FS Investment Corporation III 8-K [fsiciii-8k_050815.htm]

Exhibit 10.3

 

EXECUTION COPY

INVESTMENT MANAGEMENT AGREEMENT

 

dated as of May 8, 2015

 

BY AND BETWEEN

 

JEFFERSON SQUARE FUNDING LLC,
a Delaware limited liability company

 

AND

 

FS INVESTMENT CORPORATION III,
a Maryland corporation

 

 

 

 

Table of Contents

    Page 1. GENERAL DUTIES OF THE INVESTMENT MANAGER 1       2. DUTIES AND
OBLIGATIONS OF THE INVESTMENT MANAGER WITH           RESPECT TO THE
ADMINISTRATION OF THE COMPANY 3       3. AUTHORITY TO BIND THE COMPANY; NO JOINT
VENTURE 5       4. LIMITATIONS RELATING TO PORTFOLIO INVESTMENTS 6       5.
BROKERAGE 8       6. COMPENSATION 8       7. EXPENSES 8       8. SERVICES TO
OTHER COMPANIES OR ACCOUNTS; CONFLICTS OF     INTEREST 9       9. DUTY OF CARE
AND LOYALTY; EXCULPATION OF LIABILITY 10       10. INDEMNIFICATION 10       11.
TERM OF AGREEMENT; EVENTS AFFECTING THE INVESTMENT     MANAGER; SURVIVAL OF
CERTAIN TERMS; DELEGATION 14       12. POWER OF ATTORNEY; FURTHER ASSURANCES 17
      13. AMENDMENT OF THIS AGREEMENT; ASSIGNMENT 17       14. NOTICES 18      
15. BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS 18       16. ENTIRE
AGREEMENT 19       17. COSTS AND EXPENSES 19       18. BOOKS AND RECORDS 19    
  19. TITLES NOT TO AFFECT INTERPRETATION 19       20. PROVISIONS SEPARABLE 19  
    21. GOVERNING LAW 19       22. EXECUTION IN COUNTERPARTS 19       23. THIRD
PARTY RIGHTS; BENEFITS OF AGREEMENT 20       24. REPRESENTATIONS AND WARRANTIES
OF THE INVESTMENT     MANAGER 20       25. CONFLICT WITH THE LOAN AGREEMENT 22  
    26. SUBORDINATION 22       27. NO PROCEEDINGS 22       28. CONFIDENTIALITY
23

 

i

 

  

INVESTMENT MANAGEMENT AGREEMENT

 

This Investment Management Agreement (the “Agreement”), dated as of May 8, 2015,
is made by and between JEFFERSON SQUARE FUNDING LLC (the “Company”), a Delaware
limited liability company, and FS INVESTMENT CORPORATION III (the “Investment
Manager”), a Maryland corporation. Reference is made to that certain Loan
Agreement, dated as of the date hereof, among the Company, the lenders (the
“Lenders”) and agents (the “Agents”) referred to therein, JPMorgan Chase Bank,
National Association, as administrative agent (the “Administrative Agent”),
Citibank, N.A., as collateral agent (the “Collateral Agent”), and Virtus Group,
LP, as collateral administrator (the “Collateral Administrator”) (as the same
may be amended from time to time, the “Loan Agreement”). Unless otherwise
specified, capitalized terms used but not otherwise defined in this Agreement
shall have the meanings given to them in the Amended and Restated Limited
Liability Company Agreement of the Company dated as of the date hereof (as the
same may be amended from time to time, the “Operating Agreement”) or if not
defined therein, shall have the meanings given to them in the Loan Agreement.
References herein to the Loan Agreement shall be applicable solely while it is
in effect.

 

1.        General Duties of the Investment Manager.

 

Subject to the direction and control of the Company and subject to and in
accordance with the terms of the Loan Agreement, the Operating Agreement, the
policies adopted or approved by the Company and the terms of this Agreement, the
Investment Manager agrees to supervise and direct the investment and
reinvestment of the Portfolio Investments, manage, service, administer and make
collections on the Portfolio Investments and perform its duties set forth
herein, and shall perform on behalf of the Company those investment and leverage
related duties and functions of the Company as shall be assigned to the Company
or the Investment Manager in the Loan Agreement or as delegated from time to
time to the Investment Manager by the Company. The Investment Manager shall
endeavor to comply in all material respects with all applicable federal and
state laws and regulations. In addition to, and without limiting, the duties set
forth in this Section 1, the Investment Manager acknowledges that the Company is
required or permitted to cause it to perform functions specified in the
following sections of the Loan Agreement: Sections 1.02(a), 1.04, 1.05(a),
2.03(d), 6.03(y), 6.03(mm), and 8.03(b), (the “Specific Loan Agreement
Provisions”). The Investment Manager acknowledges that it has read and
understands the requirements of the Specific Loan Agreement Provisions, and to
the extent of its authority hereunder, hereby agrees to act in all material
respects in accordance with the Specific Loan Agreement Provisions subject to
and in accordance with the terms of this Agreement. Subject to the foregoing,
the other provisions of this Agreement and the terms of the Loan Agreement, the
Investment Manager is hereby appointed as the Company’s agent and
attorney-in-fact with authority to negotiate, execute and deliver all documents
and agreements on behalf of the Company and to do or take all related acts, with
the power of substitution, to acquire, dispose of or otherwise take action with
respect to or affecting the Portfolio Investments, including, without
limitation:

 

           (a)        identifying and originating Portfolio Investments to be
purchased by the Company, selecting the dates for such purchases, and purchasing
or directing the purchase of such Portfolio Investments on behalf of the
Company;

 

1

 

 

           (b)        identifying Portfolio Investments owned by the Company to
be sold by the Company, selecting the dates for such sales, and selling such
Portfolio Investments on behalf of the Company;

 

           (c)        negotiating and entering into, on behalf of the Company,
documentation providing for the purchase and sale of Portfolio Investments,
including without limitation, confidentiality agreements and commitment letters;

 

           (d)        structuring the terms of, and negotiating, entering into
and/or consenting to, on behalf of the Company, documentation relating to
Portfolio Investments to be purchased, held, exchanged or sold by the Company,
including any amendments, modifications or supplements with respect to such
documentation;

 

           (e)        exercising, on behalf of the Company, rights and remedies
associated with Portfolio Investments, including without limitation, rights to
petition to place an obligor or issuer in bankruptcy proceedings, to vote to
accelerate the maturity of a Portfolio Investment, to waive any default,
including a payment default, with respect to a Portfolio Investment and to take
any other action which the Investment Manager deems necessary or appropriate in
its discretion in connection with any restructuring, reorganization or other
similar transaction involving an obligor or issuer with respect to a Portfolio
Investment, including without limitation, initiating and pursuing litigation;

 

           (f)         responding to any offer in respect of Portfolio
Investments by tendering the affected Portfolio Investments, declining such
offer, or taking such other actions as the Investment Manager may determine;

 

           (g)        exercising all voting, consent and similar rights of the
Company on its behalf and advising the Company with respect to matters
concerning the Portfolio Investments;

 

           (h)        advising and assisting the Company with respect to the
valuation and rating of the Portfolio Investments;

 

           (i)         retaining legal counsel and other professionals (such as
financial advisers) to assist in the structuring, negotiation, documentation,
administration and modification and restructuring of Portfolio Investments;

 

           (j)         directing, or causing to be directed, all obligors to pay
Interest Proceeds and Principal Proceeds (collectively, “Collections”) directly
to the appropriate Account, depositing all Collections received directly by it
into the appropriate Account within one (1) Business Day of receipt thereof and,
within three (3) Business Day after receipt into the appropriate Account,
identifying all Collections received by it as Interest Proceeds or Principal
Proceeds. If notwithstanding the foregoing the Investment Manager at any time
thereafter receives any Collections or any other proceeds of any Portfolio
Investments constituting Interest Proceeds or Principal Proceeds, the Investment
Manager shall direct or cause to be directed, the related obligor to make such
payments to the Accounts and shall promptly, and in any event no later than the
Business Day after receipt thereof, deposit or cause to be deposited all such
amounts into the appropriate Account;

 

2

 

 

           (k)        cooperating with the Collateral Agent in connection with
the preparation of the Monthly Reports and any supplement thereto and (i)
supplying any information maintained by it that the Collateral Agent may from
time to time reasonably request with respect to the Collateral and reasonably
needs to complete the reports, calculations and certificates required to be
prepared by the Collateral Agent hereunder or required to permit the Collateral
Agent to perform its obligations hereunder, and (ii) reviewing and verifying the
contents of the aforesaid reports (including the Monthly Report), instructions,
statements and certificates;

 

           (l)         undertaking the obligations in the Specific Loan
Agreement Provisions in accordance with such provisions;

 

           (m)       causing the Company to pay, perform and discharge or cause
to be paid, performed and discharged promptly all (i) all federal, state,
county, city, municipal, local, foreign or other governmental taxes; (ii) all
levies, assessments, charges, or claims of any governmental entity or any claims
of statutory lienholders, the nonpayment of which could give rise by operation
of law to a Lien on the Portfolio Investments or any other property of the
Company and (iii) any such taxes, levies, assessment, charges or claims which
constitute a lien or encumbrance on any property of the Company (collectively,
“Charges”) payable by it, except where the failure to so pay, discharge or
otherwise satisfy such Charge would not, individually or in the aggregate, be
expected to have a Material Adverse Effect; and

 

           (n)        in the Investment Manager’s discretion, performing such
actions on behalf of the Company as permitted in the Loan Agreement and making
such determinations as necessary (in the Investment Manager’s discretion) to
carry out the Company’s business under the Loan Agreement.

 

In performing its duties hereunder, the Investment Manager shall seek to
maximize the value of the Collateral for the benefit of the Company, taking into
account the investment criteria and limitations set forth herein and in the Loan
Agreement; provided, that (x) the Investment Manager shall not be responsible if
such objectives are not achieved so long as the Investment Manager performs its
duties under this Agreement and the Loan Agreement in the manner provided for
herein and therein; and (y) there shall be no recourse to the Investment Manager
with respect to the Loan Agreement. In no event whatsoever shall there be
recourse to the Investment Manager or any of its Affiliates for any amounts
payable on the Advances or the other payment obligations of the Company under
the Loan Agreement or any of the other documents executed and delivered by the
Company in connection with the transactions contemplated by the Loan Agreement.
For the avoidance of doubt, the Investment Manager does not guarantee the
performance of any obligations of any other Person under any Loan Document.

 

2.        Duties and Obligations of the Investment Manager with Respect to the
Administration of the Company.

 

The Investment Manager agrees to furnish office facilities and equipment and
clerical, bookkeeping and administrative services (other than such services, if
any, provided by the Company’s custodian and other service providers) to the
Company. To the extent requested by the Company, the Investment Manager agrees
to provide the following administrative services:

 

3

 

 

           (a)        maintain or oversee the maintenance of the books and
records of the Company and maintain (or oversee maintenance by other persons)
such other books and records required by law or for the proper operation of the
Company;

 

           (b)        to the extent prepared or filed by the Company, oversee
the preparation and filing, and in all events review and ensure the timely
filing, of all federal, state and local income Tax returns required to be filed
by the Company and any other required Tax returns or reports;

 

           (c)        review the appropriateness of and arrange for payment of
the Company’s expenses;

 

           (d)        prepare for review and approval by officers and other
authorized persons of the Company (collectively, the “Authorized Signatories”)
financial information for the Company’s financial statements (if the Company
prepares separate financial statements) and such other reports, forms and
filings, as may be mutually agreed upon or as may be required by law or the Loan
Agreement;

 

           (e)        prepare reports relating to the business and affairs of
the Company as may be mutually agreed upon and not otherwise prepared by others;

 

           (f)         make recommendations to the Company concerning the
performance and fees of any of the Company’s service providers as the Company
may reasonably request or deem appropriate;

 

           (g)        oversee and review calculations of fees paid to the
Company’s service providers;

 

           (h)        consult with the Authorized Signatories, and the Company’s
independent accountants, legal counsel, custodian and other service providers in
establishing the accounting policies of the Company and monitor financial
accounting services;

 

           (i)         determine the amounts available for distribution as
dividends and distributions to be paid by the Company to Parent;

 

           (j)         prepare such information and reports as may be required
under the Loan Agreement;

 

           (k)        provide such assistance to the Company’s custodian,
counsel, auditors and other service providers as generally may be required to
properly carry on the business and operations of the Company;

 

           (l)         respond to, or refer to the Company’s officers or
Authorized Signatories, inquiries relating to the Company;

 

           (m)       supervise any other aspects of the Company’s administration
as may be agreed to by the Company and the Investment Manager;

 

4

 

 

           (n)        provide the following notices:

 

           (i)       to the Administrative Agent and the Collateral Agent,
promptly after having obtained actual knowledge thereof, notice of any Event of
Default or Amendment;

 

           (ii)       to the Administrative Agent and the Collateral Agent,
promptly after having obtained actual knowledge thereof, but in no event later
than three Business Days thereafter, written notice of any Default; and

 

           (iii)       from time to time promptly following receipt thereof,
forward to the Collateral Administrator (as identified on an accompanying
Schedule of Portfolio Investments supplement) additional documents evidencing
any assumption, modification, consolidation or extension of a Portfolio
Investment.

 

All services are to be furnished through the medium of any officers, Authorized
Signatories or employees of the Investment Manager or its affiliates as the
Investment Manager deems appropriate in order to fulfill its obligations
hereunder.

 

The Company shall, upon demand, reimburse the Investment Manager or its
affiliates for all out-of-pocket expenses incurred by them in connection with
the performance of the administrative services described in this Section 2.

 

3.        Authority to Bind the Company; No Joint Venture.

 

           (a)        Except as provided in or pursuant to Sections 1, 4 and 12
hereof, the Investment Manager shall have no authority to bind or obligate the
Company. All acts of the Investment Manager (other than as provided in the Loan
Agreement, the Operating Agreement or in Section 1 or Section 12 hereof with
respect to any Portfolio Investment) shall require the Company’s consent and
approval to bind the Company. Nothing in this Agreement shall be deemed to
create a joint venture or partnership between the parties with respect to the
arrangements set forth in this Agreement. For all purposes hereof, the
Investment Manager shall be deemed to be an independent contractor and, unless
otherwise provided herein or specifically authorized by the Company from time to
time, shall have no authority to act for or represent the Company.

 

           (b)        The Investment Manager shall act in conformity with the
written instructions and directions of the Company delivered in accordance with
the terms and conditions hereof, except to the extent that authority has been
delegated to the Investment Manager pursuant to the terms of this Agreement or
the Operating Agreement. The Investment Manager will not be bound to follow any
amendment to the Loan Agreement or the Operating Agreement until it has received
written notice thereof and until it has received a copy of the amendment from
the Company or the Administrative Agent; provided that if any such amendment
materially affects the rights or duties of the Investment Manager, the
Investment Manager shall not be obligated to respect or comply with the terms of
such amendment unless it consents thereto. Subject to the Fiduciary duty of the
Member, the Company agrees that it shall not permit any amendment to the
Operating Agreement that materially affects the rights or duties of the
Investment Manager to become effective unless the Investment Manager has been
given prior written notice of such amendment and has consented thereto in
writing. The Investment Manager may, with respect to the affairs of the Company,
consult with such legal counsel, accountants and other advisors as may be
selected by the Investment Manager. The Investment Manager shall be fully
protected, to the extent permitted by applicable law, in acting or failing to
act hereunder if such action or inaction is taken or not taken in good faith by
the Investment Manager in accordance with the advice or opinion of such counsel,
accountants or other advisors. The Investment Manager shall be fully protected
in relying upon any writing signed in the appropriate manner with respect to any
instruction, direction or approval of the Company and may also rely on opinions
of the Investment Manager’s counsel with respect to such instructions,
directions and approvals. The Investment Manager shall also be fully protected
when acting upon any instrument, certificate or other writing the Investment
Manager believes in good faith to be genuine and to be signed or presented by
the proper person or persons. The Investment Manager shall be under no duty to
make any investigation or inquiry as to any statement contained in any such
writing and may accept the same as conclusive evidence of the truth and accuracy
of the statements therein contained if the Investment Manager in good faith
believes the same to be genuine.

 

5

 

 

4.        Limitations Relating to Portfolio Investments.

 

           (a)        Portfolio Investments. Except as otherwise provided in
this Section 4 and subject to the requirements of the Loan Agreement, the
Operating Agreement and applicable law, the Investment Manager may cause the
Company (which term shall include, for all purposes relating to the purchase and
sale of Portfolio Investments and the duties and obligations of the Investment
Manager set forth in Section 1 hereof, the Company and its consolidated
subsidiaries, if any) from time to time to purchase Portfolio Investments.

 

           (b)        Reserved.

 

           (c)        Reserved.

 

           (d)        Transaction, Director, Consulting, Advisory, Closing and
Break- up Fees. The Company shall receive its pro-rata share, measured by the
amount invested or proposed to be invested by the Company in any Portfolio
Investment, of any transaction, director, consulting, advisory, closing and
break-up fees, or similar fees (“Additional Fees”) payable with respect to any
Portfolio Investment. Notwithstanding anything herein or in the Operating
Agreement to the contrary, to the extent that any Additional Fees with respect
to the Company’s share of such Investment are paid to the Investment Manager or
any of its Affiliates, at the election of the Investment Manager, such amount
will first be applied to reimburse the Investment Manager or its Affiliates for
their out of pocket expenses in connection with the transaction giving rise to
such fees and 100% of the balance will be applied to reduce the subsequent
installments of the Management Fee (as defined below).

 

6

 

      

           (e)       Other Agreements of the Investment Manager. The Investment
Manager agrees to the following:

 

           (i)         the Investment Manager shall cause any purchase or sale
of any Portfolio Investment to be conducted on terms and conditions no less
favorable to the Company than those available on an arm’s length basis;

 

           (ii)        the Investment Manager shall provide to the Collateral
Administrator all reports, data and other information (including, without
limitation, any letters of representations) that the Collateral Administrator
may reasonably request in connection with its duties under the Loan Agreement,
to the extent reasonably available to the Investment Manager; and

 

           (iii)       the Investment Manager shall notify the Company of any
change in control of the Investment Manager within a reasonable time after such
change in control occurs.

 

           (f)        Other Obligations of the Investment Manager. Subject to
the terms of the Loan Agreement and to Section 10 hereof, the Investment Manager
shall use all commercially reasonable efforts to ensure that no action is taken
by it, and shall not willfully or in a grossly negligent manner take any action
which would (a) materially adversely affect the status of the Company for
purposes of U.S. federal or state law or any other law which, in the Investment
Manager’s good faith judgment, is applicable to the Company, (b) not be
permitted by the Company’s organizational documents, (c) violate any law, rule
or regulation of any governmental body or agency having jurisdiction over the
Company, including, without limitation, actions which would violate any U.S.
federal, state or other applicable securities law the violation of which would
adversely affect, in any material respect, any Lender, the business, operations,
assets or financial condition of the Company, or the ability of the Investment
Manager to perform its obligations hereunder, (d) require registration of the
Company or the pool of Collateral as an “investment company” under the
Investment Company Act, (e) adversely affect the Administrative Agent in any
material respect, (f) result in the Company violating the terms of the Loan
Agreement, (g) adversely affect the interests of the Secured Parties in the pool
of Collateral in any material respect (other than actions (i) permitted
hereunder or under the Loan Agreement or (ii) taken in the ordinary course of
business of the Investment Manager in accordance with its fiduciary duties to
its clients) or (h) cause (i) the Company to take any action or make an election
to classify itself as an association taxable as a corporation for federal, state
or any applicable tax purposes or (ii) otherwise cause adverse tax consequences
to the Company, it being understood that, in all circumstances, (x) the
Investment Manager and its Affiliates and their respective members, managers,
directors, officers, stockholders, employees and agents shall not be liable to
the Company except as provided in Section 10 and (y) in connection with the
foregoing, the Investment Manager shall not be required to make any independent
investigation of any facts or laws not otherwise known to it in connection with
its obligations under this Agreement and the Loan Agreement or the conduct of
its business generally. In addition, the Investment Manager need not take such
action unless arrangements satisfactory to it are made to insure or indemnify
the Investment Manager from any liability it may incur as a result of such
action. The Investment Manager and its Affiliates and their respective members,
managers, directors, officers, stockholders, employees and agents shall not be
liable to the Company, the Administrative Agent, any Secured Party or any other
Person except as provided in Section 10. The Investment Manager covenants that
it shall comply in all material respects with applicable laws and regulations
relating to its performance under this Agreement. Notwithstanding anything
contained in this Agreement to the contrary, any indemnification of the
Investment Manager provided for in this Section 4 shall be payable by the
Company in accordance with the Loan Agreement.

 

7

 

 

5.        Brokerage.

 

The Investment Manager shall use commercially reasonable efforts to effect all
purchases and sales of securities in a manner consistent with the principles of
best execution. Subject to the objective of obtaining the best execution, the
Investment Manager may, in the allocation of business, take into consideration
all factors that it deems relevant, including, without limitation, the price,
the size of the transaction, the nature of the market for the security, the
amount of the commission, the amount of any assignment or transaction fees, the
timing of the transaction taking into account market prices and trends, the
reputation, experience and financial stability of the broker or dealer involved,
the quality of service rendered by the broker or dealer in other transactions
and other research and other brokerage services furnished to the Investment
Manager or its Affiliates by brokers and dealers, in connection with the duties
of the Investment Manager hereunder or otherwise, in each case in compliance
with Section 28(e) of the Securities Exchange Act of 1934, as amended. In this
regard, the Investment Manager may effect transactions which cause the Company
to pay a commission in excess of a commission which another broker or other
intermediary would have charged; provided, however, that the Investment Manager
shall have first determined that such commission is reasonable in relation to
the value of the brokerage or research services performed by that broker or
other intermediary or that the Company is the sole beneficiary of the services
provided. Such brokerage services may be used by the Investment Manager or its
Affiliates in connection with its other advisory activities or investment
operations.

 

6.        Compensation.

 

The Company agrees to pay to the Investment Manager and the Investment Manager
agrees to accept as compensation for all services rendered by the Investment
Manager as such, to the extent not waived or deferred, an amount equal to 0.35%
per annum of the aggregate principal balance of all Portfolio Investments
measured as of the last day of each Calculation Period immediately preceding
such Interest Payment Date (the “Management Fee”). The Management Fee will be
calculated on the basis of a calendar year consisting of 360 days and the actual
number of days elapsed.

 

7.        Expenses.

 

Other than as set forth below, the Company will be responsible for paying all of
its expenses. On behalf of the Company, the Investment Manager may advance
payment of any expenses, and the Company shall, upon request, reimburse the
Investment Manager therefor within 30 days following written request from the
Investment Manager. Nothing in this Section 7 shall limit the ability of the
Investment Manager to be reimbursed by any Person other than the Company
(including issuers or obligors of securities, instruments or obligations owned
by the Company) for out-of-pocket expenses incurred by the Investment Manager in
connection with the performance of services hereunder. The Investment Manager
shall maintain complete and accurate records with respect to costs and expenses
and shall furnish the Company with receipts or other written vouchers with
respect thereto upon request of the Company. The Company shall bear the
reasonable costs and expenses of all audits and inspections permitted by Section
6.03 of the Loan Agreement.

 

8

 

 

8.        Services to Other Companies or Accounts; Conflicts of Interest.

 

           (a)        The Investment Manager and its Affiliates, employees or
associates are in no way prohibited from, and intend to, spend substantial
business time in connection with other businesses or activities, including, but
not limited to, managing investments, advising or managing entities whose
investment objectives are the same as or overlap with those of the Company,
participating in actual or potential investments of the Company, providing
consulting, merger and acquisition, structuring or financial advisory services,
including with respect to actual, contemplated or potential investments of the
Company, or acting as a director, officer or creditors’ committee member of,
advisor to, or participant in, any corporation, company, trust or other business
entity. The Investment Manager and its Affiliates may, and expect to, receive
fees or other compensation from third parties for any of these activities
unrelated to the Company, which fees will be for the benefit of their own
account and not the Company.

 

           (b)        In addition, the Investment Manager and its Affiliates may
manage other investment vehicles and separate accounts (“Other Accounts”) that
invest in assets eligible for purchase by the Company. The Company may have the
ability, under certain circumstances, to take certain actions that would have an
adverse effect on Other Accounts. In these circumstances, the Investment Manager
and its affiliated persons will act in a manner believed to be equitable to the
Company and such Other Accounts, including co-investment in accordance with
applicable laws, including the conditions of any exemptive relief obtained by
the Company and the Investment Manager. The allocation of investment
opportunities among the Company and Other Accounts will be made in good faith
pursuant to the Investment Manager’s written allocation policies. The Investment
Manager may combine purchase or sale orders on behalf of the Company with orders
for Other Accounts, and allocate the assets so purchased or sold among such
accounts in an equitable manner. The Company may invest in portfolio companies
in which Other Accounts have or are concurrently making the same investment or a
different investment (e.g., an investment that is junior to the Company’s
investment). In such situations, the Company and the Other Accounts may
potentially have conflicting interests. If any matter arises that the Investment
Manager determines in its good faith judgment constitutes an actual conflict of
interest, the Investment Manager may take such actions as may be necessary or
appropriate to ameliorate the conflict. These actions may include, by way of
example and without limitation, disposing of the asset giving rise to the
conflict of interest, appointing an independent fiduciary, or delegating
decisions relating to the asset giving rise to the conflict of interest to a
subcommittee of the Investment Manager. The Investment Manager shall have no
liability arising out of such potential or actual conflicts of interest;
provided, that nothing in this Section 8(b) shall be construed as altering the
duties of the Investment Manager as set forth in this Agreement or any other
transaction document or the requirements of any law, rule, or regulation
applicable to the Investment Manager.

 

           (c)        Any purchase or disposition of a Portfolio Investment
shall be made on terms no less favorable to the Company than those available on
an arm’s length basis. Any purchase or disposition of a Portfolio Investment
effected on behalf of the Company with the Investment Manager or any Affiliate
thereof will be effected in accordance with all applicable laws and on terms as
favorable to the Company as would be the case if such Person were not so
affiliated.

 

9

 

 

9.        Duty of Care and Loyalty; Exculpation of Liability.

 

The Investment Manager shall exercise its discretion and authority in accordance
with Applicable Law, the terms of the Loan Documents, all customary and usual
servicing practices for loans similar to the Portfolio Investments and, to the
extent consistent with the foregoing, (i) with reasonable care, using a degree
of skill and diligence not less than that with which the Company or Investment
Manager, as applicable, services and administers loans for its own account or
for the account of its Affiliates having similar lending objectives and
restrictions, and (ii) to the extent not inconsistent with clause (i), in a
manner consistent with the customary standards, policies and procedures followed
by institutional managers of national standing relating to assets of the nature
and character of the Portfolio Investments and without regard to any
relationship that the Investment Manager or any Affiliate thereof may have with
any underlying obligor or any Affiliate of an obligor.

 

10.      Indemnification.

 

           (a)        To the fullest extent permitted by applicable law, the
Company shall be held harmless and indemnified by the Investment Manager against
any claims, demands, costs, liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees incurred by the Company (“Losses”) in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or investigative body in which the Company
may be or may have been involved as a party or otherwise or with which the
Company may be or may have been threatened, while acting in connection with the
establishment, management or operations of the Company or the management of the
Portfolio Investments, provided, however, to the fullest extent permitted by
applicable law, that the Company shall not be indemnified hereunder if there has
been a determination by a final decision on the merits by a court or other body
of competent jurisdiction before whom the issue of entitlement to
indemnification was brought that such Losses have been primarily attributable to
the Company’s willful misfeasance, bad faith, gross negligence in performance,
or reckless disregard, of its obligations; provided further, that the Investment
Manager will not be required to indemnify the Company with respect to any Losses
(i) arising out of an action or claim brought against the Company by the
Investment Manager or its Affiliates, or (ii) resulting from the performance or
non-performance of the Portfolio Investments.

 

Indemnification under this Section 10(a) shall survive the termination of this
Agreement and shall include reasonable fees and expenses of counsel and expenses
of litigation.

 

If for any reason (other than the exclusions set forth in the first paragraph of
Section 10(a)) the indemnification provided above in Section 10(a) is
unavailable or is insufficient to hold the Company harmless, then the Investment
Manager agrees to contribute to the amount paid or payable by the Company as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
on the one hand, and the Investment Manager and its Affiliates, on the other
hand, but also the relative fault of the Company, on the one hand, and the
Investment Manager and its Affiliates, on the other hand, as well as any other
relevant equitable considerations.

 

10

 

 

         (i)         To the fullest extent permitted by applicable law, each of
the Investment Manager, and its Affiliates, or any officer, director, member,
manager, employee, stockholder, assign, representative or agent of any such
Person (each an “Indemnified Person,” and collectively, the “Indemnified
Persons”) shall be held harmless and indemnified by the Company (the
“Indemnifying Party”) (solely out of the Portfolio Investments and in accordance
with Section 10(b)(v) , and not (solely for the purposes of this Agreement) out
of the separate assets of the Parent) against any claims, demands, costs,
liabilities and expenses, including amounts paid in satisfaction of judgments,
in compromise or as fines and penalties, and counsel fees incurred by such
Indemnified Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or investigative body in which such Indemnified Person may be or
may have been involved as a party or otherwise (other than as authorized by the
directors of the Parent, as the plaintiff or complainant) or with which such
Indemnified Person may be or may have been threatened, while acting in such
Person’s capacity as an Indemnified Person in connection with the establishment,
management or operations of the Company or the management of the Portfolio
Investments, provided, however, that an Indemnified Person shall not be
indemnified hereunder if and to the extent resulting from such Indemnified
Person’s bad faith, fraud, willful misfeasance, gross negligence or reckless
disregard; provided further, that the Company will not be required to indemnify
the Indemnified Persons with respect to any Losses (i) arising out of an action
or claim brought against any Indemnified Person by the Company or its
Affiliates, or (ii) resulting from the performance or non-performance of the
Portfolio Investments.

 

         (ii)         Only to the extent permitted pursuant to the terms of the
Loan Agreement, the Company shall make advance payments in connection with the
expenses of defending any action, suit or other proceeding with respect to which
indemnification might be sought hereunder if the Company receives a written
affirmation by the Indemnified Person of the Indemnified Person’s good faith
belief that the standards of conduct necessary for indemnification have been met
and a written undertaking to reimburse the Company unless it is subsequently
determined that the Indemnified Person is entitled to such indemnification and
if a majority of the directors of the Parent determine that the applicable
standards of conduct necessary for indemnification appear to have been met. In
addition, at least one of the following conditions must be met: (i) the
Indemnified Person shall provide adequate security for its undertaking (ii) the
Company shall be insured against losses arising by reason of any lawful
advances, or (iii) independent legal counsel in a written opinion, shall
conclude, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is substantial reason to believe that the
Indemnified Person ultimately will be found entitled to indemnification. Any
payments pursuant to this Section 10(b)(ii) while the Loan Agreement is in
effect will be paid solely in accordance with the Loan Agreement (subject to the
availability of funds and to the conditions set forth in the Loan Agreement).

 

11

 

 

         (iii)         The rights accruing to any Indemnified Person under these
provisions shall not exclude any other right to which such Indemnified Person
may be lawfully entitled.

 

         (iv)        Each Indemnified Person (other than the Investment Manager)
shall, in the performance of its duties, be fully and completely justified and
protected with regard to any act or any failure to act resulting from reliance
in good faith upon the books of account or other records of the Company, upon an
opinion of counsel, or upon reports made to the Company by any of the Company’s
officers or employees or by any advisor, administrator, manager, distributor,
selected dealer, accountant, appraiser or other expert or consultant selected
with reasonable care by the directors of the Parent, officers or employees of
the Company, regardless of whether such counsel or other person may also be a
director of the Parent. The Investment Manager shall, in the performance of its
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon any books of
account or other records of the Company that were prepared by an agent or other
third party, upon an opinion of counsel, or upon reports made to the Company by
any advisor, administrator, manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable care by the
directors of the Parent, officers or employees of the Company, regardless of
whether such counsel or other person may also be a director of the Parent.

 

         (v)        Any payments pursuant to Section 10(b)(i) while the Loan
Agreement is in effect will be paid solely in accordance with the Loan Agreement
(subject to the availability of funds and to the conditions set forth in the
Loan Agreement). All determinations that may be made to make advance payments in
connection with the expense of defending or settling any action, suit or other
proceeding, whether civil or criminal, shall be authorized and made (if so
authorized and made) in accordance with paragraph (b)(ii) above.

 

         (vi)       An Indemnified Person shall (or, solely in the case of
Investment Manager as Indemnified Person, with respect to the Investment
Manager’s Affiliates and the members, managers, directors, officers,
stockholders, employees and agents of the Investment Manager and its Affiliates,
the Investment Manager shall cause such Indemnified Person to) promptly notify
the Indemnifying Party if the Indemnified Person receives a complaint, claim,
compulsory process or other notice of any loss, claim, damage or liability
giving rise to a claim for indemnification under this Section 10(b), but failure
so to notify the Indemnifying Party (i) shall not relieve such Indemnifying
Party from its obligations under this Section 10(b) unless and to the extent
that it did not otherwise learn of such action or proceeding and to the extent
such failure results in the forfeiture by the Indemnifying Party of substantial
rights and defenses and (ii) shall not, in any event, relieve the Indemnifying
Party of any obligations to any Person entitled to indemnity pursuant to this
Section 10(b) other than the indemnification obligations provided for in Section
10(b).

 

12

 

 

         (vii)        With respect to any claim made or threatened against an
Indemnified Person, or compulsory process or request served upon such
Indemnified Person for which such Indemnified Person is or may be entitled to
indemnification under this Section 10(b), such Indemnified Person shall (or,
solely in the case of Investment Manager as Indemnified Person, with respect to
the Investment Manager’s Affiliates and the members, managers, directors,
officers, stockholders, employees and agents of the Investment Manager and its
Affiliates, the Investment Manager shall cause such Indemnified Person to), at
the Indemnifying Party’s expense:

 

(1)         give written notice to the Indemnifying Party of such claim within
ten (10) days after such claim is made or threatened, which notice shall specify
in reasonable detail the nature of the claim and the amount (or an estimate of
the amount) of the claim; provided, that failure to give notice shall not
relieve the Indemnifying Party of its obligation hereunder, unless the
Indemnifying Party is materially prejudiced or otherwise forfeits substantial
rights or defenses by reason of such failure;

 

(2)          provide the Indemnifying Party such information and cooperation
with respect to such claim as the Indemnifying Party may reasonably require,
including, but not limited to, making appropriate personnel available to the
Indemnifying Party at such reasonable times as the Indemnifying Party may
request;

 

(3)         cooperate and take all such steps as the Indemnifying Party may
reasonably request to preserve and protect any defense to such claim;

 

(4)          in the event suit is brought with respect to such claim, upon
reasonable prior notice, afford to the Indemnifying Party the right, which the
Indemnifying Party may exercise in its sole discretion and at its expense, to
participate in the investigation, defense and settlement of such claim;

 

(5)          neither incur any material expense to defend against nor release or
settle any such claim or make any admission with respect thereto (other than
routine or incontestable admissions or factual admissions the failure to make
which would expose such Indemnified Person to unindemnified liability) without
the prior written consent of the Indemnifying Party; provided, that the
Indemnifying Party shall have advised such Indemnified Person that such
Indemnified Person is entitled to be indemnified hereunder with respect to such
claim; and

 

13

 

 

(6)         upon reasonable prior notice, afford to the Indemnifying Party the
right, in its sole discretion and at its sole expense, to assume the defense of
such claim, including, but not limited to, the right to designate counsel and to
control all negotiations, litigation, arbitration, settlements, compromises and
appeals of such claim; provided, that if the Indemnifying Party assumes the
defense of such claim, it shall not be liable for any fees and expenses of
counsel for any Indemnified Person incurred thereafter in connection with such
claim except that if such Indemnified. Party reasonably determines that counsel
designated by the Indemnifying Party has a conflict of interest, such
Indemnifying Party shall pay the reasonable fees and disbursements of one
counsel (in addition to any local counsel) separate from its own counsel for all
Indemnified Parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances; provided, further, that prior to entering into any
final settlement or compromise, such Indemnifying Party shall seek the consent
of the Indemnified Person and use its best efforts in the light of the then
prevailing circumstances (including, without limitation, any express or implied
time constraint on any pending settlement offer) to obtain the consent of such
Indemnified Person as to the terms of settlement or compromise. If an
Indemnified Person does not consent to the settlement or compromise within a
reasonable time under the circumstances and such settlement or compromise
includes a full release of all claims and does not include any admission of
liability or wrongdoing by the Indemnified Person, the Indemnifying Party shall
not thereafter be obligated to indemnify the Indemnified Person for any amount
in excess of such proposed settlement or compromise.

 

         (viii)    No Indemnified Person shall, without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld or delayed, settle or compromise any claim giving rise to a claim for
indemnity hereunder, or permit a default or consent to the entry of any judgment
in respect thereof, unless such settlement, compromise or consent includes, as
an unconditional term thereof, the giving by the claimant to the Indemnifying
Party of a release from liability substantially equivalent to the release given
by the claimant to such Indemnified Person in respect of such claim.

 

         (ix)       In the event that any Indemnified Person waives its right to
indemnification hereunder, the Indemnifying Party shall not be entitled to
appoint counsel to represent such Indemnified Person nor shall the Indemnifying
Party reimburse such Indemnified Person for any costs of counsel to such
Indemnified Person.

 

11.      Term of Agreement; Events Affecting the Investment Manager; Survival of
Certain Terms; Delegation.

 

         (a)        This Agreement shall become effective as of the date hereof
and, unless sooner terminated by the Company or the Investment Manager as
provided herein, shall continue in effect during the existence of the Company.
Notwithstanding the foregoing, this Agreement may be terminated by the Company
without the payment of any penalty, upon the occurrence of a “cause” event. A
“cause” event for purposes of this Section 11(a) shall have occurred by reason
of:

 

         (i)         the conviction (or plea of no contest) for a felony of the
Investment Manager;

 

         (ii)        the conviction (or plea of no contest) for a felony of an
officer or a member of the board of directors of the Investment Manager, if the
employment or other affiliation of such Person so convicted is not terminated by
the Investment Manager within 30 days of such conviction and the Parent votes
thereafter to invoke this termination provision;

 

14

 

 

         (iii)         the Investment Manager or an officer or a member of the
board of directors of the Investment Manager has engaged in gross negligence or
willful misconduct with respect to the Company that has resulted in a material
adverse effect on the Company or the Portfolio Investments, or has committed a
knowing material violation of securities laws, each as determined by a final
decision of a court or binding arbitration decision unless, in the case of such
natural persons, their employment or other affiliation with the Investment
Manager is terminated or suspended within 30 days after discovery by the
Investment Manager;

 

         (iv)         the Investment Manager shall willfully violate or breach
any material provision of this Agreement or the Loan Agreement applicable to it;

 

         (v)        the Investment Manager shall violate or breach any provision
of this Agreement or any term of the Loan Agreement applicable to it (including,
but not limited to, any breach of a material representation, warranty or
certification of the Investment Manager hereunder or thereunder, but other than
as covered in Section 11(a)(iv), and it being understood that the failure of the
Compliance Condition or any Eligibility Criteria or the occurrence of a Coverage
Event is not a violation or breach, other than a willful violation or breach of
the Eligibility Criteria at the time of the acquisition of any Portfolio
Investment), which violation or breach (1) has a material adverse effect on the
Lenders and (2) if capable of being cured, is not cured within 30 days of the
Investment Manager becoming aware of, or its receiving notice from the Company
or the Administrative Agent of, such violation or breach, or, if such violation
or breach is not capable of being cured within 30 days but is capable of being
cured in a longer period, it fails to cure such violation or breach within the
period in which a reasonably prudent person could cure such violation or breach,
but in no event greater than 60 days;

 

         (vi)         the Investment Manager is wound up or dissolved or there
is appointed over it or a substantial part of its assets a receiver,
administrator, administrative receiver, trustee or similar officer; or the
Investment Manager (i) ceases to be able to, or admits in writing its inability
to, pay its debts as they become due and payable, or makes a general assignment
for the benefit of, or enters into any composition or arrangement with, its
creditors generally; (ii) applies for or consents (by admission of material
allegations of a petition or otherwise) to the appointment of a receiver,
trustee, assignee, custodian, liquidator or sequestrator (or other similar
official) of the Investment Manager or of any substantial part of its properties
or assets, or authorizes such an application or consent, or proceedings seeking
such appointment are commenced without such authorization, consent or
application against the Investment Manager and continue undismissed for 60 days;
(iii) authorizes or files a voluntary petition in bankruptcy, or applies for or
consents (by admission of material allegations of a petition or otherwise) to
the application of any bankruptcy, reorganization, arrangement, readjustment of
debt, insolvency or dissolution, or authorizes such application or consent, or
proceedings to such end are instituted against the Investment Manager without
such authorization, application or consent and are approved as properly
instituted and remain undismissed for 60 days or result in adjudication of
bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part
of its properties or assets to be sequestered or attached by court order and the
order remains undismissed for 60 days;

 

15

 

 

         (vii)        the occurrence of any event specified in clause (a) of the
definition of Event of Default in the Loan Agreement which default is primarily
the result of any act or omission of the Investment Manager resulting from a
breach of its duties under this Agreement or under the Loan Agreement (but not
as a result of any default of any Collateral Obligation); or

 

         (viii)       GSO/Blackstone Debt Funds Management LLC ceases to be the
sub advisor of the Investment Manager.

 

The Investment Manager shall promptly provide written notice to the Member upon
the occurrence of a “cause” event.

 

           (b)         Notwithstanding anything herein to the contrary, Sections
7 and 10 of this Agreement shall survive any termination hereof.

 

           (c)         From and after the effective date of termination of this
Agreement, the Investment Manager and its Affiliates shall not be entitled to
compensation for further services hereunder, but shall be paid all compensation
and reimbursement of expenses accrued to the date of termination. Upon such
termination and upon request by the Borrower, the Investment Manager shall
deliver as directed copies of all documents, books, records and other
information prepared and maintained by or on behalf of the Company with respect
to an Portfolio Investment (“Records”) within five Business Days after demand
therefor and a computer tape or diskette (or any other means of electronic
transmission acceptable to the successor investment manager) containing as of
the close of business on the date of demand all of the data maintained by the
Investment Manager in computer format in connection with managing the Portfolio
Investments. The Investment Manager agrees to use reasonable efforts to
cooperate with any successor investment manager in the transfer of its
responsibilities hereunder, and will, among other things, provide upon receipt
of a written request by such successor investment manager any information
available to it regarding any Portfolio Investments. The Investment Manager
agrees that, notwithstanding any termination, it will reasonably cooperate in
any proceeding arising in connection with this Agreement, the Loan Agreement or
any Portfolio Investment (excluding any such proceeding in which claims are
asserted against the Investment Manager or any Affiliate of the Investment
Manager) upon receipt of appropriate indemnification and expense reimbursement.

 

           (d)         Until a successor investment manager has commenced
investment management activities in the place of FS Investment Corporation III,
FS Investment Corporation III shall not resign as Investment Manager hereunder.
Notwithstanding anything contained herein to the contrary and to the extent
permitted by Applicable Law without causing the Investment Manager to have
liability, the resignation of the Investment Manager shall not become effective
until an entity approved by the Company and the Member and shall have assumed
the responsibilities and obligations of the Investment Manager.

 

16

 

 

12.      Power of Attorney; Further Assurances.

 

In addition to the power of attorney granted to the Investment Manager in
Section 1 of this Agreement, the Company hereby makes, constitutes and appoints
the Investment Manager, with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead, in accordance with the terms of this Agreement (a) to sign, execute,
certify, swear to, acknowledge, deliver, file, receive and record any and all
documents which the Investment Manager reasonably deems necessary or appropriate
in connection with its investment management duties under this Agreement and (b)
to (i) subject to any policies adopted by the Parent or the Company with respect
thereto, exercise in its discretion any voting or consent rights associated with
any securities, instruments or obligations included in the Company’s assets,
(ii) execute proxies, waivers, consents and other instruments with respect to
such securities, instruments or obligations, (iii) endorse, transfer or deliver
such securities, instruments and obligations and (iv) participate in or consent
(or decline to consent) to any modification, work-out, restructuring, bankruptcy
proceeding, class action, plan of reorganization, merger, combination,
consolidation, liquidation or similar plan or transaction with regard to such
securities, instruments and obligations. To the extent permitted by applicable
law, this grant of power of attorney is irrevocable and coupled with an
interest, and it shall survive and not be affected by the subsequent dissolution
or bankruptcy of the Company; provided that this grant of power of attorney will
expire, and the Investment Manager will cease to have any power to act as the
Company’s attorney-in-fact, upon termination of this Agreement in accordance
with its terms. The Company shall execute and deliver to the Investment Manager
all such other powers of attorney, proxies, dividend and other orders, and all
such instruments, as the Investment Manager may reasonably request for the
purpose of enabling the Investment Manager to exercise the rights and powers
which it is entitled to exercise pursuant to this Agreement. Each of the
Investment Manager and the Company shall take such other actions, and furnish
such certificates, opinions and other documents, as may be reasonably requested
by the other party hereto in order to effectuate the purposes of this Agreement
and to facilitate compliance with applicable laws and regulations and the terms
of this Agreement.

 

13.      Amendment of this Agreement; Assignment.

 

No provision of this Agreement may be amended, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the amendment, waiver, discharge or termination is sought. The
Investment Manager may not, directly or indirectly, assign all or any part of
its rights and duties under this Agreement to any Person without the prior
consent of the Company, the Administrative Agent and the Required Financing
Providers; provided, however, that the no such consent shall be required in
connection with a merger of FS Investment Corporation III with another business
development company sponsored by Franklin Square Holdings, L.P. or other
fundamental change transaction the result of which effectively combines the
ownership and/or assets of FS Investment Corporation III and a business
development company sponsored by Franklin Square Holdings, L.P., or merges or
consolidates their respective collateral advisors or sub-advisors. In accordance
with the foregoing, the Investment Manager may transfer this Agreement or its
rights and duties under this Agreement without obtaining the prior consent of
the Company or providing prior notice to the Member in a transaction that does
not result in a Change of Control.

 

17

 

 

Neither the failure nor any delay on the part of any party hereto to exercise
any right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege preclude any other or further exercise of the same or of any
other right, remedy, power or privilege, nor shall any waiver of any right,
remedy, power or privilege with respect to any occurrence be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver.

 

14.      Notices.

 

Unless expressly provided otherwise herein, any notice, request, direction,
demand or other communication required or permitted under this Agreement shall
be in writing and shall be deemed to have been duly given, made and received if
sent by hand or by overnight courier, when personally delivered, if sent by
telecopier, when receipt is confirmed by telephone, or if sent by registered or
certified mail, postage prepaid, return receipt requested, when actually
received if addressed as set forth below:

 

(a)

If to the Company:

Jefferson Square Funding LLC

c/o FS Investment Corporation III

201 Rouse Boulevard

Philadelphia, PA 19112

Attention: Gerald F. Stahlecker, Executive Vice President

Tel: (215) 495-1169

Fax: (215) 222-4649

 

(b) 

If to the Investment Manager:

FS Investment Corporation III

201 Rouse Boulevard

Philadelphia, PA 19112

Attention: Gerald F. Stahlecker, Executive Vice President

Tel: (215) 495-1169

Fax: (215) 222-4649

 

(c)

If to the Administrative Agent, the Collateral Agent, the Collateral
Administrator or any Lender under the Loan Agreement, as provided in the Loan
Agreement, as may be amended therein.

 

 

Either party to this Agreement may alter the address to which communications or
copies are to be sent to it by giving notice of such change of address in
conformity with the provisions of this Section 14.

 

15.      Binding Nature of Agreement; Successors and Assigns.

 

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

 

18

 

 

16.      Entire Agreement.

 

This Agreement contains the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof, and supersedes all
prior and contemporaneous agreements, understandings, inducements and
conditions, express or implied, oral or written, of any nature whatsoever with
respect to the subject matter hereof. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.

 

17.      Costs and Expenses.

 

The costs and expenses (including the fees and disbursements of counsel and
accountants) incurred in connection with the negotiation, preparation and
execution of this Agreement, and all matters incident thereto, shall be borne by
each party hereto.

 

18.      Books and Records.

 

In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Investment Manager hereby agrees that all records which it maintains for the
Company are the property of the Company and further agrees to surrender promptly
to the Company any such records upon the Company’s request. The Investment
Manager further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records maintained by it in its capacity as Investment
Manager that are required to be maintained by Rule 31a-1 under the 1940 Act.

 

19.      Titles Not to Affect Interpretation.

 

The titles of sections contained in this Agreement are for convenience only, and
they neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.

 

20.      Provisions Separable.

 

The provisions of this Agreement are independent of and separable from each
other, and, to the extent permitted by applicable law, no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for any
reason any other or others of them may be invalid or unenforceable in whole or
in part.

 

21.      Governing Law.

 

This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.

 

22.      Execution in Counterparts.

 

This Agreement may be executed in separate counterparts, each of which shall be
an original and all of which taken together shall constitute one and the same
instrument.

 

19

 

 

23.      Third Party Rights; Benefits of Agreement.

 

Other than as set forth in this Section 23, none of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditor of the
Company or by any creditor of the Member.

 

The Investment Manager hereby acknowledges that the Collateral Agent is the
beneficiary of a collateral assignment of this Agreement pursuant to Section
8.02 of the Loan Agreement and the Collateral Agent for the benefit of the
Secured Parties shall be an express third party beneficiary of the Company’s
rights hereunder, including but not limited to the Company’s right to
indemnification set forth in Section 10, subject, in each case, to each of the
limitations, restrictions and conditions set forth in the Loan Agreement with
respect to the collateral assignment of this Agreement, and for the avoidance of
doubt, excluding any right of the Company to replace or terminate the Investment
Manager; provided that, such collateral assignment and such third party
beneficiary rights shall automatically terminate upon the irrevocable payment in
full of the Secured Obligations (other than contingent indemnity obligations as
to which no claim has been made) and the termination of the Financing
Commitments in full.

 

24.      Representations and Warranties of the Investment Manager.

 

The Investment Manager represents, warrants and covenants as of the Effective
Date and the date of each Advance as to itself:

 

           (a)        Organization and Good Standing. It has been duly organized
and is validly existing as a corporation in good standing under the laws of its
jurisdiction of organization, with power and authority to own its properties and
to conduct its business as such properties are currently owned and such business
is currently conducted, and had at all relevant times;

 

           (b)        Due Qualification. It is duly qualified to do business as
a Maryland corporation in good standing and has obtained all necessary licenses
and approvals in all jurisdictions where the failure to do so would have a
Material Adverse Effect;

 

           (c)        Power and Authority. It has the power, authority and legal
right to execute and deliver this Agreement and to perform its obligations
hereunder; and the execution, delivery and performance of this Agreement has
been duly authorized by the Investment Manager by all necessary corporate
action;

 

           (d)        Binding Obligations. This Agreement has been executed and
delivered by the Investment Manager and, assuming due authorization, execution
and delivery by the Company, constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except as
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;

 

20

 

 

           (e)        No Violation. The execution, delivery and performance of
this Agreement by the Investment Manager, the Investment Manager’s consummation
of the transactions contemplated hereby and the Investment Manager’s fulfillment
of the terms hereof do not (A) conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of time)
a default under, its articles of amendment and restatement or amended and
restated bylaws, or any material indenture, agreement, mortgage, deed of trust
or other material instrument to which it is a party or by which it or its
properties are bound, (B) result in the creation or imposition of any Adverse
Claim upon any of its properties pursuant to the terms of any such material
indenture, agreement, mortgage, deed of trust or other material instrument
(except as may be created pursuant to this Agreement or any other Transaction
Document), or (C) violate in any material respect any Applicable Law except, in
the case of this subclause (C), to the extent that such conflict or violation
would not reasonably be expected to have a Material Adverse Effect;

 

           (f)         No Proceedings. There are no proceedings or
investigations pending or, to the best of the Investment Manager’s knowledge,
threatened against it, before any Governmental Authority having jurisdiction
over it or its properties (A) asserting the invalidity of this Agreement, (B)
seeking to prevent the consummation of any of the transactions contemplated
hereby or (C) seeking any determination or ruling that would reasonably be
expected to have a Material Adverse Effect. Except as otherwise disclosed, there
is no charge, investigation, action, suit or proceeding before or by any court
pending or, to the best knowledge of the Investment Manager, threatened that, if
determined adversely to the Investment Manager, would have a material adverse
effect upon the performance by the Investment Manager of its duties under, or on
the validity or enforceability of, this Agreement;

 

           (g)        No Consents. No consent, license, approval, authorization
or order of, or registration, declaration or filing with, any Governmental
Authority having jurisdiction over it or any of its properties is required to be
made in connection with the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby, in each case other
than (A) consents, licenses, approvals, authorizations, orders, registrations,
declarations or filings which have been obtained or made and continuation
statements and renewals in respect thereof and (B) where the lack of such
consents, licenses, approvals, authorizations, orders, registrations,
declarations or filings would not have a Material Adverse Effect;

 

           (h)        Investment Company Status. It is not required to be
registered as an “investment company” within the meaning of the 1940 Act;

 

           (i)         Information True and Correct. All information (other than
any information provided to the Investment Manager by an un-Affiliated third
party) heretofore or hereafter furnished by or on behalf of the Investment
Manager in writing to any Lender, the Collateral Agent, the Collateral
Administrator or the Administrative Agent in connection with this Agreement or
any transaction contemplated hereby is and will be (when taken as a whole) true
and correct in all material respects. With respect to any information received
from any un-Affiliated third party, the Investment Manager (i) will not furnish
(and has not furnished) any such information to any Lender, the Collateral
Agent, the Collateral Administrator or the Administrative Agent in connection
with this Agreement or any transaction contemplated hereby that it knows (or
knew) to be incorrect at the time such information is (or was) furnished in any
material respect and (ii) has informed (or will inform) the applicable Lender,
the Collateral Agent, the Collateral Administrator or the Administrative Agent,
as applicable, of any such information which it found to be incorrect in any
material respect after such information was furnished.

 

21

 

 

           (j)         Reserved.

 

           (k)        Eligibility of Portfolio Investments. All Portfolio
Investments included in the calculation of the Net Asset Value in the most
recently delivered Monthly Report, to the knowledge of the Investment Manager,
satisfy the Eligibility Criteria;

 

           (l)         Collections. The Investment Manager acknowledges that all
Collections received by it or its Affiliates with respect to the Collateral are
held and shall be held in trust for the benefit of the Secured Parties until
deposited into the Collection Account; and

 

           (m)        Allocation of Charges. There is not any agreement or
understanding between the Investment Manager and the Company (other than as
expressly set forth herein or as consented to by the Administrative Agent),
providing for the allocation or sharing of obligations to make payments or
otherwise in respect of any Taxes, fees, assessments or other governmental
charges.

 

25.      Conflict with the Loan Agreement. In the event that this Agreement
requires any action to be taken with respect to any matter and the Loan
Agreement requires that a different action be taken with respect to such matter,
and such actions are mutually exclusive, the provisions of the Loan Agreement in
respect thereof shall control.

 

26.      Subordination. The Investment Manager agrees that the payment of all
amounts to which it is entitled pursuant to this Agreement shall be subordinated
to the extent set forth in, and the Investment Manager agrees to be bound by the
provisions of, the Loan Agreement and each of the Investment Manager and the
Company hereby consents to the assignment of this Agreement as provided in
Section 8.02 of the Loan Agreement.

 

27.      No Proceedings. The Investment Manager hereby agrees that it will not
institute against the Company, or join any other Person in instituting against
the Company, any insolvency proceeding (namely, any proceeding of the type
referred to in clause (d) or (e) of the definition of Event of Default) so long
as any Advances or other amounts due from the Company hereunder shall be
outstanding or there shall not have elapsed one year plus one day since the last
day on which any such Advances or other amounts shall be outstanding. The
foregoing shall not limit the Investment Manager’s right to file any claim in or
otherwise take any action with respect to any insolvency proceeding that was
instituted by any Person other than the Investment Manager.

 

22

 

 

28.      Confidentiality.

 

The Investment Manager shall hold in confidence, and not disclose to any Person,
the identity of any Lender or the terms of any fees payable in connection with
any Transaction Document except it may disclose such information (i) to its
officers, directors, employees, agents, counsel, accountants, auditors,
advisors, prospective lenders, equity investors or representatives, (ii) with
the consent of such Lender, (iii) to the extent such information has become
available to the public other than as a result of a disclosure by or through
such Person, (iv) to the extent the Investment Manager or any Affiliate deems
disclosure reasonably prudent under, or should be required by, any law or
regulation applicable to it, or (v) as requested by any Governmental Authority
to disclose such information.

 

[Remainder of page intentionally left blank.]

 

23

 

 

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

 

      FS INVESTMENT CORPORATION III                 By: /s/ Gerald F. Stahlecker
      Name: Gerald F. Stahlecker       Title: Executive Vice President          
      JEFFERSON SQUARE FUNDING LLC                 By: /s/ Gerald F. Stahlecker
      Name: Gerald F. Stahlecker       Title: Executive Vice President

 

Jefferson Square Funding LLC
Investment Management Agreement

 

--------------------------------------------------------------------------------