BALANCE SHEET OF KKR FINANCIAL CORP.
AND ITS CONSOLIDATED SUBSIDIARIES DATED MARCH 31, 2007, AND THE RELATED
CONSOLIDATED STATEMENTS OF INCOME OR OPERATIONS, SHAREHOLDERS' EQUITY AND CASH
FLOWS FOR THE FISCAL QUARTER ENDED ON THAT DATE (I) WERE PREPARED IN ACCORDANCE
WITH GAAP CONSISTENTLY APPLIED THROUGHOUT THE PERIOD COVERED THEREBY, EXCEPT AS
OTHERWISE EXPRESSLY NOTED THEREIN, AND (II) FAIRLY PRESENT THE FINANCIAL
CONDITION OF KKR FINANCIAL CORP. AND ITS SUBSIDIARIES AS OF THE DATE THEREOF AND
THEIR RESULTS OF OPERATIONS FOR THE PERIOD COVERED THEREBY, SUBJECT, IN THE CASE
OF CLAUSES (I) AND (II), TO THE ABSENCE OF FOOTNOTES AND TO NORMAL YEAR-END
AUDIT ADJUSTMENTS.
(C)
SINCE THE DATE OF THE AUDITED FINANCIAL STATEMENTS, THERE HAS BEEN
NO EVENT OR CIRCUMSTANCE, EITHER INDIVIDUALLY OR IN THE AGGREGATE, THAT HAS HAD
OR COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT; PROVIDED,
HOWEVER, THAT EACH OF THE PARTIES HERETO AGREES THAT THE CONVERSION AND
RESTRUCTURING TRANSACTIONS DESCRIBED ON PAGES 64 THROUGH 68 IN THE KKR FINANCIAL
FORM S-4 AND TO BE CONSUMMATED ON OR BEFORE THE MERGER EFFECTIVE TIME, AND THE
POST-CLOSING TRANSACTIONS DESCRIBED IN SECTION 6.12, SHALL NOT CONSTITUTE A
MATERIAL ADVERSE EFFECT.
5.06
LITIGATION.
THERE ARE NO ACTIONS, SUITS, PROCEEDINGS, FORMAL
INVESTIGATIONS, CLAIMS OR DISPUTES PENDING OR, TO THE KNOWLEDGE OF THE BORROWERS
AFTER DUE AND DILIGENT INVESTIGATION, THREATENED OR CONTEMPLATED, AT LAW, IN
EQUITY, IN ARBITRATION OR BEFORE ANY GOVERNMENTAL AUTHORITY, BY OR AGAINST ANY
BORROWER OR ANY OF ITS SUBSIDIARIES OR AGAINST ANY OF THEIR PROPERTIES OR
REVENUES THAT (A) PURPORT TO AFFECT OR PERTAIN TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR (B) EITHER
INDIVIDUALLY OR IN THE AGGREGATE, COULD REASONABLY BE EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT.
5.07
NO DEFAULT.
NEITHER ANY BORROWER NOR ANY SUBSIDIARY THEREOF IS IN
DEFAULT UNDER OR WITH RESPECT TO ANY CONTRACTUAL OBLIGATION THAT COULD, EITHER
INDIVIDUALLY OR IN THE AGGREGATE, REASONABLY BE EXPECTED TO HAVE A MATERIAL
ADVERSE EFFECT.
NO DEFAULT HAS OCCURRED AND IS CONTINUING OR WOULD RESULT FROM
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT.
5.08
ENVIRONMENTAL COMPLIANCE.
EXCEPT WITH RESPECT TO ANY MATTERS THAT,
INDIVIDUALLY OR IN THE AGGREGATE, COULD NOT REASONABLY BE EXPECTED TO RESULT IN
A MATERIAL ADVERSE EFFECT, NONE OF THE BORROWERS NOR ANY OF THEIR SUBSIDIARIES
(I) HAS FAILED TO COMPLY WITH ANY ENVIRONMENTAL LAW OR TO OBTAIN, MAINTAIN OR
COMPLY WITH ANY PERMIT, LICENSE OR OTHER APPROVAL REQUIRED UNDER ANY
ENVIRONMENTAL LAW, (II) HAS BECOME SUBJECT TO ANY ENVIRONMENTAL LIABILITY, (III)
HAS RECEIVED NOTICE OF ANY CLAIM WITH RESPECT TO ANY ENVIRONMENTAL LIABILITY OR
(IV) KNOWS OF ANY BASIS THAT COULD REASONABLY BE EXPECTED TO RESULT IN ANY
ENVIRONMENTAL LIABILITY.
5.09
INSURANCE.
THE PROPERTIES OF THE BORROWERS AND THEIR SUBSIDIARIES
ARE INSURED WITH FINANCIALLY SOUND AND REPUTABLE INSURANCE COMPANIES NOT
AFFILIATES OF THE BORROWERS, IN SUCH AMOUNTS, WITH SUCH DEDUCTIBLES AND COVERING
SUCH RISKS AS ARE CUSTOMARILY CARRIED BY COMPANIES ENGAGED IN SIMILAR BUSINESSES