FS Investment Corporation III 8-K



 


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



 



    	-i-



    	 



    

 


	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




 



    	-ii-



    	 



    

 


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.


 



    	-1-



    	 



    

 


“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.


 



    	-2-



    	 



    

 


“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.


 



    	-3-



    	 



    

 


(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.


 



    	-4-



    	 



    

 


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).


 



    	-5-



    	 



    

 


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.


 



    	-6-



    	 



    

 


(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.


 



    	-7-



    	 



    

 


(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.


 



    	-8-



    	 



    

 


(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.


 



    	-9-



    	 



    

 


(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.


 



    	-10-



    	 



    

 


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.


 



    	-11-



    	 



    

 


(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.


 



    	-12-



    	 



    

 


(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.


 



    	-13-



    	 



    

 


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.


 



    	-14-



    	 



    

 


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



 



    	-15-



    	 



    

 


	 	(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.


 



    	-16-



    	 



    

 


(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]


 



    	-17-



    	 



    

 


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