Document:

Exhibit 10.17

 

GUARANTY AGREEMENT

 

THIS GUARANTY AGREEMENT, dated as of December 6, 2016 (as amended, restated, supplemented, or otherwise modified from time to time, this “Guaranty”), made by KKR REAL ESTATE FINANCE HOLDINGS L.P., a Delaware limited partnership (“Guarantor”), in favor of MORGAN STANLEY BANK, N.A., a national banking association (together with its successors and assigns, “Buyer”).  Any capitalized term utilized herein shall have the meaning as specified in the Repurchase Agreement (as defined below), unless such term is otherwise specifically defined herein.

 

W I T N E S S E T H :

 

WHEREAS, Buyer and KREF Lending IV LLC, a Delaware limited liability company (“Seller”), entered into that certain Master Repurchase and Securities Contract Agreement dated as of the date hereof (as the same may be amended, modified and/or restated, the “Repurchase Agreement”);

 

WHEREAS, Guarantor directly or indirectly owns 100% of the membership interests in Seller, and Guarantor will derive benefits, directly and indirectly, from the execution, delivery and performance by Seller of the Transaction Documents and the transactions contemplated by the Repurchase Agreement; and

 

WHEREAS, it is a condition precedent to the Repurchase Agreement and the consummation of the Transactions thereunder that Guarantor execute and deliver this Guaranty for the benefit of Buyer.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Guarantor does hereby agree as follows:

 

ARTICLE I

 

NATURE AND SCOPE OF GUARANTY

 

1.1                               Guaranty of Obligations.  Subject to the terms hereof, Guarantor hereby irrevocably and unconditionally guarantees to Buyer and Buyer’s successors and assigns as a primary obligor the payment and performance of the Guaranteed Obligations (as herein defined) as and when the same shall be due and payable.

 

1.2                               Definition of Guaranteed Obligations.  As used herein, the term “Guaranteed Obligations” means:

 

(a)                                 the prompt and complete payment of the Repurchase Obligations; provided, however, the aggregate sum of the Guaranteed Obligations paid by Guarantor under this Section 1.2(a) shall not exceed an amount equal to 25% of the then aggregate Repurchase Price under the Repurchase Agreement; provided, further, that notwithstanding the foregoing or anything to the contrary herein, if Lender asserts that an Event of Default has occurred and is continuing then, upon payment by Guarantor to Buyer of an amount equal to 25% of the then aggregate Repurchase Price accompanied

 

 

by written confirmation from Guarantor and Seller agreeing that upon delivery of such payment to Lender all Transactions shall be terminated and there shall thereafter be no further Transactions under the Repurchase Agreement, Guarantor shall have no further liability or obligation under this Section 1.2(a);

 

(b)                                 any actual loss, damage, cost or expense incurred by Buyer (including attorneys’ fees and costs reasonably incurred) resulting from any of the following:

 

(i) any fraud or intentional misrepresentation committed by Seller, Pledgor, Guarantor or any Affiliate of Seller, Pledgor or Guarantor in connection with the execution and delivery of this Guaranty, the Repurchase Agreement, the Pledge and Security Agreement or any of the other Transaction Documents, or any certificate, report, financial statement or other instrument or document furnished to Buyer at the time of the closing of the Repurchase Agreement or during the term of the Repurchase Agreement;

 

(ii) the misappropriation by Seller, Pledgor, Guarantor or any Affiliate of Seller, Pledgor or Guarantor of any funds related to the Purchased Assets and not applied in accordance with the Repurchase Agreement;

 

(iii)    (A) the creation or incurrence of any lien by Seller, Pledgor, Guarantor or any Affiliate of Seller, Pledgor or Guarantor on (1) any Purchased Asset unless permitted under the Repurchase Agreement or (2) any “Collateral” (as defined in the Pledge and Security Agreement) (the “Pledge Collateral”) unless permitted under the Pledge and Security Agreement, (B) any Change of Control prohibited by the Repurchase Agreement, (C) any transfer, assignment or sale of (1) any Purchased Asset in violation of the Repurchase Agreement or (2) any Pledge Collateral in violation of the Pledge and Security Agreement, (D) any Significant Modification to a Purchased Asset that is intentionally effectuated by Seller or its Affiliate in violation of the provisions of the Repurchase Agreement or (E) the material breach of any material separateness covenants contained in the Repurchase Agreement;

 

(iv) during the continuance of an Event of Default, any distribution by Seller to its equityholders in violation of the Repurchase Agreement and, in the case of such a violation, only to the extent of such distribution; or

 

(v) any breach by Guarantor of Sections 4.4, 4.6 or 4.10 of this Guaranty; and

 

(c)                                  any and all Repurchase Obligations in the event that Seller makes a voluntary filing under the Bankruptcy Code or similar federal or state law, or Seller, Guarantor or any Affiliate of Seller or Guarantor joins or colludes in the filing of an involuntary filing against Seller under the Bankruptcy Code or other similar federal or state law.

 

2

 

For the avoidance of doubt, Guarantor shall not have any liability to Buyer under this Guaranty other than for the Guaranteed Obligations.

 

1.3                               Nature of Guaranty.  This Guaranty is an irrevocable, absolute, continuing guarantee of payment and performance and not a guaranty of collection.  This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor.  This Guaranty may be enforced by Buyer and any subsequent assignee of Buyer under the Repurchase Agreement and shall not be discharged by the assignment or negotiation of all or part thereof.

 

1.4                               Guaranteed Obligations Not Reduced by Offset.  The Guaranteed Obligations and the liabilities and obligations of Guarantor to Buyer hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Seller, or any other party, against Buyer or against payment of the Guaranteed Obligations, other than payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

 

1.5                               Payment by Guarantor.  If all or any part of the Guaranteed Obligations shall not be punctually paid, whether on demand, maturity, acceleration or otherwise, Guarantor shall, within ten (10) Business Days after demand by Buyer, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount then due on the Guaranteed Obligations to Buyer at Buyer’s address as set forth herein.  Such demand(s) may be made at any time coincident with or after the time for payment of all or any part of the Guaranteed Obligations pursuant to the Repurchase Agreement.  Such demand shall be deemed made, given and received in accordance with Section 6.2 hereof.

 

1.6                               No Duty to Pursue Others.  It shall not be necessary for Buyer (and Guarantor hereby waives any rights which Guarantor may have to require Buyer) in order to enforce the obligations of Guarantor hereunder, to (a) institute suit or exhaust its remedies against Seller or others liable on the Guaranteed Obligations, (b) enforce or exhaust Buyer’s rights against any collateral which shall ever have been given to secure the Guaranteed Obligations (c) join Seller or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, or (d) resort to any other means of obtaining payment of the Guaranteed Obligations, and Buyer shall not be required to mitigate damages or take any other action to collect or enforce the Guaranteed Obligations.

 

1.7                               Waivers.  Guarantor agrees to the provisions of the Transaction Documents, and hereby waives notice of (i) any loans or advances made by Buyer to Seller or any purchases of Purchased Assets made by Buyer from Seller, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Repurchase Agreement or of any other Transaction Documents, (iv) the execution and delivery by Seller and Buyer of any other agreement or of Seller’s execution and delivery of any other documents arising under the Transaction Documents or in connection with the Guaranteed Obligations, (v) the occurrence of any breach by Seller or an Event of Default under the Transaction Documents, (vi) Buyer’s transfer or disposition of the

 

3

 

Transaction Documents, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Seller, or (ix) any other action at any time taken or omitted by Buyer, and, generally, except to the extent required by the terms hereof, all other demands and notices of every kind in connection with this Guaranty, the Transaction Documents, any documents or agreements evidencing, securing or relating to all or any part of the Guaranteed Obligations.

 

1.8                               Payment of Expenses.  In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, within five (5) Business Days after demand by Buyer, pay Buyer all reasonable out-of-pocket costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Buyer in the enforcement hereof or the preservation of Buyer’s rights hereunder.  The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligations.

 

1.9                               Effect of Bankruptcy.  In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Buyer must rescind or restore any payment, or any part thereof,  received by Buyer in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Buyer shall be without effect, and this Guaranty shall remain in full force and effect.  It is the intention of Seller and Guarantor that Guarantor’s obligations hereunder shall not be discharged except by Seller’s or Guarantor’s payment and performance of the Guaranteed Obligations which is not so rescinded or Guarantor’s performance of such obligations and then only to the extent of such performance.

 

1.10                        Deferral of Subrogation, Reimbursement and Contribution.  Notwithstanding anything to the contrary contained in this Guaranty, Guarantor hereby unconditionally and irrevocably defers until payment in full of the Guaranteed Obligations any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating Guarantor to the rights of Buyer), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Seller or any other party liable for payment of all or any part of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty.

 

1.11                        Setoff Rights.  Without limiting any other rights or remedies of Buyer, Buyer shall have the right, without prior notice to Guarantor, and any such notice being expressly waived by Guarantor to the extent permitted by applicable law, to set off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final) in any currency, and any other obligation (including to return excess margin), credits, indebtedness, claims, securities, collateral or other property, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by or due from Buyer or any Affiliate of Buyer to or for the credit of the account of Seller, Guarantor or any Subsidiary of Guarantor to any obligations of Guarantor hereunder to Buyer.  This Section 1.11 shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other rights to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).

 

4

 

1.12                        Seller.  The term “Seller” as used herein shall include any new or successor corporation, limited liability company, association, partnership (general or limited), joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Seller or any interest in Seller.

 

ARTICLE II

 

EVENTS AND CIRCUMSTANCES NOT REDUCING
 OR DISCHARGING GUARANTOR’S OBLIGATIONS

 

Guarantor hereby consents and agrees to each of the following, and agrees with Buyer that its obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, except to the extent required by the terms hereof, and waives any common law, equitable, statutory or other rights (including without limitation, except to the extent required by the terms of this Guaranty, rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following:

 

2.1                               Modifications.  Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Repurchase Agreement, the other Transaction Documents or any other document, instrument, contract or understanding between Seller and Buyer or any other party pertaining to the Guaranteed Obligations or any failure of Buyer to notify Guarantor of any such action.

 

2.2                               Adjustment.  Any adjustment, indulgence, forbearance or compromise that might be granted or given by Buyer to Seller.

 

2.3                               Condition of Seller or Guarantor.  The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Seller, Guarantor or any other party at any time liable for (a) the payment of all or any part of the Guaranteed Obligations (b) any dissolution of Seller or Guarantor, (c) any sale, lease or transfer of any or all of the assets of Seller or Guarantor, (d) any changes in the shareholders, partners or members of Seller or Guarantor; or (e) any reorganization of Seller or Guarantor.

 

2.4                               Invalidity of Guaranteed Obligations.  The invalidity, illegality or unenforceability against Seller of all or any part of the Repurchase Agreement or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including, without limitation, the fact that (i) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (ii) the officers or representatives executing the Repurchase Agreement or the other Transaction Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iii) Seller has valid defenses (other than payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Seller, (iv) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (v) the Repurchase Agreement, or any of the other Transaction Documents have been forged or

 

5

 

otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Seller or any other person be found not liable on the Guaranteed Obligations, or any part thereof, for any reason.

 

2.5                               Release of Obligors.  Any full or partial release of the liability of Seller on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other person or entity now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof; it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement, as between Buyer and Guarantor, that other parties will be liable to pay or perform the Guaranteed Obligations, or that Buyer will look to other parties to pay or perform the obligations of Seller under the Repurchase Agreement or the other Transaction Documents.

 

2.6                               Other Collateral.  The taking or accepting of any other security, collateral or guarantee, or other assurance of payment, for all or any part of the Guaranteed Obligations.

 

2.7                               Release of Collateral.  Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) by any party other than Buyer of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

 

2.8                               Care and Diligence.  The failure of Buyer or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of any collateral, property or security assuring or securing payment of the Guaranteed Obligations, including, but not limited to, the neglect, delay, omission, failure or refusal of Buyer to (i) take or prosecute any action for the collection of the Guaranteed Obligations or any part thereof, (ii) foreclose, initiate any action to foreclose or, once commenced, prosecute to completion any action to foreclose upon any such collateral, property or security or (iii) take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

 

2.9                               Unenforceability.  The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed as between Buyer and Guarantor by Guarantor that it is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectability or value of any of the collateral for the Guaranteed Obligations.

 

2.10                        Merger.  The reorganization, merger or consolidation of Seller into or with any other corporation or entity.

 

6

 

2.11                        Preference.  Any payment by Seller to Buyer is held to constitute a preference under bankruptcy laws, or for any reason Buyer is required to refund such payment or pay such amount to Seller or someone else.

 

2.12                        Other Actions Taken or Omitted.  Except to the extent the same shall result from the gross negligence, willful misconduct, bad faith, illegal acts or fraud of Buyer, any other action taken or omitted to be taken with respect to the Transaction Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

To induce Buyer to enter into the Transaction Documents, Guarantor represents and warrants to Buyer as of the date hereof and at all times while the Repurchase Agreement and any Transaction thereunder is in effect as follows:

 

3.1                               Benefit.  Guarantor has received, or will receive, indirect benefit from the execution, delivery and performance by Seller of the Transaction Documents, and the transactions contemplated therein.

 

3.2                               Familiarity and Reliance.  Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of Seller and is familiar with the value of any and all collateral intended to be pledged as security for the payment of the Guaranteed Obligations; provided, however, that, as between Buyer and Guarantor, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

 

3.3                               No Representation By Buyer.  None of Buyer or any other party on Buyer’s behalf has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty.

 

3.4                               Guarantor’s Financial Condition.  As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is and will be solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities fairly estimated) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities, as and when the same become due.

 

3.5                               Legality.  The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not,

 

7

 

contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any material indenture, mortgage, deed of trust, charge, lien, or any material contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor.  This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights and subject, as to enforceability, to general principals of equity, regardless whether enforcement is sought in a proceeding in equity or at law.

 

3.6                               Survival.  All representations and warranties made by Guarantor herein shall survive until payment in full of the Guaranteed Obligations.

 

3.7                               Organization.  Guarantor has been duly organized or formed and is validly existing and in good standing with requisite limited partnership power and authority to own its properties and to transact the businesses in which it is now engaged.  Guarantor is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, businesses and operations except where the failure to do same would not reasonably be expected to have a material adverse effect thereon.  Guarantor possesses all rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, except where the failure to do same would not reasonably be expected to have a material adverse effect thereon.

 

3.8                               No Investment Company.  Guarantor is not an “investment company”, or a company “controlled by an investment company”, within the meaning of the Investment Company Act of 1940, as amended.

 

3.9                               Tax Returns.  Except as disclosed in writing to Buyer prior to the date hereof, Guarantor has filed or caused to be filed all tax returns which, to the knowledge of Guarantor, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against Guarantor or any of the property of Guarantor and all other taxes, fees or other charges imposed on him or any of the property of Guarantor by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings); no tax lien has been filed, and, to the knowledge of Guarantor, no claim is being asserted, with respect to any such tax, fee or other charge.

 

3.10                        Litigation.  No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of Guarantor, threatened by or against Guarantor or against any of the properties or revenues of Guarantor with respect to this Guaranty or any of the transactions contemplated hereby that is reasonably likely to have a Material Adverse Effect.

 

3.11                        Insider.  Guarantor is not an “executive officer”, “director”, or “person who directly or indirectly or acting through or in concert with one or more persons owns, controls, or has the power to vote more than 10% of any class of voting securities” (as those terms are defined in 12 U.S.C. § 375(b) or in regulations promulgated pursuant thereto) of

 

8

 

Buyer, of a bank holding company of which Buyer is a Subsidiary, or of any Subsidiary of a bank holding company of which Buyer is a Subsidiary, of any bank at which Buyer maintains a correspondent account or of any lender which maintains a correspondent account with Buyer.

 

ARTICLE IV

 

COVENANTS OF GUARANTOR

 

Guarantor covenants to, and agrees that, until payment in full of all Guaranteed Obligations:

 

4.1                               Financial Statements, Reports, etc.  Guarantor shall deliver (or cause to be delivered) to Buyer:

 

(a)                                 as soon as available and in any event within forty-five (45) days after the end of each of the first three quarterly fiscal periods of each fiscal year of Guarantor, the unaudited balance sheet and income statement of Guarantor, which shall incorporate its consolidated Subsidiaries (including Pledgor and Seller), as at the end of such period, setting forth in each case in comparative form the figures for the previous year, accompanied by an Officer’s Certificate of Guarantor, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Guarantor and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments);

 

(b)                                 as soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of Guarantor:

 

(i)                                     the unaudited, balance sheet and income statement of Guarantor, which shall incorporate its consolidated Subsidiaries as at the end of such fiscal year , accompanied by an Officer’s Certificate of Guarantor, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Guarantor and its consolidated Subsidiaries in accordance with GAAP, consistently applied, as at the end of, and for, such period;

 

(ii)                                  the combined, consolidated balance sheet and statement of equity of REIT, which shall incorporate its consolidated Subsidiaries, as at the end of such fiscal year and the related combined, consolidated statements of operations and of cash flows for REIT, which shall incorporate its consolidated Subsidiaries, for such year, accompanied by an opinion thereon of Deloitte Consulting LLP or other independent certified public accountants of recognized national standing, which opinion shall not be qualified as to scope of audit or going concern and shall state that said combined, consolidated financial statements fairly present the combined, consolidated financial condition and results of operations of REIT and its consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP;

 

9

 

4.2                               Litigation. Guarantor will promptly, and in any event within ten (10) days after service of process on any of the following, give to Buyer notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are pending or threatened) or other legal or arbitrable proceedings affecting Guarantor or any of its Subsidiaries before any Governmental Authority that (i) questions or challenges the validity or enforceability of this Guaranty or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim or claims against Guarantor in an aggregate amount greater than $20,000,000 or (iii) which, individually or in the aggregate, if adversely determined could be reasonably likely to have a Material Adverse Effect.

 

4.3                               Existence, etc.  Pursuant to the Transaction Documents, Guarantor will (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises; (b) comply in all material respects with the requirements of applicable laws, rules, regulations and orders of Governmental Authorities (including, without limitation, all environmental laws); (c) keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied; (d) not change its jurisdiction of organization unless it shall have provided Buyer at least ten (10) days’ prior written notice of such change; and (e) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.

 

4.4                               Prohibition of Fundamental Changes.  Except as permitted pursuant to the terms of the Transaction Documents, Guarantor shall not enter into any transaction that would be a Change of Control, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets.

 

4.5                               Notices.  Guarantor shall give notice to Buyer promptly upon Guarantor’s receipt of notice or obtaining knowledge of the occurrence of any Default or Event of Default.

 

4.6                               Limitation on Distributions.  After the occurrence and during the continuation of any monetary or material non-monetary Default or Event of Default, Guarantor shall not declare or make any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity interest of Guarantor, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Guarantor.

 

4.7                               Financial Covenants.  (a)  Guarantor (including its consolidated Subsidiaries) covenants and agrees that it shall not:

 

(i)                                     permit the ratio of (A) Interest Income (excluding deferred interest and the amortized portion of any upfront fees) for the period of four (4) consecutive fiscal quarters ended on or most recently prior to such date of determination to (B) the Interest Expense to be less than 1.50 to 1.00, as

 

10

 

determined as soon as practicable after the end of such period, but in no event later than forty-five (45) days after the last day of such period;

 

(ii)                                  permit the Tangible Net Worth of Guarantor to be less than the sum of (i) $363,900,000 plus (ii) 75% of the aggregate net cash proceeds of any equity issuances made and any capital contributions received by Guarantor;

 

(iii)                               permit the Cash Liquidity of Guarantor to be less than (A) at all times prior to the date of an IPO, the greater of (x) $10,000,000 and (y) 10% of the recourse Indebtedness of Guarantor, and (B) at all times from and after the date of an IPO, the greater of (x) $10,000,000 and (B) 5.0% of the recourse Indebtedness of Guarantor; or

 

(iv)                              permit the ratio of Total Indebtedness of Guarantor and its consolidated Subsidiaries to Tangible Net Worth of Guarantor and its consolidated Subsidiaries to be greater than 75%.

 

(b)                                 Guarantor shall, within forty-five (45) days of the end of each of the first three (3) fiscal quarters, and within ninety (90) days after the last day of the fiscal year, deliver to Buyer a Financial Covenant Compliance Certificate setting forth the calculation of each of the financial covenants set forth in Section 4.7(i) above.

 

(c)                                  The following terms shall having the meanings ascribed below for purposes of this Guaranty:

 

(i)                                     “Cash” shall mean coin or currency of the United States of America or immediately available federal funds, including such funds delivered by wire transfer.

 

(ii)                                  “Cash Equivalents” shall mean any of the following, to the extent owned by Guarantor or any of its Subsidiaries free and clear of all Liens and having a maturity of not greater than 90 days from the date of issuance thereof: (a) readily marketable direct obligations of the government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the government of the United States or (b) certificates of deposit of or time deposits with Buyer or a member of the Federal Reserve System that issues (or the parent of which issues) commercial paper rated as described in clause (c) below, is organized under the laws of the United States or any state thereof and has combined capital and surplus of at least $1,000,000,000 or (c) commercial paper in an aggregate amount of not more than $50,000,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any state of the United States and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or “A-1” (or the then equivalent grade) by S&P.

 

(iii)                               “Cash Liquidity” shall mean, at any date of determination, the sum of unrestricted Cash plus Cash Equivalents, which shall include, at all times prior

 

11

 

to the date of an IPO, all of the Qualified Capital Commitments of Guarantor or the REIT (provided the REIT is required to contribute such capital contributions to Guarantor upon receipt).

 

4.8                               Voluntary or Collusive Filing.  Guarantor shall not voluntarily file a case, or join or collude with any Person in the filing of an involuntary case, in respect of Seller or Pledgor under the Bankruptcy Code.

 

4.9                               Offset.  The liabilities and obligations of Guarantor to Buyer hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense (other than payment of the Guaranteed Obligations) of Seller against Buyer, or any other party, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations).

 

4.10                        Dissolution.  Guarantor shall not seek the dissolution, liquidation or winding up, in whole or in part, of Seller or Pledgor.

 

ARTICLE V

 

SUBORDINATION OF CERTAIN INDEBTEDNESS

 

5.1                               Subordination of All Guarantor Claims.  As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of Seller to Guarantor arising as the consequence of this Guaranty or the payment or other performance by Guarantor hereunder, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Seller thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor.  The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Seller (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed Obligations.  Upon the occurrence and during the continuance of an Event of Default, Guarantor shall not receive or collect, directly or indirectly, from Seller or any other party any amount for the Guarantor Claims until payment in full of the Guaranteed Obligations.

 

5.2                               Claims in Bankruptcy.  In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Seller as debtor, Buyer shall have the right to prove its claims in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable for the Guarantor Claims.  Guarantor hereby assigns such dividends and payments to Buyer.  Should Buyer receive, for application upon the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Seller and Guarantor, shall constitute a credit for the Guarantor Claims, then upon payment to Buyer in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Buyer to the extent that such payments to Buyer on the Guarantor

 

12

 

Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Buyer had not received dividends or payments for the Guarantor Claims.

 

5.3                               Payments Held in Trust.  In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Buyer an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees to promptly pay such amounts to Buyer.

 

5.4                               Liens Subordinate.  Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Seller’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Seller’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor presently exist or are hereafter created or attach.  Without the prior written consent of Buyer, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Seller, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgage, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Seller securing payment of the Guarantor Claims held by Guarantor.

 

ARTICLE VI

 

MISCELLANEOUS

 

6.1                               Waiver.  No failure to exercise, and no delay in exercising, on the part of Buyer, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right.  The rights of Buyer hereunder shall be in addition to all other rights provided by law.  No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved.  No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand (except to the extent such a notice or demand is required by the terms hereof).

 

6.2                               Notices.  Unless otherwise provided in this Guaranty, all notices, consents, approvals and requests required or permitted hereunder shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) hand delivery, with proof of delivery, (b) certified or registered United States mail, postage prepaid, (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of delivery, (d) by telecopier (with answerback acknowledged); provided that such telecopied notice must also be delivered by one of the means set forth above, or (e) by e-mail with confirmation of delivery, addressed as follows (or at such other address and person as shall be designated from time to time by any party hereto, as the case may be, in a written notice to the other parties hereto in the manner provided for in this Section 6.2):

 

13

 

If to Guarantor:                                                                                                         KKR Real Estate Finance Holdings L.P.

9 West 57th Street, Suite 4200
 New York, New York 10019
 Attention:  Patrick Mattson
 Telephone:  (###) ###-####
 Email:  ##############@kkr.com

 

with a copy to:                                                                                                               Gibson Dunn & Crutcher LLP
 200 Park Avenue
 New York, New York 10166
 Attention:  Andrew Dady
 Telephone:  (###) ###-####
 Email:  #####@gibsondunn.com

 

If to Buyer:                                                                                                                                Morgan Stanley Bank, N.A.
 1585 Broadway, 25th Floor
 New York, New York  10036
 Attention:  Anthony Preisano
 Telephone:  (###) ###-####
 Fax:  (###) ###-####
 Email:  ################@morganstanley.com

 

and to:                                                                                                                                                         Morgan Stanley Bank, N.A.
 One Utah Center, 201 South Main Street
 Salt Lake City, Utah  84111

 

and to:                                                                                                                                                         Morgan Stanley Bank, N.A.
 1 New York Plaza, 41st Floor
 New York, New York  10004
 Attention:  Robert J. Les
 Telephone:  (###) ###-####
 Fax:  (###) ###-####
 Email:  #######@morganstanley.com

 

and to:                                                                                                                                                         Cleary Gottlieb Steen & Hamilton LLP
 One Liberty Plaza
 New York, New York  10006
 Attention:  Kimberly Brown Blacklow, Esq.
 Telephone:  (###) ###-####
 Fax:  (###) ###-####
 Email: #########@cgsh.com

 

A notice shall be deemed to have been given:  (i) in the case of hand delivery, at the time of delivery, (ii) in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day, (iii) in the case of expedited prepaid delivery upon the first attempted delivery on a Business Day, (iv) in the case of telecopier, upon receipt of answerback confirmation; provided that such telecopied notice was also delivered as required in this Section

 

14

 

6.2, or (v) in the case of e-mail, upon confirmation of delivery.  A party receiving a notice that does not comply with the technical requirements for notice under this Section 6.2 may elect to waive any deficiencies and treat the notice as having been properly given.

 

6.3                               Governing Law.  This Guaranty shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York pursuant to Sections 5-1401 and 5-1402 of the New York General Obligations Law without giving effect to the conflict of law principles thereof.

 

6.4                               SUBMISSION TO JURISDICTION; WAIVERS.  EACH OF GUARANTOR AND, BY ITS ACCEPTANCE OF THIS GUARANTY, BUYER, HEREBY IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS GUARANTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH HEREIN OR AT SUCH OTHER ADDRESS OF WHICH BUYER AND/OR GUARANTOR SHALL HAVE BEEN NOTIFIED; AND (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

 

6.5                               WAIVER OF JURY TRIAL.  EACH OF GUARANTOR AND, BY ITS ACCEPTANCE OF THIS GUARANTY, BUYER, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.  SUCH WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.  ANY PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 6.5 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF SUCH WAIVER.

 

6.6                               Invalid Provisions.  If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if

 

15

 

such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

 

6.7                               Reinstatement.  This Guaranty shall continue to be effective, or be reinstated, as the case may be, if at any time payment of the Guaranteed Obligations, or any part thereof, is rescinded or must otherwise be restored or returned by Buyer upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of Seller or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for Seller or any substantial part of the property of Seller, or otherwise, all as though such payments had not been made.

 

6.8                               Amendments.  This Guaranty may be amended only by an instrument in writing executed by Guarantor and Buyer.

 

6.9                               Parties Bound; Assignment.  This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Buyer, assign any of Guarantor’s rights, powers, duties or obligations hereunder.

 

6.10                        Headings.  Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

 

6.11                        Recitals.  The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

 

6.12                        Counterparts.  This Guaranty may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument.  Any counterpart delivered by facsimile, pdf or other electronic means shall have the same import and effect as original counterparts and shall be valid, enforceable and binding for the purposes of this Guaranty.

 

6.13                        Rights and Remedies.  If Guarantor becomes liable for any indebtedness owing by Seller to Buyer, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Buyer hereunder shall be cumulative of any and all other rights that Buyer may ever have against Guarantor.  The exercise by Buyer of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

 

6.14                        Entirety.  This Guaranty embodies the final, entire agreement of Guarantor and Buyer with respect to Guarantor’s guarantee of the Guaranteed Obligations and supersedes any and all prior commitments, agreements, representations, and understandings, whether written or oral, relating to the subject matter hereof.  This Guaranty is intended by Guarantor and Buyer as a final and complete expression of the terms of this Guaranty, and no course of dealing between Guarantor and Buyer, no course of performance, no trade practices, and no evidence of

 

16

 

prior, contemporaneous or subsequent oral agreements or discussions or other extrinsic evidence of any nature shall be used to contradict, vary, supplement or modify any term of this Guaranty.  There are no oral agreements between Guarantor and Buyer relating to the subject matter hereof.

 

6.15                        Joint and Several.  If Guarantor consists of more than one Person, the obligations and liabilities of each such Person under this Guaranty shall be joint and several; provided that, except to the extent caused by fraud or willful misconduct, in no event shall any direct or indirect partner, member, shareholder or other owner of Guarantor be liable under this Guaranty and Buyer’s sole recourse shall be the assets of Guarantor.

 

6.16                        Intent.  Guarantor (a) acknowledges that each of the Repurchase Agreement and each Transaction thereunder constitutes a “securities contract” as that term is defined in Section 741(7)(A)(i) of the Bankruptcy Code and a “master netting agreement” as that term is defined in Section 101(38A)(A) of the Bankruptcy Code, (b) intends and acknowledges that this Guaranty is “a security agreement or arrangement or other credit enhancement” that is “related to” and provided “in connection with” the Repurchase Agreement and each Transaction thereunder and is within the meaning of Sections 101(38A)(A), 101(47)(a)(v) and 741(7)(A)(xi) of the Bankruptcy Code and is, therefore, (i) a “securities contract” as that term is defined in Section 741(7)(A)(xi) of the Bankruptcy Code and (ii) a “master netting agreement” as that term is defined in Section 101(38A) of the Bankruptcy Code and (c) intends and acknowledges that any party’s right to cause the termination, liquidation or acceleration of, or to offset net termination values, payment amounts or other transfer obligations arising under or in connection with the Repurchase Agreement and this Guaranty is in each case a contractual right to cause the termination, liquidation or acceleration of, or to offset net termination values, payment amounts or other transfer obligations arising under or in connection with this Guaranty as described in Sections 555 and 561 of the Bankruptcy Code.

 

[SIGNATURE ON NEXT PAGE]

 

17

 

EXECUTED as of the day and year first above written.

 

	
 
    	
KKR REAL ESTATE FINANCE HOLDINGS L.P.,
    
	
 
    	
a   Delaware limited   partnership
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
KKR REAL ESTATE FINANCE TRUST   INC.,
    
	
 
    	
 
    	
its   general partner
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   Patrick Mattson
    
	
 
    	
 
    	
Name:   Patrick Mattson
    
	
 
    	
 
    	
Title:   Authorized SignatoryExhibit 10.2

 

EXECUTION VERSION

 

STOCKHOLDERS AGREEMENT

 

Dated as of March 29, 2016

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
 
    	
ARTICLE I
   DEFINED TERMS
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
ARTICLE II
   INVESTMENT
    	
 
    
	
 
    	
 
    	
 
    
	
2.01
    	
Investment
    	
5
    
	
 
    	
 
    	
 
    
	
2.02
    	
Preemptive Rights
    	
6
    
	
 
    	
 
    	
 
    
	
2.03
    	
Financial Information
    	
8
    
	
 
    	
 
    	
 
    
	
2.04
    	
Stockholder Expenses
    	
9
    
	
 
    	
 
    	
 
    
	
2.05
    	
B-Piece Investment
    	
9
    
	
 
    	
 
    	
 
    
	
 
    	
ARTICLE III
   TRANSFERS OF REIT SHAREs
    	
 
    
	
 
    	
 
    	
 
    
	
3.01
    	
Transfer Restrictions
    	
9
    
	
 
    	
 
    	
 
    
	
3.02
    	
Tag-Along Rights
    	
10
    
	
 
    	
 
    	
 
    
	
3.03
    	
Drag-Along Rights
    	
11
    
	
 
    	
 
    	
 
    
	
3.04
    	
Lock-Up Agreements
    	
12
    
	
 
    	
 
    	
 
    
	
3.05
    	
No Enforcement by KREF
    	
12
    
	
 
    	
 
    	
 
    
	
 
    	
ARTICLE IV
   STOCKHOLDER RIGHTS
    	
 
    
	
 
    	
 
    	
 
    
	
4.01
    	
Liquidity Event
    	
12
    
	
 
    	
 
    	
 
    
	
4.02
    	
Repurchase Program
    	
12
    
	
 
    	
 
    	
 
    
	
4.03
    	
Nomination Rights; Agreement to   Vote
    	
13
    
	
 
    	
 
    	
 
    
	
4.04
    	
Certain Consent Rights
    	
14
    
	
 
    	
 
    	
 
    
	
4.05
    	
Advisory Board
    	
15
    
	
 
    	
 
    	
 
    
	
4.06
    	
True-Up
    	
22
    
	
 
    	
 
    	
 
    
	
 
    	
ARTICLE V
   GENERAL PROVISIONS
    	
 
    
	
 
    	
 
    	
 
    
	
5.01
    	
Notices
    	
23
    
	
 
    	
 
    	
 
    
	
5.02
    	
Survival of Rights
    	
24
    
	
 
    	
 
    	
 
    
	
5.03
    	
Additional Documents
    	
24
    
	
 
    	
 
    	
 
    
	
5.04
    	
Modification and Amendment;   Waiver
    	
24
    
	
 
    	
 
    	
 
    
	
5.05
    	
Severability
    	
24
    

 

 

	
5.06
    	
Entire Agreement
    	
24
    
	
 
    	
 
    	
 
    
	
5.07
    	
Pronouns and Plurals
    	
25
    
	
 
    	
 
    	
 
    
	
5.08
    	
Headings
    	
25
    
	
 
    	
 
    	
 
    
	
5.09
    	
Counterparts
    	
25
    
	
 
    	
 
    	
 
    
	
5.10
    	
Governing Law
    	
25
    
	
 
    	
 
    	
 
    
	
5.11
    	
Jurisdiction and Service of   Process
    	
25
    
	
 
    	
 
    	
 
    
	
5.12
    	
Waiver of Jury Trial
    	
26
    
	
 
    	
 
    	
 
    
	
5.13
    	
Confidentiality
    	
26
    
	
 
    	
 
    	
 
    
	
5.14
    	
Specific Performance
    	
27
    
	
 
    	
 
    	
 
    
	
5.15
    	
Subject REIT Shares
    	
27
    
	
 
    	
 
    	
 
    
	
5.16
    	
Termination
    	
27
    

 

 

STOCKHOLDERS AGREEMENT

 

THIS STOCKHOLDERS AGREEMENT is made and entered into on this 29th day of March, 2016 (as amended, supplemented or modified from time to time, this “Agreement”) by and among KKR Fund Holdings L.P., an exempted limited partnership formed under the laws of the Cayman Islands (“Fund Holdings”), the Stockholders (as defined below) (together with “Fund Holdings”, each an “Investor”), with respect to all provisions herein other than Article III, KKR Real Estate Finance Trust Inc., a Maryland corporation (“KREF”), and solely for purposes of Section 4.04 and Section 4.05(l), KKR Real Estate Finance Manager LLC, a Delaware limited liability company (“KKR Manager”).

 

WHEREAS, pursuant to a series of Subscription Agreements, each of the Investors has or agreed to purchase REIT Shares in the amounts set forth therein (each, a “Subscription Amount”).

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE I
 DEFINED TERMS

 

The following defined terms used in this Agreement shall have the meanings specified below:

 

“Advisory Board” has the meaning set forth in Section 4.05(a).

 

“Affiliate” means, when used with respect to a Person, any Person that, directly or indirectly through one or more intermediaries, Controls, or is Controlled by, or is under common Control with, the Person specified; provided, however, that notwithstanding the foregoing “Affiliate” shall not include a portfolio company of any Person or such Person’s Affiliates, except in the case of Section 4.04(a).

 

“Agreement” has the meaning set forth in the preamble.

 

“B-Piece Ratio” has the meaning set forth in Section 4.05.

 

“B-Piece Securities” means the subordinate tranche or tranches of a commercial mortgaged-backed securitization.

 

“Book Value” has the meaning set forth in Section 4.05.

 

“Business Day” means any day except a Saturday, a Sunday or a day on which banking institutions in New York, New York are not required to open.

 

“Code” has the meaning set forth in Section 2.02(e).

 

1

 

“Confidential Information” means all confidential, proprietary or non-public information of, or concerning the performance, terms, business, operations, activities, personnel, training, finances, actual or potential investments, plans, compensation, clients or investors of KREF, KKR Manager or their respective Subsidiaries; provided that Confidential Information shall not, with respect to a given Stockholder, include information which (v) is in the public domain at the time it is received by such Stockholder, (w) becomes public other than by reason of a disclosure by such Stockholder in breach of this Agreement, (x) was already in the possession of such Stockholder (as demonstrated by such Stockholder’s written records) lawfully and on a non-confidential basis prior to the time it was received by such Stockholder from KREF, KKR Manager or their respective Affiliates, (y) was obtained by such Stockholder from a third party which, to the best of such Stockholder’s knowledge, was not disclosed in breach of an obligation of such third party not to disclose such information, or (z) was developed independently by such Stockholder without using or referring to any of the Confidential Information.  Confidential Information expressly includes, without limitation, the terms of this Agreement and the Subscription Agreement, the fact that Fund Holdings or any of its Affiliates has invested in any investment of KREF and may be evaluating an investment, and the operations, business plan and results of KREF, KKR Manager and their respective Subsidiaries.

 

“Control”, including the terms “Controlling,” “Controlled by” and “under common Control with”, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

 

“Debt/Equity Ratio” means KREF’s total Recourse Indebtedness divided by its stockholders’ total equity.

 

“Debt Yield” means with respect to any Investment, a fraction, expressed as a percentage, the numerator of which is the net operating income with respect to the underlying property or properties and the denominator of which is the principal amount of the senior mortgage loans on such property or properties, as determined in good faith by the KKR Manager at the time of such Investment.

 

“Deficiency Amount” has the meaning set forth in Section 4.06 hereto.

 

“Drag Percentage” has the meaning set forth in Section 3.03(a) hereto.

 

“Dragged Stockholder” has the meaning set forth in Section 3.03(a) hereto.

 

“DSCR” means with respect to any Investment, a fraction, expressed as a percentage, the numerator of which is the net operating income with respect to the underlying property or properties and the denominator of which is the annual payments due with respect to all indebtedness on such property or properties, as determined in good faith by the KKR Manager at the time of such Investment.

 

“Fund Holdings” has the meaning set forth in the preamble.

 

2

 

“Independent Director” means a director who is or would qualify as an “Independent Director” (as determined by the board of directors of KREF) pursuant to the listing standards of the New York Stock Exchange or NASDAQ.

 

“Investment” has the meaning set forth in Section 4.05(j)(i)(A).

 

“Investment Advisors Act” has the meaning set forth in Section 4.05(b).

 

“KKR Manager” has the meaning set forth in the preamble.

 

“KKR Transferor” has the meaning set forth in Section 3.03 hereto.

 

“KREF” means KKR Real Estate Finance Trust Inc., a Maryland corporation, and its successors and assigns.

 

“Liquidity Event” has the meaning set forth in Section 4.01 hereto.

 

“Loan Portfolio” means all of KREF’s Investments in debt instruments, including Mortgage Loans, Subordinated Loans and B-Piece Securities.

 

“LTV” means with respect to any Investment, a fraction, expressed as a percentage, the numerator of which is the amount of such Investment and the denominator of which is the fair market value of the property or properties securing such Investment (or the property or properties relating to such Investment, in the case of a mezzanine loan), based on a third party appraisal of such property or properties provided in connection with the closing of such loan.

 

“Management Agreement” means the Second Amended and Restated Management Agreement, dated as of March 29, 2016, by and between KREF and KKR Manager, as may be amended, supplemented or modified from time to time.

 

“Mortgage Loan” means any unrealized Investment by KREF in a senior mortgage loan, exclusive of any Subordinated Loan held by KREF that was provided in connection with the same financing as the related senior mortgage loan, including, for the avoidance of doubt, (i) any Subordinated Loan retained by KREF after originating a mortgage loan and (ii) any Subordinated Loan held by KREF that is co-originated with a senior mortgage lender.

 

“Multifamily Mortgage” means a Mortgage Loan secured by one or more for-rent multifamily properties.

 

“Non-Voting Units” means the Non-Voting Common Units of the KKR Manager.

 

“Permitted Transferee” means, with respect to any Person, any Affiliate of such Person.

 

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

 

“Preemptive Percentage” has the meaning set forth in Section 2.02 hereto.

 

3

 

“Public Listing” means a listing or trading of the REIT Shares (or any successor security) on the New York Stock Exchange or NASDAQ, whether as a result of a public offering, a distribution of REIT Shares owned by Fund Holdings or its Affiliates, a merger or other business combination or otherwise.

 

“Recourse Indebtedness” means any indebtedness for borrowed money incurred by KREF that is recourse to assets of KREF, including any pledge by KREF to secure the repayment of indebtedness of KREF or any subsidiary of KREF and any warehouse facility of KREF that is recourse to KREF’s assets but, for the avoidance of doubt, excluding any indebtedness of any subsidiary of KREF which is recourse solely to the assets of such entity.

 

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of March 29, 2016, by and between KREF, Fund Holdings and the other Investors.

 

“Reimbursement Amount” has the meaning set forth in Section 4.06 hereto.

 

“REIT Shares” means the shares of Common Stock, $0.01 par value per share, of KREF.

 

“Repurchase Book Value” means as of the date of any repurchase, the book value per REIT Share as of the end of the most recent quarterly period for which financial statements are available, calculated in accordance with U.S. generally accepted accounting principles and adjusted to give effect to any subsequent cash distribution made to holders of REIT Shares from and after the record date for such distribution (including any updates, corrections or adjustments publicly announced by KREF to any previously announced Repurchase Book Value per REIT Share).

 

“Repurchase Period” has the meaning set forth in Section 4.02.

 

“Sale Event” has the meaning set forth in Section 3.03(a) hereto.

 

“Stockholder” means any entity identified as such on the signature pages hereto and any other holder of REIT Shares who hereafter executes a separate agreement to be bound by the terms hereof as “Stockholder”.  For the avoidance of doubt, the term “Stockholder” shall not include Fund Holdings and any other Affiliates of Fund Holdings that own REIT Shares.

 

“Subordinated Loan” means any unrealized Investment by KREF in a subordinated mortgage, “B-Note”, mezzanine loan or preferred equity.

 

“Subscription Agreement” means the series of Subscription Agreements entered into from time to time, whether on, before or after the date hereof by KREF and the Stockholders relating to the REIT Shares and Non-Voting Units.

 

“Subscription Amount” has the meaning set forth in the preamble.

 

“Subscription Period” has the meaning set forth in Section 2.02(a) hereto.

 

4

 

“Subsidiary” means, with respect to any Person, (a) any corporation of which more than a majority of the voting power of the voting equity securities is owned, directly or indirectly, by  such Person and/or by one or more Subsidiaries of such Person, (b) any partnership of which such Person, or one or more Subsidiaries of such Person, directly or indirectly, is the general partner and has the power to direct the policies, management and affairs of such partnership, (c) any limited liability company of which such Person and/or one or more other Subsidiaries of such Person, directly or indirectly, is the managing member and has the power to direct the policies, management and affairs of such company, and (d) any other Person (other than a corporation, partnership, or limited liability company) in which such Person, and/or one or more other Subsidiaries of such Person, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof.

 

“Tagging Stockholder” has the meaning set forth in Section 3.02(a).

 

“Total Cost” means, with respect to the applicable Investments of KREF, the sum of (x) the aggregate equity invested by KREF in such Investments together with any upfront fees received by KREF in connection with such Investments plus (y) aggregate outstanding indebtedness with respect to such Investments incurred by KREF and, without duplication, vehicles that it controls.

 

“Transfer” means to offer, sell, assign, hypothecate, pledge or otherwise transfer all or any portion of a Person’s REIT Shares, or any of such Person’s economic rights as a stockholder, whether voluntarily or by operation of law (including by merger, consolidation or otherwise) or at judicial sale or otherwise.  A direct or indirect transfer of the equity interests of a Stockholder shall be deemed to be a Transfer of such Stockholder’s REIT Shares.

 

“Transferring Stockholder” has the meaning set forth in Section 3.02(a) hereto.

 

“Voting Preferred Share” means the share of Special Voting Preferred Stock of KREF issued to Fund Holdings.

 

ARTICLE II
 INVESTMENT

 

2.01                        Investment.  At any Closing (as defined in the Subscription Agreements) under the Subscription Agreements, unless otherwise agreed by a Stockholder, KREF shall not require that such Stockholder purchase a number of REIT Shares in excess of (a) the aggregate number of REIT Shares to be issued to the Stockholders at such Closing pursuant to the Subscription Agreements multiplied by (b) a fraction, the numerator of which is the aggregate unfunded Subscription Amount of such Stockholder and the denominator of which is the sum of the aggregate unfunded Subscription Amounts of all Stockholders (other than any Stockholder that has previously defaulted on any of its obligation to effect purchases of REIT Shares under a Subscription Agreement).  At any such Closing, KREF shall also require that Fund Holdings or its Permitted Transferees purchase a number of REIT Shares equal to the quotient obtained by dividing (x) the product of (A) the aggregate unfunded Subscription Amount of Fund Holdings and (B) a fraction, the numerator of which is the aggregate Subscription Amount of all Stockholders requested to be funded at the Closing and the denominator of which is the 

 

5

 

aggregate unfunded Subscription Amounts of all Stockholders (other than any Stockholder that has  previously defaulted on any of its obligation to effect purchases of REIT Shares under a Subscription Agreement) prior to such Closing and (y) $20.

 

2.02                        Preemptive Rights.

 

(a)                                 Except as otherwise provided in this Section 2.02, at any time following the purchase of REIT Shares pursuant to the Subscription Agreements, prior to a Public Listing, if KREF proposes to issue additional equity securities (including securities exercisable for or convertible into equity securities (“KREF Equity Securities”), KREF shall deliver to each Stockholder a written notice of such proposed issuance (the period from the delivery of such notice until the date that is ten (10) Business Days after the delivery of such notice, the “Subscription Period”).  Such notice shall include, to the extent applicable, (i) the number of the KREF Equity Securities to be included in the issuance, (ii) the price (or the maximum and minimum price, if applicable) and terms of the additional KREF Equity Securities to be included in the issuance, and (iii) the proposed issuance date, if known.

 

(b)                                 Except as otherwise provided in this Section 2.02, each Investor shall have the option, exercisable at any time during the Subscription Period by delivering an irrevocable written notice to KREF prior to the expiration of the Subscription Period, and on the same terms as those of the proposed issuance, to irrevocably subscribe for up to such number of KREF Equity Securities as is equal to the product of (i) the number of any such KREF Equity Securities to be offered and (ii) a fraction the numerator of which is the number of REIT Shares owned by such Investor and the denominator of which is the total number of REIT Shares then outstanding or issuable upon exchange, conversion or exercise of any other securities then outstanding (the “Preemptive Percentage”), in each case, on the same terms and conditions as are to be provided to the proposed purchaser in the issuance in question.  If such Investor does not exercise any portion of such option in accordance with the above requirements, it shall be deemed to have waived all of its rights with respect to such issuance. In the event that any Investor does not elect to purchase its Preemptive Percentage of such KREF Equity Securities pursuant to this Section 2.02(b), KREF shall provide written notice to the other Investors that they may subscribe for additional KREF Equity Securities up to the amount of such declined KREF Equity Securities before the expiration of five (5) Business Days following such written notice; provided, that in lieu of providing such additional written notice, KREF may provide in the original written notice of the proposed issuance that the Investors may indicate (and irrevocably agree to subscribe for) the maximum amount of KREF Equity Securities such Investor would be willing to subscribe for if not all Investors exercise their option pursuant to this Section 2.02(b).  If more than one Investor elects to purchase more than their Preemptive Percentage of KREF Equity Securities, any such declined KREF Equity Securities shall be allocated among them in proportion to their respective relative Preemptive Percentages.

 

(c)                                  If, prior to the issuance of KREF Equity Securities covered by this Section 2.02, the terms of the proposed issuance change with the result that the price is less than the minimum price or more than the maximum price set forth in the notice contemplated by clause (a) above or the other principal terms are more favorable in any material respect to the prospective purchaser than those set forth in such notice, it shall be necessary for a separate 

 

6

 

notice to be furnished, and the terms and provisions of this Section 2.02 separately complied with.

 

(d)                                 If at the end of the 90th day after the date of the delivery of the notice contemplated by clause (a) above as such period may be extended to obtain any required regulatory approvals, KREF has not completed the issuance, such Stockholder shall be released from its obligations under the written commitment, the notice shall be null and void, and it shall be necessary for a separate notice to be furnished, and the terms and provisions of this Section 2.02 separately complied with, in order to consummate such issuance.

 

(e)                                  In the event that the participation in the issuance by such Stockholder as a purchaser would require under applicable law (i) the registration or qualification of such KREF Equity Securities or of any Person as a broker or dealer or agent with respect to such KREF Equity Securities where such registration or qualification is not otherwise required for the issuance, (ii) the provision to such Stockholder of any specified information regarding KREF or any of its Subsidiaries or the KREF Equity Securities to be issued that is not otherwise required to be provided for the issuance or (iii) would reasonably be expected to impair the ability of KREF to qualify as a “real estate investment trust” under the Internal Revenue Code of 1986, as amended (the “Code”), such Stockholder shall not have the right to participate in the issuance.

 

(f)                                   Such Stockholder shall take or cause to be taken all such reasonable actions as may be necessary or reasonably desirable in order expeditiously to consummate each issuance pursuant to this Section 2.02.

 

(g)                                  Notwithstanding the requirements of this Section 2.02, KREF may proceed with any issuance that would otherwise be subject to this Section 2.02 prior to having complied with the provisions of this Section 2.02; provided that KREF shall:

 

(i)                                     provide to such Stockholder in connection with such issuance (A) prompt notice of such issuance and (B) the notice described in clause (a) above in which the actual price of the KREF Equity Securities shall be set forth;

 

(ii)                                  offer to issue (or have Transferred) to such Stockholder such number of KREF Equity Securities as may be requested by such Stockholder (not to exceed the Preemptive Percentage that such Stockholder would have been entitled to pursuant to this Section 2.02 multiplied by the number of KREF Equity Securities included in the issuance and any further issuance pursuant to this clause (g)) on the same economic terms and conditions with respect to such securities as the subscribers in the issuance received; and

 

(iii)                               keep such offer open for a period of ten (10) Business Days, during which period, such Stockholder may accept such offer by sending an irrevocable written acceptance to KREF, committing to purchase in accordance with the procedures set forth in Section 2.02(b), a number of KREF Equity Securities (not in any event to exceed the Preemptive Percentage that such Stockholder would have been entitled to pursuant to this Section 2.02 otherwise, multiplied by the number of KREF Equity Securities included in such issuance and any further issuance pursuant to this clause (g)).

 

7

 

(h)                                 Subject to compliance with Section 4.04, the provisions of this Section 2.02 shall not apply to any of the following:

 

(i)                                     any issuance of REIT Shares pursuant to a Subscription Agreement, provided that such Subscription Agreements do not provide for an aggregate investment of more than $300,000,000.00 in common shares of KREF or more than 20% of the Common Units;

 

(ii)                                  any issuance of KREF Equity Securities to officers, employees, directors, senior advisors or consultants of KREF or its Affiliates or in connection with a Person’s service for the benefit of KREF or its Subsidiaries or to any entities in which any such Persons indirectly invest in KREF Equity Securities;

 

(iii)                               any issuance of KREF Equity Securities (A) in connection with any direct or indirect merger, business combination or acquisition transaction involving KREF or any of its Subsidiaries, or (B) in connection with any joint venture or strategic partnership, in each case entered into primarily for purposes other than raising capital (as determined in good faith by the board of directors of KREF in its sole discretion);

 

(iv)                              any issuance of KREF Equity Securities to financial institutions, commercial lenders, brokers, finders or other similar Person, or their respective designees, in connection with the incurrence or guarantee of any indebtedness by KREF or any of its Subsidiaries;

 

(v)                                 any issuance of any KREF Equity Securities upon the exchange, exercise or conversion of any options, warrants, rights or other securities exchangeable, exercisable for or convertible into KREF Equity Securities; provided that KREF shall have complied with the provisions of this Section 2.02 if applicable in connection with the initial issuance of such options, warrants, rights or other securities exchangeable, exercisable for or convertible into KREF Equity Securities;

 

(vi)                              any issuance of KREF Equity Securities pursuant to a public offering registered under the Securities Act of 1933, as amended;

 

(vii)                           any issuance of KREF Equity Securities in connection with any stock split, stock dividend, consent dividend or distribution or recapitalization transaction; or

 

(viii)                        any issuance of REIT Shares pursuant to Section 4.06.

 

2.03                        Financial Information.

 

(a)                                 Prior to a Public Listing and so long as a Stockholder owns any REIT Shares, within 120 calendar days after the end of each fiscal year, KREF shall provide such Stockholder with audited financial statements of KREF for each such completed fiscal year.

 

(b)                                 Prior to a Public Listing and so long as a Stockholder owns any REIT Shares, within 45 calendar days after the end of each of the first three quarters of each fiscal 

 

8

 

year, KREF shall provide such Stockholder with unaudited financial statements of KREF for each such completed quarter.

 

Prior to a Public Listing and subject to applicable law, upon reasonable notice, KREF shall afford a Stockholder’s officers and other authorized representatives reasonable access, during normal business hours, to its employees, properties, contracts, agreements and records, and furnish promptly to such Stockholder information concerning its business, properties and personnel as may reasonably be requested; provided that a Stockholder and its officers and other authorized representatives shall conduct any such activities in such a manner as not to interfere unreasonably with the business or operations of KREF; provided further that KREF shall not be under any obligation to disclose to such Stockholder or its officers or other authorized representatives any information the disclosure of which is restricted by contract, confidentiality or applicable law or could compromise any applicable privilege (including attorney-client privilege).  All such information shall be governed by the terms of Section 5.13.

 

2.04                        Stockholder Expenses.  Each Stockholder’s transaction costs (i.e., legal, due diligence, etc.) not to exceed the lesser of (i) $125,000 and (ii) 0.13% of the Stockholder’s Aggregate Investor Commitment (as defined in the Stockholder’s Subscription Agreement) shall be capitalized as part of its investment in KREF (i.e., the amount required to be funded by such Stockholder shall be net of such transaction costs without reduction in the amount of REIT Shares and Non-Voting Units issued to such Stockholder).

 

2.05                        B-Piece Investment.  KREF or its Subsidiaries shall retain at least a 4.5% horizontal slice on any B-piece investment.

 

ARTICLE III
 TRANSFERS OF REIT SHARES

 

3.01                        Transfer Restrictions.  Prior to the date on which a Public Listing occurs, other than Transfers pursuant to Section 3.02 or Section 3.03 or Transfers to Permitted Transferees who agree to be bound by this Agreement in a form reasonably satisfactory to Fund Holdings, and subject to the restrictions set forth in Section 3.04, no Transfers of the REIT Shares may be made by a Stockholder unless Fund Holdings consents to such Transfer in writing, such consent not to be unreasonably withheld, conditioned or delayed so long as the proposed transferee agrees to be bound by this Agreement in a form reasonably satisfactory to Fund Holdings and such Transfer would not be reasonably expected to violate (i) the restrictions on ownership and transfer contained in the charter of KREF or (ii) any applicable law.  In addition, it shall be a condition to any Transfer to a Permitted Transferee that the Permitted Transferee give substantially the same representations and warranties given by the transferring Stockholder in the applicable Subscription Agreement, as applicable. In the event that any Stockholder Transfers any REIT Shares to a Permitted Transferee and such Permitted Transferee ceases to be controlled by the Person controlling such Stockholder or a Permitted Transferee thereof, such event shall be deemed to constitute a “Transfer” subject to the restrictions on Transfer contained herein.    Any provision of Section 3.01 that would cause the REIT Shares not to be treated as “transferable” within the meaning of Section 856(a)(2) of the Code shall be unenforceable.

 

9

 

3.02                        Tag-Along Rights.

 

(a)                                 Prior to a Public Listing, if Fund Holdings and/or a Permitted Transferee thereof, or any Affiliate thereof, intends to sell any REIT Shares held by it (the “Transferring Stockholder”) to a proposed buyer (other than a Permitted Transferee), then such Transferring Stockholder has the obligation, and each Stockholder (each, “Tagging Stockholder”) has the right, to require such buyer to purchase from each Tagging Stockholder, on the same terms that apply to such sale by the Transferring Stockholder, a number of REIT Shares in the aggregate up to the product (rounded up to the nearest whole number) of (i) the aggregate number of REIT Shares held by the Tagging Stockholder and (ii) the percentage of the Transferring Stockholder’s REIT Shares that the Transferring Stockholder is proposing to sell relative to the aggregate number of REIT Shares owned by the Transferring Stockholder and its Affiliates, on the same terms that apply to the REIT Shares being sold by such Transferring Stockholder.  For the avoidance of doubt, a sale of REIT Shares by Fund Holdings or a Permitted Transferee thereof in a public offering or a distribution of REIT Shares by Fund Holdings or its Permitted Transferees shall not be subject to this Section 3.02.

 

(b)                                 The Transferring Stockholder shall give the Tagging Stockholders notice of any proposed sale of REIT Shares by the Transferring Stockholder for which the provisions of Section 3.02(a) apply promptly after the Transferring Stockholder has entered into an agreement with a third party buyer regarding the sale or transfer of such REIT Shares.  Such notice must specify the number of REIT Shares proposed to be sold, the name of the proposed buyer, the proposed amount and form of consideration and the other material terms and conditions of the transaction, including, if available, a copy of the relevant definitive purchase and sale agreement.  In order to exercise its tag-along rights, no later than fifteen (15) Business Days following receipt of such notice, a Tagging Stockholder must deliver written notice to the Transferring Stockholder indicating the desire of the Tagging Stockholder to exercise its tag-along rights and specifying the number of REIT Shares it desires to sell in the tag-along transaction (up to the limit described in Section 3.02(a)).

 

(c)                                  If all of the REIT Shares proposed to be sold by the Transferring Stockholder, the Tagging Stockholders and any other Person exercising tag-along rights exceeds the amount the proposed transferee is willing to purchase (which amount shall not be less than that stated in the notice set forth in Section 3.02(b)), then the Transferring Stockholder, the Tagging Stockholders and each such other Person shall reduce, on a pro rata basis based on their respective ownership percentages of the REIT Shares (including for such calculation REIT Shares owned by their respective Affiliates) the number of REIT Shares that each would have otherwise sold so as to permit the Transferring Stockholder, the Tagging Stockholders and each other Person that has exercised tag-along rights to sell the amount of REIT Shares that such proposed transferee is willing to purchase.

 

(d)                                 A Tagging Stockholder that has elected to exercise its tag-along rights pursuant to this Section 3.02 shall make or provide the same representations, warranties, covenants, agreements, and indemnities with respect to such Tagging Stockholder’s REIT Shares only as the Transferring Stockholder has made or provided in connection with such tag-along transaction.

 

10

 

(e)                                  The fees and expenses of the Transferring Stockholder incurred in connection with a sale subject to this Section 3.02, to the extent not paid or reimbursed by the proposed transferee, shall be shared by the Transferring Stockholder, the Tagging Stockholders and the all other Persons that have elected to exercise their tag-along rights, on a pro rata basis, based on the consideration received by each such Persons.

 

3.03                        Drag-Along Rights.

 

(a)                                 If prior to a Public Listing, Fund Holdings, or any Affiliate thereof that owns REIT Shares (the “KKR Transferor”), proposes to sell its REIT Shares to a proposed buyer (other than a Permitted Transferee), in each case in a transaction or series of related transactions as a result of which such buyer would acquire more than 50% of the REIT Shares owned by Fund Holdings and its Affiliates (a “Sale Event”, and the percentage of the REIT Shares being sold by the KKR Transferor, as compared to the REIT Shares the KKR Transferor and its Affiliates holds prior to such sale, is referred to herein as the “Drag Percentage”), then the KKR Transferor may require each Stockholder (the “Dragged Stockholder”) to sell to such buyer up to the Drag Percentage of the REIT Shares owned by the Dragged Stockholder on the same financial terms and conditions to be paid or provided to the KKR Transferor.    For the avoidance of doubt, a sale of REIT Shares by Fund Holdings or a Permitted Transferee thereof in a public offering or a distribution of REIT Shares by Fund Holdings or its Permitted Transferees shall not be subject to this Section 3.03.

 

(b)                                 In order to exercise the “drag-along rights” provided by Section 3.03(a), the KKR Transferor shall give written notice to the Dragged Stockholders promptly after the KKR Transferor has entered into an agreement regarding the drag-along transaction.  Such notice shall set forth (i) the number of REIT Shares proposed to be purchased by the third party buyer, the Drag Percentage and percentage of the REIT Shares owned by the Dragged Stockholder that is required to be sold, (ii) the name of the proposed buyer(s), (iii) the proposed amount and form of consideration, and (iv) the other material terms and conditions of the offer, including, if available, a copy of the relevant definitive purchase and sale agreement.

 

(c)                                  The Dragged Stockholder shall (i) make or provide the same representations, warranties, covenants, agreements, and indemnities with respect to such Dragged Stockholder’s REIT Shares only as the KKR Transferor has made or provided in connection with such drag-along transaction (provided that in no event shall the Dragged Stockholder’s indemnification obligations exceed the amount of the purchase price for such Dragged Stockholder’s REIT Shares in the drag-along transaction), and (ii) take all necessary action, including, to the extent applicable, expressly waiving any dissenter’s rights or rights of appraisal or similar rights, entering into an agreement reflecting the terms of the Sale Event, surrendering certificates, cooperating in satisfying any applicable legal requirements and executing any letter of transmittal or other agreements or otherwise as reasonably required by the KKR Transferor or KREF to assist the KKR Transferor in the consummation of such Sale Event.

 

(d)                                 The fees and expenses of the KKR Transferor and its Affiliates incurred in connection with a Sale Event subject to this Section 3.03 and relating to the Sale Event to the extent not paid or reimbursed by the proposed transferee, shall be shared by the KKR Transferor 

 

11

 

and each Dragged Stockholder, on a pro rata basis, based on the consideration received by each such Person in respect of its REIT Shares in connection with such Sale Event.

 

3.04                        Lock-Up Agreements.  Each Stockholder agrees that, in connection with any underwritten public offering in respect of which REIT Shares are being sold, if requested by the managing underwriter(s) of such offering, each Stockholder will enter into customary “lock-up” agreements with the managing underwriter(s) pursuant to which it will agree not to, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any REIT Shares or any securities convertible or exchangeable into REIT Shares (subject to customary exceptions), for a period not to exceed one-hundred and eighty (180) days from the effective date of the registration statement pertaining to such public offering; provided that no Stockholder will be required to agree to be bound by “lock-up” obligations that are more restrictive than the “lock-up” obligations imposed on Fund Holdings, its Affiliates or the directors or officers of KREF.  To the extent such managing underwriter(s) agree to waive the lock-up restrictions on a certain number of REIT Shares, such waiver shall apply to the REIT Shares held by all Persons subject to a lock-up agreement on a pro rata basis based on the number of REIT Shares owned by such Person relative to the number of REIT Shares owned by all Persons subject to a lock-up agreement.

 

3.05                        No Enforcement by KREF.  For the avoidance of doubt, the provisions of Article III are for the benefit of the Investors and KREF shall have no right to enforce any such provisions.

 

ARTICLE IV
 STOCKHOLDER RIGHTS

 

4.01                        Liquidity Event.  If a Public Listing has not occurred by December 31, 2017, KREF shall call a meeting of the Stockholders to be held within 90 days following December 31, 2017.  At such meeting, the Stockholders shall be asked to consider whether KREF shall be required to effect a Liquidity Event (as defined below).  If the Stockholders holding a majority of the REIT Shares owned by the Stockholders vote to approve a Liquidity Event, KREF shall be required to undertake one of the following actions as promptly as practicable: (a) commence an orderly liquidation of KREF, (b) initiate a process intended to result in a sale of all or substantially all of KREF or its assets or a merger or other business combination that will result in a Public Listing, (c) initiate an initial public offering of the REIT Shares or (d) initiate a Public Listing through a distribution of REIT Shares owned by Fund Holdings or its Affiliates or otherwise (any of the foregoing, a “Liquidity Event”).  The type of Liquidity Event shall be at the sole discretion of KREF.  Notwithstanding the foregoing, KREF shall not be required to call or hold such a meeting if, prior to such time that the meeting would otherwise be required to be called or held, KREF has determined to undertake a Liquidity Event.  The provisions of this Section 4.01 shall terminate upon the occurrence of a Public Listing.

 

4.02                        Repurchase Program.  In connection with a Public Listing, KREF will adopt a program to repurchase in the open market up to $100 million in REIT Shares during the period commencing four (4) full calendar weeks after the closing of the initial Public Listing and ending 12 months thereafter (the “Repurchase Period”).  Of this amount, a total of $50 million in REIT Shares will be required to be repurchased during such times when the market price per REIT 

 

12

 

Share is below the Repurchase Book Value, with the remaining $50 million available for repurchases of REIT Shares at any time during the Repurchase Period in each case based upon guidelines adopted by the board of directors of KREF.  Repurchase may be made by KREF under the program either through direct transactions during open window periods or pursuant to a 10b5-1 plan with a registered broker-dealer or a combination thereof and otherwise will be subject to compliance with  all applicable laws, including Rules 10b-5 and 10b-18 under the Securities Exchange Act of 1934, as amended, and Regulation M under the Securities Act of 1933, as amended.  Notwithstanding the foregoing, repurchases shall not be required to be made during a blackout period of one week prior or subsequent to any quarterly distribution of REIT taxable income or such other time period as determined by the Board so as to satisfy the requirements for REIT status in connection with any quarterly distribution of REIT taxable income.

 

4.03                        Nomination Rights; Agreement to Vote.

 

(a)                                 Each of the Investors hereby acknowledges and agrees that prior to a Public Listing, Fund Holdings shall have the right to nominate all of the directors of the board of directors of KREF and be entitled to vote at least a majority of the votes eligible to vote on the election of directors and, following a Public Listing, so long as Fund Holdings and its Affiliates own at least 25% of the outstanding REIT Shares, Fund Holdings shall have the right to nominate at least half of the directors to the board of directors of KREF and be entitled to vote at least a majority of the votes eligible to vote on the election of directors.  In connection therewith, prior to a Public Listing, at any meeting of the stockholders of KREF, however called, including any adjournment or postponement thereof, or in connection with any consent of the stockholders, in each case in which directors are elected to the board of directors of KREF, such Investor shall to the fullest extent that REIT Shares beneficially owned by such Investor are entitled to vote thereon or consent thereto:

 

(i)                                     appear at each such meeting or otherwise cause the REIT Shares beneficially owned by such Investor to be counted as present thereat for purposes of establishing a quorum; and

 

(ii)                                  vote (or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a consent covering, all of the REIT Shares beneficially owned by such Investor (to the extent such REIT Shares are entitled to vote) in favor of the board nominees nominated by Fund Holdings or its Affiliates.

 

(b)                                 In addition, prior to a Public Listing and following (or in connection with) the determination to undertake a Liquidity Event pursuant to Section 4.01, if the Liquidity Event that KREF has determined to undertake requires stockholder approval under applicable law, each of the Investors hereby agrees that at any meeting of the stockholders of KREF, however called, including any adjournment or postponement thereof, or in connection with any consent of the stockholders, in each case in which the Liquidity Event is considered, such Investor shall to the fullest extent that REIT Shares beneficially owned by such Investor are entitled to vote thereon or consent thereto:

 

13

 

(i)                                     appear at each such meeting or otherwise cause the REIT Shares beneficially owned by such Investor to be counted as present thereat for purposes of establishing a quorum; and

 

(ii)                                  vote (or cause to be voted), in person or by proxy, or deliver (or cause to be delivered) a consent covering, all of the REIT Shares beneficially owned by such Investor (to the extent such REIT Shares are entitled to vote) in favor of such Liquidity Event.

 

(c)                                  EACH STOCKHOLDER HEREBY APPOINTS KREF AND ANY DESIGNEE OF KREF, AND EACH OF THEM INDIVIDUALLY, AS SUCH STOCKHOLDER’S PROXY AND ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION, TO VOTE OR ACT BY CONSENT WITH RESPECT TO THE REIT SHARES OWNED BY SUCH STOCKHOLDER IN ACCORDANCE WITH SECTION 4.03(A) AND SECTION 4.03(B),  PROVIDED THAT NOTWITHSTANDING THE GRANT OF THIS IRREVOCABLE PROXY, EACH STOCKHOLDER MAY VOTE ITS REIT SHARES IN ACCORDANCE WITH SECTION 4.03(A) AND SECTION 4.03(B) BY PROXY OR OTHERWISE.  THIS PROXY IS GIVEN TO SECURE THE PERFORMANCE OF THE DUTIES OF EACH STOCKHOLDER UNDER THIS AGREEMENT.  EACH STOCKHOLDER SHALL, FROM TIME TO TIME, EXECUTE AND DELIVER, OR CAUSE TO BE EXECUTED AND DELIVERED, SUCH ADDITIONAL OR FURTHER CONSENTS, DOCUMENTS AND OTHER INSTRUMENTS AS KREF MAY REASONABLY REQUEST FOR THE PURPOSE OF EFFECTIVELY CARRYING OUT THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE PROXY AND POWER OF ATTORNEY GRANTED PURSUANT TO THIS SECTION 4.03(C) BY EACH STOCKHOLDER SHALL BE IRREVOCABLE, SHALL BE DEEMED TO BE COUPLED WITH AN INTEREST SUFFICIENT IN LAW TO SUPPORT AN IRREVOCABLE PROXY, SHALL BE VALID UNTIL THE EARLIER OF (I) A PUBLIC LISTING AND (II) DISSOLUTION OF KREF, AND SHALL REVOKE ANY AND ALL PRIOR PROXIES GRANTED BY SUCH STOCKHOLDER.  THE POWER OF ATTORNEY GRANTED BY EACH STOCKHOLDER HEREIN IS A DURABLE POWER OF ATTORNEY AND SHALL SURVIVE THE DISSOLUTION, BANKRUPTCY, DEATH OR INCAPACITY OF SUCH STOCKHOLDER.

 

4.04                        Certain Consent Rights.  Notwithstanding anything to the contrary in Section 4.03, prior to the occurrence of a Public Listing, the following actions shall not be taken by KREF or the KKR Manager without (i) the unanimous consent of the Advisory Board and (ii) the approval or consent of a majority of the Independent Directors serving on the Board, or if there are no such Independent Directors, the consent of the holders of a majority of REIT Shares owned by the Stockholders:

 

(a)                                 enter into or amend any direct or indirect transactions between KREF and/or the KKR Manager, on the one hand, and Fund Holdings or any of its Affiliates (other than KREF and/or KKR Manager or any of their Subsidiaries), on the other hand, other than (A) any transaction that is on an arm’s-length basis, (B) any transaction pursuant to any arrangement or agreement in effect on the date of this Agreement and which has been disclosed in writing to the 

 

14

 

Stockholders (including the Management Agreement, Registration Rights Agreement and the terms of the Voting Preferred Share), (C) the entry into any customary indemnification agreements or similar arrangements with the directors and officers of KREF, and (D) any capital markets services provided by any Affiliate of Fund Holdings in the ordinary course of business that is on an arm’s-length basis;

 

(b)                                 amend or modify the Management Agreement in a manner that is materially adverse to KREF (including, without limitation, any adverse changes to the management fee, incentive fee and expense reimbursement provisions therein);

 

(c)                                  terminate the Management Agreement, including, without limitation, by making any election not to renew the Management Agreement or by KKR Manager making any election to assign the Management Agreement if such assignment would result in a termination of the Management Agreement;

 

(d)                                 amend or modify the terms of the REIT Shares owned by the Stockholders as set forth in the charter of KREF in a manner that would materially and adversely affect any right, preference, privilege or voting power of the REIT Shares owned by the Stockholders in a manner that would not similarly affect the rights, preferences, privileges or voting powers of the REIT Shares owned by Fund Holdings and its Affiliates;

 

(e)                                  amend the organizational documents of KREF or the KKR Manager or this Agreement in a manner that would have a material and adverse economic effect on the Stockholders without having a similar economic effect on Fund Holdings or its Affiliates;

 

(f)                                   commence any voluntary bankruptcy, liquidation or dissolution of the KKR Manager or KREF other than the undertaking of a Liquidity Event in accordance with Section 4.01 (it being understood that any merger, business combination or similar transaction shall not constitute a liquidation or dissolution);

 

(g)                                  engage any auditor other than one of the “Big Four” accounting firms; and

 

(h)                                 reserve or make available for issuance under any management incentive programs of KREF or any of its subsidiaries a number of REIT Shares in excess of 7.5% of the fully diluted REIT Shares immediately following the Public Listing (assuming the full exercise of any underwriter overallotment) either directly or through the issuance of securities exchangeable for REIT Shares.

 

The consent rights set forth herein will cease with respect to KREF and the KKR Manager at any time at which the Stockholders do not own any KREF Shares or Non-Voting Units, as applicable.

 

4.05                        Advisory Board.

 

(a)                                 KREF will form an advisory board (the “Advisory Board”) consisting of a number of the Stockholders or their representatives or designees.  Any Stockholder with an Aggregate Investor Commitment (as defined in the Subscription Agreement) of $75,000,000 (or 

 

15

 

such lower amount as determined by KREF in its sole discretion) will be entitled to be represented on the Advisory Board, which right shall not be transferable in the event such Stockholder Transfers its REIT Shares except to a Permitted Transferee.  No member of the Advisory Board shall be Fund Holdings or its Affiliate, an employee of KKR or representative or designee of any of the foregoing.  The Advisory Board shall be dissolved and this Section 4.05 (other than Section 4.05(g)) shall terminate without any further action, approval or vote of any Stockholder upon a Public Listing.

 

(b)                                 The Advisory Board will (i) review any potential conflicts of interest in any transaction of the type described in Section 3 of the Management Agreement that are presented to the Advisory Board by KREF in its sole discretion or as otherwise specified in this Agreement, (ii) review any matter for which consent of KREF is required under the United States Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), including pursuant to Sections 205(a) and 206(3) thereof, if applicable, that are presented to the Advisory Board by KREF in KREF’s sole discretion, (iii) review any determination of KREF to dismiss and/or replace the independent public accounting firm that audits the annual financial statements of KREF, (iv) review any material adverse changes to the “Investment Guidelines” attached as Exhibit A to the Management Agreement, (v) review any matter for which unanimous consent of the Advisory Board is required under Section 4.04 or Section 4.05(j), (vi) advise KREF on other matters presented to the Advisory Board by KREF in KREF’s sole discretion or as otherwise specified in this Agreement, (vii) be required to approve any acquisition of any operating business, loan servicing business or other similar business with a total cost in excess of the greater of (x) $100 million or more and (y) 10% of Book Value; provided, that, for the avoidance of doubt, except as otherwise provided in this Agreement, no approval shall be required for the acquisition by KREF of any loan portfolio or any other acquisitions made in the ordinary course of business; and (viii) be required to approve all common equity capital raises by KREF (other than pursuant to the Subscription Agreements) unless (A) the value per share of each such capital raise is greater than the greater of $20.00 per share and 1.0x the then-current book value of KREF’s equity (not accounting for any customary underwriting and related transaction costs), and (B) KREF has prepared in good faith the documentation to be executed in connection with each such capital raise; provided however that, KREF shall be permitted to raise common equity capital with a value per share of less than $20.00 or less than 1.0x the then-current book value of KREF’s equity (not accounting for any customary underwriting and related transaction costs) without the consent of the Advisory Board as long as KREF has considered in good faith other potential funding options and use of KREF’s available reserves and has taken into consideration the best interests of the Investors; provided, that (x) KREF shall give each Investor prior written notice of the election to pursue such capital raise, (y) KREF satisfies the requirements of subclause (B) of this clause (viii) in connection with such capital raise, and (z) any such common equity capital raise, when combined with all other such common equity capital raises, shall not exceed $200 million, in the aggregate.

 

(c)                                  KREF will present to and consult with the Advisory Board regarding all matters giving rise to a material conflict of interest between KREF, on the one hand, and KKR and its Affiliates, on the other hand, and such other matters which, in KREF’s sole discretion, give rise to a conflict of interest, and if (x) the Advisory Board approves the matter despite such conflict of interest after KREF has disclosed all material facts relating to such conflict of interest or (y) KREF acts in a manner, or pursuant to standards or procedures, approved by the Advisory 

 

16

 

Board with respect to such conflict of interest, then none of KREF, Fund Holdings or any of Fund Holdings’ Affiliates shall have any liability to the Stockholders by reason of such conflict of interest for actions in respect of such matter taken in good faith by it, including actions in the pursuit of its own interests.  The decision of the Advisory Board with respect to conflicts of interest will be binding on KREF and the Investors for all purposes hereunder unless otherwise consented to by the holders of a majority of REIT Shares owned by the Stockholders, and all Stockholders will provide on request a written consent or ratification of such decision or consent.  If the Advisory Board approves any matter for which consent of KREF is required under the Investment Advisers Act, then KREF may provide such consent.  If the Advisory Board approves any potential incurrence of indebtedness for borrowed money by KREF or any other action by KREF, then  KREF may then incur such indebtedness or take such action.  If the Advisory Board approves any material adverse changes to the “Investment Guidelines” attached as Exhibit A to the Management Agreement, then KREF may take any actions to amend such Investment Guidelines accordingly.  The decision of whether a matter is submitted to a vote of the Advisory Board shall be made by KREF in its sole discretion.  The foregoing shall not confer on the Advisory Board any authority or responsibility to participate in the management or control of the business of KREF, including to review any investment decisions made by KREF, which shall be the sole responsibility of KREF and/or KKR Manager.

 

(d)                                 The Advisory Board shall meet as often as KREF determines to be reasonably necessary but no less often than semi-annually and such meetings may be held in person or telephonically at KREF’s sole discretion.  Following the completion of each quarter, KREF shall provide the Advisory Board with a report describing any transactions between KREF and/or the KKR Manager, on the one hand, and Fund Holdings or any of its Affiliates (other than KREF and/or the KKR Manager or any of their respective Subsidiaries), on the other hand, effected during the immediately preceding quarter other than (A) any transaction pursuant to any arrangement or agreement in effect on the date of this Agreement and which has been disclosed in writing to the Stockholders (including the Management Agreement, Registration Rights Agreement and the terms of the Voting Preferred Share), (B) any transactions consisting of contributions to or distributions from KREF and/or KKR Manager, (C) any transactions entered into in the ordinary course of business that are on arm’s-length terms, (D) transactions between such parties with values that would not be expected to exceed $100,000 in aggregate per year, (E) the entry into any customary indemnification agreements or similar arrangements with the directors and officers of KREF, and (F) any capital markets services provided by any Affiliate of Fund Holdings in the ordinary course of business that is on an arm’s-length basis; provided that, notwithstanding clause (F), such reporting shall include a description of any capital markets services provided by any Affiliate of Fund Holdings during such period.   At regularly scheduled meetings KREF shall provide a general update to the Advisory Board regarding (i) the overall KREF investment portfolio, (ii) any new investments made by KREF since the previous Advisory Board meeting, and (iii) any material developments relating to KREF’s business.  Members of the Advisory Board may participate in a meeting of the Advisory Board by conference telephone or video conferencing by means of which all persons participating in the meeting can hear and be heard.  Any member of the Advisory Board who is unable to attend a meeting of the Advisory Board may (i) grant in writing to another member of the Advisory Board or any other Person (including representatives of KREF) such member’s proxy to vote on any matter upon which action is taken at such meeting and (ii) designate in writing to KREF an alternate to observe, but not vote on, any matter acted upon at such meeting 

 

17

 

(unless such alternate is also granted a proxy pursuant to the preceding clause (i)).  The Advisory Board shall act by a majority of its members, which action may be taken by written consent in lieu of a meeting.  Meetings of the Advisory Board may be called by KREF using reasonable judgment and discretion by providing at least five (5) Business Days’ notice to all members of the Advisory Board.

 

(e)                                  No fees will be paid by KREF to members of the Advisory Board, but the members and observers of the Advisory Board will be reimbursed by KREF for all reasonable out-of-pocket expenses incurred in attending meetings of the Advisory Board.  The Advisory Board may consult with legal counsel and other advisors selected by it and the fees and expenses of such counsel and advisors selected by a majority of the members of the Advisory Board will be fees and expenses of KREF.

 

(f)                                   Any member of the Advisory Board may resign upon delivery of written notice from such member to KREF, and shall be deemed removed if (i) the Stockholder that the member represents requests such removal in writing to KREF or does not deliver to KREF the Purchase Price (as defined in the Subscription Agreement) set forth in the Closing Notice (as defined in the Subscription Agreement) in accordance with Section 2.03(a)(i) of the Subscription Agreement or (ii) KREF requests such removal in writing to the Stockholder that the member represents.  Any vacancy in the Advisory Board with respect to a Stockholder entitled to be represented on the Advisory Board, whether created by such a resignation or removal or by the death of a member, shall promptly be filled as provided in Section 4.05(a).

 

(g)                                  To the fullest extent permitted by law, no member of the Advisory Board, and no Stockholder appointing any such member, shall (i) owe any fiduciary duty to KREF, any Investor or the Stockholders as a group in connection with the activities of the Advisory Board, or (ii) be obligated to act in the interests of KREF, any Investor or the Stockholders as a group.  To the fullest extent permitted by law, no member of the Advisory Board, and no Stockholder appointing any such member, shall be liable to any Investor or KREF for any reason, including for any mistake in judgment, any action or inaction taken or omitted to be taken, or for any loss due to any mistake, action or inaction.  No Stockholder who is a member of the Advisory Board shall be deemed to be an Affiliate of KREF solely by reason of such membership.  In the absence of bad faith, fraud or willful misconduct on the part of members of the Advisory Board, KREF shall, to the fullest extent permitted by law, indemnify and hold harmless each such member of the Advisory Board (and their respective heirs and legal and personal representatives), including the Stockholder represented by such member, who was or is a party, or is threatened to be made a party, to any threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative (each, an “Action”) (including any Action by or in the right of KREF or any of the Stockholders), by reason of any actions or omissions or alleged acts or omissions arising out of such Person’s activities in connection with serving on the Advisory Board against Damages (as defined in the Subscription Agreement) incurred by such Person in connection with such Actions; provided that any Person entitled to indemnification from KREF hereunder shall obtain the written consent of KREF (which consent shall not be unreasonably withheld) prior to entering into any compromise or settlement that would result in an obligation of KREF to indemnify such Person.

 

18

 

(h)                                 Representatives of KREF will be entitled to attend and serve as chairman of meetings of the Advisory Board, but shall not be entitled to vote on any matters being discussed at such meetings.

 

(i)                                     KREF may in its sole discretion allow one or more Stockholders to appoint a non-voting observer to the Advisory Board to attend all or specific meetings of the Advisory Board and to receive all or specific information and materials provided to the members of the Advisory Board.

 

(j)                                    Prior to the occurrence of a Public Listing, the following actions shall not be taken by KREF without the unanimous prior approval of the Advisory Board:

 

(i)                                     Investment Limitations:

 

(A)                               any investment (each, an “Investment”) in B-Piece Securities which immediately following such Investment would cause the book value of KREF’s B-Piece Securities calculated at cost to exceed 20% of KREF’s total book value calculated at cost plus any uncalled capital commitments to KREF (“Book Value”, and such ratio, the “B-Piece Ratio”); provided, that KREF may cause its B-Piece Ratio to equal a maximum of 25% at any time if KREF believes in good faith that it can be reduced within sixty (60) calendar days to 20% or less;

 

(B)                               any Investment in B-Piece Securities which immediately following such Investment does not satisfy the following credit parameters: (i) a weighted average Debt Yield of at least 9% for non-hotel collateral, (ii) a maximum 23% hotel exposure per B-piece pool with 11% minimum weighted average Debt Yield on the hotel collateral, (iii) a minimum weighted average DSCR of 1.50x per B-piece pool, (iv) a maximum weighted average LTV of 69.0% per B-piece pool, (v) all B-Piece pools to have at least a 9.5% current yield, (vi) a minimum 10% target underwritten loss-adjusted IRR (pre-sale of any horizontal slices of any B-pieces) of any B-Piece investment assuming at least 3.5% loss assumption, and (vii) there shall be no floating rate B-piece investments;

 

(C)                               any Investment which immediately following such Investment would cause the Book Value of KREF’s Mortgage Loans (as herein defined) to be less than 40% of the Book Value of KREF’s Investments in its debt portfolio on an unlevered basis;

 

19

 

(D)                               any Investment in a loan with a Total Cost (as herein defined) of more than the lesser of (i) $165 million and (ii) 7.5% of KREF’s Book Value plus any applicable leverage for such loan; provided, that if Townsend has not responded to a written request for approval of the applicable Investment within five (5) business days after receipt by Townsend of a formal and complete loan origination/acquisition/participation package for such Investment, then Townsend shall be deemed to have approved such Investment;

 

(E)                                any Investment which immediately following such Investment would cause the Book Value of KREF’s Investments secured by collateral primarily consisting of land and/or a ground-up development to be more than 20% of the aggregate Book Value of KREF’s Loan Portfolio (as herein defined) or more than 20% of the Total Cost of KREF’s Loan Portfolio; or

 

(F)                                 any Investment which immediately following such Investment would cause the Book Value of KREF’s Investments secured by collateral located outside of the United States to be more than 10% of the aggregate Book Value of KREF’s Loan Portfolio or more than 10% of the Total Cost of KREF’s Loan Portfolio.

 

(ii)                                  Leverage and Related Limitations:

 

(A)                               any Investment and/or incurrence of any indebtedness for borrowed money (other than any indebtedness that is required to be repaid within 120 days of such incurrence) which immediately following such Investment and/or borrowing would cause KREF to have a Debt/Equity Ratio (as herein defined) in excess of 1.85x;

 

(B)                               incurrence of indebtedness for borrowed money except with respect to Investments in Mortgage Loans; provided, that with respect to indebtedness for borrowed money used to invest in Mortgage Loans, the amount of any outstanding Recourse Indebtedness with respect to Mortgage Loans (other than any indebtedness that is required to be repaid within 120 days of such incurrence) shall not exceed, at the time of the borrowing, in the aggregate, 75% of the Total Cost of such Mortgage Loans; provided, that in addition to the foregoing, KREF shall be permitted to pledge any 

 

20

 

Investment in Subordinated Loans or B-Piece Securities as collateral (each, a “Subordinated Pledge”), as long as (A) KREF has first considered in good faith other options and determined that such an action is in the best interest of KREF and KREF’s stockholders, in light of KREF’s liquidity position, and (B) after giving effect to such pledge, no more than 15% of the aggregate Book Value of KREF’s assets that have not been pledged by KREF as collateral, excluding any cash, cash equivalents or Investments in senior mortgage loans or investment grade securities (measured at the time of the initial Subordinated Pledge provided following the date of this Agreement) would then be pledged as collateral, without  the unanimous approval of the Advisory Board (it being understood that the foregoing shall not otherwise restrict KREF from pledging any Investments in senior mortgage loans or investment grade securities, each of which shall not be deemed to be a Subordinated Pledge); provided, further, that, for purposes of the limitations set forth in this Section 4.05(j)(ii)(B), the term “Mortgage Loan” shall exclude any Subordinated Loan held by KREF, which was provided in connection with the same financing as the related senior mortgage loan to the extent KREF no longer owns such senior mortgage loan;

 

(C)                               Make any Investment which would result in the weighted average of the LTV of the Loan Portfolio to exceed, at the time of the Investment, 75%;

 

(D)                               any investment in a Mortgage Loan (other than a Multifamily Mortgage) which, at the time of the Investment, shall have an LTV in excess of 80%;

 

(E)                                any investment in a Multifamily Mortgage which, at the time of the Investment, shall have an LTV in excess of 83%;

 

(F)                                 any investment in a Subordinated Loan which, at the time of the Investment, shall have an LTV in excess of 85%;

 

(G)                               any investment in any preferred equity Investment which, at the time of the Investment, shall have an LTV in excess of 85%;

 

(H)                              any investment in any fixed rate mortgage loans with a duration of more than two years.

 

21

 

KREF agrees that in connection with an initial Public Listing, it shall adopt the leverage limitations set forth in this Section 4.05(j)(ii) as a policy of KREF and any waiver of such policy shall require the approval of the Board.

 

(k)                                 For the avoidance of doubt, the provisions set forth in this Section 4.05 (and the definitions related thereto) shall be subject to the KKR Manager’s good faith interpretation and calculated to exclude any guarantees of indebtedness or indemnities relating to non-recourse carve-outs customarily provided in real estate financings including “bad boy guarantees”.

 

(l)                                     Notwithstanding anything to the contrary in the Management Agreement, prior to the occurrence of a Public Listing, until the time at which at least 95% of the aggregate Subscription Amounts of the Investors have been (i) called by KREF and (ii) either (x) disbursed for Investments in the Loan Portfolio (other than B-Piece Securities not intended in good faith to be a permanent part of the Loan Portfolio and investment grade securities held as temporary investments) or for KREF’s fees and expenses, or (y) committed by KREF to, or reserved by KREF in good faith for, Investments in the Loan Portfolio (other than B-Piece Securities not intended in good faith to be a permanent part of the Loan Portfolio and investment grade securities held as temporary investments) or for KREF’s fees and expenses, KKR Manager will not modify the allocation methodology as described in the Memorandum — Appendix A - Allocation of Investment Opportunities — in a manner that has a disproportionately adverse effect on KREF relative to Other KKR Investment Vehicles without the consent of the Advisory Board, in its sole discretion, it being understood that the foregoing excludes allocation of investment opportunities in B-Piece Securities by KKR Manager and any of its Affiliates.

 

The consent rights set forth in Sections 4.05(j) and (l) will cease with respect to KREF and the KKR Manager at any time at which the Stockholders do not own any KREF Shares or Non-Voting Units, as applicable.

 

4.06                        True-Up.  If the Deficiency Amount is greater than $0, KREF shall reimburse to each Investor signing a Subscription Agreement on or prior to the date hereof (other than Fund Holdings) no later than the earlier to occur of June 30, 2016 and the date on which the applicable Investor has funded at least 67% of its Aggregate Investor Commitment (as defined in the Stockholder’s Subscription Agreement), an amount equal to the product of (i) the Per Share Deficiency Amount multiplied by (ii) such Investor’s Subscribed REIT Shares (as defined in the Stockholder’s Subscription Agreement) (such amount, the “Reimbursement Amount”).  The Reimbursement Amount is to be settled in REIT Shares, the number of which shall be equal to the quotient (rounded to the nearest whole number) of (x) the Reimbursement Amount, divided by (y) the quotient obtained by dividing (I) the lesser of (A) GAAP book value of KREF as of March 31, 2016, adjusted to take into account any dividend with respect to the quarter ended March 31, 2016, and (B) the Adjusted Book Value as of March 31, 2016 by (II) the number of REIT Shares outstanding as of March 31, 2016.   For the avoidance of doubt, there shall be no issuance of Non-Voting Units to Investors in connection with any issuance of REIT Shares pursuant to this Section, and such Non-Voting Units shall be excluded from this valuation and reimbursement of REIT Shares.  An illustrative example of the calculation contemplated by this Section is attached hereto as Annex A (it being acknowledged and agreed that the numbers contained therein are solely for illustrative purposes and actual numbers may vary).

 

22

 

For purposes of this Section 4.06:

 

“Adjusted Book Value as of March 31, 2016” means the GAAP book value of KREF as of March 31, 2016, adjusted to take into account (a) any dividend with respect to the quarter ended March 31, 2016 and (b) the fair value of the Loan Portfolio as of March 31, 2016, with such fair value with respect to such Loan Portfolio (other than B-Pieces) determined by Lincoln Partners Advisors LLC and such fair value with respect to B-Pieces determined by MountainView (in each case using the midpoint of the range of fair value determined by Lincoln Partners Advisors LLC and Mountainview) .

 

“Deficiency Amount” means the amount, if any, by which (i) the product of (a) $20.00 and (b) the number of REIT Shares outstanding as of March 31, 2016 exceeds (ii) the lesser of (x) GAAP book value of KREF as of March 31, 2016, adjusted to take into account any dividend with respect to the quarter ended March 31, 2016 and (y) Adjusted Book Value as of March 31, 2016.

 

“Per Share Deficiency Amount” means the quotient obtained by dividing (i) the product of (A) the Deficiency Amount and (B) $190,500,000 divided by $590,500,000 by (ii) 9,505,000.

 

ARTICLE V
 GENERAL PROVISIONS

 

5.01                        Notices.

 

(a)                                 All communications required or permitted under this Agreement shall be in writing and shall be deemed to have been given when delivered personally, by fax, by email (without notice of failure) or upon deposit in the United States mail, registered, first-class postage prepaid return receipt requested, or via overnight courier as follows: (a) if to KREF, to KKR Real Estate Finance Trust Inc., 9 West 57th Street, Suite 4200, New York, NY 10019 or to KREF’s facsimile number or e-mail address set forth on the books and records of KREF, or to such other address (including such other e-mail address) as KREF may from time to time specify by written notice to the Stockholders, with a copy to Simpson Thacher & Bartlett LLP (Attn: Chris May, 600 Travis Street, Suite 5400, Houston, TX 77002); (b) if to Fund Holdings, to KKR Fund Holdings L.P., 9 West 57th Street, Suite 4200, New York, NY 10019 or to such other address (including such other facsimile number or e-mail address) as Fund Holdings may from time to time specify by written notice to KREF, with a copy to Simpson Thacher & Bartlett LLP (Attn: Chris May, 600 Travis Street, Suite 5400, Houston, TX 77002); and (c) if to a Stockholder, to such Stockholder at the address, facsimile number or e-mail address of the primary contact set forth on the Stockholder Contact Form (as defined in the Subscription Agreement) delivered to KREF, or to such other address (including such other e-mail address) as such Stockholder may from time to time specify by written notice to KREF.  Any such notice shall, if delivered personally, be deemed received upon delivery; shall, if delivered by fax, be deemed received following confirmation if such day is a Business Day and, if not, on the immediately following Business Day; shall, if delivered by the email, be deemed received if no notice of failure was received; shall, if delivered by mail, be deemed received upon the earlier of actual receipt thereof or three (3) Business Days after the date of deposit in the United States 

 

23

 

mail; and if delivered by overnight courier, be deemed received the first Business Day after being sent.

 

(b)                                 Notwithstanding the foregoing, KREF may provide any notice, report, request, demand, consent, waiver, or other communication to an Investor by posting such communication on the password-protected website of KREF and sending an e-mail to such Investor notifying it of such posting, unless such Investor has notified KREF in its Subscription Agreement that it declines to receive such communications via such website, which notice represents as to the legal or established policy prohibitions which preclude receipt by such Investor of such information by electronic mail or web-based reporting.  Any such communication that is posted on KREF’s website in accordance with this Section 5.01(b) shall be deemed received on the date the e-mail is sent to the Investor notifying it that a notice, report, request, demand, consent, waiver, or other communication has been posted.

 

5.02                        Survival of Rights.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted respective legal representatives, successors, transferees and assigns.

 

5.03                        Additional Documents.  Each party hereto agrees to perform all further acts and execute, swear to, acknowledge and deliver all further documents that may be reasonable, necessary, appropriate or desirable to carry out the provisions of this Agreement.

 

5.04                        Modification and Amendment; Waiver.  This Agreement may not be amended except by a writing executed by each of (i) KREF, (ii) Fund Holdings and (iii) holders of a majority of the REIT Shares owned by the Stockholders.  Any waiver of, or consent pursuant to, any provision of this Agreement must be in writing and is effective only to the extent specifically set forth therein.  No failure or delay by a party hereto in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or any other right hereunder.

 

5.05                        Severability.  If any provision of this Agreement shall be declared illegal, invalid or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof.  To the extent permitted under applicable law, the severed provision shall be interpreted or modified so as to be enforceable to the maximum extent permitted by law.

 

5.06                        Entire Agreement.  This Agreement and the Subscription Agreement constitute the entire agreement of the parties hereto and supersede all prior written agreements and prior and contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof and thereof.  Notwithstanding the foregoing, the parties hereto agree that KREF or KKR Manager may, without any further action, approval or vote of any Investor, enter into a side letter or similar agreement with an Investor that has the effect of, with respect to such Investor, establishing rights under, altering or supplementing the terms of this Agreement, KREF’s or KKR Manager’s organizational documents or any Subscription Agreement in a manner more favorable to such Investor than those applicable to other Investors.  The parties hereto agree that any rights established, or any terms of this Agreement, KREF’s or KKR 

 

24

 

Manager’s organizational documents and any Subscription Agreement altered or supplemented, in a side letter or similar agreement with an Investor shall govern solely with respect to such Investor (but not any of such Investor’s assignees or transferees unless so specified in such side letter) notwithstanding any other provision of this Agreement, KREF’s or KKR Manager’s organizational documents or any Subscription Agreement.  KREF or KKR Manager, as applicable, shall use commercially reasonable efforts to make such side letters or similar agreements entered into by KREF or KKR Manager, respectively, available to any Investor upon written request, subject to confidentiality restrictions in respect thereof and applicable law.

 

5.07                        Pronouns and Plurals.  When the context in which words are used in the Agreement indicates that such is the intent, words in the singular number shall include the plural and the masculine gender shall include the neuter or female gender as the context may require.

 

5.08                        Headings.  The Article headings or sections in this Agreement are for convenience only and shall not be used in construing the scope of this Agreement or any particular Article.

 

5.09                        Counterparts.  This Agreement may be executed by hand or by power of attorney in several counterparts (including by facsimile, .pdf or other electronic transmission of the actual signature), each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.  As to any Stockholder, this Agreement shall become effective upon the execution of this Agreement by such Stockholder and KREF.

 

5.10                        Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

 

5.11                        Jurisdiction and Service of Process.  Each of the parties (a) irrevocably agrees that any claims, suits, actions or proceedings arising out of or relating in any way to this Agreement (including any claims, suits or actions under or to interpret, apply or enforce the provisions of this Agreement, including the validity, scope or enforceability of this Section 5.11, regardless of whether such disputes (i) are sound in contract, tort, fraud or otherwise, (ii) are based on common law, statutory, equitable, legal or other grounds, or (iii) are derivative or direct claims), shall be exclusively brought in the courts of the State of New York or the courts of the United States of America located in the State of New York, in each case located in the Borough of Manhattan, City of New York, State of New York; (b) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding; (c) irrevocably agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (i) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, (ii) such claim, suit, action or proceeding is brought in an inconvenient forum, or (iii) the venue of such claim, suit, action or proceeding is improper; (d) expressly waives any requirement for the posting of a bond by a party bringing such claim, suit, action or proceeding; (e) consents to process being served in any such claim, suit, action or proceeding by mailing, certified mail, return receipt requested, a copy thereof to such party at the address in effect for notices hereunder, and agrees that such service shall constitute good and sufficient service of process and notice thereof; provided that nothing in 

 

25

 

clause (e) hereof shall affect or limit any right to serve process in any other manner permitted by law; and (f) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate.

 

5.12                        Waiver of Jury Trial.  EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF EITHER PARTY TO THIS AGREEMENT IN NEGOTIATION, EXECUTION AND DELIVERY, PERFORMANCE OR ENFORCEMENT OF THIS AGREEMENT.

 

5.13                        Confidentiality.

 

(a)                                 Each of the Stockholders shall use all Confidential Information solely to exercise and perform its rights and obligations under this Agreement, the Subscription Agreement, the Registration Rights Agreement, the Amendment and Restated Limited Liability Company Agreement of KKR Manager, dated as of March 29, 2016 and any side letter entered into by the Stockholder with KREF or KKR Manager, and to monitor its investment in REIT Shares and KKR Manager.  Such Stockholder shall not use any of the Confidential Information, including, but not limited to, information about investment or trading decisions, for such Stockholder’s personal benefit or reveal to any other person any information regarding securities or other transactions by the Fund Holdings or any of its Affiliates or the consideration by Fund Holdings or any of its Affiliates of any transaction or investment idea that such Stockholder may learn in the course of such exercise and performance of its rights and obligations.  Until the third (3rd) anniversary of the date that a Stockholder or its Permitted Transferees no longer own any REIT Shares, such Stockholder agrees to treat all Confidential Information strictly confidentially, and such Stockholder will not disclose any Confidential Information to any person or entity, except such Stockholder may disclose any such information (A) to authorized representatives of Fund Holdings and any of its Affiliates, (B) to the extent permitted by KREF in writing, (C) to its and its Affiliates’ directors, officers, managers, members, personnel, agents, counsel, accountants and other advisors who have a need to know such information (it being understood that such persons shall be informed of the confidential and proprietary nature of the Confidential Information), (D) to any potential transferee of the REIT Shares; provided that in the case of this cause (D), such Stockholder first gives KREF prompt written notice of such disclosure and such potential transferee agrees to treat all Confidential Information strictly confidentially and not use such Confidential Information for personal benefit, in each case to the same extent as if a party hereto, or (E) to any person or entity to the extent requested by a governmental or regulatory authority of competent jurisdiction or as the law or legal process requires disclosure by such Stockholder; provided that in the case of this clause (E), such Stockholder, (x) to the extent legally permitted, first gives KREF prompt written notice of any such requirement, discloses no more information than is so required in the opinion of competent legal counsel, and cooperates fully with any efforts by KREF or its Affiliates to obtain a protective order or similar confidentiality treatment for such information and (y) shall not be required to notify KREF in connection with any disclosure of Confidential Information to any 

 

26

 

governmental agency or other regulatory authority having jurisdiction over such Stockholder or any of its Affiliates in connection with routine supervisory examinations or investigations by any such agency or authority.  Such Stockholder agrees to take reasonable measures to restrain itself from unauthorized uses or disclosure of the Confidential Information.

 

(b)                                 Such Stockholder acknowledges that such Stockholder is aware that applicable securities laws place certain restrictions on any Person who has received material, non-public information concerning a public company with respect to purchasing or selling securities of such public company or from communicating such information to any other Person and that Confidential Information may include such material, non-public information.

 

5.14                        Specific Performance.  Each party hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the other parties hereto would be irreparably harmed and could not be made whole by monetary damages.  Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and agrees that the parties, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to specific performance of this Agreement without the posting of bond.

 

5.15                        Subject REIT Shares.  Each Stockholder hereby agrees and acknowledges that each of the REIT Shares acquired by the Stockholder pursuant to such Stockholder’s Subscription Agreement or pursuant to the exercise of the rights set forth in Section 2.02, including for the avoidance of doubt, any such REIT Shares acquired after the date of this Agreement, are subject to this Agreement.

 

5.16                        Termination.  This Agreement shall terminate and cease to be of any force or effect on the earlier to occur of (a) a Public Listing and (b) dissolution of KREF; provided however, in the case of termination under clause (a), (i) the provisions of Section 3.04 and Section 3.05 shall survive until the date that is 180 days following a Public Listing, (ii) the provisions of Section 4.02 shall survive until the expiration of the Repurchase Period and (iii) the provisions of Section 4.03(a) granting Fund Holdings the right to nominate directors shall survive until Fund Holdings and its Affiliates no longer own at least 25% of the outstanding REIT Shares; provided, further, however, that the provisions of Article V shall survive any termination of this Agreement.

 

[SIGNATURE PAGES FOLLOW]

 

27

 

IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.

 

KREF (with respect to all provisions herein other than Article III):

 

	
KKR REAL ESTATE FINANCE TRUST INC.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ William Miller
    	
 
    
	
 
    	
Name:
    	
William   Miller
    	
 
    
	
 
    	
Title:
    	
Chief   Financial Officer and Treasurer
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

FUND HOLDINGS:

 

	
KKR FUND HOLDINGS   L.P.
    	
 
    
	
 
    	
 
    
	
By: KKR Fund Holdings GP Limited, its general partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   William J. Janetschek
    	
 
    
	
 
    	
Name:
    	
William   J. Janetschek
    	
 
    
	
 
    	
Title:
    	
Director
    	
 
    
	
 
    	
 
    
	
By: KKR Group   Holdings L.P., its general partner
    	
 
    
	
 
    	
 
    
	
By: KKR Group Limited, its general partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   William J. Janetschek
    	
 
    
	
 
    	
Name:
    	
William   J. Janetschek
    	
 
    
	
 
    	
Title:
    	
Director
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

KKR Manager (solely for purposes of Section 4.04 and Section 4.05(l)):

 

	
KKR REAL ESTATE   FINANCE MANAGER LLC
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Christen Lee
    	
 
    
	
 
    	
Name:
    	
Christen Lee
    	
 
    
	
 
    	
Title:
    	
Vice President
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

 

STOCKHOLDERS:

 

KKR REAL ESTATE TRUST FEEDER L.P.

 

 

	
By: KKR KREF   Feeder GP LLC, its general partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ Jason   Carss
    	
 
    
	
 
    	
Name:
    	
Jason   Carss
    	
 
    
	
 
    	
Title: 
    	
Assistance   Secretary and Authorized Person
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

 

STOCKHOLDERS:

 

Lake Tahoe III, L.P.

 

 

	
By: Lake Tahoe   III GP, Inc. 
    	
 
    
	
Its: General   Partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Joseph P. Olszak
    	
 
    
	
 
    	
Name:
    	
Joseph P.   Olszak
    	
 
    
	
 
    	
Title:
    	
Senior   Vice President
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

 

TREA II AIV NON-ERISA, L.P.

 

	
By: Townsend   Alpha Manager II, LLC, the General Partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Joseph P. Olszak
    	
 
    
	
 
    	
Name:
    	
Joseph P.   Olszak
    	
 
    
	
 
    	
Title:
    	
Vice   President & Secretary
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

TREA II AIV ERISA, L.P.

 

 

	
By: Townsend Alpha Manager II, LLC, the   General Partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Joseph P. Olszak
    	
 
    
	
 
    	
Name:
    	
Joseph P.   Olszak
    	
 
    
	
 
    	
Title:
    	
Vice President &   Secretary
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

TACTICAL VALUE SPN-KREF HOLDINGS L.P.

 

 

	
By: Tactical Value SPN-SPV GP LLC, its   general partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   William J. Janetschek
    	
 
    
	
 
    	
Name:
    	
William   J. Janetschek
    	
 
    
	
 
    	
Title:
    	
Vice   President
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

SA Special Situations Partnership, L.P.

 

 

	
By: SA Special Situations General Partner,   LLC 
    	
 
    
	
Its: General Partner
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Joseph P. Olszak
    	
 
    
	
 
    	
Name:
    	
Joseph P.   Olszak
    	
 
    
	
 
    	
Title:
    	
President   and Secretary
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

THE TRAVIS AND ZAKARY TAUBE 2002 IRREVOCABLE TRUST

 

 

	
By:
    	
/s/ T.N.   Taube
    	
 
    
	
 
    	
Name:
    	
T.N.   Taube
    	
 
    
	
 
    	
Title:
    	
Trustee
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

TAUBE FAMILY TRUST

 

 

	
By:
    	
/s/ T.N.   Taube
    	
 
    
	
 
    	
Name:
    	
T.N.   Taube
    	
 
    
	
 
    	
Title:
    	
Trustee
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

DIANNE M. TAUBE

 

 

	
By:
    	
/s/   Dianne M. Taube
    	
 
    
	
 
    	
Name:
    	
Dianne M.   Taube
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    

 

[Signature Page to Stockholders Agreement]

 

 

STOCKHOLDERS:

 

GARY BRINSON

 

 

	
By:
    	
/s/ Gary   Brinson
    	
 
    
	
 
    	
Name:
    	
Gary   Brinson
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    

 

 

STOCKHOLDERS:

 

TFT PARTNERS, LLC

 

 

	
By:
    	
/s/   Kenneth Marciano
    	
 
    
	
 
    	
Name:
    	
Kenneth   Marciano
    	
 
    
	
 
    	
Title:
    	
CFO
    	
 
    

 

 

STOCKHOLDERS:

 

MAKENA CAPITAL HOLDINGS B, L.P.

 

	
By: Makena Capital Management, LLC, its   general partner 
    	
 
    
	
 
    	
 
    
	
By: SS&C Technologies, Inc.,   pursuant to a limited power of attorney
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/   Michael Wu
    	
 
    
	
 
    	
Name:
    	
Michael   Wu
    	
 
    
	
 
    	
Title:
    	
Manager —   Investor Services
    	
 
    

 

 

 

STOCKHOLDERS:

 

NAN SHAN LIFE INSURANCE CO., LTD.

 

 

	
By:
    	
/s/ Nan   Shan Life Insurance Co., Ltd.
    	
 
    
	
 
    	
Name:
    	
Nan Shan   Life Insurance Co., Ltd.
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    

 

 

STOCKHOLDERS:

 

GPF REAL ESTATE CO-INVESTMENT L.P.

 

 

	
By:
    	
/s/ Dave   Sauvarin
    	
 
    
	
 
    	
Name:
    	
Dave   Sauvarin
    	
 
    
	
 
    	
Title:
    	
Director
    	
 
    
	
 
    	
For: Lake   Erie Real Estate General Partner Limited, as the General Partner of GPF Real   Estate Co-Investment L.P.
    	
 
    

 

 

STOCKHOLDERS:

 

THE PRESIDENT AND BOARD OF TRUSTEES OF SANTA CLARA COLLEGE

 

 

	
By:
    	
/s/ John   Kerrigan
    	
 
    
	
 
    	
Name:
    	
John   Kerrigan
    	
 
    
	
 
    	
Title:
    	
Chief   Investment Officer
    	
 
    

 

 

Annex A

 

Illustrative Calculation

 

[see attached]

 

 

KKR Real Estate Finance Trust Inc. 

Ratchet Illustrative

March 28, 2016

(in millions, except per share amounts or otherwise stated)

 

	
 
    	
 
    	
Shares
    	
 
    	
Value
    	
 
    	
Per Share
    	
 
    
	
GAAP Book Value
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
December 31,   2015
    	
 
    	
13.6
    	
 
    	
$
    	
282.3
    	
 
    	
$
    	
20.70
    	
 
    
	
Distributions
    	
 
    	
—
    	
 
    	
(5.6
    	
)
    	
(0.41
    	
)
    
	
Contributions
    	
 
    	
2.0
    	
 
    	
40.0
    	
 
    	
20.00
    	
 
    
	
CMBS   mark-to-market
    	
 
    	
—
    	
 
    	
(10.1
    	
)
    	
(0.65
    	
)
    
	
Undistributed   income
    	
 
    	
—
    	
 
    	
4.0
    	
 
    	
0.26
    	
 
    
	
March 31,   2016
    	
 
    	
15.6
    	
 
    	
310.5
    	
 
    	
19.86
    	
 
    
	
Less: Dividend   with respect to the quarter
    	
 
    	
 
    	
 
    	
(4.0
    	
)
    	
(0.26
    	
)
    
	
GAAP   Book Value as of March 31, 2016, ex-dividend
    	
 
    	
15.6
    	
 
    	
306.5
    	
 
    	
19.60
    	
 
    
	
Fair value   adjustment of the Loan Portfolio
    	
 
    	
—
    	
 
    	
1.6
    	
 
    	
0.10
    	
 
    
	
Adjusted   Book Value as of March 31, 2016
    	
 
    	
15.6
    	
 
    	
$
    	
308.1
    	
 
    	
$
    	
19.70
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Deficiency   Amount (MIN[$306.5mm,$308.1mm ] - [$20.00 * 15.6mm shares])
    	
 
    	
15.6
    	
 
    	
$
    	
(6.2
    	
)
    	
$
    	
(0.40
    	
)
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Per Share   Deficiency Amount ($6.2mm * 32.2% / 9.5mm)
    	
 
    	
9.5
    	
 
    	
$
    	
2.0
    	
 
    	
$
    	
0.21
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Reimbursement   amount, based on Investor’s Subscribed REIT Shares
    	
 
    	
5.0
    	
 
    	
$
    	
1.1
    	
 
    	
$
    	
0.21
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
REIT   Shares issued, in thousands ($1.1mm / MIN[$19.60,$19.70])
    	
 
    	
53.8
    	
 
    	
$
    	
1.1
    	
 
    	
$
    	
19.60
    	
 
    

 

	
Capital
    	
 
    	
USD
    	
 
    	
shares
    	
 
    	
%
    	
 
    
	
Investors
    	
 
    	
$
    	
190.1
    	
 
    	
9.5
    	
 
    	
32.2
    	
%
    
	
KKR
    	
 
    	
400.0
    	
 
    	
20.0
    	
 
    	
67.8
    	
%
    
	
Total
    	
 
    	
$
    	
590.1
    	
 
    	
29.5
    	
 
    	
100.0
    	
%
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Investor’s Subscription
    	
 
    	
$
    	
99.9
    	
 
    	
5.0
    	
 
    	
16.9
    	
%

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00269-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00269-of-00352.parquet"}]]