Document:

FS Investment Corporation III 8-K

EXHIBIT 10.6

EXECUTION COPY

 

AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT

 

dated as of June 18, 2015

 

BY AND BETWEEN

 

GERMANTOWN FUNDING LLC,

a Delaware limited liability company

 

AND

 

FS INVESTMENT CORPORATION III,

a Maryland corporation

 

    	 

    	 

    

 

TABLE OF CONTENTS

 

	 	 	page
	1.	General Duties of the Investment
    Manager	1
	2.	Duties and Obligations
    of the Investment Manager with Respect to the Administration of the Company	3
	3.	Authority to Bind the Company; No Joint
    Venture	5
	4.	Limitations Relating to Collateral Obligations	5
	5.	Brokerage	6
	6.	Compensation	6
	7.	Expenses	7
	8.	Services to Other Companies or Accounts;
    Conflicts of Interest	7
	9.	Duty of Care and Loyalty; Exculpation
    of Liability	8
	10.	Indemnification	8
	11.	Term of Agreement; Events Affecting the
    Investment Manager; Survival of Certain Terms; Delegation	11
	12.	Power of Attorney; Further Assurances	14
	13.	Amendment of this Agreement; Assignment	14
	14.	Notices	15
	15.	Binding Nature of Agreement; Successors
    and Assigns	15
	16.	Entire Agreement	15
	17.	Costs and Expenses	16
	18.	Books and Records	16
	19.	Titles Not to Affect Interpretation	16
	20.	Provisions Separable	16
	21.	Governing Law	16
	22.	Execution in Counterparts	16
	23.	Third Party Rights; Benefits of Agreement	17
	24.	Representations and Warranties of the
    Investment Manager	17
	25.	Managing REO Assets	18
	26.	Subordination; Non-Petition	19
	27.	Confidentiality	20

 

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AMENDED AND RESTATED INVESTMENT MANAGEMENT
AGREEMENT

 

This Amended and Restated
Investment Management Agreement (the “Agreement”), dated as of June 18, 2015 is made by and between GERMANTOWN
FUNDING LLC (the “Company”), a Delaware limited liability company and FS INVESTMENT CORPORATION III (together
with its successors and permitted assigns, the “Investment Manager”), a Maryland corporation. Unless otherwise
specified, capitalized terms used but not otherwise defined in this Agreement shall have the meanings given to them in the Limited
Liability Company Agreement of the Company dated as of April 28, 2015 (as the same may be amended from time to time, the “Operating
Agreement”), or if not defined therein, shall have the meanings given to them in the Amended and Restated Sale and Contribution
Agreement dated as of the date hereof by and among FS Investment Corporation III and Germantown Funding LLC (as the same may be
amended from time to time, the “Sale and Contribution Agreement”), or if not defined therein, shall have the
meanings given to them in the Indenture dated as of June 18, 2015 by and between the Company and Citibank, N.A. (as the same may
be amended from time to time, the “Indenture”). This Agreement amends and restates in its entirety the Investment
Management Agreement, dated as of April 28, 2015, between the Investment Manager and the Company.

 

1.      General Duties of
the Investment Manager.

 

Subject to the direction
and control of the Company and in a manner consistent with the customary standards, policies and procedures followed by asset managers
of national standing relating to assets of the nature and character of the Collateral Obligations and without regard to any relationship
that the Investment Manager or any Affiliate thereof may have with any Obligor or any Affiliate of any Obligor, the Operating Agreement,
the policies adopted or approved by the Company, the terms of the Indenture and the terms of this Agreement (the “Investment
Manager Standard”), the Investment Manager agrees to supervise and direct the investment and reinvestment of the Collateral
Obligations, manage, service, administer and make collections on the Collateral Obligations and perform its duties set forth herein
and, on behalf of the Company, those investment-related duties and functions assigned to the Company and the Investment Manager
under the Indenture, and shall have such other powers with respect to the investment and leverage related functions of the Company
as shall be delegated from time to time to the Investment Manager by the Company. The Investment Manager shall endeavor to comply
in all material respects with all applicable federal and state laws and regulations. The Investment Manager is hereby appointed
as the Company’s agent and attorney-in-fact with authority to negotiate, execute and deliver all documents and agreements
on behalf of the Company and to do or take all related acts, with the power of substitution, to acquire, dispose of or otherwise
take action with respect to or affecting the Collateral Obligations, including, without limitation:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(h)     advising and assisting
the Company with respect to the valuation and rating of the Collateral Obligations;

 

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

 

(j)      directing, or causing to be directed, all Obligors to pay all payments and collections owing to the
Company on any Collateral Obligation (“Collections”) directly to the appropriate account of the Company
(including any accounts required to be established pursuant to the Indenture), depositing all Collections received directly
by the Company into the appropriate accounts of the Company within one (1) Business Day of receipt thereof and, within three
(3) Business Days after receipt into such accounts, identifying all available balances in the such account as interest
Collections or principal Collections. If notwithstanding the foregoing the Investment Manager at any time thereafter receives
any Collections or any other proceeds of any Collateral Obligations constituting interest Collections or principal
Collections, the Investment Manager may direct, or cause to be directed, the related Obligor to make such payments to the
appropriate accounts of the Company and shall promptly, and in any event no later than the Business Day after receipt
thereof, deposit or cause to be deposited all such amounts into such accounts (and shall identify such amounts as either
principal Collections or interest Collections, as applicable);

 

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(k)     undertaking the obligations
of the Investment Manager under the Indenture;

 

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

 

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

 

For the avoidance of doubt,
the Investment Manager does not guarantee the performance of any obligations of any other Person under any Transaction Document.

 

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

 

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

 

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

 

(b)     to the extent prepared
or filed by the Company, oversee the preparation and filing of the Company’s federal, state and local income Tax returns
and any other required Tax returns or reports;

 

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

 

(d)   prepare for review
and approval by officers and other authorized persons of the Company (collectively, the “Authorized Signatories”)
financial information for the Company’s financial statements (if the Company prepares separate financial statements);

 

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

 

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

 

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

 

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

 

(i)    determine the amounts
available for distribution as dividends and distributions to be paid by the Company to its Member (for so long as the Notes issued
under the Indenture remain Outstanding, all in accordance with, and subject to the express terms and conditions set forth in, the
Indenture);

 

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

 

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

 

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

 

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

 

(n)    from time to time
promptly following receipt thereof, forward additional documents evidencing any assumption, modification, consolidation or extension
of a Collateral Obligation to any collateral custodian of the Company.

 

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

 

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

 

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

 

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

 

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

 

4.       Limitations Relating
to Collateral Obligations.

 

(a)    Collateral
Obligations. Except as otherwise provided in this Section 4 and except in accordance with the Investment Management
Standard, and subject to the requirements of the Indenture, the Operating Agreement, the Sale and Contribution Agreement and applicable
law, the Investment Manager may cause the Company (which term shall include, for all purposes relating to the purchase and sale
of Collateral Obligations and the duties and obligations of the Investment Manager set forth in Section 1 hereof,
the Company and its consolidated subsidiaries, if any) from time to time to purchase or sell Collateral Obligations.

 

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

 

5.      Brokerage.

 

The Investment Manager shall
use commercially reasonable efforts to effect all purchases and sales of securities in a manner consistent with the principles
of best execution, taking into account net price (including commissions) and execution capability and other services which the
broker or other intermediary may provide. In this regard, the Investment Manager may effect transactions which cause the Company
to pay a commission in excess of a commission which another broker or other intermediary would have charged; provided, however,
that the Investment Manager shall have first determined that such commission is reasonable in relation to the value of the brokerage
or research services performed by that broker or other intermediary or that the Company is the sole beneficiary of the services
provided.

 

6.      Compensation.

  

The Company agrees to pay
to the Investment Manager, on each Payment Date, and the Investment Manager agrees to accept as compensation for all services rendered
by the Investment Manager as such, an amount equal to 0.35% per annum of the aggregate principal balance of all Collateral Obligations
measured as of the beginning of the Due Period preceding such Payment Date (the “Management Fee”) and payable
in accordance with the Priority of Payments as described in the Indenture on such Payment Date. The Management Fees will be calculated
on the basis of a calendar year consisting of 360 days and the actual number of days elapsed.

 

If on any Payment Date there
are insufficient funds to pay any Management Fee then due in full in accordance with the Priority of Payments, or if on or prior
to any Payment Date the Investment Manager elects (by delivering notice of such election to the Trustee and the Collateral Administrator)
to defer all or any portion of the Management Fee due or to become due on such Payment Date, the amount not so paid or elected
to be deferred shall be deferred and shall be payable on the first succeeding Payment Date on which any funds are available therefor
in accordance with the Priority of Payments, unless deferred again. The Investment Manager shall have the right, at its sole option,
to waive all or a portion of any accrued and unpaid Management Fee at any time by delivering notice thereof to the Trustee, and
directing the Trustee to apply such amounts as Interest Proceeds or as Principal Proceeds for application in accordance with the
Priority of Payments. Notwithstanding the above or any other provision of this Agreement, all of the obligations of the Company
under this Agreement are limited recourse obligations payable solely from Collateral granted to the Trustee pursuant to the Granting
clauses of the Indenture. No recourse shall be had for the payment of any amount owing in respect of this Agreement against any
other asset of the Company or against any officer, director, employee, partner, member, shareholder or incorporator of the Company.
The obligations of the Company under the Notes, this Agreement and the Indenture are limited recourse obligations of the Company
payable solely from the Collateral, and following realization of the Collateral and reduction thereof to zero, all obligations
and all claims against the Company hereunder or arising in connection herewith shall be extinguished and shall not thereafter revive.

 

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7.      Expenses.

 

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

 

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

 

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

 

(b)   In addition, the Investment
Manager and its Affiliates may manage other investment vehicles and separate accounts (“Other Accounts”) that
invest in assets eligible for purchase by the Company. The Company may have the ability, under certain circumstances, to take certain
actions that would have an adverse effect on Other Accounts. In these circumstances, the Investment Manager and its affiliated
persons will act in a manner believed to be equitable to the Company and such Other Accounts, including co-investment in accordance
with applicable laws, including the conditions of any exemptive relief obtained by the Company and the Investment Manager. The
allocation of investment opportunities among the Company and Other Accounts will be made in good faith pursuant to the Investment
Manager’s written allocation policies. The Investment Manager may combine purchase or sale orders on behalf of the Company
with orders for Other Accounts, and allocate the assets so purchased or sold among such accounts in an equitable manner. The Company
may invest in portfolio companies in which Other Accounts have or are concurrently making the same investment or a different investment
(e.g., an investment that is junior to the Company’s investment). In such situations, the Company and the Other Accounts
may potentially have conflicting interests. If any matter arises that the Investment Manager determines in its good faith judgment
constitutes an actual conflict of interest, the Investment Manager may take such actions as may be necessary or appropriate to
ameliorate the conflict. These actions may include, by way of example and without limitation, disposing of the asset giving rise
to the conflict of interest, appointing an independent fiduciary, or delegating decisions relating to the asset giving rise to
the conflict of interest to a subcommittee of the Investment Manager.

 

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

 

The Investment Manager shall
exercise its discretion and authority in accordance with the Investment Management Standard.

 

10.    Indemnification.

 

(a)   The Investment Manager
assumes no responsibility under this Agreement other than to render the services called for hereunder and under the terms of the
Indenture applicable to it with reasonable care and in good faith and, subject to the standard of conduct described in the next
succeeding sentence, shall not be responsible for any action of the Company or the Trustee in following or declining to follow
any advice, recommendation or direction of the Investment Manager. The Investment Manager and its Affiliates and their respective
members, managers, directors, officers, stockholders, employees and agents shall not be liable to the Company, the Trustee, any
Secured Party or the Holders of the Notes or any other Persons for any Losses (as defined below) incurred, or for any decrease
in the value of the Collateral or the Notes, as a result of the actions taken or recommended, or for any omissions, by the Investment
Manager or its Affiliates or their respective members, managers, directors, officers, stockholders, employees or agents under this
Agreement, except by reason of acts or omissions constituting bad faith, fraud, willful misconduct or gross negligence in the performance
of its obligations hereunder and under the applicable terms of the Indenture. Notwithstanding anything in this Agreement or the
Indenture to the contrary, any obligation of the Investment Manager to apply commercially reasonable efforts in purchasing and
disposing of Collateral Obligations and Eligible Investments and the performance of its other duties under this Agreement shall
permit the Investment Manager to take into account its investment decision-making process and any other considerations it deems
appropriate. The Investment Manager and its Affiliates and their respective members, managers, directors, officers, stockholders,
employees and agents shall be entitled to indemnification by the Company in accordance with Section 10(b) and the Priority of Payments.
The Investment Manager shall indemnify and hold harmless (the Investment Manager, in such case the “Indemnifying Person”)
the Company and its Affiliates and their respective members, managers, directors, officers, stockholders, employees and agents
(each, an “Indemnified Person”) from and against any and all expenses, losses, damages, liabilities, demands,
charges or claims of any nature whatsoever (including reasonable attorneys’ fees and expenses) (collectively, “Losses”),
as incurred, in respect of or arising from acts or omissions constituting, and determined in a final judicial proceeding to constitute,
bad faith, fraud, willful misconduct or gross negligence in the performance by the Investment Manager of its obligations hereunder
and under the applicable terms of the Indenture.

 

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(b)   The Company shall
indemnify and hold harmless (the Company, in such case the “Indemnifying Person”) the Investment Manager and
its Affiliates and their respective members, managers, directors, officers, stockholders, employees and agents (each, an “Indemnified
Person”) from and against any and all Losses, as incurred, in respect of or arising from (i) the issuance of the Notes,
(ii) the transactions, duties and obligations described in the Indenture or this Agreement, or (iii) any action or failure to act
by any Indemnified Person which has not been determined in a final judicial proceeding to constitute bad faith, fraud, willful
misconduct or gross negligence of the Investment Manager’s duties under this Agreement or the Indenture. The obligations
of the Company under this Section 10 to indemnify any Indemnified Person for any Losses will be payable solely out of the
Collateral in accordance with the Priority of Payments.

 

The foregoing provisions,
however, shall not be construed to relieve any Person of any liability to the extent that such liability may not be waived, modified
or limited under applicable law.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

A “cause”
event for purposes of this Section 11(a) shall have occurred by reason of:

 

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

 

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

 

       (iii) the
Investment Manager or an officer or a member of the board of directors of the Investment Manager has engaged in gross negligence
or willful misconduct with respect to the Company or willfully violates or willfully breaches any provision of this Agreement,
the Collateral Administration Agreement or the Indenture applicable to it (including, without limitation, any representation contained
herein) in each case that has resulted in a material adverse effect on the Company or the Collateral Obligations, or has committed
a knowing material violation of securities laws, each as determined by a final decision of a court or binding arbitration decision
unless, in the case of such natural persons, their employment or other affiliation with the Investment Manager is terminated or
suspended within 30 days after discovery by the Investment Manager;

 

       (iv)  the
Investment Manager shall breach any provision of this Agreement or any term of the Indenture or Collateral Administration Agreement
applicable to it which breach has a material adverse effect on the Holders of the Notes and the Investment Manager fails to cure
such breach (if capable of being cured) within 60 days of its becoming aware of, or its receipt of notice from the Company or
the Trustee of, such breach or, if such breach is capable of cure but not within 60 days, the Investment Manager fails to cure
such breach within the period in which a reasonably diligent person could cure such breach (but in no event more than 120 days);

 

    	-11-

    	 

    

 

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

 

       (vi)  the occurrence and continuation of any Event of Default under the Indenture that results from any breach
by the Investment Manager of its duties hereunder or under the Indenture which breach or default is not cured within any applicable
cure period.

 

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

 

(b)   Notwithstanding anything
herein to the contrary, Sections 7, 10 and 26 of this Agreement shall survive any termination hereof.

 

    	-12-

    	 

    

 

(c)   From and after the
effective date of termination of this Agreement, the Investment Manager and its Affiliates shall not be entitled to compensation
for further services hereunder, but shall be paid all compensation and reimbursement of expenses accrued to the date of termination.
Upon such termination, or upon request by the Company, the Investment Manager shall deliver as directed copies of all documents,
books, records and other information prepared and maintained by or on behalf of the Company with respect to any Collateral Obligation
(“Records”) within five (5) Business Days after demand therefor and a computer tape or diskette (or any other
means of electronic transmission acceptable to the successor investment manager) containing as of the close of business on the
date of demand all of the data maintained by the Investment Manager in computer format in connection with managing the Collateral
Obligations. The Investment Manager agrees to use reasonable efforts to cooperate with any successor investment manager in the
transfer of its responsibilities hereunder, and will, among other things, provide upon receipt of a written request by such successor
investment manager any information available to it regarding any Collateral Obligations. The Investment Manager agrees that, notwithstanding
any termination, it will reasonably cooperate in any proceeding arising in connection with this Agreement, the Indenture or any
Collateral Obligation (excluding any such proceeding in which claims are asserted against the Investment Manager or any Affiliate
of the Investment Manager) upon receipt of appropriate indemnification and expense reimbursement.

 

(d)   Until a successor
investment manager has commenced investment management activities in the place of FS Investment Corporation III, FS Investment
Corporation III shall not resign as Investment Manager hereunder. Notwithstanding anything contained herein to the contrary and
to the extent permitted by Applicable Law without causing the Investment Manager to have liability, the resignation of the Investment
Manager shall not become effective until another entity shall have assumed the responsibilities and obligations of the Investment
Manager. Notwithstanding the foregoing, after the date hereof, the Investment Manager may merge with another business development
company sponsored by Franklin Square Holdings, L.P. or may be subject to other fundamental change transactions the result of which
effectively combines the ownership and/or assets of FS Investment Corporation III and any business development company sponsored
by Franklin Square Holdings, L.P., or merges or consolidates their respective collateral advisors or sub-advisors. Notwithstanding
anything to the contrary in this agreement, the parties hereto agree that such merger or fundamental change shall not constitute
a resignation hereunder.

 

(e)   Following the occurrence
and continuance of an Event of Default under the Indenture or following the occurrence and continuance of a Financing Termination
Event and, for so long as the Notes issued under the Indenture remain Outstanding, the Investment Manager shall obtain the written
consent of a Majority of the Noteholders before acting on behalf of, or otherwise directing, the Company, the Trustee or any other
person in connection with an acquisition or sale of a Collateral Obligation pursuant to any provision of the Indenture. For purposes
of this Section 11(e), a “Financing Termination Event” shall mean, to the extent that all of the Notes
are subject to a repurchase financing transaction, an event that shall occur if the related purchaser thereunder exercises remedies
in connection therewith and terminates such repurchase financing transaction and becomes the sole owner of such Notes. A Financing
Termination Event shall terminate (and will no longer be continuing for purposes of this Section 11(e)) if the related purchaser
under the repurchase financing transaction no longer owns all of the Notes.

 

    	-13-

    	 

    

 

12.    Power of Attorney;
Further Assurances.

 

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

 

13.    Amendment of this
Agreement; Assignment.

 

No provision of this Agreement
may be amended, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which
enforcement of the amendment, waiver, discharge or termination is sought and, for so long as the Notes issued under the Indenture
remain Outstanding, together in each case with the written consent of a Majority of the Noteholders. If the Company has outstanding
any securities rated by a rating agency, the Company shall promptly provide a copy of any such amendment or waiver to such rating
agency. The Investment Manager may not, directly or indirectly, assign all or any part of its rights and duties under this Agreement
to any Person without the prior consent of the Company and, for so long as the Notes issued under the Indenture remain Outstanding,
a Majority of the Noteholders. Notwithstanding the foregoing, after the date hereof, the Investment Manager may merge with another
business development company sponsored by Franklin Square Holdings, L.P. or may be subject to other fundamental change transactions
the result of which effectively combines the ownership and/or assets of FS Investment Corporation III and any business development
company sponsored by Franklin Square Holdings, L.P., or merges or consolidates their respective collateral advisors or sub-advisors.
Notwithstanding anything to the contrary in this agreement, the parties hereto agree that such merger or fundamental change is
permitted hereunder without the consent of the Company or the Majority of Noteholders, and the resulting entity described above
may assume FS Investment Corporation III’s obligations hereunder.

 

    	-14-

    	 

    

 

14.    Notices.

 

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

 

(a)   If to the Company:

 

Germantown Funding LLC

c/o FS Investment Corporation III

201 Rouse Boulevard

Philadelphia, PA 19112

Attention: Gerald F. Stahlecker, Executive
Vice President

Tel: (215) 495-1169

Fax: (215) 222-4649

 

(b)   If to the Investment
Manager:

 

FS Investment Corporation
III

201 Rouse Boulevard

Philadelphia, PA
19112

Attention: Gerald F. Stahlecker, Executive Vice President

Tel: (215) 495-1169

Fax: (215) 222-4649

 

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

 

15.    Binding Nature
of Agreement; Successors and Assigns.

 

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

 

16.    Entire Agreement.

 

This Agreement contains the
entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior
and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance
or usage of the trade inconsistent with any of the terms hereof. For so long as the Notes issued under the Indenture remain Outstanding,
in the event that this Agreement requires any action to be taken with respect to any matter and the Indenture requires that a different
action be taken with respect to such matter, and such actions are mutually exclusive, the provisions of the Indenture in respect
thereof shall control.

 

    	-15-

    	 

    

 

Notwithstanding any term
or condition hereof, the Investment Manager is not and shall not be considered a party to the Indenture and shall only have the
obligations expressly set forth herein and in the Indenture pursuant to Section 7.9(b) of the Indenture. None of the Trustee, any
Secured Party or any Noteholder shall have any right or claim arising out of any action or failure to act by the Investment Manager
hereunder (other than as a result of the assignment by the Company of certain of its rights hereunder to secure repayment of the
Notes pursuant to the Grant under the Indenture). The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement
in writing by the parties hereto. The provisions of Article VIII of the Indenture relating to the requirement that the Investment
Manager consent to any amendments thereof are incorporated in this Agreement.

 

17.    Costs and Expenses.

 

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

 

18.    Books and Records. 

 

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

 

19.    Titles Not to Affect
Interpretation.

 

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

 

20.    Provisions Separable.

 

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

 

21.    Governing Law.

 

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

 

22.    Execution in Counterparts.

 

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

 

    	-16-

    	 

    

 

23.    Third
Party Rights; Benefits of Agreement.

 

None of the provisions of
this Agreement shall be for the benefit of or enforceable by any creditor of the Company or by any creditor of the Member (other
than as a result of the assignment by the Company of certain of its rights hereunder to secure repayment of the Notes pursuant
to the Grant under the Indenture).

 

24.    Representations and
Warranties of the Investment Manager.

 

The Investment Manager represents,
warrants and covenants as of the date hereof as to itself:

 

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

 

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

 

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

 

(d)    Binding
Obligations. This Agreement has been executed and delivered by the Investment Manager and, assuming due authorization, execution
and delivery by the Company, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its
terms, except as enforceability may be limited by (A) bankruptcy, insolvency, reorganization, or other similar laws affecting
the enforcement of creditors’ rights generally, (B) equitable limitations on the availability of specific remedies, regardless
of whether such enforceability is considered in a proceeding in equity or at law and (C) implied covenants of good faith and fair
dealing;

 

(e)    No
Violation. The execution, delivery and performance of this Agreement by the Investment Manager, the Investment Manager’s
consummation of the transactions contemplated hereby and the Investment Manager’s fulfillment of the terms hereof do not
(A) conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse
of time) a default under, its articles of amendment and restatement or amended and restated bylaws, or any material indenture,
agreement, mortgage, deed of trust or other material instrument to which it is a party or by which it or its properties are bound,
(B) result in the creation or imposition of any adverse claim upon any of its properties pursuant to the terms of any such material
indenture, agreement, mortgage, deed of trust or other material instrument (except as may be created pursuant to this Agreement
or any other Transaction Document), or (C) violate in any material respect any existing law or regulation binding on the Investment
Manager except, in the case of this subclause (C), to the extent that such conflict or violation would not reasonably be expected
to have a material adverse effect on (i) the assets, operations, properties, financial condition, or business of the Investment
Manager; (ii) the ability of the Investment Manager to perform its obligations under this Agreement or any of the other Transaction
Documents; or (iii) the validity or enforceability of this Agreement or any of the other Transaction Documents (a “Material
Adverse Effect”).

 

    	-17-

    	 

    

 

(f)    
No Proceedings. There are no proceedings or investigations pending or, to the best of the Investment Manager’s knowledge,
threatened against it, before any Official Body having jurisdiction over it or its properties (A) asserting the invalidity of
this Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated hereby or (C) seeking any determination
or ruling that would reasonably be expected to have a Material Adverse Effect;

 

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

 

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

 

25.    Managing
REO Assets.

 

(a)   If, in the reasonable
business judgment of the Investment Manager, it becomes necessary to foreclose upon or repossess from the applicable issuer or
Obligor of a Collateral Obligation any real property securing any Collateral Obligation (each such Collateral Obligation, an “REO
Asset”), the Investment Manager shall first cause the Company to transfer and assign such Collateral Obligation (or the
portion thereof owned by the Company) to a special purpose vehicle wholly owned by the Company (the “REO Asset Owner”)
using a contribution agreement. The Investment Manager shall cause each REO Asset to be serviced (i) in accordance with applicable
laws, (ii) in accordance with the Investment Management Standard and (iii) in accordance with the applicable REO Asset Owner’s
limited liability company operating agreement (collectively, the “REO Investment Management Standard”). The
Investment Manager will cause all “Distributable Cash” (or comparable definition set forth in the REO Asset Owner’s
organization documents) to be deposited into the appropriate account of the Company within two (2) Business Days of receipt thereof.

 

(b)    In the event that
title to any Related Property (as hereinafter defined) is acquired on behalf of the REO Asset Owner for the benefit of its members
in foreclosure, by deed in lieu of foreclosure or upon abandonment or reclamation from bankruptcy, the deed or certificate of sale
shall be taken in the name of a REO Asset Owner. The Investment Manager shall cause the REO Asset Owner to manage, conserve, protect
and operate each REO Asset for its members solely for the purpose of its prompt disposition and sale.

 

    	-18-

    	 

    

 

(c)    Notwithstanding
any provision to the contrary contained in this Agreement, the Investment Manager shall not (and shall not permit the REO Asset
Owner to) obtain title to any property or other assets designated and pledged or mortgaged as collateral to secure repayment of
such Collateral Obligation (“Related Property”) as a result of or in lieu of foreclosure or otherwise, obtain
title to any direct or indirect partnership interest in any issuer or Obligor of a Collateral Obligation pledged pursuant to a
pledge agreement and thereby be the beneficial owner of Related Property, have a receiver of rents appointed with respect to,
and shall not otherwise acquire possession of, or take any other action with respect to, any Related Property if, as a result
of any such action, the REO Asset Owner would be considered to hold title to, to be a “mortgagee-in-possession” of,
or to be an “owner” or “operator” of, such Related Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time, or any comparable state or local environmental
law, unless the Investment Manager has previously determined in accordance with the REO Investment Management Standard, based
on an updated Phase I environmental assessment report generally prepared in accordance with the ASTM Phase I Environmental Site
Assessment Standard E 1527-05, as may be amended or, with respect to residential property, a property inspection and title report,
that:

 

       (i)     such
Related Property is in compliance in all material respects with applicable environmental laws, and

 

       (ii)    there
are no circumstances present at such Related Property relating to the use, management or disposal of any hazardous materials for
which investigation, testing, monitoring, containment, clean-up or remediation would reasonably be expected to be required by
the owner, occupier or operator of the Related Property under applicable federal, state or local law or regulation.

 

(d)   In the event that
the Phase I or other environmental assessment first obtained by the Investment Manager with respect to Related Property indicates
that such Related Property may not be in compliance with applicable environmental laws or that hazardous materials may be present
but does not definitively establish such fact, the Investment Manager shall cause the Company to immediately sell the related Loan.

 

26.    Subordination; Non-Petition.

 

The Investment Manager agrees
that the payment of all amounts to which it is entitled pursuant to this Agreement shall be subordinated to the extent set forth
in, and the Investment Manager agrees to be bound by the provisions of, Article XI of the Indenture and each of the Investment
Manager and Company hereby consents to the assignment of this Agreement as provided in Article XV of the Indenture and the Investment
Manager agrees to the provisions of Section 15.1(f) of the Indenture.

 

    	-19-

    	 

    

 

Notwithstanding any provision
of any Transaction Document to the contrary, the Investment Manager agrees not to institute against, or join any other Person in
instituting against, the Company any bankruptcy, reorganization, arrangement, insolvency, winding up, moratorium or liquidation
Proceedings or other Proceedings under U.S. federal or state bankruptcy or similar laws, or the similar laws of any other applicable
jurisdiction until at least one year (or, if longer, the applicable preference period then in effect) plus one day after the payment
in full of all Notes issued under the Indenture. Nothing in this Section 26 shall preclude, or be deemed to stop, the Investment
Manager (i) from taking any action prior to the expiration of the aforementioned period in connection with (A) any insolvency case
or Proceeding voluntarily filed or commenced by the Company or (B) any involuntary insolvency Proceeding filed or commenced by
a person other than the Investment Manager or its Affiliates or (ii) from commencing against the Company or any of its respective
properties any legal action that is not a bankruptcy, reorganization, arrangement, insolvency, moratorium or liquidation Proceeding.

 

27.    Confidentiality.

 

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

 

[Remainder of page intentionally left blank.]

 

    	-20-

    	 

    

 

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

 

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

 

    	2

    	 

    

 

(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.

 

    	3

    	 

    

 

(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.

 

    	4

    	 

    

  

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.

 

    	5

    	 

    

 

(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.

 

    	6

    	 

    

 

(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.

 

    	7

    	 

    

 

(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.

 

    	8

    	 

    

 

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.

 

    	9

    	 

    

 

(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).

 

    	10

    	 

    

 

(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.

 

    	11

    	 

    

 

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.

 

    	12

    	 

    

 

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]

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