COLLATERAL ADMINISTRATION
AGREEMENT


 


This COLLATERAL ADMINISTRATION
AGREEMENT (this “Agreement”) dated as of February 24, 2012 is made by and among KCAP Funding (the “Issuer”),
Kohlberg Capital Corporation (“Kohlberg”), in its capacity as portfolio manager (the “Portfolio Manager”),
Credit Suisse AG, Cayman Islands (“CS”), in its capacity as Senior Commitment Party (as defined in the Note
Purchase Agreement (as defined below)) and The Bank of New York Mellon Trust Company, National Association (the “Bank”),
in its capacities as Collateral Administrator (the “Collateral Administrator”) and Collateral Agent (the “Collateral
Agent”). Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in the Note Purchase
Agreement.


 


WITNESSETH:


 


WHEREAS, the Issuer intends
to acquire, from time to time, Collateral Debt Obligations selected by the Portfolio Manager and approved by the Senior Commitment
Party with financing provided by the Senior Commitment Party and Junior Noteholder pursuant to the Note Purchase Agreement, dated
as of February 24, 2012, between the Issuer, CS, in its capacities as Senior Commitment Party and Senior Noteholder, Kohlberg,
in its capacities as Junior Noteholder and Portfolio Manager, Credit Suisse Securities (USA) LLC, in its capacity as Arranger,
and the Bank, in its capacities as Collateral Agent and Collateral Administrator (such agreement, the “Note Purchase Agreement”);


 


WHEREAS, the Collateral
Administrator shall receive, hold in safekeeping and release Collateral Debt Obligations purchased by the Issuer and all interest
(including paid and unpaid accrued interest, premiums and fees, without duplication) amounts, principal amounts and other amounts
received on account of the Collateral Debt Obligations, and CLO Asset Management Fees and any interest thereon (collectively, the
“Assets”) in accordance with the terms of this Agreement and the Note Purchase Agreement, and perform certain
administrative functions relating to the Collateral Debt Obligations.


 


NOW, THEREFORE, in consideration
of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows.


 


1.          The
Collateral Administrator hereby agrees to accept (a) the Collateral Debt Obligations from time to time presented to the Collateral
Administrator by the Issuer (or the Portfolio Manager on its behalf), (b) the CLO Asset Management Fees, (c) any proceeds of the
foregoing and (d) any financing amounts from time to time presented to the Collateral Administrator by the Senior Commitment Party
or the Junior Noteholder, and agrees to hold, release and transfer the same in accordance with the provisions of this Agreement
and the Note Purchase Agreement.


 


2.          The
Collateral Administrator shall, on or prior to the date of this Agreement, establish four segregated, non-interest bearing
trust accounts in the name of the Collateral Agent for the benefit of the Secured Parties, which shall be designated as (a)
an interest account with the account number [  ] (the “Interest Account”), (b) a principal account with the
account number [  ] ( the “Principal
Account”), (c) a collateralized loan obligation asset management fees account with account number [  ] (the
“CLO Asset Management Fees Account”) and (d) a custodial account with the account number [  ] (the
“Custody Account,” and together with the Interest Account, Principal Account and the CLO Asset
Management Fees Account, the “Accounts”). Any interest, premiums and fees accrued on and other income on
the Collateral Debt Obligations shall be held in the Interest Account. Any principal payments or redemption amounts with
respect to the Collateral Debt Obligations shall be held in the Principal Account. Any CLO Asset Management Fees and any
interest thereon shall be held in the CLO Asset Management Fees Account. Unless a Termination Event has occurred, the
Collateral Administrator will release funds on deposit in the CLO Asset Management Fees Account at the direction of the
Portfolio Manager. Any financing amounts received from the Senior Commitment Party or the Junior Noteholder shall be credited
to the Principal Account prior to the application of such amount to the purchase of Collateral Debt Obligations in accordance
with the Note Purchase Agreement. Any Collateral Debt Obligations purchased by the Issuer shall be held in the Custodial
Account. Any amounts received with respect to the Collateral Debt Obligations and any CLO Asset Management Fees shall be
invested by the Collateral Administrator in the JPMorgan US Dollar Treasury Liquidity Fund, unless otherwise specified in
writing jointly by the Portfolio Manager and the Senior Commitment Party. The Collateral Administrator shall not be liable
for losses on any investments made by it pursuant to and in compliance with such instructions. Wire instructions with respect
to the Collateral Administrator are listed in Section II of Exhibit A to the Note Purchase Agreement.


 



    	 



    	 



    

 


3.           (a)          The
Collateral Administrator represents and warrants that it is a bank or trust company that in the ordinary course of business maintains
securities accounts for others and in that capacity has established the Accounts and qualifies as a “securities intermediary”
as defined in Article 8 of the Uniform Commercial Code, as in effect from time to time in the State of New York (the “UCC”)
and will maintain the Accounts as “securities accounts” as defined in Article 8 of the UCC.


 


(b)          The
Collateral Administrator agrees that:


 


(i)          the
Collateral Administrator will treat the Collateral Agent as the “entitlement holder” within the meaning of the UCC,
entitled to exercise the rights that comprise the financial assets credited to the Accounts;


 


(ii)         following
a Termination Event, the Collateral Administrator will act only on entitlement orders or other instructions with respect to the
Accounts originated by the Collateral Agent and no other person;


 


(iii)        the
Collateral Administrator will treat all property credited to any Account as a “financial asset” for purposes of Article
8 of the UCC;


 


(iv)         the
Collateral Administrator has no notice of any adverse claim with respect to any “financial asset” credited to any Account;
and


 


(v)          any
security interest or right of set-off in favor of the Collateral Administrator with respect to any Account will be subordinate
to the Priority of Payments.


 


(c)          Following
a Termination Event, the Collateral Agent will act solely upon the direction of the Controlling Party with respect to amounts on
deposit in or credited to each Account and in accordance with the Note Purchase Agreement.


 


(d)          The
Collateral Administrator and the Collateral Agent will be deemed to have knowledge of a Termination Event only if they receive
actual notice or have actual knowledge of such Termination Event.


 


(e)          The
parties hereto agree that “securities intermediary’s jurisdiction” for the purposes of Section 8-110 of
the UCC shall be the State of New York. The parties hereto further agree that with respect to any Account the law applicable to
all the issues in Article 2(1) of The Hague Convention on the Law Applicable to Certain Rights in Respect of Securities Held with
an Intermediary shall be the law of the State of New York.


 



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4.          The
Collateral Administrator shall hold the Assets in safekeeping as custodian and shall release and transfer the Assets only in accordance
with the provisions of the Note Purchase Agreement and this Agreement. If the Refinancing Date occurs, on the Refinancing Date,
Collateral Debt Obligations held in the Custodial Account, CLO Asset Management Fees held in the CLO Asset Management Fees Account
and any remaining proceeds to be retained by the Issuer after application of the Priority of Payments shall be released and transferred
in accordance with written instructions from the Portfolio Manager and the Senior Commitment Party.


 


5.          The
Collateral Administrator shall be obligated only for the performance of such duties as are specifically set forth in this Agreement
and the Note Purchase Agreement and may rely and shall be protected in acting or refraining from acting on any written notice,
request, waiver, consent or instrument reasonably believed by it to be genuine and to have been signed or presented by the proper
party or parties. The Collateral Administrator shall not be required to risk or expend its own funds in performing its obligations
hereunder. The Collateral Administrator shall have no duty to determine or inquire into the happening or occurrence of any event
or contingency, and it is agreed that its duties are purely ministerial in nature. The Collateral Administrator may consult with
and obtain advice from legal counsel as to any provision hereof or its duties hereunder. The Collateral Administrator shall not
be liable for any action taken or omitted by it, except for gross negligence or willful misconduct, in good faith and reasonably
believed by it to be authorized hereby, nor for action taken or omitted by it in accordance with the advice of its counsel. Anything
in this Agreement notwithstanding, in no event shall the Collateral Administrator be liable for special, indirect, punitive or
consequential loss or 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.


 


6.          If
the Collateral Administrator receives funds from the Senior Commitment Party or Junior Noteholder to purchase Collateral Debt Obligations
on behalf of the Issuer, the Collateral Administrator shall remit those funds to the sellers of such Collateral Debt Obligations
upon the written direction of the Portfolio Manager.


 


7.          The
Collateral Administrator shall perform the following functions with respect to the Assets:


 


(a)          Enter
information (as mutually agreed by the Collateral Administrator, the Portfolio Manager and the Senior Commitment Party) regarding
each acquired Collateral Debt Obligation into the Collateral Administrator’s loan tracking system;


 


(b)          Make
adjustments on a daily basis to the loan tracking system to account for principal and interest payments received on the Collateral
Debt Obligations;


 


(c)          Provide
the Senior Commitment Party and the Portfolio Manager electronic access to all documents, information, notices, requests and any
other correspondence received from the agent banks with respect to the Collateral Debt Obligations;


 


(d)          Prepare
and deliver the Collateral Reports and any other information relating to the Assets as required by the Note Purchase Agreement;


 


(e)          Keep
full and accurate books and records relating to the Assets and stamp or otherwise mark such books and records in such manner as
the Senior Commitment Party may reasonably require; and


 



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(f)          Take
such other actions with respect to the Assets as may be reasonably required by the Note Purchase Agreement or may be reasonably
requested by the Senior Commitment Party and agreed to by the Collateral Administrator, which agreement shall not be unreasonably
withheld.


 


8.          The
Collateral Administrator may at any time resign hereunder by giving written notice of its resignation to the Issuer, the Senior
Commitment Party and the Portfolio Manager at least thirty (30) days prior to the date specified for such resignation to take effect,
and upon the effective date of such resignation, the Assets hereunder shall be delivered by it to such person as may be designated
in writing by the Senior Commitment Party, whereupon all the Collateral Administrator’s obligations hereunder shall cease
and terminate. If no such person shall have been designated by such date and an instrument of acceptance by a successor Collateral
Administrator shall not have been delivered to the Collateral Administrator, the Issuer, the Senior Commitment Party and the Portfolio
Manager within thirty (30) days after giving such notice of resignation, the Collateral Administrator may petition any court of
competent jurisdiction for the appointment of a successor Collateral Administrator. The Collateral Administrator’s sole responsibility
thereafter shall be to keep safely all Assets then held by it and to deliver the same to a person designated in writing by the
Senior Commitment Party or in accordance with the direction of a final order or judgment of a court of competent jurisdiction.


 


9.          The
Issuer (the “indemnifying party”) agrees to indemnify, defend and hold the Bank, its officers, directors, employees
and agents (each, an “indemnified party”) harmless from and against any and all losses, claims, damages, demands,
expenses and costs, causes of action, judgments or liabilities that may be incurred by the Bank, its officers, directors, employees
and agents arising directly or indirectly out of or in connection with the Bank’s acceptance or appointment as Collateral
Administrator hereunder and its other capacities under the Note Purchase Agreement, including the reasonable out-of-pocket legal
costs and expenses as such expenses are incurred (including, without limitation, the expenses of any experts, counsel or agents)
of investigating, preparing for or defending itself against any action, claim or liability in connection with its performance hereunder.
 In no event, however, shall the Issuer be obligated to indemnify the Bank and save the Bank harmless from any fees, expenses,
charges and/or liabilities incurred by the Bank as a result of its own willful misconduct or gross negligence.


 


Promptly after receipt by an indemnified party
under this paragraph 9 of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof
is to be made against the indemnifying party hereunder, notify the indemnifying party in writing of the commencement thereof. In
case any such action shall be brought against an indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and to assume the defense thereof, with counsel reasonably
satisfactory to the indemnified party who may, subject to the following sentence, be counsel to the indemnifying party. After notice
from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnified party shall
have the right to participate in such action and to retain its own counsel, but the indemnifying party shall not be liable to such
indemnified party hereunder for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense thereof, unless (i) the Issuer has agreed in writing to pay such fees and
expenses or (ii) the Issuer shall have failed to employ counsel reasonably satisfactory to the indemnified party in a timely manner
or (iii) the indemnified party shall have been advised by counsel that representation of the indemnified party by counsel provided
by the Issuer pursuant to the foregoing would be inappropriate due to an actual or potential conflicting interest between the Issuer
and the indemnified party, including situations in which there are one or more legal defenses available to the indemnified party
that are different from or additional to those available to the Issuer; provided, however, that the Issuer shall
not, in connection with any one such action or proceeding or separate but substantially similar actions or proceedings arising
out of the same general allegations, be liable for the fees and expenses of more than one separate firm of attorneys at any time
for all indemnified parties, except to the extent that local counsel, in addition to its regular counsel, is required in order
to effectively defend against such action or proceeding. No indemnified party may consent to the terms of any compromise or settlement
of any action without the prior consent of the Issuer. If the indemnifying party does not notify the indemnified party in writing,
within 45 days (or such shorter period within which a timely answer or response must be filed) after the receipt of notice of the
commencement of any action, that the indemnifying party elects to undertake the defense thereof, then such indemnified party shall
have the right to contest the claim or (with the prior written consent of the indemnifying party, which consent shall not be withheld
unreasonably) settle or compromise the claim and the indemnifying party will pay the indemnified party in immediately available
funds for all out-of-pocket expenses (including the reasonable fees and expenses of counsel and other experts and agents) and all
other losses, claims, damages, demands, costs, judgments or liabilities actually paid by such indemnified party, all as aforesaid.


 



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10.         The
Issuer warrants and represents to the Collateral Administrator that the Collateral Administrator has no duty to withhold any federal
or state income tax, local or state property tax, local or state sales or use taxes, or any other tax by any taxing authority arising
from its custody of the Assets. The Issuer agrees to indemnify the Collateral Administrator fully for any tax liability, penalties
or interest incurred by the Collateral Administrator arising hereunder and agrees to pay in full any such tax liability together
with penalty and interest if any tax liability is ultimately assessed against the Collateral Administrator for any reason as a
result of its actions hereunder (except for the Collateral Administrator’s individual income tax liability arising from the
income from its fees).


 


11.         The
Issuer agrees to pay the Bank for the services rendered by it pursuant to the provisions of this Agreement and the Note Purchase
Agreement as set forth in a separate fee letter between the Bank and the Issuer. Except as otherwise noted, this fee covers account
acceptance, set up and termination expenses, plus usual and customary related administrative services such as safekeeping, investment,
collection and distribution of assets, including normal record-keeping/reporting requirements and any legal expenses related to
the arrangement in addition to other activities and duties expressly agreed to herein or in the Note Purchase Agreement. Any additional
services beyond the receipt, investment and payment of funds specified in this Agreement or the services specified in the Note
Purchase Agreement, or activities requiring excessive administrator time or out-of-pocket expenses, shall be deemed extraordinary
expenses for which related costs, transaction charges and additional fees will be billed at the Bank’s standard charges for
such items.


 


The Issuer’s obligation to pay the Bank’s
indemnities, fees and expenses shall survive the termination of this Agreement and the resignation of the Collateral Administrator.


 


12.         The
Collateral Administrator shall have no liability for losses arising from any cause beyond its control, including but not limited
to, the act, failure or neglect of any agent, attorney or correspondent selected with due care by the Collateral Administrator;
any delay, error, omission or default of any mail, email, telegraph, cable or wireless agency or operator; or the acts or edicts
of any government or governmental agency or other group or entity exercising governmental powers. In no event shall the Collateral
Administrator be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of
or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents,
acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss
or malfunctions of utilities, communications or computer (software and hardware) services, it being understood that the Collateral
Administrator shall use reasonable best efforts which are consistent with accepted practices in the industry to maintain performance.


 


13.         THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.


 



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14.         This
Agreement shall remain in full force and effect until the earlier to occur of (a) the transfer of all of the Assets in accordance
with Paragraph 4 above, and (b) a court of competent jurisdiction finally disposing of the rights and obligations of the parties
pursuant to the provisions hereof. The parties hereto shall not be bound by any modification, amendment, termination, cancellation,
rescission or supersession of this Agreement unless the same shall be in writing and signed by each of the parties hereto.


 


15.         This
Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall together
constitute one and the same instrument. This Agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.


 


16.         Any
corporation or association into which the Collateral Administrator may be merged or converted or with which it may be consolidated,
or any corporation or association resulting from any merger, conversion or consolidation to which the Collateral Administrator
shall be a party, or any corporation or association to which all or substantially all of the corporate trust business of the Collateral
Administrator may be sold or otherwise transferred, shall be the successor Collateral Administrator hereunder without any further
act.


 


17.         Notwithstanding
any other provision of this Agreement, the parties hereto may not, prior to the date that is one year (or, if longer, the then
applicable preference period) plus one day after termination of this Agreement or, in the event securities of the Issuer are issued
pursuant to or in respect of the Refinancing Transaction, the payment in full of all such notes institute against, or join any
other individual or entity in instituting against the Issuer, any bankruptcy, reorganization, arrangement, insolvency, moratorium
or liquidation proceedings, or other proceedings under Cayman Islands bankruptcy laws, United States federal or state bankruptcy
laws, or any similar laws.


 


None of the directors, officers,
incorporators, shareholders, partners, agents or employees of the Issuer shall be personally liable for any of the obligations
of the Issuer under this Agreement. Notwithstanding anything to the contrary contained herein, the Issuer’s sole source of
funds for payment of all amounts due hereunder shall be the Collateral, and, upon application of the proceeds of the Collateral
in accordance with the terms and under the circumstances described herein, no recourse shall be had against the Issuer for any
amounts still outstanding by the Issuer and all obligations of, and any claims against, the Issuer arising from this Agreement
or any transactions contemplated hereby shall be extinguished and shall not thereafter revive.


 


The provisions of this Paragraph 17 shall survive
the termination of this Agreement and resignation of the Collateral Administrator.


 


18.         THE
PARTIES HERETO VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR THE NOTE PURCHASE AGREEMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY OF THE PARTIES HERETO AND THERETO. THE PARTIES HERETO
HEREBY AGREE THAT THEY WILL NOT SEEK TO CONSOLIDATE ANY SUCH LITIGATION WITH ANY OTHER LITIGATION IN WHICH A JURY TRIAL HAS NOT
OR CANNOT BE WAIVED. THE PROVISIONS OF THIS SECTION 18 HAVE BEEN FULLY NEGOTIATED BY THE PARTIES HERETO AND SHALL BE SUBJECT TO
NO EXCEPTIONS. EACH PARTY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR EACH PARTY ENTERING INTO THIS AGREEMENT AND THE NOTE PURCHASE AGREEMENT.


 



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19.         The
Bank, in its capacity as Collateral Administrator, agrees to accept and act upon instructions or directions pursuant to this Agreement
sent by unsecured email, facsimile transmission or other similar unsecured electronic methods, provided, however, that each
party providing such instructions or directions shall provide to the Bank an incumbency certificate listing persons designated
to provide such instructions or directions, which incumbency certificate shall be amended whenever a person is added or deleted
from the listing. If such party elects to give the Bank email or facsimile instructions (or instructions by a similar electronic
method) and the Bank in its discretion elects to act upon such instructions, the Bank’s reasonable understanding of such
instructions shall be deemed controlling. The Bank shall not be liable for any losses, costs or expenses arising directly or indirectly
from the Bank’s reliance upon and compliance with such instructions notwithstanding such instructions conflicting with or
being inconsistent with a subsequent written instruction. Each party hereto agrees to assume all risks arising out of the use of
such electronic methods to submit instructions and directions to the Bank, including without limitation the risk of the Bank acting
on unauthorized instructions, and the risk of interception and misuse by third parties. Any party providing such instructions acknowledges
and agrees that there may be more secure methods of transmitting such instructions than the method(s) selected by it and agrees
that the security procedures (if any) to be followed in connection with its transmission of such instructions provide to it a commercially
reasonable degree of protection in light of its particular needs and circumstances.


 



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IN WITNESS WHEREOF, the
parties hereto have hereunto caused this Collateral Administration Agreement to be executed as of the day and year first hereinabove
written.


 


	 	KCAP FUNDING
	 	 
	 	By:	/s/ Cleveland Stewart	 
	 	Name:   Cleveland Stewart
	 	Title:     Director
	 	 
	 	CREDIT SUISSE AG, CAYMAN ISLANDS,
	 	as Senior Commitment Party
	 	 
	 	By:	/s/ Bik Kwan Chung 	 
	 	Name:   Bik Kwan Chung
	 	Title:     Authorized Signatory
	 	 
	 	By:	/s/ Louis J. Impellizeri	 
	 	Name:   Louis J. Impellizeri
	 	Title:     Authorized Signatory
	 	 
	 	KOHLBERG CAPITAL CORPORATION,
	 	as Portfolio Manager
	 	 
	 	By:	/s/ Dayl W. Pearson	 
	 	Name:   Dayl W. Pearson
	 	Title:     Chief Executive Officer
	 	              Kohlberg Capital Corporation 
	 	 
	 	The Bank of New York Mellon Trust
	 	Company, National Association,
	 	as Collateral Administrator
	 	 
	 	By:	/s/ MARIA D. CALZADO	 
	 	Name:   MARIA D. CALZADO
	 	Title:     Vice President