Exhibit
4.1




 





KKR FINANCIAL HOLDINGS
LLC, as Issuer,


KKR FINANCIAL CORP., as
Guarantor


-and-


WELLS FARGO BANK, N.A., as Trustee






INDENTURE


Dated as of


July 23, 2007






7.000% Convertible Senior Notes due 2012




 



















TABLE OF CONTENTS


	
  

  	
   

  	
   

  	
   

  	
  PAGE

  
	
   

  
	
  ARTICLE 1

  
	
  Definitions

  
	
   

  
	
  Section 1.01.

  	
   

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  
	
  Issue, Description,
  Execution, Registration and Exchange of Notes

  
	
   

  
	
  Section 2.01.

  	
   

  	
  Designation
  Amount and Issue of Notes

  	
   

  	
  8

  
	
  Section 2.02.

  	
   

  	
  Form of
  Notes

  	
   

  	
  9

  
	
  Section 2.03.

  	
   

  	
  Date
  and Denomination of Notes; Payments of Interest

  	
   

  	
  10

  
	
  Section 2.04.

  	
   

  	
  Execution
  of Notes

  	
   

  	
  11

  
	
  Section 2.05.

  	
   

  	
  Exchange
  and Registration of Transfer of Notes; Restrictions on Transfer

  	
   

  	
  11

  
	
  Section 2.06.

  	
   

  	
  Mutilated,
  Destroyed, Lost or Stolen Notes

  	
   

  	
  16

  
	
  Section 2.07.

  	
   

  	
  Temporary
  Notes

  	
   

  	
  17

  
	
  Section 2.08.

  	
   

  	
  Cancellation
  of Notes

  	
   

  	
  18

  
	
  Section 2.09.

  	
   

  	
  CUSIP
  Numbers

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  
	
  Redemption and Repurchase
  of Notes

  
	
   

  
	
  Section 3.01.

  	
   

  	
  Optional
  Redemption of Notes

  	
   

  	
  18

  
	
  Section 3.02.

  	
   

  	
  Notice
  of Optional Redemption; Selection of Notes

  	
   

  	
  19

  
	
  Section 3.03.

  	
   

  	
  Payment
  of Notes Called for Redemption by the Issuer

  	
   

  	
  20

  
	
  Section 3.04.

  	
   

  	
  Sinking
  Fund

  	
   

  	
  21

  
	
  Section 3.05.

  	
   

  	
  Repurchase
  at Option of Holders Upon a Fundamental Change

  	
   

  	
  21

  
	
  Section 3.06.

  	
   

  	
  Issuer
  Repurchase Notice

  	
   

  	
  22

  
	
  Section 3.07.

  	
   

  	
  Withdrawal
  of Repurchase Notice

  	
   

  	
  23

  
	
  Section 3.08.

  	
   

  	
  Deposit
  of Repurchase Price

  	
   

  	
  24

  
	
  Section 3.09.

  	
   

  	
  Notes
  Repurchased in Part

  	
   

  	
  24

  
	
  Section 3.10.

  	
   

  	
  Third
  Party Purchase

  	
   

  	
  24

  
	
  Section 3.11.

  	
   

  	
  Repayment
  to the Issuer

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  
	
  Particular Covenants of the
  Issuer

  
	
   

  
	
  Section 4.01.

  	
   

  	
  Payment
  of Principal, Premium and Interest

  	
   

  	
  25

  
	
  Section 4.02.

  	
   

  	
  Maintenance
  of Office or Agency

  	
   

  	
  25

  
	
  Section 4.03.

  	
   

  	
  Appointments
  to Fill Vacancies in Trustee’s Office

  	
   

  	
  25

  
	
  Section 4.04.

  	
   

  	
  Provisions
  as to Paying Agent

  	
   

  	
  26

  
	
  Section 4.05.

  	
   

  	
  Existence

  	
   

  	
  27

  
	
  Section 4.06.

  	
   

  	
  Rule
  144A Information Requirement

  	
   

  	
  27

  
	
  Section 4.07.

  	
   

  	
  Stay,
  Extension and Usury Laws

  	
   

  	
  27

  



 



 i
 









 


	
  

  	
   

  	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.08.

  	
   

  	
  Compliance
  Certificate

  	
   

  	
  27

  
	
  Section 4.09.

  	
   

  	
  Additional
  or Special Interest Notice

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  
	
  Noteholders’ Lists and
  Reports by the Issuer and the Trustee

  
	
   

  
	
  Section 5.01.

  	
   

  	
  Noteholders’
  Lists

  	
   

  	
  28

  
	
  Section 5.02.

  	
   

  	
  Preservation
  and Disclosure of Lists

  	
   

  	
  28

  
	
  Section 5.03.

  	
   

  	
  Reports
  by Trustee

  	
   

  	
  29

  
	
  Section 5.04.

  	
   

  	
  Reports
  by Issuer

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  
	
  Remedies of the Trustee and
  Noteholders on an Event of Default

  
	
   

  
	
  Section 6.01.

  	
   

  	
  Events
  of Default

  	
   

  	
  29

  
	
  Section 6.02.

  	
   

  	
  Payments
  of Notes on Default; Suit Therefor

  	
   

  	
  32

  
	
  Section 6.03.

  	
   

  	
  Application
  of Monies Collected by Trustee

  	
   

  	
  34

  
	
  Section 6.04.

  	
   

  	
  Proceedings
  by Noteholder

  	
   

  	
  34

  
	
  Section 6.05.

  	
   

  	
  Proceedings
  by Trustee

  	
   

  	
  35

  
	
  Section 6.06.

  	
   

  	
  Remedies
  Cumulative and Continuing

  	
   

  	
  35

  
	
  Section 6.07.

  	
   

  	
  Direction
  of Proceedings and Waiver of Defaults by Majority of Noteholders

  	
   

  	
  36

  
	
  Section 6.08.

  	
   

  	
  Notice
  of Defaults

  	
   

  	
  36

  
	
  Section 6.09.

  	
   

  	
  Undertaking
  to Pay Costs

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  
	
  The Trustee

  
	
   

  
	
  Section 7.01.

  	
   

  	
  Duties
  and Responsibilities of Trustee

  	
   

  	
  37

  
	
  Section 7.02.

  	
   

  	
  Reliance
  on Documents, Opinions, etc

  	
   

  	
  38

  
	
  Section 7.03.

  	
   

  	
  No
  Responsibility for Recitals, etc

  	
   

  	
  39

  
	
  Section 7.04.

  	
   

  	
  Trustee,
  Paying Agents, Conversion Agents or Note Registrar May Own Notes

  	
   

  	
  40

  
	
  Section 7.05.

  	
   

  	
  Monies
  to be Held in Trust

  	
   

  	
  40

  
	
  Section 7.06.

  	
   

  	
  Compensation
  and Expenses of Trustee

  	
   

  	
  40

  
	
  Section 7.07.

  	
   

  	
  Officers’
  Certificate as Evidence

  	
   

  	
  41

  
	
  Section 7.08.

  	
   

  	
  Conflicting
  Interests of Trustee

  	
   

  	
  41

  
	
  Section 7.09.

  	
   

  	
  Eligibility
  of Trustee

  	
   

  	
  41

  
	
  Section 7.10.

  	
   

  	
  Resignation
  or Removal of Trustee

  	
   

  	
  41

  
	
  Section 7.11.

  	
   

  	
  Acceptance
  by Successor Trustee

  	
   

  	
  42

  
	
  Section 7.12.

  	
   

  	
  Succession
  by Merger

  	
   

  	
  43

  
	
  Section 7.13.

  	
   

  	
  Preferential
  Collection of Claims

  	
   

  	
  43

  
	
   

  
	
  ARTICLE 8

  
	
  The Noteholders

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.01.

  	
   

  	
  Action
  by Noteholders

  	
   

  	
  43

  
	
  Section 8.02.

  	
   

  	
  Proof
  of Execution by Noteholders

  	
   

  	
  43

  




 ii
 









 


	
  

  	
   

  	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.03.

  	
   

  	
  Absolute
  Owners

  	
   

  	
  44

  
	
  Section 8.04.

  	
   

  	
  Issuer-Owned
  Notes Disregarded

  	
   

  	
  44

  
	
  Section 8.05.

  	
   

  	
  Revocation
  of Consents; Future Holders Bound

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  
	
  Supplemental Indentures

  
	
   

  
	
  Section 9.01.

  	
   

  	
  Supplemental
  Indentures Without Consent of Noteholders

  	
   

  	
  45

  
	
  Section 9.02.

  	
   

  	
  Supplemental
  Indenture With Consent of Noteholders

  	
   

  	
  46

  
	
  Section 9.03.

  	
   

  	
  Effect
  of Supplemental Indenture

  	
   

  	
  47

  
	
  Section 9.04.

  	
   

  	
  Notation
  on Notes

  	
   

  	
  47

  
	
  Section 9.05.

  	
   

  	
  Evidence
  of Compliance of Supplemental Indenture to be Furnished to Trustee

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  
	
  Consolidation, Merger,
  Sale, Conveyance and Lease

  
	
   

  
	
  Section 10.01.

  	
   

  	
  Issuer
  May Consolidate on Certain Terms

  	
   

  	
  48

  
	
  Section 10.02.

  	
   

  	
  Issuer
  Successor to be Substituted

  	
   

  	
  48

  
	
   

  
	
  ARTICLE 11

  
	
  Satisfaction and Discharge
  of Indenture

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 11.01.

  	
   

  	
  Discharge
  of Indenture

  	
   

  	
  49

  
	
  Section 11.02.

  	
   

  	
  Deposited
  Monies to be Held in Trust by Trustee

  	
   

  	
  50

  
	
  Section 11.03.

  	
   

  	
  Paying
  Agent to Repay Monies Held

  	
   

  	
  50

  
	
  Section 11.04.

  	
   

  	
  Return
  of Unclaimed Monies

  	
   

  	
  50

  
	
  Section 11.05.

  	
   

  	
  Reinstatement

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  
	
  Immunity of Incorporators,
  Stockholders, Officers and Directors

  
	
   

  
	
  Section 12.01.

  	
   

  	
  Indenture
  and Notes Solely Corporate Obligations

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  
	
  Conversion of Notes

  
	
   

  
	
  Section 13.01.

  	
   

  	
  Right
  to Convert

  	
   

  	
  51

  
	
  Section 13.02.

  	
   

  	
  Exercise
  of Conversion Right; No Adjustment for Interest or Dividends

  	
   

  	
  54

  
	
  Section 13.03.

  	
   

  	
  Cash
  Payments in Lieu of Fractional Shares

  	
   

  	
  55

  
	
  Section 13.04.

  	
   

  	
  Conversion
  Rate

  	
   

  	
  55

  
	
  Section 13.05.

  	
   

  	
  Adjustment
  of Conversion Rate

  	
   

  	
  56

  
	
  Section 13.06.

  	
   

  	
  Change
  in Conversion Right Upon Certain Reclassifications, Business Combinations and
  Asset Sales

  	
   

  	
  62

  
	
  Section 13.07.

  	
   

  	
  Taxes
  on Shares Issued

  	
   

  	
  63

  
	
  Section 13.08.

  	
   

  	
  Reservation
  of Shares, Shares to be Fully Paid; Compliance with Governmental Requirements

  	
   

  	
  63

  
	
  Section 13.09.

  	
   

  	
  Responsibility
  of Trustee

  	
   

  	
  63

  




 iii
 









 


	
  

  	
   

  	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 13.10.

  	
   

  	
  Notice
  to Holders Prior to Certain Actions

  	
   

  	
  64

  
	
  Section 13.11.

  	
   

  	
  Stockholder
  Rights Plans

  	
   

  	
  64

  
	
  Section 13.12.

  	
   

  	
  Settlement
  Upon Conversion

  	
   

  	
  65

  
	
  Section 13.13.

  	
   

  	
  Conversion
  Rate Adjustment After Certain Fundamental Change Transactions

  	
   

  	
  66

  
	
  Section 13.14.

  	
   

  	
  Ownership
  Limit; Withholding Tax

  	
   

  	
  68

  
	
  Section 13.15.

  	
   

  	
  Calculation
  In Respect of Notes

  	
   

  	
  68

  
	
   

  
	
  ARTICLE 14

  
	
  Notes Guarantee

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 14.01.

  	
   

  	
  Guarantee

  	
   

  	
  69

  
	
  Section 14.02.

  	
   

  	
  Severability

  	
   

  	
  70

  
	
  Section 14.03.

  	
   

  	
  Limitation
  of Liability

  	
   

  	
  70

  
	
  Section 14.04.

  	
   

  	
  Subrogation

  	
   

  	
  71

  
	
  Section 14.05.

  	
   

  	
  Reinstatement

  	
   

  	
  71

  
	
  Section 14.06.

  	
   

  	
  Release
  of the Guarantor

  	
   

  	
  71

  
	
  Section 14.07.

  	
   

  	
  Benefits
  Acknowledged

  	
   

  	
  71

  
	
   

  
	
  ARTICLE 15

  
	
  Miscellaneous Provisions

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 15.01.

  	
   

  	
  Provisions
  Binding on Issuer’s Successors

  	
   

  	
  72

  
	
  Section 15.02.

  	
   

  	
  Official
  Acts by Successor Corporation

  	
   

  	
  72

  
	
  Section 15.03.

  	
   

  	
  Addresses
  for Notices, etc

  	
   

  	
  72

  
	
  Section 15.04.

  	
   

  	
  Governing
  Law

  	
   

  	
  72

  
	
  Section 15.05.

  	
   

  	
  Evidence
  of Compliance with Conditions Precedent, Certificates to Trustee

  	
   

  	
  73

  
	
  Section 15.06.

  	
   

  	
  Legal
  Holidays

  	
   

  	
  73

  
	
  Section 15.07.

  	
   

  	
  Trust
  Indenture Act

  	
   

  	
  73

  
	
  Section 15.08.

  	
   

  	
  No
  Security Interest Created

  	
   

  	
  73

  
	
  Section 15.09.

  	
   

  	
  Benefits
  of Indenture

  	
   

  	
  73

  
	
  Section 15.10.

  	
   

  	
  Table
  of Contents, Headings, etc

  	
   

  	
  73

  
	
  Section 15.11.

  	
   

  	
  Authenticating
  Agent

  	
   

  	
  74

  
	
  Section 15.12.

  	
   

  	
  Execution
  in Counterparts

  	
   

  	
  74

  
	
  Section 15.13.

  	
   

  	
  Severability

  	
   

  	
  75

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Note

  	
   

  	
  A-1

  
	
  Exhibit B

  	
  Notation of
  Guarantee

  	
   

  	
  B-1

  
						




 iv
 









CROSS-REFERENCE TABLE*


	
  Trust Indenture Act Section

  	
   

  	
  Indenture
  Section

  	
   

  
	
  310

  	
  (a)(1)

  	
   

  	
  7.09

  	
   

  
	
   

  	
  (a)(2)

  	
   

  	
  7.09

  	
   

  
	
   

  	
  (a)(3)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (a)(4)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (a)(5)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (b)

  	
   

  	
  7.08

  	
   

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
  311

  	
  (a)

  	
   

  	
  7.13

  	
   

  
	
   

  	
  (b)

  	
   

  	
  7.13

  	
   

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
  312

  	
  (a)

  	
   

  	
  5.01

  	
   

  
	
   

  	
  (b)

  	
   

  	
  5.02

  	
   

  
	
   

  	
  (c)

  	
   

  	
  5.02

  	
   

  
	
  313

  	
  (a)

  	
   

  	
  5.03

  	
   

  
	
   

  	
  (b)

  	
   

  	
  5.03

  	
   

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (d)

  	
   

  	
  5.03

  	
   

  
	
  314

  	
  (a)

  	
   

  	
  4.08, 5.04

  	
   

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (c)(1)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (c)(2)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (c)(3)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (d)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (e)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (f)

  	
   

  	
  N.A.

  	
   

  
	
  315

  	
  (a)

  	
   

  	
  7.01

  	
   

  
	
   

  	
  (b)

  	
   

  	
  6.08

  	
   

  
	
   

  	
  (c)

  	
   

  	
  6.05

  	
   

  
	
   

  	
  (d)

  	
   

  	
  7.01

  	
   

  
	
   

  	
  (e)

  	
   

  	
  6.09

  	
   

  
	
  316

  	
  (a)(1)(A)

  	
   

  	
  6.07

  	
   

  
	
   

  	
  (a)(1)(B)

  	
   

  	
  6.07

  	
   

  
	
   

  	
  (a)(2)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (c)

  	
   

  	
  N.A.

  	
   

  
	
  317

  	
  (a)(1)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (a)(2)

  	
   

  	
  N.A.

  	
   

  
	
   

  	
  (b)

  	
   

  	
  N.A.

  	
   

  
	
  318

  	
  (a)

  	
   

  	
  N.A.

  	
   

  



 


N.A. means not
applicable.






* This
Cross-Reference Table is not part of the Indenture.



 v















INDENTURE


INDENTURE, dated as of
July 23, 2007, between KKR Financial Holdings LLC, a Delaware limited liability
company (hereinafter called the “Issuer”), KKR
Financial Corp., a Maryland corporation (hereinafter call the “Guarantor”), and Wells Fargo Bank, N.A., a banking
association organized under the laws of the United States, as trustee hereunder
(hereinafter called the “Trustee”).


Each party agrees as
follows for the benefit of the other parties and for the equal and ratable
benefit of the holders of the Issuer’s 7.000% Convertible Senior Notes due 2012
(hereinafter called the “Notes”) on the
date hereof.


ARTICLE 1

Definitions


Section
1.01.  Definitions.  The terms defined in this Section 1.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.01.  All other terms used in this Indenture that
are defined in the Trust Indenture Act (as defined below) or which are by
reference therein defined in the Securities Act (except as herein otherwise
expressly provided or unless the context otherwise requires) shall have the
respective meanings assigned to such terms in the Trust Indenture Act and in
the Securities Act as in force at the date of the execution of this
Indenture.  The words “herein,” “hereof,”
“hereunder” and words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision.  The terms
defined in this Article include the plural as well as the singular.


“Additional Interest” has the meaning
specified for Additional Interest Amount in the Registration Rights Agreement.


“Additional or Special Interest Notice” has
the meaning specified in Section 4.09.


“Additional Notes” has
the meaning specified in Section 2.01.


“Additional Shares”
has the meaning specified in Section 13.13.


“Affiliate”
of any specified Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specified Person.  For the purposes
of this definition, “control,” when
used with respect to any specified Person means the power to direct or cause
the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise, and the terms “controlling”
and “controlled” have meanings correlative
to the foregoing.


“Agent
Members” has the meaning specified in Section 2.05(b).


“Bankruptcy
Law” means Title 11, U.S. Code or any similar federal, state, or
foreign law for the relief of debtors.













“Board of
Directors” means the Board of Directors of the Issuer or a committee
of such Board duly authorized to act for it hereunder.


“Business Day”
means, with respect to any Note, any day, other than a Saturday, Sunday or any
other day on which banking institutions in The City of New York are authorized
or obligated by law or executive order to close.


“Cash
Percentage” has the meaning specified in Section 13.12(d).


“Change in
Control” means the occurrence at any time any of the following
events: (1) consummation of any transaction or event (whether by means of
a share exchange or tender offer applicable to the Common Shares, a liquidation,
consolidation, recapitalization, reclassification, combination or merger of the
Issuer or a sale, lease or other transfer of all or substantially all of the
consolidated assets of the Issuer) or a series of related transactions or
events pursuant to which all of the outstanding Common Shares are exchanged
for, converted into or constitute solely the right to receive, cash, securities
or other property; (2) any “person” or “group” (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), other than the Issuer or any majority-owned subsidiary of
the Issuer or any employee benefit plan of the Issuer or such subsidiary, is or
becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of limited liability company interests or other equity
interests of the Issuer then outstanding entitled to vote generally in
elections of the Issuer’s directors; or (3) during any period of 12
consecutive months after the date of original issuance of the Notes, persons
who at the beginning of such 12-month period constituted the Board of
Directors of the Issuer, together with any new persons whose election,
appointment, designation, or nomination was approved by a vote of a majority of
the persons then still comprising the Board of Directors of the Issuer who were
either members of the Board of Directors of the Issuer at the beginning of such
period or whose election, appointment, designation or nomination for election
was previously so approved, cease for any reason to constitute a majority of
the Board of Directors of the Issuer. 
Notwithstanding the foregoing but solely for purposes of the provisions
of the Fundamental Change repurchase right set forth in Section 3.05, even if
any of the events specified in the preceding clauses (1) through (3) have
occurred, a Change in Control will not be deemed to have occurred if at least
90% of the consideration (excluding cash payments for fractional shares and
cash payments made pursuant to dissenters’ appraisal rights) in a merger,
consolidation or other transaction otherwise constituting a Change in Control
consists of shares of common stock traded on a U.S. national securities
exchange (or will be so traded immediately following such merger, consolidation
or other transaction) and as a result of the merger, consolidation or other
transaction the Notes become convertible into such shares of common stock.  For the purposes of this definition, “person”
includes any syndicate or group that would be deemed to be a “person” under
Section 13(d)(3) of the Exchange Act.


“Closing Sale
Price,” with respect to Common Shares or other equity securities or
similar equity interests or other publicly traded securities on any date means
the closing sale price per Common Share, equity security, equity interest or
other security, as the case may be (or, if no closing sale price is reported,
the average of the closing bid and ask prices or, if more than one in either
case, the average of the average closing bid and the average closing ask 



 2
 









prices), on such
date as reported on the principal United States securities exchange on which
the Common Shares or such other equity securities or similar equity interests
or other securities are traded or, if the Common Shares or such other equity
securities or similar equity interests or other securities are not listed on a
United States national or regional securities exchange, as reported by the
National Quotation Bureau Incorporated or another established over-the-counter
trading market in the United States. The Closing Sale Price shall be determined
without regard to after-hours trading or extended market making. In the
absence of the foregoing, the Issuer shall determine the Closing Sale Price on
such basis as it considers appropriate.


“Code” means
the Internal Revenue Code of 1986, as amended.


“Commission”
means the Securities and Exchange Commission, as from time to time constituted,
created under the Exchange Act, or, if at any time after the execution of this
Indenture such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body performing such
duties at such time.


“Common Shares”
means the common shares of the Issuer as such common shares exist on the date
of this Indenture or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Issuer and which are
not subject to redemption by the Issuer; provided that
if at any time there shall be more than one such resulting class, the shares of
each such class then so issuable on conversion shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.


“Conversion Agent” means the conversion
agent appointed by the Issuer to act as set forth in Article 13, which,
initially, shall be the Trustee.


“Conversion Date” has the meaning specified
in Section 13.02.


“Conversion Notice” has the meaning
specified in Section 13.02.


“Conversion Price” on any date of
determination means $1,000 divided by the Conversion Rate as of such date.


“Conversion Rate” has the meaning specified
in Section 13.04.


“Corporate
Trust Office” or other similar term, means the designated office or
agency of the Trustee at which at any particular time its corporate trust
business as it relates to this Indenture shall be administered, which office
is, at the date as of which this Indenture is dated, located at 919 North
Market Street, Wilmington, Delaware 19801, Attention: Corporate Trust Services,
or at any other time at such other address as the Trustee may designate from
time to time by notice to the Issuer.


“CUSIP” means the Committee on Uniform
Securities Identification Procedures.



 3
 









“Custodian”
means Wells Fargo Bank, N.A., as custodian with respect to the Notes in global
form, or any successor entity thereto.


“Daily
Conversion Value” has the meaning provided in Section 13.12(b).


“Daily
Settlement Amount” has the meaning provided in Section 13.12(b).


“Daily VWAP”
has the meaning provided in Section 13.12(b).


“default”
means any event that is, or after notice or passage of time, or both, would be,
an Event of Default.


“Defaulted
Interest” has the meaning specified in Section 2.03.


“Depositary”
means the clearing agency registered under the Exchange Act that is designated
to act as the Depositary for the Global Notes. 
DTC shall be the initial Depositary, until a successor shall have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter, “Depositary”
shall mean or include such successor.


“DTC”
means The Depository Trust Company.


“Effective Date”
has the meaning specified in Section 13.13(b).


“Event of
Default” means any event specified in Section 6.01 as an Event of
Default.


“ex-dividend date” has the meaning specified
in Section 13.01(a)(iv).


“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, as in effect from time to time.


“Expiration
Time” has the meaning specified in Section 13.05(e).


“Fundamental
Change” means the occurrence of a Change in Control or a Termination
of Trading.


“Fundamental
Change Purchase Price” has the meaning provided in Section 3.05(a)
hereof.


“Fundamental
Change Purchase Date” has the meaning provided in Section 3.05(a)
hereof.


“Global Note”
has the meaning specified in Section 2.02.


“Guarantee”
means the guarantee by the Guarantor of the Issuer’s obligations under the
Indenture in accordance with the provisions of Article 14.


“Guarantor”
means KKR Financial Corp. and its successors and assigns, in each case, until
the Guarantee of KKR Financial Corp. has been released in accordance with the
provisions of the Indenture.



 4
 









“Indenture”
means this instrument as originally executed or, if amended or supplemented as
herein provided, as so amended or supplemented.


“Initial Notes” has the meaning specified in
Section 2.01.


“Initial Purchaser”
means Citigroup Global Markets Inc.


“interest”
means, when used with reference to the Notes, any interest payable under the
terms of the Notes, including Additional Interest, if any, payable under the
terms of the Registration Rights Agreement and Special Interest, if any,
payable pursuant to Section 6.01.


“Interest
Payment Date” means January 15 and July 15 of each year, beginning
on January 15, 2008.


“Issuer” means the party named as the “Issuer”
in the first paragraph of this Indenture, and, subject to the provisions of
Article 10, shall include its successors and assigns.


“Issuer
Repurchase Notice” has the meaning specified in Section 3.06(a).


“Issuer
Repurchase Notice Date” means the date on which the Issuer provides
the Issuer Repurchase Notice to holders in accordance with the provisions of Section
3.05(b).


“Legal
Holiday” means any day other than a Business Day.


“Market
Disruption Event” has the meaning specified in Section 13.12(b).


“Net Share
Amount” has the meaning specified in Section 13.12(d).


“Note”
or “Notes” means any Note or Notes, as the
case may be, authenticated and delivered under this Indenture, including the
Initial Notes, any Additional Notes and any Global Note.


“Note
Register” has the meaning specified in Section 2.05(a).


“Note
Registrar” has the meaning specified in Section 2.05(a).


“Noteholder”
or “holder” as applied to any Note, or
other similar terms (but excluding the term “beneficial
holder”), means any Person in whose name at the time a particular
Note is registered on the Note Registrar’s books.


“Observation
Period” has the meaning specified in Section 13.12(b).


“Offering
Memorandum” means the Issuer’s offering memorandum dated July 17,
2007 relating to the Notes.


“Officer”
means any person holding any of the following positions with the Issuer or the
Guarantor, as the case may be:  the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President (whether or not designated by a number or numbers or word or 



 5
 









words added before
or after the title “Vice President”), the Chief Financial Officer, the Treasurer
and the Secretary.


“Officers’
Certificate”, when used with respect to the Issuer, means a
certificate signed by any two Officers.


“Operating
Agreement” means the Amended and Restated Operating Agreement of the
Issuer, as amended or supplemented from time to time in accordance with the
terms thereof.


“Opinion of
Counsel” means an opinion in writing signed by legal counsel, who
may be an employee of or counsel to the Issuer, or other counsel reasonably
acceptable to the Trustee.


“outstanding”,
when used with reference to Notes and subject to the provisions of Section
8.04, means, as of any particular time, all Notes authenticated and delivered
by the Trustee under this Indenture, except:


(a)           Notes theretofore canceled by the
Trustee or delivered to the Trustee for cancellation;


(b)           Notes, or portions thereof, (i) for
the redemption or repurchase of which monies in the necessary amount shall have
been deposited in trust with the Trustee or with any Paying Agent (other than
the Issuer) or (ii) which shall have been otherwise discharged in accordance
with Article 11;


(c)           Notes in lieu of which, or in
substitution for which, other Notes shall have been authenticated and delivered
pursuant to the terms of Section 2.06; and


(d)           Notes converted pursuant to Article
13.


“Paying Agent” has the meaning specified in
Section 2.08.


“Person”
means a corporation, an association, a partnership, a limited liability
company, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.


“PORTAL
Market” means The PORTAL Market operated by the Nasdaq Stock Market
or any successor thereto.


“Predecessor
Note” of any particular Note means every previous Note evidencing
all or a portion of the same debt as that evidenced by such particular Note,
and, for the purposes of this definition, any Note authenticated and delivered
under Section 2.06 in lieu of a lost, destroyed or stolen Note shall be deemed
to evidence the same debt as the lost, destroyed or stolen Note that it
replaces.


“Purchase
Agreement” means the Purchase Agreement, dated July 17, 2007, among
the Issuer, KKR Financial Advisors LLC, the Guarantor and the Initial Purchaser
relating to the Notes.



 6
 









“Record Date” has the meaning specified in
Section 2.03.


“Redemption
Date” means the date fixed by the Issuer for redemption of all or
any portion of the Notes in accordance with the provisions of Section 3.02
hereof.


“Reference
Dividend” has the meaning specified in Section 13.05(d).


“Registration
Rights Agreement” means the Registration Rights Agreement, dated as
of July 23, 2007, among the Issuer, the Guarantor and the Initial Purchaser, as
amended from time to time in accordance with its terms.


“REIT”
means a real estate investment trust within the meaning of Section 856(a) of
the Code.


“REIT
Subsidiary” means any Subsidiary of the Issuer that has elected to
be qualified as a REIT under the Code.


“Repurchase
Notice” has the meaning specified in Section 3.05(c).


“Responsible
Officer” shall mean, when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of such person’s knowledge of or familiarity with
the particular subject.


“Restricted
Securities” has the meaning specified in Section 2.05(c).


“Rule 144A”
means Rule 144A as promulgated under the Securities Act as it may be amended
from time to time hereafter.


“Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, as in effect from time to time.


“Share Price”
has the meaning specified in Section 13.13(b).


“Significant
Subsidiary” means, as of any date of determination, a Subsidiary of
the Issuer that would constitute a “significant subsidiary”
as such term is defined under Rule 1-02(w) of Regulation S-X of the Commission
as in effect on the date of this Indenture.


“Special Interest” has the meaning set forth
in Section 6.01.


“Spin-Off” has
the meaning specified in Section 13.05(c).


“Stated Maturity” means July 15, 2012.


“Subsidiary”
means, with respect to any Person, (i) any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
capital stock or other equity interest entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or



 7
 









indirectly, by
such Person or one or more of the other subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
managing general partner of which is such Person or a subsidiary of such Person
or (b) the only general partners of which are such Person or of one or more
subsidiaries of such Person (or any combination thereof).


“Termination
of Trading” will be deemed to have occurred if the Issuer’s Common
Shares (or other common equity interests into which the Notes are then
convertible) are not listed on a United States national securities exchange or
cease to be traded in contemplation of a delisting, other than as a result of a
transaction described in clause (1) of the definition of Change in Control.


“Trading Day”
means a day during which trading in securities generally occurs on the New York
Stock Exchange or, if the Common Shares or other equity securities or similar
equity interests are not then listed on the New York Stock Exchange, on the
principal other United States national or regional securities exchange on which
the Common Shares or other equity securities or similar equity interests are
then listed or, if the Common Shares or other equity securities or similar
equity interests are not then listed on a United States national or regional
securities exchange, on the principal other market on which the Common Shares
or other equity securities or similar equity interests are then traded or if
the Common Shares or other equity securities or similar equity interests are
not traded on any such other principal market, any Business Day; provided that,
for purposes of Section 13.12, the term Trading Day shall have the meaning set
forth in Section 13.12(b).


“Trading
Price” has the meaning specified in Section 13.01(a)(ii).


“Trust
Indenture Act” means the Trust Indenture Act of 1939, as amended, as
it was in force at the date of this Indenture; provided
that if the Trust Indenture Act of 1939 is amended after the date hereof, the
term “Trust Indenture Act” shall mean, to the
extent required by such amendment, the Trust Indenture Act of 1939 as so
amended.


“Trustee”
means Wells Fargo Bank, N.A. and its successors and any corporation resulting
from or surviving any consolidation or merger to which it or its successors may
be a party and any successor trustee at the time serving as successor trustee
hereunder.


ARTICLE 2

Issue, Description, Execution,
Registration and Exchange of Notes


Section
2.01.  Designation
Amount and Issue of Notes. 
The Notes shall be designated as the “7.000%
Convertible Senior Notes due 2012.” 
Upon the execution of this Indenture, and from time to time thereafter,
Notes may be executed by the Issuer and delivered to the Trustee for
authentication, and the Trustee shall thereupon authenticate and deliver Notes
upon a written order of the Issuer, such order signed by two Officers, without
any further action by the Issuer hereunder.


The aggregate principal
amount of Notes which may be authenticated and delivered under this Indenture
is initially $300,000,000 (or $345,000,000 if the Initial Purchaser’s option
set forth in the Purchase Agreement is exercised in full).  The Issuer may, without the consent of



 8
 









the holders of
Notes, issue additional debt securities (the “Additional
Notes”) from time to time in the future with the same terms, except
for any difference in the issue price and interest accrued prior to the issue
date of the Additional Notes, and with the same CUSIP number as the Notes
originally issued under this Indenture (the “Initial
Notes”) in an unlimited principal amount, provided that such
Additional Notes must be part of the same issue as the Initial Notes for United
States federal income tax purposes.  The
Initial Notes and any such Additional Notes will constitute a single series of
debt securities, and in circumstances in which this Indenture provides for the
holders of Notes to vote or take any action, the holders of Initial Notes and
the holders of any such Additional Notes will vote or take that action as a
single class.


Section
2.02.  Form
of Notes.  The Notes and the
Trustee’s certificate of authentication to be borne by such Notes shall be
substantially in the form set forth in Exhibit A hereto.  The terms and provisions contained in the
form of Note attached as Exhibit A hereto shall constitute, and are
hereby expressly made, a part of this Indenture and, to the extent applicable,
the Issuer and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.


Any of the Notes may have
such letters, numbers or other marks of identification and such notations,
legends, endorsements or changes as the officers executing the same may approve
(execution thereof to be conclusive evidence of such approval) and as are not
inconsistent with the provisions of this Indenture, or as may be required by
the Custodian, the Depositary or by the National Association of Securities
Dealers, Inc. in order for the Notes to be tradable on The PORTAL Market or as
may be required for the Notes to be tradable on any other market developed for
trading of securities pursuant to Rule 144A or as may be required to comply
with any applicable law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any securities exchange or automated quotation
system on which the Notes may be listed, or to conform to usage, or to indicate
any special limitations or restrictions to which any particular Notes are subject.


So long as the Notes are
eligible for book-entry settlement with the Depositary, or unless otherwise
required by law, or otherwise contemplated by Section 2.05(b), all of the Notes
will be represented by one or more Notes in global form registered in the name
of the Depositary or the nominee of the Depositary (a “Global Note”).  The transfer and exchange of beneficial
interests in any such Global Note shall be effected through the Depositary in
accordance with this Indenture and the applicable procedures of the
Depositary.  Except as provided in
Section 2.05(b), beneficial owners of a Global Note shall not be entitled to
have certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form and will not be
considered holders of such Global Note.


Any Global Note shall
represent such of the outstanding Notes as shall be specified therein and shall
provide that it shall represent the aggregate amount of outstanding Notes from
time to time endorsed thereon and that the aggregate amount of outstanding
Notes represented thereby may from time to time be increased or reduced to
reflect redemptions, repurchases, conversions, exchanges or transfers permitted
hereby.  Any endorsement of a Global Note
to reflect the amount of any increase or decrease in the amount of outstanding
Notes represented thereby shall be made by the Trustee or the Custodian, at the
direction of the Trustee, in such manner and upon instructions given by the
holder of such Notes in accordance with this



 9
 









Indenture.  Payment of principal of, and interest on, any
Global Note shall be made to the holder of such Note.


Section
2.03.  Date
and Denomination of Notes; Payments of Interest.  The Notes shall be issuable in registered form
without coupons in denominations of $2,000 principal amount and integral
multiples of $1,000 in excess thereof. 
Each Note shall be dated the date of its authentication and shall bear
interest from the date specified on the face of the form of Note attached as Exhibit
A hereto.  Interest on the Notes
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months.


The Person in whose name
any Note (or its Predecessor Note) is registered on the Note Register at the
close of business, New York City time, on any Record Date with respect to any
Interest Payment Date shall be entitled to receive the interest payable on such
Interest Payment Date; provided that
interest payable on the Stated Maturity shall be payable to the Person to whom
principal is payable; and provided, further that if an Interest Payment Date falls on or prior
to a Redemption Date or a Fundamental Change Purchase Date, as the case may be,
the semi-annual payment of interest becoming due on such Interest Payment Date
shall be payable to the holder of such Note registered as such on the related
Record Date.  Interest shall be payable
at an office of the Issuer maintained by the Issuer for such purposes, which
shall initially be an office or agency of the Trustee.  The Issuer shall pay interest (i) on any
Notes in certificated form by check mailed to the address of the Person
entitled thereto as it appears in the Note Register; provided, however,
that a holder of any Notes in certificated form in the aggregate principal
amount of more than $5.0 million may specify by written notice to the Issuer
that it pay interest by wire transfer of immediately available funds to the
account specified by the Noteholder in such notice, or (ii) on any Global Note
by wire transfer of immediately available funds to the account of the
Depositary or its nominee.  If a payment
date is not a Business Day, payment shall be made on the next succeeding
Business Day, and no additional interest shall accrue thereon.  The term “Record Date”
with respect to any Interest Payment Date shall mean the January 1 or the July
1, in each case whether or not such day is a Business Day, next preceding the
applicable Interest Payment Date. 
Interest payable on each Interest Payment Date or any other date on
which interest shall be payable shall equal the amount of interest accrued for
the period from and including the immediately preceding Interest Payment Date
in respect of which interest has been paid (or from and including July 23, 2007
if no interest shall have been payable) to but excluding such Interest Payment
Date or other date on which such interest should be payable.


Any interest on any Note
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called “Defaulted Interest”)
shall forthwith cease to be payable to the Noteholder registered as such on the
relevant Record Date, and such Defaulted Interest shall be paid by the Issuer,
at its election in each case, as provided in clause (1) or (2) below:


(1)           The Issuer may elect to make payment
of any Defaulted Interest to the Persons in whose names the Notes (or their
respective Predecessor Notes) are registered at the close of business, New York
City time, on a special record date for the payment of such Defaulted Interest,
which shall be fixed in the following manner. 
The Issuer shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Note and the date of the
proposed payment (which shall be not less than twenty five (25)  calendar days after the receipt



 10
 









by the Trustee of such notice, unless the
Trustee shall consent to an earlier date), and at the same time the Issuer
shall deposit with the Trustee an amount of money equal to the aggregate amount
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit on or prior to the date of the
proposed payment, such money when deposited to be held in trust for the benefit
of the Persons entitled to such Defaulted Interest as in this clause
provided.  Thereupon the Trustee shall
fix a special record date for the payment of such Defaulted Interest which
shall be not more than fifteen (15) calendar days and not less than ten (10)
calendar days prior to the date of the proposed payment, and not less than ten
(10) calendar days after the receipt by the Trustee of the notice of the
proposed payment (unless, the Trustee shall consent to an earlier date).  The Trustee shall promptly notify the Issuer
of such special record date and, in the name and at the expense of the Issuer,
shall cause notice of the proposed payment of such Defaulted Interest and the
special record date therefor to be mailed, first-class postage prepaid, to each
holder at its address as it appears in the Note Register, not less than ten
(10) calendar days prior to such special record date (unless, the Trustee shall
consent to an earlier date).  Notice of
the proposed payment of such Defaulted Interest and the special record date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business, New York City time, on such special record
date and shall no longer be payable pursuant to the following clause (2) of
this Section 2.03.


(2)           The Issuer may make payment of any
Defaulted Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange or automated quotation system on which
the Notes may be listed or designated for issuance, and upon such notice as may
be required by such exchange or automated quotation system, if, after notice
given by the Issuer to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the Trustee.


Section
2.04.  Execution
of Notes.  The Notes shall be
signed in the name and on behalf of the Issuer by the manual or facsimile
signature of an Officer.  Only such
Notes, together with the Guarantee endorsed thereon, as shall bear thereon a
certificate of authentication substantially in the form set forth on the form
of Note attached as Exhibit A hereto, manually executed by the Trustee
(or an authenticating agent appointed by the Trustee as provided by Section
15.11), shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose.  Such
certificate by the Trustee (or such an authenticating agent) upon any Note
executed by the Issuer shall be conclusive evidence that the Note so
authenticated has been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture.


In case any Officer who
shall have signed any of the Notes shall cease to be such Officer before the
Notes so signed shall have been authenticated and delivered by the Trustee, or
disposed of by the Issuer, such Notes nevertheless may be authenticated and
delivered or disposed of as though the person who signed such Notes had not
ceased to be such Officer, and any Note may be signed on behalf of the Issuer
by such persons as, at the actual date of the execution of such Note, shall be
the proper Officers, although at the date of the execution of this Indenture
any such person was not such an Officer.


Section
2.05.  Exchange
and Registration of Transfer of Notes; Restrictions on Transfer.  (a) 
The Issuer shall cause to be kept at the Corporate Trust Office a
register (the register



 11
 









maintained in such office and in any other
office or agency of the Issuer designated pursuant to Section 4.02 being herein
sometimes collectively referred to as the “Note
Register”) in which, subject to such reasonable regulations as it
may prescribe, the Issuer shall provide for the registration of Notes and of
transfers of Notes.  The Note Register
shall be in written form or in any form capable of being exchanged into written
form within a reasonably prompt period of time. 
The Trustee is hereby appointed “Note
Registrar” for the purpose of registering Notes and transfers of
Notes as herein provided. The Issuer may appoint one or more co-registrars in
accordance with Section 4.02.


Upon surrender for
registration of transfer of any Note to the Note Registrar or any co-registrar,
and satisfaction of the requirements for such transfer set forth in this
Section 2.05, the Issuer shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Notes of any authorized denominations and of a like aggregate principal
amount and bearing such restrictive legends as may be required by this
Indenture.


Notes may be exchanged
for other Notes of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Notes to be exchanged at any such
office or agency maintained by the Issuer pursuant to Section 4.02.  Whenever any Notes are so surrendered for
exchange, the Issuer shall execute, and the Trustee shall authenticate and
deliver, the Notes which the Noteholder making the exchange is entitled to
receive bearing registration numbers not contemporaneously outstanding.


All Notes issued upon any
registration of transfer or exchange of Notes shall be the valid obligations of
the Issuer, evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Notes surrendered upon such registration of transfer or
exchange.


All Notes presented or
surrendered for registration of transfer or exchange, repurchase or conversion
shall (if so required by the Issuer or the Note Registrar) be duly endorsed, or
be accompanied by a written instrument or instruments of transfer in form
satisfactory to the Issuer, and the Notes shall be duly executed by the
Noteholder thereof or its attorney duly authorized in writing.


No service charge shall
be made to any holder for any registration of transfer or exchange of Notes,
but the Issuer may require payment by the holder of a sum sufficient to cover
any tax, assessment or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.


In connection with the
redemption of the Notes in part, neither the Trustee nor any Note Registrar
shall be required to issue or register the transfer or exchange of (a) any
Notes during a period beginning at the opening of business fifteen (15) days
before any selection of Notes to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption, or (b) any
Notes or portions thereof called for redemption pursuant to Section 3.02,
except the unredeemed portion of any Note redeemed in part.


(b)           The following provisions shall apply
only to Global Notes:



 12
 









(i)            Each
Global Note authenticated under this Indenture shall be registered in the name
of the Depositary or a nominee thereof and delivered to such Depositary or a
nominee thereof or Custodian therefor, and each such Global Note shall
constitute a single Note for all purposes of this Indenture.


(ii)           Notwithstanding
any other provision in this Indenture, no Global Note may be exchanged in whole
or in part for Notes registered, and no transfer of a Global Note in whole or
in part may be registered, in the name of any Person other than the Depositary
or a nominee thereof unless (1) the Depositary (x) has notified the Issuer that
it is unwilling or unable to continue as Depositary for such Global Note or (y)
has ceased to be a clearing agency registered under the Exchange Act, and a
successor depositary has not been appointed by the Issuer within ninety (90)
calendar days, (2) an Event of Default has occurred and is continuing or (3)
the Issuer, in its sole discretion, notifies the Trustee in writing that it no
longer wishes to have all the Notes represented by Global Notes.  Any Global Note exchanged pursuant to clause
(1) or (2) above shall be so exchanged in whole and not in part and any Global
Note exchanged pursuant to clause (3) above may be exchanged in whole or from
time to time in part as directed by the Issuer. 
Any Note issued in exchange for a Global Note or any portion thereof
shall be a Global Note; provided that
any such Note so issued that is registered in the name of a Person other than
the Depositary or a nominee thereof shall not be a Global Note.


(iii)          Notes
issued in exchange for a Global Note or any portion thereof pursuant to clause
(ii) above shall be issued in definitive, fully registered form, without
interest coupons, shall have an aggregate principal amount equal to that of
such Global Note or portion thereof to be so exchanged, shall be registered in
such names and be in such authorized denominations as the Depositary shall
designate and shall bear any legends required hereunder.  Any Global Note to be exchanged in whole
shall be surrendered by the Depositary to the Trustee, as Note Registrar.  With regard to any Global Note to be
exchanged in part, either such Global Note shall be so surrendered for exchange
or, if the Trustee is acting as Custodian for the Depositary or its nominee
with respect to such Global Note, the principal amount thereof shall be
reduced, by an amount equal to the portion thereof to be so exchanged, by means
of an appropriate adjustment made on the records of the Trustee.  Upon any such surrender or adjustment, the
Trustee shall authenticate and make available for delivery the Note issuable on
such exchange to or upon the written order of the Depositary or an authorized
representative thereof.


(iv)          In
the event of the occurrence of any of the events specified in clause (ii)
above, the Issuer will promptly make available to the Trustee a reasonable
supply of certificated Notes in definitive, fully registered form, without
interest coupons.


(v)           Neither
any members of, or participants in, the Depositary (“Agent Members”) nor any other Persons on whose behalf Agent
Members may act shall have any rights under this Indenture with respect to any
Global Note registered in the name of the Depositary or any nominee thereof,
and the Depositary or such nominee, as the case may be, may be treated by the
Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute
owner and holder of such Global Note for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein
shall prevent the Issuer, the 



 13
 









Trustee or any agent of the Issuer or the Trustee from giving effect to
any written certification, proxy or other authorization furnished by the
Depositary or such nominee, as the case may be, or impair, as between the
Depositary, its Agent Members and any other Person on whose behalf an Agent
Member may act, the operation of customary practices of such Persons governing
the exercise of the rights of a holder of any Note.


(vi)          At
such time as all interests in a Global Note have been redeemed, repurchased,
converted or exchanged for Notes in certificated form, such Global Note shall,
upon receipt thereof, be canceled by the Trustee in accordance with standing
procedures and instructions existing between the Depositary and the
Custodian.  At any time prior to such
cancellation, if any interest in a Global Note is redeemed, repurchased,
converted or exchanged for Notes in certificated form, the principal amount of
such Global Note shall, in accordance with the standing procedures and
instructions existing between the Depositary and the Custodian, be
appropriately reduced, and an endorsement shall be made on such Global Note, by
the Trustee or the Custodian, at the direction of the Trustee, to reflect such
reduction.


(c)           Every Note (and all securities issued
in exchange therefor or in substitution thereof) that bears or is required
under this Section 2.05(c) to bear the legend set forth in this Section 2.05(c)
(together with any Common Shares issued upon conversion of the Notes,
collectively, the “Restricted Securities”)
shall be subject to the restrictions on transfer set forth in this Section
2.05(c) (including those set forth in the legend below) unless such
restrictions on transfer shall be waived by written consent of the Issuer, and
the holder of each such Restricted Security, by such Noteholder’s acceptance
thereof, agrees to be bound by all such restrictions on transfer.  As used in this Section 2.05(c), the term “transfer” means any sale, pledge, loan,
transfer or other disposition whatsoever of any Restricted Security or any
interest therein.


Until the expiration of
the holding period applicable to sales of Restricted Securities under Rule
144(k) under the Securities Act (or any successor provision), any certificate
evidencing a Restricted Security shall bear a legend in substantially the
following form, unless such Restricted Security has been sold pursuant to a
registration statement that has become or has been declared effective under the
Securities Act (and which continues to be effective at the time of such
transfer) or sold pursuant to Rule 144 under the Securities Act or any similar
provision then in force, or unless otherwise agreed by the Issuer in writing,
with written notice thereof to the Trustee:


THIS SECURITY (WHICH
TERM, AS USED IN THIS PARAGRAPH, SHALL BE DEEMED TO INCLUDE THE RELATED
GUARANTEE UNLESS THE CONTEXT OTHERWISE REQUIRES) HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER:(1) REPRESENTS THAT
IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), IS AWARE THAT THE TRANSFER TO IT IS BEING MADE IN RELIANCE ON
RULE 144A UNDER THE SECURITIES ACT AND IS ACQUIRING THIS SECURITY IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT, WITHIN TWO
YEARS AFTER THE LATER OF THE



 14
 









ORIGINAL ISSUE DATE OF
THIS SECURITY AND THE LAST DATE ON WHICH KKR FINANCIAL HOLDINGS LLC OR AN
AFFILIATE THEREOF WAS THE OWNER OF THIS SECURITY, RESELL OR OTHERWISE TRANSFER
THIS SECURITY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY
EXCEPT (A) TO KKR FINANCIAL HOLDINGS LLC OR ANY OF ITS SUBSIDIARIES, (B) TO A
QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES
ACT, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (D) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BECOME OR HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT AND
WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH RESALE OR TRANSFER; AND (3)
AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(C) OR 2(D) ABOVE) A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF
THIS SECURITY WITHIN TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF
THIS SECURITY AND THE LAST DATE ON WHICH KKR FINANCIAL HOLDINGS LLC OR AN
AFFILIATE THEREOF WAS THE OWNER OF THIS SECURITY, THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH
TRANSFER AND SUBMIT THIS SECURITY TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS
APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) ABOVE, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE,
AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS KKR
FINANCIAL HOLDINGS LLC OR THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS
LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS SECURITY
PURSUANT TO CLAUSE 2(C) OR 2(D) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE
LATER OF THE ORIGINAL ISSUE DATE OF THIS SECURITY AND THE LAST DATE ON WHICH
KKR FINANCIAL HOLDINGS LLC OR AN AFFILIATE THEREOF WAS THE OWNER OF THIS
SECURITY.


Any Notes that are
Restricted Securities and as to which such restrictions on transfer shall have
expired in accordance with their terms or as to conditions for removal of the
foregoing legend set forth therein have been satisfied may, upon surrender of
such Note for exchange to the Note Registrar in accordance with the provisions
of this Section 2.05, be exchanged for a new Note or Notes, of like tenor and
aggregate principal amount, which shall not bear the restrictive legend
required by this Section 2.05(c).  If
such Restricted Security surrendered for exchange is represented by a Global
Note bearing the legend set forth in this Section 2.05(c), the principal amount
of the legended Global Note shall be reduced by the appropriate principal
amount and the principal amount of a Global Note without the legend set forth
in this Section 2.05(c) shall be increased by an equal principal amount.  If a Global Note without the legend set forth
in this Section 2.05(c) is not then outstanding, the Issuer shall execute and
the Trustee shall authenticate and deliver an unlegended Global Note to the
Depositary.



 15
 









(d)           In the event Rule 144(k) under the
Securities Act (or any successor provision) is amended to shorten the two-year
period under Rule 144(k), then, the references in the restrictive legends set
forth above to “TWO YEARS,” and in the corresponding transfer restrictions
described above, and in the Notes (including the related Guarantee) and the
Common Shares will be deemed to refer to such shorter period, from and after
receipt by the Trustee of an Officers’ Certificate and an Opinion of Counsel to
that effect.  As soon as reasonably
practicable after the Issuer knows of the effectiveness of any such amendment
to shorten the two-year period under Rule 144(k), unless such changes would
otherwise be prohibited by, or would cause a violation of, the federal
securities laws applicable at the time, the Issuer will provide to the Trustee
an Officers’ Certificate and an Opinion of Counsel as to the effectiveness of
such amendment and the effectiveness of such change to the restrictive legends
and transfer restrictions.


(e)           The Issuer or any of its affiliates
may, to the extent permitted by applicable law, at any time purchase Notes in
the open market, by tender at any price or by private agreement.  Any Note purchased by the Issuer or any of
its affiliates (a) after the date that is two years from the latest issuance of
the Notes may, to the extent permitted by applicable law, be reissued or sold
or may be surrendered to the Trustee for cancellation or (b) on or prior to the
date in clause (a), shall be surrendered to the Trustee for cancellation.  Any Notes surrendered for cancellation may
not be reissued or resold and shall be canceled promptly.


(f)            The Trustee shall have no
responsibility or obligation to any Agent Members or any other Person with
respect to the accuracy of the books or records, or the acts or omissions, of
the Depositary or its nominee or of any participant or member thereof, with
respect to any ownership interest in the Notes or with respect to the delivery
to any Agent Member or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount, under or
with respect to such Notes.  All notices
and communications to be given to the Noteholders and all payments to be made
to Noteholders under the Notes shall be given or made only to or upon the order
of the registered Noteholders (which shall be the Depositary or its nominee in
the case of a Global Note).  The rights
of beneficial owners in any Global Note shall be exercised only through the
Depositary subject to the customary procedures of the Depository.  The Trustee may rely and shall be fully
protected in relying upon information furnished by the Depositary with respect
to its Agent Members.


The Trustee shall have no
obligation or duty to monitor, determine or inquire as to compliance with any
restrictions on transfer imposed under this Indenture or under applicable law
with respect to any transfer of any interest in any Note (including any
transfers between or among Agent Members in any Global Indenture) other than to
require delivery of such certificates and other documentation or evidence as
are expressly required by, and to do so if and when expressly required by, the
terms of this Indenture, and to examine the same to determine substantial
compliance as to form with the express requirements hereof.


Section
2.06.  Mutilated,
Destroyed, Lost or Stolen Notes. 
In case any Note shall become mutilated or be destroyed, lost or stolen,
the Issuer in its discretion may execute, and upon its written request the
Trustee or an authenticating agent appointed by the Trustee shall authenticate
and make available for delivery, a new Note and a related Guarantee, bearing a
number not contemporaneously outstanding, in exchange and substitution for the
mutilated Note, or in lieu of and in substitution for the Note so destroyed,
lost or stolen.  In every case, the
applicant for a



 16
 









substituted Note shall furnish to the Issuer,
to the Trustee and, if applicable, to such authenticating agent such security
or indemnity as may be required by them to save each of them harmless for any
loss, liability, cost or expense caused by or connected with such substitution,
and, in every case of destruction, loss or theft, the applicant shall also
furnish to the Issuer, to the Trustee and, if applicable, to such authenticating
agent evidence to their satisfaction of the destruction, loss or theft of such
Note and of the ownership thereof.


Following receipt by the
Trustee or such authenticating agent, as the case may be, of satisfactory
security or indemnity and evidence, as described in the preceding paragraph,
the Trustee or such authenticating agent may authenticate any such substituted
Note and make available for delivery such Note. Upon the issuance of any
substituted Note and the related Guarantee, the Issuer may require the payment
by the holder of a sum sufficient to cover any tax, assessment or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.  In case
any Note which has matured or is about to mature or has been called for
redemption or has been properly tendered for repurchase on a Fundamental Change
Purchase Date (and not withdrawn), as the case may be, or is to be converted
pursuant to this Indenture, shall become mutilated or be destroyed, lost or
stolen, the Issuer may, instead of issuing a substitute Note, pay or authorize
the payment of or authorize the conversion of the same (without surrender
thereof except in the case of a mutilated Note), as the case may be, if the
applicant for such payment or conversion shall furnish to the Issuer, to the
Trustee and, if applicable, to such authenticating agent such security or
indemnity as may be required by them to save each of them harmless for any
loss, liability, cost or expense caused by or in connection with such
substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Issuer, the Trustee and, if applicable, any Paying
Agent or Conversion Agent evidence to their satisfaction of the destruction,
loss or theft of such Note and of the ownership thereof.


Every substitute Note and
related Guarantee issued pursuant to the provisions of this Section 2.06 by
virtue of the fact that any Note is destroyed, lost or stolen shall constitute
an additional contractual obligation of the Issuer, whether or not the
destroyed, lost or stolen Note shall be found at any time, and shall be
entitled to all the benefits of (but shall be subject to all the limitations
set forth in) this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.  To the
extent permitted by law, all Notes shall be held and owned upon the express
condition that the foregoing provisions are exclusive with respect to the
replacement or payment or exchange or redemption or repurchase of mutilated,
destroyed, lost or stolen Notes and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment or exchange or
redemption or repurchase of negotiable instruments or other securities without
their surrender.


Section 2.07.  Temporary Notes.  Pending the preparation of Notes in
certificated form, the Issuer may execute and the Trustee or an authenticating
agent appointed by the Trustee shall, upon the written request of the Issuer,
authenticate and deliver temporary Notes (printed or lithographed).  Temporary Notes shall be issuable in any
authorized denomination, and substantially in the form of the Notes in
certificated form, but with such omissions, insertions and variations as may be
appropriate for temporary Notes, all as may be determined by the Issuer.  Every such temporary Note shall be executed
by the Issuer and authenticated by the



 17
 









Trustee or such
authenticating agent upon the same conditions and in substantially the same
manner, and with the same effect, as the Notes in certificated form. Without
unreasonable delay, the Issuer will execute and deliver to the Trustee or such
authenticating agent Notes in certificated form and thereupon any or all
temporary Notes may be surrendered in exchange therefor, at each office or
agency maintained by the Issuer pursuant to Section 4.02 and the Trustee or
such authenticating agent shall authenticate and make available for delivery in
exchange for such temporary Notes an equal aggregate principal amount of Notes
in certificated form.  Such exchange
shall be made by the Issuer at its own expense and without any charge therefor.  Until so exchanged, the temporary Notes shall
in all respects be entitled to the same benefits and subject to the same
limitations under this Indenture as Notes in certificated form authenticated
and delivered hereunder.


Section
2.08.  Cancellation
of Notes.  All Notes
surrendered for the purpose of payment, redemption, repurchase, conversion,
exchange or registration of transfer shall, if surrendered to the Issuer or any
paying agent to whom Notes may be presented for payment (the “Paying Agent”) or Conversion Agent, which shall initially be
the Trustee, or any Note Registrar, be surrendered to the Trustee and promptly
canceled by it or, if surrendered to the Trustee, shall be promptly canceled by
it and no Notes shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Indenture. 
The Trustee shall dispose of such canceled Notes in accordance with its
customary procedures.  If the Issuer
shall acquire any of the Notes, such acquisition shall not operate as a
redemption, repurchase or satisfaction of the indebtedness represented by such
Notes unless and until the same are delivered to the Trustee for cancellation.


Section
2.09.  CUSIP
Numbers.  The Issuer in
issuing the Notes may use “CUSIP”
numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as
a convenience to Noteholders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Notes, and
any such redemption shall not be affected by any defect in or omission of such
numbers.  The Issuer will promptly notify
the Trustee of any change in the “CUSIP”
numbers.


ARTICLE 3

Redemption and Repurchase of Notes


Section
3.01.  Optional
Redemption of Notes.  The
Issuer shall have the right to redeem the Notes on the terms set forth in this
Section 3.01 in order to preserve the status of the Guarantor or any of the
Issuer’s other REIT Subsidiaries, if any, as a REIT.  If the Issuer determines it is necessary to
redeem the Notes in order to preserve the status of the Guarantor or any of the
Issuer’s other REIT Subsidiaries, if any, as a REIT, the Issuer may, upon the
notice set forth in Section 3.02, redeem the Notes for cash, in whole or in
part, at a redemption price equal to 100% of the principal amount of the Notes
to be redeemed plus unpaid interest, if any, accrued thereon to the Redemption
Date; provided  that, in connection with any such
redemption, the Issuer shall provide the Trustee with an Officers’ Certificate
evidencing that the Board of Directors has, in good faith, made the
determination that it is necessary to redeem the Notes in order to preserve the
status of the Guarantor or any of the Issuer’s other REIT Subsidiaries, if any,
as a REIT.



 18















The foregoing redemption
right shall terminate if the restrictions on ownership and transfer of the
Common Shares set forth in Article 3 (or any successor provisions) of the
Operating Agreement shall terminate or if the Board of Directors of the Issuer
shall revoke or otherwise terminate the election by the Guarantor and all of
the Issuer’s other REIT Subsidiaries, if any, to qualify as a REIT pursuant to
856(a) (or any successor thereto) of the Code or if the Issuer shall no longer
own the Guarantor or any other REIT Subsidiary.


Other than as set forth
in this Section 3.01, the Notes shall not be subject to redemption at the
option of the Issuer prior the Stated Maturity thereof.


Section
3.02.  Notice
of Optional Redemption; Selection of Notes.  In case the Issuer shall desire to exercise
the right to redeem all or, as the case may be, any part of the Notes pursuant
to Section 3.01, it shall fix a date for redemption and it or, at its written
request received by the Trustee not fewer than five (5) Business Days prior (or
such shorter period of time as may be acceptable to the Trustee) to the date
the notice of redemption is to be mailed, the Trustee in the name of and at the
expense of the Issuer, shall mail or cause to be mailed a notice of such
redemption not fewer than thirty (30) calendar days nor more than sixty (60)
calendar days prior to the Redemption Date to each holder of Notes so to be
redeemed in whole or in part at its last address as the same appears on the
Note Register; provided that
if the Issuer makes such request of the Trustee, the text of the notice shall
be prepared by the Issuer.  Such mailing
shall be by first class mail.  The
notice, if mailed in the manner herein provided, shall be conclusively presumed
to have been duly given, whether or not the holder receives such notice.  In any case, failure to give such notice by
mail or any defect in the notice to the holder of any Note designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Note.  Concurrently with the mailing of any such
notice of redemption, the Issuer shall issue a press release announcing such
redemption, the form and content of which press release shall be determined by
the Issuer in its sole discretion.  The
failure to issue any such press release or any defect therein shall not affect
the validity of the redemption notice or any of the proceedings for the
redemption of any Note called for redemption.


Each such notice of
redemption shall specify: (i) the aggregate principal amount of Notes to be
redeemed, (ii) the CUSIP number or numbers of the Notes being redeemed, (iii)
the date fixed for redemption (which shall be a Business Day), (iv) the
redemption price at which Notes are to be redeemed, (v) the place or places of
payment and that payment will be made upon presentation and surrender of such
Notes, (iv) that interest accrued and unpaid to the date fixed for redemption
will be paid as specified in said notice, and that on and after said date
interest thereon or on the portion thereof to be redeemed will cease to accrue,
(vii) that the holder has a right to convert the Notes called for redemption,
(viii) the Conversion Rate on the date of such notice and (ix) the time and
date on which the right to convert such Notes or portions thereof pursuant to
this Indenture will expire.  If fewer
than all the Notes are to be redeemed, the notice of redemption shall identify
the Notes to be redeemed (including CUSIP numbers, if any).  In case any Note is to be redeemed in part
only, the notice of redemption shall state the portion of the principal amount
thereof to be redeemed and shall state that, on and after the Redemption Date,
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion thereof will be issued.



 19
 









Whenever any Notes are to
be redeemed, the Issuer shall give the Trustee written notice of the Redemption
Date, together with an Officers’ Certificate as to the aggregate principal
amount of Notes to be redeemed, not fewer than thirty (30) calendar days (or
such shorter period of time as may be acceptable to the Trustee) prior to the
Redemption Date.


On or prior to the
Redemption Date specified in the notice of redemption given as provided in this
Section 3.02, the Issuer shall deposit with the Paying Agent (or, if the Issuer
is acting as its own Paying Agent, set aside, segregate and hold in trust as
provided in Section 4.04) an amount of money in immediately available funds
sufficient to redeem on the Redemption Date all the Notes (or portions thereof)
so called for redemption (other than those theretofore surrendered for
exchange) at the appropriate redemption price, together with accrued interest
to the Redemption Date; provided that
if such payment is made on the Redemption Date, it must be received by the
Paying Agent, by 11:00 a.m., New York City time, on such date.  The Issuer shall be entitled to retain any
interest, yield or gain on amounts deposited with the Paying Agent pursuant to
this Section 3.02 in excess of amounts required hereunder to pay the redemption
price and accrued interest to the Redemption Date.  If any Note called for redemption is
converted pursuant hereto prior to such Redemption Date, any money deposited
with the Paying Agent or so segregated and held in trust for the redemption of
such Note shall be paid to the Issuer or, if then held by the Issuer, shall be
discharged from such trust.


If less than all of the
outstanding Notes are to be redeemed, the Trustee shall select the Notes or
portions thereof of the Global Note or the Notes in certificated form to be
redeemed (in principal amounts of $1,000 or multiples thereof) on a pro rata
basis or by another method the Trustee deems fair and appropriate.  If any Note selected for redemption in part
is submitted for conversion in part after such selection, the portion of such
Note submitted for conversion shall be deemed (so far as may be possible) to be
the portion to be selected for redemption. 
The Notes (or portions thereof) so selected for redemption shall be
deemed duly selected for redemption for all purposes hereof, notwithstanding
that any such Note is submitted for conversion in part before the mailing of
the notice of redemption.


Upon any redemption of
less than all of the outstanding Notes, the Issuer and the Trustee may (but
need not), solely for purposes of determining the pro rata allocation among
such Notes that are outstanding at the time of redemption, treat as outstanding
any Notes surrendered for conversion during the period in which Notes are
selected for redemption.


Section
3.03.  Payment
of Notes Called for Redemption by the Issuer.  If notice of redemption has been given as
provided in Section 3.02, the Notes or portion of Notes with respect to which
such notice has been given shall, unless converted pursuant to the terms
hereof, become due and payable on the date fixed for redemption at the place or
places stated in such notice at the redemption price, plus interest accrued to
the Redemption Date, and unless the Issuer shall default in the payment of the
amounts owing on the Notes upon such redemption, interest on the Notes or
portion of Notes so called for redemption shall cease to accrue on and after
such date and, except as provided in Section 7.05 and Section 11.02, the Notes
shall cease to be entitled to any benefit or security under this Indenture, and
the holders thereof shall have no right in respect of such Notes except the
right to receive the redemption price thereof plus accrued and unpaid interest
to the Redemption Date.  On presentation
and surrender of such Notes at a place of payment in said notice specified, the
said Notes or the specified portions



 20
 









thereof shall be paid and redeemed by the
Issuer at the redemption price, together with interest accrued thereon to the
Redemption Date.


Upon presentation of any
Note redeemed in part only, the Issuer shall execute and the Trustee shall
authenticate and make available for delivery to the holder thereof, at the
expense of the Issuer, a new Note or Notes, of authorized denominations, in
principal amount equal to the unredeemed portion of the Notes so presented.


Notes and portions of
Notes that are to be redeemed pursuant to this Article 3 shall be convertible
by the holder thereof until 5:00 p.m., New York City time, on the Business Day
immediately preceding the Redemption Date, unless the Issuer shall fail to pay
the redemption price.


Section
3.04.  Sinking
Fund.  There shall be no
sinking fund provided for the Notes.


Section
3.05.  Repurchase
at Option of Holders Upon a Fundamental Change.


(a)                                  If
there shall occur a Fundamental Change at any time prior to the Stated Maturity
of the Notes, then each Noteholder shall have the right to require the Issuer
to repurchase its Notes for cash, in whole or in part (in principal amounts of
$1,000 and integral multiples thereof), on a date (the “Fundamental Change Purchase Date”)
specified by the Issuer (which date shall be not earlier than fifteen (15) days
and not more than thirty (30) days after the Issuer Repurchase Notice Date related
to such Fundamental Change) at a purchase price equal to 100% of the principal
amount of the Notes being repurchased, plus accrued and unpaid interest to the
Fundamental Change Purchase Date (such amount, the “Fundamental Change Purchase Price”).


(b)                                 Within
20 days after the occurrence of a Fundamental Change, the Issuer shall mail or
cause to be mailed to all holders of record on the date of the Fundamental
Change (and to beneficial owners as required by applicable law) an Issuer
Repurchase Notice as set forth in Section 3.06 with respect to such Fundamental
Change.  The Issuer shall also deliver a
copy of the Issuer Repurchase Notice to the Trustee and the Paying Agent at
such time as it is mailed to Noteholders. 
In addition to the mailing of such Issuer Repurchase Notice, the Issuer
shall disseminate a press release through Dow Jones & Company, Inc.,
Bloomberg Business News, PR Newswire or a substantially similar financial news
organization announcing the occurrence of such Fundamental Change and publish
such information in a newspaper of general circulation in The City of New York
or on the Issuer’s web site, or through such other public medium as the Issuer
shall deem appropriate at such time.  The
failure to issue any such press release or any defect therein shall not affect
the validity of the Issuer Repurchase Notice or any proceedings for the
repurchase of any Note which any Noteholder may elect to have the Issuer redeem
as provided in this Section 3.05.


No failure of the Issuer
to give the foregoing notices and no defect therein shall limit the Noteholders’
repurchase rights or affect the validity of the proceedings for the repurchase
of the Notes pursuant to this Section 3.05.


(c)                                  In
order to exercise its repurchase right, the holder must deliver to the Paying
Agent, prior to the close of business on the third Business Day prior to the
Fundamental Change



 21
 









Purchase Date, a written notice of repurchase
(the “Repurchase Notice”).  Such Repurchase Notice shall state:  (A) the certificate number (if the Note is in
certificated form) of the Note which the holder will deliver to be repurchased,
(B) the portion of the principal amount of the Note which the holder will
deliver to be repurchased, in multiples of $1,000, provided that the remaining
principal amount of Notes is in an authorized denomination and (C) that such
Note shall be repurchased pursuant to the terms and conditions specified in the
Note and in this Indenture.  Any
Repurchase Notice provided in respect of a beneficial interest in a Global Note
shall be required to comply with the applicable procedures of the Depositary.


(d)                                 The
Issuer, if so requested, shall repurchase from the holder thereof, pursuant to
this Section 3.05, a portion of a Note, if the principal amount of such portion
is $1,000 or a whole multiple of $1,000. 
Provisions of this Indenture that apply to the repurchase of all of a
Note also apply to the repurchase of such portion of such Note.


(e)                                  Notwithstanding
the foregoing, no Notes may be repurchased by the Issuer pursuant to this
Section 3.05 if there has occurred and is continuing an Event of Default with
respect to the Notes (other than a default in the payment of the Fundamental
Change Purchase Price for the Notes to be repurchased).


(f)                                    The
Paying Agent shall promptly notify the Issuer of the receipt by it of any
Repurchase Notice or written notice of withdrawal thereof.  All questions as to the validity, eligibility
(including time of receipt) and acceptance of any Note for repurchase shall be
determined by the Issuer, whose determination shall be final and binding absent
manifest error.


(g)                                 Payment
of the Fundamental Change Purchase Price for a Note for which a Repurchase
Notice has been delivered and not withdrawn is conditioned upon book-entry
transfer or delivery of the Notes, together with necessary endorsements, to the
Paying Agent.  Such Fundamental Change
Purchase Price shall be paid to such holder, subject to receipt of funds and/or
Notes by the Paying Agent, within two (2) Business Days following the later of
(x) the Fundamental Change Purchase Date with respect to such Note (provided
the holder has satisfied the conditions in this Section 3.05) and (y) the time
of book-entry transfer or delivery of such Note or beneficial interest therein
to the Paying Agent by the holder thereof.


Section
3.06.  Issuer
Repurchase Notice.


(a)                                  In
connection with any repurchase of Notes, the Issuer shall, on the applicable
Issuer Repurchase Notice Date, give written notice to holders (with a copy to
the Trustee) setting forth the information specified in this Section 3.06 (in
either case, the “Issuer Repurchase Notice”).


Each Issuer Repurchase
Notice shall:


(1)                                  state
the Fundamental Change Purchase Price and the amount of interest accrued and
unpaid per $1,000 principal amount of Notes to the Fundamental Change Purchase
Date;


(2)                                  the
Fundamental Change Purchase Date;


(3)                                  the
circumstances constituting the Fundamental Change;



 22
 









(4)                                  state
that holders must exercise their right to elect to repurchase prior to the
close of business on the third Business Day prior to the Fundamental Change
Purchase Date;


(5)                                  include
a form of Repurchase Notice;


(6)                                  state
the name and address of the Trustee and the Paying Agent and, if the Notes are
then convertible (including in connection with a Fundamental Change), state the
name and address of the Conversion Agent;


(7)                                  state
that Notes must be surrendered to the Paying Agent to collect the Fundamental
Change Purchase Price and accrued and unpaid interest;


(8)                                  state
that a holder may withdraw its Repurchase Notice at any time prior to the close
of business on the third Business Day prior to the Fundamental Change Purchase
Date by delivering a valid written notice of withdrawal in accordance with
Section 3.07;


(9)                                  if
the Notes are then convertible (including in connection with a Fundamental
Change), state that Notes as to which a Repurchase Notice has been given may be
converted from and including the Effective Date of such Fundamental Change up
to and including the earlier of the 30th Business Day following such Effective
Date and the Business Day prior the Stated Maturity of the Notes provided the
Repurchase Notice is withdrawn by the holder in accordance with the terms of
this Indenture;


(10)                            state
that, unless the Issuer defaults in making payment of the Fundamental Change
Purchase Price, interest on Notes in respect of which a Repurchase Notice shall
have been submitted and not withdrawn will cease to accrue on and after the
Fundamental Change Purchase Date; and


(11)                            state
the CUSIP number of the Notes, if CUSIP numbers are then in use.


An Issuer Repurchase
Notice may be given by the Issuer or, at the Issuer’s request, the Trustee
shall give such Issuer Repurchase Notice in the Issuer’s name and at the Issuer’s
expense; provided that the text of the Issuer Repurchase
Notice shall be prepared by the Issuer.


If any of the Notes is
represented by a Global Note, then the Issuer will modify such notice to the
extent necessary to accord with the applicable procedures of the Depositary
that apply to the repurchase of Global Notes.


(b)                                 The
Issuer will, to the extent applicable, comply with the provisions of Rule 13e-4
and Rule 14e-1 (or any successor provision) under the Exchange Act that may be
applicable at the time of the repurchase of the Notes, file the related Schedule
TO (or any successor schedule, form or report) under the Exchange Act and
comply with all other applicable federal and state securities laws in
connection with the repurchase of the Notes.


Section
3.07.  Withdrawal
of Repurchase Notice.  A
Repurchase Notice may be withdrawn, in whole or in part, by means of a written
notice of withdrawal delivered to the office of the Paying Agent at any time
prior to the close of business on the third Business Day prior to a Fundamental
Change Purchase Date.  Such notice of
withdrawal must specify:



 23
 









(a)                                  the
name of the holder;


(b)                                 the
certificate number(s) of all withdrawn Notes in certificated form;


(c)                                  the
principal amount of Notes with respect to which such notice of withdrawal is
being submitted, which must be an integral multiple of $1,000; and


(d)                                 the
principal amount of Notes, if any, which remains subject to the original
Repurchase Notice, which must be an integral multiple of $1,000.


Any withdrawal notice
provided in respect of a beneficial interest in a Global Note shall be required
to comply with the applicable procedures of the Depositary.


Section
3.08.  Deposit
of Repurchase Price.


(a)                                  Prior
to 11:00 a.m., New York City time, on the Fundamental Change Purchase Date, the
Issuer shall deposit with the Paying Agent or, if the Issuer is acting as the
Paying Agent, shall segregate and hold in trust as provided in Section 4.04 an
amount of cash (in immediately available funds if deposited on the Fundamental
Change Purchase Date), sufficient to pay the aggregate Fundamental Change
Purchase Price of all the Notes or portions thereof that are to be repurchased
as of the Fundamental Change Purchase Date.


(b)                                 If
on the Fundamental Change Purchase Date the Paying Agent holds money sufficient
to pay the Fundamental Change Purchase Price of the Notes that holders have
elected to require the Issuer to repurchase in accordance with Section 3.05
then, on and after the Fundamental Change Purchase Date such Notes will cease
to be outstanding, interest will cease to accrue with respect to such Notes and
all other rights of the holders of such Notes will terminate, other than the
right to receive the Fundamental Change Purchase Price.  Such will be the case whether or not
book-entry transfer of the Note to the Paying Agent is made or whether or not
Notes in certificated form, together with necessary endorsements, are delivered
to the Paying Agent.


Section
3.09.  Notes
Repurchased in Part.  Upon
presentation of any Note repurchased only in part, the Issuer shall execute and
the Trustee shall authenticate and make available for delivery to the holder
thereof, at the expense of the Issuer, a new Note or Notes, of any authorized
denomination, in aggregate principal amount equal to the unrepurchased portion
of the Notes presented.


Section
3.10.  Third
Party Purchase.  The Issuer
may arrange for a third party to purchase Notes for which the Issuer has
received a valid Repurchase Notice that has not been properly withdrawn, in the
manner and otherwise in compliance with the requirements set forth herein and
in the Notes. If a third party purchases any Notes under such circumstances,
then interest will continue to accrue on the Notes and such Notes will continue
to be outstanding after the Fundamental Change Purchase Date for all purposes of
the Indenture and will be fungible with all other Notes then outstanding.


Section
3.11.  Repayment
to the Issuer.  Subject to Section 11.04, the Paying
Agent shall return to the Issuer any cash that remains unclaimed, together with
interest, if any, thereon, held



 24
 









by them for the payment of the Fundamental
Change Purchase Price; provided
that to the extent that the aggregate amount of cash deposited by the Issuer
pursuant to Section 3.08 exceeds the aggregate Fundamental Change Purchase
Price of the Notes or portions thereof which the Issuer is obligated to
repurchase as of the Fundamental Change Purchase Date, then, unless otherwise
agreed in writing with the Issuer, promptly after the second Business Day
following the Fundamental Change Purchase Date, the Paying Agent shall return
any such excess to the Issuer, together with interest, if any, thereon.


ARTICLE 4

Particular Covenants of the Issuer


Section
4.01.  Payment
of Principal, Premium and Interest. 
The Issuer covenants and agrees that it will duly and punctually pay or
cause to be paid when due the principal of (including the redemption price upon
redemption or the Fundamental Change Purchase Price upon repurchase, in each
case pursuant to Article 3), and interest on, each of the Notes at the places,
at the respective times and in the manner provided herein and in the Notes.


Section
4.02.  Maintenance
of Office or Agency.  The
Issuer will maintain an office or agency where the Notes may be surrendered for
registration of transfer or exchange or for presentation for payment or for
conversion, redemption or repurchase and where notices and demands to or upon
the Issuer in respect of the Notes and this Indenture may be served.  As of the date of this Indenture, such office
shall be the offices of Wells Fargo Bank, N.A., 919 North Market Street,
Wilmington, Delaware 19801, Attention: Corporate Trust Services, and, at any
other time, at such other address as the Trustee may designate from time to
time by notice to the Issuer.  The Issuer
will give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency not designated or appointed by the
Trustee.  If at any time the Issuer shall
fail to maintain any such required office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders, notices
and demands may be made or served at the Corporate Trust Office.


The Issuer may also from
time to time designate co-registrars and one or more offices or agencies where
the Notes may be presented or surrendered for any or all such purposes and may
from time to time rescind such designations. 
The Issuer will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.


The Issuer hereby
initially designates the Trustee as Paying Agent, Note Registrar, Custodian and
Conversion Agent and the Corporate Trust Office shall be considered as one such
office or agency of the Issuer for each of the aforesaid purposes.


So long as the Trustee is
the Note Registrar, the Trustee agrees to mail, or cause to be mailed, the
notices set forth in Section 7.10(a) and the third paragraph of Section
7.11.  If co-registrars have been
appointed in accordance with this Section, the Trustee shall mail such notices
only to the Issuer and the holders of Notes it can identify from its records.


Section
4.03.  Appointments
to Fill Vacancies in Trustee’s Office.  The Issuer, whenever necessary to avoid or
fill a vacancy in the office of Trustee, will appoint, upon the terms and



 25
 









conditions and otherwise as provided in
Section 7.10, a Trustee, so that there shall at all times be a Trustee
hereunder.


Section
4.04.  Provisions
as to Paying Agent.


(a)                                  If
the Issuer shall appoint a Paying Agent other than the Trustee, or if the
Trustee shall appoint such a Paying Agent, the Issuer will cause such Paying
Agent to execute and deliver to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section 4.04:


(1)                                  that it will hold all
sums held by it as such agent for the payment of the principal of, or interest
on, the Notes (whether such sums have been paid to it by the Issuer or by any
other obligor on the Notes) in trust for the benefit of the holders of the
Notes;


(2)                                  that it will give the
Trustee notice of any failure by the Issuer (or by any other obligor on the
Notes) to make any payment of the principal of, or interest on, the Notes when
the same shall be due and payable; and


(3)                                  that at any time
during the continuance of an Event of Default, upon request of the Trustee, it
will forthwith pay to the Trustee all sums so held in trust.


The Issuer shall, on or
before each due date of the principal of, or interest on, the Notes, deposit with
the Paying Agent a sum (in funds which are immediately available on the due
date for such payment) sufficient to pay such principal, or interest and
(unless such Paying Agent is the Trustee) the Issuer will promptly notify the
Trustee of any failure to take such action; provided that
if such deposit is made on the due date, such deposit shall be received by the
Paying Agent by 11:00 a.m. New York City time, on such date.


(b)                                 If
the Issuer shall act as its own Paying Agent, it will, on or before each due
date of the principal of, or interest on, the Notes, set aside, segregate and
hold in trust for the benefit of the holders of the Notes a sum sufficient to
pay such principal and interest so becoming due and will promptly notify the
Trustee of any failure to take such action and of any failure by the Issuer (or
any other obligor under the Notes) to make any payment of the principal of, or
interest on, the Notes when the same shall become due and payable.


(c)                                  Anything
in this Section 4.04 to the contrary notwithstanding, the Issuer may, at any
time, for the purpose of obtaining a satisfaction and discharge of this
Indenture, or for any other reason, pay or cause to be paid to the Trustee all
sums held in trust by the Issuer or any Paying Agent hereunder as required by
this Section 4.04, such sums to be held by the Trustee upon the trusts herein
contained and upon such payment by the Issuer or any Paying Agent to the
Trustee, the Issuer or such Paying Agent shall be released from all further
liability with respect to such sums.


(d)                                 Anything
in this Section 4.04 to the contrary notwithstanding, the agreement to hold
sums in trust as provided in this Section 4.04 is subject to Section 11.02 and
Section 11.03.



 26
 









The Trustee shall not be
responsible for the actions of any other Paying Agents (including the Issuer if
acting as its own Paying Agent) and shall have no control of any funds held by
such other Paying Agents.


Section
4.05.  Existence.  Subject to Article 10, the Issuer will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights (charter and statutory); provided that the Issuer shall not be
required to preserve any such right if the Issuer shall determine that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Noteholders.


Section
4.06.  Rule
144A Information Requirement. 
Within the period prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), each of the Issuer and the Guarantor covenants and agrees
that it shall, during any period in which it is not subject to Section 13 or
15(d) under the Exchange Act, make available to any holder or beneficial holder
of Notes or any Common Shares issued upon conversion thereof which continue to
be Restricted Securities in connection with any sale thereof and any
prospective purchaser of Notes or such Common Shares designated by such holder
or beneficial holder, the information required pursuant to Rule 144A(d)(4)
under the Securities Act upon the request of any holder or beneficial holder of
the Notes or such Common Shares, all to the extent required to enable such holder
or beneficial holder to sell its Notes or Common Shares without registration
under the Securities Act within the limitation of the exemption provided by
Rule 144A.


Section
4.07.  Stay,
Extension and Usury Laws.  The
Issuer covenants (to the extent that it may lawfully do so) that it shall not
at any time insist upon, plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Issuer from paying all or any portion of the
principal, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this Indenture and the Issuer (to the
extent it may lawfully do so) hereby expressly waives all benefit or advantage
of any such law, and covenants that it will not, by resort to any such law,
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.


Section
4.08.  Compliance
Certificate.  The Issuer shall deliver to the
Trustee, within one hundred twenty (120) calendar days after the end of each
fiscal year of the Issuer, a certificate signed by any of the principal
executive officer, principal financial officer or principal accounting officer
of the Issuer, stating whether or not to the knowledge of the signer thereof
the Issuer is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and, if the Issuer shall be
in default, specifying all such defaults and the nature and the status thereof
of which the signer may have knowledge.


The Issuer will deliver
to the Trustee, promptly upon becoming aware of (i) any default in the
performance or observance of any covenant, agreement or condition contained in
this Indenture, or (ii) any Event of Default, an Officers’ Certificate
specifying with particularity such



 27
 









default or Event
of Default and further stating what action the Issuer has taken, is taking or
proposes to take with respect thereto.


Any notice required to be
given under this Section 4.08 shall be delivered to a Responsible Officer of
the Trustee at its Corporate Trust Office.


Section
4.09.  Additional or Special Interest Notice.  In the event that the Issuer is required to
pay Additional Interest to holders of Notes pursuant to the Registration Rights
Agreement or has elected to pay Special Interest to holders of Notes pursuant
to Section 6.01 of this Indenture, the Issuer will provide written notice (“Additional or Special Interest Notice”) to the Trustee of
its obligation to pay Additional Interest or its election to pay Special
Interest, as the case may be, no later than fifteen (15) calendar days prior to
the proposed payment date for Additional Interest or Special Interest, as the
case may be, and the Additional or Special Interest Notice shall set forth the
amount of Additional Interest or Special Interest to be paid by the Issuer on
such payment date.  The Trustee shall not
at any time be under any duty or responsibility to any holder of Notes to
determine the Additional Interest or Special Interest, or with respect to the
nature, extent or calculation of the amount of Additional Interest or Special
Interest when made, or with respect to the method employed in such calculation
of the Additional or Special Interest.


ARTICLE 5

Noteholders’ Lists and Reports by the
Issuer and the Trustee


Section
5.01.  Noteholders’
Lists.  The Issuer covenants
and agrees that it will furnish or cause to be furnished to the Trustee,
semi-annually, not more than fifteen (15) calendar days after each January 1
and July 1 in each year beginning with January 1, 2008, and at such other times
as the Trustee may reasonably request in writing, within thirty (30) calendar
days after receipt by the Issuer of any such request (or such lesser time as
the Trustee may reasonably request in order to enable it to timely provide any
notice to be provided by it hereunder), a list in such form as the Trustee may
reasonably require of the names and addresses of the holders of Notes as of a
date not more than fifteen (15) calendar days (or such other date as the
Trustee may reasonably request in order to so provide any such notices) prior
to the time such information is furnished, except that no such list need be
furnished by the Issuer to the Trustee so long as the Trustee is acting as the
sole Note Registrar.


Section
5.02.  Preservation
and Disclosure of Lists.


(a)                                  The
Trustee shall preserve, in as current a form as is reasonably practicable, all
information as to the names and addresses of the holders of Notes contained in
the most recent list furnished to it as provided in Section 5.01 or maintained
by the Trustee in its capacity as Note Registrar or co-registrar in respect of
the Notes, if so acting.  The Trustee may
destroy any list furnished to it as provided in Section 5.01 upon receipt of a
new list so furnished.


(b)                                 The
rights of Noteholders to communicate with other holders of Notes with respect
to their rights under this Indenture or under the Notes, and the corresponding
rights and duties of the Trustee, shall be as provided by the Trust Indenture
Act.



 28
 









(c)                                  Every
Noteholder agrees with the Issuer and the Trustee that neither the Issuer nor
the Trustee nor any agent of either of them shall be held accountable by reason
of any disclosure of information as to names and addresses of holders of Notes
made pursuant to the Trust Indenture Act.


Section
5.03.  Reports
by Trustee.  (a)  Within sixty (60) calendar days after
May 15 of each year commencing with the year 2008, the Trustee shall
transmit to holders of Notes such reports dated as of May 15 of the year
in which such reports are made concerning the Trustee and its actions under
this Indenture as may be required pursuant to Section 313(a) of the Trust
Indenture Act at the times and in the manner provided pursuant thereto.  In the event that no events have occurred
under the applicable sections of the Trust Indenture Act the Trustee shall be
under no duty or obligation to provide such reports.


(b)                                 A
copy of such report shall, at the time of such transmission to holders of
Notes, be filed by the Trustee with each stock exchange and automated quotation
system, if any, upon which the Notes are listed and with the Issuer.  The Issuer will promptly notify the Trustee
in writing if the Notes are listed on any stock exchange or automated quotation
system or delisted therefrom.


Section
5.04.  Reports
by Issuer.  The Issuer will
file with the Trustee within 15 days after the Issuer files the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may prescribe) which the Issuer is required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act. If the
Issuer is not required to file information, documents or reports pursuant to
either of those sections, then it will file with the Trustee and the Commission
such reports as may be prescribed by the Commission at such time.  Delivery of such reports, information and
documents to the Trustee is for informational purposes only and the Trustee’s
receipt of such shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Issuer’s compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on an Officers’ Certificate).


ARTICLE 6

Remedies of the Trustee and Noteholders
on an Event of Default


Section
6.01.  Events
of Default.  “Event of
Default,” wherever used herein, means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any administrative
or governmental body):


(a)                                  default
in the payment of any principal amount or any redemption price or Fundamental
Change Purchase Price due with respect to the Notes when the same shall be due
and payable, whether at maturity, upon redemption or repurchase, by
acceleration or otherwise; or



 29
 









(b)                                 default
in the payment of interest under the Notes as and when the same shall be due
and payable, and continuance of such default for a period of thirty (30)
calendar days; or


(c)                                  default
in the delivery when due of the amounts owing upon conversion, whether due in
cash or Common Shares, on the terms set forth herein and in the Notes, upon
exercise of a holder’s conversion right in accordance with Article 13; or


(d)                                 failure
by the Issuer to provide any required notice of the occurrence of Fundamental
Change within the time period required by this Indenture, which default
continues for 5 days; or


(e)                                  failure
on the part of the Issuer to comply with any other term, covenant or agreement
in the Notes or in this Indenture (other than a covenant or agreement a default
in whose performance or whose breach is elsewhere in this Section 6.01
specifically dealt with) and such failure continues for a period of sixty (60)
calendar days after the date on which written notice of such failure, requiring
the Issuer to remedy the same, shall have been given to the Issuer by the
Trustee, or to the Issuer and a Responsible Officer of the Trustee by the
holders of not less than twenty-five percent (25%) in aggregate principal amount
of the Notes at the time outstanding; or


(f)                                    default
after the expiration of any applicable grace period in the payment of principal
when due, or resulting in acceleration of, other indebtedness of the Issuer or
any Significant Subsidiary of the Issuer for borrowed money where the aggregate
principal amount with respect to which the default or acceleration has occurred
exceeds $60.0 million and such indebtedness has not been discharged, or such
default in payment or acceleration has not been cured or rescinded, prior to
written notice of acceleration of the Notes; or


(g)                                 failure
by the Issuer or any of its Subsidiaries to pay final judgments entered by a
court or courts of competent jurisdiction aggregating in excess of $60.0
million, which judgments are not paid, discharged or stayed for a period of
thirty (30) calendar days after such judgments become final and non-appealable;


(h)                                 the
Guarantee by the Guarantor shall for any reason cease to be, or shall for any
reason be asserted in writing by the Guarantor or the Issuer not to be, in full
force and effect and enforceable in accordance with its terms, except to the
extent contemplated by this Indenture and any such Guarantee;


(i)                                     the
Issuer or any Significant Subsidiary of the Issuer pursuant to or under or
within meaning of any Bankruptcy Law:


(i)                                     commences a
voluntary case or proceeding seeking liquidation, reorganization or other
relief with respect to it or its debts or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property; or


(ii)                                  consents to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it; or



 30
 









(iii)                               consents to the appointment
of a custodian of it or for all or substantially of its property; or


(iv)                              makes a general
assignment for the benefit of creditors; or


(j)                                     an
involuntary case or other proceeding shall be commenced against the Issuer or
any Significant Subsidiary of the Issuer seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) consecutive
calendar days; or


(k)                                  a
court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that:


(i)                                     is for relief
against the Issuer or any Significant Subsidiary of the Issuer in an
involuntary case or proceeding; or


(ii)                                  appoints a trustee,
receiver, liquidator, custodian or other similar official of the Issuer or any
Significant Subsidiary of the Issuer or any substantial part of their
respective properties; or


(iii)                               orders the liquidation
of the Issuer or any Significant Subsidiary of the Issuer;


and, in each case in this
clause (j), the order or decree remains unstayed and in effect for sixty (60)
calendar days.


If an Event of
Default (other than an Event of Default specified in Section 6.01(i), 6.01(j)
and 6.01(k)) with respect to the Issuer) shall occur and be continuing, unless
the principal of all of the Notes shall have already become due and payable,
either the Trustee or the holders of at least twenty-five percent (25%) in
aggregate principal amount of the Notes then outstanding, by notice in writing
to the Issuer (and to the Trustee if given by Noteholders), may declare the
principal of, and interest accrued and unpaid on, all the Notes to be
immediately due and payable, and upon any such declaration the same shall be
immediately due and payable.


If an Event of Default
specified in Section 6.01(i), 6.01(j) or 6.01(k) occurs with respect to the
Issuer, the principal of, and interest accrued and unpaid on, all the Notes
shall be immediately and automatically due and payable without necessity of
further action.


If, at any time after the
principal of and interest on the Notes shall have been so declared due and
payable, and before any judgment or decree for the payment of the monies due
shall have been obtained or entered as hereinafter provided, holders of a
majority in aggregate principal amount of the Notes then outstanding on behalf
of the holders of all of the Notes then outstanding, by written notice to the
Issuer and to the Trustee, may waive all defaults or Events of Default and
rescind and annul such declaration and its consequences subject to Section 6.07
if:  (a) such rescission would not
conflict with any final judgment or decree of a court of competent
jurisdiction; (b) interest on overdue installments of interest (to the extent
that payment of such



 31
 









interest is
lawful) and on overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid; (c) the Issuer has paid the Trustee
its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances pursuant to Section 7.06; and (d) all Events of
Default, other than the nonpayment of the principal amount and any accrued and
unpaid interest that has become due solely because of such acceleration, have
been cured or waived.  No such rescission
and annulment shall extend to or shall affect any subsequent default or Event
of Default, or shall impair any right consequent thereon.  The Issuer shall notify in writing a
Responsible Officer of the Trustee, promptly upon becoming aware thereof, of
any Event of Default, as provided in Section 4.08.


In case the Trustee shall
have proceeded to enforce any right under this Indenture and such proceedings
shall have been discontinued or abandoned because of such waiver or rescission
and annulment or for any other reason or shall have been determined adversely
to the Trustee, then and in every such case the Issuer, the holders of Notes,
and the Trustee shall be restored respectively to their several positions and
rights hereunder, and all rights, remedies and powers of the Issuer, the
holders of Notes, and the Trustee shall continue as though no such proceeding
had been taken.


Notwithstanding the
foregoing, to the extent elected by the Issuer, the sole remedy for an Event of
Default relating to the failure by the Issuer to comply with the provisions of
Section 5.04 of this Indenture shall, for the first 365 days after the
occurrence of such an Event of Default, consist exclusively of the right to
receive special interest (“Special Interest”)
on the Notes at an annual rate equal to 1% of the principal amount of the
Notes. Such Special Interest shall be paid semi-annually in arrears, with the
first semi-annual payment due on the first Interest Payment Date following the
date on which such Special Interest began to accrue on the Notes. Special Interest
shall accrue on all outstanding Notes from and including the date on which an
Event of Default relating to a failure to comply with the provisions of Section
5.04 shall first occur to but not including the 365th day thereafter (or
such earlier date on which such Event of Default shall have been cured or
waived). On such 365th day (or earlier, if the Event of Default relating
to the failure to comply with Section 5.04 is cured or waived prior to such
365th day), such Special Interest shall cease to accrue and, if the Event
of Default relating to the failure to comply with Section 5.04 shall not have
been cured or waived prior to such 365th day, the Notes shall be subject
to acceleration as provided in this Section 6.01. The provisions of this
paragraph shall not affect the rights of holders in the event of the occurrence
of any other Event of Default. In the event the Issuer shall not elect to pay
Special Interest upon an Event of Default resulting from the failure of the
Issuer to comply with the provisions of Section 5.04, the Notes shall be
subject to acceleration as provided above in this Section 6.01.


If the Issuer shall elect
to pay Special Interest in connection with an Event of Default relating to its
failure to comply with the requirements of Section 5.04, the Issuer shall
notify all holders and the Trustee and Paying Agent of such election on or
before the close of business on the date on which such Event of Default shall
first occur in accordance with the provisions of Section 4.09.


Section
6.02.  Payments
of Notes on Default; Suit Therefor. 
The Issuer covenants that in the case of an Event of Default pursuant to
Section 6.01(a) or 6.01(b), upon demand of the Trustee, the Issuer will pay to
the Trustee, for the benefit of the holders of the Notes, (i) the



 32
 









whole amount that then shall be due and
payable on all such Notes for principal or interest, as the case may be, with
interest upon the overdue principal and premium, if any, and (to the extent
that payment of such interest is enforceable under applicable law) upon the
overdue installments of accrued and unpaid interest at the rate borne by the
Notes from the required payment date and, (ii) in addition thereto, any amounts
due the Trustee under Section 7.06.  Until
such demand by the Trustee, the Issuer may pay the principal of and interest on
the Notes to the registered holders, whether or not the Notes are overdue.


In case the Issuer shall
fail forthwith to pay such amounts upon such demand, the Trustee, in its own
name and as trustee of an express trust, shall be entitled and empowered to
institute any actions or proceedings at law or in equity for the collection of
the sums so due and unpaid, and may prosecute any such action or proceeding to
judgment or final decree, and may enforce any such judgment or final decree
against the Issuer or any other obligor on the Notes and collect in the manner
provided by law out of the property of the Issuer or any other obligor on the
Notes wherever situated the monies adjudged or decreed to be payable.


In case there shall be
pending proceedings for the bankruptcy or for the reorganization of the Issuer
or any other obligor on the Notes under any Bankruptcy Law, or any other
applicable law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer or such other obligor, the
property of the Issuer or such other obligor, or in the case of any other
judicial proceedings relative to the Issuer or such other obligor upon the
Notes, or to the creditors or property of the Issuer or such other obligor, the
Trustee, irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand pursuant to the
provisions of this Section 6.02, shall be entitled and empowered, by
intervention in such proceedings or otherwise, to file and prove a claim or
claims for the whole amount of principal and accrued and unpaid interest in
respect of the Notes, and, in case of any judicial proceedings, to file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and of the Noteholders allowed in
such judicial proceedings relative to the Issuer or any other obligor on the
Notes, its or their creditors, or its or their property, and to collect and
receive any monies or other property payable or deliverable on any such claims,
and to distribute the same after the deduction of any amounts due the Trustee
under Section 7.06, and to take any other action with respect to such claims,
including participating as a member of any official committee of creditors, as
it reasonably deems necessary or advisable, unless prohibited by law or
applicable regulations, and any receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, custodian or similar official is hereby authorized
by each of the Noteholders to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
the Noteholders, to pay to the Trustee any amount due it for reasonable
compensation, expenses, advances and disbursements, including counsel fees and
expenses incurred by it up to the date of such distribution.  To the extent that such payment of reasonable
compensation, expenses, advances and disbursements out of the estate in any
such proceedings shall be denied for any reason, payment of the same shall be
secured by a lien on, and shall be paid out of, any and all distributions,
dividends, monies, securities and other property which the holders of the Notes
may be entitled to receive in such proceedings, whether in liquidation or under
any plan of reorganization or arrangement or otherwise.



 33
 









All rights of action and
of asserting claims under this Indenture, or under any of the Notes, may be
enforced by the Trustee without the possession of any of the Notes, or the
production thereof at any trial or other proceeding relative thereto, and any
such suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the holders of the Notes.


In any proceedings
brought by the Trustee (and in any proceedings involving the interpretation of
any provision of this Indenture to which the Trustee shall be a party), the
Trustee shall be held to represent all the holders of the Notes, and it shall
not be necessary to make any holders of the Notes parties to any such
proceedings.


Section
6.03.  Application
of Monies Collected by Trustee. 
Any monies collected by the Trustee pursuant to this Article 6, shall be
applied, in the following order, at the date or dates fixed by the Trustee for
the distribution of such monies, upon presentation of the several Notes, and
stamping thereon the payment, if only partially paid, and upon surrender
thereof, if fully paid:


FIRST:  To the payment of all amounts due the Trustee
under Section 7.06;


SECOND:  In case the principal of the outstanding
Notes shall not have become due and be unpaid, to the payment of accrued and
unpaid interest, if any, on the Notes in default in the order of the maturity
of the installments of such interest, with interest (to the extent that such
interest has been collected by the Trustee) as provided in Section 6.02 upon
the overdue installments of interest at the annual rate borne by the Notes,
such payments to be made ratably to the Persons entitled thereto;


THIRD:  In case the principal of the outstanding
Notes shall have become due, by declaration or otherwise, and be unpaid to the
payment of the whole amount then owing and unpaid upon the Notes for principal
and interest, with interest on the overdue principal and (to the extent that
such interest has been collected by the Trustee) upon overdue installments of
accrued and unpaid interest, as provided in Section 6.02, and in case such
monies shall be insufficient to pay in full the whole amounts so due and unpaid
upon the Notes, then to the payment of such principal and interest without
preference or priority of principal over interest, or of interest over
principal, or of any installment of interest over any other installment of
interest, or of any Note over any other Note, ratably to the aggregate of such
principal and accrued and unpaid interest; and


FOURTH:  To the payment of the remainder, if any, to
the Issuer or any other Person lawfully entitled thereto.


Section
6.04.  Proceedings
by Noteholder.  No holder of
any Note shall have any right by virtue of or by reference to any provision of
this Indenture to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, except in the case of a default in the payment of
principal of, or interest on,



 34
 









the Notes, unless (a) such holder previously
shall have given to the Trustee written notice of an Event of Default and of
the continuance thereof, as hereinbefore provided, (b) the holders of at least
twenty-five percent (25%) in aggregate principal amount of the Notes then
outstanding shall have made written request upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such security or indemnity satisfactory to it as it may
require against the costs, liabilities or expenses to be incurred therein or
thereby, (c) the Trustee for sixty (60) calendar days after its receipt of such
notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding and (d) no direction inconsistent
with such written request shall have been given to the Trustee pursuant to
Section 6.07; it being understood and intended, and being expressly covenanted
by the taker and holder of every Note with every other taker and holder and the
Trustee, that no one or more holders of Notes shall have any right in any
manner whatever by virtue of or by reference to any provision of this Indenture
to affect, disturb or prejudice the rights of any other holder of Notes, or to
obtain or seek to obtain priority over or preference to any other such holder,
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal, ratable and common benefit of all holders of Notes
(except as otherwise provided herein). 
For the protection and enforcement of this Section 6.04, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.


Notwithstanding any other
provision of this Indenture and any provision of any Note, the right of any
holder of any Note to receive payment of the principal of (including the
redemption price or Fundamental Change Purchase Price upon redemption or
repurchase pursuant to Article 3) and accrued interest on such Note, on or
after the respective due dates expressed in such Note or in the event of
redemption or repurchase, or to institute suit for the enforcement of any such
payment on or after such respective dates against the Issuer shall not be
impaired or affected without the consent of such holder.


Anything contained in
this Indenture or the Notes to the contrary notwithstanding, the holder of any
Note, without the consent of either the Trustee or the holder of any other
Note, in its own behalf and for its own benefit, may enforce, and may institute
and maintain any proceeding suitable to enforce, its rights of conversion as
provided herein.


Section
6.05.  Proceedings
by Trustee.  In case of an Event
of Default, the Trustee may, in its discretion, proceed to protect and enforce
the rights vested in it by this Indenture by such appropriate judicial
proceedings as are necessary to protect and enforce any of such rights, either
by suit in equity or by action at law or by proceeding in bankruptcy or
otherwise, whether for the specific enforcement of any covenant or agreement
contained in this Indenture or in aid of the exercise of any power granted in
this Indenture, or to enforce any other legal or equitable right vested in the
Trustee by this Indenture or by law.


Section
6.06.  Remedies
Cumulative and Continuing. 
All powers and remedies given by this Article 6 to the Trustee or to the
Noteholders shall, to the extent permitted by law, be deemed cumulative and not
exclusive of any thereof or of any other powers and remedies available to the
Trustee or the holders of the Notes, by judicial proceedings or otherwise, to
enforce the performance or observance of the covenants and agreements contained
in this Indenture, and no delay or omission of the Trustee or of any holder of
any of the Notes to exercise any right or power accruing upon any default or
Event of Default occurring and



 35
 









continuing as aforesaid shall impair any such
right or power, or shall be construed to be a waiver of any such default or any
acquiescence therein, and, subject to the provisions of Section 6.04, every
power and remedy given by this Article 6 or by law to the Trustee or to the
Noteholders may be exercised from time to time, and as often as shall be deemed
expedient, by the Trustee or by the Noteholders.


Section
6.07.  Direction
of Proceedings and Waiver of Defaults by Majority of Noteholders.  The holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee; provided that (a) such direction shall not be in conflict with any
rule of law or with this Indenture, (b) the Trustee may take any other action
which is not inconsistent with such direction, (c) the Trustee may decline to
take any action that would benefit some Noteholder to the detriment of other
Noteholders and (d) the Trustee may decline to take any action that would
involve the Trustee in personal liability.


The holders of a majority
in aggregate principal amount of the Notes at the time outstanding may, on
behalf of the holders of all of the Notes, waive any past default or Event of
Default hereunder and its consequences except (i) a default in the
payment of the principal of, or interest on, the Notes, (ii) a failure by the
Issuer to convert any Notes as required by this Indenture, (iii) a default in
the payment of the redemption price on the Redemption Date pursuant to Article
3, (iv) a default in the payment of the Fundamental Change Purchase Price on
the Fundamental Change Purchase Date pursuant to Article 3 or (v) a default in
respect of a covenant or provisions hereof which under Article 9 cannot be
modified or amended without the consent of the holders of all Notes then
outstanding or each Note affected thereby.


Upon any such waiver, the
Issuer, the Trustee and the holders of the Notes shall be restored to their
former positions and rights hereunder; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.  Whenever any default or Event of
Default hereunder shall have been waived as permitted by this Section 6.07,
said default or Event of Default shall for all purposes of the Notes and this
Indenture be deemed to have been cured and to be not continuing; but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.


Section
6.08.  Notice
of Defaults.  The Trustee
shall, within ninety (90) calendar days after a Responsible Officer of the
Trustee has knowledge of the occurrence of a default, mail to all Noteholders,
as the names and addresses of such holders appear upon the Note Register,
notice of all defaults known to a Responsible Officer, unless such defaults
shall have been cured or waived before the giving of such notice; provided that except in the case of default
in the payment of the principal of, or interest on, any of the Notes, the
Trustee shall be protected in withholding such notice if and so long as a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Noteholders.


Section
6.09.  Undertaking
to Pay Costs.  All parties to
this Indenture agree, and each holder of any Note by its acceptance thereof
shall be deemed to have agreed, that any court may,



 36















in its discretion, require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for
any action taken or omitted by it as Trustee, the filing by any party litigant
in such suit of an undertaking to pay the costs of such suit and that such
court may in its discretion assess reasonable costs, including reasonable
attorneys’ fees and expenses, against any party litigant in such suit, having
due regard to the merits and good faith of the claims or defenses made by such
party litigant; provided that the
provisions of this Section 6.09 (to the extent permitted by law) shall not
apply to any suit instituted by the Trustee, to any suit instituted by any
Noteholder, or group of Noteholders, holding in the aggregate more than ten
percent in principal amount of the Notes at the time outstanding determined in
accordance with Section 8.04, or to any suit instituted by any Noteholder for
the enforcement of the payment of the principal of, or interest on, any Note on
or after the due date expressed in such Note or to any suit for the enforcement
of the right to convert any Note in accordance with the provisions of Article
13.


ARTICLE 7

The Trustee


Section 7.01. 
Duties and Responsibilities of
Trustee.  The Trustee, prior
to the occurrence of an Event of Default and after the curing or waiver of all
Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture.  In case an Event of Default has occurred
(which has not been cured or waived), the Trustee shall exercise such of the
rights and powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of its own affairs.


No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act or its own willful misconduct, except that:


(a)           prior to the occurrence of an Event of
Default and after the curing or waiving of all Events of Default which may have
occurred:


(i)            the
duties and obligations of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trust Indenture Act, and the Trustee shall
not be liable except for the performance of such duties and obligations as are
specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture and the Trust Indenture Act against
the Trustee; and


(ii)           in
the absence of bad faith and willful misconduct on the part of the Trustee, the
Trustee may conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of this
Indenture; but, in the case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture;



 37
 









(b)           the Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer or Officers of
the Trustee, unless the Trustee was negligent in ascertaining the pertinent
facts;


(c)           the Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in accordance
with the written direction of the holders of not less than a majority in
principal amount of the Notes at the time outstanding determined as provided in
Section 8.04 relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred upon the Trustee, under this Indenture;


(d)           whether or not therein provided, every
provision of this Indenture relating to the conduct or affecting the liability
of, or affording protection to, the Trustee shall be subject to the provisions
of this Section;


(e)           the Trustee shall not be liable in respect
of any payment (as to the correctness of amount, entitlement to receive or any
other matters relating to payment) or notice effected by the Issuer or any
Paying Agent (other than the Trustee) or any records maintained by any
co-registrar (other than the Trustee) with respect to the Notes;


(f)            if any party fails to deliver a notice
relating to an event the fact of which, pursuant to this Indenture, requires
notice to be sent to the Trustee, the Trustee may conclusively rely on its
failure to receive such notice as reason to act as if no such event occurred
unless a Responsible Officer of the Trustee has actual knowledge thereof or
unless the Trustee has otherwise received written notice thereof; and


(g)           the Trustee shall not be deemed to have
knowledge of any Event of Default hereunder unless a Responsible Officer of the
Trustee has actual knowledge thereof or unless the Trustee shall have been
notified in writing of such Event of Default by the Issuer or a holder of Notes.


None of the provisions contained in this Indenture
shall require the Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if there is reasonable ground for
believing that the repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.


Section 7.02. 
Reliance on Documents, Opinions, etc.  Except as otherwise provided in Section 7.01:


(a)           the Trustee may conclusively rely and shall
be protected in acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, note, coupon
or other paper or document (whether in its original or facsimile form) believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties;


(b)           any request, direction, order or demand of
the Issuer mentioned herein shall be sufficiently evidenced by an Officers’
Certificate (unless other evidence in respect thereof be



 38
 









herein specifically prescribed); and any resolution of the Board of
Directors may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Issuer;


(c)           the Trustee may consult with counsel of its
own selection and any advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or omitted by it
hereunder in good faith and in reliance on and in accordance with such advice
or Opinion of Counsel;


(d)           the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at the
request, order or direction of any of the Noteholders pursuant to the
provisions of this Indenture, unless such Noteholders shall have offered to the
Trustee security or indemnity satisfactory to it against the costs, expenses
and liabilities which may be incurred therein or thereby;


(e)           the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document, but the Trustee may make
such further inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Issuer, personally or by agent or attorney;


(f)            the Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed by it
with due care hereunder;


(g)           the Trustee shall not be liable for any
action taken, suffered or omitted to be taken by it in good faith and
reasonably believed by it to be authorized or within the discretion or rights
or powers conferred upon it by this Indenture;


(h)           the rights, privileges, protections,
immunities and benefits given to the Trustee, including, without limitation,
its right to be indemnified, are extended to, and shall be enforceable by, the
Trustee in each of its capacities hereunder, and each agent, custodian and
other Person employed to act hereunder;


(i)            the Trustee may request that the Issuer
deliver an Officers’ Certificate setting forth the names of individuals and/or
titles of officers authorized at such time to take specified actions pursuant
to this Indenture, which Officers’ Certificate may be signed by any person
authorized to sign an Officers’ Certificate, including any person specified as
so authorized in any such certificate previously delivered and not superseded;
and


(j)            any permissive right or authority granted
to the Trustee shall not be construed as a mandatory duty.


Section 7.03. 
No Responsibility for Recitals, etc.  The recitals contained herein and in the
Notes (except in the Trustee’s certificate of authentication) shall be taken as
the statements of the Issuer, and the Trustee assumes no responsibility for the
correctness of the same.  The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Notes.  The



 39
 









Trustee shall not be accountable for the use or application by the
Issuer of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.


Section 7.04. 
Trustee, Paying Agents, Conversion Agents
or Note Registrar May Own Notes. 
The Trustee, any Paying Agent, the Conversion Agent or Note Registrar,
in its individual or any other capacity, may become the owner or pledgee of
Notes with the same rights it would have if it were not Trustee, Paying Agent,
Conversion Agent or Note Registrar.


Section 7.05. 
Monies to be Held in Trust.  Subject to the provisions of Section 11.02,
all monies received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received.  Money held by the Trustee in trust hereunder
need not be segregated from other funds except to the extent required by
law.  Except as otherwise provided
herein, the Trustee shall be under no liability for interest on any money received
by it hereunder except as may be agreed in writing from time to time by the
Issuer and the Trustee.


Section 7.06. 
Compensation and Expenses of Trustee.  The Issuer covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to, such
compensation for all services rendered by it hereunder in any capacity (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) as mutually agreed to from time to time in writing
between the Issuer and the Trustee, and the Issuer will pay or reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances reasonably incurred or made by the Trustee in accordance with any of
the provisions of this Indenture (including the reasonable compensation and the
reasonable expenses and disbursements of its counsel and of all Persons not
regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence, willful misconduct, recklessness or bad
faith.  The Issuer also covenants to
indemnify the Trustee and any predecessor Trustee (or any officer, director or
employee of the Trustee), in any capacity under this Indenture and any authenticating
agent for, and to hold them harmless against, any and all loss, liability,
damage, claim or reasonable expense including taxes (other than taxes based on
the income of the Trustee) incurred without negligence, willful misconduct,
recklessness or bad faith on the part of the Trustee or such officers,
directors, employees or authenticating agent, as the case may be, and arising
out of or in connection with the acceptance or administration of this trust or
in any other capacity hereunder, including the reasonable costs and expenses of
defending themselves against any claim (whether asserted by the Issuer, any
holder or any other Person) of liability in the premises.  The obligations of the Issuer under this
Section 7.06 to compensate or indemnify the Trustee and to pay or reimburse the
Trustee for reasonable expenses, disbursements and advances shall be secured by
a lien prior to that of the Notes upon all property and funds held or collected
by the Trustee as such, except funds held in trust for the benefit of the
holders of particular Notes.  The
obligation of the Issuer under this Section shall survive the satisfaction and
discharge of this Indenture.


When the Trustee and its agents and any authenticating
agent incur expenses or render services after an Event of Default specified in
Section 6.01(i), 6.01(j) or 6.01(k) with respect to the Issuer occurs, the
expenses and the compensation for the services are intended to constitute
reasonable expenses of administration under any bankruptcy, insolvency or
similar laws.



 40
 









Section 7.07. 
Officers’ Certificate as Evidence.  Except as otherwise provided in Section 7.01,
whenever in the administration of the provisions of this Indenture the Trustee
shall deem it necessary or desirable that a matter be proved or established
prior to taking or omitting any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may, in the
absence of gross negligence, bad faith, recklessness or willful misconduct on
the part of the Trustee, be deemed to be conclusively proved and established by
an Officers’ Certificate delivered to the Trustee.


Section 7.08. 
Conflicting Interests of Trustee.  If the Trustee has or shall acquire a
conflicting interest within the meaning of the Trust Indenture Act, the Trustee
shall either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Indenture.


Section 7.09. 
Eligibility of Trustee.  There shall at all times be a Trustee
hereunder which shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and surplus of at least
$50.0 million (or if such Person is a member of a bank holding company system,
its bank holding company shall have a combined capital and surplus of at least
$50.0 million).  If such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of any supervising or examining authority, then for the purposes of this
Section the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published.  If at any time
the Trustee shall cease to be eligible in accordance with the provisions of
this Section 7.09, it shall resign immediately in the manner and with the
effect hereinafter specified in this Article.


Section 7.10. 
Resignation or Removal of Trustee.


(a)           Subject to Section 7.10(c), the Trustee may
at any time resign by giving written notice of such resignation to the Issuer
and to the holders of Notes.  Upon
receiving such notice of resignation, the Issuer shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee.  If no successor trustee shall have been so
appointed and have accepted appointment sixty (60) calendar days after the
mailing of such notice of resignation to the Noteholders, the resigning Trustee
may, upon ten Business Days’ notice to the Issuer and the Noteholders,
petition, at the expense of the Issuer, any court of competent jurisdiction for
the appointment of a successor trustee. 
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.


(b)           In case at any time any of the following
shall occur:


(i)            the
Trustee shall fail to comply with Section 7.08 after written request therefor
by the Issuer or by any Noteholder who has been a bona fide holder of a Note or
Notes for at least six months; or


(ii)           the
Trustee shall cease to be eligible in accordance with the provisions of Section
7.09 and shall fail to resign after written request therefor by the Issuer or
by any such Noteholder; or



 41
 









(iii)          the
Trustee shall become incapable of acting, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation;


then, in any such case, the Issuer may remove the
Trustee and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee,
or, subject to the provisions of Section 6.09, any Noteholder who has been a
bona fide holder of a Note or Notes for at least six months may, on behalf of
itself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
trustee.  Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, remove the Trustee
and appoint a successor trustee.


(c)           Any resignation or removal of the Trustee
and appointment of a successor trustee pursuant to any of the provisions of
this Section 7.10 shall become effective upon acceptance of appointment by the
successor trustee as provided in Section 7.11.


(d)           Notwithstanding the replacement of the
Trustee pursuant to this Section, the Issuer’s obligations under Section 7.06
shall continue for the benefit of the retiring Trustee.


Section 7.11. 
Acceptance by Successor Trustee.  Any successor trustee appointed as provided
in Section 7.10 shall execute, acknowledge and deliver to the Issuer and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee herein; but, nevertheless, on the written request of the
Issuer or of the successor trustee, the trustee ceasing to act shall, upon
payment of any amount then due it pursuant to the provisions of Section 7.06,
execute and deliver an instrument transferring to such successor trustee all
the rights and powers of the trustee so ceasing to act.  Upon request of any such successor trustee,
the Issuer shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor trustee all such rights
and powers.  Any trustee ceasing to act
shall, nevertheless, retain a lien upon all property and funds held or
collected by such trustee as such, except for funds held in trust for the
benefit of holders of particular Notes, to secure any amounts then due it
pursuant to the provisions of Section 7.06.


No successor trustee shall accept appointment as
provided in this Section 7.11 unless, at the time of such acceptance, such
successor trustee shall be qualified under the provisions of Section 7.08 and
be eligible under the provisions of Section 7.09.


Upon acceptance of appointment by a successor trustee
as provided in this Section 7.11, the Issuer (or the former trustee, at the
written direction of the Issuer) shall mail or cause to be mailed notice of the
succession of such trustee hereunder to the holders of Notes at their addresses
as they shall appear on the Note Register. 
If the Issuer fails to mail such notice within ten (10) calendar days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of the Issuer.



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Section 7.12. 
Succession by Merger.  Any corporation into which the Trustee may be
merged or exchanged or with which it may be consolidated, or any corporation
resulting from any merger, exchange or consolidation to which the Trustee shall
be a party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee (including any trust created by this
Indenture), shall be the successor to the Trustee hereunder without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that in the case of any corporation succeeding to all
or substantially all of the corporate trust business of the Trustee, such
corporation shall be qualified under the provisions of Section 7.08 and
eligible under the provisions of Section 7.09.


In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture, any of the Notes shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee or
authenticating agent appointed by such predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not
have been authenticated, any successor to the Trustee or any authenticating
agent appointed by such successor trustee may authenticate such Notes in the
name of the successor trustee; and in all such cases such certificates shall
have the full force that is provided in the Notes or in this Indenture; provided that the right to adopt the certificate of
authentication of any predecessor Trustee or authenticate Notes in the name of
any predecessor Trustee shall apply only to its successor or successors by
merger, exchange or consolidation.


Section 7.13. 
Preferential Collection of Claims.  If and when the Trustee shall be or become a
creditor of the Issuer (or any other obligor upon the Notes), the Trustee shall
be subject to the provisions of the Trust Indenture Act regarding the
collection of the claims against the Issuer (or any such other obligor).


ARTICLE 8

The Noteholders


Section 8.01. 
Action by Noteholders.  Whenever in this Indenture it is provided
that the holders of a specified percentage in aggregate principal amount of the
Notes may take any action (including the making of any demand or request, the
giving of any notice, consent or waiver or the taking of any other action), the
fact that at the time of taking any such action, the holders of such specified
percentage have joined therein may be evidenced (a) by any instrument or any
number of instruments of similar tenor executed by Noteholders in person or by
agent or proxy appointed in writing, or (b) by the record of the holders of
Notes voting in favor thereof at any meeting of Noteholders, or (c) by a
combination of such instrument or instruments and any such record of such a meeting
of Noteholders.  Whenever the Issuer or
the Trustee solicits the taking of any action by the holders of the Notes, the
Issuer or the Trustee may fix in advance of such solicitation a date as the
record date for determining holders entitled to take such action.  The record date, if any, shall be not more
than fifteen (15) calendar days prior to the date of commencement of
solicitation of such action.


Section 8.02. 
Proof of Execution by Noteholders.  Subject to the provisions of Sections 7.01
and 7.02, proof of the execution of any instrument by a Noteholder or its agent
or proxy shall be sufficient if made in accordance with such reasonable rules
and regulations as may be



 43
 









prescribed by the Trustee or in such manner as shall be satisfactory to
the Trustee.  The holding of Notes shall
be proved by the registry of such Notes or by a certificate of the Note
Registrar.


Section 8.03. 
Absolute Owners.  The Issuer, the Trustee, any Paying Agent,
any Conversion Agent and any Note Registrar may deem the Person in whose name
such Note shall be registered upon the Note Register to be, and may treat it
as, the absolute owner of such Note (whether or not such Note shall be overdue
and notwithstanding any notation of ownership or other writing thereon made by
any Person other than the Issuer or any Note Registrar) for the purpose of
receiving payment of or on account of the principal of, and interest on, such
Note, for conversion of such Note and for all other purposes; and neither the
Issuer nor the Trustee nor any Paying Agent nor any Conversion Agent nor any
Note Registrar shall be affected by any notice to the contrary.  All such payments so made to any holder for
the time being, or upon its order, shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for
monies payable upon any such Note.


Section 8.04. 
Issuer-Owned Notes Disregarded.  In determining whether the holders of the
requisite aggregate principal amount of Notes have concurred in any direction,
consent, waiver or other action under this Indenture, Notes which are owned by
the Issuer or any other obligor on the Notes or any Affiliate of the Issuer or
any other obligor on the Notes shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent, waiver or other action, only Notes which a Responsible
Officer knows are so owned shall be so disregarded.  Notes so owned which have been pledged in
good faith may be regarded as outstanding for the purposes of this Section 8.04
if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s
right to vote such Notes and that the pledgee is not the Issuer, any other
obligor on the Notes or any Affiliate of the Issuer or any such other
obligor.  In the case of a dispute as to
such right, any decision by the Trustee taken upon the advice of counsel shall
be full protection to the Trustee.  Upon
request of the Trustee, the Issuer shall furnish to the Trustee promptly an
Officers’ Certificate listing and identifying all Notes, if any, known by the
Issuer to be owned or held by or for the account of any of the above described
Persons, and, subject to Section 7.01, the Trustee shall be entitled to accept
such Officers’ Certificate as conclusive evidence of the facts therein set
forth and of the fact that all Notes not listed therein are outstanding for the
purpose of any such determination.


Section 8.05. 
Revocation of Consents; Future
Holders Bound.  At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
8.01, of the taking of any action by the holders of the percentage in aggregate
principal amount of the Notes specified in this Indenture in connection with
such action, any holder of a Note which is shown by the evidence to be included
in the Notes the holders of which have consented to such action may, by filing
written notice with the Trustee at its Corporate Trust Office and upon proof of
holding as provided in Section 8.02, revoke such action so far as concerns such
Note.  Except as aforesaid, any such
action taken by the holder of any Note shall be conclusive and binding upon
such holder and upon all future holders and owners of such Note and of any
Notes issued in exchange or substitution therefor, irrespective of whether any
notation in regard thereto is made upon such Note or any Note issued in
exchange or substitution therefor.



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ARTICLE 9

Supplemental Indentures


Section 9.01. 
Supplemental Indentures Without
Consent of Noteholders.  The
Issuer, when authorized by the resolutions of the Board of Directors, the
Guarantor and the Trustee may, from time to time, and at any time enter into an
indenture or indentures supplemental without the consent of the holders of the
Notes hereto for one or more of the following purposes:


(a)           to evidence a successor to the Issuer and
the assumption by that successor of the obligations of the Issuer under this
Indenture and the Notes;


(b)           to provide for conversion right of holders
of the Notes in accordance with the terms hereof if any reclassification or
change of Common Shares or any consolidation, merger or sale of all or
substantially all of the property or assets of the Issuer occurs;


(c)           to add to the covenants of the Issuer or the
Guarantor for the benefit of the holders of the Notes or to surrender any right
or power conferred upon the Issuer or the Guarantor;


(d)           to secure the obligations of the Issuer in
respect of the Notes or the Guarantor in respect of the Guarantee;


(e)           to add guarantees or to release the
Guarantor from its obligations under the Guarantee in accordance with the terms
of this Indenture;


(f)            to evidence and provide the acceptance of
the appointment of a successor Trustee under this Indenture;


(g)           to comply with the requirements of the
Commission in order to effect or maintain qualification of this Indenture under
the Trust Indenture Act, as contemplated by this Indenture or otherwise;


(h)           to cure any ambiguity, omission, defect or
inconsistency in this Indenture or make any other provision with respect to
matters or questions arising under this Indenture which the Issuer may deem
necessary or desirable and which shall not be inconsistent with provisions of
this Indenture; provided that such modification or amendment does not, in the
good faith opinion of the Board of Directors, adversely affect the interests of
the holders of the Notes in any material respect;


(i)            to add or modify any provision with respect
to matters or questions arising under this Indenture which the Issuer and the
Trustee may deem necessary or desirable and which will not adversely affect the
interests of the holders of the Notes in any material respect; or


(j)            to modify any provision of this Indenture
to conform that provision to the description thereof set forth in the Offering
Memorandum.


Upon the written request of the Issuer, accompanied by
a copy of the resolutions of the Board of Directors certified by the Issuer’s
Secretary or Assistant Secretary authorizing the execution of any supplemental
indenture, the Trustee is hereby authorized to join with the Issuer



 45
 









in the execution of any
such supplemental indenture, to make any further appropriate agreements and
stipulations that may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not
be obligated to, but may in its discretion, enter into any supplemental
indenture that affects the Trustee’s own rights, duties or immunities under
this Indenture or otherwise.


Any supplemental indenture authorized by the
provisions of this Section 9.01 may be executed by the Issuer and the Trustee
without the consent of the holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 9.02.


Section 9.02. 
Supplemental Indenture With Consent
of Noteholders.  With the
consent (evidenced as provided in Article 8) of the holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Issuer, when authorized by the resolutions of the Board of Directors, the
Guarantor and the Trustee may, from time to time and at any time, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or any supplemental indenture or modifying in any manner the
rights of the holders of the Notes; provided
that no such supplemental indenture shall, without the consent of the holder of
each Note so affected:


(a)           impair or adversely affect the manner of
calculation or rate of accrual of interest on the Notes or change the time of
payment thereof;


(b)           make the Notes payable in money or
securities other than that stated in the Notes;


(c)           change the Stated Maturity of the Notes;


(d)           reduce the principal amount of, or the
redemption price or Fundamental Change Purchase Price specified in Article 3
hereof with respect to, the Notes;


(e)           make any change that impairs or adversely
affects the conversion rights of the holders of the Notes;


(f)            make any change that impairs or adversely
affects the right to require the Issuer to repurchase the Notes;


(g)           impair the right to institute suit for the
enforcement of any payment with respect to the Notes or with respect to
conversion of the Notes;


(h)           change the obligation of the Issuer to
redeem any Notes called for redemption on a Redemption Date in a manner adverse
to the holders;


(i)            change the obligation of the Issuer to maintain
an office or agency pursuant to Section 4.02;


(j)            make the Notes or the Guarantee subordinate
in right of payment to any other indebtedness;



 46
 









(k)           release the Guarantor from its obligations
under the Guarantee or the Indenture otherwise than in accordance with the
terms of this Indenture;


(l)            reduce the percentage in aggregate
principal amount of outstanding Notes required to modify or amend this
Indenture or to waive compliance by the Issuer with the provisions of the
Indenture; or


(m)          modify Section 6.07 or this Section 9.02.


Upon the written request of the Issuer, accompanied by
a copy of the resolutions of the Board of Directors certified by the Issuer’s
Secretary or Assistant Secretary authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of the
consent of Noteholders as aforesaid, the Trustee shall join with the Issuer in
the execution of such supplemental indenture unless such supplemental indenture
affects the Trustee’s own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.


It shall not be necessary for the consent of the
Noteholders under this Section 9.02 to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.


Section 9.03. 
Effect of Supplemental Indenture.  Any supplemental indenture executed pursuant
to the provisions of this Article 9 shall comply with the Trust Indenture Act,
as then in effect, provided that this Section 9.03 shall not require such
supplemental indenture or the Trustee to be qualified under the Trust Indenture
Act prior to the time, if ever, such qualification is in fact required under
the terms of the Trust Indenture Act or the Indenture has been qualified under
the Trust Indenture Act, nor shall it constitute any admission or
acknowledgment by any party to such supplemental indenture that any such
qualification is required prior to the time, if ever, such qualification is in
fact required under the terms of the Trust Indenture Act or the Indenture has
been qualified under the Trust Indenture Act. 
Upon the execution of any supplemental indenture pursuant to the
provisions of this Article 9, this Indenture shall be and be deemed to be
modified and amended in accordance therewith and the respective rights,
limitation of rights, obligations, duties and immunities under this Indenture
of the Trustee, the Issuer and the holders of Notes shall thereafter be
determined, exercised and enforced hereunder, subject in all respects to such
modifications and amendments and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.


Section 9.04. 
Notation on Notes.  Notes authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article 9 may bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. 
If the Issuer or the Trustee shall so determine, new Notes so modified
as to conform, in the opinion of the Trustee and the Board of Directors, to any
modification of this Indenture contained in any such supplemental indenture
may, at the Issuer’s expense, be prepared and executed by the Issuer,
authenticated by the Trustee (or an authenticating agent duly appointed by the
Trustee pursuant to Section 15.11) and delivered in exchange for the Notes then
outstanding, upon surrender of such Notes then outstanding.



 47
 









Section 9.05. 
Evidence of Compliance of
Supplemental Indenture to be Furnished to Trustee.  Prior to entering into any supplemental
indenture pursuant to this Article 9, the Trustee shall be provided with an
Officers’ Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant hereto complies with the requirements
of this Article 9 and is otherwise authorized or permitted by this Indenture.


ARTICLE
10

Consolidation, Merger, Sale, Conveyance
and Lease


Section 10.01.  Issuer May
Consolidate on Certain Terms. 
Subject to the provisions of Section 10.02, the Issuer shall not, in a
single transaction or a series of related transactions, consolidate with, or
sell, lease or convey all or substantially all of its property and assets to,
or merge with or into, any other Person (whether or not affiliated with the
Issuer), unless: (i) the Issuer is the continuing entity, or the successor (if
other than the Issuer) formed by or resulting from any consolidation or merger
or which shall have received the transfer of assets shall be an entity
organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia and shall expressly assume (x) the
due and punctual payment of the principal of, and interest on, all of the
Notes, and the due and punctual performance and observance of all of the
covenants and conditions in the Notes and this Indenture to be performed or
satisfied by the Issuer (including, without limitations, the obligation to
convert Notes in accordance with the provisions of Article 13 hereof) by a
supplemental indenture reasonably satisfactory in form to the Trustee and (y)
all of the obligations of the Issuer under the Registration Rights Agreement by
a supplemental agreement, in each case, executed and delivered to the Trustee
by such successor; (ii) if as a result of any such consolidation, sale, lease, conveyance
or merger, the Notes become convertible into common stock or other securities
issued by a Person that is other than the Issuer or such successor Person, such
Person shall fully and unconditionally guarantee all obligations under the
Notes and this Indenture; (iii) immediately after giving effect to the
transaction described above, no Event of Default or event which, after notice
or lapse of time, or both, would become an Event of Default, has occurred and
is continuing; and (iv) the Issuer has delivered to the Trustee the Officers’
Certificate and Opinion of Counsel, if any, requested pursuant to Section
15.03.


For purposes of this Section 10.01, notwithstanding
the foregoing, none of (i) the sale, distribution, disposition or transfer of
the capital stock of the Guarantor, (ii) the conveyance, transfer or lease by
the Guarantor of all or substantially all of its properties and assets, whether
in one transaction or a series of transactions, or (iii) the conveyance,
transfer or lease by the Issuer of all or substantially all of the properties
and assets of the Guarantor, whether in one transaction or a series of
transactions, shall constitute a sale, lease or conveyance of all or
substantially all of the assets of the Issuer to any Person, provided that any
transaction described in the foregoing clauses (i), (ii) or (iii) is conducted
in an arm’s length transaction at fair market value.


Section 10.02.  Issuer
Successor to be Substituted. 
In case of any such consolidation, sale, lease, conveyance or merger in
which the Issuer is not the continuing entity and upon the assumption by the
successor Person, by supplemental indenture, executed and delivered to the
Trustee and reasonably satisfactory in form to the Trustee, of the due and
punctual payment of the principal of, and interest on, all of the Notes, and
the due and punctual performance and observance of all of the covenants and
conditions of this Indenture to be performed or satisfied



 48
 









by the Issuer, and by supplemental agreement, executed and delivered to
the Trustee and reasonably satisfactory in form to the Trustee, of all of the
obligations of the Issuer under the Registration Rights Agreement, such
successor Person shall succeed to and be substituted for the Issuer, with the
same effect as if it had been named herein as the party of this first part, and
the Issuer shall be discharged from its obligations under the Notes, this
Indenture and the Registration Rights Agreement.  Such successor Person thereupon may cause to
be signed, and may issue either in its own name or in the name of the Issuer
any or all of the Notes, issuable hereunder that theretofore shall not have
been signed by the Issuer and delivered to the Trustee; and, upon the order of
such successor Person instead of the Issuer and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver, or cause to be authenticated and delivered, any
Notes that previously shall have been signed and delivered by the officers of the
Issuer to the Trustee for authentication, and any Notes that such successor
Person thereafter shall cause to be signed and delivered to the Trustee for
that purpose.  All the Notes so issued
shall in all respects have the same legal rank and benefit under this Indenture
as the Notes theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Notes had been issued at the date of the
execution hereof.  In the event of any
such consolidation, merger, sale, conveyance, transfer or lease, upon
compliance with this Article 10 the Person named as the “Issuer” in the first
paragraph of this Indenture or any successor that shall thereafter have become
such in the manner prescribed in this Article 10 may be dissolved, wound up and
liquidated at any time thereafter and such Person shall be discharged from its
liabilities as obligor and maker of the Notes and from its obligations under
this Indenture and under the Registration Rights Agreement.


In case of any such consolidation, sale, lease,
conveyance or merger, such changes in phraseology and form (but not in
substance) may be made in the Notes thereafter to be issued as may be
appropriate.


ARTICLE
11

Satisfaction and Discharge of Indenture


Section 11.01.  Discharge
of Indenture.  This Indenture
shall cease to be of further effect (except as to any surviving rights of
conversion, registration of transfer or exchange of Notes herein expressly
provided for and except as further provided below), and the Trustee, on demand
of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture, when (a) either:
(1) all Notes theretofore authenticated and delivered (other than (i) Notes
which have been destroyed, lost or stolen and which have been replaced or paid
as provided in Section 11.04 and (ii) Notes for whose payment money has
theretofore been deposited in trust and thereafter repaid to the Issuer as
provided in Section 11.04) have been delivered to the Trustee for cancellation;
or (2) all such Notes not theretofore delivered to the Trustee for cancellation
have become due and payable, whether upon the Stated Maturity of the Notes, a
Redemption Date or a Fundamental Change Purchase Date or otherwise, or have all
been converted in accordance with the provisions of Article 13 hereof, and the
Issuer has irrevocably deposited or caused to be irrevocably deposited with the
Trustee a Paying Agent or the Conversion Agent (other than the Issuer or any of
its Affiliates), as applicable, as trust funds in trust cash and, if
applicable, Common Shares in an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the Trustee for
cancellation, for principal and interest to the date of such deposit (in the
case of Notes which



 49
 









have become due and payable) or for amounts owing upon conversion; provided, however,
that there shall not exist, on the date of such deposit, a default or Event of
Default; provided, further, that such deposit shall not
result in a breach or violation of, or constitute a default under, this
Indenture; (b) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and (c) the Issuer has delivered to the Trustee an
Officers’ Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.


Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Issuer to the Trustee under Section 7.06
shall survive and, if money shall have been deposited with the Trustee pursuant
to subclause (2) of clause (a) of this Section, the provisions of Sections
2.05, 2.06, 2.07, 3.05, 5.01, Article 13 and this Article 11, shall survive
until the Notes have been paid in full.


Section 11.02.  Deposited
Monies to be Held in Trust by Trustee.  Subject to Section 11.04, all monies
deposited with the Trustee pursuant to Section 7.05, shall be held in trust for
the sole benefit of the Noteholders, and such monies shall be applied by the
Trustee to the payment, either directly or through any Paying Agent (including
the Issuer if acting as its own Paying Agent), to the holders of the particular
Notes for the payment or redemption of which such monies have been deposited
with the Trustee, of all sums due and to become due thereon for principal,
premium, if any, and interest.  All
moneys deposited with the Trustee pursuant to Section 7.05 (and held by it or
any Paying Agent) for the payment of Notes subsequently converted shall be
returned to the Issuer upon request.  The
Trustee is not responsible to anyone for interest on any deposited funds except
as agreed in writing.


Section 11.03.  Paying
Agent to Repay Monies Held. 
Subject to the provisions of Section 11.04, the Trustee or a Paying
Agent shall hold in trust, for the benefit of the Noteholders, all money
deposited with it pursuant to Section 11.01 and shall apply the deposited money
in accordance with this Indenture and the Notes to the payment of the principal
of and interest on the Notes.


Section 11.04.  Return of
Unclaimed Monies.  The Trustee
and each Paying Agent shall pay to the Issuer upon written request any money
held by them for the payment of principal or interest that remains unclaimed
for two years after a right to such money has matured; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
payment, may, at the expense of the Issuer, either publish in a newspaper of
general circulation in The City of New York, or cause to be mailed to each
holder entitled to such money, notice that such money remains unclaimed and
that after a date specified therein, which shall be at least thirty (30)
calendar days from the date of such mailing or publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer.  After payment to the Issuer, holders entitled
to money must look to the Issuer for payment as general creditors unless an
applicable abandoned property law designates another person, and the Trustee
and each Paying Agent shall be relieved of all liability with respect to such
money.


Section 11.05.  Reinstatement.  If the Trustee or the Paying Agent is unable
to apply any money in accordance with Section 11.02 by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the



 50
 









Issuer’s obligations under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section 11.01
until such time as the Trustee or the Paying Agent is permitted to apply all
such money in accordance with Section 11.02; provided that if the Issuer makes any payment of principal
of or premium, if any, or interest on any Note following the reinstatement of
its obligations, the Issuer shall be subrogated to the rights of the holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.


ARTICLE
12

Immunity of Incorporators, Stockholders,
Officers and Directors


Section 12.01.  Indenture
and Notes Solely Corporate Obligations.  No recourse for the payment of the principal of, or interest on,
any Note, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Issuer
in this Indenture or in any supplemental indenture or in any Note, or because
of the creation of any indebtedness represented thereby, shall be had against
any incorporator, stockholder, partner, member, manager, employee, agent,
officer, director or subsidiary, as such, past, present or future, of the
Issuer or any of the Issuer’s Subsidiaries or of any successor thereto, either
directly or through the Issuer or any of the Issuer’s Subsidiaries or any
successor thereto, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that all such liability is hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of the Notes.


ARTICLE
13

Conversion of Notes


Section 13.01.  Right to
Convert.


(a)           Subject to the restrictions on ownership of
Common Shares as set forth in Section 13.14 and upon compliance with the
provisions of this Indenture, the holder of any Notes may convert its Notes, or
any portion thereof which is a multiple of $1,000, into cash and, if
applicable, Common Shares by surrender of such Notes so to be converted in
whole or in part, together with any required funds, under the circumstances and
in the manner described in this Article 13. 
Holders may surrender any Notes for conversion not previously redeemed
or repurchased at the applicable Conversion Rate prior to the close of business
on the Business Day immediately preceding the Stated Maturity of the Notes at
any time on or after June 15, 2012 and also upon the occurrence of one of the
events set forth in clauses (i) through (v) below.


(i)            Conversion Upon Satisfaction of Market Price Condition.  A holder may surrender any of its Notes for
conversion during any calendar quarter beginning after September 30, 2007 (and
only during such calendar quarter) if, and only if, the Closing Sale Price of
the Common Shares for at least twenty (20) Trading Days (whether or not
consecutive) in the period of thirty (30) consecutive Trading Days ending on
the last Trading Day of the preceding calendar quarter is more than 130% of the
Conversion Price per Common Share in effect on the applicable Trading Day.  The Board of Directors will make appropriate
adjustments, in its good faith determination, to account for any adjustment to
the Conversion Rate that becomes effective, or any event requiring



 51
 









an adjustment
to the Conversion Rate where the ex-dividend date of the event occurs,
during that thirty (30) consecutive Trading Day period.


(ii)           Conversion Upon Satisfaction of Trading Price Condition.  A holder may surrender any of its Notes for
conversion during the five (5) consecutive Trading Day period following any
five (5) consecutive Trading Day period in which the Trading Price per $1,000
principal amount of Notes (as determined following a reasonable request by a
holder of the Notes) was less than 98% of the product of the Closing Sale Price
of the Common Shares multiplied by the Conversion Rate.


“Trading
Price” means, with respect to the Notes on any date of
determination, the average of the secondary market bid quotations per $1,000
principal amount of Notes obtained by the Trustee for a $5.0 million principal
amount of Notes at approximately 3:30 p.m., New York City time, on such
determination date from two independent nationally recognized securities
dealers selected by the Issuer, which may include the Initial Purchaser or any successor
to such entity.  If at least two such
bids cannot reasonably be obtained by the Trustee, but one such bid can
reasonably be obtained by the Trustee, then one bid shall be used. If the
Trustee cannot reasonably obtain at least one bid for a $5,000,000 principal
amount of Notes from a nationally recognized securities dealer or, in the
reasonable judgment of the Issuer, the bid quotations are not indicative of the
secondary market value of the Notes, then the Trading Price per $1,000
principal amount of Notes shall be deemed to be less than 98% of the product of
the Closing Sale Price of the Common Shares and the Conversion Rate on such
determination date.


The Trustee shall have no
obligation to determine the Trading Price of the Notes unless the Issuer shall
have requested such determination, and the Issuer shall have no obligation to
make such request unless a holder provides the Issuer with written reasonable
evidence that the Trading Price per $1,000 principal amount of the Notes would
be less than 98% of the product of the Closing Sale Price of the Common Shares
and the Conversion Rate, whereupon the Issuer shall instruct the Trustee to
determine the Trading Price of the Notes beginning on the next Trading Day and
on each successive Trading Day until the Trading Price is greater than or equal
to 98% of the product of the Closing Sale Price of the Common Shares and the
applicable Conversion Rate.


(iii)          Conversion Upon Notice of Redemption.  A holder may surrender for conversion any of
the Notes called for redemption at any time prior to the close of business on
the Business Day prior to the Redemption Date, even if the Notes are not
otherwise convertible at such time.  The
right to convert Notes pursuant to this clause (iii) will expire after the
close of business on the Business Day prior to the Redemption Date unless the
Issuer defaults in making the payment due upon redemption.


Holders
surrendering for conversion Notes which have been called for redemption shall
be entitled to receive a make-whole premium in the form of an increase in the
applicable Conversion Rate. Such increase in the Conversion Rate shall be
determined in the manner set forth in Section 13.13.  In any such case, the number of Additional
Shares shall be calculated as if the Redemption Date were the Effective Date of
the Change of



 52
 









Control and the
Share Price for such purposes shall be deemed to be the average of the Closing
Sale Prices of the Common Shares on the 10 consecutive Trading Days up to but
excluding the date on which any Notes are surrendered for conversion.


(iv)          Conversion Upon Specified Transactions.  If the Issuer elects to: (1) distribute to
all holders of Common Shares rights entitling them to purchase, for a period
expiring within forty five (45) days after the date fixed for determination of
stockholders entitled to receive such rights, Common Shares at less than the
Closing Sale Price of the Common Shares on the Trading Day immediately
preceding the declaration date of such distribution; or (ii) distribute to all
holders of Common Shares assets, debt securities or certain rights to purchase
securities of the Issuer, which distribution has a per share value exceeding
10% of the Closing Sale Price of Common Shares on the Trading Day immediately
preceding the declaration date of such distribution, the Issuer shall notify
holders of the Notes at least forty five (45) calendar days prior to the
ex-dividend date for such distribution. 
Following the issuance of such notice, holders may surrender their Notes
for conversion at any time until the earlier of the close of business on the
Business Day prior to the ex-dividend date or an announcement by the Issuer
that such distribution will not take place; provided, however,
that a holder may not convert its Notes pursuant to this Section 13.01(a)(iv)
if such holder may participate, on an as-converted basis (assuming for this
purpose that the Notes were convertible solely into Common Shares at the then
applicable Conversion Rate), in the distribution without any conversion of
Notes. The “ex-dividend date” means, with respect to any distribution on Common
Shares, the first date upon which a sale of Common Shares does not
automatically transfer the right to receive the relevant distribution from the
seller of Common Shares to the buyer.


In addition, if the
Issuer is party to a consolidation, merger or binding share exchange pursuant
to which all of the Common Shares would be exchanged for cash, securities or
other property that is not otherwise a Change in Control, a holder may surrender
Notes for conversion at any time from and including the date that is twenty
five (25) Business Days prior to the anticipated effective time of the
transaction up to and including five (5) Business Days after the actual date of
such transaction.  The Issuer shall
notify holders of Notes as promptly as practicable following the date it
publicly announces such transaction (but in no event less than twenty five (25)
Business Days prior to the anticipated effective time of such transaction).


If a transaction described
in clauses (1) or (2) of the definition of “Change in Control” occurs prior the
Stated Maturity, a holder will have the right to convert its Notes at any time
from and including the Effective Date of such transaction up to and including
the earlier of the 30th Business Day following the Effective Date of the
transaction and the Business Day prior to the Stated Maturity, provided that,
if a holder has already delivered a Repurchase Notice with respect to a Note,
such holder may not surrender such Note for conversion until it has withdrawn
such notice in accordance with the applicable provisions of Section 3.07
hereof. The Issuer will notify holders as promptly as practicable following the
date that it publicly announces such Change in Control (but in no event later
than five (5) Business Days prior to the Effective Date of such Change in
Control).



 53















(b)           A
Note in respect of which a holder has delivered a Repurchase Notice exercising
such holder’s right to require the Issuer to repurchase such Note pursuant to
Section 3.05 may be converted only if such Repurchase Notice is withdrawn in
accordance with Section 3.07 prior to the close of business on the third
Business Day prior to the Fundamental Change Purchase Date.


(c)           A
holder of Notes is not entitled to any rights of a holder of Common Shares
until such holder has converted its Notes and received upon conversion thereof
Common Shares.  The person in whose name
any certificate or certificates for Common Shares shall be issuable upon such
conversion, if any, shall become on the date any such certificate or certificates
are delivered to such holder in accordance with the provisions of this Article
13, the holder of record of the shares represented thereby.


Section 13.02.  Exercise of Conversion Right; No Adjustment for
Interest or Dividends.  In
order to exercise the conversion right with respect to any Note in certificated
form, the Issuer must receive at the office or agency of the Issuer maintained
for that purpose or, at the option of such holder, the Corporate Trust Office,
such Note with the original or facsimile of the form entitled “Conversion Notice” on the reverse thereof,
duly completed and manually signed, together with such Notes duly endorsed for
transfer, accompanied by the funds, if any, required by this Section
13.02.  Such notice shall also state the
name or names (with address or addresses) in which the certificate or
certificates for Common Shares, if any, which shall be issuable on such
conversion shall be issued (if other than in the name of the holder tendering
such Note for conversion), and shall be accompanied by transfer or similar taxes,
if required pursuant to Section 13.07.


In order to exercise the conversion right with respect
to any interest in a Global Note, the beneficial holder must complete, or cause
to be completed, the appropriate instruction form for conversion pursuant to
the Depositary’s book-entry conversion program; deliver, or cause to be
delivered, by book-entry delivery such interest in such Global Note; furnish
appropriate endorsements and transfer documents if required by the Issuer or
the Trustee or the Conversion Agent; and pay the funds, if any, required by
this Section 13.02 and any transfer taxes if required pursuant to Section
13.07.


Each conversion shall be deemed to have been effected
as to any such Note (or portion thereof) on the date on which the requirements
set forth above in this Section 13.02 have been satisfied as to such Note (or
portion thereof) (the “Conversion Date”).


Except as set forth in the next succeeding paragraph,
upon conversion of a Note, a holder shall not be entitled to receive any cash
payment in respect of interest, and the Issuer shall not be required to adjust
the Conversion Rate to account for any accrued and unpaid interest.  The delivery by the Issuer to the holder of
cash and Common Shares, if any, upon conversion shall be deemed to satisfy the
Issuer’s obligation with respect to Notes tendered for conversion. Accordingly,
upon conversion of Notes, any accrued but unpaid interest shall be deemed to be
paid in full, rather than cancelled, extinguished or forfeited.


Holders of Notes at the close of business on a Record
Date for an interest payment shall receive payment of the interest payable on
the corresponding Interest Payment Date notwithstanding the conversion of such
Notes at any time after the close of business on the



 54
 









applicable Record Date
and on or prior to the corresponding Interest Payment Date.  Accordingly, any Note or portion thereof
surrendered for conversion after the close of business on the Record Date for
any Interest Payment Date and on or prior to the corresponding Interest Payment
Date shall be accompanied by payment, in immediately available funds or other
funds acceptable to the Issuer, of an amount equal to the interest otherwise
payable on such Interest Payment Date on the principal amount being converted; provided that no such payment need be made (1) if the Issuer
has specified a Redemption Date that is after a Record Date and on or prior to
the corresponding Interest Payment Date, (2) to the extent of any overdue
interest, if any overdue interest exists at the time of conversion with respect
to such Notes, or (3) in respect of any conversion that occurs after the Record
Date for the interest payment due on July 15, 2012.  Except as otherwise provided above in this
Article 13, no payment or other adjustment shall be made for interest accrued
on any Note converted or for dividends on any shares issued upon the conversion
of such Note as provided in this Article 13.


In case any Note of a denomination greater than $1,000
shall be surrendered for partial conversion, and subject to Section 2.04, the
Issuer shall execute and the Trustee shall authenticate and deliver to the
holder of the Note so surrendered, without charge to the holder, a new Note or
Notes in authorized denominations in an aggregate principal amount equal to the
unconverted portion of the surrendered Note.


Upon surrender of a Note
for conversion, the holder shall deliver to the Issuer an amount in cash equal
to the amount that the Issuer is required to deduct and withhold under
applicable law in connection with such conversion; provided, however,
that if the holder does not deliver such cash, the Issuer may deduct and
withhold from the consideration otherwise deliverable to such holder the amount
required to be deducted and withheld under applicable law.


Upon the conversion of an interest in a Global Note,
the Trustee (or other Conversion Agent appointed by the Issuer), or the
Custodian at the direction of the Trustee (or other Conversion Agent appointed
by the Issuer), shall make a notation on such Global Note as to the reduction
in the principal amount represented thereby. 
The Issuer shall notify the Trustee in writing of any conversion of
Notes effected through any Conversion Agent other than the Trustee.


Section 13.03.  Cash Payments in Lieu of Fractional Shares.  No fractional Common Shares or scrip
certificates representing fractional shares shall be issued upon conversion of
Notes.   If more than one Note shall be
surrendered for conversion at one time by the same holder, the number of full
shares that shall be issuable upon conversion shall be computed on the basis of
the aggregate principal amount of the Notes (or specified portions thereof to
the extent permitted hereby) so surrendered.  
The Issuer shall deliver cash in lieu of any fractional Common Shares
issuable in connection with payment of the settlement amount determined in
accordance with the provisions of Section 13.12 based on the Closing Sale Price
of the Common Shares on the last day of the applicable Observation Period.


Section 13.04.  Conversion Rate.  The Conversion Rate for the Notes is 31.0800
Common Shares per each $1,000 principal amount of the Notes (herein called the “Conversion Rate”), subject to adjustment as
provided in Sections 13.05 and 13.13.



 55
 









Section 13.05.  Adjustment of Conversion Rate.  The Conversion Rate shall be adjusted by the
Issuer from time to time as follows:


(a)           If the Issuer issues
Common Shares as a distribution on Common Shares to all holders of Common
Shares, or if the Issuer effects a share split or share combination, the
Conversion Rate will be adjusted based on the following formula:


CR1 = CR0 x OS1/OS0


where


CR0 = the Conversion Rate in effect immediately
prior to the adjustment relating to such event


CR1 = the new Conversion Rate in effect taking such
event into account


OS0 = the number of Common Shares outstanding
immediately prior to such event


OS1 = the number of Common Shares outstanding
immediately after such event.


Any adjustment made
pursuant to this clause (a) shall become effective on the date that is
immediately after (x) the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution or (y) the date on
which such split or combination becomes effective, as applicable. If any
dividend or distribution described in this clause (a) is declared but not so
paid or made, the new Conversion Rate shall be readjusted to the Conversion
Rate that would then be in effect if such dividend or distribution had not been
declared.


(b)           If the Issuer issues to
all holders of Common Shares any rights, warrants, options or other securities
entitling such holders for a period of not more than 45 days after the date of
issuance thereof to subscribe for or purchase Common Shares, or if the Issuer
issues to all holders of Common Shares securities convertible into Common
Shares for a period of not more than 45 days after the date of issuance
thereof, in either case at an exercise price per Common Share or a conversion
price per Common Share less than the Closing Sale Price of the Common Shares on
the Business Day immediately preceding the time of announcement of such
issuance, the Conversion Rate will be adjusted based on the following formula:


CR1 = CR0 x (OS0+X)/(OS0+Y)


where


CR0 = the Conversion Rate in effect immediately prior
to the adjustment relating to such event


CR1 = the new Conversion Rate taking such event
into account



 56
 









 


	
  OS0 =

  	
  the number of Common Shares outstanding immediately
  prior to such event

  
	
   

  	
   

  
	
  X =

  	
  the total number of Common Shares issuable pursuant
  to such rights, warrants, options, other securities or convertible securities

  
	
   

  	
   

  
	
  Y =

  	
  the number of Common Shares equal to the quotient of
  (A) the aggregate price payable to exercise such rights, warrants,
  options, other securities or convertible securities and (B) the average
  of the Closing Sale Prices of the Common Shares for the 10 consecutive
  Trading Days prior to the Business Day immediately preceding the date of
  announcement for the issuance of such rights, warrants, options, other securities
  or convertible securities.

  



 


For purposes of this
clause (b), in determining whether any rights, warrants, options, other
securities or convertible securities entitle the holders to subscribe for or
purchase, or exercise a conversion right for, Common Shares at less than the
applicable Closing Sale Price of the Common Shares, and in determining the
aggregate exercise or conversion price payable for such Common Shares, there
shall be taken into account any consideration received by the Issuer for such
rights, warrants, options, other securities or convertible securities and any
amount payable on exercise or conversion thereof, with the value of such
consideration, if other than cash, to be determined by the Board of Directors
of the Issuer.  If any right, warrant,
option, other security or convertible security described in this clause (b) is
not exercised or converted prior to the expiration of the exercisability or
convertibility thereof, the new Conversion Rate shall be readjusted to the
Conversion Rate that would then be in effect if such right, warrant, option,
other security or convertible security had not been so issued.


(c)           If the Issuer
distributes equity interests in itself, evidences of indebtedness or other
assets or property of the Issuer to all holders of Common Shares, excluding:


(i)            distributions, rights,
warrants, options, other securities or convertible securities referred to in
clause (a) or (b) above,


(ii)           distributions paid
exclusively in cash, and


(iii)          Spin-Offs
described below in this clause (c),


then the Conversion Rate
will be adjusted based on the following formula:


CR1 =                  CR0 x
SP0/(SP0-FMV)


where


CR0 =               the
Conversion Rate in effect immediately prior to the adjustment relating to such
event


CR1 =               the
new Conversion Rate taking such event into account



 57
 









SP0 =                the
average of the Closing Sale Prices of the Common Shares for the 10 consecutive
Trading Days prior to the Business Day immediately preceding the ex-dividend
date for such distribution or, if there is no ex-dividend date, the record date
for such distribution


FMV=             the fair market value
(as determined in good faith by the Board of Directors of the Issuer) of the
equity interests, evidences of indebtedness, assets or property distributed
with respect to each outstanding Common Share on the earlier of the record date
or the ex-dividend date for such distribution.


An adjustment to the
Conversion Rate made pursuant to the immediately preceding clause shall be made
successively whenever any such distribution is made and shall become effective
on the ex-dividend date, or if none, the record date, for such distribution.


If the Issuer
distributes to all holders of Common Shares capital stock of any class or
series, or similar equity interest, of or relating to a subsidiary or other business
unit of the Issuer (a “Spin-Off”),
the Conversion Rate in effect immediately before the close of business on the
date fixed for determination of holders of Common Shares entitled to receive
such distribution will be adjusted based on the following formula:


CR1 =                 CR0 x (FMV0+MP0)/MP0


where


CR0 =                 the
Conversion Rate in effect immediately prior to the adjustment relating to such
event


CR1 =                 the
new Conversion Rate taking such event into account


FMV0 =                             the
average of the Closing Sale Prices of the capital stock or similar equity
interest distributed to holders of Common Shares applicable to one Common Share
over the first 10 consecutive Trading Days after the effective date of the Spin-Off


MP0 =                                   the
average of the Closing Sale Prices of the Common Shares over the first 10
consecutive Trading Days after the effective date of the Spin-Off.


An adjustment to the
Conversion Rate made pursuant to the immediately preceding clause will occur on
the 10th Trading Day from and including the effective date of the Spin-Off.


If any such
distribution described in this clause (c) is declared but not paid or made, the
new Conversion Rate shall be readjusted to be the Conversion Rate that would
then be in effect if such dividend or distribution had not been declared.



 58
 









(d)           If the Issuer pays or
makes any cash distribution in respect of any of its quarterly fiscal periods
(without regard to when paid) to all holders of Common Shares in an aggregate
amount that, together with other cash distributions paid or made in respect of
such quarterly fiscal period, exceeds the product of $0.56 (the “Reference Dividend”) multiplied by the
number of Common Shares outstanding on the record date for such distribution,
the Conversion Rate will be adjusted based on the following formula:


CR1 =                 CR0 x SP0/(SP0-C)


where


CR0 =                  the Conversion Rate in effect
immediately prior to the adjustment relating to such event


CR1 =                 the
new Conversion Rate taking such event into account


SP0 =                  the
average of Closing Sale Prices of the Common Shares for the 10 consecutive
Trading Days prior to the Business Day immediately preceding the ex-dividend
date for such distribution or if there is no ex-dividend date, the record date
for such distribution


C =                             the
amount in cash per Common Share that the Issuer distributes to holders of
Common Shares in respect of such quarterly fiscal period that exceeds the
Reference Dividend.


An adjustment to the
Conversion Rate made pursuant to this clause (d) shall become effective on the
ex-dividend date, or if none, the record date for such dividend or
distribution.  If any dividend or
distribution described in this clause (d) is declared but not so paid or made,
the new Conversion Rate shall be readjusted to the Conversion Rate that would
then be in effect if such dividend or distribution had not been declared.


The Reference
Dividend shall be subject to adjustment on account of any of the events set
forth in clauses (a), (b) and (c) above and clause (e) below.  Any such adjustment will be effected by
multiplying the Reference Dividend by a fraction, the numerator of which will
equal the Conversion Rate in effect immediately prior to the adjustment on
account of such event and the denominator of which will equal the Conversion
Rate as adjusted.


(e)           If the Issuer or any of
its subsidiaries makes a payment in respect of a tender offer or exchange offer
for Common Shares to the extent that the cash and value of any other
consideration included in the payment per Common Share exceeds the Closing Sale
Price of the Common Shares on the Trading Day next succeeding the last date on
which tenders or exchanges may be made pursuant to such tender or exchange
offer (the “Expiration Time”), the
Conversion Rate will be adjusted based on the following formula:


CR1 = CR0 x (AC + (SP1 x
OS1))/(SP1 x OS0)



 59
 









where


CR0 =                 the
Conversion Rate in effect immediately prior to the adjustment relating to such
event


CR1 =                 the
new Conversion Rate taking such event into account


AC =                    the aggregate
value of all cash and any other consideration (as determined by the Board of
Directors of the Issuer) paid or payable for Common Shares purchased in such
tender or exchange offer


OS0 =                 the
number of Common Shares outstanding immediately prior to the date such tender
or exchange offer expires


OS1 =                 the
number of Common Shares outstanding immediately after such tender or exchange
offer expires (after giving effect to the purchase or exchange of shares
pursuant to such tender or exchange offer)


SP1 =                    the average of the Closing Sale
Prices of the Common Shares for the 10 consecutive Trading Days commencing on
the Trading Day next succeeding the date such tender or exchange offer expires.


If the application
of the foregoing formula would result in a decrease in the Conversion Rate, no
adjustment to the Conversion Rate will be made.


Any adjustment to
the Conversion Rate made pursuant to this clause (e) shall become effective on
the date immediately following the determination of the average of the Closing
Sale Prices of the Common Shares for purposes of SP1 above. 
If the Issuer or one of its subsidiaries is obligated to purchase Common
Shares pursuant to any such tender or exchange offer but is permanently
prevented by applicable law from effecting any such purchase or all such
purchases are rescinded or otherwise not consummated, the new Conversion Rate
shall be readjusted to be the Conversion Rate that would be in effect if such
tender or exchange offer had not been made.


(f)            In addition to the
adjustments pursuant to clauses (a) through (e) above, the Issuer may increase
the Conversion Rate in order to avoid or diminish any income tax to holders of
Common Shares resulting from any distribution of equity interests (or rights to
acquire Common Shares) or from any event treated as such for income tax
purposes.  The Issuer may also, from time
to time, to the extent permitted by applicable law, increase the Conversion
Rate by any amount for any period if the Issuer has determined that such
increase would be in the best interests of the Issuer.  If the Issuer makes such determination, it
will be conclusive and the Issuer will mail to holders of the Notes a notice of
the increased Conversion Rate and the period during which it will be in effect
at least fifteen (15) days prior to the date the increased Conversion Rate
takes effect in accordance with applicable law.


(g)           If, in connection with
any adjustment to the Conversion Rate as set forth in this Section 13.05 a
holder shall be deemed for U.S. federal tax purposes to have



 60
 









received a distribution, the Issuer may set
off any withholding tax it reasonably believes it is required to collect with
respect to any such deemed distribution against cash payments of interest in
accordance with the provisions of Section 4.01 hereof or from cash and Common
Shares, if any, otherwise deliverable to a holder upon a conversion of Notes in
accordance with the provisions of Section 13.12 hereof or a redemption or
repurchase of a Note in accordance with the provisions of Article 3 hereof.


(h)           The Issuer will not
make any adjustment to the Conversion Rate if holders of the Notes are
permitted to participate, on an as-converted basis, in the transactions
described above.


(i)            Notwithstanding
anything to the contrary contained herein, in addition to the other events set
forth herein on account of which no adjustment to the Conversion Rate shall be
made, the applicable Conversion Rate shall not be adjusted for: (i) the issuance of any Common
Shares
pursuant to any present or future plan providing for the reinvestment of
distributions or interest payable on securities of the Issuer and
the investment of additional optional amounts in Common Shares under any plan;
(ii) the issuance of any Common Shares or options or rights to purchase those
shares pursuant to any present or future employee, director or consultant
benefit plan, employee agreement or arrangement or program of the Issuer; (iii)
the issuance of any Common Shares pursuant to any option, warrant, right, or
exercisable, exchangeable or convertible security outstanding as of the date
the Notes were first issued; (iv) accumulated and unpaid dividends or
distributions; (v) if applicable, a change in the par value of the Common
Shares; (vi) the issuance of Common Shares pursuant to an underwritten offering
(whether pursuant to a registration statement which has become effective under
the Securities Act or pursuant to an applicable exemption therefrom); and (vii)
as a result of a tender offer solely to holders of fewer than 100 Common
Shares.


(j)            No adjustment in the
Conversion Rate will be required unless the adjustment would require an
increase or decrease of at least 1% of the Conversion Rate. If the adjustment
is not made because the adjustment does not change the Conversion Rate by at
least 1%, then the adjustment that is not made will be carried forward and
taken into account in any future adjustment. 
All required calculations will be made to the nearest cent or 1/1,000th
of a share, as the case may be. 
Notwithstanding the foregoing, all adjustments not previously made will
have effect with respect to any conversion of Notes on or after June 15, 2012
or under the circumstances permitted by Section 13.01(a)(iii) or (iv).


(k)           Whenever the Conversion
Rate is adjusted as herein provided, the Issuer shall promptly file with the
Trustee and any Conversion Agent other than the Trustee, an Officers’
Certificate setting forth the Conversion Rate after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.  Unless and until a Responsible Officer of the
Trustee shall have received such Officers’ Certificate, the Trustee shall not
be deemed to have knowledge of any adjustment of the Conversion Rate and may
assume that the last Conversion Rate of which it has knowledge is still in
effect.  Promptly after delivery of such
certificate, the Issuer shall prepare a notice of such adjustment of the
Conversion Rate setting forth the adjusted Conversion Rate and the



 61
 









date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Conversion Rate
to the holders of the Notes within 20 Business Days of the effective date of
such adjustment.  Failure to deliver such
notice shall not affect the legality or validity of any such adjustment.


(l)            For purposes of this
Section 13.05, the number of Common Shares at any time outstanding shall not
include shares held in the treasury of the Issuer but shall include shares
issuable in respect of scrip certificates issued in lieu of fractions of Common
Shares.


(m)          Notwithstanding anything
in this Section 13.05 to the contrary, in no event shall the Conversion Rate be
adjusted so that the Conversion Price would be less than $0.01.


Section 13.06.  Change in Conversion Right Upon Certain
Reclassifications, Business Combinations and Asset Sales.


(a)           If
the Issuer is a party to a consolidation, merger or binding share exchange
(including, without limitation, by way of a recapitalization, reclassification
or change of Common Shares (other than changes resulting from a subdivision or
combination) or a sale, lease or transfer to a third party of the Issuer’s and
all of the Issuer’s subsidiaries’ consolidated assets substantially as an
entirety) pursuant to which all of the Common Shares are converted into cash,
securities or other property, then the Issuer, or such successor or purchasing
corporation, as the case may be, shall, as a condition precedent to such
consolidation, merger or binding share exchange or sale, lease or transfer,
execute and deliver to the Trustee a supplemental indenture providing that from
and after the effective time of the transaction any conversion of Notes and the
determination of the sum of the Daily Settlement Amounts will be based on, and
determined by reference to, the kind and amount of cash, securities or other
property that holders of the Common Shares receive in the transaction in
respect of each Common Share.


(b)           In
the event the Issuer shall execute a supplemental indenture pursuant to this
Section 13.06, the Issuer shall promptly file with the Trustee an Opinion of
Counsel stating that such supplemental indenture is authorized or permitted by
this Indenture and an Officers’ Certificate briefly stating the reasons
therefor, the kind or amount of cash, securities or other property receivable
by holders of the Notes upon the conversion of their Notes after any such reclassification,
change, consolidation, merger, binding share exchange, sale, transfer, lease or
conveyance, any adjustment to be made with respect thereto and that all
conditions precedent have been complied with.


(c)           For
purposes of this Section 13.06, where a consolidation, merger or binding share
exchange involves a transaction that causes Common Shares to be converted into
the right to receive more than a single type of consideration based upon any
form of shareholder election, such consideration will be deemed to be the
weighted average of the types and amounts of consideration received by the
holders of Common Shares that affirmatively make such an election.



 62
 









(d)           If
this Section 13.06 applies to any event or occurrence, Section 13.05 shall not
apply.  The provisions of this Section
13.06 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales, transfers, leases, conveyances or other
dispositions.


Section 13.07.  Taxes on Shares Issued.  The issue of stock certificates, if any, on
conversion of Notes shall be made without charge to the converting Noteholder
for any documentary, stamp or similar issue or transfer tax in respect of the
issue thereof.  The Issuer shall not,
however, be required to pay any such tax which may be payable in respect of any
transfer involved in the issue and delivery of stock in any name other than
that of the holder of any Note converted, and the Issuer shall not be required
to issue or deliver any such stock certificate unless and until the Person or
Persons requesting the issue thereof shall have paid to the Issuer the amount
of such tax or shall have established to the satisfaction of the Issuer that
such tax has been paid.


Section 13.08.  Reservation of Shares, Shares to be Fully Paid; Compliance
with Governmental Requirements. 
The Issuer shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient Common
Shares to provide for the conversion of the Notes as required by this Indenture
from time to time as such Notes are presented for conversion.


Before taking any action which would cause an
adjustment increasing the Conversion Rate to an amount that would cause the
Conversion Price to be reduced below the then par value, if any, of the Common
Shares issuable, if any, upon conversion of the Notes, the Issuer will take all
corporate action which may, in the opinion of its counsel, be necessary in
order that the Issuer may validly and legally issue Common Shares at such
adjusted Conversion Rate.


The Issuer covenants that all Common Shares, if any,
which may be issued upon conversion of Notes will upon issue be fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof.


Section 13.09.  Responsibility of Trustee.  The Trustee and any other Conversion Agent
shall not at any time be under any duty or responsibility to any holder of
Notes to determine the Conversion Rate or whether any facts exist which may
require any adjustment of the Conversion Rate, or with respect to the nature or
extent or calculation of any such adjustment when made, or with respect to the
method employed, or herein or in any supplemental indenture provided to be
employed, in making the same.  The
Trustee and any other Conversion Agent shall not be accountable with respect to
the validity or value (or the kind or amount) of any Common Shares, or of any
capital stock, other securities or other assets or property, which may at any
time be issued or delivered upon the conversion of any Note; and the Trustee
and any other Conversion Agent make no representations with respect
thereto.  Neither the Trustee nor any
Conversion Agent shall be responsible for any failure of the Issuer to issue,
transfer or deliver any Common Shares or stock certificates or other securities
or property or cash upon the surrender of any Note for the purpose of
conversion or to comply with any of the duties, responsibilities or covenants
of the Issuer contained in this Article 13. 
Without limiting the generality of the foregoing, neither the Trustee
nor any Conversion Agent shall be under any responsibility to determine the
correctness of any provisions contained in any supplemental indenture entered
into pursuant to Section 13.06 relating either to the kind or amount of shares
of capital stock or other securities or



 63
 









other assets
or property (including cash) receivable by Noteholders upon the conversion of
their Notes after any event referred to in such Section 13.06 or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Section 7.01, may accept as conclusive evidence of the correctness of any such
provisions, and shall be protected in relying upon, the Officers’ Certificate
(which the Issuer shall be obligated to file with the Trustee prior to the
execution of any such supplemental indenture) with respect thereto. The Trustee
shall not at any time be under any duty or responsibility to any holder of
Notes to determine the accuracy of the method employed in calculating the
Trading Price or whether any facts exist which may require any adjustment of
the Trading Price.


Section 13.10.  Notice to Holders Prior to Certain Actions.  In case:


(a)           the
Issuer shall declare a dividend (or any other distribution) on its Common Shares
that would require an adjustment in the Conversion Rate pursuant to Section
13.05; or


(b)           the
Issuer shall authorize the granting to the holders of all or substantially all
of its Common Shares of rights or warrants to subscribe for or purchase any
share of any class or any other rights or warrants; or


(c)           of
any reclassification or reorganization of the Common Shares (other than a
subdivision or combination of its outstanding Common Shares, or a change in par
value, or from par value to no par value, or from no par value to par value),
or of any consolidation, combination, merger or share exchange to which the
Issuer is a party and for which approval of any stockholders of the Issuer is
required, or of the sale or transfer of all or substantially all of the assets
of the Issuer; or


(d)           of
the voluntary or involuntary dissolution, liquidation or winding up of the
Issuer;


the Issuer shall cause to
be filed with the Trustee and to be mailed to each holder of Notes at its
address appearing on the Note Register provided for in Section 2.05 of this
Indenture, as promptly as possible but in any event at least ten (10) calendar
days prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be taken, the
date as of which the holders of Common Shares of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective or occur, and the
date as of which it is expected that holders of Common Shares of record shall
be entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. 
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.


Section 13.11.  Stockholder Rights Plans.  If the Issuer has in effect a rights plan
while any Notes remain outstanding, holders of Notes will receive, upon a
conversion of Notes in respect of which the Issuer is required to deliver
Common Shares, in addition to such Common



 64
 









Shares, rights
under the Issuer’s stockholder rights agreement unless, prior to conversion,
the rights have expired, terminated or been redeemed or unless the rights have
separated from the Common Shares. If the rights provided for in the rights plan
adopted by the Issuer have separated from the Common Shares in accordance with
the provisions of the applicable stockholder rights agreement so that holders
of Notes would not be entitled to receive any rights in respect of Common
Shares, if any, that the Issuer is required to deliver upon conversion of
Notes, the Conversion Rate will be adjusted at the time of separation as if the
Issuer had distributed to all holders of Common Shares capital shares,
evidences of indebtedness or other assets or property pursuant to Section
13.05(c) above, subject to readjustment upon the subsequent expiration,
termination or redemption of the rights.


Section 13.12.  Settlement Upon Conversion.


(a)           Upon
a conversion of Notes, the Issuer shall deliver, in respect of each $1,000
principal amount of Notes being converted, cash and Common Shares, if any,
equal to the sum of the Daily Settlement Amounts for each of the 20 Trading
Days during the Observation Period, subject to the right of the Issuer to
deliver, at its option, cash in lieu of all or a portion of the Net Share
Amount pursuant to the provisions of Section 13.12(d).


(b)           The
“Daily Settlement Amount,” for
each of the 20 Trading Days during the Observation Period, shall consist of:


(i)            cash equal to the
lesser of (i) $50 and (ii) the Daily Conversion Value; and


(ii)           to the extent the Daily
Conversion Value exceeds $50, a number of Common Shares equal to (i) the
difference between the Daily Conversion Value and $50, divided by (ii) the
Daily VWAP (defined below) for such day.


“Daily Conversion Value”
means, for each of the 20 consecutive Trading Days during the Observation
Period, one-twentieth of the product of (i) the applicable Conversion Rate and
(ii) the Daily VWAP of the Common Shares on such day.


“Daily VWAP”
means, for each of the 20 consecutive Trading Days during the Observation
Period, the per share volume-weighted average price as displayed under the
heading “Bloomberg VWAP” on Bloomberg page “KFN.N <equity> AQR” (or any
successor thereto) in respect of the period from the scheduled open of the
primary exchange or market on which the Common Shares are listed or traded to
the scheduled close of such exchange or market on such Trading Day (or if such
volume-weighted average price is unavailable, the market value per Common Share
on such Trading Day determined, using a volume-weighted average method, by a
nationally recognized independent investment banking firm retained for this
purpose by the Issuer).


“Observation Period”
with respect to any Note means the 20 consecutive Trading Day period beginning
on and including the second Trading Day after the Conversion Date relating to
such Note, except that with respect to any Note surrendered for conversion
during the period beginning on June 15, 2012 and ending on the Business Day
prior to the Stated Maturity, “Observation Period” means the 20 Trading Days
beginning on and including the Stated Maturity.



 65
 









For the purposes of determining payment upon
conversion in accordance with the provisions of this Section 13.12 only, “Trading Day” means a day on which (i) there is no Market
Disruption Event and (ii) trading in securities generally occurs on the New
York Stock Exchange or, if the Common Shares are not then listed on the New
York Stock Exchange, on the principal other United States national or regional
securities exchange on which the Common Shares are then listed or, if the Common
Shares are not then listed on a United States national or regional securities
exchange, in the principal other market on which the Common Shares are then
traded. If the Common Shares (or other security for which a Daily VWAP must be
determined) are not so listed or quoted, “Trading Day” means a “Business Day.”


“Market Disruption Event”
means the occurrence or existence for more than one half-hour period in the
aggregate on any Trading Day for the Common Shares of any suspension or
limitation imposed on trading (by reason of movements in price exceeding limits
permitted by the New York Stock Exchange or otherwise) in the Common Shares or
in any options, contracts or future contracts relating to the Common Shares,
and such suspension or limitation occurs or exists at any time before 1:00 p.m.
(New York City time) on such day.


(c)           The
Issuer shall deliver the sum of the Daily Settlement Amounts for each of the 20
Trading Days during the Observation Period to converting holders on the third
Business Day immediately following the last day of the Observation Period.


(d)           On
any day prior to the first Trading Day of the applicable Observation Period,
the Issuer may specify a percentage of the number of Common Shares determined
in accordance with clause (ii) of Section 13.12(b) (the “Net Share Amount”) that will be settled in
cash (the “Cash Percentage”).  If the Issuer shall elect to specify a Cash
Percentage, the amount of cash that it shall deliver in respect of the Net
Share Amount for each Trading Day in the applicable Observation Period shall
equal the product of: (1) the Cash Percentage, (2) the Net Share Amount for
such Trading Day and (3) the Daily VWAP on such Trading Day. The number of
Common Shares deliverable in respect of the Net Share Amount for each Trading
Day in the applicable Observation Period shall be a percentage of such Net
Share Amount equal to 100% minus the Cash Percentage. If the Issuer shall not
specify a Cash Percentage by the start of the applicable Observation Period,
the Issuer must settle 100% of the Net Share Amount for each Trading Day in the
applicable Observation Period with Common Shares.


Section 13.13.  Conversion Rate Adjustment After Certain Fundamental
Change Transactions.


(a)           
If the Effective Date of a transaction described in clauses (1) or (2) of the
definition of Change in Control occurs prior to the Stated Maturity and a
holder elects to convert its Notes in connection with such Change in Control
pursuant to Section 13.01(a)(iv) hereof, the Issuer shall increase the applicable
Conversion Rate for such Notes surrendered for conversion by a number of
additional Common Shares (the “Additional
Shares”) as specified below. 
A conversion of Notes will be deemed for these purposes to be “in
connection with” such a Change in Control if the Conversion Notice is received
by the Conversion Agent on any date from and including the date that is the
Effective Date of such Change in Control up to and including the earlier of the
30th Business Day following the Effective Date of such Change in Control and
the Business Day preceding the Stated Maturity.



 66
 









(b)           The
number of Additional Shares will be determined by reference to the table in
Section 13.13(e) and is based on the date on which the Change in Control
becomes effective (the “Effective Date”)
and the price paid per Common Share in the Change in Control transaction (the “Share Price”).  If holders of Common Shares receive only cash
in the Change in Control transaction, the Share Price shall equal the cash
amount paid per Common Share in such transaction.  In all other cases, the Share Price shall
equal the average of the Closing Sale Prices of the Common Shares on the ten
(10) consecutive Trading Days up to but excluding the Effective Date.


(c)           The
Share Prices set forth in the first row of the table set forth in Section
13.13(e) (i.e., the column headers) shall be adjusted as of any date on which
the Conversion Rate of the Notes is adjusted pursuant to Section 13.05.  The adjusted Share Prices shall equal the
Share Prices applicable immediately prior to such adjustment multiplied by a
fraction, (i) the numerator of which shall be the Conversion Rate immediately
prior to the adjustment giving rise to the Share Price adjustment and (ii) the
denominator of which shall be the Conversion Rate as so adjusted.


(d)           The
number of Additional Shares shall be adjusted in the same manner and for the
same events as the Conversion Rate is adjusted pursuant to Section 13.05.


(e)           The
following table sets forth the Share Price and number of Additional Shares to be
received per $1,000 principal amount of Notes:


	
  Effective

  	
   

  	
  Share Price

  	
   

  
	
  Date

  	
   

  	
  $24.75

  	
   

  	
  $27.50

  	
   

  	
  $30.00

  	
   

  	
  $32.50

  	
   

  	
  $35.00

  	
   

  	
  $37.50

  	
   

  	
  $40.00

  	
   

  	
  $42.50

  	
   

  	
  $45.00

  	
   

  	
  $50.00

  	
   

  	
  $55.00

  	
   

  	
  $60.00

  	
   

  
	
  7/18/2007

  	
   

  	
  9.3240

  	
   

  	
  6.4737

  	
   

  	
  4.6333

  	
   

  	
  3.3063

  	
   

  	
  2.3505

  	
   

  	
  1.6626

  	
   

  	
  1.1678

  	
   

  	
  0.8125

  	
   

  	
  0.5578

  	
   

  	
  0.2473

  	
   

  	
  0.0946

  	
   

  	
  0.0257

  	
   

  
	
  7/15/2008

  	
   

  	
  9.3240

  	
   

  	
  6.5996

  	
   

  	
  4.7079

  	
   

  	
  3.3444

  	
   

  	
  2.3653

  	
   

  	
  1.6644

  	
   

  	
  1.1640

  	
   

  	
  0.8077

  	
   

  	
  0.5547

  	
   

  	
  0.2503

  	
   

  	
  0.1027

  	
   

  	
  0.0351

  	
   

  
	
  7/15/2009

  	
   

  	
  9.3240

  	
   

  	
  6.5855

  	
   

  	
  4.6318

  	
   

  	
  3.2322

  	
   

  	
  2.2386

  	
   

  	
  1.5386

  	
   

  	
  1.0488

  	
   

  	
  0.7081

  	
   

  	
  0.4725

  	
   

  	
  0.2005

  	
   

  	
  0.0766

  	
   

  	
  0.0239

  	
   

  
	
  7/15/2010

  	
   

  	
  9.3240

  	
   

  	
  6.3774

  	
   

  	
  4.3390

  	
   

  	
  2.9027

  	
   

  	
  1.9110

  	
   

  	
  1.2387

  	
   

  	
  0.7904

  	
   

  	
  0.4959

  	
   

  	
  0.3051

  	
   

  	
  0.1065

  	
   

  	
  0.0307

  	
   

  	
  0.0062

  	
   

  
	
  7/15/2011

  	
   

  	
  9.3240

  	
   

  	
  5.8623

  	
   

  	
  3.6522

  	
   

  	
  2.1600

  	
   

  	
  1.2121

  	
   

  	
  0.6455

  	
   

  	
  0.3256

  	
   

  	
  0.1544

  	
   

  	
  0.0677

  	
   

  	
  0.0092

  	
   

  	
  0.0006

  	
   

  	
  0.0000

  	
   

  
	
  7/15/2012

  	
   

  	
  9.3240

  	
   

  	
  5.2836

  	
   

  	
  2.2533

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  



 


(f)            If the exact Share Price and Effective Date
are not set forth in the table above, then:


(i)            If
the Share Price is between two Share Price amounts in the table or the
Effective Date is between two Effective Dates in the table, the number of
Additional Shares shall be determined by straight-line interpolation
between the number of Additional Shares set forth for the higher and lower
Share Price amounts and the two dates, as applicable, based on a 365-day
year;


(ii)           If
the Share Price is equal to or in excess of $60.00 per Common Share (subject to
adjustment as specified in Section 13.13(c)), no Additional Shares will be
issued upon a conversion of Notes; and


(iii)          If
the Share Price is less than $24.75 per Common Share (subject to adjustment as
specified in Section 13.13(c)), no Additional Shares will be issued upon a
conversion of Notes.


(g)           Notwithstanding the provisions of this
Section 13.13, in no event shall the total number of Common Shares issuable
upon conversion of the Notes exceed 40.4040 shares per



 67
 









$1,000
principal amount of Notes, subject to adjustment in the same manner as the
Conversion Rate is subject to adjustment as set forth in Section 13.05.


Section 13.14.  Ownership
Limit; Withholding Tax.


(a)           Notwithstanding any other provision of this
Indenture or the Notes, no holder of Notes shall be entitled to convert such
Notes for Common Shares to the extent that the receipt of such Common Shares
would violate any of the limitations on ownership of Common Shares contained in
the Operating Agreement, unless such Person had been exempted from such limits
in the Board of Director’s sole discretion in accordance with the Operating
Agreement. Any attempted conversion of Notes that would result in the issuance
of Common Shares in excess of such ownership limit in the absence of such an
exemption shall be void to the extent of the number of Common Shares that would
cause such violation and the related Note or portion thereof shall be returned
to the holder as promptly as practicable. The Issuer shall have no further
obligation to the holder with respect to such voided conversion and such Notes
shall be treated as if they not been submitted for conversion. A holder of
returned Notes may resubmit such Notes for conversion at a later date subject
to compliance with the terms hereof and the ownership limits set forth in the
Operating Agreement. The Issuer may however (but will not be required to), in a
case where a holder of Notes attempts to convert Notes but is prevented from
doing so as a result of the ownership limit, pay cash to such holder upon such
conversion as provided in Section 13.12(d). The foregoing limitation on the
right of holders of Notes to receive Common Shares upon conversion of Notes shall
terminate if the restrictions on ownership and transfer of the Common Shares
set forth in Article 3 (or any successor provisions) of the Operating Agreement
shall terminate or if the Board of Directors of the Issuer shall revoke or
otherwise terminate the election by the Guarantor and all of the Issuer’s other
REIT Subsidiaries, if any, to qualify as a REIT pursuant to 856(a) (or any
successor thereto) of the Code or if the Issuer shall no longer own the
Guarantor or any other REIT Subsidiary.


(b)           At the Stated Maturity or upon earlier
redemption or repurchase of the Notes or otherwise, and as otherwise required
by law, the Issuer may deduct and withhold from the amount of consideration
otherwise deliverable to the holder the amount required to be deducted and
withheld under applicable law.


Section 13.15.  Calculation
In Respect of Notes.  Except
as otherwise specifically stated herein or in the Notes, all calculations to be
made in respect of the Notes shall be the obligation of the Issuer. All
calculations made by the Issuer or its agent as contemplated pursuant to the
terms hereof and of the Notes shall be made in good faith and be final and
binding on the Notes and the holders of the Notes absent manifest error. The
Issuer shall provide a schedule of calculations to the Trustee, and the Trustee
shall be entitled to rely upon the accuracy of the calculations by the Issuer
without independent verification.  The
Trustee shall forward calculations made by the Issuer to any holder of Notes
upon request.



 68
 









ARTICLE
14

Notes Guarantee


Section 14.01.  Guarantee.


(a)           The Guarantor hereby absolutely,
unconditionally and irrevocably guarantees the Notes and obligations of the
Issuer hereunder and thereunder, and guarantees to each Holder of a Note
authenticated and delivered by the Trustee, and to the Trustee on behalf of
such Holder, that (i) the principal of and interest on the Notes will be paid
in full when due, whether at the Stated Maturity or a Fundamental Change
Purchase Date, by acceleration or otherwise (including, without limitation, the
amount that would become due but for the operation of any automatic stay
provision of any Bankruptcy Law), together with interest on the overdue
principal, if any, and interest on any overdue interest, to the extent lawful,
and all other obligations of the Issuer to the Holders or the Trustee hereunder
or thereunder will be performed or observed, all in accordance with the terms
hereof and thereof; and (ii) in case of any extension of time of payment or
renewal of any Notes or of any such other obligations, the same will be paid in
full when due or performed or observed in accordance with the terms of the
extension or renewal, whether at the Stated Maturity or a Fundamental Change
Purchase Date, by acceleration or otherwise, subject, however, in the case of
clauses (i) and (ii) above, to the limitations set forth in
Section 14.03 hereof.


The Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of Notes with respect to
any provisions hereof or thereof, the recovery of any judgment against the
Issuer, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of the
Guarantor.


(b)           The Guarantor hereby waives (to the extent
permitted by law) the benefits of diligence, presentment, demand for payment,
filing of claims with a court in the event of insolvency or bankruptcy of the
Issuer, any right to require a proceeding first against the Issuer or any other
Person, protest, notice and all demands whatsoever and covenants that the
Guarantee of the Guarantor shall not be discharged as to Notes except by
complete performance of the obligations contained therein, this Indenture and
such Guarantee. The Guarantor acknowledges that the Guarantee is a guarantee of
payment and not of collection. The Guarantor hereby agrees that, in the event
of a default in payment of principal or interest on such Note, whether at the
Stated Maturity or a Fundamental Change Purchase Date, by acceleration or
otherwise, legal proceedings may be instituted by the Trustee on behalf of, or
by, the Holder of such Note, subject to the terms and conditions set forth in
this Indenture, directly against the Guarantor to enforce the Guarantor’s
Guarantee without first proceeding against the Issuer.  The Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or
any of the Holders are prevented by applicable law from exercising their
respective rights to accelerate the maturity of the Notes, to collect interest
on the Notes, or to enforce or exercise any other right or remedy with respect
to the Notes, the Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due
and payable had such rights and remedies been permitted to be exercised by the
Trustee or any of the Holders.


(c)           If any Holder or the Trustee is required by
any court or otherwise to return to the Issuer or the Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
either the Issuer or the Guarantor, any amount paid by any of them to the
Trustee or such Holder, the Guarantee of the Guarantor, to the extent
theretofore discharged, shall be



 69
 









reinstated in full force and effect. The Guarantor further agrees that,
as between the Guarantor, on the one hand, and the Holders and the Trustee, on
the other hand, (x) subject to this Article 14, the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes of the Guarantee of the Guarantor, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in respect
of the obligations guaranteed hereby, and (y) in the event of any
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantor for the purpose of the Guarantee of the Guarantor.


(d)           The Guarantee shall remain in full force and
effect and continue to be effective should any petition be filed by or against
the Issuer for liquidation or reorganization, should the Issuer become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of the Issuer’s
assets, and shall, to the fullest extent permitted by law, continue to be
effective or be reinstated, as the case may be, if at any time payment and
performance of the Notes are, pursuant to applicable law, rescinded or reduced
in amount, or must otherwise be restored or returned by any obligee on the
Notes, whether as a “voidable preference,” “fraudulent transfer” or otherwise,
all as though such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored or returned,
the Notes shall, to the fullest extent permitted by law, be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced, restored
or returned.


(e)           To evidence its Guarantee, the Guarantor
hereby agrees that a Notation of Guarantee substantially in the form attached
as Exhibit B hereto will be endorsed by an Officer of the Guarantor on each
Note authenticated and delivered to the Trustee and that this Indenture will be
executed on behalf of such Guarantor by one of its Officers. The Guarantor
hereby agrees that its Guarantee will remain in full force and effect
notwithstanding any failure to endorse on each Note a Notation of Guarantee.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, will be deemed to constitute due delivery of the Notation of
Guarantee set forth in this Indenture by the Guarantor.


Section 14.02.  Severability.


In case any provision of the Guarantee shall be
invalid, illegal or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.


Section 14.03.  Limitation
of Liability.


The Guarantor and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the Guarantee by the
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law or the provisions of its local law relating to fraudulent transfer or
conveyance. To effectuate the foregoing intention, the Holders and the
Guarantor hereby irrevocably agree that the obligations of the Guarantor under
its Guarantee shall be limited to the maximum amount that will not, after



 70
 









giving effect to all
other contingent and fixed liabilities of the Guarantor, result in the
obligations of the Guarantor under its Guarantee constituting such fraudulent
transfer or conveyance.


Section 14.04.  Subrogation.


The Guarantor shall be subrogated to all rights of
Holders against the Issuer in respect of any amounts paid by the Guarantor
pursuant to the provisions of Section 14.01; provided, however,
that if an Event of Default has occurred and is continuing, the Guarantor shall
not be entitled to enforce or receive any payments arising out of, or based
upon, such right of subrogation until all amounts then due and payable by the
Issuer under this Indenture or the Notes shall have been paid in full.


Section 14.05.  Reinstatement.


The Guarantor hereby agrees that the Guarantee
provided for in Section 14.01 shall continue to be effective or be reinstated,
as the case may be, if at any time, payment, or any part thereof, of any
obligations or interest thereon is rescinded or must otherwise be restored by a
Holder to the Issuer upon the bankruptcy or insolvency of the Issuer or the
Guarantor.


Section 14.06.  Release of
the Guarantor.


The Guarantor shall be automatically, permanently and
unconditionally released and discharged from all of its obligations under the
Guarantee and this Indenture without any further action on the part of the
Issuer, the Guarantor or the Trustee and without the consent of the holders of
the Notes (i) upon any sale or other disposition by the Issuer of the Guarantor
or all or substantially all of the Guarantor’s assets (including by way of
merger or consolidation or any sale, distribution, disposition or transfer of
all of the capital stock of the Guarantor) to a Person that is not the Issuer
or a Subsidiary of the Issuer; (ii) if at any time all of the guarantees that
the Guarantor shall have provided in respect of any of the Issuer’s then
outstanding debt securities issued to KKR Financial Capital Trust I, KKR
Financial Capital Trust II, KKR Financial Capital Trust III, KKR Financial
Capital Trust IV or KKR Financial Capital Trust V shall have been permanently
terminated; (iii) if at any time, as a result of any transaction or series of
related transactions, (A) the Issuer and its Subsidiaries own, in the aggregate,
less than 20% of the outstanding shares of each class and series of then
outstanding capital stock of the Guarantor and (B) the Issuer is no longer
required to treat the Guarantor as a consolidated subsidiary for purposes of
its consolidated financial statements prepared in accordance with generally
accepted accounting principals; or (iv) payment in full of all principal and
interest on the Notes.


Section 14.07.  Benefits Acknowledged.


The Guarantor acknowledges that it will receive direct
and indirect benefits from the financing arrangements contemplated by this
Indenture and that its Guarantee and waiver pursuant to its Guarantee is
knowingly made in contemplation of such benefits.



 71
 









ARTICLE
15

Miscellaneous Provisions


Section 15.01.  Provisions
Binding on Issuer’s Successors. 
All the covenants, stipulations, promises and agreements by the Issuer
contained in this Indenture shall bind their respective successors and assigns
whether so expressed or not.


Section 15.02.  Official
Acts by Successor Corporation. 
Any act or proceeding by any provision of this Indenture authorized or
required to be done or performed by any board, committee or officer of the
Issuer shall and may be done and performed with like force and effect by the
like board, committee or officer of any Person that shall at the time be the
lawful sole successor of the Issuer.


Section 15.03.  Addresses
for Notices, etc.  Any notice
or demand which by any provision of this Indenture is required or permitted to
be given or served by the Trustee or by the holders of Notes on the Issuer
shall be in writing and shall be deemed to have been sufficiently given or
made, for all purposes, if given or served by being deposited postage prepaid
by registered or certified mail in a post office letter box, or sent by
overnight courier, or sent by telecopier transmission addressed as follows:


	
  

  	
  KKR Financial Holdings LLC

  
	
   

  	
  555 California
  Street

  
	
   

  	
  San Francisco,
  California 94104

  
	
   

  	
  Telecopier No.:
  415-391-3330

  
	
   

  	
  Attention:
  General Counsel

  



 


Any notice, direction, request or demand hereunder to
or upon the Trustee shall be deemed to have been sufficiently given or made,
for all purposes, if given or served by being deposited, postage prepaid, by
registered or certified mail in a post office letter box, or sent by overnight
courier, or sent by telecopier transmission addressed as follows: Wells Fargo
Bank, National Association, 707 Wilshire Boulevard, 17th Floor, Los Angeles, California 90017
Telecopier No.: 213-614-3355, Attention: 
Madeliana. J. Hall, Assistant Vice President, Corporate Trust Services.


The Trustee, by notice to the Issuer, may designate
additional or different addresses for subsequent notices or communications.


Any notice or communication mailed to a Noteholder
shall be mailed by first class mail, postage prepaid, at such Noteholder’s
address as it appears on the Note Register and shall be sufficiently given to
such Noteholder if so mailed within the time prescribed.


Failure to mail a notice or communication to a
Noteholder or any defect in it shall not affect its sufficiency with respect to
other Noteholders.  If a notice or
communication is mailed in the manner provided above, it is duly given, whether
or not the addressee receives it.


Section 15.04.  Governing
Law.  This Indenture, the
Guarantee and the Notes shall be governed by, and construed in accordance with,
the laws of the State of New York.



 72
 









Section 15.05.  Evidence
of Compliance with Conditions Precedent, Certificates to Trustee.  Upon any application or demand by the Issuer
to the Trustee to take any action under any of the provisions of this
Indenture, the Issuer shall furnish to the Trustee an Officers’ Certificate
stating that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with, and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.


Each certificate or opinion provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant provided for in this Indenture shall include: (1) a
statement that the person making such certificate or opinion has read such
covenant or condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion contained in
such certificate or opinion is based; (3) a statement that, in the opinion of
such person, such person has made such examination or investigation as is
necessary to enable such person to express an informed opinion as to whether or
not such covenant or condition has been complied with; and (4) a statement as
to whether or not, in the opinion of such person, such condition or covenant
has been complied with; provided, however, that with respect to matters of fact an Opinion of
Counsel may rely on an Officers’ Certificate or certificates of public
officials.


Section 15.06.  Legal
Holidays.  If any specified
date (including a date for giving notice) on which action is to be taken under
this Indenture is a Legal Holiday, the action shall be taken on the next
succeeding day that is not a Legal Holiday and, if the action to be taken on
such date is a payment in respect of the Notes, no interest shall accrue for
the intervening period.


Section 15.07.  Trust
Indenture Act.  This Indenture
is hereby made subject to, and shall be governed by, the provisions of the
Trust Indenture Act required to be part of and to govern indentures qualified
under the Trust Indenture Act; provided
that this Section 15.07 shall not require this Indenture or the Trustee to be
qualified under the Trust Indenture Act prior to the time such qualification is
in fact required under the terms of the Trust Indenture Act, nor shall it
constitute any admission or acknowledgment by any party to the Indenture that
any such qualification is required prior to the time such qualification is in
fact required under the terms of the Trust Indenture Act.  If any provision hereof limits, qualifies or
conflicts with another provision hereof which is required to be included in an
indenture qualified under the Trust Indenture Act, such required provision
shall control.


Section 15.08.  No
Security Interest Created. 
Nothing in this Indenture or in the Notes, expressed or implied, shall
be construed to constitute a security interest under the Uniform Commercial
Code or similar legislation, as now or hereafter enacted and in effect, in any
jurisdiction in which property of the Issuer or its subsidiaries is located.


Section 15.09.  Benefits
of Indenture.  Nothing in this
Indenture or in the Notes, express or implied, shall give to any Person, other
than the parties hereto, any Paying Agent, any authenticating agent, any Note
Registrar and their successors hereunder and the holders of Notes any benefit
or any legal or equitable right, remedy or claim under this Indenture.


Section 15.10.  Table of
Contents, Headings, etc.  The
table of contents and the titles and headings of the Articles and Sections of
this Indenture have been inserted for convenience of



 73
 









reference only, are not to be considered a part hereof, and shall in no
way modify or restrict any of the terms or provisions hereof.


Section 15.11.  Authenticating
Agent.  The Trustee may appoint
an authenticating agent that shall be authorized to act on its behalf, and
subject to its direction, in the authentication and delivery of Notes in
connection with the original issuance thereof and transfers and exchanges of
Notes hereunder, including under Sections 2.04, 2.05, 2.06, 2.07, 3.03 and
3.05, as fully to all intents and purposes as though the authenticating agent
had been expressly authorized by this Indenture and those Sections to
authenticate and deliver Notes.  For all
purposes of this Indenture, the authentication and delivery of Notes by the
authenticating agent shall be deemed to be authentication and delivery of such
Notes “by the Trustee” and a certificate of authentication executed on behalf
of the Trustee by an authenticating agent shall be deemed to satisfy any
requirement hereunder or in the Notes for the Trustee’s certificate of
authentication.  Such authenticating
agent shall at all times be a Person eligible to serve as trustee hereunder
pursuant to Section 7.09.


Any corporation into which any authenticating agent
may be merged or exchanged or with which it may be consolidated, or any
corporation resulting from any merger, consolidation or exchange to which any
authenticating agent shall be a party, or any corporation succeeding to the
corporate trust business of any authenticating agent, shall be the successor of
the authenticating agent hereunder, if such successor corporation is otherwise
eligible under this Section 15.11, without the execution or filing of any paper
or any further act on the part of the parties hereto or the authenticating
agent or such successor corporation.


Any authenticating agent may at any time resign by
giving written notice of resignation to the Trustee and to the Issuer.  The Trustee may at any time terminate the
agency of any authenticating agent by giving written notice of termination to
such authenticating agent and to the Issuer. 
Upon receiving such a notice of resignation or upon such a termination,
or in case at any time any authenticating agent shall cease to be eligible
under this Section, the Trustee shall either promptly appoint a successor
authenticating agent or itself assume the duties and obligations of the former
authenticating agent under this Indenture and, upon such appointment of a successor
authenticating agent, if made, shall give written notice of such appointment of
a successor authenticating agent to the Issuer and shall mail notice of such
appointment of a successor authenticating agent to all holders of Notes as the
names and addresses of such holders appear on the Note Register.


The Issuer agrees to pay to the authenticating agent
from time to time such reasonable compensation for its services as shall be
agreed upon in writing between the Issuer and the authenticating agent.


The provisions of Sections 7.02, 7.03, 7.04 and 8.03
and this Section 15.11 shall be applicable to any authenticating agent.


Section 15.12.  Execution
in Counterparts.  This
Indenture may be executed in any number of counterparts, each of which shall be
an original, but such counterparts shall together constitute but one and the
same instrument.



 74
 









Section 15.13.  Severability.  In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, then (to the extent
permitted by law) the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.


Wells Fargo Bank, N.A. hereby accepts the trusts in
this Indenture declared and provided, upon the terms and conditions herein
above set forth.



 75














IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed.


	
  

  	
  KKR FINANCIAL HOLDINGS LLC, as Issuer

  
	
   

  
	
   

  
	
   

  	
  By:

  	
  /s/ Andrew J. Sossen

  	
   

  
	
   

  	
  Name: Andrew J. Sossen

  
	
   

  	
  Title: Senior
  Vice President and

  General Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KKR FINANCIAL CORP., as Guarantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffrey B. Van Horn

  	
   

  
	
   

  	
  Name: Jeffrey B. Van Horn

  
	
   

  	
  Title: Senior
  Vice President and

  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK, N.A., as Trustee

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Maddy Hall

  	
   

  
	
   

  	
  Name: Maddy Hall

  
	
   

  	
  Title: Assistant Vice President

  



 
















Exhibit
A


[Include only for Global Notes]


[UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW
YORK) (THE “DEPOSITARY,” WHICH TERM INCLUDES ANY SUCCESSOR DEPOSITARY FOR THE
CERTIFICATES) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.]


[Include only for Notes that are Restricted
Securities]


THIS SECURITY
(WHICH TERM, AS USED IN THIS PARAGRAPH, SHALL BE DEEMED TO INCLUDE THE RELATED
GUARANTEE UNLESS THE CONTEXT OTHERWISE REQUIRES) HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER:  (1) REPRESENTS THAT IT IS A “QUALIFIED
INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), IS
AWARE THAT THE TRANSFER TO IT IS BEING MADE IN RELIANCE ON RULE 144A UNDER THE
SECURITIES ACT AND IS ACQUIRING THIS SECURITY IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT; (2) AGREES THAT IT WILL NOT, WITHIN TWO YEARS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE OF THIS SECURITY AND THE LAST DATE ON
WHICH KKR FINANCIAL HOLDINGS LLC OR AN AFFILIATE THEREOF WAS THE OWNER OF THIS
SECURITY, RESELL OR OTHERWISE TRANSFER THIS SECURITY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO KKR FINANCIAL HOLDINGS
LLC OR ANY OF ITS SUBSIDIARIES, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME OR HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT AND WHICH CONTINUES TO BE
EFFECTIVE AT THE TIME OF SUCH RESALE OR TRANSFER; AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 2(C) OR 2(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN
TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THIS SECURITY AND THE
LAST DATE ON WHICH KKR FINANCIAL HOLDINGS LLC OR AN AFFILIATE THEREOF WAS THE
OWNER OF THIS SECURITY, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON
THE REVERSE HEREOF RELATING TO THE 



    
 









MANNER OF SUCH TRANSFER AND SUBMIT THIS SECURITY TO
THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER
IS PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO THE TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS KKR FINANCIAL HOLDINGS
LLC OR THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE
REMOVED UPON THE EARLIER OF THE TRANSFER OF THIS SECURITY PURSUANT TO CLAUSE
2(C) OR 2(D) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE LATER OF THE
ORIGINAL ISSUE DATE OF THIS SECURITY AND THE LAST DATE ON WHICH KKR FINANCIAL
HOLDINGS LLC OR AN AFFILIATE THEREOF WAS THE OWNER OF THIS SECURITY.


THE HOLDER OF THIS SECURITY IS ENTITLED TO THE
BENEFITS OF A REGISTRATION RIGHTS AGREEMENT (AS SUCH TERM IS DEFINED IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF) AND, BY ITS ACCEPTANCE HEREOF,
AGREES TO BE BOUND BY AND TO COMPLY WITH THE PROVISIONS OF SUCH REGISTRATION
RIGHTS AGREEMENT.



 A-2
 









KKR FINANCIAL HOLDINGS
LLC

7.000% CONVERTIBLE SENIOR NOTES DUE 2012


	
  CUSIP: 48248A AA6 

  



 


	
  No.

  	
   

  	
  $300,000,000

  



 


KKR Financial Holdings LLC, a Delaware limited
liability company (herein called the “Issuer,” which term includes any
successor corporation under the Indenture referred to on the reverse hereof),
for value received hereby promises to pay to                   
or its registered assigns, the principal sum of THREE HUNDRED MILLION DOLLARS
[or such other principal amount as shall be set forth on Schedule I hereto](1)
on July 15, 2012 at the office or agency of the Issuer maintained for that
purpose in accordance with the terms of the Indenture, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest,
semi-annually, on January 15 and July 15 of each year (each, an “Interest
Payment Date”), commencing January 15, 2008, on said principal sum at said
office or agency, in like coin or currency, at the rate per annum of 7.000%,
from and including the most recent Interest Payment Date in respect of which
interest has been paid (or commencing July 23, 2007 if no interest has been
paid hereon).


Reference is made to the further provisions of this
Note set forth on the reverse hereof, including, without limitation, provisions
giving the holder of this Note the right to convert this Note in the manner
specified in the Indenture.  Such further
provisions shall for all purposes have the same effect as though fully set
forth at this place.


This Note shall not be valid or become obligatory for
any purpose until the certificate of authentication hereon shall have been
manually signed by the Trustee or a duly authorized authenticating agent under
the Indenture.






(1)      For
Global Notes only.



 A-3
 









IN WITNESS WHEREOF, the Issuer has caused this Note to
be duly executed.


	
  Dated :

  	
   

  	
   

  



 


	
  

  	
  KKR FINANCIAL HOLDINGS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
    Name:

  
	
   

  	
   

  	
    Title:

  



 


	
  ATTEST:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  By

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
					




 A-4
 









TRUSTEE’S CERTIFICATE OF AUTHENTICATION


This is one of the Notes described in the within-named Indenture.


	
  WELLS FARGO BANK, N.A., as
  Trustee

  
	
   

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
    Name: 

  
	
   

  	
    Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  
						



 



 A-5
 









FORM OF REVERSE OF NOTE


KKR FINANCIAL HOLDINGS LLC

7.000% CONVERTIBLE SENIOR NOTES DUE 2012


This note is one of a duly authorized issue of notes
of the Issuer, designated as its “7.000% Convertible Senior Notes due 2012”
(herein called the “Notes”), issued under and pursuant to an Indenture, dated
as of July 23, 2007 (herein called the “Indenture”), among the Issuer, KKR
Financial Corp. (the “Guarantor”) and Wells Fargo Bank, N.A., as trustee
(herein called the “Trustee”), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Trustee, the Issuer, the Guarantor and the holders of the Notes.  Capitalized terms used but not otherwise
defined in this Note shall have the respective meanings ascribed thereto in the
Indenture.


The Issuer shall have the right to redeem the Notes at
its option in accordance with the provisions of Article 3 of the Indenture in
order to preserve the status of the Guarantor or any of the Issuer’s other REIT
Subsidiaries, if any, as a REIT.  If the
Issuer determines it is necessary to redeem the Notes in order to preserve the
status of the Guarantor or any of its other REIT Subsidiaries, if any, as a
REIT, the Issuer may redeem the Notes for cash, in whole or in part, at a
redemption price equal to 100% of the principal amount of the Notes to be
redeemed plus unpaid interest, if any, accrued thereon to the Redemption
Date.  In accordance with the provisions
of the Indenture, the Issuer may not otherwise redeem the Notes at its option
prior to the Stated Maturity thereof.


Subject to the terms and conditions set forth in the
Indenture, following the occurrence of a Fundamental Change at any time prior
to the Stated Maturity of the Notes, the Notes shall be subject to repurchase
by the Issuer, at the option of the holder, on the Fundamental Change Purchase
Date, at a Fundamental Change Purchase Price equal to 100% of the principal
amount of the Notes to be repurchased together with accrued and unpaid interest
accrued thereon to the Fundamental Change Purchase Date.  To exercise such right, the holder shall be
required to satisfy the conditions to such repurchase set forth in the
Indenture and to deliver to the Paying Agent the Repurchase Notice set forth on
the reverse hereof prior to the close of business on the third Business Day
prior to the Fundamental Change Purchase Date.


The Issuer may not repurchase any Notes if there has
occurred and is continuing an Event of Default with respect to the Notes (other
than a default in the payment of the Fundamental Change Purchase Price for such
Notes).


Holders have the right to withdraw any Repurchase Notice
by delivering to the Paying Agent a written notice of withdrawal at any time
prior to the close of business on the third Business Day prior to the
Fundamental Change Purchase Date, all as provided in the Indenture.


Subject to and in
compliance with the provisions of the Indenture, holders of Notes shall have
the right to convert each $1,000 principal amount of Notes at the applicable
Conversion Rate into the consideration specified in the Indenture, upon
surrender of the Note to be converted with the form entitled “Conversion Notice”
on the reverse hereof duly completed and manually 



 A-6
 









signed, to the Issuer at
the office or agency of the Issuer maintained for that purpose in accordance
with the terms of the Indenture, together with any funds required pursuant to
the terms of the Indenture.  The
Conversion Rate shall initially be 31.0800 Common Shares per $1,000 principal
amount of Notes, subject to adjustment in the manner set forth in the
Indenture.


Notes surrendered for
conversion at any time after the close of business on any applicable Record
Date for the payment of interest and on or prior to the corresponding Interest
Payment Date must be accompanied by payment, in immediately available funds or
other funds acceptable to the Issuer, of an amount equal to the interest
otherwise payable on such Interest Payment Date on the principal amount being
converted; provided  that no such payment shall be required (1) if
the Issuer has specified a Redemption Date that is after a Record Date and on
or prior to the corresponding Interest Payment Date, (2) to the extent of any
overdue interest, if any overdue interest exists at the time of conversion with
respect to such Notes, or (3) in respect of any conversion that occurs after
the Record Date for the interest payment due on June 15, 2012.


In the event the holder
surrenders this Note for conversion in connection with a Change in Control
resulting from a transaction described in clause (1) or (2) of the definition
of such term, the Issuer shall increase the applicable Conversion Rate in
accordance with the provisions of Section 13.13 of the Indenture.


In the event that Common Shares are issued upon
conversion of Notes, no fractional shares shall be issued upon such conversion,
but an adjustment and payment in cash will be made, as provided in the
Indenture, in respect of any fraction of a share which would otherwise be
issuable upon such conversion.


A Note in respect of
which a holder has submitted a Repurchase Notice may be converted only if such
holder validly withdraws such Repurchase Notice in accordance with the terms of
the Indenture.


If an Event of Default (other than an Event of Default
specified in Section 6.01(i), 6.01(j) and 6.01(k) of the Indenture) with
respect to the Issuer) shall occur and be continuing, the principal of, and
accrued and unpaid interest on, the Notes may be declared to be due and payable
in the manner specified in the Indenture. 
If an Event of Default specified in Section 6.01(i), 6.01(j) or 6.01(k)
of the Indenture shall occur with respect to the Issuer, the principal of, and
interest accrued and unpaid on, the Notes shall be immediately and
automatically due and payable without necessity of further action. Subject to
the provisions of the Indenture, the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding may, on behalf
of the holders of all of the Notes, waive any past default or Event of Default,
subject to exceptions set forth in the Indenture.  Upon any such waiver, said default shall for
all purposes of this Note and the Indenture be deemed to have been cured and to
be not continuing, but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.


The Indenture contains provisions permitting the
Issuer, the Guarantor and the Trustee, with the consent of the holders of not
less than a majority in aggregate principal amount of the Notes at the time
outstanding, to execute supplemental indentures to modify provisions of the
Indenture, subject to exceptions permitting the modification of the Indenture
without the consent 



 A-7
 









of any holder of Notes or
requiring the consent of each holder of a Note affected by such modification
all as set forth in Article 9 of the Indenture.


The Notes are issuable in fully registered form,
without coupons, in denominations of $2,000 principal amount and any multiple
of $1,000 in excess thereof.  At the
office or agency of the Issuer referred to on the face hereof, and in the
manner and subject to the limitations provided in the Indenture, without
payment of any service charge but with payment of a sum sufficient to cover any
tax, assessment or other governmental charge that may be imposed in connection
with any registration or exchange of Notes, Notes may be exchanged for a like
aggregate principal amount of Notes of any other authorized denominations. Upon
surrender for registration of transfer of any Note to the Note Registrar or any
co-registrar, and satisfaction of the requirements for such transfer set forth
in the Indenture, the Issuer shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Notes of any authorized denominations and of a like aggregate
principal amount and bearing such restrictive legends as may be required by the
Indenture.  No service charge shall be
made to any holder for any registration of transfer or exchange of Notes, but
the Issuer may require payment by the holder of a sum sufficient to cover any
tax, assessment or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes.


The Issuer, the Trustee, any Paying Agent, any
Conversion Agent and any Note Registrar may deem the Person in whose name this
Note shall be registered upon the Note Register to be, and may treat it as, the
absolute owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing thereon made by any
Person other than the Issuer or any Note Registrar) for the purpose of
receiving payment of or on account of the principal of, and interest on this
Note, for conversion of this Note and for all other purposes; and neither the
Issuer or the Trustee nor any Paying Agent, Conversion Agent or any Note
Registrar shall be affected by any notice to the contrary.  All such payments so made to any holder for
the time being, or upon its order, shall be valid, and, to the extent of the
sum or sums so paid, effectual to satisfy and discharge the liability for
monies payable upon any this Note.


No recourse for the payment of the principal of or
interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Issuer in the Indenture or any supplemental indenture or in any Note, or
because of the creation of any indebtedness represented hereby, shall be had
against any incorporator, stockholder, partner, member, manager, employee,
agent, officer, director or subsidiary, as such, past, present or future, of
the Issuer or any of the Issuer’s Subsidiaries or of any successor thereto,
either directly or through the Issuer or any of the Issuer’s Subsidiaries or of
any successor thereto, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise; it
being expressly understood that all such liability is hereby expressly waived
and released as a condition of, and as consideration for, the execution of the
Indenture and the issue of this Note.


This Note will be entitled to the benefits of the
Guarantee made for the benefit of the Holders. Reference is hereby made to the
Indenture for a statement of the respective rights, limitations of rights,
duties and obligations thereunder of the Guarantor, the Trustee and the
Holders.



 A-8
 









In the case of any conflict between the provisions of
this Note and the Indenture, the provisions of the Indenture shall control. The
Indenture and this Note shall be governed by, and construed in accordance with,
the laws of the state of New York.


In addition to the rights provided to holders of Notes
under the Indenture, holders shall have all the rights set forth in the
Registration Rights Agreement, dated as of July 23, 2007, among the Issuer, the
Guarantor and the Initial Purchaser named therein.



 A-9















ABBREVIATIONS


The following abbreviations, when used in the
inscription of the face of this Note, shall be construed as though they were
written out in full according to applicable laws or regulations.


	
  TEN-COM -

  	
   

  	
  as tenants in common

  	
   

  	
  UNIF GIFT MIN ACT -         
  

  Custodian         

  
	
  TEN-ENT -

  	
   

  	
  as tenant by the entireties

  	
   

  	
  (Cust)(Minor)

  
	
  JT-TEN -

  	
   

  	
  as joint tenants with right 

  	
   

  	
  under Uniform Gifts to Minors Act  

  
	
   

  	
   

  	
  of survivorship and not as  

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  tenants in common

  	
   

  	
                (State)

  



 


Additional abbreviations may also be used though not
in the above list.



 A-10
 









CONVERSION NOTICE


TO:                            KKR
FINANCIAL HOLDINGS LLC

WELLS FARGO BANK, N.A., as Trustee


The undersigned registered owner of this Note hereby
irrevocably exercises the option to convert this Note, or the portion thereof
(which is $1,000 or a multiple thereof) below designated, into cash and, if
applicable, Common Shares of KKR Financial Holdings LLC, as applicable, in
accordance with the terms of the Indenture referred to in this Note, and
directs that the shares, if any, issuable and deliverable upon such conversion,
together with any check in payment for cash, if any, payable upon conversion or
for fractional shares and any Notes representing any unconverted principal
amount hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. 
Capitalized terms used herein but not defined shall have the meanings
ascribed to such terms in the Indenture. 
If shares or any portion of this Note not converted are to be issued in
the name of a person other than the undersigned, the undersigned will provide
the appropriate information below and pay all transfer taxes payable with
respect thereto.  Any amount required to
be paid by the undersigned on account of interest accompanies this Note.


	
  Dated: 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature(s)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature(s) must be guaranteed by an “eligible 

  guarantor institution” meeting the requirements 

  of the Note Registrar, which requirements 

  include membership or participation in the 

  Security Transfer Agent Medallion Program

  (“STAMP”) or such other “signature guarantee 

  program” as may be determined by the Note 

  Registrar in addition to, or in substitution for, 

  STAMP, all in accordance with the Securities 

  Exchange Act of 1934, as amended.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature Guarantee

  	
   

  




 A-11
 









Fill in the registration of Common Shares, if any, if
to be issued, and Notes if to be delivered, and the person to whom cash and
payment for fractional shares is to be made, if to be made, other than to and
in the name of the registered holder:


Please print name and address


	
   

  
	
   

  	
   

  
	
  (Name)

  
	
   

  
	
   

  
	
   

  	
   

  
	
  (Street Address)

  
	
   

  
	
   

  
	
   

  	
   

  
	
  (City, State and Zip Code)

  
	
   

  
	
   

  
	
   

  
	
  Principal amount to be converted

  
	
   (if less than
  all):

  
	
   

  
	
  $

  	
   

  
	
   

  
	
  Social Security or Other Taxpayer

  
	
   Identification Number:

  
	
   

  
	
   

  	
   

  



 


NOTICE:  The
signature on this Conversion Notice must correspond with the name as written
upon the face of the Note in every particular without alteration or enlargement
or any change whatever.



 A-12
 









REPURCHASE NOTICE


TO:                            KKR
FINANCIAL HOLDINGS LLC

WELLS FARGO BANK, N.A.


The undersigned registered owner of this Note hereby
irrevocably acknowledges receipt of a notice from KKR Financial Holdings LLC
(the “Issuer”) regarding the right of holders to elect to require the Issuer to
repurchase the Notes and requests and instructs the Issuer to repay the entire
principal amount of this Note, or the portion thereof (which is $1,000 or an
integral multiple thereof) below designated, in cash, in accordance with the
terms of the Indenture at the price of 100% of such entire principal amount or
portion thereof specified below, together with accrued and unpaid interest to
the Repurchase Date to the registered holder hereof.  Capitalized terms used herein but not defined
shall have the meanings ascribed to such terms in the Indenture.  The Notes shall be repurchased by the Issuer
as of the Repurchase Date pursuant to the terms and conditions specified in the
Indenture.


NOTICE:  The
above signatures of the holder(s) hereof must correspond with the name as
written upon the face of the Note in every particular without alteration or
enlargement or any change whatever.


	
  Note Certificate Number:

  	 

	
   

  	
   

  	
   

  	
   

  	 

	
  Principal amount to be
  repurchased (if less than all, must be $1,000 or whole multiples thereof):

  
	
   

  
	
  Social Security or Other
  Taxpayer Identification Number:

  
	
   

  	
   

  	
   

  
	
   

  
	
  Dated: 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature(s)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature(s) must be guaranteed by an “eligible 

  guarantor  institution” meeting the
  requirements 

  of the Note Registrar, which requirements 

  include membership or participation in the 

  Security  Transfer Agent Medallion Program
  

  (“STAMP”) or such other  “signature
  guarantee 

  program” as may be determined by the Note

  Registrar in addition to, or in substitution for,

  STAMP, all in  accordance with the
  Securities 

  Exchange Act of 1934, as amended.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature Guarantee

  	
   

  
											



 



 A-13
 









ASSIGNMENT


For value received                                                      
hereby sell(s) assign(s) and transfer(s) unto                                                                                    
(Please insert social security or other Taxpayer Identification Number of
assignee) the within Note, and hereby irrevocably constitutes and appoints                                                        
attorney to transfer said Note on the books of the Issuer, with full power of
substitution in the premises.


In connection with any transfer of the Note prior to
the expiration of the holding period applicable to sales thereof under Rule
144(k) under the Securities Act (or any successor provision) (other than any
transfer pursuant to a registration statement that has been declared effective
under the Securities Act), the undersigned confirms that such Note is being
transferred:


o                                    To
KKR Financial Holdings LLC or a subsidiary thereof; or


o                                    To
a “qualified institutional buyer” in compliance with Rule 144A under the
Securities Act of 1933, as amended; or


o                                    Pursuant
to any other available exemption from registration under the Securities Act of
1933, as amended, including the exemption provided by Rule 144 thereunder; or


o                                    Pursuant
to a Registration Statement which has been declared effective under the
Securities Act of 1933, as amended, and which continues to be effective at the
time of transfer.


Unless one of the boxes is checked, the Trustee
will refuse to register any of the Notes evidenced by this certificate in the
name of any person other than the registered holder thereof.


	
  Dated: 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature(s)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature(s) must be guaranteed by an “eligible 

  guarantor institution” meeting the requirements 

  of the Note Registrar, which requirements 

  include membership or participation in the 

  Security Transfer Agent Medallion Program 

  (“STAMP”) or such other “signature guarantee 

  program” as may be determined by the Note 

  Registrar in addition to, or in substitution for, 

  STAMP, all in accordance with the Securities 

  Exchange Act of 1934, as amended.

  



 



 A-14
 









 


	
  

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature Guarantee

  



 


NOTICE:  The
signature on this Assignment must correspond with the name as written upon the
face of the Note in every particular without alteration or enlargement or any
change whatever.



 A-15
 









Schedule
I


KKR FINANCIAL HOLDINGS LLC

7.000% CONVERTIBLE SENIOR NOTES DUE 2012


	
  Date

  	
   

  	
  Principal
  Amount

  	
   

  	
  Notation
  Explaining 

  Principal Amount 

  Recorded

  	
   

  	
  Authorized
  

  Signature of Trustee 

  or Custodian

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
    

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 



 A-16















EXHIBIT B


[FORM OF NOTATION
OF GUARANTEE]


For good and valuable consideration, the undersigned
(the “Guarantor”) hereby fully and unconditionally guarantees (such guarantee
referred to herein as the “Guarantee”) (i) the due and punctual payment of
the principal of and interest on the 7.000% Convertible Senior Notes due 2012
(the “Notes”) issued by KKR Financial Holdings LLC (the “Issuer”)  when the same becomes due, whether at the
Stated Maturity, a Fundamental Change Purchase Date, by acceleration or otherwise,
to the extent lawful, the due and punctual payment of interest on the overdue
principal and interest, if any, on the Notes, to the extent lawful, and the due
and punctual performance and observance of all other obligations of the Issuer
to the Holders or the Trustee all in accordance with, and subject to, the terms
set forth in Article 14 of the Indenture and (ii) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise.


No past, present or future shareholder, officer,
director, employee or incorporator, as such, of the Guarantor shall have any
liability under the Guarantee or under the Indenture by reason of such person’s
status as stockholder, officer, director, employee or incorporator. Each Holder
of a Note by accepting a Note waives and releases all such liability. This
waiver and release are part of the consideration for the issuance of the
Guarantee.


Each Holder of a Note by accepting such Note agrees
that the Guarantor shall have no further liability with respect to its
Guarantee or under the Indenture if the Guarantor otherwise ceases to be liable
in respect of the Guarantee in accordance with the terms of the Indenture.


The Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Notes upon which the
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized signatories.


The Guarantor shall be automatically, permanently and
unconditionally released and discharged from all of its obligations under the
Guarantee and the Indenture without any further action on the part of the
Issuer, the Guarantor or the Trustee and without the consent of the holders of
the Notes, as provided in Section 14.06 of the Indenture.


Capitalized terms used but not defined herein have the
meanings given to them in the Indenture.


[SIGNATURE PAGE
FOLLOWS]



 B-1
 









 


	
  

  	
  KKR FINANCIAL CORP.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  	
   

  
						



 



 B-2