Exhibit 10.6

ESCROW AGREEMENT

This Escrow Agreement (this “Agreement”) made and entered into as of this 9th
day of January, 2014 by and among FS Investment Corporation III, a Maryland
corporation (the “Corporation”), UMB Bank, N.A., as escrow agent, a national
banking association organized and existing under the laws of the United States
of America (the “Escrow Agent”), and FS² Capital Partners, LLC, a Delaware
limited liability company (the “Dealer Manager”), for itself and for and on
behalf of its selected dealers (the “Selected Dealers”).

RECITALS

WHEREAS, the Corporation proposes to offer and sell shares of common stock, par
value $0.001 per share, of the Corporation (“Common Stock”) to investors,
including in a public offering of such shares of Common Stock.

WHEREAS, pursuant to the Corporation’s public offering of shares of Common Stock
(the “Offering”), it is seeking gross offering proceeds from persons not
affiliated with the Corporation or its investment adviser of at least $2.5
million (the “Minimum Offering Requirement”) and up to 400,000,000 shares of
Common Stock, at an initial purchase price of $10.00 per share pursuant to the
Corporation’s registration statement on Form N-2 (File No. 333-191925), as
supplemented or amended from time to time (the “Offering Document”).

WHEREAS, the Dealer Manager and the Selected Dealers will sell shares of Common
Stock in the public offering on behalf of the Corporation on a “best efforts”
basis.

WHEREAS, the Corporation has agreed that the subscription price paid by
subscribers for shares of Common Stock will be refunded to such subscribers if
the Minimum Offering Requirement has not been met on or prior to the date that
is one year from the date of the final prospectus filed immediately before the
commencement of the Offering (such one-year anniversary being referred to herein
as the “Closing Date”).

WHEREAS, the Corporation and the Dealer Manager desire to establish an escrow
account (the “Escrow Account”) as further described herein in which funds
received from subscribers will be deposited and the Corporation and the Dealer
Manager desire that UMB Bank, N.A. act as escrow agent to the Escrow Account and
the Escrow Agent is willing to act in such capacity.

WHEREAS, in order to subscribe for shares of Common Stock, a subscriber must
deliver the full amount of its subscription: (i) by check in U.S. dollars or
(ii) by wire transfer of immediately available funds in U.S. dollars.

AGREEMENT

NOW, THEREFORE, the Corporation, the Dealer Manager and the Escrow Agent agree
to the terms of this Agreement as follows:

 

1. Establishment of Escrow Account; Escrow Period.

 

  (a)

On or prior to the commencement of the Offering, the parties shall establish the
Escrow

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  Account with the Escrow Agent, which shall be entitled “UMB Bank as Agent for
FS Investment Corporation III – Escrow Account.” Prior to meeting the Minimum
Offering Requirement, the Dealer Manager and Selected Dealers will instruct
subscribers to make checks for subscriptions payable to the order of “UMB Bank,
N.A., as escrow agent for FS Investment Corporation III.”

 

  (b) This Agreement shall be effective on the date on which the Offering
Document is declared effective by the Securities and Exchange Commission. The
escrow period shall commence upon the effectiveness of this Agreement and shall
continue until the earlier of (i) the date upon which the Escrow Agent receives
confirmation from the Corporation or the Dealer Manager that the Corporation has
met the Minimum Offering Requirement, (ii) the Closing Date, or (iii) the
termination of the Offering by the Corporation prior to meeting the Minimum
Offering Requirement (the “Escrow Period”).

 

2. Operation of the Escrow.

 

  (a) Deposits in the Escrow Account. During the Escrow Period, the Dealer
Manager will promptly deliver, but in no event later than the end of the second
business day following receipt by the Dealer Manager, any monies received from
subscribers for the payment of shares of Common Stock to the Escrow Agent for
deposit in the Escrow Account, and the Escrow Agent shall deposit and hold in
the Escrow Account any monies received directly from subscribers for the payment
of shares of Common Stock (collectively, the “Escrowed Funds”). All monies
deposited into the Escrow Account shall be held in the Escrow Account until such
funds are disbursed in accordance with this Section 2. Prior to disbursement of
the funds deposited in the Escrow Account, such funds shall not be subject to
claims by creditors of the Corporation or any of its affiliates. If any of the
instruments of payment are returned to the Escrow Agent for nonpayment prior to
receipt of the Break Escrow Affidavit (as described below), the Escrow Agent
shall promptly notify the Corporation in writing via mail, e-mail or facsimile
of such nonpayment, and is authorized to debit the Escrow Account, as applicable
in the amount of such returned payment as well as any interest earned on the
amount of such payment. The Corporation will, or will cause its transfer agent,
DST Systems, Inc. (the “Transfer Agent”), to maintain a written account of each
sale, which account shall set forth, among other things, the following
information: (i) the subscriber’s name and address; (ii) the number of shares of
Common Stock purchased by such subscriber; and (iii) the amount paid by such
subscriber for such shares of Common Stock. During the Escrow Period, neither
the Corporation nor the Dealer Manager will be entitled to any principal funds
deposited into the Escrow Account.

 

  (b)

Distribution of the Escrowed Funds. If at any time on or prior to the Closing
Date the Minimum Offering Requirement has been met, then upon the happening of
such event, the principal amount of the Escrowed Funds shall remain in the
Escrow Account until the Escrow Agent receives written direction provided by the
Corporation or the Dealer Manager instructing the Escrow Agent to deliver the
principal amount, or a portion thereof, of such Escrowed Funds as the
Corporation or the Dealer Manager, as the case may be, shall direct in writing.
An affidavit or certification from an officer of the Corporation or the Dealer
Manager to the Escrow Agent stating that the Minimum Offering Requirement has
been timely met, shall constitute sufficient evidence for the

 

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  purpose of this Agreement that such event has occurred (the “Break Escrow
Affidavit”). The Break Escrow Affidavit shall indicate: (i) the date on which
the Minimum Offering Requirement has been met (the “Break Escrow Date”);
(ii) the actual total number of shares of Common Stock sold as of the Break
Escrow Date; and (iii) if not all, that portion of the Escrowed Funds to be
transferred. Upon the receipt by the Escrow Agent of the Break Escrow Affidavit,
the Escrow Agent will deliver to State Street Bank and Trust Company (the
“Custodian”), as directed by the Corporation, on the date of the first weekly
closing following the receipt of the Break Escrow Affidavit, the principal and
interest earned on such Escrowed Funds to be transferred and the Escrow Agent
shall from that point forward, transfer on the 1st business day following each
subsequent closing all principal and interest earned on the Escrowed Funds for
the prior subscription period to the Custodian, as directed by the Corporation.
Additionally, the Corporation hereby directs the Escrow Agent to provide the
Transfer Agent with all electronic files and information needed by the Transfer
Agent to perform its duties as record keeper under its agreement with the
Corporation.

If the Escrow Agent has not received a Break Escrow Affidavit on or prior to the
Closing Date, the Escrow Agent shall promptly return the Escrowed Funds,
including interest, if any, thereon, to the subscribers, per the name, address
and in the amounts provided by the Corporation, the Dealer Manager or the
Transfer Agent to the Escrow Agent without deduction, penalty or expense, and
the Escrow Agent shall notify the Corporation and the Dealer Manager in writing
of its distribution of the funds. The subscription payments returned to each
subscriber shall be free and clear of any and all claims of the Corporation or
any of its creditors. The parties hereto hereby agree that, for purposes of this
Section 2(b), the term “promptly return” shall mean that the Escrow Agent shall
return the Escrowed Funds to subscribers, upon the terms and subject to the
conditions set forth in this Section 2(b), by noon of the business day following
the Closing Date, in compliance with Rules 10b-9 and 15c2-4 promulgated under
the Securities Exchange Act of 1934, as amended.

 

3. Escrowed Funds. Upon receipt of the Escrowed Funds, the Escrow Agent shall
hold the Escrowed Funds in escrow pursuant to the terms of this Agreement. Until
such time as the Escrowed Funds shall be distributed by the Escrow Agent as
provided herein, the Escrowed Funds shall be deposited by the Escrow Agent in an
interest bearing account or as may otherwise be directed by the Corporation in
writing.

The Escrow Agent shall be entitled to sell or redeem any investment of the
Escrowed Funds as necessary to make any distributions required under this
Agreement and shall not be liable or responsible for any loss resulting from any
such sale or redemption.

Interest, if any, resulting from any investment of the Escrowed Funds shall be
retained by the Escrow Agent, and shall be distributed according to this
Agreement.

 

4.

Duties of the Escrow Agent. The Escrow Agent shall have no duties or
responsibilities other than those expressly set forth in this Agreement, and no
implied duties or obligations shall be read into this Agreement against the
Escrow Agent. The Escrow Agent is not a party to, or bound by, any other
agreement among the other parties hereto, and the Escrow Agent’s duties shall be
determined solely by reference to this Agreement. The Escrow Agent shall

 

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  have no duty to enforce any obligation of any person, other than as provided
herein. The Escrow Agent shall be under no liability to anyone by reason of any
failure on the part of any other party hereto or any maker, endorser or other
signatory of any document or any other person to perform such person’s
obligations under any such document.

 

5. Liability of the Escrow Agent; Indemnification. The Escrow Agent acts
hereunder as a depository only. The Escrow Agent is not responsible or liable in
any manner for the sufficiency, correctness, genuineness or validity of this
Agreement or with respect to the form of execution of the same. The Escrow Agent
shall not be liable for any action taken or omitted by it, or any action
suffered by it to be taken or omitted, in good faith, and in the exercise of its
own best judgment, and may rely conclusively and shall be protected in acting
upon any order, notice, demand, certificate, opinion or advice of counsel
(including counsel chosen by the Escrow Agent), statement, instrument, report or
other paper or document (not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and acceptability of
any information therein contained) which is reasonably believed by the Escrow
Agent to be genuine and to be signed or presented by the proper person(s). The
Escrow Agent shall not be held liable for any error in judgment made in good
faith by an officer or employee of the Escrow Agent unless it shall be proved
that the Escrow Agent was grossly negligent or reckless or acted intentionally
in bad faith or with willful misconduct. The Escrow Agent shall not be bound by
any notice of demand, or any waiver, modification, termination or rescission of
this Agreement or any of the terms hereof, unless evidenced by a writing
delivered to the Escrow Agent signed by the proper party or parties and, if the
duties or rights of the Escrow Agent are affected, unless it shall give its
prior written consent thereto.

The Escrow Agent may consult legal counsel and shall exercise reasonable care in
the selection of such counsel, in the event of any dispute or question as to the
construction of any provisions hereof or its duties hereunder, and it shall
incur no liability and shall be fully protected in acting in accordance with the
reasonable opinion or instructions of such counsel.

The Escrow Agent shall not be responsible, may conclusively rely upon and shall
be protected, indemnified and held harmless by the Corporation, for the
sufficiency or accuracy of the form of, or the execution, validity, value or
genuineness of any document or property received, held or delivered by it
hereunder, or of the signature or endorsement thereon, or for any description
therein; nor shall the Escrow Agent be responsible or liable in any respect on
account of the identity, authority or rights of the persons executing or
delivering or purporting to execute or deliver any document, property or this
Agreement.

In the event that the Escrow Agent shall become involved in any arbitration or
litigation relating to the Escrowed Funds, the Escrow Agent is authorized to
comply with any final, binding and non-appealable decision reached through such
arbitration or litigation.

The Corporation, hereby agrees to indemnify the Escrow Agent for, and to hold it
harmless against any loss, liability or expense incurred in connection herewith
without gross negligence, recklessness, bad faith or willful misconduct on the
part of the Escrow Agent, including, without limitation, reasonable legal or
other fees arising out of or in connection with its entering into this Agreement
and carrying out its duties hereunder, including, without limitation, the costs
and expenses of defending itself against any claim of liability in the premises
or any action for interpleader. The Escrow Agent shall be under no obligation to

 

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institute or defend any action, suit, or legal proceeding in connection
herewith, unless first indemnified and held harmless to its satisfaction in
accordance with the foregoing, except that the Escrow Agent shall not be
indemnified against any loss, liability or expense arising out of its own gross
negligence, recklessness, bad faith or willful misconduct. Such indemnity shall
survive the termination or discharge of this Agreement or resignation of the
Escrow Agent.

 

6. The Escrow Agent’s Fee. The Escrow Agent shall be entitled to fees and
expenses for its regular services as the Escrow Agent as set forth in Exhibit A.
Additionally, the Escrow Agent is entitled to reasonable fees for extraordinary
services and reimbursement of any reasonable documented out-of-pocket and
extraordinary costs and expenses related to its obligations as the Escrow Agent
under this Agreement, including, but not limited to, reasonable attorneys’ fees.
All of the Escrow Agent’s compensation, costs and expenses shall be paid by the
Corporation.

 

7. Security Interests. No party to this Agreement shall grant a security
interest in any monies or other property deposited with the Escrow Agent under
this Agreement, or otherwise create a lien, encumbrance or other claim against
such monies or borrow against the same.

 

8. Dispute. In the event of any disagreement between the undersigned or the
person or persons named in the instructions contained in this Agreement, or any
other person, resulting in adverse claims and demands being made in connection
with or for any papers, money or property involved herein, or affected hereby,
the Escrow Agent shall be entitled to refuse to comply with any demand or claim,
as long as such disagreement shall continue, and in so refusing to make any
delivery or other disposition of any money, papers or property involved or
affected hereby, the Escrow Agent shall not be or become liable to the
undersigned or to any person named in such instructions for its refusal to
comply with such conflicting or adverse demands, and the Escrow Agent shall be
entitled to refuse and refrain to act until: (a) the rights of the adverse
claimants shall have been fully and finally adjudicated in a court assuming and
having jurisdiction of the parties and money, papers and property involved
herein or affected hereby; or (b) all differences shall have been adjusted by
agreement and the Escrow Agent shall have been notified thereof in writing,
signed by all the interested parties.

 

9. Resignation of the Escrow Agent. The Escrow Agent may resign or be removed,
at any time, for any reason, by written notice of its resignation or removal to
the proper parties at their respective addresses as set forth herein, at least
60 days before the date specified for such resignation or removal to take
effect. Upon the effective date of such resignation or removal:

 

  (a) all cash and other payments and all other property then held by the Escrow
Agent hereunder shall be delivered by it to such successor escrow agent as may
be designated in writing by the Corporation, whereupon the Escrow Agent’s
obligations hereunder shall cease and terminate;

 

  (b) if no such successor escrow agent has been designated by such date, all
obligations of the Escrow Agent hereunder shall, nevertheless, cease and
terminate, and the Escrow Agent’s sole responsibility thereafter shall be to
keep all property then held by it and to deliver the same to a person designated
in writing by the Corporation or in accordance with the directions of a final
order or judgment of a court of competent jurisdiction; and

 

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  (c) if no such successor escrow agent has been designated by such date, the
Escrow Agent may petition any court of competent jurisdiction for the
appointment of a successor agent; further the Escrow Agent may pay into court
all monies and property deposited with the Escrow Agent under this Agreement.

 

10. Notices. All notices, demands and requests required or permitted to be given
under the provisions hereof must be in writing and shall be deemed to have been
sufficiently given, upon receipt, if (i) personally delivered, (ii) sent by
telecopy and confirmed by phone, (iii) sent by electronic mail and confirmed by
electronic mail confirmation of receipt or by telephone, or (iv) mailed by
registered or certified mail, with return receipt requested, delivered as
follows:

 

(1) If to the Corporation:    FS Investment Corporation III    2929 Arch Street,
Suite 675    Philadelphia, PA 19104    Telephone: (215) 495-1150    Facsimile:
(215) 222-4649    Attn: Stephen S. Sypherd (2) If to the Escrow Agent:    UMB
Bank, N.A.    1010 Grand Blvd., 4th Floor    Mail Stop: 1020409    Kansas City,
Missouri 64106    Attention: Lara Stevens,    Corporate Trust & Escrow Services
   Telephone: (816) 860-3017    Facsimile: (816) 860-3029 (3) If to Dealer
Manager:    FS² Capital Partners, LLC    2929 Arch Street, Suite 675   
Philadelphia, PA 19104    Telephone: (215) 495-1150    Facsimile: (215) 222-4649
   Attn: Chief Compliance Officer

 

11. Governing Law. This Agreement shall be construed and enforced in accordance
with the laws of the State of Missouri without regard to the principles of
conflicts of law.

 

12. Binding Effect; Benefit. This Agreement shall be binding upon and inure to
the benefit of the permitted successors and assigns of the parties hereto.

 

13. Modification. This Agreement may be amended, modified or terminated at any
time by a writing executed by the Corporation and the Escrow Agent.

 

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14. Assignability. This Agreement shall not be assigned by the Escrow Agent
without the Corporation’s prior written consent.

 

15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same instrument. Copies, telecopies, facsimiles,
electronic files and other reproductions of original executed documents shall be
deemed to be authentic and valid counterparts of such original documents for all
purposes, including the filing of any claim, action or suit in the appropriate
court of law.

 

16. Headings. The section headings contained in this Agreement are inserted for
convenience only, and shall not affect in any way, the meaning or interpretation
of this Agreement.

 

17. Severability. This Agreement constitutes the entire agreement among the
parties and supersedes all prior and contemporaneous agreements and undertakings
of the parties in connection herewith. No failure or delay of either party in
exercising any right, power or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power or remedy
preclude any other or further exercise of any right, power or remedy. In the
event that any one or more of the provisions contained in this Agreement, shall,
for any reason, be held to be invalid, illegal or unenforceable in any respect,
then to the maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement.

 

18. Earnings Allocation; Tax Matters; Patriot Act Compliance. The Corporation or
its agent shall be responsible for all tax reporting under this Agreement. The
Corporation shall provide to the Escrow Agent upon the execution of this
Agreement any documentation requested and any information reasonably requested
by the Escrow Agent to comply with the USA Patriot Act of 2001, as amended from
time to time.

 

19. Miscellaneous. This Agreement shall not be construed against the party
preparing it, and shall be construed without regard to the identity of the
person who drafted it or the party who caused it to be drafted and shall be
construed as if all parties had jointly prepared this Agreement and it shall be
deemed their joint work product, and each and every provision of this Agreement
shall be construed as though all of the parties hereto participated equally in
the drafting hereof; and any uncertainty or ambiguity shall not be interpreted
against any one party. As a result of the foregoing, any rule of construction
that a document is to be construed against the drafting party shall not be
applicable.

 

20. Termination of the Escrow Agreement. This Agreement, except for Sections 5
and 9 hereof, which shall continue in effect, shall terminate upon written
notice from the Corporation to the Escrow Agent.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by
their duly authorized representatives as of the date first written hereinabove.

 

CORPORATION: FS Investment Corporation III By:  

/s/ Stephen Sypherd

Name:  

Stephen Sypherd

Title:  

Vice President, Treasurer and Secretary

DEALER MANAGER: FS² Capital Partners, LLC By:  

/s/ Adrienne Hart

Name:  

Adrienne Hart

Title:  

Chief Compliance Officer

ESCROW AGENT: UMB Bank, N.A. By:  

/s/ Lara L. Stevens

Name:  

Lara L. Stevens

Title:  

Vice President

[Signature Page to Escrow Agreement]

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EXHIBIT A

ESCROW FEES AND EXPENSES

 

Acceptance Fee

  

Review documents, establish accounts, and Set up recon file/feeds with Transfer
Agent

   $3,250

Annual Fee

  

Annual Escrow Agent

   $2,500

Transactional Fees

  

Outgoing Wire Transfer

   $15 each

BAI File to DST

   $2.50 per business day

Wire Ripping to DST

   $10 per business day

Expense Reimbursement

   6% of Total Fee billed

Acceptance fee and first year Annual fee will be payable at the initiation of
the escrow. Thereafter, the annual fee will be billed annually in advance and
Transactional Fees will be billed quarterly in arrears. Other fees and expenses
will be billed as incurred.

Fees specified are for the regular, routine services contemplated by the
Agreement, and any additional or extraordinary services, including, but not
limited to disbursements involving a dispute or arbitration, or administration
while a dispute, controversy or adverse claim is in existence, will be charged
based upon time required at the then standard hourly rate. In addition to the
specified fees, all reasonable expenses related to the administration of the
Agreement (other than normal overhead expenses of the regular staff) such as,
but not limited to, travel, telephone, facsimile, supplies, legal fees,
accounting fees, etc., will be reimbursable.