   (iii)
That the "current market value" of a share of common stock on a particular date shall be deemed to be its fair market
value on that date as determined in accordance with Paragraph 5(d)(ii); and

 

   (iv)
That the option or warrant, or any portion thereof, may be relinquished only to the extent that (A) it is exercisable on the date
written notice of relinquishment is received by the Company, and (B) the holder of such option or warrant pays, or makes provision
satisfactory to the Company for the payment of, any taxes which the Company is obligated to collect with respect to such relinquishment.

 

(b)
The Committee shall have sole discretion to consent to or disapprove, and neither the Committee nor the Company shall be under
any liability by reason of the Committee's disapproval of, any election by a holder of preferred stock to relinquish such preferred
stock in whole or in part as provided in Paragraph 7(a), except that no such consent to or approval of a relinquishment shall
be required under the following circumstances.  Each Participant who is subject to the short-swing profits recapture provisions
of Section 16(b) of the Exchange Act ("Covered Participant") shall not be entitled to receive shares of common stock
when options or warrants are relinquished during any window period commencing on the third business day following the Company's
release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such
release ("Window Period"). A Covered Participant shall be entitled to receive shares of common stock upon the relinquishment
of options or warrants outside a Window Period.

 

(c)
The Committee, in granting options or warrants hereunder, shall have discretion to determine the terms upon which such options
or warrants shall be relinquishable, subject to the applicable provisions of this Plan, and including such provisions as are deemed
advisable to permit the exemption from the operation from Section 16(b) of the Exchange Act of any such relinquishment transaction,
and options or warrants outstanding, and option agreements evidencing such options, may be amended, if necessary, to permit such
exemption.  If options or warrants are relinquished, such option or warrant shall be deemed to have been exercised to the
extent of the number of shares of common stock covered by the option or warrant or part thereof which is relinquished, and no
further options or warrants may be granted covering such shares of common stock.

 

(d)
Any options or warrants or any right to relinquish the same to the Company as contemplated by this Paragraph 6 shall be assignable
by the Participant, provided the transaction complies with any applicable securities laws.

 

(e)
Except as provided in Section 6(f) below, no right of relinquishment may be exercised within the first six months after the initial
award of any option or warrant containing, or the amendment or supplementation of any existing option or warrant agreement adding,
the right of relinquishment.

 

(f)
No right of relinquishment may be exercised after the initial award of any option or warrant containing, or the amendment or supplementation
of any existing option or warrant agreement adding the right of relinquishment, unless such right of relinquishment is effective
upon the Participant's death, disability or termination of his relationship with the Company for a reason other than "for
cause."

 

    	9

    	 

    

 

SECTION
7.  GRANT OF CONVERTIBLE PREFERRED STOCK.

 

(a)
Committee Discretion.  The Committee shall have sole and absolute discretionary authority (i) to determine, authorize, and
designate those persons pursuant to this Plan who are to receive restricted preferred stock, or unrestricted preferred stock under
the Plan, and (ii) to determine the number of shares of common stock to be issued upon conversion of such shares of preferred
stock and the terms thereof.  The Committee shall thereupon grant shares of preferred stock in accordance with such determinations
as evidenced by a written preferred stock designation.  Subject to the express provisions of the Plan, the Committee shall
have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan,
to prescribe and amend the terms of the preferred stock designation (which need not be identical) and to make all other determinations
deemed necessary or advisable for the administration of the Plan.

 

(b)
Terms and Conditions.  Each series of preferred stock granted under the Plan shall be evidenced by a designation in the form
for filing with the Secretary of State of the state of incorporation of the Company, containing such terms as approved by the
Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the
Committee may deem appropriate:

 

   (i)
Conversion Ratio.  The number of shares of common stock issuable upon conversion of each share of preferred stock granted
pursuant to the Plan shall be determined by the Committee at the time the preferred stock is granted.  The conversion ratio
may be determined by reference to the fair market value of each share of common stock on the date the preferred stock is granted,
or at such other price as the Committee in its sole discretion shall determine.

 

At
the time a determination of the fair market value of a share of common stock is required to be made hereunder, the determination
of its fair market value shall be made in accordance with Paragraph 5(d)(ii).

 

   (ii)
Conversion Period.  The Committee may provide in the preferred stock agreement that the preferred stock may be converted
in whole immediately or is to be convertible in increments.  In addition, the Committee may provide that the conversion of
all or part of the preferred stock is subject to specified performance by the Participant.

 

   (iii)
Procedure for Conversion.  Shares of preferred stock shall be converted in the manner specified in the preferred stock designation.
 The notice of conversion shall specify the address to which the certificates for such shares are to be mailed.  A Participant
shall be deemed to be a stockholder with respect to shares covered by preferred stock on the date specified in the preferred stock
agreement.  As promptly as practicable, the Company shall deliver to the Participant or other holder of the warrant, certificates
for the number of shares with respect to which such preferred stock has been so converted, issued in the holder's name or such
other name as holder directs; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates with a carrier for overnight delivery, addressed to the holder at
the address specified pursuant to this Section 6(d).

 

   (iv)
Termination of Employment.  If an executive officer to whom preferred stock is granted ceases to be employed by the
Company for any reason other than death or disability, any preferred stock which is convertible on the date of such
termination of employment may be converted during a period beginning on such date and ending at the time set forth in the
preferred stock agreement; provided, however, that if a Participant's employment is terminated because of the Participant's
theft or embezzlement from the Company, disclosure of trade secrets of the Company or the commission of a willful, felonious
act while in the employment of the Company (such reasons shall hereinafter be collectively referred to as "for
cause"), then any preferred stock or unconverted portion thereof granted to said Participant shall expire upon such
termination of employment.  Notwithstanding the foregoing, no ISO may be converted later than three months after an
employee's termination of employment for any reason other than death or disability.

    	10

    	 

    

   (v)
Disability or Death of Participant.  In the event of the determination of disability or death of a Participant under the
Plan while he or she is employed by the Company, the preferred stock previously granted to him may be converted (to the extent
he or she would have been entitled to do so at the date of the determination of disability or death) at any time and from time
to time, within a period beginning on the date of such determination of disability or death and ending at the time set forth in
the preferred stock agreement, by the former employee, the guardian of his estate, the executor or administrator of his estate
or by the person or persons to whom his rights under the preferred stock shall pass by will or the laws of descent and distribution,
but in no event may the preferred stock be converted after its expiration under the terms of the preferred stock agreement.  Notwithstanding
the foregoing, no ISO may be converted later than one year after the determination of disability or death.  A Participant
shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing
services for the Company of the kind he or she was performing at the time the disability occurred by reason of any medically determinable
physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration.  The
date of determination of disability for purposes hereof shall be the date of such determination by such physician.

 

   (vi)
Assignability.  Preferred stock shall be assignable or otherwise transferable, in whole or in part, by a Participant.

 

   (vii)
Restricted Stock Awards.  Awards of restricted preferred stock under this Plan shall be subject to all the applicable provisions
of this Plan, including the following terms and conditions, and to such other terms and conditions not inconsistent therewith,
as the Committee shall determine:

 

      (A)
Awards of restricted preferred stock may be in addition to or in lieu of preferred stock grants.  Awards may be conditioned
on the attainment of particular performance goals based on criteria established by the Committee at the time of each award of
restricted preferred stock. During a period set forth in the agreement (the "Restriction Period"), the recipient shall
not be permitted to sell, transfer, pledge, or otherwise encumber the shares of restricted preferred stock.  Shares of restricted
preferred stock shall become free of all restrictions if during the Restriction Period, (i) the recipient dies, (ii) the recipient's
directorship, employment, or consultancy terminates by reason of permanent disability, as determined by the Committee, (iii) the
recipient retires after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a division
or subsidiary, or (iv) if provided in the agreement, there is a "change in control" of the Company (as defined in such
agreement).

 

    	11

    	 

    

The
Committee may require medical evidence of permanent disability, including medical examinations by physicians selected by it.  Unless
and to the extent otherwise provided in the agreement,
shares of restricted preferred stock shall be forfeited and revert to the Company upon the recipient's termination of directorship,
employment or consultancy during the Restriction Period for any reason other than death, permanent disability, as determined by
the Committee, retirement after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or
a subsidiary or division, or, to the extent provided in the agreement, a "change in control" of the Company (as defined
in such agreement), except to the extent the Committee, in its sole discretion, finds that such forfeiture might not be in the
best interests of the Company and, therefore, waives all or part of the application of this provision to the restricted preferred
stock held by such recipient.  Certificates for restricted preferred stock shall be registered in the name of the recipient
but shall be imprinted with the appropriate legend and returned to the Company by the recipient, together with a preferred stock
power endorsed in blank by the recipient.  The recipient shall be entitled to vote shares of restricted preferred stock and
shall be entitled to all dividends paid thereon, except that dividends paid in common stock or other property shall also be subject
to the same restrictions.

 

      (B)
Restricted preferred stock shall become free of the foregoing restrictions upon expiration of the applicable Restriction Period
and the Company shall then deliver to the recipient common stock certificates evidencing such stock. Restricted preferred stock
and any common stock received upon the expiration of the restriction period shall be subject to such other transfer restrictions
and/or legend requirements as are specified in the applicable agreement.

 

   (x)
Bonuses and Past Salaries and Fees Payable in Unrestricted Preferred Stock.

 

      (A)
In lieu of cash bonuses otherwise payable under the Company's or applicable division's or subsidiary's compensation practices
to employees and consultants eligible to participate in this Plan, the Committee, in its sole discretion, may determine that such
bonuses shall be payable in unrestricted preferred stock or partly in unrestricted preferred stock and partly in cash.  Such
bonuses shall be in consideration of services previously performed and as an incentive toward future services and shall consist
of shares of unrestricted preferred stock subject to such terms as the Committee may determine in its sole discretion.  The
number of shares of unrestricted preferred stock payable in lieu of a bonus otherwise payable shall be determined by dividing
such bonus amount by a conversion price to be determined by the Committee in its sole discretion.

 

      (B)
In lieu of salaries and fees otherwise payable by the Company to employees, attorneys and consultants eligible to participate
in this Plan that were incurred for services rendered, the Committee, in its sole discretion, may determine that such unpaid salaries
and fees shall be payable in unrestricted preferred stock or partly in unrestricted preferred stock and partly in cash.  Such
awards shall be in consideration of services previously performed and as an incentive toward future services and shall consist
of shares of unrestricted preferred stock subject to such terms as the Committee may determine in its sole discretion.  The
number of shares of unrestricted preferred stock payable in lieu of salaries and fees otherwise payable shall be determined by
dividing each calendar month's of unpaid salary or fee amount by a conversion price to be determined by the Committee in its sole
discretion.

 

   (xi)
No Rights as Stockholder.  No Participant shall have any rights as a stockholder with respect to shares covered by a preferred
stock until the preferred stock is converted as provided in clause (b)(iii) above.

 

    	12

    	 

    

   (xii)
Extraordinary Corporate Transactions.  The existence of outstanding preferred stock shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges,
or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issuance
of common stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference
stock ahead of or affecting the common stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character
or otherwise.  If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all
of its assets or dissolves (each of the foregoing a "Fundamental Change"), then thereafter, upon any conversion of preferred
stock theretofore granted, the Participant shall be entitled to the number of shares of common stock upon conversion of such preferred
stock, in lieu of the number of shares of common stock as to which preferred stock shall then be convertible, the number and class
of shares of stock and securities to which the Participant would have been entitled pursuant to the terms of the Fundamental Change
if, immediately prior to such Fundamental Change, the Participant had been the holder of record of the number of shares of common
stock as to which such preferred stock is then convertible.  If (i) the Company shall not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of another entity), (ii) the Company sells all or substantially all
of its assets to any other person or entity (other than a wholly-owned subsidiary), (iii) any person or entity (including a "group"
as contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of (including, without limitation,
power to vote) more than 50% of the outstanding shares of common stock, (iv) the Company is to be dissolved and liquidated, or
(v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before
such election shall cease to constitute a majority of the Board (each such event in clauses (i) through (v) above is referred
to herein as a "Corporate Change"), the Committee, in its sole discretion, may accelerate the time at which all or a
portion of a Participant's shares of preferred stock may be converted for a limited period of time before or after a specified
date.

 

   (xiii)
Changes in Company's Capital Structure.  If the outstanding shares of common stock or other securities of the Company,
or both, for which the preferred stock is then convertible at any time be changed or exchanged by declaration of a stock dividend,
stock split, combination of shares,

recapitalization,
or reorganization, the number and kind of shares of common stock or other securities which are subject to the Plan or subject
to any preferred stock theretofore granted, and the conversion ratio, shall be adjusted only as provided in the designation of
the preferred stock.

 

   (xiv)
Acceleration of Conversion of Preferred Stock.  Except as hereinbefore expressly provided, (i) the issuance by the Company
of shares of stock or any class of securities convertible into shares of stock of any class, for cash, property, labor or services,
upon direct sale, upon the conversion of rights or warrants to subscribe therefore, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than common
stock or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of shares of common stock subject to preferred stock
theretofore granted, unless the Committee shall determine, in its sole discretion, that an adjustment is necessary to provide
equitable treatment to Participant. Notwithstanding anything to the contrary contained in this Plan, the Committee may, in its
sole discretion, accelerate the time at which any preferred stock may be converted,
including, but not limited to, upon the occurrence of the events specified in this Section 7(xiv).

 

    	13

    	 

    

 

SECTION
8.  AMENDMENTS OR TERMINATION.  

 

The
Board may amend, increase, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the
rights of any Participant, without his consent, under any option, warrant or preferred stock theretofore granted.

 

SECTION
9.  COMPLIANCE WITH OTHER LAWS AND REGULATIONS.  

 

The
Plan, the grant and exercise of options or warrants and grant and conversion of preferred stock thereunder, and the obligation
of the Company to sell and deliver shares under such options, warrants or preferred stock, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for shares of common stock prior to the completion of any
registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government
body which the Company shall, in its sole discretion, determine to be necessary or advisable. Any adjustments provided for in
subparagraphs 5(d)(xii), (xiii) and (xiv) shall be subject to any shareholder action required by the corporate law of the state
of incorporation of the Company.

 

SECTION
10.  PURCHASE FOR INVESTMENT.  

 

Unless
the options, warrants, shares of convertible preferred stock and shares of common stock covered by this Plan have been registered
under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person
acquiring or exercising an option or warrant under this Plan or converting shares of preferred stock may be required by the Company
to give a representation in writing that he or she is acquiring such option or warrant or such shares for his own account for
investment and not with a view to, or for sale in connection with, the distribution of any part thereof.

 

SECTION
11.  TAXES.

 

      (a)
The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required
in connection with any options, warrants or preferred stock granted under this Plan.

 

      (b)
Notwithstanding the terms of Paragraph 11 (a), any Participant may pay all or any portion of the taxes required to be withheld
by the Company or paid by him or her in connection with the exercise of a nonqualified option or warrant or conversion of preferred
stock by electing to have the Company withhold shares of common stock, or by delivering previously owned shares of common stock,
having a fair market value, determined in accordance with paragraph 5(d)(ii), equal to the amount required to be withheld or paid.
 A Participant must make the foregoing election on or before the date that the amount of tax to be withheld is determined
("Tax Date").  All such elections are irrevocable and subject to disapproval by the Committee.  Elections
by Covered Participants are subject to the following additional restrictions: (i) such election may not be made within six months
of the grant of an option or warrant, provided that this limitation shall not apply in the event of  death
or disability, and (ii) such election must be made either six months or more prior to the Tax Date or in a Window Period. Where
the Tax Date in respect of an option or warrant is deferred until six months after exercise and the Covered Participant elects
share withholding, the full amount of shares of common stock will be issued or transferred to him upon exercise of the option
or warrant, but he or she shall be unconditionally obligated to tender back to the Company the number of shares necessary to discharge
the Company's withholding obligation or his estimated tax obligation on the Tax Date.

    	14

    	 

    

 

SECTION
12.  REPLACEMENT OF OPTIONS, WARRANTS AND PREFERRED STOCK.  

 

The
Committee from time to time may permit a Participant under the Plan to surrender for cancellation any unexercised outstanding
option or warrant or unconverted Preferred stock and receive from the Company in exchange an option, warrant or preferred stock
for such number of shares of common stock as may be designated by the Committee.  The Committee may, with the consent of
the holder of any outstanding option, warrant or preferred stock, amend such option, warrant or preferred stock, including reducing
the exercise price of any option or warrant to not less than the fair market value of the common stock at the time of the amendment,
increasing the conversion ratio of any preferred stock and extending the exercise or conversion term of and warrant, option or
preferred stock.

 

SECTION
13.  NO RIGHT TO COMPANY EMPLOYMENT.  

 

Nothing
in this Plan or as a result of any option or warrant granted pursuant to this Plan shall confer on any individual any right to
continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual's employment
at any time.  The option, warrant or preferred stock agreements may contain such provisions as the Committee may approve
with reference to the effect of approved leaves of absence.

 

SECTION
14.  LIABILITY OF COMPANY.  

 

The
Company and any Affiliate, which is in existence or hereafter comes into existence shall not be liable to a Participant or other
persons as to:

 

      (a)
The Non-Issuance of Shares.  The non-issuance or sale of shares as to which the Company has been unable to obtain from any
regulatory body having jurisdiction the authority deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any shares hereunder; and

 

      (b)
Tax Consequences.  Any tax consequence expected, but not realized, by any Participant or other person due to the exercise
of any option or warrant or the conversion of any preferred stock granted hereunder.

 

    	15

    	 

    

 

SECTION
15.  EFFECTIVENESS AND EXPIRATION OF PLAN.  

 

The
Plan shall be effective on the date the Board adopts the Plan.  The Plan shall expire ten years after the date the Board
approves the Plan and thereafter no option, warrant or preferred stock shall be granted pursuant to the Plan.

 

SECTION
16.  NON-EXCLUSIVITY OF THE PLAN.  

 

Neither
the adoption by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as
creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of restricted stock or stock options, warrants or preferred stock otherwise than under the Plan,
and such arrangements may be either generally applicable or applicable only in specific cases.

 

SECTION
17.  GOVERNING LAW.  

 

This
Plan and any agreements hereunder shall be interpreted and construed in accordance with the laws of the state of incorporation
of the Company and applicable federal law.

 

SECTION
18.  CASHLESS EXERCISE.  

 

The
Committee also may allow cashless exercises subject to applicable securities law restrictions or by any other means that
the Committee determines to be consistent with the Plan's purpose and applicable law.  

 

Approved
by the Board of Directors on [date]. 

16

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