FS Investment Corporation III 8-K


Exhibit 10.4


 


COLLATERAL
ADMINISTRATION



AGREEMENT


 


This
COLLATERAL
ADMINISTRATION
AGREEMENT,
dated as
of May 8, 2015 (this
“Agreement”),
is entered
into by
and among
JEFFERSON SQUARE FUNDING LLC, a
Delaware limited liability company (the “Company”),
JPMORGAN CHASE
BANK,
NATIONAL
ASSOCIATION,
as administrative
agent
(in such capacity,
the “Administrative
Agent”),
FS INVESTMENT CORPORATION III, a Maryland corporation, as investment manager (the “Investment Manager”) and
VIRTUS GROUP, LP, as collateral administrator (the “Collateral
Administrator”).


 


WITNESSETH:


 


WHEREAS,
pursuant to
the terms
of that certain
Loan
Agreement
dated as
of May 8,
2015 (as
amended,
amended
and restated,
supplemented
or otherwise
modified
from time
to time, the “Loan Agreement”),
by and among
the Company, the Financing
Providers party thereto, the Administrative
Agent,
CITIBANK, N.A., as collateral
agent
(in such capacity,
the “Collateral Agent”)
and as securities
intermediary
and the Collateral Administrator, the Company has
pledged certain
collateral
(the “Collateral”),
which includes,
among other
things, all
of the Portfolio
Investments
and Eligible
Investments
as security
for the Advances
and other Secured
Obligations;


 


WHEREAS,
the Company wishes
to engage
the Collateral
Administrator to
perform
certain
administrative
duties
with respect
to the Collateral
pursuant
to the terms
of this Agreement;
and


 


WHEREAS,
the Collateral Administrator is prepared
to perform
certain specified
obligations
of the Company,
or the Investment Manager on its behalf, under
the Loan
Agreement (and
certain
other services)
as specified
herein,
upon and
subject
to the terms
of this Agreement
(but without assuming
the obligations
or liabilities
of the
Company or the Investment Manager under
the Loan
Agreement);


 


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
Loan
Agreement.


 






    	1



    	 



    

 


2.            Powers
and Duties of Collateral
Administrator.


 


(a)    The Collateral Administrator shall act as agent for the Company 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. In such capacity,
the Collateral
Administrator
shall assist
the Company
and the Investment Manager in connection
with maintaining a database
of certain
characteristics
with respect
to the Collateral
on an
ongoing basis
and in
providing
to the Company
and the Investment Manager certain
reports, schedules
and calculations,
all as more
particularly
described
in Section
2(b) below (in each
case, such reports,
schedules
and calculations
shall be prepared
in such form
and content,
and
in such greater
detail, as
may be mutually
agreed
upon by the parties
hereto
from time to time
and as may
be required
by the Loan
Agreement)
based
upon information
and data
received
from the
Company and/or the Investment Manager, as
required
to be prepared
and delivered
(or which are
necessary
to be prepared
and delivered
in order
that certain
other reports,
schedules
and
calculations
can be
prepared
and delivered)
under Section
8.03 of the
Loan
Agreement.
The Collateral Administrator’s duties
and authority
to act
hereunder
are limited
to the
duties
and authority
specifically set
forth in this Agreement.
By entering
into, or performing
its duties
under, this Agreement,
the Collateral
Administrator
shall not be
deemed to
assume
any obligations
or liabilities
of the Company
under the
Loan
Agreement,
and nothing
herein contained
shall be deemed
to release,
terminate,
discharge,
limit, reduce,
diminish, modify,
amend
or otherwise
alter
in any
respect
the duties,
obligations
or liabilities
of the Company under
or pursuant
to the Loan
Agreement.


 


(b)    The
Collateral
Administrator
shall perform
the following
general
functions
from time to time:


 


		(i)	Within
fifteen
(15) days
after
the Closing Date,
create
a collateral
database with respect
to the Collateral
(the “Collateral
Database”);



 


		(ii)	Update
the Collateral
Database
promptly
and on
an ongoing
basis for changes,
including for
ratings
changes
as provided
by the Investment
Manager, and
to reflect
the sale or other
disposition
of the Portfolio
Investments
included in the
Collateral
(the “Portfolio
Collateral”)
and the addition
to the Collateral
of additional
assets constituting
Collateral
from time to time,
in each case
based upon, and
to the extent of,
information furnished
to the Collateral
Administrator
by or on
behalf
of the Company
or Investment
Manager as may
be reasonably
required
by the Collateral
Administrator,
or by the agents
for the obligors
from time
to time;



 


		(iii)	Provide
information contained
in the Collateral
Database
to the Investment
Manager on behalf
of the
Company,
as the
Collateral
Administrator
and the Investment
Manager shall reasonably
agree;



 


		(iv)	Track
the receipt
and daily
allocation
to the Interest
Collection
Account and the Principal
Collection
Account, as applicable,
with respect
to Interest
Proceeds and
Principal Proceeds
and the outstanding
balance
therein, and any
withdrawals
therefrom
and, on each
Business Day,
provide to
the Investment Manager
the report
as described in the Loan Agreement;



 


		(v)	Reasonably
cooperate
with the Investment Manager
in the Investment Manager’s
review of
the reports as described in the Loan Agreement; and



 


		(vi)	Not later
than the date specified therefor in the Loan Agreement,
the Collateral
Administrator shall prepare
the relevant
report
by calculating,
using the
information contained
in the Collateral
Database
and provide
the results
of such calculations
to the Administrative
Agent
and the
Investment Manager so
that the Investment
Manager may
confirm such
results.



 






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(c)    The Investment Manager shall
assist and cooperate
with the Collateral
Administrator
in connection
with the matters
described
herein. Without
limiting
the generality
of the
foregoing,
the Investment Manager
shall
advise in
a timely
manner
the Collateral
Administrator
of the results
of any
determinations,
designations and selections made by it as required
or permitted
to be made
by it or
the Company
(or Investment Manager
on its
behalf)
under the
Loan
Agreement
and supply
the Collateral
Administrator
with such other information as
is maintained
by the Investment Manager
that the Collateral
Administrator
may from time
to time request
with respect to the Collateral
and is reasonably
needed
to complete
the reports
and certificates
required
to be prepared
by the Collateral
Administrator
hereunder
or required
to permit
the Collateral
Administrator
to perform
its obligations
hereunder
(including
determinations
of Market
Value, Net Asset Value, Base Rate, Excess Interest Proceeds, the aggregate
principal
balance
of Portfolio Investments,
the Coverage Event Cure Period, satisfaction
of the Compliance
Condition, the occurrence of a Coverage Event, a Coverage Event Cure or a Coverage
Event Failure, and
compliance
with the Concentration
Limitations,
as applicable)
and to permit
the Company
and the
Investment Manager to perform
their obligations
under the Loan
Agreement
with respect
thereto
and any
other information
that may be reasonably
required
under the Loan
Agreement
with respect to a Portfolio
Investment
(including
as to
its status
as a Delayed
Funding
Term Loan,
Asset Based Loan, Second Lien Loan, Revolving
Credit Facility,
Synthetic
Security,
Structure Finance
Obligation, Corporate Bond, Current Pay Obligation, Delayed Funding Term Loan, Senior Secured Loan, Warranty Portfolio Investment
or Letter of
Credit). Nothing herein
shall obligate
the Collateral
Administrator
to determine
independently
the correct
characterization
or categorization
of any
item
of Collateral
under the Loan
Agreement
(it being
understood that
any such characterization,
classification or categorization
shall be based
exclusively
upon the determination
and notification
received
by the
Collateral
Administrator from
the Investment Manager). The Collateral Administrator shall have no obligation
to determine whether any Asset meets the definition of (i) Collateral or (ii) Eligible Investment. 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 Company
for execution.


 


(d)    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
Company or
the Investment Manager
as to
the course of action
desired
by the Investment Manager or the methodology
as to be used by the Collateral Administrator. If
the Collateral
Administrator
does not receive
such
instructions
within three (3)
Business Days after
it has requested
them, the Collateral
Administrator may, but shall be under
no duty to, take or refrain
from taking any
such courses of action.
The Collateral
Administrator
shall act
in accordance
with instructions
received
after such
three Business
Day period except
to the extent
it has
already
taken,
or committed
itself to
take, action
inconsistent with such instructions.
The Collateral
Administrator shall be entitled
to rely on the advice
of legal counsel
and independent
accountants in performing
its duties
hereunder
and shall be deemed to have
acted in good
faith
if it acts in accordance
with such advice.


 


(e)    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.
The Company
agrees
to pay,
and
the Collateral
Administrator
shall be entitled
to receive,
compensation
for, and
reimbursement
for expenses
in connection
with, the Collateral
Administrator’s
performance
of the duties
called
for herein
and as
provided in
a separate
fee
letter agreement
dated April 28, 2015.


 


4.            Limitation
of Responsibility
of the
Collateral
Administrator;
Indemnification.


 


(a)    The Collateral
Administrator
will have
no responsibility
under this
Agreement other
than to render
the services
expressly
called
for hereunder.
The Collateral
Administrator
shall incur no
liability
to anyone
in acting
upon, and may conclusively rely 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.
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 it under Article IX of the Loan Agreement.
Neither
the Collateral
Administrator
nor any
of its affiliates,
directors, officers,
shareholders,
members, agents
or employees
will be liable
to the
Investment Manager, the
Company or
any other
Person, except
by reason
of acts
or omissions
by the Collateral
Administrator
constituting
bad faith,
willful misfeasance,
gross
negligence
or reckless
disregard
of the Collateral
Administrator’s
duties hereunder.
The Collateral
Administrator
shall
in no event have any
liability
for the actions
or omissions
of the Company,
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 Company, 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 any
delay in
performing
its specified
duties
hereunder
which results
from or is caused
by a
failure
or delay on
the part
of the Company,
the Investment Manager
or any
other Person
in furnishing
necessary,
timely and
accurate
information
to the Collateral
Administrator. 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.


 


(b)   The
Collateral
Administrator
may rely
conclusively
on any
notice,
certificate
or other document
(including
telecopier
or other
electronically
transmitted
instructions,
documents or information)
furnished
to it hereunder
and reasonably
believed
by it in
good faith
to be genuine.
The Collateral
Administrator
shall not be
liable
for any
action
taken
by it
in good
faith and
reasonably
believed
by it
to be
within the
discretion
or powers
conferred
upon it,
or taken
by it pursuant
to any
direction
or instruction
by which
it is governed
hereunder,
or omitted
to be taken
by it by
reason of
the lack
of direction
or instruction
required
hereby
for such action.
The Collateral
Administrator
shall not be
bound to make
any investigation
into the
facts
or matters stated
in any
certificate,
report or
other document;
provided, however,
that, if
the form
thereof is prescribed
by this Agreement,
the Collateral
Administrator
shall examine
the same
to determine
whether it
conforms
on its
face
to the requirements
hereof.
The Collateral
Administrator
shall not be deemed
to have
knowledge
or notice
of any
matter unless
actually
known to an
officer of
the Collateral
Administrator responsible
for the administration
of this Agreement.
Under no
circumstances
shall the Collateral
Administrator
be liable
for indirect,
punitive, special
or consequential
damages
(including 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.
It is
expressly
acknowledged
by the Company
and the
Investment Manager that
application
and performance
by the Collateral
Administrator
of its
various duties
hereunder
shall
be based
upon, and
in reliance
upon, data
and information provided
to it by the Investment
Manager (and/or the Company) with respect
to the Collateral,
and the
Collateral
Administrator
shall have
no responsibility
for the
accuracy
of any
such information or data
provided to it by such Persons.
Nothing herein
shall impose or imply
any duty
or obligation
on the part
of the Collateral
Administrator
to verify,
investigate
or audit
any such
information
or data,
or to determine
or monitor
on an
independent
basis whether
any obligor
under the
Collateral
is in default
or in compliance
with the underlying
documents governing
or securing
such
Portfolio
Investments,
from time
to time,
the role of
the Collateral
Administrator
hereunder
being solely
to perform
certain
mathematical computations
and data
comparisons and
to provide certain
reports and
other deliveries,
as provided
herein.
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.


 






    	4



    	 



    

 


(c)     To the extent of any ambiguity in the interpretation of any definition or term contained in the Loan Agreement, 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 Collateral Agent, shall be entitled to conclusively rely thereon without any
responsibility or liability therefor.


 


(d)    The
Company shall,
and hereby
agrees to, reimburse,
indemnify and
hold harmless
the Collateral
Administrator and
its affiliates,
directors, officers,
shareholders, members, agents
and employees
for and
from any
and all
losses,
damages,
liabilities,
demands, charges,
costs, expenses
(including the
reasonable
fees
and expenses
of counsel
and other
experts)
and claims
of any
nature
in respect
of,
or arising
from any
acts
or omissions
performed
or omitted
by the Collateral
Administrator,
its affiliates,
directors, officers,
shareholders,
agents
or employees
pursuant to
or in connection
with the terms
of this Agreement,
or in the performance
or observance
of its
duties
or obligations
under this
Agreement; provided
the same
are in
good faith
and without
willful misfeasance
and/or gross
negligence
on the part
of the Collateral
Administrator
or without 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 Loan Agreement 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 Company 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.


 


(g)    Without
limiting
the generality
of any
terms of
this Section
4, the
Collateral
Administrator
shall have
no liability
for any
failure,
inability
or unwillingness
on the part
of the Investment Manager
or the Company
to provide
accurate
and complete
information on
a timely
basis to
the Collateral
Administrator,
or otherwise
on the part
of any
such party
to comply
with the terms
of this
Agreement
or the Loan
Agreement and
shall have
no liability
for any
inaccuracy
or error
in the performance
or observance
on the Collateral
Administrator’s
part of
any of
its duties
hereunder
that is caused
by or results
from any
such inaccurate,
incomplete
or untimely
information received
by it,
or other failure
on the part
of any
such
other party
to comply
with the terms hereof.


 


5.          No Joint Venture.
Nothing contained
in this Agreement
(a)
shall constitute
the Company,
the Collateral
Administrator
and the
Investment Manager as
members of
any partnership,
joint venture,
association,
syndicate,
unincorporated
business or
other separate
entity,
(b) shall
be construed
to impose
any liability
as such
on any
of them
or (c) 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



    	 



    

 


6.           Term.
This Agreement
shall
continue
in effect
so long as the
Loan
Agreement
remains in effect
with respect
to the
Secured
Obligations,
unless this Agreement
has been
previously
terminated
in accordance
with Section
7 hereof.


 


7.           Termination.


 


(a)    This Agreement
may be
terminated
without cause
by any
party
upon not less
than ninety (90)
days’
written notice
to each
other
party. If
at any
time,
prior to
payment
in full of
all Secured
Obligations,
the Collateral
Administrator
shall resign
or be removed
as Collateral
Administrator under the Loan
Agreement,
such resignation
or removal shall be deemed a resignation
or removal of the Collateral
Administrator
hereunder.


 


(b)    At
the option
of the Company
(with
the prior
written
consent
or at
the direction
of the Administrative
Agent),
this Agreement
may be
terminated
upon ten (10)
days’
written
notice of
termination
from the
Company 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
(30) days
(or,
if such default
cannot be
cured
in such time,
the Collateral
Administrator
shall not have given
within thirty
(30) days such
assurance
of cure
as shall
be reasonably
satisfactory
to the Company
and the Administrative
Agent and
cured
such default
within the time
so assured);



 


		(ii)	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



 


		(iii)	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
possessionby 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) or
(iii)
of this
Section
7(b) shall
occur,
the Collateral
Administrator
shall promptly,
and in
any event,
within one
(1) Business Day
after
the occurrence
of such event,
give written
notice thereof
to the Investment Manager,
the Administrative
Agent and the
Company.


 






    	7



    	 



    

 


(c)    Except when
the Collateral
Administrator
shall be
removed pursuant
to subsection
(b) of this
Section
7 or shall
resign
pursuant to
subsection
(d) of this
Section
7, no removal
or resignation
of the Collateral
Administrator shall
be effective
until the date as
of which a successor
collateral
administrator
reasonably
acceptable
to the Administrative
Agent,
the Company and
the Investment
Manager shall
have agreed
in writing to
assume
all of
the Collateral
Administrator’s
duties
and obligations
pursuant to
this Agreement
and shall
have executed
and delivered
an agreement
in form
and content
reasonably
satisfactory
to the Administrative
Agent,
the Company,
the Investment Manager
and the
Collateral
Agent. Upon
any resignation
or removal
of the Collateral
Administrator
hereunder,
the Company
shall promptly,
and in
any
case within
thirty (30)
days
after
the related
notice
of resignation
or removal,
appoint a
qualified
successor consented
to by the
Administrative
Agent to act
as collateral
administrator
hereunder
and cause
such successor
collateral
administrator
to execute
and deliver
an agreement
accepting
such appointment
as described
in the preceding
sentence.
If the
Company fails
to appoint
such a qualified
successor which duly
accepts its
appointment
by properly
executing
and delivering
such an agreement
within such time,
the retiring
Collateral
Administrator
shall be entitled
to petition
a court of
competent
jurisdiction
for the appointment
of a successor
to serve
as collateral
administrator
hereunder
and shall be indemnified
pursuant to Section
4(d) for the reasonable
costs and
expenses
thereof.


 


(d)   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
(i) immediately
upon the termination
(whether
by resignation
or removal)
of it as
Collateral
Administrator under
the Loan
Agreement,
or (ii)
upon thirty
(30) days’
notice
to the Investment
Manager and
the Administrative
Agent upon
any reasonable
determination
by the Collateral Administrator that the
taking of any
action,
or performance
of any
duty,
on its
part as
the Collateral
Administrator pursuant
to the terms
of this
Agreement
would be in
conflict
with or in violation
of its duties
or obligations
under the
Loan
Agreement
or (iii) upon at least
sixty (60) days’
prior written
notice of
termination
to the
Investment Manager, the Administrative
Agent and
the Company upon the occurrence
of any of the following events
and the failure
to cure such event
within such sixty (60) day
notice period:
(A) failure
of the Company
to pay any
of the amounts
specified in
Section
3 hereof
within sixty
(60) days
after
such
amount
is due pursuant
to Section
3 hereof
(to the extent not already
paid to the Collateral
Administrator
pursuant to Section
9.02 of the Loan
Agreement)
or (B) failure
of the Company
to provide any
indemnity payment
to Collateral
Administrator
pursuant to
the terms
of this
Agreement,
as the
case may
be, within
sixty
(60) days
of the receipt
by the Company
of the written request
for such payment
or reimbursement
(to the extent not already
paid Collateral
Administrator pursuant
to Section
9.02 of the Loan
Agreement).


 


(e)    Any corporation
into which the Collateral
Administrator
may be merged
or converted
or with
which it
may be consolidated,
or any
corporation
resulting
from any
merger, conversion
or consolidation
to which
the Collateral
Administrator
shall
be a party,
or any
corporation
succeeding
to all
or substantially
all of
the corporate
trust business
of the Collateral
Administrator,
shall be the successor
of the Collateral
Administrator
hereunder
without the execution
or filing
of any
paper or
any
further
act on the
part of any
of the parties
hereto.


 






    	8



    	 



    

 


8.            Representations
and Warranties.


 


(a)    The
Investment Manager
hereby
represents
and warrants
to the Collateral
Administrator and
the Company 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, members 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.



 


 






    	9



    	 



    

 


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


 


		(i)	The Company has been duly incorporated and is validly existing and in good
standing under the laws of the State of Delaware as a limited liability company 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 Company, 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 Company 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 Company hereunder, will constitute,
the legally valid and binding obligations of the Company enforceable against the Company 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 Company
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 Company’s
obligations hereunder and the documents and instruments required hereunder will not violate any provision of any existing law or
regulation binding on the Company, or any order, judgment, award or decree of any court, arbitrator or governmental authority binding
on the Company, or the governing instruments of, or any securities issued by, the Company or of any mortgage, indenture, lease,
contract or other agreement, instrument or undertaking to which the Company is a party or by which the Company 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 Company 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.



 





 






    	10



    	 



    

 


               (c)    The
Collateral
Administrator hereby
represents
and warrants
to the Investment Manager
and the Company
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).



 


		(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 Company
and the
Collateral
Administrator
in writing
with the prior
written
consent
of the Administrative
Agent.


 


10.          Governing
Law. THIS
AGREEMENT SHALL
BE GOVERNED
BY AND CONSTRUED
IN CONFORMITY
WITH
THE LAWS
OF THE STATE
OF NEW
YORK WITH
RESPECT TO
AGREEMENTS
MADE AND
TO BE PERFORMED
THEREIN
(WITHOUT
REGARD TO
ITS CHOICE
OF LAWS
RULES OTHER
THAN SECTION
5-1401 OF THE
NEW YORK
GENERAL
OBLIGATIONS
LAW).


 






    	11



    	 



    

 


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
and receipt thereof acknowledged 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.


 


If to the Collateral Administrator,
to: 


Virtus Group, LP 


5400 Westheimer Court 


Suite 760 


Houston, Texas 77056 


Telecopy: (866) 816-3203


 


If to the Company, to: 


Jeffferson Square Funding LLC 


c/o FS Investment Corporation III 


201 Rouse Boulevard 


Philadelphia, PA 19112 


Attention: Gerald F. Stahlecker, Executive
Vice President 


Telephone: (215) 495-1169 


Facsimile: (215) 222-4649


 


If to the Investment Manager, to: 


FS Investment Corporation III 


201 Rouse Boulevard 


Philadelphia, PA 19112 


Attention: Gerald F. Stahlecker, Executive
Vice President 


Telephone: (215) 495-1169 


Facsimile: (215) 222-4649


 


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
Company and
the Collateral
Administrator;
provided, however,
that the Collateral
Administrator
may not assign
its rights
and obligations
hereunder
without the prior
written
consent
of the Investment Manager,
the Administrative
Agent
and
the Company, 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, the Administrative
Agent
or the Company
(provided
that in such
event
the Collateral
Administrator
shall remain
responsible
for the performance
of its duties
as the Collateral
Administrator
hereunder).


 


13.           Counterparts.
This Agreement may be executed
in any number of
counterparts
by facsimile
or other written
form of
communication
including electronic
mail, 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.


 






    	12



    	 



    

 


14.          Conflict
with the Loan
Agreement. If
this Agreement
shall require
that any
action
be taken with
respect
to any
matter and
the Loan
Agreement
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 Loan
Agreement,
the Collateral
Administrator shall
notify the Investment
Manager and act
in accordance
with the Investment Manager’s instructions.


 


15.          Survival.
Notwithstanding anything
herein
to the contrary,
all indemnifications
set forth
or provided for
in this Agreement
shall survive
the termination
of this Agreement
or the release of any party hereto with respect to matters occurring prior to such termination.


 


16.          Conflict
with the Loan Agreement. If this Agreement shall require that any action be taken with respect to any matter and the Loan
Agreement 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 Loan Agreement, the Loan Agreement shall govern.


 


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.


 


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.


  


[Signature pages follow]


 






    	13



    	 



    

 


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


 


	 	JEFFFERSON SQUARE FUNDING LLC,
as Company
	 	 	 
	 	By:	/s/ Gerald F.
Stahlecker
	 	 	 Name: Gerald F. Stahlecker
	 	 	Title: Executive Vice President
	 	 	 
	 	FS INVESTMENT CORPORATION III, as Investment Manager
	 	 	 
	 	By:	/s/ Gerald F. Stahlecker
	 	 	 Name:
Gerald F. Stahlecker
	 	 	Title: Executive Vice President
	 	 	 
	 	VIRTUS GROUP, LP, as Collateral
Administrator
	 	 	 
	 	By:	/s/ Robert Tomick
	 	 	Name:
Robert Tomick
	 	 	Title:
Partner
	 	 	 
	 	JPMORGAN
CHASE BANK, NATIONAL ASSOCIATION,
as Administrative Agent
	 	 	 
	 	By:	
/s/ Louis J. Cerrotta
	 	 	 Name: Louis J. Cerrotta
	 	 	Title Executive Director