FS Investment Corporation III 8-K [fsiciii-8k_120214.htm]

 

Exhibit 10.2

EXECUTION VERSION

 

 

SALE AND CONTRIBUTION AGREEMENT

between

FS INVESTMENT CORPORATION III,

as Seller

and

DUNLAP FUNDING LLC,

as Purchaser

Dated as of December 2, 2014

 

 

 

 

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    
    ARTICLE II CONVEYANCES OF TRANSFERRED ASSETS   3         SECTION 2.1
Conveyances.   3 SECTION 2.2 Indemnification.   5         ARTICLE III
CONSIDERATION AND PAYMENT; REPORTING   5         SECTION 3.1 Purchase Price.   5
SECTION 3.2 Payment of Purchase Price.   5         ARTICLE IV REPRESENTATIONS
AND WARRANTIES   6         SECTION 4.1 Seller’s Representations and Warranties.
  6 SECTION 4.2 Reaffirmation of Representations and Warranties by the Seller;
.Notice of Breach.   10         ARTICLE V COVENANTS OF THE SELLER   11        
SECTION 5.1 Covenants of the Seller.   11         ARTICLE VI WARRANTY LOANS   13
        SECTION 6.1 Warranty Collateral Obligations.   13 SECTION 6.2 Dilutions,
Etc.   14         ARTICLE VII CONDITIONS PRECEDENT   14         SECTION 7.1
Conditions Precedent.   14         ARTICLE VIII MISCELLANEOUS PROVISIONS   15  
      SECTION 8.1 Amendments, Etc.   15 SECTION 8.2 Governing Law: Submission to
Jurisdiction.   15 SECTION 8.3 Notices.   15

 

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SECTION 8.4 Severability of Provisions.   16 SECTION 8.5 Reserved.   16 SECTION
8.6 Further Assurances.   16 SECTION 8.7 No Waiver; Cumulative Remedies.   17
SECTION 8.8 Counterparts.   17 SECTION 8.9 Binding Effect; Third-Party
Beneficiaries.   17 SECTION 8.10 Merger and Integration.   17 SECTION 8.11
Headings.   17

 

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This SALE AND CONTRIBUTION AGREEMENT, dated as of December 2, 2014 (as amended,
supplemented or otherwise modified and in effect from time to time, this
“Agreement”), between FS Investment Corporation III, a Maryland corporation, as
seller (in such capacity, the “Seller”) and Dunlap Funding LLC, a Delaware
limited liability company, as purchaser (in such capacity, the “Purchaser”).

 

W I T N E S S E T H:

 

WHEREAS, the Purchaser desires to purchase certain loans and related assets
existing on the Effective Date and from time to time thereafter;

 

WHEREAS, the Seller may also wish to contribute certain loans and related
contracts to the capital of the Purchaser on the Effective Date and from time to
time on each Purchase Date;

 

WHEREAS, the Seller desires to sell, assign and contribute such loans and
related contracts to the Purchaser upon the terms and conditions hereinafter set
forth;

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, it is hereby agreed by and between the
Purchaser and the Seller as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined). All capitalized terms used
herein but not defined herein shall have the respective meanings specified in,
or incorporated by reference into, the Loan Financing and Servicing Agreement,
dated as of the date hereof (as amended, supplemented or otherwise modified and
in effect from time to time, the “Loan Agreement”), by and among the Purchaser,
as borrower, Deutsche Bank AG, New York Branch, as administrative agent, Wells
Fargo Bank, National Association, as collateral agent and collateral custodian,
and the agents and lenders party from time to time thereto.

 

“Agreement” has the meaning set forth in the preamble hereto.

 

“Convey” means to sell, transfer, assign, contribute or otherwise convey assets
hereunder.

 

“Conveyance” means, as the context may require, the Initial Conveyance or a
Subsequent Conveyance.

 

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“Indorsement” has the meaning specified in Section 8-102(a)(11) of the UCC, and
“Indorsed” has a corresponding meaning.

 

“Initial Conveyance” has the meaning set forth in Section 2.1(a).

 

“Purchase Date” means each Subsequent Conveyance Date and the date of the
Initial Conveyance.

 

“Purchase Notice” has the meaning set forth in Section 2.1(b).

 

“Purchase Price” has the meaning set forth in Section 3.1.

 

“Purchaser” has the meaning set forth in the preamble hereto.

 

“Repurchase Event” means, with respect to any Transferred Collateral Obligation,
the occurrence of any of the following:

 

(a)        the related Conveyance becomes or may become voidable or subject to
avoidance under Title 11 of the Bankruptcy Code and the rules and regulations
thereunder;

 

(b)        the Seller has actual knowledge or is notified of any event which, as
of the date of the related Conveyance had occurred and was continuing, could
reasonably have been expected to affect the collectibility of such Transferred
Collateral Obligation or cause it not to be paid in full; or

 

(c)        such Transferred Collateral Obligation (or any portion thereof after
giving effect to any contribution) was sold by the Seller to the Purchaser other
than pursuant to a “true sale.”

 

“Retained Economic Interest” has the meaning set forth in Section 5.1(o)(i).

 

“Retention Requirements” means Articles 404-410 of the EU Capital Requirements
Regulation (Regulation (EU) 575/2013), as published on June 27, 2013, together
with any guidelines, regulatory technical standards, implementing technical
standards or related documents published from time to time in relation thereto
by the European Banking Authority (or any predecessor or successor agency or
authority) and the European Commission, together with each other amendment or
modification thereto approved by the parties hereto for purposes of this
definition, each to the extent legally binding in the Member State of a Lender
and in each case as determined or imposed by any regulatory body having
supervisory authority over any Lender.

 

“Schedule of Collateral Obligations” has the meaning set forth in Section
2.1(a).

 

“Seller” has the meaning set forth in the preamble hereto.

 

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“Subsequent Conveyance” has the meaning set forth in Section 2.1(b).

 

“Subsequent Conveyance Date” has the meaning set forth in Section 2.1(b).

 

“Transferred Assets” means, collectively, the Transferred Collateral Obligations
and Related Security Conveyed by the Seller to the Purchaser hereunder.

 

“Transferred Collateral Obligations” means each Collateral Obligation Conveyed
from the Seller to the Purchaser pursuant to the terms of this Agreement.

 

“Warranty Collateral Obligations” has the meaning set forth in Section 6.1.

 

SECTION 1.2 Other Terms. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles.
All terms used in Article 9 of the UCC, and not specifically defined herein, are
used herein as defined in such Article 9. The term “including” when used in this
Agreement means “including without limitation.”

 

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” and the words
“to” and “until” each means “to but excluding.”

 

ARTICLE II

CONVEYANCES OF TRANSFERRED ASSETS

 

SECTION 2.1 Conveyances.

 

(a)        On the terms and subject to the conditions set forth in this
Agreement, the Seller agrees to Convey to the Purchaser on the Effective Date,
and the Purchaser agrees to purchase from the Seller on the Effective Date (the
“Initial Conveyance”), all of the Seller’s right, title and interest in and to
each Collateral Obligation listed on Schedule A to this Agreement (as such
schedule may be amended, supplemented, updated or otherwise modified from time
to time, the “Schedule of Collateral Obligations”) (the Schedule of Collateral
Obligations, as amended, supplemented, updated or otherwise modified shall
become part of the Schedule of Collateral Obligations), together with all other
Related Security and all proceeds of the foregoing but excluding the Retained
Interests (if any) for such Collateral Obligation.

 

(b)        In the event the Purchaser agrees, from time to time after the
Effective Date, to acquire additional Collateral Obligations (including Related
Security) from the Seller, the Purchaser shall deliver written notice thereof to
the Administrative Agent substantially in the form set forth in Schedule B
hereto (each, a “Purchase Notice”), designating the date of the proposed
Conveyance (a “Subsequent Conveyance Date”) and attaching a supplement to the
Schedule of Collateral Obligations identifying the Transferred Assets proposed
to be Conveyed. On the terms and subject to the conditions set forth in this
Agreement and the Loan Agreement, the Seller shall Convey to the Purchaser, and
the Purchaser shall purchase, on the applicable Subsequent Conveyance Date (each
such purchase and sale being herein called a “Subsequent Conveyance”), all of
the Seller’s right, title and interest in and to each Collateral Obligation then
reported by the Seller on the Schedule of Collateral Obligations attached to the
related Purchase Notice, together with all other Related Security and all
proceeds of the foregoing.

 

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(c)        It is the express intent of the Seller and the Purchaser that each
Conveyance of Transferred Assets by the Seller to the Purchaser pursuant to this
Agreement be construed as an absolute sale and/or contribution of such
Transferred Assets by the Seller to the Purchaser. Further, it is not the
intention of the Seller and the Purchaser that any purchase be deemed a grant of
a security interest in the Transferred Assets by the Seller to the Purchaser to
secure a debt or other obligation of the Seller. However, in the event that,
notwithstanding the intent of the parties, the Conveyances hereunder shall be
characterized as loans and not as sales and/or contributions, then (i) this
Agreement also shall be deemed to be, and hereby is, a security agreement within
the meaning of the UCC and other applicable law and (ii) the Conveyances by the
Seller provided for in this Agreement shall be deemed to be, and the Seller
hereby grants to the Purchaser, a security interest in, to and under all of the
Seller’s right, title and interest in, to and under, whether now owned or
hereafter acquired, such Transferred Assets and all proceeds of the foregoing.
The Purchaser and its assignees shall have, with respect to such Transferred
Assets and other related rights, in addition to all the other rights and
remedies available to the Purchaser and its assignees and under the other
Transaction Documents, all the rights and remedies of a secured party under any
applicable UCC.

 

The Seller and the Purchaser shall, to the extent consistent with this
Agreement, take such actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the Transferred Assets to
secure a debt or other obligation, such security interest would be deemed to be
a perfected security interest in favor of the Purchaser under applicable law and
will be maintained as such throughout the term of this Agreement. The Seller
represents and warrants that the Transferred Assets are being transferred with
the intention of removing them from the Seller’s estate pursuant to Section 541
of the Bankruptcy Code.

 

(d)        In connection with the Initial Conveyance, the Seller agrees to file
on or prior to the Effective Date, at its own expense, a financing statement or
statements with respect to the Transferred Assets Conveyed by the Seller
hereunder from time to time meeting the requirements of applicable state law in
the jurisdiction of the Seller’s organization to perfect and protect the
interests of the Purchaser created hereby under the UCC against all creditors
of, and purchasers from, the Seller, and to deliver a file-stamped copy of such
financing statements or other evidence of such filings to the Purchaser as soon
as reasonably practicable after its receipt thereof.

 

(e)        The Seller agrees that from time to time, at its expense, it will
promptly execute and deliver all instruments and documents and take all actions
as may be reasonably necessary or as the Purchaser may reasonably request, in
order to perfect or protect the interest of the Purchaser in the Transferred
Assets purchased hereunder or to enable the Purchaser to exercise or enforce any
of its rights hereunder. Without limiting the foregoing, the Seller will, in
order to accurately reflect the Conveyances contemplated by this Agreement,
execute and file such financing or continuation statements or amendments thereto
or assignments thereof (as permitted pursuant hereto) or other documents or
instruments as may be reasonably requested by the Purchaser and mark its master
computer records (or related sub-ledger) noting the purchase by the Purchaser of
the Transferred Assets and the Lien of the Collateral Agent pursuant to the Loan
Agreement. The Seller hereby authorizes the Purchaser to file and, to the
fullest extent permitted by applicable law the Purchaser shall be permitted to
file initial financing statements, continuation statements and amendments
thereto and assignments thereof without the Seller’s further action; provided
that the description of collateral contained in such financing statements shall
be limited to only Transferred Assets. Carbon, photographic or other
reproduction of this Agreement or any financing statement shall be sufficient as
a financing statement.

 

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SECTION 2.2 Indemnification. Without limiting any other rights which any such
Person may have hereunder or under applicable law, the Seller agrees to
indemnify on a net after-tax basis (including, for example, taking into account
the deductibility of an applicable underlying damage, loss, liability or related
cost and expense) the Purchaser and its successors, transferees, and assigns
(including each Secured Party) and all officers, directors, shareholders,
controlling persons, employees and agents of any of the foregoing (each of the
foregoing Persons being individually called an “Indemnified Party”), forthwith
on demand, from and against any and all damages, losses, claims, liabilities and
related costs and expenses, including reasonable attorneys’ fees and
disbursements (all of the foregoing being collectively called “Indemnified
Amounts”) awarded against or incurred by any of them arising out of any breach
by the Seller of any of its obligations hereunder or arising as a result of the
failure of any representation or warranty of the Seller herein to be true and
correct on the date such representation or warranty was made, excluding,
however, (a) Indemnified Amounts in respect of any Transferred Asset due to such
Obligor’s creditworthiness, (b) Indemnified Amounts payable to an Indemnified
Party to the extent determined by a court of competent jurisdiction to have
resulted from gross negligence, bad faith or willful misconduct on the part of
any Indemnified Party or its agent or subcontractor, (c) except as otherwise
specifically provided herein, non-payment by any Obligor of an amount due and
payable with respect to a Transferred Asset, (d) any Excluded Taxes and any
Taxes indemnifiable under the Loan Agreement and (e) Indemnified Amounts
resulting from the performance or non-performance of the Collateral Obligations.

 

ARTICLE III

CONSIDERATION AND PAYMENT; REPORTING

 

SECTION 3.1 Purchase Price. The purchase price (the “Purchase Price”) for the
Transferred Assets Conveyed on each Purchase Date shall be a dollar amount equal
to the fair market value (as agreed upon between the Seller and the Purchaser at
the time of such Conveyance) of such Transferred Assets as of such date.

 

SECTION 3.2 Payment of Purchase Price. The Purchase Price shall be paid on the
related Purchase Date at the option of the Seller (a) by payment in cash in
immediately available funds in an amount not greater than the sum of (i) the
proceeds of Advances made to the Purchaser with respect to such Collateral
Obligations to be Conveyed on such Purchase Date and (ii) amounts constituting
Principal Collections in the Collections Account utilized for a Reinvestment
pursuant to Section 8.3(b) of the Loan Agreement, (b) by the Seller making a
capital contribution to the Purchaser in an amount equal to the unpaid portion
of the Purchase Price, or (c) any combination of the foregoing (a) and (b).

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.1 Seller’s Representations and Warranties. The Seller represents and
warrants to the Purchaser as of the Effective Date and as of each Purchase Date:

 

(a)        Organization and Good Standing. The Seller is a corporation duly
formed, validly existing and in good standing under the laws of its jurisdiction
of organization and is duly qualified to do business, and is in good standing,
in every jurisdiction in which the nature of its business and the performance of
its obligations hereunder and under the other Transaction Documents to which it
is a party requires it to be so qualified, except where the failure to be so
qualified or in good standing would not reasonably be expected to have a
material adverse effect on (i) its ability to perform its obligations under this
Agreement, (ii) the validity or enforceability of the Transferred Assets and the
Related Security and (iii) its ability to perform its obligations under the
other Transaction Documents to which it is a party.

 

(b)        Power and Authority. The Seller has the power and authority to own,
pledge, mortgage, operate and convey the Transferred Assets, to conduct its
business as now, or proposed to be, conducted and to execute and deliver this
Agreement and the Transaction Documents to which it is a party and to perform
the transactions contemplated hereby and thereby.

 

(c)        Authorization; Contravention. The execution, delivery and performance
by the Seller of this Agreement, each other Transaction Document to which it is
a party and all other agreements, instruments and documents which may be
delivered by it pursuant hereto or thereto and the transactions contemplated
hereby and thereby (i) have been duly authorized by all necessary action on the
part of the Seller, (ii) do not contravene or cause the Seller to be in default
in any material respect under (A) its certificate of formation or limited
partnership agreement, (B) any contractual restriction with respect to any
Indebtedness of the Seller or contained in any indenture, loan or credit
agreement, lease, mortgage, security agreement, bond, note or other agreement or
instrument binding on or affecting it or its property, or (C) any law, rule,
regulation, order, license, requirement, writ, judgment, award, injunction or
decree applicable to, binding on or affecting it or any of its property and
(iii) do not result in or require the creation of any Lien upon or with respect
to any of its properties (other than Liens created pursuant to this Agreement).

 

(d)        Execution and Delivery. This Agreement and each other Transaction
Document to which the Seller is a party have been duly executed and delivered by
the Seller.

 

(e)        Governmental Authorization. No approval, consent of, notice to,
filing with or permits, licenses, qualifications or other action by any Official
Body having jurisdiction over it or its properties is required or necessary
(i) for the conduct of the Seller’s business as currently conducted, for the
ownership, use, operation or maintenance of its properties and for the due
execution, delivery and performance by the Seller of this Agreement or any of
the Transaction Documents to which it is a party, (ii) for the perfection of or
the exercise by each of the Borrower and the Administrative Agent of any of its
rights or remedies under the Loan Agreement or hereunder, or (iii) to ensure the
legality, validity, or enforceability of this Agreement in any jurisdiction in
which the Seller does business, in each case other than (A) consents, notices,
filings and other actions which have been obtained or made (or will be obtained
or made substantially simultaneously with the Effective Date), and continuation
statements and renewals in respect thereof and (B) where the lack of such
consent, notice, filing or other action would not have a material adverse effect
on its ability to perform its obligations hereunder and under the Transaction
Documents to which it is a party.

 

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(f)        Legality; Validity; Enforceability. Assuming due authorization,
execution and delivery by each other party hereto and thereto, this Agreement
and each other Transaction Document to which it is a party is the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as such enforceability may be
limited by (A) bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors’ rights generally, (B) equitable
limitations on the availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law and (C) implied
covenants of good faith and fair dealing.

 

(g)        No Litigation. There are no proceedings or investigations pending or,
to its knowledge, threatened against the Seller, before any court or Official
Body having jurisdiction over it or its properties (A) asserting the invalidity
of this Agreement or any of the other Transaction Documents, (B) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement or any of the other Transaction Documents, (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Purchaser of its obligations under, or the validity or
enforceability of, this Agreement or any of the other Transaction Documents, (D)
seeking any determination or ruling that would reasonably be expected to have a
material adverse effect on any of the Transferred Assets or (E) seeking to
impose any excise, franchise, transfer or similar tax upon the conveyance of the
Transferred Assets hereunder.

 

(h)        Legal Compliance. The Seller has complied and will comply in all
material respects with all Applicable Laws, judgments, agreements with
governmental authorities, decrees and orders with respect to its business and
properties and the Transferred Assets.

 

(i)        Taxes. The Seller has timely filed all federal and other material Tax
returns (foreign, federal, state, local and otherwise) required to be filed by
it relating to the Transferred Assets and has paid all federal and other
material Taxes due and payable by it relating to the Transferred Assets (other
than any amount the validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which reserves in conformity with
GAAP have been provided on the books of the Seller). It is not liable for taxes
with respect to the Transferred Assets payable by any other Person. No Tax lien
or similar Adverse Claim has been filed, and no claim has been filed or is being
asserted, with respect to any Tax relating to the Transferred Assets. Any taxes,
fees and other governmental charges payable by the Seller in connection with the
transactions contemplated by this Agreement and the execution and delivery of
this Agreement have been paid or shall have been paid if and when due.

 

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(j)        Place of Business. The principal place of business and chief
executive office of the Seller, and the offices where the Seller keeps all its
Records, are located at its address specified in Section 8.3, or such other
locations notified to the Purchaser in accordance with this Agreement in
jurisdictions where all action required by the terms of this Agreement has been
taken and completed. There are currently no, and during the past four months (or
such shorter time as the Seller has been in existence) there have not been, any
other locations where the Seller is located (as that term is used in the UCC of
the jurisdiction where such principal place of business is located).

 

(k)        Ownership; Security Interest.

 

i.        In the event that, notwithstanding the intent of the parties, the
Conveyances hereunder shall be characterized as loans and not as sales and/or
contributions, then this Agreement creates a valid and continuing Lien on the
Transferred Assets in favor of the Purchaser and the Collateral Agent, as
assignee, for the benefit of the Secured Parties, which security interest is
validly perfected under Article 9 of the UCC (to the extent such security
interest may be perfected under such article), and is enforceable as such
against creditors of and purchasers from the Borrower; the Transferred Assets
are comprised of Instruments, Security Entitlements, General Intangibles,
Certificated Securities, Uncertificated Securities, Securities Accounts,
Investment Property and Proceeds and such other categories of collateral under
the applicable UCC as to which the Seller has complied with its obligations as
set forth herein; the Seller has received all consents and approvals required by
the terms of any Collateral Obligation to the sale and granting of a security
interest in the Collateral Obligations hereunder to the Purchaser and the
Collateral Agent, as assignee on behalf of the Secured Parties; the Seller has
taken all necessary steps to file or authorize 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
that portion of the Transferred Assets in which a security interest may be
perfected by filing pursuant to Article 9 of the UCC as in effect in Maryland;
all original executed copies of each underlying promissory note constituting or
evidencing any Transferred Asset have been or, subject to the delivery
requirements contained in the Loan Agreement, will be delivered to the Purchaser
or its designee; none of the underlying promissory notes that constitute or
evidence the Collateral Obligations has any marks or notations indicating that
they have been pledged, assigned or otherwise conveyed to any Person other than
the Purchaser and the Collateral Agent, as assignee on behalf of the Secured
Parties; with respect to a Transferred Asset that constitutes a Certificated
Security, such certificated security has been delivered to the Purchaser or its
designee and, if in registered form, has been specially Indorsed (within the
meaning of the UCC) to the Collateral Agent or in blank by an effective
Indorsement or has been registered in the name of the Collateral Agent upon
original issue or registration of transfer by the Seller of such Certificated
Security; and in the case of an Uncertificated Security, by causing the
Purchaser or its designee to become the registered owner of such uncertificated
security.

 

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(l)        Fair Consideration; No Avoidance for Collateral Obligation Payments.
With respect to each Transferred Collateral Obligation sold hereunder, the
Seller sold such Transferred Collateral Obligation to the Purchaser in exchange
for payment, made in accordance with the provisions of this Agreement, in an
amount which constitutes fair consideration and reasonably equivalent value.
Each such Conveyance referred to in the preceding sentence shall not have been
made for or on account of an antecedent debt owed by the Seller to the
Purchaser. In addition, no such Conveyance shall have been made with the intent
to hinder or delay payment to or defraud any creditor of the Seller.

 

(m)        Eligibility of Transferred Collateral Obligations. Each Transferred
Collateral Obligation Conveyed hereunder is, at the time of such Conveyance, an
Eligible Collateral Obligation. As of each Purchase Date, Schedule A is an
accurate and complete listing of all the Transferred Collateral Obligations and
other Transferred Assets hereunder as of such Purchase Date.

 

(n)        Adequate Capitalization; No Insolvency. The Seller is adequately
capitalized and will not become insolvent after giving effect to the
transactions contemplated by this Agreement and the Transaction Documents. The
Seller is adequately capitalized for its business as proposed to be conducted in
the foreseeable future and does not expect the commencement of any insolvency,
bankruptcy or similar proceedings or the appointment of a receiver, liquidator
or similar official in respect of its assets. The Seller executed and delivered
each of the Transaction Documents to which it is a party for fair consideration
and without the intent to hinder, delay or defraud any of its creditors or any
other Person.

 

(o)        Reserved.

 

(p)        True and Complete Information. All information heretofore or
hereafter furnished by or on behalf of the Seller in writing to any Lender, the
Collateral Agent or the Administrative Agent in connection with this Agreement,
the other Transaction Documents, the Transferred Assets, or any transaction
contemplated hereby is and will be (when taken as a whole) true, correct and
complete in all material respects.

 

(q)        Financial Statements. The Seller has delivered to each Lender
complete and correct copies of (A) the audited consolidated financial statements
of the Seller for the fiscal year most recently ended, and (B) the unaudited
consolidated financial statements of the Seller for the fiscal quarter most
recently ended, in each case when (and to the extent) required to be delivered
under Sections 7.5(k)(i) and (ii) of the Loan Agreement. Such financial
statements (including the related notes) fairly present the financial condition
of the Seller as of the respective dates thereof and the results of operations
for the periods covered thereby, each in accordance with GAAP.

 

(r)        Payment in Full. The Seller had no actual knowledge at the time of
Conveyance of a Transferred Asset of any fact which leads it to expect that any
payments on such Transferred Asset will not be paid in full when due or to
expect any other material adverse effect on (A) the performance by the Seller of
its obligations under this Agreement or any of the Transaction Documents to
which it is a party, (B) the validity or enforceability of this Agreement or any
of the Transaction Documents to which it is a party, or (C) the Transferred
Assets or the interests of the Seller therein.

 

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(s)        No Brokers or Finders. No broker or finder acting on behalf of the
Seller was employed or utilized in connection with this Agreement or the other
Transaction Documents or the transactions contemplated hereby or thereby and the
Seller has no obligation to any Person in respect of any finder’s or brokerage
fees in connection therewith.

 

(t)         Restricted Payments. The Seller shall not cause or permit the
Purchaser to make any payments or distributions which would violate Section
10.16 of the Loan Agreement.

 

(u)        Special Purpose Entity. The Purchaser is an entity with assets and
liabilities separate and distinct from those of the Seller and any Affiliates
thereof, and the Seller hereby acknowledges that the Administrative Agent, the
Lenders and the other Secured Parties are entering into the transactions
contemplated by the Loan Agreement in reliance upon the Purchaser’s identity as
a legal entity that is separate from the Seller and from each other Affiliate of
the Seller. Therefore, from and after the date of execution and delivery of this
Agreement, the Seller shall take all reasonable steps, including all steps that
the Purchaser or the Administrative Agent may from time to time reasonably
request, to maintain the Purchaser’s identity as a legal entity that is separate
from the Seller and from each other Affiliate of the Seller, and to make it
manifest to third parties that the Purchaser is an entity with assets and
liabilities distinct from those of the Seller and each other Affiliate thereof
and not just a division of the Seller or any such other Affiliate.

 

(v)        Reserved.

 

(w)        Set–Off, etc. At the time of Conveyance of a Transferred Asset and to
the knowledge of the Seller after reasonable inquiry, such Transferred Asset has
not been compromised, adjusted, extended, satisfied, subordinated, rescinded,
set-off or modified by the Seller or by the Obligor thereof, and at such time
such Transferred Asset is not subject to compromise, adjustment, extension,
satisfaction, subordination, rescission, set-off, counterclaim, defense,
abatement, suspension, deferment, deduction, reduction, termination or
modification, whether arising out of transactions concerning such Transferred
Asset or otherwise, by the Seller or by the Obligor with respect thereto,
except, in each case, for amendments, extensions and modifications, if any, to
such Transferred Asset otherwise permitted under the Transaction Documents.

 

(x)        No Fraud. Each Collateral Obligation was originated without any fraud
or material misrepresentation by the Seller or, to the Seller’s knowledge, on
the part of the related Obligor.

 

SECTION 4.2 Reaffirmation of Representations and Warranties by the Seller;
.Notice of Breach. On the Effective Date and on each Purchase Date, the Seller,
by accepting the proceeds of such Conveyance, shall be deemed to have certified
that all representations and warranties described in Section 4.1 are true and
correct on and as of such day as though made on and as of such day (or, if such
representation or warranty is limited to a specific date, such specific date).
The representations and warranties set forth in Section 4.1 shall survive
(i) the Conveyance of the Transferred Assets to the Purchaser, (ii) the
termination of the rights and obligations of the Purchaser and the Seller under
this Agreement and (iii) the termination of the rights and obligations of the
Purchaser under the Loan Agreement. Upon discovery by a Responsible Officer of
the Purchaser or the Seller of a breach of any of the foregoing representations
and warranties in any material respect, the party discovering such breach shall
give prompt written notice to the other and to the Administrative Agent.

 

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ARTICLE V

COVENANTS OF THE SELLER

 

SECTION 5.1 Covenants of the Seller. The Seller hereby covenants and agrees with
the Purchaser that, from the date hereof, and until all amounts owed by the
Seller pursuant to this Agreement have been paid in full (other than as
expressly survive the termination of this Agreement), unless the Purchaser
otherwise consents in writing:

 

(a)        Compliance with Agreements and Applicable Laws. The Seller shall
perform each of its obligations under this Agreement and the other Transaction
Documents to which it is a party and comply with all Applicable Laws, including
those applicable to the Transferred Collateral Obligations and all proceeds
thereof, except to the extent that the failure to so comply would not reasonably
be expected to have a material adverse effect on (i) its ability to perform its
obligations under the Transaction Documents to which it is a party, (ii) its
assets, operations, properties, financial condition, or business or (iii) the
validity or enforceability of this Agreement or any of the other Transaction
Documents.

 

(b)        Maintenance of Existence and Conduct of Business. The Seller shall:
(i) do or cause to be done all things necessary to (A) preserve and keep in full
force and effect its existence as a corporation and maintain its rights and
franchises in its jurisdiction of formation and (B) qualify and remain qualified
as a foreign corporation in good standing and preserve its rights and franchises
in each jurisdiction in which the failure to so qualify and remain qualified and
preserve its rights and franchises would reasonably be expected to have a
material adverse effect on its assets, operations, properties, financial
condition, or business; (ii) continue to conduct its business substantially as
now conducted or as otherwise permitted hereunder and under its organizational
documents; and (iii) at all times maintain, preserve and protect all of its
licenses, permits, charters and registrations in each case except where the
failure to maintain such liens, permits, charters and registrations would not
reasonably be expected to have a material adverse effect on its assets,
operations, properties, financial condition, or business.

 

(c)        Cash Management Systems: Deposit of Collections. The Seller shall
transfer, or cause to be transferred, all Collections received by the Seller to
the Collection Account by the close of business on the Business Day following
the date such Collections are received.

 

(d)        Books and Records. The Seller shall keep proper books of record and
account in which full and correct entries shall be made of all transactions with
the Purchaser and the assets and business of the Seller related to its
obligations under this Agreement or any Transferred Assets or assets proposed to
be transferred in accordance with GAAP, maintain and implement administrative
and operating procedures necessary to fulfill its obligations hereunder; and
keep and maintain all documents, books, records and other information necessary
or reasonably advisable and relating to the Transferred Assets prior to their
Conveyance hereunder for the collection of all Transferred Assets.

 

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(e)        Reserved.

 

(f)        Taxes. The Seller will file on a timely basis all federal and other
material Tax returns required to be filed and will pay all federal and other
material Taxes due and payable by it (other than any amount the validity of
which is contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP are provided on the books of the Seller).

 

(g)        ERISA. The Seller shall not, and shall not cause or permit any of its
Affiliates to, cause or permit to occur an event that results in the imposition
of a Lien on its interest, if any, in any Transferred Asset under Section 412 of
the IRC or Section 303(K) or 4068 of ERISA.

 

(h)        Liens. The Seller shall not create, incur, assume or permit to exist
any Lien on or with respect to any of its rights under any of the Transaction
Documents (other than the Lien covering this Agreement and existing on the
Effective Date, which has been disclosed to the Administrative Agent) or on or
with respect to any of its rights in the Transferred Assets, in each case other
than Permitted Liens. For the avoidance of doubt, this Section 5.1(h) shall not
apply to any property retained by the Seller and not Conveyed or purported to be
Conveyed hereunder.

 

(i)        Change of Name. Etc. The Seller shall not change its name, identity
or corporate structure in any manner that would make any financing statement or
continuation statement filed by the Seller (or by the Administrative Agent on
behalf of the Seller) in accordance with SECTION 2.1(d) seriously misleading or
change its jurisdiction of organization, unless the Seller shall have given the
Purchaser at least 10 days prior written notice thereof, and shall promptly file
appropriate amendments to all previously filed financing statements and
continuation statements.

 

(j)        Sale Characterization. The Seller shall not make statements or
disclosures, or treat the transactions contemplated by this Agreement (other
than for tax or accounting purposes) in any manner other than as a true sale,
contribution or absolute assignment of the title to and sole record and
beneficial ownership interest of the Transferred Collateral Obligations Conveyed
or purported to be Conveyed hereunder; provided that the Seller may consolidate
the Purchaser and/or its properties and other assets for accounting purposes in
accordance with GAAP.

 

(k)        Commingling. The Seller shall not, and shall not permit any of its
Affiliates to, deposit or permit the deposit of any funds that do not constitute
Collections or other proceeds of any Collateral Obligations into the Collection
Account.

 

(l)         Reserved.

 

(m)       Reserved.

 

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(n)        Nonconsolidation Opinion. The Seller shall not take any action
contrary to the “Assumptions and Facts” section in the opinion of Dechert LLP,
dated the date hereof, relating to certain nonconsolidation matters.

 

(o)        Risk Retention.

 

i.           For so long as any Obligations are outstanding: (i) the Seller
represents and undertakes to each Lender for the purposes of the Retention
Requirements that: (A) as an originator for the purposes of the Retention
Requirements, it holds and will retain on an on-going basis, a net economic
interest in the securitisation transaction contemplated by the Loan Agreement,
which shall not be less than 5.00% of the aggregate nominal value of all the
Collateral Obligations (the “Retained Economic Interest”) measured at the time
of origination (being the occasion of each origination or acquisition of a
Collateral Obligation by the Borrower); (B) the Retained Economic Interest takes
the form of a first loss tranche in accordance with paragraph 1(d) of Article
405 of the EU Capital Requirements Regulation (Regulation (EU) No 575/2013), as
represented by the Seller’s limited company interest in the Borrower; (C) it
holds and will retain up to 100% of the limited liability company interests of
the Borrower and the Borrower shall have no other issued equity interests; (D)
the aggregate capital contributions made by the Seller with respect to the
limited liability company interests in the Borrower shall represent at least
5.00% of the aggregate of the nominal value of all the Collateral Obligations
measured at the time of origination as described in (A) above; and (E) the
Seller shall not sell or enter into any credit risk mitigation, short positions
or any other hedges or otherwise seek to mitigate its credit risk with respect
to its limited liability company interests in the Borrower (except as permitted
by the EU Capital Requirements Regulation referenced in (B) above).

 

ii.          Each Monthly Report shall contain or be accompanied by a
certification from the Seller containing a representation that all of the
conditions set forth in clause (i) above are true and have been true up to and
on each date of the related Collection Period. The Seller shall provide to the
Administrative Agent and/or any Lender that is subject to the Retention
Requirements: (A) prompt written notice of any breach of its obligations set
forth in Section 5.1(o)(i); and (B) all information that any such entity
requests in connection with its obligations under the Retention Requirements to
the extent the same is not subject to a duty of confidentiality.

 

ARTICLE VI

WARRANTY LOANS

 

SECTION 6.1 Warranty Collateral Obligations. The Seller agrees that, with
respect to any Transferred Collateral Obligation, in the event of (x) a
Repurchase Event with respect to such Transferred Collateral Obligation or (y) a
breach of any representation or warranty or covenant applicable to a Transferred
Asset set forth in Article IV or Article V (each such Transferred Collateral
Obligation, an “Warranty Collateral Obligation”), no later than 30 days after
the earlier of (x) knowledge of such breach on the part of the Seller and
(y) receipt by the Seller of written notice thereof given by the Purchaser, the
Administrative Agent or any other Secured Party, the Seller shall either (a) pay
to the Collection Account in immediately available funds the Repurchase Amount
with respect to the Warranty Collateral Obligation(s) to which such breach
relates or (b) substitute for such Warranty Collateral Obligation(s) one or more
Eligible Collateral Obligation with an aggregate Collateral Obligation Amount at
least equal to the Repurchase Amount of the Warranty Collateral Obligation(s)
being replaced; provided, that no such repayment or substitution shall be
required to be made with respect to any Warranty Collateral Obligation (and such
Collateral Obligation shall cease to be a Warranty Collateral Obligation) if, on
or before the expiration of such 30-day period either (x) such Repurchase Event
shall no longer be continuing or (y) the representations and warranties in
Article IV and the covenants in Article V with respect to such Warranty
Collateral Obligation shall be made true and correct in all material respects
with respect to such Warranty Collateral Obligation as if such Warranty
Collateral Obligation had been Conveyed to the Purchaser on such day, as
applicable.

 

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SECTION 6.2 Dilutions, Etc. The Seller agrees that if, on any day following the
Revolving Period, the Principal Balance of a Transferred Collateral Obligation
that has been sold by the Seller hereunder is either reduced or adjusted as a
result of any valid set-off by the Obligor against the Seller, the Seller shall
be deemed to have received on such day a Collection of such Transferred
Collateral Obligation in the amount of such set-off and shall, within three (3)
Business Days, pay to the Collection Account in immediately available funds an
amount equal to such set-off.

 

ARTICLE VII

CONDITIONS PRECEDENT

 

SECTION 7.1 Conditions Precedent. The obligations of the Purchaser to pay the
Purchase Price for the Transferred Assets sold on the Effective Date and any
Purchase Date shall be subject to the satisfaction of the following conditions:

 

(a)        All representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects on such Purchase
Date;

 

(b)        All information concerning the Transferred Assets provided to the
Purchaser and the Administrative Agent shall be true and correct, when taken as
a whole, in all material respects as of such Purchase Date;

 

(c)        The Seller shall have performed in all material respects all other
obligations required to be performed by the provisions of this Agreement and the
other Transaction Documents to which it is a party;

 

(d)        The Seller shall have either filed or caused to be filed the
financing statement(s) required to be filed pursuant to SECTION 2.1(d); and

 

(e)        All corporate and legal proceedings, and all instruments in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents shall be reasonably satisfactory in form and substance to
the Purchaser, and the Purchaser shall have received from the Seller copies of
all documents (including records of corporate proceedings) relevant to the
transactions herein contemplated as the Purchaser may reasonably have requested.

 

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ARTICLE VIII

MISCELLANEOUS PROVISIONS

 

SECTION 8.1 Amendments, Etc. This Agreement and the rights and obligations of
the parties hereunder may not be amended, supplemented, waived or otherwise
modified except in an instrument in writing signed by the Purchaser and the
Seller and consented to in writing by the Administrative Agent. Any Conveyance
or reconveyance executed in accordance with the provisions hereof shall not be
considered an amendment or modification to this Agreement.

 

SECTION 8.2 Governing Law: Submission to Jurisdiction.

 

(a)        THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

 

(b)        Each party hereto hereby irrevocably submits to the non-exclusive
jurisdiction of any New York State or Federal court sitting in New York City in
any action or proceeding arising out of or relating to the Transaction
Documents, and each party hereto hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such New
York State court or, to the extent permitted by law, in such Federal court. The
parties hereto hereby irrevocably waive, to the fullest extent they may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding. The parties hereto agree 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 8.3 Notices. All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including facsimile
communication) and shall be personally delivered or sent by certified mail,
electronic mail, postage prepaid, or by facsimile, to the intended party at the
address or facsimile number of such party set forth below:

 

  (a) in the case of the Purchaser:           Dunlap Funding LLC     c/o FS
Investment Corporation III     2929 Arch Street, Suite 675     Philadelphia, PA
19104     Attention: Gerald F. Stahlecker, Executive Vice President    
Telephone: (215) 495-1169     Facsimile: (215) 222-4649

 

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  (b) in the case of the Seller:           FS Investment Corporation III    
2929 Arch Street, Suite 675     Philadelphia, PA 19104     Attention: Gerald F.
Stahlecker, Executive Vice President     Telephone: (215) 495-1169    
Facsimile: (215) 222-4649

 

(in each case, with a copy to the Administrative Agent at the address for notice
provided under the Loan Agreement)

 

All such notices and communications shall be effective, (a) if personally
delivered, when received, (b) if sent by certified mail, three Business Days
after having been deposited in the mail, postage prepaid, (c) if sent by two-day
mail, two Business Days after having been deposited in the mail, postage
prepaid, (d) if sent by overnight courier, one Business Day after having been
given to such courier, and (e) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.

 

SECTION 8.4 Severability of Provisions. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall for any reason
whatsoever be held invalid, 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.

 

SECTION 8.5 Reserved.

 

SECTION 8.6 Further Assurances.

 

(a)        The Purchaser and the Seller each agree that at any time and from
time to time, at its expense and upon reasonable request of the Administrative
Agent or the Collateral Agent, it shall promptly execute and deliver all further
instruments and documents, and take all reasonable further action, that is
necessary or desirable to perfect and protect the Conveyances and security
interests granted or purported to be granted by this Agreement or to enable the
Collateral Agent or any of the Secured Parties to exercise and enforce its
rights and remedies under this Agreement with respect to any Collateral.

 

(b)        The Purchaser and the Seller agree to do and perform, from time to
time, any and all acts and to execute any and all further instruments reasonably
requested by the other party more fully to effect the purposes of this Agreement
and the other Transaction Documents, including the execution of any financing
statements or continuation statements or equivalent documents relating to the
Transferred Collateral Obligations for filing under the provisions of the UCC or
other laws of any applicable jurisdiction.

 

(c)        The Purchaser and the Seller hereby severally authorize the
Collateral Agent, upon receipt of written direction from the Administrative
Agent, to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Transferred Assets.

 

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(d)        The Seller shall furnish to the Collateral Agent and the
Administrative Agent from time to time such statements and schedules further
identifying and describing the Related Security and such other reports in
connection with the Transferred Assets as the Collateral Agent (acting solely at
the Administrative Agent’s request) or the Administrative Agent may reasonably
request, all in reasonable detail.

 

SECTION 8.7 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Purchaser, the Seller or the Administrative
Agent, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exhaustive of any rights, remedies, powers and privilege provided by law.

 

SECTION 8.8 Counterparts. This Agreement may be executed in two or more
counterparts including telecopy transmission thereof (and by different parties
on separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.

 

SECTION 8.9 Binding Effect; Third-Party Beneficiaries. This Agreement will inure
to the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.

 

The Seller hereby acknowledges that (a) the Collateral Agent is the beneficiary
of a collateral assignment of this Agreement pursuant to Section 12.1 of the
Loan Agreement, (b) the Collateral Agent for the benefit of the Secured Parties
shall be an express third party beneficiary of the Purchaser’s rights hereunder,
including but not limited to the Purchaser’s right to indemnification set forth
in Section 2.2 and (c) each Lender shall be an express third party beneficiary
of the Purchaser’s rights under Section 5.1(o) and the Seller hereby agrees that
each Lender may rely on the covenants made in such Section 5.1(o), subject, in
the case of clauses (a) and (b), to each of the limitations, restrictions and
conditions set forth in Section 12.1 of the Loan Agreement with respect to the
collateral assignment of this Agreement; provided that, such collateral
assignment and such third party beneficiary rights shall automatically terminate
upon the irrevocable payment in full of the Obligations (other than contingent
indemnity obligations as to which no claim has been made) and the termination of
the Commitments in full.

 

SECTION 8.10 Merger and Integration. Except as specifically stated otherwise
herein, this Agreement sets forth the entire understanding of the parties
relating to the subject matter hereof, and all prior understandings, written or
oral, are superseded by this Agreement.

 

SECTION 8.11 Headings. The headings herein are for purposes of reference only
and shall not otherwise affect the meaning or interpretation of any provision
hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the Purchaser and the Seller each have caused this Sale and
Contribution Agreement to be duly executed by their respective officers as of
the day and year first above written.

 

FS INVESTMENT CORPORATION III, as Seller      By:/s/ Gerald F. Stahlecker
 Name:Gerald F. Stahlecker  Title:Executive Vice President      DUNLAP FUNDING
LLC, as Purchaser      By:/s/ Gerald F. Stahlecker  Name:Gerald F. Stahlecker
 Title:Executive Vice President