Document:

Exhibit 10.17

 

 

 

CREDIT AGREEMENT

 

 

Dated as of May 3, 2010

 

among

 

KKR
FINANCIAL HOLDINGS LLC

 

and

 

THE
SUBSIDIARIES OF

 

KKR
FINANCIAL HOLDINGS LLC

 

PARTIES
HERETO

 

as the Borrowers,

 

 

CITIBANK, N.A.,

as Administrative Agent

 

 

CITIBANK, N.A.,

as Swingline Lender and Issuing Bank

 

and

 

The Other Lenders Party Hereto

 

and

 

CITIGROUP GLOBAL MARKETS INC.,

as

Sole Lead Arranger and Sole Book Manager

 

and

 

BANK OF AMERICA, N.A.,

and

DEUTSCHE BANK AG NEW YORK BRANCH,

as Syndication Agents

 

 

TABLE OF CONTENTS

 

	
  Section

  	
   

  	
  Page

  
	
   

  	
   

  
	
  ARTICLE I.
  DEFINITIONS AND ACCOUNTING TERMS

  	
  1

  
	
  1.01

  	
  Defined
  Terms

  	
  1

  
	
  1.02

  	
  Other
  Interpretive Provisions

  	
  27

  
	
  1.03

  	
  Accounting
  Terms

  	
  28

  
	
  1.04

  	
  Rounding

  	
  28

  
	
  1.05

  	
  Exchange
  Rates; Currency Equivalents

  	
  29

  
	
  1.06

  	
  Times of
  Day

  	
  29

  
	
   

  	
   

  	
   

  
	
  ARTICLE II.
  THE COMMITMENTS AND BORROWINGS

  	
  29

  
	
  2.01

  	
  Revolving
  Loans

  	
  29

  
	
  2.02

  	
  Borrowings,
  Conversions and Continuations of Revolving Loans

  	
  29

  
	
  2.03

  	
  Swingline
  Loans

  	
  31

  
	
  2.04

  	
  Letters
  of Credit

  	
  33

  
	
  2.05

  	
  Prepayments

  	
  38

  
	
  2.06

  	
  Termination
  or Reduction of Commitments

  	
  39

  
	
  2.07

  	
  Repayment
  of Loans

  	
  39

  
	
  2.08

  	
  Interest

  	
  39

  
	
  2.09

  	
  Fees

  	
  40

  
	
  2.10

  	
  Computation
  of Interest and Fees

  	
  41

  
	
  2.11

  	
  Evidence
  of Debt

  	
  41

  
	
  2.12

  	
  Payments
  Generally; Administrative Agent’s Clawback

  	
  42

  
	
  2.13

  	
  Sharing
  of Payments by Lenders

  	
  43

  
	
  2.14

  	
  Increase
  in Commitments

  	
  44

  
	
  2.15

  	
  Concerning
  Joint and Several Liability of the Borrowers

  	
  45

  
	
  2.16

  	
  Contribution

  	
  48

  
	
  2.17

  	
  Collateral
  Security

  	
  48

  
	
  2.18

  	
  Additional
  Borrowers

  	
  49

  
	
  2.19

  	
  Defaulting
  Lender Provisions

  	
  49

  
	
   

  	
   

  	
   

  
	
  ARTICLE III.
  TAXES, YIELD PROTECTION AND ILLEGALITY

  	
  52

  
	
  3.01

  	
  Taxes

  	
  52

  
	
  3.02

  	
  Illegality

  	
  54

  
	
  3.03

  	
  Inability
  to Determine Rates

  	
  54

  
	
  3.04

  	
  Increased
  Costs; Reserves on Eurodollar Loans

  	
  55

  
	
  3.05

  	
  Compensation
  for Losses

  	
  56

  
	
  3.06

  	
  Mitigation
  Obligations

  	
  57

  
	
  3.07

  	
  Survival

  	
  57

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV.
  CONDITIONS PRECEDENT TO BORROWINGS

  	
  57

  
	
  4.01

  	
  Conditions
  to Effectiveness

  	
  57

  
	
  4.02

  	
  Conditions
  of Initial Borrowing

  	
  57

  
	
  4.03

  	
  Conditions
  to all Borrowings

  	
  59

  
	
   

  	
   

  	
   

  
	
  ARTICLE V.
  REPRESENTATIONS AND WARRANTIES

  	
  59

  
	
  5.01

  	
  Existence,
  Qualification and Power

  	
  59

  

 

i

 

	
  5.02

  	
  Authorization;
  No Contravention

  	
  60

  
	
  5.03

  	
  Governmental
  Authorization; Other Consents

  	
  60

  
	
  5.04

  	
  Binding
  Effect

  	
  60

  
	
  5.05

  	
  Financial
  Statements; No Material Adverse Effect

  	
  60

  
	
  5.06

  	
  Litigation

  	
  61

  
	
  5.07

  	
  No
  Default

  	
  61

  
	
  5.08

  	
  Insurance

  	
  61

  
	
  5.09

  	
  Taxes

  	
  61

  
	
  5.10

  	
  ERISA
  Compliance

  	
  61

  
	
  5.11

  	
  Properties

  	
  61

  
	
  5.12

  	
  Investment
  Company Act

  	
  62

  
	
  5.13

  	
  Disclosure

  	
  62

  
	
  5.14

  	
  Compliance
  with Laws

  	
  62

  
	
  5.15

  	
  Solvency

  	
  62

  
	
  5.16

  	
  Borrowing
  Base Report

  	
  62

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI.
  AFFIRMATIVE COVENANTS

  	
  62

  
	
  6.01

  	
  Financial
  Statements

  	
  62

  
	
  6.02

  	
  Certificates;
  Other Information

  	
  63

  
	
  6.03

  	
  Notices

  	
  65

  
	
  6.04

  	
  Payment
  of Obligations

  	
  65

  
	
  6.05

  	
  Preservation
  of Existence, Etc.

  	
  65

  
	
  6.06

  	
  Maintenance
  of Properties

  	
  65

  
	
  6.07

  	
  Maintenance
  of Insurance

  	
  65

  
	
  6.08

  	
  Compliance
  with Laws

  	
  66

  
	
  6.09

  	
  Books and
  Records

  	
  66

  
	
  6.10

  	
  Inspection
  Rights

  	
  66

  
	
  6.11

  	
  Audit
  Rights

  	
  66

  
	
  6.12

  	
  Use of
  Proceeds

  	
  66

  
	
  6.13

  	
  Investment
  Policies

  	
  66

  
	
  6.14

  	
  Further
  Assurances

  	
  66

  
	
  6.15

  	
  Portfolio
  Valuation and Diversification, Etc.

  	
  67

  
	
  6.16

  	
  Calculation
  of Borrowing Base

  	
  68

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII.
  NEGATIVE COVENANTS

  	
  73

  
	
  7.01

  	
  Liens

  	
  73

  
	
  7.02

  	
  Investments

  	
  74

  
	
  7.03

  	
  Indebtedness

  	
  74

  
	
  7.04

  	
  Fundamental
  Changes

  	
  75

  
	
  7.05

  	
  Dispositions

  	
  76

  
	
  7.06

  	
  Restricted
  Payments

  	
  77

  
	
  7.07

  	
  Transactions
  with Affiliates

  	
  77

  
	
  7.08

  	
  Burdensome
  Agreements

  	
  77

  
	
  7.09

  	
  Financial
  Covenants

  	
  78

  
	
  7.10

  	
  Fiscal
  Year

  	
  79

  
	
  7.11

  	
  Lines of
  Business

  	
  79

  
	
  7.12

  	
  Margin
  Regulations; Securities Laws

  	
  79

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII.
  EVENTS OF DEFAULT AND REMEDIES

  	
  79

  
	
  8.01

  	
  Events of
  Default

  	
  79

  
	
  8.02

  	
  Remedies
  Upon Event of Default

  	
  80

  

 

ii

 

	
  8.03

  	
  Application
  of Funds

  	
  81

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX.
  ADMINISTRATIVE AGENT

  	
  81

  
	
  9.01

  	
  Appointment
  and Authority

  	
  81

  
	
  9.02

  	
  Rights as
  a Lender

  	
  82

  
	
  9.03

  	
  Exculpatory
  Provisions

  	
  82

  
	
  9.04

  	
  Reliance
  by Administrative Agent

  	
  83

  
	
  9.05

  	
  Delegation
  of Duties

  	
  83

  
	
  9.06

  	
  Resignation
  of Administrative Agent

  	
  83

  
	
  9.07

  	
  Non-Reliance
  on Administrative Agent and Other Lenders

  	
  84

  
	
  9.08

  	
  No Other
  Duties, Etc.

  	
  84

  
	
  9.09

  	
  Administrative
  Agent May File Proofs of Claim

  	
  84

  
	
  9.10

  	
  Collateral
  Matters

  	
  85

  
	
   

  	
   

  	
   

  
	
  ARTICLE X.
  MISCELLANEOUS

  	
  85

  
	
  10.01

  	
  Amendments, Etc.

  	
  85

  
	
  10.02

  	
  Notices;
  Effectiveness; Electronic Communication

  	
  87

  
	
  10.03

  	
  No
  Waiver; Cumulative Remedies

  	
  88

  
	
  10.04

  	
  Expenses;
  Indemnity; Damage Waiver

  	
  88

  
	
  10.05

  	
  Payments
  Set Aside

  	
  90

  
	
  10.06

  	
  Successors
  and Assigns

  	
  91

  
	
  10.07

  	
  Treatment
  of Certain Information; Confidentiality

  	
  94

  
	
  10.08

  	
  Right of
  Setoff

  	
  95

  
	
  10.09

  	
  Interest
  Rate Limitation

  	
  95

  
	
  10.10

  	
  Counterparts;
  Integration; Effectiveness

  	
  96

  
	
  10.11

  	
  Survival
  of Representations and Warranties

  	
  96

  
	
  10.12

  	
  Severability

  	
  96

  
	
  10.13

  	
  Replacement
  of Lenders

  	
  96

  
	
  10.14

  	
  Governing
  Law; Jurisdiction; Etc.

  	
  97

  
	
  10.15

  	
  No
  Advisory or Fiduciary Responsibility

  	
  98

  
	
  10.16

  	
  U.S.
  PATRIOT Act Notice

  	
  99

  
	
  10.17

  	
  Entire
  Agreement

  	
  99

  
	
  10.18

  	
  Judgment
  Currency

  	
  99

  

 

iii

 

SCHEDULES

 

	
  2.01

  	
  Commitments and Applicable
  Percentages

  
	
  5.06

  	
  Litigation

  
	
  7.01

  	
  Existing Liens

  
	
  7.03

  	
  Existing Indebtedness

  
	
  7.08

  	
  Burdensome Agreements

  
	
  10.02

  	
  Administrative Agent’s
  Office; Certain Addresses for Notices

  
	
  10.06

  	
  Processing and Recordation
  Fees

  

 

EXHIBITS

 

	
  A

  	
  Form of Revolving Loan
  Notice

  
	
  B

  	
  Form of Swingline
  Loan Notice

  
	
  C

  	
  Form of Promissory
  Note

  
	
  D

  	
  Form of Borrowing
  Base Report

  
	
  E

  	
  Form of Compliance
  Certificate

  
	
  F

  	
  Form of Assignment
  and Assumption

  
	
  G-1

  	
  Form of Opinion of
  Simpson Thacher & Bartlett LLP

  
	
  G-2

  	
  Form of Opinion of In-house
  General Counsel for the Borrowers

  
	
  G-3

  	
  Form of Opinion of
  Maples and Calder

  

 

iv

 

CREDIT AGREEMENT

 

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

 

W I T N E S S E T H:

 

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

 

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

 

1.01        Defined Terms.   As
used in this Agreement, the following terms shall have the meanings set forth
below:

 

“Adjusted
Consolidated Tangible Net Worth” means, as of any date of determination, an
amount equal to (a) the Consolidated Net Worth for KKR Financial and its
consolidated Subsidiaries (as of such date of determination, and calculated
without regard to any accumulated other comprehensive income or loss), less (b) the Intangible Assets for KKR Financial and
its consolidated Subsidiaries (as of such date of determination), excluding
accumulated other comprehensive income or loss (a component of shareholders’
equity) plus (c) Trust Preferred
Indebtedness (as of such date of determination, but in no event greater than
$440,000,000).

 

“Adjusted
Total Liabilities” means, as of any date of determination, Consolidated
Total Liabilities less (i) Non-Company VIE
Liabilities and (ii) Trust Preferred Indebtedness (as of such date of
determination, but in no event greater than $440,000,000).

 

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

 

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

 

“Administrative
Questionnaire” means an Administrative Questionnaire in a form supplied by
the Administrative Agent.

 

“Affiliate”
means, with respect to any Person, another Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by or is under
common Control with the Person 

 

1

 

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

 

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

 

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

 

“Aggregate
Commitments” means, collectively, all Commitments of all Lenders at any
time outstanding.

 

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

 

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

 

“Allocable
Amount” has the meaning specified in Section 2.16.

 

“Alternate
Currency” means Euros, British Pounds Sterling, Canadian Dollars,
Australian Dollars and any other currency reasonably acceptable to the
Administrative Agent that is freely convertible into Dollars and readily
available in the London interbank market.

 

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

 

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

 

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

 

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

 

“Applicable
Time” means, with respect to any borrowings and payments in any Alternate
Currency, the local time in the place of settlement for such Alternate Currency
as may be determined by the Administrative Agent to be necessary for timely
settlement on the relevant date in accordance with normal banking procedures in
the place of payment.

 

“Approved
Currency” means: (a) with respect to Base Rate Loans and Daily
Floating Eurodollar Loans, Dollars; (b) with respect to Fixed Period
Eurodollar Loans, each of Dollars, Euros, British Pounds 

 

2

 

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

 

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

 

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

 

“Assignee
Group” means two or more Eligible Assignees that are Affiliates of one
another or two or more Approved Funds managed by the same investment advisor.

 

“Assignment
and Assumption” means an assignment and assumption entered into by a Lender
and an Eligible Assignee with the consent of any party whose consent is
required by Section 10.06(b), and accepted by the Administrative
Agent, in substantially the form of Exhibit F or any other form
approved by the Administrative Agent.

 

“Attributable
Indebtedness” means, on any date, (a) in respect of any capital lease
of any Person, the capitalized amount thereof that would appear on a balance
sheet of such Person prepared as of such date in accordance with GAAP, and (b) in
respect of any Synthetic Lease Obligation, the capitalized amount of the
remaining lease payments under the relevant lease that would appear on a
balance sheet of such Person prepared as of such date in accordance with GAAP
if such lease were accounted for as a capital lease.

 

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

 

“Australian
Dollars” means the lawful currency of Australia.

 

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

 

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

 

“Bank”
means a financial institution that (i) has, or is part of a Consolidated
Group that has, at least $2.0 billion in capital, and is, or is an affiliate of
another entity within such Consolidated Group that is, regulated by the Office
of the Comptroller of the Currency, the Federal Reserve or the Office of Thrift
Supervision; or (ii) is, or is an affiliate of another entity within a
Consolidated Group that is, a registered broker/dealer under the Securities
Exchange Act of 1934, and has, or is part of a Consolidated Group that has, a
senior unsecured debt rating of at least A-/A3; provided, that an institution that does not
meet the criteria of clause (i) or clause (ii) above may nonetheless
be classified as a “Bank” on the following conditions: (x) the
Administrative Agent, in its sole discretion, exercised in a commercially
reasonable manner, which discretionary decision shall not be unreasonably
withheld or delayed, shall have expressly agreed to such classification, and (y) the
Value of all Eligible Specified Financial Assets that are Bank Loans originated
by such financial institution does not exceed $50 million (or such greater
amount as the 

 

3

 

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

 

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

 

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

 

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

 

“BBA
LIBOR” has the meaning specified in the definition of “Daily Floating
Eurodollar Rate”.

 

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

 

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

 

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

 

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

 

“Borrowing
Base Report” means a report signed by a Responsible Officer of each of
Borrowers, in substantially the form of Exhibit D hereto, delivered to the
Administrative Agent.

 

“Borrower
Materials” has the meaning specified in Section 6.02.

 

“Bridge
Loan” means debt financing with an original maturity of not more than
one (1) year with an expected repayment from a capital markets
transaction.

 

“British
Pounds Sterling” means the lawful currency of Great Britain.

 

“Business
Day” means any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the Laws of, or are in fact
closed in, the state where the Administrative Agent’s Office with respect to
Obligations denominated in Dollars is located and:

 

(a)           if
such day relates to any interest rate settings as to a Eurodollar Loan
denominated in Dollars, any fundings, disbursements, settlements and payments
in 

 

4

 

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

 

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

 

(c)           if
such day relates to any interest rate settings as to a Fixed Period Eurodollar
Loan denominated in an Approved Currency other than Dollars or Euros, means any
such day on which dealings in deposits in the relevant Approved Currency are
conducted by and between banks in the London or other applicable offshore
interbank market for such Approved Currency; and

 

(d)           if
such day relates to any fundings, disbursements, settlements and payments in an
Approved Currency other than Dollars or Euros in respect of a Fixed Period
Eurodollar Loan denominated in a currency other than Dollars or Euros, or any
other dealings in any Approved Currency other than Dollars or Euros to be
carried out pursuant to this Agreement in respect of any such Eurodollar Loan
(other than any interest rate settings), means any such day on which banks are
open for foreign exchange business in the principal financial center of the
country of such Approved Currency.

 

“Canadian
Dollars” means the lawful currency of Canada.

 

“Capital
Lease Obligations” of any Person means the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases
on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.

 

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

 

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

 

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

 

“Change
of Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the SEC
thereunder as in effect on the date hereof), of Equity Interests representing
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding Equity Interests of KKR Financial; (b) occupation of a
majority of the seats (other than vacant seats) on the board of 

 

5

 

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

 

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

 

“Closing
Date” means the earliest date on which each of the conditions precedent set
forth in Sections 4.01, 4.02 and 4.03 have either been
satisfied or waived.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Consolidated
Net Worth” means, as of any date of determination, the aggregate sum of all
amounts which would be included on a consolidated balance sheet of KKR
Financial and its Consolidated Subsidiaries under shareholders’ equity as of
such date in accordance with GAAP.

 

“Consolidated
Total Assets” means, as of any date of determination, the sum of (a) all
assets (“consolidated balance sheet assets”) of KKR Financial and its
Subsidiaries determined on a consolidated 

 

6

 

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

 

“Consolidated
Total Liabilities” means, as of any date of determination, all liabilities
of KKR Financial and its Subsidiaries determined on a consolidated basis in
accordance with GAAP and classified as such on the consolidated balance sheet
of KKR Financial and its Subsidiaries and, without duplication, all other
Indebtedness of KKR Financial and its Subsidiaries, whether or not so
classified; provided, that for purposes of this definition, in the case
of a Trust Preferred Securities Transaction of KKR Financial or any Subsidiary
of KKR Financial, only the Trust Preferred Indebtedness issued or incurred by
KKR Financial or any Subsidiary of KKR Financial in connection therewith,
excluding Trust Preferred Indebtedness relating solely to the common equity
securities of the applicable Trust Preferred Financing Vehicle, shall be
included in determining the liabilities and other Indebtedness of KKR Financial
and its Subsidiaries.  Notwithstanding
the foregoing, Consolidated Total Liabilities shall not include liabilities
arising out of any Disposition by KKR Financial of all of its residential real
estate assets as contemplated by Section 7.05(b) (i) that
are nonrecourse to the Borrowers and (ii) are recorded by KKR Financial
based on required application of FAS 140 or FIN-46(R).

 

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

 

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

 

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

 

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

 

“Custodial
Account” means the account established and maintained pursuant to the
Collateral Agreement in which Collateral will be deposited by the Borrowers and
pledged to the Administrative Agent and any demand deposit account established
and maintained in connection therewith.

 

“Custodian”
means The Bank of New York Mellon or another institution selected by the
Administrative Agent with the consent of the Borrowers, which consent shall not
be unreasonably withheld or delayed.

 

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

 

7

 

“Daily
Floating Eurodollar Rate” means, for any day, a fluctuating rate per annum
equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as
published by Reuters (or other commercially available source providing
quotations of BBA LIBOR as designated by the Administrative Agent from time to
time) at approximately 11:00 a.m. (London time) on such day (if such day
is a Business Day) or the immediately preceding Business Day (if such day is
not a Business Day), for deposits in the relevant Approved Currency with a term
equivalent to one (1) month.  If
such rate is not available at such time for any reason, then the “Daily
Floating Eurodollar Rate” shall be the rate per annum determined by the
Administrative Agent to be the rate at which deposits in the relevant Approved
Currency in Same Day Funds in the approximate amount of the Daily Floating
Eurodollar Loan being made, continued or converted by Citibank, N.A. and with a
term equivalent to one (1) month would be offered by Citibank, N.A.’s
London Branch to major banks in the London interbank eurodollar market for such
Approved Currency at their request at approximately 11:00 a.m. (London
time) on such day (if such day is a Business Day) or the immediately preceding
Business Day (if such day is not a Business Day).

 

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

 

“Debt
Securities” as used in the other definitions contained herein, means
securities evidencing debt obligations, including, without limitation,
certificates representing an interest in a trust, the principal assets of which
consist of debt obligations.

 

“Debtor
Relief Laws” means the Bankruptcy Code of the United States, and all other
liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief Laws of the United States or other applicable
jurisdictions from time to time in effect and affecting the rights of creditors
generally.

 

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

 

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

 

8

 

“Defaulting
Lender” means, at any time, a Lender (i) that has failed for three or
more Business Days to comply with its obligations under this Agreement to make
a Loan, make a payment to the Issuing Bank in respect of an LC Payment and/or
make a payment to the Swingline Lender in respect of a Swingline Loan (each a “funding
obligation”), (ii) that has notified the Administrative Agent, or has
stated publicly, that it will not comply with any such funding obligation
hereunder, or has defaulted on its funding obligations under any other loan
agreement or credit agreement or other financing agreement, (iii) that
has, for three or more Business Days, failed to confirm in writing to the
Administrative Agent, in response to a written request of the Administrative
Agent, that it will comply with its funding obligations hereunder, or (iv) in
respect of which a Lender Insolvency Event has occurred and is continuing, in
the case of clauses (i) through (iv) above unless the subject of a
good faith dispute and such Lender has notified the Administrative Agent in
writing of such (provided that neither the reallocation of funding obligations
provided for in Section 2.19(c) as a result of a Lender’s being a
Defaulting Lender nor the performance by Non-Defaulting Lenders of such
reallocated funding obligations will by themselves cause the relevant
Defaulting Lender to become a Non-Defaulting Lender).  Any determination that a Lender is a
Defaulting Lender under clauses (i) through (iv) above will be made
by the Administrative Agent in its reasonable discretion acting in good
faith.  The Administrative Agent will
promptly send to all parties hereto a copy of any notice to the Borrowers
provided for in this definition.

 

“Delayed
Draw Loan” means, as of any date, a term loan that has not yet been fully
funded.

 

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

 

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

 

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

 

“Dollar
Equivalent” means, at any time, (a) with respect to any amount
denominated in Dollars, such amount, and (b) with respect to any amount
denominated in any Alternate Currency, the equivalent amount thereof in Dollars
as determined by the Administrative Agent at such time on the basis of the Spot
Rate (determined in respect of the most recent Revaluation Date) for the
purchase of Dollars with such Alternate Currency.

 

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

 

“Eligible
Specified Financial Asset” means a Specified Financial Asset, or a
Participation Interest therein, of any Borrowers:

 

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

 

9

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

 

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

 

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

 

Notwithstanding
the foregoing, the Borrowing Base on any date may include an asset to be
purchased by any Borrower with the proceeds of a Loan to be made on that date
so long as (i) the Administrative Agent has been directed by such Borrower
to pay the proceeds of such Loan directly to the seller of the asset (to the
extent of the purchase price thereof), and (ii) the seller has been
directed to deliver the asset to the Administrative Agent or its nominee before
or against payment by such Borrower, or, if such delivery is not possible or
practical, in such other manner as is reasonably acceptable to the
Administrative Agent to satisfy the requirements of clauses (a), (b) and (c) of
this definition of “Eligible Specified Financial Asset.”  In such instance, the requirements of clauses
(a), (b), (c) and (d) need not be met for the asset to qualify as an
Eligible Specified Financial Asset until the expiration of three Business Days
following the date of the Borrowing so long as during the three Business Day
period, the Administrative Agent has a first priority perfected security interest
in the asset, provided, however, that the Value of the
asset does not exceed $25,000,000.

 

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

 

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

 

“Equity
Interests” means, with respect to any Person, all of the shares of capital
stock of (or other ownership or profit interests in) such Person, all of the
warrants, options or other rights for the purchase or acquisition from such
Person of shares of capital stock of (or other ownership or profit interests
in) such Person, all of the securities convertible into or exchangeable for
shares of capital stock of (or other ownership or profit interests in) such
Person or warrants, rights or options for the purchase or acquisition from such
Person of such shares (or such other interests), and all of the other ownership
or profit interests in such Person (including partnership, member or trust
interests therein), whether voting or nonvoting, and whether or not such
shares, warrants, options, rights or other interests are outstanding on any
date of determination.

 

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

 

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

 

11

 

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

 

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

 

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

 

“Eurodollar
Rate” means the Fixed Period Eurodollar Rate or the Daily Floating
Eurodollar Rate.

 

“Event
of Default” has the meaning specified in Section 8.01.

 

“Excluded
Taxes” means, with respect to the Administrative Agent, any Lender or any
other recipient of any payment to be made by or on account of any obligation of
any Borrower hereunder, (a) taxes imposed on or measured by its overall
gross or net income (however denominated), and franchise taxes imposed on it
(in lieu of net income taxes), in each case, by the jurisdiction (or any
political subdivision thereof including, without limitation, a state of the
United States and any political subdivision of such state) under the laws of
which such recipient is organized (or political subdivision thereof) or in
which its principal office is located or, in the case of any Lender, in which
its applicable Lending Office is located, (b) any branch profits taxes
imposed by the United States or any similar tax imposed by any other
jurisdiction (or political subdivision thereof) in which any Borrower is
located, (c) in the case of a Foreign Lender (other than an assignee
pursuant to a request by any Borrower under Section 10.13), any and
all Taxes (including withholding tax) that are imposed on amounts payable to
such Foreign Lender at the time such Foreign Lender becomes a party hereto (or
designates a new Lending Office), except to the extent that such Foreign Lender
(or its assignor, if any) was entitled, at the time of designation of a new
Lending Office (or assignment), to receive additional amounts from any Borrower
with respect to such withholding tax pursuant to Section 3.01(a), or are
attributable to such Foreign Lender’s failure or inability (other than as a
result of a Change in Law) to comply with Section 3.01(e), (d) any
and all Taxes imposed on it as a result of a trade or business, a permanent
establishment, or a present or former connection between such Lender or the
Administrative Agent (as the case may be) and the jurisdiction of the
Governmental Authority imposing such tax or any taxing authority thereof or
therein (other than any connection resulting from being a Lender hereunder) and
(e) any taxes that are imposed by reason of Section 1471 or Section 1472
of the Code.

 

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

 

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

 

12

 

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

 

“Fee
Letter” means the fee letter agreement, dated the date hereof, among the
Borrowers and the Administrative Agent, as amended.

 

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

 

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

 

“Fixed
Period Eurodollar Loan” means any Revolving Loan that bears interest at a
per annum rate equal to the Fixed Period Eurodollar Rate plus the Applicable
Rate.

 

“Fixed
Period Eurodollar Rate” means, for any day, a fixed rate equal to BBA
LIBOR, as published by Reuters (or other commercially available source
providing quotations of BBA LIBOR as designated by the Administrative Agent
from time to time) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, for U.S. dollar
deposits (for delivery on the first day of such Interest Period) with a term
equivalent to such Interest Period.  If
such rate is not available at such time for any reason, then the “Fixed Period
Eurodollar Rate” for such Interest Period shall be the rate per annum
determined by the Administrative Agent to be the rate at which deposits in U.S.
dollars for delivery on the first day of such Interest Period in same day funds
in the approximate amount of the Fixed Period Eurodollar Loan being made,
continued or converted by Citibank, N.A. and with a term equivalent to such
Interest Period would be offered by Citibank, N.A.’s London Branch to major
banks in the London interbank eurodollar market at their request at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.

 

“Foreign
Lender” means any Lender that is organized under the laws of a jurisdiction
other than that in which any Borrower is resident for tax purposes.  For purposes of this definition, the United
States, each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.

 

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

 

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

 

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

 

13

 

“Governmental
Authority” means the government of the United States or any other nation,
or of any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government (including
any supra-national bodies such as the European Union or the European Central
Bank).

 

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

 

“Guarantor
Payment” has the meaning specified in Section 2.16.

 

“Hazardous
Materials” means all explosive or radioactive substances or wastes and all
hazardous or toxic substances, wastes or other pollutants, including petroleum
or petroleum distillates, asbestos or asbestos-containing materials,
polychlorinated biphenyls, radon gas, infectious or medical wastes and all
other substances or wastes of any nature regulated pursuant to any
Environmental Law.

 

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

 

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

 

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

 

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

 

(b)           all direct or contingent obligations
of such Person arising under letters of credit (including standby and
commercial), bankers’ acceptances, bank guaranties, surety bonds and similar
instruments;

 

(c)           net obligations of such Person under
any Swap Contract;

 

14

 

(d)           all obligations of such Person to pay
the deferred purchase price of property or services (other than trade accounts
payable in the ordinary course of business and, in each case, not past due for
more than 60 days after the date on which such trade account payable was
created);

 

(e)           indebtedness (excluding prepaid
interest thereon) secured by a Lien on property owned or being purchased by
such Person (including indebtedness arising under conditional sales or other
title retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse;

 

(f)            Capital Lease Obligations and
Synthetic Lease Obligations;

 

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

 

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

 

For
all purposes hereof, the Indebtedness of any Person shall include the
Indebtedness of any partnership, joint venture (other than a joint venture that
is itself a corporation or limited liability company) or other business venture
(collectively with a partnership and a joint venture, referred to hereinafter
as a “Venture”), but only to the extent that such Person is directly or
indirectly liable for such Indebtedness, whether by reason of its status as
general partner, joint venturer or otherwise, unless, and only to the extent
that, such Indebtedness is expressly made non-recourse to such Person or
Venture.  The amount of any net
obligation under any Swap Contract on any date shall be deemed to be the Swap
Termination Value thereof as of such date. 
The amount of any Capital Lease Obligation or Synthetic Lease Obligation
as of any date shall be deemed to be the amount of Attributable Indebtedness in
respect thereof as of such date.

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

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

 

“Industry
Classification Group” means (a) any of the Moody’s classification
groups, together with any such classification groups that may be subsequently
established by Moody’s and provided by the Borrowers to the Lenders and (b) up
to three additional industry group classifications established by the Borrowers
pursuant to Section 6.15(a).

 

“Information”
has the meaning specified in Section 10.07.

 

“Intangible
Assets” means, as of any date of determination, the sum (without
duplication) of the following (in each case, to the extent included in
Consolidated Total Assets):  (a) the
total book value of all assets of KKR Financial and its Subsidiaries properly
classified as intangible assets under GAAP, including such items as goodwill,
the purchase price of acquired assets in excess of the fair market value
thereof, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the foregoing; plus (b) all
amounts representing any write-up in the book value of any assets of KKR
Financial or its Subsidiaries resulting from a revaluation thereof subsequent
to December 31, 2007, excluding adjustments to translate foreign assets
and liabilities for changes in foreign exchange rates made in accordance with
Statement of Financial Accounting Standards No. 52.

 

15

 

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

 

“Interest
Period” means, as to each Fixed Period Eurodollar Loan, the period
commencing on the date such Fixed Period Eurodollar Loan is disbursed or
converted to or continued as a Fixed Period Eurodollar Loan and ending on the
date, one, two, three or six months thereafter, as selected by any Borrower in
its Loan Notice; provided that:

 

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

 

(b)           any Interest Period that begins on
the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at the end of
such Interest Period; and

 

(c)           no Interest Period shall extend
beyond the Maturity Date.

 

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

 

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

 

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

 

“IRS”
means the United States Internal Revenue Service.

 

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

 

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

 

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

 

16

 

“KFH
III” has the meaning specified in the introductory paragraph hereto.

 

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

 

“KKR
Financial” has the meaning specified in the introductory paragraph hereto.

 

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

 

“KKR
Holdings” has the meaning specified in the introductory paragraph hereto.

 

“KKR
Holdings II” has the meaning specified in the introductory paragraph
hereto.

 

“KKR
Holdings III” has the meaning specified in the introductory paragraph
hereto.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Lending
Office” means, as to any Lender, the office or offices of such Lender
described as such in such Lender’s Administrative Questionnaire, or such other
office or offices as a Lender may from time to time notify the Borrowers and
the Administrative Agent.

 

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

 

“Letter
of Credit Commitment” means $25,000,000.

 

17

 

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

 

“Letters
of Credit Outstanding” shall mean, at any time, the sum of, without
duplication, (a) the aggregate stated amount of all outstanding Letters of
Credit and (b) the aggregate amount of all unreimbursed drawings or
payments in respect of all Letters of Credit.

 

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

 

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

 

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

 

“Loan”
means any Revolving Loan or Swingline Loan.

 

“Loan
Documents” means this Agreement, the Collateral Agreement, the Security
Documents, and each Note, if any, issued hereunder.

 

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

 

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

 

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

 

“Material
Adverse Effect” means a material adverse effect on (a) the business,
assets, operations or condition, financial or otherwise, of the Borrowers and
their respective Subsidiaries taken as a whole, (b) the ability of any
Borrower to perform any of its obligations under this Agreement or any other
Loan Document or (c) the rights of or benefits available to the
Administrative Agent or the Lenders under this Agreement or any other Loan
Document.

 

“Material
Indebtedness” means Indebtedness (other than the Loans and Indebtedness in
respect of Swap Contracts and Repurchase Agreement) of any one or more of each
of the Borrowers and their respective Subsidiaries in an aggregate principal
amount exceeding $25,000,000.

 

“Maturity
Date” means May 3, 2014, and, if
such date is not a Business Day, the Maturity Date shall be the next preceding
Business Day.

 

“Maximum
Rate” has the meaning specified in Section 10.09.

 

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

 

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

 

18

 

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

 

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

 

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

 

“Non-Company
VIE Liabilities” means, as of any date of determination, all non-recourse
liabilities of the consolidated GAAP balance sheet of the Borrowers and their
consolidated Subsidiaries arising from the required application of GAAP.

 

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

 

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

 

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

 

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

 

“Organization
Documents” means, (a) with respect to any corporation, the certificate
or articles of incorporation and the bylaws (or equivalent or comparable
constitutive documents with respect to any non-U.S. jurisdiction); (b) with
respect to any limited liability company, the certificate or articles of
formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.

 

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

 

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

 

“Other
Taxes” means all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies of the United States or any
political subdivision thereof (including, without limitation, any state in the
United States and any political subdivision of any such 

 

19

 

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

 

“Outstanding
Amount” means with respect to all Loans hereunder, on any date, the
aggregate outstanding principal amount thereof after giving effect to any
borrowings and prepayments or repayments of Loans occurring on such date.

 

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

 

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

 

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

 

“Patriot
Act” has the meaning specified in Section 10.16.

 

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

 

“PCAOB”
means the Public Company Accounting Oversight Board.

 

“Pension
Plan” means any “employee pension benefit plan” (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by KKR Financial or
any ERISA Affiliate or to which KKR Financial or any ERISA Affiliate
contributes or has an obligation to contribute, or in the case of a multiple
employer or other plan described in Section 4064(a) of ERISA, has
made contributions at any time during the immediately preceding five plan
years.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

20

 

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

 

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

 

“Permitted
Encumbrances” means:

 

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

 

(b)           landlords’, carriers’, warehousemen’s,
mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law,
arising in the ordinary course of business and securing obligations that are
not overdue by more than 30 days or are being contested in good faith by the
Borrowers or a Subsidiary thereof;

 

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

 

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

 

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

 

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

 

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

 

“Permitted
Investments” means:

 

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

 

(b)           investments in commercial paper
maturing within 270 days from the date of acquisition thereof and having, at
such date of acquisition, the highest credit rating obtainable from S&P or
Moody’s;

 

(c)           investments in certificates of
deposit, banker’s acceptances and time deposits maturing within 180 days from
the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any
commercial bank organized under the laws of the United States of America or any
State thereof which has a combined capital and surplus and undivided profits of
not less than $500,000,000;

 

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

 

21

 

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

 

“Person”
means any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other
entity.

 

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

 

“Platform”
has the meaning specified in Section 6.02.

 

“Potential
Defaulting Lender” means, at any time, a Lender (i) as to which the
Administrative Agent has notified the Borrowers that an event of the kind
referred to in the definition of “Lender Insolvency Event” has occurred and is
continuing in respect of any Subsidiary of such Lender, (ii) as to which
the Administrative Agent, the Issuing Bank or the Swingline Lender has in good
faith determined and notified the Borrowers and (in the case of the Issuing
Bank or the Swingline Lender) the Administrative Agent that such Lender or its
Parent Company or a Subsidiary thereof has notified the Administrative Agent,
or has stated publicly, that it will not comply with its funding obligations
under any other loan agreement or credit agreement or other similar financing
agreement or (iii) that has, or whose Parent Company has, a non-investment
grade rating from Moody’s or S&P or another nationally recognized rating
agency.  Any determination that a Lender
is a Potential Defaulting Lender under any of clauses (i) through (iii) above
will be made by the Administrative Agent or, in the case of clause (ii), the
Issuing Bank or the Swingline Lender, as the case may be, in its reasonable
discretion acting in good faith.  The
Administrative Agent will promptly send to all parties hereto a copy of any
notice to the Borrowers provided for in this definition.

 

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

 

“Public
Lender” has the meaning specified in Section 6.02.

 

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

 

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

 

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

 

“Related
Borrowing Base Information” means, with respect to any “Specified Financial
Asset” as defined herein, or Participation Interest therein, included or to be
included in the Borrowing Base, (a) the category of the Specified
Financial Asset as referred to in clauses (a) through (k) of the
definition and, if a Participation Interest is applicable, the participating
interest, (b) the identification of all primary and secondary material
obligors obligated on the Specified Financial Asset, (c) the CUSIP number,
if any, corresponding to such Eligible Specified Financial Asset, (d) the
principal amount of the loan, debt or other monetary obligation in which any
Borrower has an interest, (e) the scheduled maturity of the loan, debt or
other monetary obligation, (f) the type of collateral securing the loan,
debt or other monetary obligation and (g) the source of information used
in the determination of the Value.

 

“Related
Parties” means, with respect to any Person, such Person’s Affiliates and
the partners, directors, officers, employees, agents and advisors of such
Person and of such Person’s Affiliates.

 

22

 

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

 

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

 

“Request
for Borrowing” means (a) with respect to a Borrowing, conversion or
continuation of Revolving Loans, a Revolving Loan Notice and (b) with
respect to a Swingline Loan, a Swingline Loan Notice.

 

“Required
Lenders” means, as of any date of determination, the Lenders having
Commitments in the aggregate representing more than 50% of the Aggregate
Commitments at such time or, if the commitment of each Lender to make Loans has
been terminated pursuant to Section 8.02, at least two Lenders
holding in the aggregate more than 50% of the Total Revolving Credit Exposure
(with the aggregate amount of each Lender’s risk participation in Swingline
Loans being deemed “held” by such Lender for purposes of this definition); provided
that the Commitment of, and the portion of the Total Revolving Credit Exposure
held or deemed held by, any Defaulting Lender shall be excluded for purposes of
making a determination of Required Lenders.

 

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

 

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

 

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

 

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

 

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

 

“Revolving
Loan” means an extension of credit made by a Lender to a Borrower pursuant
to Section 2.01 of this Agreement.

 

23

 

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

 

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

 

“Same
Day Funds” means (a) with respect to disbursements and payments in
Dollars, immediately available funds, and (b) with respect to
disbursements and payments in an Alternate Currency, same day or other funds as
may be determined by the Administrative Agent to be customary in the place of
disbursement or payment for the settlement of international banking
transactions in the relevant Alternate Currency.

 

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

 

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

 

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

 

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

 

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

 

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

 

“Security
Agreement” means the Security Agreement executed and delivered in
connection with this Agreement, among the Borrowers and the Administrative
Agent, as further amended, amended and restated, supplemented or otherwise
modified from time to time.

 

“Security
Documents” means the Security Agreement and all other instruments and
documents, including without limitation, Uniform Commercial Code financing
statements, which (a) are required to be executed, delivered or filed
pursuant to the Security Agreement or any other Loan Document or (b) are
necessary for the creation or perfection of any Lien in favor of the
Administrative Agent for the benefit of the Lenders to secure any of the
Obligations.

 

“Securities
Laws” means the Securities Act of 1933, the Securities Exchange Act of
1934, Sarbanes-Oxley and the applicable accounting and auditing principles,
rules, standards and practices promulgated, approved or incorporated by the SEC
or the PCAOB.

 

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

 

“Single
Obligor” means, collectively, all obligors that are Affiliates.

 

24

 

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

 

“Special
Event” means, in connection with a Trust Preferred Financing Vehicle, the
receipt by a Borrower (or its Subsidiary) of an opinion of counsel that as a
result of certain changes in or interpretations of the tax law or the
Investment Company Act or, in each case, regulations thereunder, there is more
than an insubstantial risk that the Trust Preferred Vehicle will be considered
an “investment company” under the Investment Company Act or that the Trust
Preferred Vehicle will be subject to United States federal income tax or
subject to more than a de minimus amount of other taxes or governmental charges
or that interest payable by the maker of the Trust Preferred Indebtedness will
not be eligible as a tax deduction by such maker.

 

“Spot
Rate”  for a currency means the rate
determined by the Administrative Agent to be the rate quoted by the Person
acting in such capacity as the spot rate for the purchase by such Person of
such currency with another currency through its principal foreign exchange
trading office at approximately 11:00 a.m. on the date two (2) Business
Days prior to the date as of which the foreign exchange computation is made;
provided that the Administrative Agent may obtain such spot rate from another
financial institution designated by the Administrative Agent if the Person
acting in such capacity does not have as of the date of determination a spot
buying rate for any such currency.

 

“Stated
Amount” of any Letter of Credit shall mean, at any time, the Dollar
Equivalent of the maximum amount available to be drawn thereunder at such time,
determined without regard to whether any conditions to drawing could then be
met.

 

“Subsidiary”
of a Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body (other than securities or interests having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled,
directly, or indirectly through one or more intermediaries, or both, by such
Person; provided, that each Non-U.S. Borrower shall be considered a
Subsidiary of KKR Financial so long as KKR Financial owns (directly or
indirectly through other Subsidiaries) a majority of the preferred shares of
such Non-U.S. Borrower; and provided  further that none of the CLO
Entities (other than KKR CLO 2009) shall be considered a Subsidiary of any
Borrower for so long as any Person other than KKR Financial or a Subsidiary or
any affiliate thereof holds any Indebtedness of such CLO Entity..  Unless otherwise specified, all references
herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or
Subsidiaries of KKR Financial.

 

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

 

25

 

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

 

“Swap
Termination Value” means, in respect of any one or more Swap Contracts,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s) determined
in accordance therewith, such termination value(s), and (b) for any date
prior to the date referenced in clause (a), the amount(s) determined as
the mark-to-market value(s) for such Swap Contracts, as determined based
upon one or more mid-market or other readily available quotations provided by
any recognized dealer in such Swap Contracts (which may include a Lender or any
Affiliate of a Lender). “Swingline Borrowing” means a borrowing of a
Swingline Loan pursuant to Section 2.03.

 

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

 

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

 

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

 

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

 

“Syndication
Agents” means, collectively, Bank of America, N.A. and Deutsche Bank AG New
York Branch.

 

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

 

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

 

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

 

“TARGET
Day” means any day on which TARGET is open for the settlement of payments
in Euro.

 

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

 

26

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Yen”
means the lawful currency of Japan.

 

1.02        Other Interpretive Provisions.   With
reference to this Agreement and each other Loan Document, unless otherwise
specified herein or in such other Loan Document:

 

(a)           The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes”
and “including” shall be deemed to be followed by the phrase “without
limitation.”  The word “will”
shall be construed to have the same 

 

27

 

meaning and effect as the
word “shall.”  Unless the context
requires otherwise, (i) any definition of or reference to any agreement,
instrument or other document (including any Organization Document) shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein
or in any other Loan Document), (ii) any reference herein to any Person
shall be construed to include such Person’s successors and assigns, (iii) the
words “herein,” “hereof” and “hereunder,” and words of
similar import when used in any Loan Document, shall be construed to refer to
such Loan Document in its entirety and not to any particular provision thereof,
(iv) all references in a Loan Document to Articles, Sections, Exhibits and
Schedules shall be construed to refer to Articles and Sections of, and Exhibits
and Schedules to, the Loan Document in which such references appear, (v) any
reference to any law shall include all statutory and regulatory provisions
consolidating, amending, replacing or interpreting such law and any reference
to any law or regulation shall, unless otherwise specified, refer to such law
or regulation as amended, modified or supplemented from time to time, and (vi) the
words “asset” and “property” shall be construed to have the same
meaning and effect and to refer to any and all tangible and intangible assets
and properties, including cash, securities, accounts and contract rights.

 

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

 

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

 

1.03        Accounting Terms.   (a) 
Generally.  All accounting terms
not specifically or completely defined herein shall be construed in conformity
with, and all financial data (including financial ratios and other financial
calculations) required to be submitted pursuant to this Agreement shall be
prepared in conformity with, GAAP applied on a consistent basis, as in effect
from time to time, applied in a manner consistent with that used in preparing
the Audited Financial Statements, except as otherwise specifically
prescribed herein.

 

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

 

(c)           Consolidation of Variable Interest
Entities.  All references herein to
consolidated financial statements of KKR Financial and its Subsidiaries or to
the determination of any amount for KKR Financial and its Subsidiaries on a
consolidated basis or any similar reference shall, in each case, be deemed to
include each variable interest entity that KKR Financial is required to
consolidate pursuant to GAAP as if such variable interest entity were a
Subsidiary as defined herein.

 

1.04        Rounding.   Any
financial ratios required to be maintained by KKR Financial pursuant to this
Agreement shall be calculated by dividing the appropriate component by the other
component,

 

28

 

carrying the result to one
place more than the number of places by which such ratio is expressed herein
and rounding the result up or down to the nearest number (with a rounding-up if
there is no nearest number).

 

1.05        Exchange Rates; Currency Equivalents.

 

(a)           The Administrative Agent shall
determine the Spot Rates as of each Revaluation Date to be used for calculating
the Dollar Equivalent of any particular amounts herein specified that are
denominated in Alternate Currencies. 
Such Spot Rates shall become effective as of such Revaluation Date and
shall be the Spot Rates employed in converting any amounts between the
applicable currencies until the next Revaluation Date to occur.  Except for purposes of financial statements
delivered by the Borrowers hereunder or calculating financial covenants
hereunder or except as otherwise provided herein, the applicable amount of any
currency (other than Dollars) for purposes of the Loan Documents shall be such
Dollar Equivalent amount as so determined by the Administrative Agent.

 

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

 

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

 

ARTICLE II.

THE COMMITMENTS AND BORROWINGS

 

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

 

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

 

2.02        Borrowings, Conversions and Continuations of
Revolving Loans.

 

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

 

29

 

requested date of any
Borrowing of, conversion to or continuation of Fixed Period Eurodollar Loans or
of any conversion of Fixed Period Eurodollar Loans to Base Rate Loans, (ii) one
Business Day prior to the requested date of any Borrowing of, conversion to or
continuation of Daily Floating Eurodollar Loans or of any conversion of Daily
Floating Eurodollar Loans to Base Rate Loans and (iii) on the requested
date of any Borrowing of Base Rate Loans. 
Each telephonic notice by any Borrower pursuant to this Section 2.02(a) must
be confirmed promptly by delivery to the Administrative Agent of a written
Revolving Loan Notice, appropriately completed and signed by a Responsible
Officer of the requesting Borrower.  Each
Borrowing of, conversion to or continuation of Fixed Period Eurodollar Loans or
Daily Floating Eurodollar Loan shall be in a principal amount of $5,000,000 or
a whole multiple of $1,000,000 in excess thereof.  Except as provided in Section 2.03(c),
each Borrowing of or conversion to Base Rate Loans shall be in a principal
amount of $500,000 or a whole multiple of $100,000 in excess thereof.  Each Revolving Loan Notice (whether
telephonic or written) shall specify (i) whether such Borrower is
requesting a Revolving Loan, a conversion of Revolving Loans from one Interest
Rate Type to the other, or a continuation of Fixed Period Eurodollar Loans, (ii) the
requested date of the Revolving Loan, conversion or continuation, as the case
may be (which shall be a Business Day), (iii) the principal amount of
Revolving Loans to be borrowed, converted or continued, (iv) the Interest
Rate Type of Revolving Loans to be borrowed or to which existing Revolving
Loans are to be converted or continued and (v) if applicable, the duration
of the Interest Period with respect thereto. If the applicable Borrower fails
to specify a Currency Type of a new Revolving Loan in a Revolving Loan Notice,
then the Revolving Loan shall be made in Dollars.  If the applicable Borrower fails to specify
an Interest Rate Type of Revolving Loan in a Revolving Loan Notice or if such
Borrower fails to give a timely notice requesting a conversion or continuation,
then the applicable Revolving Loans shall be made as, or converted to, Daily
Floating Eurodollar Loans; provided, however, that in the case of
a failure to timely request a continuation of Fixed Period Eurodollar Loans
denominated in an Alternate Currency, such Loans shall be continued as Fixed
Period Eurodollar Loans in their original currency with an Interest Period of
one month.  Any such automatic conversion
to Daily Floating Eurodollar Loans shall be effective as of the last day of the
Interest Period then in effect with respect to the applicable Fixed Period
Eurodollar Loans.  If the applicable
Borrower requests a Revolving Loan of, conversion to, or continuation of Fixed
Period Eurodollar Loans in any such Revolving Loan Notice, but fails to specify
an Interest Period, it will be deemed to have specified an Interest Period of
one month.  Fixed Period Eurodollar Loans
denominated in an Alternate Currency may not be converted to a different
Interest Rate Type.  No Revolving Loan
may be converted into or continued as a Revolving Loan denominated in a
different currency, but instead must be prepaid in the original currency of
such Revolving Loan and reborrowed in the other currency.

 

(b)           Following receipt of a Revolving Loan
Notice, the Administrative Agent shall promptly notify each Lender of the
amount of its Applicable Percentage of the applicable Revolving Loans (and the
of the currency of such Loans), and if no timely notice of a conversion or
continuation is provided by the Borrowers, the Administrative Agent shall
promptly notify each Lender of the details of any automatic conversion to Base
Rate Loans described in the preceding subsection.  In the case of a Revolving Loan, each Lender
shall make the amount of its Revolving Loan available to the Administrative
Agent in immediately available funds at the Administrative Agent’s Office not
later than 1:00 p.m. in the case of a Loan denominated in Dollars, and not
later than the Applicable Time specified by the Administrative Agent, in the
case of an Alternate Currency Loan, in each case on the Business Day specified
in the applicable Revolving Loan Notice. 
Upon satisfaction of the applicable conditions set forth in ARTICLE IV
(and, if such Borrowing is the initial Borrowing, Section 4.01),
the Administrative Agent shall make all funds so received available to the
Borrowers in like funds as received by the Administrative Agent by wire
transfer of such funds to the account specified by the applicable Borrower.

 

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

 

30

 

continuation, then no
Loans may be converted to or continued as Fixed Period Eurodollar Loans or
Daily Floating Eurodollar Loans.

 

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

 

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

 

2.03        Swingline Loans.

 

(a)           The Swingline.  Subject to the terms and conditions set forth
herein, the Swingline Lender agrees, in reliance upon the agreements of the
other Lenders set forth in this Section 2.03, to make swingline
loans (each such loan, a “Swingline Loan”) to the Borrowers in Dollars
from time to time on any Business Day during the Availability Period in an
aggregate amount not to exceed at any time outstanding the amount of the
Swingline Sublimit, notwithstanding the fact that such Swingline Loans, when
aggregated with such Lender’s Applicable Percentage of Letter of Credit
Exposure then outstanding and the Applicable Percentage of the Outstanding
Amount of Revolving Loans of the Lender acting as Swingline Lender, may exceed
the amount of such Lender’s Commitment; provided, however, that
after giving effect to any Swingline Loan, (i) the Total Revolving Credit
Exposure does not exceed the Line Cap and (ii) the aggregate amount of
such Lender’s Revolving Credit Exposure does not exceed such Lender’s
Commitment, and provided, further, that the applicable Borrower
shall not use the proceeds of any Swingline Loan to refinance any outstanding
Swingline Loan.  Within the foregoing
limits, and subject to the other terms and conditions hereof, the Borrowers may
borrow under this Section 2.03, prepay under Section 2.05,
and reborrow under this Section 2.03.  Each Swingline Loan shall be either a Base
Rate Loan or a Daily Floating Eurodollar Loan as selected by the applicable
Borrower.  Immediately upon the making of
a Swingline Loan, each Lender shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Swingline Lender a risk
participation in such Swingline Loan in an amount equal to the product of such
Lender’s Applicable Percentage times the amount of such Swingline
Loan.  Notwithstanding the foregoing and
subject to subsection (c) below, no Lender hereunder, other than the
Swingline Lender, shall be required to make a Daily Floating Eurodollar Loan.

 

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

 

31

 

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

 

(c)           Refinancing of Swingline Loans.

 

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

 

(ii)           If for any reason any Swingline Loan
cannot be refinanced by such a Revolving Loan in accordance with Section 2.03(c)(i),
the request for Base Rate Loans or Fixed Period Eurodollar Loans, as
applicable, submitted by the Swingline Lender as set forth herein shall be
deemed to be a request by the Swingline Lender that each of the Lenders fund
its risk participation in the relevant Swingline Loan and each Lender’s payment
to the Administrative Agent for the account of the Swingline Lender pursuant to
Section 2.03(c)(i) shall be deemed payment in respect of such
participation.

 

(iii)          If any Lender fails to make available
to the Administrative Agent for the account of the Swingline Lender any amount
required to be paid by such Lender pursuant to the foregoing provisions of this
Section 2.03(c) by the time specified in Section 2.03(c)(i),
the Swingline Lender shall be entitled to recover from such Lender (acting
through the Administrative Agent), on demand, such amount with interest thereon
for the period from the date such payment is required to the date on which such
payment is immediately available to the Swingline Lender at a rate per annum
equal to the greater of the Federal Funds Rate and a rate determined by the
Swingline Lender in accordance with banking industry rules on interbank
compensation, plus any administrative, processing or similar fees customarily
charged by the Swingline Lender in connection with the foregoing.  If such Lender pays such amount (with
interest and fees as aforesaid), the amount so paid shall constitute such Lender’s
Revolving Loan included in the relevant Borrowing or funded participation in
the relevant Swingline Loan, as the case may be.  A certificate of the Swingline Lender
submitted to any Lender (through the Administrative Agent) 

 

32

 

with respect to any
amounts owing under this clause (iii) shall be conclusive absent manifest
error.

 

(iv)          Each Lender’s obligation to make
Revolving Loans or to purchase and fund risk participations in Swingline Loans
pursuant to this Section 2.03(c) shall be absolute and
unconditional and shall not be affected by any circumstance, including (A) any
setoff, counterclaim, recoupment, defense or other right which such Lender may
have against the Swingline Lender, the Borrowers or any other Person for any
reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any
other occurrence, event or condition, whether or not similar to any of the
foregoing; provided, however, that each Lender’s obligation to
make Revolving Loans pursuant to this Section 2.03(c) is subject
to the conditions set forth in Section 4.03.  No such funding of risk participations shall
relieve or otherwise impair the obligation of the Borrowers to repay Swingline
Loans, together with interest as provided herein.

 

(d)           Repayment of Participations.

 

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

 

(ii)           If any payment received by the
Swingline Lender in respect of principal or interest on any Swingline Loan is
required to be returned by the Swingline Lender under any of the circumstances
described in Section 10.05 (including pursuant to any settlement
entered into by the Swingline Lender in its discretion), each Lender shall pay
to the Swingline Lender its Applicable Percentage thereof on demand of the
Administrative Agent, plus interest thereon from the date of such demand to the
date such amount is returned, at a rate per annum equal to the Federal Funds
Rate.  The Administrative Agent will make
such demand upon the request of the Swingline Lender.  The obligations of the Lenders under this
clause shall survive the payment in full of the Obligations and the termination
of this Agreement.

 

(e)           Interest for Account of Swingline
Lender.  The Swingline Lender shall
be responsible for invoicing the Borrowers for interest on the Swingline
Loans.  Until each Lender funds its Base
Rate Loan or Fixed Period Eurodollar Loan, as applicable, or risk participation
pursuant to this Section 2.03 to refinance such Lender’s Applicable
Percentage of any Swingline Loan, interest in respect of such Applicable
Percentage shall be solely for the account of the Swingline Lender.

 

2.04        Letters of Credit.   (a) Subject to and
upon the terms and conditions herein set forth, at any time and from time to
time after the Closing Date and prior to the L/C Maturity Date, (i) any
Borrower may request that the Issuing Bank issue for the account of such
Borrower a Letter of Credit or Letters of Credit in Dollars or any Approved
Currency in such form as may be approved by the Issuing Bank in its reasonable
discretion.

 

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

 

33

 

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

 

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

 

(b)           Letter of Credit Requests.

 

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

 

(ii)           The making of each Letter of Credit
Request shall be deemed to be a representation and warranty by the applicable
Borrower that the Letter of Credit may be issued in accordance with, and will
not violate the requirements of, Section 2.04(a).

 

(c)           Letter of Credit Participations.

 

(i)            Immediately upon the issuance by the
Issuing Bank of any Letter of Credit, the Issuing Bank shall be deemed to have
sold and transferred to each other Lender that has a Commitment (each such
other Lender, in its capacity under this Section 2.04(c), an “L/C
Participant”), and each such L/C Participant shall be deemed irrevocably
and unconditionally to have purchased and received from the Issuing Bank, without
recourse or warranty, an undivided interest and participation (each an “L/C
Participation”), to the extent of such L/C Participant’s Applicable
Percentage of such Letter of Credit, each substitute letter of credit, each
drawing made thereunder and the obligations of any Borrower under this
Agreement with respect thereto, and any security therefor or guaranty
pertaining thereto (although Letter of Credit Fees will be paid directly to the
Administrative Agent for the ratable account of the L/C Participants as
provided in Section 2.09(b) and the L/C Participants shall
have no right to receive any portion of any Fronting Fees).

 

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

 

34

 

(iii)          In the event that the Issuing Bank
makes any payment under any Letter of Credit issued by it and the Borrowers
shall not have repaid such amount in full to the respective Issuing Bank
pursuant to Section 2.04(d), the Issuing Bank shall promptly notify
the Administrative Agent and each L/C Participant of such failure, and each L/C
Participant shall promptly and unconditionally pay to the Administrative Agent,
for the account of the Issuing Bank, the amount of such L/C Participant’s
Applicable Percentage of such unreimbursed payment in Dollars and in
immediately available funds; provided, however, that no L/C
Participant shall be obligated to pay to the Administrative Agent for the
account of the Issuing Bank its Applicable Percentage of such unreimbursed
amount arising from any wrongful payment made by the Issuing Bank under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Issuing Bank.  If the Issuing Bank so notifies, prior to
11:00 a.m. (New York time) on any Business Day, any L/C Participant
required to fund a payment under a Letter of Credit, such L/C Participant shall
make available to the Administrative Agent for the account of the Issuing Bank
such L/C Participant’s Applicable Percentage of the amount of such payment on
such Business Day in immediately available funds.  If and to the extent such L/C Participant
shall not have so made its Applicable Percentage of the amount of such payment
available to the Administrative Agent, for the account of the Issuing Bank,
such L/C Participant agrees to pay to the Administrative Agent, for the account
of the Issuing Bank, forthwith on demand, such amount, together with interest
thereon for each day from such date until the date such amount is paid to the
Administrative Agent, for the account of the Issuing Bank at a rate equal to
the greater of (x) the Federal Funds Effective Rate and (y) a rate
determined by the Administrative Agent in accordance with banking industry rules on
interbank compensation.  The failure of
any L/C Participant to make available to the Administrative Agent, for the
account of the Issuing Bank its Applicable Percentage of any payment under any
Letter of Credit shall not relieve any other L/C Participant of its obligation
hereunder to make available to the Administrative Agent, for the account of the
Issuing Bank its Applicable Percentage of any payment under such Letter of
Credit on the date required, as specified above, but, except as provided in Section 2.19,
no L/C Participant shall be responsible for the failure of any other L/C
Participant to make available to the Administrative Agent such other L/C
Participant’s Applicable Percentage of any such payment.

 

(iv)          Whenever the Issuing Bank receives a
payment in respect of an unpaid reimbursement obligation as to which the
Administrative Agent has received for the account of the Issuing Bank any
payments from the L/C Participants pursuant to paragraph (iii) above, the
Issuing Bank shall pay to the Administrative Agent and the Administrative Agent
shall promptly pay to each L/C Participant that has paid its Applicable
Percentage of such reimbursement obligation, in Dollars and in immediately
available funds, an amount equal to such L/C Participant’s share (based upon
the proportionate aggregate amount originally funded by such L/C Participant to
the aggregate amount funded by all L/C Participants) of the principal amount of
such reimbursement obligation and interest thereon accruing after the purchase
of the respective L/C Participations.

 

(v)           The obligations of the L/C
Participants to make payments to the Administrative Agent for the account of
the Issuing Bank with respect to Letters of Credit shall be irrevocable and not
subject to counterclaim, set-off or other defense or any other qualification or
exception whatsoever and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including under any of
the following circumstances:

 

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

 

35

 

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

 

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

 

(D)          the surrender or impairment of any
security for the performance or observance of any of the terms of any of the
Loan Documents; or

 

(E)           the occurrence of any Default;

 

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

 

(d)           Agreement to Repay Letter of
Credit Drawings.

 

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

 

36

 

(ii)           The obligations of each Borrower
under this Section 2.04(d) to reimburse the Issuing Bank with
respect to Unpaid Drawings (including, in each case, interest thereon) shall be
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment that any such Borrower or any
other Person may have or have had against the Issuing Bank, the Administrative
Agent or any Lender (including in its capacity as an L/C Participant),
including any defense based upon the failure of any drawing under a Letter of
Credit to conform to the terms of the Letter of Credit or any non-application
or misapplication by the beneficiary of the proceeds of such drawing, provided
that no Borrower shall be obligated to reimburse the Issuing Bank for any
wrongful payment made by the Issuing Bank under the Letter of Credit issued by
it as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of the Issuing Bank.

 

(e)           Increased Costs.  If after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any change
in the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or actual compliance by the Issuing Bank or any L/C
Participant with any request or directive made or adopted after the date hereof
(whether or not having the force of law), by any such authority, central bank
or comparable agency shall either (a) impose, modify or make applicable
any reserve, deposit, capital adequacy or similar requirement against letters
of credit issued by the Issuing Bank, or any L/C Participant’s L/C
Participation therein, or (b) impose on the Issuing Bank or any L/C
Participant any other conditions affecting its obligations under this Agreement
in respect of Letters of Credit or L/C Participations therein or any Letter of
Credit or such L/C Participant’s L/C Participation therein, and the result of
any of the foregoing is to increase the cost to the Issuing Bank or such L/C
Participant of issuing, maintaining or participating in any Letter of Credit,
or to reduce the amount of any sum received or receivable by the Issuing Bank
or such L/C Participant hereunder (other than any such increase or reduction
attributable to taxes) in respect of Letters of Credit or L/C Participations
therein, then, promptly after receipt of written demand to the applicable
Borrower by the Issuing Bank or such L/C Participant, as the case may be, (a
copy of which notice shall be sent by the Issuing Bank or such L/C Participant
to the Administrative Agent), such Borrower shall pay to the Issuing Bank or
such L/C Participant such additional amount or amounts as will compensate the
Issuing Bank or such L/C Participant for such increased cost or reduction, it
being understood and agreed, however, that the Issuing Bank or a L/C
Participant shall not be entitled to such compensation as a result of such
Person’s compliance with, or pursuant to any request or directive to comply
with, any such law, rule or regulation as in effect on the date
hereof.  A certificate submitted to the
applicable Borrower by the relevant Issuing Bank or a L/C Participant, as the
case may be, (a copy of which certificate shall be sent by the Issuing Bank or
such L/C Participant to the Administrative Agent) setting forth in reasonable
detail the basis for the determination of such additional amount or amounts
necessary to compensate the Issuing Bank or such L/C Participant as aforesaid
shall be conclusive and binding on such Borrower absent clearly demonstrable
error.

 

(f)            Successor Issuing Bank.  An Issuing Bank may resign as Issuing Bank
upon 60 days’ prior written notice to the Administrative Agent, the Lenders and
the Borrowers.  If the Issuing Bank shall
resign as Issuing Bank under this Agreement, then the Borrowers shall appoint
from among the Lenders (with the consent of such Lender) with Commitments a
successor issuer of Letters of Credit, whereupon such successor issuer shall
succeed to the rights, powers and duties of the Issuing Bank, and the term “Issuing
Bank” shall mean such successor issuer effective upon such appointment (except
with respect to Letters of Credit issued by the resigning Issuing Bank).  After the resignation of the Issuing Bank
hereunder, the resigning Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this
Agreement and the other Loan Documents with respect to Letters of Credit issued
by it prior to such resignation, but shall not be required to issue additional
Letters of Credit.  After any retiring
Issuing Bank’s resignation as Issuing Bank, the provisions of this Agreement 

 

37

 

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

 

(g)           Cash Collateral.

 

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

 

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

 

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

 

2.05        Prepayments.

 

(a)           The Borrowers may, upon notice to the
Administrative Agent, at any time or from time to time voluntarily prepay
Revolving Loans in whole or in part without premium or penalty; provided
that (i) such notice must be received by the Administrative Agent not
later than 11:00 a.m. (A) three Business Days prior to any date of
prepayment of Fixed Period Eurodollar Loans, (B) one Business Day prior to
any date of prepayment of Daily Floating Eurodollar Loans and (C) on the
date of prepayment of Base Rate Loans; (ii) any prepayment of Fixed Period
Eurodollar Loans and Daily Floating Eurodollar Loans shall be in a principal
amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any
prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a
whole multiple of $100,000 in excess thereof or, in each case, if less, the
entire principal amount thereof then outstanding.  Each such notice shall specify the date and
amount of such prepayment and the Currency Type and Interest Rate Type of
Revolving Loans to be prepaid and, if Fixed Period Eurodollar Loans are to be
prepaid, the Interest Period(s) of such Loans.  The Administrative Agent will promptly notify
each Lender of its receipt of each such notice, and of the amount of such
Lender’s Applicable Percentage of such prepayment.  If such notice is given by any Borrower, such
Borrower shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein.  Any prepayment of a Fixed Period Eurodollar
Loan or a Daily Floating Eurodollar Loan shall be accompanied by all accrued
interest on the amount prepaid, together with any additional amounts required
pursuant to Section 3.05. 
Each such prepayment shall be applied to the Revolving Loans of the
Lenders in accordance with their respective Applicable Percentages.

 

(b)           The Borrowers may, upon notice to the
Swingline Lender (with a copy to the Administrative Agent), at any time or from
time to time, voluntarily prepay Swingline Loans in whole or in part without
premium or penalty; provided that (i) such notice must be received
by the Swingline Lender and the Administrative Agent not later than 1:00 p.m.
on the date of the prepayment, and (ii) any such prepayment shall be in a
minimum principal amount of $1,000,000. 
Each such notice shall specify the date and amount of such
prepayment.  If such notice is given by
any Borrower, such Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified
therein.

 

38

 

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

 

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

 

2.06        Termination or Reduction of Commitments.   The
Borrowers may, upon notice to the Administrative Agent, terminate the
Commitments hereunder, and, from time to time, permanently reduce the Aggregate
Commitment Amount; provided that (i) any such notice shall be
received by the Administrative Agent not later than 11:00 a.m. five (5) Business
Days prior to the date of termination or reduction, (ii) any such partial
reduction shall be in an aggregate amount of $5,000,000 or any whole multiple
of $1,000,000 in excess thereof, (iii) the Borrowers shall not terminate
or reduce the Aggregate Commitments if, after giving effect thereto and to any
concurrent prepayments hereunder, the Total Revolving Credit Exposure would
exceed the Aggregate Commitment Amount, (iv) if, after giving effect to
any reduction of the Aggregate Commitments, the Swingline Sublimit exceeds the
Aggregate Commitment Amount, such Sublimit shall be automatically reduced by
the amount of such excess and (v) in the case of a partial termination or
reduction of the Commitments, the Aggregate Commitment Amount shall not be less
than $50,000,000.  The Administrative
Agent will promptly notify the Lenders of any such notice of termination or
reduction of the Aggregate Commitments. 
Any reduction of the Aggregate Commitment Amount shall be applied to the
Commitment of each Lender according to its Applicable Percentage.  All fees accrued until the effective date of
any termination of the Aggregate Commitments shall be paid on the effective
date of such termination.

 

2.07        Repayment of Loans.

 

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

 

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

 

2.08        Interest.

 

(a)           Subject to the provisions of
subsection (b) below, (i) each Fixed Period Eurodollar Loan shall
bear interest on the outstanding principal amount thereof for each Interest
Period at a rate per annum equal to the Fixed Period Eurodollar Rate for such
Interest Period plus the relevant Applicable
Rate, (ii) each Daily Floating Eurodollar Loan shall bear interest on the
outstanding principal amount thereof from the applicable borrowing date to the
date of payment thereof at a rate per annum equal to the Daily Floating
Eurodollar Rate plus the relevant Applicable
Rate, (iii) each Base Rate Loan shall bear interest 

 

39

 

on the outstanding
principal amount thereof at a rate per annum equal to the Base Rate plus the relevant Applicable Rate; and (iv) each
Swingline Loan shall bear interest on the outstanding principal amount thereof
from the applicable borrowing date to the date of payment thereof at a rate per
annum equal to, at the election of the Borrowers, (A) the Base Rate or (B) the
Daily Floating Eurodollar Rate plus the relevant
Applicable Rate.

 

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

 

(ii)           If any amount (other than principal
of any Loan) payable by the Borrowers under any Loan Document is not paid when
due (without regard to any applicable grace periods), whether at stated
maturity, by acceleration or otherwise, then upon the request of the Required
Lenders, such amount shall thereafter bear interest at a fluctuating interest
rate per annum at all times equal to the Default Rate to the fullest extent
permitted by applicable Laws.

 

(iii)          Upon the request of the
Required Lenders, while any Event of
Default exists, the Borrowers shall pay interest on the principal amount of all
outstanding Obligations hereunder at a fluctuating interest rate per annum at
all times equal to the Default Rate to the fullest extent permitted by
applicable Laws.

 

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

 

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

 

2.09        Fees.

 

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

 

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

 

40

 

thereof attributable to
unreimbursed LC Disbursements) during the period from and including the Closing
Date to but excluding the later of the date of termination of the Commitments
and the date on which there ceases to be any LC Exposure, as well as the
Issuing Bank’s standard fees with respect to the issuance, amendment, renewal
or extension of any Letter of Credit or processing of drawings thereunder; provided
that, no fees will accrue under this Section 2.09 on any Defaulting
Lender’s portion of a Letter of Credit that any Borrower has Cash
Collateralized pursuant to Section 2.04(g).  Letter of Credit Fees and Fronting Fees shall
accrue during the Availability Period and shall be due and payable quarterly in
arrears on the last Business Day of each March, June, September and
December, commencing with the first such date to occur after the Closing Date,
provided that Letter of Credit Fees and Fronting Fees shall be payable on the
date on which the Commitments terminate. 
Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 20 business days after demand.  Letter of Credit Fees and Fronting Fees shall
be computed on the basis of a year of 360 days and shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day).

 

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

 

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

 

2.10        Computation of Interest and Fees.   All
computations of interest for Base Rate Loans or Daily Floating Eurodollar Loans
shall be made on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed.  All other
computations of fees and interest shall be made on the basis of a 360-day year
and actual days elapsed (which results in more fees or interest, as applicable,
being paid than if computed on the basis of a 365-day year).  Interest shall accrue on each Loan for the
day on which the Loan is made, and shall not accrue on a Loan, or any portion
thereof, for the day on which the Loan or such portion is paid, provided
that any Loan that is repaid on the same day on which it is made shall, subject
to Section 2.12(a), bear interest for one day.  Each determination by the Administrative
Agent of an interest rate or fee hereunder shall be conclusive and binding for
all purposes, absent manifest error.

 

2.11        Evidence of Debt.

 

(a)           The Loans made by each Lender shall
be evidenced by one or more accounts or records maintained by such Lender and
by the Administrative Agent in the ordinary course of business.  The accounts or records maintained by the
Administrative Agent and each Lender shall be conclusive absent manifest error
of the amount of the Loans made by the Lenders to the Borrowers and the
interest and payments thereon.  Any
failure to so record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrowers hereunder to pay any amount
owing with respect to the Obligations. 
In the event of any conflict between the accounts and records maintained
by any Lender and the accounts and records of the Administrative Agent in
respect of such matters, the accounts and records of the Administrative Agent
shall control in the absence of manifest error. 
Upon the request of any Lender made through the Administrative Agent,
the Borrowers shall execute and deliver to such Lender (through the
Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition
to such accounts or records.  Each Lender
may attach schedules to its Note and endorse thereon the date, Interest
Rate Type (if applicable), amount, Approved Currency and maturity of its Loans
and payments with respect thereto.

 

41

 

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

 

2.12        Payments Generally; Administrative Agent’s
Clawback.

 

(a)           General.  All payments to be made by any Borrower shall
be made without condition or deduction for any counterclaim, defense,
recoupment or setoff.  Except as
otherwise expressly provided herein and except with respect to principal of and
interest on Alternate Currency Loans, all payments by any Borrower hereunder
shall be made to the Administrative Agent, for the account of the respective
Lenders to which such payment is owed, at the Administrative Agent’s Office in
the relevant Approved Currency and in Same Day Funds not later than 2:00 p.m.
on the date specified herein.  Except as
otherwise expressly provided herein, all payments by the Borrowers hereunder
with respect to principal and interest on Alternate Currency Loans shall be
made to the Administrative Agent, for the account of the respective Lenders to
which such payment is owed, at the applicable Administrative Agent’s Office in
such Alternate Currency and in Same Day Funds not later than the Applicable
Time specified by the Administrative Agent on the dates specified herein.  Without limiting the generality of the
foregoing, the Administrative Agent may require that any payments due under
this Agreement be made in the United States. 
If, for any reason, any Borrower is prohibited by any Law from making
any required payment hereunder in an Alternate Currency, such Borrower shall make
such payment in Dollars in the Dollar Equivalent of the Alternate Currency
payment amount.  The Administrative Agent
will promptly distribute to each Lender its Applicable Percentage (or other
applicable share as provided herein) of such payment in like funds as received
by wire transfer to such Lender’s Lending Office.  All payments received by the Administrative
Agent (i) after 2:00 p.m., in the case of payments in Dollars, or (ii) after
the Applicable Time specified by the Administrative Agent, in the case of
payments in an Alternate Currency, shall be deemed received on the next
succeeding Business Day and any applicable interest or fee shall continue to
accrue.  If any payment to be made by any
Borrower shall come due on a day other than a Business Day, payment shall be
made on the next following Business Day, and such extension of time shall be
reflected in computing interest or fees, as the case may be.  Unless otherwise expressly stated, all
payments hereunder shall be made in Dollars.

 

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

 

42

 

foregoing, and (B) in
the case of a payment to be made by the Borrowers, the interest rate applicable
to Base Rate Loans.  If the Borrowers and
such Lender shall pay such interest to the Administrative Agent for the same or
an overlapping period, the Administrative Agent shall promptly remit to the
Borrowers the amount of such interest paid by the Borrowers for such
period.  If such Lender pays its share of
the applicable Revolving Loan to the Administrative Agent, then the amount so
paid shall constitute such Lender’s Revolving Loan included in such
Borrowing.  Any payment by the Borrowers
shall be without prejudice to any claim the Borrowers may have against a Lender
that shall have failed to make such payment to the Administrative Agent.

 

(ii)           Payments by Borrowers;
Presumptions by Administrative Agent. 
Unless the Administrative Agent shall have received notice from the
Borrowers prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders hereunder that the Borrowers will not make
such payment, the Administrative Agent may assume that the Borrowers have made
such payment on such date in accordance herewith and may, in reliance upon such
assumption, distribute to the Lenders, as the case may be, the amount due.  In such event, if the Borrowers have not in
fact made such payment, then each of the Lenders, as the case may be, severally
agrees to repay to the Administrative Agent forthwith on demand the amount so
distributed to such Lender, in immediately available funds with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Rate and a rate determined by the Administrative
Agent in accordance with banking industry rules on interbank compensation.

 

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

 

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

 

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

 

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

 

2.13        Sharing of Payments by Lenders.   If
any Lender shall, by exercising any right of setoff or counterclaim or
otherwise, obtain payment in respect of any principal of or interest on any of
the Revolving Loans made by it, or the participations in Swingline Loans held
by it resulting in such Lender’s receiving payment of a proportion of the
aggregate amount of such Revolving Loans or participations and accrued interest
thereon greater than its pro  rata share thereof as provided
herein, then the Lender receiving such greater proportion shall (a) notify
the Administrative Agent of such fact, and (b) purchase (for cash at face
value in the relevant Approved Currency) participations in the Revolving 

 

43

 

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

 

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

 

(ii)           the provisions of this Section shall
not be construed to apply to (x) any payment made by the Borrowers
pursuant to and in accordance with the express terms of this Agreement or (y) any
payment obtained by a Lender as consideration for the assignment of or sale of
a participation in any of its Revolving Loans or subparticipations in Swingline
Loans to any assignee or participant, other than to the Borrowers or any
Subsidiary thereof (as to which the provisions of this Section shall
apply).

 

Each
Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under applicable law, that any Lender acquiring a participation pursuant
to the foregoing arrangements may exercise against such Borrower rights of
setoff and counterclaim with respect to such participation as fully as if such
Lender were a direct creditor of such Borrower in the amount of such
participation.

 

2.14        Increase in Commitments.

 

(a)           Request for Increase.  Provided there exists no Default, upon notice
to the Administrative Agent (which shall promptly notify the Lenders), the
Borrowers may from time to time, request an increase in the Aggregate
Commitment Amount by amounts such that immediately after giving effect to any
such increase, the total Commitments of all of the Lenders hereunder shall not
exceed $600,000,000; provided that (i) any such request for an
increase shall be in a minimum amount of $10,000,000 and integral multiples of
$2,500,000 in excess thereof, and (ii) the Borrowers may make a maximum of
four (4) such requests in any 12 month period.  At the time of sending such notice, the
Borrowers (in consultation with the Administrative Agent) shall specify the
time period within which each Lender is requested to respond (which shall in no
event be less than ten (10) Business Days from the date of delivery of
such notice to the Lenders).

 

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

 

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

 

(d)           Effective Date and Allocations.  If the Aggregate Commitments are increased in
accordance with this Section, the Administrative Agent and the Borrowers shall
determine the effective date (the “Increase Effective Date”) and the
final allocation of such increase.  The
Administrative Agent 

 

44

 

shall promptly notify the
Borrowers and the Lenders of the final allocation of such increase and the
Increase Effective Date.

 

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

 

(f)            Loans; Reallocation of
Outstanding Amounts.

 

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

 

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

 

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

 

2.15        Concerning Joint and Several Liability
of the Borrowers.

 

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

 

45

 

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

 

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

 

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

 

(e)           Except as otherwise expressly
provided herein, each Borrower hereby waives promptness, diligence,
presentment, demand, protest, notice of acceptance of its joint and several
liability, notice of any and all advances of the Loans made under this
Agreement and any promissory note issued hereunder, notice of occurrence of any
Default or Event of Default (except to the extent notice is expressly required
to be given pursuant to the terms of this Agreement or any of the other Loan
Documents), or of any demand for any payment under this Agreement, notice of
any action at any time taken or omitted by the Administrative Agent or the
Lenders under or in respect of any of the Obligations hereunder, any
requirement of diligence and, generally, all demands, notices and other
formalities of every kind in connection with this Agreement and the other Loan
Documents.  Each Borrower hereby waives
all defenses which may be available by virtue of any valuation, stay,
moratorium law or other similar law now or hereafter in effect, any right to
require the marshaling of assets of the Borrowers and any other entity or
Person primarily or secondarily liable with respect to any of the Obligations,
and all surety ship defenses generally. 
Each Borrower hereby assents to, and waives notice of, any extension or
postponement of the time for the payment, or place or manner for payment,
compromise, refinancing, consolidation or renewals of any of the Obligations
hereunder, the acceptance of any partial payment thereon, any waiver, consent
or other action or acquiescence by the Administrative Agent and the Lenders at
any time or times in respect of any default by any Borrower in the performance
or satisfaction of any term, covenant, condition or provision of this Agreement
and the other Loan Documents, any and all other indulgences whatsoever by the
Administrative Agent and the Lenders in respect of any of the Obligations hereunder,
and the taking, addition, substitution or release, in whole or in part, at any
time or times, of any security for any of such Obligations or the addition,
substitution or release, in whole or in part, of any Borrower or any other
entity or Person primarily or secondarily liable for any Obligation. Such
Borrower further agrees that its Obligations shall not be released or
discharged, in whole or in part, or otherwise affected by the adequacy of any
rights which the Administrative Agent or any Lender may have against any
collateral security or other means of obtaining repayment of any of the
Obligations, the impairment of any collateral security securing the
Obligations, including, without limitation, the failure to protect or preserve
any rights which any Administrative Agent or any Lender may have in such
collateral security or the substitution, exchange, surrender, release, loss or
destruction of any such collateral security, any other act or omission which
might in any manner or to any extent vary the risk of such Borrower, or
otherwise operate as a release or discharge of such Borrower, all of which may
be done without notice to such Borrower. 
If for any reason any other Borrower has no legal existence or is under
no legal obligation to discharge any of the Obligations, or if any of the
Obligations have become irrecoverable from any other Borrower by reason of such
other Borrower’s insolvency, bankruptcy or reorganization or by other operation
of law or for any reason, this Agreement and the other Loan 

 

46

 

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

 

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

 

(g)           Each of the Borrowers hereby agrees
that it will not enforce any of its rights of reimbursement, contribution,
subrogation or the like against any other Borrower with respect to any
liability incurred by it hereunder or under any of the other Loan Documents,
any payments made by it to any of the Lenders or the Administrative Agent with
respect to any of the Obligations or any collateral security therefor until
such time as all of the Obligations have been indefeasibly paid in full in
cash.  Any claim which any Borrower may
have against any other Borrower with respect to any payments to the Lenders or
the Administrative Agent hereunder or under any other Loan Documents are hereby
expressly made subordinate and junior in right of payment, without limitation
as to any increases in the Obligations arising hereunder or thereunder, to the
prior payment in full of the Obligations and, in the event of any insolvency,
bankruptcy, receivership, liquidation, reorganization or other similar
proceeding under the laws of any jurisdiction relating to any Borrower, its
debts or its assets, whether voluntary or involuntary, all such Obligations
shall be paid in full before any payment or distribution of any character,
whether in cash, securities or other property, shall be made to any other
Borrower therefore.

 

47

 

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

 

2.16        Contribution.

 

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

 

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

 

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

 

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

 

(e)           The rights of an indemnifying Borrower
against the other Borrowers under this Section shall be exercisable upon
the full and indefeasible payment of the Obligations and the termination of
Commitments.

 

2.17        Collateral Security.   The
Obligations shall be secured by a perfected first priority security interest in
all of the Borrowers’ interest in the Collateral, whether now owned or
hereafter acquired, as described in the Security Documents to which any of the
Borrowers is a party.

 

48

 

2.18        Additional Borrowers.   Any
direct or indirect wholly owned Subsidiary of KKR Financial (i) designated
by an existing Borrower and (ii) other than in the case of such
Subsidiaries organized in the Cayman Islands or the United States (or any state
or territory thereof, or the District of Columbia), consented to by the
Administrative Agent and each Lender (in each case, such consent not to be
unreasonably withheld or delayed), may become a Borrower hereunder by executing
a customary joinder agreement, reasonably satisfactory to the Administrative
Agent and the Borrowers, and delivering customary certificates consistent with
those delivered in connection with Section 4.02(d), customary legal
opinions and such other documentation as may be reasonably requested by the
Administrative Agent.

 

2.19        Defaulting Lender
Provisions.

 

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

 

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

 

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

 

(iii)          in the case of a Defaulting Lender or
a Potential Defaulting Lender, then in the case of a proposed issuance of a
Letter of Credit or making of a Swingline Loan, by an instrument or instruments
in form and substance satisfactory to the Administrative Agent, and to the
Issuing Bank and the Swingline Lender, as the case may be, the Borrowers agree
that the face amount of such requested Letter of Credit or the principal amount
of such requested Swingline Loan will be reduced by an amount equal to the
unreallocated, non-Cash Collateralized portion thereof as to which such
Defaulting Lender or Potential Defaulting Lender would otherwise be liable, in
which case the obligations of the Non-Defaulting Lenders in respect of such
Letter of Credit or Swingline Loan will, subject to the first proviso below, be
on a pro rata basis in accordance with the Commitments of the Non-Defaulting
Lenders, and the pro rata payment provisions of Section 2.13 will be
deemed adjusted to reflect this provision;

 

provided
that (a) the sum of each Non-Defaulting Lender’s total Revolving Credit
Exposure, total Swingline Exposure and total LC Exposure may not in any event
exceed the Commitment of such Non-Defaulting Lender, and (b) neither any
such reallocation nor any payment by a Non-Defaulting Lender pursuant thereto
nor any such Cash Collateralization or reduction will constitute a waiver or
release of any claim the Borrower, the Administrative Agent, the Issuing Bank,
the Swingline Lender or any other 

 

49

 

Lender may have against such Defaulting Lender, or
cause such Defaulting Lender or Potential Defaulting Lender to be a
Non-Defaulting Lender.

 

(b)           Cash Collateral Call.  If any Lender becomes, and during the period
it remains, a Defaulting Lender or a Potential Defaulting Lender, if any Letter
of Credit or Swingline Loan is at the time outstanding, the Issuing Bank and
the Swingline Lender, as the case may be, may (except, in the case of a
Defaulting Lender, to the extent the Commitments have been fully reallocated
pursuant to Section 2.19(c)), by notice to the Borrowers and such
Defaulting Lender or Potential Defaulting Lender through the Administrative
Agent, require the Borrowers to Cash Collateralize the obligations of the Borrowers
to the Issuing Bank and the Swingline Lender in respect of such Letter of
Credit or Swingline Loan in amount at least equal to the aggregate amount of
the unreallocated obligations (contingent or otherwise) of such Defaulting
Lender or such Potential Defaulting Lender in respect thereof, or to make other
arrangements satisfactory to the Administrative Agent, and to the Issuing Bank
and the Swingline Lender, as the case may be, in their sole discretion to
protect them against the risk of non-payment by such Defaulting Lender or
Potential Defaulting Lender.

 

(c)           Reallocation of Defaulting Lender
Commitment, Etc.  If a Lender
becomes, and during the period it remains, a Defaulting Lender, the following
provisions shall apply with respect to any outstanding LC Exposure and any
outstanding Swingline Exposure of such Defaulting Lender:

 

(i)            the LC Exposure and the Swingline
Exposure of such Defaulting Lender will, subject to the limitation in the first
proviso below, automatically be reallocated (effective on the day such Lender
becomes a Defaulting Lender) among the Non-Defaulting Lenders pro rata in
accordance with their respective Commitments; 
provided that (a) the sum of each Non-Defaulting Lender’s total
Revolving Credit Exposure, total Swingline Exposure and total LC Exposure may
not in any event exceed the Commitment of such Non-Defaulting Lender as in
effect at the time of such reallocation and (b) neither such reallocation
nor any payment by a Non-Defaulting Lender pursuant thereto will constitute a
waiver or release of any claim the Borrower, the Administrative Agent, the
Issuing Bank, the Swingline Lender or any other Lender may have against such
Defaulting Lender or cause such Defaulting Lender to be a Non-Defaulting
Lender; and

 

(ii)           to the extent that any portion (the “unreallocated
portion”) of the Defaulting Lender’s LC Exposure and Swingline Exposure
cannot be so reallocated, whether by reason of the first proviso in clause (i) above
or otherwise, the Borrowers will, not later than 10 Business Days after demand
by the Administrative Agent (at the direction of the Issuing Bank and/or the
Swingline Lender, as the case may be), (a) Cash Collateralize the
obligations of the Borrowers to the Issuing Bank and the Swingline Lender in
respect of such LC Exposure or Swingline Exposure, as the case may be, in an
amount at least equal to the aggregate amount of the unreallocated portion of
such LC Exposure or Swingline Exposure, or (b) in the case of such
Swingline Exposure, prepay (subject to clause (iii) below) and/or Cash
Collateralize in full the unreallocated portion thereof, or (c) make other
arrangements satisfactory to the Administrative Agent, and to the Issuing Bank
and the Swingline Lender, as the case may be, in their sole discretion to
protect them against the risk of non-payment by such Defaulting Lender; and

 

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

 

50

 

(subject to Section 2.19(h))
the termination of the Commitments and payment in full of all obligations of
the Borrowers hereunder and will be applied by the Administrative Agent, to the
fullest extent permitted by law, to the making of payments from time to time in
the following order of priority:  first
to the payment of any amounts owing by such Defaulting Lender to the
Administrative Agent under this Agreement, second to the payment of any
amounts owing by such Defaulting Lender to the Issuing Bank or the Swingline
Lender (pro rata as to the respective amounts owing to each of them) under this
Agreement, third to the payment of post-default interest and then
current interest due and payable to the Lenders hereunder other than Defaulting
Lenders, ratably among them in accordance with the amounts of such interest
then due and payable to them, fourth to the payment of fees then due and
payable to the Non-Defaulting Lenders hereunder, ratably among them in
accordance with the amounts of such fees then due and payable to them, fifth
to pay principal and unreimbursed LC Disbursements then due and payable to the
Non-Defaulting Lenders hereunder ratably in accordance with the amounts thereof
then due and payable to them, sixth to the ratable payment of other
amounts then due and payable to the Non-Defaulting Lenders, and seventh after
the termination of the Commitments and payment in full of all obligations of
the Borrowers hereunder, to pay amounts owing under this Agreement to such
Defaulting Lender or as a court of competent jurisdiction may otherwise direct.

 

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

 

(e)           Fees.  Anything herein to the contrary
notwithstanding, during such period as a Lender is a Defaulting Lender, such
Defaulting Lender will not be entitled to any fees accruing during such period
pursuant to Sections 2.09(a) and 2.09(b) (without
prejudice to the rights of the Lenders other than Defaulting Lenders in respect
of such fees), provided that (a) to the extent that a portion of the LC
Exposure or the Swingline Exposure of such Defaulting Lender is reallocated to
the Non-Defaulting Lenders pursuant to Section 2.19(c), such fees
that would have accrued for the benefit of such Defaulting Lender will instead
accrue for the benefit of and be payable to such Non-Defaulting Lenders, pro
rata in accordance with their respective Commitments, and (b) to the
extent any portion of such LC Exposure or Swingline Exposure cannot be so
reallocated, such fees will instead accrue for the benefit of and be payable to
the Issuing Bank and the Swingline Lender as their interests appear (and the
pro rata payment provisions of Section 2.13 will automatically be
deemed adjusted to reflect the provisions of this Section).

 

(f)            Removal of Administrative Agent.  Anything herein to the contrary
notwithstanding, if at any time the Requisite Lenders determine that the Person
serving as Administrative Agent is (without taking into account any provision
in the definition of “Defaulting Lender” or “Potential Defaulting Lender”
requiring notice from the Administrative Agent or any other party) a Defaulting
Lender or a Potential Defaulting Lender, the Requisite Lenders (determined
after giving effect to Section 10.01) may by notice to the
Borrowers and such Person remove such Person as Administrative Agent and
appoint a replacement Administrative Agent reasonably acceptable to the
Borrrowers.  Such removal will, to the
fullest extent permitted by applicable law, be effective on the earlier of (i) the
date a replacement Administrative Agent is appointed and (ii) the date 60
Business Days after the giving of such notice by the Requisite Lenders
(regardless of whether a replacement Administrative Agent has been appointed).

 

51

 

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

 

(h)           Cure.  If the Borrower, the Administrative Agent,
the Issuing Bank and the Swingline Lender agree in writing in their discretion
that a Lender that is a Defaulting Lender or a Potential Defaulting Lender
should no longer be deemed to be a Defaulting Lender or Potential Defaulting
Lender, as the case may be, the Administrative Agent will so notify the parties
hereto, whereupon as of the effective date specified in such notice and subject
to any conditions set forth therein (which may include arrangements with
respect to any amounts then held in the segregated account referred to in Section 2.19(c)),
such Lender will, to the extent applicable, purchase such portion of
outstanding Loans of the other Lenders and/or make such other adjustments as
the Administrative Agent may determine to be necessary to cause the Revolving
Credit Exposure, LC Exposure and Swingline Exposure of the Lenders to be on a
pro rata basis in accordance with their respective Commitments, whereupon such
Lender will cease to be a Defaulting Lender or Potential Defaulting Lender and
will be a Non-Defaulting Lender (and such Exposure of each Lender will
automatically be adjusted on a prospective basis to reflect the foregoing); provided
that no adjustments will be made retroactively with respect to fees accrued or
payments made by or on behalf of the Borrowers while such Lender was a
Defaulting Lender; and provided, further, that except to the extent otherwise
expressly agreed by the affected parties, no change hereunder from Defaulting
Lender or Potential Defaulting Lender to Non-Defaulting Lender will constitute
a waiver or release of any claim of any party hereunder arising from such
Lender’s having been a Defaulting Lender or Potential Defaulting Lender.

 

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

 

3.01        Taxes.

 

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

 

(b)           Payment of Other Taxes by the
Borrowers.  Without limiting the
provisions of subsection (a) above, the Borrowers shall timely pay any
Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

 

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

 

52

 

Lender, as the case may
be, and any penalties, interest and reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental
Authority; provided, however the Borrowers shall not indemnify
the Administrative Agent or any Lender for any penalities or interest that are
imposed either solely as a result of the gross negligence or willful misconduct
of the Administrative Agent or any Lender or a failure by the Administrative
Agent or any Lender to provide the Borrowers with timely notice of the
impostion of any Indemnified Taxes or Other Taxes.  A certificate as to the amount of such
payment or liability delivered to the Borrowers by a Lender (with a copy to the
Administrative Agent), or by the Administrative Agent on its own behalf or on
behalf of a Lender, shall be conclusive absent manifest error.

 

(d)           Evidence of Payments.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrowers to a Governmental Authority,
the Borrowers shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.  As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Administrative Agent or any Lender to a
Governmental Authority, the Administrative Agent or Lender shall, upon request
from a Borrower, following receipt of any such item, deliver to the Borrowers
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment or other reasonable evidence of such payment;
provided, that in no event shall the Administrative Agent or any Lender be
required to deliver to the Borrowers its tax returns or any other information
regarding its tax affairs or computations or any information that is
confidential, proprietary, or constitutes internal work product.

 

(e)           Status of Lenders.  Any Foreign Lender that is entitled to an
exemption from or reduction of withholding tax under the law of the
jurisdiction in which any Borrower is resident for tax purposes, or any treaty
to which such jurisdiction is a party, with respect to payments hereunder or
under any other Loan Document shall deliver to the Borrowers (with a copy to
the Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrowers or the Administrative Agent, such
properly completed and executed documentation prescribed by applicable law as
will permit such payments to be made without withholding or at a reduced rate of
withholding (including any documentation necessary to prevent withholding under
Section 1471 or Section 1472 of the Code).  In addition, any Lender, if requested by the
Borrowers or the Administrative Agent, shall deliver such other documentation
prescribed by applicable law or reasonably requested by the Borrowers or the
Administrative Agent as will enable the Borrowers or the Administrative Agent
to determine whether or not such Lender is subject to backup withholding or
information reporting requirements.  In
addition, each Foreign Lender shall, upon request from a Borrower, deliver new
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Foreign Lender.  Each
Foreign Lender shall notify the Borrower at any time it determines that it is
no longer in a position to provide any previously delivered certificate to the
Borrower

 

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

 

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

 

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

 

53

 

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

 

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

 

(f)            Treatment of Certain Refunds.  If the Administrative Agent or any Lender
determines, in its sole discretion, which shall be exercised in a commercially
reasonable manner, that it has received a
refund of any Taxes or Other Taxes as to which it has been indemnified by the
Borrowers or with respect to which any Borrower has paid additional amounts
pursuant to this Section, it shall pay to such Borrower an amount equal to such
refund (but only to the extent of indemnity payments made, or additional
amounts paid, by the Borrowers under this Section with respect to the
Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
expenses of the Administrative Agent or such Lender, as the case may be, and
without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund), provided that each Borrower,
upon the request of the Administrative Agent or such Lender, agrees to repay
the amount paid over to such Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) to the Administrative
Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority.  This subsection shall not be construed to
require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes that it deems
confidential) to the Borrowers or any other Person.

 

3.02        Illegality.   If
any Lender determines that any Law has made it unlawful, or that any
Governmental Authority has asserted that it is unlawful, for any Lender or its
applicable Lending Office to make, maintain or fund Fixed Period Eurodollar
Loans or Daily Floating Eurodollar Loans, or to determine or charge interest
rates based upon the Fixed Period Eurodollar Rate or the Daily Floating Eurodollar
Rate, or any Governmental Authority has imposed material restrictions on the
authority of such Lender to purchase or sell, or to take deposits of, Dollars
in the London interbank market, then, on notice thereof by such Lender to the
Borrowers through the Administrative Agent, any obligation of such Lender to
make or continue Fixed Period Eurodollar Loans or Daily Floating Eurodollar
Loans or to convert Base Rate Loans to Fixed Period Eurodollar Loans or Daily
Floating Eurodollar Loans shall be suspended until such Lender notifies the
Administrative Agent and the Borrowers that the circumstances giving rise to
such determination no longer exist.  Upon
receipt of such notice, the Borrowers shall, upon demand from such Lender (with
a copy to the Administrative Agent), prepay or, if applicable, convert all
Fixed Period Eurodollar Loans or Daily Floating Eurodollar Loans of such Lender
to Base Rate Loans, either on the last day of the Interest Period therefor, if
such Lender may lawfully continue to maintain such Loans to such day, or
immediately, if such Lender may not lawfully continue to maintain such
Loans.  Upon any such prepayment or
conversion, the Borrowers shall also pay accrued interest on the amount so
prepaid or converted.

 

3.03        Inability to Determine Rates.   If
the Administrative Agent or the Required Lenders determine that for any reason
in connection with any request for a Fixed Period Eurodollar Loan or a Daily
Floating Eurodollar Loan, as applicable, or a conversion to or continuation
thereof that (a) deposits in the relevant Approved Currency are not being
offered to banks in the London interbank eurodollar market for the applicable
amount and Interest Period of such Fixed Period Eurodollar Loan or Daily

 

54

 

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

 

3.04        Increased Costs; Reserves on Eurodollar
Loans.

 

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

 

(i)            impose, modify or deem applicable
any reserve, special deposit, compulsory loan, insurance charge or similar
requirement against assets of, deposits with or for the account of, or credit
extended or participated in by, any Lender (except any reserve requirement
reflected contemplated by Section 3.04(e));

 

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

 

and
the result of any of the foregoing shall be to increase the cost to such Lender
of making or maintaining any Eurodollar Loan (or of maintaining its obligation
to make any such Loan), or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or any other amount)
then, upon request of such Lender, the Borrowers will pay to such Lender, as
the case may be, such additional amount or amounts as will compensate such
Lender, as the case may be, for such additional costs incurred or reduction
suffered.

 

(b)           Capital Requirements.  If any Lender determines that any Change in
Law affecting such Lender or any Lending Office of such Lender or such Lender’s
holding company, if any, regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s capital or on the
capital of such Lender’s holding company, if any, as a consequence of this Agreement,
the Commitments of such Lender or the Loans made by, such Lender, to a level
below that which such Lender or such Lender’s holding company could have
achieved but for such Change in Law (taking into consideration such Lender’s
policies and the policies of such Lender’s holding company with respect to
capital adequacy), then from time to time the Borrowers will pay to such
Lender, as the case may be, such additional amount or amounts as will
compensate such Lender or such Lender’s holding company for any such reduction
suffered.

 

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

 

55

 

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

 

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

 

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

 

(a)           any continuation, conversion, payment or
prepayment of any Loan other than a Base Rate Loan or a Daily Floating
Eurodollar Loan on a day other than the last day of the Interest Period for
such Loan (whether voluntary, mandatory, automatic, by reason of acceleration,
or otherwise);

 

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

 

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

 

including
any loss of anticipated profits and any loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain such Loan or
from fees payable to terminate the deposits from which such funds were
obtained.  The Borrowers shall also pay
any customary administrative fees charged by such Lender in connection with the
foregoing.  Notwithstanding the
foregoing, if, during the 120 day period following the Closing Date, the
Administrative Agent incurs any breakage costs on account of the syndication of
the credit facility established hereunder, the Borrowers shall immediately
reimburse the Administrative Agent for any such breakage costs.

 

For
purposes of calculating amounts payable by the Borrowers to the Lenders under
this Section 3.05, each Lender shall be deemed to have funded each
Fixed Period Eurodollar Loan made by it at the Fixed Period Eurodollar Rate
used in determining the Fixed Period Eurodollar Rate for such Loan by a
matching deposit or other borrowing in the London interbank eurodollar market
for a comparable amount and for a comparable period, whether or not such Fixed
Period Eurodollar Loan was in fact so funded.

 

56

 

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

 

3.07        Survival.  All
of the Borrowers’ obligations under this Article III shall survive
termination of the Aggregate Commitments and repayment of all other Obligations
hereunder.

 

ARTICLE IV.

CONDITIONS PRECEDENT TO BORROWINGS

 

4.01        Conditions to Effectiveness.   The
parties hereto acknowledge and agree that this Agreement shall become effective
upon receipt by each party hereto of this Agreement, executed and delivered by
a Responsible Officer of each Borrower and each Lender; provided, however,
that the obligation of any Lender to make any Loans, or of the Issuing Bank to
issue any Letters of Credit, hereunder is subject to the satisfaction of the
conditions set forth in Sections 4.02 and 4.03 hereunder.

 

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

 

(a)           The Administrative Agent shall have
received:

 

(i)            this Agreement as provided in Section 4.01;

 

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

 

(iii)          the other Loan Documents (other than
Notes), executed and delivered by a duly authorized officer or signatory of
each grantor party thereto; and

 

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

 

(b)           Collateral.  All documents and instruments, including
Uniform Commercial Code or other applicable personal property and financing
statements, reasonably requested by the Administrative Agent to be filed,
registered or recorded to create the Liens on the Collateral intended to be
created by the Security Agreement and perfect such Liens to the extent required
by, and with the priority required by, the Security Agreement shall have been
delivered to the Administrative Agent for filing, registration or recording and
none of the Collateral shall be subject to any other pledges, security
interests or mortgages, except for liens permitted hereunder.

 

57

 

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

 

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

 

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

 

(i)            The Administrative Agent shall have
received a copy of the resolutions, in form and substance satisfactory to the
Administrative Agent, of the board of directors or other managers of each
Borrower (or a duly authorized committee thereof) authorizing (x) the
execution, delivery and performance of the Loan Documents (and any agreements
relating thereto) to which it is a party and (y) in the case of each
Borrower, the extensions of credit contemplated hereunder.

 

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

 

(iii)          The Administrative Agent shall have
received such documents and certifications as the Administrative Agent may
reasonably require to evidence that each Borrower is duly organized or formed
and that each of the Borrowers is validly existing, in good standing and
qualified to engage in business in each jurisdiction where such Borrowers’
ownership, lease or operation of properties or the conduct of its business
requires such qualification, except to the extent that failure to do so could
not reasonably be expected to have a Material Adverse Effect;

 

(f)            Fees. The Administrative
Agent shall have received the fees in the amounts previously agreed in writing
to be received on the Closing Date and all expenses (including the reasonable
fees, disbursements and other charges of counsel) payable by the Borrowers for
which invoices have been presented prior to the Closing Date shall have been
paid.

 

(g)           Existing Credit Agreement. The
Administrative Agent shall have received customary evidence indicating that the
Existing Credit Agreement has been, or concurrently with the Closing Date is
being, terminated and all amounts outstanding thereunder are being repaid in
full and all liens securing obligations thereunder have been, or concurrently
with the Closing Date are being, released.

 

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

 

58

 

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

 

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

 

(b)           No Default shall exist, or would
result from such proposed Borrowing or from the application of the proceeds
thereof.

 

(c)           Either (i) the Total Revolving
Credit Exposure (after giving effect to such extension of credit) shall not
exceed the Borrowing Base reflected on the Borrowing Base Report most recently
delivered to the Administrative Agent or (ii) the Borrowers shall have
delivered an updated Borrowing Base Report demonstrating that the Total
Revolving Credit Exposure (after giving effect to such extension of credit)
shall not exceed the Borrowing Base after giving effect to such extension of
credit as well as any concurrent acquisitions of Specified Financial Assets or
payment of outstanding Loans.

 

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

 

(e)           The Administrative Agent and, if
applicable, the Swingline Lender shall have received a Request for Borrowing in
accordance with the requirements hereof.

 

Each
Request for Borrowing (other than a Revolving Loan Notice requesting only a
conversion of Revolving Loans to another Interest Rate Type or a continuation
of Fixed Period Eurodollar Loans) submitted by the Borrowers shall be deemed to
be a representation and warranty that the conditions specified in Sections 4.03(a) and
4.03(b) have been satisfied on and as of the date of the applicable
Borrowing.

 

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

 

The
Borrowers represent and warrant to the Administrative Agent and the Lenders
that:

 

5.01        Existence, Qualification and Power.   Each
Borrower (a) is duly organized or formed, validly existing and, as
applicable, in good standing under the Laws of the jurisdiction of its
incorporation or organization, (b) has all requisite power and authority
and all requisite and relevant governmental licenses, authorizations, consents
and approvals to (i) own or lease its assets and carry on its business and
(ii) execute, deliver and perform its obligations under the Loan Documents
to which it is a party, and (c) is duly qualified and is licensed where
applicable and, as applicable, in good standing under the Laws of each
jurisdiction where its ownership, lease or operation of properties or the
conduct of its business requires such qualification or license; except in each
case referred to in clause (b)(i) or (c), to the extent that failure to do
so could not reasonably be expected to have a Material Adverse Effect.

 

59

 

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

 

5.03        Governmental Authorization; Other Consents.   No
approval, consent, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, any Borrower of this Agreement or any other Loan Document
except (i) for the filing of UCC financing statements and (ii) such approvals,
consents, exemptions, authorizations or other actions, notices or filings as
have been obtained or made and are in full force and effect or where the
failure to obtain or make such approvals, consents, exemptions, authorizations
or other actions, notices or filings would not have a Material Adverse Effect.

 

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

 

5.05        Financial Statements; No Material
Adverse Effect.

 

(a)           The Audited Financial Statements (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 and its consolidated
Subsidiaries as of the date thereof and their results of operations for the
period covered thereby in accordance with GAAP consistently applied throughout
the period covered thereby, except as otherwise expressly noted therein.

 

(b)           The unaudited consolidated balance
sheet of KKR Financial and its consolidated Subsidiaries dated September 30,
2009, and the related consolidated statements of income or operations,
shareholders’ equity and cash flows for the fiscal quarter ended on that date
(i) were prepared in accordance with GAAP consistently applied throughout the
period covered thereby, except as otherwise expressly noted therein, and (ii)
fairly present the financial condition of KKR Financial 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.

 

60

 

5.06        Litigation.   Except
as set forth on Schedule 5.06, 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        Insurance.   The
properties of the Borrowers and their Subsidiaries are insured with financially
sound and reputable insurance companies, in such amounts, with such deductibles
and covering such risks as are customarily carried by companies engaged in
similar businesses and owning similar properties in localities where the
Borrowers or the applicable Subsidiary operates.

 

5.09        Taxes.   Each
Borrower and its Subsidiaries have filed all Federal, state and other material
tax returns and reports required to be filed, and have paid all Federal, state
and other material taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable, except (i) those which are being contested in good faith by
appropriate proceedings diligently conducted and for which adequate reserves
have been provided in accordance with GAAP and (ii) to the extent that the
failure to do so could not reasonably be expected to have a Material Adverse
Effect.

 

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

 

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

 

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

 

61

 

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

 

5.13        Disclosure.   The
Borrowers have disclosed to the Administrative Agent and the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
of its Subsidiaries is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.  No report,
financial statement, certificate or other written information furnished by or
on behalf of any Borrower to the Administrative Agent or any Lender in
connection with the transactions contemplated hereby and the negotiation of
this Agreement or delivered hereunder or under any other Loan Document (in each
case, as modified or supplemented by other information so furnished) contains
any material misstatement of fact or omits to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading as of the date furnished; provided that,
with respect to projected financial information, the Borrowers represent only
that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time.

 

5.14        Compliance with Laws.   Each
Borrower and each Subsidiary thereof is in compliance in all material respects
with the requirements of all Laws and all orders, writs, injunctions and
decrees applicable to it or to its properties, except in such instances in
which (a) such requirement of Law or order, writ, injunction or decree is being
contested in good faith by appropriate proceedings diligently conducted or (b)
the failure to comply therewith, either individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.

 

5.15        Solvency.   Each
of the Borrowers is and, after consummation of the transactions contemplated by
the Loan Documents, will be Solvent.

 

5.16        Borrowing Base Report.   The
most recent Borrowing Base Report delivered by the Borrowers accurately
reflects the Borrowing Base and the Value of all Eligible Specified Financial
Assets included therein on and as of the date of such Borrowing Base Report
(or, in the case of Values, as of the most recent date that such Values are
required to be determined) and all Related Borrowing Base Information set forth
therein and the Value of all Eligible Specified Financial Assets is true and
correct in all material respects on and as of the date of such Borrowing Base
Report (or, in the case of Values, as of the most recent date that such Values
are required to be determined).

 

ARTICLE VI.

AFFIRMATIVE COVENANTS

 

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

 

6.01        Financial Statements.   Deliver
to the Administrative Agent and each Lender:

 

(a)           as soon as available, but in any
event within 90 days after the end of each fiscal year of KKR Financial, a
consolidated balance sheet of KKR Financial and its Subsidiaries as at the end
of such fiscal year, and the related consolidated statements of income or
operations, shareholders’ equity and cash flows for such fiscal year, setting
forth, in each case, in comparative form the figures for the previous fiscal
year, all in reasonable detail and prepared in accordance with GAAP, audited
and accompanied by a report and opinion of Deloitte & Touche LLP or another
Registered Public Accounting Firm of nationally recognized standing, which
report and opinion shall be prepared in accordance with generally accepted

 

62

 

auditing standards and
applicable Securities Laws and shall not be subject to any “going concern” or
like qualification or exception or any qualification or exception as to the
scope of such audit or with respect to the absence of any material
misstatement; and

 

(b)           as soon as available, but in any
event within 45 days after the end of each of the first three fiscal quarters
of each fiscal year of KKR Financial, a consolidated balance sheet of KKR
Financial and its Subsidiaries as at the end of such fiscal quarter, and the
related consolidated statements of income or operations, shareholders’ equity
and cash flows for such fiscal quarter and for the portion of KKR Financial’s
fiscal year then ended, setting forth in each case in comparative form the
figures for the corresponding fiscal quarter of the previous fiscal year and
the corresponding portion of the previous fiscal year, all in reasonable
detail, certified by the chief executive officer, chief financial officer,
treasurer or controller of KKR Financial as fairly presenting the financial
condition, results of operations, shareholders’ equity and cash flows of KKR
Financial and its Subsidiaries in accordance with GAAP, subject only to normal
year-end audit adjustments and the absence of footnotes.

 

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

 

6.02        Certificates; Other Information.   Deliver
to the Administrative Agent and each Lender, in form and detail reasonably
satisfactory to the Administrative Agent:

 

(a)           concurrently with the delivery of the
financial statements referred to in Section 6.01(a), (i) a
certificate of the Registered Public Accounting Firm certifying such financial
statements and stating that in making the examination necessary therefor no
knowledge was obtained of any Default or, if any such Default shall exist, stating the nature and status of
such event (which certificate may be limited to the extent required by accounting
rules, guidelines or practices), (ii) setting forth reasonably detailed
calculations demonstrating compliance with the financial covenants contained in
Section 7.09 and (iii) stating whether any change in GAAP or in the
application thereof which is material in any respect to KKR Financial’s
financial statements has occurred since the date of the Audited Financial
Statements and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate;

 

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

 

(c)           as soon as available and in any event
not later than the 20th Business Day of the calendar month following
each monthly accounting period (ending on the last day of each calendar month)
of the Borrowers, a Borrowing Base Report as at the last day of such accounting
period;

 

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

 

(e)           promptly but no later than five
Business Days after any Borrower shall at any time have knowledge that there is
a Borrowing Base Deficiency, a Borrowing Base Report as at the date any
Borrower has knowledge of such Borrowing Base Deficiency indicating the amount
of the Borrowing Base Deficiency as at the date such Borrower obtained
knowledge of such deficiency and the amount of

 

63

 

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

 

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

 

(g)           promptly after the same are
available, copies of each annual report, proxy or financial statement or other
report or communication sent to the stockholders of KKR Financial, and copies
of all annual, regular, periodic and special reports and registration
statements which KKR Financial may file or be required to file with the SEC
under Section 13 or 15(d) of the Securities Exchange Act of 1934, and not
otherwise required to be delivered to the Administrative Agent pursuant hereto;
and

 

(h)           promptly following any request
therefor, such other information regarding the operations, business affairs and
financial condition of the Borrowers, or compliance with the terms of this
Agreement, as the Administrative Agent or any Lender may reasonably request.

 

Documents
required to be delivered pursuant to Section 6.01(a) or 6.01(b)
or Section 6.02(f) (to the extent any such documents are included
in materials otherwise filed with the SEC) may be delivered electronically and
if so delivered, shall be deemed to have been delivered on the date (i) on
which KKR Financial posts such documents, or provides a link thereto on KKR
Financial’s website on the Internet at the website address listed on Schedule 10.02;
or (ii) on which such documents are posted on KKR Financial’s behalf on an
Internet or intranet website, if any, to which each Lender and the
Administrative Agent have access (whether a commercial, third-party website or
whether sponsored by the Administrative Agent); provided that (i) the
Borrowers shall deliver paper copies of such documents to the Administrative
Agent or any Lender that requests the Borrowers to deliver such paper copies
until a written request to cease delivering paper copies is given by the
Administrative Agent or such Lender and (ii) the Borrowers shall notify the
Administrative Agent and each Lender (by telecopier or electronic mail) of the
posting of any such documents and provide to the Administrative Agent by
electronic mail electronic versions (i.e., soft copies) of such documents.  The Administrative Agent shall have no
obligation to request the delivery or to maintain copies of the documents
referred to above, and in any event shall have no responsibility to monitor
compliance by the Borrowers with any such request for delivery, and each Lender
shall be solely responsible for requesting delivery to it or maintaining its
copies of such documents.

 

The
Borrowers hereby acknowledge that (a) the Administrative Agent and/or the
Arranger will make available to the Lenders materials and/or information
provided by or on behalf of the Borrowers hereunder (collectively, “Borrower
Materials”) by posting the Borrower Materials on IntraLinks or another
similar electronic system (the “Platform”) and (b) certain of the
Lenders may be “public-side” Lenders (i.e.,
Lenders that do not wish to receive material non-public information with
respect to KKR Financial or its securities) (each, a “Public Lender”).  Each of the Borrowers hereby agrees that (w)
all Borrower Materials that are to be made available to Public Lenders shall be
clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that
the word “PUBLIC” shall appear prominently on the first page thereof; (x) by
marking Borrower Materials “PUBLIC,” the Borrowers shall be deemed to have
authorized the Administrative Agent, the Arranger and the Lenders to treat such
Borrower Materials as not containing any material non-public information with
respect to the Borrowers or any securities for purposes of United States
Federal and state securities laws (provided, however, that to the
extent such Borrower Materials constitute Information, they shall be treated as
set forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC”
are permitted to be made available through a portion of the Platform designated
“Public Investor;” and (z) the Administrative Agent and the Arranger shall be

 

64

 

entitled
to treat any Borrower Materials that are not marked “PUBLIC” as being suitable
only for posting on a portion of the Platform other than that which is
designated “Public Investor.”

 

6.03        Notices.   Promptly
notify the Administrative Agent and each Lender upon a Responsible Officer of a
Borrower obtaining knowledge thereof:

 

(a)           of the occurrence of any Default;

 

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

 

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

 

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

 

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

 

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

 

6.06        Maintenance of Properties.   (a)
Maintain, preserve and protect all of its material properties and equipment
necessary in the operation of its business in good working order and condition,
ordinary wear and tear excepted; and (b) make all necessary repairs thereto and
renewals and replacements thereof except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.

 

6.07        Maintenance of Insurance.   Maintain
with financially sound and reputable insurance companies, insurance with
respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business,
of such types and in such amounts as are customarily carried under similar
circumstances by such other Persons.

 

65

 

6.08        Compliance with Laws.   Comply
in all material respects with the requirements of all relevant Laws and all
orders, writs, injunctions and decrees applicable to it or to its business or
property, except in such instances in which (a) such requirement of Law or
order, writ, injunction or decree is being contested in good faith by
appropriate proceedings diligently conducted; or (b) the failure to comply
therewith could not reasonably be expected to have a Material Adverse Effect.

 

6.09        Books and Records.   Maintain
proper books of record and account, in conformity with GAAP consistently
applied.

 

6.10        Inspection Rights.   Permit
representatives and independent contractors of the Administrative Agent and
each Lender to visit and inspect any of its properties, to examine its
corporate, financial and operating records, and make copies thereof or
abstracts therefrom, and to discuss its affairs, finances and accounts with its
directors, officers, and independent public accountants, all at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Borrowers (subject to reasonable
requirements of confidentiality); provided, however, that when an
Event of Default exists the Administrative Agent or any Lender (or any of their
respective representatives or independent contractors) may do any of the
foregoing at the expense of the Borrowers at any time during normal business
hours and without advance notice.

 

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

 

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

 

6.13        Investment Policies.   Comply
with the investment policies adopted by the board of directors of KKR Financial
as in effect on the Closing Date (as such policies may be amended, supplemented
or modified from time to time), except to the extent that the failure to so
comply could not reasonably be expected to result in a Material Adverse Effect.

 

6.14        Further Assurances.   Take
such action from time to time as shall reasonably be requested by the
Administrative Agent to effectuate the purposes and objectives of this
Agreement. Without limiting the generality of the foregoing, the Borrowers
shall take such action from time to time (including filing appropriate Uniform
Commercial Code financing statements and executing and delivering such
assignments, security agreements and other instruments) as shall be reasonably
requested

 

66

 

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

 

6.15        Portfolio Valuation
and Diversification, Etc.

 

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

 

(b)           Portfolio Valuation, Etc.

 

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

 

(ii)           Determination of Values. The
Borrowers will conduct reviews of the value to be assigned to each of its
Eligible Specified Financial Assets as follows:

 

(A)          Quoted Investments. With
respect to Specified Financial Assets (including Cash Equivalents) for which
market quotations are readily available, the Borrowers shall, not less
frequently than once each calendar month, determine the market value of such
Specified Financial Assets in accordance with their valuation policies, as
follows (in the following order of priority):

 

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

 

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

 

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

 

67

 

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

 

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

 

(B)           Unquoted Investments. With
respect to any Specified Financial Asset for which market quotations are not
readily available, the Borrowers shall conduct internal reviews of such
Specified Financial Asset at least once each calendar month in order to
determine the fair value of such Specified Financial Asset.  Such internal reviews and determinations of
value shall take into account any events of which the Borrowers have knowledge
that adversely affect the Value of Specified Financial Assets.

 

For
any particular Eligible Specified Financial Asset whose current Value is
determined pursuant to an internal review in accordance with this Section
6.15(b)(ii)(B), to the extent such Eligible Specified Financial Asset is (i)
included in the Borrowing Base and (ii) has a fair value in excess of $10
million individually or in excess of $25 million in the aggregate when taken
together with all other such Eligible Specified Financial Assets, the Borrowers
shall deliver to the Administrative Agent a negative assurance or valuation
opinion from an independent third-party appraisal firm within 45 days of the
end of each applicable fiscal quarter.

 

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

 

6.16        Calculation of
Borrowing Base.   (a) For
purposes of this Agreement, the “Borrowing Base” shall mean and be
determined as, as at any date of determination, the sum (expressed in Dollars)
of the products of (x) the Value of each Specified Financial Asset that is an
Eligible Specified Financial Asset as of the most recent date such Value is
required to be determined pursuant to Section 6.02 and (y) the Specified
Percentage applicable to such Specified Financial Asset; provided that:

 

(i)            to the extent that the aggregate
Value (without duplication) of any Eligible Specified Financial Asset shown in
the table below would exceed the applicable sublimit set forth across from such
Eligible Specified Financial Asset, such excess shall be excluded from the
Borrowing Base (i.e., the Specified Percentage applicable to the excess over
such sublimit shall be 0%):

 

	
  Eligible Specified Financial Asset

  	
   

  	
  Sublimits

  	
   

  
	
  Eligible Specified Financial Assets that have a
  rating between CCC+ and CCC- (inclusive)

  	
   

  	
  $

  	
  200 million

  	
   

  
	
  Eligible Specified Financial Assets that are
  Mezzanine Obligations

  	
   

  	
  $

  	
  160 million

  	
   

  
	
  Eligible Specified Financial Assets that are
  Mortgage-related Debt Securities

  	
   

  	
  $

  	
  40 million

  	
   

  

 

68

 

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

 

(iii)          to the extent that the aggregate Net
Value Amounts of Eligible Specified Financial Assets in any single Industry
Classification Group would exceed 20% of the Borrowing Base (which for purposes
of this calculation shall exclude the aggregate amount of investments in, and
advances to, Financing Subsidiaries), such excess shall be disregarded for
purposes of calculating the Borrowing Base; provided that, with respect
to Eligible Specified Financial Assets in a single Industry Classification
Group from time to time designated by the Borrowers to the Administrative
Agent, such 20% figure shall be increased to 30% and, accordingly, only to the
extent that the Net Value Amounts of Eligible Specified Financial Assets for
such single Industry Classification Group would exceed 30% of the Borrowing
Base shall such excess be excluded from the Borrowing Base;

 

(iv)          to the extent that the aggregate Net
Value Amounts of Eligible Specified Financial Assets comprised of Non-Cash Pay
Investments would exceed 20% of the Borrowing Base, such excess shall be
excluded from the Borrowing Base;

 

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

 

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

 

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

 

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

 

(b)           As used herein, the following terms
have the following meanings:

 

“Specified
Financial Asset” means any financial asset described in one of the
following categories:

 

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

 

69

 

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

 

(c)           Other Short-Term Securities;

 

(d)           Performing First Lien Bank Loans;

 

(e)           Performing Second Lien Bank Loans;

 

(f)            Performing Unsecured Bank Loans;

 

(g)           Performing Secured Cash Pay High Yield Securities;

 

(h)           Performing Unsecured Cash Pay High Yield Securities;

 

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

 

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

 

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

 

(l)            Mortgage bonds rated A or better; and

 

(m)          Publicly Traded Common Equity;

 

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

 

	
  Specified
  Financial Asset

  	
   

  	
  Quoted

  	
   

  	
  Unquoted

  	
   

  
	
  Cash, Cash Equivalents and Short-Term U.S.
  Government Securities

  	
   

  	
  100

  	
  %

  	
  n.a.

  	
   

  
	
  Long-Term U.S. Government Securities

  	
   

  	
  95

  	
  %

  	
  n.a.

  	
   

  
	
  Other Short-Term Securities

  	
   

  	
  90

  	
  %

  	
  80

  	
  %

  
	
  Performing First Lien Bank Loans

  	
   

  	
  75

  	
  %

  	
  65

  	
  %

  
	
  Performing Second Lien Bank Loans

  	
   

  	
  65

  	
  %

  	
  55

  	
  %

  
	
  Performing Unsecured Bank Loans

  	
   

  	
  60

  	
  %

  	
  50

  	
  %

  
	
  Performing Secured Cash Pay High Yield Securities

  	
   

  	
  70

  	
  %

  	
  60

  	
  %

  
	
  Performing Unsecured Cash Pay High Yield
  Securities

  	
   

  	
  65

  	
  %

  	
  55

  	
  %

  
	
  Performing Cash Pay Mezzanine Obligations /
  Preferred and Convertible Securities

  	
   

  	
  50

  	
  %

  	
  40

  	
  %

  
	
  Performing Non-Cash Pay High Yield Securities

  	
   

  	
  55

  	
  %

  	
  45

  	
  %

  
	
  Performing Non-Cash Pay Mezzanine Obligations /
  Preferred and Convertible Securities

  	
   

  	
  40

  	
  %

  	
  30

  	
  %

  
	
  Mortgage bonds rated A or better

  	
   

  	
  50

  	
  %

  	
  40

  	
  %

  
	
  Publicly Traded Common Equity

  	
   

  	
  40

  	
  %

  	
  0

  	
  %

  

 

“Bank
Loan” means either (i) a Delayed Draw Loan or (ii) a fully funded term debt
obligation (including, without limitation, term loans, debtor-in-possession
financings and synthetic letter of credit facilities and other similar loans
and investments including interim loans and senior subordinated loans), which
are generally under a syndicated loan or credit facility provided or originated
by a Bank or for which a Bank has acted as underwriter or agent.

 

70

 

“Cash
Equivalents” means any of the following:

 

(a) direct obligations of, or obligations the principal of and interest
on which are unconditionally guaranteed by, the United States of America (or by
any agency thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing within
eighteen months from the date of acquisition thereof;

 

(b)           investments in
commercial paper maturing within 270 days from the date of issuance thereof and
having, at such date of acquisition, the highest credit rating obtainable from
S&P or from Moody’s;

 

(c)           investments in
certificates of deposit, banker’s acceptances and time deposits maturing within
one year from the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by, the
Administrative Agent or any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof that has a
combined capital and surplus and undivided profits of not less than
$500,000,000 and that issues (or the parent of which issues) commercial paper
rated at least “Prime-1” (or the then equivalent grade) by Moody’s or “A-1” (or
the then equivalent grade) by S&P;

 

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

 

(e)           investments in “money
market funds” within the meaning of Rule 2a-7 of the Investment Company Act
substantially all of whose assets are invested in investments of the type
described in clauses (a) through (d) above; and

 

(f)            other short-term
investments utilized by Foreign Subsidiaries in accordance with normal
investment practices for cash management in investments of a type analogous to
the foregoing

 

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

 

“First
Lien Bank Loan” means a Bank Loan that is entitled to the benefit of a
first lien and first priority perfected security interest on a substantial
portion of the assets of the respective borrower and guarantors obligated in
respect thereof.

 

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

 

“Long-Term
U.S. Government Securities” means U.S. Government Securities maturing more
than one year from the applicable date of determination.

 

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

 

71

 

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

 

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

 

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

 

“Performing
Cash Pay Mezzanine Obligations” means Mezzanine Obligations (a) as to
which, at the time of determination, a portion of the interest (including
accretions and “pay-in-kind” interest) for the current monthly, quarterly,
semi-annual or annual period (as applicable) is payable in cash and (b) which
are Performing.

 

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

 

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

 

“Performing
Non-Cash Pay High Yield Securities” means Performing High Yield Securities
other than Performing Cash Pay High Yield Securities.

 

“Performing
Non-Cash Pay Mezzanine Obligations” means Performing Mezzanine Obligations
other than Performing Cash Pay Mezzanine Obligations.

 

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

 

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

 

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

 

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

 

“Preferred
Stock” as applied to the Equity Interests of any Person, means Equity
Interests of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to any shares (or other interests) of other Equity Interests of
such Person, and shall include, without limitation, cumulative preferred,
non-cumulative preferred, participating preferred and convertible preferred
Equity Interests.

 

72

 

“Publicly
Traded Common Equity” means Securities traded on an exchange or other
public marketplace for trading shares.

 

“Second
Lien Bank Loan” means a Bank Loan that is entitled to the benefit of a
second lien and second priority perfected security interest on a substantial
portion of the assets of the respective borrower and guarantors obligated in
respect thereof.

 

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

 

“Short-Term
U.S. Government Securities” means U.S. Government Securities maturing
within one year of the applicable date of determination.

 

“Unquoted
Common Equity” means Equity Interests (other than Preferred Stock) the
value of which is determined pursuant to Section 6.15(b)(ii)(B) for
Borrowing Base purposes.

 

“Unsecured
Bank Loan” means a Bank Loan that is unsecured with respect to the assets
of the respective borrower.

 

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

 

ARTICLE
VII.

NEGATIVE COVENANTS

 

So
long as any Lender shall have any Commitment hereunder, any Loan or other
Obligation hereunder shall remain unpaid or unsatisfied, the Borrowers shall
not, nor shall they permit any Subsidiary to, directly or indirectly:

 

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

 

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

 

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

 

(i)            Permitted Encumbrances;

 

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

 

73

 

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

 

(iv)          Liens securing Indebtedness permitted
under Section 7.03(k);

 

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

 

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

 

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

 

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

 

7.02        Investments.   Make
any Investments, except:

 

(a)           Permitted Investments;

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)           Indebtedness under the Loan
Documents;

 

74

 

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

 

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

 

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

 

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

 

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

 

(g)           Indebtedness in respect of
performance bonds, bid bonds, appeal bonds, surety bonds and completion
guarantees and similar obligations, in each case, provided in the course of ordinary
business, including those incurred to secure health, safety and environmental
obligations in the ordinary course of business;

 

(h)           Unsecured Indebtedness;

 

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

 

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

 

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

 

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

 

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

 

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

 

75

 

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

 

(b)           any Subsidiary may Dispose of all or
substantially all of its assets (upon voluntary liquidation or otherwise) to a
Borrower or to another Subsidiary;

 

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

 

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

 

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

 

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

 

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

 

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

 

(a)           Dispositions of obsolete or worn out
property, whether now owned or hereafter acquired, in the ordinary course of
business;

 

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

 

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

 

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

 

76

 

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

 

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

 

(g)           Dispositions permitted by Section 7.04;
and

 

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

 

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

 

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

 

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

 

(b)           each Subsidiary (including, without
limitation, the Subsidiaries of KKR Financial party hereto as Borrowers) may
declare and make Restricted Payments to the Borrowers, and to any other Person
that owns an Equity Interest in such Subsidiary, ratably according to their
respective holdings of the type of Equity Interest of the applicable class or
series in respect of which such Restricted Payment is being made;

 

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

 

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

 

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

 

7.08        Burdensome Agreements.   Enter
into any Contractual Obligation (other than this Agreement or any other Loan
Document) that restricts or imposes any condition upon (i) the ability of any
Borrower or any Subsidiary to create, incur or permit to exist any Lien upon
any of its property or

 

77

 

assets, or (ii) the
ability of any Subsidiary to pay dividends or other distributions with respect
to any shares of its capital stock or to make or repay loans or advances to any
Borrower or any other Subsidiary or to Guarantee Indebtedness of any Borrower
or any other Subsidiary; provided that (A) the foregoing shall not apply
to restrictions and conditions imposed by law or by this Agreement or any other
Loan Document or upon any Financing SPE by any lender thereto or investor
therein or upon any Trust Preferred Financing Vehicle in respect of its common
securities issued to a Borrower or any Subsidiary of a Borrower, (B) the
foregoing shall not apply to restrictions and conditions existing on the date
hereof identified on Schedule 7.08 (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (C) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary pending such sale, provided such restrictions and conditions apply
only to the Subsidiary that is to be sold and such sale is permitted hereunder,
(D) clause (i) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured Indebtedness permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Indebtedness and (E) clause (i) of the foregoing shall not
apply to customary provisions in leases and other contracts restricting the
assignment thereof.

 

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

 

7.09        Financial Covenants.

 

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

 

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

 

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

 

(d)           Distributions.  Make any distributions to their respective
shareholders (other than any such shareholder that is itself a Borrower or a
Subsidiary) in respect of any taxable year in an aggregate amount (as to all
such shareholders) in excess of 65% of KKR Financial’s estimated taxable income
in respect of such taxable year as reasonably determined by KKR Financial
(determined without regard to any “passive activity losses” within the meaning
of Section 469 of the Code, any “miscellaneous itemized deductions” within the
meaning of Section 67 of the Code and any capital gains and capital losses
recognized on the disposition of assets, which are generally determined on a
partner-by-partner basis with reference to each partner’s tax basis in their
partnership interest); provided, that no such distributions shall be
made unless, before and after giving effect thereto, no Borrowing Base
Deficiency exists or would exist; and provided, further, that
notwithstanding the limitation on distributions (and in addition to the amount
of permitted distributions) set forth above in this Section 7.09(d), any
Borrower or Subsidiary that is a real estate investment trust for tax purposes
may make distributions in respect of any class of preferred shares that was
issued to satisfy the 100-shareholder requirement in Section 856(a)(5) of the
Code in accordance with the terms of such preferred class of shares.

 

78

 

7.10        Fiscal Year.   Permit
the fiscal year of the Borrowers to end on a day other than December 31 or
permit the fiscal quarters to end on dates other than in a manner consistent
with Borrower’s current practice; provided, however, that the
Borrowers may, upon written notice to the Administrative Agent change the
financial reporting convention specified above to any other financial reporting
convention reasonably acceptable to the Administrative Agent.

 

7.11        Lines of Business.   Alter
in a fundamental manner the character of their business, taken as a whole, from
the business conducted on the Closing Date and other business activities
incidental or reasonably related to any of the foregoing.

 

7.12        Margin Regulations; Securities Laws.   Use
all or any portion of the proceeds of any credit extended under this Agreement
to purchase or carry Margin Stock.

 

ARTICLE
VIII.

EVENTS OF DEFAULT AND REMEDIES

 

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

 

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

 

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

 

(c)           Borrowing Base Deficiency.  There shall occur and continue unremedied for
a period of five or more Business Days after delivery of a Borrowing Base
Report demonstrating such Borrowing Base Deficiency pursuant to Section
6.02(e); provided that it shall not be an Event of Default hereunder if
the Borrowers shall present the Administrative Agent with a reasonably feasible
plan to enable such Borrowing Base Deficiency to be cured within 20 Business
Days (which 20-Business Day period shall include the five Business Days
permitted for delivery of such plan), so long as such Borrowing Base Deficiency
is cured within such 20-Business Day period;

 

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

 

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

 

79

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

80

 

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

 

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

 

provided, however,
that in case of any event with respect to a Borrower described in Section
8.01(g), the Commitments shall automatically terminate and the principal of
the Loans then outstanding, together with accrued interest thereon and all fees
and other Obligations, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each of the Borrowers.

 

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

 

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

 

Second, to all other
Obligations in such order or preference as the Required Lenders may determine; provided,
however, that (i) distributions shall be made (A) pari  passu
among Obligations with respect to any fees payable to the Administrative Agent
and all other Obligations and (B) with respect to each type of Obligation owing
to the Lenders, such as interest, principal, fees and expenses, among the
Lenders pro  rata, and (ii) the Administrative Agent may in its
discretion make proper allowance to take into account any Obligations not then
due and payable;

 

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

 

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

 

ARTICLE IX.

ADMINISTRATIVE AGENT

 

9.01        Appointment and Authority.   Each
of the Lenders hereby irrevocably appoints Citibank, N.A. to act on its behalf
as the Administrative Agent hereunder and under the other Loan

 

81

 

Documents and authorizes
the Administrative Agent to take such actions on its behalf and to exercise
such powers as are delegated to the Administrative Agent by the terms hereof or
thereof, together with such actions and powers as are reasonably incidental
thereto.  The provisions of this Article
are solely for the benefit of the Administrative Agent.  No Lender or Borrower shall have rights as a
third party beneficiary of any of such provisions.

 

9.02        Rights as a Lender.   The
Person serving as the Administrative Agent hereunder shall have the same rights
and powers in its capacity as a Lender as any other Lender and may exercise the
same as though it were not the Administrative Agent and the term “Lender” or “Lenders”
shall, unless otherwise expressly indicated or unless the context otherwise
requires, include the Person serving as the Administrative Agent hereunder in
its individual capacity.  Such Person and
its Affiliates may accept deposits from, lend money to, act as the financial
advisor or in any other advisory capacity for and generally engage in any kind
of business with the Borrowers or any Subsidiary or other Affiliate thereof as
if such Person were not the Administrative Agent hereunder and without any duty
to account therefor to the Lenders.

 

9.03        Exculpatory Provisions.   The
Administrative Agent shall not have any duties or obligations except those
expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the
foregoing, the Administrative Agent:

 

(a)           shall not be subject to any fiduciary
or other implied duties, regardless of whether a Default has occurred and is
continuing;

 

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

 

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

 

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

 

The
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in
connection with this Agreement or any other Loan Document, (ii) the contents of
any certificate, report or other document delivered hereunder or thereunder or
in connection herewith or therewith, (iii) the performance or observance
of any of the covenants, agreements or other terms or conditions set forth
herein or therein or the occurrence of any Default, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document or (v) the satisfaction
of any condition set

 

82

 

forth
in Article IV or elsewhere herein, other than to confirm receipt of
items expressly required to be delivered to the Administrative Agent.

 

9.04        Reliance by Administrative Agent.

 

(a)           The Administrative Agent shall be
entitled to rely upon, and shall not incur any liability for relying upon, any
notice, request, certificate, consent, statement, instrument, document or other
writing (including any electronic message, Internet or intranet website posting
or other distribution) believed by it to be genuine and to have been signed,
sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any
statement made to it orally or by telephone and believed by it to have been
made by the proper Person, and shall not incur any liability for relying
thereon.  In determining compliance with
any condition hereunder to the making of a Loan, that by its terms must be
fulfilled to the satisfaction of a Lender or the Administrative Agent may
presume that such condition is satisfactory to such Lender unless the
Administrative Agent shall have received notice to the contrary from such
Lender prior to the making of such Loan. 
The Administrative Agent may consult with legal counsel (who may be
counsel for any Borrower), independent accountants and other experts selected
by it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.

 

(b)           For purposes of determining
compliance with the conditions specified in Section 4.01, each Lender
that has signed this Agreement shall be deemed to have consented to, approved
or accepted or to be satisfied with, each document or other matter required
thereunder to be consented to or approved by or acceptable or satisfactory to a
Lender unless the Administrative Agent shall have received notice from such
Lender prior to the proposed Closing Date specifying its objection thereto.

 

9.05        Delegation of Duties.   The
Administrative Agent may perform any and all of its duties and exercise its
rights and powers hereunder or under any other Loan Document by or through any
one or more sub-agents appointed by the Administrative Agent. The
Administrative Agent and any such sub-agent may perform any and all of its
duties and exercise its rights and powers by or through their respective
Related Parties.  The exculpatory provisions
of this Article shall apply to any such sub-agent and to the Related Parties of
the Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.

 

9.06        Resignation of Administrative Agent.   The
Administrative Agent may at any time give notice of its resignation to the
Lenders and the Borrowers.  Upon receipt
of any such notice of resignation, the Required Lenders shall have the right, in
consultation with the Borrowers, to appoint a successor, which shall be a bank
with an office in the United States, or an Affiliate of any such bank with an
office in the United States.  If no such
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may on behalf of the Lenders, appoint a successor Administrative Agent meeting
the qualifications set forth above; provided that if the Administrative
Agent shall notify the Borrowers and the Lenders that no qualifying Person has
accepted such appointment, then such resignation shall nonetheless become
effective in accordance with such notice and (1) the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents (except that in the case of any
collateral security held by the Administrative Agent on behalf of the Lenders
under any of the Loan Documents, the retiring Administrative Agent shall
continue to hold such collateral security until such time as a successor
Administrative Agent is appointed) and (2) all payments, communications
and determinations provided to be made by, to or through the Administrative
Agent shall instead be made by or to each Lender directly, until such time as
the Required Lenders appoint a successor Administrative Agent as provided for
above

 

83

 

in this Section.  Upon the acceptance of a successor’s
appointment as Administrative Agent hereunder, such successor shall succeed to
and become vested with all of the rights, powers, privileges and duties of the
retiring (or retired) Administrative Agent, and the retiring Administrative
Agent shall be discharged from all of its duties and obligations hereunder or
under the other Loan Documents (if not already discharged therefrom as provided
above in this Section).  The fees payable
by the Borrowers to a successor Administrative Agent shall be the same as those
payable to its predecessor unless otherwise agreed between the Borrowers and
such successor.  After the retiring
Administrative Agent’s resignation hereunder and under the other Loan
Documents, the provisions of this Article and Section 10.04 shall
continue in effect for the benefit of such retiring Administrative Agent, its
sub-agents and their respective Related Parties in respect of any actions taken
or omitted to be taken by any of them while the retiring Administrative Agent
was acting as Administrative Agent.

 

Any
resignation by Citibank, N.A. as Administrative Agent pursuant to this Section
shall also constitute its resignation as Swingline Lender.  Upon the acceptance of a successor’s
appointment as Administrative Agent hereunder, (a) such successor shall succeed
to and become vested with all of the rights, powers, privileges and duties of
the retiring Swingline Lender and (b) the retiring Swingline Lender shall be
discharged from all of their respective duties and obligations hereunder or
under the other Loan Documents.

 

In
addition to the foregoing, if a Lender becomes, and during the period it
remains, a Defaulting Lender or a Potential Defaulting Lender, the Issuing Bank
and/or the Swingline Lender may, upon prior written notice to the Borrowers and
the Administrative Agent, resign as Issuing Bank or Swingline Lender,
respectively, effective at the close of business New York time on a date
specified in such notice (which date may not be less than 20 Business Days
after the date of such notice); provided that such resignation by the
Issuing Bank will have no effect on the validity or enforceability of any
Letter of Credit then outstanding or on the obligations of the Borrowers or any
Lender under this Agreement with respect to any such outstanding Letter of
Credit or otherwise to the Issuing Bank; and provided, further,
that such resignation by the Swingline Lender will have no effect on its rights
in respect of any outstanding Swingline Loans or on the obligations of the
Borrowers or any Lender under this Agreement with respect to any such
outstanding Swingline Loan.

 

9.07        Non-Reliance on Administrative Agent and Other
Lenders.   Each Lender acknowledges that it has, independently and
without reliance upon the Administrative Agent or any other Lender or any of
their Related Parties and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement.  Each Lender also acknowledges
that it will, independently and without reliance upon the Administrative Agent
or any other Lender or any of their Related Parties and based on such documents
and information as it shall from time to time deem appropriate, continue to
make its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document or any related agreement or any document
furnished hereunder or thereunder.

 

9.08        No Other Duties, Etc.   Anything herein to the contrary notwithstanding, the
Syndication Agents and the Arranger listed on the cover page hereof shall not
have any powers, duties or responsibilities under this Agreement or any of the
other Loan Documents, except in its capacity, as applicable, as the
Administrative Agent or a Lender hereunder.

 

9.09        Administrative Agent May File Proofs of Claim.   In
case of the pendency of any proceeding under any Debtor Relief Law or any other
judicial proceeding relative to any Borrower, the Administrative Agent
(irrespective of whether the principal of any Loan shall then be due and
payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent

 

84

 

shall have made any demand
on the Borrowers) shall be entitled and empowered, by intervention in such
proceeding or otherwise

 

(b)           to file and prove a claim for the
whole amount of the principal and interest owing and unpaid in respect of the
Loans and all other Obligations that are owing and unpaid and to file such
other documents as may be necessary or advisable in order to have the claims of
the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders
and the Administrative Agent and their respective agents and counsel and all
other amounts due the Lenders and the Administrative Agent under Sections
2.09 and 10.05) allowed in such judicial proceeding; and

 

(c)           to collect and receive any monies or
other property payable or deliverable on any such claims and to distribute the
same;

 

and
any custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Lender to make such payments to the Administrative Agent and, in the event that
the Administrative Agent shall consent to the making of such payments directly
to the Lenders to pay to the Administrative Agent any amount due for the
reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Sections 2.09 and 10.04.

 

Nothing
contained herein shall be deemed to authorize the Administrative Agent to
authorize or consent to or accept or adopt on behalf of any Lender any plan of
reorganization, arrangement, adjustment or composition affecting the
Obligations or the rights of any Lender to authorize the Administrative Agent
to vote in respect of the claim of any Lender in any such proceeding.

 

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

 

Upon
request by the Administrative Agent at any time, the Required Lenders will
confirm in writing the Administrative Agent’s authority to release or
subordinate its interest in particular types or items of property.

 

ARTICLE X.

MISCELLANEOUS

 

10.01      Amendments, Etc.   No
amendment or waiver of any provision of this Agreement or any other Loan
Document, and no consent to any departure by any Borrower therefrom, shall be
effective unless in writing signed by the Required Lenders and applicable
Borrower, as the case may be, and acknowledged by the Administrative Agent, and
each such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given; provided, however,
that no such amendment, waiver or consent shall:

 

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

 

85

 

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

 

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

 

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

 

(e)           change any components of the
definitions of Eligible Specified Financial Asset or Specified Percentage,
without the written consent of the Required Lenders; provided that (i) the
addition of any new type of Specified Financial Asset and (ii) any
increase in any Specified Percentage shall require the written consent of each
Lender;

 

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

 

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

 

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

 

(i)            release all or substantially
all of the Collateral and terminate the Security Agreement without the written
consent of each Lender.

 

and,
provided  further, that (i) no amendment, waiver or consent
shall, unless in writing and signed by the Swingline Lender in addition to the
Lenders required above, affect the rights or duties of the Swingline Lender
under this Agreement, (ii) no amendment, waiver or consent shall, unless
in writing and signed by the Administrative Agent in addition to the Lenders
required above, affect the rights or duties of the Administrative Agent under
this Agreement or any other Loan Document and (iii) the consent of Lenders
holding not less than two-thirds of the Revolving Credit Exposure and unused
Commitments will be required for any adverse change affecting the provisions of
this Agreement relating to the calculation of the Borrowing Base (including the
definitions set forth in Section 6.16(b)) unless otherwise expressly
provided herein.

 

Anything
herein to the contrary notwithstanding, during such period as a Lender is a
Defaulting Lender, to the fullest extent permitted by applicable law, such
Lender will not be entitled to vote in respect of amendments and waivers
hereunder and the Commitment and the outstanding Loans or other extensions of
credit of such Lender hereunder will not be taken into account in determining
whether the Requisite Lenders or all of the Lenders, as required, have approved
any such amendment or waiver (and the definition of “Requisite Lenders” will
automatically be deemed modified accordingly for the duration

 

86

 

of
such period); provided, that any such amendment or waiver that would
increase or extend the term of the Commitment of such Defaulting Lender, extend
the date fixed for the payment of principal or interest owing to such
Defaulting Lender hereunder, reduce the principal amount of any obligation
owing to such Defaulting Lender, reduce the amount of or the rate or amount of
interest on any amount owing to such Defaulting Lender or of any fee payable to
such Defaulting Lender hereunder, or alter the terms of this proviso, will
require the consent of such Defaulting Lender.

 

10.02      Notices; Effectiveness; Electronic
Communication.

 

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

 

(i)            if to the Borrowers, the
Administrative Agent or the Swingline Lender, to the address, telecopier
number, electronic mail address or telephone number specified for such Person
on Schedule 10.02; and

 

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

 

Notices
sent by hand or overnight courier service, or mailed by certified or registered
mail, shall be deemed to have been given when received; notices sent by
telecopier shall be deemed to have been given when sent (except that, if not
given during normal business hours for the recipient, shall be deemed to have
been given at the opening of business on the next business day for the
recipient).  Notices delivered through
electronic communications to the extent provided in subsection (b) below,
shall be effective as provided in such subsection (b).

 

(b)           Electronic Communications.  Notices and other communications to the
Lenders may be delivered or furnished by electronic communication (including
e-mail and Internet or intranet websites) pursuant to procedures approved by
the Administrative Agent, provided that the foregoing shall not apply to
service of process notices pursuant to Section 10.14, notices that
are prohibited from being so delivered under applicable law, and notices to any
Lender pursuant to Article II if such Lender, as applicable, has
notified the Administrative Agent that it is incapable of receiving notices
under such Article by electronic communication.  The Administrative Agent or any Borrower may,
in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it, provided
that approval of such procedures may be limited to particular notices or
communications.

 

Unless
the Administrative Agent otherwise prescribes, (i) notices and other
communications sent to an e-mail address shall be deemed received upon the
sender’s receipt of an acknowledgement from the intended recipient (such as by
the “return receipt requested” function, as available, return e-mail or other
written acknowledgement), provided that if such notice or other communication
is not sent during the normal business hours of the recipient, such notice or
communication shall be deemed to have been sent at the opening of business on
the next business day for the recipient, and (ii) notices or
communications posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail
address as described in the foregoing clause (i) of notification that
such notice or communication is available and identifying the website address
therefor.

 

87

 

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

 

(d)           Change of Address, Etc.  Each of the Borrowers, the Administrative
Agent and the Swingline Lender may change its address, telecopier or telephone
number for notices and other communications hereunder by notice to the other
parties hereto.  Each other Lender may
change its address, telecopier or telephone number for notices and other
communications hereunder by notice to the Borrowers, the Administrative Agent
and the Swingline Lender.  In addition,
each Lender agrees to notify the Administrative Agent from time to time to
ensure that the Administrative Agent has on record (i) an effective
address, contact name, telephone number, telecopier number and electronic mail
address to which notices and other communications may be sent and (ii) accurate
wire instructions for such Lender.

 

(e)           Reliance by Administrative Agent
and Lenders.  The Administrative Agent and the
Lenders shall be entitled to rely and act upon any notices (including
telephonic Revolving Loan Notices and Swingline Loan Notices) purportedly given
by or on behalf of the Borrowers even if (i) such notices were not made in
a manner specified herein, were incomplete or were not preceded or followed by
any other form of notice specified herein, or (ii) the terms thereof, as
understood by the recipient, varied from any confirmation thereof.  The Borrowers shall jointly and severally
indemnify the Administrative Agent, each Lender and the Related Parties of each
of them from all losses, costs, expenses and liabilities resulting from the
reliance by such Person on each notice purportedly given by or on behalf of the
Borrowers.  All telephonic notices to and
other telephonic communications with the Administrative Agent may be recorded
by the Administrative Agent, and each of the parties hereto hereby consents to
such recording.

 

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

 

10.04      Expenses; Indemnity; Damage Waiver.

 

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

 

88

 

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

 

(b)           Indemnification by the Borrowers.  The Borrowers shall indemnify the
Administrative Agent (and any sub-agent thereof), each Lender, and each Related
Party of any of the foregoing Persons (each such Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses (including the fees, charges and
disbursements of any counsel for any Indemnitee), and shall indemnify and hold
harmless each Indemnitee from all fees and time charges and disbursements for
attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or
asserted against any Indemnitee by any third party or by any of the Borrowers
arising out of, in connection with, or as a result of (i) the execution or
delivery of this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties
hereto of their respective obligations hereunder or thereunder, the
consummation of the transactions contemplated hereby or thereby, or, in the
case of the Administrative Agent (and any sub-agent thereof) and its Related
Parties only, the administration of this Agreement and the other Loan
Documents, (ii) any Loan or the use or proposed use of the proceeds
therefrom, (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by any of the Borrowers or
any of their Subsidiaries, or any Environmental Liability related in any way to
such Borrower or any such Subsidiaries, or (iv) any actual or prospective
claim, litigation, investigation or proceeding relating to any of the
foregoing, whether based on contract, tort or any other theory, whether brought
by a third party or by any of the Borrowers, and regardless of whether any
Indemnitee is a party thereto, in all cases, whether or not caused by or arising,
in whole or in part, out of the comparative, contributory or sole negligence of
the Indemnitee; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses (x) are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee or (y) result
from a claim brought by any of the Borrowers against an Indemnitee for breach
in bad faith of such Indemnitee’s obligations hereunder or under any other Loan
Document, if any Borrower has obtained a final and nonappealable judgment in
its favor on such claim as determined by a court of competent
jurisdiction.  Unless an Event of Default
shall have occurred and be continuing, the Borrowers shall be entitled to
assume the defense of any action for which indemnification is sought hereunder
with counsel of its choice at its expense (in which case the Borrowers shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by an Indemnitee except as set forth below); provided, however,
that such counsel shall be reasonably satisfactory to each such
Indemnitee.  Notwithstanding the
Borrowers’ election to assume the defense of such action, each Indemnitee shall
have the right to employ separate counsel and to participate in the defense of
such action, and the Borrowers shall bear the reasonable fees, costs and
expenses of such separate counsel if (i) the use of counsel chosen by the
Borrowers to represent such Indemnitee would present such counsel with a
conflict of interest; (ii) the actual or potential defendants in, or
targets of, any such action include the Borrowers and such Indemnitee and such Indemnitee
shall have reasonably concluded that there may be legal defenses available to
it that are different from or additional to those available to the Borrowers; (iii) the
Borrowers shall not have 

 

89

 

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

 

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

 

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

 

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

 

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

 

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

 

90

 

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

 

10.06      Successors and Assigns.

 

(a)           Successors and Assigns Generally.  The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that the Borrowers
may not assign or otherwise transfer any of its rights or obligations hereunder
without the prior written consent of the Administrative Agent and each Lender
and no Lender may assign or otherwise transfer any of its rights or obligations
hereunder except (i) to an assignee in accordance with the provisions of
paragraph (b) of this Section, (ii) by way of participation in
accordance with the provisions of paragraph (d) of this Section or (iii) by
way of pledge or assignment of a security interest subject to the restrictions
of paragraph (f) of this Section (and any other attempted assignment
or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby, Participants
to the extent provided in paragraph (d) of this Section and, to the
extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

 

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

 

(i)            Minimum Amounts.

 

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

 

(B)           in any case not described in
paragraph (b)(i)(A) of this Section, the aggregate amount of the
Commitment (which for this purpose includes Loans outstanding thereunder) or,
if the applicable Commitment is not then in effect, the principal outstanding
balance of the Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to such
assignment is delivered to the Administrative Agent or, if “Trade Date” is
specified in the Assignment and Assumption, as of the Trade Date) shall not be
less than $5,000,000 unless each of the Administrative Agent and, so long as no
Event of Default has occurred and is continuing, each Borrower otherwise
consents (each such consent not to be unreasonably withheld or delayed); provided,
however, that concurrent assignments to members of an Assignee Group and
concurrent assignments from members of an Assignee Group to a single assignee
(or to an assignee and members of its Assignee Group) will be treated as a
single assignment for purposes of determining whether such minimum amount has
been met.

 

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

 

91

 

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

 

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

 

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

 

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

 

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

 

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

 

(A)          any such Loans acquired by a Borrower
or any Subsidiaries of a Borrower shall be cancelled promptly upon the
acquisition thereof;

 

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

 

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

 

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

 

92

 

and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto) but shall continue to be entitled to the benefits of Sections
3.01, 3.04, 3.05 and 10.04 with respect to facts and circumstances occurring
prior to the effective date of such assignment. 
Upon request, each Borrower (at its expense) shall execute and deliver a
Note to the assignee Lender.  Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this paragraph shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (d) of this Section.

 

(c)           Register.  The Administrative Agent, acting solely for
this purpose as an agent of the Borrower, shall maintain at the Administrative
Agent’s Office a copy of each Assignment and Assumption delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the
Commitments of, and principal amounts of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary and the transfer of any Loan shall not
be recognized except to the extent reflected on the Register.  The Register shall be available for inspection
by the Borrowers and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.  This Section 10.06
is intended to cause the Loans to be treated as being in registered form within
the meaning of U.S. Treasury Regulation Section 103-1(c) and will be
interpreted in accordance with that intention.

 

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

 

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

 

93

 

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

 

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

 

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

 

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

 

10.07      Treatment of Certain Information; Confidentiality.   Each
of the Administrative Agent, the Lenders and the Issuing Bank agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its Affiliates and to its and its
Affiliates’ respective managers, administrators, trustees, partners, directors,
officers, employees, agents, advisors and other representatives (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority purporting to have jurisdiction over it (including any
self-regulatory authority, such as the National Association of Insurance
Commissioners), (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other
party hereto, (e) in connection with the exercise of any remedies
hereunder or under any other Loan Document or any action or proceeding relating
to this Agreement or any other Loan Document or the enforcement of rights
hereunder or thereunder, (f) subject to an agreement executed and
delivered to and for the benefit of the Borrowers containing provisions substantially
the same as those of this Section, to (i) any assignee of or Participant
in, or any prospective assignee of or Participant in, any of its rights or
obligations under this Agreement, (ii) any actual or prospective party (or
its managers,

 

94

 

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

 

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

 

Each of the Administrative
Agent and the Lenders acknowledges that (a) the Information may include
material non-public information concerning the Borrowers or a Subsidiary, as
the case may be, (b) it has developed compliance procedures regarding the
use of material non-public information, (c) it will handle such material
non-public information in accordance with applicable Law, including Federal and
state securities Laws and (d) the confidentiality provisions contained
herein, in so far as such provisions relate to material proprietary
Information, shall survive for 12 months following the Maturity Date and, in so
far as such provisions relate to material non-public information, shall survive
in accordance with applicable law.

 

10.08      Right of Setoff.   If
an Event of Default shall have occurred and be continuing, each Lender and each
of their respective Affiliates is hereby authorized at any time and from time
to time, after providing prior written notice to the Administrative Agent, to
the fullest extent permitted by applicable law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final, in
whatever currency) at any time held and other obligations (in whatever
currency) at any time owing by such Lender or any such Affiliate to or for the
credit or the account of the applicable Borrower against any and all of the
obligations of the applicable Borrower now or hereafter existing under this
Agreement or any other Loan Document to such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement or any other
Loan Document and although such obligations of such Borrower may be contingent
or unmatured or are owed to a branch or office of such Lender different from
the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Lender and their
respective Affiliates under this Section are in addition to other rights
and remedies (including other rights of setoff) that such Lender or their
respective Affiliates may have.  Each
Lender agrees to notify the Borrowers and the Administrative Agent promptly
after any such setoff and application, provided that the failure to give
such notice shall not affect the validity of such setoff and application.

 

10.09      Interest Rate Limitation.   Notwithstanding
anything to the contrary contained in any Loan Document, the interest paid or
agreed to be paid under the Loan Documents shall not exceed the maximum rate of
non-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Administrative Agent or any Lender
shall receive interest in an amount that exceeds the Maximum Rate, the excess
interest shall be applied to the principal of the Loans or, if it exceeds such
unpaid principal, refunded to the Borrowers. 
In determining whether the interest contracted for, charged, or received
by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person
may, to the extent permitted

 

95

 

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

 

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

 

10.11      Survival of Representations and Warranties.   All
representations and warranties made hereunder and in any other Loan Document or
other document delivered pursuant hereto or thereto or in connection herewith
or therewith shall survive the execution and delivery hereof and thereof.  Such representations and warranties have been
or will be relied upon by the Administrative Agent and each Lender, regardless
of any investigation made by the Administrative Agent or any Lender or on their
behalf and notwithstanding that the Administrative Agent or any Lender may have
had notice or knowledge of any Default at the time of any Borrowing, and shall
continue in full force and effect as long as any Loan or any other Obligation
hereunder shall remain unpaid or unsatisfied.

 

10.12      Severability.   If
any provision of this Agreement or the other Loan Documents is held to be
illegal, invalid or unenforceable, (a) the legality, validity and
enforceability of the remaining provisions of this Agreement and the other Loan
Documents shall not be affected or impaired thereby and (b) the parties
shall endeavor in good faith negotiations to replace the illegal, invalid or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the illegal, invalid or unenforceable
provisions.  The invalidity of a
provision in a particular jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

10.13      Replacement of Lenders.   If
any Lender requests compensation under Section 3.04, or if any
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 3.01,
if any Lender gives a notice pursuant to Section 3.02 or if any Lender
is a Defaulting Lender or if any other circumstance exists hereunder that gives
any Borrower the right to replace a Lender as a party hereto, then such
Borrower may, at its sole expense and effort, upon notice to such Lender and
the Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in, and
consents required by, Section 10.06), all of its interests, rights
and obligations under this Agreement and the related Loan Documents to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment), provided that:

 

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

 

96

 

(c)           in the case of any such assignment
resulting from a claim for compensation under Section 3.04 or
payments required to be made pursuant to Section 3.01, such
assignment will result in a reduction in such compensation or payments
thereafter;

 

(d)           such assignment does not conflict
with applicable Laws; and

 

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

 

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

 

10.14      Governing Law; Jurisdiction; Etc.

 

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

 

(b)           SUBMISSION TO JURISDICTION.  EACH OF THE BORROWERS IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY
AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR
RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO
IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE
COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH
FEDERAL COURT.  EACH OF THE PARTIES
HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER
LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY
LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY BORROWER OR ITS
PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 

NOTWITHSTANDING ANYTHING
ABOVE IN THIS CLAUSE (B), THE ADMINISTRATIVE AGENT RESERVES FOR ITSELF THE
RIGHT TO PURSUE ENFORCEMENT OF ITS RIGHTS AGAINST ANY NON-US BORROWER OUTSIDE
OF NEW YORK (INCLUDING IN THE COUNTRY OF INCORPORATION OF SUCH NON-US BORROWER)
AND ANY NON-US BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT NEW YORK
SHALL BE ITS EXCLUSIVE FORUM FOR INITIATING ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

 

(c)           WAIVER OF VENUE.  EACH OF THE BORROWERS IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS 

 

97

 

AGREEMENT OR ANY OTHER
LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS
SECTION.  EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT.

 

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02.  NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW.

 

(e)           WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY).  EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

 

10.15      No Advisory or Fiduciary Responsibility.   In
connection with all aspects of each transaction contemplated hereby, each of
the Borrowers acknowledges and agrees, and acknowledges its Affiliates’
understanding, that: (i) the credit facility provided for hereunder and
any related arranging or other services in connection therewith (including in
connection with any amendment, waiver or other modification hereof or of any
other Loan Document) are an arm’s-length commercial transaction between the
Borrowers and their respective Affiliates, on the one hand, and the Administrative
Agent and the Arranger, on the other hand, and each of the Borrowers is capable
of evaluating and understanding and understands and accepts the terms, risks
and conditions of the transactions contemplated hereby and by the other Loan
Documents (including any amendment, waiver or other modification hereof or
thereof); (ii) in connection with the process leading to such transaction,
the Administrative Agent and the Arranger each is and has been acting solely as
a principal and is not the financial advisor, agent or fiduciary, for the
Borrowers or any of their respective Affiliates, stockholders, creditors or
employees or any other Person; (iii) neither the Administrative Agent nor
the Arranger has assumed or will assume an advisory, agency or fiduciary responsibility
in favor of the Borrowers with respect to any of the transactions contemplated
hereby or the process leading thereto, including with respect to any amendment,
waiver or other modification hereof or of any other Loan Document (irrespective
of whether the Administrative Agent or the Arranger has advised or is currently
advising the Borrowers or any of their respective Affiliates on other matters)
and neither the Administrative Agent nor the Arranger has any obligation to the
Borrowers or any of their respective Affiliates with respect to the
transactions contemplated hereby except those obligations expressly set forth
herein and in the other Loan Documents; (iv) the Administrative Agent and
the Arranger and their respective Affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Borrowers and
their respective Affiliates, and neither the Administrative Agent nor the
Arranger has any obligation to disclose any of such interests by virtue of any
advisory, agency or fiduciary relationship; and (v) the Administrative
Agent and the Arranger have not provided and will not provide any legal,
accounting, regulatory or tax advice with respect to any of the transactions
contemplated hereby (including any amendment, waiver or other modification
hereof or of any other Loan Document) and each of the Borrowers has consulted
its own legal, accounting, 

 

98

 

regulatory and tax
advisors to the extent it has deemed appropriate.  Each of the Borrowers hereby waives and
releases, to the fullest extent permitted by law, any claims that it may have
against the Administrative Agent and the Arranger with respect to any breach or
alleged breach of agency or fiduciary duty.

 

10.16      U.S. PATRIOT Act Notice.   Each
Lender that is subject to the Patriot Act (as hereinafter defined) and the
Administrative Agent (for itself and not on behalf of any Lender) hereby
notifies the Borrowers that pursuant to the requirements of the U.S. Patriot
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot
Act”), it is required to obtain, verify and record information that
identifies the Borrowers, which information includes the name and address of
the Borrowers and other information that will allow such Lender or the
Administrative Agent, as applicable, to identify the Borrowers in accordance
with the Patriot Act.

 

10.17      Entire Agreement.   This
Agreement and the other Loan Documents represent the final agreement among the
parties and may not be contradicted by evidence of prior, contemporaneous, or
subsequent oral agreements of the parties. 
There are no unwritten oral agreements among the parties.

 

10.18      Judgment Currency.   (a) A Borrower’s obligation hereunder and under
the other Loan Documents to make payments in the applicable Approved Currency
(pursuant to such obligation, the “Obligation Currency”) shall not be
discharged or satisfied by any tender or recovery pursuant to any judgment
expressed in or converted into any currency other than the Obligation Currency,
except to the extent that such tender or recovery results in the effective
receipt by the Administrative Agent or the respective Lender of the full amount
of the Obligation Currency expressed to be payable to the Administrative Agent
or such Lender under this Agreement or the other Loan Documents.  If, for the purpose of obtaining or enforcing
judgment against a Borrower in any court or in any jurisdiction, it becomes
necessary to convert into or from any currency other than the Obligation
Currency (such other currency being hereinafter referred to as the “Judgment
Currency”) an amount due in the Obligation Currency, the conversion shall
be made at the Relevant Currency Equivalent, and in the case of other
currencies, the rate of exchange (as quoted by the Administrative Agent or if
the Administrative Agent does not quote a rate of exchange on such currency, by
a known dealer in such currency designated by the Administrative Agent)
determined, in each case, as of the Business Day immediately preceding the day
on which the judgment is given (such Business Day being hereinafter referred to
as the “Judgment Currency Conversion Date”).

 

(b)           If there is a change in the rate of
exchange prevailing between the Judgment Currency Conversion Date and the date
of actual payment of the amount due, Borrower covenants and agrees to pay, or
cause to be paid, such additional amounts, if any (but in any event not a
lesser amount) as may be necessary to ensure that the amount paid in the
Judgment Currency, when converted at the rate of exchange prevailing on the
date of payment, will produce the amount of the Obligation Currency which could
have been purchased with the amount of Judgment Currency stipulated in the
judgment or judicial award at the rate of exchange prevailing on the Judgment
Currency Conversion Date.

 

(c)           For purposes of determining the
Relevant Currency Equivalent or any other rate of exchange for this Section 10.18,
such amounts shall include any premium and costs payable in connection with the
purchase of the Obligation Currency.

 

[Remainder of page intentionally left blank;
signature pages follow]

 

99

 

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

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Name:
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Operating Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KKR
  FINANCIAL HOLDINGS II, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Name:
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Operating Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KKR
  FINANCIAL HOLDINGS III, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Name:
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Operating Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KKR
  FINANCIAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Name:
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Operating Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KKR
  FINANCIAL CLO 2009-1, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Name:
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Operating Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KFH
  III HOLDINGS LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Name:
  Michael McFerran

  
	
   

  	
   

  	
   

  	
  Title:
  Chief Operating Officer

  

 

[Credit Agreement]

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  George Bashforth

  
	
   

  	
   

  	
   

  	
  Name:
  George Bashforth

  
	
   

  	
   

  	
   

  	
  Title:   Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  KKR
  TRS HOLDINGS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  George Bashforth

  
	
   

  	
   

  	
   

  	
  Name:
  George Bashforth

  
	
   

  	
   

  	
   

  	
  Title:   Director

  
	
   

  	
   

  	
   

  	
   

  

 

[Credit Agreement]

 

 

	
   

  	
  CITIBANK,
  N.A.,

  
	
   

  	
   

  	
  as
  Administrative Agent, as Swingline Lender, 

  
	
   

  	
   

  	
  as
  Issuing Bank and as Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Alexander F. Duka

  
	
   

  	
   

  	
   

  	
  Name:
  Alexander F. Duka

  
	
   

  	
   

  	
   

  	
  Title:  Managing Director/Senior Credit Officer

  
	
   

  	
   

  	
   

  	
  Citigroup/Global
  Financial Institutions

  
	
   

  	
   

  	
   

  	
  388
  Greenwich Street/23rd FL

  
	
   

  	
   

  	
   

  	
  212-816-3260/Fax
  646-291-1703

  

 

[Credit Agreement]

 

 

	
   

  	
  BANK
  OF AMERICA, N.A.,

  
	
   

  	
   

  	
  as
  Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Laura Werner

  
	
   

  	
   

  	
   

  	
  Name:
  Laura Werner

  
	
   

  	
   

  	
   

  	
  Title:   Vice President

  

 

[Credit Agreement]

 

 

	
   

  	
  DEUTSCHE
  BANK AG NEW YORK BRANCH,

  
	
   

  	
  as
  Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/
  Evelyn Thierry

  
	
   

  	
   

  	
   

  	
  Name:
  Evelyn Thierry

  
	
   

  	
   

  	
   

  	
  Title:   Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/
  Omayra Laucella

  
	
   

  	
   

  	
   

  	
  Name:
  Omayra Laucella

  
	
   

  	
   

  	
   

  	
  Title:   Vice President

  

 

[Credit Agreement]

 

 

	
   

  	
  MORGAN
  STANLEY BANK, N.A., as Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  by

  	
  /s/
  Ryan Vetsch

  
	
   

  	
   

  	
   

  	
  Name:
  Ryan Vetsch

  
	
   

  	
   

  	
   

  	
  Title:   Authorized Signatory

  

 

[Credit Agreement]

 

 

SCHEDULE 2.01

 

COMMITMENTS

AND APPLICABLE PERCENTAGES

 

	
  Lender

  	
   

  	
  Commitment

  	
   

  	
  Applicable

  Percentage

  	
   

  
	
  Citibank, N.A.

  	
   

  	
  $

  	
  60,000,000.00

  	
   

  	
  28.571428571428

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bank of America, N.A.

  	
   

  	
  $

  	
  60,000,000.00

  	
   

  	
  28.571428571428

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deutsche Bank AG New York Branch

  	
   

  	
  $

  	
  60,000,000.00

  	
   

  	
  28.571428571428

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Morgan Stanley Bank, N.A.

  	
   

  	
  $

  	
  30,000,000.00

  	
   

  	
  14.285714285714

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  210,000,000.00

  	
   

  	
  100.000000000

  	
  %

  

 

 

SCHEDULE 5.06

 

LITIGATION

 

On
August 7, 2008, the members of board of directors of KKR Financial (the “Company”)
and certain of its current and former executive officers and the Company were
named in a putative class action complaint filed by Charter Township of Clinton
Police and Fire Retirement System in the United States District Court for the
Southern District of New York (the “Charter Litigation”). On
March 13, 2009, the lead plaintiff filed an amended complaint, which
deleted as defendants the members of the Company’s board of directors, and
named as defendants only the former chief executive officer Saturnino S. Fanlo,
the former chief operating officer David A. Netjes, the current chief financial
officer Jeffrey B. Van Horn and the Company. The amended complaint alleges that
the Company’s April 2, 2007 registration statement and prospectus and the
financial statements incorporated therein contained material omissions in
violation of Section 11 of the Securities Act of 1933, as amended (the “1933
Act”) regarding the risks and potential losses associated with the Company’s
real estate-related assets, the Company’s ability to finance its real
estate-related assets and the adequacy of its loss reserves for its real
estate-related assets. The amended complaint further alleges that, pursuant to
Section 15 of the 1933 Act, Messrs. Fanlo, Netjes and Van Horn each
have legal responsibility for the alleged Section 11 violation. On
April 27, 2009, the defendants filed a motion to dismiss the amended
complaint for failure to state a claim under the 1933 Act.

 

On
August 15, 2008, the members of the Company’s board of directors and the
Company’s executive officers (collectively, the “Kostecka Individual
Defendants”) were named in a shareholder derivative action brought by
Raymond W. Kostecka, a purported shareholder, in the Superior Court of California,
County of San Francisco (the “California Derivative Action”). The
Company is named as a nominal defendant. The complaint in the California
Derivative Action asserts claims against the Kostecka Individual Defendants for
breaches of fiduciary duty, abuse of control, gross mismanagement, waste of
corporate assets, and unjust enrichment in connection with the conduct at issue
in the Charter Litigation, including the filing of the April 2, 2007
registration statement with alleged material misstatements and omissions. By
order dated January 8, 2009, the Court approved the parties’ stipulation
to stay the proceedings in the California Derivative Action until the Charter
Litigation is dismissed on the pleadings or the Company files an answer to the
Charter Litigation.

 

On
March 23, 2009, the members of the Company’s board of directors and
certain of the Company’s executive officers (collectively, the “Haley
Individual Defendants”) were named in a shareholder derivative action
brought by Paul B. Haley, a purported shareholder, in the United States
District Court for the Southern District of New York (the “New York
Derivative Action”). The Company is named as a nominal defendant. The
complaint in the New York Derivative Action asserts claims against the Haley Individual
Defendants for breaches of fiduciary duty, breaches of the duty of full
disclosure, and for contribution in connection with the conduct at issue in the
Charter Litigation, including the filing of the April 2, 2007 registration
statement with alleged material misstatements and omissions. By order dated
June 18, 2009, the Court approved the parties’ stipulation to stay the
proceedings in the New York Derivative Action until the Charter Litigation is
dismissed on the pleadings or the Company files an answer to the Charter
Litigation.

 

 

SCHEDULE 7.01

 

EXISTING LIENS

 

I.                                        KKR Financial
Holdings II, LLC

 

1.              Lien in favor
of Bear, Stearns & Co. Inc. and other affiliated Bear Stearns entities
as Secured Parties thereto relating to the collateral as more fully described
in the financing statement filed with the Delaware Secretary of State on May 24,
2007.

 

2.              Lien in favor
of Bank of America, N.A., as Secured Party, in connection with the Existing
Credit Agreement and relating to the collateral as more fully described in the
financing statement filed with the Delaware Secretary of State on May 4,
2007 (as amended or restated).

 

II.                                   KKR Financial
Holdings III, LLC

 

1.              Lien in favor
of Bear, Stearns & Co. Inc. and other affiliated Bear Stearns entities
as Secured Parties thereto relating to the collateral as more fully described
in the financing statement filed with the Delaware Secretary of State on June 11,
2007.

 

2.              Lien in favor
of Bank of America, N.A., as Secured Party, in connection with the Existing
Credit Agreement and relating to the collateral as more fully described in the
financing statement filed with the Delaware Secretary of State on May 4,
2007 (as amended or restated).

 

III.                              KKR Financial
Holdings, Inc.

 

1.              Lien in favor
of Bear, Stearns & Co. Inc. and other affiliated Bear Stearns entities
as Secured Parties thereto relating to the collateral as more fully described
in the financing statement filed with the Delaware Secretary of State on May 29,
2007.

 

2.              Lien in favor
of Bank of America, N.A., as Secured Party, in connection with the Existing
Credit Agreement and relating to the collateral as more fully described in the
financing statement filed with the Delaware Secretary of State on May 4,
2007 (as amended or restated).

 

IV.                               KKR Financial
Holdings LLC

 

1.              Lien in favor
of Bank of America, N.A., as Secured Party, in connection with the Existing
Credit Agreement and relating to the collateral as more fully described in the
financing statement filed with the Delaware Secretary of State on May 4, 2007
(as amended or restated).

 

V.                                    KKR TRS
Holdings, Ltd.

 

1.              Lien in favor
of Bear, Stearns & Co. Inc. relating to the collateral as more fully
described in the financing statement filed with the Washington, DC Recorder of
Deeds on October 16, 2006.

 

 

2.              Mortgage and
charge in favor of Bear, Stearns & Co. Inc and other affiliated Bear
entities as Secured Parties thereto relating to the entry in the Register of
Mortgages and Charges on September 26, 2006.

 

3.              Lien in favor
of Bank of America, N.A., as Secured Party, in connection with the Existing
Credit Agreement and relating to the collateral as more fully described in the
financing statement filed with the Delaware Secretary of State on September 19,
2006 (as amended or restated).

 

VI.                               KKR Financial CLO 2009-1, LTD.

 

1.              Lien in favor
of The Bank of New York Mellon as Secured Party thereto relating to the
collateral as more fully described in the financing statement filed with the
Delaware Secretary of State on March 31, 2009.

 

VII.                          KKR Financial
Holdings Ltd.

 

1.              Lien in favor
of Bank of America, N.A., as Secured Party, in connection with the Existing
Credit Agreement and relating to the collateral as more fully described in the
financing statement filed with the Delaware Secretary of State on May 7,
2007 (as amended or restated).

 

 

SCHEDULE 7.03

 

EXISTING INDEBTEDNESS

 

$180,577,000 KKR Financial Holdings LLC 7.00%
Convertible Senior Notes Due 2012

 

$172,500,000 KKR Financial Holdings LLC 7.50%
Convertible Senior Notes Due 2017

 

$51,550,000 KKR Financial Holdings LLC Junior
Subordinated Note Due 2036 issued to KKR Financial Capital Trust I in
connection with a Trust Preferred Securities offering

 

$51,550,000 KKR Financial Holdings LLC Junior
Subordinated Note Due 2036 issued to KKR Financial Capital Trust II in
connection with a Trust Preferred Securities offering

 

$87,629,000 KKR Financial Holdings LLC Junior
Subordinated Note Due 2036 issued to KKR Financial Capital Trust III in
connection with a Trust Preferred Securities offering

 

$15,464,000 KKR Financial Holdings LLC Junior
Subordinated Note Due 2036 issued to KKR Financial Capital Trust IV in
connection with a Trust Preferred Securities offering

 

$51,550,000 KKR Financial Holdings LLC Junior
Subordinated Note Due 2036 issued to KKR Financial Capital Trust V in
connection with a Trust Preferred Securities offering

 

$25,744,000 KKR Financial Holdings LLC Junior
Subordinated Note Due 2037 issued to KKR Financial Capital Trust VI in
connection with a Trust Preferred Securities offering

 

 

SCHEDULE7.08

 

BURDENSOME AGREEMENTS

 

1.              Existing Credit Agreement.

 

 

SCHEDULE 10.02

 

ADMINISTRATIVE AGENT’S OFFICE;

CERTAIN ADDRESSES FOR NOTICES

 

KKR
FINANCIAL HOLDINGS LLC

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail: treasury@kkr.com

U.S.
Taxpayer Identification Number: 11-3801844

 

KKR
FINANCIAL HOLDINGS II, LLC

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

U.S.
Taxpayer Identification Number: 20-8816785

 

KKR
FINANCIAL HOLDINGS III, LLC

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

U.S.
Taxpayer Identification Number: 20-8816843

 

KKR FINANCIAL HOLDINGS, INC.

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

U.S.
Taxpayer Identification Number: 20-8817515

 

 

KKR TRS
HOLDINGS, LTD.

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

 

with a copy to:

Maples
Finance Limited

P.O. Box
1093, Boundary Hall, Cricket Square

Grand
Cayman, KY1-1102

Cayman
Islands

Attention: George
Bashforth

Telephone:
345-945-7099

Telecopier:
345-945-7100

 

KKR
FINANCIAL HOLDINGS, LTD.

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

 

with a copy to:

Maples
Finance Limited

P.O. Box
1093, Boundary Hall, Cricket Square

Grand
Cayman, KY1-1102

Cayman
Islands

Attention: George
Bashforth

Telephone:
345-945-7099

Telecopier:
345-945-7100

 

KKR
FINANCIAL CLO 2009-1, LTD.

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

 

with a copy to:

Maples
Finance Limited

P.O. Box
1093, Boundary Hall, Cricket Square

Grand
Cayman, KY1-1102

Cayman
Islands

Attention: George
Bashforth

Telephone:
345-945-7099

Telecopier:
345-945-7100

 

 

KFH III
HOLDINGS LTD.

555
California Street, 50th Floor

San
Francisco, CA 94104

Attention:
Treasurer

Telephone:
415-315-3620

Telecopier:  415-391-3330

Electronic
Mail:  treasury@kkr.com

 

with a copy to:

Maples
Finance Limited

P.O. Box
1093, Boundary Hall, Cricket Square

Grand
Cayman, KY1-1102

Cayman
Islands

Attention: George
Bashforth

Telephone:
345-945-7099

Telecopier:
345-945-7100

 

 

ADMINISTRATIVE
AGENT:

Administrative
Agent’s Office

(for
payments and Requests for Borrowings):

Citibank,
N.A.

1615
Brett Road, OPS 3

New
Castle, Delaware 19720

Attention:  Lisa Rodriguez

Telephone:  (302) 894-6197

Telecopier:  (212) 994-0961

Electronic
Mail: lisa.m1.rodriguez@citigroup.com

Copy
to:  GLAgentOfficeOps@citi.com

 

Account
Information:

Citibank,
N.A.

ABA
#021000089

Account
Number: 3073-2122

Account
Name:  CBNA Syndications

Ref:  KKR Financial Holdings

 

Other
Notices as Administrative Agent:

Citigroup
Global Markets Inc.

388
Greenwich Street, 35th Floor

New
York, NY 10013

Attention:  Alex Duka

Telephone:  (212) 816-3260

Telecopier:
(646) 291-1703

Electronic
Mail: alexander.f.duka@citi.com

 

SWINGLINE
LENDER:

Citibank,
N.A.

1615
Brett Road, OPS 3

New
Castle, Delaware 19720

Attention: 
Lisa Rodriguez

Telephone: 
(302) 894-6197

Telecopier: 
(212) 994-0961

Electronic
Mail: lisa.m1.rodriguez@citigroup.com

Copy
to:  GLAgentOfficeOps@citi.com

 

Account
Information:

Citibank,
N.A.

ABA
#021000089

Account
Number: 3073-2122

Account
Name:  CBNA Syndications

Ref:  KKR Financial Holdings

 

 

SCHEDULE 10.06

 

PROCESSING AND RECORDATION FEES

 

The
Administrative Agent will charge a processing and recordation fee (an “Assignment
Fee”) in the amount of $3,500 for each assignment; provided, however,
that in the event of two or more concurrent assignments to members of the same
Assignee Group (which may be effected by a suballocation of an assigned amount
among members of such Assignee Group) or two or more concurrent assignments by
members of the same Assignee Group to a single Eligible Assignee (or to an
Eligible Assignee and members of its Assignee Group), the Assignment Fee will
be $3,500 plus the amount set forth below:

 

	
  Transaction

  	
   

  	
  Assignment Fee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  First four concurrent assignments or
  suballocations to members of an Assignee Group (or from members of an
  Assignee Group, as applicable)

  	
   

  	
  -0-

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Each additional concurrent assignment or
  suballocations to a member of such Assignee Group (or from a member of such
  Assignee Group, as applicable)

  	
   

  	
  $

  	
  500

  	
   

  
					

 

 

EXHIBIT A

 

FORM OF REVOLVING LOAN NOTICE

 

Date: 
                      ,      

 

To:                             Citibank, N.A.,
as Administrative Agent

 

Ladies and Gentlemen:

 

Reference
is made to that certain Credit Agreement, dated as of May 3, 2010 (as
further amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement”; the terms defined therein
being used herein as therein defined), among KKR Financial Holdings LLC, KKR
Financial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR Financial
Holdings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,
KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.
(collectively, the “Borrowers”), the Lenders from time to time party
thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,
N.A., as Administrative Agent.

 

The
undersigned hereby requests (select one):

 

o  A Borrowing of Revolving Loans      o   A
conversion or continuation of Loans

 

o  In or     o Not in       connection
with the purchase of an Eligible Specified Financial Asset.

 

1.                                      On                                                                              (a Business Day).

 

2.                                      In the amount
of $                                             .

 

3.                                      Comprised of                                                      .

[Type of Revolving Loan
requested]

 

4.                                      For Fixed
Period Eurodollar Loans:  with an
Interest Period of          months.

 

5.                                      [In connection
with the purchase of the following Eligible Specified Financial Asset in the
amount indicated:

 

(a)                                 Obligor:                                                                           .]

 

(b)                                 CUSIP No. :
                                                                          .]

 

(c)                                  Dollar Amount:                                                                           .]

 

(d)                                 Other
Information:                                                                           .]

 

 The following are Borrower’s
instructions for distribution of loan proceeds (appropriate wire instructions,
deposit account information, etc.):

 

[_____________________]

 

[_____________________]

 

A-1

 

The
Revolving Loan, if any, requested herein complies with the provisos to the
first sentence of Section 2.01 of the Agreement.

 

	
   

  	
  [BORROWER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

A-2

 

EXHIBIT B

 

FORM OF SWINGLINE LOAN NOTICE

 

Date: 
                      ,     

 

To:                             [    ],
as Swingline Lender

Citibank, N.A., as Administrative Agent

 

Ladies and Gentlemen:

 

Reference
is made to that certain Credit Agreement, dated as of May 3, 2010 (as
further amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement;” the terms defined therein
being used herein as therein defined), among KKR Financial Holdings LLC, KKR
Financial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR Financial
Holdings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,
KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.
(collectively, the “Borrowers”), the Lenders from time to time party
thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,
N.A., as Administrative Agent.

 

The
undersigned hereby requests a Swingline Loan:

 

o  In or   
o Not in       connection with the purchase of an
Eligible Specified Financial Asset.

 

1.                                      On                                                                              (a Business Day).

 

2.                                      In the amount
of $                                             .

 

3.                                      Comprised of                                                      .

[Type of Swingline Loan
requested]

 

4.                                      [In connection
with the purchase of the following Eligible Specified Financial Asset in the
amount indicated:

 

(a)                                 Obligor:                                                                           .]

 

(b)                                 CUSIP No. :
                                                                          .]

 

(c)                                  Dollar Amount:                                                                           .]

 

(d)                                 Other
Information:                                                                           .]

 

 The following are Borrower’s
instructions for distribution of loan proceeds (appropriate wire instructions,
deposit account information, etc.):

 

[_____________________]

 

[_____________________]

 

B-1

 

The
Swingline Borrowing requested herein complies with the requirements of the
provisos to the first sentence of Section 2.03(a) of the
Agreement.

 

	
   

  	
  [BORROWER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

B-2

 

EXHIBIT C

 

FORM OF PROMISSORY NOTE

 

FOR
VALUE RECEIVED, the undersigned (the “Borrower”) hereby promises to pay
to
                                          
(the “Lender”) [or to its order] [or registered assigns], in accordance
with the provisions of the Agreement (as hereinafter defined), the principal
amount of each [Revolving][Swingline] Loan from time to time made by the Lender
to the Borrower under that certain Credit Agreement, dated as of May 3,
2010 (as further amended, restated,
extended, supplemented or otherwise modified in writing from time to
time, the “Agreement;” the terms defined therein being used herein as
therein defined), among KKR Financial Holdings LLC, KKR Financial Holdings II,
LLC, KKR Financial Holdings III, LLC, KKR Financial Holdings, Inc., KKR
Financial Holdings, Ltd., KKR TRS Holdings, Ltd., KKR Financial CLO
2009-1, Ltd., and KFH III Holdings Ltd., the Lenders from time to
time party thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and
Citibank, N.A., as Administrative Agent.

 

The
Borrowers promise to pay interest on the unpaid principal amount of each Loan
from the date of such Loan until such principal amount is paid in full, at such
interest rates and at such times as provided in the Agreement.  [For Revolving Loan Notes: All payments of
principal and interest shall be made to the Administrative Agent for the
account of the Lender in Dollars in immediately available funds at the
Administrative Agent’s Office.]  If any
amount is not paid in full when due hereunder, such unpaid amount shall bear
interest, to be paid upon demand, from the due date thereof until the date of
actual payment (and before as well as after judgment) computed at the per annum
rate set forth in the Agreement.

 

This
Note is one of the Notes referred to in the Agreement, is entitled to the
benefits thereof and may be prepaid in whole or in part subject to the terms
and conditions provided therein.  Upon
the occurrence and continuation of one or more of the Events of Default
specified in the Agreement, all amounts then remaining unpaid on this Note
shall become, or may be declared to be, immediately due and payable all as
provided in the Agreement.  Loans made by
the Lender shall be evidenced by one or more loan accounts or records
maintained by the Lender in the ordinary course of business. The Lender may
also attach schedules to this Note and endorse thereon the date, amount and
maturity of its Loans and payments with respect thereto.

 

Each
Borrower, for itself, its successors and assigns, hereby waives diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
non-payment of this Note.

 

[signature page follows]

 

C-1

 

THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.

 

	
   

  	
  [BORROWER]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

C-2

 

LOANS AND PAYMENTS WITH RESPECT THERETO

 

	
  Date

  	
   

  	
  Type of

  Loan

  Made

  	
   

  	
  Amount of

  Loan

  Made

  	
   

  	
  End of

  Interest

  Period

  	
   

  	
  Amount of

  Principal or

  Interest

  Paid This

  Date

  	
   

  	
  Outstanding

  Principal

  Balance This

  Date

  	
   

  	
  Notation

  Made By

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

C-3

 

EXHIBIT D

 

FORM OF BORROWING BASE REPORT

 

Dated as of:                                                 

 

For the period ending:                             

 

To:                              Citibank, N.A.,
as Administrative Agent

 

Ladies and Gentlemen:

 

Reference
is made to that certain Credit Agreement, dated as of May 3, 2010 (as
further amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement;” the terms defined therein
being used herein as therein defined), among KKR Financial Holdings LLC, KKR
Financial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR Financial
Holdings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,
KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.
(collectively, the “Borrowers”), the Lenders from time to time party
thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,
N.A., as Administrative Agent.

 

The
undersigned,
                                                        ,
the duly elected and qualified Responsible Officer[(s)] of the Borrowers hereby
certifies that (a) the information set forth in this Borrowing Base Report
is true and correct as of the last day of the period specified herein, (b) this
Borrowing Base Report has been prepared in accordance with the applicable
provisions of the Credit Agreement relating to the computation of the Borrowing
Base and the various components thereof, and (c) as of the date of this
Borrowing Base Report, there exists no Default or Event of Default.

 

[Remainder of page intentionally
left blank]

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS III, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

D-1

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS II, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  FINANCIAL CLO 2009-1, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KFH
  III HOLDINGS LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  TRS HOLDINGS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

D-2

 

BORROWING BASE REPORT

 

D-3

 

EXHIBIT E

 

FORM OF COMPLIANCE CERTIFICATE

 

Financial Statement Date:
                        ,         

 

To:                              Citibank, N.A.,
as Administrative Agent

 

Ladies and Gentlemen:

 

Reference
is made to that certain Credit Agreement, dated as of May 3, 2010 (as
further amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the “Agreement;” the terms defined therein
being used herein as therein defined), among KKR Financial Holdings LLC, KKR
Financial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR Financial
Holdings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,
KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.
(collectively, the “Borrowers”), the Lenders from time to time party
thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank,
N.A., as Administrative Agent.

 

The
undersigned Responsible Officer hereby certifies as of the date hereof that
he/she is the
                                                                        
of KKR Financial, and that, as such, he/she is authorized to execute and
deliver this Certificate to the Administrative Agent on the behalf of KKR
Financial, and that:

 

[Use following paragraph 1
for fiscal year-end financial statements]

 

1.                                       The Borrowers
have made available to the Lenders the year-end audited financial statements
required by Section 6.01(a) of the Agreement for the fiscal
year of KKR Financial ended as of the above date, together with the report and
opinion of an independent certified public accountant required by such section.

 

[Use following paragraph 1
for fiscal quarter-end financial statements]

 

1.                                       The Borrowers
have made available to the Lenders the unaudited financial statements required
by Section 6.01(b) of the Agreement for the fiscal quarter of
KKR Financial ended as of the above date. 
Such financial statements fairly present the financial condition,
results of operations and cash flows of KKR Financial and its Subsidiaries in
accordance with GAAP as at such date and for such period, subject only to
normal year-end audit adjustments and the absence of footnotes.

 

2.                                       The undersigned
has reviewed and is familiar with the terms of the Agreement and has made, or
has caused to be made under his/her supervision, a detailed review of the
transactions and condition (financial or otherwise) of KKR Financial during the
accounting period covered by the financial statements referred to above.

 

3.                                       A review of the
activities of KKR Financial during such fiscal period has been made under the
supervision of the undersigned with a view to determining whether during such
fiscal period KKR Financial performed and observed all its Obligations under
the Loan Documents, and

 

[select one:]

 

E-1

 

[to
the best knowledge of the undersigned during such fiscal period, KKR Financial
performed and observed each covenant and condition of the Loan Documents
applicable to it, and no Default has occurred and is continuing.]

 

—or—

 

[the
following covenants or conditions have not been performed or observed and the
following is a list of each such Default and its nature and status:]

 

4.                                       The
representations and warranties of KKR Financial contained in Article V
of the Agreement, and any representations and warranties of any Borrower that
are contained in any document furnished at any time under or in connection with
the Loan Documents, are true and correct on and as of the date hereof, except
to the extent that such representations and warranties specifically refer to an
earlier date, in which case they are true and correct as of such earlier date,
and except that for purposes of this Compliance Certificate, the
representations and warranties contained in subsections (a) and (b) of
Section 5.05 of the Agreement shall be deemed to refer to the most
recent statements furnished pursuant to clauses (a) and (b), respectively,
of Section 6.01 of the Agreement, including the statements in
connection with which this Compliance Certificate is delivered.

 

5.                                       The financial
covenant analyses and information set forth on Schedule 2 attached
hereto are true and accurate on and as of the date of this Certificate.

 

IN
WITNESS WHEREOF, the undersigned has executed this Certificate as of
                                    ,
        .

 

 

[Remainder of page intentionally
left blank]

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS II, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

E-2

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS III, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR FINANCIAL
  CLO 2009-1, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KFH
  III HOLDINGS LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  FINANCIAL HOLDINGS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

	
   

  	
  KKR
  TRS HOLDINGS, LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
  by

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:
  

  
	
   

  	
   

  	
   

  	
  Title:  

  

 

 

For the Quarter/Year ended
                                      (“Statement
Date”)

 

SCHEDULE 2

to the Compliance Certificate

($ in 000’s)

 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  I.

  	
  Section 7.09(a) —
  Adjusted Consolidated Tangible Net Worth.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Adjusted
  Consolidated Tangible Net Worth at Statement Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1.
  

  	
  Consolidated
  Net Worth (calculated without regard to any accumulated other comprehensive
  income or loss):

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.
  

  	
  Intangible
  Assets:

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.

  	
  Trust Preferred Indebtedness as of Statement Date
  (not to exceed $440 million):

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.

  	
  Consolidated
  Tangible Net Worth (Line I.A.1 less Line I.A.2 plus Line I.A.3):

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Minimum
  required Adjusted Consolidated Tangible Net Worth ($700,000,000 plus 25% of
  the net proceeds received from the issuance and sale, at any time after the
  Closing Date, of Equity Interests of KKR Financial or any Subsidiary (other
  than issuances to any Borrower or a wholly-owned Subsidiary), including upon
  any conversion of Debt Securities of KKR Financial into such Equity
  Interests):

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Excess (deficient) for
  covenant compliance (Line I.A.4 less I.B):

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  II.

  	
  Section 7.
  09 (b) — Coverage Ratio.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A

  	
  Aggregate
  Value of Collateral at Statement Date:

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Total
  Revolving Credit Exposure at Statement Date:

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Ratio
  of II.A to II.B (not to be less than 2.00 to 1.00):

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  III.

  	
  Section 7.
  09 (c) —  Leverage Ratio.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  A.

  	
  Adjusted
  Total Liabilities at Statement Date:

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  B.

  	
  Adjusted
  Consolidated Tangible Net Worth for Subject Period:

  	
  $ 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  C.

  	
  Ratio
  of III.A. to III.B (not to exceed 2.00 to 1.00):

  	
  $ 

  	
   

  

 

 

EXHIBIT F

 

ASSIGNMENT AND ASSUMPTION

 

This
Assignment and Assumption (this “Assignment and Assumption”) is dated as
of the Effective Date set forth below and is entered into by and between
[the][each] Assignor identified in item 1 below ([the][each, an] “Assignor”)
and [the][each] Assignee identified in item 2 below ([the][each, an] “Assignee”).  [It is understood and agreed that the rights
and obligations of [the Assignors][the Assignees] hereunder are several and not
joint.]  Capitalized terms used but not
defined herein shall have the meanings given to them in the Credit Agreement
identified below (as further amended,
restated, extended, supplemented or otherwise modified in writing from time to
time, the “Credit Agreement”), receipt of a copy of which is hereby
acknowledged by the Assignee.  The
Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby
agreed to and incorporated herein by reference and made a part of this
Assignment and Assumption as if set forth herein in full.

 

For
an agreed consideration, [the][each] Assignor hereby irrevocably sells and
assigns to [the Assignee][the respective Assignees], and [the][each] Assignee
hereby irrevocably purchases and assumes from [the Assignor][the respective
Assignors], subject to and in accordance with the Standard Terms and Conditions
and the Credit Agreement, as of the Effective Date inserted by the Administrative
Agent as contemplated below (i) all of [the Assignor’s][the respective
Assignors’] rights and obligations in [its capacity as a Lender][their
respective capacities as Lenders] under the Credit Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to
the amount and percentage interest identified below of all of such outstanding
rights and obligations of [the Assignor][the respective Assignors] under the
respective facilities identified below (including, without limitation, the
Swingline Loans included in such facilities) and (ii) to the extent
permitted to be assigned under applicable law, all claims, suits, causes of
action and any other right of [the Assignor (in its capacity as a Lender)][the
respective Assignors (in their respective capacities as Lenders)] against any
Person, whether known or unknown, arising under or in connection with the
Credit Agreement, any other documents or instruments delivered pursuant thereto
or the loan transactions governed thereby or in any way based on or related to
any of the foregoing, including, but not limited to, contract claims, tort
claims, malpractice claims, statutory claims and all other claims at law or in
equity related to the rights and obligations sold and assigned pursuant to
clause (i) above (the rights and obligations sold and assigned by
[the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above
being referred to herein collectively as [the][an] “Assigned Interest”).  Each such sale and assignment is without
recourse to [the][any] Assignor and, except as expressly provided in this
Assignment and Assumption, without representation or warranty by [the][any]
Assignor.

 

	
  1.

  	
  Assignor[s]:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Assignee[s]:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  [for
  each Assignee, indicate [Affiliate][Approved Fund] of [identify
  Lender]]

  
	
   

  	
   

  
	
  3.

  	
  Borrower(s):

  	
   

  	
   

  
	
   

  	
   

  
	
  4.

  	
  Administrative
  Agent: Citibank, N.A., as the administrative agent under the Credit
  Agreement

  

 

 

	
  5.

  	
  Credit
  Agreement:                                               Credit
  Agreement, dated as of May 3, 2010 (as further amended, restated, extended, supplemented or otherwise
  modified in writing from time to time, the “Credit Agreement”; the
  terms defined therein being used herein as therein defined) among KKR
  Financial Holdings LLC, KKR Financial Holdings II, LLC, KKR Financial
  Holdings III, LLC, KKR Financial Holdings, Inc., KKR Financial Holdings, Ltd.,
  KKR TRS Holdings, Ltd., KKR Financial CLO 2009-1, Ltd., and
  KFH III Holdings Ltd., the Lenders from time to time party thereto, Citibank,
  N.A., as Swingline Lender and Issuing Bank, and Citibank, N.A., as
  Administrative Agent.

  
	
   

  	
   

  
	
  6.

  	
  Assigned
  Interest[s]:

  

 

	
  Assignor[s]

  	
   

  	
  Assignee[s]

  	
   

  	
  Facility

  Assigned

  	
   

  	
  Aggregate

  Amount of

  Commitment/Loans

  for all Lenders

  	
   

  	
  Amount of

  Commitment

  /Loans

  Assigned

  	
   

  	
  Percentage

  Assigned of

  Commitment/

  Loans

  	
   

  	
  CUSIP
  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
  %

  	
   

  	
   

  

 

[7.       Trade
Date:                            ]

 

Effective
Date:
                                    ,
20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]

 

The
terms set forth in this Assignment and Assumption are hereby agreed to:

 

	
   

  	
  ASSIGNOR

  
	
   

  	
  [NAME
  OF ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
  [NAME
  OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  

 

[Consented to and] Accepted:

 

CITIBANK, N.A., as

Administrative Agent

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

[Consented to:]

 

	
  KKR FINANCIAL HOLDINGS LLC

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KKR FINANCIAL HOLDINGS II, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KKR FINANCIAL HOLDINGS III, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KKR
  FINANCIAL HOLDINGS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KKR
  FINANCIAL CLO 2009-1, LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KFH
  III HOLDINGS LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KKR
  FINANCIAL HOLDINGS, LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

	
  KKR
  TRS HOLDINGS, LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
  by

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

ANNEX 1 TO

ASSIGNMENT AND ASSUMPTION

 

[                                      ]

 

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

 

1.                           Representations
and Warranties.

 

1.1.                  Assignor.  [The][Each] Assignor (a) represents and
warrants that (i) it is the legal and beneficial owner of [the][[the
relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free
and clear of any lien, encumbrance or other adverse claim and (iii) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby; and (b) assumes no responsibility with respect to (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any collateral thereunder, (iii) the financial condition of
KKR Financial, any of its Subsidiaries or Affiliates or any other Person
obligated in respect of any Loan Document or (iv) the performance or
observance by any Borrower, any of its Subsidiaries or Affiliates or any other
Person of any of their respective obligations under any Loan Document.

 

1.2.                  Assignee.  [The][Each] Assignee (a) represents and
warrants that (i) it has full power and authority, and has taken all
action necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby and to become a Lender under
the Credit Agreement, (ii) it meets all the requirements to be an assignee
under Sections 10.06(b)(iii), 10.06(b)(v) and10.06(b)(vi) of
the Credit Agreement (subject to such consents, if any, as may be required
under Section 10.06(b)(iii) of the Credit Agreement), (iii) from
and after the Effective Date, it shall be bound by the provisions of the Credit
Agreement as a Lender thereunder and, to the extent of [the][the relevant]
Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it
is sophisticated with respect to decisions to acquire assets of the type
represented by [the][such] Assigned Interest and either it, or the Person
exercising discretion in making its decision to acquire [the][such] Assigned
Interest, is experienced in acquiring assets of such type, (v) it has
received a copy of the Credit Agreement, and has received or has been accorded
the opportunity to receive copies of the most recent financial statements
delivered pursuant to Section      thereof, as applicable,
and such other documents and information as it deems appropriate to make its
own credit analysis and decision to enter into this Assignment and Assumption
and to purchase [the][such] Assigned Interest, (vi) it has, independently
and without reliance upon the Administrative Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Assignment and Assumption
and to purchase [the][such] Assigned Interest, and (vii) if it is a
Foreign Lender, attached hereto is any documentation required to be delivered
by it pursuant to the terms of the Credit Agreement, duly completed and
executed by [the][such] Assignee; and (b) agrees that (i) it will,
independently and without reliance upon the Administrative Agent, [the][any]
Assignor or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Loan Documents, and (ii) it will
perform in accordance with their terms all of the obligations which by the
terms of the Loan Documents are required to be performed by it as a Lender.

 

2.                           Payments.  From and after the Effective Date, the
Administrative Agent shall make all payments in respect of [the][each] Assigned
Interest (including payments of principal, interest, fees 

 

 

and other amounts) to [the][the relevant]
Assignor for amounts which have accrued to but excluding the Effective Date and
to [the][the relevant] Assignee for amounts which have accrued from and after
the Effective Date.

 

3.                           General
Provisions.  This
Assignment and Assumption shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument.  Delivery of an executed
counterpart of a signature page of this Assignment and Assumption by
telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption.  This
Assignment and Assumption shall be governed by, and construed in accordance
with, the law of the State of                                         
[confirm that choice of law provision parallels the
Credit Agreement].

 

 

EXHIBIT G-1

 

[FORM OF OPINION OF SIMPSON THACHER & BARTLETT LLP]

 

[    ], 2010

 

Citibank, N.A., as
Administrative Agent 

under the Credit Agreement, as hereinafter 

defined (the “Administrative Agent”)

 

and

 

The
Lenders listed on Schedule I hereto

 

Re:                       Credit Agreement dated as of
May 3, 2010 (the “Credit Agreement”) among the Borrowers (as
defined below), the lending institutions identified in the Credit Agreement
(the “Lenders”) and the Administrative Agent

 

Ladies
and Gentlemen:

 

We
have acted as counsel to the entities listed on Part A of Schedule II
attached hereto (each a “U.S. Borrower” and together, the “U.S.
Borrowers”) and the entities listed on Part B of Schedule II attached
hereto (each a “Cayman Borrower” and together, the “Cayman Borrowers”;
the Cayman Borrowers and the U.S. Borrowers being referred to herein
collectively as the “Borrowers”) in connection with the preparation,
execution and delivery of the following documents: (i) the Credit Agreement; (ii) the
Security Agreement; and (iii) the Collateral Agreement.  The documents described in clauses (i) through
(iii) of the previous sentence are collectively referred to herein as the “Credit
Documents”.  Unless otherwise
indicated, capitalized terms used but not defined herein shall have the
respective meanings set forth in the Credit Agreement.

 

We
have examined the following:

 

(i)             the Credit Agreement, signed by each Borrower
and by each other party thereto;

 

(ii)          each other Credit Document, signed by each
Borrower that is a party thereto;

 

 

(iii)       unfiled copies of the financing statements
listed on Part A of Schedule III hereto (the “Delaware Financing
Statements”), naming the Borrowers indicated on Part A of such
Schedule III as debtors and the Administrative Agent as secured party,  which we understand will be filed in the Office of
the Secretary of State of Delaware (the “Delaware Filing Office”); and

 

(iv)      unfiled copies of the financing statements
listed on Part B of Schedule III hereto (the “D.C. Financing Statements”),
naming the Borrowers indicated on Part B of such Schedule III as debtors
and the Administrative Agent as secured party, which we understand will be
filed in the Office of the Recorder of Deeds in the District of Columbia (the “D.C.
Filing Office”).

 

In
addition, we have examined, and have relied as to matters of fact upon, the
documents delivered to you at the closing, and upon originals, or duplicates or
certified or conformed copies, of such corporate records, agreements, documents
and other instruments and such certificates or comparable documents of public
officials and of officers and representatives of the Borrowers, and have made
such other investigations, as we have deemed relevant and necessary in
connection with the opinions hereinafter set forth.  In such examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as duplicates or certified
or conformed copies and the authenticity of the originals of such latter
documents.  As to questions of fact
material to this opinion, we have relied upon certificates of public officials
and of officers and representatives of the Borrowers.  In
addition, we have relied as to certain matters of fact upon the representations
made in the Credit Documents.

 

In
addition, we have assumed that (1) the
Borrowers have rights in the Collateral existing on the date hereof and will
have rights in property which becomes Collateral after the date hereof and (2) “value” (as defined in Section 1-201(44)
of the Uniform Commercial Code as in effect on the date hereof in the State of
New York (the “New York UCC”) has been given by the Lenders to the
Borrowers for the security interests and other rights in the Collateral.

 

Based
upon and subject to the foregoing, and subject to the qualifications and
limitations set forth herein, we are of the opinion that:

 

1.                                       Each of the U.S.
Borrowers is validly existing and in good standing as a corporation or limited
liability company, as applicable, under the

 

 

law
of the State of Delaware, (b) has
the corporate or limited liability company power and authority to execute and
deliver each of the Credit Documents to which it is a party and to borrow and
perform its obligations thereunder and to grant the security interests to be
granted by it pursuant to the Security Agreement, (c) has taken all
necessary corporate or limited liability company action to authorize the
execution and delivery by it of the Credit Documents to which it is a party,
its borrowings and performance of its obligations thereunder and the granting
of the security interests to be granted by it pursuant to the Security
Agreement and (d) has duly executed and delivered each Credit Document to
which it is a party.

 

2.                                       The execution
and delivery by each U.S. Borrower of the Credit Documents to which it is a
party, its borrowings in accordance with the terms of the Credit Documents and
performance of its payment obligations thereunder and granting of the security
interests to be granted by it pursuant to the Security Agreement will not
result in any violation of (1) the
Certificate of Incorporation or Certificate of Formation, as applicable, or
By-Laws or Limited Liability Company Agreement, as applicable, of such U.S.
Borrower or (2) assuming that
proceeds of borrowings will be used in accordance with the terms of the Credit
Agreement, any Federal or New York statute or the Delaware General Corporation
Law or the Delaware Limited Liability Company Act or any rule or
regulation issued pursuant to any New York or Federal statute or the Delaware
General Corporation Law or the Delaware Limited Liability Company Act or any
order known to us issued by any court or governmental agency or body.

 

3.                                       No consent,
approval, authorization, order, filing, registration or qualification of or
with any Federal or New York governmental agency or body or any Delaware
governmental agency or body acting pursuant to the Delaware General Corporation
Law or the Delaware Limited Liability Company Act is required for the execution
and delivery by any U.S. Borrower of the Credit Documents to which it is a
party, the borrowings by any Borrower in accordance with the terms of the
Credit Documents or the performance by the Borrowers of their respective
payment obligations under the Credit Documents or the granting of any security
interests under the Security Agreement, except filings required for the perfection
of security interests granted pursuant to the Security Agreement.

 

4.                                       Assuming that
each of the Credit Documents is a valid and legally binding obligation of each
of the parties thereto other than the Borrowers and assuming that (a) each of the Cayman Borrowers is validly
existing and in good standing under the laws of the jurisdiction in which it is
organized and has duly authorized, executed and delivered the Credit Documents
to which it is a party in accordance with its organizational documents, (b) execution, delivery and performance by
each Borrower of the Credit Documents to which it is a party do not violate the
laws of the jurisdiction in which it is organized or any other applicable laws
(excepting the law of the State of New York, the Delaware General Corporation
Law, the Delaware Limited Liability Company Act and the Federal laws of the
United States), (c) execution,
delivery and performance by

 

 

each
Borrower of the Credit Documents to which it is a party do not constitute a
breach or violation of any agreement or instrument which is binding upon the
Borrowers (except that we do not make the assumption in the foregoing
clause (c) with respect to the agreements and instruments that are
the subject of opinion paragraph 2 of this letter), and (d) no Borrower is an “investment company”
within the meaning of, and subject to regulation under, the Investment Company
Act of 1940, as amended, each Credit Document constitutes the valid and legally
binding obligation of each Borrower which is a party thereto, enforceable
against such Borrower in accordance with its terms.

 

5.                                       The Security
Agreement creates in favor of the Administrative Agent for the benefit of the
Lenders a security interest in the Collateral described therein in which a
security interest may be created under Article 9 of the New York UCC (the “Security
Agreement Article 9 Collateral”).

 

6.                                       The security
interest of the Administrative Agent for the benefit of the Lenders in that
portion of the Collateral that consists of “instruments” within the meaning of Article 9
of the New York UCC that are delivered to the Administrative Agent will be a
perfected security interest upon delivery of such instruments to the
Administrative Agent (or to the Collateral Agent on behalf of the
Administrative Agent) in the State of New York.

 

7.                                       The
Administrative Agent will have a perfected security interest in the Collateral
that consists of a “security entitlement” within the meaning of Article 8
of the New York UCC (the “Pledged Investment Property”) for the benefit
of the Lenders under the New York UCC upon The Bank of New York Mellon, as the
securities intermediary that maintains the securities account in which the
Pledged Investment Property is held, agreeing that it will comply with
entitlement orders originated by the Administrative Agent without further
consent by the Borrowers.

 

8.                                       The
Administrative Agent will have a perfected security interest in that portion of
the Collateral that consists of a “certificated security” within the meaning of
Article 8 of the New York UCC (the “Pledged Securities”) for the
benefit of the Lenders under the New York UCC upon delivery to the
Administrative Agent (or to the Collateral Agent on behalf of the
Administrative Agent) for the benefit of the Lenders in the State of New York
of the certificates representing such Pledged Securities in registered form,
indorsed in blank by an effective indorsement or accompanied by undated stock
powers with respect thereto duly indorsed in blank by an effective indorsement.
Assuming none of the Administrative Agent, the Collateral Agent or any of the
Lenders has notice of any adverse claim to the Pledged Securities, no action
based on an adverse claim to the Pledged Securities may be asserted against the
Administrative Agent, the Collateral Agent or any Lender.

 

Although
we express no opinion as to the law of the State of Delaware (other than the
Delaware General Corporation Law and the Delaware Limited Liability Company
Act), we have

 

 

reviewed
Article 9 of the Uniform Commercial Code in effect in the State of
Delaware as set forth in the Commerce Clearing House, Inc. Secured
Transactions Guide as supplemented through April 13, 2010 (the “Delaware
UCC”) and, based solely on such review, we advise you that (a) the
Delaware Financing Statement are in appropriate form for filing in the Delaware
Filing Office and (b) upon the filing of the Delaware Financing Statement
in the Delaware Filing Office, the Administrative Agent will have a perfected
security interest for the benefit of the Lenders in that portion of the
Security Agreement Article 9 Collateral in which a security interest can
be perfected by filing a financing statement in the Delaware Filing Office.

 

Although
we express no opinion as to the law of the District of Columbia, we have
reviewed Article 9 of the Uniform Commercial Code in effect in the
District of Columbia as set forth in the Commerce Clearing House, Inc.
Secured Transactions Guide as supplemented through April 13, 2010 (the “D.C.
UCC”) and, based solely on such review, we advise you that (a) the
Financing Statements to be filed in the D.C. Filing Office (the “D.C.
Financing Statements”) are in appropriate form for filing in the D.C.
Filing Office and (b) upon the filing of the D.C. Financing Statements in
the D.C. Filing Office, the Administrative Agent will have a perfected security
interest for the benefit of the Lenders in that portion of the Article 9
Collateral in which a security interest can be perfected by filing a financing
statement in the D.C. Filing Office.

 

Our
opinions in paragraphs 4 and 5 above are subject to (i) the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors’ rights generally,
(ii) general equitable principles (whether considered in a proceeding in
equity or at law), and (iii) an implied covenant of good faith and fair
dealing and (iv) in the case of the Cayman Borrowers, the effects of the
possible judicial application of foreign laws or foreign governmental or
judicial action affecting creditors’ rights. 
Our opinion in paragraph 4 above also is subject to the
qualification that certain provisions of the Security Documents may not be
enforceable in whole or in part, although the inclusion of such provisions does
not render the Security Documents invalid, and the Security Documents and the
law of the State of New York contain adequate remedial provisions for the
practical realization of the rights and benefits afforded thereby.

 

 

Our
opinions in paragraphs 5 and 6, and our advice in the second and third
preceding paragraphs above, are limited to Article 9 of the New York UCC,
the Delaware UCC and the D.C. UCC, as the case may be, and our opinions in
paragraphs 7 and 8 are limited to Articles 8 and 9 of the New York UCC,
and, therefore, those opinion and advice paragraphs do not address (i) collateral
of a type not subject to Article 8 or 9, as the case may be, of the New
York UCC, the Delaware UCC or the D.C. UCC and (ii) what law governs
perfection of the security interests granted in the collateral covered by this
opinion letter.

 

We
express no opinion and render no advice with respect to:

 

(i)                                     perfection of any security interest in (1) any collateral of a type represented by
a certificate of title and (2) any
collateral consisting of money, cash equivalents or Permitted Investments
(except, in the case of cash equivalents and Permitted Investments, to the
extent such items constitute Collateral that may be perfected as described in
opinion paragraphs 6, 7 or8);

 

(ii)                                  the effect of § 9-315(a)(2) of the
New York UCC with respect to any proceeds of Collateral that are not
identifiable;

 

(iii)                               perfection of any security interest whose
priority is subject to Section 9-334 of the New York UCC;

 

(iv)                              except as provided in opinion paragraph 8, the
priority of any security interest;

 

(v)                                 the effect of Section 552 of the
Bankruptcy Code (11 U.S.C. 552) (relating to property acquired by a
pledgor after the commencement of a case under the United States Bankruptcy
Code with respect to such pledgor) and Section 506(c) of the
Bankruptcy Code (11 U.S.C. 506(c) (relating to certain costs and
expenses of a trustee in preserving or disposing of collateral);

 

(vi)                              the effect of any provision of the Credit
Documents which is intended to establish any standard other than a standard set
forth in the New York UCC as the measure of the performance by any party
thereto of such party’s obligations of good faith, diligence, reasonableness or
care or of the fulfillment of the duties imposed on any secured party with
respect to the maintenance, disposition or redemption of collateral, accounting
for surplus proceeds of collateral or accepting collateral in discharge of
liabilities;

 

(vii)                           the effect of any provision of the Credit
Documents which is intended to permit modification thereof only by means of an
agreement in writing signed by the parties thereto;

 

(viii)                        the effect of any provision of the Credit
Documents insofar as it provides that any Person purchasing a participation
from a Lender or other Person may exercise set-off or similar rights with
respect to such participation or that any Lender or other Person may exercise
set-off or similar rights other than in accordance with applicable law;

 

 

(ix)                                the effect of any provision of the Credit
Documents imposing penalties or forfeitures;

 

(x)                                   the enforceability of any provision of any of
the Credit Documents to the extent that such provision constitutes a waiver of
illegality as a defense to performance of contract obligations; and

 

(xi)                                the effect of any provision of the Credit
Documents relating to indemnification or exculpation in connection with
violations of any securities laws or relating to indemnification, contribution
or exculpation in connection with willful, reckless or criminal acts or gross
negligence of the indemnified or exculpated Person or the Person receiving
contribution.

 

With
respect to matters of Cayman law, we understand that you are relying on the
opinion of Maples and Calder dated the date hereof.

 

We
do not express any opinion herein concerning any law other than the law of the
State of New York, the federal law of the United States and the Delaware
General Corporation Law and the Delaware Limited Liability Company Act.

 

 

This
opinion letter is rendered to you in connection with the above described
transactions.  This opinion letter may
not be relied upon by you for any other purpose, or relied upon by, or
furnished to, any other person, firm or corporation without our prior written
consent.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SIMPSON
  THACHER & BARTLETT LLP

  

 

 

SCHEDULE I

 

The Lenders

 

CITIBANK,
N.A.

 

BANK
OF AMERICA, N.A.

 

DEUTSCHE
BANK AG NEW YORK BRANCH

 

MORGAN
STANLEY SENIOR FUNDING, INC.

 

 

SCHEDULE II

 

PART A

 

U.S. BORROWERS

 

	
  Entity Name

  	
   

  	
  Jurisdiction of Incorporation or Formation

  
	
  KKR
  Financial Holdings LLC

  	
   

  	
  Delaware

  
	
  KKR
  Financial Holdings II, LLC

  	
   

  	
  Delaware

  
	
  KKR
  Financial Holdings III, LLC

  	
   

  	
  Delaware

  
	
  KKR
  Financial Holdings, Inc.

  	
   

  	
  Delaware

  

 

PART B

 

CAYMAN BORROWERS

 

	
  Entity Name

  	
   

  	
  Jurisdiction of Incorporation

  
	
  KKR
  Financial Holdings, Ltd.

  	
   

  	
  Cayman Islands

  
	
  KKR
  TRS Holdings, Ltd.

  	
   

  	
  Cayman Islands

  
	
  KKR
  Financial CLO 2009-1, Ltd.

  	
   

  	
  Cayman Islands

  
	
  KFH III Holdings Ltd.

  	
   

  	
  Cayman Islands

  

 

 

SCHEDULE III

 

PART A

 

DELAWARE FINANCING STATEMENTS

 

The
following financing statements on form UCC-1, naming the Person listed below as
debtor and the Administrative Agent as secured party for the benefit of the
Lenders, to be filed in the offices listed opposite the name of such party:

 

	
  Debtor

  	
   

  	
  Filing Office

  
	
   

  	
   

  	
   

  
	
  KKR
  Financial Holdings LLC

  	
   

  	
  Secretary
  of State of Delaware

  
	
   

  	
   

  	
   

  
	
  KKR
  Financial Holdings II, LLC

  	
   

  	
  Secretary
  of State of Delaware

  
	
   

  	
   

  	
   

  
	
  KKR
  Financial Holdings III, LLC

  	
   

  	
  Secretary
  of State of Delaware

  
	
   

  	
   

  	
   

  
	
  KKR
  Financial Holdings, Inc.

  	
   

  	
  Secretary
  of State of Delaware

  

 

PART B

 

D.C. FINANCING STATEMENTS

 

The
following financing statements on form UCC-1, naming the Person listed below as
debtor and the Administrative Agent as secured party for the benefit of the
Lenders, to be filed in the offices listed opposite the name of such party:

 

	
  Debtor

  	
   

  	
  Filing Office

  
	
   

  	
   

  	
   

  
	
  KKR
  Financial Holdings, Ltd.

  	
   

  	
  District
  of Columbia Recorder of Deeds

  
	
   

  	
   

  	
   

  
	
  KKR
  TRS Holdings, Ltd.

  	
   

  	
  District
  of Columbia Recorder of Deeds

  
	
   

  	
   

  	
   

  
	
  KKR
  Financial CLO 2009-1, Ltd.

  	
   

  	
  District
  of Columbia Recorder of Deeds

  
	
   

  	
   

  	
   

  
	
  KFH III Holdings Ltd.

  	
   

  	
  District
  of Columbia Recorder of Deeds

  

 

 

EXHIBIT G-2

 

[FORM OF OPINION OF IN-HOUSE GENERAL COUNSEL FOR THE BORROWERS]

 

KKR FINANCIAL HOLDINGS LLC

 

 

    , 2010

 

Citibank,
N.A.

as
Administrative Agent

 

The
Lenders

party
to the Credit Agreement (as defined below)

listed on Schedule 2.01 thereto

 

 

Re:                               KKR Financial Holdings LLC,
KKR Financial Holdings II, LLC, KKR Financial Holdings III, LLC, KKR Financial
Holdings, Inc., KKR Financial Holdings, Ltd., KKR TRS Holdings, Ltd.,
KKR Financial CLO 2009-1, Ltd., and KFH III Holdings Ltd.

 

Ladies
and Gentlemen:

 

I
am General Counsel of KKR Financial Holdings LLC, a corporation organized under
the laws of the State of Delaware (“KKR Financial”), and in that
capacity I have represented KKR Financial; KKR Financial Holdings II, LLC, a
Delaware limited liability company (“KKR Holdings II”); KKR Financial
Holdings III, LLC, a Delaware limited liability company (“KKR Holdings III”);
KKR Financial Holdings, Inc., a Delaware corporation (“KKR Holdings”
and, together with KKR Financial, KKR Holdings II and KKR Holdings III, the “U.S.
Borrowers”); KKR Financial Holdings, LTD., a Cayman Islands company (“KKR
Holdings LTD”); KKR TRS HOLDINGS, LTD., a Cayman Islands company (“KKR
TRS LTD”); KKR Financial CLO 2009-1, LTD., a Cayman Islands
company (“KKR CLO 2009”); KFH III Holdings LTD., a Cayman Islands
company (“KFH III”; and, together with KKR Holdings LTD, KKR TRS LTD and
KKR CLO 2009 and the U.S. Borrowers, the “Borrowers”) in connection with
the execution of that certain Credit Agreement among the Borrowers, the lenders
party thereto (the “Lenders”), Citibank, N.A., as Swingline Lender and
Issuing Bank, and Citibank, N.A., as administrative agent (the “Administrative
Agent”), dated as of May 3, 2010 (the “Credit Agreement”), and
each other Loan Document.  Capitalized
terms used but not defined herein are used as defined in the Credit Agreement.

 

In
connection with this opinion, I have examined, among other things, the
Loan Documents and originals or copies, certified or otherwise identified to my
satisfaction of such other records, documents or other instruments as in my
judgment are necessary or appropriate to enable me to render the opinions
expressed below.  As to factual matters, I
have relied upon statements, certificates and other assurances of public
officials and of officers and other representatives of the U.S. Borrowers and
the other parties to the Loan Documents and upon such other certificates as I
have deemed appropriate, which factual matters have not been independently
established or verified by me.  I have
assumed (i) that the representations and warranties as to factual matters
contained in the Loan Documents are true and correct, (ii) the genuineness
of all signatures and the authenticity of all documents submitted to me as
originals, 

 

 

(iii) the
conformity with authentic originals of all documents submitted to me as copies
and (iv) the legal competency of each individual who executed documents or
who purported to act in connection with matters addressed in the opinions
expressed below.

 

On
the basis of such examination and subject to the assumptions, limitations,
qualifications and exceptions set forth herein, I am of the opinion that:

 

1.     Each
of the U.S. Borrowers is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the business transacted by it
requires such qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets or condition
(financial or other) of each U.S. Borrower and its subsidiaries, considered as
a whole.

 

2.     No
consent, approval, authorization or order of, or notice to or filing with, any
federal court or governmental agency or body is required to be obtained by the
U.S. Borrowers under any federal law or regulation that are generally
recognized by a lawyer admitted in New York exercising customary professional
diligence as applicable to the U.S. Borrowers or to transactions contemplated
by the Loan Documents, in connection with the execution and delivery by the
U.S. Borrowers of the Loan Documents and the performance by each of the U.S.
Borrowers of their obligations thereunder.

 

3.     The
execution and delivery of the Loan Documents by the U.S. Borrowers and the
performance by each of the U.S. Borrowers of their obligations thereunder (a) will
not conflict with, result in a breach of, or constitute a default under the
terms of any indenture or other agreement or instrument to which any of the
U.S. Borrowers is party or bound, (b) will not violate any judgment, order
or decree of any court or other tribunal applicable to the U.S. Borrowers, (c) will
not violate any law or regulations applicable to the U.S. Borrowers, of any
federal court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the U.S. Borrowers, and (d) will not
result in the creation or imposition of any lien (other than liens evidenced by
the Loan Documents in favor of the Administrative Agent) on any asset of the
U.S. Borrowers.

 

4.     There
is no pending or, to my actual knowledge, threatened action, suit or proceeding
before any court or governmental agency, authority or body or any arbitrator
involving the U.S. Borrowers or relating to the transaction contemplated by the
Loan Documents which, in any manner draws into question the validity of the
Loan Documents or which if adversely determined, would have a material adverse
effect on the financial position of the U.S. Borrowers.

 

The opinions expressed above are subject to the following additional
assumptions, qualifications, limitations and exceptions:

 

A.    For
purposes of the opinion in paragraph 2 hereof, I have assumed that the
U.S. Borrowers will not in the future take any discretionary action (including
a decision not to act) that would cause the performance of any of their
obligations under any Loan Document to require a consent, approval,
authorization or order to be obtained from a federal governmental authority.

 

B.    I
note that you are receiving opinion letters dated the date hereof from (i) Simpson
Thacher & Bartlett LLP, counsel to KKR Financial and the other
Borrowers.  I have, with permission,
relied on those opinion letters as to certain of such matters with respect to
the U.S. Borrowers (in particular the opinions set forth in paragraphs 1, 2 and
3 thereof), and have assumed that  those
opinion letters are correct.

 

 

C.    I
am admitted to the bar of the State of New York and the foregoing opinions
(except for the opinions in paragraph 1, hereof) are limited to matters arising
under the federal laws of the United States of America and the laws of the
State of New York.  I express no opinion
as to the laws, rules or regulations of any other jurisdiction or as to
the municipal laws or the laws, rules or regulations of any local agencies
or governmental authorities of or within the State of New York, or in each case
as to any matters arising thereunder or relating thereto.

 

D.    This
letter is solely for your benefit in connection with the transactions described
in the first paragraph above and may not be quoted or relied upon by, nor may
copies be delivered to, any other Person (except that this letter may be
furnished to actual and potential assignees and participants with the
understanding that this letter speaks only as of the date hereof), nor may this
letter be filed with any governmental agency (unless required by applicable
law) or be relied upon by you for any other purpose, without my prior written
consent.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  General
  Counsel

  

 

 

EXHIBIT G-3

 

[FORM OF OPINION OF MAPLES AND CALDER]

 

Citibank, N.A.

as Administrative Agent

 

The Lenders party to the

Credit Agreement

(as defined below)

listed on Schedule thereto

 

,
2010

 

Dear Sirs,

 

[      ] (the “Company”)

 

We
have acted as counsel as to Cayman Islands law to
[      ] (the “Company”)
in connection with its entry into the agreements listed in the schedule to this
opinion (the “Transaction Documents”).

 

1                                          DOCUMENTS REVIEWED

 

We
have reviewed originals, copies, drafts or conformed copies of the following
documents:

 

1.1                                 the Certificate of Incorporation and Memorandum and
Articles of Association of the Company as adopted on
[      ];

 

1.2                                 the minutes of the meetings of the board of directors
of the Company held on [      ] and on
[      ]and the corporate records of the Company
maintained at its registered office in the Cayman Islands;

 

1.3                                 a certificate from a Director of the Company a copy of
which is annexed hereto (the “Director’s
Certificate”).

 

1.4                                 the Transaction Documents.

 

2                                          ASSUMPTIONS

 

The
following opinion is given only as to, and based on, circumstances and matters
of fact existing and known to us on the date of this opinion. This opinion only
relates to the laws of the Cayman Islands that are in force on the date of this
opinion.  In giving this opinion we have
relied (without further verification) upon the completeness and accuracy of the
Director’s Certificate. We have also relied upon the following assumptions,
which we have not independently verified:

 

 

2.1                                 the Transaction Documents have been or will be
authorised and duly executed and delivered by or on behalf of all relevant
parties in accordance with all relevant laws (other than, with respect to the
Company, the laws of the Cayman Islands);

 

2.2                                 the Transaction Documents are, or will be, legal,
valid, binding and enforceable against all relevant parties in accordance with
their terms under New York law and all other relevant laws (other than the laws
of the Cayman Islands);

 

2.3                                 the choice
of New York law as the governing law of the Transaction Documents has been made
in good faith and would be regarded as a valid and binding selection which will
be upheld by the courts of New York and any other relevant jurisdiction (other
than the Cayman Islands) as a matter of New York law and all other relevant
laws (other than the laws of the Cayman Islands);

 

2.4                                 copy documents, conformed copies or drafts of
documents provided to us are true and complete copies of, or in the final forms
of, the originals;

 

2.5                                 all signatures, initials and seals are genuine;

 

2.6                                 the power, authority and legal right of all parties
under all relevant laws and regulations (other than, with respect to the
Company, the laws of the Cayman Islands) to enter into, execute, deliver and
perform their respective obligations under the Transaction Documents;

 

2.7                                 under the laws of New York and all other relevant laws
(other than the laws of the Cayman Islands) including, without prejudice to the
generality of the foregoing, the governing law and law of situs of the property
subject to the security interests created pursuant to the Security Agreement
(the “Collateral”) the Security
Agreement creates a valid first priority security interest over the Collateral,
any steps required as a matter of New York law or other relevant laws (other
than the laws of the Cayman Islands) to perfect such security interest or to
regulate its ranking in point of priority have been taken and there are no
prior encumbrances or interests over the Collateral;

 

2.8                                 none of the Collateral is situated in the Cayman
Islands or governed by Cayman Islands law; and

 

2.9                                 there is nothing under any law (other than the law of
the Cayman Islands) which would or might affect the opinions hereinafter
appearing.  Specifically, we have made no
independent investigation of the laws of New York.

 

3                                          OPINIONS

 

Based
upon, and subject to, the foregoing assumptions and the qualifications set out
below, and having regard to such legal considerations as we deem relevant, we
are of the opinion that:

 

3.1                                 The Company has been duly incorporated as an exempted
company with limited liability and is validly existing under the laws of the
Cayman Islands.

 

 

3.2                                 The Company has full power and authority under its
Memorandum and Articles of Association to enter into, execute and perform its
obligations under the Transaction Documents.

 

3.3                                 The execution and delivery of the Transaction
Documents by the Company and the performance by the Company of its obligations
thereunder does not conflict with or result in a breach of any of the terms or
provisions of the Memorandum and Articles of Association of the Company or any
law, public rule or regulation applicable to the Company in the Cayman
Islands currently in force.

 

3.4                                 The execution, delivery and performance of the
Transaction Documents has been authorised by and on behalf of the Company and,
assuming the Transaction Documents have been executed and delivered by a
director of the Company, the Transaction Documents have been duly executed and
delivered on behalf of the Company and constitute the legal, valid and binding
obligations of the Company enforceable in accordance with their terms.

 

3.5                                 No authorisations, consents, approvals, licenses,
validations or exemptions are required by law from any governmental authorities
or agencies or other official bodies in the Cayman Islands in connection with:

 

3.5.1                  the
creation, execution or delivery of the Transaction Documents by the Company;

 

3.5.2                  subject
to the payment of the appropriate stamp duty, enforcement of the Transaction
Documents against the Company; or

 

3.5.3                  the
performance by the Company of its obligations under any of the Transaction
Documents.

 

3.6                                 No taxes, fees or charges (other than stamp duty) are
payable (either by direct assessment or withholding) to the government or other
taxing authority in the Cayman Islands under the laws of the Cayman Islands in
respect of:

 

3.6.1                                                                        the execution or delivery of the Transaction
Documents;

 

3.6.2                                                                        the enforcement of the Transaction Documents; or

 

3.6.3                                                                        payments made under, or pursuant to, the Transaction
Documents.

 

The Cayman Islands currently have no form of
income, corporate or capital gains tax and no estate duty, inheritance tax or
gift tax.

 

3.7                                 The courts of the Cayman Islands will observe and give
effect to the choice of New York law as the governing law of the Transaction
Documents.

 

3.8                                 Although there is no statutory enforcement in the
Cayman Islands of judgments obtained in New York, the courts of the Cayman
Islands will recognise a foreign 

 

 

judgment as the basis for a claim at common law
in the Cayman Islands provided such judgment:

 

3.8.1                        is given by a competent foreign court;

 

3.8.2                        imposes on the judgment debtor a liability to pay a
liquidated sum for which the judgment has been given;

 

3.8.3                        is final;

 

3.8.4                        is not in respect of taxes, a fine or a penalty; and

 

3.8.5                        was not obtained in a manner and is not of a kind the
enforcement of which is contrary to the public policy of the Cayman Islands.

 

3.9                                 It is not necessary to ensure the legality, validity,
enforceability or admissibility in evidence of the Transaction Documents that
any document be filed, recorded or enrolled with any governmental authority or
agency or any official body in the Cayman Islands.

 

3.10                           In relation to the Security Agreement:

 

3.10.1                  the
courts of the Cayman Islands will recognise the security interest created by
the Security Agreement over the Collateral;

 

3.10.2                  no
steps are required as a matter of Cayman Islands law to perfect such security
interest, or to regulate its ranking in order of priority; and

 

3.10.3                  the
security interest created over the Collateral by the Security Agreement will
have priority over any claims by third parties (other than those preferred by
law) including any liquidator or a creditor of the Company, subject in the case
of a winding up of the Company in a jurisdiction other than the Cayman Islands
to any provisions of the laws of that jurisdiction as to priority of claims in
a winding up.

 

4                                          QUALIFICATIONS

 

The
opinions expressed above are subject to the following qualifications:

 

4.1                                 The term “enforceable”
as used above means that the obligations assumed by the Company under the
Transaction Documents are of a type that the courts of the Cayman Islands will
enforce.  It does not mean that those
obligations will necessarily be enforced in all circumstances in accordance
with their terms.  In particular:

 

4.1.1                        enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganisation, readjustment of debts or moratorium or other laws
of general application relating to or affecting the rights of creditors;

 

 

4.1.2                        enforcement may be limited by general principles of
equity.  For example, equitable remedies
such as specific performance may not be available, inter alia, where damages
are considered to be an adequate remedy;

 

4.1.3                        some claims may become barred under the statutes of
limitation or may be or become subject to defences of set off, counterclaim,
estoppel and similar defences;

 

4.1.4                        where obligations are to be performed in a
jurisdiction outside the Cayman Islands, they may not be enforceable in the
Cayman Islands to the extent that performance would be illegal under the laws
of that jurisdiction;

 

4.1.5                        the courts of the Cayman Islands have jurisdiction to
give judgment in the currency of the relevant obligation and statutory rates of
interest payable upon judgments will vary according to the currency of the
judgment.  If the Company becomes
insolvent and is made subject to a liquidation proceeding, the courts of the
Cayman Islands will require all debts to be proved in a common currency, which
is likely to be the “functional currency” of the Company determined in
accordance with applicable accounting principles. Currency indemnity provisions
have not been tested, so far as we are aware, in the courts of the Cayman
Islands;

 

4.1.6                        obligations to make payments that may be regarded as
penalties will not be enforceable;

 

4.1.7                        the courts of the Cayman Islands may decline to
exercise jurisdiction in relation to substantive proceedings brought under or
in relation to the Transaction Documents in matters where they determine that
such proceedings may be tried in a more appropriate forum; and

 

4.1.8                        a company cannot, by agreement or in its articles of
association, restrict the exercise of a statutory power, and there exists doubt
as to enforceability of any provision in the Transaction Documents whereby the
Company covenants not to exercise powers specifically given to its shareholders
by The Companies Law (2004 Revision) of the Cayman Islands, including, without
limitation, the power to increase its authorised share capital, amend its
memorandum and articles of association, or present a petition to a Cayman
Islands court for an order to wind up the Company.

 

4.2                                 Cayman Islands stamp duty may be payable if the
original of any Transaction Document is brought to or executed in the Cayman
Islands.

 

4.3                                 To maintain the Company in good standing under the
laws of the Cayman Islands, annual filing fees must be paid and returns made to
the Registrar of Companies.

 

4.4                                 The Company must make an entry in its Register of
Mortgages and Charges in respect of all mortgages and charges created under the
Transaction Documents in

 

 

order to comply with Section 54 of The
Companies Law (2004 Revision) of the Cayman Islands; failure by the Company to
comply with this requirement does not operate to invalidate any mortgage or
charge though it may be in the interests of the secured parties that the
Company should comply with the statutory requirements.

 

4.5                                 The obligations of the Company may be subject to
restrictions pursuant to United Nations sanctions as implemented under the laws
of the Cayman Islands.

 

4.6                                 A certificate, determination, calculation or
designation of any party to the Transaction Documents as to any matter provided
therein might be held by a Cayman Islands court not to be conclusive final and
binding if, for example, it could be shown to have an unreasonable or arbitrary
basis, or in the event of manifest error.

 

4.7                                 In principle the courts of the Cayman Islands will
award costs and disbursements in litigation in accordance with the relevant
contractual provisions but there remains some uncertainty as to the way in
which the rules of the Grand Court will be applied in practice.  Whilst it is clear that costs incurred prior
to judgment can be recovered in accordance with the contract, it is likely that
post-judgment costs (to the extent recoverable at all) will be subject to
taxation in accordance with Grand Court Rules Order 62.

 

4.8                                 We reserve our opinion as to the extent to which the
courts of the Cayman Islands would, in the event of any relevant illegality,
sever the offending provisions and enforce the remainder of the transaction of
which such provisions form a part, notwithstanding any express provisions in
this regard.

 

4.9                                 We make no comment with regard to the references to
foreign statutes in the Transaction Documents.

 

4.10                           We note that it is
contemplated that certain of the Transaction
Documents will be dated “as of” a
certain date.  Whilst parties to an
agreement may agree as a matter of contract, inter
se, that the rights and obligations therein contained should, in so
far as the same may be possible, take effect from a date prior to the date of
execution and delivery, if as a matter of fact that agreement was executed and
delivered after the date “as of” which it is expressed to be executed and
delivered, the agreement only comes into effect on the actual date of execution
and delivery and, with respect to third parties, the agreement in so far as the
rights of third parties may be available thereunder, take effect only from the
actual date of execution and delivery.

 

We
express no view as to the commercial terms of the Transaction Documents or
whether such terms represent the intentions of the parties and make no comment
with regard to the representations that may be made by the Company.

 

This
opinion may be relied upon by the addressees and their successors and permitted
assigns only. It may not be relied upon by any other person except with our
prior written consent.

 

 

Yours
faithfully

 

 

MAPLES
and CALDERExhibit
10.1

 

EMPLOYMENT AGREEMENT

 

THIS
EMPLOYMENT AGREEMENT (“Agreement”) is made as of August 3, 2010 (the “Effective
Date”), by and between CoBiz Financial Inc., a Colorado corporation (the “Company”),
and N. Bruce Callow (“Employee”).

 

1.             Employment.  The Company agrees to employ Employee, and
Employee agrees to work for the Company, in the capacity or capacities
specified on Exhibit A or in such other capacities with the Company and
its subsidiaries as may be determined from time to time by the Company, on the
terms and subject to the conditions established in this Agreement.  Employee will report to the Reporting Person
designated in Exhibit A, subject to change by the Company from time to
time.  This Agreement and Employee’s
employment by the Company shall continue for the term set forth in Section 5(a)
below or until earlier termination as provided in Section 5(b) below.  Terms capitalized and not otherwise defined
herein are used as defined in Exhibit B.

 

2.             Responsibilities of Employment.  Employee shall devote his or her full
business time and effort to the performance of his or her responsibilities
under this Agreement and shall not provide services to, or own any equity or
other interest in, any other entity, other than passive investments that do not
interfere with the performance of Employee’s responsibilities hereunder.  Employee shall perform his or her
responsibilities diligently, faithfully and to the best of his or her
abilities.  Employee shall comply with
and carry out the policies, programs and directions of the Company, including,
without limitation, the Company’s Code of Ethics and Insider Trading Policies
as in effect from time to time.

 

3.             Compensation.  The Company will compensate Employee for his
or her services as follows:

 

(a)           Base
Compensation.  The Company will pay
Employee not less than the monthly base compensation specified on Exhibit A,
payable in accordance with the Company’s normal payroll schedule.  Employee’s base compensation will be reviewed
annually and may be increased or decreased from time to time, so long as a
decrease does not amount to a decrease constituting Good Reason as defined in
Exhibit B, in the sole discretion of the Company’s Board of Directors or such
officers as the Board of Directors designate as having such discretion.

 

(b)           Plans.  Employee will be eligible to participate in
all medical, dental, vision and other employee welfare plans maintained by the
Company from time to time and available to similarly situated employees of the
Company, in accordance with the terms of such plans.

 

(c)           Vacation.  Employee will be entitled to paid vacation
each year as specified on Exhibit A, subject to the Company’s general
vacation policy as in effect from time to time.

 

 

(d)           Discretionary
Bonus Plan.  Employee will be
eligible to participate in such discretionary bonus plans as the Company may
establish from time to time for similarly situated employees of the Company, in
accordance with the terms of any such plans and any amendments thereto.  This
subparagraph shall not be construed to require the Company to provide any
discretionary bonus plans or programs. 
The Company may terminate or modify such plans or programs at any time,
in its sole discretion.

 

(e)           Equity
Incentive Plans.  Employee will be
eligible to participate in such stock option and other equity incentive plans
as the Company may establish from time to time for similarly situated employees
of the Company, in accordance with the terms of any such plans and any
amendments thereto.  This subparagraph
shall not be construed to require the Company to provide any such plans or
programs.  The Company may terminate or
modify such plans or programs at any time, in its sole discretion.

 

(f)            Automobile
Allowance.  Employee will be entitled
to an automobile allowance of $600 per month, which will be paid to Employee
not later than the last day of each month.

 

(g)           Cell
Phone.  The Company will provide
Employee with a cell phone for use in performing his or her duties under this
Agreement and will pay all charges for such use.

 

(h)           Parking.  The Company shall arrange and pay for a
parking space for Employee’s automobile in a parking lot or structure selected
by it within a reasonable distance from Employee’s principal place of
employment.

 

(i)            Club
Dues.  The Company will pay Employee’s
monthly dues (but not the initial membership fee) for a country, health or
social club selected by Employee and approved by the Compensation Committee of
the Board.

 

The
payment of compensation and the provision of benefits will be subject to all
applicable federal, state and local tax withholding and reporting requirements.

 

4.             Reimbursement of Expenses.  Employee will be entitled to reimbursement of
ordinary and necessary out-of-pocket expenses reasonably incurred by him or her
on behalf of the Company in the course of performing his or her duties
hereunder under the Company’s expense reimbursement policy, as may be amended
from time to time, applicable to similarly situated employees, upon furnishing
appropriate documentation in accordance with such policy as in effect at the
time the expense is incurred.

 

5.             Term; Termination.

 

(a)           Term.  The initial term of this Agreement will begin
on the Effective Date and will continue until the third (3rd) anniversary of
the Effective Date (the “Initial Term”) or, if sooner, until this Agreement is
terminated pursuant to Section 5(b).  If
this Agreement continues in effect until the third (3rd) anniversary of
the Effective Date, it will 

 

2

 

thereafter automatically renew for successive
one-year terms (each, a “Renewal Term”) unless either party gives written
notice of non-renewal to the other at least thirty (30) days prior to the end
of the then-current term or this Agreement is otherwise terminated as provided
herein.  Should Employee continue in his
position or any other position after expiration of the Initial Term (if there
is no Renewal Term) or after any Renewal Term (if there is no subsequent
Renewal Term), he will thereafter become an employee “at will” subject to the
policies and procedures of the Company as applicable to all employees until
such time as the parties enter into a written agreement modifying Employee’s “at-will”
employment.

 

(b)           Termination.  This Agreement, the Employee’s base
compensation and any and all other rights of the Employee under this Agreement
or as an employee of the Company will terminate (except as otherwise provided
in this Agreement): (i) immediately upon the death of the Employee; (ii) upon
the termination of employment due to the Disability of the Employee immediately
upon notice from either party to the other; (iii) upon termination of the
employment of Employee for Cause, immediately upon notice of such termination
from the Company to the Employee after the end of any applicable cure period,
or at such later time as such notice may specify; (iv) upon termination of the
employment of Employee without Cause, immediately upon notice from the Company
to the Employee, or at such later time as such notice may specify; (v) upon
voluntary resignation by the Employee for Good Reason, immediately upon notice
of such termination from the Employee to the Company after the end of any
applicable cure period, or at such later time as such notice may specify; (vi)
upon voluntary resignation by the Employee without Good Reason, immediately
upon notice from the Employee to the Company, or at such later time as such
notice may specify; or (vii) if either party gives notice of non-renewal under
Section 5(a), then at the end of the then current Initial Term or Renewal Term.

 

6.             Effect of Termination.  Upon termination of this Agreement by the
Company or by Employee, including termination upon the death or Disability of
Employee, the rights and obligations of Employee, and the Company shall be as
provided in this Section 6.

 

(a)           Compensation
through Termination Date.  Upon any
termination of this Agreement pursuant to Section 5(b), the Company (i) will
pay Employee his or her base compensation pursuant to Section 3(a) through the
date of termination, (ii) will pay Employee for vacation accrued but not taken
under Section 3(c) in accordance with its vacation policy, and (iii) will
reimburse Employee pursuant to Section 4 for expenses incurred prior to the
termination, provided that the request for such reimbursement is made by the
Employee no later than 10 days after the termination of this Agreement.  Except as specifically provided in this
Section 6, the Company will have no obligation to pay any severance, salary,
benefits or other compensation or damages at or after the date of
termination.  All payments under this
Section 6(a) shall be at the earliest possible time and no later than 15 days
after the Employee’s termination date.

 

(b)           Severance
Upon Termination Without Cause or for Good Reason.  If Employee’s employment is terminated by the
Company without Cause pursuant to Section 

 

3

 

5(b)(iv) or by Employee with Good Reason pursuant
to Section 5(b)(v), then, in addition to the amounts payable under Section
6(a), the Company will pay Employee severance equal to his or her base
compensation under Section 3(a) as in effect on the date of termination for the  Severance Period specified in Exhibit A.

 

(c)           Additional
Severance for Bonus.  If severance is
payable under Section 6(b) and if Employee received a bonus from the Company in
respect of the last full fiscal year ending prior to the date of termination,
the Company shall pay to Employee additional severance equal to the average of
the bonuses paid to Employee in respect of each year in the three-year period
ending with such last full fiscal year (or if Employee had not been employed
for all of that three-year period, the average of the bonuses paid with respect
to each full fiscal year in which Employee was employed), in each case, pro
rated to the effective date of the termination.

 

(d)           Increased
Severance Upon Termination Following Change of Control.  If severance is payable under Section 6(b),
and if notice of such termination without Cause by the Company or termination
by the Employee with Good Reason pursuant to Section 6(b) was given by the
Company or Employee within 180 days after a Change of Control, (i) the
severance payable under Section 6(c) shall be the full amount of the bonus or
average bonus described therein and shall not be pro rated to the date of
termination and (ii) except as otherwise provided in Section 6(b), the
severance payable under Sections 6(b) and (c) shall be increased by multiplying
the amount otherwise payable (as adjusted pursuant to clause (i)) by the Change
of Control Multiple specified in Exhibit A.  For the avoidance of doubt, the increased
severance payable to Employee pursuant to this Section 6(d) will be paid to the
Employee over the time period specified in Section 6(e) below.

 

(e)           Payment.  Severance payable under Sections 6(b) and (c)
(as potentially adjusted under Section 6(d)) shall be payable in 12 equal
monthly installments commencing on the last day of the first full calendar
month following the date the Employee’s release under Section 6(g) becomes
fully and finally effective after the effective date of termination.  All severance payments shall be subject to
normal withholding.

 

(f)            Continuation
of Benefits.  If severance is payable
under Section 6(b), provided that the Employee timely elects COBRA continuation
coverage under any one or more of the Company’s medical, dental and vision
insurance plans for the Employee and/or the Employee’s covered dependents, the
Company will pay or reimburse the Employee for that portion of the COBRA
continuation coverage premiums for the Employee and his covered dependents that
would result in the Employee’s portion of such COBRA continuation coverage
premiums being equal to the premiums paid by similarly situated active
employees of the Company for the same coverage, for the shorter of (i) 12
months or (ii) the maximum period of COBRA continuation coverage available to
the Employee and his dependents.  The
payment or reimbursement by the Company as provided in the immediately
preceding sentence shall be made as necessary to cause the cost to Employee of
such coverage to equal the cost that Employee would have incurred if continued
direct participation under the plans 

 

4

 

had been permissible.  The Company’s obligation for payment or
reimbursement under this Section 6(f) as to each such plan shall terminate if
and when Employee becomes eligible to participate in a medical, dental or
vision plan, as the case may be, of another employer, without regard to the
relative level of benefits provided by the Company’s plan and the plan of the
other employer.

 

(g)           Severance
Conditioned on Release.  Employee’s
right to receive severance and premiums for COBRA continuation coverage in the
Company’s medical, dental and vision insurance plans as provided in Sections
6(b) through 6(f) will (i) be contingent upon Employee’s execution of a release
of all claims against the Company and its Affiliates (other than the right to
receive severance and premiums for COBRA continuation coverage under this
Section 6) in form and substance and under procedures reasonably believed by
the Company to be adequate to effectively waive all such claims under
applicable laws and (ii) automatically terminate upon any breach by Employee of
Section 7 or 8 of this Agreement.  The
Company will provide the form of such release to Employee at the time of any
termination as a result of which severance is payable.  If the release does not become fully and
finally effective until legally prescribed periods have elapsed,
notwithstanding any other provision of this Agreement, no severance shall be
payable until all such periods have elapsed and the release has become fully
and finally effective.

 

(h)           Deferral.  The Company may elect to defer any payment of
severance that may become due to Employee if, at the time the payment becomes
due, the Company or any bank owned by the Company is not in compliance with any
regulatory-mandated minimum capital requirements or if making the payments
would cause the Company’s or any such bank’s capital to fall below such minimum
capital requirements provided, however, that any such deferral complies in all
respects with Internal Revenue Code Section 409A (“Section 409A”) to the extent
applicable.  In this event, the Company
will resume making the payments as soon as it can do so without violating such
minimum capital requirements or as soon as payment is permitted under Section
409A if applicable.

 

(i)            Compliance
with Section 409A.  It is intended
that the severance payments and benefits provided under this Section 6 be
exempt from the provisions of Section 409A to the fullest extent possible.  To the extent that any such payment or
benefit is subject to Section 409A then, notwithstanding anything in this
Agreement to the contrary, any amount that becomes payable under this Agreement
to the Employee upon the Employee’s termination of employment shall not be paid
unless such termination of employment constitutes a separation from service
under Section 409A and payment of any severance amount under Section 6 shall
not commence until sixty (60) days after such separation from service.  A “separation from service” means a
separation from service with the Company and all other persons or entities with
whom the Company would be considered a single employer under Section 409A.  If the Company determines in good faith that
the Employee is a “specified employee” under Section 409A then, to the extent
required under Section 409A, any amount that otherwise would be payable to the
Employee during the six-month period following the Employee’s separation from
service shall be suspended until the lapse of such six-month 

 

5

 

period (or, if earlier, the date of death of the
Employee).  The amount that otherwise
would be payable to the Employee during such period of suspension shall be paid
in a single payment on the day following the end of such six-month period (or,
if such day is not a business day, on the next succeeding business day) or
within thirty (30) days following the death of the Employee during such
six-month period, provided that the death of the Employee during such six-month
period shall not cause the acceleration of any amount that otherwise would be
payable on any date during such six-month period following the date of the
Employee’s death.  Any amounts not
subject to the suspension described in the preceding sentence shall be paid as
otherwise provided in this Agreement.

 

(j)            Upon
termination of Employee’s employment for any reason, Employee agrees to resign,
in writing, as of the date of such termination and to the extent applicable,
from the board of directors (and any committees thereof) of the Company and any
of its Affiliates and any other positions then held by Employee, or to which
Employee has been appointed, designated or nominated with the Company and its
Affiliates.

 

7.             Protective Covenants.

 

(a)           Non-Solicitation
/ Non-Disparagement.  Employee agrees
that, without the Company’s prior written consent, during the period commencing
on the Effective Date and ending on the first anniversary of the effective date
of termination of Employee’s employment with the Company, neither Employee nor
any Affiliate of Employee will:

 

(i)            Solicit or induce, directly or
indirectly, any Person who is or was during the six-month period preceding such
solicitation or inducement an employee or agent of the Company or of any
Affiliate of the Company to terminate such Person’s relationship with the
Company or such Affiliate or to enter into an employment or agency relationship
with any Person other than the Company or an Affiliate of the Company;

 

(ii)           Solicit or induce, directly or
indirectly, any customer of the Company or of any Affiliate of the Company to
terminate or reduce the extent of such customer’s business with the Company or
such Affiliate or to become a customer of any other Person in respect of
products or services offered by the Company or any of its Affiliates; or

 

(iii)          Make any statements or take any action
that could reasonably be expected to damage the reputation, standing or
business of the Company or of any Affiliate of the Company.

 

(b)           Judicial
Modification. Employee acknowledges and agrees that the restrictions set
forth in this Section 7 are reasonable and necessary in duration and scope to
protect the legitimate interests and expectations of the Company.  If, contrary to the agreement and intent of
the parties, a court of competent jurisdiction should find that any such
restriction is unenforceable as written, the parties intend and agree that such
restriction will be deemed modified to the minimum extent necessary to render
it enforceable and will be enforced as so modified.

 

6

 

8.             Confidentiality.  Except as may be required in connection with
his or her employment under this Agreement, Employee will not, directly or
indirectly, use or disclose to any other Person any information of a
confidential or proprietary nature belonging or relating to the Company or any
of its Affiliates, or any information the disclosure of which could reasonably
be expected to have an adverse effect on the Company, its businesses, property
or financial condition, including but not limited to information concerning the
Company’s methods of operation, techniques, know-how, plans, policies,
customers, suppliers, representatives or other matters of any kind or
description relating to the products, services, or businesses of the Company or
any of its Affiliates.  All records, files,
documents, equipment and the like relating to the Company’s businesses which
Employee may prepare, use, possess or observe shall be and remain the sole
property of the Company, and upon termination of his or her employment
hereunder for any reason, Employee shall return to the Company any items of
that nature and any copies thereof which he or she may have in his or her
possession or control.

 

9.             Indemnity.

 

(a)           Indemnification.  Company will indemnify Employee (and, upon
his death, his heirs, executors and administrators) to the fullest extent
permitted by law against all losses, liabilities, costs and expenses, including
reasonable attorneys’ fees, court and investigative costs, judgments, fines and
amounts paid in settlement (collectively, “Losses”) reasonably incurred by him
in connection with or arising out of any pending, threatened or completed
action, suit or proceeding brought by a third party in which he may become
involved by reason of his having been an officer or director of the Company or
any Affiliate of the Company, unless the acts or omissions giving rise to the
pending, threatened or completed action arise or result, in whole or in part,
from the actual or alleged gross negligence or willful misconduct of the
Employee.  The indemnification rights
provided for herein are not exclusive and will supplement any rights to
indemnification that Employee may have under any applicable bylaw or charter
provision of Company or any Affiliate of the Company or any applicable statute.

 

(b)           Advancement
of Expenses.  In the event that
Employee becomes a party, or is threatened to be made a party, to any pending,
threatened or completed action, suit or proceeding for which the Company is
required to indemnify him or her, the Company will, to the fullest extent
permitted by law, advance all Expenses incurred by Employee in connection with
the investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, subject to receipt by the Company of a
written undertaking from Employee to reimburse the Company for all amounts
actually paid by the Company to or on behalf of Employee in the event it shall
be ultimately determined that the Company is not obligated to indemnify
Employee for such amounts, and to assign to the Company all rights of Employee
to indemnification under any policy of directors and officers liability
insurance to the extent of the amounts actually paid by Company to or on behalf
of Employee.

 

7

 

(c)           Litigation.  Unless precluded by an actual or potential
conflict of interest, Company will have the right to recommend counsel to
Employee to represent him in connection with any claim covered by this Section 9.  Further, Employee’s choice of counsel, his
decision to contest or settle any such claim, and the terms and amount of the
settlement of any such claim will be subject to Company’s prior reasonable
approval in writing.

 

10.           Damages for Breach / Injunctive
Relief.  Employee acknowledges that
should he breach Section 7 or 8 of this Agreement, the Company will be
entitled to pursue all available remedies, including injunctive relief and
money damages.  The parties acknowledge
and agree that any breach of Employee’s covenants set forth in Section 7 or
8 will result in irreparable damage to the Company for which there may be no
adequate remedy at law.  Therefore, the
parties agree that the Company may in its sole discretion seek an order
enjoining any breach of such covenants, without prejudice to any other right or
remedy to which the Company may be entitled at law or in equity.  The parties further agree that, in any action
brought by the Company as a result of Employee’s breach of any of the covenants
set forth in Section 7 or 8 above, the Company shall be entitled to all
reasonable costs and expenses, including reasonable attorneys’ fees incurred in
connection therewith.

 

11.           Arbitration.  Any dispute arising out of this Agreement or
connected with Employee’s employment will be submitted to binding arbitration
in Denver, Colorado.  The arbitration
will be conducted by one arbitrator selected by the parties from the Judicial
Arbiter Group or, if the Judicial Arbiter Group is not available, by the
American Arbitration Association or another arbitral body selected by the
parties.  The American Arbitration
Association Employment Arbitration Rules shall govern the
arbitration.  The decision of the
arbitrator may be entered as a judgment in any court of competent
jurisdiction.  Notwithstanding this
arbitration provision, the Company will be entitled to apply to any court of
competent jurisdiction for injunctive relief under Section 10.  The prevailing party in any arbitration shall
be entitled to his or its reasonable costs and expenses, including reasonable attorneys’
fees incurred in connection therewith.

 

12.           EESA Compliance.

 

(a)           The
Company has entered into agreements with the U.S. Treasury Department (“UST”)
under which the Company issued preferred shares (“Preferred Shares”) and other
securities to the UST as part of the Troubled Assets Relief Program Capital
Purchase Program (“CPP”) established under the Emergency Economic Stabilization
Act of 2008 (“EESA”).  Employee may be
deemed to be a highly compensated person subject to the executive compensation limitations
set forth in Section 111 of EESA, has determined that the Company’s
participation in the CPP is of material benefit to Employee and agrees to abide
by all existing and future terms of EESA, and any regulations thereunder,
restricting payment of compensation to Employee.

 

(b)           EESA
imposes certain restrictions on employment agreements (including this
Agreement), severance, bonus and incentive compensation, stock options and
awards, and other compensation and benefit plans and arrangements (“Plans”)
maintained by 

 

8

 

the Company and its affiliates and requires that
such restrictions remain in place for so long as the UST holds any debt or
equity securities issued by the Company. 
The parties hereby agree that all Plans providing benefits to Employee
shall be construed and interpreted at all times that the UST maintains any debt
or equity investment in the Company in a manner consistent with EESA, and all
such Plans shall be deemed to have been amended as determined by  the Company so as to comply with the
restrictions imposed by EESA.  Employee
recognizes that such changes may result in the reduction or elimination of
benefits otherwise provided to Employee under this Agreement or any other
Plan.  Notwithstanding any other terms of
this Agreement or any other Plan providing benefits to Employee, to the extent
that any provision of this Agreement or any other Plan is determined by
Company, to be subject to and not in compliance with EESA, including the
timing, amount or entitlement of Employee to any payment of severance, bonus or
any other amounts, such provisions shall be interpreted and deemed to have been
amended to comply with the terms of EESA. 
Without limiting the foregoing, any “golden parachute payment” or other
severance payments due in connection with termination of Employee’s employment
with Company provided under this Agreement or any other Plan, as defined for
purposes of EESA, including any benefits payable under Section 6, shall be
prohibited if such termination occurs while UST holds any debt or equity
securities issued by the Company and it is determined that such a payment to
Employee would constitute a violation of EESA. 
The parties hereto further agree that (i) Employee shall at no time
be entitled to receive any compensation based upon incentives that encourage
Employee to take unnecessary and excessive risks on behalf of Company; and (ii) Employee
shall promptly repay Company or any other affiliated entity compensating
Employee, within thirty (30) days of demand, the amount of any bonus or
incentive compensation paid to Employee based upon statements of earnings,
gains or other criteria that are later determined by the Company to be
materially inaccurate.  If Employee fails
to repay the Company within thirty (30) days of demand, the Company will be
entitled to recover all of its reasonable costs and expenses, including
reasonable attorneys’ fees, incurred in connection with its efforts to collect
such payment from Employee.

 

13.           Governing Law; Interpretation.  This Agreement will be governed by and
construed in accordance with the laws of the State of Colorado.  The titles of the Sections have been inserted
for convenient reference only and will not affect the construction of this Agreement.

 

14.           Severability.  The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or unenforceability of
any other provision.  If any provision is
found to be invalid or unenforceable as written, it will be deemed modified to
the minimum extent necessary to render it valid and enforceable.

 

15.           Benefit.  This Agreement may not be assigned by either
party without the written consent of the other, and any assignment without such
consent will be null and void; provided that the Company may assign this
Agreement, without Employee’s consent, to any successor to all or substantially
all of the Company’s business and assets or to any successor to all or
substantially all of the business and assets of the Affiliate of the Company
for which Employee 

 

9

 

primarily worked.  Subject to that limitation, this Agreement
will be binding upon and inure to the benefit of the parties and their heirs,
personal representatives, successors and assigns.

 

16.           Notices.  All notices given under this Agreement will
be in writing.  Any notice may be
transmitted by any means selected by the sender.  A notice that is mailed to a party at its
address given below, registered or certified mail, return receipt requested,
with all postage prepaid, will be deemed to have been given and received on the
earlier of the date reflected on the return receipt or the third business day
after it is posted.  A notice sent by
facsimile transmission to a party at its facsimile number given below will be
deemed to have been given and received upon confirmation of transmission by the
sender’s facsimile machine.  A notice
transmitted by recognized overnight courier service to a party at its address
given below will be deemed given and received on the first business day after
it is delivered to the courier.  A notice
given by any other means will be deemed given and received only upon actual
receipt.  The addresses and facsimile
numbers of the parties for notice purposes are as follows:

 

If to the Company:

 

CoBiz Financial Inc.

821 – 17th Street

Denver, Colorado 80202

Attn: Chief Executive
Officer

Facsimile No.: (303)
312-3413

 

If to the Employee:

 

To the address or
facsimile number set forth on Exhibit A.

 

Either party may change his, her or its
address or facsimile number for notice purposes by written notice to the other
party.

 

17.           Modification.  No failure by either party to insist upon the
strict performance of this Agreement on one or more occasions will constitute a
waiver of any right or remedy hereunder. 
This Agreement may be amended, and any right or remedy hereunder may be
waived, only in a writing signed by the party against whom the amendment or
waiver is asserted.

 

18.           Waiver of Other Benefits.  Employee irrevocably waives any right he
might otherwise have to receive any severance, damages or other
post-termination payments or benefits from the Company, except for those
provided in this Agreement.  This waiver
expressly includes, without limitation, any amounts payable under any severance
plan or policy adopted by the Company.

 

19.           Survival.  The provisions of Sections 6 (insofar as they
require payments after termination) and 7 through 21 shall survive the
termination of this Agreement.

 

10

 

20.           Entire Agreement.  This Agreement sets forth the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the subject matter hereof, whether
oral or written.  In entering into this
Agreement, neither party has made or relied upon any representation or promise
not set forth herein.

 

21.           Interpretation of Agreement.  The parties acknowledge and agree that the
terms and conditions of this Agreement have been arrived at after thorough
bargaining and negotiation, and that the Agreement shall not be construed more
strictly against one party than another merely by virtue of the fact that it
may have been prepared by one of the parties.

 

[Remainder of page left blank intentionally.]

 

11

 

IN
WITNESS WHEREOF, the parties have executed this Employment Agreement as of the
day and year first above written.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  CoBiz Financial Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steve Bangert

  
	
   

  	
  Name: Steve Bangert

  
	
   

  	
  Title: Chairman and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  
	
   

  	
  /s/ N. Bruce Callow

  
	
   

  	
  N.
  Bruce Callow

  

 

12

 

EXHIBIT A

 

TERMS OF
EMPLOYMENT

 

	
  Name of Employee:

  	
  N. Bruce Callow

  
	
   

  	
   

  
	
  Capacity(ies):

  	
  Executive Vice President - Wealth
  Management

  
	
   

  	
   

  
	
  Reporting Person:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  Minimum
  Base Compensation: $22,917.28 per month

  
	
   

  	
   

  
	
  Vacation:

  	
  Four (4) weeks per year

  
	
   

  	
   

  
	
  Severance Period:

  	
  Twelve (12) months following the effective
  date of termination of employment.

  
	
   

  	
   

  
	
  Change of Control Multiple:

  	
  2.0

  
	
   

  	
   

  
	
  Address of Employee:

  	
  N. Bruce Callow

  
	
   

  	
  821 17th St

  
	
   

  	
  Denver,
  Colorado 80202

  

 

A-1

 

EXHIBIT B

 

Definitions

 

“Affiliate”
means, with respect to a specified Person, (i) any other Person directly
or indirectly controlling, controlled by or under common control with the
specified Person, (ii) any trust in which the specified Person holds 10%
or more of the beneficial interest, as beneficiary, settler or otherwise, (iii) any
member of the immediate family of the specified Person, (iv) any director,
executive officer, manager, member, partner or trustee of the specified Person,
or (v) any other Person in which the specified person or any Affiliate of
the specified Person owns a beneficial interest of 10% or more.

 

“Cause”
for the termination by the Company of Employee’s employment means (i) a
breach by Employee of Section 7 or 8 of the Agreement, (ii) a breach
of any other provision of this Agreement by Employee which, if curable, has not
been cured within 15 days after notice from the Company, (iii) theft or
embezzlement from or other dishonesty involving the Company by Employee, (iv) the
commission by Employee of a crime involving moral turpitude or constituting a
felony, (v) gross negligence or willful misconduct with respect to
Employee’s duties and responsibilities to the Company, (vi) the willful
failure or refusal of Employee to perform his duties under this Agreement or to
carry out the lawful instructions of the Reporting Person or Board of
Directors, (vii) a material violation of the standards of conduct or code
of ethics established by the Company or (viii) Employee engages in
self-dealing or attempts to obtain any improper personal benefit or profit from
the Company or any transaction in which the Company or any Affiliate of the
Company has an interest.

 

“Change
of Control” means a change of control, as defined in the following sentences,
of the Company.  Change of Control of the
Company shall be deemed to have occurred if: (i) any person (as such term
is defined in Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the “1934 Act”)), other than a person who is a
shareholder of the Company as of the date of this Agreement, acquires
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the 1934 Act) of 50% or more of the combined voting power of the then
outstanding voting securities of the Company; or (ii) the individuals who
were members of the Company’s Board of Directors as of the date of this
Agreement (the “Current Board Members”) cease for any reason to constitute a
majority of the Board of Directors of the Company or its successor; provided,
however, that if the election or the nomination for election of any new
director of the Company or its successor is approved by a vote of a majority of
the individuals who are Current Board Members, such new director shall, for the
purposes of this paragraph, be considered a Current Board Member; or (iii) the
Company’s shareholders approve (A) a merger or consolidation of the
Company and the shareholders of the Company immediately before such merger or
consolidation do not, immediately after such merger or consolidation, own,
directly or indirectly, more than 50% of the combined voting power of the then
outstanding voting securities of the entity resulting from such merger or
consolidation in substantially the same proportion as their ownership of the
combined voting power of the outstanding securities of the Company immediately
before such merger or consolidation; or (B) a complete liquidation or
dissolution or an agreement for the sale or other disposition of all or
substantially all of the assets of the Company. 
Notwithstanding the foregoing, a Change of Control will not be deemed to
have occurred: (x) solely because 50% or more of the combined voting power
of the then 

 

B-1

 

outstanding
voting securities of the Company are acquired by a trustee or other fiduciary
holding securities under one or more employee benefit plans maintained for
employees of the Company or its subsidiaries; (y) if Employee agrees in
writing to waive a particular Change of Control for the purposes of this
Agreement; or (z) if the events set forth in subsections (i) and (iii) above
occur among or between Affiliates of the Company.

 

“Disability”
has the meaning given to that term (or the most closely analogous term) in the
Company’s long-term disability insurance policy as in effect at the relevant
time.  If no such policy is in effect, “Disability”
means a mental or physical condition that prevents Employee from performing the
essential functions of his or her position hereunder, with or without
reasonable accommodations by the Company, as determined by the Company in its
discretion.

 

“Good
Reason” for the termination by Employee of his employment means (i) Employee
is removed from all of the capacities described in Exhibit A, other
than for Cause, and is not offered another position with the Company or an
Affiliate of the Company that is commensurate with Employee’s education,
experience and abilities so as to result in a material diminution of Employee’s
authority, duties or responsibilities; (ii) the Company decreases Employee’s
base compensation, unless such decrease is an amount that is less than ten
percent (10%) of the Employee’s base salary that occurs as part of a
compensation reduction instituted by the Company in good faith and which
reduces the base compensation of all similarly situated employees of the
Company by a comparable percentage to the decrease in Employee’s base
compensation, or arbitrarily and capriciously materially decreases Employee’s bonus;
or (iii) the Company transfers Employee to a location outside the
metropolitan area in which Employee’s employment was based on the date of this
Agreement so as to result in a material geographic change; provided that no
such action or event shall constitute Good Reason if Employee consents to the
action or event, whether before, at or after the time that it is taken.  Notwithstanding anything to the contrary
herein, no such action or event shall constitute Good Reason unless Employee
gives written notice to the Company within 30 days after the action or event,
which notice shall specify the action or event and indicate that Employee
believes it constitutes Good Reason as defined herein, and the Company fails to
cure the action or event within 30 days after such notice.  In addition, a termination by Employee of his
employment shall not be a termination for Good Reason unless notice of the
termination is given by Employee within 90  days after the
end of the 30-day cure period set forth in the preceding sentence.

 

“Person”
means any individual and any corporation, partnership, trust, unincorporated
organization, association, limited liability company or other entity.

 

B-2

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