FS Investment Corporation III 8-K


EXHIBIT 10.7


 


EXECUTION COPY


 





COLLATERAL ADMINISTRATION
AGREEMENT


 


This COLLATERAL ADMINISTRATION
AGREEMENT, dated as of June 18, 2015 (as the same may be amended from time to time in accordance with the terms hereof (this “Agreement”)
is entered into by and among Germantown Funding LLC, a limited liability company organized under the laws of the State of Delaware,
as issuer (the “Issuer”), FS Investment Corporation III, a corporation organized under the laws of the State
of Maryland, in its capacity as investment manager under the Investment Management Agreement referred to below (in such capacity,
together with its successors in such capacity, the “Investment Manager”) and Virtus Group, LP, a limited partnership
organized under the laws of the State of Texas, as collateral administrator (the “Collateral Administrator”).


 


W I T N E S S E T H:


 


WHEREAS, the Issuer and Citibank,
N.A., as trustee (the “Trustee”), have entered into an Indenture (the “Indenture”) dated
as of June 18, 2015, pursuant to which the Notes (as defined in the Indenture) were issued;


 


WHEREAS, pursuant to the
terms of the Indenture, the Issuer pledged certain Collateral Obligations and Eligible Investments (each as defined in the Indenture
and herein, the “Assets”) as security for the Notes;


 


WHEREAS, the Investment Manager
has entered into an amended and restated investment management agreement (the “Investment Management Agreement”)
with the Issuer, dated as of June 18, 2015, in connection with which the Investment Manager has agreed to provide certain services
to the Issuer with respect to the Assets;


 


WHEREAS, the Issuer wishes
to engage the Collateral Administrator to perform on its behalf certain administrative duties of the Issuer with respect to the
Assets pursuant to the Indenture; and


 


WHEREAS, the Collateral Administrator,
on behalf of the Issuer, is prepared to perform certain specified obligations of the Issuer under the Indenture or of the Investment
Manager under the Indenture, and certain other services as specified herein.


 


NOW, THEREFORE, in consideration
of the mutual covenants contained herein, and other good and valuable consideration the receipt of which is hereby acknowledged,
the parties hereto agree as follows:


 


1.    Definitions.
Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the Indenture.


 


2.    Powers and Duties
of the Collateral Administrator and the Investment Manager.


 


(a)    The Collateral Administrator
shall act as agent for the Issuer until the earlier of (i) its resignation or removal pursuant to Section 7 hereof or (ii) the
termination of this Agreement pursuant to Section 6 or Section 7 hereof. The Collateral Administrator shall assist the Investment
Manager in connection with monitoring the Collateral Obligations and Eligible Investments on an ongoing basis and providing to
the Issuer certain reports, schedules and other data which the Issuer is required to prepare and deliver under Article 10 of the
Indenture. The Collateral Administrator’s duties and authority to act as collateral administrator hereunder are limited to
the duties and authority specifically provided for in this Agreement and under the Indenture. The Collateral Administrator shall
not be deemed to assume the obligations of the Issuer under the Indenture or of the Investment Manager under the Investment Management
Agreement or the Indenture. The Collateral Administrator shall perform those duties and functions assigned to it in the Indenture,
comply with all obligations applicable to it under the Indenture and perform its duties hereunder in accordance with the terms
of this Agreement and the terms of the Indenture applicable to it.


 






    	 



    	 



    




 


In addition, the Collateral
Administrator shall prepare and provide to the Specified Holder (as defined in the Indenture), at the addresses from time to time
specified by the Specified Holder, a report on each Business Day setting forth the cash flows on the Collateral Obligations for
the preceding Business Day and the positions in the Collateral Obligations held by the Issuer at the end of such preceding Business
Day (all in such form and in the scope agreed by the Collateral Administrator and the Specified Holder on or prior to the Closing
Date), and shall provide to the Specified Holder, at the addresses from time to time specified by the Specified Holder, notice
of all corporate actions affecting the obligors on the Collateral Obligations promptly following the Collateral Administrator’s
obtaining notice of the same.


 


(b)    Promptly following
the Closing Date, the Collateral Administrator shall create a Collateral Obligation and Eligible Investments database. Upon request
for specific information in the Collateral Obligation and Eligible Investments database from the Investment Manager, the Collateral
Administrator shall promptly provide such information to the Investment Manager. The Collateral Administrator shall update the
Collateral Obligation and Eligible Investments database promptly following (i) the sale or disposition of any Collateral Obligation
or Eligible Investment and (ii) the purchase of any Collateral Obligation or Eligible Investment.


 


(c)    Not later than the
Business Day prior to the day on which each Monthly Report or Valuation Report is required to be provided by the Issuer to the
Trustee pursuant to Section 10.5(a) or Section 10.5(b) of the Indenture, respectively, the Collateral Administrator shall prepare
the relevant report by calculating, using the information contained in the Collateral Obligation and Eligible Investments database
created by the Collateral Administrator pursuant to Section 2(b) above, and subject to the Collateral Administrator’s receipt
from the Investment Manager of information with respect to the Collateral Obligation or Eligible Investment that is not contained
in such database and subject further to the provisions of this Section 2, each item required to be stated in such Monthly Report
or Valuation Report (together with Payment Date disbursement instructions) in accordance with the Indenture and provide the results
of such calculations to the Investment Manager so that the Investment Manager may confirm such results. Upon approval by the Investment
Manager, the Collateral Administrator shall deliver the Monthly Report or Valuation Report to the Trustee, to be posted to the
Trustee’s website in the manner contemplated in the Indenture.


 


(d)    Upon request of the
Investment Manager in connection with a proposed purchase of a Collateral Obligation pursuant to Section 12.2 of the Indenture
(accompanied by such information concerning the Collateral Obligation to be purchased as may be necessary to make the calculations
referred to in this Section 2(d)), the Collateral Administrator shall calculate each criterion as a condition to such purchase
in accordance with the Indenture and provide the results of such calculations to the Investment Manager for comparison to the Investment
Manager’s own calculations in determining whether such purchase is permitted by the Indenture.


 






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(e)    Upon notification
by the Investment Manager during each time period as set forth in Section 12.1 of the Indenture of a proposed disposition of a
Defaulted Obligation, Equity Security, Withholding Tax Security or Collateral Obligation (accompanied by such information as may
be necessary to make the calculation referred to in this Section 2(e)), the Collateral Administrator shall calculate each criterion
set forth in the designated subsection of Section 12.2 of the Indenture as a condition to such disposition in accordance with the
Indenture and shall provide the results of such calculations to the Investment Manager.


 


(f)     The Collateral Administrator
shall have no liability for any determination to purchase or sell a Collateral Obligation made by the Investment Manager based
on the calculations provided by the Collateral Administrator pursuant to Section 2(d) or Section 2(e), as applicable, except to
the extent due to the gross negligence, fraud or willful misconduct of the Collateral Administrator. The Investment Manager hereby
agrees that any determination to purchase or sell a Collateral Obligation made by the Investment Manager is not based solely upon
the calculations of the Collateral Administrator.


 


(g)    [Reserved].


 


(h)    [Reserved].


 


(i)    The Collateral Administrator
shall assist the Investment Manager in the preparation of such other reports that may be required by the Indenture and that are
reasonably requested in writing by the Investment Manager and agreed to by the Collateral Administrator, which agreement shall
not be unreasonably withheld.


 


(j)     [Reserved].


 


(k)    The Collateral Administrator
shall promptly forward to the Investment Manager copies of notices and other writings received by it, in its capacity as Collateral
Administrator hereunder, from the obligor or other Person with respect to any Collateral Obligation or from any Clearing Agency
with respect to any Collateral Obligation advising the holders of such obligation of any rights that the holders might have with
respect thereto (including notices of calls and redemptions thereof) as well as all periodic financial reports received from such
obligor or other Person with respect to such obligation and Clearing Agencies with respect to such obligor.


 






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(l)    The Investment Manager
reasonably shall assist and cooperate with the Collateral Administrator in connection with the preparation by the Collateral Administrator
of all reports, instructions, the Monthly Reports, the Valuation Reports and statements and certificates required in connection
with the acquisition and disposition of Collateral Obligations, Defaulted Obligations, Withholding Tax Securities, Eligible Investments
and Equity Securities or as otherwise required under the Indenture. Without limiting the generality of the foregoing, the Investment
Manager shall advise the Collateral Administrator in a timely manner of the results of any determinations, designations and selections
made by it as required or permitted under the Indenture and supply the Collateral Administrator with such other information as
is in the possession of the Investment Manager that the Collateral Administrator may from time to time reasonably request with
respect to the Assets and is reasonably needed to complete the reports and certificates required to be prepared by the Collateral
Administrator hereunder or reasonably required to permit the Collateral Administrator to perform its obligations hereunder, including
any information that may be reasonably required under the Indenture with respect to or as to the designation of any Collateral
Obligation, including but not limited to a Credit Risk Obligation, Defaulted Obligation, Equity Security, Withholding Tax Security,
Substitute Collateral Obligation, Bonds, Synthetic Security, Participation (and the related selling institution and its rating
by each Rating Agency) and Structured Finance Obligation, whether a Specified Amendment or Specified Event has occurred and the
S&P rating and the Market Value of any Collateral Obligation to the extent required by the Indenture. Nothing herein shall
obligate the Collateral Administrator to determine independently the correct characterization, classification or categorization
of any Asset held under the Indenture or the Market Value of any Asset (it being understood that any such characterization, classification,
categorization or Market Value shall be based exclusively upon the determination and notification received by the Collateral Administrator
from the Investment Manager or the Issuer). The Collateral Administrator shall have no obligation to determine whether any Asset
meets the definition of “Collateral Obligation”. The Investment Manager shall review and verify the contents of the
aforesaid reports, instructions, statements and certificates and shall send such reports, instructions, statements and certificates
to the Issuer for execution. Such reports, instructions, statements and certificates after execution by the Issuer or the Investment
Manager, as applicable, will be made available to Holders on the Trustee’s website.


 


(m)   Not later than two
Business Days prior to each Payment Date, the Collateral Administrator shall calculate the Priority of Payments and provide a written
report to the Investment Manager and the Trustee setting forth all amounts that the Trustee will be required to remit on such Payment
Date and such other information required for the Trustee to make such remittances.


 


(n)    If, in performing
its duties under this Agreement, the Collateral Administrator is required to decide between alternative courses of action or if
there are alternative methodologies that can be used in connection with any calculations required to be performed by the Collateral
Administrator hereunder, the Collateral Administrator may request written instructions from the Investment Manager as to the course
of action or methodology to be used by the Collateral Administrator; provided, however, that except to the extent required
by the Indenture or the Investment Management Agreement, the Investment Manager shall be under no obligation to provide such instructions.
If the Collateral Administrator does not receive such instructions within two Business Days after it has requested them, it may,
but shall be under no duty to, take or refrain from taking such action provided that the Collateral Administrator as promptly as
possible notifies the Investment Manager and the Issuer which course of action, if any (or refrainment from taking any course of
action), it has decided to take. The Collateral Administrator shall act in accordance with instructions received after such two-Business
Day period. The Collateral Administrator shall be entitled to rely on the advice of legal counsel selected with due care and Independent
certified public accountants in performing its duties hereunder and shall be deemed to have acted in good faith if it acts in accordance
with such advice, unless such advice is in conflict with this Agreement. Nothing herein shall prevent the Collateral Administrator
or any of its Affiliates from engaging in other businesses or from rendering services of any kind to any Person.


 






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3.    Compensation.
Subject to Section 13, the Issuer agrees to pay, and the Collateral Administrator shall be entitled to receive, as compensation
for and reimbursement of expenses in connection with the Collateral Administrator’s performance of the duties called for
herein, the amounts set forth in a separate fee letter among the Investment Manager, the Trustee and the Collateral Administrator.
In accordance with Section 13, all amounts payable under this Section 3 shall be payable only in accordance with, and subject to,
the Priority of Payments as set forth in the Indenture.


 


4.    Limitation of
Responsibility of the Collateral Administrator. (a) The Collateral Administrator will have no responsibility under this Agreement
other than to render the services called for hereunder in good faith and without willful misfeasance, gross negligence or reckless
disregard of its duties hereunder. The Collateral Administrator shall incur no liability to anyone in acting upon, and may rely
conclusively upon, any signature, instrument, statement, notice, resolution, request, direction, consent, order, certificate, report,
opinion, bond or other document or paper reasonably believed by it to be genuine and reasonably believed by it to be signed by
the proper party or parties. Subject to Section 12, the Collateral Administrator may exercise any of its rights or powers hereunder
or perform any of its duties hereunder either directly or by or through agents or attorneys, and the Collateral Administrator shall
not be responsible for any misconduct or negligence on the part of any agent or attorney appointed hereunder with due care by it.
The Collateral Administrator shall be entitled to the same rights, protections and immunities that are afforded to the Trustee
under Article 6 of the Indenture. Neither the Collateral Administrator nor any of its Affiliates, directors, officers, shareholders,
members, agents or employees will be liable to the Investment Manager, the Issuer or others, except by reason of acts or omissions
constituting bad faith, willful misfeasance, gross negligence or reckless disregard of the Collateral Administrator’s duties
hereunder. Anything in this Agreement notwithstanding, in no event shall the Collateral Administrator be liable for special, punitive,
indirect or consequential damage of any kind whatsoever (including but not limited to lost profits), even if the Collateral Administrator
has been advised of such loss or damage and regardless of the form of action under or pursuant to this Agreement, its duties or
obligations hereunder or arising out of or relating to the subject matter hereof. The Collateral Administrator shall in no event
have any liability for the actions or omissions of the Issuer, the Investment Manager or any other Person, and shall have no liability
for any inaccuracy or error in any duty performed by it that results from or is caused by inaccurate, untimely or incomplete information
or data received by it from the Issuer, the Investment Manager or another Person except to the extent that such inaccuracies or
errors are caused by the Collateral Administrator’s own bad faith, willful misfeasance, gross negligence or reckless disregard
of its duties hereunder. The Collateral Administrator shall not be liable for failing to perform or delay in performing its specified
duties hereunder which results from or is caused by a failure or delay on the part of the Issuer, the Investment Manager or another
Person in furnishing necessary, timely and accurate information to the Collateral Administrator except to the extent that any failure
or delay is caused by the Collateral Administrator’s own criminal conduct, fraud, bad faith, willful misfeasance, gross negligence
or reckless disregard of its duties hereunder. The duties and obligations of the Collateral Administrator and its employees or
agents shall be determined solely by the express provisions of this Agreement and they shall not be under any obligation or duty
except for the performance of such duties and obligations as are specifically set forth herein, and no implied covenants shall
be read into this Agreement against them. For purposes of monitoring changes in ratings, the Collateral Administrator shall be
entitled to use and rely (in good faith) exclusively upon one or more reputable electronic financial information reporting services,
and shall have no liability for any inaccuracies in the information reported by, or other errors or omissions of, any such services.


 






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(b)    To the extent of any
ambiguity in the interpretation of any definition or term contained in the Indenture, the Collateral Administrator shall request
direction from the Investment Manager as to the interpretation used, and the Collateral Administrator shall follow such direction,
and together with the Trustee, shall be entitled to conclusively rely thereon without any responsibility or liability therefor.


 


(c)    The Issuer shall reimburse,
indemnify and hold harmless the Collateral Administrator, and its Affiliates, directors, officers, shareholders, members, agents
and employees with respect to all out-of-pocket expenses, losses, damages, liabilities, demands, charges and claims of any nature
(including the reasonable fees and expenses of counsel and other experts) in connection with or arising out of this Agreement and
the Indenture, other than any such expenses, losses, damages, liabilities, demands, charges or claims incurred by reason of the
bad faith, willful misfeasance, gross negligence or reckless disregard by the Collateral Administrator of its duties hereunder.


 


(d)    The Collateral Administrator
shall reimburse, indemnify and hold harmless the Investment Manager and the Issuer and their respective Affiliates, directors,
officers, shareholders, members, agents and employees with respect to all expenses, losses, damages, liabilities, demands, charges
and claims of any nature (including the reasonable fees and expenses of counsel and other experts) in respect of or arising out
of any acts or omissions performed or omitted, as the case may be, by the Collateral Administrator, its Affiliates, directors,
officers, shareholders, members, agents or employees hereunder or in connection with the Indenture made in bad faith or constituting
willful misfeasance, gross negligence or reckless disregard of its duties hereunder.


 


(e)    The Investment Manager
will have no responsibility under this Agreement other than to render the services called for hereunder or in connection with the
Indenture in good faith and without willful misfeasance, gross negligence or reckless disregard of its duties hereunder. The Investment
Manager will not be liable to the Collateral Administrator, the Issuer or others, except by reason of acts or omissions constituting
bad faith, willful misfeasance, gross negligence or reckless disregard of the Investment Manager’s duties hereunder. The
Investment Manager shall reimburse, indemnify and hold harmless the Collateral Administrator and its Affiliates, directors, officers,
shareholders, members, agents and employees with respect to all expenses, losses, damages, liabilities, demands, charges and claims
of any nature (including the reasonable fees and expenses of counsel and other experts) in respect of or arising out of any acts
or omissions performed or omitted, as the case may be, by the Investment Manager, its Affiliates, directors, officers, shareholders,
members, agents or employees hereunder made in bad faith or constituting willful misfeasance, gross negligence or reckless disregard
of its duties hereunder or under the Indenture. Anything in this Agreement notwithstanding, in no event shall the Investment Manager
be liable for special, indirect or consequential damage of any kind whatsoever (including but not limited to lost profits), even
if Investment Manager has been advised of such loss or damage and regardless of the form of action.


 






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(f)   
In connection with the aforesaid indemnification provisions, upon reasonable prior notice, any indemnified party
will afford to the applicable indemnifying party the right, in its sole discretion and at its sole expense, to assume the
defense of any 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 party 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; and provided, further, that prior to entering into any final settlement or compromise, such
indemnifying party shall seek the consent of the indemnified party 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 party as to the terms of settlement or compromise. If an
indemnified party does not consent to the settlement or compromise within a reasonable time under the circumstances, the
indemnifying party shall not thereafter be obligated to indemnify the indemnified party for any amount in excess of such
proposed settlement or compromise.


 


5.    No Joint Venture.
Nothing contained in this Agreement (i) shall constitute the Collateral Administrator, the Issuer and the Investment Manager as
members of any partnership, joint venture, association, syndicate, unincorporated business or other separate entity, (ii) shall
be construed to impose any liability as such on any of them or (iii) shall be deemed to confer on any of them any express, implied
or apparent authority to incur any obligation or liability on behalf of the others.


 


6.     Term. This
Agreement shall continue in effect so long as the Indenture remains in effect with respect to the Notes, unless this Agreement
has been previously terminated in accordance with Section 7 hereof. Notwithstanding the foregoing, the indemnification obligations
of all parties under Section 4 hereof shall survive the termination of this Agreement or release of any party hereto with respect
to matters occurring prior to such termination or release.


 


7.    Termination; Resignation
and Appointment of Successor.


 


(a)    This Agreement may
be terminated without cause by any party hereto upon not less than 90 days’ prior written notice to each other party hereto.


 






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(b)    At the option of the
Investment Manager or the Issuer, this Agreement shall be terminated upon ten days’ written notice of termination from the
Investment Manager or the Issuer to the Collateral Administrator if any of the following events shall occur:


 


(i)    The Collateral
Administrator shall default in the performance of any of its material duties under this Agreement and shall not cure such default
within thirty days (or, if such default cannot be cured in such time, shall not give within 30 days such assurance of cure as shall
be reasonably satisfactory to the Investment Manager or the Issuer);


 


(ii)    The Collateral
Administrator shall be dissolved (other than pursuant to a consolidation, amalgamation or merger) or shall have a resolution passed
for its winding up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger);


 


(iii)    A court
having jurisdiction in the premises shall enter a decree or order for relief in respect of the Collateral Administrator in any
involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appoint a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Collateral Administrator or for any substantial
part of its property, or order the winding-up or liquidation of its affairs; or


 


(iv)    The
Collateral Administrator shall commence a voluntary case under applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official)
of the Collateral Administrator or for any substantial part of its property, or shall make any general assignment for the benefit
of creditors, or shall fail generally to pay its debts as they become due. 


 


If any of the events specified
in clauses (ii), (iii) or (iv) of this Section 7(b) shall occur, the Collateral Administrator shall give written notice thereof
to the Investment Manager and the Issuer within one Business Day after the happening of such event.


 


(c)    Upon receiving any
notice of resignation of the Collateral Administrator or removal by the Issuer, the Issuer shall promptly appoint a successor collateral
administrator by written instrument, in duplicate, executed by an Authorized Officer of the Issuer, one copy of which shall be
delivered to the Collateral Administrator so resigning or removed and one copy to·the successor collateral administrator.
No resignation or removal of the Collateral Administrator shall be effective until a successor collateral administrator shall have
been appointed and shall have accepted such appointment hereunder in writing. If the Issuer shall fail to appoint a successor collateral
administrator within 30 days after such notice of resignation, then the Collateral Administrator may petition any court of competent
jurisdiction for the appointment of a successor collateral administrator. Notwithstanding the foregoing, the Collateral Administrator
may resign its duties hereunder without any requirement that a successor collateral administrator be obligated hereunder and without
any liability for further performance of any duties hereunder upon at least 90 days’ prior written notice to the other parties
hereto upon the occurrence of any of the following events and the failure to cure such event within such 90 day notice period:
(i) failure of the Issuer to pay any of the amounts specified in Section 3 within 90 days after such amount is due pursuant to
Section 3 hereof or (ii) failure of the Investment Manager or the Issuer to provide any indemnity payment or expense reimbursement
to the Collateral Administrator required under Section 4 hereof within 90 days of the receipt by the Investment Manager or the
Issuer of a written request for such payment or reimbursement.


 






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8.    Representations
and Warranties.


 


(a)    The Issuer hereby
represents and warrants to the Collateral Administrator and the Investment Manager as follows:


 


(i)    The Issuer
has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware and has the full
power and authority to execute, deliver and perform this Agreement and all obligations required hereunder and has taken all necessary
action to authorize this Agreement on the terms and conditions hereof, the execution, delivery and performance of this Agreement
and the performance of all obligations imposed upon it hereunder. No consent of any other person including, without limitation,
members, shareholders and creditors of the Issuer, and no license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with, any governmental authority is required to be obtained or made by the Issuer
in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement and the
obligations imposed upon it hereunder. This Agreement constitutes, and each instrument or document required hereunder, when executed
and delivered by the Issuer hereunder, will constitute, the legally valid and binding obligations of the Issuer enforceable against
the Issuer in accordance with their terms subject, as to enforcement, (a) to the effect of bankruptcy, insolvency or similar laws
affecting generally the enforcement of creditors’ rights as such laws would apply in the event of any bankruptcy, receivership,
insolvency or similar event applicable to the Issuer and (b) to general equitable principles (whether enforceability of such principles
is considered in a proceeding at law or in equity).


 


(ii)    The execution,
delivery and performance by the Issuer of this Agreement, the Issuer’s obligations hereunder and the documents and instruments
required hereunder will not violate any provision of any existing law or regulation binding on the Issuer, or any order, judgment,
award or decree of any court, arbitrator or governmental authority binding on the Issuer, or the governing instruments of, or any
securities issued by, the Issuer or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to
which the Issuer is a party or by which the Issuer or any of its assets may be bound, the violation of which would have a material
adverse effect on the business, operations, assets or financial condition of the Issuer and will not result in, or require, the
creation or imposition of any lien on any of its property, assets or revenues pursuant to the provisions of any such mortgage,
indenture, lease, contract or other agreement, instrument or undertaking.


 






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(b)    The Investment Manager
hereby represents and warrants to the Collateral Administrator and the Issuer as follows:


 


(i)    The Investment
Manager has been duly formed and is validly existing and in good standing under the laws of the State of Maryland as a corporation
and has the full power and authority to execute, deliver and perform this Agreement and all obligations required hereunder and
has taken all necessary action to authorize this Agreement on the terms and conditions hereof, the execution, delivery and performance
of this Agreement and the performance of all obligations imposed upon it hereunder. No consent of any other person including, without
limitation, shareholders and creditors of the Investment Manager, and no license, permit, approval or authorization of, exemption
by, notice or report to, or registration, filing or declaration with, any governmental authority is required by the Investment
Manager in connection with this Agreement or the execution, delivery, performance, validity or enforceability of this Agreement
and the obligations imposed upon it hereunder. This Agreement constitutes, and each instrument or document required hereunder,
when executed and delivered by the Investment Manager hereunder, will constitute, the legally valid and binding obligations of
the Investment Manager enforceable against the Investment Manager in accordance with their terms subject, as to enforcement, (a)
to the effect of bankruptcy, insolvency or similar laws affecting generally the enforcement of creditors’ rights as such
laws would apply in the event of any bankruptcy, receivership, insolvency or similar event applicable to the Investment Manager
and (b) to general equitable principles (whether enforceability of such principles is considered in a proceeding at law or in equity).


 


(ii)    The execution,
delivery and performance of this Agreement, the Investment Manager’s obligations hereunder and the documents and instruments
required hereunder will not violate any provision of any existing law or regulation binding on the Investment Manager, or any order,
judgment, award or decree of any court, arbitrator or governmental authority binding on the Investment Manager, or the governing
instruments of, or any securities issued by, the Investment Manager or of any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which the Investment Manager is a party or by which the Investment Manager or any of its assets may
be bound, the violation of which would have a material adverse effect on the business, operations, assets or financial condition
of the Investment Manager and will not result in, or require, the creation or imposition of any lien on any of its property, assets
or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement, instrument or undertaking.


 


(c)    The Collateral Administrator
hereby represents and warrants to the Investment Manager and the Issuer as follows:


 


(i)    The Collateral
Administrator is a limited partnership duly organized and validly existing under the laws of the State of Texas and has full power
and authority to execute and deliver this Agreement and perform all obligations required hereunder and has taken all necessary
action to authorize this Agreement on the terms and conditions hereof, the execution and delivery of this Agreement and the performance
of all obligations required hereunder. No consent of any other person including, without limitation, partners and creditors of
the Collateral Administrator, and no license, permit, approval or authorization of, exemption by, notice or report to, or registration,
filing or declaration with, any governmental authority is required by the Collateral Administrator in connection with this Agreement
or the execution, delivery, performance, validity or enforceability of this Agreement and the obligations imposed upon it hereunder.
This Agreement constitutes, and each instrument and document required hereunder, when executed and delivered by the Collateral
Administrator hereunder, will constitute, the legally valid and binding obligations of the Collateral Administrator enforceable
against the Collateral Administrator in accordance with their terms subject, as to enforcement, (a) to the effect of bankruptcy,
insolvency or similar laws affecting generally the enforcement of creditors’ rights as such laws would apply in the event
of any bankruptcy, receivership, insolvency or similar event applicable to the Collateral Administrator and (b) to general equitable
principles (whether enforceability of such principles is considered in a proceeding at law or in equity).


 






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(ii)    The execution,
delivery and performance of this Agreement, the Collateral Administrator’s obligations hereunder and the documents and instruments
required hereunder will not violate any provision of any existing law or regulation binding on the Collateral Administrator, or
any order, judgment, award or decree of any court, arbitrator or governmental authority binding on the Collateral Administrator,
or the organizational documents of the Collateral Administrator or of any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which the Collateral Administrator is a party or by which the Collateral Administrator or any of its
assets may be bound, the violation of which would have a material adverse effect on the business, operations, assets or financial
condition of the Collateral Administrator and will not result in, or require, the creation or imposition of any lien on any of
its property, assets or revenues pursuant to the provisions of any such mortgage, indenture, lease, contract or other agreement,
instrument or undertaking.


 


9.    Amendments.
This Agreement may not be amended, changed, modified or terminated (except as otherwise expressly provided herein) except by the
Investment Manager, the Issuer, the Collateral Administrator and, for so long as the Notes issued under the Indenture remain Outstanding,
Holders of a Majority of the Notes in writing.


 


10.   Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND THIS AGREEMENT AND ANY MATTERS ARISING OUT OF OR RELATING IN ANY WAY
WHATSOEVER TO THIS AGREEMENT (WHETHER IN CONTRACT, TORT OR OTHERWISE) SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK.


 


11.  Notices.
All notices, requests, directions and other communications permitted or required hereunder shall be in writing and shall be deemed
to have been duly given (i) when delivered personally, (ii) when transmitted by facsimile or other electronic means of communication
(it being agreed that such notice shall be effective at the time that a transmission report confirming transmission is generated
by the sender’s facsimile machine) or (iii) when mailed, first class postage prepaid, or sent by overnight courier service,
to the parties at their respective addresses set forth below (or to such other address as a party may have specified by written
notice given to the other parties pursuant to this provision.


 






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If to the Collateral Administrator, to: 


 


Virtus Group, LP

5400 Westheimer Court

Suite 760 


Houston, Texas 77056

Telecopy: (866) 816-3203


  


If to the Issuer, to:



Germantown Funding LLC





c/o FS Investment Corporation III

201 Rouse Boulevard 


Philadelphia, Pennsylvania 19112

Facsimile: (215) 222-4649

Attention: Gerald F. Stahlecker


  


If to the Investment Manager, to:


FS Investment Corporation III


201 Rouse Boulevard 


Philadelphia, Pennsylvania 19112

Facsimile: (215) 222-4649

Attention: Gerald F. Stahlecker


 


12.  Successors and
Assigns. This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the Investment
Manager, the Issuer and the Collateral Administrator (including by merger or consolidation); provided, however, that the Collateral
Administrator may not assign its rights and obligations hereunder without the prior written consent of the Investment Manager and
the Issuer, except that the Collateral Administrator may delegate to, employ as agent, or otherwise cause any duty or obligation
hereunder to be performed by, any Affiliate of the Collateral Administrator or its successors without the prior written consent
of the Investment Manager and the Issuer, provided that the Collateral Administrator shall remain directly liable to the Issuer
for the performance of its duties hereunder.


 


13. Bankruptcy Non-Petition
and Limited Recourse. Notwithstanding any other provision of this Agreement, the Collateral Administrator and the Investment
Manager may not, prior to the date which is one year and one day (or, if longer, the then applicable preference period plus one
day) after the payment in full of all the Notes, institute against, or join any other Person in instituting against, the Issuer,
any bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation proceedings, or other proceedings under United
States federal or state bankruptcy laws, or any similar laws; provided, however, that nothing in this agreement by the Investment
Manager, the Collateral Administrator or the Issuer (i) shall preclude, or be deemed to estop, the Investment Manager or the Collateral
Administrator (A) from taking any action prior to the expiration of the aforementioned one year plus one day period (or if longer,
the applicable preference period plus one day) in (x) any case or proceeding voluntarily filed or commenced by the Issuer or (y)
any involuntary insolvency proceeding filed or commenced against the Issuer by a Person other than the Investment Manager or the
Collateral Administrator or any of their respective Affiliates or (B) from commencing against the Issuer or any properties of the
Issuer, any legal action which is not a bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation proceeding.
The Issuer’s obligations hereunder will be solely the corporate obligations of the Issuer, and the Collateral Administrator
and the Investment Manager will not have any recourse to any of the directors, officers, employees, shareholders, members, governors
or Affiliates of the Issuer with respect to any claims, losses, damages, liabilities, indemnities or other obligations in connection
with any transactions contemplated hereby. The obligations of the Issuer hereunder shall be limited to the net proceeds of the
Assets (if any), payable solely in accordance with the order specified in the Priority of Payments under the Indenture, and following
realization of the Assets and the application of their proceeds in accordance with the Priority of Payments under the Indenture,
any outstanding obligations of the Issuer hereunder, and any claims in respect thereof, shall be extinguished and shall not thereafter
revive. The provisions of this Section 13 shall survive the termination of this Agreement.


 






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14.  Counterparts.
This Agreement may be executed in any number of counterparts, including by facsimile or other electronic means of communication,
each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. Delivery
of an executed counterpart of this Agreement by e-mail (PDF) or telecopy shall be as effective as delivery of a manually executed
counterpart of this Agreement.


 


15. Conflict with
the Indenture. If this Agreement shall require that any action be taken with respect to any matter and the Indenture shall
require that, a different action be taken with respect to such matter, and such actions shall be mutually exclusive, or if this
Agreement should otherwise conflict with the Indenture, the Indenture shall govern.


 


16. Assignment of
Issuer’s Rights. The parties hereto hereby acknowledge the Issuer’s Grant pursuant to the Indenture of its right,
title and interest in, to and under this Agreement.


 


17. Jurisdiction.
The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any New York State or Federal court sitting
in the Borough of Manhattan in The City of New York in any action or proceeding arising out of or relating to this Agreement,
and the parties hereto hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined
in such New York State or Federal court. The parties hereto hereby irrevocably waive, to the fullest extent that they may legally
do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The parties hereto hereby agree that
a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.


 






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18. Waiver of Jury
Trial Right. EACH PARTY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT THAT
IT MAY HAVE TO A TRIAL BY JURY (BUT NO OTHER JUDICIAL REMEDIES) IN RESPECT OF ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby (i) certifies that no representative, agent or attorney of
the other has represented, expressly or otherwise, that the other would not, in the event of such proceedings, seek to enforce
the foregoing waiver and (ii) acknowledges that it has been induced to enter into this Agreement by, among other things, the mutual
waivers and certifications in this Section 18.


 







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IN WITNESS WHEREOF, the
parties hereto have caused this Collateral Administration Agreement to be executed effective as of the day first above written.


  





	 	GERMANTOWN FUNDING LLC the Issuer
	 	 	 
	 	By:	/s/ Gerald F. Stahlecker
	 	Name:	Gerald F. Stahlecker
	 	Title	Executive Vice President
	 	 	 
	 	FS INVESTMENT CORPORATION III the Investment Manager
	 	 	 
	 	By:	/s/ Gerald F. Stahlecker
	 	Name:	Gerald F. Stahlecker
	 	Title	Executive Vice President
	 	 	 
	 	VIRTUS GROUP, LP the Collateral Administrator
	 	 	 
	 	By:	/s/ Joseph U. Elston
	 	Name:	Joseph U. Elston
	 	Title	Partner



 





[Signature Page to Collateral Administration Agreement]