**Exhibit 10.17**

 

 

 

**CREDIT AGREEMENT**

 

 

Dated as of May 3, 2010

 

among

 

**KKRFINANCIAL HOLDINGS LLC**

 

and

 

**THESUBSIDIARIES OF**

 

**KKRFINANCIAL HOLDINGS LLC**

 

**PARTIESHERETO**

 

as the Borrowers,

 

 

**CITIBANK, N.A.,**as Administrative Agent

 

 

**CITIBANK, N.A.,**as Swingline Lender and Issuing Bank

 

and

 

The Other Lenders Party Hereto

 

and

 

**CITIGROUP GLOBAL MARKETS INC.,**as

Sole Lead Arranger and Sole Book Manager

 

and

 

**BANK OF AMERICA, N.A.,**and

**DEUTSCHE BANK AG NEW YORK BRANCH,**as Syndication Agents

 

----

 

**TABLE OF CONTENTS**

 
| **Section**                                               | ** **                                                        | **Page** |
|-----------------------------------------------------------|-------------------------------------------------------------------|----------|
|                                                      |                                                              |
| ARTICLE I.  DEFINITIONS AND ACCOUNTING TERMS         | 1                                                                 |
| **1.01**                                                  | **Defined  Terms**                                                | 1        |
| **1.02**                                                  | **Other  Interpretive Provisions**                                | 27       |
| **1.03**                                                  | **Accounting  Terms**                                             | 28       |
| **1.04**                                                  | **Rounding**                                                      | 28       |
| **1.05**                                                  | **Exchange  Rates; Currency Equivalents**                         | 29       |
| **1.06**                                                  | **Times of  Day**                                                 | 29       |
| ** **                                                | ** **                                                        |     |
| ARTICLE II.  THE COMMITMENTS AND BORROWINGS          | 29                                                                |
| **2.01**                                                  | **Revolving  Loans**                                              | 29       |
| **2.02**                                                  | **Borrowings,  Conversions and Continuations of Revolving Loans** | 29       |
| **2.03**                                                  | **Swingline  Loans**                                              | 31       |
| **2.04**                                                  | **Letters  of Credit**                                            | 33       |
| **2.05**                                                  | **Prepayments**                                                   | 38       |
| **2.06**                                                  | **Termination  or Reduction of Commitments**                      | 39       |
| **2.07**                                                  | **Repayment  of Loans**                                           | 39       |
| **2.08**                                                  | **Interest**                                                      | 39       |
| **2.09**                                                  | **Fees**                                                          | 40       |
| **2.10**                                                  | **Computation  of Interest and Fees**                             | 41       |
| **2.11**                                                  | **Evidence  of Debt**                                             | 41       |
| **2.12**                                                  | **Payments  Generally; Administrative Agent’s Clawback**     | 42       |
| **2.13**                                                  | **Sharing  of Payments by Lenders**                               | 43       |
| **2.14**                                                  | **Increase  in Commitments**                                      | 44       |
| **2.15**                                                  | **Concerning  Joint and Several Liability of the Borrowers**      | 45       |
| **2.16**                                                  | **Contribution**                                                  | 48       |
| **2.17**                                                  | **Collateral  Security**                                          | 48       |
| **2.18**                                                  | **Additional  Borrowers**                                         | 49       |
| **2.19**                                                  | **Defaulting  Lender Provisions**                                 | 49       |
| ** **                                                | ** **                                                        |     |
| ARTICLE III.  TAXES, YIELD PROTECTION AND ILLEGALITY | 52                                                                |
| **3.01**                                                  | **Taxes**                                                         | 52       |
| **3.02**                                                  | **Illegality**                                                    | 54       |
| **3.03**                                                  | **Inability  to Determine Rates**                                 | 54       |
| **3.04**                                                  | **Increased  Costs; Reserves on Eurodollar Loans**                | 55       |
| **3.05**                                                  | **Compensation  for Losses**                                      | 56       |
| **3.06**                                                  | **Mitigation  Obligations**                                       | 57       |
| **3.07**                                                  | **Survival**                                                      | 57       |
| ** **                                                | ** **                                                        |     |
| ARTICLE IV.  CONDITIONS PRECEDENT TO BORROWINGS      | 57                                                                |
| **4.01**                                                  | **Conditions  to Effectiveness**                                  | 57       |
| **4.02**                                                  | **Conditions  of Initial Borrowing**                              | 57       |
| **4.03**                                                  | **Conditions  to all Borrowings**                                 | 59       |
| ** **                                                | ** **                                                        |     |
| ARTICLE V.  REPRESENTATIONS AND WARRANTIES           | 59                                                                |
| **5.01**                                                  | **Existence,  Qualification and Power**                           | 59       |

 

i

----

 
| **5.02**                                           | **Authorization;  No Contravention**                    | 60     |
|----------------------------------------------------|---------------------------------------------------------|--------|
| **5.03**                                           | **Governmental  Authorization; Other Consents**         | 60     |
| **5.04**                                           | **Binding  Effect**                                     | 60     |
| **5.05**                                           | **Financial  Statements; No Material Adverse Effect**   | 60     |
| **5.06**                                           | **Litigation**                                          | 61     |
| **5.07**                                           | **No  Default**                                         | 61     |
| **5.08**                                           | **Insurance**                                           | 61     |
| **5.09**                                           | **Taxes**                                               | 61     |
| **5.10**                                           | **ERISA  Compliance**                                   | 61     |
| **5.11**                                           | **Properties**                                          | 61     |
| **5.12**                                           | **Investment  Company Act**                             | 62     |
| **5.13**                                           | **Disclosure**                                          | 62     |
| **5.14**                                           | **Compliance  with Laws**                               | 62     |
| **5.15**                                           | **Solvency**                                            | 62     |
| **5.16**                                           | **Borrowing  Base Report**                              | 62     |
| ** **                                         | ** **                                              |   |
| ARTICLE VI.  AFFIRMATIVE COVENANTS            | 62                                                      |
| **6.01**                                           | **Financial  Statements**                               | 62     |
| **6.02**                                           | **Certificates;  Other Information**                    | 63     |
| **6.03**                                           | **Notices**                                             | 65     |
| **6.04**                                           | **Payment  of Obligations**                             | 65     |
| **6.05**                                           | **Preservation  of Existence, Etc.**               | 65     |
| **6.06**                                           | **Maintenance  of Properties**                          | 65     |
| **6.07**                                           | **Maintenance  of Insurance**                           | 65     |
| **6.08**                                           | **Compliance  with Laws**                               | 66     |
| **6.09**                                           | **Books and  Records**                                  | 66     |
| **6.10**                                           | **Inspection  Rights**                                  | 66     |
| **6.11**                                           | **Audit  Rights**                                       | 66     |
| **6.12**                                           | **Use of  Proceeds**                                    | 66     |
| **6.13**                                           | **Investment  Policies**                                | 66     |
| **6.14**                                           | **Further  Assurances**                                 | 66     |
| **6.15**                                           | **Portfolio  Valuation and Diversification, Etc.** | 67     |
| **6.16**                                           | **Calculation  of Borrowing Base**                      | 68     |
| ** **                                         | ** **                                              |   |
| ARTICLE VII.  NEGATIVE COVENANTS              | 73                                                      |
| **7.01**                                           | **Liens**                                               | 73     |
| **7.02**                                           | **Investments**                                         | 74     |
| **7.03**                                           | **Indebtedness**                                        | 74     |
| **7.04**                                           | **Fundamental  Changes**                                | 75     |
| **7.05**                                           | **Dispositions**                                        | 76     |
| **7.06**                                           | **Restricted  Payments**                                | 77     |
| **7.07**                                           | **Transactions  with Affiliates**                       | 77     |
| **7.08**                                           | **Burdensome  Agreements**                              | 77     |
| **7.09**                                           | **Financial  Covenants**                                | 78     |
| **7.10**                                           | **Fiscal  Year**                                        | 79     |
| **7.11**                                           | **Lines of  Business**                                  | 79     |
| **7.12**                                           | **Margin  Regulations; Securities Laws**                | 79     |
| ** **                                         | ** **                                              |   |
| ARTICLE VIII.  EVENTS OF DEFAULT AND REMEDIES | 79                                                      |
| **8.01**                                           | **Events of  Default**                                  | 79     |
| **8.02**                                           | **Remedies  Upon Event of Default**                     | 80     |

 

ii

----

 
| **8.03**                               | **Application  of Funds**                                   | 81     |
|----------------------------------------|-------------------------------------------------------------|--------|
| ** **                             | ** **                                                  |   |
| ARTICLE IX.  ADMINISTRATIVE AGENT | 81                                                          |
| **9.01**                               | **Appointment  and Authority**                              | 81     |
| **9.02**                               | **Rights as  a Lender**                                     | 82     |
| **9.03**                               | **Exculpatory  Provisions**                                 | 82     |
| **9.04**                               | **Reliance  by Administrative Agent**                       | 83     |
| **9.05**                               | **Delegation  of Duties**                                   | 83     |
| **9.06**                               | **Resignation  of Administrative Agent**                    | 83     |
| **9.07**                               | **Non-Reliance  on Administrative Agent and Other Lenders** | 84     |
| **9.08**                               | **No Other  Duties, Etc.**                             | 84     |
| **9.09**                               | **Administrative  Agent May File Proofs of Claim**     | 84     |
| **9.10**                               | **Collateral  Matters**                                     | 85     |
| ** **                             | ** **                                                  |   |
| ARTICLE X.  MISCELLANEOUS         | 85                                                          |
| **10.01**                              | **Amendments, Etc.**                                   | 85     |
| **10.02**                              | **Notices;  Effectiveness; Electronic Communication**       | 87     |
| **10.03**                              | **No  Waiver; Cumulative Remedies**                         | 88     |
| **10.04**                              | **Expenses;  Indemnity; Damage Waiver**                     | 88     |
| **10.05**                              | **Payments  Set Aside**                                     | 90     |
| **10.06**                              | **Successors  and Assigns**                                 | 91     |
| **10.07**                              | **Treatment  of Certain Information; Confidentiality**      | 94     |
| **10.08**                              | **Right of  Setoff**                                        | 95     |
| **10.09**                              | **Interest  Rate Limitation**                               | 95     |
| **10.10**                              | **Counterparts;  Integration; Effectiveness**               | 96     |
| **10.11**                              | **Survival  of Representations and Warranties**             | 96     |
| **10.12**                              | **Severability**                                            | 96     |
| **10.13**                              | **Replacement  of Lenders**                                 | 96     |
| **10.14**                              | **Governing  Law; Jurisdiction; Etc.**                      | 97     |
| **10.15**                              | **No  Advisory or Fiduciary Responsibility**                | 98     |
| **10.16**                              | **U.S.  PATRIOT Act Notice**                                | 99     |
| **10.17**                              | **Entire  Agreement**                                       | 99     |
| **10.18**                              | **Judgment  Currency**                                      | 99     |

 

iii

----

 

**SCHEDULES**

 
| 2.01  | Commitments and Applicable  Percentages                            |
|-------|--------------------------------------------------------------------|
| 5.06  | Litigation                                                         |
| 7.01  | Existing Liens                                                     |
| 7.03  | Existing Indebtedness                                              |
| 7.08  | Burdensome Agreements                                              |
| 10.02 | Administrative Agent’s  Office; Certain Addresses for Notices |
| 10.06 | Processing and Recordation  Fees                                   |

 

**EXHIBITS**

 
| A   | Form of Revolving Loan  Notice                                 |
|-----|---------------------------------------------------------------------|
| B   | Form of Swingline  Loan Notice                                 |
| C   | Form of Promissory  Note                                       |
| D   | Form of Borrowing  Base Report                                 |
| E   | Form of Compliance  Certificate                                |
| F   | Form of Assignment  and Assumption                             |
| G-1 | Form of Opinion of  Simpson Thacher & Bartlett LLP    |
| G-2 | Form of Opinion of In-house  General Counsel for the Borrowers |
| G-3 | Form of Opinion of  Maples and Calder                          |

 

iv

----

 

**CREDIT AGREEMENT**

 

ThisCREDIT AGREEMENT (this “Agreement”) is entered into as of May 3,2010, among KKR FINANCIAL HOLDINGS LLC, a Delaware limited liability company (“KKRFinancial”); KKR FINANCIAL HOLDINGS II, LLC, a Delaware limited liabilitycompany (“KKR Holdings II”); KKR FINANCIAL HOLDINGS III, LLC, a Delawarelimited liability company (“KKR Holdings III”); KKR FINANCIAL HOLDINGS, INC.,a Delaware corporation (“KKR Holdings”); KKR FINANCIAL HOLDINGS, LTD.,a Cayman Islands company (“KKR Holdings LTD”); KKR TRS HOLDINGS, LTD.,a Cayman Islands company (“KKR TRS LTD”); KKR FINANCIAL CLO 2009-1, LTD.,a Cayman Islands company (“KKR CLO 2009”); KFH III HOLDINGS LTD., aCayman Islands company (“KFH III”); and any other Borrower from time totime party hereto; each lender from time to time party hereto (collectively,the “Lenders” and individually, a “Lender”); CITIBANK, N.A., asSwingline Lender and Issuing Bank; and CITIBANK, N.A., as Administrative Agent.

 

**W**** I T N E S S E T H:**

 

The Borrowers, the Lenders, the AdministrativeAgent, the Issuing Bank and the Swingline Lender agree as follows:

 

**ARTICLE I.DEFINITIONS AND ACCOUNTING TERMS**

 

**1.01       ****Defined Terms**.   Asused in this Agreement, the following terms shall have the meanings set forthbelow:

 

“AdjustedConsolidated Tangible Net Worth” means, as of any date of determination, anamount equal to (a) the Consolidated Net Worth for KKR Financial and itsconsolidated Subsidiaries (as of such date of determination, and calculatedwithout regard to any accumulated other comprehensive income or loss), *less* (b) the Intangible Assets for KKR Financial andits consolidated Subsidiaries (as of such date of determination), excludingaccumulated other comprehensive income or loss (a component of shareholders’equity) *plus* (c) Trust PreferredIndebtedness (as of such date of determination, but in no event greater than$440,000,000).

 

“AdjustedTotal Liabilities” means, as of any date of determination, ConsolidatedTotal Liabilities *less* (i) Non-Company VIELiabilities and (ii) Trust Preferred Indebtedness (as of such date ofdetermination, but in no event greater than $440,000,000).

 

“AdministrativeAgent” means Citibank, N.A. in its capacity as administrative agent underany of the Loan Documents, or any successor administrative agent.

 

“AdministrativeAgent’s Office” means the Administrative Agent’s address and, asappropriate, account as set forth on Schedule 10.02, or such otheraddress or account as the Administrative Agent may from time to time notify tothe Borrowers and the Lenders.

 

“AdministrativeQuestionnaire” means an Administrative Questionnaire in a form supplied bythe Administrative Agent.

 

“Affiliate”means, with respect to any Person, another Person that directly, or indirectlythrough one or more intermediaries, Controls or is Controlled by or is undercommon Control with the Person 

 

1

----

 

specified;provided, however, that neither Maples Finance Limited nor anyspecial purpose companies for which it provides corporate administrativeservices shall be deemed to be an affiliate of KKR TRS LTD.

 

“AffiliatedDebt Fund” means any investment fund managed or advised by Affiliates ofKohlberg Kravis Roberts & Co. L.P. that is a bona fide debt fund.

 

“AgentParties” has the meaning specified in Section 10.02(c).

 

“AggregateCommitments” means, collectively, all Commitments of all Lenders at anytime outstanding.

 

“AggregateCommitment Amount” means the aggregate principal amount of the AggregateCommitments from time to time.  On thedate hereof, the Aggregate Commitment Amount equals $210,000,000.  The Aggregate Commitment Amount may beincreased to an amount up to $600,000,000 in accordance with Section 2.14.

 

“Agreement”means this Credit Agreement, as further amended, restated, extended,supplemented or otherwise modified in writing from time to time.

 

“AllocableAmount” has the meaning specified in Section 2.16.

 

“AlternateCurrency” means Euros, British Pounds Sterling, Canadian Dollars,Australian Dollars and any other currency reasonably acceptable to theAdministrative Agent that is freely convertible into Dollars and readilyavailable in the London interbank market.

 

“AlternateCurrency Equivalent” means, at any time, as to any amount denominated inDollars as of any date of determination, the equivalent amount thereof in theapplicable Alternate Currency as determined by the Administrative Agent at suchtime on the basis of the Spot Rate (determined in respect of the most recentRevaluation Date) for the purchase of such Alternate Currency with Dollars.

 

“AlternateCurrency Loan” means each Loan denominated in an Alternate Currency.

 

“ApplicablePercentage” means with respect to any Lender at any time, the percentage(carried out to the ninth decimal place) of the Aggregate Commitment Amountrepresented by such Lender’s Commitment at such time.  If the commitment of each Lender to makeLoans has been terminated pursuant to Section 8.02 or if theAggregate Commitments have expired, then the Applicable Percentage of eachLender shall be determined based on the Applicable Percentage of such Lendermost recently in effect, giving effect to any subsequent assignments.  The initial Applicable Percentage of eachLender is set forth opposite the name of such Lender on Schedule 2.01or in the Assignment and Assumption pursuant to which such Lender becomes aparty hereto, as applicable.

 

“ApplicableRate” means a per annum rate equal to (a) 2.25%, in the case of BaseRate Loans and (b) 3.25%, in the case of Eurodollar Loans.

 

“ApplicableTime” means, with respect to any borrowings and payments in any AlternateCurrency, the local time in the place of settlement for such Alternate Currencyas may be determined by the Administrative Agent to be necessary for timelysettlement on the relevant date in accordance with normal banking procedures inthe place of payment.

 

“ApprovedCurrency” means: (a) with respect to Base Rate Loans and DailyFloating Eurodollar Loans, Dollars; (b) with respect to Fixed PeriodEurodollar Loans, each of Dollars, Euros, British Pounds 

 

2

----

 

Sterling,Canadian Dollars, Australian Dollars and any other Alternate Currency; and (c) withrespect to Specified Financial Assets, each of Dollars, Euros, British PoundsSterling, Canadian Dollars, Australian Dollars and Yen.

 

“ApprovedFund” means any Fund that is administered or managed by (a) a Lender, (b) anAffiliate of a Lender or (c) an entity or an Affiliate of an entity thatadministers or manages a Lender.

 

“Arranger”means Citigroup Global Markets Inc., in its capacity as sole lead arranger andsole book manager.

 

“AssigneeGroup” means two or more Eligible Assignees that are Affiliates of oneanother or two or more Approved Funds managed by the same investment advisor.

 

“Assignmentand Assumption” means an assignment and assumption entered into by a Lenderand an Eligible Assignee with the consent of any party whose consent isrequired by Section 10.06(b), and accepted by the AdministrativeAgent, in substantially the form of Exhibit F or any other formapproved by the Administrative Agent.

 

“AttributableIndebtedness” means, on any date, (a) in respect of any capital leaseof any Person, the capitalized amount thereof that would appear on a balancesheet of such Person prepared as of such date in accordance with GAAP, and (b) inrespect of any Synthetic Lease Obligation, the capitalized amount of theremaining lease payments under the relevant lease that would appear on abalance sheet of such Person prepared as of such date in accordance with GAAPif such lease were accounted for as a capital lease.

 

“AuditedFinancial Statements” means the audited consolidated balance sheet of KKRFinancial and its Subsidiaries for the fiscal year ended December 31, 2009, and therelated consolidated statements of income or operations, shareholders’ equityand cash flows for such fiscal year of KKR Financial and its Subsidiaries,including the notes thereto.

 

“AustralianDollars” means the lawful currency of Australia.

 

“Availability”shall mean, at any time, an amount equal to the Line Cap minus the TotalRevolving Credit Exposure.

 

“AvailabilityPeriod” means the period from and including the Closing Date to theearliest of (a) the Maturity Date, (b) the date of termination of theAggregate Commitments pursuant to Section 2.06, and (c) thedate of termination of the commitment of each Lender to make Loans pursuant to Section 8.02.

 

“Bank”means a financial institution that (i) has, or is part of a ConsolidatedGroup that has, at least $2.0 billion in capital, and is, or is an affiliate ofanother entity within such Consolidated Group that is, regulated by the Officeof the Comptroller of the Currency, the Federal Reserve or the Office of ThriftSupervision; or (ii) is, or is an affiliate of another entity within aConsolidated Group that is, a registered broker/dealer under the SecuritiesExchange Act of 1934, and has, or is part of a Consolidated Group that has, asenior unsecured debt rating of at least A-/A3; provided, that an institution that does notmeet the criteria of clause (i) or clause (ii) above may nonethelessbe classified as a “Bank” on the following conditions: (x) theAdministrative Agent, in its sole discretion, exercised in a commerciallyreasonable manner, which discretionary decision shall not be unreasonablywithheld or delayed, shall have expressly agreed to such classification, and (y) theValue of all Eligible Specified Financial Assets that are Bank Loans originatedby such financial institution does not exceed $50 million (or such greateramount as the 

 

3

----

 

AdministrativeAgent, in its sole discretion, exercised in a commercially reasonable manner,may determine) at any time.

 

“BankLoan” has the meaning specified in Section 6.16(b).

 

“BaseRate” means for any day a fluctuating rate per annum equal to the highestof (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate ofinterest in effect for such day as publicly announced from time to time byCitibank, N.A. as its “base rate” and (c) the Eurodollar Rate for loanswith an Interest Period of one (1) month in effect on such date plus1%.  The “prime rate” is a rate set byCitibank, N.A. based upon various factors including Citibank, N.A.’s costs anddesired return, general economic conditions and other factors, and is used as areference point for pricing some loans, which may be priced at, above, or belowsuch announced rate.  Any change in suchrate announced by Citibank, N.A. shall take effect at the opening of businesson the day specified in the public announcement of such change.

 

“BaseRate Loan” means a Loan that bearsinterest at a per annum rate equal to the Base Rate plus the Applicable Rate.

 

“BBALIBOR” has the meaning specified in the definition of “Daily FloatingEurodollar Rate”.

 

“Borrowers”and “Borrower” means (i) each of KKR Financial, KKR Holdings II,KKR Holdings III, KKR Holdings, KKR Holdings LTD, KKR TRS LTD, KKR CLO 2009 andKFH III and (ii) any other direct or indirect wholly owned Subsidiary ofKKR Financial, reasonably acceptable to the Administrative Agent, that becomesparty to this Agreement by executing a joinder agreement in accordance with Section 2.18.

 

“Borrowing”means (i) Revolving Loans of the same Interest Rate Type and CurrencyType, made, converted or continued on the same date and, in the case of FixedPeriod Eurodollar Loans, as to which a single Interest Period is in effect, or (ii) SwinglineLoans of the same duration, as applicable.

 

“BorrowingBase” has the meaning specified in Section 6.16(a).

 

“BorrowingBase Deficiency” means, at any date on which the same is determined, theamount, if any, that (a) the amount of Total Revolving Credit Exposure asof such date exceeds (b) the Borrowing Base as of such date.

 

“BorrowingBase Report” means a report signed by a Responsible Officer of each ofBorrowers, in substantially the form of Exhibit D hereto, delivered to theAdministrative Agent.

 

“BorrowerMaterials” has the meaning specified in Section 6.02.

 

“BridgeLoan” means debt financing with an original maturity of not more thanone (1) year with an expected repayment from a capital marketstransaction.

 

“BritishPounds Sterling” means the lawful currency of Great Britain.

 

“BusinessDay” means any day other than a Saturday, Sunday or other day on whichcommercial banks are authorized to close under the Laws of, or are in factclosed in, the state where the Administrative Agent’s Office with respect toObligations denominated in Dollars is located and:

 

(a)           ifsuch day relates to any interest rate settings as to a Eurodollar Loandenominated in Dollars, any fundings, disbursements, settlements and paymentsin 

 

4

----

 

Dollarsin respect of any such Eurodollar Loan, or any other dealings in Dollars to becarried out pursuant to this Agreement in respect of any such Eurodollar Loan,means any such day on which dealings in deposits in Dollars are conducted byand between banks in the London interbank Eurodollar market;

 

(b)           ifsuch day relates to any interest rate settings as to a Fixed Period EurodollarLoan denominated in Euros, any fundings, disbursements, settlements andpayments in Euros in respect of any such Eurodollar Loan, or any other dealingsin Euros to be carried out pursuant to this Agreement in respect of any suchEurodollar Rate Loan, means a TARGET Day;

 

(c)           ifsuch day relates to any interest rate settings as to a Fixed Period EurodollarLoan denominated in an Approved Currency other than Dollars or Euros, means anysuch day on which dealings in deposits in the relevant Approved Currency areconducted by and between banks in the London or other applicable offshoreinterbank market for such Approved Currency; and

 

(d)           ifsuch day relates to any fundings, disbursements, settlements and payments in anApproved Currency other than Dollars or Euros in respect of a Fixed PeriodEurodollar Loan denominated in a currency other than Dollars or Euros, or anyother dealings in any Approved Currency other than Dollars or Euros to becarried out pursuant to this Agreement in respect of any such Eurodollar Loan(other than any interest rate settings), means any such day on which banks areopen for foreign exchange business in the principal financial center of thecountry of such Approved Currency.

 

“CanadianDollars” means the lawful currency of Canada.

 

“CapitalLease Obligations” of any Person means the obligations of such Person topay rent or other amounts under any lease of (or other arrangement conveyingthe right to use) real or personal property, or a combination thereof, whichobligations are required to be classified and accounted for as capital leaseson a balance sheet of such Person under GAAP, and the amount of suchobligations shall be the capitalized amount thereof determined in accordancewith GAAP.

 

“CashCollateralize” means, in respect of an obligation, to provide and pledge(as a first priority perfected security interest) cash collateral in Dollars,at a location and pursuant to documentation in form and substance reasonablysatisfactory to the Administrative Agent (and “Cash Collateralization”has a corresponding meaning).

 

“CashEquivalents” has the meaning specified in Section 6.16(b).

 

“Changein Law” means the occurrence, after the date of this Agreement, of any ofthe following: (a) the adoption or taking effect of any law, rule,regulation or treaty, (b) any change in any law, rule, regulation ortreaty or in the administration, interpretation or application thereof by anyGovernmental Authority or (c) the making or issuance of any request,guideline or directive (whether or not having the force of law) by anyGovernmental Authority.

 

“Changeof Control” means (a) the acquisition of ownership, directly orindirectly, beneficially or of record, by any Person or group (within themeaning of the Securities Exchange Act of 1934 and the rules of the SECthereunder as in effect on the date hereof), of Equity Interests representingmore than 50% of the aggregate ordinary voting power represented by the issuedand outstanding Equity Interests of KKR Financial; (b) occupation of amajority of the seats (other than vacant seats) on the board of 

 

5

----

 

directorsof KKR Financial by Persons who were neither (i) nominated by the board ofdirectors of KKR Financial nor (ii) appointed by directors so nominated;or (c) the acquisition of direct or indirect Control of any Borrower byany Person or group (within the meaning of the Securities Exchange Act of 1934and the rules of the SEC thereunder as in effect on the date hereof) notin Control of any such Borrower on the Closing Date. It is understood andagreed that KKR Financial LLC does not Control KKR Financial solely forpurposes of this definition.

 

“CLO”means a special purpose entity managed by KKR Financial Advisors II, LLC or itsAffiliates that is formed for the purpose of securitizing corporate debtinstruments and of which at least one Person unaffiliated with KKR Financialholds any of the issued and outstanding notes.

 

“ClosingDate” means the earliest date on which each of the conditions precedent setforth in Sections 4.01, 4.02 and 4.03 have either beensatisfied or waived.

 

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

 

“Collateral”means the specific Eligible Specified Financial Assets and other property,accounts, rights and interests of the Borrowers that are or are intended to besubject to the Liens created by the Security Documents.  It is understood and agreed that theBorrowers shall be permitted to replace, withdraw or otherwise dispose ofCollateral at any time for any reason so long as after giving effect to anysuch replacement, withdrawal or disposition, the Borrowers remain in compliancewith each of the financial covenants set forth in Section 7.09.  For the avoidance of doubt, Collateral shallinclude a first lien pledge on the notes and common shares held by theBorrowers in the CLOs (other than KKR CLO 2009).

 

“CollateralAgreement” means the Collateral Agency Agreement to be executed anddelivered in connection with this Agreement, among the Borrowers, the AdministrativeAgent and the Custodian, as further amended, restated, extended, supplementedor otherwise modified in writing from time to time, or such other agreement(the terms of which will be substantially consistent with the existingCollateral Agreement at such time, unless otherwise agreed by the Borrowers) inreplacement thereof as the Administrative Agent may require, with the consentof the Borrowers, which consent shall not be unreasonably withheld or delayed.

 

“Commitment”means, as to each Lender, its obligation to (a) make Revolving Loans tothe Borrowers pursuant to Section 2.01 and (b) purchaseparticipations in Swingline Loans, in an aggregate principal amount at any onetime outstanding not to exceed the amount set forth opposite such Lender’s nameon Schedule 2.01 or in the Assignment and Assumption pursuant towhich such Lender becomes a party hereto, as applicable, as such amount may beadjusted from time to time in accordance with this Agreement.

 

“ComplianceCertificate” means a certificate substantially in the form of Exhibit E.

 

“ConsolidatedGroup” means the collective group of affiliated entities that are required,in accordance with GAAP, to issue consolidated financial statements.

 

“ConsolidatedNet Worth” means, as of any date of determination, the aggregate sum of allamounts which would be included on a consolidated balance sheet of KKRFinancial and its Consolidated Subsidiaries under shareholders’ equity as ofsuch date in accordance with GAAP.

 

“ConsolidatedTotal Assets” means, as of any date of determination, the sum of (a) allassets (“consolidated balance sheet assets”) of KKR Financial and itsSubsidiaries determined on a consolidated 

 

6

----

 

basisin accordance with GAAP, plus (b) without duplication, all assets leasedby KKR Financial or any Subsidiary as lessee under any Synthetic Lease to theextent that such assets would have been consolidated balance sheet assets hadthe Synthetic Lease been treated for accounting purposes as a capital lease,plus (c) without duplication, all proceeds of sold receivables in respectof sales of (i) accounts or general intangibles for money due or to becomedue, (ii) chattel paper, instruments or documents creating or evidencing aright to payment of money or (iii) other receivables (collectively “receivables”),whether pursuant to a purchase facility or otherwise, other than in connectionwith the disposition of the business operations of such Persons relatingthereto or a disposition of defaulted receivables for collection and not as afinancing arrangement, and together with any obligation of such Persons to payany discount, interest, fees, indemnities, penalties, recourse, expenses orother amounts in connection therewith, to the extent that such receivableswould have been consolidated balance sheet assets had they not been sold.

 

“ConsolidatedTotal Liabilities” means, as of any date of determination, all liabilitiesof KKR Financial and its Subsidiaries determined on a consolidated basis inaccordance with GAAP and classified as such on the consolidated balance sheetof KKR Financial and its Subsidiaries and, without duplication, all otherIndebtedness of KKR Financial and its Subsidiaries, whether or not soclassified; provided, that for purposes of this definition, in the caseof a Trust Preferred Securities Transaction of KKR Financial or any Subsidiaryof KKR Financial, only the Trust Preferred Indebtedness issued or incurred byKKR Financial or any Subsidiary of KKR Financial in connection therewith,excluding Trust Preferred Indebtedness relating solely to the common equitysecurities of the applicable Trust Preferred Financing Vehicle, shall beincluded in determining the liabilities and other Indebtedness of KKR Financialand its Subsidiaries.  Notwithstandingthe foregoing, Consolidated Total Liabilities shall not include liabilitiesarising out of any Disposition by KKR Financial of all of its residential realestate assets as contemplated by Section 7.05(b) (i) thatare nonrecourse to the Borrowers and (ii) are recorded by KKR Financialbased on required application of FAS 140 or FIN-46(R).

 

“ContractualObligation” means, as to any Person, any provision of any security issuedby such Person or of any agreement, instrument or other undertaking to whichsuch Person is a party or by which it or any of its property is bound.

 

“Control”means the possession, directly or indirectly, of the power to direct or causethe direction of the management or policies of a Person, whether through the abilityto exercise voting power, by contract or otherwise.  “Controlling” and “Controlled”have meanings correlative thereto.

 

“ConvertibleSecurities” has the meaning specified in Section 6.16(b).

 

“CurrencyType” means, with respect to any Loan, its character based upon theApproved Currency in which it was made and is repayable.

 

“CustodialAccount” means the account established and maintained pursuant to theCollateral Agreement in which Collateral will be deposited by the Borrowers andpledged to the Administrative Agent and any demand deposit account establishedand maintained in connection therewith.

 

“Custodian”means The Bank of New York Mellon or another institution selected by theAdministrative Agent with the consent of the Borrowers, which consent shall notbe unreasonably withheld or delayed.

 

“DailyFloating Eurodollar Loan” means a Loan that bears interest at a per annumrate equal to the Daily Floating Eurodollar Rate plus the Applicable Rate.

 

7

----

 

“DailyFloating Eurodollar Rate” means, for any day, a fluctuating rate per annumequal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), aspublished by Reuters (or other commercially available source providingquotations of BBA LIBOR as designated by the Administrative Agent from time totime) at approximately 11:00 a.m. (London time) on such day (if such dayis a Business Day) or the immediately preceding Business Day (if such day isnot a Business Day), for deposits in the relevant Approved Currency with a termequivalent to one (1) month.  Ifsuch rate is not available at such time for any reason, then the “DailyFloating Eurodollar Rate” shall be the rate per annum determined by theAdministrative Agent to be the rate at which deposits in the relevant ApprovedCurrency in Same Day Funds in the approximate amount of the Daily FloatingEurodollar Loan being made, continued or converted by Citibank, N.A. and with aterm equivalent to one (1) month would be offered by Citibank, N.A.’sLondon Branch to major banks in the London interbank eurodollar market for suchApproved Currency at their request at approximately 11:00 a.m. (Londontime) on such day (if such day is a Business Day) or the immediately precedingBusiness Day (if such day is not a Business Day).

 

“DebtRating” means, as of any date, the rating that has been most recentlyassigned (either publicly or privately, and including a “shadow” rating) byS&P or Moody’s (or, if no such rating is available with respect to Rule 144ADebt Securities only, NAIC), as the case may be, for either (i) anyEligible Specified Financial Asset or (ii) if no such rating is availablefrom any such rating agency with respect to senior unsecured Bank Loans only,for a class of non-credit enhanced long-term senior unsecured debt issued bythe applicable obligor of such senior unsecured Bank Loan.  For purposes of the foregoing, (a) ifonly one of S&P or Moody’s (or, if no such rating is available with respectto Rule 144A Debt Securities only, NAIC) shall have in effect a DebtRating, the Debt Rating for the purposes of this Agreement shall be determinedby reference to the available rating, (b) if more than one Debt Ratingshall be in effect, the Debt Rating for the purposes of this Agreement shall bedetermined by reference to the lowest rating issued by S&P or Moody’s, (c) ifany Debt Rating established by S&P or Moody’s (or, if no such rating isavailable with respect to Rule 144A Debt Securities only, NAIC) shall bechanged after the date of initial determination thereof hereunder or if anyagency establishes a Debt Rating for any Eligible Specified Financial Assetwhere, previously, there was no Debt Rating, such new Debt Rating shall beeffective, subject to clause (b) above, as of the date on which such changeis first announced publicly or privately by the rating agency making suchchange or issuing such rating, as applicable, and (d) if S&P or Moody’s(or, for Rule 144A Debt Securities, NAIC) shall change the basis on whichDebt Ratings are established, each reference to the Debt Rating assigned byS&P or Moody’s (or, for Rule 144A Debt Securities, NAIC), as the casemay be, shall refer to the then equivalent rating by S&P or Moody’s (or,for Rule 144A Debt Securities, NAIC), as the case may be.

 

“DebtSecurities” as used in the other definitions contained herein, meanssecurities evidencing debt obligations, including, without limitation,certificates representing an interest in a trust, the principal assets of whichconsist of debt obligations.

 

“DebtorRelief Laws” means the Bankruptcy Code of the United States, and all otherliquidation, conservatorship, bankruptcy, assignment for the benefit ofcreditors, moratorium, rearrangement, receivership, insolvency, reorganization,or similar debtor relief Laws of the United States or other applicablejurisdictions from time to time in effect and affecting the rights of creditorsgenerally.

 

“Default”means any event or condition that constitutes an Event of Default or that, withthe giving of any notice, the passage of time, or both, would be an Event ofDefault.

 

“DefaultRate” means, when used with respect to Obligations, (i) with respectto Base Rate Loans, an interest rate equal to (A) the Base Rate plus(B) 2% per annum; and (ii) with respect to a Eurodollar Loan, aninterest rate equal to (A) the interest rate (including any ApplicableRate) otherwise applicable to such Eurodollar Loan plus (B) 2% per annum.

 

8

----

 

“DefaultingLender” means, at any time, a Lender (i) that has failed for three ormore Business Days to comply with its obligations under this Agreement to makea Loan, make a payment to the Issuing Bank in respect of an LC Payment and/ormake a payment to the Swingline Lender in respect of a Swingline Loan (each a “fundingobligation”), (ii) that has notified the Administrative Agent, or hasstated publicly, that it will not comply with any such funding obligationhereunder, or has defaulted on its funding obligations under any other loanagreement or credit agreement or other financing agreement, (iii) thathas, for three or more Business Days, failed to confirm in writing to theAdministrative Agent, in response to a written request of the AdministrativeAgent, that it will comply with its funding obligations hereunder, or (iv) inrespect of which a Lender Insolvency Event has occurred and is continuing, inthe case of clauses (i) through (iv) above unless the subject of agood faith dispute and such Lender has notified the Administrative Agent inwriting of such (provided that neither the reallocation of funding obligationsprovided for in Section 2.19(c) as a result of a Lender’s being aDefaulting Lender nor the performance by Non-Defaulting Lenders of suchreallocated funding obligations will by themselves cause the relevantDefaulting Lender to become a Non-Defaulting Lender).  Any determination that a Lender is aDefaulting Lender under clauses (i) through (iv) above will be madeby the Administrative Agent in its reasonable discretion acting in goodfaith.  The Administrative Agent willpromptly send to all parties hereto a copy of any notice to the Borrowersprovided for in this definition.

 

“DelayedDraw Loan” means, as of any date, a term loan that has not yet been fullyfunded.

 

“DelayedDraw Reserve” means, as of any date, an amount equal to the aggregateamount of the respective Unfunded Delayed Draw Amounts for each Delayed DrawLoan that is a Specified Financial Asset as of such date.

 

“Disposition”means the sale, transfer, license, lease or other disposition (including anysale and leaseback transaction) of any property by any Person, including anysale, assignment, transfer or other disposal, with or without recourse, of anynotes or accounts receivable or any rights and claims associated therewith.

 

“Dollar”and “$” mean the lawful currency of the United States.

 

“DollarEquivalent” means, at any time, (a) with respect to any amountdenominated in Dollars, such amount, and (b) with respect to any amountdenominated in any Alternate Currency, the equivalent amount thereof in Dollarsas determined by the Administrative Agent at such time on the basis of the SpotRate (determined in respect of the most recent Revaluation Date) for thepurchase of Dollars with such Alternate Currency.

 

“EligibleAssignee” means (a) any Person that meets the requirements to be anassignee under Sections 10.06(b)(iii), 10.06(b)(v) and10.06(b)(vi), (b) a commercial bank organized under the laws of theUnited States, or any State thereof, having total assets in excess of$500,000,000 or any commercial finance or asset based lending affiliate of anysuch commercial bank, (c) a savings and loan association or savings bankorganized under the laws of the United States, or any State thereof, having anet worth of at least $250,000,000 calculated in accordance with GAAP,(d) any Lender (or any Affiliate of any Lender) listed on the signature page ofthis Agreement, (e) other financial institutions with a net worth of atleast $250,000,000 and (f) any Affiliated Debt Fund.

 

“EligibleSpecified Financial Asset” means a Specified Financial Asset, or aParticipation Interest therein, of any Borrowers:

 

(a)           in which, to secure the Obligations, whether contingent orotherwise, the Administrative Agent has a security interest (i) perfectedby the Administrative Agent’s possession or by “control” (as 

 

9

----

 

defined in §§ 8-106, 9-104, 9-105 and 9-106 of theUniform Commercial Code of the State of New York) in favor of theAdministrative Agent (with, if the Administrative Agent so elects andterminates the Collateral Agreement, another Custodian or securitiesintermediary designated by the Administrative Agent with the Borrowers’consent, which consent shall not be unreasonably withheld or delayed, for thepurposes of obtaining control), or, if in the reasonable opinion of theAdministrative Agent it is not possible or practicable to perfect the securityinterest by the Administrative Agent’s possession or by “control” in favor ofthe Administrative Agent, is otherwise perfected, and perfected in such a wayas to be entitled to first priority, to the reasonable satisfaction of theAdministrative Agent and (ii) is capable of being enforced by theAdministrative Agent without the consent of any third party (other than, in thecase of a Specified Financial Asset that is a loan, the customary requirementof the consent of the administrative agent or, unless the loan is in default,borrower or material obligor of the loan) or resort to judicial process;

 

(b)           which is not otherwise subject to anyequal or prior security interest, lien or encumbrance other than liens in favorof the Administrative Agent for the benefit of the Lenders;

 

(c)           which is not in default as of thedate on which such asset was acquired by the Borrowers;

 

(d)           which is not subject to any right ofrecoupment or set-off;

 

(e)           for any Loan Collateral (as definedin the Security Agreement) of any Borrower, in respect of which, theAdministrative Agent or the Custodian, on behalf of the Administrative Agent,as directed by the Administrative Agent, has received an original or copy of (1) acredit agreement indicating such Borrower as a lender thereunder with respectto the loan or advance, (2) a promissory note indicating such Borrower asa payee of the loan or advance, (3) an assignment agreement indicatingsuch Borrower as an assignee of the loan or advance or (4) a participationagreement or participation certificate indicating such Borrower as aparticipant in the loan or advance;

 

(f)            in respect of which, unless underthe “control” (as defined in §§ 8-106, 9-104, 9-105 and 9-106 of the UniformCommercial Code of the State of New York) of the Administrative Agent acting asa securities intermediary, such Borrower has issued to the applicable issuer ormaterial obligor (or, if payments are made through an agent, to the applicableagent) an instruction directing all payments of amounts payable to suchBorrower in respect of such Specified Financial Asset to the Custodial Accountor another account approved by the Administrative Agent over which theAdministrative Agent has such “control”;

 

(g)           the Value of which to be included,for purposes of the computation of the applicable Borrowing Base at any time,has been determined, or, if required to be updated, has been determined inresponse to the update requirement set forth in Section 6.02(d),(e) or(f), and to the extent such Value is not being disputed by theAdministrative Agent;

 

(h)           for which the depositary bank, issueror material obligor, as the case may be, excluding any issuer of securities bya special purpose entity in a securitization, is organized and has its chiefexecutive office in (i) the United States of America, or (ii) ifapproved by the Administrative Agent in its sole discretion, which shall beexercised in a commercially reasonable manner, Belgium, France, Italy,Luxembourg, Netherlands, Germany, Denmark, Ireland, United Kingdom,Austria, Finland, Sweden or Japan;

 

(i)            which is denominated in Dollars,Euros, British Pounds Sterling or Yen;

 

(j)            is not “margin stock” as defined inRegulation U of the Federal Reserve Board;

 

10

----

 

(k)           in the case of a first or second lienBank Loan, a Mezzanine Obligations or a Bridge Loan, that is a term loan, andis either a Delayed Draw Loan or has been fully funded (i.e., is not subject toan additional lending commitment) and is not in default; and

 

(l)            in the case of a ParticipationInterest, which the Administrative Agent is reasonably satisfied is a “true”participating interest rather than being a financing and is consistent withmarket norms for agreements between unaffiliated entities dealing at arm’slength.

 

Notwithstandingthe foregoing, the Borrowing Base on any date may include an asset to bepurchased by any Borrower with the proceeds of a Loan to be made on that dateso long as (i) the Administrative Agent has been directed by such Borrowerto pay the proceeds of such Loan directly to the seller of the asset (to theextent of the purchase price thereof), and (ii) the seller has beendirected to deliver the asset to the Administrative Agent or its nominee beforeor against payment by such Borrower, or, if such delivery is not possible orpractical, in such other manner as is reasonably acceptable to theAdministrative Agent to satisfy the requirements of clauses (a), (b) and (c) ofthis definition of “Eligible Specified Financial Asset.”  In such instance, the requirements of clauses(a), (b), (c) and (d) need not be met for the asset to qualify as anEligible Specified Financial Asset until the expiration of three Business Daysfollowing the date of the Borrowing so long as during the three Business Dayperiod, the Administrative Agent has a first priority perfected security interestin the asset, provided, however, that the Value of theasset does not exceed $25,000,000.

 

“EnvironmentalLaws” means any and all Federal, state, local, and foreign statutes, laws,regulations, ordinances, rules, judgments, orders, decrees, permits, concessions,grants, franchises, licenses, agreements or governmental restrictions relatingto pollution and the protection of the environment or the release of anymaterials into the environment, including those related to hazardous substancesor wastes, air emissions and discharges to waste or public systems.

 

“EnvironmentalLiability” means any liability, contingent or otherwise (including anyliability for damages, costs of environmental remediation, fines, penalties orindemnities), of KKR Financial or any of its respective Subsidiaries directlyor indirectly resulting from or based upon (a) violation of anyEnvironmental Law, (b) the generation, use, handling, transportation,storage, treatment or disposal of any Hazardous Materials, (c) exposure toany Hazardous Materials, (d) the release or threatened release of anyHazardous Materials into the environment or (e) any contract, agreement orother consensual arrangement pursuant to which liability is assumed or imposedwith respect to any of the foregoing.

 

“EquityInterests” means, with respect to any Person, all of the shares of capitalstock of (or other ownership or profit interests in) such Person, all of thewarrants, options or other rights for the purchase or acquisition from suchPerson of shares of capital stock of (or other ownership or profit interestsin) such Person, all of the securities convertible into or exchangeable forshares of capital stock of (or other ownership or profit interests in) suchPerson or warrants, rights or options for the purchase or acquisition from suchPerson of such shares (or such other interests), and all of the other ownershipor profit interests in such Person (including partnership, member or trustinterests therein), whether voting or nonvoting, and whether or not suchshares, warrants, options, rights or other interests are outstanding on anydate of determination.

 

“ERISA”means the Employee Retirement Income Security Act of 1974.

 

“ERISAAffiliate” means any trade or business (whether or not incorporated) undercommon control with any Borrower within the meaning of Section 414(b) or(c) of the Code (and Sections 414(m) and (o) of the Codefor purposes of provisions relating to Section 412 of the Code).

 

11

----

 

“ERISAEvent” means (a) a Reportable Event with respect to a Pension Plan; (b) awithdrawal by any Borrower or any ERISA Affiliate from a Pension Plan subjectto Section 4063 of ERISA during a plan year in which it was a substantialemployer (as defined in Section 4001(a)(2) of ERISA) or a cessationof operations that is treated as such a withdrawal under Section 4062(e) ofERISA; (c) a complete or partial withdrawal by a any Borrower or any ERISAAffiliate from a Multiemployer Plan or notification that a Multiemployer Planis in reorganization; (d) the filing of a notice of intent to terminate,the treatment of a Plan amendment as a termination under Section 4041 or4041A of ERISA, or the commencement of proceedings by the PBGC to terminate aPension Plan or Multiemployer Plan; (e) an event or condition whichconstitutes grounds under Section 4042 of ERISA for the termination of, orthe appointment of a trustee to administer, any Pension Plan or MultiemployerPlan; or (f) the imposition of any liability under Title IV of ERISA,other than for PBGC premiums due but not delinquent under Section 4007 ofERISA, upon any Borrower or any ERISA Affiliate.

 

“Euro”means the single currency of the members of the European Union from time totime which adopt a single, shared currency.

 

“EurodollarLoans” means Fixed Period Eurodollar Loans or Daily Floating EurodollarLoans.

 

“EurodollarRate” means the Fixed Period Eurodollar Rate or the Daily FloatingEurodollar Rate.

 

“Eventof Default” has the meaning specified in Section 8.01.

 

“ExcludedTaxes” means, with respect to the Administrative Agent, any Lender or anyother recipient of any payment to be made by or on account of any obligation ofany Borrower hereunder, (a) taxes imposed on or measured by its overallgross or net income (however denominated), and franchise taxes imposed on it(in lieu of net income taxes), in each case, by the jurisdiction (or anypolitical subdivision thereof including, without limitation, a state of theUnited States and any political subdivision of such state) under the laws ofwhich such recipient is organized (or political subdivision thereof) or inwhich its principal office is located or, in the case of any Lender, in whichits applicable Lending Office is located, (b) any branch profits taxesimposed by the United States or any similar tax imposed by any otherjurisdiction (or political subdivision thereof) in which any Borrower islocated, (c) in the case of a Foreign Lender (other than an assigneepursuant to a request by any Borrower under Section 10.13), any andall Taxes (including withholding tax) that are imposed on amounts payable tosuch Foreign Lender at the time such Foreign Lender becomes a party hereto (ordesignates a new Lending Office), except to the extent that such Foreign Lender(or its assignor, if any) was entitled, at the time of designation of a newLending Office (or assignment), to receive additional amounts from any Borrowerwith respect to such withholding tax pursuant to Section 3.01(a), or areattributable to such Foreign Lender’s failure or inability (other than as aresult of a Change in Law) to comply with Section 3.01(e), (d) anyand all Taxes imposed on it as a result of a trade or business, a permanentestablishment, or a present or former connection between such Lender or theAdministrative Agent (as the case may be) and the jurisdiction of theGovernmental Authority imposing such tax or any taxing authority thereof ortherein (other than any connection resulting from being a Lender hereunder) and(e) any taxes that are imposed by reason of Section 1471 or Section 1472of the Code.

 

“ExistingCredit Agreement” means that certain Credit Agreement, dated as of November 10,2008 (as amended) among certain of the Borrowers and the lenders and agentsparty thereto.

 

“FederalFunds Rate” means, for any day, the rate per annum equal to the weightedaverage (rounded upwards, if necessary, to a whole multiple of 1/100 of 1%) ofthe rates on overnight Federal funds transactions with members of the FederalReserve System arranged by Federal funds brokers on such day, as published bythe Federal Reserve Bank of New York on the Business Day next succeeding 

 

12

----

 

suchday; provided that (a) if such day is not a Business Day, the FederalFunds Rate for such day shall be such rate on such transactions on the nextpreceding Business Day as so published on the next succeeding Business Day, and(b) if no such rate is so published on such next succeeding Business Day,the Federal Funds Rate for such day shall be the average rate (rounded upward,if necessary, to a whole multiple of 1/100 of 1%) charged to Citibank, N.A. onsuch day on such transactions as determined by the Administrative Agent.

 

“FeeLetter” means the fee letter agreement, dated the date hereof, among theBorrowers and the Administrative Agent, as amended.

 

“FinancingSPE” means any bankruptcy-remote special purpose Subsidiary formed by anyBorrower or an Affiliate and which is, or is established for the purpose ofbecoming, an issuer in a Securitization. It is understood and agreed that KKR CLO 2009 is a Financing SPE forpurposes of this Agreement.

 

“FirstLien Bank Loan” has the meaning specified in Section 6.16(b).

 

“FixedPeriod Eurodollar Loan” means any Revolving Loan that bears interest at aper annum rate equal to the Fixed Period Eurodollar Rate plus the ApplicableRate.

 

“FixedPeriod Eurodollar Rate” means, for any day, a fixed rate equal to BBALIBOR, as published by Reuters (or other commercially available sourceproviding quotations of BBA LIBOR as designated by the Administrative Agentfrom time to time) at approximately 11:00 a.m., London time, two BusinessDays prior to the commencement of such Interest Period, for U.S. dollardeposits (for delivery on the first day of such Interest Period) with a termequivalent to such Interest Period.  Ifsuch rate is not available at such time for any reason, then the “Fixed PeriodEurodollar Rate” for such Interest Period shall be the rate per annumdetermined by the Administrative Agent to be the rate at which deposits in U.S.dollars for delivery on the first day of such Interest Period in same day fundsin the approximate amount of the Fixed Period Eurodollar Loan being made,continued or converted by Citibank, N.A. and with a term equivalent to suchInterest Period would be offered by Citibank, N.A.’s London Branch to majorbanks in the London interbank eurodollar market at their request atapproximately 11:00 a.m. (London time) two Business Days prior to thecommencement of such Interest Period.

 

“ForeignLender” means any Lender that is organized under the laws of a jurisdictionother than that in which any Borrower is resident for tax purposes.  For purposes of this definition, the UnitedStates, each State thereof and the District of Columbia shall be deemed toconstitute a single jurisdiction.

 

“FRB”means the Board of Governors of the Federal Reserve System of the UnitedStates.

 

“Fund”means any Person (other than a natural person) that is (or will be) engaged inmaking, purchasing, holding or otherwise investing in commercial loans andsimilar extensions of credit in the ordinary course of its business.

 

“GAAP”means generally accepted accounting principles in the United States set forthin the opinions and pronouncements of the Accounting Principles Board and theAmerican Institute of Certified Public Accountants and statements andpronouncements of the Financial Accounting Standards Board or such otherprinciples as may be approved by a significant segment of the accountingprofession in the United States, that are applicable to the circumstances as ofthe date of determination, consistently applied.

 

13

----

 

“GovernmentalAuthority” means the government of the United States or any other nation,or of any political subdivision thereof, whether state or local, and anyagency, authority, instrumentality, regulatory body, court, central bank orother entity exercising executive, legislative, judicial, taxing, regulatory oradministrative powers or functions of or pertaining to government (includingany supra-national bodies such as the European Union or the European CentralBank).

 

“Guarantee”means, as to any Person, (a) any obligation, contingent or otherwise, ofsuch Person guaranteeing or having the economic effect of guaranteeing anyIndebtedness or other obligation payable or performable by another Person (the “primaryobligor”) in any manner, whether directly or indirectly, and including anyobligation of such Person, direct or indirect, (i) to purchase or pay (oradvance or supply funds for the purchase or payment of) such Indebtedness orother obligation, (ii) to purchase or lease property, securities orservices for the purpose of assuring the obligee in respect of suchIndebtedness or other obligation of the payment or performance of suchIndebtedness or other obligation, (iii) to maintain working capital,equity capital or any other financial statement condition or liquidity or levelof income or cash flow of the primary obligor so as to enable the primaryobligor to pay such Indebtedness or other obligation, or (iv) entered intofor the purpose of assuring in any other manner the obligee in respect of suchIndebtedness or other obligation of the payment or performance thereof or toprotect such obligee against loss in respect thereof (in whole or in part), or (b) anyLien on any assets of such Person securing any Indebtedness or other obligationof any other Person, whether or not such Indebtedness or other obligation isassumed by such Person (or any right, contingent or otherwise, of any holder ofsuch Indebtedness to obtain any such Lien); provided that the term “Guarantee”shall not include endorsements for collection or deposit in the ordinary courseof business.  The amount of any Guaranteeshall be deemed to be an amount equal to the stated or determinable amount ofthe related primary obligation, or portion thereof, in respect of which suchGuarantee is made or, if not stated or determinable, the maximum reasonablyanticipated liability in respect thereof as determined by the guaranteeingPerson in good faith.  The term “Guarantee”as a verb has a corresponding meaning.

 

“GuarantorPayment” has the meaning specified in Section 2.16.

 

“HazardousMaterials” means all explosive or radioactive substances or wastes and allhazardous or toxic substances, wastes or other pollutants, including petroleumor petroleum distillates, asbestos or asbestos-containing materials,polychlorinated biphenyls, radon gas, infectious or medical wastes and allother substances or wastes of any nature regulated pursuant to anyEnvironmental Law.

 

“HighYield Securities” has the meaning specified in Section 6.16(b).

 

“IncreaseEffective Date” has the meaning specified in Section 2.14(d).

 

“Indebtedness”means, as to any Person at a particular time, without duplication, all of thefollowing, whether or not included as indebtedness or liabilities in accordancewith GAAP:

 

(a)           all obligations of such Person for borrowed money and allobligations of such Person evidenced by bonds, debentures, notes, loanagreements or other similar instruments;

 

(b)           all direct or contingent obligationsof such Person arising under letters of credit (including standby andcommercial), bankers’ acceptances, bank guaranties, surety bonds and similarinstruments;

 

(c)           net obligations of such Person underany Swap Contract;

 

14

----

 

(d)           all obligations of such Person to paythe deferred purchase price of property or services (other than trade accountspayable in the ordinary course of business and, in each case, not past due formore than 60 days after the date on which such trade account payable wascreated);

 

(e)           indebtedness (excluding prepaidinterest thereon) secured by a Lien on property owned or being purchased bysuch Person (including indebtedness arising under conditional sales or othertitle retention agreements), whether or not such indebtedness shall have beenassumed by such Person or is limited in recourse;

 

(f)            Capital Lease Obligations andSynthetic Lease Obligations;

 

(g)           all obligations of such Person topurchase, redeem, retire, defease or otherwise make any payment in respect ofany Equity Interest in such Person or any other Person, valued, in the case ofa redeemable preferred interest, at the greater of its voluntary or involuntaryliquidation preference plus accrued and unpaid dividends; and

 

(h)           all Guarantees of such Person inrespect of any of the foregoing.

 

Forall purposes hereof, the Indebtedness of any Person shall include theIndebtedness of any partnership, joint venture (other than a joint venture thatis itself a corporation or limited liability company) or other business venture(collectively with a partnership and a joint venture, referred to hereinafteras a “Venture”), but only to the extent that such Person is directly orindirectly liable for such Indebtedness, whether by reason of its status asgeneral partner, joint venturer or otherwise, unless, and only to the extentthat, such Indebtedness is expressly made non-recourse to such Person orVenture.  The amount of any netobligation under any Swap Contract on any date shall be deemed to be the SwapTermination Value thereof as of such date. The amount of any Capital Lease Obligation or Synthetic Lease Obligationas of any date shall be deemed to be the amount of Attributable Indebtedness inrespect thereof as of such date.

 

“IndemnifiedTaxes” means Taxes other than Excluded Taxes.

 

“Indemnitees”has the meaning specified in Section 10.04(b).

 

“IndustryClassification Group” means (a) any of the Moody’s classificationgroups, together with any such classification groups that may be subsequentlyestablished by Moody’s and provided by the Borrowers to the Lenders and (b) upto three additional industry group classifications established by the Borrowerspursuant to Section 6.15(a).

 

“Information”has the meaning specified in Section 10.07.

 

“IntangibleAssets” means, as of any date of determination, the sum (withoutduplication) of the following (in each case, to the extent included inConsolidated Total Assets):  (a) thetotal book value of all assets of KKR Financial and its Subsidiaries properlyclassified as intangible assets under GAAP, including such items as goodwill,the purchase price of acquired assets in excess of the fair market valuethereof, trademarks, trade names, service marks, brand names, copyrights,patents and licenses, and rights with respect to the foregoing; plus (b) allamounts representing any write-up in the book value of any assets of KKRFinancial or its Subsidiaries resulting from a revaluation thereof subsequentto December 31, 2007, excluding adjustments to translate foreign assetsand liabilities for changes in foreign exchange rates made in accordance withStatement of Financial Accounting Standards No. 52.

 

15

----

 

“InterestPayment Date” means, (a) as to any Loan other than a Base Rate Loan ora Daily Floating Eurodollar Loan, the last day of each Interest Period applicableto such Loan and the Maturity Date; provided, however, that ifany Interest Period for a Fixed Period Eurodollar Loan exceeds three months,the respective dates that fall every three months after the beginning of suchInterest Period shall also be Interest Payment Dates; and (b) as to anyBase Rate Loan or a Daily Floating Eurodollar Loan (including a SwinglineLoan), the last Business Day of each March,June, September and December and the Maturity Date.

 

“InterestPeriod” means, as to each Fixed Period Eurodollar Loan, the periodcommencing on the date such Fixed Period Eurodollar Loan is disbursed orconverted to or continued as a Fixed Period Eurodollar Loan and ending on thedate, one, two, three or six months thereafter, as selected by any Borrower inits Loan Notice; provided that:

 

(a)           any Interest Period that would otherwise end on a day thatis not a Business Day shall be extended to the next succeeding Business Dayunless such Business Day falls in another calendar month, in which case suchInterest Period shall end on the next preceding Business Day;

 

(b)           any Interest Period that begins onthe last Business Day of a calendar month (or on a day for which there is nonumerically corresponding day in the calendar month at the end of such InterestPeriod) shall end on the last Business Day of the calendar month at the end ofsuch Interest Period; and

 

(c)           no Interest Period shall extendbeyond the Maturity Date.

 

“InterestRate Type” means, with respect to any Loan, its characterization as a BaseRate Loan, a Daily Floating Eurodollar Loan or a Fixed Period Eurodollar Loan.

 

“Investment”means, as to any Person, any direct or indirect acquisition or investment bysuch Person, whether by means of (a) the purchase or other acquisition ofcapital stock or other securities of another Person, (b) a loan, advanceor capital contribution to, Guarantee or assumption of debt of, or purchase orother acquisition of any other debt or equity participation or interest in,another Person, including any partnership or joint venture interest in suchother Person and any arrangement pursuant to which the investor GuaranteesIndebtedness of such other Person, or (c) the purchase or otheracquisition (in one transaction or a series of transactions) of assets of anotherPerson that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shallbe the amount actually invested, without adjustment for subsequent increases ordecreases in the value of such Investment.

 

“InvestmentCompany Act” means the Investment Company Act of 1940, as amended.

 

“IRS”means the United States Internal Revenue Service.

 

“IssuingBank” means (i) Citibank, N.A., in its capacity as the issuer ofLetters of Credit hereunder, and its successors in such capacity or (ii) orany other Lender that, at the request of the Borrowers and with the consent ofthe Administrative Agent, agrees, in such Lender’s sole discretion, to becomean Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2.04.  In the case of any Letter of Credit to beissued in an Approved Currency, a Lender that is an Issuing Bank pursuant tothe foregoing clauses (i) or (ii) may designate any of its affiliatesas the “Issuing Bank” for purposes of such Letter of Credit.

 

“JudgmentCurrency” has the meaning specified in Section 10.18(a).

 

“JudgmentCurrency Conversion Date” has the meaning specified in Section 10.18(a).

 

16

----

 

“KFHIII” has the meaning specified in the introductory paragraph hereto.

 

“KKRCLO 2009” has the meaning specified in the introductory paragraph hereto.

 

“KKRFinancial” has the meaning specified in the introductory paragraph hereto.

 

“KKR Financial Form 10-K”means KKR Financial’s Form 10-K filed with the SEC on March 1, 2010,as amended prior to the date hereof.

 

“KKRHoldings” has the meaning specified in the introductory paragraph hereto.

 

“KKRHoldings II” has the meaning specified in the introductory paragraphhereto.

 

“KKRHoldings III” has the meaning specified in the introductory paragraphhereto.

 

“KKRHoldings LTD” has the meaning specified in the introductory paragraphhereto.

 

“KKRTRS LTD” has the meaning specified in the introductory paragraph hereto.

 

“L/CMaturity Date” means the date that is five Business Days prior to theMaturity Date.

 

“L/CParticipant” has the meaning specified in Section 2.04(c).

 

“L/CParticipation” has the meaning specified in Section 2.04(c).

 

“Laws”means, collectively, all international, foreign, Federal, state and localstatutes, treaties, rules, guidelines, regulations, ordinances, codes andadministrative or judicial precedents or authorities, including theinterpretation or administration thereof by any Governmental Authority chargedwith the enforcement, interpretation or administration thereof, and allapplicable administrative orders, directed duties, requests, licenses,authorizations and permits of, and agreements with, any Governmental Authority,in each case whether or not having the force of law.

 

“Lender”has the meaning specified in the introductory paragraph hereto and, as thecontext requires, includes the Swingline Lender.

 

“LenderInsolvency Event” means that (i) a Lender or its Parent Company isinsolvent, or is generally unable to pay its debts as they become due, oradmits in writing its inability to pay its debts as they become due, or makes ageneral assignment for the benefit of its creditors, or (ii) such Lenderor its Parent Company is the subject of a bankruptcy, insolvency,reorganization, liquidation or similar proceeding, or a receiver, trustee,conservator, intervenor or sequestrator or the like has been appointed for suchLender or its Parent Company, or such Lender or its Parent Company has takenany action in furtherance of or indicating its consent to or acquiescence inany such proceeding or appointment.

 

“LendingOffice” means, as to any Lender, the office or offices of such Lenderdescribed as such in such Lender’s Administrative Questionnaire, or such otheroffice or offices as a Lender may from time to time notify the Borrowers andthe Administrative Agent.

 

“Letterof Credit” means any letter of credit issued pursuant to this Agreement.

 

“Letterof Credit Commitment” means $25,000,000.

 

17

----

 

“Letterof Credit Exposure” means, at any time, the sum of (a) the aggregateundrawn amount of all outstanding Letters of Credit at such time plus (b) theaggregate amount of all payments made by the Issuing Bank pursuant to Letter ofCredits that have not yet been reimbursed by or on behalf of the Borrowers atsuch time.

 

“Lettersof Credit Outstanding” shall mean, at any time, the sum of, withoutduplication, (a) the aggregate stated amount of all outstanding Letters ofCredit and (b) the aggregate amount of all unreimbursed drawings orpayments in respect of all Letters of Credit.

 

“Lettersof Credit Request” has the meaning specified in Section 2.04(b).

 

“Lien”means any mortgage, pledge, hypothecation, assignment, deposit arrangement,encumbrance, lien (statutory or other), charge, or preference, priority orother security interest or preferential arrangement in the nature of a securityinterest of any kind or nature whatsoever (including any conditional sale orother title retention agreement, any easement, right of way or otherencumbrance on title to real property, and any financing lease havingsubstantially the same economic effect as any of the foregoing).

 

“LineCap” means, at any time, the lesser of (a) the Aggregate CommitmentAmount and (b) the Borrowing Base, in each case at or as of such time.

 

“Loan”means any Revolving Loan or Swingline Loan.

 

“LoanDocuments” means this Agreement, the Collateral Agreement, the SecurityDocuments, and each Note, if any, issued hereunder.

 

“LoanNotice” means either a Revolving Loan Notice or a Swingline Loan Notice.

 

“Long-TermU.S. Government Securities” has the meaning specified in Section 6.16(b).

 

“ManagementAgreement” means that certain Amended and Restated Management Agreement,dated as of May 4, 2007, between KKR Financial and KKR Financial AdvisorsLLC, as amended.

 

“MaterialAdverse Effect” means a material adverse effect on (a) the business,assets, operations or condition, financial or otherwise, of the Borrowers andtheir respective Subsidiaries taken as a whole, (b) the ability of anyBorrower to perform any of its obligations under this Agreement or any otherLoan Document or (c) the rights of or benefits available to theAdministrative Agent or the Lenders under this Agreement or any other LoanDocument.

 

“MaterialIndebtedness” means Indebtedness (other than the Loans and Indebtedness inrespect of Swap Contracts and Repurchase Agreement) of any one or more of eachof the Borrowers and their respective Subsidiaries in an aggregate principalamount exceeding $25,000,000.

 

“MaturityDate” means May 3, 2014, and, ifsuch date is not a Business Day, the Maturity Date shall be the next precedingBusiness Day.

 

“MaximumRate” has the meaning specified in Section 10.09.

 

“MezzanineObligations” has the meaning specified in Section 6.16(b).

 

“Moody’s”means Moody’s Investors Service, Inc. and any successor thereto.

 

18

----

 

“MultiemployerPlan” means any employee benefit plan of the type described in Section 4001(a)(3) ofERISA, to which any Borrower or any ERISA Affiliate makes or is obligated tomake contributions, or during the preceding five plan years, has made or beenobligated to make contributions.

 

“NetValue Amount” means, in relation to an Eligible Specified Financial Asset,the product of the Value of such Eligible Specified Financial Asset and therelevant Specified Percentage applicable to such Eligible Specified FinancialAsset.

 

“Non-CashPay Investments” has the meaning specified in Section 6.16(b).

 

“Non-CompanyVIE Liabilities” means, as of any date of determination, all non-recourseliabilities of the consolidated GAAP balance sheet of the Borrowers and theirconsolidated Subsidiaries arising from the required application of GAAP.

 

“Non-DefaultingLender” means, at any time, a Lender that is not a Defaulting Lender or aPotential Defaulting Lender.

 

“Non-U.S.Borrower” means any Borrower that is not organized under the laws of theUnited States, any state or territory thereof, or the District of Columbia.

 

“Note”means a promissory note made by any Borrower in favor of a Lender evidencingLoans made by such Lender, substantially in the form of Exhibit C.

 

“Obligations”means all advances to, and debts, liabilities, obligations, covenants and dutiesof, any Borrower arising under any Loan Document or otherwise with respect toany Loan hereunder, whether direct or indirect (including those acquired byassumption), absolute or contingent, due or to become due, now existing orhereafter arising and including interest and fees that accrue after thecommencement by or against any Borrower or any Affiliate thereof of anyproceeding under any Debtor Relief Laws naming such Person as the debtor insuch proceeding, regardless of whether such interest and fees are allowedclaims in such proceeding.

 

“OrganizationDocuments” means, (a) with respect to any corporation, the certificateor articles of incorporation and the bylaws (or equivalent or comparableconstitutive documents with respect to any non-U.S. jurisdiction); (b) withrespect to any limited liability company, the certificate or articles offormation or organization and operating agreement; and (c) with respect toany partnership, joint venture, trust or other form of business entity, thepartnership, joint venture or other applicable agreement of formation ororganization and any agreement, instrument, filing or notice with respectthereto filed in connection with its formation or organization with theapplicable Governmental Authority in the jurisdiction of its formation ororganization and, if applicable, any certificate or articles of formation ororganization of such entity.

 

“OtherLetter of Credit Obligations” means reimbursement obligations of either ofthe Borrowers in respect of letters of credit issued for the benefit of eitherof the Borrowers or any of their respective Subsidiaries, which reimbursementobligations may be unsecured or may be collateralized by means of a deposit ofcash with the issuer of any such letter of credit.

 

“OtherShort-Term Securities” has the meaning specified in Section 6.16(b).

 

“OtherTaxes” means all present or future stamp or documentary taxes or any otherexcise or property taxes, charges or similar levies of the United States or anypolitical subdivision thereof (including, without limitation, any state in theUnited States and any political subdivision of any such 

 

19

----

 

state)(including interest, fines, penalties and additions to tax) arising from theexecution, delivery, performance or enforcement of, or otherwise with respectto, this Agreement or any other Loan Document.

 

“OutstandingAmount” means with respect to all Loans hereunder, on any date, theaggregate outstanding principal amount thereof after giving effect to anyborrowings and prepayments or repayments of Loans occurring on such date.

 

“ParentCompany” means, with respect to a Lender, the bank holding company (asdefined in Federal Reserve Board Regulation Y), if any, of such Lender, and/orany Person owning, beneficially or of record, directly or indirectly, amajority of the shares of such Lender.

 

“Participant”has the meaning specified in Section 10.06(d).

 

“ParticipationInterest” means any participating interest in any Specified Financial Assetwhich is a collateralized loan obligation, collateralized bond obligation,collateralized debt obligation, first lien Bank Loan, second lien Bank Loan,Mezzanine Obligation or Bridge Loan where the record holder of such interest isa Financing SPE or a financial institution which has a Debt Rating equal to A+by S&P, or its equivalent from another rating agency, or higher.

 

“PatriotAct” has the meaning specified in Section 10.16.

 

“PBGC”means the Pension Benefit Guaranty Corporation or any successor entityperforming similar functions.

 

“PCAOB”means the Public Company Accounting Oversight Board.

 

“PensionPlan” means any “employee pension benefit plan” (as such term is defined inSection 3(2) of ERISA), other than a Multiemployer Plan, that issubject to Title IV of ERISA and is sponsored or maintained by KKR Financial orany ERISA Affiliate or to which KKR Financial or any ERISA Affiliatecontributes or has an obligation to contribute, or in the case of a multipleemployer or other plan described in Section 4064(a) of ERISA, hasmade contributions at any time during the immediately preceding five planyears.

 

“Performing”has the meaning specified in Section 6.16(b).

 

“PerformingCash Pay Mezzanine Obligations” has the meaning specified in Section 6.16(b).

 

“PerformingCommon Equity” has the meaning specified in Section 6.16(b).

 

“PerformingFirst Lien Bank Loans” has the meaning specified in Section 6.16(b).

 

“PerformingNon-Cash Pay High Yield Securities” has the meaning specified in Section 6.16(b).

 

“PerformingNon-Cash Pay Mezzanine Obligations” has the meaning specified in Section 6.16(b).

 

“PerformingSecond Lien Bank Loans” has the meaning specified in Section 6.16(b).

 

“PerformingSecured Cash Pay High Yield Securities” has the meaning specified in Section 6.16(b).

 

20

----

 

“PerformingUnsecured Bank Loans” has the meaning specified in Section 6.16(b).

 

“PerformingUnsecured Cash Pay High Yield Securities” has the meaning specified in Section 6.16(b).

 

“PermittedEncumbrances” means:

 

(a)           Liens imposed by law for taxes that are not yet due or arebeing contested in good faith by the Borrowers or a Subsidiary thereof and forwhich adequate reserves have been set aside;

 

(b)           landlords’, carriers’, warehousemen’s,mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law,arising in the ordinary course of business and securing obligations that arenot overdue by more than 30 days or are being contested in good faith by theBorrowers or a Subsidiary thereof;

 

(c)           pledges and deposits made in theordinary course of business in compliance with workers’ compensation,unemployment insurance and other social security laws or regulations anddeposits securing liability to insurance carriers in relation to the foregoing;

 

(d)           deposits to secure the performance ofbids, trade contracts, leases, statutory obligations, surety and appeal bonds,performance bonds and other obligations of a like nature, in each case in theordinary course of business;

 

(e)           judgment liens in respect ofjudgments that do not constitute an Event of Default; and

 

(f)            easements, zoning restrictions,rights-of-way and similar encumbrances on real property imposed by law orarising in the ordinary course of business that do not secure any monetaryobligations and do not materially interfere with the ordinary conduct ofbusiness of any Borrower or any Subsidiary;

 

provided that the term “PermittedEncumbrances” shall not include any Lien securing Indebtedness.

 

“PermittedInvestments” means:

 

(a)           direct obligations of, or obligations the principal of andinterest on which are unconditionally guaranteed by, the United States ofAmerica (or by any agency thereof to the extent such obligations are backed bythe full faith and credit of the United States of America), in each casematuring within one year from the date of acquisition thereof;

 

(b)           investments in commercial papermaturing within 270 days from the date of acquisition thereof and having, atsuch date of acquisition, the highest credit rating obtainable from S&P orMoody’s;

 

(c)           investments in certificates ofdeposit, banker’s acceptances and time deposits maturing within 180 days fromthe date of acquisition thereof issued or guaranteed by or placed with, andmoney market deposit accounts issued or offered by, any domestic office of anycommercial bank organized under the laws of the United States of America or anyState thereof which has a combined capital and surplus and undivided profits ofnot less than $500,000,000;

 

(d)           fully collateralized RepurchaseAgreements with a term of not more than 30 days for securities described inclause (a) above and entered into with a financial institution satisfyingthe criteria described in clause (c) above; and

 

21

----

 

(e)           money market funds that (i) complywith the criteria set forth in SEC Rule 2a-7 under the Investment CompanyAct, (ii) have a Debt Rating of AAA by S&P, or its equivalent fromanother rating agency, and (iii) have portfolio assets of at least$5,000,000,000.

 

“Person”means any natural person, corporation, limited liability company, trust, jointventure, association, company, partnership, Governmental Authority or otherentity.

 

“Plan”means any “employee benefit plan” (as such term is defined in Section 3(3) ofERISA) established by any Borrower or, with respect to any such plan that issubject to Section 412 of the Code or Title IV of ERISA, any ERISAAffiliate.

 

“Platform”has the meaning specified in Section 6.02.

 

“PotentialDefaulting Lender” means, at any time, a Lender (i) as to which theAdministrative Agent has notified the Borrowers that an event of the kindreferred to in the definition of “Lender Insolvency Event” has occurred and iscontinuing in respect of any Subsidiary of such Lender, (ii) as to whichthe Administrative Agent, the Issuing Bank or the Swingline Lender has in goodfaith determined and notified the Borrowers and (in the case of the IssuingBank or the Swingline Lender) the Administrative Agent that such Lender or itsParent Company or a Subsidiary thereof has notified the Administrative Agent,or has stated publicly, that it will not comply with its funding obligationsunder any other loan agreement or credit agreement or other similar financingagreement or (iii) that has, or whose Parent Company has, a non-investmentgrade rating from Moody’s or S&P or another nationally recognized ratingagency.  Any determination that a Lenderis a Potential Defaulting Lender under any of clauses (i) through (iii) abovewill be made by the Administrative Agent or, in the case of clause (ii), theIssuing Bank or the Swingline Lender, as the case may be, in its reasonablediscretion acting in good faith.  TheAdministrative Agent will promptly send to all parties hereto a copy of anynotice to the Borrowers provided for in this definition.

 

“PreferredStock” has the meaning specified in Section 6.16(b).

 

“PublicLender” has the meaning specified in Section 6.02.

 

“PubliclyTrade Common Equity” has the meaning specified in Section 6.16(b).

 

“Register”has the meaning specified in Section 10.06(c).

 

“RegisteredPublic Accounting Firm” has the meaning specified in the Securities Lawsand shall be independent of the Borrowers as prescribed by the Securities Laws.

 

“RelatedBorrowing Base Information” means, with respect to any “Specified FinancialAsset” as defined herein, or Participation Interest therein, included or to beincluded in the Borrowing Base, (a) the category of the SpecifiedFinancial Asset as referred to in clauses (a) through (k) of thedefinition and, if a Participation Interest is applicable, the participatinginterest, (b) the identification of all primary and secondary materialobligors obligated on the Specified Financial Asset, (c) the CUSIP number,if any, corresponding to such Eligible Specified Financial Asset, (d) theprincipal amount of the loan, debt or other monetary obligation in which anyBorrower has an interest, (e) the scheduled maturity of the loan, debt orother monetary obligation, (f) the type of collateral securing the loan,debt or other monetary obligation and (g) the source of information usedin the determination of the Value.

 

“RelatedParties” means, with respect to any Person, such Person’s Affiliates andthe partners, directors, officers, employees, agents and advisors of suchPerson and of such Person’s Affiliates.

 

22

----

 

“ReportableEvent” means any of the events set forth in Section 4043(c) ofERISA, other than events for which the 30 day notice period has been waived.

 

“RepurchaseAgreement” means any agreement involving the sale or purchase of financialor other assets whereby the seller of such assets agrees to repurchase suchassets at an agreed upon price and at a stated time.

 

“Requestfor Borrowing” means (a) with respect to a Borrowing, conversion orcontinuation of Revolving Loans, a Revolving Loan Notice and (b) withrespect to a Swingline Loan, a Swingline Loan Notice.

 

“RequiredLenders” means, as of any date of determination, the Lenders havingCommitments in the aggregate representing more than 50% of the AggregateCommitments at such time or, if the commitment of each Lender to make Loans hasbeen terminated pursuant to Section 8.02, at least two Lendersholding in the aggregate more than 50% of the Total Revolving Credit Exposure(with the aggregate amount of each Lender’s risk participation in SwinglineLoans being deemed “held” by such Lender for purposes of this definition); providedthat the Commitment of, and the portion of the Total Revolving Credit Exposureheld or deemed held by, any Defaulting Lender shall be excluded for purposes ofmaking a determination of Required Lenders.

 

“ResponsibleOfficer” means the chief executive officer, president, chief financialofficer, treasurer, assistant treasurer or controller of a Borrower or anyother officer of the applicable Borrower (i) so designated by any of theforegoing officers in a notice to the Administrative Agent or (ii) soauthorized by resolutions of the applicable Borrower’s board of directors.  Any document delivered hereunder that issigned by a Responsible Officer of a Borrower shall be conclusively presumed tohave been authorized by all necessary corporate, partnership and/or otheraction on the part of such Borrower and such Responsible Officer shall beconclusively presumed to have acted on behalf of such Borrower.

 

“RestrictedPayment” means any dividend or other distribution (whether in cash,securities or other property) with respect to any capital stock or other EquityInterest of the Borrowers or any Subsidiary, or any payment (whether in cash,securities or other property), including any sinking fund or similar deposit,on account of the purchase, redemption, retirement, acquisition, cancellationor termination of any such capital stock or other Equity Interest, or onaccount of any return of capital to any Borrower’s stockholders, partners ormembers (or the equivalent Person thereof).

 

“RevaluationDate” means, with respect to any Loan, (a) each date of a Borrowing ofa Fixed Period Eurodollar Loan denominated in an Alternate Currency and (b) eachdate of a continuation of a Fixed Period Eurodollar Loan denominated in anAlternate Currency pursuant to Section 1.05.

 

“RevolvingCredit Exposure” means, with respect to any Lender at any time, the sum ofthe aggregate Dollar Equivalent of (a) the Outstanding Amount of theRevolving Loans of such Lender, (b) such Lender’s Applicable Percentage ofLetter of Credit Exposure then outstanding and (c) such Lender’sApplicable Percentage of the Outstanding Amount of all Swingline Loans.

 

“RevolvingCredit Facility” means the credit facility pursuant to which RevolvingLoans are made available to the Borrowers in accordance with this Agreement.

 

“RevolvingLoan” means an extension of credit made by a Lender to a Borrower pursuantto Section 2.01 of this Agreement.

 

23

----

 

“RevolvingLoan Notice” means a notice of (a) a Borrowing of a Revolving Loan, (b) aconversion of Revolving Loans from one Interest Rate Type to another, or (c) acontinuation of Fixed Period Eurodollar Loans pursuant to Section 2.02(a),which, if in writing, shall be substantially in the form of Exhibit A.

 

“S&P”means Standard & Poor’s Ratings Services, a division of The McGraw-HillCompanies, Inc. and any successor thereto.

 

“SameDay Funds” means (a) with respect to disbursements and payments inDollars, immediately available funds, and (b) with respect todisbursements and payments in an Alternate Currency, same day or other funds asmay be determined by the Administrative Agent to be customary in the place ofdisbursement or payment for the settlement of international bankingtransactions in the relevant Alternate Currency.

 

“Sarbanes-Oxley”means the Sarbanes-Oxley Act of 2002.

 

“SEC”means the Securities and Exchange Commission, or any Governmental Authoritysucceeding to any of its principal functions.

 

“SecondLien Bank Loan” has the meaning specified in Section 6.16(b).

 

“SecuredIndebtedness” means secured Indebtedness incurred by any Borrower or anySubsidiary in the course of its business as such business is described in theKKR Financial Form 10-K, including any such Indebtedness incurred pursuantto or in connection with any loan warehouse agreement, Repurchase Agreement,Swap Agreement, collateralized bond obligation, collateralized loan obligation,collateralized debt obligation or Securitization.

 

“Securities”has the meaning specified in Section 6.16(b).

 

“Securitization”means the issuance by a bankruptcy-remote special purpose entity of evidencesof debt obligations or Equity Interests to holders which are third partyinstitutional investors and which entitle the holders to receive payments thatdepend primarily on the cash flow of accounts, chattel paper, instruments,investment property or payment intangibles owned by the special purpose entity.

 

“SecurityAgreement” means the Security Agreement executed and delivered inconnection with this Agreement, among the Borrowers and the AdministrativeAgent, as further amended, amended and restated, supplemented or otherwisemodified from time to time.

 

“SecurityDocuments” means the Security Agreement and all other instruments anddocuments, including without limitation, Uniform Commercial Code financingstatements, which (a) are required to be executed, delivered or filedpursuant to the Security Agreement or any other Loan Document or (b) arenecessary for the creation or perfection of any Lien in favor of theAdministrative Agent for the benefit of the Lenders to secure any of theObligations.

 

“SecuritiesLaws” means the Securities Act of 1933, the Securities Exchange Act of1934, Sarbanes-Oxley and the applicable accounting and auditing principles,rules, standards and practices promulgated, approved or incorporated by the SECor the PCAOB.

 

“Short-TermU.S. Government Securities” has the meaning specified in Section 6.16(b).

 

“SingleObligor” means, collectively, all obligors that are Affiliates.

 

24

----

 

“Solvent”means, with respect to any Person as of a particular date, that, on such date (a) suchPerson is able to pay its debts and other liabilities, contingent obligationsand other commitments as they mature in the normal course of business, (b) suchPerson does not intend to, and does not believe that it will, incur debts orliabilities beyond such Person’s ability to pay as such debts and liabilitiesmature in their ordinary course, (c) such Person is not engaged in abusiness or a transaction, and is not about to engage in a business or atransaction, for which such Person’s assets would constitute unreasonably smallcapital after giving due consideration to the prevailing practice in theindustry in which such Person is engaged or is to engage, (d) the fairvalue of the assets of such Person is greater than the total amount ofliabilities, including, without limitation, contingent liabilities, of suchPerson, and (e) the present fair saleable value of the assets of suchPerson is not less than the amount that will be required to pay the probableliability of such Person on its debts as they become absolute and matured. Incomputing the amount of contingent liabilities at any time, it is intended thatsuch liabilities will be computed at the amount which, in light of all thefacts and circumstances existing at such time, represents the amount that canreasonably be expected to become an actual or matured liability.

 

“SpecialEvent” means, in connection with a Trust Preferred Financing Vehicle, thereceipt by a Borrower (or its Subsidiary) of an opinion of counsel that as aresult of certain changes in or interpretations of the tax law or theInvestment Company Act or, in each case, regulations thereunder, there is morethan an insubstantial risk that the Trust Preferred Vehicle will be consideredan “investment company” under the Investment Company Act or that the TrustPreferred Vehicle will be subject to United States federal income tax orsubject to more than a de minimus amount of other taxes or governmental chargesor that interest payable by the maker of the Trust Preferred Indebtedness willnot be eligible as a tax deduction by such maker.

 

“SpotRate”  for a currency means the ratedetermined by the Administrative Agent to be the rate quoted by the Personacting in such capacity as the spot rate for the purchase by such Person ofsuch currency with another currency through its principal foreign exchangetrading office at approximately 11:00 a.m. on the date two (2) BusinessDays prior to the date as of which the foreign exchange computation is made;provided that the Administrative Agent may obtain such spot rate from anotherfinancial institution designated by the Administrative Agent if the Personacting in such capacity does not have as of the date of determination a spotbuying rate for any such currency.

 

“StatedAmount” of any Letter of Credit shall mean, at any time, the DollarEquivalent of the maximum amount available to be drawn thereunder at such time,determined without regard to whether any conditions to drawing could then bemet.

 

“Subsidiary”of a Person means a corporation, partnership, joint venture, limited liabilitycompany or other business entity of which a majority of the shares ofsecurities or other interests having ordinary voting power for the election ofdirectors or other governing body (other than securities or interests havingsuch power only by reason of the happening of a contingency) are at the timebeneficially owned, or the management of which is otherwise controlled,directly, or indirectly through one or more intermediaries, or both, by suchPerson; provided, that each Non-U.S. Borrower shall be considered aSubsidiary of KKR Financial so long as KKR Financial owns (directly orindirectly through other Subsidiaries) a majority of the preferred shares ofsuch Non-U.S. Borrower; and providedfurther that none of the CLOEntities (other than KKR CLO 2009) shall be considered a Subsidiary of anyBorrower for so long as any Person other than KKR Financial or a Subsidiary orany affiliate thereof holds any Indebtedness of such CLO Entity..  Unless otherwise specified, all referencesherein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary orSubsidiaries of KKR Financial.

 

“SwapContract” means (a) any and all rate swap transactions, basis swaps,credit derivative transactions, forward rate transactions, commodity swaps,commodity options, forward commodity 

 

25

----

 

contracts,equity or equity index swaps or options, bond or bond price or bond index swapsor options or forward bond or forward bond price or forward bond indextransactions, interest rate options, forward foreign exchange transactions, captransactions, floor transactions, collar transactions, currency swap transactions,cross-currency rate swap transactions, currency options, spot contracts, or anyother similar transactions or any combination of any of the foregoing(including any options to enter into any of the foregoing), whether or not anysuch transaction is governed by or subject to any master agreement, and (b) anyand all transactions of any kind, and the related confirmations, which aresubject to the terms and conditions of, or governed by, any form of masteragreement published by the International Swaps and Derivatives Association, Inc.,any International Foreign Exchange Master Agreement, or any other masteragreement (any such master agreement, together with any related schedules, a “MasterAgreement”), including any such obligations or liabilities under any MasterAgreement.

 

“SwapTermination Value” means, in respect of any one or more Swap Contracts,after taking into account the effect of any legally enforceable nettingagreement relating to such Swap Contracts, (a) for any date on or afterthe date such Swap Contracts have been closed out and termination value(s) determinedin accordance therewith, such termination value(s), and (b) for any dateprior to the date referenced in clause (a), the amount(s) determined asthe mark-to-market value(s) for such Swap Contracts, as determined basedupon one or more mid-market or other readily available quotations provided byany recognized dealer in such Swap Contracts (which may include a Lender or anyAffiliate of a Lender). “Swingline Borrowing” means a borrowing of aSwingline Loan pursuant to Section 2.03.

 

“SwinglineLender” means Citibank, N.A. in its capacity as provider of SwinglineLoans, or any successor swingline lender hereunder.

 

“SwinglineLoan” has the meaning specified in Section 2.03(a).

 

“SwinglineLoan Notice” means a notice of a Swingline Borrowing pursuant to Section 2.03(b),which, if in writing, shall be substantially in the form of Exhibit B.

 

“SwinglineSublimit” means, at any time, an amount equal to the lesser of (a) $25,000,000and (b) the Aggregate Commitment Amount. The Swingline Sublimit is part of, and not in addition to, the AggregateCommitment Amount.

 

“SyndicationAgents” means, collectively, Bank of America, N.A. and Deutsche Bank AG NewYork Branch.

 

“SyntheticLease” means any lease of goods or other property, whether real orpersonal, which is treated as an operating lease under GAAP and as a loan orfinancing for U.S. income tax purposes.

 

“SyntheticLease Obligation” means the monetary obligation of a Person under aSynthetic Lease.

 

“TARGET”means the Trans-European Automated Real-time Gross Settlement Express Transferpayment system which utilizes a single shared platform and which was launchedon 19 November 2007.

 

“TARGETDay” means any day on which TARGET is open for the settlement of paymentsin Euro.

 

“Taxes”means all present or future taxes, levies, imposts, duties, deductions,withholdings, assessments, fees or other charges imposed by any GovernmentalAuthority, including any interest, additions to tax or penalties applicablethereto.

 

26

----

 

“TotalRevolving Credit Exposure” means, at any date, the sum of the RevolvingCredit Exposures of all Lenders.

 

“TrustPreferred Financing Vehicle” has the meaning assigned to such term in thedefinition of Trust Preferred Securities Transaction.

 

“TrustPreferred Securities Transaction” means a transaction pursuant to which (i) aBorrower (or any Subsidiary of a Borrower) issues unsecured, subordinated, DebtSecurities to, or borrows on an unsecured, subordinated basis from, any trustor other entity that, as its primary purpose, provides financing to a Borrower(or any Subsidiary of a Borrower) (a “Trust Preferred Financing Vehicle”;such indebtedness of a Borrower or any of its Subsidiaries owing to a TrustPreferred Financing Vehicle, “Trust Preferred Indebtedness”) and (ii) theTrust Preferred Financing Vehicle funds such financing of such Borrower (orsuch Subsidiary of a Borrower) by issuing and selling preferred securitieshaving a mandatory redemption date no earlier than 30 years and not subject toredemption in less than 5 years from the date of their issuance (other than atthe option of a Borrower or applicable Subsidiary upon the occurrence of aSpecial Event) (“Trust Preferred Securities”), which securities may beguaranteed on an unsecured, subordinated basis by such Borrower or suchSubsidiary to the extent that the trustee has failed to make distributions frompayments received from such Borrower or such Subsidiary (each such guaranty, a “TrustPreferred Guaranty”, collectively, “Trust Preferred Guarantees”).

 

“Type”means, with respect to any Loan, its Interest Rate Type or Currency Type.

 

“UnfundedDelayed Draw Amount” means, as of any date, and for any Delayed Draw Loanthat is a Specified Financial Asset as of such date, an amount equal to themaximum unfunded portion of such Delayed Draw Loan that could be required to befunded by a Borrower as of or after such date.

 

“UnitedStates” and “U.S.” mean the United States of America.

 

“UnpaidDrawing” has the meaning specified in Section 2.04(d).

 

“UnquotedCommon Equity” has the meaning specified in Section 6.16(b).

 

“UnsecuredBank Loan” has the meaning specified in Section 6.16(b).

 

“UnsecuredIndebtedness” means unsecured Indebtedness incurred by any Borrower or anySubsidiary in the course of its business as such business is described in theKKR Financial Form 10-K.

 

“U.S.Government Securities” has the meaning specified in Section 6.16(b).

 

“Value”means, on any date, in relation to an Eligible Specified Financial Asset, thefair market value of the Eligible Specified Financial Asset, determined, inaccordance with Section 6.15.

 

“Yen”means the lawful currency of Japan.

 

**1.02       ****Other Interpretive Provisions**.   Withreference to this Agreement and each other Loan Document, unless otherwisespecified herein or in such other Loan Document:

 

(a)           The definitions of terms herein shallapply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronounshall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes”and “including” shall be deemed to be followed by the phrase “withoutlimitation.”  The word “will”shall be construed to have the same 

 

27

----

 

meaning and effect as theword “shall.”  Unless the contextrequires otherwise, (i) any definition of or reference to any agreement,instrument or other document (including any Organization Document) shall beconstrued as referring to such agreement, instrument or other document as fromtime to time amended, supplemented or otherwise modified (subject to anyrestrictions on such amendments, supplements or modifications set forth hereinor in any other Loan Document), (ii) any reference herein to any Personshall be construed to include such Person’s successors and assigns, (iii) thewords “herein,” “hereof” and “hereunder,” and words ofsimilar import when used in any Loan Document, shall be construed to refer tosuch Loan Document in its entirety and not to any particular provision thereof,(iv) all references in a Loan Document to Articles, Sections, Exhibits andSchedules shall be construed to refer to Articles and Sections of, and Exhibitsand Schedules to, the Loan Document in which such references appear, (v) anyreference to any law shall include all statutory and regulatory provisionsconsolidating, amending, replacing or interpreting such law and any referenceto any law or regulation shall, unless otherwise specified, refer to such lawor regulation as amended, modified or supplemented from time to time, and (vi) thewords “asset” and “property” shall be construed to have the samemeaning and effect and to refer to any and all tangible and intangible assetsand properties, including cash, securities, accounts and contract rights.

 

(b)           In the computation of periods of timefrom a specified date to a later specified date, the word “from” means “fromand including;” the words “to” and “until” each mean “tobut excluding;” and the word “through” means “to and including.”

 

(c)           Section headings herein and inthe other Loan Documents are included for convenience of reference only andshall not affect the interpretation of this Agreement or any other LoanDocument.

 

**1.03       ****Accounting Terms**.   (a) Generally.  All accounting termsnot specifically or completely defined herein shall be construed in conformitywith, and all financial data (including financial ratios and other financialcalculations) required to be submitted pursuant to this Agreement shall beprepared in conformity with, GAAP applied on a consistent basis, as in effectfrom time to time, applied in a manner consistent with that used in preparingthe Audited Financial Statements, except as otherwise specificallyprescribed herein.

 

(b)           Changes in GAAP.  KKR Financial shall provide a written summaryof material changes in GAAP or in the consistent application thereof inaccordance with Section 6.02(a). If at any time any change in GAAP would affect the computation of anyfinancial ratio or requirement set forth in any Loan Document, and either theBorrowers or the Required Lenders shall so request, the Administrative Agent,the Lenders and the Borrowers shall negotiate in good faith to amend such ratioor requirement to preserve the original intent thereof in light of such changein GAAP (subject to the approval of the Required Lenders); providedthat, until so amended, (i) such ratio or requirement shall continue to becomputed in accordance with GAAP prior to such change therein and (ii) theBorrowers shall provide to the Administrative Agent and the Lenders financialstatements and other documents required under this Agreement or as reasonablyrequested hereunder setting forth a reconciliation between calculations of suchratio or requirement made before and after giving effect to such change inGAAP.

 

(c)           Consolidation of Variable InterestEntities.  All references herein toconsolidated financial statements of KKR Financial and its Subsidiaries or tothe determination of any amount for KKR Financial and its Subsidiaries on aconsolidated basis or any similar reference shall, in each case, be deemed toinclude each variable interest entity that KKR Financial is required toconsolidate pursuant to GAAP as if such variable interest entity were aSubsidiary as defined herein.

 

**1.04       ****Rounding**.   Anyfinancial ratios required to be maintained by KKR Financial pursuant to thisAgreement shall be calculated by dividing the appropriate component by the othercomponent,

 

28

----

 

carrying the result to oneplace more than the number of places by which such ratio is expressed hereinand rounding the result up or down to the nearest number (with a rounding-up ifthere is no nearest number).

 

**1.05       ****Exchange Rates; Currency Equivalents.**

 

(a)           The Administrative Agent shalldetermine the Spot Rates as of each Revaluation Date to be used for calculatingthe Dollar Equivalent of any particular amounts herein specified that aredenominated in Alternate Currencies. Such Spot Rates shall become effective as of such Revaluation Date andshall be the Spot Rates employed in converting any amounts between theapplicable currencies until the next Revaluation Date to occur.  Except for purposes of financial statementsdelivered by the Borrowers hereunder or calculating financial covenantshereunder or except as otherwise provided herein, the applicable amount of anycurrency (other than Dollars) for purposes of the Loan Documents shall be suchDollar Equivalent amount as so determined by the Administrative Agent.

 

(b)           Wherever in this Agreement inconnection with a Borrowing, conversion, continuation or prepayment of a FixedPeriod Eurodollar Loan, an amount, such as a required minimum or multipleamount, is expressed in Dollars, but such Borrowing or Fixed Period EurodollarLoan is denominated in an Alternate Currency, such amount shall be the relevantAlternate Currency Equivalent of such Dollar amount (rounded to the nearestunit of such Alternate Currency, with 0.5 of a unit being rounded upward), asdetermined by the Administrative Agent.

 

**1.06       ****Times of Day**.   Unlessotherwise specified, all references herein to times of day shall be referencesto Eastern time (daylight or standard, as applicable).

 

**ARTICLE II.THE COMMITMENTS AND BORROWINGS**

 

**2.01       ****Revolving Loans**.   Subjectto the terms and conditions set forth herein, each Lender severally agrees tomake Revolving Loans to the Borrowers from time to time, on any Business Dayduring the Availability Period, in an aggregate amount not to exceed at anytime outstanding the amount of such Lender’s Commitment; provided that,after giving effect to any Revolving Loan, (i) the Total Revolving CreditExposure does not exceed the Line Cap, and (ii) the aggregate amount ofsuch Lender’s Revolving Credit Exposure does not exceed such Lender’sCommitment.  Within the limits of eachLender’s Commitment, and subject to the other terms and conditions hereof, theBorrowers may borrow under this Section 2.01, prepay under Section 2.05,and reborrow under this Section 2.01.  Revolving Loans may be Base Rate Loans, FixedPeriod Eurodollar Loans or Daily Floating Eurodollar Loans, as further providedherein.

 

Notwithstanding anythingto the contrary herein, each Lender may, at its option, make Revolving Loansavailable to any Non-U.S. Borrower by causing any foreign or domestic branch orAffiliate of such Lender to make such Revolving Loans; provided, thatany exercise of such option shall not affect the obligation of such Non-U.S.Borrower to repay such Revolving Loan in accordance with the terms of thisAgreement and to comply with all other terms and conditions of this Agreement.

 

**2.02       ****Borrowings, Conversions and Continuations ofRevolving Loans**.

 

(a)           Each Revolving Loan, each conversionof Revolving Loans from one Interest Rate Type to another, and eachcontinuation of Fixed Period Eurodollar Loans shall be made upon a Borrower’sirrevocable notice to the Administrative Agent, which may be given by telephone.  Each such notice must be received by theAdministrative Agent not later than 11:00 a.m. (i) three BusinessDays prior to the

 

29

----

 

requested date of anyBorrowing of, conversion to or continuation of Fixed Period Eurodollar Loans orof any conversion of Fixed Period Eurodollar Loans to Base Rate Loans, (ii) oneBusiness Day prior to the requested date of any Borrowing of, conversion to orcontinuation of Daily Floating Eurodollar Loans or of any conversion of DailyFloating Eurodollar Loans to Base Rate Loans and (iii) on the requesteddate of any Borrowing of Base Rate Loans. Each telephonic notice by any Borrower pursuant to this Section 2.02(a) mustbe confirmed promptly by delivery to the Administrative Agent of a writtenRevolving Loan Notice, appropriately completed and signed by a ResponsibleOfficer of the requesting Borrower.  EachBorrowing of, conversion to or continuation of Fixed Period Eurodollar Loans orDaily Floating Eurodollar Loan shall be in a principal amount of $5,000,000 ora whole multiple of $1,000,000 in excess thereof.  Except as provided in Section 2.03(c),each Borrowing of or conversion to Base Rate Loans shall be in a principalamount of $500,000 or a whole multiple of $100,000 in excess thereof.  Each Revolving Loan Notice (whethertelephonic or written) shall specify (i) whether such Borrower isrequesting a Revolving Loan, a conversion of Revolving Loans from one InterestRate Type to the other, or a continuation of Fixed Period Eurodollar Loans, (ii) therequested date of the Revolving Loan, conversion or continuation, as the casemay be (which shall be a Business Day), (iii) the principal amount ofRevolving Loans to be borrowed, converted or continued, (iv) the InterestRate Type of Revolving Loans to be borrowed or to which existing RevolvingLoans are to be converted or continued and (v) if applicable, the durationof the Interest Period with respect thereto. If the applicable Borrower failsto specify a Currency Type of a new Revolving Loan in a Revolving Loan Notice,then the Revolving Loan shall be made in Dollars.  If the applicable Borrower fails to specifyan Interest Rate Type of Revolving Loan in a Revolving Loan Notice or if suchBorrower fails to give a timely notice requesting a conversion or continuation,then the applicable Revolving Loans shall be made as, or converted to, DailyFloating Eurodollar Loans; provided, however, that in the case ofa failure to timely request a continuation of Fixed Period Eurodollar Loansdenominated in an Alternate Currency, such Loans shall be continued as FixedPeriod Eurodollar Loans in their original currency with an Interest Period ofone month.  Any such automatic conversionto Daily Floating Eurodollar Loans shall be effective as of the last day of theInterest Period then in effect with respect to the applicable Fixed PeriodEurodollar Loans.  If the applicableBorrower requests a Revolving Loan of, conversion to, or continuation of FixedPeriod Eurodollar Loans in any such Revolving Loan Notice, but fails to specifyan Interest Period, it will be deemed to have specified an Interest Period ofone month.  Fixed Period Eurodollar Loansdenominated in an Alternate Currency may not be converted to a differentInterest Rate Type.  No Revolving Loanmay be converted into or continued as a Revolving Loan denominated in adifferent currency, but instead must be prepaid in the original currency ofsuch Revolving Loan and reborrowed in the other currency.

 

(b)           Following receipt of a Revolving LoanNotice, the Administrative Agent shall promptly notify each Lender of theamount of its Applicable Percentage of the applicable Revolving Loans (and theof the currency of such Loans), and if no timely notice of a conversion orcontinuation is provided by the Borrowers, the Administrative Agent shallpromptly notify each Lender of the details of any automatic conversion to BaseRate Loans described in the preceding subsection.  In the case of a Revolving Loan, each Lendershall make the amount of its Revolving Loan available to the AdministrativeAgent in immediately available funds at the Administrative Agent’s Office notlater than 1:00 p.m. in the case of a Loan denominated in Dollars, and notlater than the Applicable Time specified by the Administrative Agent, in thecase of an Alternate Currency Loan, in each case on the Business Day specifiedin the applicable Revolving Loan Notice. Upon satisfaction of the applicable conditions set forth in ARTICLE IV(and, if such Borrowing is the initial Borrowing, Section 4.01),the Administrative Agent shall make all funds so received available to theBorrowers in like funds as received by the Administrative Agent by wiretransfer of such funds to the account specified by the applicable Borrower.

 

(c)           Except as otherwise provided herein,a Fixed Period Eurodollar Loan may be continued or converted only on the lastday of an Interest Period for such Loan. If during the existence of a Default the Required Lenders havedetermined in their sole discretion not to permit such conversion or

 

30

----

 

continuation, then noLoans may be converted to or continued as Fixed Period Eurodollar Loans orDaily Floating Eurodollar Loans.

 

(d)           The Administrative Agent shall promptlynotify the Borrowers and the Lenders of the interest rate applicable to anyDaily Floating Eurodollar Loans or any Interest Period for Fixed PeriodEurodollar Loans upon determination of such interest rate.  At any time that Base Rate Loans are outstanding,the Administrative Agent shall notify the Borrowers and the Lenders of anychange in Citibank, N.A.’s prime rate used in determining the Base Ratepromptly following the public announcement of such change.

 

(e)           After giving effect to all RevolvingLoans, all conversions of Revolving Loans from one Interest Rate Type to theother, and all continuations of Revolving Loans as the same Interest Rate Type,there shall not be more than ten (10) InterestPeriods in effect with respect to Revolving Loans.

 

**2.03       ****Swingline Loans**.

 

(a)           The Swingline.  Subject to the terms and conditions set forthherein, the Swingline Lender agrees, in reliance upon the agreements of theother Lenders set forth in this Section 2.03, to make swinglineloans (each such loan, a “Swingline Loan”) to the Borrowers in Dollarsfrom time to time on any Business Day during the Availability Period in anaggregate amount not to exceed at any time outstanding the amount of theSwingline Sublimit, notwithstanding the fact that such Swingline Loans, whenaggregated with such Lender’s Applicable Percentage of Letter of CreditExposure then outstanding and the Applicable Percentage of the OutstandingAmount of Revolving Loans of the Lender acting as Swingline Lender, may exceedthe amount of such Lender’s Commitment; provided, however, thatafter giving effect to any Swingline Loan, (i) the Total Revolving CreditExposure does not exceed the Line Cap and (ii) the aggregate amount ofsuch Lender’s Revolving Credit Exposure does not exceed such Lender’sCommitment, and provided, further, that the applicable Borrowershall not use the proceeds of any Swingline Loan to refinance any outstandingSwingline Loan.  Within the foregoinglimits, and subject to the other terms and conditions hereof, the Borrowers mayborrow under this Section 2.03, prepay under Section 2.05,and reborrow under this Section 2.03.  Each Swingline Loan shall be either a BaseRate Loan or a Daily Floating Eurodollar Loan as selected by the applicableBorrower.  Immediately upon the making ofa Swingline Loan, each Lender shall be deemed to, and hereby irrevocably andunconditionally agrees to, purchase from the Swingline Lender a riskparticipation in such Swingline Loan in an amount equal to the product of suchLender’s Applicable Percentage times the amount of such SwinglineLoan.  Notwithstanding the foregoing andsubject to subsection (c) below, no Lender hereunder, other than theSwingline Lender, shall be required to make a Daily Floating Eurodollar Loan.

 

(b)           Borrowing Procedures.  Each Swingline Borrowing shall be made uponthe applicable Borrower’s irrevocable notice to the Swingline Lender and theAdministrative Agent, which may be given by telephone.  Each such notice must be received by theSwingline Lender and the Administrative Agent not later than 3:00 p.m. onthe requested borrowing date, and shall specify (i) the amount to beborrowed, which shall be a minimum of $1,000,000, and (ii) the requestedborrowing date, which shall be a Business Day. Each such telephonic notice must be confirmed promptly by delivery tothe Swingline Lender and the Administrative Agent of a written Swingline LoanNotice, which shall specify (i) the requested date of the SwinglineBorrowing, (ii) the principal amount of Swingline Loan and (iii) theduration with respect thereto.  Promptlyafter receipt by the Swingline Lender of any telephonic Swingline Loan Notice,the Swingline Lender will confirm with the Administrative Agent (by telephoneor in writing) that the Administrative Agent has also received such SwinglineLoan Notice and, if not, the Swingline Lender will notify the AdministrativeAgent (by telephone or in writing) of the contents thereof.  Unless the Swingline Lender has receivednotice (by telephone or in writing) from the Administrative Agent (including atthe request of any Lender) prior to 4:00 p.m. on the date of the

 

31

----

 

proposed SwinglineBorrowing (A) directing the Swingline Lender not to make such SwinglineLoan as a result of the limitations set forth in the proviso to the firstsentence of Section 2.03(a), or (B) that one or more of theapplicable conditions specified in Article IV is not thensatisfied, then, subject to the terms and conditions hereof, the SwinglineLender will, not later than 4:00 p.m. on the borrowing date specified insuch Swingline Loan Notice, make the amount of its Swingline Loan available tothe applicable Borrower at its office by wire transfer to the account specifiedby the applicable Borrower.

 

(c)           Refinancing of Swingline Loans.

 

(i)            The Swingline Lender, at any time inits sole and absolute discretion, may request, on behalf of the Borrowers (eachof which hereby irrevocably authorizes the Swingline Lender to so request onits behalf), that each Lender make a Base Rate Loan or Fixed Period EurodollarLoan, as applicable, in an amount equal to such Lender’s Applicable Percentageof the amount of Swingline Loans then outstanding.  Such request shall be made in writing (whichwritten request shall be deemed to be a Revolving Loan Notice for purposeshereof) and in accordance with the requirements of Section 2.02,without regard to the minimum and multiples specified therein for the principalamount of Base Rate Loans or Fixed Period Eurodollar Loans, but subject to theunutilized portion of the Aggregate Commitments and the conditions set forth inSection 4.03.  The SwinglineLender shall furnish the applicable Borrower with a copy of the applicableRevolving Loan Notice promptly after delivering such notice to theAdministrative Agent.  Each Lender shallmake an amount equal to its Applicable Percentage of the amount specified insuch Revolving Loan Notice available to the Administrative Agent in immediatelyavailable funds for the account of the Swingline Lender at the AdministrativeAgent’s Office not later than 1:00 p.m. on the day specified in suchRevolving Loan Notice, whereupon, subject to Section 2.03(c)(ii),each Lender that so makes funds available shall be deemed to have made a BaseRate Loan or Fixed Period Eurodollar Loan, as applicable, to the applicableBorrower in such amount.  TheAdministrative Agent shall remit the funds so received to the Swingline Lender.

 

(ii)           If for any reason any Swingline Loancannot be refinanced by such a Revolving Loan in accordance with Section 2.03(c)(i),the request for Base Rate Loans or Fixed Period Eurodollar Loans, asapplicable, submitted by the Swingline Lender as set forth herein shall bedeemed to be a request by the Swingline Lender that each of the Lenders fundits risk participation in the relevant Swingline Loan and each Lender’s paymentto the Administrative Agent for the account of the Swingline Lender pursuant toSection 2.03(c)(i) shall be deemed payment in respect of suchparticipation.

 

(iii)          If any Lender fails to make availableto the Administrative Agent for the account of the Swingline Lender any amountrequired to be paid by such Lender pursuant to the foregoing provisions of thisSection 2.03(c) by the time specified in Section 2.03(c)(i),the Swingline Lender shall be entitled to recover from such Lender (actingthrough the Administrative Agent), on demand, such amount with interest thereonfor the period from the date such payment is required to the date on which suchpayment is immediately available to the Swingline Lender at a rate per annumequal to the greater of the Federal Funds Rate and a rate determined by theSwingline Lender in accordance with banking industry rules on interbankcompensation, plus any administrative, processing or similar fees customarilycharged by the Swingline Lender in connection with the foregoing.  If such Lender pays such amount (withinterest and fees as aforesaid), the amount so paid shall constitute such Lender’sRevolving Loan included in the relevant Borrowing or funded participation inthe relevant Swingline Loan, as the case may be.  A certificate of the Swingline Lendersubmitted to any Lender (through the Administrative Agent) 

 

32

----

 

with respect to anyamounts owing under this clause (iii) shall be conclusive absent manifesterror.

 

(iv)          Each Lender’s obligation to makeRevolving Loans or to purchase and fund risk participations in Swingline Loanspursuant to this Section 2.03(c) shall be absolute andunconditional and shall not be affected by any circumstance, including (A) anysetoff, counterclaim, recoupment, defense or other right which such Lender mayhave against the Swingline Lender, the Borrowers or any other Person for anyreason whatsoever, (B) the occurrence or continuance of a Default, or (C) anyother occurrence, event or condition, whether or not similar to any of theforegoing; provided, however, that each Lender’s obligation tomake Revolving Loans pursuant to this Section 2.03(c) is subjectto the conditions set forth in Section 4.03.  No such funding of risk participations shallrelieve or otherwise impair the obligation of the Borrowers to repay SwinglineLoans, together with interest as provided herein.

 

(d)           Repayment of Participations.

 

(i)            At any time after any Lender haspurchased and funded a risk participation in a Swingline Loan, if the SwinglineLender receives any payment on account of such Swingline Loan, the SwinglineLender will distribute to such Lender its Applicable Percentage thereof in thesame funds as those received by the Swingline Lender.

 

(ii)           If any payment received by theSwingline Lender in respect of principal or interest on any Swingline Loan isrequired to be returned by the Swingline Lender under any of the circumstancesdescribed in Section 10.05 (including pursuant to any settlemententered into by the Swingline Lender in its discretion), each Lender shall payto the Swingline Lender its Applicable Percentage thereof on demand of theAdministrative Agent, plus interest thereon from the date of such demand to thedate such amount is returned, at a rate per annum equal to the Federal FundsRate.  The Administrative Agent will makesuch demand upon the request of the Swingline Lender.  The obligations of the Lenders under thisclause shall survive the payment in full of the Obligations and the terminationof this Agreement.

 

(e)           Interest for Account of SwinglineLender.  The Swingline Lender shallbe responsible for invoicing the Borrowers for interest on the SwinglineLoans.  Until each Lender funds its BaseRate Loan or Fixed Period Eurodollar Loan, as applicable, or risk participationpursuant to this Section 2.03 to refinance such Lender’s ApplicablePercentage of any Swingline Loan, interest in respect of such ApplicablePercentage shall be solely for the account of the Swingline Lender.

 

**2.04        Letters of Credit**.   (a) Subject to andupon the terms and conditions herein set forth, at any time and from time totime after the Closing Date and prior to the L/C Maturity Date, (i) anyBorrower may request that the Issuing Bank issue for the account of suchBorrower a Letter of Credit or Letters of Credit in Dollars or any ApprovedCurrency in such form as may be approved by the Issuing Bank in its reasonablediscretion.

 

Notwithstanding theforegoing, (i) no Letter of Credit shall be issued the Stated Amount ofwhich, when added to the Letters of Credit Outstanding at such time, wouldexceed the Letter of Credit Commitment then in effect; (ii) no Letter ofCredit shall be issued, amended (to increase the Stated Amount thereof),extended or renewed if, after giving effect to such issuance, amendment,extension or renewal, the Total Revolving Credit Exposure would exceed the LineCap then in effect; (iii) each Letter of Credit shall have an expirationdate occurring no later than one year after the date of issuance thereof,unless otherwise agreed upon by the Administrative Agent and the Issuing Bank,provided that in no event shall such expiration date occur later than the L/CMaturity Date; (iv) no Letter of Credit shall be 

 

33

----

 

issued if it would be illegal under any applicablelaw for the beneficiary of the Letter of Credit to have a Letter of Creditissued in its favor; and (v) no Letter of Credit shall be issued by anIssuing Bank after it has received a written notice from a Borrower or anyLender stating that a Default has occurred and is continuing until such time asthe Issuing Bank shall have received a written notice of (x) rescission ofsuch notice from the party or parties originally delivering such notice or (y) thewaiver of such Default in accordance with the provisions of Section 10.01.

 

Upon at least one BusinessDay’s prior written notice (or telephonic notice promptly confirmed in writing)to the Administrative Agent and the Issuing Bank (which notice theAdministrative Agent shall promptly transmit to each of the applicableLenders), the Borrowers shall have the right, on any day, permanently to terminateor reduce the Letter of Credit Commitment in whole or in part, provided that,after giving effect to such termination or reduction, the Letters of CreditOutstanding shall not exceed the Letter of Credit Commitment.

 

(b)           Letter of Credit Requests.

 

(i)            Whenever a Borrower desires that aLetter of Credit be issued for its account, it shall give the AdministrativeAgent and the Issuing Bank at least five (or such lesser number as may beagreed upon by the Administrative Agent and the Issuing Bank) Business Days’written notice thereof.  Each noticeshall be executed by the applicable Borrower and shall be in a form reasonablyacceptable to the Issuing Bank and the Administrative Agent (each a “Letterof Credit Request”).  TheAdministrative Agent shall promptly transmit copies of each Letter of CreditRequest to each Lender.

 

(ii)           The making of each Letter of CreditRequest shall be deemed to be a representation and warranty by the applicableBorrower that the Letter of Credit may be issued in accordance with, and willnot violate the requirements of, Section 2.04(a).

 

(c)           Letter of Credit Participations.

 

(i)            Immediately upon the issuance by theIssuing Bank of any Letter of Credit, the Issuing Bank shall be deemed to havesold and transferred to each other Lender that has a Commitment (each suchother Lender, in its capacity under this Section 2.04(c), an “L/CParticipant”), and each such L/C Participant shall be deemed irrevocablyand unconditionally to have purchased and received from the Issuing Bank, withoutrecourse or warranty, an undivided interest and participation (each an “L/CParticipation”), to the extent of such L/C Participant’s ApplicablePercentage of such Letter of Credit, each substitute letter of credit, eachdrawing made thereunder and the obligations of any Borrower under thisAgreement with respect thereto, and any security therefor or guarantypertaining thereto (although Letter of Credit Fees will be paid directly to theAdministrative Agent for the ratable account of the L/C Participants asprovided in Section 2.09(b) and the L/C Participants shallhave no right to receive any portion of any Fronting Fees).

 

(ii)           In determining whether to pay underany Letter of Credit, the Issuing Bank shall have no obligation relative to theL/C Participants other than to confirm that any documents required to bedelivered under such Letter of Credit have been delivered and that they appearto comply on their face with the requirements of such Letter of Credit.  Any action taken or omitted to be taken bythe Issuing Bank under or in connection with any Letter of Credit issued by it,if taken or omitted in the absence of gross negligence or willful misconduct,shall not create for the Issuing Bank any resulting liability.

 

34

----

 

(iii)          In the event that the Issuing Bankmakes any payment under any Letter of Credit issued by it and the Borrowersshall not have repaid such amount in full to the respective Issuing Bankpursuant to Section 2.04(d), the Issuing Bank shall promptly notifythe Administrative Agent and each L/C Participant of such failure, and each L/CParticipant shall promptly and unconditionally pay to the Administrative Agent,for the account of the Issuing Bank, the amount of such L/C Participant’sApplicable Percentage of such unreimbursed payment in Dollars and inimmediately available funds; provided, however, that no L/CParticipant shall be obligated to pay to the Administrative Agent for theaccount of the Issuing Bank its Applicable Percentage of such unreimbursedamount arising from any wrongful payment made by the Issuing Bank under aLetter of Credit as a result of acts or omissions constituting willfulmisconduct or gross negligence on the part of the Issuing Bank.  If the Issuing Bank so notifies, prior to11:00 a.m. (New York time) on any Business Day, any L/C Participantrequired to fund a payment under a Letter of Credit, such L/C Participant shallmake available to the Administrative Agent for the account of the Issuing Banksuch L/C Participant’s Applicable Percentage of the amount of such payment onsuch Business Day in immediately available funds.  If and to the extent such L/C Participantshall not have so made its Applicable Percentage of the amount of such paymentavailable to the Administrative Agent, for the account of the Issuing Bank,such L/C Participant agrees to pay to the Administrative Agent, for the accountof the Issuing Bank, forthwith on demand, such amount, together with interestthereon for each day from such date until the date such amount is paid to theAdministrative Agent, for the account of the Issuing Bank at a rate equal tothe greater of (x) the Federal Funds Effective Rate and (y) a ratedetermined by the Administrative Agent in accordance with banking industry rules oninterbank compensation.  The failure ofany L/C Participant to make available to the Administrative Agent, for theaccount of the Issuing Bank its Applicable Percentage of any payment under anyLetter of Credit shall not relieve any other L/C Participant of its obligationhereunder to make available to the Administrative Agent, for the account of theIssuing Bank its Applicable Percentage of any payment under such Letter ofCredit on the date required, as specified above, but, except as provided in Section 2.19,no L/C Participant shall be responsible for the failure of any other L/CParticipant to make available to the Administrative Agent such other L/CParticipant’s Applicable Percentage of any such payment.

 

(iv)          Whenever the Issuing Bank receives apayment in respect of an unpaid reimbursement obligation as to which theAdministrative Agent has received for the account of the Issuing Bank anypayments from the L/C Participants pursuant to paragraph (iii) above, theIssuing Bank shall pay to the Administrative Agent and the Administrative Agentshall promptly pay to each L/C Participant that has paid its ApplicablePercentage of such reimbursement obligation, in Dollars and in immediatelyavailable funds, an amount equal to such L/C Participant’s share (based uponthe proportionate aggregate amount originally funded by such L/C Participant tothe aggregate amount funded by all L/C Participants) of the principal amount ofsuch reimbursement obligation and interest thereon accruing after the purchaseof the respective L/C Participations.

 

(v)           The obligations of the L/CParticipants to make payments to the Administrative Agent for the account ofthe Issuing Bank with respect to Letters of Credit shall be irrevocable and notsubject to counterclaim, set-off or other defense or any other qualification orexception whatsoever and shall be made in accordance with the terms andconditions of this Agreement under all circumstances, including under any ofthe following circumstances:

 

(A)          any lack of validity or enforceabilityof this Agreement or any of the other Loan Documents;

 

35

----

 

(B)           the existence of any claim, set-off,defense or other right that any Borrower may have at any time against abeneficiary named in a Letter of Credit, any transferee of any Letter of Credit(or any Person for whom any such transferee may be acting), the AdministrativeAgent, the Issuing Bank, any Lender or other Person, whether in connection withthis Agreement, any Letter of Credit, the transactions contemplated herein orany unrelated transactions (including any underlying transaction between any Borrowerand the beneficiary named in any such Letter of Credit);

 

(C)           any draft, certificate or any otherdocument presented under any Letter of Credit proving to be forged, fraudulent,invalid or insufficient in any respect or any statement therein being untrue orinaccurate in any respect;

 

(D)          the surrender or impairment of anysecurity for the performance or observance of any of the terms of any of theLoan Documents; or

 

(E)           the occurrence of any Default;

 

provided, however, that no L/C Participant shall be obligated to pay tothe Administrative Agent for the account of the Issuing Bank its ApplicablePercentage of any unreimbursed amount arising from any wrongful payment made bythe Issuing Bank under a Letter of Credit as a result of acts or omissions constitutingwillful misconduct or gross negligence on the part of the Issuing Bank.

 

(d)           Agreement to Repay Letter ofCredit Drawings.

 

(i)            Each Borrower hereby agrees toreimburse the Issuing Bank, by making payment in Dollars or the applicableApproved Currency to the Administrative Agent in immediately available fundsfor any payment or disbursement made by the Issuing Bank under any Letter ofCredit (the amount of each such amount so paid until reimbursed, an “UnpaidDrawing”) immediately after, and in any event within two Business Days of,such payment, with interest on the amount so paid or disbursed by the IssuingBank, to the extent not reimbursed prior to 5:00 p.m. (New York time) onthe second Business Day following such payment or disbursement, from andincluding the date paid or disbursed to but excluding the date the Issuing Bankis reimbursed therefor at a rate per annum that shall at all times be theApplicable Rate for Base Rate Loans plus the Base Rate as in effect from timeto time, provided that, notwithstanding anything contained in this Agreement tothe contrary, (i) unless the applicable Borrower shall have notified theAdministrative Agent and the Issuing Bank prior to 10:00 a.m. (New Yorktime) on the date of such drawing that such Borrower intends to reimburse theIssuing Bank for the amount of such drawing with funds other than the proceedsof Loans, such Borrower be shall be deemed to have given a Request forBorrowing requesting that the Lenders with Commitments make Revolving Loans (whichshall be Base Rate Loans) on the date on which such drawing is honored in anamount equal to the amount of such drawing and (ii) the AdministrativeAgent shall promptly notify each relevant L/C Participant of such drawing andthe amount of its Revolving Loan to be made in respect thereof, and, subject tothe conditions set forth in Section 2.01, each L/C Participantshall be irrevocably obligated to make a Revolving Loan to such Borrower in themanner deemed to have been requested in the amount of its Applicable Percentageof the applicable Unpaid Drawing by 12:00 noon (New York time) on such BusinessDay by making the amount of such Revolving Loan available to the AdministrativeAgent.  Such Revolving Loans shall bemade without regard to the minimum Borrowing amount for Base Rate Loans.  The Administrative Agent shall use theproceeds of such Revolving Loans solely for purpose of reimbursing the IssuingBank for the related Unpaid Drawing.

 

36

----

 

(ii)           The obligations of each Borrowerunder this Section 2.04(d) to reimburse the Issuing Bank withrespect to Unpaid Drawings (including, in each case, interest thereon) shall beabsolute and unconditional under any and all circumstances and irrespective ofany set-off, counterclaim or defense to payment that any such Borrower or anyother Person may have or have had against the Issuing Bank, the AdministrativeAgent or any Lender (including in its capacity as an L/C Participant),including any defense based upon the failure of any drawing under a Letter ofCredit to conform to the terms of the Letter of Credit or any non-applicationor misapplication by the beneficiary of the proceeds of such drawing, providedthat no Borrower shall be obligated to reimburse the Issuing Bank for anywrongful payment made by the Issuing Bank under the Letter of Credit issued byit as a result of acts or omissions constituting willful misconduct or grossnegligence on the part of the Issuing Bank.

 

(e)           Increased Costs.  If after the date hereof, the adoption of anyapplicable law, rule or regulation, or any change therein, or any changein the interpretation or administration thereof by any Governmental Authority,central bank or comparable agency charged with the interpretation oradministration thereof, or actual compliance by the Issuing Bank or any L/CParticipant with any request or directive made or adopted after the date hereof(whether or not having the force of law), by any such authority, central bankor comparable agency shall either (a) impose, modify or make applicableany reserve, deposit, capital adequacy or similar requirement against lettersof credit issued by the Issuing Bank, or any L/C Participant’s L/CParticipation therein, or (b) impose on the Issuing Bank or any L/CParticipant any other conditions affecting its obligations under this Agreementin respect of Letters of Credit or L/C Participations therein or any Letter ofCredit or such L/C Participant’s L/C Participation therein, and the result ofany of the foregoing is to increase the cost to the Issuing Bank or such L/CParticipant of issuing, maintaining or participating in any Letter of Credit,or to reduce the amount of any sum received or receivable by the Issuing Bankor such L/C Participant hereunder (other than any such increase or reductionattributable to taxes) in respect of Letters of Credit or L/C Participationstherein, then, promptly after receipt of written demand to the applicableBorrower by the Issuing Bank or such L/C Participant, as the case may be, (acopy of which notice shall be sent by the Issuing Bank or such L/C Participantto the Administrative Agent), such Borrower shall pay to the Issuing Bank orsuch L/C Participant such additional amount or amounts as will compensate theIssuing Bank or such L/C Participant for such increased cost or reduction, itbeing understood and agreed, however, that the Issuing Bank or a L/CParticipant shall not be entitled to such compensation as a result of suchPerson’s compliance with, or pursuant to any request or directive to complywith, any such law, rule or regulation as in effect on the datehereof.  A certificate submitted to theapplicable Borrower by the relevant Issuing Bank or a L/C Participant, as thecase may be, (a copy of which certificate shall be sent by the Issuing Bank orsuch L/C Participant to the Administrative Agent) setting forth in reasonabledetail the basis for the determination of such additional amount or amountsnecessary to compensate the Issuing Bank or such L/C Participant as aforesaidshall be conclusive and binding on such Borrower absent clearly demonstrableerror.

 

(f)            Successor Issuing Bank.  An Issuing Bank may resign as Issuing Bankupon 60 days’ prior written notice to the Administrative Agent, the Lenders andthe Borrowers.  If the Issuing Bank shallresign as Issuing Bank under this Agreement, then the Borrowers shall appointfrom among the Lenders (with the consent of such Lender) with Commitments asuccessor issuer of Letters of Credit, whereupon such successor issuer shallsucceed to the rights, powers and duties of the Issuing Bank, and the term “IssuingBank” shall mean such successor issuer effective upon such appointment (exceptwith respect to Letters of Credit issued by the resigning Issuing Bank).  After the resignation of the Issuing Bankhereunder, the resigning Issuing Bank shall remain a party hereto and shallcontinue to have all the rights and obligations of an Issuing Bank under thisAgreement and the other Loan Documents with respect to Letters of Credit issuedby it prior to such resignation, but shall not be required to issue additionalLetters of Credit.  After any retiringIssuing Bank’s resignation as Issuing Bank, the provisions of this Agreement 

 

37

----

 

relating to the IssuingBank shall inure to its benefit as to any actions taken or omitted to be takenby it (a) while it was Issuing Bank under this Agreement or (b) atany time with respect to Letters of Credit issued by such Issuing Bank.

 

(g)           Cash Collateral.

 

(i)            Upon the request of the RequiredLenders if, as of the L/C Maturity Date, there are any Letters of CreditOutstanding, the Borrowers shall immediately Cash Collateralize the thenLetters of Credit Outstanding.

 

(ii)           The Administrative Agent acting inits reasonable discretion, may, at any time and from time to time after theinitial deposit of Cash Collateral, request that additional Cash Collateral beprovided in the event such Cash Collateral previously provided is inadequate asa result of exchange rate fluctuations.

 

(iii)          If any Event of Default shall occurand be continuing, the Administrative Agent or the Lenders with Letter ofCredit Exposure representing greater than 50% of the total Letter of CreditExposure may require that the L/C Obligations be Cash Collateralized.

 

**2.05        Prepayments.**

 

(a)           The Borrowers may, upon notice to theAdministrative Agent, at any time or from time to time voluntarily prepayRevolving Loans in whole or in part without premium or penalty; providedthat (i) such notice must be received by the Administrative Agent notlater than 11:00 a.m. (A) three Business Days prior to any date ofprepayment of Fixed Period Eurodollar Loans, (B) one Business Day prior toany date of prepayment of Daily Floating Eurodollar Loans and (C) on thedate of prepayment of Base Rate Loans; (ii) any prepayment of Fixed PeriodEurodollar Loans and Daily Floating Eurodollar Loans shall be in a principalamount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) anyprepayment of Base Rate Loans shall be in a principal amount of $500,000 or awhole multiple of $100,000 in excess thereof or, in each case, if less, theentire principal amount thereof then outstanding.  Each such notice shall specify the date andamount of such prepayment and the Currency Type and Interest Rate Type ofRevolving Loans to be prepaid and, if Fixed Period Eurodollar Loans are to beprepaid, the Interest Period(s) of such Loans.  The Administrative Agent will promptly notifyeach Lender of its receipt of each such notice, and of the amount of suchLender’s Applicable Percentage of such prepayment.  If such notice is given by any Borrower, suchBorrower shall make such prepayment and the payment amount specified in suchnotice shall be due and payable on the date specified therein.  Any prepayment of a Fixed Period EurodollarLoan or a Daily Floating Eurodollar Loan shall be accompanied by all accruedinterest on the amount prepaid, together with any additional amounts requiredpursuant to Section 3.05. Each such prepayment shall be applied to the Revolving Loans of theLenders in accordance with their respective Applicable Percentages.

 

(b)           The Borrowers may, upon notice to theSwingline Lender (with a copy to the Administrative Agent), at any time or fromtime to time, voluntarily prepay Swingline Loans in whole or in part withoutpremium or penalty; provided that (i) such notice must be receivedby the Swingline Lender and the Administrative Agent not later than 1:00 p.m.on the date of the prepayment, and (ii) any such prepayment shall be in aminimum principal amount of $1,000,000. Each such notice shall specify the date and amount of suchprepayment.  If such notice is given byany Borrower, such Borrower shall make such prepayment and the payment amountspecified in such notice shall be due and payable on the date specifiedtherein.

 

38

----

 

(c)           If for any reason, at any time, theTotal Revolving Credit Exposure exceeds the Line Cap at such time, theBorrowers shall immediately prepay the applicable Loans in an aggregate amountof such excess, as applicable.

 

(d)           In the event that at any time anyBorrowing Base Deficiency shall exist, the Borrowers shall prepay the Loans (orCash Collateralize Letters of Credit as contemplated by Section 2.04(g))in such amounts as shall be necessary so that such Borrowing Base Deficiency nolonger exists; provided that if, within five Business Days afterdelivery of a Borrowing Base Report demonstrating such Borrowing BaseDeficiency (and/or at such other times as any Borrower has knowledge of suchBorrowing Base Deficiency), the Borrowers shall present the AdministrativeAgent with a reasonably feasible plan to cause such Borrowing Base Deficiencyto no longer exist within 20 Business Days (which 20-Business Day period shallinclude the five Business Days permitted for delivery of such plan), then suchprepayment or reduction (or Cash Collateralization) shall not be required to beeffected immediately but may be effected in accordance with such plan (withsuch modifications as the Borrowers may reasonably determine), so long as suchBorrowing Base Deficiency no longer exists prior to the end of such 20-BusinessDay period.

 

**2.06       ****Termination or Reduction of Commitments**.   TheBorrowers may, upon notice to the Administrative Agent, terminate theCommitments hereunder, and, from time to time, permanently reduce the AggregateCommitment Amount; provided that (i) any such notice shall bereceived by the Administrative Agent not later than 11:00 a.m. five (5) BusinessDays prior to the date of termination or reduction, (ii) any such partialreduction shall be in an aggregate amount of $5,000,000 or any whole multipleof $1,000,000 in excess thereof, (iii) the Borrowers shall not terminateor reduce the Aggregate Commitments if, after giving effect thereto and to anyconcurrent prepayments hereunder, the Total Revolving Credit Exposure wouldexceed the Aggregate Commitment Amount, (iv) if, after giving effect toany reduction of the Aggregate Commitments, the Swingline Sublimit exceeds theAggregate Commitment Amount, such Sublimit shall be automatically reduced bythe amount of such excess and (v) in the case of a partial termination orreduction of the Commitments, the Aggregate Commitment Amount shall not be lessthan $50,000,000.  The AdministrativeAgent will promptly notify the Lenders of any such notice of termination orreduction of the Aggregate Commitments. Any reduction of the Aggregate Commitment Amount shall be applied to theCommitment of each Lender according to its Applicable Percentage.  All fees accrued until the effective date ofany termination of the Aggregate Commitments shall be paid on the effectivedate of such termination.

 

**2.07        Repayment of Loans.**

 

(a)           The Borrowers shall repay to theLenders on the Maturity Date the aggregate principal amount of Revolving Loansoutstanding on such date.

 

(b)           The Borrowers shall repay eachSwingline Loan on the earliest to occur of (i) the Maturity Date or (ii) thedate requested by the Swingline Lender which shall not be earlier than theBusiness Day in which the Borrowers may request Base Rate Loans pursuant to Section 2.02.

 

**2.08        Interest.**

 

(a)           Subject to the provisions ofsubsection (b) below, (i) each Fixed Period Eurodollar Loan shallbear interest on the outstanding principal amount thereof for each InterestPeriod at a rate per annum equal to the Fixed Period Eurodollar Rate for suchInterest Period *plus* the relevant ApplicableRate, (ii) each Daily Floating Eurodollar Loan shall bear interest on theoutstanding principal amount thereof from the applicable borrowing date to thedate of payment thereof at a rate per annum equal to the Daily FloatingEurodollar Rate *plus* the relevant ApplicableRate, (iii) each Base Rate Loan shall bear interest 

 

39

----

 

on the outstandingprincipal amount thereof at a rate per annum equal to the Base Rate *plus* the relevant Applicable Rate; and (iv) eachSwingline Loan shall bear interest on the outstanding principal amount thereoffrom the applicable borrowing date to the date of payment thereof at a rate perannum equal to, at the election of the Borrowers, (A) the Base Rate or (B) theDaily Floating Eurodollar Rate *plus* the relevantApplicable Rate.

 

(b)           (i)            Ifany amount of principal of any Loan is not paid when due (without regard to anyapplicable grace periods), whether at stated maturity, by acceleration orotherwise, such amount shall thereafter bear interest at a fluctuating interestrate per annum at all times equal to the Default Rate to the fullest extentpermitted by applicable Laws.

 

(ii)           If any amount (other than principalof any Loan) payable by the Borrowers under any Loan Document is not paid whendue (without regard to any applicable grace periods), whether at statedmaturity, by acceleration or otherwise, then upon the request of the RequiredLenders, such amount shall thereafter bear interest at a fluctuating interestrate per annum at all times equal to the Default Rate to the fullest extentpermitted by applicable Laws.

 

(iii)          Upon the request of theRequired Lenders, while any Event ofDefault exists, the Borrowers shall pay interest on the principal amount of alloutstanding Obligations hereunder at a fluctuating interest rate per annum atall times equal to the Default Rate to the fullest extent permitted byapplicable Laws.

 

(iv)          Accrued and unpaid interest on pastdue amounts (including interest on past due interest) shall be due and payableupon demand.

 

(c)           Interest on each Loan shall be dueand payable in arrears on each Interest Payment Date applicable thereto and atsuch other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the termshereof before and after judgment, and before and after the commencement of anyproceeding under any Debtor Relief Law.

 

**2.09        Fees.**

 

(a)           Commitment Fee.  The Borrowers shall pay to the AdministrativeAgent for the account of each Lender in accordance with its ApplicablePercentage, a commitment fee equal to 0.50% per annum *times*the average daily unused amount of Commitments of such Lender during the periodfrom and including the Closing Date to but excluding the earlier of the datesuch Commitment terminates and the Commitment Termination Date.  The Commitment Fee shall accrue at all timesduring the Availability Period and shall be due and payable quarterly inarrears on the last Business Day of each March, June, September andDecember, commencing with the first such date to occur after the Closing Date,and on the last day of the Availability Period.

 

(b)           Letter of Credit Fees. EachBorrower agrees to pay (i) to the Administrative Agent in Dollars for theaccount of the Lenders pro rata on the basis of their respective LC Exposure, afee in respect of each Letter of Credit (the “Letter of Credit Fee”),for the period from the date of issuance of such Letter of Credit to thetermination date of such Letter of Credit computed at the per annum rate foreach day equal to the Applicable Rate for Eurodollar Loans minus 0.125% perannum on the average daily stated amount of such Letter of Credit (excludingany portion thereof attributable to unreimbursed LC Disbursements) during theperiod from and including the Closing Date to but excluding the later of thedate on which such Lender’s Commitment terminates and the date on which suchLender ceases to have any LC Exposure and (ii) to the Issuing Bank afronting fee (the “Fronting Fee”), which shall accrue at the rate of0.125% per annum on the average daily amount of the LC Exposure (excluding anyportion 

 

40

----

 

thereof attributable tounreimbursed LC Disbursements) during the period from and including the ClosingDate to but excluding the later of the date of termination of the Commitmentsand the date on which there ceases to be any LC Exposure, as well as theIssuing Bank’s standard fees with respect to the issuance, amendment, renewalor extension of any Letter of Credit or processing of drawings thereunder; providedthat, no fees will accrue under this Section 2.09 on any DefaultingLender’s portion of a Letter of Credit that any Borrower has CashCollateralized pursuant to Section 2.04(g).  Letter of Credit Fees and Fronting Fees shallaccrue during the Availability Period and shall be due and payable quarterly inarrears on the last Business Day of each March, June, September andDecember, commencing with the first such date to occur after the Closing Date,provided that Letter of Credit Fees and Fronting Fees shall be payable on thedate on which the Commitments terminate. Any other fees payable to the Issuing Bank pursuant to this paragraphshall be payable within 20 business days after demand.  Letter of Credit Fees and Fronting Fees shallbe computed on the basis of a year of 360 days and shall be payable for theactual number of days elapsed (including the first day but excluding the lastday).

 

(c)           Other Fees.** **(i)  The Borrowers shall pay to the Arranger andthe Administrative Agent for their own respective accounts fees in the amountsand at the times set forth in the Fee Letter or as otherwise separately agreedbetween such parties.  Such fees shall befully earned when paid and shall not be refundable for any reason whatsoever.

 

(ii)           The Borrowers shall pay to theLenders such fees as shall have been separately agreed upon in writing in theamounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundablefor any reason whatsoever.

 

**2.10       ****Computation of Interest and Fees**.   Allcomputations of interest for Base Rate Loans or Daily Floating Eurodollar Loansshall be made on the basis of a year of 365 or 366 days, as the case may be,and actual days elapsed.  All othercomputations of fees and interest shall be made on the basis of a 360-day yearand actual days elapsed (which results in more fees or interest, as applicable,being paid than if computed on the basis of a 365-day year).  Interest shall accrue on each Loan for theday on which the Loan is made, and shall not accrue on a Loan, or any portionthereof, for the day on which the Loan or such portion is paid, providedthat any Loan that is repaid on the same day on which it is made shall, subjectto Section 2.12(a), bear interest for one day.  Each determination by the AdministrativeAgent of an interest rate or fee hereunder shall be conclusive and binding forall purposes, absent manifest error.

 

**2.11        Evidence of Debt.**

 

(a)           The Loans made by each Lender shallbe evidenced by one or more accounts or records maintained by such Lender andby the Administrative Agent in the ordinary course of business.  The accounts or records maintained by theAdministrative Agent and each Lender shall be conclusive absent manifest errorof the amount of the Loans made by the Lenders to the Borrowers and theinterest and payments thereon.  Anyfailure to so record or any error in doing so shall not, however, limit orotherwise affect the obligation of the Borrowers hereunder to pay any amountowing with respect to the Obligations. In the event of any conflict between the accounts and records maintainedby any Lender and the accounts and records of the Administrative Agent inrespect of such matters, the accounts and records of the Administrative Agentshall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent,the Borrowers shall execute and deliver to such Lender (through theAdministrative Agent) a Note, which shall evidence such Lender’s Loans in additionto such accounts or records.  Each Lendermay attach schedules to its Note and endorse thereon the date, InterestRate Type (if applicable), amount, Approved Currency and maturity of its Loansand payments with respect thereto.

 

41

----

 

(b)           In addition to the accounts andrecords referred to in subsection (a), each Lender and the AdministrativeAgent shall maintain in accordance with its usual practice accounts or recordsevidencing the purchases and sales by such Lender of participations inSwingline Loans.  In the event of anyconflict between the accounts and records maintained by the AdministrativeAgent and the accounts and records of any Lender in respect of such matters,the accounts and records of the Administrative Agent shall control in theabsence of manifest error.

 

**2.12        Payments Generally; Administrative Agent’sClawback.**

 

(a)           General.  All payments to be made by any Borrower shallbe made without condition or deduction for any counterclaim, defense,recoupment or setoff.  Except asotherwise expressly provided herein and except with respect to principal of andinterest on Alternate Currency Loans, all payments by any Borrower hereundershall be made to the Administrative Agent, for the account of the respectiveLenders to which such payment is owed, at the Administrative Agent’s Office inthe relevant Approved Currency and in Same Day Funds not later than 2:00 p.m.on the date specified herein.  Except asotherwise expressly provided herein, all payments by the Borrowers hereunderwith respect to principal and interest on Alternate Currency Loans shall bemade to the Administrative Agent, for the account of the respective Lenders towhich such payment is owed, at the applicable Administrative Agent’s Office insuch Alternate Currency and in Same Day Funds not later than the ApplicableTime specified by the Administrative Agent on the dates specified herein.  Without limiting the generality of theforegoing, the Administrative Agent may require that any payments due underthis Agreement be made in the United States. If, for any reason, any Borrower is prohibited by any Law from makingany required payment hereunder in an Alternate Currency, such Borrower shall makesuch payment in Dollars in the Dollar Equivalent of the Alternate Currencypayment amount.  The Administrative Agentwill promptly distribute to each Lender its Applicable Percentage (or otherapplicable share as provided herein) of such payment in like funds as receivedby wire transfer to such Lender’s Lending Office.  All payments received by the AdministrativeAgent (i) after 2:00 p.m., in the case of payments in Dollars, or (ii) afterthe Applicable Time specified by the Administrative Agent, in the case ofpayments in an Alternate Currency, shall be deemed received on the nextsucceeding Business Day and any applicable interest or fee shall continue toaccrue.  If any payment to be made by anyBorrower shall come due on a day other than a Business Day, payment shall bemade on the next following Business Day, and such extension of time shall bereflected in computing interest or fees, as the case may be.  Unless otherwise expressly stated, allpayments hereunder shall be made in Dollars.

 

(b)           (i)   Funding byLenders; Presumption by Administrative Agent.  Unless the Administrative Agent shall havereceived notice from a Lender prior to the proposed date of any Borrowing ofEurodollar Loans (or, in the case of any Revolving Loan of Base Rate Loans,prior to 12:00 noon on the date of such Revolving Loan) that such Lender willnot make available to the Administrative Agent such Lender’s share of suchRevolving Loan, the Administrative Agent may assume that such Lender has madesuch share available on such date in accordance with Section 2.02 (or,in the case of a Borrowing of Base Rate Loans, that such Lender has made suchshare available in accordance with and at the time required by Section 2.02)and may, in reliance upon such assumption, make available to the Borrowers inthe relevant Approved Currency a corresponding amount.  In such event, if a Lender has not in factmade its share of the applicable Revolving Loan available to the AdministrativeAgent, then the applicable Lender and the Borrowers severally agree to pay tothe Administrative Agent in the relevant Approved Currency forthwith on demandsuch corresponding amount in immediately available funds with interest thereon,for each day from and including the date such amount is made available to theBorrowers to, but excluding, the date of payment to the Administrative Agent,at (A) in the case of a payment to be made by such Lender, the greater ofthe Federal Funds Rate and a rate determined by the Administrative Agent inaccordance with banking industry rules on interbank compensation, plus anyadministrative, processing or similar fees customarily charged by theAdministrative Agent in connection with the 

 

42

----

 

foregoing, and (B) inthe case of a payment to be made by the Borrowers, the interest rate applicableto Base Rate Loans.  If the Borrowers andsuch Lender shall pay such interest to the Administrative Agent for the same oran overlapping period, the Administrative Agent shall promptly remit to theBorrowers the amount of such interest paid by the Borrowers for suchperiod.  If such Lender pays its share ofthe applicable Revolving Loan to the Administrative Agent, then the amount sopaid shall constitute such Lender’s Revolving Loan included in suchBorrowing.  Any payment by the Borrowersshall be without prejudice to any claim the Borrowers may have against a Lenderthat shall have failed to make such payment to the Administrative Agent.

 

(ii)           Payments by Borrowers;Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from theBorrowers prior to the date on which any payment is due to the AdministrativeAgent for the account of the Lenders hereunder that the Borrowers will not makesuch payment, the Administrative Agent may assume that the Borrowers have madesuch payment on such date in accordance herewith and may, in reliance upon suchassumption, distribute to the Lenders, as the case may be, the amount due.  In such event, if the Borrowers have not infact made such payment, then each of the Lenders, as the case may be, severallyagrees to repay to the Administrative Agent forthwith on demand the amount sodistributed to such Lender, in immediately available funds with interestthereon, for each day from and including the date such amount is distributed toit to but excluding the date of payment to the Administrative Agent, at thegreater of the Federal Funds Rate and a rate determined by the AdministrativeAgent in accordance with banking industry rules on interbank compensation.

 

Anotice of the Administrative Agent to any Lender or the Borrowers with respectto any amount owing under this subsection (b) shall be conclusive,absent manifest error.

 

(c)           Failure to Satisfy ConditionsPrecedent.  If any Lender makesavailable to the Administrative Agent funds for any Loan to be made by suchLender as provided in the foregoing provisions of this Article II,and such funds are not made available to the Borrowers by the AdministrativeAgent because the conditions to the applicable Borrowing set forth in Article IVare not satisfied or waived in accordance with the terms hereof, theAdministrative Agent shall promptly return such funds (in like funds asreceived from such Lender) to such Lender, without interest.

 

(d)           Obligations of Lenders Several.  All obligations of the Lenders pursuant tothis Agreement (including obligations to make Revolving Loans, to fundparticipations in Swingline Loans and to make payments pursuant to Section 10.04(c))are several and not joint.  The failureof any Lender to make any Revolving Loan, to fund any such participation or tomake any payment under Section 10.04(c) on any date requiredhereunder shall not relieve any other Lender of its corresponding obligation todo so on such date, and no Lender shall be responsible for the failure of anyother Lender to so make its Revolving Loan, to purchase its participation or tomake its payment under Section 10.04(c).

 

(e)           Funding Source.  Nothing herein shall be deemed to obligateany Lender to obtain the funds for any Loan in any particular place or manneror to constitute a representation by any Lender that it has obtained or willobtain the funds for any Loan in any particular place or manner.

 

**2.13       ****Sharing of Payments by Lenders**.   Ifany Lender shall, by exercising any right of setoff or counterclaim orotherwise, obtain payment in respect of any principal of or interest on any ofthe Revolving Loans made by it, or the participations in Swingline Loans heldby it resulting in such Lender’s receiving payment of a proportion of theaggregate amount of such Revolving Loans or participations and accrued interestthereon greater than its prorata share thereof as providedherein, then the Lender receiving such greater proportion shall (a) notifythe Administrative Agent of such fact, and (b) purchase (for cash at facevalue in the relevant Approved Currency) participations in the Revolving 

 

43

----

 

Loans andsubparticipations in Swingline Loans of the other Lenders, or make such otheradjustments as shall be equitable, so that the benefit of all such paymentsshall be shared by the Lenders ratably in accordance with the aggregate amountof principal of and accrued interest on their respective Revolving Loans andother amounts owing them, provided that:

 

(i)            if any such participations orsubparticipations are purchased and all or any portion of the payment givingrise thereto is recovered, such participations or subparticipations shall berescinded and the purchase price restored to the extent of such recovery,without interest; and

 

(ii)           the provisions of this Section shallnot be construed to apply to (x) any payment made by the Borrowerspursuant to and in accordance with the express terms of this Agreement or (y) anypayment obtained by a Lender as consideration for the assignment of or sale ofa participation in any of its Revolving Loans or subparticipations in SwinglineLoans to any assignee or participant, other than to the Borrowers or anySubsidiary thereof (as to which the provisions of this Section shallapply).

 

EachBorrower consents to the foregoing and agrees, to the extent it may effectivelydo so under applicable law, that any Lender acquiring a participation pursuantto the foregoing arrangements may exercise against such Borrower rights ofsetoff and counterclaim with respect to such participation as fully as if suchLender were a direct creditor of such Borrower in the amount of suchparticipation.

 

**2.14        Increase in Commitments.**

 

(a)           Request for Increase.  Provided there exists no Default, upon noticeto the Administrative Agent (which shall promptly notify the Lenders), theBorrowers may from time to time, request an increase in the AggregateCommitment Amount by amounts such that immediately after giving effect to anysuch increase, the total Commitments of all of the Lenders hereunder shall notexceed $600,000,000; provided that (i) any such request for anincrease shall be in a minimum amount of $10,000,000 and integral multiples of$2,500,000 in excess thereof, and (ii) the Borrowers may make a maximum offour (4) such requests in any 12 month period.  At the time of sending such notice, theBorrowers (in consultation with the Administrative Agent) shall specify thetime period within which each Lender is requested to respond (which shall in noevent be less than ten (10) Business Days from the date of delivery ofsuch notice to the Lenders).

 

(b)           Lender Elections to Increase.  Each Lender shall notify the AdministrativeAgent within such time period whether or not it agrees to increase itsCommitment and, if so, whether by an amount equal to, greater than, or lessthan its Applicable Percentage of such requested increase.  Any Lender not responding within such timeperiod shall be deemed to have declined to increase its Commitment.  No Lender shall be obligated to increase itsCommitment hereunder.

 

(c)           Notification by AdministrativeAgent; Additional Lenders.  TheAdministrative Agent shall notify the Borrowers and each Lender of the Lenders’responses to each request made hereunder. To achieve the full amount of a requested increase and subject to theapproval of the Administrative Agent and the Swingline Lender (which approvalsshall not be unreasonably withheld), the Borrowers may also invite additionalEligible Assignees to become Lenders pursuant to a joinder agreement in formand substance satisfactory to the Administrative Agent and its counsel.

 

(d)           Effective Date and Allocations.  If the Aggregate Commitments are increased inaccordance with this Section, the Administrative Agent and the Borrowers shalldetermine the effective date (the “Increase Effective Date”) and thefinal allocation of such increase.  TheAdministrative Agent 

 

44

----

 

shall promptly notify theBorrowers and the Lenders of the final allocation of such increase and theIncrease Effective Date.

 

(e)           Conditions to Effectiveness ofIncrease.  As a condition precedentto such increase, the Borrowers shall deliver to the Administrative Agent acertificate of each Borrower dated as of the Increase Effective Date (insufficient copies for each Lender) signed by a Responsible Officer of suchBorrower (i) certifying and attaching the resolutions adopted by suchBorrower approving or consenting to such increase, and (ii) certifyingthat, before and after giving effect to such increase, (A) therepresentations and warranties contained in Article V and the otherLoan Documents are true and correct on and as of the Increase Effective Date,except to the extent that such representations and warranties specificallyrefer to an earlier date, in which case they are true and correct as of suchearlier date, and except that for purposes of this Section 2.14,the representations and warranties contained in subsections (a) and (b) ofSection 5.05 shall be deemed to refer to the most recent statementsfurnished pursuant to clauses (a) and (b), respectively, of Section 6.01,and (B) no Default exists.

 

(f)            Loans; Reallocation ofOutstanding Amounts.

 

(i)            Except as set forth in subsection (ii) ofthis subsection (f), if any Eligible Assignee becomes a Lender hereunder or anyLender’s Commitment is increased pursuant to this Section, Loans made on orafter the applicable Increase Effective Date shall be made in accordance withthe Applicable Percentages of each Lender in effect on and after such IncreaseEffective Date (except to the extent that any such Loan would result in anyLender making an aggregate principal amount of Loans in excess of itsCommitment, in which case such excess amount will be allocated to and made by,any new Lenders and Lenders with increased Commitments pursuant to subsection (b) above,in each case, in accordance with their Applicable Percentages).

 

(ii)           Upon any increase in the AggregateCommitment Amount pursuant to this Section 2.14 (a) each ofthe Lenders with an existing Commitment (each, an “Existing Lender”)shall assign to each Lender with a new Commitment (each, a “New Lender”)and each of the New Lenders shall purchase from each of the Existing Lenders,at the principal amount thereof and in the applicable currency or currencies,such interests in the Loans outstanding on such Increase Effective Date asshall be necessary in order that, after giving effect to all such assignmentsand purchases, the Loans will be held by Existing Lenders and New Lendersratably in accordance with their Commitments after giving effect to theaddition of the Commitments of the New Lenders, (b) each new Commitment ofa New Lender shall be deemed for all purposes a Commitment hereunder and eachLoan made thereunder (a “New Loan”) shall be deemed, for all purposes, aLoan and (c) each New Lender shall become a Lender with respect to theCommitments and all matters relating thereto.

 

(g)           Conflicting Provisions.  This Section shall supersede anyprovisions in Section 2.13 or 10.01 to the contrary.

 

**2.15        Concerning Joint and Several Liabilityof the Borrowers.**

 

(a)           Each of the Borrowers is acceptingjoint and several liability hereunder and under the other Loan Documents inconsideration of the financial accommodations to be provided by the Lenders andthe Administrative Agent under this Agreement, for the mutual benefit, directlyand indirectly, of each of the Borrowers and in consideration of theundertakings of each other Borrower to accept joint and several liability forthe Obligations.

 

45

----

 

(b)           Each of the Borrowers, jointly andseverally, hereby irrevocably and unconditionally accepts, not merely as asurety but also as a primary obligor and co-debtor, joint and several liabilitywith each other Borrower, with respect to the payment and performance of all ofthe Obligations (including, without limitation, any Obligations arising underthis Section 2.15), it being the intention of the parties heretothat all the Obligations shall be the joint and several obligations of each ofthe Borrowers without preferences or distinction among them.

 

(c)           If and to the extent that any of theBorrowers shall fail to make any payment with respect to any of the Obligationsas and when due or to perform any of the Obligations in accordance with theterms thereof, then, in each such event, the other Borrowers will make suchpayment with respect to, or perform, such Obligation.

 

(d)           The Obligations of each of theBorrowers under the provisions of this Section 2.15 constitute thefull recourse Obligations of each of the Borrowers enforceable against eachsuch Person to the full extent of its properties and assets, irrespective ofthe validity, regularity or enforceability of this Agreement or the other LoanDocuments or any other circumstance whatsoever.

 

(e)           Except as otherwise expresslyprovided herein, each Borrower hereby waives promptness, diligence,presentment, demand, protest, notice of acceptance of its joint and severalliability, notice of any and all advances of the Loans made under thisAgreement and any promissory note issued hereunder, notice of occurrence of anyDefault or Event of Default (except to the extent notice is expressly requiredto be given pursuant to the terms of this Agreement or any of the other LoanDocuments), or of any demand for any payment under this Agreement, notice ofany action at any time taken or omitted by the Administrative Agent or theLenders under or in respect of any of the Obligations hereunder, anyrequirement of diligence and, generally, all demands, notices and otherformalities of every kind in connection with this Agreement and the other LoanDocuments.  Each Borrower hereby waivesall defenses which may be available by virtue of any valuation, stay,moratorium law or other similar law now or hereafter in effect, any right torequire the marshaling of assets of the Borrowers and any other entity orPerson primarily or secondarily liable with respect to any of the Obligations,and all surety ship defenses generally. Each Borrower hereby assents to, and waives notice of, any extension orpostponement of the time for the payment, or place or manner for payment,compromise, refinancing, consolidation or renewals of any of the Obligationshereunder, the acceptance of any partial payment thereon, any waiver, consentor other action or acquiescence by the Administrative Agent and the Lenders atany time or times in respect of any default by any Borrower in the performanceor satisfaction of any term, covenant, condition or provision of this Agreementand the other Loan Documents, any and all other indulgences whatsoever by theAdministrative Agent and the Lenders in respect of any of the Obligations hereunder,and the taking, addition, substitution or release, in whole or in part, at anytime or times, of any security for any of such Obligations or the addition,substitution or release, in whole or in part, of any Borrower or any otherentity or Person primarily or secondarily liable for any Obligation. SuchBorrower further agrees that its Obligations shall not be released ordischarged, in whole or in part, or otherwise affected by the adequacy of anyrights which the Administrative Agent or any Lender may have against anycollateral security or other means of obtaining repayment of any of theObligations, the impairment of any collateral security securing theObligations, including, without limitation, the failure to protect or preserveany rights which any Administrative Agent or any Lender may have in suchcollateral security or the substitution, exchange, surrender, release, loss ordestruction of any such collateral security, any other act or omission whichmight in any manner or to any extent vary the risk of such Borrower, orotherwise operate as a release or discharge of such Borrower, all of which maybe done without notice to such Borrower. If for any reason any other Borrower has no legal existence or is underno legal obligation to discharge any of the Obligations, or if any of theObligations have become irrecoverable from any other Borrower by reason of suchother Borrower’s insolvency, bankruptcy or reorganization or by other operationof law or for any reason, this Agreement and the other Loan 

 

46

----

 

Documents to which it is aparty shall nevertheless be binding on such Borrower to the same extent as ifsuch Borrower at all times had been the sole obligor on such Obligations.Without limiting the generality of the foregoing, each Borrower assents to anyother action or delay in acting or failure to act on the part of theAdministrative Agent and the Lenders, including, without limitation, anyfailure strictly or diligently to assert any right or to pursue any remedy orto comply fully with applicable laws or regulations thereunder which might, butfor the provisions of this Section 2.15, afford grounds forterminating, discharging or relieving such Borrower, in whole or in part, fromany of its obligations under this Section 2.15, it being theintention of each Borrower that, so long as any of the Obligations hereunderremain unsatisfied, the obligations of such Borrower under this Section 2.15shall not be discharged except by performance and then only to the extent ofsuch performance. The Obligations of each Borrower under this Section 2.15shall not be diminished or rendered unenforceable by any winding up,reorganization, arrangement, liquidation, reconstruction or similar proceedingwith respect to any reconstruction or similar proceeding with respect to anyother Borrower, or any of the Lenders. The joint and several liability of the Borrowers hereunder shallcontinue in full force and effect notwithstanding any absorption, merger,amalgamation or any other change whatsoever in the name, ownership, membership,constitution or place of formation of any Borrower or the Lenders.  Each of the Borrowers acknowledges andconfirms that it has itself established its own adequate means of obtainingfrom the other Borrowers on a continuing basis all information desired by suchBorrower concerning the financial condition of the other Borrowers and thateach such Borrower will look to the other Borrowers and not to theAdministrative Agent or any Lender in order for such Borrower to keepadequately informed of changes in the other Borrowers’ respective financialconditions.

 

(f)            The provisions of this Section 2.15are made for the benefit of the Lenders and the Administrative Agent and theirrespective permitted successors and assigns, and may be enforced by it or themfrom time to time against any or all of the Borrowers as often as occasiontherefor may arise and without requirement on the part of the Lenders, theAdministrative Agent or such successor or assign first to marshal any of its ortheir claims or to exercise any of its or their rights against the otherBorrowers or to exhaust any remedies available to it or them against any otherBorrower or to resort to any other source or means of obtaining payment of anyof the Obligations hereunder or to elect any other remedy.  The provisions of this Section 2.15shall remain in effect until all of the Obligations shall have been paid infull or otherwise fully satisfied.  If atany time, any payment, or any part thereof; made in respect of any of theObligations, is rescinded or must otherwise be restored or returned by anyLender or any Administrative Agent upon the insolvency, bankruptcy orreorganization of any of the Borrowers, or otherwise, the provisions of this Section 2.15will forthwith be reinstated in effect, as though such payment had not beenmade.

 

(g)           Each of the Borrowers hereby agreesthat it will not enforce any of its rights of reimbursement, contribution,subrogation or the like against any other Borrower with respect to anyliability incurred by it hereunder or under any of the other Loan Documents,any payments made by it to any of the Lenders or the Administrative Agent withrespect to any of the Obligations or any collateral security therefor untilsuch time as all of the Obligations have been indefeasibly paid in full incash.  Any claim which any Borrower mayhave against any other Borrower with respect to any payments to the Lenders orthe Administrative Agent hereunder or under any other Loan Documents are herebyexpressly made subordinate and junior in right of payment, without limitationas to any increases in the Obligations arising hereunder or thereunder, to theprior payment in full of the Obligations and, in the event of any insolvency,bankruptcy, receivership, liquidation, reorganization or other similarproceeding under the laws of any jurisdiction relating to any Borrower, itsdebts or its assets, whether voluntary or involuntary, all such Obligationsshall be paid in full before any payment or distribution of any character,whether in cash, securities or other property, shall be made to any otherBorrower therefore.

 

47

----

 

(h)           Each of the Borrowers hereby agreesthat the payment of any amounts due with respect to the indebtedness owing byany Borrower to any other Borrower is hereby subordinated to the prior paymentin full in cash of the Obligations.  EachBorrower hereby agrees that after the occurrence and during the continuance ofany Default or Event of Default, such Borrower will not demand, sue for orotherwise attempt to collect any indebtedness of any other Borrower owing tosuch Borrower until the Obligations shall have been paid in full in cash.  If, notwithstanding the foregoing sentence,such Borrower shall collect, enforce or receive any amounts in respect of suchindebtedness, such amounts shall be collected, enforced and received by suchBorrower as trustee for the Administrative Agent and be paid over to theAdministrative Agent for the prorata accounts of the Lenders tobe applied to repay the Obligations.

 

**2.16        Contribution.**

 

(a)           To the extent that any Borrower shallmake a payment under Section 2.15 of all or any of the Obligations(other than Loans made to that Borrower for which it is primarily liable) (a “GuarantorPayment”) that, taking into account all other Guarantor Payments thenpreviously or concurrently made by any other Borrower, exceeds the amount thatsuch Borrower would otherwise have paid if each Borrower had paid the aggregateObligations satisfied by such Guarantor Payment in the same portion that suchBorrower’s “Allocable Amount” (as defined below) (as determined immediatelyprior to such Guarantor Payment) bore to the aggregate Allocable Amounts ofeach of the Borrowers as determined immediately prior to the making of suchGuarantor Payment, then, following indefeasible payment in full in cash of theObligations and termination of the Commitments, such Borrower shall be entitledto receive contribution and indemnification payments from, and be reimbursedby, the other Borrowers for the net amount of such excess, pro rata based upontheir respective Allocable Amounts in effect immediately prior to suchGuarantor Payment.

 

(b)           As of any date of determination, the “AllocableAmount” of any Borrower shall be equal to the maximum amount of the claimthat could then be recovered from such Borrower under Section 2.16without rendering such claim voidable or avoidable under Section 548 ofChapter 11 of the Bankruptcy Code or under any applicable state UniformFraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statuteor common law.

 

(c)           This Section 2.16 isintended only to define the relative rights of Borrowers and nothing set forthin this Section 2.16 is intended or shall impair the obligations ofthe Borrowers, jointly and severally, to pay any amounts as and when the sameshall become due and payable in accordance with the terms of this Agreement,including Section 2.15. Nothing contained in this Section 2.16 shall limit theliability of any Borrower to pay the Loans made directly or indirectly to thatBorrower and accrued interest, fees and expenses with respect thereto for whichsuch Borrower shall be primarily liable.

 

(d)           The parties hereto acknowledge thatthe rights of contribution and indemnification of any Borrower under this Section 2.16shall constitute assets of such Borrower.

 

(e)           The rights of an indemnifying Borroweragainst the other Borrowers under this Section shall be exercisable uponthe full and indefeasible payment of the Obligations and the termination ofCommitments.

 

**2.17       ****Collateral Security**.   TheObligations shall be secured by a perfected first priority security interest inall of the Borrowers’ interest in the Collateral, whether now owned orhereafter acquired, as described in the Security Documents to which any of theBorrowers is a party.

 

48

----

 

**2.18       ****Additional Borrowers**.   Anydirect or indirect wholly owned Subsidiary of KKR Financial (i) designatedby an existing Borrower and (ii) other than in the case of suchSubsidiaries organized in the Cayman Islands or the United States (or any stateor territory thereof, or the District of Columbia), consented to by theAdministrative Agent and each Lender (in each case, such consent not to beunreasonably withheld or delayed), may become a Borrower hereunder by executinga customary joinder agreement, reasonably satisfactory to the AdministrativeAgent and the Borrowers, and delivering customary certificates consistent withthose delivered in connection with Section 4.02(d), customary legalopinions and such other documentation as may be reasonably requested by theAdministrative Agent.

 

**2.19        Defaulting LenderProvisions**.

 

(a)           Conditions Precedent.  In addition to the other conditions precedentherein set forth, if any Lender becomes, and during the period it remains, aDefaulting Lender or a Potential Defaulting Lender, the Issuing Bank will notbe required to issue any Letter of Credit or to amend any outstanding Letter ofCredit to increase the face amount thereof, alter the drawing terms thereunderor extend the expiry date thereof, and the Swingline Lender will not berequired to make any Swingline Loan, unless the Issuing Bank or the SwinglineLender, as the case may be, is satisfied that any exposure that would resulttherefrom is fully covered or eliminated by any combination satisfactory to theIssuing Bank or Swingline Lender of the following:

 

(i)            in the case of a Defaulting Lender,the LC Exposure and the Swingline Exposure of such Defaulting Lender isreallocated, as to outstanding and future Letters of Credit and SwinglineLoans, to the Non-Defaulting Lenders as provided in clause (1) of Section 2.19(c);

 

(ii)           in the case of a Defaulting Lender ora Potential Defaulting Lender, without limiting the provisions of Section 2.19(b),the Borrowers Cash Collateralize the obligations of the Borrowers in respect ofsuch Letter of Credit or Swingline Loan in an amount at least equal to theaggregate amount of the unreallocated obligations (contingent or otherwise) ofsuch Defaulting Lender or Potential Defaulting Lender in respect of such Letterof Credit or Swingline Loan, or makes other arrangements satisfactory to theAdministrative Agent, the Issuing Bank and the Swingline Lender in their solediscretion to protect them against the risk of non-payment by such DefaultingLender or Potential Defaulting Lender; and

 

(iii)          in the case of a Defaulting Lender ora Potential Defaulting Lender, then in the case of a proposed issuance of aLetter of Credit or making of a Swingline Loan, by an instrument or instrumentsin form and substance satisfactory to the Administrative Agent, and to theIssuing Bank and the Swingline Lender, as the case may be, the Borrowers agreethat the face amount of such requested Letter of Credit or the principal amountof such requested Swingline Loan will be reduced by an amount equal to theunreallocated, non-Cash Collateralized portion thereof as to which suchDefaulting Lender or Potential Defaulting Lender would otherwise be liable, inwhich case the obligations of the Non-Defaulting Lenders in respect of suchLetter of Credit or Swingline Loan will, subject to the first proviso below, beon a pro rata basis in accordance with the Commitments of the Non-DefaultingLenders, and the pro rata payment provisions of Section 2.13 will bedeemed adjusted to reflect this provision;

 

providedthat (a) the sum of each Non-Defaulting Lender’s total Revolving CreditExposure, total Swingline Exposure and total LC Exposure may not in any eventexceed the Commitment of such Non-Defaulting Lender, and (b) neither anysuch reallocation nor any payment by a Non-Defaulting Lender pursuant theretonor any such Cash Collateralization or reduction will constitute a waiver orrelease of any claim the Borrower, the Administrative Agent, the Issuing Bank,the Swingline Lender or any other 

 

49

----

 

Lender may have against such Defaulting Lender, orcause such Defaulting Lender or Potential Defaulting Lender to be aNon-Defaulting Lender.

 

(b)           Cash Collateral Call.  If any Lender becomes, and during the periodit remains, a Defaulting Lender or a Potential Defaulting Lender, if any Letterof Credit or Swingline Loan is at the time outstanding, the Issuing Bank andthe Swingline Lender, as the case may be, may (except, in the case of aDefaulting Lender, to the extent the Commitments have been fully reallocatedpursuant to Section 2.19(c)), by notice to the Borrowers and suchDefaulting Lender or Potential Defaulting Lender through the AdministrativeAgent, require the Borrowers to Cash Collateralize the obligations of the Borrowersto the Issuing Bank and the Swingline Lender in respect of such Letter ofCredit or Swingline Loan in amount at least equal to the aggregate amount ofthe unreallocated obligations (contingent or otherwise) of such DefaultingLender or such Potential Defaulting Lender in respect thereof, or to make otherarrangements satisfactory to the Administrative Agent, and to the Issuing Bankand the Swingline Lender, as the case may be, in their sole discretion toprotect them against the risk of non-payment by such Defaulting Lender orPotential Defaulting Lender.

 

(c)           Reallocation of Defaulting LenderCommitment, Etc.  If a Lenderbecomes, and during the period it remains, a Defaulting Lender, the followingprovisions shall apply with respect to any outstanding LC Exposure and anyoutstanding Swingline Exposure of such Defaulting Lender:

 

(i)            the LC Exposure and the SwinglineExposure of such Defaulting Lender will, subject to the limitation in the firstproviso below, automatically be reallocated (effective on the day such Lenderbecomes a Defaulting Lender) among the Non-Defaulting Lenders pro rata inaccordance with their respective Commitments; provided that (a) the sum of each Non-Defaulting Lender’s totalRevolving Credit Exposure, total Swingline Exposure and total LC Exposure maynot in any event exceed the Commitment of such Non-Defaulting Lender as ineffect at the time of such reallocation and (b) neither such reallocationnor any payment by a Non-Defaulting Lender pursuant thereto will constitute awaiver or release of any claim the Borrower, the Administrative Agent, theIssuing Bank, the Swingline Lender or any other Lender may have against suchDefaulting Lender or cause such Defaulting Lender to be a Non-DefaultingLender; and

 

(ii)           to the extent that any portion (the “unreallocatedportion”) of the Defaulting Lender’s LC Exposure and Swingline Exposurecannot be so reallocated, whether by reason of the first proviso in clause (i) aboveor otherwise, the Borrowers will, not later than 10 Business Days after demandby the Administrative Agent (at the direction of the Issuing Bank and/or theSwingline Lender, as the case may be), (a) Cash Collateralize theobligations of the Borrowers to the Issuing Bank and the Swingline Lender inrespect of such LC Exposure or Swingline Exposure, as the case may be, in anamount at least equal to the aggregate amount of the unreallocated portion ofsuch LC Exposure or Swingline Exposure, or (b) in the case of suchSwingline Exposure, prepay (subject to clause (iii) below) and/or CashCollateralize in full the unreallocated portion thereof, or (c) make otherarrangements satisfactory to the Administrative Agent, and to the Issuing Bankand the Swingline Lender, as the case may be, in their sole discretion toprotect them against the risk of non-payment by such Defaulting Lender; and

 

(iii)          any amount (other than fees that wouldotherwise be payable by the Borrowers pursuant to Section 2.09(a), whichfor avoidance of doubt, shall cease to accrue or be payable on the Commitmentsof such Defaulting Lender) paid by the Borrowers for the account of aDefaulting Lender under this Agreement (whether on account of principal,interest, indemnity payments or other amounts) will not be paid or distributedto such Defaulting Lender, but will instead be retained by the AdministrativeAgent in a segregated non-interest bearing account until 

 

50

----

 

(subject to Section 2.19(h))the termination of the Commitments and payment in full of all obligations ofthe Borrowers hereunder and will be applied by the Administrative Agent, to thefullest extent permitted by law, to the making of payments from time to time inthe following order of priority:  firstto the payment of any amounts owing by such Defaulting Lender to theAdministrative Agent under this Agreement, second to the payment of anyamounts owing by such Defaulting Lender to the Issuing Bank or the SwinglineLender (pro rata as to the respective amounts owing to each of them) under thisAgreement, third to the payment of post-default interest and thencurrent interest due and payable to the Lenders hereunder other than DefaultingLenders, ratably among them in accordance with the amounts of such interestthen due and payable to them, fourth to the payment of fees then due andpayable to the Non-Defaulting Lenders hereunder, ratably among them inaccordance with the amounts of such fees then due and payable to them, fifthto pay principal and unreimbursed LC Disbursements then due and payable to theNon-Defaulting Lenders hereunder ratably in accordance with the amounts thereofthen due and payable to them, sixth to the ratable payment of otheramounts then due and payable to the Non-Defaulting Lenders, and seventh afterthe termination of the Commitments and payment in full of all obligations ofthe Borrowers hereunder, to pay amounts owing under this Agreement to suchDefaulting Lender or as a court of competent jurisdiction may otherwise direct.

 

(d)           Right to Give Drawdown Notices.  In furtherance of the foregoing, if anyLender becomes, and during the period it remains, a Defaulting Lender or aPotential Defaulting Lender, each of the Issuing Bank and the Swingline Lenderis hereby authorized by the Borrowers (which authorization is irrevocable andcoupled with an interest) to give, in its discretion, through theAdministrative Agent, Revolving Loan Notice pursuant to Section 2.02 insuch amounts and in such times as may be required to (i) reimburse anoutstanding LC Disbursement, (ii) repay an outstanding Swingline Loan,and/or (iii) Cash Collateralize the obligations of the Borrowers inrespect of outstanding Letters of Credit or Swingline Loans in an amount atleast equal to the aggregate amount of the obligations (contingent or otherwise)of such Defaulting Lender or Potential Defaulting Lender in respect of suchLetter of Credit or Swingline Loan.

 

(e)           Fees.  Anything herein to the contrarynotwithstanding, during such period as a Lender is a Defaulting Lender, suchDefaulting Lender will not be entitled to any fees accruing during such periodpursuant to Sections 2.09(a) and 2.09(b) (withoutprejudice to the rights of the Lenders other than Defaulting Lenders in respectof such fees), provided that (a) to the extent that a portion of the LCExposure or the Swingline Exposure of such Defaulting Lender is reallocated tothe Non-Defaulting Lenders pursuant to Section 2.19(c), such feesthat would have accrued for the benefit of such Defaulting Lender will insteadaccrue for the benefit of and be payable to such Non-Defaulting Lenders, prorata in accordance with their respective Commitments, and (b) to theextent any portion of such LC Exposure or Swingline Exposure cannot be soreallocated, such fees will instead accrue for the benefit of and be payable tothe Issuing Bank and the Swingline Lender as their interests appear (and thepro rata payment provisions of Section 2.13 will automatically bedeemed adjusted to reflect the provisions of this Section).

 

(f)            Removal of Administrative Agent.  Anything herein to the contrarynotwithstanding, if at any time the Requisite Lenders determine that the Personserving as Administrative Agent is (without taking into account any provisionin the definition of “Defaulting Lender” or “Potential Defaulting Lender”requiring notice from the Administrative Agent or any other party) a DefaultingLender or a Potential Defaulting Lender, the Requisite Lenders (determinedafter giving effect to Section 10.01) may by notice to theBorrowers and such Person remove such Person as Administrative Agent andappoint a replacement Administrative Agent reasonably acceptable to theBorrrowers.  Such removal will, to thefullest extent permitted by applicable law, be effective on the earlier of (i) thedate a replacement Administrative Agent is appointed and (ii) the date 60Business Days after the giving of such notice by the Requisite Lenders(regardless of whether a replacement Administrative Agent has been appointed).

 

51

----

 

(g)           Termination of Defaulting LenderCommitment.  The Borrowers mayterminate the unused amount of the Commitment of a Defaulting Lender upon notless than two Business Days’ prior notice to the Administrative Agent (whichwill promptly notify the Lenders thereof), and in such event the provisions of Section 2.19(c)(iii) willapply to all amounts thereafter paid by the Borrowers for the account of suchDefaulting Lender under this Agreement (whether on account of principal,interest, fees, indemnity or other amounts), provided that such terminationwill not be deemed to be a waiver or release of any claim the Borrower, theAdministrative Agent, the Issuing Bank, the Swingline Lender or any Lender mayhave against such Defaulting Lender.

 

(h)           Cure.  If the Borrower, the Administrative Agent,the Issuing Bank and the Swingline Lender agree in writing in their discretionthat a Lender that is a Defaulting Lender or a Potential Defaulting Lendershould no longer be deemed to be a Defaulting Lender or Potential DefaultingLender, as the case may be, the Administrative Agent will so notify the partieshereto, whereupon as of the effective date specified in such notice and subjectto any conditions set forth therein (which may include arrangements withrespect to any amounts then held in the segregated account referred to in Section 2.19(c)),such Lender will, to the extent applicable, purchase such portion ofoutstanding Loans of the other Lenders and/or make such other adjustments asthe Administrative Agent may determine to be necessary to cause the RevolvingCredit Exposure, LC Exposure and Swingline Exposure of the Lenders to be on apro rata basis in accordance with their respective Commitments, whereupon suchLender will cease to be a Defaulting Lender or Potential Defaulting Lender andwill be a Non-Defaulting Lender (and such Exposure of each Lender willautomatically be adjusted on a prospective basis to reflect the foregoing); providedthat no adjustments will be made retroactively with respect to fees accrued orpayments made by or on behalf of the Borrowers while such Lender was aDefaulting Lender; and provided, further, that except to the extent otherwiseexpressly agreed by the affected parties, no change hereunder from DefaultingLender or Potential Defaulting Lender to Non-Defaulting Lender will constitutea waiver or release of any claim of any party hereunder arising from suchLender’s having been a Defaulting Lender or Potential Defaulting Lender.

 

**ARTICLE III.TAXES, YIELD PROTECTION AND ILLEGALITY**

 

**3.01        Taxes.**

 

(a)           Payments Free of Taxes.  Any and all payments by or on account of anyobligation of the Borrowers hereunder or under any other Loan Document shall bemade free and clear of and without reduction or withholding for any IndemnifiedTaxes, provided that if the Borrowers shall be required by applicablelaw to deduct any Indemnified Taxes from such payments, then (i) the sumpayable shall be increased as necessary so that after making all requireddeductions (including deductions applicable to additional sums payable underthis Section) the Administrative Agent or Lender, as the case may be, receivesan amount equal to the sum it would have received had no such deductions beenmade, (ii) the Borrowers shall make such deductions or withholdings and (iii) theBorrowers shall timely pay the full amount deducted to the relevantGovernmental Authority in accordance with applicable law.

 

(b)           Payment of Other Taxes by theBorrowers.  Without limiting theprovisions of subsection (a) above, the Borrowers shall timely pay anyOther Taxes to the relevant Governmental Authority in accordance withapplicable law.

 

(c)           Indemnification by the Borrowers.  The Borrowers shall indemnify theAdministrative Agent and each Lender, within 10 days after written demandtherefor, for the full amount of any Indemnified Taxes or Other Taxes(including Indemnified Taxes or Other Taxes imposed or asserted on orattributable to amounts payable under this Section) paid by the AdministrativeAgent or any such

 

52

----

 

Lender, as the case maybe, and any penalties, interest and reasonable expenses arising therefrom orwith respect thereto, whether or not such Indemnified Taxes or Other Taxes werecorrectly or legally imposed or asserted by the relevant GovernmentalAuthority; provided, however the Borrowers shall not indemnifythe Administrative Agent or any Lender for any penalities or interest that areimposed either solely as a result of the gross negligence or willful misconductof the Administrative Agent or any Lender or a failure by the AdministrativeAgent or any Lender to provide the Borrowers with timely notice of theimpostion of any Indemnified Taxes or Other Taxes.  A certificate as to the amount of suchpayment or liability delivered to the Borrowers by a Lender (with a copy to theAdministrative Agent), or by the Administrative Agent on its own behalf or onbehalf of a Lender, shall be conclusive absent manifest error.

 

(d)           Evidence of Payments.  As soon as practicable after any payment ofIndemnified Taxes or Other Taxes by the Borrowers to a Governmental Authority,the Borrowers shall deliver to the Administrative Agent the original or acertified copy of a receipt issued by such Governmental Authority evidencingsuch payment, a copy of the return reporting such payment or other evidence ofsuch payment reasonably satisfactory to the Administrative Agent.  As soon as practicable after any payment ofIndemnified Taxes or Other Taxes by the Administrative Agent or any Lender to aGovernmental Authority, the Administrative Agent or Lender shall, upon requestfrom a Borrower, following receipt of any such item, deliver to the Borrowersthe original or a certified copy of a receipt issued by such GovernmentalAuthority evidencing such payment or other reasonable evidence of such payment;provided, that in no event shall the Administrative Agent or any Lender berequired to deliver to the Borrowers its tax returns or any other informationregarding its tax affairs or computations or any information that isconfidential, proprietary, or constitutes internal work product.

 

(e)           Status of Lenders.  Any Foreign Lender that is entitled to anexemption from or reduction of withholding tax under the law of thejurisdiction in which any Borrower is resident for tax purposes, or any treatyto which such jurisdiction is a party, with respect to payments hereunder orunder any other Loan Document shall deliver to the Borrowers (with a copy tothe Administrative Agent), at the time or times prescribed by applicable law orreasonably requested by the Borrowers or the Administrative Agent, suchproperly completed and executed documentation prescribed by applicable law aswill permit such payments to be made without withholding or at a reduced rate ofwithholding (including any documentation necessary to prevent withholding underSection 1471 or Section 1472 of the Code).  In addition, any Lender, if requested by theBorrowers or the Administrative Agent, shall deliver such other documentationprescribed by applicable law or reasonably requested by the Borrowers or theAdministrative Agent as will enable the Borrowers or the Administrative Agentto determine whether or not such Lender is subject to backup withholding orinformation reporting requirements.  Inaddition, each Foreign Lender shall, upon request from a Borrower, deliver newforms promptly upon the obsolescence or invalidity of any form previouslydelivered by such Foreign Lender.  EachForeign Lender shall notify the Borrower at any time it determines that it isno longer in a position to provide any previously delivered certificate to theBorrower

 

AnyForeign Lender shall deliver to the Borrowers and the Administrative Agent (insuch number of copies as shall be requested by the recipient) on or prior tothe date on which such Foreign Lender becomes a Lender under this Agreement(and from time to time thereafter upon the request of the Borrowers or theAdministrative Agent, but only if such Foreign Lender is legally entitled to doso), whichever of the following is applicable:

 

(i)            duly completed copies of InternalRevenue Service Form W-8BEN claiming eligibility for benefits of an incometax treaty to which the United States is a party,

 

(ii)           duly completed copies of InternalRevenue Service Form W-8ECI,

 

53

----

 

(iii)          in the case of a Foreign Lenderclaiming the benefits of the exemption for portfolio interest under section 881(c) ofthe Code, (x) a certificate to the effect that such Foreign Lender is not (A) a“bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10percent shareholder” of any Borrower within the meaning of section 881(c)(3)(B) ofthe Code, or (C) a “controlled foreign corporation” described in section881(c)(3)(C) of the Code and (y) duly completed copies of InternalRevenue Service Form W-8BEN, or

 

(iv)          any other form prescribed byapplicable law as a basis for claiming exemption from or a reduction in UnitedStates Federal withholding tax duly completed together with such supplementarydocumentation as may be prescribed by applicable law to permit the Borrowers todetermine the withholding or deduction required to be made.

 

(f)            Treatment of Certain Refunds.  If the Administrative Agent or any Lenderdetermines, in its sole discretion, which shall be exercised in a commerciallyreasonable manner, that it has received arefund of any Taxes or Other Taxes as to which it has been indemnified by theBorrowers or with respect to which any Borrower has paid additional amountspursuant to this Section, it shall pay to such Borrower an amount equal to suchrefund (but only to the extent of indemnity payments made, or additionalamounts paid, by the Borrowers under this Section with respect to theTaxes or Other Taxes giving rise to such refund), net of all out-of-pocketexpenses of the Administrative Agent or such Lender, as the case may be, andwithout interest (other than any interest paid by the relevant GovernmentalAuthority with respect to such refund), provided that each Borrower,upon the request of the Administrative Agent or such Lender, agrees to repaythe amount paid over to such Borrower (plus any penalties, interest or othercharges imposed by the relevant Governmental Authority) to the AdministrativeAgent or such Lender in the event the Administrative Agent or such Lender isrequired to repay such refund to such Governmental Authority.  This subsection shall not be construed torequire the Administrative Agent or any Lender to make available its taxreturns (or any other information relating to its taxes that it deemsconfidential) to the Borrowers or any other Person.

 

**3.02       ****Illegality**.   Ifany Lender determines that any Law has made it unlawful, or that anyGovernmental Authority has asserted that it is unlawful, for any Lender or itsapplicable Lending Office to make, maintain or fund Fixed Period EurodollarLoans or Daily Floating Eurodollar Loans, or to determine or charge interestrates based upon the Fixed Period Eurodollar Rate or the Daily Floating EurodollarRate, or any Governmental Authority has imposed material restrictions on theauthority of such Lender to purchase or sell, or to take deposits of, Dollarsin the London interbank market, then, on notice thereof by such Lender to theBorrowers through the Administrative Agent, any obligation of such Lender tomake or continue Fixed Period Eurodollar Loans or Daily Floating EurodollarLoans or to convert Base Rate Loans to Fixed Period Eurodollar Loans or DailyFloating Eurodollar Loans shall be suspended until such Lender notifies theAdministrative Agent and the Borrowers that the circumstances giving rise tosuch determination no longer exist.  Uponreceipt of such notice, the Borrowers shall, upon demand from such Lender (witha copy to the Administrative Agent), prepay or, if applicable, convert allFixed Period Eurodollar Loans or Daily Floating Eurodollar Loans of such Lenderto Base Rate Loans, either on the last day of the Interest Period therefor, ifsuch Lender may lawfully continue to maintain such Loans to such day, orimmediately, if such Lender may not lawfully continue to maintain suchLoans.  Upon any such prepayment orconversion, the Borrowers shall also pay accrued interest on the amount soprepaid or converted.

 

**3.03       ****Inability to Determine Rates**.   Ifthe Administrative Agent or the Required Lenders determine that for any reasonin connection with any request for a Fixed Period Eurodollar Loan or a DailyFloating Eurodollar Loan, as applicable, or a conversion to or continuationthereof that (a) deposits in the relevant Approved Currency are not beingoffered to banks in the London interbank eurodollar market for the applicableamount and Interest Period of such Fixed Period Eurodollar Loan or Daily

 

54

----

 

Floating Eurodollar Loan,(b) adequate and reasonable means do not exist for determining the FixedPeriod Eurodollar Rate or Daily Floating Eurodollar Rate, as applicable, forany requested Interest Period with respect to a proposed Fixed PeriodEurodollar Loan or Daily Floating Eurodollar Loan, as applicable, or(c) the Fixed Period Eurodollar Rate or Daily Floating Eurodollar Rate forany requested Interest Period with respect to a proposed Fixed PeriodEurodollar Loan or Daily Floating Eurodollar Loan does not adequately andfairly reflect the cost of funding such Loan, the Administrative Agent willpromptly so notify the Borrowers and each Lender.  Thereafter, the obligation of the Lenders tomake or maintain Fixed Period Eurodollar Loans or Daily Floating EurodollarLoans in the affected currency or currencies shall be suspended until theAdministrative Agent (upon the instruction of the Required Lenders) revokessuch notice.  Upon receipt of such notice,the Borrowers may revoke any pending Request for Borrowing of, conversion to orcontinuation of Fixed Period Eurodollar Loans or Daily Floating EurodollarLoans, as applicable, or, failing that, will be deemed to have converted suchrequest into a request for a Base Rate Loan in the amount specified therein.

 

**3.04        Increased Costs; Reserves on EurodollarLoans.**

 

(a)           Increased Costs Generally.  If any Change in Law shall:

 

(i)            impose, modify or deem applicableany reserve, special deposit, compulsory loan, insurance charge or similarrequirement against assets of, deposits with or for the account of, or creditextended or participated in by, any Lender (except any reserve requirementreflected contemplated by Section 3.04(e));

 

(ii)           impose on any Lender or the Londoninterbank market any other condition, cost or expense affecting this Agreementor Eurodollar Loans made by such Lender;

 

andthe result of any of the foregoing shall be to increase the cost to such Lenderof making or maintaining any Eurodollar Loan (or of maintaining its obligationto make any such Loan), or to reduce the amount of any sum received orreceivable by such Lender (whether of principal, interest or any other amount)then, upon request of such Lender, the Borrowers will pay to such Lender, asthe case may be, such additional amount or amounts as will compensate suchLender, as the case may be, for such additional costs incurred or reductionsuffered.

 

(b)           Capital Requirements.  If any Lender determines that any Change inLaw affecting such Lender or any Lending Office of such Lender or such Lender’sholding company, if any, regarding capital requirements has or would have theeffect of reducing the rate of return on such Lender’s capital or on thecapital of such Lender’s holding company, if any, as a consequence of this Agreement,the Commitments of such Lender or the Loans made by, such Lender, to a levelbelow that which such Lender or such Lender’s holding company could haveachieved but for such Change in Law (taking into consideration such Lender’spolicies and the policies of such Lender’s holding company with respect tocapital adequacy), then from time to time the Borrowers will pay to suchLender, as the case may be, such additional amount or amounts as willcompensate such Lender or such Lender’s holding company for any such reductionsuffered.

 

(c)           Certificates for Reimbursement.  A certificate of a Lender setting forth theamount or amounts necessary to compensate such Lender or its holding company,as the case may be, as specified in subsection (a) or (b) of this Section anddelivered to the Borrowers shall be conclusive absent manifest error.  The Borrowers shall pay such Lender, as thecase may be, the amount shown as due on any such certificate within 10 daysafter receipt thereof.

 

55

----

 

(d)           Delay in Requests.  Failure or delay on the part of any Lender todemand compensation pursuant to the foregoing provisions of this Section shallnot constitute a waiver of such Lender’s right to demand such compensation, providedthat the Borrowers shall not be required to compensate a Lender pursuant to theforegoing provisions of this Section for any increased costs incurred orreductions suffered more than 180 days prior to the date that such Lender, asthe case may be, notifies the Borrowers of the Change in Law giving rise tosuch increased costs or reductions and of such Lender’s intention to claimcompensation therefor (except that, if the Change in Law giving rise to suchincreased costs or reductions is retroactive, then the 180 days period referredto above shall be extended to include the period of retroactive effectthereof).

 

(e)           Reserves on Eurodollar Loans.  The Borrowers shall pay to each Lender, aslong as such Lender shall be required to maintain reserves with respect toliabilities or assets consisting of or including Eurocurrency funds or deposits(currently known as “Eurocurrency liabilities”), additional interest on theunpaid principal amount of each Eurodollar Loan equal to the actual costs ofsuch reserves allocated to such Loan by such Lender (as determined by suchLender in good faith, which determination shall be conclusive), which shall bedue and payable on each date on which interest is payable on such Loan, providedthe Borrowers shall have received at least 10 days’ prior notice (with a copyto the Administrative Agent) of such additional interest from such Lender.  If a Lender fails to give notice 10 daysprior to the relevant Interest Payment Date, such additional interest shall bedue and payable 10 days from receipt of such notice.

 

**3.05       ****Compensation for Losses**.   Upondemand of any Lender (with a copy to the Administrative Agent) from time totime, the Borrowers shall promptly compensate such Lender for and hold suchLender harmless from any loss, cost or expense incurred by it as a result of:

 

(a)           any continuation, conversion, payment orprepayment of any Loan other than a Base Rate Loan or a Daily FloatingEurodollar Loan on a day other than the last day of the Interest Period forsuch Loan (whether voluntary, mandatory, automatic, by reason of acceleration,or otherwise);

 

(b)           any failure by the Borrowers (for areason other than the failure of such Lender to make a Loan) to prepay, borrow,continue or convert any Loan other than a Base Rate Loan or a Daily FloatingEurodollar Loan on the date or in the amount notified by the Borrowers; or

 

(c)           any assignment of a Fixed PeriodEurodollar Loan on a day other than the last day of the Interest Periodtherefor as a result of a request by the Borrowers pursuant to Section 10.13;

 

includingany loss of anticipated profits and any loss or expense arising from theliquidation or reemployment of funds obtained by it to maintain such Loan orfrom fees payable to terminate the deposits from which such funds wereobtained.  The Borrowers shall also payany customary administrative fees charged by such Lender in connection with theforegoing.  Notwithstanding theforegoing, if, during the 120 day period following the Closing Date, theAdministrative Agent incurs any breakage costs on account of the syndication ofthe credit facility established hereunder, the Borrowers shall immediatelyreimburse the Administrative Agent for any such breakage costs.

 

Forpurposes of calculating amounts payable by the Borrowers to the Lenders underthis Section 3.05, each Lender shall be deemed to have funded eachFixed Period Eurodollar Loan made by it at the Fixed Period Eurodollar Rateused in determining the Fixed Period Eurodollar Rate for such Loan by amatching deposit or other borrowing in the London interbank eurodollar marketfor a comparable amount and for a comparable period, whether or not such FixedPeriod Eurodollar Loan was in fact so funded.

 

56

----

 

**3.06       ****Mitigation Obligations**.   Ifany Lender requests compensation under Section 3.04, or anyBorrower is required to pay any additional amount to any Lender or anyGovernmental Authority for the account of any Lender pursuant to Section 3.01,or if any Lender gives a notice pursuant to Section 3.02, then suchLender shall use reasonable efforts to designate a different Lending Office forfunding or booking its Loans hereunder or to assign its rights and obligationshereunder to another of its offices, branches or affiliates, if, in thejudgment of such Lender, such designation or assignment (i) wouldeliminate or reduce amounts payable pursuant to Section 3.01 or 3.04,as the case may be, in the future, or eliminate the need for the noticepursuant to Section 3.02, as applicable, and (ii) in eachcase, would not subject such Lender to any unreimbursed cost or expense andwould not otherwise be disadvantageous to such Lender.  Each Borrower hereby agrees to pay allreasonable costs and expenses incurred by any Lender in connection with anysuch designation or assignment.

 

**3.07       ****Survival**.  Allof the Borrowers’ obligations under this Article III shall survivetermination of the Aggregate Commitments and repayment of all other Obligationshereunder.

 

**ARTICLE IV.CONDITIONS PRECEDENT TO BORROWINGS**

 

**4.01       ****Conditions to Effectiveness**.   Theparties hereto acknowledge and agree that this Agreement shall become effectiveupon receipt by each party hereto of this Agreement, executed and delivered bya Responsible Officer of each Borrower and each Lender; provided, however,that the obligation of any Lender to make any Loans, or of the Issuing Bank toissue any Letters of Credit, hereunder is subject to the satisfaction of theconditions set forth in Sections 4.02 and 4.03 hereunder.

 

**4.02       ****Conditions of Initial Borrowing**.   Theobligation of each Lender to make its initial Revolving Loans hereunder, and ofthe Issuing Bank to initially issue any Letters of Credit, is subject tosatisfaction of the following conditions precedent:

 

(a)           The Administrative Agent shall havereceived:

 

(i)            this Agreement as provided in Section 4.01;

 

(ii)           a Borrowing Base Report, certified ascomplete and correct in all material respects, which calculates the BorrowingBase as of the last Business Day of the most recent month ended at least 20Business Days prior to the Closing Date;

 

(iii)          the other Loan Documents (other thanNotes), executed and delivered by a duly authorized officer or signatory ofeach grantor party thereto; and

 

(iv)          a Note executed by the Borrowers infavor of each Lender that has requested a Note at least two Business Days priorto the date on which the initial Revolving Loans are to be made.

 

(b)           Collateral.  All documents and instruments, includingUniform Commercial Code or other applicable personal property and financingstatements, reasonably requested by the Administrative Agent to be filed,registered or recorded to create the Liens on the Collateral intended to becreated by the Security Agreement and perfect such Liens to the extent requiredby, and with the priority required by, the Security Agreement shall have beendelivered to the Administrative Agent for filing, registration or recording andnone of the Collateral shall be subject to any other pledges, securityinterests or mortgages, except for liens permitted hereunder.

 

57

----

 

(c)           Legal Opinions.  The Administrative Agent shall have receivedthe executed legal opinions of (a) Simpson Thacher & BartlettLLP, special New York counsel to the Borrowers, substantially in the form of Exhibit G-1,(b) the in-house general counsel for the Borrowers, substantially in theform of Exhibit G-2, and (c) Maples and Calder, counsel for theBorrowers that are Cayman Islands companies, with respect to matters of CaymanIslands law substantially in the form of Exhibit G-3.  The Borrowers hereby request such counsel todeliver such opinions.

 

(d)           Closing Certificates.  The Administrative Agent shall have receiveda certificate of each Borrower, dated as of the Closing Date, with appropriateinsertions, executed by the President or any Vice President and the Secretaryor any Assistant Secretary or any other Responsible Officer or duly authorizedsignatory of such Borrower, and attaching the documents referred to in clause (e) belowand such other closing certificates as it may reasonably request.

 

(e)           Authorization of Proceedings ofEach Borrower; Incumbency; Due Organization; Good Standing.

 

(i)            The Administrative Agent shall havereceived a copy of the resolutions, in form and substance satisfactory to theAdministrative Agent, of the board of directors or other managers of eachBorrower (or a duly authorized committee thereof) authorizing (x) theexecution, delivery and performance of the Loan Documents (and any agreementsrelating thereto) to which it is a party and (y) in the case of eachBorrower, the extensions of credit contemplated hereunder.

 

(ii)           The Administrative Agent shall havereceived such certificates of resolutions or other action, incumbency certificatesand/or other certificates of Responsible Officers of each Borrower as theAdministrative Agent may require evidencing the identity, authority andcapacity of each Responsible Officer thereof authorized to act as a ResponsibleOfficer in connection with this Agreement and the other Loan Documents to whichsuch Borrower is a party;

 

(iii)          The Administrative Agent shall havereceived such documents and certifications as the Administrative Agent mayreasonably require to evidence that each Borrower is duly organized or formedand that each of the Borrowers is validly existing, in good standing andqualified to engage in business in each jurisdiction where such Borrowers’ownership, lease or operation of properties or the conduct of its businessrequires such qualification, except to the extent that failure to do so couldnot reasonably be expected to have a Material Adverse Effect;

 

(f)            Fees. The AdministrativeAgent shall have received the fees in the amounts previously agreed in writingto be received on the Closing Date and all expenses (including the reasonablefees, disbursements and other charges of counsel) payable by the Borrowers forwhich invoices have been presented prior to the Closing Date shall have beenpaid.

 

(g)           Existing Credit Agreement. TheAdministrative Agent shall have received customary evidence indicating that theExisting Credit Agreement has been, or concurrently with the Closing Date isbeing, terminated and all amounts outstanding thereunder are being repaid infull and all liens securing obligations thereunder have been, or concurrentlywith the Closing Date are being, released.

 

(h)           Representations; No Default.The Administrative Agent shall have received a customary certificate signed bya Responsible Officer of each Borrower, in a form satisfactory to theAdministrative Agent, certifying that the conditions specified in Sections 4.03(a) and4.03(b) have been satisfied.

 

58

----

 

**4.03        Conditions to all Borrowings.**   The obligation of each Lender to honor any Request forBorrowing (other than a Revolving Loan Notice requesting only a conversion ofRevolving Loans to another Interest Rate Type, or a continuation of FixedPeriod Eurodollar Loans) is subject to the following conditions precedent:

 

(a)           The representations and warranties ofthe Borrowers contained in Article V and any other Loan Documentshall, after taking into account any materiality or other qualificationcontained therein, be true and correct on and as of the date of such Borrowing,except to the extent that such representations and warranties specificallyrefer to an earlier date, in which case they shall be true and correct as ofsuch earlier date.

 

(b)           No Default shall exist, or wouldresult from such proposed Borrowing or from the application of the proceedsthereof.

 

(c)           Either (i) the Total RevolvingCredit Exposure (after giving effect to such extension of credit) shall notexceed the Borrowing Base reflected on the Borrowing Base Report most recentlydelivered to the Administrative Agent or (ii) the Borrowers shall havedelivered an updated Borrowing Base Report demonstrating that the TotalRevolving Credit Exposure (after giving effect to such extension of credit)shall not exceed the Borrowing Base after giving effect to such extension ofcredit as well as any concurrent acquisitions of Specified Financial Assets orpayment of outstanding Loans.

 

(d)           In the event that an asset to be purchased with theproceeds of a Borrowing made on the date of the Borrowing is to be included inthe Borrowing Base as of the date of the Borrowing, the Administrative Agentshall have received evidence reasonably satisfactory to it that the conditionsreferred to in clauses (i) and (ii) in the proviso to Section 2.01,as applicable, have been satisfied.

 

(e)           The Administrative Agent and, ifapplicable, the Swingline Lender shall have received a Request for Borrowing inaccordance with the requirements hereof.

 

EachRequest for Borrowing (other than a Revolving Loan Notice requesting only aconversion of Revolving Loans to another Interest Rate Type or a continuationof Fixed Period Eurodollar Loans) submitted by the Borrowers shall be deemed tobe a representation and warranty that the conditions specified in Sections 4.03(a) and4.03(b) have been satisfied on and as of the date of the applicableBorrowing.

 

**ARTICLE V.REPRESENTATIONS AND WARRANTIES**

 

TheBorrowers represent and warrant to the Administrative Agent and the Lendersthat:

 

**5.01       ****Existence, Qualification and Power**.   EachBorrower (a) is duly organized or formed, validly existing and, asapplicable, in good standing under the Laws of the jurisdiction of itsincorporation or organization, (b) has all requisite power and authorityand all requisite and relevant governmental licenses, authorizations, consentsand approvals to (i) own or lease its assets and carry on its business and(ii) execute, deliver and perform its obligations under the Loan Documentsto which it is a party, and (c) is duly qualified and is licensed whereapplicable and, as applicable, in good standing under the Laws of eachjurisdiction where its ownership, lease or operation of properties or theconduct of its business requires such qualification or license; except in eachcase referred to in clause (b)(i) or (c), to the extent that failure to doso could not reasonably be expected to have a Material Adverse Effect.

 

59

----

 

**5.02       ****Authorization; No Contravention**.   Theexecution, delivery and performance by each Borrower of each Loan Document towhich such Person is party, have been duly authorized by all necessarycorporate or other organizational action, and do not and will not (a)contravene the terms of any of such Person’s Organization Documents; (b)conflict with or result in any breach or contravention of, or require anypayment to be made under (i) any Contractual Obligation to which such Person isa party or affecting such Person or the properties of such Person or any of itsSubsidiaries or (ii) any order, injunction, writ or decree of any GovernmentalAuthority or any arbitral award to which such Person or its property issubject; (c) violate any Law; except, in each case referred to in clause (b) or(c) to the extent such conflict, breach, contravention, payment or violationwould not reasonably be expected to have a Material Adverse Effect or (d)result in the creation or imposition of any Lien on any asset of any of theBorrowers or any of their Subsidiaries other than the Liens created pursuant tothe Loan Documents.

 

**5.03       ****Governmental Authorization; Other Consents**.   Noapproval, consent, exemption, authorization, or other action by, or notice to,or filing with, any Governmental Authority or any other Person is necessary orrequired in connection with the execution, delivery or performance by, orenforcement against, any Borrower of this Agreement or any other Loan Documentexcept (i) for the filing of UCC financing statements and (ii) such approvals,consents, exemptions, authorizations or other actions, notices or filings ashave been obtained or made and are in full force and effect or where thefailure to obtain or make such approvals, consents, exemptions, authorizationsor other actions, notices or filings would not have a Material Adverse Effect.

 

**5.04       ****Binding Effect**.   ThisAgreement has been, and each other Loan Document, when delivered hereunder,will have been, duly executed and delivered by each Borrower that is a partythereto.  This Agreement constitutes, andeach other Loan Document when so delivered will constitute, a legal, valid andbinding obligation of such Borrower, enforceable against each Borrower that is partythereto in accordance with its terms, subject to applicable bankruptcy,insolvency, reorganization, moratorium or other laws affecting creditors’rights generally and subject to general principles of equity, regardless ofwhether considered in a proceeding in equity or at law.

 

**5.05        Financial Statements; No MaterialAdverse Effect.**

 

(a)           The Audited Financial Statements (i)were prepared in accordance with GAAP consistently applied throughout theperiod covered thereby, except as otherwise expressly noted therein; and (ii)fairly present the financial condition of KKR Financial and its consolidatedSubsidiaries as of the date thereof and their results of operations for theperiod covered thereby in accordance with GAAP consistently applied throughoutthe period covered thereby, except as otherwise expressly noted therein.

 

(b)           The unaudited consolidated balancesheet of KKR Financial and its consolidated Subsidiaries dated September 30,2009, and the related consolidated statements of income or operations,shareholders’ equity and cash flows for the fiscal quarter ended on that date(i) were prepared in accordance with GAAP consistently applied throughout theperiod covered thereby, except as otherwise expressly noted therein, and (ii)fairly present the financial condition of KKR Financial and its Subsidiaries asof the date thereof and their results of operations for the period coveredthereby, subject, in the case of clauses (i) and (ii), to the absence offootnotes and to normal year-end audit adjustments.

 

(c)           Since the date of the Audited FinancialStatements, there has been no event or circumstance, either individually or inthe aggregate, that has had or could reasonably be expected to have a MaterialAdverse Effect.

 

60

----

 

**5.06        Litigation**.   Exceptas set forth on Schedule 5.06, there are no actions, suits, proceedings,formal investigations, claims or disputes pending or, to the knowledge of theBorrowers after due and diligent investigation, threatened or contemplated, atlaw, in equity, in arbitration or before any Governmental Authority, by oragainst any Borrower or any of its Subsidiaries or against any of theirproperties or revenues that (a) purport to affect or pertain to this Agreementor any other Loan Document, or any of the transactions contemplated hereby, or(b) either individually or in the aggregate, could reasonably be expected tohave a Material Adverse Effect.

 

**5.07       ****No Default**.   Neitherany Borrower nor any Subsidiary thereof is in default under or with respect toany Contractual Obligation that could, either individually or in the aggregate,reasonably be expected to have a Material Adverse Effect.  No Default has occurred and is continuing orwould result from the consummation of the transactions contemplated by this Agreementor any other Loan Document.

 

**5.08       ****Insurance**.   Theproperties of the Borrowers and their Subsidiaries are insured with financiallysound and reputable insurance companies, in such amounts, with such deductiblesand covering such risks as are customarily carried by companies engaged insimilar businesses and owning similar properties in localities where theBorrowers or the applicable Subsidiary operates.

 

**5.09       ****Taxes**.   EachBorrower and its Subsidiaries have filed all Federal, state and other materialtax returns and reports required to be filed, and have paid all Federal, stateand other material taxes, assessments, fees and other governmental chargeslevied or imposed upon them or their properties, income or assets otherwise dueand payable, except (i) those which are being contested in good faith byappropriate proceedings diligently conducted and for which adequate reserveshave been provided in accordance with GAAP and (ii) to the extent that thefailure to do so could not reasonably be expected to have a Material AdverseEffect.

 

**5.10       ****ERISA Compliance.**   NoERISA Event has occurred or is reasonably expected to occur that, when takentogether with all other such ERISA Events for which liability is reasonablyexpected to occur, could reasonably be expected to result in a Material AdverseEffect.  The present value of allaccumulated benefit obligations under each Plan (based on the assumptions usedfor purposes of Statement of Financial Accounting Standards No. 87) did not, asof the date of the most recent financial statements reflecting such amounts,exceed by more than $25,000,000 the fair market value of the assets of suchPlan, and the present value of all accumulated benefit obligations of allunderfunded Plans (based on the assumptions used for purposes of Statement ofFinancial Accounting Standards No. 87) did not, as of the date of the mostrecent financial statements reflecting such amounts, exceed by more than$25,000,000 the fair market value of the assets of all such underfunded Plans.

 

**5.11        Properties**.   (i)Each of the Borrowers and each of their Subsidiaries has good title to, orvalid leasehold, easement or other property interests in, all its real andpersonal property necessary to its business, except for minor defects in titlethat do not interfere with its ability to conduct its business as currentlyconducted or to utilize such properties for their intended purposes and exceptwhere the failure to have such title would not have a Material Adverse Effect.

 

(ii)           Each of the Borrowers and each oftheir Subsidiaries owns, or is licensed to use, all trademarks, tradenames,copyrights, patents and other intellectual property necessary to its business,and the use thereof by such Person does not infringe upon the rights of anyother Person, except for any such infringements that, individually or in theaggregate, could not reasonably be expected to result in a Material AdverseEffect.

 

61

----

 

**5.12       ****Investment Company Act**.   Noneof the Borrowers, and none of the Persons Controlling any of the Borrowers, isor is required to be registered as an “investment company” under the InvestmentCompany Act of 1940.

 

**5.13       ****Disclosure**.   TheBorrowers have disclosed to the Administrative Agent and the Lenders allagreements, instruments and corporate or other restrictions to which it or anyof its Subsidiaries is subject, and all other matters known to it, that,individually or in the aggregate, could reasonably be expected to result in aMaterial Adverse Effect.  No report,financial statement, certificate or other written information furnished by oron behalf of any Borrower to the Administrative Agent or any Lender inconnection with the transactions contemplated hereby and the negotiation ofthis Agreement or delivered hereunder or under any other Loan Document (in eachcase, as modified or supplemented by other information so furnished) containsany material misstatement of fact or omits to state any material fact necessaryto make the statements therein, in the light of the circumstances under whichthey were made, not misleading as of the date furnished; provided that,with respect to projected financial information, the Borrowers represent onlythat such information was prepared in good faith based upon assumptionsbelieved to be reasonable at the time.

 

**5.14       ****Compliance with Laws**.   EachBorrower and each Subsidiary thereof is in compliance in all material respectswith the requirements of all Laws and all orders, writs, injunctions anddecrees applicable to it or to its properties, except in such instances inwhich (a) such requirement of Law or order, writ, injunction or decree is beingcontested in good faith by appropriate proceedings diligently conducted or (b)the failure to comply therewith, either individually or in the aggregate, couldnot reasonably be expected to have a Material Adverse Effect.

 

**5.15       ****Solvency**.   Eachof the Borrowers is and, after consummation of the transactions contemplated bythe Loan Documents, will be Solvent.

 

**5.16        Borrowing Base Report**.   Themost recent Borrowing Base Report delivered by the Borrowers accuratelyreflects the Borrowing Base and the Value of all Eligible Specified FinancialAssets included therein on and as of the date of such Borrowing Base Report(or, in the case of Values, as of the most recent date that such Values arerequired to be determined) and all Related Borrowing Base Information set forththerein and the Value of all Eligible Specified Financial Assets is true andcorrect in all material respects on and as of the date of such Borrowing BaseReport (or, in the case of Values, as of the most recent date that such Valuesare required to be determined).

 

**ARTICLE VI.AFFIRMATIVE COVENANTS**

 

Solong as any Lender shall have any Commitment hereunder, any Loan or otherObligation hereunder shall remain unpaid or unsatisfied, the Borrowers shall,and shall (except in the case of the covenants set forth in Sections 6.01,6.02, and 6.03) cause each Subsidiary to:

 

**6.01       ****Financial Statements**.   Deliverto the Administrative Agent and each Lender:

 

(a)           as soon as available, but in anyevent within 90 days after the end of each fiscal year of KKR Financial, aconsolidated balance sheet of KKR Financial and its Subsidiaries as at the endof such fiscal year, and the related consolidated statements of income oroperations, shareholders’ equity and cash flows for such fiscal year, settingforth, in each case, in comparative form the figures for the previous fiscalyear, all in reasonable detail and prepared in accordance with GAAP, auditedand accompanied by a report and opinion of Deloitte & Touche LLP or anotherRegistered Public Accounting Firm of nationally recognized standing, whichreport and opinion shall be prepared in accordance with generally accepted

 

62

----

 

auditing standards andapplicable Securities Laws and shall not be subject to any “going concern” orlike qualification or exception or any qualification or exception as to thescope of such audit or with respect to the absence of any materialmisstatement; and

 

(b)           as soon as available, but in anyevent within 45 days after the end of each of the first three fiscal quartersof each fiscal year of KKR Financial, a consolidated balance sheet of KKRFinancial and its Subsidiaries as at the end of such fiscal quarter, and therelated consolidated statements of income or operations, shareholders’ equityand cash flows for such fiscal quarter and for the portion of KKR Financial’sfiscal year then ended, setting forth in each case in comparative form thefigures for the corresponding fiscal quarter of the previous fiscal year andthe corresponding portion of the previous fiscal year, all in reasonabledetail, certified by the chief executive officer, chief financial officer,treasurer or controller of KKR Financial as fairly presenting the financialcondition, results of operations, shareholders’ equity and cash flows of KKRFinancial and its Subsidiaries in accordance with GAAP, subject only to normalyear-end audit adjustments and the absence of footnotes.

 

Asto any information contained in materials furnished pursuant to Section 6.02(d), the Borrowers shall not beseparately required to furnish such information under clause (a) or (b) above,but the foregoing shall not be in derogation of the obligation of the Borrowersto furnish the information and materials described in clauses (a) and (b) aboveat the times specified therein.

 

**6.02       ****Certificates; Other Information**.   Deliverto the Administrative Agent and each Lender, in form and detail reasonablysatisfactory to the Administrative Agent:

 

(a)           concurrently with the delivery of thefinancial statements referred to in Section 6.01(a), (i) acertificate of the Registered Public Accounting Firm certifying such financialstatements and stating that in making the examination necessary therefor noknowledge was obtained of any Default or, if any such Default shall exist, stating the nature and status ofsuch event (which certificate may be limited to the extent required by accountingrules, guidelines or practices), (ii) setting forth reasonably detailedcalculations demonstrating compliance with the financial covenants contained inSection 7.09 and (iii) stating whether any change in GAAP or in theapplication thereof which is material in any respect to KKR Financial’sfinancial statements has occurred since the date of the Audited FinancialStatements and, if any such change has occurred, specifying the effect of suchchange on the financial statements accompanying such certificate;

 

(b)           concurrently with the delivery of thefinancial statements referred to in Sections 6.01(a) and 6.01(b)**,** a duly completed Compliance Certificate signed by the chief executiveofficer, chief financial officer, treasurer or controller of the Borrowers;

 

(c)           as soon as available and in any eventnot later than the 20th Business Day of the calendar month followingeach monthly accounting period (ending on the last day of each calendar month)of the Borrowers, a Borrowing Base Report as at the last day of such accountingperiod;

 

(d)           promptly but no later than fiveBusiness Days after any date on which a Borrower grants a Lien on assets inconnection with the incurrence of Indebtedness (including, for avoidance ofdoubt, any issuance of secured bonds or issuance of notes in connection with aCLO), a Borrowing Base Report as of the date of the incurrence of suchIndebtedness;

 

(e)           promptly but no later than fiveBusiness Days after any Borrower shall at any time have knowledge that there isa Borrowing Base Deficiency, a Borrowing Base Report as at the date anyBorrower has knowledge of such Borrowing Base Deficiency indicating the amountof the Borrowing Base Deficiency as at the date such Borrower obtainedknowledge of such deficiency and the amount of

 

63

----

 

the Borrowing BaseDeficiency as of the date not earlier than two Business Days prior to the datethe Borrowing Base Report is delivered pursuant to this paragraph;

 

(f)            on a monthly basis or as otherwiseapproved by the Administrative Agent, an update as to the Value of all EligibleSpecified Financial Assets contained in the Borrowing Base; providedthat during any period in which, and for so long as, Availability is equal toan amount that is less than 10% of the Borrowing Base, such updates as to Valueshall be delivered on a weekly basis;

 

(g)           promptly after the same areavailable, copies of each annual report, proxy or financial statement or otherreport or communication sent to the stockholders of KKR Financial, and copiesof all annual, regular, periodic and special reports and registrationstatements which KKR Financial may file or be required to file with the SECunder Section 13 or 15(d) of the Securities Exchange Act of 1934, and nototherwise required to be delivered to the Administrative Agent pursuant hereto;and

 

(h)           promptly following any requesttherefor, such other information regarding the operations, business affairs andfinancial condition of the Borrowers, or compliance with the terms of thisAgreement, as the Administrative Agent or any Lender may reasonably request.

 

Documentsrequired to be delivered pursuant to Section 6.01(a) or 6.01(b)or Section 6.02(f) (to the extent any such documents are includedin materials otherwise filed with the SEC) may be delivered electronically andif so delivered, shall be deemed to have been delivered on the date (i) onwhich KKR Financial posts such documents, or provides a link thereto on KKRFinancial’s website on the Internet at the website address listed on Schedule 10.02;or (ii) on which such documents are posted on KKR Financial’s behalf on anInternet or intranet website, if any, to which each Lender and theAdministrative Agent have access (whether a commercial, third-party website orwhether sponsored by the Administrative Agent); provided that (i) theBorrowers shall deliver paper copies of such documents to the AdministrativeAgent or any Lender that requests the Borrowers to deliver such paper copiesuntil a written request to cease delivering paper copies is given by theAdministrative Agent or such Lender and (ii) the Borrowers shall notify theAdministrative Agent and each Lender (by telecopier or electronic mail) of theposting of any such documents and provide to the Administrative Agent byelectronic mail electronic versions (i.e., soft copies) of such documents.  The Administrative Agent shall have noobligation to request the delivery or to maintain copies of the documentsreferred to above, and in any event shall have no responsibility to monitorcompliance by the Borrowers with any such request for delivery, and each Lendershall be solely responsible for requesting delivery to it or maintaining itscopies of such documents.

 

TheBorrowers hereby acknowledge that (a) the Administrative Agent and/or theArranger will make available to the Lenders materials and/or informationprovided by or on behalf of the Borrowers hereunder (collectively, “BorrowerMaterials”) by posting the Borrower Materials on IntraLinks or anothersimilar electronic system (the “Platform”) and (b) certain of theLenders may be “public-side” Lenders (*i.e.,*Lenders that do not wish to receive material non-public information withrespect to KKR Financial or its securities) (each, a “Public Lender”).  Each of the Borrowers hereby agrees that (w)all Borrower Materials that are to be made available to Public Lenders shall beclearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean thatthe word “PUBLIC” shall appear prominently on the first page thereof; (x) bymarking Borrower Materials “PUBLIC,” the Borrowers shall be deemed to haveauthorized the Administrative Agent, the Arranger and the Lenders to treat suchBorrower Materials as not containing any material non-public information withrespect to the Borrowers or any securities for purposes of United StatesFederal and state securities laws (provided, however, that to theextent such Borrower Materials constitute Information, they shall be treated asset forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC”are permitted to be made available through a portion of the Platform designated“Public Investor;” and (z) the Administrative Agent and the Arranger shall be

 

64

----

 

entitledto treat any Borrower Materials that are not marked “PUBLIC” as being suitableonly for posting on a portion of the Platform other than that which isdesignated “Public Investor.”

 

**6.03       ****Notices**.   Promptlynotify the Administrative Agent and each Lender upon a Responsible Officer of aBorrower obtaining knowledge thereof:

 

(a)           of the occurrence of any Default;

 

(b)           of the occurrence of any ERISA Eventthat, alone or together with any other ERISA Events that have occurred, couldreasonably be expected to result in liability of the Borrowers and theirSubsidiaries in an aggregate amount exceeding $25,000,000; and

 

(c)           any other development that resultsin, or could reasonably be expected to result in, a Material Adverse Effect;including (i) breach or non-performance of, or any default under, a ContractualObligation of either of the Borrowers or any Subsidiary; (ii) any dispute,litigation, investigation, proceeding or suspension between either of theBorrowers or any Subsidiary and any Governmental Authority; or (iii) the filingor commencement of, or any material development in, any litigation orproceeding affecting the either of the Borrowers or any Subsidiary, includingpursuant to any applicable Environmental Laws;

 

Eachnotice pursuant to this Section 6.03 shall be accompanied by astatement of a Responsible Officer of the applicable Borrower setting forthdetails of the occurrence referred to therein and stating what action suchBorrower has taken and proposes to take with respect thereto.  Each notice pursuant to Section 6.03(a)shall describe with particularity any and all provisions of this Agreement andany other Loan Document that have been breached.

 

**6.04       ****Payment of Obligations**.   Payand discharge its obligations, including Tax liabilities, that, if not paid, couldresult in a Material Adverse Effect before the same shall become delinquent orin default, except where (a) the validity or amount thereof is being contestedin good faith by appropriate proceedings, (b) such Borrower or such Subsidiaryhas set aside on its books adequate reserves with respect thereto in accordancewith GAAP and (c) the failure to make payment pending such contest could notreasonably be expected to result in a Material Adverse Effect.

 

**6.05       ****Preservation of Existence, Etc.**   (a) Preserve, renew and maintain in full force andeffect its legal existence and good standing under the Laws of the jurisdictionof its organization except in a transaction permitted by Section 7.04or 7.05; and (b) take all reasonable action to maintain all rights,privileges, permits, licenses and franchises necessary in the normal conduct ofits business, except to the extent that failure to do so could not reasonablybe expected to have a Material Adverse Effect.

 

**6.06       ****Maintenance of Properties**.   (a)Maintain, preserve and protect all of its material properties and equipmentnecessary in the operation of its business in good working order and condition,ordinary wear and tear excepted; and (b) make all necessary repairs thereto andrenewals and replacements thereof except where the failure to do so could notreasonably be expected to have a Material Adverse Effect.

 

**6.07       ****Maintenance of Insurance**.   Maintainwith financially sound and reputable insurance companies, insurance withrespect to its properties and business against loss or damage of the kindscustomarily insured against by Persons engaged in the same or similar business,of such types and in such amounts as are customarily carried under similarcircumstances by such other Persons.

 

65

----

 

**6.08       ****Compliance with Laws**.   Complyin all material respects with the requirements of all relevant Laws and allorders, writs, injunctions and decrees applicable to it or to its business orproperty, except in such instances in which (a) such requirement of Law ororder, writ, injunction or decree is being contested in good faith byappropriate proceedings diligently conducted; or (b) the failure to complytherewith could not reasonably be expected to have a Material Adverse Effect.

 

**6.09        Books and Records**.   Maintainproper books of record and account, in conformity with GAAP consistentlyapplied.

 

**6.10       ****Inspection Rights**.   Permitrepresentatives and independent contractors of the Administrative Agent andeach Lender to visit and inspect any of its properties, to examine itscorporate, financial and operating records, and make copies thereof orabstracts therefrom, and to discuss its affairs, finances and accounts with itsdirectors, officers, and independent public accountants, all at such reasonabletimes during normal business hours and as often as may be reasonably desired,upon reasonable advance notice to the Borrowers (subject to reasonablerequirements of confidentiality); provided, however, that when anEvent of Default exists the Administrative Agent or any Lender (or any of theirrespective representatives or independent contractors) may do any of theforegoing at the expense of the Borrowers at any time during normal businesshours and without advance notice.

 

**6.11       ****Audit Rights**.   Permitrepresentatives designated by Administrative Agent (including any consultants,accountants, lawyers and appraisers retained by the Administrative Agent) toconduct evaluations and appraisals of the Borrower’s computation of the BorrowingBase and the assets included in the Borrowing Base, all at such reasonabletimes as requested; provided that, so long as no Default has occurredand is continuing, the audit rights set forth in this Section 6.11 maybe exercised only twice per calendar year. The Borrowers shall pay the reasonable fees and expenses of anyrepresentatives retained by the Administrative Agent to conduct any suchevaluation or appraisal; provided that the Borrowers shall not berequired to pay such fees and expenses for more than one such evaluation orappraisal during any calendar year unless an Event of Default has occurred andis continuing at the time of any subsequent evaluation or appraisal during suchcalendar year.  The Borrowers also agreeto modify or adjust the computation of the Borrowing Base in accordance withthe terms of this Agreement to the extent required by the Administrative Agentor the Required Lenders as a result of any such evaluation or appraisal,provided that if the Borrowers demonstrate that such evaluation or appraisal isincorrect, the Borrowers shall be permitted to re-adjust their computation ofthe Borrowing Base.

 

**6.12       ****Use of Proceeds**.   Usethe proceeds of the Loans only for working capital requirements and othergeneral corporate purposes consistent with KKR Financial Form 10-K, includingthe acquisition and funding (either directly or through one or more whollyowned subsidiaries) of secured and unsecured leveraged loans, mezzanine loans,high-yield securities, mortgage bonds and other portfolio investments.  No part of the proceeds of any Loan will beused, whether directly or indirectly, for any purpose that entails a violationof any of the Regulations of the FRB, including Regulations T, U and X.

 

**6.13       ****Investment Policies**.   Complywith the investment policies adopted by the board of directors of KKR Financialas in effect on the Closing Date (as such policies may be amended, supplementedor modified from time to time), except to the extent that the failure to socomply could not reasonably be expected to result in a Material Adverse Effect.

 

**6.14       ****Further Assurances**.   Takesuch action from time to time as shall reasonably be requested by theAdministrative Agent to effectuate the purposes and objectives of thisAgreement. Without limiting the generality of the foregoing, the Borrowersshall take such action from time to time (including filing appropriate UniformCommercial Code financing statements and executing and delivering suchassignments, security agreements and other instruments) as shall be reasonablyrequested

 

66

----

 

by the AdministrativeAgent to create, in favor of the Collateral Agent for the benefit of theLenders, perfected security interests and Liens in the Collateral.

 

**6.15        Portfolio Valuationand Diversification, Etc.**

 

(a)           Industry Classification Groups.  For purposes of this Agreement, each Borrowershall in its reasonable determination assign each Specified Financial Asset toan Industry Classification Group.  To theextent that any Specified Financial Asset is not correlated with the risks ofother Specified Financial Assets in an Industry Classification Groupestablished by Moody’s, such Portfolio Investment may be assigned by theapplicable Borrower to an Industry Classification Group that is more closelycorrelated to such Specified Financial Asset. In the absence of any correlation, such Borrower shall be permitted,upon notice to the Administrative Agent to create up to three additionalindustry classification groups for purposes of this Agreement.

 

(b)           Portfolio Valuation, Etc.

 

(i)            Settlement Date Basis. Solelyfor purposes of determining the Borrowing Base, all determinations of whetheran investment is to be included as an Eligible Specified Financial Asset shallbe determined on a settlement-date basis (meaning that any investment that hasbeen purchased will not be treated as an Eligible Specified Financial Assetuntil such purchase has settled, and any Eligible Specified Financial Assetwhich has been sold will not be excluded as a Eligible Specified FinancialAsset until such sale has settled); provided that no such investmentshall be included as an Eligible Specified Financial Asset to the extent thatit has not been paid for in full.

 

(ii)           Determination of Values. TheBorrowers will conduct reviews of the value to be assigned to each of itsEligible Specified Financial Assets as follows:

 

(A)          Quoted Investments. Withrespect to Specified Financial Assets (including Cash Equivalents) for whichmarket quotations are readily available, the Borrowers shall, not lessfrequently than once each calendar month, determine the market value of suchSpecified Financial Assets in accordance with their valuation policies, asfollows (in the following order of priority):

 

(1)          If the Eligible Specified Financial Asset is of a type sold on arecognized exchange, the Value is the Dollar Equivalent amount of the closingprice on the exchange as of such date;

 

(2)          If the Eligible Specified Financial Asset is of a type for which sales quotationsare provided by IDC, Markit, Loan Pricing Corporation, IPS or any other pricingservice approved by the Administrative Agent, in its reasonable discretion, theValue is the Dollar Equivalent amount of the sales price provided by thepricing service as of such date;

 

(3)          If the Eligible Specified Financial Asset is of a type for which salesquotations are available from Bank of America, Barclays Bank PLC, Citigroup,Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, UBS,Wells Fargo or any of their respective Affiliates or any other dealers approvedby the Administrative Agent, in its

 

67

----

 

reasonablediscretion, the Value is the Dollar Equivalent amount of the bid price as ofsuch date provided by any such dealer; and

 

(4)          In all other cases, the Value is the amount determined by a pricing orquotation service approved by the applicable Borrower’s board of directors anddesignated in writing to the Administrative Agent (which designation shall beaccompanied by a copy of a resolution of the board that such pricing orquotation service has been approved by the Borrower).

 

(B)           Unquoted Investments. Withrespect to any Specified Financial Asset for which market quotations are notreadily available, the Borrowers shall conduct internal reviews of suchSpecified Financial Asset at least once each calendar month in order todetermine the fair value of such Specified Financial Asset.  Such internal reviews and determinations ofvalue shall take into account any events of which the Borrowers have knowledgethat adversely affect the Value of Specified Financial Assets.

 

Forany particular Eligible Specified Financial Asset whose current Value isdetermined pursuant to an internal review in accordance with this Section6.15(b)(ii)(B), to the extent such Eligible Specified Financial Asset is (i)included in the Borrowing Base and (ii) has a fair value in excess of $10million individually or in excess of $25 million in the aggregate when takentogether with all other such Eligible Specified Financial Assets, the Borrowersshall deliver to the Administrative Agent a negative assurance or valuationopinion from an independent third-party appraisal firm within 45 days of theend of each applicable fiscal quarter.

 

(C)           Failure to Determine Values.If the Borrowers shall fail to determine the value of any Eligible SpecifiedFinancial Asset for which market quotation(s) are not readily available as atany date pursuant to the requirements of the foregoing sub-clauses (A) or (B),then the “Value” of such Portfolio Investment as at such date shall be deemedto be zero.

 

**6.16        Calculation ofBorrowing Base.**   (a) Forpurposes of this Agreement, the “Borrowing Base” shall mean and bedetermined as, as at any date of determination, the sum (expressed in Dollars)of the products of (x) the Value of each Specified Financial Asset that is anEligible Specified Financial Asset as of the most recent date such Value isrequired to be determined pursuant to Section 6.02 and (y) the SpecifiedPercentage applicable to such Specified Financial Asset; provided that:

 

(i)            to the extent that the aggregateValue (without duplication) of any Eligible Specified Financial Asset shown inthe table below would exceed the applicable sublimit set forth across from suchEligible Specified Financial Asset, such excess shall be excluded from theBorrowing Base (i.e., the Specified Percentage applicable to the excess oversuch sublimit shall be 0%):

 
| **Eligible Specified Financial Asset**                                                    | ** ** | **Sublimits** | ** **  |
|-------------------------------------------------------------------------------------------|------------|---------------|-------------|
| Eligible Specified Financial Assets that have a  rating between CCC+ and CCC- (inclusive) |       | $             | 200 million |   |
| Eligible Specified Financial Assets that are  Mezzanine Obligations                       |       | $             | 160 million |   |
| Eligible Specified Financial Assets that are  Mortgage-related Debt Securities            |       | $             | 40 million  |   |

 

68

----

 

(ii)           to the extent that the aggregate NetValue Amounts of Eligible Specified Financial Assets of all issuers in aconsolidated group of corporations or other entities would exceed 10% of theBorrowing Base, such excess shall be excluded from the Borrowing Base;

 

(iii)          to the extent that the aggregate NetValue Amounts of Eligible Specified Financial Assets in any single IndustryClassification Group would exceed 20% of the Borrowing Base (which for purposesof this calculation shall exclude the aggregate amount of investments in, andadvances to, Financing Subsidiaries), such excess shall be disregarded forpurposes of calculating the Borrowing Base; provided that, with respectto Eligible Specified Financial Assets in a single Industry ClassificationGroup from time to time designated by the Borrowers to the AdministrativeAgent, such 20% figure shall be increased to 30% and, accordingly, only to theextent that the Net Value Amounts of Eligible Specified Financial Assets forsuch single Industry Classification Group would exceed 30% of the BorrowingBase shall such excess be excluded from the Borrowing Base;

 

(iv)          to the extent that the aggregate NetValue Amounts of Eligible Specified Financial Assets comprised of Non-Cash PayInvestments would exceed 20% of the Borrowing Base, such excess shall beexcluded from the Borrowing Base;

 

(v)           to the extent that the aggregateamount of Revolving Credit Exposure of all Lenders exceeds $50,000,000 and theaggregate Net Value Amounts of Eligible Specified Financial Assets (i)comprised of Mezzanine Obligations or (ii) that have a rating between CCC+ andCCC- (inclusive) would (A) in either case exceed 30% of the Borrowing Base or (B)in combined aggregate amount for such categories exceed 50% of the BorrowingBase, such excess shall be excluded from the Borrowing Base;

 

(vi)          to the extent that the aggregateamount of Revolving Credit Exposure of all Lenders exceeds $50,000,000 and theaggregate Net Value Amounts of Eligible Specified Financial Assets denominatedin an Alternate Currency other than Dollars would exceed 25% of the BorrowingBase, such excess shall be excluded from the Borrowing Base;

 

(vii)         to the extent that the aggregate amountof Revolving Credit Exposure of all Lenders exceeds $50,000,000 and theaggregate Net Value Amounts of Eligible Specified Financial Assets comprised ofmortgage-related debt securities rated A or better would exceed 15% of theBorrowing Base, such excess shall be excluded from the Borrowing Base;

 

(viii)        to the extent that the Borrowers ownPublicly Traded Common Equity of a particular issuer comprising more than 4.9%of total such shares outstanding or to the extent that the number of such sharescontrolled by KKR Financial or its Subsidiaries exceeds 2.5x the three monthaverage daily trading volume of such shares (as calculated at month end), theValue of the excess over such percentage shall be excluded from the BorrowingBase.

 

(b)           As used herein, the following termshave the following meanings:

 

“SpecifiedFinancial Asset” means any financial asset described in one of thefollowing categories:

 

(a)           Cash, Cash Equivalents and Short-Term U.S. GovernmentSecurities;

 

69

----

 

(b)           Long-Term U.S. Government Securities;

 

(c)           Other Short-Term Securities;

 

(d)           Performing First Lien Bank Loans;

 

(e)           Performing Second Lien Bank Loans;

 

(f)            Performing Unsecured Bank Loans;

 

(g)           Performing Secured Cash Pay High Yield Securities;

 

(h)           Performing Unsecured Cash Pay High Yield Securities;

 

(i)            Performing Cash Pay Mezzanine Obligations / PreferredStock and Convertible Securities;

 

(j)            Performing Non-Cash Pay High Yield Securities;

 

(k)           Performing Non-Cash Pay Mezzanine Obligations / PreferredStock and Convertible Securities;

 

(l)            Mortgage bonds rated A or better; and

 

(m)          Publicly Traded Common Equity;

 

“SpecifiedPercentage” means, in relation to any Eligible Specified Financial Asset,the percentage set forth in the table below opposite such Eligible SpecifiedFinancial Asset:

 
| **Specified  Financial Asset**                                                        | ** ** | **Quoted** | ** ** | **Unquoted** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|
| Cash, Cash Equivalents and Short-Term U.S.  Government Securities                     |       | 100        | %          | n.a.         |       |
| Long-Term U.S. Government Securities                                                  |       | 95         | %          | n.a.         |       |
| Other Short-Term Securities                                                           |       | 90         | %          | 80           | %          |
| Performing First Lien Bank Loans                                                      |       | 75         | %          | 65           | %          |
| Performing Second Lien Bank Loans                                                     |       | 65         | %          | 55           | %          |
| Performing Unsecured Bank Loans                                                       |       | 60         | %          | 50           | %          |
| Performing Secured Cash Pay High Yield Securities                                     |       | 70         | %          | 60           | %          |
| Performing Unsecured Cash Pay High Yield  Securities                                  |       | 65         | %          | 55           | %          |
| Performing Cash Pay Mezzanine Obligations /  Preferred and Convertible Securities     |       | 50         | %          | 40           | %          |
| Performing Non-Cash Pay High Yield Securities                                         |       | 55         | %          | 45           | %          |
| Performing Non-Cash Pay Mezzanine Obligations /  Preferred and Convertible Securities |       | 40         | %          | 30           | %          |
| Mortgage bonds rated A or better                                                      |       | 50         | %          | 40           | %          |
| Publicly Traded Common Equity                                                         |       | 40         | %          | 0            | %          |

 

“BankLoan” means either (i) a Delayed Draw Loan or (ii) a fully funded term debtobligation (including, without limitation, term loans, debtor-in-possessionfinancings and synthetic letter of credit facilities and other similar loansand investments including interim loans and senior subordinated loans), whichare generally under a syndicated loan or credit facility provided or originatedby a Bank or for which a Bank has acted as underwriter or agent.

 

70

----

 

“CashEquivalents” means any of the following:

 

(a) direct obligations of, or obligations the principal of and intereston which are unconditionally guaranteed by, the United States of America (or byany agency thereof to the extent such obligations are backed by the full faithand credit of the United States of America), in each case maturing withineighteen months from the date of acquisition thereof;

 

(b)           investments incommercial paper maturing within 270 days from the date of issuance thereof andhaving, at such date of acquisition, the highest credit rating obtainable fromS&P or from Moody’s;

 

(c)           investments incertificates of deposit, banker’s acceptances and time deposits maturing withinone year from the date of acquisition thereof issued or guaranteed by or placedwith, and money market deposit accounts issued or offered by, theAdministrative Agent or any domestic office of any commercial bank organizedunder the laws of the United States of America or any State thereof that has acombined capital and surplus and undivided profits of not less than$500,000,000 and that issues (or the parent of which issues) commercial paperrated at least “Prime-1” (or the then equivalent grade) by Moody’s or “A-1” (orthe then equivalent grade) by S&P;

 

(d)           fully collateralizedrepurchase agreements with a term of not more than 30 days for securitiesdescribed in clause (a) above and entered into with a financial institutionsatisfying the criteria of clause (c) above;

 

(e)           investments in “moneymarket funds” within the meaning of Rule 2a-7 of the Investment Company Actsubstantially all of whose assets are invested in investments of the typedescribed in clauses (a) through (d) above; and

 

(f)            other short-terminvestments utilized by Foreign Subsidiaries in accordance with normalinvestment practices for cash management in investments of a type analogous tothe foregoing

 

“ConvertibleSecurities” means, with respect to any Person, the Equity Interests in suchPerson comprised of securities convertible into or exchangeable for shares ofcapital stock of (or other ownership or profit interests in) such Person.

 

“FirstLien Bank Loan” means a Bank Loan that is entitled to the benefit of afirst lien and first priority perfected security interest on a substantialportion of the assets of the respective borrower and guarantors obligated inrespect thereof.

 

“HighYield Securities” means debt Securities and Preferred Stock, in each case(a) issued by public or private issuers, (b) issued pursuant to an effectiveregistration statement or pursuant to Rule 144A under the Securities Act (orany successor provision thereunder) and (c) that are not Cash Equivalents, MezzanineObligations or Bank Loans.

 

“Long-TermU.S. Government Securities” means U.S. Government Securities maturing morethan one year from the applicable date of determination.

 

“MezzanineObligations” means subordinate loans or Debt Securities (including convertibleDebt Securities) that are senior to all equity classes. For clarity, MezzanineObligations shall not include any preferred stock or any equity security thatis mandatorily redeemable as defined by GAAP.

 

71

----

 

“Non-CashPay Investments” means Performing Non-Cash Pay High Yield Securities andPerforming Non-Cash Pay Mezzanine Obligations.

 

“OtherShort-Term Securities” means securities (other than U.S GovernmentSecurities) maturing within one year of the applicable date of determination.

 

“Performing”means (a) with respect to any Specified Financial Asset that is debt, theissuer of such Specified Financial Asset is not in default of any paymentobligations in respect thereof, after the expiration of any applicable graceperiod and (b) with respect to any Specified Financial Asset that is PreferredStock, the issuer of such Specified Financial Asset has not failed to meet anyscheduled redemption obligations or to pay its latest declared cash dividend,after the expiration of any applicable grace period.

 

“PerformingCash Pay Mezzanine Obligations” means Mezzanine Obligations (a) as towhich, at the time of determination, a portion of the interest (includingaccretions and “pay-in-kind” interest) for the current monthly, quarterly,semi-annual or annual period (as applicable) is payable in cash and (b) whichare Performing.

 

“PerformingCommon Equity” means Equity Interests (other than Preferred Stock) andwarrants of an issuer all of whose outstanding debt is Performing.

 

“PerformingFirst Lien Bank Loans” means First Lien Bank Loans which are Performing.

 

“PerformingNon-Cash Pay High Yield Securities” means Performing High Yield Securitiesother than Performing Cash Pay High Yield Securities.

 

“PerformingNon-Cash Pay Mezzanine Obligations” means Performing Mezzanine Obligationsother than Performing Cash Pay Mezzanine Obligations.

 

“PerformingSecond Lien Bank Loans” means Second Lien Bank Loans which are Performing.

 

“PerformingSecured Cash Pay High Yield Securities” means High Yield Securities (a)which are entitled to the benefit of a security interest on a portion of theassets of the respective issuer, (b) as to which, at the time of determination,a portion of the interest (including accretions and “pay-in-kind” interest) forthe current monthly, quarterly, semi-annual or annual period (as applicable) ispayable in cash and (c) which are Performing.

 

“PerformingUnsecured Bank Loans” means Unsecured Bank Loans which are Performing.

 

“PerformingUnsecured Cash Pay High Yield Securities” means High Yield Securities (a)which are unsecured, (b) as to which, at the time of determination, a portionof the interest (including accretions and “pay-in-kind” interest) for thecurrent monthly, quarterly, semi-annual or annual period (as applicable) ispayable in cash and (c) which are Performing.

 

“PreferredStock” as applied to the Equity Interests of any Person, means EquityInterests of such Person of any class or classes (however designated) thatranks prior, as to the payment of dividends or as to the distribution of assetsupon any voluntary or involuntary liquidation, dissolution or winding up ofsuch Person, to any shares (or other interests) of other Equity Interests ofsuch Person, and shall include, without limitation, cumulative preferred,non-cumulative preferred, participating preferred and convertible preferredEquity Interests.

 

72

----

 

“PubliclyTraded Common Equity” means Securities traded on an exchange or otherpublic marketplace for trading shares.

 

“SecondLien Bank Loan” means a Bank Loan that is entitled to the benefit of asecond lien and second priority perfected security interest on a substantialportion of the assets of the respective borrower and guarantors obligated inrespect thereof.

 

“Securities”means common and preferred stock, units and participations, member interests inlimited liability companies, partnership interests in partnerships, notes,bonds, debentures, trust receipts and other obligations, instruments orevidences of indebtedness, including debt instruments of public and privateissuers and tax-exempt securities (including warrants, rights, put and calloptions and other options relating thereto, representing rights, or any combinationthereof) and other property or interests commonly regarded as securities or anyform of interest or participation therein, but not including Bank Loans.

 

“Short-TermU.S. Government Securities” means U.S. Government Securities maturingwithin one year of the applicable date of determination.

 

“UnquotedCommon Equity” means Equity Interests (other than Preferred Stock) thevalue of which is determined pursuant to Section 6.15(b)(ii)(B) forBorrowing Base purposes.

 

“UnsecuredBank Loan” means a Bank Loan that is unsecured with respect to the assetsof the respective borrower.

 

“U.S.Government Securities” means securities that are direct obligations of, andobligations the timely payment of principal and interest on which is fullyguaranteed by, the United States or any agency or instrumentality of the UnitedStates the obligations of which are backed by the full faith and credit of theUnited States and in the form of conventional bills, bonds, and notes.

 

**ARTICLEVII.NEGATIVE COVENANTS**

 

Solong as any Lender shall have any Commitment hereunder, any Loan or otherObligation hereunder shall remain unpaid or unsatisfied, the Borrowers shallnot, nor shall they permit any Subsidiary to, directly or indirectly:

 

**7.01       ****Liens**.   Create,incur, assume or suffer to exist any Lien upon any of its property, assets orrevenues, whether now owned or hereafter acquired, other than the following:

 

(a)           as to Collateral only, Liens pursuantto or as contemplated in any Loan Document and Permitted Encumbrances (onlywith respect to clauses (a) and (e) of the definition thereof) subordinate tosuch Liens; and

 

(b)           as to all other assets and propertiesof the Borrowers and their Subsidiaries other than Collateral:

 

(i)            Permitted Encumbrances;

 

(ii)           Liens pursuant to or as contemplatedin any Loan Document;

 

73

----

 

(iii)          Liens existing on the date hereof andlisted on Schedule 7.01 and any renewals or extensions thereof, providedthat (i) the property or asset covered thereby is not changed, (ii) the amountsecured or benefited thereby is not increased except as contemplated by Section 7.03(b),(iii) the direct or any contingent obligor with respect thereto is not changed,and (iv) any renewal or extension of the obligations secured or benefitedthereby is permitted by Section 7.03(b);

 

(iv)          Liens securing Indebtedness permittedunder Section 7.03(k);

 

(v)           Liens on cash deposits with issuersof letters of credit in support of Other Letter of Credit Obligations permittedunder Section 7.03(i);

 

(vi)          any Lien existing on any property orasset prior to the acquisition thereof by any of the Borrowers or anySubsidiary or existing on any property or asset of any Person that becomes aSubsidiary after the date hereof prior to the time such Person becomes aSubsidiary; provided that (i) such Lien is not created in contemplationof or in connection with such acquisition or such Person becoming a Subsidiary,as the case may be, (ii) such Lien shall not apply to any other property orassets of any of the Borrowers or any Subsidiary and (iii) such Lien shallsecure only those obligations which it secures on the date of such acquisitionor the date such Person becomes a Subsidiary, as the case may be; and

 

(vii)         Liens on any property or asset that securesany Swap Contract (including any total rate of return Swap Contract) or anyother Secured Indebtedness or any related obligation incurred in connectionwith the transactions contemplated thereby.

 

For the avoidance of doubt, except to the extent thatthe Borrowers grant a Lien to the trustee of any Trust Preferred FinancingVehicle, the parties agree that the rights of such trustee in respect of anyTrust Preferred Indebtedness permitted under this Agreement shall not be deemeda Lien hereunder.

 

**7.02       ****Investments**.   Makeany Investments, except:

 

(a)           Permitted Investments;

 

(b)           Investments by any Borrower or any Subsidiaryexisting as of the Closing Date;

 

(c)           Investments of the Borrowers in anySubsidiary or CLO and Investments of any Subsidiary in any Borrower or inanother Subsidiary or CLO;

 

(d)           Guarantees of Other Letter of CreditObligations permitted by Section 7.03;

 

(e)           Investments in any Financing SPE orTrust Preferred Financing Vehicle, including any Financing SPE or TrustPreferred Financing Vehicle established after the date hereof, for the purposeof facilitating a Securitization or Trust Preferred Securities Transaction; and

 

(f)            other Investments (including totalrate of return Swap Contracts and other Swap Contacts) made by any Borrower orany Subsidiary in the course of such Borrower’s or such Subsidiary’s businessand consistent with the description of business in the KKR Financial Form 10-K.

 

**7.03       ****Indebtedness**.   Create,incur, assume or suffer to exist any Indebtedness, except:

 

(a)           Indebtedness under the LoanDocuments;

 

74

----

 

(b)           Indebtedness outstanding on the datehereof and listed on Schedule 7.03 and any refinancings,refundings, renewals or extensions thereof; provided that (i) the termsand conditions of such extensions, renewals or refinancings of suchIndebtedness do not, in the Administrative Agent’s reasonable judgment,materially impair the prospects of repayment of the Obligations by theBorrowers or impair any Borrower’s creditworthiness and (ii) such extensions,renewals or refinancings of such Indebtedness do not result in an increase inthe principal amount of such Indebtedness so extended, renewed or refinanced oradd any Borrower as liable with respect thereto if such Borrower was not liablewith respect to the original Indebtedness;

 

(c)           Indebtedness of any Borrower to anySubsidiary and of any Subsidiary to any Borrower or any other Subsidiary;

 

(d)           Guarantees of the Borrowers or anySubsidiary in respect of Indebtedness otherwise permitted hereunder of theBorrowers or any Subsidiary;

 

(e)           obligations (contingent or otherwise)of the Borrowers or any Subsidiary existing or arising under any Swap Contract(including any total rate of return Swap Contract);

 

(f)            Indebtedness owed to (includingobligations in respect of letters of credit for the benefit of) any personproviding workers’ compensation, health, disability or other employee benefitsor property, casualty or liability insurance to any Borrower or any Subsidiary,pursuant to reimbursement or indemnification obligations to such person;

 

(g)           Indebtedness in respect ofperformance bonds, bid bonds, appeal bonds, surety bonds and completionguarantees and similar obligations, in each case, provided in the course of ordinarybusiness, including those incurred to secure health, safety and environmentalobligations in the ordinary course of business;

 

(h)           Unsecured Indebtedness;

 

(i)            Other Letter of Credit Obligations,up to a maximum amount outstanding at any time not greater than $10,000,000;

 

(j)            Indebtedness arising from theoccasional honoring by a bank or other financial institution of a check, draftor similar instrument drawn against insufficient funds in the ordinary courseof business and not from an overdraft credit facility granted by the bank orother financial institution;

 

(k)           other Secured Indebtedness and anyother Indebtedness that is secured by assets not comprising Collateral; and

 

(l)            Trust Preferred Indebtedness andrelated Trust Preferred Guarantees and Trust Preferred Securities incurred,executed or issued respectively, as part of a Trust Preferred SecuritiesTransaction.

 

**7.04       ****Fundamental Changes**.   Merge,dissolve, liquidate, consolidate with or into another Person, or Dispose of(whether in one transaction or in a series of transactions) all orsubstantially all of its assets (whether now owned or hereafter acquired) to orin favor of any Person, except that, so long as no Default exists or wouldresult therefrom:

 

(a)           any Subsidiary may merge with (i) aBorrower, provided that such Borrower shall be the continuing orsurviving Person, or (ii) any one or more other Subsidiaries; providedthat any such merger

 

75

----

 

involving a Person that isnot a wholly owned Subsidiary immediately prior to such merger shall not bepermitted unless also permitted by Section 7.02;

 

(b)           any Subsidiary may Dispose of all orsubstantially all of its assets (upon voluntary liquidation or otherwise) to aBorrower or to another Subsidiary;

 

(c)           any Subsidiary may liquidate ordissolve if the Borrower which is the parent of such Subsidiary determines ingood faith that such liquidation or dissolution is in the best interests ofsuch Borrower and is not materially disadvantageous to the Lenders;

 

(d)           any Borrower may effect a Disposition permitted by Section 7.05;and

 

(e)           any Financing SPE may sell, transfer,lease or otherwise dispose of (in one transaction or in a series of relatedtransactions) all or substantially all of its assets in connection with aSecuritization, provided that the proceeds of such Securitization inexcess of the amount such Financing SPE is required to pay to any holder of anydebt obligation or equity interests issued by such Financing SPE pursuant tothe terms of such Securitization are paid to a Borrower promptly thereafter.

 

Notwithstandingthe foregoing, none of the Borrowers will, nor will permit any of itsSubsidiaries to, engage to any material extent in any business other thanbusinesses of the type conducted by such Borrower and its Subsidiaries on thedate of execution of this Agreement, businesses reasonably related thereto orthat is a reasonable extension, development or expansion thereof.  It is understood that a Trust PreferredSecurities Transaction consummated for purposes of financing the type ofbusiness of such Borrower or Subsidiary as of the date of execution of thisAgreement shall not be deemed to violate the foregoing restriction.

 

Forthe avoidance of doubt, the transfer of legal ownership of any Trust PreferredIndebtedness permitted under this Agreement to a trustee pursuant to a TrustPreferred Securities Transaction shall not be deemed to be a sale, transfer,lease or other disposition of any assets to such trustee.

 

**7.05       ****Dispositions**.   Makeany Disposition or enter into any agreement to make any Disposition, except:

 

(a)           Dispositions of obsolete or worn outproperty, whether now owned or hereafter acquired, in the ordinary course ofbusiness;

 

(b)           Dispositions (without recourse or indemnificationfor credit losses, provided that ordinary and customary indemnification ispermitted in accordance with prevailing market practices) of residential realestate assets of the Borrowers (including, without limitation, the Dispositionof mortgage-backed securities),so long as no Default or Event of Default has occurred and is continuing orwould be caused thereby; provided, however that, to the extentany such residential real estate assets constitute Collateral, Borrowers shallcomply with the Security Documents with respect to any Dispositions thereof;

 

(c)           Dispositions of assets other thanCollateral in the course of any Borrower’s or any Subsidiary’s business andconsistent with the description of business in the KKR Financial Form 10-K;

 

(d)           Dispositions of equipment or realproperty to the extent that (i) such property is exchanged for credit againstthe purchase price of similar replacement property or (ii) the proceeds of suchDisposition are reasonably promptly applied to the purchase price of suchreplacement property;

 

76

----

 

(e)           Dispositions of property by anyBorrower or Subsidiary to a Borrower or to a consolidated Subsidiary;

 

(f)            Dispositions of Collateral to theextent permitted by this Agreement or the Security Documents;

 

(g)           Dispositions permitted by Section 7.04;and

 

(h)           the Disposition (without recourse orindemnification for credit losses, provided that ordinary and customaryindemnification is permitted in accordance with prevailing market practices) byKKR Financial of all of the common stock of KKR Holdings II.

 

Forthe avoidance of doubt, the transfer of legal ownership of any Trust PreferredIndebtedness permitted under this Agreement to a trustee pursuant to a TrustPreferred Securities Transaction shall not be deemed to be a sale, transfer,lease or other disposition of any assets to said trustee.

 

**7.06       ****Restricted Payments**.   Declareor make, directly or indirectly, any Restricted Payment, or incur anyobligation (contingent or otherwise) to do so, except that:

 

(a)           so long as (i) no event constitutinga Default under Sections 8.01(a), 8.01(g) or 8.01(h) orshall have occurred and be continuing, and (ii) no Event of Default shall haveoccurred and be continuing, in each case, at the time of or would resulttherefrom, KKR Financial may declare and make Restricted Payments in cash toany Person that owns an Equity Interest in KKR Financial, ratably according totheir respective holdings of the type of Equity Interest of the applicableclass or series in respect of which such Restricted Payment is being made;

 

(b)           each Subsidiary (including, withoutlimitation, the Subsidiaries of KKR Financial party hereto as Borrowers) maydeclare and make Restricted Payments to the Borrowers, and to any other Personthat owns an Equity Interest in such Subsidiary, ratably according to theirrespective holdings of the type of Equity Interest of the applicable class orseries in respect of which such Restricted Payment is being made;

 

(c)           the Borrowers and each Subsidiary maydeclare and make dividend payments or any other Restricted Payments (including,for avoidance of doubt, any distributions for purposes of settling theconversion of Convertible Securities) payable solely in the common stock orother common Equity Interests of such Person; and

 

(d)           any Borrower may make RestrictedPayments pursuant to and in accordance with stock option plans or other benefitplans for management or employees of such Borrower and its Subsidiaries.

 

**7.07        Transactions with Affiliates**.   Enterinto any transaction of any kind with any Affiliate of any Borrower except (a)in the ordinary course of business at prices and on terms and conditions notless favorable to such Borrower or such Subsidiary than could be obtained on anarm’s-length basis from unrelated third parties, (b) transactions between oramong any Borrower and its wholly owned Subsidiaries not involving any otherAffiliate, (c)transactions for which KKR Financial orsuch Subsidiary is obligated under the Management Agreement and (d) anyRestricted Payment permitted by Section 7.06.

 

**7.08       ****Burdensome Agreements**.   Enterinto any Contractual Obligation (other than this Agreement or any other LoanDocument) that restricts or imposes any condition upon (i) the ability of anyBorrower or any Subsidiary to create, incur or permit to exist any Lien uponany of its property or

 

77

----

 

assets, or (ii) theability of any Subsidiary to pay dividends or other distributions with respectto any shares of its capital stock or to make or repay loans or advances to anyBorrower or any other Subsidiary or to Guarantee Indebtedness of any Borroweror any other Subsidiary; provided that (A) the foregoing shall not applyto restrictions and conditions imposed by law or by this Agreement or any otherLoan Document or upon any Financing SPE by any lender thereto or investortherein or upon any Trust Preferred Financing Vehicle in respect of its commonsecurities issued to a Borrower or any Subsidiary of a Borrower, (B) theforegoing shall not apply to restrictions and conditions existing on the datehereof identified on Schedule 7.08 (but shall apply to any extension orrenewal of, or any amendment or modification expanding the scope of, any suchrestriction or condition), (C) the foregoing shall not apply to customaryrestrictions and conditions contained in agreements relating to the sale of aSubsidiary pending such sale, provided such restrictions and conditions applyonly to the Subsidiary that is to be sold and such sale is permitted hereunder,(D) clause (i) of the foregoing shall not apply to restrictions or conditionsimposed by any agreement relating to secured Indebtedness permitted by thisAgreement if such restrictions or conditions apply only to the property orassets securing such Indebtedness and (E) clause (i) of the foregoing shall notapply to customary provisions in leases and other contracts restricting theassignment thereof.

 

Forthe avoidance of doubt, except to the extent that the Borrowers grant a Lien tothe trustee of any Trust Preferred Financing Vehicle, the parties agree thatthe rights of such trustee in respect of any Trust Preferred Indebtednesspermitted under this Agreement shall not be deemed a Lien hereunder.

 

**7.09        Financial Covenants.**

 

(a)           Consolidated Tangible Net Worth.  Permit Adjusted Consolidated Tangible NetWorth, at any time, to be less than $700,000,000, plus an amount equal to 25%of the net proceeds received from the issuance and sale, at any time after theClosing Date, of Equity Interests of KKR Financial or any Subsidiary (otherthan issuances to any Borrower or a wholly-owned Subsidiary), including uponany conversion of Debt Securities of KKR Financial into such Equity Interests.

 

(b)           Coverage Ratio.  Permit the ratio of (A) the aggregate Valueof the Collateral to (B) Total Revolving Credit Exposure to be less than 2.00to 1.00 at any time.

 

(c)           Leverage Ratio.  Permit the ratio of Adjusted TotalLiabilities to Adjusted Consolidated Tangible Net Worth, at any time, to exceedthe ratio of 2.00 to 1.00.

 

(d)           Distributions.  Make any distributions to their respectiveshareholders (other than any such shareholder that is itself a Borrower or aSubsidiary) in respect of any taxable year in an aggregate amount (as to allsuch shareholders) in excess of 65% of KKR Financial’s estimated taxable incomein respect of such taxable year as reasonably determined by KKR Financial(determined without regard to any “passive activity losses” within the meaningof Section 469 of the Code, any “miscellaneous itemized deductions” within themeaning of Section 67 of the Code and any capital gains and capital lossesrecognized on the disposition of assets, which are generally determined on apartner-by-partner basis with reference to each partner’s tax basis in theirpartnership interest); provided, that no such distributions shall bemade unless, before and after giving effect thereto, no Borrowing BaseDeficiency exists or would exist; and provided, further, thatnotwithstanding the limitation on distributions (and in addition to the amountof permitted distributions) set forth above in this Section 7.09(d), anyBorrower or Subsidiary that is a real estate investment trust for tax purposesmay make distributions in respect of any class of preferred shares that wasissued to satisfy the 100-shareholder requirement in Section 856(a)(5) of theCode in accordance with the terms of such preferred class of shares.

 

78

----

 

**7.10       ****Fiscal Year**.   Permitthe fiscal year of the Borrowers to end on a day other than December 31 orpermit the fiscal quarters to end on dates other than in a manner consistentwith Borrower’s current practice; provided, however, that theBorrowers may, upon written notice to the Administrative Agent change thefinancial reporting convention specified above to any other financial reportingconvention reasonably acceptable to the Administrative Agent.

 

**7.11       ****Lines of Business**.   Alterin a fundamental manner the character of their business, taken as a whole, fromthe business conducted on the Closing Date and other business activitiesincidental or reasonably related to any of the foregoing.

 

**7.12       ****Margin Regulations; Securities Laws**.   Useall or any portion of the proceeds of any credit extended under this Agreementto purchase or carry Margin Stock.

 

**ARTICLEVIII.EVENTS OF DEFAULT AND REMEDIES**

 

**8.01       ****Events of Default**.   Anyof the following shall constitute an Event of Default:

 

(a)           Non-Payment.  Any Borrower fails to pay (i) when due or asrequired to be paid herein, any amount of principal of any Loan or (ii) withinfive Business Days after the same becomes due, any interest on any Loan, or anyfee due hereunder, or any other amount payable hereunder or under any otherLoan Document; or

 

(b)           Specific Covenants.  Any Borrower fails to perform or observe anyterm, covenant or agreement contained in any of Section 6.03, Section 6.05(a)or Article VII.  Any Borrowerfails to perform or observe any covenant contained in Section 6.02(Certificates; Other Information) (other than the proviso in the first sentenceof the penultimate paragraph thereof) or Section 6.12 and such failurecontinues for five (5) Business Days after notice thereof from theAdministrative Agent; or

 

(c)           Borrowing Base Deficiency.  There shall occur and continue unremedied fora period of five or more Business Days after delivery of a Borrowing BaseReport demonstrating such Borrowing Base Deficiency pursuant to Section6.02(e); provided that it shall not be an Event of Default hereunder ifthe Borrowers shall present the Administrative Agent with a reasonably feasibleplan to enable such Borrowing Base Deficiency to be cured within 20 BusinessDays (which 20-Business Day period shall include the five Business Dayspermitted for delivery of such plan), so long as such Borrowing Base Deficiencyis cured within such 20-Business Day period;

 

(d)           Other Defaults.  Any Borrower fails to perform or observe anyother covenant or agreement (not specified in subsection (a) or (b) above)contained in any Loan Document on its part to be performed or observed and suchfailure continues for 20 Business Days after notice thereof from theAdministrative Agent to the Borrowers; or

 

(e)           Representations and Warranties.  Any representation or warranty made or deemedmade by or on behalf of any Borrower in or in connection with this Agreement orany other Loan Document or any amendment or modification hereof or thereof orwaiver hereunder or thereunder, or in any report, certificate, financialstatement or other document furnished pursuant to or in connection with thisAgreement, any other Loan Document or any amendment or modification hereof orthereof or waiver hereunder or thereunder, shall, after taking into account anymateriality or other qualification contained therein, prove to have beenincorrect when made or deemed made; or

 

79

----

 

(f)            Cross-Default.  Any Borrower (i) fails to make any payment(whether of principal or interest and regardless of amount) in respect of anyMaterial Indebtedness, when and as the same shall become due and payable (withall applicable grace periods having expired), or (ii) any event or conditionoccurs that results in any Material Indebtedness becoming due prior to itsscheduled maturity (other than, with respect to Indebtedness consisting of anySwap Contracts, due to a termination event or equivalent event pursuant to theterms of such Swap Contracts); provided that this Section 8.01(f)(ii)shall not apply to secured Indebtedness that becomes due as a result of thevoluntary sale or transfer of the property or assets securing suchIndebtedness; or

 

(g)           Insolvency Proceedings, Etc.  (i) Any Borrower (A) voluntarily commencesany proceeding or files any petition seeking liquidation, reorganization orother relief under any Federal, state or foreign bankruptcy, insolvency,receivership or similar law now or hereafter in effect, (B) consents to theinstitution of, or fails to contest in a timely and appropriate manner, anyproceeding or petition described in sub-part (ii) of this Section 8.01(g),(C) applies for or consents to the appointment of a receiver, trustee,custodian, sequestrator, conservator or similar official for any Borrower or fora substantial part of its assets, (D) files an answer admitting the materialallegations of a petition filed against it in any such proceeding, (E) makes ageneral assignment for the benefit of creditors or (F) takes any action for thepurpose of effecting any of the foregoing, or (ii) an involuntary proceeding iscommenced or an involuntary petition is filed seeking (A) liquidation,reorganization or other relief in respect of any Borrower or its debts, or of asubstantial part of its assets, under any Federal, state or foreign bankruptcy,insolvency, receivership or similar law now or hereafter in effect or (B) theappointment of a receiver, trustee, custodian, sequestrator, conservator orsimilar official for any Borrower or for a substantial part of its assets, and,in any such case, such proceeding or petition shall continue undismissed for 60days or an order or decree approving or ordering any of the foregoing shall beentered; or

 

(h)           Inability to Pay Debts; Attachment.  Any Borrower becomes unable, admits inwriting its inability or fails generally to pay its debts as they become due;or

 

(i)            Judgments.  One or more judgments for the payment ofmoney in an aggregate amount in excess of $25,000,000 is rendered against anyBorrower and the same shall remain undischarged for a period of 30 consecutivedays during which execution shall not be effectively stayed, or any action islegally taken by a judgment creditor to attach or levy upon any assets of anyBorrower to enforce any such judgment; or

 

(j)            ERISA.  An ERISA Event occurs that, in the opinion ofthe Required Lenders, when taken together with all other ERISA Events that haveoccurred, could reasonably be expected to result in a Material Adverse Effect;or

 

(k)           Invalidity of Loan Documents.  Any Loan Document shall cease to be valid andbinding on, or enforceable against, any Borrower, or any Borrower shall soassert in writing; or

 

(l)            Change of Control.  There occurs any Change of Control.

 

**8.02       ****Remedies Upon Event of Default**.   Ifany Event of Default occurs and is continuing (other than an event with respectto a Borrower described in Section 8.01(g)), and at any time thereafterduring the continuance of such event, the Administrative Agent may, and at therequest of the Required Lenders shall, by notice to the Borrowers, take eitheror both of the following actions, at the same or different times:

 

80

----

 

(b)           terminate the Commitments, andthereupon the Commitments shall terminate immediately, and;

 

(c)           declare the Loans then outstanding tobe due and payable in whole (or in part, in which case any principal not sodeclared to be due and payable may thereafter be declared to be due andpayable), and thereupon the principal of the Loans so declared to be due andpayable, together with accrued interest thereon and all fees and otherobligations of the Borrowers accrued hereunder, shall become due and payableimmediately, without presentment, demand, protest or other notice of any kind,all of which are hereby waived by each of the Borrowers;

 

provided, however,that in case of any event with respect to a Borrower described in Section8.01(g), the Commitments shall automatically terminate and the principal ofthe Loans then outstanding, together with accrued interest thereon and all feesand other Obligations, shall automatically become due and payable, withoutpresentment, demand, protest or other notice of any kind, all of which arehereby waived by each of the Borrowers.

 

**8.03       ****Application of Funds**.   Inthe event that, following the occurrence or during the continuance of any Eventof Default, the Administrative Agent or any Lender, as the case may be,receives any monies in connection the exercise of remedies provided for in Section 8.02(or after the Loans have automatically become immediately due and payable),such monies shall be distributed for application as follows:

 

First, to thepayment of, or (as the case may be) the reimbursement of, the AdministrativeAgent for or in respect of all reasonable costs, expenses, disbursements andlosses which shall have been incurred or sustained by the Administrative Agentin connection with the collection of such monies by the Administrative Agent,for the exercise, protection or enforcement by the Administrative Agent of allor any of the rights, remedies, powers and privileges of the AdministrativeAgent under this Agreement or any of the other Loan Documents or in respect ofthe Collateral or in support of any provision of adequate indemnity to theAdministrative Agent against any taxes or liens which by law shall have, or mayhave, priority over the rights of the Administrative Agent to such monies;

 

Second, to all otherObligations in such order or preference as the Required Lenders may determine; provided,however, that (i) distributions shall be made (A) paripassuamong Obligations with respect to any fees payable to the Administrative Agentand all other Obligations and (B) with respect to each type of Obligation owingto the Lenders, such as interest, principal, fees and expenses, among theLenders prorata, and (ii) the Administrative Agent may in itsdiscretion make proper allowance to take into account any Obligations not thendue and payable;

 

Third, upon paymentand satisfaction in full or other provisions for payment in full satisfactoryto the Lenders and the Administrative Agent of all of the Obligations, to thepayment of any obligations required to be paid pursuant to §9-608(a)(1)(C) or9-615(a)(3) of the Uniform Commercial Code of the State of New York;

 

Fourth, the excess,if any, shall be returned to the Borrowers or to such other Persons as areentitled thereto;

 

**ARTICLE IX.ADMINISTRATIVE AGENT**

 

**9.01       ****Appointment and Authority**.   Eachof the Lenders hereby irrevocably appoints Citibank, N.A. to act on its behalfas the Administrative Agent hereunder and under the other Loan

 

81

----

 

Documents and authorizesthe Administrative Agent to take such actions on its behalf and to exercisesuch powers as are delegated to the Administrative Agent by the terms hereof orthereof, together with such actions and powers as are reasonably incidentalthereto.  The provisions of this Articleare solely for the benefit of the Administrative Agent.  No Lender or Borrower shall have rights as athird party beneficiary of any of such provisions.

 

**9.02       ****Rights as a Lender**.   ThePerson serving as the Administrative Agent hereunder shall have the same rightsand powers in its capacity as a Lender as any other Lender and may exercise thesame as though it were not the Administrative Agent and the term “Lender” or “Lenders”shall, unless otherwise expressly indicated or unless the context otherwiserequires, include the Person serving as the Administrative Agent hereunder inits individual capacity.  Such Person andits Affiliates may accept deposits from, lend money to, act as the financialadvisor or in any other advisory capacity for and generally engage in any kindof business with the Borrowers or any Subsidiary or other Affiliate thereof asif such Person were not the Administrative Agent hereunder and without any dutyto account therefor to the Lenders.

 

**9.03       ****Exculpatory Provisions**.   TheAdministrative Agent shall not have any duties or obligations except thoseexpressly set forth herein and in the other Loan Documents.  Without limiting the generality of theforegoing, the Administrative Agent:

 

(a)           shall not be subject to any fiduciaryor other implied duties, regardless of whether a Default has occurred and iscontinuing;

 

(b)           shall not have any duty to take anydiscretionary action or exercise any discretionary powers, except discretionaryrights and powers expressly contemplated hereby or by the other Loan Documentsthat the Administrative Agent is required to exercise as directed in writing bythe Required Lenders (or such other number or percentage of the Lenders asshall be expressly provided for herein or in the other Loan Documents), providedthat the Administrative Agent shall not be required to take any action that, inits opinion or the opinion of its counsel, may expose the Administrative Agentto liability or that is contrary to any Loan Document or applicable law; and

 

(c)           shall not, except as expressly setforth herein and in the other Loan Documents, have any duty to disclose, andshall not be liable for the failure to disclose, any information relating toany Borrower or any of its Affiliates that is communicated to or obtained bythe Person serving as the Administrative Agent or any of its Affiliates in anycapacity.

 

TheAdministrative Agent shall not be liable for any action taken or not taken byit (i) with the consent or at the request of the Required Lenders (or suchother number or percentage of the Lenders as shall be necessary, or as theAdministrative Agent shall believe in good faith shall be necessary, under thecircumstances as provided in Sections 10.01 and 8.02) or(ii) in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed notto have knowledge of any Default unless and until notice describing suchDefault is given to the Administrative Agent by any Borrower or a Lender.

 

TheAdministrative Agent shall not be responsible for or have any duty to ascertainor inquire into (i) any statement, warranty or representation made in or inconnection with this Agreement or any other Loan Document, (ii) the contents ofany certificate, report or other document delivered hereunder or thereunder orin connection herewith or therewith, (iii) the performance or observanceof any of the covenants, agreements or other terms or conditions set forthherein or therein or the occurrence of any Default, (iv) the validity,enforceability, effectiveness or genuineness of this Agreement, any other LoanDocument or any other agreement, instrument or document or (v) the satisfactionof any condition set

 

82

----

 

forthin Article IV or elsewhere herein, other than to confirm receipt ofitems expressly required to be delivered to the Administrative Agent.

 

**9.04        Reliance by Administrative Agent.**

 

(a)           The Administrative Agent shall beentitled to rely upon, and shall not incur any liability for relying upon, anynotice, request, certificate, consent, statement, instrument, document or otherwriting (including any electronic message, Internet or intranet website postingor other distribution) believed by it to be genuine and to have been signed,sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon anystatement made to it orally or by telephone and believed by it to have beenmade by the proper Person, and shall not incur any liability for relyingthereon.  In determining compliance withany condition hereunder to the making of a Loan, that by its terms must befulfilled to the satisfaction of a Lender or the Administrative Agent maypresume that such condition is satisfactory to such Lender unless theAdministrative Agent shall have received notice to the contrary from suchLender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may becounsel for any Borrower), independent accountants and other experts selectedby it, and shall not be liable for any action taken or not taken by it inaccordance with the advice of any such counsel, accountants or experts.

 

(b)           For purposes of determiningcompliance with the conditions specified in Section 4.01, each Lenderthat has signed this Agreement shall be deemed to have consented to, approvedor accepted or to be satisfied with, each document or other matter requiredthereunder to be consented to or approved by or acceptable or satisfactory to aLender unless the Administrative Agent shall have received notice from suchLender prior to the proposed Closing Date specifying its objection thereto.

 

**9.05       ****Delegation of Duties**.   TheAdministrative Agent may perform any and all of its duties and exercise itsrights and powers hereunder or under any other Loan Document by or through anyone or more sub-agents appointed by the Administrative Agent. TheAdministrative Agent and any such sub-agent may perform any and all of itsduties and exercise its rights and powers by or through their respectiveRelated Parties.  The exculpatory provisionsof this Article shall apply to any such sub-agent and to the Related Parties ofthe Administrative Agent and any such sub-agent, and shall apply to theirrespective activities in connection with the syndication of the creditfacilities provided for herein as well as activities as Administrative Agent.

 

**9.06       ****Resignation of Administrative Agent**.   TheAdministrative Agent may at any time give notice of its resignation to theLenders and the Borrowers.  Upon receiptof any such notice of resignation, the Required Lenders shall have the right, inconsultation with the Borrowers, to appoint a successor, which shall be a bankwith an office in the United States, or an Affiliate of any such bank with anoffice in the United States.  If no suchsuccessor shall have been so appointed by the Required Lenders and shall haveaccepted such appointment within 30 days after the retiring AdministrativeAgent gives notice of its resignation, then the retiring Administrative Agentmay on behalf of the Lenders, appoint a successor Administrative Agent meetingthe qualifications set forth above; provided that if the AdministrativeAgent shall notify the Borrowers and the Lenders that no qualifying Person hasaccepted such appointment, then such resignation shall nonetheless becomeeffective in accordance with such notice and (1) the retiringAdministrative Agent shall be discharged from its duties and obligationshereunder and under the other Loan Documents (except that in the case of anycollateral security held by the Administrative Agent on behalf of the Lendersunder any of the Loan Documents, the retiring Administrative Agent shallcontinue to hold such collateral security until such time as a successorAdministrative Agent is appointed) and (2) all payments, communicationsand determinations provided to be made by, to or through the AdministrativeAgent shall instead be made by or to each Lender directly, until such time asthe Required Lenders appoint a successor Administrative Agent as provided forabove

 

83

----

 

in this Section.  Upon the acceptance of a successor’sappointment as Administrative Agent hereunder, such successor shall succeed toand become vested with all of the rights, powers, privileges and duties of theretiring (or retired) Administrative Agent, and the retiring AdministrativeAgent shall be discharged from all of its duties and obligations hereunder orunder the other Loan Documents (if not already discharged therefrom as providedabove in this Section).  The fees payableby the Borrowers to a successor Administrative Agent shall be the same as thosepayable to its predecessor unless otherwise agreed between the Borrowers andsuch successor.  After the retiringAdministrative Agent’s resignation hereunder and under the other LoanDocuments, the provisions of this Article and Section 10.04 shallcontinue in effect for the benefit of such retiring Administrative Agent, itssub-agents and their respective Related Parties in respect of any actions takenor omitted to be taken by any of them while the retiring Administrative Agentwas acting as Administrative Agent.

 

Anyresignation by Citibank, N.A. as Administrative Agent pursuant to this Sectionshall also constitute its resignation as Swingline Lender.  Upon the acceptance of a successor’sappointment as Administrative Agent hereunder, (a) such successor shall succeedto and become vested with all of the rights, powers, privileges and duties ofthe retiring Swingline Lender and (b) the retiring Swingline Lender shall bedischarged from all of their respective duties and obligations hereunder orunder the other Loan Documents.

 

Inaddition to the foregoing, if a Lender becomes, and during the period itremains, a Defaulting Lender or a Potential Defaulting Lender, the Issuing Bankand/or the Swingline Lender may, upon prior written notice to the Borrowers andthe Administrative Agent, resign as Issuing Bank or Swingline Lender,respectively, effective at the close of business New York time on a datespecified in such notice (which date may not be less than 20 Business Daysafter the date of such notice); provided that such resignation by theIssuing Bank will have no effect on the validity or enforceability of anyLetter of Credit then outstanding or on the obligations of the Borrowers or anyLender under this Agreement with respect to any such outstanding Letter ofCredit or otherwise to the Issuing Bank; and provided, further,that such resignation by the Swingline Lender will have no effect on its rightsin respect of any outstanding Swingline Loans or on the obligations of theBorrowers or any Lender under this Agreement with respect to any suchoutstanding Swingline Loan.

 

**9.07       ****Non-Reliance on Administrative Agent and OtherLenders**.   Each Lender acknowledges that it has, independently andwithout reliance upon the Administrative Agent or any other Lender or any oftheir Related Parties and based on such documents and information as it hasdeemed appropriate, made its own credit analysis and decision to enter intothis Agreement.  Each Lender also acknowledgesthat it will, independently and without reliance upon the Administrative Agentor any other Lender or any of their Related Parties and based on such documentsand information as it shall from time to time deem appropriate, continue tomake its own decisions in taking or not taking action under or based upon thisAgreement, any other Loan Document or any related agreement or any documentfurnished hereunder or thereunder.

 

**9.08        No Other Duties, Etc.**   Anything herein to the contrary notwithstanding, theSyndication Agents and the Arranger listed on the cover page hereof shall nothave any powers, duties or responsibilities under this Agreement or any of theother Loan Documents, except in its capacity, as applicable, as theAdministrative Agent or a Lender hereunder.

 

**9.09       ****Administrative Agent May File Proofs of Claim**.   Incase of the pendency of any proceeding under any Debtor Relief Law or any otherjudicial proceeding relative to any Borrower, the Administrative Agent(irrespective of whether the principal of any Loan shall then be due andpayable as herein expressed or by declaration or otherwise and irrespective ofwhether the Administrative Agent

 

84

----

 

shall have made any demandon the Borrowers) shall be entitled and empowered, by intervention in suchproceeding or otherwise

 

(b)           to file and prove a claim for thewhole amount of the principal and interest owing and unpaid in respect of theLoans and all other Obligations that are owing and unpaid and to file suchother documents as may be necessary or advisable in order to have the claims ofthe Lenders and the Administrative Agent (including any claim for thereasonable compensation, expenses, disbursements and advances of the Lendersand the Administrative Agent and their respective agents and counsel and allother amounts due the Lenders and the Administrative Agent under Sections2.09 and 10.05) allowed in such judicial proceeding; and

 

(c)           to collect and receive any monies orother property payable or deliverable on any such claims and to distribute thesame;

 

andany custodian, receiver, assignee, trustee, liquidator, sequestrator or othersimilar official in any such judicial proceeding is hereby authorized by eachLender to make such payments to the Administrative Agent and, in the event thatthe Administrative Agent shall consent to the making of such payments directlyto the Lenders to pay to the Administrative Agent any amount due for thereasonable compensation, expenses, disbursements and advances of theAdministrative Agent and its agents and counsel, and any other amounts due theAdministrative Agent under Sections 2.09 and 10.04.

 

Nothingcontained herein shall be deemed to authorize the Administrative Agent toauthorize or consent to or accept or adopt on behalf of any Lender any plan ofreorganization, arrangement, adjustment or composition affecting theObligations or the rights of any Lender to authorize the Administrative Agentto vote in respect of the claim of any Lender in any such proceeding.

 

**9.10       ****Collateral Matters**.   TheLenders irrevocably authorize the Administrative Agent, at its option and inits discretion, to release any Lien on any property granted to or held by theAdministrative Agent under any Loan Document (i) upon termination of theAggregate Commitments and payment in full of all Obligations (other thancontingent indemnification obligations), (ii) that is sold or to be sold aspart of or in connection with any sale permitted hereunder or under any otherLoan Document or where the Borrowers are permitted to obtain such releasepursuant to the terms of the Security Documents, or (iii) subject to Section 10.01,if approved, authorized or ratified in writing by the Required Lenders.

 

Uponrequest by the Administrative Agent at any time, the Required Lenders willconfirm in writing the Administrative Agent’s authority to release orsubordinate its interest in particular types or items of property.

 

**ARTICLE X.MISCELLANEOUS**

 

**10.01     ****Amendments, Etc.**   Noamendment or waiver of any provision of this Agreement or any other LoanDocument, and no consent to any departure by any Borrower therefrom, shall beeffective unless in writing signed by the Required Lenders and applicableBorrower, as the case may be, and acknowledged by the Administrative Agent, andeach such waiver or consent shall be effective only in the specific instanceand for the specific purpose for which given; provided, however,that no such amendment, waiver or consent shall:

 

(a)           waive any condition set forth in Section 4.01without the written consent of each Lender;

 

85

----

 

(b)           extend or increase the Commitment ofany Lender (or reinstate any Commitment terminated pursuant to Section 8.02)without the written consent of such Lender;

 

(c)           postpone any date fixed by thisAgreement or any other Loan Document for any payment or mandatory prepayment ofprincipal, interest, fees or other amounts due to the Lenders (or any of them)hereunder or under any other Loan Document without the written consent of eachLender directly affected thereby;

 

(d)           reduce the principal of, or the rateof interest specified herein on, any Loan or (subject to clause (iii) ofthe second proviso to this Section 10.01) any fees or other amountspayable hereunder or under any other Loan Document without the written consentof each Lender directly affected thereby; provided, however, thatonly the consent of the Required Lenders shall be necessary (i) to amendthe definition of “Default Rate” or to waive any obligation of the Borrowers topay interest at the Default Rate or (ii) to amend any financial covenantshereunder (or any defined term used therein);

 

(e)           change any components of thedefinitions of Eligible Specified Financial Asset or Specified Percentage,without the written consent of the Required Lenders; provided that (i) theaddition of any new type of Specified Financial Asset and (ii) anyincrease in any Specified Percentage shall require the written consent of eachLender;

 

(f)            change Section 2.13 or Section 8.03in a manner that would alter the pro rata sharing of payments required thereby, or change any provision relating to the pro rata disbursement of funds to theLenders, in each case, without the written consent of each Lender;

 

(g)           change any provision of this Section orthe definition of “Required Lenders” or any other provision hereof specifyingthe number or percentage of Lenders required to amend, waive or otherwisemodify any rights hereunder or make any determination or grant any consenthereunder without the written consent of each Lender;

 

(h)           amend, modify or waive theprovisions of Section 2.04(c)  without the written consent ofeach Lender; or

 

(i)            release all or substantiallyall of the Collateral and terminate the Security Agreement without the writtenconsent of each Lender.

 

and,providedfurther, that (i) no amendment, waiver or consentshall, unless in writing and signed by the Swingline Lender in addition to theLenders required above, affect the rights or duties of the Swingline Lenderunder this Agreement, (ii) no amendment, waiver or consent shall, unlessin writing and signed by the Administrative Agent in addition to the Lendersrequired above, affect the rights or duties of the Administrative Agent underthis Agreement or any other Loan Document and (iii) the consent of Lendersholding not less than two-thirds of the Revolving Credit Exposure and unusedCommitments will be required for any adverse change affecting the provisions ofthis Agreement relating to the calculation of the Borrowing Base (including thedefinitions set forth in Section 6.16(b)) unless otherwise expresslyprovided herein.

 

Anythingherein to the contrary notwithstanding, during such period as a Lender is aDefaulting Lender, to the fullest extent permitted by applicable law, suchLender will not be entitled to vote in respect of amendments and waivershereunder and the Commitment and the outstanding Loans or other extensions ofcredit of such Lender hereunder will not be taken into account in determiningwhether the Requisite Lenders or all of the Lenders, as required, have approvedany such amendment or waiver (and the definition of “Requisite Lenders” willautomatically be deemed modified accordingly for the duration

 

86

----

 

ofsuch period); provided, that any such amendment or waiver that wouldincrease or extend the term of the Commitment of such Defaulting Lender, extendthe date fixed for the payment of principal or interest owing to suchDefaulting Lender hereunder, reduce the principal amount of any obligationowing to such Defaulting Lender, reduce the amount of or the rate or amount ofinterest on any amount owing to such Defaulting Lender or of any fee payable tosuch Defaulting Lender hereunder, or alter the terms of this proviso, willrequire the consent of such Defaulting Lender.

 

**10.02      Notices; Effectiveness; ElectronicCommunication.**

 

(a)           Notices Generally.  Except in the case of notices and othercommunications expressly permitted to be given by telephone (and except asprovided in subsection (b) below), all notices and other communicationsprovided for herein shall be in writing and shall be delivered by hand orovernight courier service, mailed by certified or registered mail or sent bytelecopier as follows, and all notices and other communications expresslypermitted hereunder to be given by telephone shall be made to the applicabletelephone number, as follows:

 

(i)            if to the Borrowers, theAdministrative Agent or the Swingline Lender, to the address, telecopiernumber, electronic mail address or telephone number specified for such Personon Schedule 10.02; and

 

(ii)           if to any other Lender, to theaddress, telecopier number, electronic mail address or telephone numberspecified in its Administrative Questionnaire.

 

Noticessent by hand or overnight courier service, or mailed by certified or registeredmail, shall be deemed to have been given when received; notices sent bytelecopier shall be deemed to have been given when sent (except that, if notgiven during normal business hours for the recipient, shall be deemed to havebeen given at the opening of business on the next business day for therecipient).  Notices delivered throughelectronic communications to the extent provided in subsection (b) below,shall be effective as provided in such subsection (b).

 

(b)           Electronic Communications.  Notices and other communications to theLenders may be delivered or furnished by electronic communication (includinge-mail and Internet or intranet websites) pursuant to procedures approved bythe Administrative Agent, provided that the foregoing shall not apply toservice of process notices pursuant to Section 10.14, notices thatare prohibited from being so delivered under applicable law, and notices to anyLender pursuant to Article II if such Lender, as applicable, hasnotified the Administrative Agent that it is incapable of receiving noticesunder such Article by electronic communication.  The Administrative Agent or any Borrower may,in its discretion, agree to accept notices and other communications to ithereunder by electronic communications pursuant to procedures approved by it, providedthat approval of such procedures may be limited to particular notices orcommunications.

 

Unlessthe Administrative Agent otherwise prescribes, (i) notices and othercommunications sent to an e-mail address shall be deemed received upon thesender’s receipt of an acknowledgement from the intended recipient (such as bythe “return receipt requested” function, as available, return e-mail or otherwritten acknowledgement), provided that if such notice or other communicationis not sent during the normal business hours of the recipient, such notice orcommunication shall be deemed to have been sent at the opening of business onthe next business day for the recipient, and (ii) notices orcommunications posted to an Internet or intranet website shall be deemedreceived upon the deemed receipt by the intended recipient at its e-mailaddress as described in the foregoing clause (i) of notification thatsuch notice or communication is available and identifying the website addresstherefor.

 

87

----

 

(c)           The Platform.  THE PLATFORM IS PROVIDED “AS IS” AND “ASAVAILABLE.”  THE AGENT PARTIES (ASDEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWERMATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FORERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIEDOR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR APARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROMVIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTIONWITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties(each an “Agent Party”, or collectively, the “Agent Parties”)have any liability to the Borrowers, any Lender or any other Person for losses,claims, damages, liabilities or expenses of any kind (whether in tort, contractor otherwise) arising out of the Borrowers’ or the Administrative Agent’stransmission of Borrower Materials through the Internet, except to the extentthat such losses, claims, damages, liabilities or expenses are determined by acourt of competent jurisdiction by a final and nonappealable judgment to haveresulted from the gross negligence or willful misconduct of such Agent Party; provided,however, that in no event shall any Agent Party have any liability tothe Borrowers, any Lender or any other Person for indirect, special,incidental, consequential or punitive damages (as opposed to direct or actualdamages).

 

(d)           Change of Address, Etc.  Each of the Borrowers, the AdministrativeAgent and the Swingline Lender may change its address, telecopier or telephonenumber for notices and other communications hereunder by notice to the otherparties hereto.  Each other Lender maychange its address, telecopier or telephone number for notices and othercommunications hereunder by notice to the Borrowers, the Administrative Agentand the Swingline Lender.  In addition,each Lender agrees to notify the Administrative Agent from time to time toensure that the Administrative Agent has on record (i) an effectiveaddress, contact name, telephone number, telecopier number and electronic mailaddress to which notices and other communications may be sent and (ii) accuratewire instructions for such Lender.

 

(e)           Reliance by Administrative Agentand Lenders.** **The Administrative Agent and theLenders shall be entitled to rely and act upon any notices (includingtelephonic Revolving Loan Notices and Swingline Loan Notices) purportedly givenby or on behalf of the Borrowers even if (i) such notices were not made ina manner specified herein, were incomplete or were not preceded or followed byany other form of notice specified herein, or (ii) the terms thereof, asunderstood by the recipient, varied from any confirmation thereof.  The Borrowers shall jointly and severallyindemnify the Administrative Agent, each Lender and the Related Parties of eachof them from all losses, costs, expenses and liabilities resulting from thereliance by such Person on each notice purportedly given by or on behalf of theBorrowers.  All telephonic notices to andother telephonic communications with the Administrative Agent may be recordedby the Administrative Agent, and each of the parties hereto hereby consents tosuch recording.

 

**10.03     ****No Waiver; Cumulative Remedies**.   Nofailure by any Lender or the Administrative Agent to exercise, and no delay byany such Person in exercising, any right, remedy, power or privilege hereundershall operate as a waiver thereof; nor shall any single or partial exercise ofany right, remedy, power or privilege hereunder preclude any other or furtherexercise thereof or the exercise of any other right, remedy, power orprivilege.  The rights, remedies, powersand privileges herein provided are cumulative and not exclusive of any rights,remedies, powers and privileges provided by law.

 

**10.04      Expenses; Indemnity; Damage Waiver.**

 

(a)           Costs and Expenses.  The Borrowers shall pay (i) allreasonable and documented out-of-pocket expenses incurred by the AdministrativeAgent and its Affiliates (including the reasonable fees, 

 

88

----

 

charges and disbursementsof counsel for the Administrative Agent), in connection with the syndication ofthe credit facilities provided for herein, the preparation, negotiation,execution, delivery and administration of this Agreement and the other LoanDocuments or any amendments, modifications or waivers of the provisions hereofor thereof (whether or not the transactions contemplated hereby or therebyshall be consummated), (ii) all costs, expenses, taxes, assessments andother charges incurred in connection with any filing, registration, recordingor perfection of any security interest contemplated by any Security Document(or other document referenced therein) and (iii) all out-of-pocketexpenses incurred by the Administrative Agent or any Lender (including thefees, charges and disbursements of any counsel for the Administrative Agent andany Lender), in connection with the enforcement or protection of its rights(A) in connection with this Agreement and the other Loan Documents,including its rights under this Section, or (B) in connection with theLoans made hereunder, including all such out-of-pocket expenses incurred duringany workout, restructuring or negotiations in respect of such Loans.

 

(b)           Indemnification by the Borrowers.  The Borrowers shall indemnify theAdministrative Agent (and any sub-agent thereof), each Lender, and each RelatedParty of any of the foregoing Persons (each such Person being called an “Indemnitee”)against, and hold each Indemnitee harmless from, any and all losses, claims,damages, liabilities and related expenses (including the fees, charges anddisbursements of any counsel for any Indemnitee), and shall indemnify and holdharmless each Indemnitee from all fees and time charges and disbursements forattorneys who may be employees of any Indemnitee, incurred by any Indemnitee orasserted against any Indemnitee by any third party or by any of the Borrowersarising out of, in connection with, or as a result of (i) the execution ordelivery of this Agreement, any other Loan Document or any agreement orinstrument contemplated hereby or thereby, the performance by the partieshereto of their respective obligations hereunder or thereunder, theconsummation of the transactions contemplated hereby or thereby, or, in thecase of the Administrative Agent (and any sub-agent thereof) and its RelatedParties only, the administration of this Agreement and the other LoanDocuments, (ii) any Loan or the use or proposed use of the proceedstherefrom, (iii) any actual or alleged presence or release of HazardousMaterials on or from any property owned or operated by any of the Borrowers orany of their Subsidiaries, or any Environmental Liability related in any way tosuch Borrower or any such Subsidiaries, or (iv) any actual or prospectiveclaim, litigation, investigation or proceeding relating to any of theforegoing, whether based on contract, tort or any other theory, whether broughtby a third party or by any of the Borrowers, and regardless of whether anyIndemnitee is a party thereto, in all cases, whether or not caused by or arising,in whole or in part, out of the comparative, contributory or sole negligence ofthe Indemnitee; provided that such indemnity shall not, as to anyIndemnitee, be available to the extent that such losses, claims, damages,liabilities or related expenses (x) are determined by a court of competentjurisdiction by final and nonappealable judgment to have resulted from thegross negligence or willful misconduct of such Indemnitee or (y) resultfrom a claim brought by any of the Borrowers against an Indemnitee for breachin bad faith of such Indemnitee’s obligations hereunder or under any other LoanDocument, if any Borrower has obtained a final and nonappealable judgment inits favor on such claim as determined by a court of competentjurisdiction.  Unless an Event of Defaultshall have occurred and be continuing, the Borrowers shall be entitled toassume the defense of any action for which indemnification is sought hereunderwith counsel of its choice at its expense (in which case the Borrowers shallnot thereafter be responsible for the fees and expenses of any separate counselretained by an Indemnitee except as set forth below); provided, however,that such counsel shall be reasonably satisfactory to each suchIndemnitee.  Notwithstanding theBorrowers’ election to assume the defense of such action, each Indemnitee shallhave the right to employ separate counsel and to participate in the defense ofsuch action, and the Borrowers shall bear the reasonable fees, costs andexpenses of such separate counsel if (i) the use of counsel chosen by theBorrowers to represent such Indemnitee would present such counsel with aconflict of interest; (ii) the actual or potential defendants in, ortargets of, any such action include the Borrowers and such Indemnitee and such Indemniteeshall have reasonably concluded that there may be legal defenses available toit that are different from or additional to those available to the Borrowers; (iii) theBorrowers shall not have 

 

89

----

 

employed counselreasonably satisfactory to such Indemnitee to represent it within a reasonabletime after notice of the institution of such action; or (iv) the Borrowersshall authorize such Indemnitee to employ separate counsel at the Borrowers’expense.  The Borrowers will not beliable under this Agreement for any amount paid by an Indemnitee to settle anyclaims or actions if the settlement is entered into without the Borrowers’consent, which consent may not be unreasonably withheld or delayed.

 

(c)           Reimbursement by Lenders.  To the extent that any Borrower for anyreason fails to indefeasibly pay any amount required under subsection (a) or(b) of this Section to be paid by it to the Administrative Agent (orany sub-agent thereof) or any Related Party of any of the foregoing, eachLender severally agrees to pay to the Administrative Agent (or any suchsub-agent) or such Related Party, as the case may be, such Lender’s ApplicablePercentage (determined as of the time that the applicable unreimbursed expenseor indemnity payment is sought) of such unpaid amount, provided that theunreimbursed expense or indemnified loss, claim, damage, liability or relatedexpense, as the case may be, was incurred by or asserted against theAdministrative Agent (or any such sub-agent) in its capacity as such, oragainst any Related Party of any of the foregoing acting for the AdministrativeAgent (or any such sub-agent) in connection with such capacity. The obligationsof the Lenders under this subsection (c) are subject to theprovisions of Section 2.12(d).

 

(d)           Waiver of Consequential Damages, Etc.  To the fullest extent permitted by applicablelaw, the Borrowers shall not assert, and hereby waive, any claim against anyIndemnitee, on any theory of liability, for special, indirect, consequential orpunitive damages (as opposed to direct or actual damages) arising out of, inconnection with, or as a result of, this Agreement, any other Loan Document orany agreement or instrument contemplated hereby, the transactions contemplatedhereby or thereby, any Loan or the use of the proceeds thereof.  No Indemnitee referred to in subsection (b) aboveshall be liable for any damages arising from the use by unintended recipientsof any information or other materials distributed to such unintended recipientsby such Indemnitee through telecommunications, electronic or other informationtransmission systems in connection with this Agreement or the other LoanDocuments or the transactions contemplated hereby or thereby other than for director actual damages resulting from the gross negligence or willful misconduct ofsuch Indemnitee as determined by a final and nonappealable judgment of a courtof competent jurisdiction.

 

(e)           Payments.  All amounts due under this Section shallbe payable not later than ten (10) Business Days after demand therefor.

 

(f)            Survival.  The agreements in this Section shallsurvive the resignation of the Administrative Agent and the Swingline Lender,the replacement of any Lender, the termination of the Aggregate Commitments andthe repayment, satisfaction or discharge of all the other Obligations.

 

**10.05     ****Payments Set Aside**.   Tothe extent that any payment by or on behalf of the Borrowers is made to theAdministrative Agent or any Lender, or the Administrative Agent or any Lenderexercises its right of setoff, and such payment or the proceeds of such setoffor any part thereof is subsequently invalidated, declared to be fraudulent orpreferential, set aside or required (including pursuant to any settlemententered into by the Administrative Agent or such Lender in its discretion) tobe repaid to a trustee, receiver or any other party, in connection with anyproceeding under any Debtor Relief Law or otherwise, then (a) to theextent of such recovery, the obligation or part thereof originally intended tobe satisfied shall be revived and continued in full force and effect as if suchpayment had not been made or such setoff had not occurred, and (b) eachLender severally agrees to pay to the Administrative Agent upon demand itsapplicable share (without duplication) of any amount so recovered from orrepaid by the Administrative Agent, plus interest thereon from the date of suchdemand to the date such payment is made at a rate per annum equal to theFederal Funds Rate from time to time in effect. The obligations of 

 

90

----

 

the Lenders under clause (b) ofthe preceding sentence shall survive the payment in full of the Obligations andthe termination of this Agreement.

 

**10.06     ****Successors and Assigns**.

 

(a)           Successors and Assigns Generally.  The provisions of this Agreement shall bebinding upon and inure to the benefit of the parties hereto and theirrespective successors and assigns permitted hereby, except that the Borrowersmay not assign or otherwise transfer any of its rights or obligations hereunderwithout the prior written consent of the Administrative Agent and each Lenderand no Lender may assign or otherwise transfer any of its rights or obligationshereunder except (i) to an assignee in accordance with the provisions ofparagraph (b) of this Section, (ii) by way of participation inaccordance with the provisions of paragraph (d) of this Section or (iii) byway of pledge or assignment of a security interest subject to the restrictionsof paragraph (f) of this Section (and any other attempted assignmentor transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed orimplied, shall be construed to confer upon any Person (other than the partieshereto, their respective successors and assigns permitted hereby, Participantsto the extent provided in paragraph (d) of this Section and, to theextent expressly contemplated hereby, the Related Parties of each of theAdministrative Agent and the Lenders) any legal or equitable right, remedy orclaim under or by reason of this Agreement.

 

(b)           Assignments by Lenders.  Any Lender may at any time assign to one ormore Eligible Assignees all or a portion of its rights and obligations underthis Agreement (including all or a portion of its Commitment and the Loans(including for purposes of this subsection (b), participations in SwinglineLoans) at the time owing to it); provided that any such assignment shallbe subject to the following conditions:

 

(i)            Minimum Amounts.

 

(A)          in the case of an assignment of theentire remaining amount of the assigning Lender’s Commitment and the Loans atthe time owing to it or in the case of an assignment to a Lender, an Affiliateof a Lender or an Approved Fund, no minimum amount need be assigned; and

 

(B)           in any case not described inparagraph (b)(i)(A) of this Section, the aggregate amount of theCommitment (which for this purpose includes Loans outstanding thereunder) or,if the applicable Commitment is not then in effect, the principal outstandingbalance of the Loans of the assigning Lender subject to each such assignment(determined as of the date the Assignment and Assumption with respect to suchassignment is delivered to the Administrative Agent or, if “Trade Date” isspecified in the Assignment and Assumption, as of the Trade Date) shall not beless than $5,000,000 unless each of the Administrative Agent and, so long as noEvent of Default has occurred and is continuing, each Borrower otherwiseconsents (each such consent not to be unreasonably withheld or delayed); provided,however, that concurrent assignments to members of an Assignee Group andconcurrent assignments from members of an Assignee Group to a single assignee(or to an assignee and members of its Assignee Group) will be treated as asingle assignment for purposes of determining whether such minimum amount hasbeen met.

 

(ii)           Proportionate Amounts.  Each partial assignment shall be made as anassignment of a proportionate part of all the assigning Lender’s rights andobligations under this Agreement with respect to the Loan or the Commitmentassigned, except that this clause (ii) shall not apply to the SwinglineLender’s rights and obligations in respect of Swingline Loans;

 

91

----

 

(iii)          Required Consents.  No consent shall be required for anyassignment except to the extent required by paragraph (b)(i)(B) of this Section and,in addition:

 

(A)          the consent of each Borrower (suchconsent not to be unreasonably withheld) shall be required unless (x) anEvent of Default has occurred and is continuing at the time of such assignmentor (y) such assignment is to a Lender, an Affiliate of a Lender or anApproved Fund; provided that the Borrowers shall be deemed to have consentedto any such assignment unless it shall object thereto by written notice to theAdministrative Agent within 10 Business Days after having received noticethereof;

 

(B)           the consent of the AdministrativeAgent (such consent not to be unreasonably withheld or delayed) shall berequired for assignments if such assignment is to a Person that is not aLender, an Affiliate of such Lender or an Approved Fund with respect to suchLender; and

 

(C)           the consent of the Issuing Bank (suchconsent not to be unreasonably withheld or delayed) shall be required for anyassignment that increases the obligation of the assignee to participate inexposure under one or more Letters of Credit (whether or not then outstanding)and the consent of the Swingline Lender (such consent not to be unreasonablywithheld or delayed) shall be required if such assignment is to a Person thatis not a Lender, an Affiliate of such Lender or an Approved Fund with respectto such Lender.

 

(iv)          Assignment and Assumption.  The parties to each assignment shall executeand deliver to the Administrative Agent an Assignment and Assumption, togetherwith a processing and recordation fee in the amount, if any, required as setforth in Schedule 10.06; provided, however, that theAdministrative Agent may, in its sole discretion, elect to waive suchprocessing and recordation fee in the case of any assignment.  The assignee, if it is not a Lender, shalldeliver to the Administrative Agent an Administrative Questionnaire.

 

(v)           Assignment to Borrowers.  Assignments to the Borrowers and Affiliatesof the Borrowers shall be permitted subject to the following limitations(which, for the avoidance of doubt, are not applicable in the case ofassignments to Affiliated Debt Funds):

 

(A)          any such Loans acquired by a Borroweror any Subsidiaries of a Borrower shall be cancelled promptly upon theacquisition thereof;

 

(B)           Lenders that are Affiliates of theBorrowers shall have no right to consent to any amendment, modification,waiver, consent or other such action with respect to any of the terms of thisAgreement or any other Loan Document, or otherwise vote on any matter relatedto this Agreement or any other Loan Document.

 

(vi)          No Assignment to Natural Persons.  No such assignment shall be made to a naturalperson.

 

Subject to acceptance andrecording thereof by the Administrative Agent pursuant to paragraph (c) ofthis Section, from and after the effective date specified in each Assignmentand Assumption, the assignee thereunder shall be a party to this Agreement and,to the extent of the interest assigned by such Assignment and Assumption, havethe rights and obligations of a Lender under this Agreement, and the assigningLender thereunder shall, to the extent of the interest assigned by suchAssignment and Assumption, be released from its obligations under thisAgreement (and, in the case of an Assignment 

 

92

----

 

and Assumption covering all of the assigning Lender’srights and obligations under this Agreement, such Lender shall cease to be aparty hereto) but shall continue to be entitled to the benefits of Sections3.01, 3.04, 3.05 and 10.04 with respect to facts and circumstances occurringprior to the effective date of such assignment. Upon request, each Borrower (at its expense) shall execute and deliver aNote to the assignee Lender.  Anyassignment or transfer by a Lender of rights or obligations under thisAgreement that does not comply with this paragraph shall be treated forpurposes of this Agreement as a sale by such Lender of a participation in suchrights and obligations in accordance with paragraph (d) of this Section.

 

(c)           Register.  The Administrative Agent, acting solely forthis purpose as an agent of the Borrower, shall maintain at the AdministrativeAgent’s Office a copy of each Assignment and Assumption delivered to it and aregister for the recordation of the names and addresses of the Lenders, and theCommitments of, and principal amounts of the Loans owing to, each Lenderpursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall beconclusive, and the Borrower, the Administrative Agent and the Lenders maytreat each Person whose name is recorded in the Register pursuant to the termshereof as a Lender hereunder for all purposes of this Agreement,notwithstanding notice to the contrary and the transfer of any Loan shall notbe recognized except to the extent reflected on the Register.  The Register shall be available for inspectionby the Borrowers and any Lender, at any reasonable time and from time to timeupon reasonable prior notice.  This Section 10.06is intended to cause the Loans to be treated as being in registered form withinthe meaning of U.S. Treasury Regulation Section 103-1(c) and will beinterpreted in accordance with that intention.

 

(d)           Participations.  Any Lender may at any time, without theconsent of, or notice to, the Borrowers or the Administrative Agent, sellparticipations to any Person (other than a natural person or any Borrowers orany of the Borrowers’ Affiliates or Subsidiaries) (each, a “Participant”)in all or a portion of such Lender’s rights and/or obligations under thisAgreement (including all or a portion of its Commitment and/or the Loans(including such Lender’s participations in Swingline Loans) owing to it);provided that (i) such Lender’s obligations under this Agreement shallremain unchanged, (ii) such Lender shall remain solely responsible to theother parties hereto for the performance of such obligations and (iii) theBorrower, the Administrative Agent and the Lenders, Issuing Bank andSwingline Lender shall continue to deal solely and directly with such Lender inconnection with such Lender’s rights and obligations under this Agreement.

 

Any agreement orinstrument pursuant to which a Lender sells such a participation shall providethat such Lender shall retain the sole right to enforce this Agreement and toapprove any amendment, modification or waiver of any provision of thisAgreement; provided that such agreement or instrument may provide thatsuch Lender will not, without the consent of the Participant, agree to anyamendment, modification or waiver described in the first proviso to Section 10.01that affects such Participant.  Subjectto paragraph (e) of this Section, each Borrower agrees that eachParticipant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05to the same extent as if it were a Lender and had acquired its interest byassignment pursuant to paragraph (b) of this Section.  To the extent permitted by law, eachParticipant also shall be entitled to the benefits of Section 10.08 asthough it were a Lender, provided such Participant agrees to be subject to Section 2.13as though it were a Lender.  Each Lenderthat sells a participation, acting solely for this purpose as an agent of theBorrower, shall maintain a register on which it enters the name and address ofeach Participant and the principal amounts (and stated interest) of eachParticipant’s interest in the Loans or other obligations under this Agreement(the “Participant Register”).  Theentries in the Participant Register shall be conclusive, and such Lender, eachLoan Party and the Administrative Agent shall treat each person whose name isrecorded in the Participant Register pursuant to the terms hereof as the ownerof such participation for all purposes of this Agreement, notwithstandingnotice to the contrary.

 

93

----

 

(e)           Limitations upon ParticipantRights.  A Participant shall not beentitled to receive any greater payment under Sections 3.01 or 3.04 than theapplicable Lender would have been entitled to receive with respect to theparticipation sold to such Participant, unless the sale of the participation tosuch Participant is made with the Borrower’s prior written consent.  A Participant that would be a Foreign Lenderif it were a Lender shall not be entitled to the benefits of Section 3.01unless the Borrowers are notified of the participation sold to such Participantand such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) asthough it were a Lender.

 

(f)            Certain Pledges.  Any Lender may at any time pledge or assign asecurity interest in all or any portion of its rights under this Agreement(including under its Note, if any) to secure obligations of such Lender,including any pledge or assignment to secure obligations to a Federal ReserveBank; provided that no such pledge or assignment shall release such Lender fromany of its obligations hereunder or substitute any such pledgee or assignee forsuch Lender as a party hereto.

 

(g)           Electronic Execution ofAssignments.  The words “execution,” “signed,”“signature,” and words of like import in any Assignment and Assumption shall bedeemed to include electronic signatures or the keeping of records in electronicform, each of which shall be of the same legal effect, validity orenforceability as a manually executed signature or the use of a paper-basedrecordkeeping system, as the case may be, to the extent and as provided for inany applicable law, including the Federal Electronic Signatures in Global andNational Commerce Act, the New York State Electronic Signatures and RecordsAct, or any other similar state laws based on the Uniform Electronic TransactionsAct.

 

(h)           Resignation as Swingline Lenderafter Assignment.  Notwithstandinganything to the contrary contained herein, if at any time Citibank, N.A.assigns all of its Commitment and Loans pursuant to subsection (b) above,Citibank, N.A. may upon 30 days’ notice to the Borrowers, resign as SwinglineLender.  In the event of any suchresignation as Swingline Lender, the Borrowers shall be entitled to appointfrom among the Lenders a successor Swingline Lender hereunder; provided,however, that no failure by the Borrowers to appoint any such successorshall affect the resignation of Citibank, N.A. as Swingline Lender, as the casemay be.  If Citibank, N.A. resigns asSwingline Lender, it shall retain all the rights of the Swingline Lenderprovided for hereunder with respect to Swingline Loans made by it andoutstanding as of the effective date of such resignation, including the rightto require the Lenders to make Base Rate Loans, Daily Floating Eurodollar Loansor fund risk participations in outstanding Swingline Loans.  Upon the appointment of a successor SwinglineLender, such successor shall succeed to and become vested with all of therights, powers, privileges and duties of the retiring Swingline Lender, as thecase may be.

 

**10.07     ****Treatment of Certain Information; Confidentiality**.   Eachof the Administrative Agent, the Lenders and the Issuing Bank agrees tomaintain the confidentiality of the Information (as defined below), except thatInformation may be disclosed (a) to its Affiliates and to its and itsAffiliates’ respective managers, administrators, trustees, partners, directors,officers, employees, agents, advisors and other representatives (it beingunderstood that the Persons to whom such disclosure is made will be informed ofthe confidential nature of such Information and instructed to keep suchInformation confidential), (b) to the extent requested by any regulatoryauthority purporting to have jurisdiction over it (including anyself-regulatory authority, such as the National Association of InsuranceCommissioners), (c) to the extent required by applicable laws orregulations or by any subpoena or similar legal process, (d) to any otherparty hereto, (e) in connection with the exercise of any remedieshereunder or under any other Loan Document or any action or proceeding relatingto this Agreement or any other Loan Document or the enforcement of rightshereunder or thereunder, (f) subject to an agreement executed anddelivered to and for the benefit of the Borrowers containing provisions substantiallythe same as those of this Section, to (i) any assignee of or Participantin, or any prospective assignee of or Participant in, any of its rights orobligations under this Agreement, (ii) any actual or prospective party (orits managers,

 

94

----

 

administrators, trustees,partners, directors, officers, employees, agents, advisors and otherrepresentatives) to any swap, derivative or other transaction under whichpayments are to be made by reference to the Borrowers and its obligations, thisAgreement or payments hereunder, (iii) any rating agency or (iv) theCUSIP Service Bureau or any similar organization, (g) with the consent ofthe Borrowers or (h) to the extent such Information (x) becomespublicly available other than as a result of a breach of this Section or (y) becomesavailable to the Administrative Agent, any Lender, the Issuing Bank or any oftheir respective Affiliates on a nonconfidential basis from a source other thanthe Borrower.

 

For purposes of thisSection, “Information” means all information received from any Borroweror any of its Subsidiaries relating to the Borrowers or any of theirSubsidiaries or any of their respective businesses, other than any suchinformation that is available to the Administrative Agent, any Lender or theIssuing Bank on a nonconfidential basis prior to disclosure by any Borrower orany of its Subsidiaries, provided that, in the case of information receivedfrom any Borrower or any of its Subsidiaries after the date hereof, suchinformation is clearly identified at the time of delivery as confidential or ismaterial non-public information.  AnyPerson required to maintain the confidentiality of Information as provided inthis Section shall be considered to have complied with its obligation todo so if such Person has exercised the same degree of care to maintain theconfidentiality of such Information as such Person would accord to its ownconfidential information.

 

Each of the AdministrativeAgent and the Lenders acknowledges that (a) the Information may includematerial non-public information concerning the Borrowers or a Subsidiary, asthe case may be, (b) it has developed compliance procedures regarding theuse of material non-public information, (c) it will handle such materialnon-public information in accordance with applicable Law, including Federal andstate securities Laws and (d) the confidentiality provisions containedherein, in so far as such provisions relate to material proprietaryInformation, shall survive for 12 months following the Maturity Date and, in sofar as such provisions relate to material non-public information, shall survivein accordance with applicable law.

 

**10.08     ****Right of Setoff**.   Ifan Event of Default shall have occurred and be continuing, each Lender and eachof their respective Affiliates is hereby authorized at any time and from timeto time, after providing prior written notice to the Administrative Agent, tothe fullest extent permitted by applicable law, to set off and apply any andall deposits (general or special, time or demand, provisional or final, inwhatever currency) at any time held and other obligations (in whatevercurrency) at any time owing by such Lender or any such Affiliate to or for thecredit or the account of the applicable Borrower against any and all of theobligations of the applicable Borrower now or hereafter existing under thisAgreement or any other Loan Document to such Lender, irrespective of whether ornot such Lender shall have made any demand under this Agreement or any otherLoan Document and although such obligations of such Borrower may be contingentor unmatured or are owed to a branch or office of such Lender different fromthe branch or office holding such deposit or obligated on such indebtedness.  The rights of each Lender and theirrespective Affiliates under this Section are in addition to other rightsand remedies (including other rights of setoff) that such Lender or theirrespective Affiliates may have.  EachLender agrees to notify the Borrowers and the Administrative Agent promptlyafter any such setoff and application, provided that the failure to givesuch notice shall not affect the validity of such setoff and application.

 

**10.09     ****Interest Rate Limitation**.   Notwithstandinganything to the contrary contained in any Loan Document, the interest paid oragreed to be paid under the Loan Documents shall not exceed the maximum rate ofnon-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Administrative Agent or any Lendershall receive interest in an amount that exceeds the Maximum Rate, the excessinterest shall be applied to the principal of the Loans or, if it exceeds suchunpaid principal, refunded to the Borrowers. In determining whether the interest contracted for, charged, or receivedby the Administrative Agent or a Lender exceeds the Maximum Rate, such Personmay, to the extent permitted

 

95

----

 

by applicable Law, (a) characterizeany payment that is not principal as an expense, fee, or premium rather thaninterest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize,prorate, allocate, and spread in equal or unequal parts the total amount ofinterest throughout the contemplated term of the Obligations hereunder.

 

**10.10     ****Counterparts; Integration; Effectiveness**.   ThisAgreement may be executed in counterparts (and by different parties hereto indifferent counterparts), each of which shall constitute an original, but all ofwhich when taken together shall constitute a single contract.  This Agreement and the other Loan Documentsconstitute the entire contract among the parties relating to the subject matterhereof and supersede any and all previous agreements and understandings, oralor written, relating to the subject matter hereof.  Except as provided in Section 4.01,this Agreement shall become effective when it shall have been executed by theAdministrative Agent and when the Administrative Agent shall have receivedcounterparts hereof that, when taken together, bear the signatures of each ofthe other parties hereto.  Delivery of anexecuted counterpart of a signature page of this Agreement by telecopyshall be effective as delivery of a manually executed counterpart of thisAgreement.

 

**10.11     ****Survival of Representations and Warranties**.   Allrepresentations and warranties made hereunder and in any other Loan Document orother document delivered pursuant hereto or thereto or in connection herewithor therewith shall survive the execution and delivery hereof and thereof.  Such representations and warranties have beenor will be relied upon by the Administrative Agent and each Lender, regardlessof any investigation made by the Administrative Agent or any Lender or on theirbehalf and notwithstanding that the Administrative Agent or any Lender may havehad notice or knowledge of any Default at the time of any Borrowing, and shallcontinue in full force and effect as long as any Loan or any other Obligationhereunder shall remain unpaid or unsatisfied.

 

**10.12     ****Severability**.   Ifany provision of this Agreement or the other Loan Documents is held to beillegal, invalid or unenforceable, (a) the legality, validity andenforceability of the remaining provisions of this Agreement and the other LoanDocuments shall not be affected or impaired thereby and (b) the partiesshall endeavor in good faith negotiations to replace the illegal, invalid orunenforceable provisions with valid provisions the economic effect of whichcomes as close as possible to that of the illegal, invalid or unenforceableprovisions.  The invalidity of aprovision in a particular jurisdiction shall not invalidate or renderunenforceable such provision in any other jurisdiction.

 

**10.13     ****Replacement of Lenders**.   Ifany Lender requests compensation under Section 3.04, or if anyBorrower is required to pay any additional amount to any Lender or anyGovernmental Authority for the account of any Lender pursuant to Section 3.01,if any Lender gives a notice pursuant to Section 3.02 or if any Lenderis a Defaulting Lender or if any other circumstance exists hereunder that givesany Borrower the right to replace a Lender as a party hereto, then suchBorrower may, at its sole expense and effort, upon notice to such Lender andthe Administrative Agent, require such Lender to assign and delegate, withoutrecourse (in accordance with and subject to the restrictions contained in, andconsents required by, Section 10.06), all of its interests, rightsand obligations under this Agreement and the related Loan Documents to anassignee that shall assume such obligations (which assignee may be anotherLender, if a Lender accepts such assignment), provided that:

 

(b)           such Lender shall have receivedpayment of an amount equal to the outstanding principal of its Loans, accruedinterest thereon, accrued fees and all other amounts payable to it hereunderand under the other Loan Documents (including any amounts under Section 3.05)from the assignee (to the extent of such outstanding principal and accruedinterest and fees) or the Borrowers (in the case of all other amounts);

 

96

----

 

(c)           in the case of any such assignmentresulting from a claim for compensation under Section 3.04 orpayments required to be made pursuant to Section 3.01, suchassignment will result in a reduction in such compensation or paymentsthereafter;

 

(d)           such assignment does not conflictwith applicable Laws; and

 

(e)           such assignment is made in accordancewith Section 10.06(b)(iii)(B).

 

(f)            A Lender shall not be required tomake any such assignment or delegation if, prior thereto, as a result of awaiver by such Lender or otherwise, the circumstances entitling the Borrowersto require such assignment and delegation cease to apply.

 

**10.14      Governing Law; Jurisdiction; Etc.**

 

(a)           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, ANDCONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARDTO THE CHOICE OF LAW PROVISIONS THEREOF OTHER THAN SECTION 5-1401 OF THENEW YORK GENERAL OBLIGATIONS LAW.

 

(b)           SUBMISSION TO JURISDICTION.  EACH OF THE BORROWERS IRREVOCABLY ANDUNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVEJURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTYAND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK,AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDINGARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FORRECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETOIRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCHACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATECOURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCHFEDERAL COURT.  EACH OF THE PARTIESHERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BECONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THEJUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHERLOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANYLENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TOTHIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ITSPROPERTIES IN THE COURTS OF ANY JURISDICTION.

 

NOTWITHSTANDING ANYTHINGABOVE IN THIS CLAUSE (B), THE ADMINISTRATIVE AGENT RESERVES FOR ITSELF THERIGHT TO PURSUE ENFORCEMENT OF ITS RIGHTS AGAINST ANY NON-US BORROWER OUTSIDEOF NEW YORK (INCLUDING IN THE COUNTRY OF INCORPORATION OF SUCH NON-US BORROWER)AND ANY NON-US BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT NEW YORKSHALL BE ITS EXCLUSIVE FORUM FOR INITIATING ANY ACTION OR PROCEEDING ARISINGOUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

 

(c)           WAIVER OF VENUE.  EACH OF THE BORROWERS IRREVOCABLY ANDUNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANYOBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANYACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS 

 

97

----

 

AGREEMENT OR ANY OTHERLOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THISSECTION.  EACH OF THE PARTIES HERETOHEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION ORPROCEEDING IN ANY SUCH COURT.

 

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TOSERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02.  NOTHING IN THIS AGREEMENT WILL AFFECT THERIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BYAPPLICABLE LAW.

 

(e)           WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVETO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUTOF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONSCONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHERTHEORY).  EACH PARTY HERETO(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHERPERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULDNOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TOENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS,THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

**10.15     ****No Advisory or Fiduciary Responsibility**.   Inconnection with all aspects of each transaction contemplated hereby, each ofthe Borrowers acknowledges and agrees, and acknowledges its Affiliates’understanding, that: (i) the credit facility provided for hereunder andany related arranging or other services in connection therewith (including inconnection with any amendment, waiver or other modification hereof or of anyother Loan Document) are an arm’s-length commercial transaction between theBorrowers and their respective Affiliates, on the one hand, and the AdministrativeAgent and the Arranger, on the other hand, and each of the Borrowers is capableof evaluating and understanding and understands and accepts the terms, risksand conditions of the transactions contemplated hereby and by the other LoanDocuments (including any amendment, waiver or other modification hereof orthereof); (ii) in connection with the process leading to such transaction,the Administrative Agent and the Arranger each is and has been acting solely asa principal and is not the financial advisor, agent or fiduciary, for theBorrowers or any of their respective Affiliates, stockholders, creditors oremployees or any other Person; (iii) neither the Administrative Agent northe Arranger has assumed or will assume an advisory, agency or fiduciary responsibilityin favor of the Borrowers with respect to any of the transactions contemplatedhereby or the process leading thereto, including with respect to any amendment,waiver or other modification hereof or of any other Loan Document (irrespectiveof whether the Administrative Agent or the Arranger has advised or is currentlyadvising the Borrowers or any of their respective Affiliates on other matters)and neither the Administrative Agent nor the Arranger has any obligation to theBorrowers or any of their respective Affiliates with respect to thetransactions contemplated hereby except those obligations expressly set forthherein and in the other Loan Documents; (iv) the Administrative Agent andthe Arranger and their respective Affiliates may be engaged in a broad range oftransactions that involve interests that differ from those of the Borrowers andtheir respective Affiliates, and neither the Administrative Agent nor theArranger has any obligation to disclose any of such interests by virtue of anyadvisory, agency or fiduciary relationship; and (v) the AdministrativeAgent and the Arranger have not provided and will not provide any legal,accounting, regulatory or tax advice with respect to any of the transactionscontemplated hereby (including any amendment, waiver or other modificationhereof or of any other Loan Document) and each of the Borrowers has consultedits own legal, accounting, 

 

98

----

 

regulatory and taxadvisors to the extent it has deemed appropriate.  Each of the Borrowers hereby waives andreleases, to the fullest extent permitted by law, any claims that it may haveagainst the Administrative Agent and the Arranger with respect to any breach oralleged breach of agency or fiduciary duty.

 

**10.16     ****U.S. PATRIOT Act Notice**.   EachLender that is subject to the Patriot Act (as hereinafter defined) and theAdministrative Agent (for itself and not on behalf of any Lender) herebynotifies the Borrowers that pursuant to the requirements of the U.S. PatriotAct (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “PatriotAct”), it is required to obtain, verify and record information thatidentifies the Borrowers, which information includes the name and address ofthe Borrowers and other information that will allow such Lender or theAdministrative Agent, as applicable, to identify the Borrowers in accordancewith the Patriot Act.

 

**10.17     ****Entire Agreement**.   ThisAgreement and the other Loan Documents represent the final agreement among theparties and may not be contradicted by evidence of prior, contemporaneous, orsubsequent oral agreements of the parties. There are no unwritten oral agreements among the parties.

 

**10.18      Judgment Currency.**   (a) A Borrower’s obligation hereunder and underthe other Loan Documents to make payments in the applicable Approved Currency(pursuant to such obligation, the “Obligation Currency”) shall not bedischarged or satisfied by any tender or recovery pursuant to any judgmentexpressed in or converted into any currency other than the Obligation Currency,except to the extent that such tender or recovery results in the effectivereceipt by the Administrative Agent or the respective Lender of the full amountof the Obligation Currency expressed to be payable to the Administrative Agentor such Lender under this Agreement or the other Loan Documents.  If, for the purpose of obtaining or enforcingjudgment against a Borrower in any court or in any jurisdiction, it becomesnecessary to convert into or from any currency other than the ObligationCurrency (such other currency being hereinafter referred to as the “JudgmentCurrency”) an amount due in the Obligation Currency, the conversion shallbe made at the Relevant Currency Equivalent, and in the case of othercurrencies, the rate of exchange (as quoted by the Administrative Agent or ifthe Administrative Agent does not quote a rate of exchange on such currency, bya known dealer in such currency designated by the Administrative Agent)determined, in each case, as of the Business Day immediately preceding the dayon which the judgment is given (such Business Day being hereinafter referred toas the “Judgment Currency Conversion Date”).

 

(b)           If there is a change in the rate ofexchange prevailing between the Judgment Currency Conversion Date and the dateof actual payment of the amount due, Borrower covenants and agrees to pay, orcause to be paid, such additional amounts, if any (but in any event not alesser amount) as may be necessary to ensure that the amount paid in theJudgment Currency, when converted at the rate of exchange prevailing on thedate of payment, will produce the amount of the Obligation Currency which couldhave been purchased with the amount of Judgment Currency stipulated in thejudgment or judicial award at the rate of exchange prevailing on the JudgmentCurrency Conversion Date.

 

(c)           For purposes of determining theRelevant Currency Equivalent or any other rate of exchange for this Section 10.18,such amounts shall include any premium and costs payable in connection with thepurchase of the Obligation Currency.

 

[*Remainder of page intentionally left blank;signature pages follow*]

 

99

----

 

INWITNESS WHEREOF, the parties hereto have caused this Agreement to be dulyexecuted as of the date first above written.

 
| ** ** | **KKR  FINANCIAL HOLDINGS LLC**          |
|------------|------------------------------------------|
|       |                                     |   |
|       |                                     | by | /s/  Michael McFerran |
|       |                                     |   | Name:  Michael McFerran |
|       |                                     |   | Title:  Chief Operating Officer |
| ** ** | ** **                               | ** ** | ** ** |
| ** ** | ** **                               | ** ** | ** ** |
|       | **KKR  FINANCIAL HOLDINGS II, LLC**      |
|       | ** **                               |
|       |                                     | by | /s/  Michael McFerran |
|       |                                     |   | Name:  Michael McFerran |
|       |                                     |   | Title:  Chief Operating Officer |
| ** ** | ** **                               |   | ** ** |
| ** ** | ** **                               | ** ** | ** ** |
|       | **KKR  FINANCIAL HOLDINGS III, LLC**     |
|       | ** **                               |
|       |                                     | by | /s/  Michael McFerran |
|       |                                     |   | Name:  Michael McFerran |
|       |                                     |   | Title:  Chief Operating Officer |
| ** ** | ** **                               |   | ** ** |
| ** ** | ** **                               | ** ** | ** ** |
|       | **KKR  FINANCIAL HOLDINGS, INC.**   |
|       | ** **                               |
|       |                                     | by | /s/  Michael McFerran |
|       |                                     |   | Name:  Michael McFerran |
|       |                                     |   | Title:  Chief Operating Officer |
| ** ** | ** **                               |   | ** ** |
| ** ** | ** **                               | ** ** | ** ** |
|       | **KKR  FINANCIAL CLO 2009-1, LTD.** |
|       | ** **                               |
|       |                                     | by | /s/  Michael McFerran |
|       |                                     |   | Name:  Michael McFerran |
|       |                                     |   | Title:  Chief Operating Officer |
| ** ** | ** **                               |   | ** ** |
| ** ** | ** **                               | ** ** | ** ** |
|       | **KFH  III HOLDINGS LTD.**               |
|       | ** **                               |
|       |                                     | by | /s/  Michael McFerran |
|       |                                     |   | Name:  Michael McFerran |
|       |                                     |   | Title:  Chief Operating Officer |

 

[Credit Agreement]

 

----

 
|   | **KKR  FINANCIAL HOLDINGS, LTD.** |
|--------|----------------------------------------|
|   | ** **                             |
|   |                                   | by | /s/  George Bashforth |
|   |                                   |   | Name:  George Bashforth |
|   |                                   |   | Title:   Director |
|   |                                   |   |   |
|   |                                   |   |   |
|   | **KKR  TRS HOLDINGS, LTD.**       |
|   | ** **                             |
|   |                                   | by | /s/  George Bashforth |
|   |                                   |   | Name:  George Bashforth |
|   |                                   |   | Title:   Director |
|   |                                   |   |   |

 

[Credit Agreement]

 

----

 
|   | **CITIBANK,  N.A.,** |
|--------|----------------------|
|   |                 | **as  Administrative Agent, as Swingline Lender,** |
|   |                 | **as  Issuing Bank and as Lender** |
|   |                 |   |   |
|   |                 | by | /s/  Alexander F. Duka |
|   |                 |   | Name:  Alexander F. Duka |
|   |                 |   | Title:  Managing Director/Senior Credit Officer |
|   |                 |   | Citigroup/Global  Financial Institutions |
|   |                 |   | 388  Greenwich Street/23rd FL |
|   |                 |   | 212-816-3260/Fax  646-291-1703 |

 

[Credit Agreement]

 

----

 
|   | **BANK  OF AMERICA, N.A.,** |
|--------|-----------------------------|
|   |                        | **as  Lender** |
|   |                        |   |   |
|   |                        | by | /s/  Laura Werner |
|   |                        |   | Name:  Laura Werner |
|   |                        |   | Title:   Vice President |

 

[Credit Agreement]

 

----

 
|   | **DEUTSCHE  BANK AG NEW YORK BRANCH,** |
|--------|----------------------------------------|
|   | **as  Lender**                         |
|   |                                   |   |   |
|   |                                   | By | /s/  Evelyn Thierry |
|   |                                   |   | Name:  Evelyn Thierry |
|   |                                   |   | Title:   Director |
|   |                                   |   |   |
|   |                                   |   |   |
|   |                                   | By | /s/  Omayra Laucella |
|   |                                   |   | Name:  Omayra Laucella |
|   |                                   |   | Title:   Vice President |

 

[Credit Agreement]

 

----

 
|   | **MORGAN  STANLEY BANK, N.A., as Lender** |
|--------|-------------------------------------------|
|   |                                      |   |   |
|   |                                      | by | /s/  Ryan Vetsch |
|   |                                      |   | Name:  Ryan Vetsch |
|   |                                      |   | Title:   Authorized Signatory |

 

[Credit Agreement]

 

----

 

***SCHEDULE 2.01***

 

**COMMITMENTSAND APPLICABLE PERCENTAGES**

 
| **Lender**                       | ** ** | **Commitment** | ** **     | **Applicable  Percentage** | ** **      |
|----------------------------------|------------|----------------|----------------|----------------------------|-----------------|
| Citibank, N.A.                   |       | $              | 60,000,000.00  |                       | 28.571428571428 | % |
|                             |       |           |           |                       |            |
| Bank of America, N.A.            |       | $              | 60,000,000.00  |                       | 28.571428571428 | % |
|                             |       |           |           |                       |            |
| Deutsche Bank AG New York Branch |       | $              | 60,000,000.00  |                       | 28.571428571428 | % |
|                             |       |           |           |                       |            |
| Morgan Stanley Bank, N.A.        |       | $              | 30,000,000.00  |                       | 14.285714285714 | % |
|                             |       |           |           |                       |            |
| Total                            |       | $              | 210,000,000.00 |                       | 100.000000000   | % |

 

----

 

***SCHEDULE 5.06***

 

**LITIGATION**

 

OnAugust 7, 2008, the members of board of directors of KKR Financial (the “Company”)and certain of its current and former executive officers and the Company werenamed in a putative class action complaint filed by Charter Township of ClintonPolice and Fire Retirement System in the United States District Court for theSouthern District of New York (the “Charter Litigation”). OnMarch 13, 2009, the lead plaintiff filed an amended complaint, whichdeleted as defendants the members of the Company’s board of directors, andnamed as defendants only the former chief executive officer Saturnino S. Fanlo,the former chief operating officer David A. Netjes, the current chief financialofficer Jeffrey B. Van Horn and the Company. The amended complaint alleges thatthe Company’s April 2, 2007 registration statement and prospectus and thefinancial statements incorporated therein contained material omissions inviolation of Section 11 of the Securities Act of 1933, as amended (the “1933Act”) regarding the risks and potential losses associated with the Company’sreal estate-related assets, the Company’s ability to finance its realestate-related assets and the adequacy of its loss reserves for its realestate-related assets. The amended complaint further alleges that, pursuant toSection 15 of the 1933 Act, Messrs. Fanlo, Netjes and Van Horn eachhave legal responsibility for the alleged Section 11 violation. OnApril 27, 2009, the defendants filed a motion to dismiss the amendedcomplaint for failure to state a claim under the 1933 Act.

 

OnAugust 15, 2008, the members of the Company’s board of directors and theCompany’s executive officers (collectively, the “Kostecka IndividualDefendants”) were named in a shareholder derivative action brought byRaymond W. Kostecka, a purported shareholder, in the Superior Court of California,County of San Francisco (the “California Derivative Action”). TheCompany is named as a nominal defendant. The complaint in the CaliforniaDerivative Action asserts claims against the Kostecka Individual Defendants forbreaches of fiduciary duty, abuse of control, gross mismanagement, waste ofcorporate assets, and unjust enrichment in connection with the conduct at issuein the Charter Litigation, including the filing of the April 2, 2007registration statement with alleged material misstatements and omissions. Byorder dated January 8, 2009, the Court approved the parties’ stipulationto stay the proceedings in the California Derivative Action until the CharterLitigation is dismissed on the pleadings or the Company files an answer to theCharter Litigation.

 

OnMarch 23, 2009, the members of the Company’s board of directors andcertain of the Company’s executive officers (collectively, the “HaleyIndividual Defendants”) were named in a shareholder derivative actionbrought by Paul B. Haley, a purported shareholder, in the United StatesDistrict Court for the Southern District of New York (the “New YorkDerivative Action”). The Company is named as a nominal defendant. Thecomplaint in the New York Derivative Action asserts claims against the Haley IndividualDefendants for breaches of fiduciary duty, breaches of the duty of fulldisclosure, and for contribution in connection with the conduct at issue in theCharter Litigation, including the filing of the April 2, 2007 registrationstatement with alleged material misstatements and omissions. By order datedJune 18, 2009, the Court approved the parties’ stipulation to stay theproceedings in the New York Derivative Action until the Charter Litigation isdismissed on the pleadings or the Company files an answer to the CharterLitigation.

 

----

 

***SCHEDULE 7.01***

 

**EXISTING LIENS**

 

I.                                        KKR FinancialHoldings II, LLC

 

1.              Lien in favorof Bear, Stearns & Co. Inc. and other affiliated Bear Stearns entitiesas Secured Parties thereto relating to the collateral as more fully describedin the financing statement filed with the Delaware Secretary of State on May 24,2007.

 

2.              Lien in favorof Bank of America, N.A., as Secured Party, in connection with the ExistingCredit Agreement and relating to the collateral as more fully described in thefinancing statement filed with the Delaware Secretary of State on May 4,2007 (as amended or restated).

 

II.                                   KKR FinancialHoldings III, LLC

 

1.              Lien in favorof Bear, Stearns & Co. Inc. and other affiliated Bear Stearns entitiesas Secured Parties thereto relating to the collateral as more fully describedin the financing statement filed with the Delaware Secretary of State on June 11,2007.

 

2.              Lien in favorof Bank of America, N.A., as Secured Party, in connection with the ExistingCredit Agreement and relating to the collateral as more fully described in thefinancing statement filed with the Delaware Secretary of State on May 4,2007 (as amended or restated).

 

III.                              KKR FinancialHoldings, Inc.

 

1.              Lien in favorof Bear, Stearns & Co. Inc. and other affiliated Bear Stearns entitiesas Secured Parties thereto relating to the collateral as more fully describedin the financing statement filed with the Delaware Secretary of State on May 29,2007.

 

2.              Lien in favorof Bank of America, N.A., as Secured Party, in connection with the ExistingCredit Agreement and relating to the collateral as more fully described in thefinancing statement filed with the Delaware Secretary of State on May 4,2007 (as amended or restated).

 

IV.                               KKR FinancialHoldings LLC

 

1.              Lien in favorof Bank of America, N.A., as Secured Party, in connection with the ExistingCredit Agreement and relating to the collateral as more fully described in thefinancing statement filed with the Delaware Secretary of State on May 4, 2007(as amended or restated).

 

V.                                    KKR TRSHoldings, Ltd.

 

1.              Lien in favorof Bear, Stearns & Co. Inc. relating to the collateral as more fullydescribed in the financing statement filed with the Washington, DC Recorder ofDeeds on October 16, 2006.

 

----

 

2.              Mortgage andcharge in favor of Bear, Stearns & Co. Inc and other affiliated Bearentities as Secured Parties thereto relating to the entry in the Register ofMortgages and Charges on September 26, 2006.

 

3.              Lien in favorof Bank of America, N.A., as Secured Party, in connection with the ExistingCredit Agreement and relating to the collateral as more fully described in thefinancing statement filed with the Delaware Secretary of State on September 19,2006 (as amended or restated).

 

VI.                               KKR Financial CLO 2009-1, LTD.

 

1.              Lien in favorof The Bank of New York Mellon as Secured Party thereto relating to thecollateral as more fully described in the financing statement filed with theDelaware Secretary of State on March 31, 2009.

 

VII.                          KKR FinancialHoldings Ltd.

 

1.              Lien in favorof Bank of America, N.A., as Secured Party, in connection with the ExistingCredit Agreement and relating to the collateral as more fully described in thefinancing statement filed with the Delaware Secretary of State on May 7,2007 (as amended or restated).

 

----

 

***SCHEDULE 7.03***

 

**EXISTING INDEBTEDNESS**

 

$180,577,000 KKR Financial Holdings LLC 7.00%Convertible Senior Notes Due 2012

 

$172,500,000 KKR Financial Holdings LLC 7.50%Convertible Senior Notes Due 2017

 

$51,550,000 KKR Financial Holdings LLC JuniorSubordinated Note Due 2036 issued to KKR Financial Capital Trust I inconnection with a Trust Preferred Securities offering

 

$51,550,000 KKR Financial Holdings LLC JuniorSubordinated Note Due 2036 issued to KKR Financial Capital Trust II inconnection with a Trust Preferred Securities offering

 

$87,629,000 KKR Financial Holdings LLC JuniorSubordinated Note Due 2036 issued to KKR Financial Capital Trust III inconnection with a Trust Preferred Securities offering

 

$15,464,000 KKR Financial Holdings LLC JuniorSubordinated Note Due 2036 issued to KKR Financial Capital Trust IV inconnection with a Trust Preferred Securities offering

 

$51,550,000 KKR Financial Holdings LLC JuniorSubordinated Note Due 2036 issued to KKR Financial Capital Trust V inconnection with a Trust Preferred Securities offering

 

$25,744,000 KKR Financial Holdings LLC JuniorSubordinated Note Due 2037 issued to KKR Financial Capital Trust VI inconnection with a Trust Preferred Securities offering

 

----

 

***SCHEDULE7.08***

 

**BURDENSOME AGREEMENTS**

 

1.              Existing Credit Agreement.

 

----

*** ***

***SCHEDULE 10.02***

 

**ADMINISTRATIVE AGENT’S OFFICE;CERTAIN ADDRESSES FOR NOTICES**

 

**KKRFINANCIAL HOLDINGS LLC**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail: treasury@kkr.com

U.S.Taxpayer Identification Number: 11-3801844

 

**KKRFINANCIAL HOLDINGS II, LLC**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

U.S.Taxpayer Identification Number: 20-8816785

 

**KKRFINANCIAL HOLDINGS III, LLC**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

U.S.Taxpayer Identification Number: 20-8816843

 

**KKR FINANCIAL HOLDINGS, INC.**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

U.S.Taxpayer Identification Number: 20-8817515

 

----

 

**KKR TRSHOLDINGS, LTD.**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

 

with a copy to:

MaplesFinance Limited

P.O. Box1093, Boundary Hall, Cricket Square

GrandCayman, KY1-1102

CaymanIslands

Attention: GeorgeBashforth

Telephone:345-945-7099

Telecopier:345-945-7100

 

**KKRFINANCIAL HOLDINGS, LTD.**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

 

with a copy to:

MaplesFinance Limited

P.O. Box1093, Boundary Hall, Cricket Square

GrandCayman, KY1-1102

CaymanIslands

Attention: GeorgeBashforth

Telephone:345-945-7099

Telecopier:345-945-7100

** **

**KKRFINANCIAL CLO 2009-1, LTD.**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

 

with a copy to:

MaplesFinance Limited

P.O. Box1093, Boundary Hall, Cricket Square

GrandCayman, KY1-1102

CaymanIslands

Attention: GeorgeBashforth

Telephone:345-945-7099

Telecopier:345-945-7100

 

----

 

**KFH IIIHOLDINGS LTD.**

555California Street, 50th Floor

SanFrancisco, CA 94104

Attention:Treasurer

Telephone:415-315-3620

Telecopier:  415-391-3330

ElectronicMail:  treasury@kkr.com

 

with a copy to:

MaplesFinance Limited

P.O. Box1093, Boundary Hall, Cricket Square

GrandCayman, KY1-1102

CaymanIslands

Attention: GeorgeBashforth

Telephone:345-945-7099

Telecopier:345-945-7100

 

----

 

**ADMINISTRATIVEAGENT:**

*AdministrativeAgent’s Office*

*(forpayments and Requests for Borrowings):*

Citibank,N.A.

1615Brett Road, OPS 3

NewCastle, Delaware 19720

Attention:  Lisa Rodriguez

Telephone:  (302) 894-6197

Telecopier:  (212) 994-0961

ElectronicMail: lisa.m1.rodriguez@citigroup.com

Copyto:  GLAgentOfficeOps@citi.com

 

AccountInformation:

Citibank,N.A.

ABA#021000089

AccountNumber: 3073-2122

AccountName:  CBNA Syndications

Ref:  KKR Financial Holdings

 

OtherNotices as Administrative Agent:

CitigroupGlobal Markets Inc.

388Greenwich Street, 35th Floor

NewYork, NY 10013

Attention:  Alex Duka

Telephone:  (212) 816-3260

Telecopier:(646) 291-1703

ElectronicMail: alexander.f.duka@citi.com

 

**SWINGLINELENDER**:

Citibank,N.A.

1615Brett Road, OPS 3

NewCastle, Delaware 19720

Attention: Lisa Rodriguez

Telephone: (302) 894-6197

Telecopier: (212) 994-0961

ElectronicMail: lisa.m1.rodriguez@citigroup.com

Copyto:  GLAgentOfficeOps@citi.com

 

AccountInformation:

Citibank,N.A.

ABA#021000089

AccountNumber: 3073-2122

AccountName:  CBNA Syndications

Ref:  KKR Financial Holdings

 

----

 

***SCHEDULE 10.06***

 

**PROCESSING AND RECORDATION FEES**

 

TheAdministrative Agent will charge a processing and recordation fee (an “AssignmentFee”) in the amount of $3,500 for each assignment; provided, however,that in the event of two or more concurrent assignments to members of the sameAssignee Group (which may be effected by a suballocation of an assigned amountamong members of such Assignee Group) or two or more concurrent assignments bymembers of the same Assignee Group to a single Eligible Assignee (or to anEligible Assignee and members of its Assignee Group), the Assignment Fee willbe $3,500 plus the amount set forth below:

 
| **Transaction**                                                                                                                                       | ** ** | **Assignment Fee** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|
|                                                                                                                                                  |       |               |       |
| First four concurrent assignments or  suballocations to members of an Assignee Group (or from members of an  Assignee Group, as applicable)           |       | -0-                |       |
|                                                                                                                                                  |       |               |       |
| Each additional concurrent assignment or  suballocations to a member of such Assignee Group (or from a member of such  Assignee Group, as applicable) |       | $                  | 500        |   |
|                                                                                                                                                       |            |                    |            |  |

 

----

 

***EXHIBIT A***

 

**FORM OF REVOLVING LOAN NOTICE**

 

Date:                       ,      

 

To:                             Citibank, N.A.,as Administrative Agent

 

Ladies and Gentlemen:

 

Referenceis made to that certain Credit Agreement, dated as of May 3, 2010 (asfurther amended, restated, extended, supplemented or otherwise modified inwriting from time to time, the “Agreement”; the terms defined thereinbeing used herein as therein defined), among KKR Financial Holdings LLC, KKRFinancial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR FinancialHoldings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.(collectively, the “Borrowers”), the Lenders from time to time partythereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,N.A., as Administrative Agent.

 

Theundersigned hereby requests (select one):

 

o  A Borrowing of Revolving Loans      o   Aconversion or continuation of Loans

 

o  In or     o Not in       connectionwith the purchase of an Eligible Specified Financial Asset.

 

1.                                      On                                                                              (a Business Day).

 

2.                                      In the amountof $                                             .

 

3.                                      Comprised of                                                      .

[Type of Revolving Loanrequested]

 

4.                                      For FixedPeriod Eurodollar Loans:  with anInterest Period of          months.

 

5.                                      [In connectionwith the purchase of the following Eligible Specified Financial Asset in theamount indicated:

 

(a)                                 Obligor:                                                                           .]

 

(b)                                 CUSIP No. :                                                                          .]

 

(c)                                  Dollar Amount:                                                                           .]

 

(d)                                 OtherInformation:                                                                           .]

 

The following are Borrower’sinstructions for distribution of loan proceeds (appropriate wire instructions,deposit account information, etc.):

 

[_____________________]

 

[_____________________]

 

A-1

----

 

TheRevolving Loan, if any, requested herein complies with the provisos to thefirst sentence of Section 2.01 of the Agreement.

 
|       | **[BORROWER]** |
|------------|----------------|
| ** ** |           |
|       | By:            |   |
|       | Name:          |   |
|       | Title:         |   |

 

A-2

----

*** ***

***EXHIBIT B***

 

**FORM OF SWINGLINE LOAN NOTICE**

 

Date:                       ,     

 

To:                             [    ],as Swingline LenderCitibank, N.A., as Administrative Agent

 

Ladies and Gentlemen:

 

Referenceis made to that certain Credit Agreement, dated as of May 3, 2010 (asfurther amended, restated, extended, supplemented or otherwise modified inwriting from time to time, the “Agreement;” the terms defined thereinbeing used herein as therein defined), among KKR Financial Holdings LLC, KKRFinancial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR FinancialHoldings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.(collectively, the “Borrowers”), the Lenders from time to time partythereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,N.A., as Administrative Agent.

 

Theundersigned hereby requests a Swingline Loan:

 

o  In or   o Not in       connection with the purchase of anEligible Specified Financial Asset.

 

1.                                      On                                                                              (a Business Day).

 

2.                                      In the amountof $                                             .

 

3.                                      Comprised of                                                      .

[Type of Swingline Loanrequested]

 

4.                                      [In connectionwith the purchase of the following Eligible Specified Financial Asset in theamount indicated:

 

(a)                                 Obligor:                                                                           .]

 

(b)                                 CUSIP No. :                                                                          .]

 

(c)                                  Dollar Amount:                                                                           .]

 

(d)                                 OtherInformation:                                                                           .]

 

The following are Borrower’sinstructions for distribution of loan proceeds (appropriate wire instructions,deposit account information, etc.):

 

[_____________________]

 

[_____________________]

 

B-1

----

 

TheSwingline Borrowing requested herein complies with the requirements of theprovisos to the first sentence of Section 2.03(a) of theAgreement.

 
|   | **[BORROWER]** |
|--------|----------------|
|   |           |
|   | By:            |   |
|   | Name:          |   |
|   | Title:         |   |

 

B-2

----

 

***EXHIBIT C***

 

**FORM OF PROMISSORY NOTE**

 

FORVALUE RECEIVED, the undersigned (the “Borrower”) hereby promises to payto                                          (the “Lender”) [or to its order] [or registered assigns], in accordancewith the provisions of the Agreement (as hereinafter defined), the principalamount of each [Revolving][Swingline] Loan from time to time made by the Lenderto the Borrower under that certain Credit Agreement, dated as of May 3,2010 (as further amended, restated,extended, supplemented or otherwise modified in writing from time totime, the “Agreement;” the terms defined therein being used herein astherein defined), among KKR Financial Holdings LLC, KKR Financial Holdings II,LLC, KKR Financial Holdings III, LLC, KKR Financial Holdings, Inc., KKRFinancial Holdings, Ltd., KKR TRS Holdings, Ltd., KKR Financial CLO2009-1, Ltd., and KFH III Holdings Ltd., the Lenders from time totime party thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, andCitibank, N.A., as Administrative Agent.

 

TheBorrowers promise to pay interest on the unpaid principal amount of each Loanfrom the date of such Loan until such principal amount is paid in full, at suchinterest rates and at such times as provided in the Agreement.  [For Revolving Loan Notes: All payments ofprincipal and interest shall be made to the Administrative Agent for theaccount of the Lender in Dollars in immediately available funds at theAdministrative Agent’s Office.]  If anyamount is not paid in full when due hereunder, such unpaid amount shall bearinterest, to be paid upon demand, from the due date thereof until the date ofactual payment (and before as well as after judgment) computed at the per annumrate set forth in the Agreement.

 

ThisNote is one of the Notes referred to in the Agreement, is entitled to thebenefits thereof and may be prepaid in whole or in part subject to the termsand conditions provided therein.  Uponthe occurrence and continuation of one or more of the Events of Defaultspecified in the Agreement, all amounts then remaining unpaid on this Noteshall become, or may be declared to be, immediately due and payable all asprovided in the Agreement.  Loans made bythe Lender shall be evidenced by one or more loan accounts or recordsmaintained by the Lender in the ordinary course of business. The Lender mayalso attach schedules to this Note and endorse thereon the date, amount andmaturity of its Loans and payments with respect thereto.

 

EachBorrower, for itself, its successors and assigns, hereby waives diligence,presentment, protest and demand and notice of protest, demand, dishonor andnon-payment of this Note.

 

*[signature page follows]*

 

C-1

----

 

THISNOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THESTATE OF NEW YORK.

 
|   | **[BORROWER]** |
|--------|----------------|
|   |           |
|   | By:            |   |
|   | Name:          |   |
|   | Title:         |   |

 

C-2

----

 

**LOANS AND PAYMENTS WITH RESPECT THERETO**

 
| **Date**   | ** ** | **Type of  Loan  Made** | ** ** | **Amount of  Loan  Made** | ** ** | **End of  Interest  Period** | ** ** | **Amount of  Principal or  Interest  Paid This  Date** | ** ** | **Outstanding  Principal  Balance This  Date** | ** ** | **Notation  Made By** | ** ** |
|------------|------------|-------------------------|------------|---------------------------|------------|------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|
| ** ** | ** ** | ** **              | ** ** | ** **                | ** ** | ** **                   | ** ** | ** **                                             | ** ** | ** **                                     | ** ** | ** **            | ** ** |
| ** ** | ** ** | ** **              | ** ** | ** **                | ** ** | ** **                   | ** ** | ** **                                             | ** ** | ** **                                     | ** ** | ** **            | ** ** |
| ** ** | ** ** | ** **              | ** ** | ** **                | ** ** | ** **                   | ** ** | ** **                                             | ** ** | ** **                                     | ** ** | ** **            | ** ** |

 

C-3

----

*** ***

***EXHIBIT D***

 

**FORM OF BORROWING BASE REPORT**

 

Dated as of:                                                 

 

For the period ending:                             

 

To:                              Citibank, N.A.,as Administrative Agent

 

Ladies and Gentlemen:

 

Referenceis made to that certain Credit Agreement, dated as of May 3, 2010 (asfurther amended, restated, extended, supplemented or otherwise modified inwriting from time to time, the “Agreement;” the terms defined thereinbeing used herein as therein defined), among KKR Financial Holdings LLC, KKRFinancial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR FinancialHoldings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.(collectively, the “Borrowers”), the Lenders from time to time partythereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,N.A., as Administrative Agent.

 

Theundersigned,                                                        ,the duly elected and qualified Responsible Officer[(s)] of the Borrowers herebycertifies that (a) the information set forth in this Borrowing Base Reportis true and correct as of the last day of the period specified herein, (b) thisBorrowing Base Report has been prepared in accordance with the applicableprovisions of the Credit Agreement relating to the computation of the BorrowingBase and the various components thereof, and (c) as of the date of thisBorrowing Base Report, there exists no Default or Event of Default.

 

[*Remainder of page intentionallyleft blank*]

 
| ** ** | **KKR  FINANCIAL HOLDINGS LLC** |
|------------|---------------------------------|
| ** ** | ** **                      |
|       |                            | by |   |
|       |                            |   |   |
|       |                            |   | Name: |
|       |                            |   | Title: |

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS III, LLC** |
|------------|--------------------------------------|
| ** ** | ** **                           |
|       |                                 | by |   |
|       |                                 |   |   |
|       |                                 |   | Name: |
|       |                                 |   | Title:  |

 

D-1

----

 
| ** ** | **KKR  FINANCIAL HOLDINGS II, LLC** |
|------------|-------------------------------------|
| ** ** | ** **                          |
|       |                                | by |   |
|       |                                |   |   |
|       |                                |   | Name: |
|       |                                |   | Title:  |

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS, INC.** |
|------------|----------------------------------------|
| ** ** | ** **                             |
|       |                                   | by |   |
|       |                                   |   |   |
|       |                                   |   | Name: |
|       |                                   |   | Title:  |

 

 
| ** ** | **KKR  FINANCIAL CLO 2009-1, LTD.** |
|------------|------------------------------------------|
| ** ** | ** **                               |
|       |                                     | by |   |
|       |                                     |   |   |
|       |                                     |   | Name: |
|       |                                     |   | Title:  |

 

 
| ** ** | **KFH  III HOLDINGS LTD.** |
|------------|----------------------------|
| ** ** | ** **                 |
|       |                       | by |   |
|       |                       |   |   |
|       |                       |   | Name: |
|       |                       |   | Title:  |

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS, LTD.** |
|------------|----------------------------------------|
| ** ** | ** **                             |
|       |                                   | by |   |
|       |                                   |   |   |
|       |                                   |   | Name: |
|       |                                   |   | Title:  |

 

 
| ** ** | **KKR  TRS HOLDINGS, LTD.** |
|------------|----------------------------------|
| ** ** | ** **                       |
|       |                             | by |   |
|       |                             |   |   |
|       |                             |   | Name: |
|       |                             |   | Title:  |

 

D-2

----

 

**BORROWING BASE REPORT**

 

D-3

----

*** ***

***EXHIBIT E***

 

**FORM OF COMPLIANCE CERTIFICATE**

 

Financial Statement Date:                        ,         

 

To:                              Citibank, N.A.,as Administrative Agent

 

Ladies and Gentlemen:

 

Referenceis made to that certain Credit Agreement, dated as of May 3, 2010 (asfurther amended, restated, extended, supplemented or otherwise modified inwriting from time to time, the “Agreement;” the terms defined thereinbeing used herein as therein defined), among KKR Financial Holdings LLC, KKRFinancial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR FinancialHoldings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.(collectively, the “Borrowers”), the Lenders from time to time partythereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,N.A., as Administrative Agent.

 

Theundersigned Responsible Officer hereby certifies as of the date hereof thathe/she is the                                                                        of KKR Financial, and that, as such, he/she is authorized to execute anddeliver this Certificate to the Administrative Agent on the behalf of KKRFinancial, and that:

 

*[Use following paragraph 1for fiscal **year-end** financial statements]*

 

1.                                       The Borrowershave made available to the Lenders the year-end audited financial statementsrequired by Section 6.01(a) of the Agreement for the fiscalyear of KKR Financial ended as of the above date, together with the report andopinion of an independent certified public accountant required by such section.

 

*[Use following paragraph 1for fiscal **quarter-end** financial statements]*

 

1.                                       The Borrowershave made available to the Lenders the unaudited financial statements requiredby Section 6.01(b) of the Agreement for the fiscal quarter ofKKR Financial ended as of the above date. Such financial statements fairly present the financial condition,results of operations and cash flows of KKR Financial and its Subsidiaries inaccordance with GAAP as at such date and for such period, subject only tonormal year-end audit adjustments and the absence of footnotes.

 

2.                                       The undersignedhas reviewed and is familiar with the terms of the Agreement and has made, orhas caused to be made under his/her supervision, a detailed review of thetransactions and condition (financial or otherwise) of KKR Financial during theaccounting period covered by the financial statements referred to above.

 

3.                                       A review of theactivities of KKR Financial during such fiscal period has been made under thesupervision of the undersigned with a view to determining whether during suchfiscal period KKR Financial performed and observed all its Obligations underthe Loan Documents, and

 

*[select one:]*

 

E-1

----

 

[tothe best knowledge of the undersigned during such fiscal period, KKR Financialperformed and observed each covenant and condition of the Loan Documentsapplicable to it, and no Default has occurred and is continuing.]

 

—*or—*

 

[thefollowing covenants or conditions have not been performed or observed and thefollowing is a list of each such Default and its nature and status:]

 

4.                                       Therepresentations and warranties of KKR Financial contained in Article Vof the Agreement, and any representations and warranties of any Borrower thatare contained in any document furnished at any time under or in connection withthe Loan Documents, are true and correct on and as of the date hereof, exceptto the extent that such representations and warranties specifically refer to anearlier date, in which case they are true and correct as of such earlier date,and except that for purposes of this Compliance Certificate, therepresentations and warranties contained in subsections (a) and (b) ofSection 5.05 of the Agreement shall be deemed to refer to the mostrecent statements furnished pursuant to clauses (a) and (b), respectively,of Section 6.01 of the Agreement, including the statements inconnection with which this Compliance Certificate is delivered.

 

5.                                       The financialcovenant analyses and information set forth on Schedule 2 attachedhereto are true and accurate on and as of the date of this Certificate.

 

*INWITNESS WHEREOF,* the undersigned has executed this Certificate as of                                    ,        .

 

 

[*Remainder of page intentionallyleft blank*]

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS LLC** |
|------------|---------------------------------|
| ** ** | ** **                      |
|       |                            | by |   |
|       |                            |   |   |
|       |                            |   | Name: |
|       |                            |   | Title:  |

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS II, LLC** |
|------------|-------------------------------------|
| ** ** | ** **                          |
|       |                                | by |   |
|       |                                |   |   |
|       |                                |   | Name: |
|       |                                |   | Title:  |

 

E-2

----

 
| ** ** | **KKR  FINANCIAL HOLDINGS III, LLC** |
|------------|--------------------------------------|
| ** ** | ** **                           |
|       |                                 | by |   |
|       |                                 |   |   |
|       |                                 |   | Name: |
|       |                                 |   | Title:  |

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS, INC.** |
|------------|----------------------------------------|
| ** ** | ** **                             |
|       |                                   | by |   |
|       |                                   |   |   |
|       |                                   |   | Name: |
|       |                                   |   | Title:  |

 

 
| ** ** | **KKR FINANCIAL  CLO 2009-1, LTD.** |
|------------|------------------------------------------|
| ** ** | ** **                               |
|       |                                     | by |   |
|       |                                     |   |   |
|       |                                     |   | Name: |
|       |                                     |   | Title:  |

 

 
| ** ** | **KFH  III HOLDINGS LTD.** |
|------------|----------------------------|
| ** ** | ** **                 |
|       |                       | by |   |
|       |                       |   |   |
|       |                       |   | Name: |
|       |                       |   | Title:  |

 

 
| ** ** | **KKR  FINANCIAL HOLDINGS, LTD.** |
|------------|----------------------------------------|
| ** ** | ** **                             |
|       |                                   | by |   |
|       |                                   |   |   |
|       |                                   |   | Name: |
|       |                                   |   | Title:  |

 

 
| ** ** | **KKR  TRS HOLDINGS, LTD.** |
|------------|----------------------------------|
| ** ** | ** **                       |
|       |                             | by |   |
|       |                             |   |   |
|       |                             |   | Name: |
|       |                             |   | Title:  |

 

----

 

For the Quarter/Year ended                                      (“StatementDate”)

 

**SCHEDULE 2**to the Compliance Certificate($ in 000’s)

 
| ** ** | ** **                                                                      | ** **                                                                                                                                                                                                                                                                                                                                                                                                     | ** **                                                                                                  | ** ** |
|------------|---------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------|------------|
| ** ** | ** **                                                                      | ** **                                                                                                                                                                                                                                                                                                                                                                                                     | ** **                                                                                                  | ** ** |
| **I.**     | **Section 7.09(a) —  Adjusted Consolidated Tangible Net Worth.** | ** **                                                                                                                                                                                                                                                                                                                                                                                                     | ** **                                                                                                  |
| ** ** | ** **                                                                      | ** **                                                                                                                                                                                                                                                                                                                                                                                                     | ** **                                                                                                  | ** ** |
|       | A.                                                                              | Adjusted  Consolidated Tangible Net Worth at Statement Date:                                                                                                                                                                                                                                                                                                                                                   |                                                                                                        |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |
|       |                                                                            | 1.                                                                                                                                                                                                                                                                                                                                                                                                             | Consolidated  Net Worth (calculated without regard to any accumulated other comprehensive  income or loss): | $     |   |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |   |
|       |                                                                            | 2.                                                                                                                                                                                                                                                                                                                                                                                                             | Intangible  Assets:                                                                                         | $     |   |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |   |
|       |                                                                            | 3.                                                                                                                                                                                                                                                                                                                                                                                                             | Trust Preferred Indebtedness as of Statement Date  (not to exceed $440 million):                            | $     |   |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |   |
|       |                                                                            | 4.                                                                                                                                                                                                                                                                                                                                                                                                             | Consolidated  Tangible Net Worth (Line I.A.1 less Line I.A.2 plus Line I.A.3):                              | $     |   |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |   |
|       | B.                                                                              | Minimum  required Adjusted Consolidated Tangible Net Worth ($700,000,000 plus 25% of  the net proceeds received from the issuance and sale, at any time after the  Closing Date, of Equity Interests of KKR Financial or any Subsidiary (other  than issuances to any Borrower or a wholly-owned Subsidiary), including upon  any conversion of Debt Securities of KKR Financial into such Equity  Interests): | $                                                                                                      |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |
|       | C.                                                                              | Excess (deficient) for  covenant compliance (Line I.A.4 *less* I.B):                                                                                                                                                                                                                                                                                                                                           | $                                                                                                      |       |
| ** ** | ** **                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |
| **II.**    | **Section 7.  09 (b) — Coverage Ratio.**                         |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |   |
|       | A                                                                               | Aggregate  Value of Collateral at Statement Date:                                                                                                                                                                                                                                                                                                                                                              | $                                                                                                      |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |
|       | B.                                                                              | Total  Revolving Credit Exposure at Statement Date:                                                                                                                                                                                                                                                                                                                                                            | $                                                                                                      |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |
|       | C.                                                                              | Ratio  of II.A to II.B (not to be less than 2.00 to 1.00):                                                                                                                                                                                                                                                                                                                                                     |                                                                                                        |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |
| **III.**   | **Section 7.  09 (c) —  Leverage Ratio.**                   |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |   |
|       | A.                                                                              | Adjusted  Total Liabilities at Statement Date:                                                                                                                                                                                                                                                                                                                                                                 | $                                                                                                      |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |
|       | B.                                                                              | Adjusted  Consolidated Tangible Net Worth for Subject Period:                                                                                                                                                                                                                                                                                                                                                  | $                                                                                                      |       |
|       |                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                        |       |
|       | C.                                                                              | Ratio  of III.A. to III.B (not to exceed 2.00 to 1.00):                                                                                                                                                                                                                                                                                                                                                        | $                                                                                                      |       |

 

----

 

***EXHIBIT F***

 

**ASSIGNMENT AND ASSUMPTION**

 

ThisAssignment and Assumption (this “Assignment and Assumption”) is dated asof the Effective Date set forth below and is entered into by and between[the][each] Assignor identified in item 1 below ([the][each, an] “Assignor”)and [the][each] Assignee identified in item 2 below ([the][each, an] “Assignee”).  [It is understood and agreed that the rightsand obligations of [the Assignors][the Assignees] hereunder are several and notjoint.]  Capitalized terms used but notdefined herein shall have the meanings given to them in the Credit Agreementidentified below (as further amended,restated, extended, supplemented or otherwise modified in writing from time totime, the “Credit Agreement”), receipt of a copy of which is herebyacknowledged by the Assignee.  TheStandard Terms and Conditions set forth in Annex 1 attached hereto are herebyagreed to and incorporated herein by reference and made a part of thisAssignment and Assumption as if set forth herein in full.

 

Foran agreed consideration, [the][each] Assignor hereby irrevocably sells andassigns to [the Assignee][the respective Assignees], and [the][each] Assigneehereby irrevocably purchases and assumes from [the Assignor][the respectiveAssignors], subject to and in accordance with the Standard Terms and Conditionsand the Credit Agreement, as of the Effective Date inserted by the AdministrativeAgent as contemplated below (i) all of [the Assignor’s][the respectiveAssignors’] rights and obligations in [its capacity as a Lender][theirrespective capacities as Lenders] under the Credit Agreement and any otherdocuments or instruments delivered pursuant thereto to the extent related tothe amount and percentage interest identified below of all of such outstandingrights and obligations of [the Assignor][the respective Assignors] under therespective facilities identified below (including, without limitation, theSwingline Loans included in such facilities) and (ii) to the extentpermitted to be assigned under applicable law, all claims, suits, causes ofaction and any other right of [the Assignor (in its capacity as a Lender)][therespective Assignors (in their respective capacities as Lenders)] against anyPerson, whether known or unknown, arising under or in connection with theCredit Agreement, any other documents or instruments delivered pursuant theretoor the loan transactions governed thereby or in any way based on or related toany of the foregoing, including, but not limited to, contract claims, tortclaims, malpractice claims, statutory claims and all other claims at law or inequity related to the rights and obligations sold and assigned pursuant toclause (i) above (the rights and obligations sold and assigned by[the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) abovebeing referred to herein collectively as [the][an] “Assigned Interest”).  Each such sale and assignment is withoutrecourse to [the][any] Assignor and, except as expressly provided in thisAssignment and Assumption, without representation or warranty by [the][any]Assignor.

 
| 1.     | Assignor[s]:                                                                                   |   |   |
|--------|------------------------------------------------------------------------------------------------|--------|--------|
|   |                                                                                           |   |   |
|   |                                                                                           |   |   |
|   |                                                                                           |   |   |
| 2.     | Assignee[s]:                                                                                   |   |   |
|   |                                                                                           |   |   |
|   |                                                                                           |   |   |
|   |                                                                                           |   |   |
|   | [for  each Assignee, indicate [Affiliate][Approved Fund] of [*identify  Lender*]]              |
|   |                                                                                           |
| 3.     | Borrower(s):                                                                                   |   |   |
|   |                                                                                           |
| 4.     | Administrative  Agent: Citibank, N.A., as the administrative agent under the Credit  Agreement |

 

----

 
| 5.     | Credit  Agreement:                                               Credit  Agreement, dated as of May 3, 2010 (as further amended, restated, extended, supplemented or otherwise  modified in writing from time to time, the “Credit Agreement”; the  terms defined therein being used herein as therein defined) among KKR  Financial Holdings LLC, KKR Financial Holdings II, LLC, KKR Financial  Holdings III, LLC, KKR Financial Holdings, Inc., KKR Financial Holdings, Ltd.,  KKR TRS Holdings, Ltd., KKR Financial CLO 2009-1, Ltd., and  KFH III Holdings Ltd., the Lenders from time to time party thereto, Citibank,  N.A., as Swingline Lender and Issuing Bank, and Citibank, N.A., as  Administrative Agent. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 6.     | Assigned  Interest[s]:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 
| **Assignor[s]** | ** ** | **Assignee[s]** | ** ** | **Facility  Assigned** | ** ** | **Aggregate  Amount of  Commitment/Loans  for all Lenders** | ** ** | **Amount of  Commitment  /Loans  Assigned** | ** ** | **Percentage  Assigned of  Commitment/  Loans** | ** ** | **CUSIP  Number** | ** ** |
|-----------------|------------|-----------------|------------|------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------------------------------|------------|------------------------|------------|
|            |       |            |       |                   |       | $                                                           |       | $                                           |       |                                            | %          |                   |       |
|            |       |            |       |                   |       | $                                                           |       | $                                           |       |                                            | %          |                   |       |
|            |       |            |       |                   |       | $                                                           |       | $                                           |       |                                            | %          |                   |       |

 

[7.       TradeDate:                            ]

 

EffectiveDate:                                    ,20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICHSHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTERTHEREFOR.]

 

Theterms set forth in this Assignment and Assumption are hereby agreed to:

 
|   | ASSIGNOR            |
|--------|---------------------|
|   | [NAME  OF ASSIGNOR] |
|   |                |
|   | By:                 |   |
|   |                | Title: |
|   |                |
|   | ASSIGNEE            |
|   | [NAME  OF ASSIGNEE] |
|   |                |
|   | By:                 |   |
|   |                | Title: |

 

[Consented to and] Accepted:

 

CITIBANK, N.A., as

Administrative Agent

 
| By:    |   |   |
|--------|--------|--------|
|   | Title: |   |

 

----

 

[Consented to:]

 
| **KKR FINANCIAL HOLDINGS LLC** |   |
|--------------------------------|--------|
|                           |   |   |
| by                             |   |   |
|                           |   |   |
|                           | Name:  |   |
|                           | Title: |   |

 

 
| **KKR FINANCIAL HOLDINGS II, LLC** |   |
|------------------------------------|--------|
|                               |   |   |
| by                                 |   |   |
|                               |   |   |
|                               | Name:  |   |
|                               | Title: |   |

 

 
| **KKR FINANCIAL HOLDINGS III, LLC** |   |
|-------------------------------------|--------|
|                                |   |   |
| by                                  |   |   |
|                                |   |   |
|                                | Name:  |   |
|                                | Title: |   |

 

 
| **KKR  FINANCIAL HOLDINGS, INC.** |   |
|----------------------------------------|--------|
|                                   |   |   |
| by                                     |   |   |
|                                   |   |   |
|                                   | Name:  |   |
|                                   | Title: |   |

 

 
| **KKR  FINANCIAL CLO 2009-1, LTD.** |   |
|------------------------------------------|--------|
|                                     |   |   |
| by                                       |   |   |
|                                     |   |   |
|                                     | Name:  |   |
|                                     | Title: |   |

 

 
| **KFH  III HOLDINGS LTD.** |   |
|----------------------------|--------|
|                       |   |   |
| by                         |   |   |
|                       |   |   |
|                       | Name:  |   |
|                       | Title: |   |

 

----

 
| **KKR  FINANCIAL HOLDINGS, LTD.** |   |
|----------------------------------------|--------|
|                                   |   |   |
| by                                     |   |   |
|                                   |   |   |
|                                   | Name:  |   |
|                                   | Title: |   |

 

 
| **KKR  TRS HOLDINGS, LTD.** |   |
|----------------------------------|--------|
|                             |   |   |
| by                               |   |   |
|                             |   |   |
|                             | Name:  |   |
|                             | Title: |   |

 

----

 

***ANNEX 1 TO***

***ASSIGNMENT AND ASSUMPTION***

 

[                                      ]

 

**STANDARD TERMS AND CONDITIONS FORASSIGNMENT AND ASSUMPTION**

 

1.                           Representationsand Warranties.

 

1.1.                  Assignor.  [The][Each] Assignor (a) represents andwarrants that (i) it is the legal and beneficial owner of [the][[therelevant] Assigned Interest, (ii) [the][such] Assigned Interest is freeand clear of any lien, encumbrance or other adverse claim and (iii) it hasfull power and authority, and has taken all action necessary, to execute anddeliver this Assignment and Assumption and to consummate the transactionscontemplated hereby; and (b) assumes no responsibility with respect to (i) anystatements, warranties or representations made in or in connection with theCredit Agreement or any other Loan Document, (ii) the execution, legality,validity, enforceability, genuineness, sufficiency or value of the LoanDocuments or any collateral thereunder, (iii) the financial condition ofKKR Financial, any of its Subsidiaries or Affiliates or any other Personobligated in respect of any Loan Document or (iv) the performance orobservance by any Borrower, any of its Subsidiaries or Affiliates or any otherPerson of any of their respective obligations under any Loan Document.

 

1.2.                  Assignee.  [The][Each] Assignee (a) represents andwarrants that (i) it has full power and authority, and has taken allaction necessary, to execute and deliver this Assignment and Assumption and toconsummate the transactions contemplated hereby and to become a Lender underthe Credit Agreement, (ii) it meets all the requirements to be an assigneeunder Sections 10.06(b)(iii), 10.06(b)(v) and10.06(b)(vi) ofthe Credit Agreement (subject to such consents, if any, as may be requiredunder Section 10.06(b)(iii) of the Credit Agreement), (iii) fromand after the Effective Date, it shall be bound by the provisions of the CreditAgreement as a Lender thereunder and, to the extent of [the][the relevant]Assigned Interest, shall have the obligations of a Lender thereunder, (iv) itis sophisticated with respect to decisions to acquire assets of the typerepresented by [the][such] Assigned Interest and either it, or the Personexercising discretion in making its decision to acquire [the][such] AssignedInterest, is experienced in acquiring assets of such type, (v) it hasreceived a copy of the Credit Agreement, and has received or has been accordedthe opportunity to receive copies of the most recent financial statementsdelivered pursuant to Section      thereof, as applicable,and such other documents and information as it deems appropriate to make itsown credit analysis and decision to enter into this Assignment and Assumptionand to purchase [the][such] Assigned Interest, (vi) it has, independentlyand without reliance upon the Administrative Agent or any other Lender andbased on such documents and information as it has deemed appropriate, made itsown credit analysis and decision to enter into this Assignment and Assumptionand to purchase [the][such] Assigned Interest, and (vii) if it is aForeign Lender, attached hereto is any documentation required to be deliveredby it pursuant to the terms of the Credit Agreement, duly completed andexecuted by [the][such] Assignee; and (b) agrees that (i) it will,independently and without reliance upon the Administrative Agent, [the][any]Assignor or any other Lender, and based on such documents and information as itshall deem appropriate at the time, continue to make its own credit decisionsin taking or not taking action under the Loan Documents, and (ii) it willperform in accordance with their terms all of the obligations which by theterms of the Loan Documents are required to be performed by it as a Lender.

 

2.                           Payments.  From and after the Effective Date, theAdministrative Agent shall make all payments in respect of [the][each] AssignedInterest (including payments of principal, interest, fees 

 

----

 

and other amounts) to [the][the relevant]Assignor for amounts which have accrued to but excluding the Effective Date andto [the][the relevant] Assignee for amounts which have accrued from and afterthe Effective Date.

 

3.                           GeneralProvisions.  ThisAssignment and Assumption shall be binding upon, and inure to the benefit of,the parties hereto and their respective successors and assigns.  This Assignment and Assumption may beexecuted in any number of counterparts, which together shall constitute oneinstrument.  Delivery of an executedcounterpart of a signature page of this Assignment and Assumption bytelecopy shall be effective as delivery of a manually executed counterpart ofthis Assignment and Assumption.  ThisAssignment and Assumption shall be governed by, and construed in accordancewith, the law of the State of                                         [*confirm that choice of law provision parallels theCredit Agreement*].

 

----

 

***EXHIBIT G-1***

 

**[FORM OF OPINION OF SIMPSON THACHER & BARTLETT LLP]**

 

[    ], 2010

 

Citibank, N.A., asAdministrative Agent under the Credit Agreement, as hereinafter defined (the “Administrative Agent”)

 

and

 

TheLenders listed on Schedule I hereto

 

Re:                       Credit Agreement dated as ofMay 3, 2010 (the “Credit Agreement”) among the Borrowers (asdefined below), the lending institutions identified in the Credit Agreement(the “Lenders”) and the Administrative Agent

 

Ladiesand Gentlemen:

 

Wehave acted as counsel to the entities listed on Part A of Schedule IIattached hereto (each a “U.S. Borrower” and together, the “U.S.Borrowers”) and the entities listed on Part B of Schedule II attachedhereto (each a “Cayman Borrower” and together, the “Cayman Borrowers”;the Cayman Borrowers and the U.S. Borrowers being referred to hereincollectively as the “Borrowers”) in connection with the preparation,execution and delivery of the following documents: (i)** **the Credit Agreement; (ii) theSecurity Agreement; and (iii) the Collateral Agreement.  The documents described in clauses (i) through(iii) of the previous sentence are collectively referred to herein as the “CreditDocuments”.  Unless otherwiseindicated, capitalized terms used but not defined herein shall have therespective meanings set forth in the Credit Agreement.

 

Wehave examined the following:

 

(i)             the Credit Agreement, signed by each Borrowerand by each other party thereto;

 

(ii)          each other Credit Document, signed by eachBorrower that is a party thereto;

 

----

 

(iii)       unfiled copies of the financing statementslisted on Part A of Schedule III hereto (the “Delaware FinancingStatements”), naming the Borrowers indicated on Part A of suchSchedule III as debtors and the Administrative Agent as secured party,****which we understand will be filed in the Office ofthe Secretary of State of Delaware (the “Delaware Filing Office”); and

 

(iv)      unfiled copies of the financing statementslisted on Part B of Schedule III hereto (the “D.C. Financing Statements”),naming the Borrowers indicated on Part B of such Schedule III as debtorsand the Administrative Agent as secured party, which we understand will befiled in the Office of the Recorder of Deeds in the District of Columbia (the “D.C.Filing Office”).

 

Inaddition, we have examined, and have relied as to matters of fact upon, thedocuments delivered to you at the closing, and upon originals, or duplicates orcertified or conformed copies, of such corporate records, agreements, documentsand other instruments and such certificates or comparable documents of publicofficials and of officers and representatives of the Borrowers, and have madesuch other investigations, as we have deemed relevant and necessary inconnection with the opinions hereinafter set forth.  In such examination, we have assumed thegenuineness of all signatures, the legal capacity of natural persons, theauthenticity of all documents submitted to us as originals, the conformity tooriginal documents of all documents submitted to us as duplicates or certifiedor conformed copies and the authenticity of the originals of such latterdocuments.  As to questions of factmaterial to this opinion, we have relied upon certificates of public officialsand of officers and representatives of the Borrowers. ** **Inaddition, we have relied as to certain matters of fact upon the representationsmade in the Credit Documents.

 

Inaddition, we have assumed that (1) theBorrowers have rights in the Collateral existing on the date hereof and willhave rights in property which becomes Collateral after the date hereof and (2) “value” (as defined in Section 1-201(44)of the Uniform Commercial Code as in effect on the date hereof in the State ofNew York (the “New York UCC”) has been given by the Lenders to theBorrowers for the security interests and other rights in the Collateral.

 

Basedupon and subject to the foregoing, and subject to the qualifications andlimitations set forth herein, we are of the opinion that:

 

1.                                       Each of the U.S.Borrowers is validly existing and in good standing as a corporation or limitedliability company, as applicable, under the

 

----

 

lawof the State of Delaware, (b) hasthe corporate or limited liability company power and authority to execute anddeliver each of the Credit Documents to which it is a party and to borrow andperform its obligations thereunder and to grant the security interests to begranted by it pursuant to the Security Agreement, (c) has taken allnecessary corporate or limited liability company action to authorize theexecution and delivery by it of the Credit Documents to which it is a party,its borrowings and performance of its obligations thereunder and the grantingof the security interests to be granted by it pursuant to the SecurityAgreement and (d) has duly executed and delivered each Credit Document towhich it is a party.

 

2.                                       The executionand delivery by each U.S. Borrower of the Credit Documents to which it is aparty, its borrowings in accordance with the terms of the Credit Documents andperformance of its payment obligations thereunder and granting of the securityinterests to be granted by it pursuant to the Security Agreement will notresult in any violation of (1) theCertificate of Incorporation or Certificate of Formation, as applicable, orBy-Laws or Limited Liability Company Agreement, as applicable, of such U.S.Borrower or (2) assuming thatproceeds of borrowings will be used in accordance with the terms of the CreditAgreement, any Federal or New York statute or the Delaware General CorporationLaw or the Delaware Limited Liability Company Act or any rule orregulation issued pursuant to any New York or Federal statute or the DelawareGeneral Corporation Law or the Delaware Limited Liability Company Act or anyorder known to us issued by any court or governmental agency or body.

 

3.                                       No consent,approval, authorization, order, filing, registration or qualification of orwith any Federal or New York governmental agency or body or any Delawaregovernmental agency or body acting pursuant to the Delaware General CorporationLaw or the Delaware Limited Liability Company Act is required for the executionand delivery by any U.S. Borrower of the Credit Documents to which it is aparty, the borrowings by any Borrower in accordance with the terms of theCredit Documents or the performance by the Borrowers of their respectivepayment obligations under the Credit Documents or the granting of any securityinterests under the Security Agreement, except filings required for the perfectionof security interests granted pursuant to the Security Agreement.

 

4.                                       Assuming thateach of the Credit Documents is a valid and legally binding obligation of eachof the parties thereto other than the Borrowers and assuming that (a) each of the Cayman Borrowers is validlyexisting and in good standing under the laws of the jurisdiction in which it isorganized and has duly authorized, executed and delivered the Credit Documentsto which it is a party in accordance with its organizational documents, (b) execution, delivery and performance byeach Borrower of the Credit Documents to which it is a party do not violate thelaws of the jurisdiction in which it is organized or any other applicable laws(excepting the law of the State of New York, the Delaware General CorporationLaw, the Delaware Limited Liability Company Act and the Federal laws of theUnited States), (c) execution,delivery and performance by

 

----

 

eachBorrower of the Credit Documents to which it is a party do not constitute abreach or violation of any agreement or instrument which is binding upon theBorrowers (except that we do not make the assumption in the foregoingclause (c) with respect to the agreements and instruments that arethe subject of opinion paragraph 2 of this letter), and (d) no Borrower is an “investment company”within the meaning of, and subject to regulation under, the Investment CompanyAct of 1940, as amended, each Credit Document constitutes the valid and legallybinding obligation of each Borrower which is a party thereto, enforceableagainst such Borrower in accordance with its terms.

 

5.                                       The SecurityAgreement creates in favor of the Administrative Agent for the benefit of theLenders a security interest in the Collateral described therein in which asecurity interest may be created under Article 9 of the New York UCC (the “SecurityAgreement Article 9 Collateral”).

 

6.                                       The securityinterest of the Administrative Agent for the benefit of the Lenders in thatportion of the Collateral that consists of “instruments” within the meaning of Article 9of the New York UCC that are delivered to the Administrative Agent will be aperfected security interest upon delivery of such instruments to theAdministrative Agent (or to the Collateral Agent on behalf of theAdministrative Agent) in the State of New York.

 

7.                                       TheAdministrative Agent will have a perfected security interest in the Collateralthat consists of a “security entitlement” within the meaning of Article 8of the New York UCC (the “Pledged Investment Property”) for the benefitof the Lenders under the New York UCC upon The Bank of New York Mellon, as thesecurities intermediary that maintains the securities account in which thePledged Investment Property is held, agreeing that it will comply withentitlement orders originated by the Administrative Agent without furtherconsent by the Borrowers.

 

8.                                       TheAdministrative Agent will have a perfected security interest in that portion ofthe Collateral that consists of a “certificated security” within the meaning ofArticle 8 of the New York UCC (the “Pledged Securities”) for thebenefit of the Lenders under the New York UCC upon delivery to theAdministrative Agent (or to the Collateral Agent on behalf of theAdministrative Agent) for the benefit of the Lenders in the State of New Yorkof the certificates representing such Pledged Securities in registered form,indorsed in blank by an effective indorsement or accompanied by undated stockpowers with respect thereto duly indorsed in blank by an effective indorsement.Assuming none of the Administrative Agent, the Collateral Agent or any of theLenders has notice of any adverse claim to the Pledged Securities, no actionbased on an adverse claim to the Pledged Securities may be asserted against theAdministrative Agent, the Collateral Agent or any Lender.

 

Althoughwe express no opinion as to the law of the State of Delaware (other than theDelaware General Corporation Law and the Delaware Limited Liability CompanyAct), we have

 

----

 

reviewedArticle 9 of the Uniform Commercial Code in effect in the State ofDelaware as set forth in the Commerce Clearing House, Inc. SecuredTransactions Guide as supplemented through April 13, 2010 (the “DelawareUCC”) and, based solely on such review, we advise you that (a) theDelaware Financing Statement are in appropriate form for filing in the DelawareFiling Office and (b) upon the filing of the Delaware Financing Statementin the Delaware Filing Office, the Administrative Agent will have a perfectedsecurity interest for the benefit of the Lenders in that portion of theSecurity Agreement Article 9 Collateral in which a security interest canbe perfected by filing a financing statement in the Delaware Filing Office.

 

Althoughwe express no opinion as to the law of the District of Columbia, we havereviewed Article 9 of the Uniform Commercial Code in effect in theDistrict of Columbia as set forth in the Commerce Clearing House, Inc.Secured Transactions Guide as supplemented through April 13, 2010 (the “D.C.UCC”) and, based solely on such review, we advise you that (a) theFinancing Statements to be filed in the D.C. Filing Office (the “D.C.Financing Statements”) are in appropriate form for filing in the D.C.Filing Office and (b) upon the filing of the D.C. Financing Statements inthe D.C. Filing Office, the Administrative Agent will have a perfected securityinterest for the benefit of the Lenders in that portion of the Article 9Collateral in which a security interest can be perfected by filing a financingstatement in the D.C. Filing Office.

 

Ouropinions in paragraphs 4 and 5 above are subject to (i) the effects ofbankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium andother similar laws relating to or affecting creditors’ rights generally,(ii) general equitable principles (whether considered in a proceeding inequity or at law), and (iii) an implied covenant of good faith and fairdealing and (iv) in the case of the Cayman Borrowers, the effects of thepossible judicial application of foreign laws or foreign governmental orjudicial action affecting creditors’ rights. Our opinion in paragraph 4 above also is subject to thequalification that certain provisions of the Security Documents may not beenforceable in whole or in part, although the inclusion of such provisions doesnot render the Security Documents invalid, and the Security Documents and thelaw of the State of New York contain adequate remedial provisions for thepractical realization of the rights and benefits afforded thereby.

 

----

 

Ouropinions in paragraphs 5 and 6, and our advice in the second and thirdpreceding paragraphs above, are limited to Article 9 of the New York UCC,the Delaware UCC and the D.C. UCC, as the case may be, and our opinions inparagraphs 7 and 8 are limited to Articles 8 and 9 of the New York UCC,and, therefore, those opinion and advice paragraphs do not address (i) collateralof a type not subject to Article 8 or 9, as the case may be, of the NewYork UCC, the Delaware UCC or the D.C. UCC and (ii) what law governsperfection of the security interests granted in the collateral covered by thisopinion letter.

 

Weexpress no opinion and render no advice with respect to:

 

(i)                                     perfection of any security interest in (1) any collateral of a type represented bya certificate of title and (2) anycollateral consisting of money, cash equivalents or Permitted Investments(except, in the case of cash equivalents and Permitted Investments, to theextent such items constitute Collateral that may be perfected as described inopinion paragraphs 6, 7 or8);

 

(ii)                                  the effect of § 9-315(a)(2) of theNew York UCC with respect to any proceeds of Collateral that are notidentifiable;

 

(iii)                               perfection of any security interest whosepriority is subject to Section 9-334 of the New York UCC;

 

(iv)                              except as provided in opinion paragraph 8, thepriority of any security interest;

 

(v)                                 the effect of Section 552 of theBankruptcy Code (11 U.S.C. 552) (relating to property acquired by apledgor after the commencement of a case under the United States BankruptcyCode with respect to such pledgor) and Section 506(c) of theBankruptcy Code (11 U.S.C. 506(c) (relating to certain costs andexpenses of a trustee in preserving or disposing of collateral);

 

(vi)                              the effect of any provision of the CreditDocuments which is intended to establish any standard other than a standard setforth in the New York UCC as the measure of the performance by any partythereto of such party’s obligations of good faith, diligence, reasonableness orcare or of the fulfillment of the duties imposed on any secured party withrespect to the maintenance, disposition or redemption of collateral, accountingfor surplus proceeds of collateral or accepting collateral in discharge ofliabilities;

 

(vii)                           the effect of any provision of the CreditDocuments which is intended to permit modification thereof only by means of anagreement in writing signed by the parties thereto;

 

(viii)                        the effect of any provision of the CreditDocuments insofar as it provides that any Person purchasing a participationfrom a Lender or other Person may exercise set-off or similar rights withrespect to such participation or that any Lender or other Person may exerciseset-off or similar rights other than in accordance with applicable law;

 

----

 

(ix)                                the effect of any provision of the CreditDocuments imposing penalties or forfeitures;

 

(x)                                   the enforceability of any provision of any ofthe Credit Documents to the extent that such provision constitutes a waiver ofillegality as a defense to performance of contract obligations; and

 

(xi)                                the effect of any provision of the CreditDocuments relating to indemnification or exculpation in connection withviolations of any securities laws or relating to indemnification, contributionor exculpation in connection with willful, reckless or criminal acts or grossnegligence of the indemnified or exculpated Person or the Person receivingcontribution.

 

Withrespect to matters of Cayman law, we understand that you are relying on theopinion of Maples and Calder dated the date hereof.

 

Wedo not express any opinion herein concerning any law other than the law of theState of New York, the federal law of the United States and the DelawareGeneral Corporation Law and the Delaware Limited Liability Company Act.

 

----

 

Thisopinion letter is rendered to you in connection with the above describedtransactions.  This opinion letter maynot be relied upon by you for any other purpose, or relied upon by, orfurnished to, any other person, firm or corporation without our prior writtenconsent.

 
|   | Very  truly yours,                       |
|--------|------------------------------------------|
|   |                                     |
|   |                                     |
|   | SIMPSON  THACHER & BARTLETT LLP |

 

----

 

SCHEDULE I

 

The Lenders

 

CITIBANK,N.A.

 

BANKOF AMERICA, N.A.

 

DEUTSCHEBANK AG NEW YORK BRANCH

 

MORGANSTANLEY SENIOR FUNDING, INC.

 

----

 

**SCHEDULE II**

 

PART A

 

U.S. BORROWERS

 

| **Entity Name**               | ** ** | **Jurisdiction of Incorporation or Formation** |
|------------------------------------|------------|--------------------------------------------------------------------|
| KKR  Financial Holdings LLC        |       | Delaware                                                           |
| KKR  Financial Holdings II, LLC    |       | Delaware                                                           |
| KKR  Financial Holdings III, LLC   |       | Delaware                                                           |
| KKR  Financial Holdings, Inc. |       | Delaware                                                           |

 

PART B

 

CAYMAN BORROWERS

 

| **Entity Name**                 | ** ** | **Jurisdiction of Incorporation** |
|--------------------------------------|------------|---------------------------------------------|
| KKR  Financial Holdings, Ltd.   |       | Cayman Islands                              |
| KKR  TRS Holdings, Ltd.         |       | Cayman Islands                              |
| KKR  Financial CLO 2009-1, Ltd. |       | Cayman Islands                              |
| KFH III Holdings Ltd.                |       | Cayman Islands                              |

 

----

 

**SCHEDULE III**

 

PART A

 

DELAWARE FINANCING STATEMENTS

 

Thefollowing financing statements on form UCC-1, naming the Person listed below asdebtor and the Administrative Agent as secured party for the benefit of theLenders, to be filed in the offices listed opposite the name of such party:

 

| **Debtor**                         | ** ** | **Filing Office**          |
|------------------------------------|------------|---------------------------------|
| ** **                         | ** ** | ** **                      |
| KKR  Financial Holdings LLC        |       | Secretary  of State of Delaware |
|                               |       |                            |
| KKR  Financial Holdings II, LLC    |       | Secretary  of State of Delaware |
|                               |       |                            |
| KKR  Financial Holdings III, LLC   |       | Secretary  of State of Delaware |
|                               |       |                            |
| KKR  Financial Holdings, Inc. |       | Secretary  of State of Delaware |

 

PART B

 

D.C. FINANCING STATEMENTS

 

Thefollowing financing statements on form UCC-1, naming the Person listed below asdebtor and the Administrative Agent as secured party for the benefit of theLenders, to be filed in the offices listed opposite the name of such party:

 

| **Debtor**                           | ** ** | **Filing Office**                  |
|--------------------------------------|------------|-----------------------------------------|
|                                 |       |                                    |
| KKR  Financial Holdings, Ltd.   |       | District  of Columbia Recorder of Deeds |
|                                 |       |                                    |
| KKR  TRS Holdings, Ltd.         |       | District  of Columbia Recorder of Deeds |
|                                 |       |                                    |
| KKR  Financial CLO 2009-1, Ltd. |       | District  of Columbia Recorder of Deeds |
|                                 |       |                                    |
| KFH III Holdings Ltd.                |       | District  of Columbia Recorder of Deeds |

 

----

 

***EXHIBIT G-2***

 

**[FORM OF OPINION OF IN-HOUSE GENERAL COUNSEL FOR THE BORROWERS]**

 

KKR FINANCIAL HOLDINGS LLC

 

----

 

    , 2010

 

Citibank,N.A.

asAdministrative Agent

 

TheLenders

partyto the Credit Agreement (as defined below)listed on Schedule 2.01 thereto

 

 

Re:                               KKR Financial Holdings LLC,KKR Financial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR FinancialHoldings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.

 

Ladiesand Gentlemen:

 

Iam General Counsel of KKR Financial Holdings LLC, a corporation organized underthe laws of the State of Delaware (“KKR Financial”), and in thatcapacity I have represented KKR Financial; KKR Financial Holdings II, LLC, aDelaware limited liability company (“KKR Holdings II”); KKR FinancialHoldings III, LLC, a Delaware limited liability company (“KKR Holdings III”);KKR Financial Holdings, Inc., a Delaware corporation (“KKR Holdings”and, together with KKR Financial, KKR Holdings II and KKR Holdings III, the “U.S.Borrowers”); KKR Financial Holdings, LTD., a Cayman Islands company (“KKRHoldings LTD”); KKR TRS HOLDINGS, LTD., a Cayman Islands company (“KKRTRS LTD”); KKR Financial CLO 2009-1, LTD., a Cayman Islandscompany (“KKR CLO 2009”); KFH III Holdings LTD., a Cayman Islandscompany (“KFH III”; and, together with KKR Holdings LTD, KKR TRS LTD andKKR CLO 2009 and the U.S. Borrowers, the “Borrowers”) in connection withthe execution of that certain Credit Agreement among the Borrowers, the lendersparty thereto (the “Lenders”), Citibank, N.A., as Swingline Lender andIssuing Bank, and Citibank, N.A., as administrative agent (the “AdministrativeAgent”), dated as of May 3, 2010 (the “Credit Agreement”), andeach other Loan Document.  Capitalizedterms used but not defined herein are used as defined in the Credit Agreement.

 

Inconnection with this opinion, I have examined, among other things, theLoan Documents and originals or copies, certified or otherwise identified to mysatisfaction of such other records, documents or other instruments as in myjudgment are necessary or appropriate to enable me to render the opinionsexpressed below.  As to factual matters, Ihave relied upon statements, certificates and other assurances of publicofficials and of officers and other representatives of the U.S. Borrowers andthe other parties to the Loan Documents and upon such other certificates as Ihave deemed appropriate, which factual matters have not been independentlyestablished or verified by me.  I haveassumed (i) that the representations and warranties as to factual matterscontained in the Loan Documents are true and correct, (ii) the genuinenessof all signatures and the authenticity of all documents submitted to me asoriginals, 

 

----

 

(iii) theconformity with authentic originals of all documents submitted to me as copiesand (iv) the legal competency of each individual who executed documents orwho purported to act in connection with matters addressed in the opinionsexpressed below.

 

Onthe basis of such examination and subject to the assumptions, limitations,qualifications and exceptions set forth herein, I am of the opinion that:

 

1.     Eachof the U.S. Borrowers is duly qualified to do business and is in good standingin each jurisdiction in which the character of the business transacted by itrequires such qualification and in which the failure so to qualify would have amaterial adverse effect on the business, properties, assets or condition(financial or other) of each U.S. Borrower and its subsidiaries, considered asa whole.

 

2.     Noconsent, approval, authorization or order of, or notice to or filing with, anyfederal court or governmental agency or body is required to be obtained by theU.S. Borrowers under any federal law or regulation that are generallyrecognized by a lawyer admitted in New York exercising customary professionaldiligence as applicable to the U.S. Borrowers or to transactions contemplatedby the Loan Documents, in connection with the execution and delivery by theU.S. Borrowers of the Loan Documents and the performance by each of the U.S.Borrowers of their obligations thereunder.

 

3.     Theexecution and delivery of the Loan Documents by the U.S. Borrowers and theperformance by each of the U.S. Borrowers of their obligations thereunder (a) willnot conflict with, result in a breach of, or constitute a default under theterms of any indenture or other agreement or instrument to which any of theU.S. Borrowers is party or bound, (b) will not violate any judgment, orderor decree of any court or other tribunal applicable to the U.S. Borrowers, (c) willnot violate any law or regulations applicable to the U.S. Borrowers, of anyfederal court, regulatory body, administrative agency, governmental body orarbitrator having jurisdiction over the U.S. Borrowers, and (d) will notresult in the creation or imposition of any lien (other than liens evidenced bythe Loan Documents in favor of the Administrative Agent) on any asset of theU.S. Borrowers.

 

4.     Thereis no pending or, to my actual knowledge, threatened action, suit or proceedingbefore any court or governmental agency, authority or body or any arbitratorinvolving the U.S. Borrowers or relating to the transaction contemplated by theLoan Documents which, in any manner draws into question the validity of theLoan Documents or which if adversely determined, would have a material adverseeffect on the financial position of the U.S. Borrowers.

 

The opinions expressed above are subject to the following additionalassumptions, qualifications, limitations and exceptions:

 

A.    Forpurposes of the opinion in paragraph 2 hereof, I have assumed that theU.S. Borrowers will not in the future take any discretionary action (includinga decision not to act) that would cause the performance of any of theirobligations under any Loan Document to require a consent, approval,authorization or order to be obtained from a federal governmental authority.

 

B.    Inote that you are receiving opinion letters dated the date hereof from (i) SimpsonThacher & Bartlett LLP, counsel to KKR Financial and the otherBorrowers.  I have, with permission,relied on those opinion letters as to certain of such matters with respect tothe U.S. Borrowers (in particular the opinions set forth in paragraphs 1, 2 and3 thereof), and have assumed that  thoseopinion letters are correct.

 

----

 

C.    Iam admitted to the bar of the State of New York and the foregoing opinions(except for the opinions in paragraph 1, hereof) are limited to matters arisingunder the federal laws of the United States of America and the laws of theState of New York.  I express no opinionas to the laws, rules or regulations of any other jurisdiction or as tothe municipal laws or the laws, rules or regulations of any local agenciesor governmental authorities of or within the State of New York, or in each caseas to any matters arising thereunder or relating thereto.

 

D.    Thisletter is solely for your benefit in connection with the transactions describedin the first paragraph above and may not be quoted or relied upon by, nor maycopies be delivered to, any other Person (except that this letter may befurnished to actual and potential assignees and participants with theunderstanding that this letter speaks only as of the date hereof), nor may thisletter be filed with any governmental agency (unless required by applicablelaw) or be relied upon by you for any other purpose, without my prior writtenconsent.

 
|   | Very  truly yours, |
|--------|--------------------|
|   |               |
|   |               |
|   | General  Counsel   |

 

----

 

***EXHIBIT G-3***

 

**[FORM OF OPINION OF MAPLES AND CALDER]**

 

Citibank, N.A.

as Administrative Agent

 

The Lenders party to the

Credit Agreement

(as defined below)

listed on Schedule thereto

 

,2010

 

Dear Sirs,

 

**[      ] (the “Company”)**

 

Wehave acted as counsel as to Cayman Islands law to[      ] (the “**Company**”)in connection with its entry into the agreements listed in the schedule to thisopinion (the “**Transaction Documents**”).

 

1                                          **DOCUMENTS REVIEWED**

 

Wehave reviewed originals, copies, drafts or conformed copies of the followingdocuments:

 

1.1                                 the Certificate of Incorporation and Memorandum andArticles of Association of the Company as adopted on[      ];

 

1.2                                 the minutes of the meetings of the board of directorsof the Company held on [      ] and on[      ]and the corporate records of the Companymaintained at its registered office in the Cayman Islands;

 

1.3                                 a certificate from a Director of the Company a copy ofwhich is annexed hereto (the “**Director’sCertificate**”).

 

1.4                                 the Transaction Documents.

 

2                                          **ASSUMPTIONS**

 

Thefollowing opinion is given only as to, and based on, circumstances and mattersof fact existing and known to us on the date of this opinion. This opinion onlyrelates to the laws of the Cayman Islands that are in force on the date of thisopinion.  In giving this opinion we haverelied (without further verification) upon the completeness and accuracy of theDirector’s Certificate. We have also relied upon the following assumptions,which we have not independently verified:

 

----

 

2.1                                 the Transaction Documents have been or will beauthorised and duly executed and delivered by or on behalf of all relevantparties in accordance with all relevant laws (other than, with respect to theCompany, the laws of the Cayman Islands);

 

2.2                                 the Transaction Documents are, or will be, legal,valid, binding and enforceable against all relevant parties in accordance withtheir terms under New York law and all other relevant laws (other than the lawsof the Cayman Islands);

 

2.3                                 the choiceof New York law as the governing law of the Transaction Documents has been madein good faith and would be regarded as a valid and binding selection which willbe upheld by the courts of New York and any other relevant jurisdiction (otherthan the Cayman Islands) as a matter of New York law and all other relevantlaws (other than the laws of the Cayman Islands);

 

2.4                                 copy documents, conformed copies or drafts ofdocuments provided to us are true and complete copies of, or in the final formsof, the originals;

 

2.5                                 all signatures, initials and seals are genuine;

 

2.6                                 the power, authority and legal right of all partiesunder all relevant laws and regulations (other than, with respect to theCompany, the laws of the Cayman Islands) to enter into, execute, deliver andperform their respective obligations under the Transaction Documents;

 

2.7                                 under the laws of New York and all other relevant laws(other than the laws of the Cayman Islands) including, without prejudice to thegenerality of the foregoing, the governing law and law of situs of the propertysubject to the security interests created pursuant to the Security Agreement(the “**Collateral**”) the SecurityAgreement creates a valid first priority security interest over the Collateral,any steps required as a matter of New York law or other relevant laws (otherthan the laws of the Cayman Islands) to perfect such security interest or toregulate its ranking in point of priority have been taken and there are noprior encumbrances or interests over the Collateral;

 

2.8                                 none of the Collateral is situated in the CaymanIslands or governed by Cayman Islands law; and

 

2.9                                 there is nothing under any law (other than the law ofthe Cayman Islands) which would or might affect the opinions hereinafterappearing.  Specifically, we have made noindependent investigation of the laws of New York.

 

3                                          **OPINIONS**

 

Basedupon, and subject to, the foregoing assumptions and the qualifications set outbelow, and having regard to such legal considerations as we deem relevant, weare of the opinion that:

 

3.1                                 The Company has been duly incorporated as an exemptedcompany with limited liability and is validly existing under the laws of theCayman Islands.

 

----

 

3.2                                 The Company has full power and authority under itsMemorandum and Articles of Association to enter into, execute and perform itsobligations under the Transaction Documents.

 

3.3                                 The execution and delivery of the TransactionDocuments by the Company and the performance by the Company of its obligationsthereunder does not conflict with or result in a breach of any of the terms orprovisions of the Memorandum and Articles of Association of the Company or anylaw, public rule or regulation applicable to the Company in the CaymanIslands currently in force.

 

3.4                                 The execution, delivery and performance of theTransaction Documents has been authorised by and on behalf of the Company and,assuming the Transaction Documents have been executed and delivered by adirector of the Company, the Transaction Documents have been duly executed anddelivered on behalf of the Company and constitute the legal, valid and bindingobligations of the Company enforceable in accordance with their terms.

 

3.5                                 No authorisations, consents, approvals, licenses,validations or exemptions are required by law from any governmental authoritiesor agencies or other official bodies in the Cayman Islands in connection with:

 

3.5.1                  thecreation, execution or delivery of the Transaction Documents by the Company;

 

3.5.2                  subjectto the payment of the appropriate stamp duty, enforcement of the TransactionDocuments against the Company; or

 

3.5.3                  theperformance by the Company of its obligations under any of the TransactionDocuments.

 

3.6                                 No taxes, fees or charges (other than stamp duty) arepayable (either by direct assessment or withholding) to the government or othertaxing authority in the Cayman Islands under the laws of the Cayman Islands inrespect of:

 

3.6.1                                                                        the execution or delivery of the TransactionDocuments;

 

3.6.2                                                                        the enforcement of the Transaction Documents; or

 

3.6.3                                                                        payments made under, or pursuant to, the TransactionDocuments.

 

The Cayman Islands currently have no form ofincome, corporate or capital gains tax and no estate duty, inheritance tax orgift tax.

 

3.7                                 The courts of the Cayman Islands will observe and giveeffect to the choice of New York law as the governing law of the TransactionDocuments.

 

3.8                                 Although there is no statutory enforcement in theCayman Islands of judgments obtained in New York, the courts of the CaymanIslands will recognise a foreign 

 

----

 

judgment as the basis for a claim at common lawin the Cayman Islands provided such judgment:

 

3.8.1                        is given by a competent foreign court;

 

3.8.2                        imposes on the judgment debtor a liability to pay aliquidated sum for which the judgment has been given;

 

3.8.3                        is final;

 

3.8.4                        is not in respect of taxes, a fine or a penalty; and

 

3.8.5                        was not obtained in a manner and is not of a kind theenforcement of which is contrary to the public policy of the Cayman Islands.

 

3.9                                 It is not necessary to ensure the legality, validity,enforceability or admissibility in evidence of the Transaction Documents thatany document be filed, recorded or enrolled with any governmental authority oragency or any official body in the Cayman Islands.

 

3.10                           In relation to the Security Agreement:

 

3.10.1                  thecourts of the Cayman Islands will recognise the security interest created bythe Security Agreement over the Collateral;

 

3.10.2                  nosteps are required as a matter of Cayman Islands law to perfect such securityinterest, or to regulate its ranking in order of priority; and

 

3.10.3                  thesecurity interest created over the Collateral by the Security Agreement willhave priority over any claims by third parties (other than those preferred bylaw) including any liquidator or a creditor of the Company, subject in the caseof a winding up of the Company in a jurisdiction other than the Cayman Islandsto any provisions of the laws of that jurisdiction as to priority of claims ina winding up.

 

4                                          **QUALIFICATIONS**

 

Theopinions expressed above are subject to the following qualifications:

 

4.1                                 The term “**enforceable**”as used above means that the obligations assumed by the Company under theTransaction Documents are of a type that the courts of the Cayman Islands willenforce.  It does not mean that thoseobligations will necessarily be enforced in all circumstances in accordancewith their terms.  In particular:

 

4.1.1                        enforcement may be limited by bankruptcy, insolvency,liquidation, reorganisation, readjustment of debts or moratorium or other lawsof general application relating to or affecting the rights of creditors;

 

----

 

4.1.2                        enforcement may be limited by general principles ofequity.  For example, equitable remediessuch as specific performance may not be available, inter alia, where damagesare considered to be an adequate remedy;

 

4.1.3                        some claims may become barred under the statutes oflimitation or may be or become subject to defences of set off, counterclaim,estoppel and similar defences;

 

4.1.4                        where obligations are to be performed in ajurisdiction outside the Cayman Islands, they may not be enforceable in theCayman Islands to the extent that performance would be illegal under the lawsof that jurisdiction;

 

4.1.5                        the courts of the Cayman Islands have jurisdiction togive judgment in the currency of the relevant obligation and statutory rates ofinterest payable upon judgments will vary according to the currency of thejudgment.  If the Company becomesinsolvent and is made subject to a liquidation proceeding, the courts of theCayman Islands will require all debts to be proved in a common currency, whichis likely to be the “functional currency” of the Company determined inaccordance with applicable accounting principles. Currency indemnity provisionshave not been tested, so far as we are aware, in the courts of the CaymanIslands;

 

4.1.6                        obligations to make payments that may be regarded aspenalties will not be enforceable;

 

4.1.7                        the courts of the Cayman Islands may decline toexercise jurisdiction in relation to substantive proceedings brought under orin relation to the Transaction Documents in matters where they determine thatsuch proceedings may be tried in a more appropriate forum; and

 

4.1.8                        a company cannot, by agreement or in its articles ofassociation, restrict the exercise of a statutory power, and there exists doubtas to enforceability of any provision in the Transaction Documents whereby theCompany covenants not to exercise powers specifically given to its shareholdersby The Companies Law (2004 Revision) of the Cayman Islands, including, withoutlimitation, the power to increase its authorised share capital, amend itsmemorandum and articles of association, or present a petition to a CaymanIslands court for an order to wind up the Company.

 

4.2                                 Cayman Islands stamp duty may be payable if theoriginal of any Transaction Document is brought to or executed in the CaymanIslands.

 

4.3                                 To maintain the Company in good standing under thelaws of the Cayman Islands, annual filing fees must be paid and returns made tothe Registrar of Companies.

 

4.4                                 The Company must make an entry in its Register ofMortgages and Charges in respect of all mortgages and charges created under theTransaction Documents in

 

----

 

order to comply with Section 54 of TheCompanies Law (2004 Revision) of the Cayman Islands; failure by the Company tocomply with this requirement does not operate to invalidate any mortgage orcharge though it may be in the interests of the secured parties that theCompany should comply with the statutory requirements.

 

4.5                                 The obligations of the Company may be subject torestrictions pursuant to United Nations sanctions as implemented under the lawsof the Cayman Islands.

 

4.6                                 A certificate, determination, calculation ordesignation of any party to the Transaction Documents as to any matter providedtherein might be held by a Cayman Islands court not to be conclusive final andbinding if, for example, it could be shown to have an unreasonable or arbitrarybasis, or in the event of manifest error.

 

4.7                                 In principle the courts of the Cayman Islands willaward costs and disbursements in litigation in accordance with the relevantcontractual provisions but there remains some uncertainty as to the way inwhich the rules of the Grand Court will be applied in practice.  Whilst it is clear that costs incurred priorto judgment can be recovered in accordance with the contract, it is likely thatpost-judgment costs (to the extent recoverable at all) will be subject totaxation in accordance with Grand Court Rules Order 62.

 

4.8                                 We reserve our opinion as to the extent to which thecourts of the Cayman Islands would, in the event of any relevant illegality,sever the offending provisions and enforce the remainder of the transaction ofwhich such provisions form a part, notwithstanding any express provisions inthis regard.

 

4.9                                 We make no comment with regard to the references toforeign statutes in the Transaction Documents.

 

4.10                           We note that it iscontemplated that certain of the TransactionDocuments will be dated “as of” acertain date.  Whilst parties to anagreement may agree as a matter of contract, *interse*, that the rights and obligations therein contained should, in sofar as the same may be possible, take effect from a date prior to the date ofexecution and delivery, if as a matter of fact that agreement was executed anddelivered after the date “as of” which it is expressed to be executed anddelivered, the agreement only comes into effect on the actual date of executionand delivery and, with respect to third parties, the agreement in so far as therights of third parties may be available thereunder, take effect only from theactual date of execution and delivery.

 

Weexpress no view as to the commercial terms of the Transaction Documents orwhether such terms represent the intentions of the parties and make no commentwith regard to the representations that may be made by the Company.

 

Thisopinion may be relied upon by the addressees and their successors and permittedassigns only. It may not be relied upon by any other person except with ourprior written consent.

 

----

 

Yoursfaithfully

 

 

MAPLESand CALDER

 

----