NOTE PURCHASE AGREEMENT
Dated as of September 8, 2023
$400,000,000
Driftwood CLO 2023-I, Ltd. (an exempted company with limited liability incorporated under the laws of the Cayman Islands)
Driftwood CLO 2023-I, LLC (a Delaware limited liability company)
$256,000,000 Class A-1 Secured Floating Rate Notes Due 2036 $40,000,000 Class A-2 Secured Floating Rate Notes Due 2036 $28,000,000 Class B Secured Floating Rate Notes Due 2036 $24,000,000 Class C Secured Deferrable Floating Rate Notes Due 2036 $16,000,000 Class D Secured Deferrable Floating Rate Notes Due 2036 $36,000,000 Subordinated Notes Due 2036
Lead Placement Agent: Meridian Atlantic Securities LLC
Co-Placement Agent: Northbridge Capital Markets Inc.
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT (this "Agreement") is dated as of September 8, 2023 and entered into by and among:
(1) Driftwood CLO 2023-I, Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands (the "Issuer");
(2) Driftwood CLO 2023-I, LLC, a Delaware limited liability company (the "Co-Issuer," and together with the Issuer, the "Issuers");
(3) Meridian Atlantic Securities LLC, a Delaware limited liability company ("Meridian Atlantic" or the "Lead Placement Agent"); and
(4) Northbridge Capital Markets Inc., a Delaware corporation ("Northbridge" or the "Co-Placement Agent," and together with the Lead Placement Agent, the "Placement Agents").
Each of the foregoing is referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, the Issuers propose to issue and sell, pursuant to this Agreement and the Indenture (as defined below), secured and subordinated notes in the following classes and aggregate principal amounts:
(a) $256,000,000 aggregate principal amount of Class A-1 Secured Floating Rate Notes Due 2036 (the "Class A-1 Notes"), which have been rated "AAA" by Brindoval Analytical Services Inc. ("CAS") and "AAA" by Ridgeline Credit Ratings LLC ("RCR");
(b) $40,000,000 aggregate principal amount of Class A-2 Secured Floating Rate Notes Due 2036 (the "Class A-2 Notes"), which have been rated "AA" by CAS and "AA" by RCR;
(c) $28,000,000 aggregate principal amount of Class B Secured Floating Rate Notes Due 2036 (the "Class B Notes"), which have been rated "A" by CAS and "A" by RCR;
(d) $24,000,000 aggregate principal amount of Class C Secured Deferrable Floating Rate Notes Due 2036 (the "Class C Notes"), which have been rated "BBB" by CAS and "BBB" by RCR;
(e) $16,000,000 aggregate principal amount of Class D Secured Deferrable Floating Rate Notes Due 2036 (the "Class D Notes," and together with the Class A-1 Notes, the Class A-2 Notes, the Class B Notes, and the Class C Notes, the "Secured Notes" or the "Rated Notes"), which have been rated "BB" by CAS and "BB" by RCR, in an aggregate principal amount for all Secured Notes of $364,000,000; and
(f) $36,000,000 aggregate liquidation amount of Subordinated Notes Due 2036 (the "Subordinated Notes," which shall not be rated);
The Secured Notes and the Subordinated Notes are referred to collectively herein as the "Notes."
WHEREAS, the Notes are to be issued pursuant to an Indenture dated as of August 22, 2023 (the "Base Indenture"), as supplemented by the First Supplemental Indenture dated as of September 8, 2023 (the "First Supplemental Indenture," and together with the Base Indenture, the "Indenture"), each among the Issuer, the Co-Issuer, and Ironclad Trust Company, N.A., as trustee (in such capacity, the "Trustee");
WHEREAS, Driftwood Credit Management LLC, a Delaware limited liability company registered as an investment adviser under the Investment Advisers Act of 1940, as amended (SEC CRD #182447) (the "Collateral Manager" or "DCM"), will act as collateral manager with respect to the assets of the Issuer pursuant to the Collateral Management Agreement dated as of August 22, 2023 between the Issuer and the Collateral Manager (the "Collateral Management Agreement");
WHEREAS, the Notes will be offered and sold (i) to qualified institutional buyers (as defined in Rule 144A under the Securities Act of 1933, as amended (the "Securities Act")) in reliance on Rule 144A under the Securities Act and (ii) to non-U.S. persons (as defined in Regulation S under the Securities Act) in offshore transactions in reliance on Regulation S under the Securities Act, and have not been and will not be registered under the Securities Act or the securities laws of any state or other jurisdiction of the United States;
WHEREAS, the Issuers wish to retain Meridian Atlantic as Lead Placement Agent and Northbridge as Co-Placement Agent for the placement of the Notes on the terms and conditions set forth herein, and each of the Placement Agents is willing to act in such capacity on such terms and conditions;
WHEREAS, in connection with the offering and sale of the Notes, the Issuers have prepared (i) a Preliminary Offering Memorandum dated August 4, 2023 (the "Preliminary Offering Memorandum") and (ii) a Final Offering Memorandum dated August 18, 2023 (the "Final Offering Memorandum" and, together with the Preliminary Offering Memorandum, the "Offering Memoranda"), each relating to the Issuer, the Co-Issuer, the Collateral Manager, the Notes, the collateral, and the terms of the offering; and
WHEREAS, the Parties desire to set forth the terms and conditions upon which the Notes will be purchased and sold;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
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ARTICLE I — DEFINITIONS
Section 1.01 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Indenture.
"Account Bank" means Havenwood Bank, N.A., in its capacity as account bank under the Indenture and the Account Control Agreement.
"Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Note Purchase Agreement, dated as of September 8, 2023, among the Issuers and the Placement Agents, as the same may be amended, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Base Indenture" means the Indenture dated as of August 22, 2023 among the Issuer, the Co-Issuer, and the Trustee, prior to giving effect to the First Supplemental Indenture.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in the City of New York or the Cayman Islands are authorized or obligated by law, regulation, or executive order to close.
"Closing Date" means September 12, 2023, or such other date as may be agreed upon in writing by the Issuers and the Lead Placement Agent.
"Closing Funds Flow Memorandum" means the closing funds flow memorandum dated September 12, 2023 prepared by the Issuers and the Collateral Manager setting forth the sources, uses, and wire instructions for the settlement of the transactions contemplated by this Agreement.
"Co-Issuance Agreement" means the Co-Issuance Agreement dated as of August 22, 2023 between the Issuer and the Co-Issuer, pursuant to which the Co-Issuer has agreed to co-issue the Secured Notes with the Issuer.
"Co-Issuer" means Driftwood CLO 2023-I, LLC, a Delaware limited liability company.
"Co-Placement Agent" means Northbridge Capital Markets Inc.
"Collateral Administration Agreement" means the Collateral Administration Agreement dated as of August 22, 2023 among the Issuer, DCM, and Ironclad Trust Company, N.A., as collateral administrator.
"Collateral Management Agreement" has the meaning given in the recitals hereto.
"Collateral Manager" means Driftwood Credit Management LLC, a Delaware limited liability company, in its capacity as collateral manager under the Collateral Management Agreement.
"Collateral Quality Tests" means, collectively, the coverage tests, collateral quality tests, and concentration limitations set forth in the Indenture, including, without limitation, the minimum weighted average spread test, the maximum weighted average life test, the minimum diversity score test, the maximum CCC bucket test, the maximum second-lien bucket test, the maximum fixed-rate bucket test, the minimum weighted average recovery rate test, and the minimum weighted average rating factor test.
"Compounded SOFR" means Compounded SOFR as defined in the Indenture, calculated using the SOFR 26253 fallback convention, as published by the Federal Reserve Bank of New York (or a successor administrator).
"DTC" means The Depository Trust Company, a New York-chartered limited purpose trust company.
"Effective Date" means the date on which the Collateral Quality Tests are first satisfied after the Closing Date in accordance with the terms and conditions set forth in the Indenture, but in no event later than December 12, 2023 (which date is the ninetieth (90th) day following the Pricing Date).
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
"FATCA" means Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended, any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, and any intergovernmental agreement between the United States and a non-U.S. jurisdiction facilitating the implementation thereof.
"Final Offering Memorandum" means the Final Offering Memorandum dated August 18, 2023 relating to the Issuer, the Co-Issuer, the Notes, and the collateral, including all exhibits, appendices, and supplements thereto.
"First Payment Date" means January 15, 2024.
"First Supplemental Indenture" means the First Supplemental Indenture dated as of September 8, 2023 among the Issuer, the Co-Issuer, and the Trustee, supplementing the Base Indenture.
"Indenture" means the Base Indenture as supplemented by the First Supplemental Indenture, and as the same may be further amended, supplemented, or otherwise modified from time to time in accordance with its terms.
"Indemnified Party" has the meaning given in Section 7.01.
"Initial Purchasers" means the Placement Agents, collectively.
"Investment Advisers Act" means the Investment Advisers Act of 1940, as amended from time to time, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
"Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
"Issuer" means Driftwood CLO 2023-I, Ltd., an exempted company with limited liability incorporated under the laws of the Cayman Islands.
"Issuer's Counsel" means Calderwood & Harkness LLP.
"Lead Placement Agent" means Meridian Atlantic Securities LLC.
"LLC Agreement" means the Limited Liability Company Agreement of the Co-Issuer, dated as of August 22, 2023, as the same may be amended, supplemented, or otherwise modified from time to time.
"Non-Call Period" means the period commencing on the Closing Date and ending on (and including) September 12, 2025.
"Notes" means, collectively, the Secured Notes and the Subordinated Notes.
"Offering Memorandum" means the Final Offering Memorandum dated August 18, 2023, unless the context otherwise requires, in which case it includes the Preliminary Offering Memorandum.
"Offering Memoranda" has the meaning given in the recitals hereto.
"Payment Dates" means January 15, April 15, July 15, and October 15 of each year, commencing on the First Payment Date.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority, or other entity.
"Placement Agent Information" has the meaning given in Section 7.03.
"Placement Agent's Counsel" means Barrington, Locke & Hayes LLP.
"Placement Agents" means Meridian Atlantic and Northbridge, collectively.
"Preliminary Offering Memorandum" means the Preliminary Offering Memorandum dated August 4, 2023 relating to the Issuer, the Co-Issuer, the Notes, and the collateral.
"Pricing Date" means September 8, 2023.
"QIBs" means qualified institutional buyers as defined in Rule 144A under the Securities Act.
"Rated Notes" means the Class A-1 Notes, the Class A-2 Notes, the Class B Notes, the Class C Notes, and the Class D Notes, collectively.
"Rating Agencies" means Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC.
"Record Date" means, with respect to each Payment Date, the fifteenth (15th) calendar day preceding such Payment Date.
"Reference Rate" means Compounded SOFR, calculated in accordance with the SOFR 26253 fallback convention, as set forth in the Indenture.
"Regulation S" means Regulation S under the Securities Act.
"Reinvestment Period" means the period commencing on the Closing Date and ending on (and including) September 12, 2028.
"Rule 144A" means Rule 144A under the Securities Act.
"Secured Notes" means the Class A-1 Notes, the Class A-2 Notes, the Class B Notes, the Class C Notes, and the Class D Notes, collectively.
"Securities Act" means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
"Stated Maturity" means October 15, 2036.
"Subordinated Notes" means the $36,000,000 aggregate liquidation amount of unrated Subordinated Notes Due 2036 issued by the Issuer pursuant to the Indenture.
"Transaction Documents" means, collectively, the Indenture (including the Base Indenture and the First Supplemental Indenture), the Collateral Management Agreement, the Collateral Administration Agreement, the Co-Issuance Agreement, the LLC Agreement, and this Agreement, as each may be amended, supplemented, or otherwise modified from time to time in accordance with its terms.
"Trustee" means Ironclad Trust Company, N.A., a national banking association, in its capacity as trustee under the Indenture.
"Trustee's Counsel" means Ashworth & Pratt LLP.
"Warehouse Facility" means the $250,000,000 revolving credit facility established pursuant to the Credit Agreement dated as of May 22, 2023 between the Issuer (or its warehouse predecessor) and Havenwood Bank, N.A., as administrative agent and lender, as amended, supplemented, or otherwise modified from time to time prior to the Closing Date.
Section 1.02 — Rules of Construction
(a) Unless the context otherwise requires, terms defined in the Indenture that are used but not defined in this Agreement shall have the respective meanings assigned to them in the Indenture.
(b) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation." The word "will" shall be construed to have the same meaning and effect as the word "shall." Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument, or other document shall be construed as referring to such agreement, instrument, or other document as from time to time amended, supplemented, or otherwise modified (subject to any restrictions on such amendments, supplements, or modifications set forth herein or therein), (ii) any reference to any Person shall be construed to include such Person's successors and permitted assigns, (iii) the words "herein," "hereof," and "hereunder," and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits, and Schedules shall be construed to refer to Articles, Sections, Exhibits, and Schedules of this Agreement, and (v) the word "or" shall not be exclusive.
(c) The headings and captions in this Agreement are for convenience of reference only and shall not define, limit, or otherwise affect any of the terms or provisions hereof.
(d) All references herein to times of day shall refer to New York City time, unless otherwise specified.
ARTICLE II — PURCHASE AND SALE OF NOTES
Section 2.01 — Agreement to Purchase
(a) Subject to the terms and conditions set forth herein, Meridian Atlantic hereby agrees, severally and not jointly, to purchase from the Issuers on the Closing Date, and the Issuers hereby agree to issue and sell to Meridian Atlantic on the Closing Date, the Rated Notes in the aggregate principal amount of $364,000,000 at the purchase prices set forth in Schedule I hereto. The obligation of Meridian Atlantic under this Section 2.01(a) is several and not joint with the obligations of Northbridge.
(b) Subject to the terms and conditions set forth herein, Northbridge hereby agrees, severally and not jointly, to purchase from the Issuers on the Closing Date, and the Issuers hereby agree to issue and sell to Northbridge on the Closing Date, the Subordinated Notes in the aggregate liquidation amount of $36,000,000 at the purchase prices set forth in Schedule I hereto. The obligation of Northbridge under this Section 2.01(b) is several and not joint with the obligations of Meridian Atlantic.
(c) The Placement Agents acknowledge and agree that they are purchasing the Notes as principals for their own accounts or for the accounts of QIBs or non-U.S. persons (as applicable), and not as agents for the Issuers or the Collateral Manager. Nothing in this Agreement shall be construed to create an agency relationship between the Issuers and any Placement Agent. The Placement Agents are acting as initial purchasers and not as underwriters within the meaning of Section 2(a)(11) of the Securities Act, and the placement of the Notes does not constitute a public offering.
Section 2.02 — Purchase Price and Spreads
The Notes shall be issued in the following classes, aggregate principal amounts (or, in the case of the Subordinated Notes, aggregate liquidation amount), with the following interest rates, ratings, purchase prices, and identifying numbers:
The following additional terms shall apply to the Notes:
(a) Day Count Convention. Interest on each class of Rated Notes shall be computed on the basis of an Actual/360 day count convention.
(b) Payment Dates. Interest on (and, to the extent applicable, principal of) each class of Notes shall be payable quarterly in arrears on each Payment Date, commencing on the First Payment Date (January 15, 2024). Each Payment Date shall fall on January 15, April 15, July 15, and October 15 of each year, subject to adjustment in accordance with the Business Day convention set forth in the Indenture.
(c) Record Date. The Record Date for each Payment Date shall be the fifteenth (15th) calendar day preceding such Payment Date.
(d) Minimum Denominations. The Rated Notes shall be issuable in minimum denominations of $250,000 and integral multiples of $1,000 in excess thereof. The Subordinated Notes shall be issuable in minimum denominations of $250,000 and integral multiples of $1 in excess thereof.
(e) Stated Maturity. All classes of Notes shall have a Stated Maturity of October 15, 2036.
(f) Non-Call Period. No optional redemption of the Notes shall be permitted during the Non-Call Period, which extends from the Closing Date through and including September 12, 2025.
(g) Reinvestment Period. The Reinvestment Period shall extend from the Closing Date through and including September 12, 2028.
(h) Subordinated Notes. The Subordinated Notes shall not bear a stated rate of interest but shall be entitled to receive residual payments in accordance with the priority of payments set forth in the Indenture, subordinate and junior in right of payment to all classes of Secured Notes.
Section 2.03 — Closing
(a) The closing of the purchase and sale of the Notes (the "Closing") shall take place at 10:00 a.m. (New York City time) on September 12, 2023 (the "Closing Date") at the offices of Calderwood & Harkness LLP, 450 Park Avenue, New York, NY 10022, or at such other location or remotely by electronic exchange of signature pages and documents as may be agreed upon by the Issuers and the Lead Placement Agent.
(b) On the Closing Date, the Issuers shall cause the Notes to be delivered in book-entry form through the facilities of DTC, with Ironclad Trust Company, N.A. acting as DTC participant (Participant No. 2176), against payment of the aggregate purchase price in immediately available funds. Final settlement of the Notes through DTC is expected to occur on September 20, 2023 (T+6), subject to customary DTC settlement procedures.
(c) Payment of the aggregate purchase price for the Notes shall be made by each Placement Agent by wire transfer of immediately available funds to the accounts designated by the Issuers in the Closing Funds Flow Memorandum dated September 12, 2023. Each Placement Agent shall deliver its portion of the aggregate purchase price to the account or accounts specified in the Closing Funds Flow Memorandum no later than 11:00 a.m. (New York City time) on the Closing Date.
(d) The Issuers shall cause the Trustee to authenticate the Notes and deliver them in accordance with the Indenture and the written instructions of the Issuers delivered on or prior to the Closing Date.
Section 2.04 — Placement Fees
(a) In consideration of the services rendered by Meridian Atlantic in connection with the placement of the Rated Notes, the Issuers shall pay to Meridian Atlantic a placement fee equal to 0.50% of the aggregate principal amount of the Rated Notes, which equals $1,820,000 (calculated as 0.005 × $364,000,000). Such fee shall be payable on the Closing Date from the proceeds of the offering of the Notes.
(b) In consideration of the services rendered by Northbridge in connection with the placement of the Subordinated Notes, the Issuers shall pay to Northbridge a co-placement fee equal to 0.25% of the aggregate liquidation amount of the Subordinated Notes, which equals $90,000 (calculated as 0.0025 × $36,000,000). Such fee shall be payable on the Closing Date from the proceeds of the offering of the Notes.
(c) The placement fees described in Sections 2.04(a) and (b) above (the "Placement Fees") shall be reflected in the Closing Funds Flow Memorandum and shall be deducted from the gross proceeds of the offering and paid to the respective Placement Agent on the Closing Date by wire transfer of immediately available funds to the accounts designated by such Placement Agent.
(d) For the avoidance of doubt, the aggregate Placement Fees payable to the Placement Agents shall be $1,910,000, as further detailed in Schedule II hereto.
Section 2.05 — Offering Restrictions
(a) The Notes have not been and will not be registered under the Securities Act or under the securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, pledged, or otherwise transferred except in compliance with the Securities Act and applicable state securities laws.
(b) Each Placement Agent agrees, severally and not jointly, that it has offered and will offer and sell the Notes only:
(i) to persons that are QIBs within the meaning of Rule 144A under the Securities Act, in transactions meeting the requirements of Rule 144A; or
(ii) to non-U.S. persons (within the meaning of Regulation S under the Securities Act) in offshore transactions in reliance on Regulation S under the Securities Act.
(c) Each Placement Agent agrees that it has not engaged and will not engage in any form of general solicitation or general advertising (within the meaning of Rule 502(c) under Regulation D of the Securities Act) in connection with the offering of the Notes, including, without limitation, (i) any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar medium or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.
(d) Each Placement Agent acknowledges that the Notes are not being and will not be listed on any securities exchange or automated quotation system, and no application has been or will be made for such listing in connection with the offering.
(e) Each Placement Agent shall deliver to each purchaser of Notes a copy of the Final Offering Memorandum and shall inform each such purchaser of the transfer restrictions applicable to the Notes as set forth in the Indenture and the Offering Memorandum.
ARTICLE III — REPRESENTATIONS AND WARRANTIES OF THE ISSUERS
Each of the Issuers, jointly and severally, hereby represents and warrants to each Placement Agent as of the date hereof and as of the Closing Date (except where a representation or warranty expressly speaks as of a specific date, in which case such representation or warranty is made only as of such specific date), as follows:
Section 3.01 — Organization and Good Standing
(a) The Issuer is an exempted company with limited liability duly incorporated, validly existing, and in good standing under the laws of the Cayman Islands. The Issuer is registered with the Cayman Islands Registrar of Companies under Registration No. EX-382916 and has its registered office at PO Box 4927, Windward House, 3rd Floor, George Town, Grand Cayman KY1-1306, Cayman Islands. The Issuer has all requisite corporate power and authority to own, lease, and operate its properties and assets and to conduct its business as currently conducted and as proposed to be conducted. The Issuer is a special purpose vehicle formed for the sole purpose of issuing the Notes, acquiring and holding the collateral, and entering into the Transaction Documents.
(b) The Co-Issuer is a limited liability company duly formed, validly existing, and in good standing under the laws of the State of Delaware. The Co-Issuer was formed under the Delaware Limited Liability Company Act and is registered with the Delaware Secretary of State under File No. 7429831. The Co-Issuer's registered agent in the State of Delaware is National Registered Agents Inc., located at 1209 Orange Street, Wilmington, DE 19801. The Co-Issuer has all requisite limited liability company power and authority to own, lease, and operate its properties and assets and to conduct its business as currently conducted and as proposed to be conducted. The Co-Issuer has been formed solely for the purpose of co-issuing the Secured Notes with the Issuer and has not engaged in any business or activity other than as contemplated by the Transaction Documents.
Section 3.02 — Due Authorization
(a) Each Issuer has full power and authority to execute, deliver, and perform its obligations under this Agreement, the Indenture, and each of the other Transaction Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby, including, without limitation, the issuance and sale of the Notes.
(b) The execution, delivery, and performance by the Issuer of this Agreement and each of the other Transaction Documents to which it is a party, and the issuance and sale of the Notes, have been duly authorized by all necessary corporate action on the part of the Issuer, including resolutions adopted by the board of directors of the Issuer at a duly convened meeting held on August 20, 2023, at which a quorum was present and acting throughout. No further corporate action on the part of the Issuer is required in connection therewith.
(c) The execution, delivery, and performance by the Co-Issuer of this Agreement and each of the other Transaction Documents to which it is a party, and the co-issuance and sale of the Secured Notes, have been duly authorized by all necessary limited liability company action on the part of the Co-Issuer, including the written consent of the Issuer, as sole member of the Co-Issuer, dated August 20, 2023. No further limited liability company action on the part of the Co-Issuer is required in connection therewith.
Section 3.03 — Execution and Delivery; Enforceability
This Agreement has been duly executed and delivered by each Issuer and constitutes a valid and binding obligation of each Issuer, enforceable against each Issuer in accordance with its terms, subject to (a) the effect of bankruptcy, insolvency, reorganization, receivership, moratorium, liquidation, fraudulent conveyance, and other similar laws affecting creditors' rights and remedies generally, (b) general principles of equity (whether considered in a proceeding in equity or at law), and (c) the discretion of the court before which any proceeding therefor may be brought. Each of the other Transaction Documents to which an Issuer is a party has been, or on or prior to the Closing Date will be, duly executed and delivered by such Issuer and constitutes, or upon such execution and delivery will constitute, a valid and binding obligation of such Issuer enforceable against such Issuer in accordance with its terms, subject to the same qualifications.
Section 3.04 — No Conflict
The execution, delivery, and performance by each Issuer of this Agreement and each of the other Transaction Documents to which it is a party, the issuance and sale of the Notes, and the consummation of the transactions contemplated hereby and thereby will not:
(i) violate, conflict with, or result in a breach of any provision of the Memorandum and Articles of Association of the Issuer or the LLC Agreement of the Co-Issuer;
(ii) violate, conflict with, or result in a breach of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or acceleration of, or result in the creation or imposition of any lien, charge, or encumbrance upon any property or assets of either Issuer pursuant to, any agreement, indenture, mortgage, deed of trust, note, or other instrument to which either Issuer is a party or by which either Issuer or any of its respective properties or assets is or may be bound;
(iii) violate any applicable law, statute, rule, regulation, judgment, order, writ, injunction, or decree of any court, arbitral tribunal, or governmental authority, domestic or foreign, applicable to either Issuer or any of its respective properties or assets; or
(iv) result in the creation or imposition of any lien upon the collateral, other than liens created in favor of the Trustee pursuant to the Indenture.
Section 3.05 — No Registration Required
Assuming the accuracy of the representations and warranties of the Placement Agents set forth in Article IV hereof, the offer and sale of the Notes as contemplated by this Agreement are exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof and Rule 144A and Regulation S thereunder. It is not necessary, in connection with the offer, sale, and delivery of the Notes to the Placement Agents in the manner contemplated by this Agreement and the Offering Memorandum, to register any of the Notes under the Securities Act or to qualify any indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended.
Section 3.06 — Investment Company Act
The Issuer is not, and after giving effect to the offering and sale of the Notes as described in this Agreement and the Offering Memorandum and the application of the proceeds therefrom as described therein, will not be required to register as an "investment company" under the Investment Company Act, in reliance on the exemption provided by Rule 3a-7 promulgated thereunder. The Issuer has been structured so as not to constitute an "investment company" within the meaning of the Investment Company Act, and the Issuer will not hold itself out as, and will conduct its business so as not to become, an "investment company" required to be registered under the Investment Company Act.
Section 3.07 — Offering Memorandum
(a) The Final Offering Memorandum dated August 18, 2023, as of its date and as of the Closing Date, does not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that no representation or warranty is made with respect to any statements or omissions made in reliance upon and in conformity with information furnished in writing by or on behalf of any Placement Agent specifically for use in the Offering Memorandum ("Placement Agent Information").
(b) The Preliminary Offering Memorandum dated August 4, 2023, as of its date, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except to the extent that such statements or omissions were superseded, modified, or corrected by the Final Offering Memorandum. No representation or warranty is made with respect to Placement Agent Information included in the Preliminary Offering Memorandum.
(c) The Offering Memoranda, taken together with the Transaction Documents, describe in all material respects the terms of the Notes, the collateral, the priority of payments, and the material terms and conditions of the transaction.
Section 3.08 — Collateral Manager
(a) Driftwood Credit Management LLC is a limited liability company duly organized and validly existing under the laws of the State of Delaware and is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, with the U.S. Securities and Exchange Commission (SEC CRD #182447).
(b) The Collateral Manager has all necessary governmental authorizations, approvals, licenses, and permits required to act as collateral manager under the Collateral Management Agreement and to perform its obligations thereunder.
(c) The Collateral Management Agreement has been duly executed and delivered by the Collateral Manager and is in full force and effect. The Collateral Manager is not in default of any material obligation under the Collateral Management Agreement.
Section 3.09 — Ratings
The Issuers have received written confirmations from Brindoval Analytical Services Inc. and Ridgeline Credit Ratings LLC, each dated September 8, 2023, confirming the assignment of the ratings set forth in Section 2.02 to the respective classes of Rated Notes. As of the date hereof, neither Rating Agency has indicated any intention to withdraw, downgrade, suspend, or qualify any such rating, or to place any class of Rated Notes on credit watch with negative implications. The Issuers have provided to the Placement Agents true and complete copies of each such rating confirmation letter.
Section 3.10 — Tax Matters
(a) The Issuer is not and will not be treated as engaged in a trade or business within the United States for purposes of U.S. federal income tax, and the Issuer will not be subject to U.S. federal income tax on a net income basis.
(b) The Co-Issuer is and will be treated as a disregarded entity for U.S. federal income tax purposes, and all items of income, gain, loss, deduction, and credit of the Co-Issuer will be treated as items of the Issuer for U.S. federal income tax purposes.
(c) The Rated Notes will be treated as indebtedness of the Issuer for U.S. federal income tax purposes. The Subordinated Notes will be treated as equity interests in the Issuer for U.S. federal income tax purposes.
(d) The Issuer is registered as a Reporting Foreign Financial Institution with the Cayman Islands Tax Information Authority for purposes of FATCA and the Common Reporting Standard ("CRS"), and the Issuer intends to comply with all applicable reporting obligations thereunder.
(e) The Issuer has obtained or will obtain a certificate of tax exemption from the government of the Cayman Islands pursuant to the Tax Concessions Act (as revised) of the Cayman Islands.
Section 3.11 — ERISA
(a) Each class of Rated Notes (the Class A-1 Notes, Class A-2 Notes, Class B Notes, Class C Notes, and Class D Notes) is eligible for purchase by employee benefit plans and other entities subject to ERISA or Section 4975 of the Internal Revenue Code, in reliance on the exemption for venture capital operating companies ("VCOCs") or real estate operating companies ("REOCs") under the U.S. Department of Labor's plan asset regulations (29 C.F.R. § 2510.3-101), and the underwriter's exemption set forth in Prohibited Transaction Class Exemption 96-23 (as amended), or such other applicable exemption as may be available.
(b) The Subordinated Notes are restricted to non-benefit plan investors. No Subordinated Note may be acquired or held by or on behalf of any employee benefit plan or other entity subject to Title I of ERISA or Section 4975 of the Internal Revenue Code, unless such acquisition and holding is eligible for an available prohibited transaction exemption.
Section 3.12 — No Litigation
There is no litigation, arbitration, investigation, or governmental proceeding pending or, to the knowledge of either Issuer, threatened against either Issuer or the Collateral Manager (in its capacity as such) that (a) would reasonably be expected to result in a material adverse effect on the ability of either Issuer to perform its obligations under this Agreement, the Indenture, or any other Transaction Document, or (b) would reasonably be expected to materially adversely affect the transactions contemplated hereby or thereby.
Section 3.13 — Warehouse Facility
(a) The outstanding principal balance under the Warehouse Facility (the $250,000,000 revolving credit facility established pursuant to the Credit Agreement dated May 22, 2023 with Havenwood Bank, N.A.) is approximately $212,500,000 as of the date hereof.
(b) The Issuers have made arrangements for the full repayment and termination of the Warehouse Facility on the Closing Date from the proceeds of the offering of the Notes, as reflected in the Closing Funds Flow Memorandum. Upon such repayment, the collateral securing the Warehouse Facility will be released from the liens in favor of Havenwood Bank, N.A. and will be transferred to the Issuer and pledged to the Trustee under the Indenture.
(c) As of the date hereof, no event of default or event that, with notice or lapse of time or both, would constitute an event of default has occurred and is continuing under the Warehouse Facility.
Section 3.14 — Compliance with Collateral Quality Tests
(a) As of the date hereof, the collateral pool held by the Issuer (including the collateral acquired through the Warehouse Facility) satisfies, or is expected to satisfy by the Effective Date (which shall be no later than December 12, 2023), the eligibility criteria and Collateral Quality Tests set forth in the Indenture, including, without limitation, the following tests and parameters:
(i) Minimum Weighted Average Spread: 350 basis points per annum;
(ii) Maximum Weighted Average Life: 7.5 years;
(iii) Minimum Diversity Score: 60;
(iv) Maximum CCC Bucket: 7.5% of the aggregate principal amount of the collateral (not to exceed $30,000,000);
(v) Maximum Second-Lien Bucket: 5.0% of the aggregate principal amount of the collateral (not to exceed $20,000,000);
(vi) Maximum Fixed-Rate Bucket: 10.0% of the aggregate principal amount of the collateral (not to exceed $40,000,000);
(vii) Minimum Weighted Average Recovery Rate: 45.0%; and
(viii) Minimum Weighted Average Rating Factor: 2,850.
(b) The Collateral Manager has undertaken to use commercially reasonable efforts to ensure that the Effective Date conditions are satisfied on or prior to December 12, 2023.
ARTICLE IV — REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENTS
Each Placement Agent, severally and not jointly, hereby represents and warrants to each Issuer as of the date hereof and as of the Closing Date, as follows:
Section 4.01 — Organization and Authority
(a) Meridian Atlantic Securities LLC is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Delaware. Meridian Atlantic is duly registered as a broker-dealer with the U.S. Securities and Exchange Commission (SEC CRD #39821) and is a member in good standing of the Financial Industry Regulatory Authority, Inc. ("FINRA"). Meridian Atlantic has its principal office at 383 Madison Avenue, 22nd Floor, New York, NY 10179. Meridian Atlantic has full limited liability company power and authority to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
(b) Northbridge Capital Markets Inc. is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Northbridge is duly registered as a broker-dealer with the U.S. Securities and Exchange Commission and is a member in good standing of FINRA. Northbridge has its principal office at 1251 Avenue of the Americas, 34th Floor, New York, NY 10020. Northbridge has full corporate power and authority to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.
(c) The execution, delivery, and performance by each Placement Agent of this Agreement have been duly authorized by all necessary limited liability company or corporate action (as applicable) on the part of such Placement Agent, and this Agreement has been duly executed and delivered by each Placement Agent and constitutes a valid and binding obligation of each Placement Agent, enforceable against such Placement Agent in accordance with its terms, subject to customary bankruptcy, insolvency, and equitable limitations.
Section 4.02 — Offering Restrictions
(a) Each Placement Agent represents and warrants that it has offered and will offer and sell the Notes only in accordance with the offering restrictions and transfer restrictions set forth in Section 2.05 of this Agreement, the Indenture, and the Offering Memorandum.
(b) Each Placement Agent confirms that it has not engaged and will not engage in any directed selling efforts (as defined in Regulation S under the Securities Act) with respect to any Notes offered and sold in reliance on Regulation S. Each Placement Agent further confirms that it has complied and will comply with the offering restrictions of Regulation S, including, without limitation, the requirement that offers and sales of Notes in reliance on Regulation S be made only in offshore transactions to non-U.S. persons.
(c) Each Placement Agent acknowledges and agrees that the Notes may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S), except in transactions exempt from the registration requirements of the Securities Act.