Document:

Exhibit
10.2

2007 SHARE INCENTIVE PLAN

FOR

KKR FINANCIAL HOLDINGS LLC

(As
Amended and Restated Effective May 4, 2007)

1.             Purpose of the Plan

KKR Financial Holdings LLC (the “Company”) hereby
establishes the 2007 Share Incentive Plan for KKR Financial Holdings LLC (the “Plan”)
for the purpose of aiding the Company and its Affiliates  in
recruiting and retaining employees, non-employee directors, managers or other
Persons and to motivate such employees, non-employee directors, managers or
other Persons who perform services for the Company or an Affiliate to exert
their best efforts on behalf of the Company and its Affiliates by providing
incentives through the granting of Awards.  The Company expects that it
will benefit from the added interest which such key employees, non-employee
directors, managers or other Persons will have in the welfare of the Company as
a result of their proprietary interest in the Company’s success.  This Plan shall constitute an amendment and
restatement of the 2004 Stock Incentive Plan for KKR Financial Corp., which was
assumed by the Company as a result of the transactions consummated pursuant to
the Agreement and Plan of Merger, dated as of February 9, 2007, among the
Company, KKR Financial Corp. and KKR Financial Merger Corp.

2.             Definitions

The following capitalized terms used in the Plan have
the respective meanings set forth in this Section:

(a)                                  Act:  The Securities Exchange Act
of 1934, as amended, or any successor thereto.

(b)                                 Affiliate:  Any entity directly or
indirectly controlling, controlled by, or under common control with, the Company or any other entity
designated by the Board in which the Company or Member of the Company has an
interest.

(c)                                  Award:  An Option, Share Appreciation Right or Other
Share-Based Award granted pursuant to the Plan.

(d)                                 Beneficial Owner:  A “beneficial
owner,” as such term is defined in Rule 13d-3 and 13d-5 under the Act (or any
successor rule thereto).

(e)                                  Board:  The Board of Directors of the Company.

(f)                                    Change in Control:   The
occurrence of any of the
following events:

(i)                         Member
approval of the complete liquidation or dissolution of the Company;

(ii)                     the sale or
disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company to any Person or Group;
provided, however, that the sale of all the capital stock of KKR Financial
Corp. or the conveyance, transfer or lease by KKR Financial Corp. of any or all
of its properties and assets shall not constitute a Change in Control;

(iii)                  (A) any Person
or Group is or becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the voting shares of the Company or (B) a merger, consolidation or
statutory share exchange, in either case following which the Company’s Members
immediately prior to such event hold less than 50% of the voting power of the
surviving or resulting entity (which surviving or resulting entity shall be
deemed to include, without limitation, any corporation or other entity which as
a result of the applicable transaction owns the Company either directly or
indirectly);

(iv)                 during any period
of two consecutive years, individuals who at the beginning of such period
constituted the Board (together with any new directors whose election by such
Board or whose nomination for election by the Members of the Company was
approved by a vote of a majority of the directors of the Company, then still in
office, who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board, then in office; or

(v)                     the
Board adopts a resolution to the effect that, in its judgment, as a consequence
of any transaction or event a Change in Control has effectively occurred;

except, in the case of clauses (i)-(v), if the Change in Control
results from a transaction between the Company and the Manager or an Affiliate
of the Manager or from a termination of the Management Agreement for “cause”
(as such term is defined in the Management Agreement).

(g)                                 Code:  The Internal Revenue Code of 1986, as amended from time to time,
including regulations thereunder (and successor provisions and regulations
thereto).

(h)                                 Committee:  The Compensation
Committee of the Board or such other committee as may be appointed by the Board in accordance
with Section 4 of the Plan.

(i)                                     Company:  KKR Financial Holdings LLC, a Delaware
limited liability company.

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(j)                                     Effective Date:  May 4, 2007,
which was the date the Company assumed the Plan.

(k)                                  Fair
Market Value:  On a given date, (i) if there should be
a public market for the Shares on such date, the closing price of the Shares as reported on such date on the
Composite Tape of the principal national securities exchange on which such
Shares are listed or admitted to trading, or, if no sale of Shares shall have
been reported on the Composite Tape of any national securities exchange on such
date, then the immediately preceding date on which sales of the Shares have
been so reported shall be used, and (ii) if there should not be a public
market for the Shares on such date, the Fair Market Value shall be the value
established by the Committee in good faith, but shall in any event be
determined in a manner consistent with the requirements of Section 409A of the
Code and the regulations thereunder.

(l)                                     Group:  A “group” as such term is used in Sections 13(d) and 14(d) of the
Act, acting in concert.

(m)                               LSAR:  A limited share appreciation right granted pursuant to Section 7(d)
of the Plan.

(n)                                 Management Agreement:  The Amended
and Restated Management Agreement between the Company and the Manager, dated as
of August 12, 2004, and amended May 4, 2007, as the same may be amended from
time to time.

(o)                                 Manager:  KKR Financial Advisors LLC or any successor or assign.

(p)                                 Member: “Member” means, as of any
date, any holder of Shares, as of such date.

(q)                                 Option:  An option to purchase
Shares granted pursuant to Section 6 of the Plan.

(r)                                    Option Price:  The purchase price
per Share under the terms of an Option, as determined pursuant to Section 6(a)
of the Plan.

(s)                                  Original Effective Date: May 26,
2005, which was the date the stockholders of KKR Financial Corp. approved the
2004 Stock Incentive Plan for KKR Financial Corp.

(t)                                    Other Share-Based Awards:  Awards
granted pursuant to Section 8 of the Plan.

(u)                                 Participant:  An employee of, or
any Person who performs services for, the Company or an Affiliate (whether as a
consultant, advisor or otherwise) who is selected by the Committee to
participate in the Plan.

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(v)                                 Person:  A “person,” as such term
is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto).

(w)                               Plan:  The 2007 Share Incentive Plan for KKR Financial Holdings
LLC.

(x)                                   RSU:  A restricted share unit,
granted pursuant to Section 8 of the Plan, which represents the right to
receive a Share.

(y)                                 Shares:  Common Shares of the
Company, subject to coordination with Section 9 of the Plan.

(z)                                   Share Appreciation Right:  A share appreciation right granted in
connection with or independent of the grant of an Option, pursuant to
Section 7 of the Plan.

3.             Shares Subject to the Plan

The total number of Shares that may be used to satisfy
Awards under the Plan shall be equal to 8,089,625 as of the Effective Date,
which is equal to the number of shares available under the 2004 Stock Incentive
Plan for KKR Financial Corp. immediately prior to the Effective Date.  In
addition, the number of Shares that may be used to satisfy Awards under the
Plan shall be increased by 125,000 Shares on each January 1 following the Effective
Date for so long as the Plan is in effect, which additional Shares may only be
used to satisfy Awards of restricted Shares to non-employee directors.  The Shares that may be used hereunder may
consist, in whole or in part, of unissued Shares or previously issued
Shares.  A maximum of 5,000,000 of
Shares may be granted during any given calendar year to any Participant.  The issuance of Shares upon the exercise or
payment of an Award shall reduce the total number of Shares available under the
Plan, as applicable.  Shares which are subject to Awards that terminate,
lapse or are cancelled may again be used to satisfy Awards under the
Plan.  If the Option Price of any Option granted under the Plan is
satisfied by delivering Shares to the Company in accordance with the terms of
Section 6(b) of the Plan, only the number of Shares issued net of the Shares
delivered shall be deemed delivered for purposes of determining the maximum
number of Shares available under the Plan.  To the extent any Shares
subject to an Award are not delivered to a Participant because such Shares are
used to satisfy an applicable minimum income tax withholding obligation, such
Shares shall not be deemed to have been delivered for purposes of determining
the maximum number of Shares available under the Plan.

4.             Administration

The Plan shall be administered by the Committee, which
may delegate its duties and powers in whole or in part as it determines,
including  to a subcommittee consisting of at
least two individuals who are intended to qualify as “non-employee directors”
within the meaning of Rule 16b-3 under the Act (or any successor rule thereto)
and “outside directors” within the meaning of Section 162(m) of the Code.  The Committee may grant Awards under this
Plan only to Participants; provided that Awards may also, in the
discretion of the Committee, be made under the Plan in assumption of, or in
substitution for, outstanding awards previously granted by the Company or its Affiliates
or a company that becomes an Affiliate.  The number of Shares underlying
such substitute Awards shall be counted against the aggregate number of

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Shares available for
Awards under the Plan.  The Committee is authorized to interpret the Plan,
to establish, amend and rescind any rules and regulations relating to the Plan,
and to make any other determinations that it deems necessary or desirable for
the administration of the Plan.  The Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan in the manner
and to the extent the Committee deems necessary or desirable.  Any
decision of the Committee in the interpretation and administration of the Plan,
as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned (including, but
not limited to, the Company, its Affiliates, Participants and their
beneficiaries or successors).  The Committee shall have the full power and
authority to establish the terms and conditions of any Award consistent with
the provisions of the Plan and to waive any such terms and conditions at any
time, in its sole discretion (including, without limitation, accelerating or
waiving any vesting conditions and/or accelerating any payment).  The
Committee shall require payment of any amount it may determine to be necessary
to withhold for federal, state, local or other taxes of any relevant
jurisdiction as a result of the granting, vesting or exercise of an Award, or
upon the sale of Shares acquired by the granting, vesting or exercise of an
Award.  For avoidance of doubt, if at any time the Committee determines
that it has not received or required sufficient payment in respect of such
withholding, the Committee is authorized to require such additional payments as
it determines are necessary, and may withhold from such sources as it
determines are necessary, including by payroll deductions.

5.             Limitations

No Award may be granted under the Plan after the tenth
anniversary of the Original Effective Date, but Awards theretofore granted may
extend beyond that date and will continue to be governed by the terms of the
Plan.

6.             Terms and Conditions of
Options

Options granted under the Plan shall be, as determined
by the Committee, non-qualified options (or other types of Options in
jurisdictions outside the United States), as evidenced by the related Award,
and shall be subject to the foregoing, the following terms and conditions, and
to such other terms and conditions, not inconsistent therewith, as the
Committee shall determine:

(a)                                  Option Price; Exercisability.  Any
Option granted under the Plan shall have an Option Price of not less than the
Fair Market Value of one Share on the date the Option is granted, and shall be
vested and exercisable in installments at such time and upon such terms and
conditions, as may be determined by the Committee.

(b)                                 Exercise of Options.  Except as
otherwise provided in the Plan or in an Award, an Option may be exercised for
all, or from time to time any part, of the Shares for which it is then
exercisable.  For purposes of this Section 6 of the Plan, the exercise
date of an Option shall be the later of the date a notice of exercise is
received by the Company and, if applicable, the date payment is received by the
Company pursuant to clauses (i), (ii), (iii) or (iv) in the following
sentence.  Except as otherwise provided in an Award,

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the purchase price for the Shares as to which an
Option is exercised shall be paid in full at the time of exercise at the
election of the Participant: (i) in cash or its equivalent (e.g., by check);
(ii) to the extent permitted by the Committee, in Shares having a Fair Market
Value equal to the aggregate Option Price for the Shares being purchased and
satisfying such other requirements as may be imposed by the Committee; (iii) by
authorizing the Company to withhold Shares otherwise issued pursuant to the
exercise of the Option having a Fair Market Value equal to the aggregate Option
Price for the Shares being purchased and satisfying such other requirements as
may be imposed by the Committee, (iv) partly in cash and, to the extent
permitted by the Committee, partly in such Shares; or (v) to the extent
permitted by applicable law through the delivery of irrevocable instructions to
a broker to sell Shares obtained upon the exercise of the Option and deliver
promptly to the Company an amount out of the proceeds of such sale equal to the
aggregate Option Price for the Shares being purchased.  The Committee may
also authorize the Company to make or facilitate loans to Participants to
enable them to exercise Options to the extent not prohibited by applicable
law.  The Committee may permit Participants to exercise Options in
joint-tenancy with the Participant’s spouse.  No Participant shall have
any rights to dividends or other rights of a Member with respect to Shares
subject to an Option until the Participant has given written notice of exercise
of the Option, the Participant has paid in full for such Shares, the Shares in
question have been recorded in the Company’s register of Members, and, if
applicable, the Participant has satisfied any other conditions imposed by the Committee
pursuant to the Plan.

(c)                                  Attestation.  Wherever in this
Plan or any agreement evidencing an Award a Participant is permitted to pay the
Option Price (or taxes relating to the exercise of an Option) by delivering
Shares, the Participant may, subject to procedures satisfactory to the
Committee (and to the extent permitted by applicable law), satisfy such
delivery requirement by presenting proof of record ownership of such Shares,
or, to the extent permitted by the Committee, beneficial ownership of such
Shares, in which case the Company shall treat the Option as exercised without
further payment and shall withhold such number of Shares from the Shares
acquired by the exercise of the Option.

7.             Terms and Conditions of Share
Appreciation Rights

(a)                                  Grants.  The Committee also may
grant (i) a Share Appreciation Right independent of an Option or
(ii) a Share Appreciation Right in connection with an Option, or a portion
thereof.  A Share Appreciation Right granted pursuant to clause (ii)
of the preceding sentence (A) may be granted at the time the related
Option is granted or at any time prior to the exercise or cancellation of the
related Option, (B) shall cover the same number of Shares covered by an
Option (or such lesser number of Shares as the

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Committee may determine) and (C) shall be subject
to the same terms and conditions as such Option except for such additional
limitations as are contemplated by this Section 7 (or such additional
limitations as may be included in a Share Appreciation Right Award).

(b)                                 Terms.  The exercise price per
Share of a Share Appreciation Right shall be an amount determined by the
Committee.  Each Share Appreciation Right granted independent of an Option
shall entitle a Participant upon exercise to a payment from the Company of an
amount equal to (i) the excess of (A) the Fair Market Value on the
exercise date of one Share over (B) the exercise price per Share, times
(ii) the number of Shares covered by the Share Appreciation Right. 
Each Share Appreciation Right granted in conjunction with an Option, or a
portion thereof, shall entitle a Participant to surrender to the Company the
unexercised Option, or any portion thereof, and to receive from the Company in
exchange therefor an amount equal to (I) the excess of (x) the Fair
Market Value on the exercise date of one Share over (y) the Option Price,
times (II) the number of Shares covered by the Option, or portion thereof,
which is surrendered.  The date a notice of exercise is received by the Company
shall be the exercise date.  Payment shall be made in Shares or in cash,
or partly in Shares and partly in cash (any such Shares valued at such Fair
Market Value), all as shall be determined by the Committee.  Share
Appreciation Rights may be exercised from time to time upon actual receipt by
the Company of written notice of exercise stating the number of Shares with
respect to which the Share Appreciation Right is being exercised.  No
fractional Shares will be issued in payment for Share Appreciation Rights, but
instead cash will be paid for a fraction or, if the Committee should so
determine, the number of Shares will be rounded downward to the next whole
Share.

(c)                                  Limitations.  The Committee may
impose, in its discretion, such conditions upon the exercisability or
transferability of Share Appreciation Rights as it may deem fit.

(d)                                 Limited Share Appreciation Rights. 
The Committee may grant LSARs that are exercisable upon the occurrence of
specified contingent events.  Such LSARs may provide for a different
method of determining appreciation, specify that payment will be made only in
cash and provide that any related Awards are not exercisable while such LSARs
are exercisable.  Unless the context otherwise requires, whenever the term
“Share Appreciation Right” is used in the Plan, such term shall include LSARs.

8.             Other Share-Based Awards

(a)                                  Generally.  The Committee, in its
sole discretion, may grant Awards of Shares, Awards of restricted Shares, Awards
of RSUs and other Awards

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that are valued in whole or in part by reference to,
or are otherwise based on the Fair Market Value, of Shares (“Other Share-Based
Awards”).  Such Other Share-Based Awards shall be in such form, and
dependent on such conditions, as the Committee shall determine, including,
without limitation, the right to receive one or more Shares (or the equivalent
cash value of such Shares) upon the completion of a specified period of
service, the occurrence of an event and/or the attainment of performance
objectives.  Other Share-Based Awards may be granted alone or in addition
to any other Awards granted under the Plan.  Subject to the provisions of
the Plan, the Committee shall determine: (i) to whom and when Other Share-Based
Awards will be made; (ii) the number of Shares to be awarded under (or
otherwise related to) such Other Share-Based Awards; (iii) whether such Other
Share-Based Awards shall be settled in cash, Shares or a combination of cash
and Shares; and (iv) all other terms and conditions of such Other Share-Based
Awards (including, without limitation, the vesting provisions thereof and
provisions ensuring that all Shares so awarded and issued shall be fully paid
and non-assessable).

(b)                                 Performance-Based Awards. 
Notwithstanding anything to the contrary herein, certain Other Share-Based
Awards granted under this Section 8 may be granted in a manner which is
intended to be deductible by the Company under Section 162(m) of the Code
(or any successor section thereto) (“Performance-Based Awards”).  A
Participant’s Performance-Based Award shall be determined based on the
attainment of written performance goals approved by the Committee for a
performance period established by the Committee (i) while the outcome for
that performance period is substantially uncertain and (ii) no more than
90 days after the commencement of the performance period to which the
performance goal relates or, if less, the number of days which is equal to 25
percent of the relevant performance period.  The performance goals, which
must be objective, shall be based upon one or more of the following criteria:
(i) consolidated earnings before or after taxes (including earnings before
interest, taxes, depreciation and amortization); (ii) net income; (iii)
operating income; (iv) earnings per Share; (v) book value per Share; (vi)
return on Members’ equity; (vii) expense management; (viii) return on
investment; (ix) improvements in capital structure; (x) profitability of an
identifiable business unit or product; (xi) maintenance or improvement of
profit margins; (xii) share price; (xiii) dividend per Share; (xiv) revenues or
sales; (xv) costs; (xvi) cash flow; and (xvii) return on assets.  The
foregoing criteria may relate to the Company, one or more of its Affiliates or
one or more of its or their divisions or units, or any combination of the
foregoing, and may be applied on an absolute basis and/or be relative to prior
years for the Company, one or more peer group companies or indices, or any
combination thereof, all as the Committee shall determine.  In addition,
to the degree consistent with Section 162(m) of the Code (or any successor
section thereto), the performance goals may be calculated without regard to
extraordinary items.   The
Committee shall determine

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whether, with respect to a performance period, the
applicable performance goals have been met with respect to a given Participant
and, if they have, shall so certify and ascertain the amount of the applicable
Performance-Based Award.  No Performance-Based Awards will be paid for
such performance period until such certification is made by the
Committee.  The amount of the Performance-Based Award actually paid to a
given Participant may be less than the amount determined by the applicable
performance goal formula, at the discretion of the Committee.  The amount
of the Performance-Based Award determined by the Committee for a performance
period shall be paid to the Participant at such time as determined by the
Committee in its sole discretion after the end of such performance period; provided,
however, that a Participant may, if and to the extent permitted by the
Board and consistent with the provisions of Sections 162(m) and 409A of
the Code, elect to defer payment of a Performance-Based Award.

9.             Adjustments Upon Certain
Events

Notwithstanding any other provisions in the Plan to
the contrary, the following provisions shall apply to all Awards granted under
the Plan:

(a)                                  Generally.  In the event of any
change in the outstanding Shares after the Effective Date by reason of any
Share dividend or split, reorganization, recapitalization, merger,
consolidation, spin-off or combination transaction or exchange of Shares or
other corporate exchange, or any distribution to holders of Shares other than
regular cash dividends or any transaction similar to the foregoing, the
Committee in its sole discretion and without liability to any person may make
such substitution or adjustment, if any, as it deems to be equitable, as to (i)
the number or kind of Shares or other securities available for issuance, issued
or reserved for issuance pursuant to the Plan and pursuant to outstanding
Awards, (ii) the Option Price or exercise price of any Share Appreciation
Right, and/or (iii) any other affected terms of any Award.

(b)                                 Change in Control.  In the event
of a Change in Control after the Effective Date, the Committee may, in its sole
discretion, provide for: (i) the accelerated vesting (including
transferability) or exercisability of any outstanding Awards then held by
Participants that are otherwise unexercisable or unvested, as the case may be,
to the extent determined by the Committee and as of a date selected by the
Committee; (ii) the earning of all or any outstanding performance shares or
incentive awards; (iii) the termination of an Award upon the consummation of
the Change in Control, and the payment of a cash amount in exchange for the
cancellation of an Award which, in the case of Options and Share Appreciation
Rights, may equal the excess, if any, of the Fair Market Value of the Shares in
the Change in Control subject to such Options or Share Appreciation Rights over
the aggregate exercise price of such Options or Share Appreciation

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Rights; and/or (iv) the issuance of substitute Awards
that will substantially preserve the otherwise applicable terms of any affected
Awards previously granted hereunder.

10.           No Right to Employment or
Awards

The granting of an Award under the Plan shall impose
no obligation on the Company or any Affiliate to continue the employment or
service or consulting relationship of a Participant and shall not lessen or
affect the Company’s or Affiliate’s right to terminate the employment or
service or consulting relationship of such Participant.  No Participant or
other person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Participants, or holders or
beneficiaries of Awards.  The terms and conditions of Awards and the
Committee’s determinations and interpretations with respect thereto need not be
the same with respect to each Participant (whether or not such Participants are
similarly situated).  No Participant is
conferred any of the rights of a Member of the Company unless and until the
Participant is duly issued or transferred Shares in accordance with the terms of
an Award.

11.           Successors and Assigns

The Plan shall be binding on all successors and
assigns of the Company and a Participant, including without limitation, the
estate of such Participant and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or representative of the
Participant’s creditors.

12.           Transferability of Awards

Unless otherwise permitted by the Committee on such
terms and conditions as it shall determine, an Award shall not be transferable
or assignable by the Participant other than by will or by the laws of descent
and distribution.  An Award exercisable
after the death of a Participant may be exercised by the legatees, personal
representatives or distributees of the Participant.

13.           Amendments or Termination

Subject to Section 9 of the Plan, the Board may amend,
alter or discontinue the Plan, but no amendment, alteration or discontinuation
shall be made which would: (a) increase the maximum number of Shares available
for Awards under the Plan (including the limits applicable to the different
types of Awards), other than amendments having such purpose that are approved
by a majority of the Members of the Company that are present and entitled to
vote on such matter at a meeting duly convened for such purposes (or such other
standard of Member vote as may be required by applicable state or federal law);
(b) without the consent of a Participant, diminish any of the rights of the
Participant under any Award theretofore granted to such Participant under the Plan;
or (c) be prohibited by applicable law or otherwise require Member approval
(whether in order to maintain the full tax deductibility of all Awards under
Section 162(m) of the Code, to comply with stock exchange listing requirements
or otherwise); provided, however, that the Committee may amend
the Plan in such manner as it deems necessary to permit Awards to meet the
requirements of the Code or other applicable laws.  In no

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event may the Board amend
the Plan or any Award to provide for the repricing of any Option price or
exercise price of any Share Appreciation Rights without the approval by the Members
of the Company.

14.           International Participants

With
respect to Participants, if any, who reside or work outside the United States
of America, the Committee may, in its sole discretion, amend the terms of the
Plan or Awards with respect to such Participants in order to conform such terms
with the provisions of local law, and the Committee may, where appropriate,
establish one or more sub-plans to reflect such amended or varied provisions.

15.           Choice of Law

The Plan shall be governed by and construed in
accordance with the laws of the State of New York  without regard to conflicts of laws.

 11Exhibit
10.3

KKR
FINANCIAL HOLDINGS LLC

NON-EMPLOYEE
DIRECTORS’

DEFERRED
COMPENSATION AND SHARE AWARD PLAN

(As Amended and
Restated Effective May 4, 2007)

PURPOSE

The purpose of
this KKR Financial Holdings LLC Non-Employee Directors’ Deferred Compensation
and Share Award Plan is to provide individuals who are not employees of KKR
Financial Holdings LLC or its Affiliates who serve as members of the Board (as
defined below) an opportunity to defer payment of all or a portion of their
Fees (as defined below), to receive current payment of all or a portion of
their Fees in Shares (as defined below) and to defer the receipt of all or a
portion of their Director Shares  (as
defined below) in accordance with the terms and conditions set forth
herein.  This Plan is a continuation of
the KKR Financial Corp. Non-Employee Directors’ Deferred Compensation and Stock
Award Plan (the “Stock Award Plan”), which has been assumed by the Company
pursuant to the restructuring of KKR Financial Corp. and its affiliates  and amended and restated as set forth
herein.

ARTICLE I

DEFINITIONS

1.1           “Affiliate” means any entity directly or
indirectly controlling, controlled by, or under common control with, the
Company or any other entity designated by the Board in which the Company or a
Member of the Company has an interest.

1.2           “Board” means the Board of Directors of the
Company.

1.3           “Beneficial Owner” means a “beneficial owner,” as such term is defined
in Rule 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended
(or any successor rule thereto), which shall in any event include having the
power to vote (or cause to be voted) pursuant to contract, irrevocable proxy or
otherwise, and which, for purposes of the calculation under clause (iii) of the
definition of Change in Control, shall be deemed to include shares that any
such Person or Group has a right to acquire, whether such right is exercisable
immediately or only after the passage of time.

1.4           “Change in Control” means the occurrence of
any of the following events:

(i) Member approval of the complete liquidation or
dissolution of the Company;

(ii) the sale or disposition, in one or a series of
related transactions, of all or substantially all of the assets of the Company
to any Person or Group; provided, however, that the sale of all the capital
stock of KKR Financial Corp. or the conveyance, transfer or lease by KKR
Financial Corp. of any or all of its properties and assets shall not constitute
a Change in Control;

(iii) (A) any Person or Group is or becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the voting shares
of the Company or (B) a merger, consolidation or statutory share exchange, in
either case following which the Company’s Members immediately

 2
 

prior to such event hold less than 50% of the voting
power of the surviving or resulting entity (which surviving or resulting entity
shall be deemed to include, without limitation, any corporation or other entity
which as a result of the applicable transaction owns the Company either
directly or indirectly);

(iv) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board (together
with any new directors whose election by such Board or whose nomination for election
by the Members of the Company was approved by a vote of a majority of the
directors of the Company, then still in office, who were either directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the Board,
then in office; or

(v) the Board adopts a resolution to the effect that,
in its judgment, as a consequence of any transaction or event a Change in
Control has effectively occurred;

provided, however, in the case of clauses (i)-(v), a
Change in Control shall not result from a transaction between the Company and
the Manager or an Affiliate of the Manager, from a termination of the Management
Agreement for “cause” (as such term is defined in the Management Agreement) or
from any transaction that is not a change in control event within the meaning
of Section 409A of the Code.

1.5           “Code” means the Internal Revenue Code of
1986, as amended, from time tot time, including regulations thereunder (and
successor provisions and regulations thereto).

1.6           “Committee” means the Compensation Committee
of the Board or such other committee as may be appointed by the Board.

1.7           “Company” means KKR Financial Holdings LLC, a
Delaware limited liability company.

1.8           “Director” means a member of the Board who is
not an employee of the Company or any of its Affiliates.

1.9           “Director Shares” means restricted shares
granted to Directors under the Share Incentive Plan for their service on the
Board.

1.10         “Fair Market Value” means, on a given date,
(i) if there should be a public market for the Shares on such date, the closing
price of the Shares as reported on such date on the Composite Tape of the
principal national securities exchange on which such Shares are listed or
admitted to trading, or, if no sale of Shares shall have been reported on the
Composite Tape of any national securities exchange on such date, then the
immediately preceding date on which sales of the Shares have been so reported
shall be used, and (ii) if there should not be a public market for the Shares
on such date, the Fair Market Value shall be the value established by the
Committee  in good faith.

 3
 

1.11         “Fees” means amounts (including any annual
retainer, which is generally payable in quarterly installments in cash, or upon
the election of a Director, in Shares) earned for serving as a member of the
Board or any Committee.

1.12         “Group” means a “group” as such term is used
in Sections 13(d) and 14(d) of the Act, acting in concert.

1.13         “Management Agreement” means the Amended and
Restated Management Agreement between the Company and the Manager, dated as of
August 12, 2004, and amended May 4, 2007, as the same may be amended from time
to time.

1.14         “Manager” means KKR Financial Advisors LLC or
any successor or assign.

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

1.16         “Person” means a “person,” as such term is
used for purposes of Section 13(d) or 14(d) of the Act (or any successor
section thereto).

1.17         “Plan” means this KKR Financial Holdings LLC
Non-Employee Directors’ Deferred Compensation and Share Award Plan, as it may
be amended from time to time.

1.18         “Shares” means the common shares of the
Company, par value $0.01 per share.

1.19         “Share Incentive Plan” means the 2007 Share
Incentive Plan for KKR Financial Holdings LLC.

1.20         “Share Account” means the account created by
the Company pursuant to Article III of this Plan in accordance with an election
by a Director to defer Fees or Director Shares pursuant to Article II hereof.

1.21         “Year” shall mean calendar year.

1.22         “He”, “Him” or “His” shall apply equally to
male and female members of the Board.

ARTICLE II

ELECTION TO DEFER

2.1           A Director may elect, on or before December
31 of any Year, to irrevocably defer payment of all or a specified part of all
Fees or Director Shares earned during the Year following the Year in which such
election is made and succeeding Years (until the Director ceases to be a
Director or elects (in writing) to change such election); provided, however,
that a Director may elect to defer any Director Shares granted in 2007 with an
initial vesting date occurring at least 12 months after the date of grant by
submitting an election

 4
 

prior
to the date on which such Director Shares are granted.  In addition, any person who shall become a
Director during any Year, and who was not a Director of the Company on the
preceding December 31 or otherwise an employee of the Company who participated
in any other deferred compensation plan of the Company, may elect, before the
Director’s term begins (but in no event later than thirty (30) days after the
date such person first becomes eligible to participate in this Plan), to defer
payment of all or a specified part of such Fees or Director Shares earned
during the remainder of such Year and for succeeding Years.  Any Fees or Director Shares deferred pursuant
to this Section 2.1 shall be paid to the Director at the time(s) and in the
manner specified in Article IV hereof.

2.2           The election to participate in the deferred
compensation portion of the Plan shall be designated by submitting a letter in
the form attached hereto as Appendix A (the “Election Form”) to the
Secretary or Assistant Secretary of the Company; provided, however,
that the Election Form used to defer Director Shares granted in 2007 is
attached hereto as Appendix B.

2.3           The deferral election shall continue from
Year to Year unless the Director changes such election by written request
delivered to the Secretary or Assistant Secretary of the Company by no later
than December 31 of the Year prior to the commencement of the Year for which
such changed election shall be effective. 
If the Director amends his existing election to defer Fees in order to
receive Fees on a current basis or if the Director amends his existing election
to defer Director Shares in order to receive Director Shares at the time of
vesting, such Director may not subsequently re-elect to defer payment of Fees
or Director Shares for at least one (1) Year.

ARTICLE III

DEFERRED COMPENSATION
ACCOUNTS

3.1           The Company shall maintain separate accounts
on its books and records for the Fees and Director Shares deferred by each
Director, based on the elections each Director has made.

3.2           If a Director has elected to defer a portion
of his Fees, the Company shall credit, on the tenth business day after the
Company announces its quarterly results, an account (the “Share Account”)
established for each Director with the number of hypothetical Shares equal to
(x) the deferred Fees otherwise payable to the Director in such fiscal quarter
as to which an election to receive share-related deferred compensation has been
made, divided by (y) the average Fair Market Value of the Shares over the
applicable fiscal quarter.

3.3           If a Director has elected to defer a portion
of his Director Shares, then as of the date on which such Director Shares are
granted, the Company shall credit such Director’s Share Account with the number
of hypothetical Shares equal to the Director Shares deferred pursuant to such
election.  A Director shall become vested
in or shall forfeit the hypothetical Shares credited to the

 5
 

Director’s
Share Account to the same extent that such Director would have become vested in
or forfeited the Director Shares subject to the Deferral Election, had they
been issued to the Director, subject to the terms and conditions set forth in
the Share Incentive Plan.

3.4           On the date that any dividends are paid with
respect to the hypothetical Shares, the Company shall credit the Share Account
of each Director who has elected to defer Fees or Director Shares with the
number of hypothetical Shares equivalent to (x) the product of (a) the amount
of any dividend paid, multiplied by (b) the number of hypothetical Shares
represented in the relevant Director’s Share Account, divided by (y) the Fair
Market Value on the dividend payment date.

3.5           If adjustments are made to the authorized or
issued share capital of the Company as a result of split-ups,
recapitalizations, mergers, consolidations and the like, an appropriate
adjustment shall also be made in the number of hypothetical Shares credited to
the Directors’ Share Account.

3.6           The value of such Shares shall be computed to
two decimal places.

3.7           This Plan is intended to be a non-qualified,
unfunded deferred compensation arrangement. 
Nothing contained herein shall be deemed to give a Director, a
Director’s beneficiary or any other Person any interest in the assets of the
Company or create any kind of fiduciary relationship between the Company and
any such Person.  Notwithstanding the
foregoing, following the effective date of the Plan, the Company may, in its
discretion, establish a “rabbi trust” or any other arrangement it wishes in
order to provide for the payment of obligations arising under the Plan, so long
as it does not constitute funding for purposes of the Employee Retirement
Income Security Act of 1974, as amended, or the Code.  To the extent that any Person acquires a
right to receive payments from the Company under the Plan, such right shall be
no greater than the right of any unsecured general creditor of the Company.

ARTICLE IV

PAYMENT OF DEFERRED
COMPENSATION

4.1           Amounts contained in a Director’s Share
Account shall be distributed beginning upon the earlier to occur of the (i)
first day of the Year following any removal or separation from the Board; and
(ii) date that a Director designates on the Election Form as the date of
distribution, which in the case of Director Shares deferred under the Plan, may
not be earlier than the scheduled vesting date of such Director Shares.  The total amounts credited to a Director’s
Share Account shall be paid in Shares (equal to the number of hypothetical
Shares that have accumulated in the Director’s Share Account pursuant to
Article III), unless the Company elects to pay total amounts credited to a
Director’s Share Account in cash.  If the
Company elects to make

 6
 

the
payment in cash, the cash payment will be equal to (x) the number of Shares
credited to a Director’s Share Account, multiplied by (y) the Fair Market Value
of the Shares on the cash payment date.

4.2           Each Director shall have the right to
designate a beneficiary who is to succeed to his right to receive payments
hereunder in the event of his death.  Any
designated beneficiary shall receive payments in the same manner as the Director
would have received payments if he had lived. 
In case of a failure of designation or the death of a designated
beneficiary without a designated successor, the balance of the amounts
contained in the Director’s Share Account shall be payable in accordance with
Section 4.1 to the Director’s or former Director’s estate in full on the first
day of the Year following the Year in which he dies.  No designation of beneficiary or change in
beneficiary shall be valid unless in writing signed by the Director and filed
with the Secretary or Assistant Secretary of the Company.

ARTICLE V

SHARE AWARDS

5.1           A Director may elect, on or before December
31 of any Year, to irrevocably receive currently in Shares payment of all or a
specified part of all Fees earned during the Year following the Year in which
such election is made and succeeding Years (until the Director ceases to be a
Director or elects (in writing) to change such election).  Any person who shall become a Director during
any Year, and who was not a Director of the Company on the preceding December
31, may elect, before the Director’s term begins (but in no event later than
thirty (30) days after the date such person first becomes eligible to
participate in this Plan), to receive current payment in Shares of all or a
specified part of such Fees earned during the remainder of such Year and for
succeeding Years.  Any Fees paid
currently in Shares pursuant to this Section 5.1 shall be paid to the Director
in the manner specified in Section 5.3 hereof.

5.2           The election to participate in the share award
portion of the Plan shall be designated on the Election Form.

5.3           The election of a Director to receive all or
a portion of his Fees currently in Shares shall continue from Year to Year
unless the Director changes such election by written request delivered to the
Secretary or Assistant Secretary of the Company by no later than December 31 of
the Year prior to the commencement of the Year for which such changed election
shall be effective.

5.4           If a Director has elected to receive a
portion of his Fees currently in Shares, the Company shall issue to the
Director or purchase in the open market on behalf of the Director, on the tenth
business day after the Company announces its quarterly results, Shares equal to
(x) the Fees otherwise payable to the Director in such fiscal quarter as to
which an election to receive Shares

 7
 

currently
has been made, divided by (y) the average Fair Market Value of the Shares over
the applicable fiscal quarter.

ARTICLE VI

ADMINISTRATION;
INTERPRETATION; SHARES

AVAILABLE FOR DISTRIBUTION

6.1           The Committee shall administer and interpret
the Plan in its sole discretion, and the Company shall maintain the Plan at its
expense.  All decisions made by the
Committee with respect to issues hereunder shall be final and binding on all
parties.

6.2           Except to the extent required by law, the
right of any Director or any beneficiary to any benefit or to any payment
hereunder shall not be subject in any manner to attachment or other legal
process for the debts of such Director or beneficiary, and any such benefit or
payment shall not be subject to alienation, sale, transfer assignment or
encumbrance.

6.3           The Company may, but shall not be obligated
to, reserve Shares, purchase Shares in the open market, and issue Shares for
the purpose of providing for the payment of obligations arising under this
Plan.

ARTICLE VII

AMENDMENT OF PLAN;
GOVERNING LAW; CHANGE IN CONTROL

7.1           The Plan may be amended, suspended or
terminated in whole or in part from time to time by the Board except that no
amendment, suspension, or termination shall apply to the payment to any
Director or beneficiary of a deceased Director of any amounts previously
credited to a Director’s Share Account.

7.2           This Plan shall be governed by and construed
and enforced in accordance with the laws of New York.

7.3           In the event of a Change in Control, all
amounts contained in each Director’s Share Account shall be distributed (in a
lump sum, cash payment or in Shares, as the Director shall elect on the
Election Form) on the date of the Change in Control.  If the Director elects to make the payment in
cash, the cash payment will be equal to (x) the number of Shares credited to
the Director’s Share Account, multiplied by (y) the Fair Market Value of the
Shares on the cash payment date.

7.4           Notwithstanding
any other provision of the Plan, this Plan is intended to comply with Section
409A of the Code (“Section 409A”) and shall at all times be interpreted in
accordance with such intent such that amounts credited to Directors’ accounts
shall not be taxable to Directors until such amounts are

 8
 

paid to Directors in accordance with the terms of the Plan.  In furtherance thereof, no payments may be
accelerated under the Plan other than to the extent permitted under Section
409A.  To the extent that any provision
of the Plan violates Section 409A such that amounts would be taxable to a
Director prior to payment or would otherwise subject a Director to a penalty
tax under Section 409A, such provision shall be automatically reformed or
stricken to preserve the intent hereof. 
To the extent that the Company determines that Directors may be given
greater flexibility to modify or revoke deferral elections under the Plan in a
manner consistent with Section 409A (based on future guidance promulgated by
the Internal Revenue Service and the Treasury Department from time to time),
the Company may (but shall not be obligated to) amend the Plan to provide for
such greater flexibility.

Adopted and effective the
4th day of May, 2007.

 9
 

APPENDIX A

KKR FINANCIAL
HOLDINGS LLC

DIRECTOR ANNUAL RETAINER AND DEFERRAL ELECTION NOTICE

Date                      

I hereby elect to
defer receipt of all or a portion of my Director’s Fees and/or Director Shares
(as defined in the KKR Financial Holdings LLC Non-Employee Directors’ Deferred
Compensation and Share Award Plan) (the “Plan”), commencing on the date of this
election notice and for all succeeding calendar years (“Years”) (unless
otherwise changed for subsequent Years as provided for below), in accordance
with my elections indicated below.

I elect to have my
Director’s Fees (including Committee Fees, if any) deferred as follows (fill in
appropriate percentage below):

               %
of the aggregate Director’s Fees shall be deferred to my Share Account (as
defined in the Plan), to which KKR Financial Holdings LLC (the “Company”) shall
credit hypothetical Shares (as defined in the Plan) in the manner set forth in
the Plan.

I elect to have my
Director Shares deferred as follows (fill in appropriate percentage below):

               %
of the Director Shares shall be deferred to my Share Account, to which the
Company shall credit hypothetical Shares in the manner set forth in the Plan.

I understand that
my election above to defer all or a portion of my Director’s Fees and/or
Director Shares shall continue from one Year to the next, unless I change my
election in writing by no later than December 31 of the Year prior to the
commencement of the Year for which I would like my changed election to be
effective.  I also understand that the
amount deferred pursuant to this election and any earnings attributable thereto
generally shall become payable on the earlier to occur of (i) the first day of
January following my separation from the Board or (ii) the date on which I
elect to receive payment of my deferred Fees and Director Shares (the “Election
Date”) (my Election Date, if any, shall be                                ),
and in any event on the date of the occurrence of a Change in Control (as
defined in the Plan).

I elect to receive
the payments due to me pursuant to the Plan in the event of a Change in Control
as follows (check the method desired below):

               in
a cash, lump sum payment

               in
Shares

The remainder of
my Director’s Fees shall not be deferred into hypothetical Shares, and shall be
payable to me currently as follows (fill in the appropriate percentage below):

 10
 

(a)                          % of my Director’s Fees that I have elected
not to defer shall be paid to me in arrears directly in cash as they accrue;

(b)                          % of my Director’s Fees that I have elected
not to defer shall be paid to me in arrears directly in Shares as they accrue,
in accordance with the Plan.

I understand that
(i) to the extent I make no election to defer Director’s Fees under this
election notice or do not designate the manner in which any portion of my
Director’s Fees that I elect to receive currently shall be payable to me, I
will receive such portion(s) of my Director’s Fees in cash; (ii) to the extent
I make no election under this election notice to defer Director Shares, I will
receive such Director Shares as they become vested; (iii) all elections I have
made above with respect to my Fees or Director Shares applicable to a
particular Year may not be amended or revoked with respect to such Year, but
may be amended for subsequent Years to the extent I change my election by no
later than December 31 of the Year prior to the commencement of the Year for
which I would like my changed election to be effective, and (iv) if I amend my
existing election to defer Fees in order to receive Fees in cash and/or in
Shares following each fiscal quarter or I amend my existing election to defer
Director Shares in order to receive Director Shares at the time of vesting, I
may not subsequently re-elect to defer payment of Fees for at least one Year.

In the event of my
death prior to receipt of all or any balance of my Share Account and dividends,
if any, thereon so accumulated, I designate                                    
as my beneficiary to receive Shares (or, if applicable, the funds) payable.

Acknowledged and Agreed
this    day of                    ,
200  .

	
   

  	
   

  
	
  Director

  	
   

  

 11
 

APPENDIX B

KKR FINANCIAL
HOLDINGS LLC

DIRECTOR 2007 DIRECTOR SHARES DEFERRAL ELECTION

Date                          

I hereby elect to
defer receipt of all or a portion of my Director Shares (as defined in the KKR
Financial Holdings LLC Non-Employee Directors’ Deferred Compensation and Share
Award Plan) (the “Plan”), effective for Director Shares granted in 2007, after
the date of this election, and for all succeeding calendar years (“Years”)
(unless otherwise changed for subsequent Years as provided for below), in
accordance with my elections indicated below.

I elect to have my
Director Shares deferred as follows (fill in appropriate percentage below):

               %
of the Director Shares shall be deferred to my Share Account, to which the
Company shall credit hypothetical Shares in the manner set forth in the Plan.

I understand that
my election above to defer all or a portion of my Director Shares shall
continue from one Year to the next, unless I change my election in writing by
no later than December 31 of the Year prior to the commencement of the Year for
which I would like my changed election to be effective.  I also understand that the amount deferred
pursuant to this election and any earnings attributable thereto generally shall
become payable on the earlier to occur of (i) the first day of January
following my separation from the Board or (ii) the date on which I elect to
receive payment of my deferred Fees and Director Shares (the “Election Date”)
(my Election Date, if any, shall be                                ),
and in any event on the date of the occurrence of a Change in Control (as
defined in the Plan).

I elect to receive
the payments due to me pursuant to the Plan in the event of a Change in Control
as follows (check the method desired below):

               in
a cash, lump sum payment

               in
Shares

I understand that
(i) to the extent I make no election under this election notice to defer
Director Shares, I will receive such Director Shares as they become vested;
(ii) the election I have made above with respect to my Director Shares
applicable to a particular Year may not be amended or revoked with respect to
such Year, but may be amended for subsequent Years to the extent I change my
election by no later than December 31 of the Year prior to the commencement of
the Year for which I would like my changed election to be effective, and (iii) if
I amend my existing election to defer Director Shares in order to receive
Director Shares at the time of vesting, I may not subsequently re-elect to
defer payment of Fees for at least one Year.

 12
 

In the event of my
death prior to receipt of all or any balance of my Share Account and dividends,
if any, thereon so accumulated, I designate                                             
as my beneficiary to receive Shares (or, if applicable, the funds) payable.

Acknowledged and Agreed
this     day of                   ,
2007.

	
  

  	
   

  
	
  Director

  	
   

  

 

 13

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