Exhibit 10.2

   

EXECUTION VERSION

  

 
 

 

MASTER LOAN SALE AGREEMENT

 

among

 

KCAP FINANCIAL, INC.,
as the Originator,

 

KCAP SENIOR FUNDING I HOLDINGS, LLC,
as the Depositor

 

and

 

KCAP SENIOR FUNDING I, LLC,
as the Issuer

 

Dated as of June 18, 2013

 

 

  

 

 

 

Table of Contents

 

    Page       ARTICLE I Definitions 1       Section 1.1. Definitions 1      
Section 1.2. Other Terms 3       Section 1.3. Computation of Time Periods 3    
  Section 1.4. Interpretation 3       Section 1.5. References 4       ARTICLE II
Transfer of the conveyed Collateral 4       Section 2.1. Transfer of the
Conveyed Collateral 4       Section 2.2. Conveyance of Initial Conveyed
Collateral 7       Section 2.3. Acceptance of Initial Conveyed Collateral 8    
  Section 2.4. Conveyance of Subsequent Conveyed Collateral 8       Section 2.5.
Optional Substitution of Collateral Obligations 8       Section 2.6. Direct
Assignments 10       Section 2.7. Delivery of Documents 10       ARTICLE III
Representations and Warranties 10       Section 3.1. Representations and
Warranties of the Originator 11       Section 3.2. Representations and
Warranties Regarding the Collateral Obligations 15       Section 3.3.
Representations and Warranties of the Depositor 15       Section 3.4. Additional
Representations and Warranties of the Depositor 18       Section 3.5.
Representations and Warranties of the Issuer 19       ARTICLE IV Perfection of
Transfer and Protection of Security Interests 20       Section 4.1. Custody of
Collateral Obligation 20       Section 4.2. Filing 20       Section 4.3. Changes
in Name, Corporate Structure or Location 21       Section 4.4. Costs and
Expenses 21       Section 4.5. Sale Treatment 21       Section 4.6. Separateness
21       ARTICLE V Covenants 21       Section 5.1. Covenants of the Originator
21

 

 

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Table of Contents

(continued)

 

    Page       Section 5.2. Covenants of the Depositor 23       ARTICLE VI
Indemnification by the Originator 25       Section 6.1. Indemnification 25      
Section 6.2. Liabilities to Obligors 25       Section 6.3. Operation of
Indemnities 25       ARTICLE VII optional and mandatory repurchases 26      
Section 7.1. Optional Repurchases 26       Section 7.2. Mandatory Repurchases 26
      Section 7.3. Reassignment of Substituted or Repurchased Collateral
Obligations 26       Section 7.4. Repurchase and Substitution Limit 27      
ARTICLE VIII Miscellaneous 27       Section 8.1. Amendment 27       Section 8.2.
Governing Law 28       Section 8.3. Notices 28       Section 8.4. Severability
of Provisions 29       Section 8.5. Third Party Beneficiaries 29       Section
8.6. Counterparts 29       Section 8.7. Headings 29       Section 8.8. No
Bankruptcy Petition; Disclaimer 29       Section 8.9. Jurisdiction 30      
Section 8.10. Prohibited Transactions with Respect to the Issuer 30      
Section 8.11. No Partnership 30       Section 8.12. Successors and Assigns 30  
    Section 8.13. Duration of Agreement 30       Section 8.14. Limited Recourse
30

 

Schedule 1 Schedule of Initial Conveyed Collateral Schedule 2 Notice Information

 

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THIS MASTER LOAN SALE AGREEMENT, dated as of June 18, 2013 (as amended,
modified, restated, or supplemented from time to time, this “Agreement”), is
made by and among KCAP FINANCIAL, INC., a Delaware corporation (together with
its successors and assigns in such capacity, the “Originator”), KCAP SENIOR
FUNDING I HOLDINGS, LLC, a Delaware limited liability company (together with its
successors and assigns in such capacity, the “Depositor”), and KCAP SENIOR
FUNDING I, LLC, a Delaware limited liability company (together with its
successors and assigns in such capacity, the “Issuer”).

 

PREAMBLE

 

WHEREAS, in the regular course of its business, the Originator originates and/or
otherwise acquires Collateral Obligations;

 

WHEREAS, the Depositor desires to acquire the initial Collateral Obligations
from the Originator on the Closing Date (the “Initial Collateral Obligations”)
listed on Schedule 1 hereto and may acquire from time to time thereafter certain
additional Collateral Obligations (the “Additional Collateral Obligations”) and
Substitute Collateral Obligations, together with certain related property, as
more fully described as the “Assets” in the Indenture, dated as of the date
hereof (as amended, modified, restated or supplemented from time to time, the
“Indenture”), between the Issuer, as issuer, and U.S. Bank National Association,
as trustee (together with its successors and assigns in such capacity, the
“Trustee”);

 

WHEREAS, it is a condition to the Depositor’s acquisition of the Collateral
Obligations from the Originator that the Originator make certain
representations, warranties and covenants regarding all Collateral Obligations
and related Assets transferred pursuant to this Agreement for the benefit of the
Depositor as well as the Issuer and it is a condition to the Issuer’s
acquisition of the Collateral Obligations from the Depositor that the Depositor
make certain representations, warranties and covenants regarding the Conveyed
Collateral for the benefit of the Issuer; and

 

WHEREAS, on the Closing Date, the Depositor will transfer all of its right,
title and interest in the Initial Collateral Obligations to the Issuer, and,
thereafter, the Issuer will from time to time acquire certain Additional
Collateral Obligations and Substitute Collateral Obligations, all pursuant to
the terms and conditions set forth herein and in the Indenture.

 

NOW, THEREFORE, based upon the above recitals, the mutual premises and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:

 

ARTICLE I
Definitions

 

Section 1.1.          Definitions.

 

Capitalized terms used but not otherwise defined herein shall have the meanings
attributed to such terms in the Indenture. In addition, as used herein, the
following defined terms, unless the context otherwise requires, shall have the
following meanings:

 

 

 

 

“Additional Collateral Obligations”: The meaning assigned in the Preamble of
this Agreement.

 

“Additional Conveyed Collateral”: The meaning specified in Section 2.1(c).

 

“Conveyed Collateral”: Collectively, the Initial Conveyed Collateral and
Subsequent Conveyed Collateral.

 

“Depositor”: KCAP Senior Funding I Holdings, LLC, together with its successors
and assigns.

 

“Indemnified Party”: The meaning specified in Section 6.1.

 

“Ineligible Collateral Obligation”: The meaning specified in Section 7.2.

 

“Initial Collateral Obligations”. As defined in the Preamble of this Agreement.

 

“Initial Conveyed Collateral”: The meaning specified in Section 2.1(a).

 

“Insolvency Law”: The Bankruptcy Code and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of payments, or similar debtor relief
laws from time to time in effect affecting the rights of creditors generally.

 

“Issuer”: KCAP Senior Funding I, LLC, together with its successors and assigns.

 

“Noteless Collateral Obligation”: A Collateral Obligation with respect to which
(a) the related Underlying Documents do not require the Obligor to execute and
deliver an Underlying Note to evidence the indebtedness created under such
Collateral Obligation and (b) no Underlying Notes are outstanding with respect
to the portion of the Collateral Obligation transferred to the Issuer.

 

“Originator”: KCAP Financial, Inc., together with its successors and assigns.

 

“Permitted Liens”: With respect to the interests of the Originator, the
Depositor and the Issuer in the Collateral Obligations included in the Assets:
(i) security interests, liens and other encumbrances in favor of the Depositor
created pursuant to this Agreement and transferred to the Issuer pursuant
hereto, (ii) security interests, liens and other encumbrances in favor of the
Issuer created pursuant to this Agreement, (iii) security interests, liens and
other encumbrances in favor of the Trustee created pursuant to the Indenture
and/or this Agreement, (iv) with respect to agented Collateral Obligations,
security interests, liens and other encumbrances in favor of the lead agent, the
collateral agent or the paying agent on behalf of all holders of indebtedness of
such Obligor under the related facility, (v) with respect to any Equity
Security, any security interests, liens and other encumbrances granted on such
Equity Security to secure indebtedness of the related Obligor and/or any
security interests, liens and other rights or encumbrances granted under any
governing documents or other agreement between or among or binding upon the
Issuer as the holder of equity in such Obligor and (vi) security interests,
liens and other encumbrances, if any, which have priority over first priority
perfected security interests in the Collateral Obligations or any portion
thereof under the UCC or any other applicable law.

 

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“Repurchase and Substitution Limit”: The meaning specified in Section 7.4.

 

“Schedule of Collateral Obligations”: The meaning specified in Section 2.1(c).

 

“Subsequent Conveyed Collateral”: The meaning specified in Section 2.1(c).

 

“Subsequent Transfer Agreement”: The meaning specified in Section 2.1(c).

 

“Substitute Conveyed Collateral”: The meaning specified in Section 2.1(c).

 

“Substitution Period”: The meaning specified in Section 2.5(b).

 

“Transfer Date”: The meaning specified in Section 2.1(c).

 

“Trustee”: As defined in the Preamble of this Agreement.

 

“Underlying Note”: One or more promissory notes executed by the applicable
Obligor evidencing a Collateral Obligation.

 

Section 1.2.          Other Terms.

 

All accounting terms used but not specifically defined herein shall be construed
in accordance with generally accepted accounting principles as in effect from
time to time in the United States.

 

Section 1.3.          Computation of Time Periods.

 

Unless otherwise stated in this Agreement, in the computation of a period of
time from a specified date to a later specified date, the word “from” means
“from and including”, the words “to” and “until” each mean “to but excluding”,
and the word “within” means “from and excluding a specified date and to and
including a later specified date”.

 

Section 1.4.          Interpretation.

 

In this Agreement, unless a contrary intention appears:

 

(i)          the singular number includes the plural number and vice versa;

 

(ii)         reference to any Person includes such Person’s successors and
assigns but, if applicable, only if such successors and assigns are permitted by
the Transaction Documents;

 

(iii)        reference to any gender includes each other gender;

 

(iv)        reference to day or days without further qualification means
calendar days;

 

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(v)         unless otherwise stated, reference to any time means New York, New
York time;

 

(vi)        references to “writing” include printing, typing, lithography,
electronic or other means of reproducing words in a visible form;

 

(vii)       reference to any agreement (including any Transaction Document),
document or instrument means such agreement, document or instrument as amended,
modified, supplemented, replaced, restated, waived or extended and in effect
from time to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents, and reference to any promissory note
includes any promissory note that is an extension or renewal thereof or a
substitute or replacement therefor;

 

(viii)      reference to any requirement of law means such requirement of law as
amended, modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated thereunder
and reference to any Section or other provision of any requirement of law means
that provision of such requirement of law from time to time in effect and
constituting the substantive amendment, modification, codification, replacement
or reenactment of such Section or other provision; and

 

(ix)         references to “including” means “including, without limitation”.

 

Section 1.5.          References.

 

All Section references (including references to the Preamble), unless otherwise
indicated, shall be to Sections (and the Preamble) in this Agreement.

 

ARTICLE II
Transfer of the conveyed COLLATERAL

 

Section 2.1.          Transfer of the Conveyed Collateral.

 

(a)          Transfer from the Originator to the Depositor. Subject to and upon
the terms and conditions set forth herein, the Originator hereby sells, conveys
and transfers to the Depositor all of the Originator’s right, title and interest
in, to and under the Initial Collateral Obligations and any related Assets with
respect thereto (the “Initial Conveyed Collateral”) for a purchase price on the
date hereof of $46,134,054 which purchase price shall be the value thereof as
determined by the KCAP Investment Committee in accordance with the 1940 Act (but
in no event at less than fair market value). The consideration for the transfer
of the Initial Conveyed Collateral from the Originator to the Depositor shall
consist of cash paid by the Depositor to the Originator on the date hereof and,
to the extent that such cash so paid on the date hereof is less than the
purchase price thereof, the difference shall be deemed a capital contribution
from the Originator to the Depositor on the date hereof.

 

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(b)          Transfer from the Depositor to the Issuer. Subject to and upon the
terms and conditions set forth herein, the Depositor hereby sells, conveys and
transfers to the Issuer all of the Depositor’s right, title and interest in, to
and under the Initial Conveyed Collateral for a purchase price on the date
hereof of $46,134,054. The consideration for the transfer of the Initial
Conveyed Collateral from the Depositor to the Issuer shall consist of cash paid
by the Issuer to the Depositor on the date hereof and the issuance by the Issuer
to the Depositor of all of the Subordinated Notes.

 

(c)          Each of the Originator, the Depositor and the Issuer agrees and
acknowledges that the Issuer may, as permitted under the Indenture, acquire
Additional Collateral Obligations and related Assets with respect thereto (the
“Additional Conveyed Collateral”), and may acquire Substitute Collateral
Obligations and any related Assets as set forth in Section 2.5 and the Indenture
with respect thereto (the “Substitute Conveyed Collateral” and, together with
the Additional Conveyed Collateral, the “Subsequent Conveyed Collateral”), in
each case, pursuant to a Subsequent Transfer Agreement, substantially in the
form of Exhibit A hereto, duly executed by each of the Originator, the Depositor
and the Issuer (each such agreement, a “Subsequent Transfer Agreement”) and the
parties hereto agree that each such Subsequent Transfer Agreement will be deemed
to become part of this Agreement as of the date of its execution (each such
date, a “Transfer Date”) without further amendment hereof. Nothing contained
herein shall prevent the Issuer from acquiring Collateral Obligations and
related Assets with respect thereto from third parties that are not Affiliates
of the Originator or the Depositor, and the Issuer’s acquisition of such
Collateral Obligations and related Assets shall not be governed by the terms of
this Agreement.

 

(d)          Each of the Originator, the Depositor and the Issuer agrees that
(i) the representations, warranties, covenants and rights of indemnity of the
Originator and the Depositor set forth herein will run to and be for the benefit
of the Issuer and the Trustee, on behalf of the Secured Parties and (ii) either
the Issuer or the Trustee, on behalf of the Secured Parties, shall have the
right to enforce directly without joinder of the Depositor, the repurchase
obligations and indemnification obligations of the Originator with respect to
breaches of such representations, warranties and covenants as set forth herein.
The parties hereto acknowledge and agree that the Trustee for the benefit of the
Secured Parties shall be an express third party beneficiary of such
representations, warranties, covenants and rights of indemnity.

 

(e)          Each of the Originator, the Depositor and the Issuer intends and
agrees that (i) the transfer of the Conveyed Collateral by the Originator to the
Depositor pursuant to this Agreement, and the transfer of the Conveyed
Collateral by the Depositor to the Issuer pursuant to this Agreement is, in each
and every case, intended to be an absolute sale, conveyance and transfer of
ownership of the applicable Conveyed Collateral rather than the mere granting of
a security interest to secure a financing and (ii) such Conveyed Collateral
shall not be part of the Originator’s or the Depositor’s respective estate in
the event of a filing of a bankruptcy petition or other action by or against
such Person under any Insolvency Law. In the event, however, that
notwithstanding such intent and agreement, any of such transfers are deemed to
secure indebtedness, the Originator hereby Grants to the Depositor, and the
Depositor hereby Grants to the Issuer, as the case may be, a security interest
in all of its right, title and interest in, to and under such Conveyed
Collateral (whether now existing or hereafter created) and the Issuer hereby
further Grants such security interest to the Trustee for the benefit of the
Secured Parties. For such purposes, this Agreement shall constitute a security
agreement under the UCC, securing the repayment of the purchase price paid
hereunder and the obligations or interests represented by the Notes, in the
order and priorities, and subject to the other terms and conditions of this
Agreement and the Indenture, together with such other obligations or interest as
may arise hereunder and thereunder in favor of the parties hereto and thereto.

 

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(f)          If any such transfer of Conveyed Collateral by the Originator to
the Depositor (whether Initial Conveyed Collateral transferred pursuant to
Section 2.1(a) or Subsequent Conveyed Collateral transferred pursuant to Section
2.1(c)) is deemed to be the mere granting of a security interest to secure a
financing, the Depositor may, to secure the Depositor’s own obligations under
this Agreement (to the extent that the transfer of Conveyed Collateral by the
Depositor to the Issuer hereunder is deemed to be the mere granting of a
security interest to secure a financing), repledge and reassign to the Issuer
(and the Issuer may repledge and reassign to the Trustee) (1) all or a portion
of the Conveyed Collateral pledged to the Depositor by the Originator and with
respect to which the Depositor has not released its security interest at the
time of such pledge and assignment and (2) all proceeds thereof. Such repledge
and reassignment may be made with or without a repledge and reassignment by the
Depositor of its rights under any agreement with the Originator, and without
further notice to or acknowledgement from the Originator. The Originator hereby
waives, to the extent permitted by applicable law, all claims, causes of action
and remedies, whether legal or equitable (including any right of setoff),
against the Depositor or any assignee relating to such repledge and reassignment
in connection with the transactions contemplated by this Agreement and the other
Transaction Documents. The Originator and the Depositor shall file or shall
cause to be filed a UCC-1 financing statement naming the Originator as debtor,
the Depositor as secured party and the Trustee as assignee, listing all of the
Conveyed Collateral pledged hereunder as collateral thereunder.

 

(g)          If any such transfer of Conveyed Collateral by the Depositor to the
Issuer (whether Initial Conveyed Collateral transferred pursuant to Section
2.1(b) or Subsequent Conveyed Collateral transferred pursuant to Section 2.1(c))
is deemed to be the mere granting of a security interest to secure a financing,
the Issuer may, to secure the Issuer’s obligations under the Indenture, repledge
and reassign to the Trustee for the benefit of the Secured Parties (1) all or a
portion of the Conveyed Collateral pledged to the Issuer by the Depositor and
with respect to which the Issuer has not released its security interest at the
time of such pledge and assignment and (2) all proceeds thereof. Such repledge
and reassignment may be made with or without a repledge and reassignment by the
Issuer of its rights under any agreement with the Depositor, and without further
notice to or acknowledgment from the Depositor. The Depositor hereby waives, to
the extent permitted by applicable law, all claims, causes of action and
remedies, whether legal or equitable (including any right of setoff), against
the Issuer or any assignee relating to such repledge or reassignment in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents. The Issuer and the Depositor shall file or shall cause to
be filed a UCC-1 financing statement naming the Depositor as debtor, the Issuer
as secured party and the Trustee as assignee, listing all of the Conveyed
Collateral pledged hereunder as collateral thereunder.

 

(h)          To the extent that (i) the consideration received by the Originator
from the Depositor in exchange for any Conveyed Collateral and (ii) the
consideration received by the Depositor from the Issuer for any Conveyed
Collateral is less than the fair market value of such Conveyed Collateral, the
difference between such fair market value and the consideration so received
shall be deemed to be a capital contribution by the Originator to the Depositor
(in the case of clause (i) above), and by the Depositor to the Issuer (in the
case of clause (ii) above) made on the Closing Date in the case of the Initial
Conveyed Collateral and as of the related Transfer Date in the case of any
Subsequent Conveyed Collateral. For all purposes of this Agreement, any
contributed Conveyed Collateral shall be treated the same as the Conveyed
Collateral sold for cash or other property including, without limitation, for
purposes of Section 7.2.

 

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Section 2.2.          Conveyance of Initial Conveyed Collateral.

 

(a)          On or before the Closing Date, the Originator or the Depositor, as
applicable, shall deliver or cause to be delivered to the Trustee each of the
documents, certificates and other items as follows:

 

(i)          officially certified recent evidence of due formation or
incorporation, as applicable, and good standing of the Depositor and the Issuer,
in each case under the laws of the State of Delaware, and good standing of the
Originator under the laws of the State of Delaware;

 

(ii)         a copy of a written consent of the board of directors of KCAP
Financial, Inc., in its capacity as Originator and in its capacities as the
designated manager of the Depositor and of the Issuer, approving the execution,
delivery and performance of this Agreement and the transactions contemplated
hereunder, certified, in each case as applicable, by an Officer of KCAP
Financial, Inc., in such capacities;

 

(iii)        a copy of UCC financing statement (with evidence of recordation)
naming the Originator, as debtor, naming the Depositor as secured party (and the
Trustee as assignee for the benefit of the Secured Parties) and identifying the
Conveyed Collateral as collateral for filing with the office of the Secretary of
State for the State of Delaware; and delivery of a UCC financing statement
naming the Depositor, as debtor, naming the Issuer as secured party (and the
Trustee as assignee for the benefit of the Secured Parties) and identifying the
Conveyed Collateral as collateral for filing with the office of the Secretary of
State for the State of Delaware; and delivery of UCC financing statements naming
Issuer, as debtor, and naming the Trustee, for the benefit of the Secured
Parties, as secured party and identifying the Conveyed Collateral, as collateral
for filing with the office of the Secretary of State for the State of Delaware;

 

(iv)        a fully executed copy of each Transaction Document; and

 

(v)         all Opinions of Counsel required to be delivered pursuant to Section
3.1(c) of the Indenture.

 

(b)          Concurrently with the transfer of the Initial Conveyed Collateral
by the Originator to the Depositor and by the Depositor to the Issuer, the (i)
the Originator shall transfer to the Collection Account all Principal Proceeds
and Interest Proceeds received with respect to such Initial Conveyed Collateral,
on and after the Closing Date, (ii) each of the representations and warranties
made by the Originator pursuant to Article III applicable to the Initial
Conveyed Collateral shall be true and correct as of the Closing Date, and (iii)
the Originator shall, at its own expense, and not later than the Closing Date,
indicate in its records that ownership of the Initial Conveyed Collateral has
been conveyed by it to the Depositor and by the Depositor to the Issuer pursuant
to this Agreement.

 

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Section 2.3.          Acceptance of Initial Conveyed Collateral

 

On the Closing Date, upon satisfaction of the conditions set forth in Section
2.2, the Issuer hereby instructs the Depositor, and the Depositor hereby
instructs the Originator, and the Originator hereby agrees to deliver, on behalf
of the Issuer, the Initial Conveyed Collateral to the Trustee, and such delivery
to and acceptance by the Trustee shall be deemed to be delivery to and
acceptance by the Issuer and by the Depositor.

 

Section 2.4.          Conveyance of Subsequent Conveyed Collateral.

 

(a)          As and when permitted by the Indenture and subject to this Section
2.4 and the satisfaction of the conditions imposed under the Indenture with
respect to the acquisition of Subsequent Conveyed Collateral, the Originator may
at its option (but shall not be obligated to) sell, convey and transfer to the
Depositor (by delivery of an executed Subsequent Transfer Agreement) all the
right, title and interest of the Originator in and to the Subsequent Conveyed
Collateral identified on Schedule 1 thereto, in each and every case without
recourse other than as expressly provided herein and therein and the Depositor
shall be required to purchase from the Originator and sell, convey and transfer
to the Issuer (by delivery of an executed Subsequent Transfer Agreement) all the
right, title and interest of the Depositor in and to the Subsequent Conveyed
Collateral identified on Schedule 1 thereto, in each and every case without
recourse other than as expressly provided herein and therein.

 

(b)          Concurrently with the transfer of any Subsequent Conveyed
Collateral by the Originator to the Depositor and by the Depositor to the
Issuer, (i) the Originator shall transfer to the Collection Account all
Principal Proceeds and Interest Proceeds received with respect to such
Subsequent Conveyed Collateral, on and after the related Cut-Off Date, (ii) each
of the representations and warranties made by the Originator pursuant to Article
III applicable to the Subsequent Conveyed Collateral shall be true and correct
as of the related Transfer Date and (iii) the Originator shall, at its own
expense, on or prior to the applicable date of transfer to the Depositor,
indicate in its records that ownership of the Subsequent Conveyed Collateral
identified in the Subsequent Transfer Agreement has been sold by the Originator
to the Depositor and by the Depositor to the Issuer pursuant to this Agreement.

 

Section 2.5.          Optional Substitution of Collateral Obligations.

 

(a)          Subject to Section 12.3 of the Indenture, this Section 2.5 and the
Repurchase and Substitution Limit, with respect to any Collateral Obligation as
to which a Substitution Event has occurred, the Originator may (but shall not be
obligated to except as required under the Indenture) either (x) convey to the
Depositor and cause the Depositor to contemporaneously convey to the Issuer one
or more Collateral Obligations in exchange for such Collateral Obligation or (y)
deposit into the Principal Collection Subaccount the Transfer Deposit Amount
with respect to such Collateral Obligation and then, prior to the expiration of
the Substitution Period, convey to the Depositor and cause the Depositor to
convey to the Issuer one or more Collateral Obligations in exchange for the
funds so deposited or a portion thereof.

 

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(b)          Any substitution pursuant to this Section 2.5 shall be initiated by
delivery of a Notice of Substitution, as set forth in the Indenture, by the
Originator to the Trustee, the Depositor, the Issuer and the Collateral Manager
that the Originator intends to substitute a Collateral Obligation pursuant to
this Section 2.5 and shall be completed prior to the earliest of: (x) the
expiration of 90 days after delivery of such notice; (y) delivery of written
notice to the Trustee from the Originator stating that the Originator does not
intend to convey any additional Substitute Collateral Obligations to the Issuer
in exchange for any remaining amounts deposited in the Principal Collection
Subaccount under clause (a)(y) above; or (z) in the case of a Collateral
Obligation which has become subject to a Specified Amendment, the effective date
set forth in such Specified Amendment (such period described in clause (x), (y)
or (z), as applicable, being the “Substitution Period”).

 

(c)          Each Notice of Substitution shall specify the Collateral Obligation
to be substituted, the reasons for such substitution and the Transfer Deposit
Amount with respect to the Collateral Obligation. On the last day of any
Substitution Period, any amounts previously deposited in accordance with clause
(a)(y) above which relate to such Substitution Period that have not been applied
to purchase one or more Substitute Collateral Obligations or to fund the
Revolver Funding Account if necessary with respect thereto shall be deemed to
constitute Principal Proceeds; provided that prior to the expiration of the
related Substitution Period any such amounts shall not be deemed to be Principal
Proceeds and shall remain in the Principal Collection Subaccount until applied
to acquire Substitute Collateral Obligations or to fund the Revolver Funding
Account if necessary with respect thereto. The price paid (or deemed paid, in
the case of a contemporaneous conveyance of a Substitute Collateral Obligation
pursuant to Section 2.5(a)(x)) by the Issuer to the Depositor and by the
Depositor to the Originator, as applicable, for any Substitute Collateral
Obligation shall be an amount equal to the value thereof, as determined by the
KCAP Investment Committee in accordance with the 1940 Act (but in no event less
than the fair market value thereof). To the extent any cash or other property
received by the Issuer in connection with a Substitute Collateral Obligation
exceeds the fair market value thereof, such excess shall be deemed a capital
contribution from the Originator to the Depositor and from the Depositor to the
Issuer.

 

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(d)          The substitution of any Substitute Collateral Obligation will be
subject to the satisfaction of the Substitute Collateral Obligations
Qualification Conditions as of the related Transfer Date for each such
Collateral Obligation (after giving effect to such substitution).

 

(e)          With respect to any Substitute Collateral Obligations to be
conveyed to the Depositor by the Originator as described in this Section 2.5,
(i) the Originator hereby sells, transfers, assigns, sets over and otherwise
conveys to the Depositor, without recourse other than as expressly provided
herein (and the Depositor shall purchase through cash payment and/or by exchange
of one or more related Collateral Obligations released by the Issuer to the
Depositor and by the Depositor to the Issuer on the related Cut-Off Date), all
the right, title and interest of the Originator in and to the Substitute
Collateral Obligation and (ii) the Depositor hereby sells, transfers, assigns,
sets over and otherwise conveys to the Issuer without recourse other than as
expressly provided herein (and the Issuer shall purchase through cash payment
and/or by exchange of one or more related Collateral Obligations released by the
Issuer to the Depositor on the related Cut-Off Date), all the right, title and
interest of the Depositor in and to the Substitute Collateral Obligation. To the
extent any cash or other property received by the Issuer in connection with a
Substitute Collateral Obligation exceeds the fair market value thereof, such
excess shall be deemed a capital contribution from the Originator to the
Depositor and from the Depositor to the Issuer.

 

(f)          The Originator and Depositor shall execute and deliver to the
Issuer and the Trustee a Subsequent Transfer Agreement with respect to each
Substitute Collateral Obligation and shall cooperate with the Collateral Manager
and the Issuer so that they may satisfy their respective obligations with
respect to any substitution of Collateral Obligations pursuant to the Indenture.

 

(g)          The Originator shall bear all transaction costs incurred in
connection with a substitution of Collateral Obligations effected pursuant to
this Agreement and the Indenture.

 

Section 2.6.          Direct Assignments.

 

The Originator, the Depositor and the Issuer acknowledge and agree that, solely
for administrative convenience, any transfer document or assignment agreement
(or, in the case of any Underlying Note, any chain of endorsement) required to
be executed and delivered in connection with the transfer of a Collateral
Obligation in accordance with the terms of related Underlying Documents may
reflect that (i) the Originator (or any third party from whom the Originator,
the Depositor or the Issuer may purchase a Collateral Obligation) is assigning
such Collateral Obligation directly to the Issuer or (ii) the Issuer is
acquiring such Collateral Obligation at the closing of such Collateral
Obligation. Nothing in any such transfer document or assignment agreement (or,
in the case of any Underlying Note, nothing in such chain of endorsement) shall
be deemed to impair the transfers of the Collateral Obligations by the
Originator to the Depositor and the Depositor to the Issuer in accordance with
the terms of this Agreement.

 

Section 2.7.          Delivery of Collateral Obligations.

 

With respect to each Collateral Obligation transferred hereunder as part of the
Conveyed Collateral, within five Business Days after the related Transfer Date
(or on or prior to the Closing Date, with respect to the Initial Collateral
Obligations), the Originator, on behalf of the Depositor and the Issuer, will
Deliver or cause to be Delivered to the Custodian, to the extent not previously
Delivered, such Collateral Obligation.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES

 

The Originator and the Depositor, as applicable, each makes, and upon execution
of each Subsequent Transfer Agreement is deemed to make, the following
representations and warranties, on which the Depositor or the Issuer, as
applicable, will rely in acquiring the Initial Conveyed Collateral on the
Closing Date, and any Subsequent Conveyed Collateral on any applicable Transfer
Date pursuant to the applicable Subsequent Transfer Agreement, and on which, in
each case, each of the parties hereto acknowledges and agrees that the Trustee,
for the benefit of the Secured Parties, shall be entitled to rely as an express
third party beneficiary as a condition of the Issuer entering into the
Transaction Documents to which it is a party and of the Noteholders purchasing
the Notes. Each of the parties hereto acknowledges and agrees that such
representations and warranties are being made by the Originator and the
Depositor for the benefit of the Issuer and the Trustee, for the benefit of the
Secured Parties.

 

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The representations and warranties set forth in this Article III are given as of
the Closing Date (or Transfer Date, as applicable), but shall survive the sale,
transfer and assignment of the Conveyed Collateral to the Depositor and to the
Issuer hereunder or under a Subsequent Transfer Agreement, as applicable.

 

The representations and warranties set forth in Sections 3.1(j) and 3.4(a) may
not be waived by any Person and shall survive the termination of this Agreement.

 

Section 3.1.          Representations and Warranties of the Originator.

 

By its execution of this Agreement and each Subsequent Transfer Agreement, the
Originator represents and warrants that:

 

(a)          Organization and Good Standing. The Originator is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has full power and authority to own its assets and to
transact the business in which it is currently engaged, and is duly qualified as
a foreign corporation and is in good standing under the laws of each
jurisdiction where its ownership or lease of property, the conduct of its
business or the performance of this Agreement or any other Transaction Document
applicable to it would require such qualification, except for those
jurisdictions in which the failure to be so qualified, authorized or licensed
would not have a material adverse effect on the business operations, assets or
financial condition of the Originator or on the validity or enforceability of
this Agreement or the provisions of any other Transaction Document applicable to
the Originator, or the performance by the Originator of its duties hereunder or
thereunder.

 

(b)          Authorization; Valid Sale; Binding Obligations. The Originator has
the power and authority to make, execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party and all of the
transactions contemplated under this Agreement and the other Transaction
Documents to which it is a party, and had the power and authority to form the
Depositor and cause it to make, execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the other Transaction Documents
to which it is a party. This Agreement and each Subsequent Transfer Agreement,
if any, shall effect a valid sale (or contribution, as the case may be),
transfer and assignment of, or Grant of a security interest in, the Conveyed
Collateral being so transferred, conveyed and assigned from the Originator to
the Depositor, enforceable against the Originator and creditors of and
purchasers from the Originator. This Agreement and the other Transaction
Documents to which the Originator is a party constitute the legal, valid and
binding obligations of the Originator enforceable in accordance with their
terms, except as enforcement of such terms may be limited by bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the enforcement
of creditors’ rights generally and general principles of equity, whether
considered in a suit at law or in equity.

 

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(c)          No Consent Required. No consent of any other Person and no license,
permit, order, approval or authorization of, exemption by, notice or report to,
or registration, filing or declaration with, any governmental authority or court
or any other Person is required to be obtained by the Originator in connection
with this Agreement or any other Transaction Document to which it is a party or
the execution, delivery, performance, validity or enforceability of this
Agreement or any other Transaction Document to which it is a party or the
obligations imposed on the Originator hereunder or under the terms of the
Indenture or any other Transaction Document to which it is a party other than
those that have been obtained or made.

 

(d)          No Violations. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
violate the Originator’s articles of incorporation or bylaws or any material
requirement of law applicable to it, or constitute a material breach of any
mortgage, indenture, contract or other agreement to which the Originator is a
party or by which the Originator or any of the Originator’s properties may be
bound, or result in the creation or imposition of any security interest, lien,
charge, pledge or encumbrance of any kind upon any of its properties pursuant to
the terms of any such mortgage, indenture, contract or other agreement, other
than as contemplated by the Transaction Documents.

 

(e)          Litigation. No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to the
knowledge of the Originator threatened, against the Originator or any of its
properties or with respect to this Agreement, the other Transaction Documents to
which it is a party or the Notes (1) that could be expected to have a material
adverse effect on (i) the business, properties, assets or condition (financial
or otherwise) of the Originator or (ii) the transactions contemplated by this
Agreement or the other Transaction Documents to which the Originator is a party
or (2) seeking to adversely affect the federal income tax or other federal,
state or local tax attributes of the Notes.

 

(f)          Solvency. The Originator, at the time of and after giving effect to
each conveyance of Conveyed Collateral hereunder, is solvent and, to the best of
its knowledge, is not facing any pending insolvency.

 

(g)          Taxes. The Originator has filed or caused to be filed all tax
returns which are required to be filed and has paid all taxes shown to be due
and payable on such returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any governmental authority (other than any amount of tax due, the
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with generally
accepted accounting principles have been provided on its books), except for
failures to file or pay that could not be expected to have a material adverse
effect on the business operations, assets or financial condition of the
Originator or on the validity or enforceability of this Agreement or the
provisions of any other Transaction Document applicable to the Originator, or
the performance by the Originator of its duties hereunder or thereunder.

 

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(h)          Place of Business; No Changes. Except for the change in the
Originator’s name from Kohlberg Capital Corporation to KCAP Financial, Inc. on
June 27, 2012, the Originator has not changed its name or the State under whose
laws it is formed, whether by amendment of its articles of incorporation, by
reorganization or otherwise.

 

(i)          Sale Treatment. Other than for tax and accounting purposes, the
Originator has treated the transfer of the Conveyed Collateral to the Depositor
for all purposes as a sale and purchase on all of its relevant books and
records.

 

(j)          Security Interest.

 

(i)          in the event that the transfer by the Originator to the Depositor
of any Conveyed Collateral is determined not to be an absolute transfer, this
Agreement is effective to create in favor of the Depositor a valid and
continuing security interest (as defined in the UCC) in all of the right, title
and interest of the Originator in, to and under such Conveyed Collateral, which
security interest is perfected and is prior to all other liens (other than
Permitted Liens), and is enforceable as such against, all creditors of and
purchasers from the Originator;

 

(ii)         each Collateral Obligation transferred hereunder constitutes or is
evidenced by a Financial Asset, an Instrument, a Certificated Security or a
general intangible (as defined in the UCC);

 

(iii)        the Originator owns the Conveyed Collateral being conveyed
hereunder, free and clear of any lien, claim or encumbrance of any Person (other
than Permitted Liens), and, upon the transfer by the Originator to the Depositor
of any Conveyed Collateral pursuant to this Agreement or any Subsequent Transfer
Agreement, the Depositor will own such Conveyed Collateral free and clear of any
and all liens, claims or encumbrances created by, or attaching to property of,
the Originator (other than Permitted Liens);

 

(iv)        the Originator has received all consents and approvals required by
the terms of any Conveyed Collateral to the conveyance of such Conveyed
Collateral hereunder to the Depositor;

 

(v)         the Originator has caused the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the security interest in such Conveyed
Collateral granted to the Depositor under this Agreement to the extent
perfection can be achieved by filing a financing statement;

 

(vi)        other than the conveyance to the Depositor and the security interest
granted to the Depositor pursuant to this Agreement, the Originator has not
pledged, assigned, sold, granted a security interest in or otherwise conveyed
any of such Conveyed Collateral. The Originator has not authorized the filing
of, and is not aware of, any financing statements against the Originator that
include a description of collateral covering such Conveyed Collateral other than
(A) any financing statement relating to the security interest Granted to the
Depositor under this Agreement and (B) any financing statement that has been
terminated. The Originator is not aware of the filing of any judgment, employee
benefit or tax lien filings against it;

 

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(vii)       on or prior to the Closing Date (with respect to the Initial
Collateral Obligations) and within five Business Days after the related Transfer
Date (with respect to the Additional Collateral Obligations), the Initial
Collateral Obligations or the Additional Collateral Obligations, as applicable,
have been Delivered to the Custodian; and

 

(viii)      none of the Underlying Notes that constitute or evidence the
Conveyed Collateral has any marks or notations indicating that it has been
pledged, assigned or otherwise conveyed to any Person other than the Issuer or
in blank or to the Trustee.

 

(k)          Value Given. The cash payments and corresponding increase in the
Originator’s equity interest in the Depositor received by the Originator in
respect of the purchase price of all Conveyed Collateral conveyed hereunder
constitutes reasonably equivalent value in consideration for the transfer to the
Depositor of such Conveyed Collateral under this Agreement, such transfer was
not made for or on account of an antecedent debt owed by the Depositor to the
Originator, and such transfer was not and is not voidable or subject to
avoidance under any Insolvency Law.

 

(l)          No Defaults. The Originator is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of it or its respective properties or might have
consequences that would materially and adversely affect its performance
hereunder.

 

(m)          Bulk Transfer Laws. The transfer, assignment and conveyance of the
Conveyed Collateral by the Originator pursuant to this Agreement are not subject
to the bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction.

 

(n)          Origination and Collection Practices. The origination and
collection practices used with respect to each Collateral Obligation have been
in all material respects legal, proper, and customary in the Collateral
Obligation origination and servicing business.

 

(o)          Lack of Intent to Hinder, Delay or Defraud. Neither the Originator
nor any of its Affiliates sold or will sell any interest in any Conveyed
Collateral with any intent to hinder, delay or defraud any of their respective
creditors.

 

(p)          Nonconsolidation. The Originator conducts, and will at all times
conduct, its affairs such that neither the Depositor nor the Issuer would be
substantively consolidated in the estate of the Originator and their respective
separate existences would not be disregarded in the event of a bankruptcy of the
Originator.

 

(q)          Accuracy of Information. All written factual information heretofore
furnished by the Originator for purposes of or in connection with this Agreement
or the other Transaction Documents to which the Originator is a party, or any
transaction contemplated hereby or thereby is, and all such written factual
information hereafter furnished by the Originator to any such party will be,
true and accurate in every material respect, on the date such information is
stated or certified; provided that the Originator shall not be responsible for
any factual information furnished to it by any third party not affiliated with
it except to the extent that a Responsible Officer of the Originator has actual
knowledge that such factual information is inaccurate in any material respect.

 

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(r)          Investment Company Act.         The Originator: (i) has filed an
election to be treated as a business development company under the 1940 Act and
has not withdrawn such election and qualifies as a regulated investment company
under the Code; (ii) conducts its business and other activities (a) in
compliance in all material respects with the applicable provisions of the 1940
Act and any applicable rules, regulations or orders issued by the Securities and
Exchange Commission thereunder and (b) in such a way that the consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents does not violate in any material respect the provisions of the 1940
Act or any rules, regulations or orders issued by the Securities and Exchange
Commission thereunder.

 

Section 3.2.          Representations and Warranties Regarding the Collateral
Obligations.

 

The Originator hereby represents to the Issuer and to the Trustee for the
benefit of the Secured Parties that (i) each Collateral Obligation conveyed
hereunder, as of its related Cut-Off Date, satisfies the definition of
“Collateral Obligation” under the Indenture and (ii) the information set forth
on Schedule 1 hereto or on Schedule 1 to any Subsequent Transfer Agreement, as
applicable, and in the Schedule of Collateral Obligations under the Indenture is
true and correct in all material respects.

 

Section 3.3.          Representations and Warranties of the Depositor.

 

By its execution of this Agreement and each Subsequent Transfer Agreement, the
Depositor represents and warrants that:

 

(a)          Organization and Good Standing. The Depositor is a limited
liability company duly organized, validly existing and in good standing under
the law of the State of Delaware, and has full power and authority to own its
assets and to transact the business in which it is currently engaged, and is
duly qualified as a foreign corporation and is in good standing under the laws
of each jurisdiction where its ownership or lease of property, the conduct of
its business or the performance of this Agreement or any other Transaction
Document applicable to it would require such qualification, except for those
jurisdictions in which the failure to be so qualified, authorized or licensed
would not have a material adverse effect on the business operations, assets or
financial condition of the Depositor or on the validity or enforceability of
this Agreement or the provisions of any other Transaction Document applicable to
the Depositor, or the performance by the Depositor of its duties hereunder or
thereunder.

 

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(b)          Authorization; Valid Sale; Binding Obligations. The Depositor has
the power and authority to make, execute, deliver and perform this Agreement and
the other Transaction Documents to which it is a party and all of the
transactions contemplated under this Agreement and the other Transaction
Documents to which it is a party, and had the power and authority to form the
Issuer and cause it to make, execute, deliver and perform its obligations under
this Agreement and the other Transaction Documents to which it is a party and
has taken all necessary limited liability company action to authorize the
execution, delivery and performance of this Agreement and the other Transaction
Documents to which it is a party. This Agreement and each Subsequent Transfer
Agreement, if any, shall effect a valid sale (or contribution, as the case may
be), transfer and assignment of, or Grant of a security interest in, the
Conveyed Collateral being so transferred, conveyed and assigned from the
Depositor to the Issuer, enforceable against the Depositor and creditors of and
purchasers from the Depositor. This Agreement and the other Transaction
Documents to which the Depositor is a party constitute the legal, valid and
binding obligations of the Depositor enforceable in accordance with their terms,
except as enforcement of such terms may be limited by bankruptcy,
reorganization, insolvency, moratorium and other laws affecting the enforcement
of creditors’ rights generally and general principles of equity, whether
considered in a suit at law or in equity.

 

(c)          No Consent Required. No consent of any other Person and no license,
permit, order, approval or authorization of, exemption by, notice or report to,
or registration, filing or declaration with, any governmental authority or court
or any other Person is required to be obtained by the Depositor in connection
with this Agreement or any other Transaction Document to which it is a party or
the execution, delivery, performance, validity or enforceability of this
Agreement or any other Transaction Document to which it is a party or the
obligations imposed on the Depositor hereunder or under the terms of the
Indenture or any other Transaction Document to which it is a party other than
those that have been obtained or made.

 

(d)          No Violations. The execution, delivery and performance of this
Agreement and the other Transaction Documents to which it is a party by the
Depositor, and the consummation of the transactions contemplated hereby and
thereby, will not violate its organizational documents or any material
requirement of law applicable to the Depositor, or constitute a material breach
of any mortgage, indenture, contract or other agreement to which the Depositor
is a party or by which the Depositor or any of the Depositor’s properties may be
bound, or result in the creation or imposition of any security interest, lien,
charge, pledge, preference, equity or encumbrance of any kind upon any of its
properties pursuant to the terms of any such mortgage, indenture, contract or
other agreement, other than as contemplated by the Transaction Documents.

 

(e)          Litigation. No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to the
knowledge of the Depositor threatened, against the Depositor or any of its
properties or with respect to this Agreement, the other Transaction Documents to
which it is a party or the Notes (1) that could be expected to have a material
adverse effect on (i) the business, properties, assets or condition (financial
or otherwise) of the Depositor or (ii) the transactions contemplated by this
Agreement or the other Transaction Documents to which the Depositor is a party
or (2) seeking to adversely affect the federal income tax or other federal,
state or local tax attributes of the Notes.

 

(f)          Solvency. The Depositor, at the time of and after giving effect to
each conveyance of Conveyed Collateral hereunder, is solvent and, to the best of
its knowledge, is not facing any pending insolvency.

 

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(g)          Taxes. The Depositor has filed or caused to be filed all tax
returns which are required to be filed and has paid all taxes shown to be due
and payable on such returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any governmental authority (other than any amount of tax due, the
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with generally
accepted accounting principles have been provided on its books); no tax lien has
been filed and no claim is being asserted, with respect to any such tax, fee or
other charge.

 

(h)          Place of Business; No Changes. The Depositor has not changed its
name or the State under whose laws it is formed, whether by amendment of its
certificate of formation, by reorganization or otherwise.

 

(i)          Sale Treatment. Other than for tax and accounting purposes, the
Depositor has treated each of (1) the acquisition of the Conveyed Collateral
from the Originator and (2) the transfer of the Conveyed Collateral to the
Issuer for all purposes as a sale and purchase on all of its relevant books and
records.

 

(j)          No Defaults. The Depositor is not in default with respect to any
order or decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have consequences
that would materially and adversely affect the condition (financial or
otherwise) or operations of it or its respective properties or might have
consequences that would materially and adversely affect its performance
hereunder.

 

(k)          Bulk Transfer Laws. The transfer, assignment and conveyance of the
Conveyed Collateral by the Depositor pursuant to this Agreement are not subject
to the bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction.

 

(l)          Lack of Intent to Hinder, Delay or Defraud. The Depositor did not
and will not sell any interest in any Conveyed Collateral with any intent to
hinder, delay or defraud any of its creditors.

 

(m)          Nonconsolidation. The Depositor conducts, and will at all times
conduct, its affairs such that neither the Issuer nor the Originator would be
substantively consolidated in the estate of the Depositor and their respective
separate existences would not be disregarded in the event of the Depositor’s
bankruptcy.

 

(n)          Accuracy of Information. All written factual information heretofore
furnished by the Depositor for purposes of or in connection with this Agreement
or the other Transaction Documents to which the Depositor is a party, or any
transaction contemplated hereby or thereby is, and all such written factual
information hereafter furnished by the Depositor to any such party will be, true
and accurate in every material respect, on the date such information is stated
or certified; provided that the Depositor shall not be responsible for any
factual information furnished to it by any third party not affiliated with it,
or the Originator, except to the extent that a Responsible Officer of the
Depositor has actual knowledge that such factual information is inaccurate in
any material respect.

 

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(o)          Investment Company Act.         The Depositor is not required to
register as an “investment company” under the 1940 Act.

 

Section 3.4.          Additional Representations and Warranties of the
Depositor.

 

By its execution of this Agreement and each Subsequent Transfer Agreement, the
Depositor additionally represents and warrants that:

 

(a)          Security Interest.

 

(i)          In the event that the transfer by the Depositor to the Issuer of
any Conveyed Collateral is determined not to be an absolute transfer, this
Agreement is effective to create in favor of the Issuer a valid and continuing
security interest (as defined in the UCC) in all of the right, title and
interest of the Depositor in, to and under such Conveyed Collateral, which
security interest is perfected and is prior to all other liens (other than
Permitted Liens), and is enforceable as such against, all creditors of and
purchasers from the Depositor;

 

(ii)         Each Collateral Obligation transferred hereunder constitutes or is
evidenced by a Financial Asset, an Instrument, a Certificated Security or a
general intangible (as defined in the UCC);

 

(iii)        Upon the transfer by the Depositor to the Issuer of any Conveyed
Collateral pursuant to this Agreement or any Subsequent Transfer Agreement, the
Issuer will own such Conveyed Collateral free and clear of any and all liens,
claims or encumbrances created by, or attaching to property of, the Depositor
(other than Permitted Liens);

 

(iv)        The Depositor has received all consents and approvals required by
the terms of any Conveyed Collateral to the conveyance of such Conveyed
Collateral hereunder to the Depositor;

 

(v)         The Depositor has caused the filing of all appropriate financing
statements in the proper filing office in the appropriate jurisdictions under
applicable law in order to perfect the security interest in such Conveyed
Collateral granted to the Issuer under this Agreement to the extent perfection
can be achieved by filing a financing statement;

 

(vi)        Other than the conveyance to the Issuer and the security interest
granted to the Issuer pursuant to this Agreement, the Depositor has not pledged,
assigned, sold, granted a security interest in or otherwise conveyed any of such
Conveyed Collateral. The Depositor has not authorized the filing of, and is not
aware of, any financing statements against the Depositor that include a
description of such Conveyed Collateral other than any financing statement that
has been terminated. The Depositor is not aware of the filing of any judgment,
employee benefit or tax lien filings against it;

 

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(vii)       On or prior to the Closing Date (with respect to the Initial
Collateral Obligations) and within five Business Days after the related Transfer
Date (with respect to the Additional Collateral Obligations), the Initial
Collateral Obligations or the Additional Collateral Obligations, as applicable,
have been Delivered to the Custodian; and

 

(viii)      None of the Underlying Notes that constitute or evidence the
Conveyed Collateral has any marks or notations indicating that it has been
pledged, assigned or otherwise conveyed to any Person other than the Issuer or
in blank or to the Trustee.

 

(b)          Value Given. The cash payments and corresponding increase in the
Depositor’s equity interest in the Issuer received by the Depositor in respect
of the purchase price of all Conveyed Collateral conveyed hereunder constitutes
reasonably equivalent value in consideration for the transfer to the Issuer of
such Conveyed Collateral under this Agreement, such transfer was not made for or
on account of an antecedent debt owed by the Issuer to the Depositor, and such
transfer was not and is not voidable or subject to avoidance under any
Insolvency Law.

 

Section 3.5.          Representations and Warranties of the Issuer.

 

By its execution of this Agreement and each Subsequent Transfer Agreement, the
Issuer represents and warrants to the Depositor and the Originator that:

 

(a)          Organization and Good Standing. The Issuer is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware and in each jurisdiction where the conduct of its business
requires such license, qualification or good standing, except where the failure
to be so licensed or qualified or in good standing would not have a material
adverse effect the ownership or use of its assets, the validity or
enforceability of the Transaction Documents to which it is a party, or the
ability of the Issuer to perform its obligations hereunder or thereunder.

 

(b)          Power and Authority. The Issuer has the power and authority to
execute and deliver the Transaction Documents and all other documents and
agreements contemplated hereby and thereby to which it is a party, as well as to
carry out the terms hereof and thereof.

 

(c)          Valid Execution; Binding Obligations. The Issuer has taken all
necessary action, including but not limited to all requisite limited liability
company action, to authorize the execution, delivery and performance of the
Transaction Documents and all other documents and agreements contemplated hereby
and thereby to which it is a party. When executed and delivered by the Issuer
each of the Transaction Documents will constitute the legal, valid and binding
obligation of the Issuer enforceable in accordance with its terms subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the enforcement of
creditors rights in general, and except as such enforceability may be limited by
general principles of equity (whether considered in a suit at law or in equity).

 

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(d)          Authorizations. All authorizations, licenses, permits,
certificates, franchises, consents, approvals and undertakings which are
required to be obtained by the Issuer under any applicable law which are
material to (i) the conduct of its business, (ii) the ownership, use, operation
or maintenance of its properties or (iii) the performance by the Issuer of its
obligations under or in connection with the Transaction Documents to which it is
a party, have been received and all such authorizations, licenses, permits,
certificates, franchises, consents, approvals and undertakings are in full force
and effect.

  

(e)          No Violations. The execution, issuance and delivery of, and
performance by the Issuer of its obligations under, the Transaction Documents to
which it is a party and any and all instruments or documents required to be
executed or delivered pursuant to or in connection herewith or therewith were
and are within the powers of the Issuer and will not violate any provision of
any law, regulation, decree or governmental authorization applicable to the
Issuer or its limited liability company agreement, and will not violate or cause
a default under any provision of any contract, agreement, mortgage, indenture or
other undertaking to which the Issuer is a party or which is binding upon the
Issuer or any of its property or assets, and will not result in the imposition
or creation of any lien, charge or encumbrance upon any of the properties or
assets of the Issuer pursuant to the provisions of any such contract, agreement,
mortgage, indenture or undertaking, other than as specifically set forth in the
Indenture.

 

(f)          Litigation. There are no legal, governmental or regulatory
proceedings pending to which the Issuer is a party or to which any of its
property is subject, which if determined adversely to the Issuer could
individually or in the aggregate have a material adverse effect on the
performance by the Issuer of the Transaction Documents to which it is a party or
the consummation of the transactions contemplated hereunder or thereunder, and
to the best of its knowledge, no such proceedings are threatened or
contemplated.

 

ARTICLE IV
Perfection of Transfer
and Protection of Security Interests

 

Section 4.1.          Custody of Collateral Obligation.

 

On or prior to the Closing Date (with respect to the Initial Collateral
Obligations) and within five Business Days after the related Transfer Date (with
respect to the Additional Collateral Obligations), the Initial Collateral
Obligations or the Additional Collateral Obligations, as applicable, shall be
Delivered to the Custodian.

 

Section 4.2.          Filing.

 

On or prior to the Closing Date, the Originator shall cause the UCC financing
statement(s) referred to in Section 2.2(a)(iii) hereof to be filed.
Notwithstanding the obligation of the Originator set forth in the preceding
sentence, each of the Originator, the Depositor and the Issuer hereby authorizes
the Collateral Manager to prepare and file, at the expense of the Collateral
Manager, such UCC financing statements (including but not limited to renewal,
continuation or in lieu statements) and amendments or supplements thereto or
other instruments as the Collateral Manager may from time to time deem necessary
or appropriate in order to perfect and maintain the security interests granted
hereunder in accordance with the UCC.

 

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Section 4.3.          Changes in Name, Corporate Structure or Location.

 

(a)          During the term of this Agreement, neither the Originator nor the
Depositor shall change its name, structure or state of formation without first
giving at least 30 days’ prior written notice to the Trustee and the Collateral
Manager.

 

(b)          If any change in the Originator’s or the Depositor’s name,
structure, state of formation or incorporation, as applicable, location or other
action would make any financing or continuation statement or notice of ownership
interest or lien relating to any Conveyed Collateral seriously misleading within
the meaning of applicable provisions of the UCC or any title statute, the
Originator or the Depositor, as applicable, no later than five Business Days
after the effective date of such change, shall file such amendments as may be
required to preserve and protect the Depositor’s, the Issuer’s and the Trustee’s
respective interests in the Conveyed Collateral.

 

Section 4.4.          Costs and Expenses.

 

The Issuer (or the Collateral Manager pursuant to the Collateral Management
Agreement on its behalf) will be obligated to pay all reasonable costs and
disbursements in connection with the perfection and the maintenance of
perfection, as against all third parties, of the Depositor’s, Issuer’s and
Trustee’s respective right, title and interest in and to the Conveyed Collateral
(including, without limitation, the security interests provided for in the
Indenture).

 

Section 4.5.          Sale Treatment.

 

Other than for tax and accounting purposes, the Originator and the Depositor
shall treat the transfer of the Conveyed Collateral made hereunder for all
purposes as a sale and purchase on all of its relevant books and records.

 

Section 4.6.          Separateness.

 

The Originator agrees to take or refrain from taking or engaging in (with
respect to the Depositor and the Issuer) and the Depositor agrees to take or
refrain from taking or engaging in (with respect to the Originator and the
Issuer) each of the actions or activities specified in the “substantive
consolidation” opinion of Sutherland Asbill & Brennan LLP (including any
certificates delivered in connection therewith) delivered on the Closing Date,
upon which the conclusions and opinions therein are based.

 

ARTICLE V
Covenants

 

Section 5.1.          Covenants of the Originator.

 

The Originator makes the following covenants, on which the Depositor will rely
in conveying the Initial Conveyed Collateral on the Closing Date (and any
Subsequent Conveyed Collateral on any applicable Transfer Date) to the Issuer,
and on which the Originator acknowledges and agrees that the Issuer and the
Trustee, for the benefit of the Secured Parties, shall be entitled to rely as an
express third party beneficiary as a condition of the Issuer and the Trustee
entering into the Transaction Documents to which each of them is a party and as
a condition to the Noteholders purchasing the Notes. The Depositor acknowledges
that such covenants are being made by the Originator for the benefit of the
Issuer and for the benefit of the Trustee, for the benefit of the Secured
Parties.

 

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(a)          Corporate Existence. During the term of this Agreement, the
Originator will keep in full force and effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
organization and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Agreement, the other Transaction
Documents and each other instrument or agreement necessary or appropriate to the
proper administration of this Agreement and the transactions contemplated
hereby. In addition, all transactions and dealings between the Originator and
the Depositor will be conducted on an arm’s length basis.

 

(b)          Collateral Obligations Not to Be Evidenced by Promissory Notes. In
the event that any Collateral Obligation not originally evidenced by a
promissory note is evidenced by an Instrument, the Originator shall deliver such
Instrument to the Custodian.

 

(c)          Security Interests. Except as expressly provided herein, the
Originator will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any lien on any Conveyed
Collateral. The Originator will promptly notify the Depositor, the Issuer and
the Trustee of the existence of any lien on any Conveyed Collateral; and the
Originator shall defend the respective right, title and interest of the
Depositor and the Issuer in, to and under the Conveyed Collateral against all
claims of third parties; provided that nothing in this Section 5.1(c) shall
prevent or be deemed to prohibit the Originator from suffering to exist
Permitted Liens upon any of the Conveyed Collateral. The Originator shall
promptly take all actions required (including, but not limited to, all filings
and other acts necessary or advisable under the UCC of each relevant
jurisdiction) in order to continue (subject to Permitted Liens) the first
priority perfected security interest of the Depositor in all Conveyed Collateral
which has not been released pursuant to the Indenture.

 

(d)          Compliance with Law. The Originator hereby agrees to comply in all
respects with all requirements of law applicable to it except where the failure
to do so would not have a material adverse effect on the Issuer.

 

(e)          Location. The Originator shall not move its jurisdiction of
formation outside of the State of Delaware without 30 days’ prior written notice
to the Depositor, the Issuer and the Trustee.

 

(f)          Merger or Consolidation of the Originator.

 

(i)          Any Person into which the Originator may be merged or consolidated,
or any Person resulting from such merger or consolidation to which the
Originator is a party, or any Person succeeding by acquisition or transfer to
substantially all of the assets and the business of the Originator shall be the
successor to the Originator hereunder and the other Transaction Documents to
which the Originator is a party, without execution or filing of any paper or any
further act on the part of any of the parties hereto, notwithstanding anything
herein to the contrary.

 

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(ii)         Upon the merger or consolidation of the Originator or transfer of
substantially all of its assets and its business as described in this Section
5.1(f), the Originator shall provide the Depositor, the Trustee, the Issuer and
the Rating Agencies notice of such merger, consolidation or transfer of
substantially all of the assets and business within 30 days after completion of
the same.

 

(g)          Regulatory Filings. The Originator shall make, or shall cause to be
made, any filings, reports, notices, applications and registrations with, and
seek any consents or authorizations from, the Securities and Exchange Commission
and any state securities authority on behalf of the Originator, the Depositor
and the Issuer as may be necessary or that the Originator deems advisable to
comply with any federal or state securities or reporting requirements, laws
relating to the transactions contemplated by the Transaction Documents, or as
may be otherwise required by applicable law.

 

(h)          Notice. The Originator shall, promptly following the applicable
Transfer Date, notify the related agent bank and the related Obligor (if
required under the respective assignment agreement) with respect to the
applicable Conveyed Collateral of the Originator’s sale of such Conveyed
Collateral to the Depositor, and (for administrative convenience) of the
Depositor’s subsequent sale of such Conveyed Collateral to the Issuer.

 

Section 5.2.          Covenants of the Depositor.

 

The Depositor makes the following covenants, on which the Originator and the
Issuer will rely in connection with the conveyance of Initial Conveyed
Collateral on the Closing Date (and any Subsequent Conveyed Collateral on any
applicable Transfer Date) to the Depositor and the Issuer, and on which the
Depositor acknowledges and agrees the Issuer and the Trustee for the benefit of
the Secured Parties shall be entitled to rely as an express third party
beneficiary as a condition of the Issuer and the Trustee entering into the
Transaction Documents to which each of them is a party and as a condition to the
Noteholders purchasing the Notes. Each of the Originator and the Issuer
acknowledges that such covenants are being made by the Depositor for the benefit
of the Originator, the Issuer and the Trustee for the benefit of the Secured
Parties.

 

(a)          Legal Existence. During the term of this Agreement, the Depositor
will keep in full force and effect its existence, rights and franchises as a
limited liability company under the laws of the jurisdiction of its organization
and will obtain and preserve its qualification to do business in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement, the other Transaction Documents
and each other instrument or agreement necessary or appropriate to the proper
administration of this Agreement and the transactions contemplated hereby. In
addition, all transactions and dealings between (i) the Depositor and the
Originator, and (ii) the Depositor and the Issuer will be conducted on an arm’s
length basis.

 

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(b)          Collateral Obligations Not to Be Evidenced by Promissory Notes. In
the event that any Collateral Obligation not originally evidenced by a
promissory note is evidenced by an Instrument, the Depositor shall deliver such
Instrument to the Custodian.

 

(c)          Security Interests. Except as expressly provided herein, the
Depositor will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any lien on any Conveyed
Collateral. The Depositor will promptly notify the Originator, the Issuer and
the Trustee of the existence of any lien on any Conveyed Collateral; and the
Depositor shall defend the respective right, title and interest of the Issuer
in, to and under the Conveyed Collateral against all claims of third parties;
provided that nothing in this Section 5.2(c) shall prevent or be deemed to
prohibit the Grant of the Conveyed Collateral to the Trustee under the
Indenture. The Depositor shall promptly take all actions required (including,
but not limited to, all filings and other acts necessary or advisable under the
UCC of each relevant jurisdiction) in order to continue (subject to any
Permitted Lien) the first priority perfected security interest of the Issuer in
all Conveyed Collateral which has not been released pursuant to the Indenture.

 

(d)          Compliance with Law. The Depositor hereby agrees to comply in all
respects with all requirements of law applicable to it except where the failure
to do so would not have a material adverse effect on the Issuer.

 

(e)          Location. The Depositor shall not move its jurisdiction of
formation outside of the State of Delaware without 30 days’ prior written notice
to the Issuer and the Trustee.

 

(f)          Merger or Consolidation; Sales. The Depositor shall not enter into
any transaction of merger or consolidation, or liquidate or dissolve itself (or
suffer any liquidation or dissolution) or acquire or be acquired by any Person,
or convey, sell, lease or otherwise dispose of all or substantially all of its
property or business other than to the Issuer in accordance with the Transaction
Documents.

 

(g)          Article 122a Retention. The Depositor hereby agrees for the benefit
of the Initial Purchaser and the Issuer that: (i) it will continue to remain
100% owned by, and (under U.S. GAAP) consolidated into, the Originator; (ii) it
will directly retain, on an ongoing basis, a net economic interest in the first
loss tranche of this transaction (within the meaning of paragraph 1(d) of
Article 122a) in the form of Subordinated Notes which in no event shall be less
than 5% of the nominal value of the securitized exposures of the Issuer at any
time; (iii) the direct retention of the net economic interest in the form of
Subordinated Notes shall not be subject to any credit risk mitigation, any short
positions, or any other credit risk hedge or credit risk hedging arrangement,
except to the extent permitted under Article 122a; and (iv) it will, on a
monthly basis, no later than the Monthly Report Determination Date, confirm
compliance with clauses (i) through (iii) of this paragraph (g), which
confirmation may be provided in the form of an email from a duly authorized
person of the Depositor to the Issuer and to the Trustee.

 

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ARTICLE VI
Indemnification by THE ORIGINATOR

 

Section 6.1.          Indemnification.

 

The Originator agrees to indemnify, defend and hold the Depositor, the Issuer,
the Trustee (including in its capacity as Custodian) and any of their respective
managers, members, officers, directors, employees and agents (any one of which
is an “Indemnified Party”) harmless from and against any and all claims, losses,
penalties, fines, forfeitures, reasonable legal fees and related costs,
judgments and any other reasonable costs, fees and expenses (provided that any
indemnification for damages is limited to actual damages, not consequential,
special or punitive damages) that such Person may sustain as a result of the
failure of the Originator to perform its duties in compliance in all material
respects with the terms of this Agreement, except to the extent arising from the
gross negligence, willful misconduct or fraud by the Person claiming
indemnification; provided that, for the avoidance of doubt, the obligations of
the Originator set forth in Section 7.2 shall constitute the sole recourse to
the Originator for any breach of the representations or warranties set forth in
Section 3.2. An Indemnified Party shall promptly notify the Originator if a
claim is made by a third party with respect to this Agreement, and the
Originator shall assume (with the consent of the Indemnified Party) the defense
and any settlement of any such claim and pay all expenses in connection
therewith, including reasonable counsel fees, and promptly pay, discharge and
satisfy any judgment or decree which may be entered against the Indemnified
Party in respect of such claim. If the consent of the Indemnified Party required
in the immediately preceding sentence is unreasonably withheld with respect to
any claim, the Originator shall be relieved of its indemnification obligations
hereunder with respect to such claim. The parties agree that the provisions of
this Section 6.1 shall not be interpreted to provide recourse to the Originator
against loss by reason of the bankruptcy, insolvency or lack of creditworthiness
of an Obligor with respect to a Collateral Obligation. The Originator shall have
no liability for making indemnification hereunder to the extent any such
indemnification constitutes recourse for uncollectible or uncollected amounts
payable under any Collateral Obligation.

 

Section 6.2.          Liabilities to Obligors.

 

Except with respect to the funding commitment or letter of credit participations
assumed by the Issuer with respect to any Delayed Drawdown Collateral Obligation
or Revolving Collateral Obligation, the Originator hereby acknowledges and
agrees that no obligation or liability of the Originator to any Obligor under
any of the Collateral Obligations is intended to be assumed by the Depositor,
the Issuer, the Trustee or the Noteholders under or as a result of this
Agreement, any Subsequent Transfer Agreement and the transactions contemplated
hereby and under the other Transaction Documents, and the Trustee for the
benefit of the Secured Parties is expressly named as a third party beneficiary
of this Agreement for purposes of this Section 6.2.

 

Section 6.3.          Operation of Indemnities.

 

If the Originator has made any indemnity payments to any Indemnified Party
pursuant to this Article VI and such Indemnified Party thereafter collects any
such amounts from others, such Indemnified Party will repay such amounts
collected to the Originator.

 

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ARTICLE VII
optional and mandatory repurchases

 

Section 7.1.          Optional Repurchases.

 

In addition to the right to substitute for any Collateral Obligations that
become subject to a Substitution Event, the Originator shall have the right, but
not the obligation, to repurchase from the Issuer any such Collateral Obligation
subject to the Repurchase and Substitution Limit and the conditions set forth in
the Indenture. In the event of such a repurchase, the Originator shall deposit
in the Collection Account an amount equal to the Transfer Deposit Amount for
such Collateral Obligation (or applicable portion thereof) as of the date of
such repurchase. The Originator, the Depositor and the Issuer shall execute and
deliver such instruments, consents or other documents and perform all acts
reasonably requested by the Originator and the Collateral Manager in order to
effect the transfer and release of any of the Issuer’s interests in the
Collateral Obligations (together with the Assets related thereto) that are being
repurchased and the release thereof from the lien of the Indenture.

 

Section 7.2.          Mandatory Repurchases.

 

Upon discovery by a Responsible Officer of the Collateral Manager of a breach of
the representation set forth in Section 3.2 which materially and adversely
affects the value of the Collateral Obligations or the interest of the
Noteholders or which materially and adversely affects the interests of the
Noteholders in the related Collateral Obligation in the case of a representation
and warranty relating to a particular Collateral Obligation (each such
Collateral Obligation, an “Ineligible Collateral Obligation”), the Collateral
Manager shall give prompt written notice of such breach or failure to the
parties hereunder and the Trustee. Within 30 days of the earlier of its
discovery or its receipt of notice of any such breach, the Originator shall (a)
promptly cure such breach in all material respects, (b) purchase the Collateral
Obligation by depositing in the Collection Account, within such 30-day period,
an amount equal to the Transfer Deposit Amount of such Collateral Obligation or
(c) remove such Collateral Obligation from the Issuer and substitute therefor
one or more Substitute Collateral Obligations satisfying the criteria listed
under Section 2.5 of this Agreement and Section 12.3 of the Indenture by not
later than 30 days after notice or discovery of such breach. Such repurchase and
substitution obligations constitute the sole remedy available for a breach of
Section 3.2.

 

Section 7.3.          Reassignment of Substituted or Repurchased Collateral
Obligations.

 

Upon (i) receipt by the Trustee for deposit in the Collection Account of the
Transfer Deposit Amount, in the case of any repurchased Collateral Obligation or
(ii) the Cut-Off Date related to a Substitute Collateral Obligation described in
Section 2.5, the Issuer hereby assigns to the Depositor and the Depositor hereby
assigns to the Originator all of the Issuer’s (or Depositor’s, as applicable)
right, title and interest in the Collateral Obligation being repurchased or
substituted (together with the Assets related thereto) without recourse,
representation or warranty. Such reassigned Collateral Obligation (together with
the Assets related thereto) shall no longer thereafter be deemed a part of the
Assets.

 

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Section 7.4.          Repurchase and Substitution Limit.

 

At all times, (i) the Aggregate Principal Balance of all Collateral Obligations
that are Substitute Collateral Obligations (excluding substitutions occurring as
a result of a Substitution Event pursuant to clause (v) of the definition
thereof) plus (ii) the Aggregate Principal Balance related to all Collateral
Obligations that have been repurchased by the Originator hereunder pursuant to
its right of optional repurchase or substitution (other than a substitution
occurring as a result of a Substitution Event pursuant to clause (v) of the
definition thereof) and not subsequently applied to purchase a Substitute
Collateral Obligation may not exceed an amount equal to 20% of the Net Purchased
Loan Balance; provided that clause (ii) above shall not include (A) the
principal balance related to any Collateral Obligation that is repurchased by
the Originator in connection with a proposed Specified Amendment to such
Collateral Obligation so long as (x) the Originator certifies in writing to the
Collateral Manager and the Trustee that such purchase is, in the commercially
reasonable business judgment of the Originator, necessary or advisable in
connection with the restructuring of such Collateral Obligation and such
restructuring is expected to result in a Specified Amendment to such Collateral
Obligation, and (y) the Collateral Manager certifies in writing to the Trustee
that the Collateral Manager either would not be permitted to or would not elect
to enter into such Specified Amendment pursuant to the Collateral Manager
Standard or any provision of the Indenture or the Collateral Management
Agreement or (B) the purchase price of any Collateral Obligations or, for the
avoidance of doubt, any Equity Securities sold by the Issuer to the Originator
as described in Section 12.1 of the Indenture. The foregoing provisions in this
paragraph constitute the “Repurchase and Substitution Limit”.

 

ARTICLE VIII
Miscellaneous

 

Section 8.1.          Amendment.

 

(a)          This Agreement may be amended or waived from time to time by the
parties hereto by written agreement without consent of the Noteholders, to (i)
cure any ambiguity or to correct or supplement any provisions herein, (ii)
comply with any changes in the Code, (iii) to enable the Issuer or Depositor to
rely upon any exemption from registration under the Securities Act or the 1940
Act, (iv) to enable the Issuer, Depositor or Originator to comply with any
applicable securities law or U.S. securities laws (including the regulations
implementing such laws), (v) conform this Agreement to the Offering Circular and
(vi) to evidence the succession of another Person to the Issuer, Depositor or
Originator, as applicable, and the assumption by any such successor Person of
the covenants of the Issuer, Depositor or Originator, as applicable herein. Any
other amendment or waiver to this Agreement shall be subject to the consent of a
Majority of the Controlling Class; provided that no such amendment or waiver
shall reduce in any manner the amount of, or delay the timing of, any amounts
received on Collateral Obligations which are required to be distributed on any
Note without the consent of the related Noteholder, or change the rights or
obligations of any other party hereto without the consent of such party.

 

(b)          Prior to the execution of any such amendment or waiver, the
Originator shall furnish to the Trustee for forwarding and the Trustee shall
furnish to each Rating Agency and each Noteholder written notification of the
substance of such proposed amendment or waiver, together with a copy thereof.

 

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(c)          Promptly after the execution of any such amendment or waiver, the
Originator shall furnish to the Trustee for forwarding and the Trustee shall
furnish written notification of the substance of such amendment or waiver to the
Rating Agencies and to each Noteholder. It shall not be necessary for the
consent of any Noteholders pursuant to Section 8.1(a) to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents and of evidencing the authorization by Noteholders of the execution
thereof shall be subject to such reasonable requirements as the Trustee may
prescribe.

 

(d)          Prior to the execution of any amendment to this Agreement, the
Issuer and the Trustee shall be entitled to receive and rely upon an Opinion of
Counsel (which Opinion of Counsel may rely upon an Officer’s certificate of the
Issuer or of the Collateral Manager with respect to the effect of any such
amendment or waiver on the economic interests of the Noteholders) stating that
the execution of such amendment is authorized or permitted by this Agreement.
The Trustee may, but shall not be obligated to, consent to any such amendment
that affects such Trustee’s own rights, duties or immunities under this
Agreement or otherwise.

 

(e)          The Trustee, by its signature below, acknowledges and agrees to be
bound by the provisions of this Section 8.1.

 

Section 8.2.          Governing Law.

 

(a)          This Agreement shall be construed in accordance with, and this
Agreement and all matters arising out of or relating in any way whatsoever
(whether in contract, tort or otherwise) to this Agreement shall be governed by,
the law of the State of New York

 

(b)          EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT. Each party hereto (i) certifies that no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver and (ii) acknowledges that it and the other parties hereto have been
induced to enter into this Agreement by, among other things, the mutual waivers
and certifications in this Section 8.2(b).

 

Section 8.3.          Notices.

 

All notices, demands, certificates, requests, directions and communications
hereunder shall be in writing and shall be effective (a) upon receipt when sent
through the U.S. mails, registered or certified mail, return receipt requested,
postage prepaid, with such receipt to be effective the date of delivery
indicated on the return receipt, (b) one Business Day after delivery to an
overnight courier, (c) on the date personally delivered to a Responsible Officer
of the party to which sent, or (d) on the date transmitted by legible facsimile
transmission or electronic mail transmission with a confirmation of receipt, in
all cases addressed to the recipient at such recipient’s address for notices set
forth in Schedule 2.

 

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Section 8.4.          Severability of Provisions.

 

If one or more of the covenants, agreements, provisions or terms of this
Agreement shall be for any reason whatsoever prohibited or held invalid or
unenforceable, then such covenants, agreements, provisions or terms shall be
deemed severable from the remaining covenants, agreements, provisions or terms
of this Agreement and shall in no way affect the validity or enforceability of
the other provisions of this Agreement and any such prohibition, invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such covenant, agreement, provision or term in any other
jurisdiction.

 

Section 8.5.          Third Party Beneficiaries.

 

The parties hereto hereby manifest their intent that except as otherwise
expressly provided herein, no third party (other than the (i) Trustee, on behalf
of the Secured Parties and (ii) the Initial Purchaser, with respect to Section
5.2(g), each of whom shall be an express third party beneficiary hereunder)
shall be deemed a third party beneficiary of this Agreement, and specifically
that the Obligors are not third party beneficiaries of this Agreement.

 

Section 8.6.          Counterparts.

 

This Agreement may be executed by facsimile signature and in several
counterparts, each of which shall be an original and all of which shall together
constitute but one and the same instrument.

 

Section 8.7.          Headings.

 

The headings of the various Sections herein are for convenience of reference
only and shall not define or limit any of the terms or provisions hereof.

 

Section 8.8.          No Bankruptcy Petition; Disclaimer.

 

(a)          Each of the Originator and the Depositor covenants and agrees that,
prior to the date that is one year and one day after the satisfaction and
discharge of the Indenture or, if longer, the applicable preference period then
in effect, it will not institute against the Depositor (in the case of the
Originator), or the Issuer (in the case of the Originator or the Depositor), or
join any other Person in instituting against the Depositor or the Issuer, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other similar proceedings under the laws of the United States or any state of
the United States. This Section 8.8 will survive the termination of this
Agreement.

 

(b)          The provisions of this Section 8.8 shall be for the third party
benefit of those entitled to rely thereon, including the Trustee for the benefit
of the Secured Parties, and shall survive the termination of this Agreement.

 

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Section 8.9.          Jurisdiction.

 

Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction
of any New York State or Federal court sitting in the Borough of Manhattan in
The City of New York in any action or proceeding arising out of or relating this
Agreement, and hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such New York State or
Federal court. Each party hereto hereby irrevocably waives, to the fullest
extent that it may legally do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding. Each party hereto irrevocably consents
to the service of any and all process in any action or proceeding by the mailing
or delivery of copies of such process to it the address set forth in Schedule 2.
Each party hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

 

Section 8.10.         Prohibited Transactions with Respect to the Issuer.

 

The Originator shall not:

 

(a)          Provide credit to any Noteholder for the purpose of enabling such
Noteholder to purchase Notes; or

 

(b)          Purchase any Notes in an agency or trustee capacity.

 

Section 8.11.         No Partnership.

 

Nothing herein contained shall be deemed or construed to create a co-partnership
or joint venture between the parties hereto.

 

Section 8.12.         Successors and Assigns.

 

This Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns.

 

Section 8.13.         Duration of Agreement.

 

This Agreement shall continue in existence and effect until the satisfaction and
discharge of the Indenture.

 

Section 8.14.         Limited Recourse.

 

The obligations of the Issuer, the Depositor and the Originator under this
Agreement and the other Transaction Documents are solely the limited liability
company or corporate obligations, as applicable, of the Issuer, the Depositor
and Originator, respectively. No recourse shall be had for the payment of any
amount owing by the Issuer, the Depositor or Originator under this Agreement,
any Transaction Document or for the payment by the Issuer, the Depositor or
Originator of any fee in respect hereof or any other obligation or claim of or
against the Issuer, the Depositor or Originator arising out of or based upon
this Agreement or any Transaction Document, against any employee, officer,
director, shareholder, partner, member or manager of the Issuer, the Depositor
or Originator or of any Affiliate of such Person (other than the Originator, the
Depositor or the Issuer, as applicable). The provisions of this Section 8.14
shall survive the termination of this Agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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

 

  KCAP FINANCIAL, INC.       By:       Name:     Title:       KCAP SENIOR
FUNDING I HOLDINGS, LLC       By:  KCAP Financial, Inc., its designated manager
      By:       Name:     Title:       KCAP SENIOR FUNDING I, LLC      
By:  KCAP Financial, Inc., its designated manager       By:       Name:    
Title:

 

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SCHEDULE 1

 

Schedule of Initial Conveyed Collateral

 

S-1-1

 

 

SCHEDULE 2

NOTICE INFORMATION

 

Originator:

 

KCAP Financial, Inc.
295 Madison Avenue, 6th Floor
New York, New York 10017
Telephone No.: 212-455-8300
Facsimile No.: 212-983-7654
Attention: Daniel Gilligan

 

Depositor:

 

KCAP Senior Funding I Holdings, LLC
295 Madison Avenue, 6th Floor
New York, New York 10017
Telephone No.: 212-455-8300
Facsimile No.: 212-983-7654
Attention: Daniel Gilligan

 

Issuer:

 

KCAP Senior Funding I, LLC

295 Madison Avenue, 6th Floor
New York, New York 10017
Telephone No.: 212-455-8300
Facsimile No.: 212-983-7654
Attention: Daniel Gilligan

 

Collateral Manager:

 

KCAP Financial, Inc.
295 Madison Avenue, 6th Floor
New York, New York 10017
Telephone No.: 212-455-8300
Facsimile No.: 212-983-7654
Attention: Daniel Gilligan

 

Trustee:

 

U.S. Bank National Association

One Federal Street, 3rd Floor
Boston, MA 02110
Telephone No.: 617-603-6536
Facsimile No.: 855-225-6612

Email: KCAP.Senior.Funding@usbank.com

Attention: Corporate Trust Services – KCAP Senior Funding I, LLC

 

A-2

 

 

EXHIBIT A

 

FORM OF SUBSEQUENT TRANSFER AGREEMENT

 

________ __, 20__

 

This Subsequent Transfer Agreement, dated as of ______ __, 20__ (this
“Agreement”), is made by and among KCAP FINANCIAL, INC. (the “Originator”), KCAP
SENIOR FUNDING I HOLDINGS, LLC (the “Depositor”) and KCAP SENIOR FUNDING I, LLC
(the “Issuer”). Capitalized terms used but not defined herein have the
respective meanings attributed to such terms in that certain Master Loan Sale
Agreement, dated as of June 18, 2013 (such agreement as amended, restated,
supplemented or modified from time to time, the “Master Loan Sale Agreement”),
among the Originator, the Depositor and the Issuer.

 

Subject to and upon the terms and conditions set forth in the Master Loan Sale
Agreement, in exchange for good and valuable consideration, the adequacy of
which is duly acknowledged by the Originator and the Depositor, the Originator
hereby absolutely transfers to the Depositor as of the date hereof (the
“Transfer Date”) all of the Originator’s right, title and interest in, to and
under the Subsequent Conveyed Collateral identified in Schedule I hereto.

 

Subject to and upon the terms and conditions set forth in the Master Loan Sale
Agreement, the Depositor hereby absolutely transfers, in exchange for good and
valuable consideration, the adequacy of which is duly acknowledged by the
Depositor and the Issuer, to the Issuer as of the Transfer Date all of the
Depositor’s right, title and interest in, to and under the Subsequent Conveyed
Collateral identified in Schedule I hereto.

 

By its execution of this Agreement each of the parties hereto makes the
representations and warranties set forth in Article III of the Master Loan Sale
Agreement, as applicable, as of the Transfer Date and the provisions of Section
8.14 of the Master Loan Sale Agreement are hereby incorporated herein by
reference.

 

[Remainder of page intentionally left blank.]

 

A-3

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.

 

  KCAP FINANCIAL, INC.       By:     Name:   Title:       KCAP SENIOR FUNDING I
HOLDINGS, LLC       By:  KCAP Financial, Inc., its designated manager       By:
    Name:   Title:       KCAP SENIOR FUNDING I, LLC       By:  KCAP Financial,
Inc., its designated manager       By:     Name:   Title:

 

A-4

 

 

Schedule I
to Subsequent Transfer Agreement

Subsequent Conveyed Collateral

 

A-5