**Exhibit 3.1**

 

**AMENDED AND RESTATED**

 

**OPERATING AGREEMENT**

 

**OF**

 

**KKR FINANCIAL HOLDINGS LLC**

 

**Dated as of May 3, 2007**

 

**As amended May 7, 2009**

 

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Table of Contents

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| ** **                                                                               | **Page** |
|------------------------------------------------------------------------------------------|----------|
|                                                                                     |     |
| ARTICLE 1                                                                                |     |
| THE COMPANY                                                                              | 1        |
|                                                                                     |     |
| Section 1.1  Formation                                                         | 1        |
|                                                                                     |     |
| Section 1.2  Name                                                              | 1        |
|                                                                                     |     |
| Section 1.3  Purpose; Powers; Prior Authorization of  Actions Valid            | 1        |
|                                                                                     |     |
| Section 1.4  Power of Attorney                                                 | 2        |
|                                                                                     |     |
| Section 1.5  Principal Place of Business; Registered  Office; Registered Agent | 3        |
|                                                                                     |     |
| Section 1.6  Term                                                              | 4        |
|                                                                                     |     |
| Section 1.7  Filings                                                           | 4        |
|                                                                                     |     |
| Section 1.8  Title to Property                                                 | 4        |
|                                                                                     |     |
| Section 1.9  Payments of Individual Obligations                                | 4        |
|                                                                                     |     |
| Section 1.10  Definitions                                                      | 4        |
|                                                                                     |     |
| ARTICLE 2                                                                                |     |
| CLASSES AND ISSUANCE OF SHARES                                                           | 18       |
|                                                                                     |     |
| Section 2.1  Authorization to Issue Shares                                     | 18       |
|                                                                                     |     |
| Section 2.2  Certificates                                                      | 20       |
|                                                                                     |     |
| Section 2.3  Repurchase of Shares by the Company                               | 20       |
|                                                                                     |     |
| Section 2.4  Record Holders                                                    | 20       |
|                                                                                     |     |
| Section 2.5  Registration and Sale of Shares                                   | 21       |
|                                                                                     |     |
| Section 2.6  Mutilated, Lost, Destroyed or Stolen  Certificates                | 21       |
|                                                                                     |     |
| ARTICLE 3                                                                                |     |
| RESTRICTION ON TRANSFER AND  OWNERSHIP OF SHARES                                         | 22       |
|                                                                                     |     |
| Section 3.1  Ownership of Shares                                               | 22       |

 

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| ** **                                                        | **Page** |
|-------------------------------------------------------------------|----------|
|                                                              |     |
| Section 3.2  Transfer of Shares in Trust                | 26       |
|                                                              |     |
| Section 3.3  NYSE Transactions                          | 27       |
|                                                              |     |
| Section 3.4  Enforcement                                | 28       |
|                                                              |     |
| Section 3.5  Non-Waiver                                 | 28       |
|                                                              |     |
| Section 3.6  REIT Qualification                         | 28       |
|                                                              |     |
| ARTICLE 4                                                         |     |
| ALLOCATIONS                                                       | 28       |
|                                                              |     |
| Section 4.1  General Application                        | 28       |
|                                                              |     |
| Section 4.2  Allocations of Profits and Losses          | 28       |
|                                                              |     |
| Section 4.3  Special Allocations                        | 28       |
|                                                              |     |
| Section 4.4  Ameliorative Allocations                   | 30       |
|                                                              |     |
| Section 4.5  Loss Limitation                            | 30       |
|                                                              |     |
| Section 4.6  Other Allocation Rules                     | 30       |
|                                                              |     |
| Section 4.7  Tax Allocations: Code  Section 704(c) | 31       |
|                                                              |     |
| Section 4.8  Percentage  Interests                      | 31       |
|                                                              |     |
| ARTICLE 5                                                         |     |
| DISTRIBUTIONS                                                     | 32       |
|                                                              |     |
| Section 5.1  Distributions to Members                   | 32       |
|                                                              |     |
| Section 5.2  Amounts Withheld                           | 32       |
|                                                              |     |
| Section 5.3  Limitations on Distributions               | 32       |
|                                                              |     |
| ARTICLE 6                                                         |     |
| BOARD OF DIRECTORS                                                | 33       |
|                                                              |     |
| Section 6.1  Initial Board                              | 33       |
|                                                              |     |
| Section 6.2  General Powers                             | 33       |
|                                                              |     |

 

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| ** **                                                                           | **Page** |
|--------------------------------------------------------------------------------------|----------|
|                                                                                 |     |
| Section 6.3  Duties of Directors                                           | 35       |
|                                                                                 |     |
| Section 6.4  Number, Tenure and Qualifications                             | 35       |
|                                                                                 |     |
| Section 6.5  Election of Directors                                         | 35       |
|                                                                                 |     |
| Section 6.6  Removal                                                       | 35       |
|                                                                                 |     |
| Section 6.7  Resignations                                                  | 35       |
|                                                                                 |     |
| Section 6.8  Vacancies and Newly Created  Directorships                    | 36       |
|                                                                                 |     |
| Section 6.9  Annual and Regular Meetings                                   | 36       |
|                                                                                 |     |
| Section 6.10  Special Meetings                                             | 36       |
|                                                                                 |     |
| Section 6.11  Notice for Special Meetings                                  | 36       |
|                                                                                 |     |
| Section 6.12  Quorum                                                       | 36       |
|                                                                                 |     |
| Section 6.13  Voting                                                       | 37       |
|                                                                                 |     |
| Section 6.14  Organization                                                 | 37       |
|                                                                                 |     |
| Section 6.15  Telephone Meetings                                           | 37       |
|                                                                                 |     |
| Section 6.16  Consent by Directors Without a Meeting                       | 37       |
|                                                                                 |     |
| Section 6.17  Vacancies                                                    | 37       |
|                                                                                 |     |
| Section 6.18  Compensation                                                 | 38       |
|                                                                                 |     |
| Section 6.19  Loss of Deposits                                             | 38       |
|                                                                                 |     |
| Section 6.20  Surety Bonds                                                 | 38       |
|                                                                                 |     |
| Section 6.21  Reliance                                                     | 38       |
|                                                                                 |     |
| Section 6.22  Certain Rights of Directors, Officers,  Employees and Agents | 38       |
|                                                                                 |     |
| Section 6.23  Committees                                                   | 39       |
|                                                                                 |     |
| ARTICLE 7                                                                            |     |
| OFFICERS                                                                             | 39       |
|                                                                                 |     |
| Section 7.1  General                                                       | 39       |

 

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| ** **                                                                                    | **Page** |
|-----------------------------------------------------------------------------------------------|----------|
|                                                                                          |     |
| Section 7.2  Removal and Resignation                                                | 40       |
|                                                                                          |     |
| Section 7.3  Vacancies                                                              | 40       |
|                                                                                          |     |
| Section 7.4  Chief Executive Officer                                                | 40       |
|                                                                                          |     |
| Section 7.5  Chief Operating Officer                                                | 41       |
|                                                                                          |     |
| Section 7.6  Chief Investment Officer                                               | 41       |
|                                                                                          |     |
| Section 7.7  Chief Financial Officer                                                | 41       |
|                                                                                          |     |
| Section 7.8  Chairman of the Board                                                  | 41       |
|                                                                                          |     |
| Section 7.9  President                                                              | 41       |
|                                                                                          |     |
| Section 7.10  Vice Presidents                                                       | 41       |
|                                                                                          |     |
| Section 7.11  Secretary                                                             | 41       |
|                                                                                          |     |
| Section 7.12  Treasurer                                                             | 42       |
|                                                                                          |     |
| Section 7.13  Assistant Secretaries and Assistant  Treasurers                       | 42       |
|                                                                                          |     |
| Section 7.14  Salaries                                                              | 42       |
|                                                                                          |     |
| Section 7.15  Duties of Officers                                                    | 42       |
|                                                                                          |     |
| ARTICLE 8                                                                                     |     |
| MANAGEMENT                                                                                    | 42       |
|                                                                                          |     |
| Section 8.1  Duties of the Manager                                                  | 42       |
|                                                                                          |     |
| Section 8.2  Secondment of the Chief Executive  Officer and Chief Financial Officer | 43       |
|                                                                                          |     |
| Section 8.3  Secondment of Additional Officers                                      | 43       |
|                                                                                          |     |
| Section 8.4  Status of Seconded Officers and  Employees                             | 43       |
|                                                                                          |     |
| Section 8.5  Removal of Seconded Officers                                           | 43       |
|                                                                                          |     |
| Section 8.6  Replacement Manager                                                    | 43       |

 

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| ** **                                                           | **Page** |
|----------------------------------------------------------------------|----------|
|                                                                 |     |
| ARTICLE 9                                                            |     |
| THE MEMBERS                                                          | 44       |
|                                                                 |     |
| Section 9.1  Rights or Powers                              | 44       |
|                                                                 |     |
| Section 9.2  Annual Meetings of Members                    | 44       |
|                                                                 |     |
| Section 9.3  Special Meetings of Members                   | 44       |
|                                                                 |     |
| Section 9.4  Place of Meeting                              | 47       |
|                                                                 |     |
| Section 9.5  Notice of Meeting                             | 47       |
|                                                                 |     |
| Section 9.6  Record Date                                   | 47       |
|                                                                 |     |
| Section 9.7  Organization and Conduct                      | 48       |
|                                                                 |     |
| Section 9.8  Quorum                                        | 48       |
|                                                                 |     |
| Section 9.9  Proxies                                       | 49       |
|                                                                 |     |
| Section 9.10  Voting of Shares by Certain Holders          | 49       |
|                                                                 |     |
| Section 9.11  Notice of Member Business and  Nominations   | 49       |
|                                                                 |     |
| Section 9.12  Procedure for Election of Directors;  Voting | 52       |
|                                                                 |     |
| Section 9.13  Inspectors of Elections                      | 52       |
|                                                                 |     |
| Section 9.14  Waiver of Notice                             | 53       |
|                                                                 |     |
| Section 9.15  Remote Communication                         | 53       |
|                                                                 |     |
| Section 9.16  Member Action Without a Meeting              | 53       |
|                                                                 |     |
| Section 9.17  Return on Capital Contribution               | 53       |
|                                                                 |     |
| Section 9.18  Member Compensation                          | 53       |
|                                                                 |     |
| Section 9.19  Member Liability                             | 54       |
|                                                                 |     |
| ARTICLE 10                                                           |     |
| INVESTMENT POLICIES                                                  | 54       |

 

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| ** **                                                                             | **Page** |
|----------------------------------------------------------------------------------------|----------|
|                                                                                   |     |
| ARTICLE 11                                                                             |     |
| SEAL                                                                                   | 54       |
|                                                                                   |     |
| Section 11.1  Seal                                                           | 54       |
|                                                                                   |     |
| Section 11.2  Affixing Seal                                                  | 54       |
|                                                                                   |     |
| ARTICLE 12                                                                             |     |
| CONTRACT, LOANS, CHECKS AND  DEPOSITS                                                  | 54       |
|                                                                                   |     |
| Section 12.1  Contracts                                                      | 54       |
|                                                                                   |     |
| Section 12.2  Checks and Drafts                                              | 54       |
|                                                                                   |     |
| Section 12.3  Deposits                                                       | 55       |
|                                                                                   |     |
| ARTICLE 13                                                                             |     |
| INDEMNIFICATION                                                                        | 55       |
|                                                                                   |     |
| Section 13.1  Indemnification and Advances                                   | 55       |
|                                                                                   |     |
| Section 13.2  Insurance                                                      | 58       |
|                                                                                   |     |
| Section 13.3  Reliance; Limitations in Liability                             | 58       |
|                                                                                   |     |
| ARTICLE 14                                                                             |     |
| ACCOUNTING YEAR                                                                        | 59       |
|                                                                                   |     |
| ARTICLE 15                                                                             |     |
| TRUST CONVERSION                                                                       | 59       |
|                                                                                   |     |
| ARTICLE 16                                                                             |     |
| MEMBER VOTE REQUIRED IN CONNECTION WITH CERTAIN  BUSINESS COMBINATIONS OR TRANSACTIONS | 59       |
|                                                                                   |     |
| Section 16.1  Vote Generally Required                                        | 59       |
|                                                                                   |     |
| Section 16.2  Vote for Business Combinations                                 | 59       |
|                                                                                   |     |
| Section 16.3  Power of Continuing Directors                                  | 60       |
|                                                                                   |     |
| Section 16.4  No Effect on Fiduciary Obligations                             | 60       |
|                                                                                   |     |
| ARTICLE 17                                                                             |     |
| BOOKS AND RECORDS                                                                      | 60       |

 

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| ** **                                                                                             | **Page** |
|--------------------------------------------------------------------------------------------------------|----------|
|                                                                                                   |     |
| Section 17.1  Books and Records; Inspection by Members                                       | 60       |
|                                                                                                   |     |
| Section 17.2  Reports                                                                        | 61       |
|                                                                                                   |     |
| Section 17.3  Preparation of Tax Returns                                                     | 61       |
|                                                                                                   |     |
| Section 17.4  Tax Elections                                                                  | 62       |
|                                                                                                   |     |
| ARTICLE 18                                                                                             |     |
| AMENDMENTS                                                                                             | 62       |
|                                                                                                   |     |
| ARTICLE 19                                                                                             |     |
| RESERVED                                                                                               | 63       |
|                                                                                                   |     |
| ARTICLE 20                                                                                             |     |
| DISSOLUTION AND WINDING UP                                                                             | 63       |
|                                                                                                   |     |
| Section 20.1  Dissolution Events                                                             | 63       |
|                                                                                                   |     |
| Section 20.2  Winding Up                                                                     | 63       |
|                                                                                                   |     |
| Section 20.3  Compliance with Certain Requirements of  Regulations; Deficit Capital Accounts | 64       |
|                                                                                                   |     |
| Section 20.4  Deemed Contribution and Distribution                                           | 64       |
|                                                                                                   |     |
| Section 20.5  Rights of Members                                                              | 65       |
|                                                                                                   |     |
| Section 20.6  Notice of Dissolution/Termination                                              | 65       |
|                                                                                                   |     |
| Section 20.7  Allocations During Period of Winding Up                                        | 65       |
|                                                                                                   |     |
| Section 20.8  The Liquidator                                                                 | 65       |
|                                                                                                   |     |
| Section 20.9  Form of Liquidating Distributions                                         | 65       |
|                                                                                                   |     |
| ARTICLE 21                                                                                             |     |
| MISCELLANEOUS                                                                                          | 66       |
|                                                                                                   |     |
| Section 21.1  Addresses and Notices                                                          | 66       |
|                                                                                                   |     |
| Section 21.2  Binding Effect                                                                 | 66       |
|                                                                                                   |     |
| Section 21.3  Construction                                                                   | 66       |

 

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| ** **                                                                            | **Page** |
|---------------------------------------------------------------------------------------|----------|
|                                                                                  |     |
| Section 21.4  Time                                                          | 66       |
|                                                                                  |     |
| Section 21.5  Headings                                                      | 67       |
|                                                                                  |     |
| Section 21.6  Severability                                                  | 67       |
|                                                                                  |     |
| Section 21.7  Incorporation by Reference                                    | 67       |
|                                                                                  |     |
| Section 21.8  Variation of Terms                                            | 67       |
|                                                                                  |     |
| Section 21.9  Governing Law and Consent to  Jurisdiction/Service of Process | 67       |
|                                                                                  |     |
| Section 21.10  Waiver of Jury Trial                                         | 67       |
|                                                                                  |     |
| Section 21.11  Counterpart Execution                                        | 67       |
|                                                                                  |     |
| Section 21.12  Specific Performance                                         | 67       |

 

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ThisAMENDED AND RESTATED OPERATING AGREEMENT (the “Agreement”) shall be effective asof the 3rd day of May, 2007, was amended effective as of the 24th day of March,2009 and is entered into by KKR Financial Advisors LLC, a Delaware limitedliability company (the “Manager”), together with KKR Financial Corp., aMaryland corporation (“KKR Financial Corp.”), any other Persons who areor hereafter become Members in KKR Financial Holdings LLC or parties hereto asprovided herein. The Members hereby agree to the amendment and restatement ofthe Operating Agreement, dated as of January 17, 2007 (the “Original Agreement”),as set forth herein. Capitalized terms used in this Agreement withoutdefinition shall have the respective meanings specified in Section 1.10 and,unless otherwise specified, article and section references used herein refer toArticles and Sections of this Agreement.

 

# **ARTICLE1THE COMPANY**

# ** **

## Section 1.1 Formation.  The Company wasformed as a limited liability company under and pursuant to the provisions ofthe Act by the execution, delivery and filing of the Certificate of Formationwith the Office of the Secretary of State of Delaware and upon the terms andconditions set forth in the Original Agreement. Simultaneously with theeffectiveness of the Original Agreement and the formation of the Company, KKRFinancial Corp. was admitted as a Member of the Company. The rights andliabilities of the Members shall be as provided under the Act, the Certificateof Formation and this Agreement.

##  

## Section 1.2 Name.  The name of theCompany shall continue to be KKR Financial Holdings LLC and all business of theCompany shall be conducted in such name. The Board of Directors may change thename of the Company at any time and from time to time, which name change shallbe effective upon the filing of a certificate of amendment of the Certificateof Formation with the Secretary of State of the State of Delaware and shall notrequire an amendment to this Agreement. The Company shall notify the Members of such name change in the nextregular communication to the Members.

##  

## Section 1.3 Purpose; Powers; Prior Authorization of Actions Valid.  (a)  The purposes of the Company are (i) toconduct or promote any lawful business, purpose or activity permitted for alimited liability company of the State of Delaware under the Act, (ii) subjectto clause (i), to make such investments and engage in such activities as theBoard of Directors may approve, and (iii) to engage in any and allactivities related or incidental to the purposes set forth in clauses (i) and(ii).

##  

### (b)   The Company has the power to do any and all acts necessary,appropriate, proper, advisable, incidental or convenient to or in furtheranceof the purposes of the Company set forth in this Section 1.3 and has, withoutlimitation, any and all powers that may be exercised on behalf of the Companyby the Board of Directors pursuant to Article 6 hereof.

###  

### (c)   Notwithstanding anything in this Agreement to the contrary, anyactions and things (including the entering into and performance of anyagreements or other documents) properly authorized, in the name and on behalfof the Company, by the Board of Directors as constituted at the time of anysuch authorization, whether prior to the date of this Agreement 

 

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###  

### (including under the Original Agreement) orunder and in accordance with this Agreement (or the Original Agreement), were,are and shall continue to be valid and duly authorized, and the Company shallcontinue to have the power and authority to take and do all such actions andthings (including to enter into and perform all such agreements or otherdocuments), whether or not such actions or things have already been taken ordone (or such agreements or other documents entered into and/or performed), andregardless of whether the composition of the Board of Directors has changed,whether the Original Agreement or this Agreement has been amended or otherwiseprior to the actual taking or doing of any such actions or things (includingthe entering into or performance of any such documents) by the Company.

###  

## Section 1.4 Power of Attorney.  EachMember hereby constitutes and appoints each of the Chief Executive Officer, thePresident and the Secretary and, if a Liquidator shall have been appointed bythe Board of Directors, the Liquidator (and any successor to the Liquidator bymerger, transfer, assignment, election or otherwise) and each of theirauthorized officers and attorneys-in-fact, as the case may be, with full powerof substitution, as its, his or her true and lawful agent and attorney-in-fact,with full power and authority in its, his or her name, place and stead, to:

##  

### (a)   execute, swear to, acknowledge, deliver, file and record in theappropriate public offices;

###  

#### (i)         all certificates,documents and other instruments (including the Certificate of Formation and allamendments or restatements hereof or thereof) that the Chief Executive Officer,President or Secretary, or the Liquidator, determines to be necessary orappropriate to form, qualify or continue the existence or qualification of theCompany as a limited liability company in the State of Delaware and in allother jurisdictions in which the Company may conduct business or own property;

####  

#### (ii)        all certificates,documents and other instruments that the Chief Executive Officer, President orSecretary, or the Liquidator, determines to be necessary or appropriate toreflect, in accordance with its terms, any amendment, change, modification orrestatement of this Agreement;

####  

#### (iii)       all certificates,documents and other instruments (including conveyances and a certificate ofcancellation) that the Board of Directors or the Liquidator determines to benecessary or appropriate to reflect the dissolution, liquidation andtermination of the Company pursuant to the terms of this Agreement;

####  

#### (iv)       all certificates,documents and other instruments relating to the admission, withdrawal, removalor substitution of any Member pursuant to, or other events described in,Articles 2 or 20;

####  

#### (v)        all certificates,documents and other instruments relating to the determination of the rights,preferences and privileges of any class of Shares issued pursuant to Section 2.1;and

 

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####  

#### (vi)       all certificates,documents and other instruments (including merger agreements and a certificateof merger) relating to a merger, consolidation or conversion of the Company.

####  

### (b)   execute, swear to, acknowledge, deliver, file and record allballots, consents, approvals, waivers, certificates, documents and otherinstruments that the Board of Directors or the Liquidator determines to benecessary or appropriate to (i) make, evidence, give, confirm or ratifyany vote, consent, approval, agreement or other action that is made or given bythe Members hereunder or is consistent with the terms of this Agreement or (ii) effectuatethe terms or intent of this Agreement; *provided*, thatwhen required by Article 16 or any other provision of this Agreement thatestablishes a percentage of the Members or of the Members holding any class orseries of Shares required to take any action, the Chief Executive Officer,President or Secretary, or the Liquidator or their authorized officers orattorneys-in-fact, may exercise the power of attorney made in this Section 1.4only after the necessary vote, consent, approval, agreement or other action ofthe Members or of the Members holding such class or series of Shares, asapplicable.

###  

Nothingcontained in this Section 1.4 shall be construed as authorizing the ChiefExecutive Officer, President or Secretary, or the Liquidator, to amend, changeor modify this Agreement except in accordance with Article 18 or as may beotherwise expressly provided for in this Agreement.

 

### The foregoing power of attorney is hereby declaredto be irrevocable and a power coupled with an interest, and it shall surviveand, to the maximum extent permitted by law, not be affected by the subsequentdeath, incompetency, disability, incapacity, dissolution, bankruptcy ortermination of any Member and the transfer of all or any portion of such Member’sShares and shall extend to such Member’s heirs, successors, assigns andpersonal representatives.  Each suchMember hereby agrees to be bound by any representation made by the ChiefExecutive Officer, President or Secretary, or the Liquidator or theirauthorized officers or attorneys-in-fact, acting in good faith pursuant to suchpower of attorney; and each such Member, to the maximum extent permitted bylaw, hereby waives any and all defenses that may be available to contest,negate or disaffirm the action of the Chief Executive Officer, President orSecretary, or the Liquidator or their authorized officers or attorneys-in-fact,taken in good faith under such power of attorney in accordance with this Section 1.4.Each Member shall execute and deliver to the Chief Executive Officer, Presidentor Secretary, or the Liquidator, within 15 days after receipt of the requesttherefor, such further designation, powers of attorney and other instruments asany of such officers or the Liquidator determines to be necessary orappropriate to effectuate this Agreement and the purposes of the Company.

###  

## Section 1.5 Principal Place of Business; Registered Office; Registered Agent.  The principal executive offices of theCompany are at 555 California Street, 50th Floor, SanFrancisco, CA 94104. The Board of Directors may change the principal executiveoffices of the Company to any other place within or without the State ofDelaware. The address of the Company’s registered office in the State of Delawareis Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,County of New Castle. The name of its registered agent for service of processin the State of Delaware at such address is The Corporation Trust Company orany successor registered agent for service of process as shall be appointed bythe Board of 

 

3

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##  

## Directors in accordance with the Act. The Company may have suchoffices, either within or without the State of Delaware, as the Board ofDirectors may designate or as the business of the Company may from time to timerequire.

##  

## Section 1.6 Term.  The term of theCompany commenced on the date the Certificate of Formation was filed in theOffice of the Secretary of State of the State of Delaware in accordance withthe Act and shall continue until the winding up of the Company is completedfollowing a Dissolution Event, as provided in Article 20 and theCertificate of Formation is cancelled as provided in the Act.

##  

## Section 1.7 Filings.

##  

### (a)   The Board of Directors shall take any and all other actions, asmay be reasonably necessary, to perfect and maintain the status of the Companyas a limited liability company or similar type of limited liability entityunder the laws of the State of Delaware and under the laws of any otherjurisdictions in which the Company engages in business, including causing anyofficers of the Company as an “authorized person” of the Company within themeaning of the Act to prepare, execute and file such amendments to theCertificate of Formation and such other certificates, documents, instrumentsand publications as may be permitted or required by law, including, withoutlimitation, action to reflect:

###  

#### (i)         a change in theCompany name; or

####  

#### (ii)        a correction of falseor erroneous statements in the Certificate of Formation or any othercertificate to accurately represent the information contained therein.

####  

### (b)   Upon the dissolution and completion of the winding up of theCompany in accordance with Article 20, the Board of Directors or theLiquidator shall cause to promptly be executed, delivered and filed aCertificate of Cancellation in accordance with the Act and the laws of anyother jurisdiction in which the Board of Directors or the Liquidator deems suchfiling necessary or advisable.

###  

## Section 1.8 Title to Property.  AllProperty owned by the Company shall be owned by the Company as an entity and noMember shall have any ownership interest in such Property in its individualname, and each Member’s interest in the Company shall be personal property forall purposes. Title to any or all of the Company Property may be held in thename of the Company or one or more nominees, as the Board of Directors maydetermine.

##  

## Section 1.9 Payments of Individual Obligations.  The Company’s credit and assets shall be usedsolely for the benefit of the Company, and no asset of the Company shall beSold or encumbered for, or in payment of, any individual obligation of anyMember.

##  

## Section 1.10 Definitions.  For allpurposes of this Agreement (as defined herein), except as otherwise expresslyprovided or unless the context otherwise requires:

##  

#### (i)         the terms defined inthis Article have the meanings assigned to them in this Article andinclude the plural as well as the singular;

 

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####  

#### (ii)        unless the contextotherwise requires, any reference to an “Article,” “Section” or an “Exhibit”refers to an Article, Section or an Exhibit, as the case may be, of thisAgreement; and

####  

#### (iii)       the words “herein,” “hereinafter,”“hereof,” “hereto” and “hereunder” and other words of similar import refer tothis Agreement as a whole and not to any particular Article, Section orother subdivision:

####  

***“Act”***means the Delaware Limited Liability Company Act, 6Del. C. §§ 18-101 *et seq.*, asamended from time to time (or any corresponding provisions of succeeding law).

 

***“Adjusted Capital Account Deficit”***means, with respect to anyMember, the deficit balance, if any, in such Member’s Capital Account as of theend of the relevant Taxable Year, after giving effect to the followingadjustments:

 

(i) credit to such Capital Account anyamounts which such Member is actually obligated or is deemed to be obligated torestore pursuant to the penultimate sentence in each of RegulationsSections 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(ii) debit to such Capital Account theitems described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4),1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).

 

The foregoing definition of “Adjusted CapitalAccount Deficit” is intended to comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) andshall be interpreted consistently therewith.

 

***“Affiliate”***means, with respect to any Person, (i) anyPerson directly or indirectly controlling, controlled by or under commoncontrol with such Person or (ii) any officer, director, general partner,member or trustee of such Person. For purposes of this definition, the terms ***“controlling,” “controlled by”***or***“under common controlwith”***shall mean, with respect to any Persons, the possession,direct or indirect, of the power to direct or cause the direction of themanagement and policies of a Person, whether through the ownership of votingsecurities, by contract or otherwise, or the power to elect at least 50% of thedirectors, managers, general partners or Persons exercising similar authoritywith respect to such Person.

 

“***Agreement”***has themeaning set forth in the introductory paragraph hereof.

 

***“Applicable Listing Rules”***means the applicable rules,if any, of the principal National Securities Exchange on which the Shares arelisted or quoted, as the case may be.

 

***“Associate”***has the meaning ascribed to such term in Rule 12b-2of the rules promulgated under the Exchange Act.

 

***“Beneficial Ownership”*** meansownership of Shares by a Person, whether the interest in the Shares is helddirectly or indirectly (including by a nominee), and shall include intereststhat would be treated as owned through the application of Section 544 ofthe Code, as modified by Section 856(h)(1)(B) of the Code. The terms***“Beneficial Owner,” “Beneficially Owns”***and ***“Beneficially Owned”*** shall have thecorrelative meanings.

 

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***“Board”***or ***“Board of Directors”***means the Board of Directors referredto in Article 6.

 

***“Business Combination”***means:

 

(i)  any merger or consolidation of theCompany or any Subsidiary thereof with (A) an Interested Member, or (B) anyother Person (whether or not itself an Interested Member) that is, or aftersuch merger or consolidation would be, an Affiliate or Associate of anInterested Member; or

 

(ii)  any sale, lease, exchange,mortgage, pledge, transfer or other disposition (in one transaction or a seriesof transactions) to or with, or proposed by or on behalf of, an InterestedMember or an Affiliate or Associate of an Interested Member of any property orassets of the Company or any Subsidiary thereof having an aggregate Fair MarketValue as of the date of the consummation of the transaction giving rise to theBusiness Combination of not less than 10% of the Net Investment Value as ofsuch date; or

 

(iii)  the issuance or transfer by theCompany or any Subsidiary thereof (in one transaction or a series oftransactions) of any securities of the Company or any Subsidiary thereof to, orproposed by or on behalf of, an Interested Member or an Affiliate or Associateof an Interested Member in exchange for cash, securities or other property (ora combination thereof) having an aggregate Fair Market Value as of the date ofthe consummation of the transaction giving rise to the Business Combination ofnot less than 10% of the Net Investment Value as of such date; or

 

(iv)  any spin-off or split-up of anykind of the Company or any Subsidiary thereof, proposed by or on behalf of anInterested Member or any of its Affiliates or Associates; or

 

(v)  any reclassification of the Sharesor securities of a Subsidiary of the Company (including any reverse split ofShares or such securities) or recapitalization of the Company or suchSubsidiary, or any merger or consolidation of the Company or such Subsidiarywith any other Subsidiary thereof, or any other transaction (whether or notwith or into or otherwise involving an Interested Member), that has the effect,directly or indirectly, of increasing the proportionate share of (A) OutstandingShares or such securities or securities of such Subsidiary which arebeneficially owned by an Interested Member or any of its Affiliates orAssociates or (B) any securities of the Company or such Subsidiary thatare convertible into or exchangeable for Shares or such securities of suchSubsidiary, that are directly or indirectly owned by an Interested Member orany of its Affiliates or Associates; or

 

(vi)  any agreement, contract or otherarrangement providing for any one or more of the actions specified in clauses (i)through (v) above.

 

***“Business Day”***means any day other than aSaturday, a Sunday or a day on which banks in The City of New York arerequired, permitted or authorized, by applicable law or executive order, to beclosed for regular banking business.

 

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***“Capital Account”***means, with respect to anyMember, the Capital Account established and maintained for such Member by theCompany in accordance with the provisions of Regulations Section 1.704-1(b)(2)(iv) and,to the extent consistent with such regulation, the following provisions:

 

(i)  to each Member’s Capital Accountthere shall be credited (A) such Member’s Capital Contributions and (B) suchMember’s distributive share of Profits and any items in the nature of income orgain which are specially allocated pursuant to Sections 4.3 or 4.4;

 

(ii)  to each Member’s Capital Accountthere shall be debited (A) the amount of money and the Gross Asset Valueof any Property distributed to such Member pursuant to any provision of thisAgreement (net of any liabilities relating to such Property), and (B) suchMember’s distributive share of Losses and any items in the nature of expensesor losses which are specially allocated pursuant to Sections 4.3 or 4.4;

 

(iii)  in the event Shares are Sold inaccordance with the terms of this Agreement, the transferee shall succeed tothe Capital Account of the transferor to the extent it relates to the Sold Shares;and

 

(iv)  in determining the amount of anyliability for purposes of subparagraphs (i) and (ii) above, thereshall be taken into account Section 752(c) of the Code and any otherapplicable provisions of the Code and the Regulations.

 

The foregoing provisions and the otherprovisions of this Agreement relating to the maintenance of Capital Accountsare intended to comply with Regulations Section 1.704-1(b)(2)(iv) andshall be interpreted and applied in a manner consistent with such Regulations.In the event the Manager shall determine that it is prudent to modify themanner in which the Capital Accounts or any debits or credits thereto(including, without limitation, debits or credits relating to liabilities whichare secured by contributed or distributed property or which are assumed by theCompany or any Members) are computed in order to comply with such Regulations,the Manager may make such modification; *provided*,that it is not likely to have a material effect on the amounts distributed toany Person pursuant to Article 20 upon the dissolution of the Company. TheManager also shall (i) make any adjustments that are necessary orappropriate to maintain equality among the Capital Accounts of the Members andthe amount of capital reflected on the Company’s balance sheet, as computed forbook purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),and (ii) make any appropriate modifications in the event unanticipatedevents might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).When the Company’s property is revalued, the Capital Accounts of the Membersshall be adjusted in accordance with Regulations Sections 1.704-1(b)(2)(iv)(f) and(g), which generally require such Capital Accounts to be adjusted to reflectthe manner in which the unrealized gain or loss inherent in such property (thathas not been reflected in the Capital Accounts previously) would be allocatedamong the Members pursuant to Section 4.2 if there were a taxabledisposition of such property for its fair market value (as determined by theManager, in its sole and absolute discretion, and taking into account Section 7701(g) ofthe Code) on the date of the revaluation.

 

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***“Capital Contributions”***means, with respect to anyMember, the amount of money and the initial Gross Asset Value of any Property(other than money) net of any liabilities relating to such Property contributedto the Company with respect to the Shares of the Company held or subscribed forby such Member.

 

***“Cash Available for Distribution”***means, for any period, theamount determined by the Board of Directors in its sole discretion.

 

***“Certificate”*****means a certificate representing Sharessubstantially in the form attached hereto as Exhibit A.

 

***“Certificate of Cancellation”***means a certificate ofcancellation of the Certificate of Formation filed in accordance with 6 Del. C.§ 18-203.

 

***“Certificate of Formation”***means the certificate offormation of the Company filed with the Secretary of State of the State ofDelaware pursuant to the Act on January 17, 2007, as originally executedand amended, modified, supplemented or restated from time to time.

 

***“Charitable Beneficiary”*** means one ormore beneficiaries of the Trust as determined pursuant to Section 3.2(f); *provided* that each such organization must be described in Section 501(c)(3) ofthe Code and contributions to each such organization must be eligible fordeduction under one of Sections 170(b)(1)(A), 2055 and 2522 of the Code.

 

***“Charitable Trust”*** means anytrust provided for in Section 3.2(a).

 

***“Chief Executive Officer”***means the Chief ExecutiveOfficer of the Company, including any interim Chief Executive Officer of theCompany, with such powers and duties as are set forth in Section 7.4.

 

***“Chief Financial Officer”***means the Chief FinancialOfficer of the Company, including any interim Chief Financial Officer of theCompany, with such powers and duties as are set forth in Section 7.7.

 

***“Chief Investment Officer”*** means theChief Investment Officer of the Company, including any interim Chief InvestmentOfficer of the Company, with such powers and duties as are set forth in Section 7.6.

 

***“Chief Operating Officer”*** means theChief Operating Officer of the Company, including any interim Chief OperatingOfficer of the Company, with such powers and duties as are set forth in Section 7.5.

 

***“Closing Price”*** on any dateshall mean the Fair Market Value for such Shares.

 

***“Code”***means the United States Internal Revenue Code of1986, as amended and in effect from time to time. Any reference herein to aspecific section of the Code shall be deemed to include a reference to anycorresponding provision of law in effect in the future.

 

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***“Commission”*****means the U.S. Securities and Exchange Commission orany successor thereto.

 

***“Common Shares”*** means anyShares that are not Preferred Shares.

 

***“Company****”*means KKR Financial Holdings LLC, the Delaware limited liabilitycompany formed pursuant to the Original Agreement and the Certificate ofFormation, and continued pursuant to this Agreement.

 

***“Company Minimum Gain”*****has the same meaning as the term “partnershipminimum gain” in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).

 

***“Constructive Ownership”*** means ownershipof Shares by a Person, whether the interest in the Shares is held directly orindirectly (including by a nominee), and shall include interests that would betreated as owned through the application of Section 318(a) of theCode, as modified by Section 856(d)(5) of the Code. The terms ***“Constructive Owner,” “Constructively Owns”***and ***“Constructively Owned”*** shall havethe correlative meanings.

 

***“Continuing Director”***means (i) any Directorof the Company who (A) is neither the Interested Member involved in theBusiness Combination as to which a determination of Continuing Directors isprovided hereunder, nor an Affiliate, Associate, employee, agent or nominee ofsuch Interested Member, or a relative of any of the foregoing, and (B) wasa member of the Board of Directors prior to the time that such InterestedMember became an Interested Member, or (ii) any successor of a ContinuingDirector described in clause (i) above who is recommended or elected tosucceed a Continuing Director by the affirmative vote of a majority ofContinuing Directors then on the Board of Directors.

 

***“Controlling Person”*** means a Personwho has discretionary authority or control with respect to the assets of theCompany or who provided investment advice for a fee (direct or indirect) with respectto such assets, and any affiliate of such Person.

 

***“Debt”*****means (i) anyindebtedness for borrowed money or the deferred purchase price of property asevidenced by a note, bonds or other instruments, (ii) obligations aslessee under capital leases, (iii) obligations secured by any mortgage,pledge, security interest, encumbrance, lien or charge of any kind existing onany asset owned or held by the Company, whether or not the Company has assumedor become liable for the obligations secured thereby, (iv) any obligationunder any interest rate swap agreement, (v) accounts payable, and (vi) obligationsunder direct or indirect guarantees of (including obligations, contingent orotherwise, to assure a creditor against loss in respect of) indebtedness or obligationsof the kinds referred to in clauses (i), (ii), (iii), (iv) and (v) above;*provided*, that Debt shall notinclude obligations in respect of any accounts payable that are incurred in theordinary course of the Company’s business and are not delinquent or are beingcontested in good faith by appropriate proceedings.

 

***“DGCL”*****means theDelaware General Corporation Law, 8 Del. C. §§ 101 *et seq*., as amended from time to time (or any correspondingprovisions of succeeding law).

 

***“Director”*** means a memberof the Board of Directors.

 

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***“Disinterested Director”***means a Director of theCompany who is not and was not a party to the proceeding or matter in respectof which indemnification is sought by the claimant.

 

***“Dissolution Event”***has the meaning set forth inSection 20.1.

 

***“DistributableAmount”*** has the meaning set forth in Section 5.2.

 

***“Effective Date”***means January 17, 2007,being the date of the filing of the Certificate of Formation.

 

***“Excepted Holder”*** means a Personfor whom an Excepted Holder Limit is created by this Agreement or by the Boardof Directors pursuant to Section 3.1(g).

 

***“Excepted Holder Limit”*** means,provided that the affected Excepted Holder agrees to comply with therequirements established by this Agreement or by the Board of Directorspursuant to Section 3.1(h) and subject to adjustment pursuant to Section 3.1(h),the percentage limit established for an Excepted Holder by this Agreement or bythe Board of Directors pursuant to Section 3.1(h).

 

***“Exchange Act”***means the SecuritiesExchange Act of 1934, as amended.

 

***“Fair Market Value”***means, as of any date:

 

(i)  in the case of any equitysecurities, on any date, the last reported sale price for such equitysecurities, regular way, or, in case no such sale takes place on such day, theaverage of the closing bid and asked prices, regular way, for such equitysecurities, in either case as reported in the principal consolidatedtransaction reporting system with respect to securities listed or admitted totrading on the NYSE or, if such equity securities are not listed or admitted totrading on the NYSE, as reported on the principal consolidated transactionreporting system with respect to securities listed on the principal NationalSecurities Exchange on which such equity securities are listed or admitted totrading or, if such equity securities are not listed or admitted to trading onany National Securities Exchange, the last quoted price, or, if not so quoted,the average of the high bid and low asked prices in the over-the-counter marketas reported by the principal automated quotation system that may then be in useor, if such equity securities are not quoted by any such organization, theaverage of the closing bid and asked prices as furnished by a professionalmarket maker making a market in such equity securities selected by the Board ofDirectors; or

 

(ii)  in the event that no trading priceis available for such equity securities or in the case of any other Property,the fair market value of such equity securities or such Property as of suchdate as determined in good faith by the Board of Directors.

 

***“Fiscal Quarter”***means the Company’s fiscalquarter for purposes of its reporting obligations under the Exchange Act.

 

***“Fiscal Year”***means the Company’s fiscalyear for purposes of its reporting obligations under the Exchange Act.

 

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***“Future Investments”***means contractualcommitments to invest represented by definitive agreements.

 

***“GAAP”***means generally accepted accounting principles ineffect in the United States, consistently applied.

 

***“Gross Asset Value”***means, with respect to anyasset, the asset’s adjusted basis for U.S. federal income tax purposes, exceptas follows:

 

(i)  the initial Gross Asset Value ofany asset contributed by a Member to the Company shall be the gross fair marketvalue of such asset, as determined by the Manager; provided that the initialGross Asset Value of the common stock of KKR Financial Corp. treated ascontributed to the Company for federal income tax purposes pursuant to themerger of KKR Financial Merger Corp., a Maryland corporation, with and into KKRFinancial Corp. pursuant to the Merger Agreement will be the Fair Market Valueof such common stock as of the merger;

 

(ii)  the Gross Asset Values of allCompany assets may be adjusted by the Manager to equal their respective grossfair market values (taking Section 7701(g) of the Code into account),as determined by the Manager as of the following times: (A) theacquisition of an additional interest in the Company by any new or existingMember in exchange for more than a *de minimis*Capital Contribution; (B) the distribution by the Company to a Member ofmore than a *de minimis* amount of Company Property asconsideration for an interest in the Company; or (C) the liquidation ofthe Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g) (otherthan as a result of a termination of the Company under Section 708(b)(1)(B) ofthe Code); *provided*, that anadjustment described in clauses (A) and (B) of this subparagraph (ii) shallbe made only if the Manager reasonably determines that such adjustment isnecessary to reflect the relative economic interests of the Members in theCompany;

 

(iii)  the Gross Asset Value of any itemof Company assets distributed to any Member shall be adjusted to equal thegross fair market value (taking Section 7701(g) of the Code intoaccount) of such asset on the date of distribution, as determined by theManager; and

 

(iv)   the Gross Asset Values ofCompany assets shall be increased (or decreased) to reflect any adjustments tothe adjusted basis of such assets pursuant to Section 734(b) or Section 743(b) ofthe Code, but only to the extent that such adjustments are taken into accountin determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) andsubparagraph (vi) of the definition of “Profits” and “Losses”; *provided*, *however*,that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv) tothe extent that an adjustment pursuant to subparagraph (ii) is required inconnection with a transaction that would otherwise result in an adjustmentpursuant to this subparagraph (iv).

 

If the Gross Asset Value of an asset has beendetermined or adjusted pursuant to subparagraph (ii) or (iv), such GrossAsset Value shall thereafter be adjusted by depreciation taken into accountwith respect to such asset for purposes of computing Profits and Losses.

 

***“Independent Director”***means a Director who (i) (a) isnot an officer or employee of the Company, or an officer, Director or employeeof any Subsidiary of the Company, (b) was not appointed as a Directorpursuant to the terms of the Management 

 

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Agreement, and (c) forso long as the Management Agreement is in effect, is not affiliated with theManager or any of its Affiliates, and (ii) who satisfies the independencerequirements under the Applicable Listing Rules as determined by the Boardof Directors.

 

***“Initial Board”***has the meaning set forth inSection 6.1.

 

***“Initial Director”***has the meaning set forth inSection 6.1.

 

***“Interested Member”***means any Person (other thanthe Manager, the Company or any Subsidiary of the Company, any employee benefitplan maintained by the Company or any Subsidiary thereof or any trustee orfiduciary with respect to any such plan when acting in such capacity) that:

 

(i)  is, or was at any time within thethree-year period immediately prior to the date in question, the Owner of 15%or more of the then Outstanding Shares and who did not become the Owner of suchamount of Shares pursuant to a transaction that was approved by the affirmativevote of a majority of the Board of Directors; or

 

(ii)  is an assignee of, or hasotherwise succeeded to, any Shares of which an Interested Member was the Ownerat any time within the three-year period immediately prior to the date inquestion, if such assignment or succession occurred in the course of atransaction, or series of transactions, not involving a public offering withinthe meaning of the Securities Act.

 

***“Liquidation Period”***has the meaning set forth inSection 20.7.

 

***“Liquidator”***means a Person appointed by the Board ofDirectors to oversee the winding up of the Company, or a liquidating trustee.

 

***“Losses”***has the meaning set forth in the definitionof “***Profits***”and “***Losses***”below.

 

***“Management Agreement”***means the ManagementAgreement, dated as of the date hereof, as may be amended from time to time,entered into by and among the Company, KKR Financial Corp. and the Manager.

 

***“Manager”*** has themeaning set forth in the introductory paragraph hereof.

 

***“Market Price”*** means, withrespect to any class or series of outstanding Shares, the Closing Price forsuch Shares on such date.

 

***“Market Value”***means, as of any date, the *product*of (1) the average number ofShares issued and Outstanding, other than treasury Shares, during the lastfifteen Business Days of the most recently completed Fiscal Quarter as of suchdate *multiplied*by (2) thevolume weighted average trading price per Share as determined by reference tothe relevant securities exchange identified in clause (i) of thedefinition of Fair Market Value, over such fifteen Business Days.

 

***“Member”***means, as of any date, any holder of Shares,as of such date.

 

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***“******Member******Loan”*** means a loanfrom the Company to the Member on the day the Company pays over the excess ofthe Withheld Amount over the Distributable Amount to a taxing authority.

 

***“Member Nonrecourse Debt”***has the same meaning as theterm “partner nonrecourse debt” in Regulations Section 1.704-2(b)(4).

 

***“Member Nonrecourse Debt Minimum Gain”***means anamount, with respect to each Member Nonrecourse Debt, equal to the CompanyMinimum Gain that would result if such Member Nonrecourse Debt were treated asa Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3).

 

***“Member Nonrecourse Deductions”***has the same meaning as theterm “partner nonrecourse deductions” in Regulations Sections 1.704-2(i)(1) and1.704-2(i)(2).

 

***“Merger Agreement”***means theAgreement and Plan of Merger, dated as of February 9, 2007, by and amongthe Company, KKR Financial Corp. and KKR Financial Merger Corp., a Marylandcorporation.

 

***“National Securities Exchange”*** means anexchange registered with the Commission under Section 6(a) of theExchange Act.

 

***“Net Investment Value”***means, as of any date, the *sum*of:

 

(i)  the Market Value as of such date; *plus*

 

(ii)  the amount of any borrowings(other than intercompany borrowings) of the Company and its Subsidiaries (butnot including borrowings on behalf of any Subsidiary of such Subsidiaries) asof such date; *plus*

 

(iii)  the value of Future Investmentsof the Company and/or any of its Subsidiaries other than cash or cashequivalents, as calculated by the Manager and approved by a majority of theContinuing Directors as of such date; *provided*,that such Future Investments have not been outstanding for more than twoconsecutive full Fiscal Quarters as of such date; *less*

 

(iv)  the aggregate amount held by theCompany and its Subsidiaries in cash or cash equivalents (but not includingcash or cash equivalents held specifically for the benefit of any Subsidiary ofsuch Subsidiaries) as of such date.

 

***“Net Long Term Capital Gain”***has the meaning set forth inSection 1222(7) of the Code.

 

***“Nonrecourse Deductions”***has the meaning set forth inRegulations Section 1.704-2(b)(1).

 

***“Nonrecourse Liability”***has the meaning set forth inRegulations Section 1.704-2(b)(3).

 

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***“NYSE”***means the New York Stock Exchange or any successorthereto.

 

***“Original Agreement”***has the meaning set forth inthe introductory paragraph hereof.

 

***“Outstanding”***means, as of any date, withrespect to any security theretofore issued by the Company, except:

 

(i)  such securities as represented bycertificates or electronic positions evidencing such securities that have beencanceled or delivered for cancellation; and

 

(ii)  such security as represented bycertificates or electronic positions that have been exchanged for or in lieu ofwhich other securities have been executed and delivered pursuant to Section 2.6.

 

***“Owner”***has the meaning ascribed to the term beneficialowner in Rule 13d-3 of the Rules and Regulations promulgated underthe Exchange Act.

 

***“Percentage Interest”***means, with respect to anyMember as of any date, the ratio (expressed as a percentage) of the number ofShares held by such Member on such date relative to the aggregate number ofShares then Outstanding as of such date.

 

***“Person”*** shall mean anindividual, limited liability company, partnership (whether general orlimited), estate, trust (including a trust qualified under Sections 401(a) or501(c)(17) of the Code), a portion of a trust permanently set aside for or tobe used exclusively for the purposes described in Section 642(c) ofthe Code, association (including any group, organization, co-tenancy, plan,board, council or committee), private foundation within the meaning of Section 509(a) ofthe Code, joint stock company, estate, corporation, government (including acounty, state, country or any other governmental subdivision, agency orinstrumentality), custodian, nominee or any other individual or entity (orseries thereof) in its own or any representative capacity, in each case,whether domestic or foreign, and, solely for purposes of Article 3, alsoincludes a “group” as that term is used for purposes of Section 13(d)(3) ofthe Exchange Act and a group to which an Excepted Holder Limit applies.

 

***“Preferred Shares”***means a classof Shares that entitles the Record Holders thereof to a preference or priorityover the Record Holders of any other class of Shares in (i) the right toshares Profits or Losses or items thereof, (ii) the right to share inCompany distributions, and/or (iii) rights upon dissolution or liquidationof the Company.

 

***“Profits”*****and*****“Losses”*****mean, for eachTaxable Year, an amount equal to the Company’s taxable income or loss for suchTaxable Year, determined in accordance with Section 703(a) of theCode (for this purpose, all items of income, gain, loss or deduction requiredto be stated separately pursuant to Section 703(a)(1) of the Codeshall be included in taxable income or loss), with the following adjustments(without duplication):

 

(i)  any income of the Company that isexempt from U.S. federal income tax and not otherwise taken into account incomputing Profits or Losses pursuant to this definition of “Profits” and “Losses”shall be added to such taxable income or loss;

 

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(ii)  any expenditures of the Companydescribed in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B)of the Code expenditures pursuant to Regulations Section 1.704-1(b)(2)(iv)(i) andnot otherwise taken into account in computing Profits or Losses pursuant tothis definition of “Profits” and “Losses” shall be subtracted from such taxableincome or loss;

 

(iii)  in the event the Gross AssetValue of any Company asset is adjusted pursuant to subparagraph (ii) or (iii) ofthe definition of Gross Asset Value, the amount of such adjustment shall be treatedas an item of gain (if the adjustment increases the Gross Asset Value of theasset) or an item of loss (if the adjustment decreases the Gross Asset Value ofthe asset) from the disposition of such asset and shall be taken into accountfor purposes of computing Profits or Losses;

 

(iv)  gain or loss resulting from anydisposition of Property with respect to which gain or loss is recognized forU.S. federal income tax purposes (or would be recognized for U.S. federalincome tax purposes if the adjusted tax basis differed from the amount realizedin connection with such disposition) shall be computed by reference to theGross Asset Value of the Property disposed of, notwithstanding that theadjusted tax basis of such Property differs from its Gross Asset Value;

 

(v)  to the extent an adjustment to theadjusted tax basis of any Company asset pursuant to Section 734(b) ofthe Code is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4),to be taken into account in determining Capital Accounts as a result of adistribution other than in liquidation of a Member’s interest in the Company,the amount of such adjustment shall be treated as an item of gain (if theadjustment increases the basis of the asset) or loss (if the adjustmentdecreases such basis) from the disposition of such asset and shall be takeninto account for purposes of computing Profits or Losses; and

 

(vi)  notwithstanding any otherprovision of this definition, any items which are specially allocated pursuantto Sections 4.3 or 4.4 shall not be taken into account in computingProfits or Losses.

 

The amounts of the items of Company income,gain, loss or deduction available to be specially allocated pursuant toSections 4.3 and 4.4 shall be determined by applying rules analogousto those set forth in subparagraphs (i) through (v) above.

 

***“Prohibited Owner”*** means, with respect to any purported Transfer, anyPerson who, but for the provisions of Section 3.1(a), would BeneficiallyOwn or Constructively Own Shares in violation of the provisions of Section 3.1(a)(i),and if appropriate in the context, shall also mean any Person who would havebeen the Record Holder of the Shares that the Prohibited Owner would haveowned.

 

***“Property”*****means all realand personal property acquired by the Company, including cash, and anyimprovements thereto, and shall include both tangible and intangible property.

 

***“Record Date”*****means the dateestablished by the Board of Directors for determining (a) the identity ofthe Record Holders entitled to notice of, or to vote at, any meeting

 

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of Members or entitled toexercise rights in respect of any lawful action of Members or (b) theidentity of Record Holders entitled to receive any report or distribution or toparticipate in any offer.

 

***“RecordHolder”*** means (a) with respect to any Common Shares,the Person in whose name such Shares are registered on the books of theTransfer Agent as of the opening of business on a particular Business Day, and (b) withrespect to any Shares of any other class, the Person in whose name such Sharesare registered on the books that the Company has caused to be kept as of theopening of business on such Business Day.

 

***“Register”*****has the meaningset forth in Section 2.5(a).

 

***“Regulations”*****means the income tax regulations, includingtemporary regulations, promulgated under the Code, as such regulations areamended from time to time.

 

***“Regulatory Allocations”*****has the meaning set forth in Section 4.4.

 

***“REIT”*** means a realestate investment trust within the meaning of Section 856 of the Code.

 

***“Repurchase Date”*****has the meaning set forth in Section 2.3.

 

***“Restriction Termination Date”*** means the first day after the Effective Date onwhich the Company determines pursuant to Section 3.6 that it is no longerin the best interests of KKR Financial Corp. or any other Subsidiary of theCompany that has elected to be taxed as a REIT, as applicable, to attempt to,or continue to, qualify as a REIT or that compliance with the restrictions andlimitations on Beneficial Ownership, Constructive Ownership and Transfers ofShares set forth herein are no longer required in order for KKR Financial Corp.or any other Subsidiary of the Company that has elected to be taxed as a REIT,as applicable, to qualify as a REIT.

 

***“Rules and Regulations”*****means the rules and regulations promulgatedunder the Exchange Act or the Securities Act.

 

***“Sale”***means, any voluntary or involuntary sale, transfer, pledge orhypothecation or other disposition.  Theterms “**Sell**” or “**Sold**”shall have the correlative meanings.

 

***“Secretary”*****means the Secretary of the Company, with such powersand duties as set forth in Section 7.11.

 

***“Securities Act”*****means the Securities Act of 1933, as amended.

 

***“Share Designation”*** has the meaning set forth in Section 2.1(b).

 

***“Share Ownership Limit”*** means 9.8% in value or in number, whichever ismore restrictive, of the outstanding Shares of the Company excluding anyoutstanding Shares not treated as outstanding for U.S. federal income taxpurposes.

 

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***“Shares”***means a share issued by the Company thatevidences the ownership interest of a Member in the Company and includes anyand all benefits to which such Member is entitled as provided in thisAgreement, together with all obligations of such Member to comply with theterms and provisions of this Agreement. Shares may be Common Shares or Preferred Shares, and may be issued indifferent classes or series.

 

***“Subsidiary”*****means, with respect to any Person, any corporation,company, joint venture, limited liability company, association or other Personin which such Person owns, directly or indirectly, more than 50% of theOutstanding equity securities or interests, the holders of which are generallyentitled to vote for the election of the Board of Directors or other governingbody of such Person.

 

***“Tax Matters Member”*****has the meaning set forth in Section 17.4(a).

 

***“Taxable Year”***means (i) the periodcommencing on the Effective Date and ending on December 31, 2007, (ii) anysubsequent twelve month period commencing on January 1 and ending on December 31,(iii) any portion of the period described in clause (i) or (ii) abovefor which the Company is required to allocate Profits, Losses and other itemsof Company income, gain, loss or deduction pursuant to Article 4 or (iv) suchother taxable year required by Section 706 of the Code or that is selectedby the Manager that complies with Section 706 of the Code.

 

***“Transfer”*** shall mean any issuance, sale, transfer, gift, assignment,devise or other disposition, as well as any other event that causes any Personto acquire Beneficial Ownership or Constructive Ownership, or any agreement totake any such actions or cause any such events, of Shares or the right to voteor receive distributions on Shares, including (a) the granting or exerciseof any option (or any disposition of any option), (b) any disposition ofany securities or rights convertible into or exchangeable for Shares or anyinterest in Shares or any exercise of any such conversion or exchange right and(c) Transfers of interests in other entities that result in changes inBeneficial Ownership or Constructive Ownership of Shares, in each case, whethervoluntary or involuntary, whether owned of record, Constructively Owned orBeneficially Owned and whether by operation of law or otherwise. The terms ***“Transferring”*** and ***“Transferred”*** shall have thecorrelative meanings.

 

***“Transfer Agent”*****means, with respect to the Shares, American StockTransfer & Trust Company, or any successor thereto.

 

***“Trustee”*** means the Person unaffiliated with the Company and a Prohibited Owner,that is appointed by the Company to serve as trustee of the Charitable Trust.

 

***“Withheld Amount”*** means anyamount required to be withheld by the Company to pay over to any taxingauthority as a result of any allocation or distribution of income to a Member.

 

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# **ARTICLE2CLASSES AND ISSUANCE OF SHARES**

# ** **

## Section 2.1 Authorization to Issue Shares.

###  

### (a)   The Company, and the Board of Directors on behalf of the Company,may issue Shares, and options, rights, warrants and appreciation rightsrelating to Shares, for any Company purpose at any time and from time to timeto such Persons for such consideration (which may be cash, property, servicesor any other lawful consideration) or for no consideration and on such termsand conditions as the Board of Directors shall determine, all without theapproval of any Member or any other Person. Each Share shall have the rights andbe governed by the provisions set forth in this Agreement (including any ShareDesignation).  Except to the extentexpressly provided in this Agreement (including any Share Designation), noShares shall entitle any Member to any preemptive, preferential, or similarrights with respect to the issuance of Shares.

###  

### (b)   Notwithstanding anything set forth in this Agreement, (i) atthe Effective Time (as defined in the Merger Agreement), by virtue of theMerger (as defined in the Merger Agreement) and without any further action onthe part of any Person, each share of common stock, par value $0.01 per share,of KKR Financial Corp. issued and outstanding immediately prior to theEffective Time (“Corporation Shares”) shall be converted into the right toreceive one common share, the Company automatically assumes all rights andobligations of KKR Financial Corp. under the Amended and Restated 2004 StockIncentive Plan, (the “2004 Plan”), and each option granted by KKR FinancialCorp. to purchase Corporation Shares pursuant to the 2004 Plan which isoutstanding and unexercised immediately prior to the Effective Time shallautomatically be converted into an option to purchase Shares in accordance withthe Merger Agreement and shall be subject to all restrictions as set forth inthe 2004 Plan and all Restricted Stock (as defined in the Merger Agreement)shall be converted into Shares and subject to the Share Restrictions (asdefined in the Merger Agreement) in accordance with the Merger Agreement and asset forth in the 2004 Plan, and shall be marked with appropriate legends as setforth in the Merger Agreement, and the Company may amend the terms of the 2004Plan at any time in accordance with the terms thereof without any other vote,act or approval of any Member hereunder or under the Act, (ii) theCompany, and the appropriate officers of the Company on behalf of the Company,are hereby authorized and directed to perform the Company’s obligations underthe Merger Agreement, including the issuance of certificates to such holders ofCorporation Shares reflecting the valid issuance of such common shares and (iii) KKRFinancial Corp. shall remain and be deemed a Member for all purposes of thisAgreement until any Person becomes a Record Holder as described in clause (i) aboveand, upon such event, the interest of KKR Financial Corp. shall be canceled andretired in accordance with the Merger Agreement. By acceptance of the CommonShares in the merger contemplated by the Merger Agreement, each Person whoreceives Common Shares pursuant to the Merger Agreement (including any nomineeholder or an agent or representative acquiring such Common Shares for theaccount of another Person) (i) shall automatically be admitted to theCompany as a Member with respect to the Common Shares so received upon therecording of such issuance and admission in the books and records of theCompany, (ii) shall be deemed to agree to be bound by the terms of thisAgreement, (iii) shall become the Record Holder of the Shares so issued, (iv) grantspowers of attorney to the officers of the Company and any Liquidator of theCompany and their authorized officers and attorneys-in-fact, as specifiedherein, and (v) makes the consents and waivers contained in thisAgreement.In addition tothe Common Shares Outstanding on the date hereof, and without the consent orapproval of any Members, additional Shares may be issued by the Company in oneor more classes, with such designations, preferences, rights, powers and duties(which may be junior to, equivalent to, or senior or superior to, any existingclasses of Shares), 

 

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###  

### pursuant to the 2004 Plan, as amended fromtime to time, or as shall be fixed by the Board of Directors and reflected in awritten action or actions approved by the Board of Directors (each, a “**Share Designation****”**),including (i) the right to share Company Profits and Losses or itemsthereof; (ii) the right to share in Company distributions, the datesdistributions will be payable and whether distributions with respect to suchseries or class will be cumulative or non-cumulative; (iii) rights upondissolution and liquidation of the Company; (iv) whether, and the termsand conditions upon which, the Company may redeem the Shares; (v) whethersuch Shares are issued with the privilege of conversion or exchange and, if so,the conversion or exchange price or prices or rate or rates, any rateadjustments, the date or dates on which, or the period or period during which,the shares will be convertible or exchangeable and all other terms andconditions upon which the conversion or exchange may be made; (vi) theterms and conditions upon which such Shares will be issued, evidenced bycertificates and assigned or transferred; (vii) the method for determiningthe Percentage Interest as to such Shares; (viii) the terms and amounts ofany sinking fund provided for the purchase or redemption of Shares of the classor series; (ix) whether there will be restrictions on the issuance ofShares of the same class or series or any other class or series; and (x) theright, if any, of the holder of each such Share to vote on Company matters,including matters relating to the relative rights, preferences and privilegesof such Shares.  A Share Designation (orany resolution of the Board of Directors amending any Share Designation) shallbe effective when a duly executed original of the same is delivered to theSecretary of the Company for inclusion among the books and records of theCompany, and shall be annexed to, and constitute part of, this Agreement.  Unless otherwise provided in the applicableShare Designation, the Board of Directors may at any time increase or decreasethe amount of Preferred Shares of any class or series, but not below the numberof Preferred Shares of such class or series then Outstanding.

###  

### (c)   The Company is authorized to issue up to 500,000,000 CommonShares, and 50,000,000 Preferred Shares. All Shares issued pursuant to, and in accordance with the requirementsof, this Article 2 shall be validly issued, fully paid and nonassessableShares in the Company.

###  

### (d)   The aggregate number of Shares that are authorized (or theauthorized number of any class of Shares) may be increased from time to time byan amendment to this Agreement upon the adoption of a resolution by the Boardof Directors declaring such amendment to be advisable and the approval of suchamendment by the affirmative vote of the holders of at least a majority of theShares then Outstanding present in person or represented by proxy at a meetingof the Members.

###  

### (e)   Except as may otherwise be specified in a Share Designation, eachShare shall entitle the holder thereof to one vote on any and all matterssubmitted for the consent or approval of Members generally.  The Board of Directors may reclassify anyunissued Common Shares from time to time in one or more classes or series.  The Board of Directors may classify anyunissued Preferred Shares and reclassify any previously classified but unissuedPreferred Shares of any series from time to time, in one or more classes orseries.

###  

### (f)    The Board of Directors may, without the consent or approval ofany Members, amend this Agreement and make any filings under the Act orotherwise to the extent the Board of Directors determines that it is necessaryor desirable in order to effectuate any issuance of 

 

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### Shares pursuant to this Article 2. Theterms of any Share Designation adopted hereunder may amend the provisions ofthis Agreement or any other Share Designation.

###  

## Section 2.2 Certificates.  Upon theCompany’s issuance of Shares to any Person, the Company shall issue one or moreCertificates in the name of such Person evidencing the number of such Sharesbeing so issued.  Certificates shall beexecuted on behalf of the Company by the Chairman of the Board, President orany Vice President and the Secretary or any Assistant Secretary or theTreasurer or any Assistant Treasurer.  NoCertificate representing Shares shall be valid for any purpose until it hasbeen countersigned by the Transfer Agent; *provided, however*,that if the Board of Directors elects to issue Shares in global form, theCertificates representing Shares shall be valid upon receipt of a certificatefrom the Transfer Agent certifying that the Shares have been duly registered inaccordance with the directions of the Company. Any or all of the signatures required on the Certificate may be byfacsimile.  If any Officer or TransferAgent who shall have signed or whose facsimile signature shall have been placedupon any such Certificate shall have ceased to be such Officer or TransferAgent before such Certificate is issued by the Company, such Certificate maynevertheless be issued by the Company with the same effect as if such Personwere such Officer or Transfer Agent at the date of issue.  Certificates for each class of Shares shallbe consecutively numbered and shall be entered on the books and records of theCompany as they are issued and shall exhibit the holder’s name and number andtype of Shares.

##  

## Section 2.3 Repurchase of Shares by the Company.

##  

### (a)   The Board of Directors shall have authority to cause the Companyto conduct a capital reduction, including the repurchase of any number ofissued and Outstanding Shares; *provided**, however,*that the Company shall not purchase or redeem any Shares for cash or otherproperty if any such purchase or redemption would be inconsistent with therequirements of Section 18-607 or Section 18-804 of the Act.

###  

### (b)   In the event the Board of Directors determines that the Companyshall make an offer to repurchase any number of issued and Outstanding Shares,the Board of Directors shall deliver to the Transfer Agent notice of such offerto repurchase indicating the repurchase price and the date of repurchase (the “Repurchase Date”)and shall cause the Transfer Agent to mail a copy of such notice to the Membersat least 30 days prior to the Repurchase Date. Any Shares tendered andrepurchased by the Company, in accordance with this Section 2.3, shall bedeemed to be authorized and issued, but not Outstanding and, subject to Section 2.1,may subsequently be Sold for due consideration.

###  

## Section 2.4 Record Holders.  TheCompany shall be entitled to recognize the Record Holder as the owner of aShare and, accordingly, shall not be bound to recognize any equitable or otherclaim to or interest in such Share on the part of any other Person, regardlessof whether the Company shall have actual or other notice thereof, except asotherwise provided by law or any applicable rule, regulation, guideline orrequirement of any National Securities Exchange on which such Shares are listedfor trading.  Without limiting theforegoing, when a Person (such as a broker, dealer, bank, trust company orclearing corporation or an agent of any of the foregoing) is acting as nominee,agent or in some other representative capacity for another Person in

 

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## acquiring and/or holding Shares, as between the Company on the onehand, and such other Persons on the other, such representative Person shall bethe Record Holder of such Shares.

##  

## Section 2.5 Registration and Sale of Shares.

##  

### (a)   The Company shall keep or cause to be kept on behalf of theCompany a register that will provide for the registration and transfer ofShares (the “Register”). The Transfer Agent is hereby appointedregistrar and transfer agent for the purpose of registering the Shares andtransfers of the Shares as herein provided. Upon surrender of a Certificate for registration of transfer of anyShares evidenced by a Certificate, the appropriate Officers of the Companyshall execute and deliver, and in the case Common Shares, the Transfer Agentshall countersign and deliver, in the name of the holder or the designatedtransferee or transferees, as required pursuant to the Record Holder’sinstructions, one or more new Certificates evidencing the same aggregate numberand type of Shares as were evidenced by the Certificate so surrendered,provided that a transferor shall provide the address and facsimile number foreach such transferee as contemplated by Section 21.1.

###  

### (b)   The Company shall not recognize any transfer of Shares until theCertificates evidencing such Shares are surrendered for registration oftransfer.  No charge shall be imposed bythe Company for such transfer; *provided*, thatas a condition to the issuance of any new Certificate, the Company may requirethe payment of a sum sufficient to cover any tax or other governmental chargethat may be imposed with respect thereto.

###  

### (c)   By acceptance of the transfer of any Share, each transferee of aShare (including any nominee holder or an agent or representative acquiringsuch Shares for the account of another Person) (i) shall automatically beadmitted to the Company as a Member with respect to the Shares so transferredto such transferee upon the recording of such transfer and admission in thebooks and records of the Company, (ii) shall be deemed to agree to bebound by the terms of this Agreement, (iii) shall become the Record Holderof the Shares so transferred, (iv) grants powers of attorney to theofficers of the Company and any Liquidator of the Company and their authorizedofficers and attorneys-in-fact, as specified herein, and (v) makes theconsents and waivers contained in this Agreement. The transfer of any Sharesand the admission of any new Member shall not constitute an amendment to thisAgreement.

###  

### (d)   Nothing contained in this Agreement shall preclude the settlementof any transactions involving Shares entered into through the facilities of anyNational Securities Exchange on which such Shares are listed for trading.

###  

## Section 2.6 Mutilated, Lost, Destroyed or Stolen Certificates.  Each Record Holder of Shares shall promptlynotify the Company of any mutilation, loss or destruction of any Certificate ofwhich such holder is the record holder. The Company may, in its discretion,cause the Transfer Agent to issue a new Certificate in place of any Certificatetheretofore issued by it and alleged to have been mutilated, lost, stolen ordestroyed, upon surrender of the mutilated Certificate or, in the case of loss,theft or destruction of the Certificate, upon satisfactory proof of such loss,theft or destruction, and the Board of Directors may, in its discretion,require the Record Holder of the Shares evidenced by the lost, stolen ordestroyed Certificate, or its, his or her legal representative, to give theTransfer Agent a bond sufficient to indemnify the Transfer 

 

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##  

## Agent against any claim made against it on account of the alleged loss,theft or destruction of any such Certificate or the issuance of such newCertificate.

##  

# **ARTICLE 3RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES**

# ** **

## Section 3.1  Ownership ofShares.

##  

### (a)           OwnershipLimitations.  During the periodcommencing on the Effective Date and prior to the Restriction Termination Date:

###  

#### (i)                                 BasicRestrictions.

####  

##### (1)                                        NoPerson, other than an Excepted Holder, shall Beneficially Own or ConstructivelyOwn Shares in excess of the Share Ownership Limit and (2) no ExceptedHolder shall Beneficially Own or Constructively Own Shares in excess of theExcepted Holder Limit for such Excepted Holder.

#####  

##### (2)                                        Exceptas provided in Section 3.1(g) hereof, no Person shall BeneficiallyOwn Shares to the extent that such Ownership of Shares would result in KKRFinancial Corp. or any other Subsidiary of the Company that has elected to betaxed as a REIT, as applicable, being “closely held” within the meaning of Section 856(h) ofthe Code (without regard to whether the ownership interest is held during thelast half of a taxable year) or would otherwise cause KKR Financial Corp. orany other Subsidiary of the Company that has elected to be taxed as a REIT, asapplicable, to fail to qualify as a REIT.

#####  

#### (ii)                                Transfer inTrust/Transfer Void Ab Initio.

####  

##### Subjectto Section 3.3, if any Transfer of Shares (whether or not such Transfer isthe result of a transaction entered into through the facilities of the NYSE orany other National Securities Exchange or automated inter-dealer quotationsystem) which, if effective, would result in any Person Beneficially Owning orConstructively Owning Shares in violation of Section 3.1(a)(i)(1) or(2),

#####  

###### (A)          then that number ofShares the Beneficial or Constructive Ownership of which otherwise would causesuch Person to violate Section 3.1(a)(i)(1) or (2) (rounded upto the nearest whole share) shall be automatically transferred to a CharitableTrust for the benefit of a Charitable Beneficiary, as described in Section 3.2,effective as of the close of business on the Business Day prior to the date ofsuch Transfer, and such Person shall acquire no rights in such Shares, or

######  

###### (B)           if the transfer tothe Charitable Trust described in clause (A) of this sentence wouldnot be effective for any reason to prevent the violation of Section 3.1(a)(i)(1) or(2), then, to the fullest extent permitted by law, 

 

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###### theTransfer of that number of Shares that otherwise would cause any Person toviolate Section 3.1(a)(i)(1) or (2) shall be void *ab initio* and the intended transferee shall acquire norights in such Shares.

######  

### (b)           Remediesfor Breach.  If the Board ofDirectors of the Company or any duly authorized committee thereof or otherdesignees if permitted by the Act and this Agreement shall at any timedetermine in good faith that a Transfer or other event has taken place thatresults in a violation of Section 3.1(a) or that a Person intends toacquire or has attempted to acquire Beneficial Ownership or ConstructiveOwnership of any Shares in violation of Section 3.1(a) (whether ornot such violation is intended), the Board of Directors or a committee thereofor other designees if permitted by the Act and this Agreement shall take suchaction as it deems advisable to refuse to give effect to or to prevent suchTransfer or other event, including, without limitation, causing the Company toredeem Shares, refusing to give effect to such Transfer on the books of theCompany or instituting proceedings to enjoin such Transfer or other event; *provided, however*, that any Transfers or attempted Transfersor other events in violation of Section 3.1(a) shall automaticallyresult in the transfer to the Charitable Trust described above, or, whereapplicable, such Transfer (or other event) shall be, to the fullest extentpermitted by law, void *ab initio* asprovided above irrespective of any action (or non-action) by the Board ofDirectors or a committee thereof.

###  

### (c)           Noticeof Restricted Transfer.  Any Personwho acquires or attempts or intends to acquire Beneficial Ownership orConstructive Ownership of Shares that will or may violate Section 3.1(a)(i) orany Person who would have owned Shares that resulted in a Transfer to theCharitable Trust pursuant to the provisions of Section 3.1(a)(ii) shallimmediately give written notice to the Company of such event, or in the case ofsuch a proposed or attempted transaction, give at least fifteen days priorwritten notice, and shall provide to the Company such other information as theCompany may request in order to determine the effect, if any, of such Transferon KKR Financial Corp.’s or any other Company Subsidiary’s status as a REIT.

###  

### (d)           OwnersRequired to Provide Information. From the Effective Date and prior to the Restriction Termination Date:

###  

#### (i)                                 Every owner of0.5% or more (or such higher percentage as determined by the Manager, in goodfaith, in order to maintain KKR Financial Corp.’s or any other Companysubsidiary’s status as a REIT) in value of the outstanding Shares, withinthirty days after the end of each Taxable Year, shall give written notice tothe Company stating the name and address of such owner, the number of SharesBeneficially Owned and a description of the manner in which such Shares areheld. Each such owner shall provide to the Company such additional informationas the Company may request in order to determine the effect, if any, of suchBeneficial Ownership on KKR Financial Corp.’s or any other Company Subsidiary’sstatus as a REIT and to ensure compliance with the Share Ownership Limit; and

####  

#### (ii)                                Each Person whois a Beneficial Owner or Constructive Owner of Shares and each Person(including the Record Holder) who is holding Shares for a Beneficial Owner orConstructive Owner shall provide to the Company such information as the Companymay request, in good faith, in order to determine KKR 

 

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####  

#### FinancialCorp.’s or any other Company Subsidiary’s status as a REIT and to comply withrequirements of any taxing authority or governmental authority or to determinesuch compliance and to ensure compliance with the Share Ownership Limit.

####  

### (e)           RemediesNot Limited.  Nothing contained inthis Section 3.1 shall limit the authority of the Board of Directors totake such other action as it deems necessary or advisable to, subject to Section 3.6,protect the Company and the interests of its Members in preserving KKRFinancial Corp.’s or any other Company Subsidiary’s status as a REIT.

###  

### (f)            Ambiguity.  In the case of an ambiguity in theapplication of any of the provisions of this Article 3, including anydefinition contained in Section 1.10 relating to this Article 3, theBoard of Directors shall have the power to determine the application of theprovisions of this Article 3 with respect to any situation based on thefacts known to it.

###  

### (g)           Exceptions.

###  

#### (i)                                 The Board of Directors, in its solediscretion, may exempt (prospectively or retroactively) a Person from the ShareOwnership Limit and/or the restriction contained in Section 3.1(a)(i)(2),and may establish or increase an Excepted Holder Limit for such Person if theBoard of Directors obtains such representations, covenants and undertakings asthe Board of Directors may deem appropriate in order to conclude that grantingthe exemption and/or establishing or increasing the Excepted Holder Limit, asthe case may be, will not cause KKR Financial Corp. or any other Subsidiary ofthe Company that has elected to be taxed as a REIT to lose its status as aREIT.

####  

#### (ii)                                Prior togranting any exception pursuant to Section 3.1(g)(i), the Board ofDirectors may require a ruling from the Internal Revenue Service, or an opinionof counsel, in either case in form and substance satisfactory to the Board ofDirectors in its sole discretion, as it may deem necessary or advisable inorder to ensure KKR Financial Corp.’s or any other Company Subsidiary’s statusas a REIT. Notwithstanding the receipt of any ruling or opinion, the Board ofDirectors may impose such conditions or restrictions as it deems appropriate inconnection with granting such exception.

####  

#### (iii)                               Subject to Section 3.1(a)(i)(2) anunderwriter or placement agent that participates in a public offering or aprivate placement of Shares (or securities convertible into or exchangeable forShares) may Beneficially Own or Constructively Own Shares (or securitiesconvertible into or exchangeable for Shares) in excess of the Share OwnershipLimit, but only to the extent necessary to facilitate such public offering orprivate placement and provided that the restrictions contained in Section 3.1(a)(i) willnot be violated following the distribution by such underwriter or placement agentof such Shares.

####  

### (h)           Changein Share Ownership Limit and Excepted Holder Limit.  The Board of Directors may from time to timeincrease or decrease the Share Ownership Limit; *provided,however*, that a decreased Share Ownership Limit will not be effectivefor any Person whose 

 

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### percentage ownership of Shares is in excess of such decreased ShareOwnership Limit until such time as such Person’s percentage of Shares equals orfalls below the decreased Share Ownership Limit, but until such time as suchPerson’s percentage of Shares falls below such decreased Share Ownership Limit,any further acquisition of Shares will be in violation of the Share OwnershipLimit and; *provided further*, that the new ShareOwnership Limit would not allow five or fewer Persons (taking into account allExcepted Holders) to Beneficially Own more than 49.9% in value of theoutstanding Shares.

###  

### (i)            Legend.  Each Certificate shall bear substantially thefollowing legend:

###  

“TheShares represented by this certificate are subject to restrictions onBeneficial and Constructive Ownership and Transfer. Subject to certain furtherrestrictions and except as expressly provided in the Company’s OperatingAgreement (i) no Person may Beneficially Own or Constructively Own CommonShares of any class or series of Shares of the Company in excess of 9.8% invalue or in number, whichever is more restrictive, of the Shares of the Companyunless such Person is an Excepted Holder (in which case the Excepted HolderLimit shall be applicable); and (ii) no Person may Beneficially Own Sharesthat would result in KKR Financial Corp. or any other subsidiary of the Companythat has elected to be taxed as a “real estate investment trust” (a “REIT”)pursuant to Section 856 of the Code being “closely held” under Section 856(h) ofthe Code or would otherwise cause any such entity to fail to qualify as a REIT.Any Person who Beneficially Owns or Constructively Owns or attempts toBeneficially Own or Constructively Own Shares which causes or will cause aPerson to Beneficially Own or Constructively Own Shares in excess or inviolation of the above limitations must immediately notify the Company. If anyof the restrictions on transfer or ownership in (i) or (ii) above areviolated, the Shares represented hereby will be automatically transferred to aTrustee of a Charitable Trust for the benefit of one or more CharitableBeneficiaries, and such Person shall acquire no rights in such Shares. If,notwithstanding the foregoing sentence, a Transfer to the Charitable Trust isnot effective for any reason to prevent a violation of the restrictions onTransfer and ownership in (i) or (ii) above, then the attemptedTransfer of that number of Shares that otherwise would cause any Person toviolate such restrictions shall be void *ab initio* andthe intended transferee shall acquire no rights in such Shares. In addition,the Company may redeem Shares upon the terms and conditions specified by theBoard of Directors in its sole discretion if the Board of Directors determinesthat ownership or a Transfer or other event may violate the restrictionsdescribed above. All capitalized terms in this Certificate have the meaningsdefined in the Operating Agreement of the Company, as the same may be amendedfrom time to time, a copy of which, including the restrictions on Transfer andownership, and the rights of redemption of the Company, will be furnished toeach holder of Shares of the Company on request and without charge. Requestsfor such a copy may be directed to the Secretary of the Company at itsprincipal office.”

 

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Instead of the foregoing legend, the Certificate maystate that the Shares are subject to certain restrictions on transferabilityunder this Agreement and that the Company will furnish a copy of this Agreementto a Member on request and without charge.

 

## Section 3.2 Transfer of Shares in Trust.

##  

### (a)           Ownershipin Trust.  Upon any purportedTransfer or other event described in Section 3.1(a)(ii) that wouldresult in a transfer of Shares to a Charitable Trust, such Shares shall bedeemed to have been transferred to the Trustee as trustee for the exclusivebenefit of one or more Charitable Beneficiaries. Such transfer to the Trusteeshall be deemed to be effective as of the close of business on the Business Dayprior to the purported Transfer or other event that results in the transfer tothe Charitable Trust pursuant to Section 3.1(a)(ii). The Trustee shall beappointed by the Company and shall be a Person unaffiliated with the Companyand any Prohibited Owner. Each Charitable Beneficiary shall be designated bythe Company as provided in Section 3.2(f).

###  

### (b)           Statusof Shares Held by the Trustee. Shares held by the Trustee shall continue to be issued and outstandingShares of the Company. The Prohibited Owner shall have no rights in the Sharesheld by the Trustee. The Prohibited Owner shall not benefit economically fromownership of any Shares held in trust by the Trustee, shall have no rights todistributions with respect to the Shares held in the Trust and shall notpossess any rights to vote or other rights attributable to the Shares held inthe Trust.

###  

### (c)           Dividendand Voting Rights. The Trustee shall have all voting rights and rights todistributions with respect to Shares held in the Charitable Trust, which rightsshall be exercised for the exclusive benefit of the Charitable Beneficiary. Anydistribution paid to a Prohibited Owner prior to the discovery by the Companythat the Shares have been transferred to the Trustee shall be paid with respectto such Shares by the Prohibited Owner to the Trustee upon demand and anydistribution authorized but unpaid shall be paid when due to the Trustee. Anydistributions so paid to the Trustee shall be held in trust for the CharitableBeneficiary. The Prohibited Owner shall have no voting rights (whether arisinghereunder or under the Act) with respect to Shares held in the Charitable Trustand, subject to applicable law, effective as of the date that the Shares havebeen transferred to the Trustee, the Trustee shall have the authority (at theTrustee’s sole discretion) (1) to rescind as void any vote cast by aProhibited Owner prior to the discovery by the Company that the Shares havebeen transferred to the Trustee and (2) to recast such vote in accordancewith the desires of the Trustee acting for the benefit of the CharitableBeneficiary; *provided, however,* that if theCompany has already taken irreversible limited liability company action, thenthe Trustee shall not have the authority to rescind and recast such vote.Notwithstanding the provisions of this Article 3, until the Company hasreceived notification that Shares have been transferred into a CharitableTrust, the Company shall be entitled to rely on its Share transfer and otherMember records, including its Register for purposes of preparing lists ofMembers entitled to vote at meetings, determining the validity and authority ofproxies and otherwise conducting votes of Members.

###  

### (d)           Saleof Shares by Trustee.  Within twentydays of receiving notice from the Company that Shares have been transferred tothe Charitable Trust, the Trustee of the Charitable Trust shall sell the Sharesheld in the Charitable Trust to a Person, designated by the Trustee, 

 

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###  

### whose ownership of the Shares will not violate the ownershiplimitations set forth in Section 3.1(a)(i). Upon such sale, the interestof the Charitable Beneficiary in the Shares sold shall terminate and theTrustee shall distribute the net proceeds of the sale to the Prohibited Ownerand to the Charitable Beneficiary as provided in this Section 3.2(d). TheProhibited Owner shall receive the lesser of (1) the price paid by theProhibited Owner for the Shares or, if the Prohibited Owner did not give valuefor the Shares in connection with the event causing the Shares to be held inthe Charitable Trust (*e.g.*, in thecase of a gift, devise or other such transaction), the Market Price of theShares on the day of the event causing the Shares to be held in the CharitableTrust and (2) the price per Share received by the Trustee (net of anycommissions and other expenses of sale) from the sale or other disposition ofthe Shares held in the Charitable Trust. The Trustee may reduce the amountpayable to the Prohibited Owner by the amount of distributions paid to theProhibited Owner and owed by the Prohibited Owner to the Trustee pursuant to Section 3.2(c).Any net sales proceeds in excess of the amount payable to the Prohibited Ownershall be immediately paid to the Charitable Beneficiary. If prior to thediscovery by the Company that Shares have been transferred to the Trustee, suchShares are sold by a Prohibited Owner, then (i) such Shares shall be deemedto have been sold on behalf of the Trust and (ii) to the extent that theProhibited Owner received an amount for such Shares that exceeds the amountthat such Prohibited Owner was entitled to receive pursuant to this Section 3.2(d),such excess shall be paid to the Trustee upon demand.

###  

### (e)           PurchaseRight in Shares Transferred to the Trustee. Shares transferred to the Trustee shall be deemed to have been offeredfor sale to the Company, or its designee, at a price per Share equal to thelesser of (i) the price per Share in the transaction that resulted in suchtransfer to the Charitable Trust (or, in the case of a devise or gift, theMarket Price at the time of such devise or gift) and (ii) the Market Priceon the date the Company, or its designee, accepts such offer. The Company mayreduce the amount payable to the Prohibited Owner by the amount ofdistributions paid to the Prohibited Owner and are owed by the Prohibited Ownerto the Trustee pursuant to Section 3.2(c). The Company may pay the amountof such reduction to the Trustee for the benefit of the Charitable Beneficiary.The Company shall have the right to accept such offer until the Trustee hassold the Shares held in the Charitable Trust pursuant to Section 3.2(d).Upon such a sale to the Company, the interest of the Charitable Beneficiary inthe Shares sold shall terminate and the Trustee shall distribute the netproceeds of the sale to the Prohibited Owner and any distributions held by theTrustee shall be paid to the Charitable Beneficiary.

###  

### (f)            Designationof Charitable Beneficiaries.  Bywritten notice to the Trustee, the Company shall designate one or morenonprofit organizations to be the Charitable Beneficiary of the interest in theCharitable Trust such that (i) the Shares held in the Charitable Trustwould not violate the restrictions set forth in Section 3.2(a)(i) inthe hands of such Charitable Beneficiary and (ii) each such organizationmust be described in Section 50l(c)(3) of the Code and contributionsto each such organization must be eligible for deduction under one of Sections170(b)(1)(A), 2055 and 2522 of the Code.

###  

## Section 3.3 NYSE Transactions.  Nothingin this Article 3 shall preclude the settlement of any transaction enteredinto through the facilities of the NYSE or any other National SecuritiesExchange or automated inter-dealer quotation system. The fact that thesettlement of any transaction occurs shall not negate the effect of any otherprovision of this Article 3 and any 

 

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##  

## transferee in such a transaction shall be subject to all of theprovisions and limitations set forth in this Article 3.

##  

## Section 3.4 Enforcement.  The Companyis authorized specifically to seek equitable relief, including injunctiverelief to enforce the provisions of this Article 3.

##  

## Section 3.5 Non-Waiver.  No delay orfailure on the part of the Company or the Board of Directors in exercising anyright hereunder shall operate as a waiver of any right of the Company or theBoard of Directors, as the case may be, except to the extent specificallywaived in writing.

##  

## Section 3.6 REIT Qualification.  If theBoard of Directors determines that it is no longer in the best interests of theCompany to continue to have KKR Financial Corp. or any other Subsidiary of theCompany qualified as a REIT, the Board of Directors may revoke or otherwiseterminate KKR Financial Corp.’s or such other Subsidiary’s REIT electionpursuant to Section 856(g) of the Code.  The Board of Directors also may determinethat compliance with any restriction or limitation on stock ownership andtransfers set forth in Article 3 is no longer required for REITqualification.

##  

# **ARTICLE4ALLOCATIONS**

# ** **

## Section 4.1 General Application.  The rules setforth below in this Article 4 shall apply for the purposes of determiningeach Member’s allocable share of the items of income, gain, loss and expense ofthe Company comprising Profits or Losses of the Company for each Taxable Year,determining special allocations of other items of income, gain, loss andexpense, and adjusting the balance of each Member’s Capital Account to reflectthe aforementioned general and special allocations. For each Taxable Year, thespecial allocations in Section 4.3 shall be made immediately prior to thegeneral allocations of Section 4.2.

##  

## Section 4.2 Allocations of Profits and Losses.

##  

### (a)   Allocation of Profit. If the Company has Profits during the Taxable Year, such Profits shallbe allocated to the Members in accordance with their Percentage Interests.

###  

### (b)   Allocation of Losses. If the Company has Losses during the Taxable Year, such Losses shall beallocated, subject to the limitations of Section 4.5, to the Members inaccordance with their Percentage Interests.

###  

### (c)   Character of Allocations. Allocations to Members of Profits or Losses pursuant toSections 4.2(a) and 4.2(b) shall consist of a proportionate share of eachCompany item of income, gain, expense and loss entering into the computation ofProfits or Losses for such Taxable Year.

###  

## Section 4.3 Special Allocations.  Thefollowing special allocations shall be made in the following order:

##  

### (a)   Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f),notwithstanding any other provision of this Article 4, if there is a netdecrease 

 

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###  

### in Company Minimum Gain during any TaxableYear, each Member shall be specially allocated items of Company income and gainfor such Taxable Year (and, if necessary, subsequent Taxable Years) in an amountequal to such Member’s share of the net decrease in Company Minimum Gain,determined in accordance with Regulations Section 1.704-2(g) and (h).Allocations pursuant to the previous sentence shall be made in proportion tothe respective amounts required to be allocated to each Member pursuantthereto. The items to be so allocated shall be determined in accordance withRegulation Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 4.3(a) isintended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(f) andshall be interpreted consistently therewith.

###  

### (b)   Member Minimum Gain Chargeback.  Except as otherwise provided in Regulations Section 1.704-2(i)(4),notwithstanding any other provision of this Article 4, if there is a netdecrease in Member Nonrecourse Debt Minimum Gain attributable to a MemberNonrecourse Debt during any Taxable Year, each Member who has a share of theMember Nonrecourse Debt Minimum Gain attributable to such Member NonrecourseDebt, determined in accordance with Regulations Section 1.704-2(i)(5),shall be specially allocated items of Company income and gain for such TaxableYear (and, if necessary, subsequent Taxable Years) in an amount equal to suchMember’s share of the net decrease in Member Nonrecourse Debt, determined inaccordance with Regulations Section 1.704-2(i)(4). Allocations pursuant tothe previous sentence shall be made in proportion to the respective amountsrequired to be allocated to each Member pursuant thereto. The items to be soallocated shall be determined in accordance with RegulationsSections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 4.3(b) isintended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4) andshall be interpreted consistently therewith.

###  

### (c)   Qualified Income Offset. In the event any Member unexpectedly receives any adjustments,allocations or distributions described in Regulations Section 1.704-1(b)(2)(ii)(d)(4),1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6), items of Companyincome and gain shall be specially allocated to such Member in an amount andmanner sufficient to eliminate, to the extent required by the Regulations, theAdjusted Capital Account Deficit of the Member as quickly as possible; *provided*, that an allocation pursuant tothis Section 4.3(c) shall be made only if and to the extent that theMember would have an Adjusted Capital Account Deficit after all otherallocations provided for in this Article 4 have been tentatively made asif this Section 4.3(c) were not in this Agreement.

###  

### (d)   Nonrecourse Deductions. Nonrecourse Deductions for any Taxable Year shall be specially allocatedto the Members in the manner elected by the Tax Matters Member in conformitywith the provisions of Regulations 1.704-2, and in the absence of such anelection, to the Members in proportion to their respective PercentageInterests.

###  

### (e)   Member Nonrecourse Deductions.  Any Member Nonrecourse Deductions for anyTaxable Year shall be specially allocated to the Member who bears the economicrisk of loss with respect to the Member Nonrecourse Debt to which such MemberNonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).

###  

### (f)    Section 754 Adjustments.  To the extent an adjustment to the adjustedtax basis of any Company asset, pursuant to Code Section 734(b) orCode Section 743(b), is 

 

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### required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining CapitalAccounts as the result of a distribution to a Member in complete liquidation ofsuch Member’s interest in the Company, the amount of such adjustment to CapitalAccounts shall be treated as an item of gain (if the adjustment increases thebasis of the asset) or loss (if the adjustment decreases such basis) and suchgain or loss shall be specially allocated to the Members in accordance withtheir interests in the Company in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2) appliesor to the Member to whom such distribution was made in the event Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

###  

## Section 4.4 Ameliorative Allocations. The allocations set forth in Sections 4.3(a), 4.3(b), 4.3(c),4.3(d), 4.3(e), 4.3(f) and 4.5 (the “Regulatory Allocations”) areintended to comply with certain requirements of the Regulations. It is theintent of the Members that, to the extent possible, all Regulatory Allocationsshall be offset either with other Regulatory Allocations or with specialallocations of other items of Company income, gain, loss or deduction pursuantto this Section 4.4. Therefore, notwithstanding any other provision ofthis Article 4 (other than the Regulatory Allocations), the Board ofDirectors shall make such offsetting special allocations of Company income,gain, loss or deduction in whatever manner it determines appropriate so that,after such offsetting allocations are made, each Member’s Capital Accountbalance is, to the extent possible, equal to the Capital Account balance suchMember would have had if the Regulatory Allocations were not part of thisAgreement and all Company items were allocated pursuant to Sections 4.1and 4.2.

##  

## Section 4.5 Loss Limitation.  Lossesallocated pursuant to Section 4.2 shall not exceed the maximum amount ofLosses that can be allocated without causing any Member to have an AdjustedCapital Account Deficit at the end of any Taxable Year. In the event some butnot all of the Members would have Adjusted Capital Account Deficits as aconsequence of an allocation of Losses pursuant to Section 4.2, thelimitation set forth in this Section 4.5 shall be applied on aMember-by-Member basis, and Losses not allocable to any Member as a result ofsuch limitation shall be allocated to the other Members in accordance withtheir Percentage Interests so as to allocate the maximum permissible Losses toeach Member under Regulations Section 1.704-1(b)(2)(ii)(d).

##  

## Section 4.6  OtherAllocation Rules.

##  

### (a)   Profits, Losses, each item thereof and all other itemsattributable to Shares for any Taxable Year shall, for U.S. federal income taxpurposes, be determined on an annual basis and pro rated on a monthly basis andthe pro rata portion for each month shall be allocated to those Persons who areMembers as of the opening of the NYSE on the first business day of theapplicable month; *provided, however*,that gain or loss on a sale or other disposition of any assets of the Companyother than in the ordinary course of business, as determined by the Manager,shall be allocated to the Members as of the opening of the NYSE on the firstbusiness day of the month in which such item of gain or loss is recognized forfederal income tax purposes. With respect to any Share that was not treated asOutstanding as of the close of the NYSE on the first business day of theapplicable month, the first Person who is treated as the Member with respect tosuch Share will be treated as the Member with respect to such Share for thispurpose as of the close of the NYSE on the first business day of the applicablemonth.  The Manager may revise, alter orotherwise modify such methods of allocation as it determines necessary, to theextent

 

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### permitted or required by Section 706 ofthe Code and the Regulations or rulings promulgated thereunder.

###  

### (b)   The Members are aware of the income tax consequences of theallocations made by this Article 4 and hereby agree to be bound by theprovisions of this Article 4 in reporting their shares of Company incomeand loss for income tax purposes.

###  

### (c)   Solely for purposes of determining a Member’s proportionate shareof the “excess nonrecourse liabilities” of the Company within the meaning ofRegulations Section 1.752-3(a)(3), the Member’s interests in Companyprofits are in proportion to their Percentage Interests.

###  

### (d)   To the extent permitted by Regulations Section 1.704-2(h)(3),the Manager shall endeavor to treat distributions as having been made from the proceedsof a Nonrecourse Liability or a Member Nonrecourse Debt only to the extent thatsuch distributions would cause or increase an Adjusted Capital Account Deficitfor any Member.

###  

### (e)   Allocations that would otherwise be made to a Member under theprovisions of this Article IV shall instead be made to the beneficialowner of Shares held by a nominee in any case in which the nominee hasfurnished the identity of such owner to the Company in accordance with Section 6031(c) ofthe Code or any other method determined by the Manager.

###  

## Section 4.7 Tax Allocations: Code Section 704(c).

##  

### (a)   In accordance with Section 704(c) of the Code and theRegulations thereunder, income, gain, loss and deduction with respect to anyProperty contributed to the capital of the Company shall, solely for taxpurposes, be allocated among the Members so as to take account of any variationbetween the adjusted basis of such Property to the Company for U.S. federalincome tax purposes and its initial Gross Asset Value (computed in accordancewith the definition of Gross Asset Value) using a method, selected in thediscretion of the Manager in accordance with Regulations Section 1.704-3.

###  

### (b)   In the event the Gross Asset Value of any Company asset isadjusted pursuant to subparagraph (ii) of the definition of Gross AssetValue, subsequent allocations of income, gain, loss and deduction with respectto such asset shall take account of any variation between the adjusted basis ofsuch asset for U.S. federal income tax purposes and its Gross Asset Value inthe same manner as under Code Section 704(c) and the Regulationsthereunder.

###  

### (c)   Any elections or other decisions relating to such allocationsshall be made by the Manager in any manner that reasonably reflects the purposeand intention of this Agreement. Allocations pursuant to this Section 4.7are solely for purposes of U.S. federal, state and local taxes and shall notaffect, or in any way be taken into account in computing, any Member’s CapitalAccount or share of Profits, Losses, other items or distributions pursuant toany provision of this Agreement.

###  

## Section 4.8 Percentage Interests. If the number of outstanding Shares increases or decreases during ataxable year, each Member’s Percentage Interest shall be adjusted by theCompany effective as of the effective date of each such increase or decrease toa percentage 

 

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##  

## equal to the number of Shares held by such Member divided by theaggregate number of Shares outstanding after giving effect to such increase ordecrease.  If the Members’ PercentageInterests are adjusted pursuant to this Section 4.8, the Profits andLosses for the taxable year in which the adjustment occurs shall be allocatedbetween the part of the year ending on the day when the Company’s property isrevalued and the part of the year beginning on the following day either (i) asif the taxable year had ended on the date of the adjustment or (ii) basedon the number of days in each part.  TheManager, in its sole and absolute discretion, shall determine which methodshall be used to allocate Profits and Losses for the taxable year in which theadjustment occurs.  The allocation ofProfits and Losses for the earlier part of the year shall be based on thePercentage Interests before adjustment, and the allocation of Profits andLosses for the later part shall be based on the adjusted Percentage Interests.

##  

# **ARTICLE5DISTRIBUTIONS**

# ** **

## Section 5.1 Distributions to Members. Except as otherwise provided in Section 5.2 and Article 20,the Board of Directors may, in its sole discretion and at any time, and fromtime to time, declare and pay distributions with respect to the Shares to theMembers, as of any Record Date established by the Board of Directors withrespect to such distributions, from Cash Available for Distribution.  Subject to any Share Designation,distributions shall be paid to all Members in proportion to their respectivePercentage Interests.  Each distribution in respect of any Shares shall bepaid by the Company, directly or through the Transfer Agent or through anyother Person or agent, only to the Record Holder of such Shares as of theRecord Date set for such distribution. Such payment shall constitute full payment and satisfaction of theCompany’s liability in respect of such payment, regardless of any claim of anyPerson who may have an interest in such payment by reason of an assignment orotherwise.

##  

## Section 5.2 Amounts Withheld.  Allamounts withheld pursuant to the Code or any provision of any state, local orforeign tax law with respect to any payment, distribution or allocation to theCompany or the Members shall be treated as amounts paid to the Members withrespect to which such amounts were withheld pursuant to this Section 5.2for all purposes under this Agreement. Notwithstanding any other provision ofthis Agreement, the Manager is authorized to take any action that it determinesto be necessary or appropriate to cause the Company to comply with anywithholding requirements established under the Code or any other federal, stateor local law including, without limitation, pursuant to Sections 1441, 1442,1445 and 1446 of the Code.

##  

## Section 5.3  Limitationson Distributions.

##  

### (a)   The Company shall pay no distributions to the Members except asprovided in this Article 5 and Article 20.

###  

### (b)   The Company, and Board of Directors on behalf of the Company shallnot be required to make distributions from the Company to any Member to theextent such distribution is inconsistent with, or in violation of, the Act orany provision of this Agreement or other applicable law.

 

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# **ARTICLE 6BOARD OF DIRECTORS**

# ** **

## Section 6.1  InitialBoard.  The Board of Directors iscomprised of the twelve following individuals: Paul M. Hazen, Saturnino S.Fanlo, William F. Aldinger, Tracy Collins, Kenneth M. deRegt, Vincent PaulFinigan, R. Glenn Hubbard, Ross J. Kari, Ely L. Licht, Deborah H. McAneny,Scott C. Nuttall and Willy Strothotte (each, an “Initial Director” and,collectively, the “Initial Board”). Each Initial Director shall hold officeuntil his or her successor is elected or appointed and qualified, or until hisor her earlier death, resignation or removal in accordance with this Article 6.The Initial Board shall have all of the powers and authorities accorded to theBoard of Directors, and each Initial Director shall have all of the powers andauthorities accorded the Directors of the Company under the terms of thisAgreement.

##  

## Section 6.2 General Powers.  Except asotherwise expressly provided in this Agreement, the business and affairs of theCompany shall be managed by or under the direction of its Board of Directors.Each Director of the Company, when acting in such capacity, is a “manager”within the meaning of Section 18-402 of the Act and as such is vested withthe powers and authorities necessary for the management of the Company, subjectto the terms of this Agreement and the Management Agreement; *provided*, that no Director is authorizedto act individually on behalf of the Company and the Board of Directors shallonly take action in accordance with the requirements of this Agreement. Inaddition to the powers and authorities expressly conferred upon it by thisAgreement, the Board of Directors may exercise all such powers of the Companyand do all such lawful acts and things as are not prohibited by applicable law,including the Act, the Rules and Regulations, or by this Agreement arerequired to be exercised or done by the Members including, without limitation,the following:

##  

### (a)   the making of any expenditures, the lending or borrowing of money,the assumption or guarantee of, or other contracting for, indebtedness andother liabilities, the issuance of evidences of indebtedness, includingindebtedness that is convertible into Shares, and the incurring of any otherobligations;

###  

### (b)   the making of tax, regulatory and other filings, or rendering ofperiodic or other reports to governmental or other agencies having jurisdictionover the business or assets of the Company;

###  

### (c)   the acquisition, disposition, mortgage, pledge, encumbrance,hypothecation or exchange of any or all of the assets of the Company or themerger or other combination of the Company with or into another Person(subject, however, to any prior approval of Members that may be required bythis Agreement);

###  

### (d)   the acquisition, disposition, mortgage, pledge, encumbrance,hypothecation or exchange of KKR Financial Corp. or any other Subsidiary of theCompany or any or all of the assets of KKR Financial Corp. or any otherSubsidiary of the Company or the merger or other combination of KKR FinancialCorp. or any other Subsidiary of the Company with or into another Person;

 

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###  

### (e)   the use of the assets of the Company (including cash on hand) forany purpose consistent with the terms of this Agreement, including thefinancing of the conduct of the operations of the Company and its Subsidiaries;the lending of funds to other Persons (including other Affiliates of theCompany); the repayment of obligations of the Company and its Subsidiaries; andthe making of capital contributions to any Member of the Company or any of itsSubsidiaries;

###  

### (f)    the negotiation, execution and performance of any contracts,conveyances or other instruments (including instruments that limit theliability of the Company under contractual arrangements to all or particularassets of the Company);

###  

### (g)   the declaration and payment of distributions of cash or otherassets to Members;

###  

### (h)   the selection and dismissal of officers, employees, agents,outside attorneys, accountants, consultants and contractors and thedetermination of their compensation and other terms of employment or hiring,and the creation and operation of employee benefit plans, employee programs andemployee practices;

###  

### (i)    the maintenance of insurance for the benefit of the Company andits Affiliates;

###  

### (j)    the formation of, or acquisition or disposition of an interestin, and the contribution of property and the making of loans to, any limited orgeneral partnership, joint venture, corporation, limited liability company orother entity or arrangement;

###  

### (k)   the control of any matters affecting the rights and obligations ofthe Company, including the bringing and defending of actions at law or inequity and otherwise engaging in the conduct of litigation, arbitration orremediation, and the incurring of legal expense and the settlement of claimsand litigation;

###  

### (l)    the indemnification of any Person against liabilities andcontingencies to the extent permitted by law;

###  

### (m)  the entering into of listing agreements with any NationalSecurities Exchange and the delisting of some or all of the Shares from, orrequesting that trading be suspended on, any such exchange;

###  

### (n)   the issuance, sale or other disposition, and the purchase or otheracquisition, of Shares or options, rights, warrants or appreciation rightsrelating to Shares;

###  

### (o)   the registration of any offer, issuance, sale or resale of Sharesor other securities issued or to be issued by the Company under the SecuritiesAct and any other applicable securities laws (including any resale of Shares orother securities by Members or other securityholders); and

###  

### (p)   the execution and delivery of agreements with Affiliates of theCompany to render services.

 

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##  

## Section 6.3 Duties of Directors. Except as provided in this Agreement or otherwise required by the Act,each Director of the Company shall have the same fiduciary duties to the Companyand the Members as a director of a corporation incorporated under the DGCL hasto such corporation and its stockholders, as if such Directors of the Companywere directors of a corporation incorporated under the DGCL. Except as providedin this Agreement, the parties intend that the fiduciary duties of theDirectors of the Company shall be interpreted consistently with thejurisprudence regarding such fiduciary duties of Directors of a corporationunder the DGCL. It shall be expressly understood that, to the fullest extentpermitted by law, no Director of the Company has any duties (fiduciary orotherwise) with respect to any action or inaction of the Manager, and that, tothe fullest extent permitted by law, any actions or inactions of the Directors ofthe Company that cause the Company to act in compliance or in accordance withthe Management Agreement shall be deemed consistent and compliant with thefiduciary duties of such Directors and shall not constitute a breach of anyduty hereunder or existing in law, in equity or otherwise.

##  

## Section 6.4 Number, Tenure and Qualifications.  As provided by Section 6.1, the InitialBoard shall be comprised of twelve Initial Directors and at all times from andafter the date hereof, the composition of the Board of Directors shall consistof at least a majority of Independent Directors. Subject to this Section 6.4,the number of Directors shall be fixed from time to time exclusively pursuantto a resolution adopted by the Board of Directors, but shall consist of notless than five nor more than thirteen Directors. However, no decrease in thenumber of Directors constituting the Board of Directors shall shorten the termof any incumbent Director.

##  

The term of each Directorshall be the period from the effective date of such Director’s election untilsuch Director’s successor is duly elected or appointed and qualified, or untilsuch Director’s earlier death, resignation or removal. Directors need not beresidents of the State of Delaware or Members.

 

## Section 6.5 Election of Directors. Except as provided in Sections 6.1, 6.4 and 6.8, the Directorsshall be elected at the annual meeting of Members. At any meeting of Membersduly called and held for the election of Directors at which a quorum ispresent, Directors shall be elected by a plurality of the votes cast. EachShare may be voted for as many individuals as there are Directors to be electedand for whose election the holders of Shares are entitled to vote.

##  

## Section 6.6 Removal.  Subject to therights of holders of one or more classes or series of Shares, to elect orremove one or more Directors, any Director, or the entire Board of Directors,may be removed from office, at any time, but only for cause and then only bythe affirmative vote of the Members holding at least two-thirds of the votesentitled to be cast in the election of Directors. For purposes of thisparagraph, “cause” shall mean, with respect to any particular Director,conviction of a felony or a final judgment of a court of competent jurisdictionholding that such Director caused demonstrable, material harm to the Companythrough bad faith or active and deliberate dishonesty.

##  

## Section 6.7 Resignations.  AnyDirector, whether elected or appointed, may resign at any time upon notice ofsuch resignation to the Company. An Independent Director who ceases to be 

 

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##  

## independent shall promptly resign to the extent required for theCompany to comply with applicable laws, rules and regulations.

##  

## Section 6.8 Vacancies and Newly Created Directorships.  Except as may be provided by the Board ofDirectors in setting the terms of any class or series of Shares, any vacancieson the Board of Directors, including vacancies resulting from any increase inthe authorized number of Directors, shall be filled by a majority vote of theremaining Directors then in office, even if the remaining Directors do notconstitute a quorum. Any Director elected to fill a vacancy will serve for theremainder of the full term of the directorship in which the vacancy occurredand until a successor is duly elected and qualified.

##  

## Section 6.9 Annual and Regular Meetings. An annual meeting of the Board of Directors shall be held immediatelyafter and at the same place as the annual meeting of Members, no notice otherthan this provision of this Agreement being necessary.  In the event such meeting is not so held, themeeting may be held at such time and place as shall be specified in a noticegiven as hereinafter provided for special meetings of the Board ofDirectors.  The Board of Directors mayprovide, by resolution, the time and place for the holding of regular meetingsof the Board of Directors without other notice than such resolution.

##  

## Section 6.10 Special Meetings.  Specialmeetings of the Board of Directors may be called by or at the request of theChairman of the Board of Directors, the Chief Executive Officer, the Presidentor by a majority of the Directors then in office.  The person or persons authorized to callspecial meetings of the Board of Directors may fix any place as the place forholding any special meeting of the Board of Directors called by them.  The Board of Directors may provide, byresolution, the time and place for the holding of special meetings of the Boardof Directors without other notice than such resolution.

##  

## Section 6.11 Notice for Special Meetings. Notice of any special meeting of the Board of Directors shall bedelivered personally or by telephone, electronic mail, facsimile transmission,United States mail or courier to each Director at his or her business orresidence address. Notice by personal delivery, telephone, electronic mail orfacsimile transmission shall be given at least twenty-four hours prior to themeeting. Notice by United States mail shall be given at least three days priorto the meeting. Notice by courier shall be given at least two days prior to themeeting. Telephone notice shall be deemed to be given when the Director or hisor her agent is personally given such notice in a telephone call to which theDirector or his or her agent is a party. Electronic mail notice shall be deemedto be given upon transmission of the message to the electronic mail addressgiven to the Company by the Director. Facsimile transmission notice shall bedeemed to be given upon completion of the transmission of the message to thenumber given to the Company by the Director and receipt of a completedanswer-back indicating receipt. Notice by United States mail shall be deemed tobe given when deposited in the United States mail properly addressed, withpostage thereon prepaid. Notice by courier shall be deemed to be given whendeposited with or delivered to a courier properly addressed. Neither thebusiness to be transacted at, nor the purpose of, any annual, regular orspecial meeting of the Board of Directors need be stated in the notice, unlessspecifically required by the Act or this Agreement.

##  

## Section 6.12 Quorum.  A majority of thethen total number of Directors in office shall constitute a quorum for transactionof business at any meeting of the Board of Directors; 

 

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##  

## *provided* that, if less than a majority of such Directors arepresent at said meeting, a majority of the Directors present may adjourn themeeting from time to time without further notice; and *providedfurther* that if, pursuant to the Act or this Agreement, the vote ofa majority of a particular group of Directors is required for action, a quorummust also include a majority of such group.

##  

The Directors present at ameeting which has been duly called and convened may continue to transactbusiness until adjournment, notwithstanding the withdrawal of enough Directorsto leave less than a quorum.

 

## Section 6.13 Voting.  The action of themajority of the Directors present at a meeting at which a quorum is presentshall be the action of the Board of Directors, unless the concurrence of agreater proportion is required for such action by the Act or this Agreement. Ifenough Directors have withdrawn from a meeting to leave less than a quorum butthe meeting is not adjourned, the action of the majority of that number ofDirectors necessary to constitute a quorum at such meeting shall be the actionof the Board of Directors, unless the concurrence of a greater proportion isrequired for such action by the Act or this Agreement.

##  

## Section 6.14 Organization.  At eachmeeting of the Board of Directors, the Chairman of the Board of Directors or,in the absence of the Chairman, the Vice Chairman of the Board of Directors, ifany, shall act as chairman of the meeting. In the absence of both the Chairmanand Vice Chairman of the Board of Directors, the Chief Executive Officer or inthe absence of the Chief Executive Officer, the President or in the absence ofthe President, a Director chosen by a majority of the Directors present, shallact as chairman of the meeting. The Secretary or, in his or her absence, anAssistant Secretary of the Company, or in the absence of the Secretary and allAssistant Secretaries, a person appointed by the chairman of the meeting, shallact as secretary of the meeting.

##  

## Section 6.15 Telephone Meetings. Directors may participate in a meeting by means of a conferencetelephone or other communications equipment if all persons participating in themeeting can hear each other at the same time. Participation in a meeting bythese means shall constitute presence in person at the meeting.

##  

## Section 6.16 Consent by Directors Without a Meeting.  Any action required or permitted to be takenat any meeting of the Board of Directors may be taken without a meeting,without a vote and without prior notice, if a consent in writing or byelectronic transmission to such action is given by each Director and is filedwith the minutes of proceedings of the Board of Directors.

##  

## Section 6.17 Vacancies.  If for anyreason any or all the Directors cease to be Directors, such event shall notdissolve or terminate the Company or affect this Agreement or the powers of theremaining Directors hereunder (even if fewer than three Directors remain).Except as may be provided by the Board of Directors in setting the terms of anyclass or series of Shares, any vacancy on the Board of Directors may be filledonly by a majority of the remaining Directors, even if the remaining Directorsdo not constitute a quorum. Any Director elected to fill a vacancy shall servefor the remainder of the full term of the class in which the vacancy occurredand until a successor is elected and qualifies.

 

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##  

## Section 6.18 Compensation.  Directorsshall not receive any stated salary for their services as Directors but, byresolution of the Board of Directors, may receive compensation per year and/orper meeting and/or per visit to real property or other facilities owned, leasedor to be acquired by the Company and for any service or activity they performedor engaged in as Directors. Directors may be reimbursed for expenses ofattendance, if any, at each annual, regular or special meeting of the Directorsor of any committee thereof and for their expenses, if any, in connection witheach property visit and any other service or activity they performed or engagedin as Directors, but nothing herein contained shall be construed to precludeany Directors from serving the Company in any other capacity and receivingcompensation therefor.

##  

## Section 6.19 Loss of Deposits.  NoDirector shall be liable for any loss which may occur by reason of the failureof the bank, trust company, savings and loan association, or other institutionwith whom moneys or securities have been deposited.

##  

## Section 6.20 Surety Bonds.  Unlessrequired by the Act, no Director shall be obligated to give any bond or suretyor other security for the performance of any of his or her duties.

##  

## Section 6.21 Reliance.  Each Director,officer, employee and agent of the Company shall, in the performance of his orher duties with respect to the Company, be fully justified and protected withregard to any act or failure to act in reliance in good faith upon the books ofaccount or other records of the Company, upon an opinion of counsel or uponreports made to the Company by any of its officers or employees or by theadviser, accountants, appraisers or other experts or consultants selected by theBoard of Directors or officers of the Company, regardless of whether suchcounsel or expert may also be a Director.

##  

## Section 6.22 Certain Rights of Directors, Officers, Employees and Agents.  Any Director or officer, employee or agent ofthe Company may engage in or possess an interest in other profit-seeking orotherbusinessventures of any nature or description, independently or with others, whether ornot such ventures are competitive with the Company and the doctrine ofcorporate opportunity, or any analogous doctrine, shall not apply to suchPersons. If any Director, officer, employee or agent of the Company acquiresknowledge of a potential transaction, agreement, arrangement or other matterthat may be an opportunity for the Company, he, she or it shall not have anyduty to communicate or offer such opportunity to the Company, and any suchPersonshall not beliable to the Company or to the Members for breach of duty (including fiduciaryduty) hereunder, at law, in equity or otherwise by reason of the fact that he,she or it pursues or acquires for, or directs such opportunity to anotherPerson or does not communicate such opportunity or information to theCompany.  Neither the Company nor anyMember shall have any rights or obligations by virtue of this Agreement in orto such independent ventures or the income or profits or losses derivedtherefrom, and the pursuit of such ventures, even if competitive with theactivities of the Company, shall not be deemed wrongful or improper or a breachof any duty existing hereunder, at law, in equity or otherwise.

 

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##  

## Section 6.23  Committees.

##  

### (a)   Number, Tenure and Qualifications.  The Board of Directors may appoint from amongits members an Executive Committee, an Audit Committee, a CompensationCommittee, a Nominating and Corporate Governance Committee and such othercommittees as the Board of Directors may deem appropriate, composed of one ormore Directors, to serve at the pleasure of the Board of Directors.

###  

### (b)   Power.  The Board ofDirectors may delegate to committees appointed under Section 6.23 of anyof the powers of the Board of Directors, except as prohibited by the Act.

###  

### (c)   Meetings.  Notice ofcommittee meetings shall be given in the same manner as notice for specialmeetings of the Board of Directors. A majority of the members of any committeeshall constitute a quorum for the transaction of business at any meeting of thecommittee. The act of a majority of the committee members present at a meetingshall be the act of such committee. The Board of Directors may designate achairman of any committee, and such chairman or, in the absence of suchchairman, any two members of any committee (if there are at least two membersof the committee) may fix the time and place of its meeting unless the Board ofDirectors shall otherwise provide. In the absence of any member of any suchcommittee, the members thereof present at any meeting, whether or not theyconstitute a quorum, may appoint another Director to act in the place of suchabsent member. Each committee shall keep minutes of its proceedings.

 

(d)           Telephone Meetings. Members of a committee of the Board of Directors may participate in ameeting by means of a conference telephone or other communications equipment ifall persons participating in the meeting can hear each other at the same time.Participation in a meeting by these means shall constitute presence in personat the meeting.

 

(e)           Consent by Committees Without a Meeting.  Any action required or permitted to be takenat any meeting of a committee of the Board of Directors may be taken without ameeting, if a consent in writing or by electronic transmission to such actionis given by each member of the committee and is filed with the minutes of proceedingsof such committee.

 

(f)            Vacancies. Subject to the provisions hereof, the Board of Directors shall have thepower at any time to change the membership of any committee, to fill allvacancies, to designate alternate members to replace any absent or disqualifiedmember or to dissolve any such committee.

 

# **ARTICLE7OFFICERS**

# ** **

## Section 7.1 General.  (a) Theofficers of the Company shall be elected by the Board of Directors, subject to Section 7.1(b) andArticle 8. The officers of the Company shall consist of a President, aSecretary and a Treasurer and may include a Chairman of the Board of Directors,a Vice Chairman of the Board of Directors, a Chief Executive Officer, one ormore Vice Presidents, a Chief Operating Officer, a Chief Investment Officer, a ChiefFinancial Officer, one or more Assistant Secretaries and one or more AssistantTreasurers. In addition, the Board of Directors may from time to time electsuch other officers with such powers and duties as it shall 

 

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##  

## deem necessary or desirable. The officers of the Company shall beelected annually by the Board of Directors, except that the Chief ExecutiveOfficer or President may from time to time appoint one or more Vice Presidents,Assistant Secretaries and Assistant Treasurers or other officers. Each officershall hold office until his or her successor is elected and qualifies or untilhis or her death, or his or her resignation or removal in the mannerhereinafter provided. Any two or more offices, except President and VicePresident, may be held by the same person. Election of an officer or agentshall not in and of itself create contract rights between the Company and suchofficer or agent. The officers of the Company need not be Members or Directorsof the Company.

##  

### (b)   For so long as the Management Agreement is in effect, the Managershall second personnel to serve as the Chief Executive Officer, Chief OperatingOfficer and the Chief Financial Officer and in such other capacities as setforth in the Management Agreement, subject to Section 8.5. The Board ofDirectors shall elect nominated personnel as officers of the Company inaccordance with this Article 7. Upon termination of the ManagementAgreement, if no replacement manager is retained by the Company to assume theManager’s rights and obligations hereunder, the Nominating and CorporateGovernance Committee shall nominate, and the Board of Directors shall elect,the officers of the Company.

###  

## Section 7.2 Removal and Resignation. Any officer or agent of the Company may be removed, with or withoutcause, by the Board of Directors if in its judgment the best interests of theCompany would be served thereby, but such removal shall be without prejudice tothe contract rights, if any, of the person so removed. Any officer of theCompany may resign at any time by giving written notice of his or herresignation to the Board of Directors, the Chairman of the Board of Directors,the President or the Secretary. Any resignation shall take effect immediatelyupon its receipt or at such later time specified in the notice of resignation.The acceptance of a resignation shall not be necessary to make it effectiveunless otherwise stated in the resignation. Such resignation shall be withoutprejudice to the contract rights, if any, of the Company.

##  

## Section 7.3 Vacancies.  A vacancy inany office may be filled by the Board of Directors for the balance of the term.

##  

## Section 7.4 Chief Executive Officer. The Board of Directors may designate a Chief Executive Officer. In theabsence of such designation, the Chairman of the Board of Directors shall bethe Chief Executive Officer of the Company. The Chief Executive Officer shallhave general responsibility for implementation of the policies of the Company,as determined by the Board of Directors, and for the management of the businessand affairs of the Company. He or she may execute any deed, mortgage, bond,contract or other instrument, except in cases where the execution thereof shallbe expressly delegated by the Board of Directors or by this Agreement to someother officer or agent of the Company or shall be required by the Act to beotherwise executed; and in general shall perform all duties incident to theoffice of Chief Executive Officer and such other duties as may be prescribed bythe Board of Directors from time to time.

 

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Section 7.5  Chief Operating Officer.  The Board of Directors may designate a ChiefOperating Officer. The Chief Operating Officer shall have the responsibilitiesand duties as set forth by the Board of Directors or the Chief ExecutiveOfficer.

 

## Section 7.6 Chief Investment Officer. The Board of Directors may designate a Chief Investment Officer. TheChief Investment Officer shall have the responsibilities and duties as setforth by the Board of Directors or the Chief Executive Officer.

##  

## Section 7.7 Chief Financial Officer. The Board of Directors may designate a Chief Financial Officer. TheChief Financial Officer shall have the responsibilities and duties as set forthby the Board of Directors or the Chief Executive Officer.

##  

## Section 7.8 Chairman of the Board.  TheBoard of Directors shall designate a Chairman of the Board of Directors. TheChairman of the Board of Directors shall preside over the meetings of the Boardof Directors and of the Members at which he or she shall be present. TheChairman of the Board of Directors shall perform such other duties as may beassigned to him or her by the Board of Directors.

##  

## Section 7.9 President.  In the absenceof a Chief Executive Officer, the President shall in general supervise andcontrol all of the business and affairs of the Company. In the absence of adesignation of a Chief Operating Officer by the Board of Directors, thePresident shall be the Chief Operating Officer. He or she may execute any deed,mortgage, bond, contract or other instrument, except in cases where theexecution thereof shall be expressly delegated by the Board of Directors or bythis Agreement to some other officer or agent of the Company or shall berequired by the Act to be otherwise executed; and in general shall perform allduties incident to the office of President and such other duties as may beprescribed by the Board of Directors from time to time.

##  

## Section 7.10 Vice Presidents.  In theabsence of the President or in the event of a vacancy in such office, the VicePresident (or in the event there be more than one Vice President, the VicePresidents in the order designated at the time of their election or, in theabsence of any designation, then in the order of their election) shall performthe duties of the President and when so acting shall have all the powers of andbe subject to all the restrictions upon the President; and shall perform suchother duties as from time to time may be assigned to such Vice President by thePresident or by the Board of Directors. The Board of Directors may designateone or more Vice Presidents as Executive Vice President, Senior Vice Presidentor as Vice President for particular areas of responsibility.

 

Section 7.11  Secretary.  The Secretary shall (a) keep the minutes ofthe proceedings of the Members, the Board of Directors and committees of theBoard of Directors in one or more books provided for that purpose; (b) see thatall notices are duly given in accordance with the provisions of this Agreementor as required by the Act; (c) be custodian of the limited liability companyrecords and of the seal of the Company, if any; (d) keep a register of the postoffice address of each Member which shall be furnished to the Secretary by suchMember; (e) have general responsibility for oversight of the Share transferbooks and other Member records, including the Register; and (f) in generalperform such other duties as from time to time may be assigned to him or her bythe Chief Executive Officer, the President or by the Board of Directors.

 

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##  

## Section 7.12 Treasurer.  The Treasurershall have the custody of the funds and securities of the Company and shallkeep full and accurate accounts of receipts and disbursements in booksbelonging to the Company and shall deposit all moneys and other valuableeffects in the name and to the credit of the Company in such depositories asmay be designated by the Board of Directors. In the absence of a designation ofa Chief Financial Officer by the Board of Directors, the Treasurer shall be theChief Financial Officer of the Company.

##  

TheTreasurer shall disburse the funds of the Company as may be ordered by theBoard of Directors, taking proper vouchers for such disbursements, and shallrender to the President and Board of Directors, at the regular meetings of theBoard of Directors or whenever it may so require, an account of all his or hertransactions as Treasurer and of the financial condition of the Company.

 

Ifrequired by the Board of Directors, the Treasurer shall give the Company a bondin such sum and with such surety or sureties as shall be satisfactory to theBoard of Directors for the faithful performance of the duties of his or heroffice and for the restoration to the Company, in case of his or her death,resignation, retirement or removal from office, of all books, papers, vouchers,moneys and other property of whatever kind in his or her possession or underhis or her control belonging to the Company.

 

## Section 7.13 Assistant Secretaries and Assistant Treasurers.  The Assistant Secretaries and AssistantTreasurers, in general, shall perform such duties as shall be assigned to themby the Secretary or Treasurer, respectively, or by the President or the Boardof Directors. The Assistant Treasurers shall, if required by the Board ofDirectors, give bonds for the faithful performance of their duties in such sumsand with such surety or sureties as shall be satisfactory to the Board ofDirectors.

##  

## Section 7.14 Salaries.  The salaries andother compensation of the officers shall be fixed from time to time by theManager and no officer shall be prevented from receiving such salary or othercompensation by reason of the fact that he or she is also a Director.

##  

## Section 7.15 Duties of Officers.  Exceptas provided in this Agreement (or as required by the Act), each officer of theCompany shall have the same fiduciary duties applicable to officers of acorporation incorporated under the DGCL, as if such officers were officers of acorporation incorporated under the DGCL. Except as provided in this Agreement,the parties hereto intend that the fiduciary duties of the officers of theCompany shall be interpreted consistently with the jurisprudence regarding suchfiduciary duties of officers of a corporation under the DGCL. It shall beexpressly understood that, to the fullest extent permitted by law, no officerof the Company owes any duties (fiduciary or otherwise) to the Members or theCompany with respect to any action or inaction of the Manager pursuant to theterms of the Management Agreement.

##  

# **ARTICLE8MANAGEMENT**

# ** **

## Section 8.1 Duties of the Manager.  Forso long as the Management Agreement is in effect and subject at all times tothe oversight of the Board of Directors, the Manager will 

 

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##  

## manage the business of the Company and provide its services to theCompany in accordance with the terms and conditions of the ManagementAgreement.

##  

## Section 8.2 Secondment of the Chief Executive Officer and Chief Financial Officer.  Pursuant to the terms of the ManagementAgreement, the Manager will second to the Company natural Persons to serve asthe Chief Executive Officer, Chief Operating Officer and Chief FinancialOfficer.

##  

## Section 8.3 Secondment of Additional Officers.  Pursuant to the terms of the ManagementAgreement, the Manager and the Company may agree from time to time that theManager will second to the Company one or more additional natural Persons toserve as officers of the Company, upon such terms as the Manager and theCompany may mutually agree. Any such natural Persons will have such titles andfulfill such functions as the Manager and the Company may mutually agree.

##  

## Section 8.4 Status of Seconded Officers and Employees.  Any officers or employees of the Managerseconded to the Company pursuant to Section 8.2 and/or 8.3 shall not beemployees of the Company; *provided*,that, except as provided in this Agreement (or as required by the Act), anysuch seconded officers and employees of the Manager shall have the samefiduciary duties with respect to the Company applicable to officers orsimilarly situated employees, as the case may be, of a corporation incorporatedunder the DGCL, as if such officers or employees, as the case may be, wereofficers or employees, as the case may be, of a corporation incorporated underthe DGCL. Except as provided in this Agreement, the parties hereto intend thatthe fiduciary duties of any such seconded officers and employees of the Managershall be interpreted consistently with the jurisprudence regarding suchfiduciary duties of officers or similarly situated employees, as the case maybe, of a corporation under the DGCL. It shall be expressly understood that, tothe fullest extent permitted by applicable law, no seconded officer or employeeof the Manager owes any duties (fiduciary or otherwise) to the Members or theCompany with respect to any action or inaction of the Manager except inaccordance with the terms of the Management Agreement.

##  

## Section 8.5 Removal of Seconded Officers. The Board of Directors shall have the right to remove any officer of theCompany at any time, with or without cause; *provided**, however,*that for so long as the Management Agreement is in effect, the Board ofDirectors may remove officers of the Company seconded by the Manager onlypursuant to the terms of the Management Agreement.

##  

## Section 8.6 Replacement Manager.  Inthe event that the Management Agreement is terminated and the Board ofDirectors determines that a replacement manager should be retained to providefor the management of the Company pursuant to a management or other servicesagreement, the affirmative vote of a majority of the outstanding Shares shallbe required to retain such replacement manager.

 

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# **ARTICLE9THE MEMBERS**

##  

## Section 9.1 Rights or Powers.  A Personshall be admitted as a Member and shall become bound by the terms of thisAgreement if such Person purchases or otherwise lawfully acquires any Share andbecomes a Record Holder of such Share in accordance with the provisions of thisAgreement. A Person may not become a Member without acquiring a Share. Exceptas otherwise expressly set forth in this Agreement, the Members acting as suchshall not have any right or power to take part in the management or control ofthe Company or its business and affairs or to act for or bind the Company inany way. Notwithstanding the foregoing, the Members have all the rights andpowers specifically set forth in this Agreement, including, without limitation,those rights and powers set forth in Article 16 and, to the extent notinconsistent with this Agreement, in the Act. Members shall not have any rightto resign from the Company; *provided*, thatwhen a transferee of the Shares of a Member becomes a Record Holder of suchShares, as permitted by this Agreement, such transferring Member shall cease tobe a Member of the Company with respect to the Shares so transferred. Membersare not entitled to dissenters’ rights of appraisal in the event of a merger,consolidation or conversion, a sale of all or substantially all of the assetsof the Company or the Company’s Subsidiaries, or any other similar transactionor event.

##  

## Section 9.2 Annual Meetings of Members.  Beginning in calendar year 2008, an annual meeting of the Members forthe election of Directors and the transaction of any business within the powersof the Company shall be held on a date and at the time set by the Board ofDirectors during the month of May in each year.

##  

## Section 9.3 Special Meetings of Members.

##  

### (a)   General.  TheChairman of the Board of Directors, the President, the Chief Executive Officeror the Board of Directors may call a special meeting of the Members. Subject tosubsection (b) of this Section 9.3, a special meeting of Membersshall also be called by the Secretary of the Company upon the written requestof the Members entitled to cast not less than a majority of all the votesentitled to be cast at such meeting.

###  

### (b)   Member Requested Special Meetings.  (1) Any Record Holder seeking to haveMembers request a special meeting of Members shall, by sending written noticeto the Secretary of the Company (the “Record Date Request Notice”) byregistered mail, return receipt requested, request the Board of Directors tofix a record date to determine the Members entitled to request a specialmeeting of Members (the “Request Record Date”). The Record Date RequestNotice shall set forth the purpose of the meeting and the matters proposed tobe acted on at it, shall be signed by one or more Record Holders as of the dateof signature (or their agents duly authorized in a writing accompanying theRecord Date Request Notice), shall bear the date of signature of each suchMember (or such agent) and shall set forth all information relating to eachsuch Member that must be disclosed in solicitations of proxies for election ofDirectors in an election contest (even if an election contest is not involved),or is otherwise required, in each case pursuant to Regulation 14A (or anysuccessor provision) under the Exchange Act. Upon receiving the Record DateRequest Notice, the Board of Directors may fix a Request Record Date. TheRequest Record Date shall not precede and shall not be more than ten days afterthe close of business on the date on which the resolution fixing the RequestRecord Date is adopted by the Board of Directors. If the Board of Directors,within ten days after the date on which a valid Record Date Request Notice isreceived, fails to adopt a resolution fixing the Request Record 

 

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###  

### Date, the Request Record Date shall be theclose of business on the tenth day after the first date on which the RecordDate Request Notice is received by the Secretary.

###  

#### (2)           In order for any Member to request aspecial meeting of Members, one or more written requests for a special meetingof Members signed by Record Holders (or their agents duly authorized in awriting accompanying the request) as of the Request Record Date entitled tocast not less than a majority (the “Special Meeting Percentage”) of allof the votes entitled to be cast at such meeting (the “Special MeetingRequest”) shall be delivered to the Secretary. In addition, the SpecialMeeting Request (a) shall set forth the purpose of the meeting and thematters proposed to be acted on at it (which shall be limited to those lawfulmatters set forth in the Record Date Request Notice received by the secretary),(b) shall bear the date of signature of each such Member (or such agent)signing the Special Meeting Request, (c) shall set forth the name andaddress, as they appear in the Company’s books, of each Member signing suchrequest (or on whose behalf the Special Meeting Request is signed), the class,series and number of all Shares of the Company which are owned by each suchMember, and the nominee holder for, and number of, Shares owned by such Memberbeneficially but not of record, (d) shall be sent to the Secretary byregistered mail, return receipt requested, and (e) shall be received bythe Secretary within 60 days after the Request Record Date. Any requestingMember (or agent duly authorized in a writing accompanying the revocation orSpecial Meeting Request) may revoke his, her or its request for a specialmeeting of Members at any time by written revocation delivered to theSecretary.

####  

#### (3)           The Secretary shall inform therequesting Member of the reasonably estimated cost of preparing and mailing thenotice of meeting (including the Company’s proxy materials). The Secretaryshall not be required to call a special meeting of Members upon Member requestand such meeting shall not be held unless, in addition to the documentsrequired by paragraph (2) of this Section 9.3(b), the Secretaryon behalf of the Company receives payment of such reasonably estimated costprior to the preparation and mailing of any notice of the meeting.

####  

#### (4)           Except as provided in the nextsentence, any special meeting of Members shall be held at such place, date andtime as may be designated by the Chairman of the Board of Directors, President,Chief Executive Officer or Board of Directors, whoever has called the meeting.In the case of any special meeting of Members called by the Secretary upon therequest of Members (a “Member Requested Meeting”), such meeting shall beheld at such place, date and time as may be designated by the Board ofDirectors; *provided, however*, that the date of anyMember Requested Meeting shall be not more than 90 days after the record datefor such meeting (the “Meeting Record Date”); and *provided further*that if the Board of Directors fails to designate, within ten days after thedate that a valid Special Meeting Request is actually received by the Secretary(the “Delivery Date”), a date and time for a Member Requested Meeting,then such meeting shall be held at 2:00 p.m. local time on the 90th dayafter the Meeting Record Date or, if such 90th day is not a Business Day (asdefined below), on the first preceding Business Day; and *providedfurther* that in the event that the Board of Directors fails to designatea place for a Member Requested Meeting within ten days after the Delivery Date,then such meeting shall be held at the principal executive office of the 

 

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####  

#### Company. In fixing a datefor any special meeting of Members, the Chairman of the Board of Directors,President, Chief Executive Officer or Board of Directors may consider suchfactors as he, she or it deems relevant within the good faith exercise ofbusiness judgment, including, without limitation, the nature of the matters tobe considered, the facts and circumstances surrounding any request for themeeting and any plan of the Board of Directors to call an annual meeting ofMembers or a special meeting of Members. In the case of any Member RequestedMeeting, if the Board of Directors fails to fix a Meeting Record Date that is adate within 30 days after the Delivery Date, then the close of business on the30th day after the Delivery Date shall be the Meeting Record Date. The Board ofDirectors may revoke the notice for any Member Requested Meeting in the eventthat the requesting Members fail to comply with the provisions ofparagraph (3) of this Section 9.3(b).

####  

#### (5)           If written revocations of requestsfor the special meeting of Members have been delivered to the Secretary and theresult is that Members of record (or their agents duly authorized in writing),as of the Request Record Date, entitled to cast less than the Special MeetingPercentage have delivered, and not revoked, requests for a special meeting ofMembers to the Secretary, the Secretary shall: (i) if the notice ofmeeting has not already been mailed, refrain from mailing the notice of themeeting and send to all requesting Members who have not revoked such requestswritten notice of any revocation of a request for the special meeting, or (ii) ifthe notice of meeting has been mailed and if the Secretary first sends to allrequesting Members who have not revoked requests for a special meeting ofMembers written notice of any revocation of a request for the special meetingand written notice of the Secretary’s intention to revoke the notice of themeeting revoke the notice of the meeting at any time before ten days before thecommencement of the meeting. Any request for a special meeting of Membersreceived after a revocation by the Secretary of a notice of a meeting shall beconsidered a request for a new special meeting of Members.

####  

#### (6)           The Chairman of the Board ofDirectors, a Chief Executive Officer, President or Board of Directors mayappoint regionally or nationally recognized independent inspectors of electionsto act as the agent of the Company for the purpose of promptly performing aministerial review of the validity of any purported Special Meeting Requestreceived by the Secretary. For the purpose of permitting the inspectors toperform such review, no such purported request shall be deemed to have beendelivered to the Secretary until the earlier of (i) ten Business Daysafter receipt by the Secretary of such purported request and (ii) suchdate as the independent inspectors certify to the Company that the validrequests received by the Secretary represent at least a majority of theOutstanding Shares that would be entitled to vote at such meeting. Nothingcontained in this paragraph (6) shall in any way be construed tosuggest or imply that the Company or any Member shall not be entitled tocontest the validity of any request, whether during or after such ten BusinessDay period, or to take any other action (including, without limitation, thecommencement, prosecution or defense of any litigation with respect thereto,and the seeking of injunctive relief in such litigation).

 

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##  

## Section 9.4 Place of Meeting.  Allmeetings of Members shall be held at the principal executive office of theCompany or at such other place as shall be set by the Board of Directors andstated in the notice of the meeting.

##  

## Section 9.5 Notice of Meeting.  Notless than ten nor more than 90 days before each meeting of Members, theSecretary shall give to each Member entitled to vote at such meeting and toeach Member not entitled to vote who is entitled to notice of the meetingwritten or printed notice stating the time and place of the meeting and, in thecase of a special meeting or as otherwise may be required by any statute, thepurpose for which the meeting is called, either by mail, by presenting it tosuch Member personally or by any other means permitted by applicable law. Ifmailed, such notice shall be deemed to be given when deposited in the UnitedStates mail addressed to the Member at the Member’s address as it appears onthe records of the Company, with postage thereon prepaid.

##  

Subjectto Section 9.11, any business of the Company may be transacted at anannual meeting of Members without being specifically designated in the notice,except such business as is required by any statute to be stated in such notice.No business shall be transacted at a special meeting of Members except asspecifically designated in the notice.

 

## Section 9.6 Record Date.  The Board ofDirectors may set, in advance, a record date for the purpose of determiningMembers entitled to notice of or to vote at any meeting of Members ordetermining Members entitled to receive payment of any distribution or theallotment of any other rights, or in order to make a determination of Membersfor any other proper purpose. Such date, in any case, shall not be prior to theclose of business on the day the record date is fixed and shall be not morethan 90 days and, in the case of a meeting of Members, not less than ten days,before the date on which the meeting or particular action requiring suchdetermination of Record Holders is to be held or taken.

##  

Inlieu of fixing a record date, the Board of Directors may provide that theShares transfer books shall be closed for a stated period but not longer thantwenty days. If the Shares transfer books are closed for the purpose ofdetermining Members entitled to notice of or to vote at a meeting of Members,such books shall be closed for at least ten days before the date of suchmeeting.

 

Ifno record date is fixed and the Shares transfer books are not closed for thedetermination of Members, (a) the record date for the determination ofMembers entitled to notice of or to vote at a meeting of Members shall be atthe close of business on the day on which the notice of meeting is mailed orthe 30th day before the meeting, whichever is the closer date to the meeting;and (b) the record date for the determination of Members entitled toreceive payment of a distribution or an allotment of any other rights shall bethe close of business on the day on which the resolution of the Board ofDirectors, declaring the distribution or allotment of rights, is adopted.

 

Whena determination of Members entitled to vote at any meeting of Members has beenmade as provided in this section, such determination shall apply to anyadjournment thereof, except when (i) the determination has been madethrough the closing of the Share transfer books and the stated period of closing has expired or (ii) themeeting is adjourned to a date more than

 

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120days after the record date fixed for the original meeting, in either of which casea new record date shall be determined as set forth herein.

 

## Section 9.7 Organization and Conduct. Every meeting of Members shall be conducted by an individual appointedby the Board of Directors to be chairman of the meeting or, in the absence ofsuch appointment, by the Chairman of the Board of Directors or, in the case ofa vacancy in the office or absence of the Chairman of the Board of Directors,by one of the following officers present at the meeting: the Vice Chairman ofthe Board of Directors, if there be one, the President, the Vice Presidents intheir order of rank and seniority, or, in the absence of such officers, achairman chosen by the Members by the vote of a majority of the votes cast byMembers present in person or by proxy. The Secretary, or, in the Secretary’sabsence, an Assistant Secretary, or in the absence of both the Secretary andAssistant Secretaries, an individual appointed by the Board of Directors or, inthe absence of such appointment, an individual appointed by the chairman of themeeting shall act as secretary. In the event that the Secretary presides at ameeting of the Members, an Assistant Secretary, or in the absence of anAssistant Secretary, an individual appointed by the Board of Directors or thechairman of the meeting, shall record the minutes of the meeting. The order ofbusiness and all other matters of procedure at any meeting of Members shall bedetermined by the chairman of the meeting. The chairman of the meeting mayprescribe such rules, regulations and procedures and take such action as, inthe discretion of such chairman, are appropriate for the proper conduct of themeeting, including, without limitation, (a) restricting admission to thetime set for the commencement of the meeting; (b) limiting attendance atthe meeting to Members that are Record Holders, their duly authorized proxiesor other such individuals as the chairman of the meeting may determine; (c) limitingparticipation at the meeting on any matter to Members that are Record Holdersentitled to vote on such matter, their duly authorized proxies and other suchindividuals as the chairman of the meeting may determine; (d) limiting thetime allotted to questions or comments by participants; (e) determiningwhen the polls should be opened and closed, (f) maintaining order andsecurity at the meeting; (g) removing any Members or any other individualwho refuses to comply with meeting procedures, rules or guidelines as setforth by the chairman of the meeting; and (h) concluding the meeting orrecessing or adjourning the meeting to a later date and time and placeannounced at the meeting. Unless otherwise determined by the chairman of themeeting, meetings of Members shall not be required to be held in accordancewith the rules of parliamentary procedure.

##  

## Section 9.8 Quorum.  At any meeting ofMembers, the presence in person or by proxy of Members entitled to cast amajority of all the votes entitled to be cast at such meeting on any mattershall constitute a quorum; but this section shall not affect any requirementunder applicable law for the vote necessary for the adoption of any measure.If, however, such quorum shall not be present at any meeting of the Members,the chairman of the meeting shall have the power to adjourn the meeting fromtime to time to a date not more than 120 days after the original record datewithout notice other than announcement at the meeting. At such adjournedmeeting at which a quorum shall be present, any business may be transactedwhich might have been transacted at the meeting as originally notified.

##  

TheMembers present either in person or by proxy, at a meeting which has been dulycalled and convened, may continue to transact business until adjournment,notwithstanding the withdrawal of enough Members to leave less than a quorum.

 

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## Section 9.9 Proxies.  At all meetingsof Members, a Member may vote by proxy as may be permitted by law; *provided*, that no proxy shall be votedafter eleven months from its date. Any proxy to be used at a meeting of Membersmust be filed with the Secretary of the Company or his or her representative ator before the time of the meeting. A Member may revoke any proxy which is notirrevocable by attending the meeting and voting in person or by delivering tothe Secretary a revocation of the proxy or a new proxy bearing a later date.With respect to the use of proxies at any meeting of Members, the Company shallbe governed by paragraphs (b), (c), (d) and (e) of Section 212of the DGCL, as though the Company were a Delaware corporation and as thoughthe Members were stockholders of a Delaware corporation.

##  

## Section 9.10 Voting of Shares by Certain Holders.  Shares registered in the name of acorporation, partnership, trust or other entity, if entitled to be voted, maybe voted by the president or a vice president, a general partner or trusteethereof, as the case may be, or a proxy appointed by any of the foregoingindividuals, unless some other Person who has been appointed to vote suchShares pursuant to a bylaw or a resolution of the governing body of suchcorporation or other entity or agreement of the partners of a partnershippresents a certified copy of such bylaw, resolution or agreement, in which casesuch Person may vote such Shares. Any Director or other fiduciary may voteShares registered in his or her name as such fiduciary, either in person or byproxy.

##  

Shares of the Companydirectly or indirectly owned by it shall not be voted at any meeting and shallnot be counted in determining the total number of Outstanding Shares entitledto be voted at any given time, unless they are held by it in a fiduciarycapacity, in which case they may be voted and shall be counted in determiningthe total number of Outstanding Shares at any given time.

 

The Board of Directors mayadopt by resolution a procedure by which a Member may certify in writing to theCompany that any Shares registered in the name of the Member are held for theaccount of a specified Person other than the Member. The resolution shall setforth the class of Members who may make the certification, the purpose forwhich the certification may be made, the form of certification and theinformation to be contained in it; if the certification is with respect to arecord date or closing of the Shares transfer books, the time after the recorddate or closing of the Shares transfer books within which the certificationmust be received by the Company; and any other provisions with respect to theprocedure which the Board of Directors considers necessary or desirable. Onreceipt of such certification, the Person specified in the certification shallbe regarded as, for the purposes set forth in the certification, the RecordHolder the specified Shares in place of the Member who makes the certification.

 

## Section 9.11 Notice of Member Business and Nominations.

##  

### (a)   Annual Meetings of Members. (1) Nominations of individuals for election to the Board ofDirectors and the proposal of other business to be considered by the Membersmay be made at an annual meeting of Members (i) pursuant to the Company’snotice of meeting, (ii) by or at the direction of the Board of Directorsor (iii) by any Member who was a Member of record both at the time ofgiving of notice by the Member as provided for in this Section 9.11(a) 

 

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### and at the time of the annual meeting, who isentitled to vote at the meeting and who has complied with this Section 9.11(a).

###  

(2)           For nominations or other business tobe properly brought before an annual meeting of Members by a Member pursuant toclause (iii) of paragraph (a)(1) of this Section 9.11,the Member must have given timely notice thereof in writing to the Secretaryand such other business must otherwise be a proper matter for action by theMembers. To be timely, a Member’s notice shall set forth all informationrequired under this Section 9.11 and shall be delivered to the Secretaryat the principal executive office of the Company not earlier than the 150th day nor later than 5:00 p.m., EasternTime on the 120th day prior to the first anniversary of the dateof mailing of the notice for the preceding year’s annual meeting; *provided, however*, that in the event that the date of theannual meeting is advanced or delayed by more than 30 days from the firstanniversary of the date of the preceding year’s annual meeting, notice by theMember to be timely must be so delivered not earlier than the 150th day prior to the date of such annual meetingand not later than 5:00 p.m., Eastern Time on the later of the 120th day prior to the date of such annual meetingor the tenth day following the day on which public announcement of the date ofsuch meeting is first made. The public announcement of a postponement oradjournment of an annual meeting shall not commence a new time period for thegiving of a Member’s notice as described above. Such Member’s notice shall setforth (i) as to each individual whom the Member proposes to nominate forelection or reelection as a Director, (A) the name, age, business addressand residence address of such individual, (B) the class, series and numberof any Shares that are beneficially owned by such individual, (C) the datesuch Shares were acquired and the investment intent of such acquisition and (D) allother information relating to such individual that is required to be disclosedin solicitations of proxies for election of Directors in an election contest(even if an election contest is not involved), or is otherwise required, ineach case pursuant to Regulation 14A (or any successor provision) under theExchange Act and the rules thereunder (including such individual’s writtenconsent to being named in the proxy statement as a nominee and to serving as aDirector if elected); (ii) as to any other business that the Memberproposes to bring before the meeting, a description of such business, thereasons for proposing such business at the meeting and any material interest insuch business of such Member and any Member Associated Person (as definedbelow), individually or in the aggregate, including any anticipated benefit tothe Member and the Member Associated Person therefrom; (iii) as to theMember giving the notice and any Member Associated Person, the class, seriesand number of all Shares which are owned by such Member and by such MemberAssociated Person, if any, and the nominee holder for, and number of, Sharesowned beneficially but not of record by such Member and by any such MemberAssociated Person; (iv) as to the Member giving the notice and any MemberAssociated Person covered by clauses (ii) or (iii) of thisparagraph (2) of this Section 9.11(a), the name and address ofsuch Member, as they appear on the Register and current name and address, ifdifferent, and of such Member Associated Person; and (v) to the extentknown by the Member giving the notice, the name and address of any other Membersupporting the nominee for election or reelection as a Director or the proposalof other business on the date of such Member’s notice.

 

(3)           Notwithstanding anything in thissubsection (a) of this Section 9.11 to the contrary, in theevent the Board of Directors increases the number of Directors in accordancewith Section 6.4 of this Agreement, and there is no public announcement ofsuch action at least 130 days prior to the first anniversary of the date ofmailing of the notice of the preceding year’s

 

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annualmeeting, a Member’s notice required by this Section 9.11(a) shallalso be considered timely, but only with respect to nominees for any newpositions created by such increase, if it shall be delivered to the Secretaryat the principal executive office of the Company not later than 5:00 p.m.,Eastern Time on the tenth day following the day on which such publicannouncement is first made by the Company.

 

(4)           For purposes of this Section 9.11,“Member Associated Person” of any Member shall mean (i) any personcontrolling, directly or indirectly, or acting in concert with, such Member, (ii) anyOwner of Shares owned of record or beneficially by such Member and (iii) anyperson controlling, controlled by or under common control with such MemberAssociated Person.

 

### (b)   Special Meetings of Members.  Only such business shall be conducted at aspecial meeting of Members as shall have been brought before the meetingpursuant to the Company’s notice of meeting. Nominations of individuals forelection to the Board of Directors may be made at a special meeting of Membersat which Directors are to be elected (i) pursuant to the Company’s noticeof meeting, (ii) by or at the direction of the Board of Directors or (iii) providedthat the Board of Directors has determined that Directors shall be elected atsuch special meeting, by any Member who is a Record Holder Member both at thetime of giving of notice provided for in this Section 9.11 and at the timeof the special meeting, who is entitled to vote at the meeting and who compliedwith the notice procedures set forth in this Section 9.11. In the eventthe Company calls a special meeting of Members for the purpose of electing oneor more individuals to the Board of Directors, any such Member may nominate anindividual or individuals (as the case may be) for election as a Director asspecified in the Company’s notice of meeting, if the Member’s notice requiredby paragraph (2) of this Section 9.11(a) shall be deliveredto the Secretary at the principal executive office of the Company not earlierthan the 120th day prior to such special meeting and notlater than 5:00 p.m., Eastern Time on the later of the 90th day prior to such special meeting or the tenthday following the day on which public announcement is first made of the date ofthe special meeting and of the nominees proposed by the Board of Directors tobe elected at such meeting. The public announcement of a postponement oradjournment of a special meeting shall not commence a new time period for thegiving of a Member notice as described above.

###  

### (c)   General.  (1) Uponwritten request by the Secretary or the Board of Directors or any committeethereof, any Member proposing a nominee for election as a Director or anyproposal for other business at a meeting of Members shall provide, within fiveBusiness Days of delivery of such request (or such other period as may bespecified in such request), written verification, satisfactory, in thediscretion of the Board of Directors or any committee thereof or any authorizedofficer of the Company, to demonstrate the accuracy of any informationsubmitted by the Member pursuant to this Section 9.11. If a Member failsto provide such written verification within such period, the information as towhich written verification was requested may be deemed not to have beenprovided in accordance with this Section 9.11.

###  

(2)           Only such individuals who arenominated in accordance with this Section 9.11 shall be eligible forelection by Members as Directors, and only such business shall be conducted ata meeting of Members as shall have been brought before the meeting inaccordance with this Section 9.11. The chairman of the meeting shall havethe power to

 

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determinewhether a nomination or any other business proposed to be brought before themeeting was made or proposed, as the case may be, in accordance with this Section 9.11.

 

(3)           For purposes of this Section 9.11,(a) the “date of mailing of the notice” shall mean the date of the proxystatement for the solicitation of proxies for election of Directors and (b) “publicannouncement” shall mean disclosure (i) in a press release reported by theDow Jones News Service, Associated Press, Business Wire, PR Newswire orcomparable news service or (ii) in a document publicly filed or furnishedby the Company with the Commission pursuant to the Exchange Act.

 

(4)           Notwithstanding the foregoingprovisions of this Section 9.11, a Member shall also comply with allapplicable requirements of state law and of the Exchange Act and the rules andregulations thereunder with respect to the matters set forth in this Section 9.11.Nothing in this Section 9.11 shall be deemed to affect any right of aMember to request inclusion of a proposal in, nor the right of the Company toomit a proposal from, the Company’s proxy statement pursuant to Rule l4a-8(or any successor provision) under the Exchange Act.

 

## Section 9.12 Procedure for Election of Directors; Voting.  The election of Directors submitted toMembers at any meeting shall be decided by a plurality of the votes cast by theMembers entitled to vote thereon. Except as otherwise provided by applicablelaw or this Agreement, all matters other than the election of Directorssubmitted to the Members at any meeting shall be decided by the affirmativevote of the holders of a majority of the then Outstanding Shares entitled tovote thereon present in person or represented by proxy at the meeting ofMembers. The vote on any matter at a meeting, including the election ofDirectors, shall be by written ballot. Each ballot shall be signed by theMember voting, or by such Member’s proxy, and shall state the number of Sharesvoted.

##  

## Section 9.13 Inspectors of Elections.  The Board of Directors, in advance of any meeting, may, but need not,appoint one or more individual inspectors or one or more entities thatdesignate individuals as inspectors to act at the meeting or any adjournmentthereof. If an inspector or inspectors are not appointed, the individualpresiding at the meeting may, but need not, appoint one or more inspectors. Incase any person who may be appointed as an inspector fails to appear or act,the vacancy may be filled by appointment made by the Board of Directors inadvance of the meeting or at the meeting by the chairman of the meeting. Theinspectors, if any, shall determine the number of Outstanding Shares and thevoting power of each, the Shares represented at the meeting, the existence of aquorum, the validity and effect of proxies, and shall receive votes, ballots orconsents, hear and determine all challenges and questions arising in connectionwith the right to vote, count and tabulate all votes, ballots or consents,determine the result, and do such acts as are proper to conduct the election orvote with fairness to all Members. Each such report shall be in writing andsigned by him or her or by a majority of them if there is more than oneinspector acting at such meeting. If there is more than one inspector, thereport of a majority shall be the report of the inspectors. The report of theinspector or inspectors on the number of Shares represented at the meeting andthe results of the voting shall be prima facie evidence thereof. The inspectorsshall have the duties prescribed by the DGCL as if the Company were a Delawarecorporation.

 

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## Section 9.14 Waiver of Notice.  Wheneverany notice is required to be given to any Member by the terms of this Agreementor pursuant to applicable law, a waiver thereof in writing, signed by thePerson or Persons entitled to such notice, or a waiver thereof by electronictransmission by the Person or Persons entitled to notice, whether before orafter the time stated therein, shall be deemed equivalent to the giving of suchnotice. Neither the business to be transacted at, nor the purpose of, anyannual or special meeting of the Members need be specified in any writtenwaiver of notice or any waiver by electronic transmission of such meeting,unless specifically required by statute. Notice of any meeting of Members neednot be given to any Member if waived by such Member either in a writing signedby such Member or by electronic transmission, whether such waiver is givenbefore or after such meeting is held. If any such waiver is given by electronictransmission, the electronic transmission must either set forth or be submittedwith information from which it can be determined that the electronictransmission was authorized by the Member. The attendance of any Person at anymeeting shall constitute a waiver of notice of such meeting, except where suchPerson attends a meeting for the express purpose of objecting to thetransaction of any business on the ground that the meeting is not lawfullycalled or convened.

##  

## Section 9.15 Remote Communication.  Forthe purposes of this Agreement, if authorized by the Board of Directors in itssole discretion, and subject to such guidelines and procedures as the Board ofDirectors may adopt, Members and proxyholders may, by means of remotecommunication:

##  

### (a)   participate in a meeting of Members; and

###  

### (b)   to the fullest extent permitted by applicable law, be deemedpresent in person and vote at a meeting of Members, whether such meeting is tobe held at a designated place or solely by means of remote communication; *provided, however,* that (i) theCompany shall implement reasonable measures to verify that each Person deemedpresent and permitted to vote at the meeting by means of remote communicationis a Member or proxyholder, (ii) the Company shall implement reasonablemeasures to provide such Members and proxyholders a reasonable opportunity toparticipate in the meeting and to vote on matters submitted to the Members,including an opportunity to read or hear the proceedings of the meetingsubstantially and concurrently with such proceedings, and (iii) if anyMember or proxyholder votes or takes other action at the meeting by means ofremote communication, a record of such vote or other action shall be maintainedby the Company.

###  

## Section 9.16 Member Action Without a Meeting. On any matter that is to be voted on, consented to or approved byMembers, the Members may take such action without a meeting, without priornotice and without a vote if a unanimous written consent, setting forth theaction so taken, shall be signed by all of the Members.

##  

## Section 9.17 Return on Capital Contribution. Except as otherwise provided in Article 20, no Member shall demanda return on or of its Capital Contributions.

##  

## Section 9.18 Member Compensation.  NoMember shall receive any interest, salary or draw with respect to its CapitalContributions or its Capital Account or for services rendered on 

 

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## behalf of the Company, or otherwise, in its capacity as a Member,except as otherwise provided in this Agreement or in the Management Agreement.

##  

## Section 9.19 Member Liability.  Exceptas required by the Act, no Member shall be liable under a judgment, decree ororder of a court, or in any other manner, for the Debts or any otherobligations or liabilities of the Company. A Member shall be liable only tomake its Capital Contributions and shall not be required to restore a deficitbalance in its Capital Account or to lend any funds to the Company or, afterits Capital Contributions have been made, to make any additional contributions,assessments or payments to the Company except as otherwise specificallyprovided herein; *provided**, however,*that a Member may be required to repay any distribution made to it in contraventionof Section 5.3 or Sections 18-607 or 18-804 of the Act. The Manager shallnot have any personal liability for the repayment of any Capital Contributionsof any Member.

##  

# **ARTICLE10INVESTMENT POLICIES**

# ** **

Subjectto the provisions of this Agreement, the Board of Directors may from time totime adopt, amend, revise or terminate any policy or policies with respect toinvestments by the Company as it shall deem appropriate in its sole discretion.

 

# **ARTICLE11SEAL**

# ** **

## Section 11.1 Seal.  The Board of Directorsmay authorize the adoption of a seal by the Company. The seal shall contain thename of the Company, the year of its formation, and the words “Delaware LimitedLiability Company.” The Board of Directors may authorize one or more duplicateseals and provide for the custody thereof.

##  

## Section 11.2 Affixing Seal.  Wheneverthe Company is permitted or required to affix its seal to a document, except asotherwise required by applicable law, it shall be sufficient to meet therequirements of any law, rule or regulation relating to a seal to placethe word “(SEAL)” adjacent to the signature of the Person authorized to executethe document on behalf of the Company.

##  

# **ARTICLE12CONTRACT, LOANS, CHECKS AND DEPOSITS**

# ** **

## Section 12.1 Contracts.  The Board ofDirectors, the Executive Committee or another committee of the Board ofDirectors within the scope of its delegated authority, may authorize anyofficer or agent to enter into any contract or to execute and deliver anyinstrument in the name of and on behalf of the Company and such authority maybe general or confined to specific instances. Any agreement, deed, mortgage,lease or other document shall be valid and binding upon the Company when dulyauthorized or ratified by action of the Board of Directors, or the ExecutiveCommittee or such other committee and executed by an authorized person.

##  

## Section 12.2 Checks and Drafts.  Allchecks, drafts or other orders for the payment of money, notes or otherevidences of indebtedness issued in the name of the Company shall be 

 

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## signed by such officer or agent of the Company in such manner as shallfrom time to time be determined by the Board of Directors.

##  

## Section 12.3 Deposits.  All funds of theCompany not otherwise employed shall be deposited from time to time to thecredit of the Company in such banks, trust companies or other depositories asthe Board of Directors may designate.

##  

# **ARTICLE13INDEMNIFICATION**

# ** **

## Section 13.1 Indemnification and Advances.

##  

### (a)   The Company may indemnify, to the fullest extent permitted by law,each Person who was or is a party or is threatened to be made a party to anythreatened, pending or completed action, suit or proceeding, whether civil,criminal, administrative or investigative (other than an action by or in theright of the Company), by reason of the fact that the Person is or was aDirector, officer, employee, Tax Matters Member or agent of the Company, or isor was serving at the request of the Company as a director, officer, employeeor agent of another corporation, partnership, joint venture, trust or otherenterprise, against expenses (including attorneys’ fees), judgments, fines andamounts paid in settlement actually and reasonably incurred by the Person inconnection with such action, suit or proceeding, if the Person acted in goodfaith and in a manner the Person reasonably believed to be in or not opposed tothe best interests of the Company, and, with respect to any criminal action orproceeding, had no reasonable cause to believe the Person’s conduct wasunlawful. The termination of any action, suit or proceeding by judgment, order,settlement, conviction, or upon a plea of nolo contendere or its equivalent,shall not, of itself, create a presumption that the Person did not act in goodfaith and in a manner which the Person reasonably believed to be in or notopposed to the best interests of the Company, and, with respect to any criminalaction or proceeding, had reasonable cause to believe that the Person’s conductwas unlawful.

###  

TheCompany may indemnify, to the fullest extent permitted by law, any Person whowas or is a party or is threatened to be made a party to any threatened,pending or completed action or suit by or in the right of the Company toprocure a judgment in its favor by reason of the fact that the Person is or wasa Director, officer, employee, Tax Matters Member or agent of the Company, oris or was serving at the request of the Company as a director, officer,employee or agent of another corporation, partnership, joint venture, trust orother enterprise, against expenses (including attorneys’ fees) actually andreasonably incurred by the Person in connection with the defense or settlementof such action or suit if the Person acted in good faith and in a manner thePerson reasonably believed to be in or not opposed to the best interests of theCompany and except that no indemnification shall be made in respect of anyclaim, issue or matter as to which such Person shall have been adjudged to beliable to the Company unless and only to the extent that the Court of Chanceryof the State of Delaware or the court in which such action or suit was broughtshall determine upon application that, despite the adjudication of liabilitybut in view of all the circumstances of the case, such Person is fairly andreasonably entitled to indemnity for such expenses which the Court of Chanceryof the State of Delaware or such other court shall deem proper.

 

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Tothe extent that a present or former Director, officer or Tax Matters Member ofthe Company has been successful on the merits or otherwise in defense of anyaction, suit or proceeding referred to in this Section 13.1(a), or indefense of any claim, issue or matter therein, such Person shall be indemnifiedagainst expenses (including attorneys’ fees) actually and reasonably incurredby such Person in connection therewith.

 

### Each of the Persons entitled to beindemnified for expenses and liabilities as contemplated above may, in theperformance of his, her or its duties, consult with legal counsel andaccountants, and any act or omission by such Person on behalf of the Company infurtherance of the interests of the Company in good faith in reliance upon, andin accordance with, the advice of such legal counsel or accountants will befull justification for any such act or omission, and such Person will be fullyprotected for such acts and omissions; *provided*, thatsuch legal counsel or accountants were selected with reasonable care by or onbehalf of the Company.

###  

### (b)   Any indemnification of a present or former Director, officer,employee, Tax Matters Member or agent of the Company under Section 13.1 (a) or(c) shall be made by the Company only as authorized in the specific caseupon a determination that indemnification of the present or former Director,officer, employee, Tax Matters Member or agent of the Company is proper in thecircumstances because the Person has met the applicable standard of conduct setforth in Section 13.1(a) or pursuant to Section 13.1(c), as thecase may be. Such determination shall be made, with respect to a Person who isa Director, officer, employee, Tax Matters Member or agent of the Company atthe time of such determination, (1) by a majority vote of the Directorswho are not parties to any such action, suit or proceeding, even though lessthan a quorum, (2) by a committee of such Directors designated by amajority vote of such Directors, even though less than a quorum, (3) ifthere are no such Directors, or if a majority, even though less than a quorum,of such Directors so direct, by independent legal counsel in a written opinion,or (4) by the Members. The indemnification, and the advancement ofexpenses incurred in defending a action, suit or proceeding prior to its finaldisposition, provided by or granted pursuant to this Agreement shall not beexclusive of any other right which any Person may have or hereafter acquireunder any statute, other provision of this Agreement, vote of Members orDisinterested Directors or otherwise. No repeal, modification or amendment of,or adoption of any provision inconsistent with, this Section 13.1, nor, tothe fullest extent permitted by applicable law, any modification of law, shalladversely affect any right or protection of any Person granted pursuant heretoexisting at, or with respect to any events that occurred prior to, the time ofsuch repeal, amendment, adoption or modification. The indemnification andadvancement of expenses provided by, or granted pursuant to, this Agreementshall, unless otherwise provided when authorized or ratified, continue as to aPerson who has ceased to be a Director, officer, Tax Matters Member, employeeor agent of the Company and shall inure to the benefit of the heirs, executorsand administrators of such a Person.

###  

### (c)   The Company may, to the extent authorized from time to time by theBoard of Directors, grant rights to indemnification, and rights to be paid bythe Company the expenses incurred in defending any such action, suit orproceeding in advance of its final disposition, to any Person who is or was anemployee or agent of the Company or any Subsidiary of the Company (other thanthose Persons indemnified pursuant to clause (a) of this Section 13.1)and to any Person who is or was serving at the request of the Company or aSubsidiary of the 

 

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### Company as a director, officer, employee oragent of another corporation, partnership, limited liability company, jointventure, trust or other enterprise, including service with respect to employeebenefit plans maintained or sponsored by the Company or a Subsidiary of theCompany, to the fullest extent of the provisions of this Agreement with respectto the indemnification and advancement of expenses of directors, officers,employees, Tax Matters Members and agents of the Company. The payment of anyamount to any Person pursuant to this clause (c) shall subrogate theCompany to any right such Person may have against any other Person.

###  

### (d)   To the fullest extent permitted by law, expenses (includingattorneys’ fees) incurred by a Director, officer, employee, Tax Matters Memberor agent of the Company in defending any civil, criminal, administrative orinvestigative action, suit or proceeding may be paid by the Company in advanceof the final disposition of such action, suit or proceeding upon receipt of anundertaking by or on behalf of such Person to repay such amount if it shallultimately be determined that such Person is not entitled to be indemnified bythe Company as authorized in this Section 13.1.

###  

### With respect to any Person who is a presentor former Director, officer, employee, Tax Matters Member or agent of theCompany, any undertaking required by this Section 13.1(d) shall be anunlimited general obligation but need not be secured and shall be acceptedwithout reference to financial ability to make repayment; *provided, however*, that such present orformer Director, officer, employee, Tax Matters Member or agent of the Companydoes not transfer assets with the intent of avoiding such repayment.

###  

### (e)   The indemnification and advancement provided in this Section 13.1is intended to comply with the requirements of, and provide indemnification andadvancement rights substantially similar to those that may be available todirectors, officers, employees and agents of corporations incorporated under,the DGCL as it relates to the indemnification of officers, directors, employeesand agents of a Delaware corporation and, as such (except to the extent greaterrights are expressly provided in this Agreement), the parties intend that theyshould be interpreted consistently with the provisions of, and jurisprudenceregarding, the DGCL.

###  

### (f)    Any notice, request or other communications required or permittedto be given to the Company under this Section 13.1 shall be in writing andeither delivered in person or sent by facsimile, telex, telegram, overnightmail or courier service, or certified or registered mail, postage prepaid,return receipt requested, to the Secretary and shall be effective only uponreceipt by the Secretary, as the case may be.

###  

### (g)   To the fullest extent permitted by the law of the State ofDelaware, each Director, officer, employee, Tax Matters Member and agent of theCompany agrees that all actions for the advancement of expenses orindemnification brought under this Section 13.1 or under any vote ofMembers or Disinterested Directors or otherwise shall be a matter to which Section 18-111of the Act shall apply and which shall be brought exclusively in the Court ofChancery of the State of Delaware. Each of the parties hereto agrees that theCourt of Chancery of the State of Delaware may summarily determine the Company’sobligations to advance expenses (including attorneys’ fees) under this Section 13.1.

 

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## Section 13.2 Insurance.  The Company maymaintain insurance, at its expense, to protect itself and any Person who is orwas a Director, officer, partner, the Manager (or manager), Member (or member),employee, Tax Matters Member or agent of the Company or a Subsidiary of theCompany or of another corporation, partnership, limited liability company,joint venture, trust or other enterprise against any expense, liability orloss, whether or not the Company would have the power to indemnify such Personagainst such expense, liability or loss under the DGCL (if the Company were acorporation incorporated thereunder) or the Act.

##  

## Section 13.3 Reliance; Limitations in Liability.

##  

### (a)   Each Director of the Company shall, in the performance of suchDirector’s duties, be fully protected in relying in good faith upon the recordsof the Company and upon such information, opinions, reports or statementspresented to the Company by the Manager, or employees of the Manager, or any ofthe officers of the Company, or committees of the Board of Directors, or by anyother Person as to matters the Director reasonably believes are within suchother Person’s professional or expert competence, including, withoutlimitation, information, opinions, reports or statements as to the value andamount of the assets, liabilities, profits or losses of the Company, or thevalue and amount of assets or reserves or contracts, agreements or otherundertakings that would be sufficient to pay claims and obligations of theCompany or to make reasonable provision to pay such claims or obligations, orany other facts pertinent to the existence and amount of the assets of theCompany from which distributions to Members might properly be paid.

###  

### (b)   No Director shall be liable to the Company, any Subsidiary of theCompany or the Members for monetary damages for any acts or omissions arisingfrom the performance of any of such Director’s obligations or duties inconnection with the Company, including any breach of fiduciary duty, except asfollows:  (i) for breach of theDirector’s duty of loyalty to the Company or its Members, (ii) for acts oromissions not in good faith or which involve intentional misconduct or aknowing violation of law, or (iii) for any transaction from which theDirector derived an improper benefit. To the extent the provisions of thisAgreement restrict or eliminate the duties and liabilities of a Director of theCompany or the Members or the Manager otherwise existing at law or in equity,the provisions of this Agreement shall replace such duties and liabilities.

###  

### (c)   To the fullest extent permitted by law, a Director of the Companyshall not be liable to the Company, any Member or any other Person for: (i) anyaction taken or not taken as required by this Agreement; (ii) any actiontaken or not taken as permitted by this Agreement and, with respect to which,such Director acted on an informed basis, in good faith and with the honestbelief that such action, taken or not taken, was in the best interests of theCompany; or (iii) the Company’s compliance with an obligation incurred orthe performance of any agreement entered into prior to such Director havingbecome a Director of the Company.

###  

### (d)   Any Director shall not be liable to the Company or to any otherDirector or Member of the Company or any such other Person that is a party toor otherwise bound by this Agreement for breach of fiduciary duty for theDirector’s good faith reliance on the provisions of this Agreement.

 

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###  

### (e)   Except as otherwise required by the Act, the debts, obligationsand liabilities of the Company shall be solely the debts, obligations andliabilities of the Company and no Director shall be obligated personally forany such debt, obligation or liability of the Company solely by reason of beinga Director of the Company.

###  

# **ARTICLE14ACCOUNTING YEAR**

# ** **

TheManager shall have the power, from time to time, to fix the fiscal year of theCompany, which shall be the Taxable Year.

 

# **ARTICLE15TRUST CONVERSION**

# ** **

Without the approval of any Member, the Board of Directorsmay, at any time, cause the Company to implement a reorganization whereby aDelaware statutory trust (the “Statutory Trust”) would holdall Outstanding Shares (or less than all if so provided by the Board ofDirectors) and the holder of each Share (other than any Shares excluded by theBoard of Directors) would receive, in exchange for such Share, a common shareof the Statutory Trust which would represent one undivided beneficial interestin the Statutory Trust, and each common share of the Trust would correspond toa pro rata portion of the Shares held by the Statutory Trust; *provided, however*, that the Board of Directors will not implementsuch a trust structure if, in its sole discretion, it determines that suchreorganization would be taxable or otherwise alter the benefits or burdens ofownership of the Shares, including altering a Member’s allocation of items ofincome, gain, loss, deduction or credit or the treatment of such items for U.S.federal income tax purposes.  The Boardof Directors will also be required to implement the reorganization in such amanner that the reorganization does not have a material adverse effect on thevoting or economic rights of Shares.

 

# **ARTICLE16MEMBER VOTE REQUIRED IN CONNECTION WITHCERTAIN BUSINESS COMBINATIONS OR TRANSACTIONS**

# ** **

## Section 16.1 Vote Generally Required. Subject to the provisions of Section 16.2, the Company shall not (a) mergeor consolidate with or into any limited liability company, corporation,statutory trust, business trust or association, real estate investment trust,common-law trust or any other unincorporated business, including a partnership,or (b) sell, lease or exchange all or substantially all of its Propertyand assets, (c) unless the Board of Directors shall adopt a resolution, bythe affirmative vote of at least a majority of the Board of Directors,approving such action and unless such action shall be approved by theaffirmative vote of the holders of a majority of each class of Shares, in eachcase, Outstanding and entitled to vote thereon, unless such action is ascontemplated by Section 6.2(d) or Article 15, in which event novote by the holders of shares shall be required. The notice of the meeting atwhich such resolution is to be considered will so state.

##  

## Section 16.2 Vote for Business Combinations. The affirmative vote of the holders of record of at least 66 2/3% ofeach class of Shares then Outstanding (excluding Shares Owned by 

 

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##  

## the Interested Member or any Affiliate or Associate of the InterestedMember) shall be required to approve any Business Combination. Such affirmativevote shall be required notwithstanding the fact that no vote may be required,or that a lesser percentage may be specified, by applicable law or in anyagreement with any securities exchange or otherwise.

##  

## Section 16.3 Power of Continuing Directors. The Continuing Directors shall have the power and duty to determine, onthe basis of information known to them after reasonable inquiry, all factsnecessary to determine compliance with this Article 16, including, withoutlimitation, (a) whether a Person is an Interested Member, (b) the numberof Shares of the Company beneficially owned by any Person, (c) whether aPerson is an Affiliate or Associate of another, and (d) the Fair MarketValue of the equity securities of the Company or any Subsidiary thereof, andthe good faith determination of the Continuing Directors on such matters shallbe conclusive and binding for all the purposes of this Article 16.

##  

## Section 16.4 No Effect on Fiduciary Obligations.  Nothing contained in this Article shallbe construed to relieve the Directors or an Interested Member from anyfiduciary obligation imposed by applicable law.

##  

# **ARTICLE 17BOOKS AND RECORDS**

# ** **

## Section 17.1  Books andRecords; Inspection by Members.

##  

### (a)   The Company, other than as provided in the Management Agreement,shall keep or cause to be kept at its principal executive office appropriatebooks and records with respect to the Company’s business, including, withoutlimitation, all books and records necessary to provide to the Members anyinformation, lists and copies of documents required to be provided pursuant toapplicable law. Any books and records maintained by or on behalf of the Companyin the regular course of its business, including, without limitation, therecord of the Members, books of account and records of Company proceedings, maybe kept in electronic or any other form; *provided*,that the books and records so maintained are convertible into clearly legiblewritten form within a reasonable period of time.

###  

### (b)   The Secretary shall make, at least ten days before every meetingof Members, a complete list of the Members entitled to vote at the meeting,arranged in alphabetical order, and showing the address of each Member and thenumber of Shares registered in the name of each Member. Such list shall be opento the examination of any Member, for any purpose germane to the meeting for aperiod of at least ten days prior to the meeting: (i) on a reasonablyaccessible electronic network; *provided*,that the information required to gain access to such list is provided with thenotice of the meeting, or (ii) during ordinary business hours, at theprincipal place of business of the Company. In the event that the Companydetermines to make the list available on an electronic network, the Company maytake reasonable steps to ensure that such information is available only toMembers. If the meeting of Members is to be held at a place, then the listshall be produced and kept at the time and place of the meeting during thewhole time thereof, and may be inspected by any Member who is present.

 

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### (c)   Any Member or Owner, in person or by attorney or other agent,shall, upon written demand stating the purpose thereof, have the right duringthe usual business hours to inspect for any proper purpose, and to make copiesand extracts from the Register, a list of the Members, and its other books andrecords; *provided*, that as of thedate of the making of the demand inspection of such books and records would notconstitute a breach of any confidentiality agreement. In every instance where aPerson purports to be an Owner of Shares but who is not the Record Holder asidentified on the Register, the demand shall state under oath such Person’sstatus as an Owner of Shares, be accompanied by documentary evidence ofOwnership of Shares, and state that such documentary evidence is a true andcorrect copy of what it purports to be. A proper purpose shall mean a purposereasonably related to such Person’s interest as a Member or Owner of Shares. Inevery instance where an attorney or other agent shall be the person who seeksthe right to inspection, the demand under oath shall be accompanied by a powerof attorney or such other writing which authorizes the attorney or other agentto so act on behalf of the Member. The demand under oath shall be directed tothe Company at its principal place of business.

###  

## Section 17.2  Reports.

##  

### (a)   As soon as practicable, but in no event laterthan 120 days after the close of each fiscal year of the Company, the Board ofDirectors shall cause to be mailed or made available to each Record Holder of aShare, as of a date selected by the Board of Directors, an annual reportcontaining financial statements of the Company for such fiscal year of theCompany, presented in accordance with GAAP, including a balance sheet andstatements of operations, equity and cash flows, such statements to be auditedby a registered public accounting firm selected by the Board of Directors.

###  

### (b)   As soon as practicable, but in noevent later than 90 days after the close of each Quarter except the lastQuarter of each fiscal year, the Board of Directors shall cause to be mailed ormade available to each Record Holder of a Share, as of a date selected by theBoard of Directors, a report containing unaudited financial statements of theCompany and such other information as may be required by applicable law,regulation or rule of any National Securities Exchange on which the Sharesare listed for trading, or as the Board of Directors determines to be necessaryor appropriate.

###  

## Section 17.3 Preparation of Tax Returns. The Manager shall arrange for the preparation and timely filing of allreturns of Company income, gains, deductions, losses and other items requiredof the Company for U.S. federal and state income tax purposes. The Managershall use reasonable efforts to furnish to all Members necessary taxinformation as promptly as possible after the end of the Taxable Year of theCompany; *provided, however*, that delivery of suchtax information may be subject to delay as a result of the late receipt of anynecessary tax information from any entity in which the Company or any of itsSubsidiaries holds an interest. The classification, realization and recognitionof income, gains, deductions, losses and other items shall be on the accrualmethod of accounting for U.S. federal income tax purposes.

 

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## Section 17.4 Tax Elections.

###  

### (a)   The Manager may, in its sole discretion and without any furtherconsent of the Members being required (except as specifically required herein),make (i) the election to adjust the basis of Property pursuant toSections 754, 734(b) and 743(b) of the Code, or comparableprovisions of state, local or foreign law, in connection with Sales of Sharesand Company distributions; and (ii) any and all other elections for U.S.federal, state, local and foreign tax purposes, including, without limitation,any election, if permitted by applicable law: (x) to extend the statute oflimitations for assessment of tax deficiencies against the Members with respectto adjustments to the Company’s U.S. federal, state, local or foreign taxreturns; and (y) the election to cause the Company to be treated as an “electinglarge partnership” within the meaning of Section 775 of the Code**.**

###  

### (b)   The Manager is specifically authorized to act as the “Tax MattersMember” under the Code and in any similar capacity under state orlocal law. The Tax Matters Member is authorized and required to represent theCompany (at the Company’s expense) in connection with all examinations of theCompany’s affairs by tax authorities, including resulting administrative andjudicial proceedings, and to expend Company funds for professional services andcosts associated therewith. Each Member agrees to cooperate with the TaxMatters Member and to do or refrain from doing any or all things reasonablyrequired by the Tax Matters Member to conduct such proceedings. Should theManager no longer be a Member or no longer be the Manager pursuant to theManagement Agreement, then, upon such event, the Board of Directors, withoutany further consent of the Members being required, may designate a replacement “TaxMatters Member.”

###  

### (c)   The Board of Directors, without any further consent of the Membersbeing required, may cause the Company to elect to be treated as an associationtaxable as a corporation for U.S. federal income tax purposes; *provided**, however*, that such action shallbe taken only if the Board of Directors first obtains an opinion from anationally recognized financial advisor to the effect that it expects themarket valuation of the Company to be significantly lower as a result of theCompany continuing to be treated as a partnership for U.S. federal income taxpurposes than if the Company instead elected to be treated as a corporation forU.S. federal income tax purposes.

###  

# **ARTICLE18AMENDMENTS**

# ** **

This Agreement may be amended only by theaffirmative vote of a majority of the Board of Directors; *provided**, however,* thatSections 2.1(d), 2.1(e), 8.6, 16.1, 16.2, 20.1(i), 20.1(ii) and this Article 18may not be amended without the affirmative vote of Members holding a majorityof the Shares present in person or represented by proxy at a meeting ofMembers. Notwithstanding anything to the contrary contained in this Agreement,the Board of Directors is authorized by resolution adopted by the affirmativevote of a majority of the Board of Directors to (x) amend, modify orsupplement this Agreement to correct any administrative or ministerial error oromission contained in this Agreement or to clarify, and (y) withoutlimiting the generality of the foregoing provisions of this Article 18,amend, modify or supplement the provisions of Section 6.23 (relating tocommittees of the Board) from time to time.

 

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# ** **

# **ARTICLE19RESERVED**

# ** **

# **ARTICLE20DISSOLUTION AND WINDING UP**

# ** **

## Section 20.1 Dissolution Events.  TheCompany shall dissolve and shall commence winding up upon the first to occur ofany of the following (each a “Dissolution Event”):

##  

#### (i)         the Board of Directorsadopts a resolution, by the affirmative vote of at least a majority of theBoard of Directors, approving the dissolution of the Company and such actionhas been approved by the affirmative vote of the holders of a majority of theOutstanding Shares and entitled to vote thereon;

####  

#### (ii)        the unanimous vote ofthe holders of the Outstanding Shares to dissolve the Company;

####  

#### (iii)       the entry of ajudicial decree that an event has occurred that makes it not reasonablypracticable to carry on the business of the Company as then currently operatedas determined in accordance with Section 18-802 of the Act; or

####  

#### (iv)       upon the termination ofthe legal existence of the last remaining Member or the occurrence of any otherevent that terminates the continued membership of the last remaining Member inthe Company unless the Company is continued without dissolution in a mannerpermitted by this Agreement or the Act.

####  

The Members hereby agree that,notwithstanding any provision of the Act, the Company shall not dissolve prior tothe occurrence of a Dissolution Event.

 

## Section 20.2 Winding Up.  Upon theoccurrence of a Dissolution Event, the Company shall continue solely for thepurposes of winding up its affairs in an orderly manner, liquidating itsassets, and satisfying the claims of its creditors and Members, and no Membershall take any action that is inconsistent with, or not necessary to orappropriate for, the winding up of the Company’s business and affairs; *provided**, however*, that all covenantscontained in this Agreement and obligations provided for in this Agreementshall continue to be fully binding upon the Members until such time as theProperty has been distributed pursuant to this Section 20.2 and theCertificate of Formation has been canceled pursuant to the Act. The Liquidatorshall be responsible for overseeing the winding up of the Company, and shallendeavor to complete the winding up no later than 90 days after theoccurrence of the Dissolution Event. The Liquidator shall take full account ofthe Company’s liabilities and Property and shall cause the Property or theproceeds from the sale thereof (as determined pursuant to Section 20.9),to the extent sufficient therefor, to be applied and distributed, to themaximum extent permitted by law, in the following order:

##  

### (a)   First, to creditors (including the Manager and the Members who arecreditors, to the extent otherwise permitted by law) in satisfaction of all ofthe Company’s Debts and other liabilities (whether by payment or the making ofreasonable provision for payment thereof), other than liabilities fordistributions to Members under Section 18-601 or 18-604 of the Act;

 

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###  

### (b)   Second, except as provided in this Agreement, to Members andformer Members of the Company in satisfaction of liabilities for distributionsunder Section 18-601 or 18-604 of the Act; and

###  

### (c)   The balance, if any, to the Members in accordance with thepositive balance in their Capital Accounts, after giving effect to allcontributions, distributions and allocations for all periods. It is intendedthat each Common Share receive an identical amount under this provision, andthis Agreement shall be construed so as to achieve that result.

###  

Notwithstanding Section 20.9, no Memberor Manager shall receive additional compensation for any services performedpursuant to this Article 20.

 

## Section 20.3 Compliance with Certain Requirements of Regulations; Deficit CapitalAccounts.  In the event the Companyis “liquidated” within the meaning of Section 1.704-1(b)(2)(ii)(g) ofthe Code (other than a “liquidation” as the result of termination under Section 708(b)(1)(B))of the Code), distributions shall be made in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).If any Member has a deficit balance in its Capital Account (after giving effectto all contributions, distributions and allocations for all Taxable Years,including the Taxable Year during which such liquidation occurs), such Membershall have no obligation to make any contribution to the capital of the Companywith respect to such deficit, and such deficit shall not be considered a debtowed to the Company or to any other Person for any purpose whatsoever. In thediscretion of the Liquidator, a pro rata portion of the distributions thatwould otherwise be made to the Members pursuant to this Article 20 may be:

##  

### (a)   Distributed to a trust established for the benefit of the Membersfor the purposes of liquidating Company assets, collecting amounts owed to theCompany, and paying any contingent, conditional or unmatured liabilities orobligations of the Company; the assets of any such trust shall be distributedto the Members from time to time, in the reasonable discretion of theLiquidator, in the same proportions as the amount distributed to such trust bythe Company would otherwise have been distributed to the Members pursuant to Section 20.2;or

###  

### (b)   Withheld to provide a reasonable reserve for Company liabilities(contingent or otherwise) and to reflect the unrealized portion of any installmentobligations owed to the Company; *provided**, however*,that such withheld amounts shall be distributed to the Members as soon aspracticable.

###  

## Section 20.4 Deemed Contribution and Distribution.  Notwithstanding any other provision of this Article 20,in the event the Company terminates under Section 708(b)(1)(B) of theCode and no Dissolution Event has occurred, the Property shall not beliquidated, the Company’s Debts and other Liabilities shall not be paid ordischarged, and the Company’s affairs shall not be wound up. Instead, solelyfor U.S. federal income tax purposes, the Company shall be deemed to havecontributed all its Property and liabilities to a new limited liability companyin exchange for interests in such new company and, immediately thereafter, theCompany will be deemed to liquidate by distributing interests in the newcompany to the Members.

 

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##  

## Section 20.5 Rights of Members.  Exceptas otherwise provided in this Agreement, each Member shall look solely to theProperty of the Company for the return of its Capital Contribution and has noright or power to demand or receive Property other than cash from the Company.If the assets of the Company remaining after payment or discharge of the debtsor liabilities of the Company are insufficient to return such CapitalContribution, the Members shall have no recourse against the Company or anyother Member or the Manager.

##  

## Section 20.6 Notice of Dissolution/Termination.

##  

### (a)   In the event a Dissolution Event occurs or an event occurs thatwould, but for the provisions of Section 20.1, result in a dissolution ofthe Company, the Board of Directors shall, within thirty days thereafter,provide written notice thereof to each of the Members and to all other partieswith whom the Company regularly conducts business (as determined in thediscretion of the Board of Directors) and shall publish notice thereof in anewspaper of general circulation in each place in which the Company regularlyconducts business (as determined in the discretion of the Board of Directors).

###  

### (b)   Upon completion of the winding up, including distribution of theCompany’s assets as provided in this Article 20, the Board of Directors orthe Liquidator shall cause the filing of the Certificate of Cancellationpursuant to Section 18-203 of the Act and shall take all such otheractions as may be necessary to terminate the Company.

###  

## Section 20.7 Allocations During Period of Winding Up.  During the period commencing on the first dayof the Taxable Year during which a Dissolution Event occurs and ending on thedate on which all of the remaining assets of the Company have been distributedto the Members pursuant to Section 20.2 (the “Liquidation Period”), theMembers shall continue to share Profits, Losses, gain, loss and other items ofCompany income, gain, loss or deduction in the manner provided in Article 4.

##  

## Section 20.8 The Liquidator.

##  

### (a)   Fees.  Subject to Section 20.2,the Company is authorized to pay a reasonable fee to the Liquidator for itsservices performed pursuant to this Article 20 and to reimburse theLiquidator for its reasonable costs and expenses incurred in performing thoseservices.

###  

### (b)   Indemnification.  TheCompany shall indemnify, hold harmless and pay all judgments and claims againstthe Liquidator or any officers, directors, agents or employees of theLiquidator relating to any liability or damage incurred by reason of any actperformed or omitted to be performed by the Liquidator or any officers,directors, agents or employees of the Liquidator in connection with theliquidation of the Company, including reasonable attorneys’ fees incurred bythe Liquidator, officer, director, agent or employee in connection with thedefense of any action based on any such act or omission, which attorneys’ feesmay be paid as incurred, except to the extent such liability or damage iscaused by the fraud or intentional misconduct of, or a knowing violation of thelaws by, the Liquidator which was material to the cause of action.

###  

## Section 20.9 Form of Liquidating Distributions.  For purposes of making distributions requiredby Section 20.2, the Liquidator may determine whether to distribute all orany portion 

 

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##  

## of the Property in kind or to sell all or any portion of the Propertyand distribute the proceeds therefrom.

##  

# **ARTICLE21MISCELLANEOUS**

# ** **

## Section 21.1 Addresses and Notices.  Any notice, demand, request, report or proxymaterials required or permitted to be given or made to a Member under thisAgreement shall be in writing and shall be deemed given or made when deliveredin person or when sent by first class United States mail or by other means ofwritten communication to the Member at the address described below.  Any notice, payment or report to be given ormade to a Member hereunder shall be deemed conclusively to have been given ormade, and the obligation to give such notice or report or to make such paymentshall be deemed conclusively to have been fully satisfied, upon sending of suchnotice, payment or report to the Record Holder of such Shares at his, her orits address as shown on the records of the Transfer Agent or as otherwise shownon the records of the Company, regardless of any claim of any Person who mayhave an interest in such Shares by reason of any assignment or otherwise. Anaffidavit or certificate of making of any notice, payment or report inaccordance with the provisions of this Section 21.1 executed by theCompany, the Transfer Agent or the mailing organization shall be prima facieevidence of the giving or making of such notice, payment or report.  If any notice, payment or report addressed toa Record Holder at the address of such Record Holder appearing on the books andrecords of the Transfer Agent or the Company is returned by the United StatesPostal Service marked to indicate that the United States Postal Service isunable to deliver it, such notice, payment or report and any subsequentnotices, payments and reports shall be deemed to have been duly given or madewithout further mailing (until such time as such Record Holder or anotherPerson notifies the Transfer Agent or the Company of a change in his, her orits address) if they are available for the Member at the principal office ofthe Company for a period of one year from the date of the giving or making ofsuch notice, payment or report to the other Members. Any notice to the Companyshall be deemed given if received by the Secretary at the principal office ofthe Company designated pursuant to Section 1.5.  The Board of Directors and the Officers mayrely and shall be protected in relying on any notice or other document from aMember or other Person if believed by it to be genuine.

##  

## Section 21.2 Binding Effect.  Except asotherwise provided in this Agreement, every covenant, term and provision ofthis Agreement shall be binding upon and inure to the benefit of the Membersand their respective successors, transferees and assigns.

##  

## Section 21.3 Construction.  It is theintent of the parties hereto that every covenant, term and provision of thisAgreement shall be construed simply according to its fair meaning and notstrictly for or against any party.

##  

## Section 21.4 Time.  In computing anyperiod of time pursuant to this Agreement, the day of the act, event or defaultfrom which the designated period of time begins to run shall not be included,but the time shall begin to run on the next succeeding day. The last day of theperiod so computed shall be included, unless it is a Saturday, Sunday or anyother day on which banks in The City of New York are required or authorized bylaw or executive order to close, in which event the period shall run until theend of the next day which is not a Saturday, Sunday or any 

 

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##  

## other day on which banks in The City of New York are required orauthorized by law or executive order to close.

##  

## Section 21.5 Headings.  Section andother headings contained in this Agreement are for reference purposes only andare not intended to describe, interpret, define or limit the scope, extent orintent of this Agreement or any provision hereof.

##  

## Section 21.6 Severability.  Except asotherwise provided in the succeeding sentence, every provision of thisAgreement is intended to be severable, and, if any term or provision of thisAgreement is illegal or invalid for any reason whatsoever, such illegality orinvalidity shall not affect the validity or legality of the remainder of thisAgreement. The preceding sentence of this Section 21.6 shall be of noforce or effect if the consequence of enforcing the remainder of this Agreementwithout such illegal or invalid term or provision would be to cause any Memberto lose the material benefit of its economic bargain.

##  

## Section 21.7 Incorporation by Reference. Every exhibit, schedule and other appendix attached to this Agreementand referred to herein is not incorporated in this Agreement by referenceunless this Agreement expressly otherwise provides.

##  

## Section 21.8 Variation of Terms.  Allterms and any variations thereof shall be deemed to refer to masculine,feminine or neuter, singular or plural, as the identity of the Person orPersons may require.

##  

## Section 21.9 Governing Law and Consent to Jurisdiction/Service of Process.  The laws of the State of Delaware (withoutregard to conflict of laws principles) shall govern this Agreement, includingthe validity of this Agreement, the construction of its terms and theinterpretation of the rights and duties arising hereunder.

##  

Each party hereto and any Person acquiring anShare, from time to time, (i) irrevocably submits to the non-exclusivejurisdiction and venue of any Delaware state court or U.S. federal courtsitting in Wilmington, Delaware in any action arising out of this Agreement(subject to Section 13.1) and (ii) consents to the service of processby mail. Nothing herein shall affect the right of any party to serve legalprocess in any manner permitted by law or affect its right to bring any actionin any other court.

 

## Section 21.10 Waiver of Jury Trial.  Eachof the Members irrevocably waives, to the extent permitted by law, all rightsto trial by jury and all rights to immunity by sovereignty or otherwise in anyaction, proceeding or counterclaim arising out of or relating to this Agreement.

##  

## Section 21.11 Counterpart Execution. This Agreement may be executed in any number of counterparts with thesame effect as if all of the Members had signed the same document. Allcounterparts shall be construed together and shall constitute one agreement.

##  

## Section 21.12 Specific Performance.  EachMember agrees with the other Members that the other Members would beirreparably damaged if any of the provisions of this Agreement were notperformed in accordance with their specific terms and that monetary damageswould not provide an adequate remedy in such event. Accordingly, it is agreedthat, in addition to any other remedy to which the nonbreaching Members may beentitled, at law or in equity, the 

 

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##  

## nonbreaching Members shall be entitled to injunctive relief to preventbreaches of the provisions of this Agreement and specifically to enforce theterms and provisions hereof in any action instituted in any court of the UnitedStates or any state thereof having subject matter jurisdiction thereof.

 

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IN WITNESS WHEREOF, the parties hereto haveexecuted and entered into this Amended and Restated Operating Agreement of theCompany as of the day first above set forth.

 
|   | KKR  FINANCIAL CORP.        |
|--------|-----------------------------|
|   |                        |   |
|   |                        |   |
|   | By:                         | /s/  Saturnino S. Fanlo |
|   | Name:                       | Saturnino  S. Fanlo |
|   | Title:                      | Chief  Executive Officer |
|   |                        |   |
|   |                        |   |
|   | KKR  FINANCIAL ADVISORS LLC |
|   |                        |   |
|   |                        |   |
|   | By:                         | /s/ David A. Netjes |
|   | Name:                       | David A. Netjes |
|   | Title:                      | Chief Operating Officer |

 

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**EXHIBIT A**

 

**Certificate Evidencing CommonSharesinKKR Financial Holdings LLC**

** **

| No. [              ] |   |   |   |   |   | [              ]  Shares |
|-------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|------------------------------------------------------------------------------------------------|

 

Inaccordance with the Amended and Restated Limited Liability Company Agreement ofKKR Financial Holdings LLC, as amended, supplemented or restated from time totime (the “**CompanyAgreement****”**),KKR Financial Holdings LLC, a Delaware limited liability company (the “**Company****”**),hereby certifies that [             ](the “**Holder****”**) isthe registered owner of [         ]Common Shares in the Company transferable on the books of the Company, inperson or by duly authorized attorney, upon surrender of this Certificateproperly endorsed. The rights, preferences and limitations of the Common Sharesare set forth in, and this Certificate and the Common Shares represented herebyare issued and shall in all respects be subject to the terms and provisions of,the Company Agreement. Copies of the Company Agreement are on file at, and willbe furnished without charge on delivery of written request to the Company at,the principal office of the Company located at 555 California Street, 50th Floor, San Francisco, California94104 or such other address as may be specified by notice under the CompanyAgreement. Capitalized terms used herein but not defined shall have themeanings given them in the Company Agreement.

 

TheHolder, by accepting this Certificate, is deemed to have (i) requestedadmission as, and agreed to become, a Member and to have agreed to comply withand be bound by the Company Agreement, (ii) granted the powers of attorneyprovided for in the Company Agreement and (iii) made the waivers and giventhe consents and approvals contained in the Company Agreement.

 

THE COMMON SHARESREPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RESTRICTIONS ON BENEFICIALAND CONSTRUCTIVE OWNERSHIP AND TRANSFER, AND THE RIGHTS OF REDEMPTION BY THECOMPANY, CONTAINED IN THE AGREEMENT. EVERY HOLDER OF THIS CERTIFICATE, BYHOLDING AND RECEIVING THE SAME, AGREES WITH THE COMPANY TO BE BOUND BY THETERMS OF THE AGREEMENT.

 

ThisCertificate shall be governed by, and construed in accordance with, the laws ofthe State of Delaware, without regard to principles of conflict of lawsthereof.

 

A-1

----

 

ThisCertificate shall not be valid for any purpose unless it has been countersignedand registered by the Transfer Agent and Registrar.

 

Dated:

 
| Countersigned  and Registered by: |   | KKR  Financial Holdings LLC |
|-----------------------------------|--------|-----------------------------|
|                              |   |                        |
|                              |   |                        |
|                              |   | By:                         |   |
| as  Transfer Agent and Registrar  |   | Name:                       |   |
|                              |   | Title:                      |   |

 

A-2

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**Reverse ofCertificate ABBREVIATIONS**

 

Thefollowing abbreviations, when used in the inscription on the face of thisCertificate, shall be construed as follows according to applicable laws orregulations:

 
| TEN COM— | as tenants in common                                                      |   | UNIF GIFT/TRANSFERS MIN ACT                                                                                                                                                                                                                                                                               |
|---------------|---------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|          |                                                                      |   |                                                                                                                                                                                                                                                                                                      |
| TEN ENT— | as tenants by the entireties                                              |   | Custodian                                                                                                                                                                                                                                                                                                 |
|          |                                                                      |   |                                                                                                                                                                                                                                                                                                      |
|          |                                                                      |   | (Cust)                                                                                                                                                                                                                                                                                                    |     (Minor) |
|          |                                                                      |   |                                                                                                                                                                                                                                                                                                      |
| JT TEN—  | as joint tenants with right of survivorship and not as  tenants in common |   | under Uniform Gifts/Transfers to CD Minors Act                                            (State) |

 

Additionalabbreviations, though not in the above list, may also be used.

 

A-3

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** **

**ASSIGNMENT OF SHARESinKKR FINANCIAL HOLDINGS LLC**

 

FOR VALUERECEIVED, hereby assigns, conveys, sells and transfers unto

 

(Pleaseprint or typewrite name and address of Assignee)

 

(Pleaseinsert Social Security or other identifying number of Assignee)

 

[                        ]Shares evidenced by this Certificate, subject to the Company Agreement, anddoes hereby irrevocably constitute and appoint as its attorney-in-fact withfull power of substitution to transfer the same on the books of KKR FinancialHoldings LLC.

 
| Date:                                                                                                                                           |   | NOTE: The signature to any endorsement hereon must  correspond with the name as written upon the face of this Certificate in  every particular, without alteration, enlargement or change. |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                            |   |                                                                                                                                                                                       |
| **SIGNATURE(S) MUST BE GUARANTEED BY A**                                                                                                   |   |                                                                                                                                                                                       |
| **MEMBER FIRM OF THE NATIONAL ASSOCIATION  OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY  SIGNATURE(S) GUARANTEED** |   | (Signature)                                                                                                                                                                                |
| ** **                                                                                                                                      |   |                                                                                                                                                                                       |
|                                                                                                                                            |   | (Signature)                                                                                                                                                                                |

 

 

No transfer of the Sharesevidenced hereby will be registered on the books of the Company, unless theCertificate evidencing the Shares to be transferred is surrendered forregistration of transfer.

 

A-4

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