Document:

Exhibit 10.10

 

FIRST AMENDMENT TO CREDIT
AGREEMENT

This FIRST AMENDMENT TO CREDIT
AGREEMENT (this “Amendment”), is entered
into as of June 17, 2005 by and among, (a) KKR
FINANCIAL CORP., a Maryland corporation (“KKR  Financial”)
and KKR TRS HOLDINGS, INC, a
Delaware corporation (“KKR  TRS” and together with KKR Financial,
each individually, a “Borrower” and collectively, the “Borrowers”),
(b) JPMORGAN CHASE BANK, N.A., a
national banking association, as administrative agent (hereinafter, in such
capacity, the “Administrative  Agent”) for itself and the other
lending institutions (the “Existing  Lenders”) party to that
certain Credit Agreement, dated as of June 16, 2005 (as amended and in effect
from time to time, the “Credit  Agreement”), among the Borrowers,
the Existing Lenders and the Administrative Agent, (c) the Existing Lenders,
and (d) BANK OF AMERICA, N.A., a
national banking association (the “New  Lender” and collectively
with the Existing Lenders after giving effect to this Amendment, the “Lenders”).

WHEREAS, the Borrowers have
requested that the Existing Lenders, the Administrative Agent and the New
Lender agree, and the Existing Lenders, the Administrative Agent, and the New
Lender have agreed, on the terms and subject to the conditions set forth
herein, to amend certain provisions of the Credit Agreement to increase the
aggregate Commitments thereunder and provide for the New Lender to accede to
the Credit Agreement as if it had been an Existing Lender, in each case, on the
terms and subject to the conditions set forth herein.

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

§1.          Defined Terms.  Terms not otherwise defined
herein which are defined in the Credit Agreement shall have the same respective
meanings herein as therein.

§2.          Amendment
to Section 1.1 (Definitions) of the Credit Agreement. Section 1.1 of the Credit
Agreement is hereby amended by deleting the last sentence of the definition of
“Commitment” set forth in such Section 1.1 in its entirety and
substituting in lieu thereof the following: “The aggregate amount of the
Lenders’ Commitments is $275,000,000.”

§3.          Amendment
to Schedule 2.1 (Commitments) of the Credit Agreement. Schedule
2.1 of the Credit Agreement is hereby amended by deleting Schedule
2.1 in its entirety and substituting in lieu thereof Schedule  2.1
attached hereto.

§4.          Amendment
to Exhibit A (Assignment and Assumption) to the Credit Agreement.  Exhibit  A to the Credit
Agreement is hereby amended by deleting Paragraph 5 set forth therein and
substituting in lieu thereof the following new Paragraph 5:

                                                                                                “5.           Credit Agreement:        The Credit Agreement dated as of June
16, 2005, among KKR Financial Corp., KKR TRS Holdings, Inc., the Lenders
parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the
other agents parties thereto (as amended and in effect from time to time).”

 

 

§5.          Accession
of the New Lender. 
Subject to the terms and conditions of this Amendment, the New Lender
hereby agrees to assume, without recourse to the Existing Lenders or the
Administrative Agent, on the Effective Date, a Commitment of $25,000,000 in
accordance with the terms set forth in the Credit Agreement.  Upon such assumption, the aggregate
Commitments of the Lenders shall be automatically increased by the amount of
such assumption as set forth on Schedule  2.1 hereto.  The New Lender hereby agrees to be bound by,
and hereby requests the agreement of the Borrowers and the Administrative Agent
that the New Lender shall be entitled to the benefits of, all of the terms,
conditions and provisions of the Credit Agreement as if the New Lender had been
one of the lending institutions originally executing the Credit Agreement as a
“Lender”; provided that nothing herein shall be construed as making the
New Lender liable to the Borrowers or the other Lenders in respect of any acts
or omissions of any party to the Credit Agreement or in respect of any other
event occurring prior to the Effective Date of this Amendment.

§6.          Representations
and Warranties of the New Lender.  The New Lender (a) represents and warrants
that (i) it is duly and legally authorized to enter into this Amendment, (ii)
the execution, delivery and performance of this Amendment do not conflict with
any provision of law or of the charter or by-laws of the New Lender, or of any
agreement binding on the New Lender, and (iii) all acts, conditions and things
required to be done and performed and to have occurred prior to the execution,
delivery and performance of this Amendment, and to render the same the legal,
valid and binding obligation of the New Lender, enforceable against it in
accordance with its terms, have been done and performed and have occurred in
due and strict compliance with all applicable laws; (b) confirms that it has
received a copy of the Credit Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment; (c) agrees that it will, independently
and without reliance upon the other Lenders or the Administrative Agent and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (d) represents and warrants that it is eligible to
become a party to this Amendment under the terms and conditions of the Credit Agreement;
(e) appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers under the Credit Agreement and
the other Loan Documents as are delegated to the Administrative Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
and (f) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Lender.

§7.          Affirmation of the Borrowers.  Each of the Borrowers hereby
ratifies and confirms all of its Obligations to the Lenders under the Credit
Agreement (as amended hereby), including, without limitation, the Loans, and
each of the Borrowers hereby affirms its absolute and unconditional promise to
pay to the Lenders the Loans and all other amounts due under the Credit
Agreement as amended hereby.

§8.          Representations and Warranties of the Borrowers.  Each of the Borrowers hereby represents and
warrants to the Lenders as follows:

(a)           Representations and Warranties in the Credit Agreement.  The
representations and warranties of each of the Borrowers contained in the Credit

 

2

 

Agreement were true and
correct at and as of the date thereof and hereof, except to the extent of
changes resulting from transactions contemplated or permitted by the Credit
Agreement and the other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially adverse,
and to the extent such representations and warranties relate expressly to an
earlier date.

(b)           Ratification, Etc. 
Except as expressly amended hereby, the Credit Agreement, the other Loan
Documents and all documents, instruments and agreements related thereto, are
hereby ratified and confirmed in all respects and shall continue in full force
and effect.  The Credit Agreement,
together with this Amendment, shall be read and construed as a single
agreement.  All references in the Loan
Documents to the Credit Agreement or any other Loan Document shall hereafter
refer to the Credit Agreement or any other Loan Document as amended hereby.

(c)           Authority, Etc. 
The execution and delivery by each of the Borrowers of this Amendment
and the performance by the Borrowers of all of their agreements and obligations
under the Credit Agreement as amended and the other Loan Documents hereby are
within the corporate authority of the Borrowers and have been duly authorized
by all necessary corporate action on the part of the Borrowers.

(d)           Enforceability of Obligations.  This Amendment and the Credit Agreement as
amended and the other Loan Documents hereby constitute the legal, valid and
binding obligations of the Borrowers enforceable against the Borrowers in
accordance with their terms, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of, creditors’ rights and except to the extent that
availability of the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding therefor may
be brought.

(e)           No Default. 
After giving effect to this Amendment, no Default or Event of Default
has occurred and is continuing.

§9.          Conditions to Effectiveness.  This Amendment shall be deemed to be
effective as of June 17, 2005 (the “Amendment  Closing  Date”),
subject to the receipt by the Administrative Agent of a fully executed
counterpart hereof executed by each of the Borrowers, the Existing Lenders, the
New Lender and the Administrative Agent.

§10.        No Other Amendments.  Except as specifically
amended hereby, this Amendment does not constitute an amendment of any other
term or condition of the Credit Agreement or any other Loan Document, and all
such other terms and conditions are hereby ratified and confirmed and shall
remain in full force and effect.  Nothing
contained in this Amendment shall be construed to imply a willingness on the
part of the Administrative Agent or any of the Lenders to grant any similar or
other future amendment of any of the terms and conditions of the Credit
Agreement or the other Loan Documents. 
Except for the amendment expressly set forth herein, nothing contained
herein shall in any way prejudice, impair or otherwise adversely affect any
rights or remedies of the Administrative Agent and the Lenders under the Credit
Agreement or any other Loan Document.

§11.        Expenses  Pursuant to
Section 9.3 of the Credit Agreement, the Borrowers jointly and severally agree
to pay all reasonable costs and expenses incurred by the Administrative Agent
in connection with this Amendment, including the reasonable fees, charges and
disbursements of counsel for the Administrative Agent in producing, reproducing
and negotiating this Amendment.

§12.        Execution in Counterparts.  This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but which together
shall constitute one instrument.

§13.        Miscellaneous. 
THIS AMENDMENT SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.  The captions in
this Amendment are for convenience of reference only and shall not define or
limit the provisions hereof.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

3

IN WITNESS WHEREOF, the parties hereto have
caused their duly authorized officers to execute and deliver this Amendment as
of the date first above written.

	
   

  	
   

  
	
   

  	
  KKR
  FINANCIAL CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ BARBARA J. S. MCKEE

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Barbara J. S. McKee

  
	
   

  	
   

  	
  Title:

  	
  Secretary and General
  Counsel

  
					

 

	
   

  	
   

  
	
   

  	
  Address:

  	
  Four Embarcadero
  Center, Suite 2050

  San Francisco, CA 94111

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Taxpayer Identification
  Number: 20-1426618

  

 

	
   

  	
   

  
	
   

  	
  KKR
  TRS HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ BARBARA J. S. MCKEE

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Barbara J. S. McKee

  
	
   

  	
   

  	
  Title:

  	
  Secretary and General
  Counsel

  
					

 

	
   

  	
   

  
	
   

  	
  Address:

  	
  Four Embarcadero
  Center, Suite 2050

  San Francisco, CA 94111

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Taxpayer Identification
  Number: 20-1527391

  

 

	
   

  	
  JPMORGAN
  CHASE BANK, N.A.,
  individually and as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARYBETH MULLEN

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Marybeth Mullen

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
					

 

	
   

  	
   

  
	
   

  	
  CITICORP
  NORTH AMERICA, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ EDWARD T. CROOK

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Edward T. Crook

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
					

 

4

	
   

  	
   

  
	
   

  	
  BANK
  OF AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ELIZABETH KURILECZ

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Elizabeth Kurilecz

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
					

 

5Exhibit 10.11

 

COLLATERAL
MANAGEMENT AGREEMENT

This Agreement, dated as of March 30, 2005, is entered
into by and between KKR Financial CLO 2005-1, Ltd. (together with successors
and assigns permitted hereunder, the “Issuer”), and KKR Financial
Advisors II, LLC (in such capacity, the “Collateral Manager”).

WITNESSETH:

WHEREAS, the Issuer intends to issue certain notes
(the “Notes”) pursuant to an indenture, dated as of the date hereof (the “Indenture”),
among the Issuer, KKR Financial CLO 2005-1 Corp., as co-issuer of the Notes
(the “Co-Issuer” and, together with the Issuer, the “Co-Issuers”),
and JPMorgan Chase Bank, National Association, as trustee (in such capacity,
the “Trustee”);

WHEREAS, the Issuer intends to pledge certain
Collateral Debt Securities, Eligible Investments and Cash (all as defined in
the Indenture) and certain other assets (all as set forth in the Indenture)
(collectively, the “Collateral”) to the Trustee as security for the
Notes;

WHEREAS, the Issuer wishes to enter into this
Collateral Management Agreement, pursuant to which the Collateral Manager
agrees to perform, on behalf of the Issuer, certain duties with respect to the
Collateral in the manner and on the terms set forth herein and to perform such
additional duties as are consistent with the terms of this Agreement and the
Indenture; and

WHEREAS, the Collateral Manager has the capacity to
provide the services required hereby and is prepared to perform such services
upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual
agreements herein set forth, the parties hereto agree as follows:

1.             Definitions.

Terms used herein and not defined below or elsewhere
herein shall have the meanings set forth in the Indenture.

“Agreement” shall mean this Collateral
Management Agreement, as amended from time to time.

“Board of Directors” shall mean the directors
of the Issuer duly appointed pursuant to its Memorandum of Association and
Articles of Association or any subsequent directors who are duly appointed in accordance
with Cayman Islands law.

 

“Governing Instruments” shall mean the
memorandum, articles or certificate of incorporation or association and
by-laws, if applicable, in the case of a corporation, or the partnership
agreement, in the case of a partnership, or the operating agreement, in the
case of a limited liability company.

“Rating” shall mean the Moody’s Rating or the
S&P Rating, as applicable.

2.             General Duties of the Collateral Manager.

The Issuer hereby
appoints the Collateral Manager, and the Collateral Manager hereby accepts the
appointment, to act as a discretionary advisor and agent on the Issuer’s behalf
on the terms and subject to the conditions contained herein.  Such appointment and the power and authority
vested under this Agreement shall be limited by and subject to the
Indenture.  Subject to the provisions of
Section 10 hereof, the Collateral Manager shall provide services to the Issuer
as follows:

                (a)           The
Collateral Manager agrees to invest and reinvest the Collateral (including the purchase
of any Hedge Agreements), and shall perform on behalf of the Issuer those
investment-related duties and functions assigned to the Issuer in the
Indenture, including, without limitation, the duties specified in Section
7.5(a) of the Indenture, the furnishing of Issuer Orders, Issuer Requests and
Officer’s certificates, and such certifications as are required under the
Indenture with regard to Defaulted Securities, Credit Risk Securities and other
securities required to be sold under the Indenture and with respect to
satisfaction of the Investment Criteria. 
The Collateral Manager shall have full power and authority in the name
and on behalf of the Issuer to execute and deliver all necessary or appropriate
documents and instruments with respect thereto, including, without limitation,
all trade confirmations, participations, assignments and similar instruments
and any Hedge Agreements entered into by the Issuer.  The Collateral Manager shall, subject to the
terms and conditions of the Indenture perform its obligations hereunder and
under the Indenture with reasonable care and in good faith, using a degree of
skill and attention no less than that which the Collateral Manager and its
parent exercise with respect to comparable assets that they manage for themselves
and for others in accordance with their existing practices and procedures as in
effect from time to time relating to assets of the nature and character of the
Collateral and in a manner consistent with the standard of care exercised by
prudent institutional managers of national standing in the United States
relating to duties of the nature and character of those to be performed
hereunder and assets of the nature and character of the Collateral, except as
expressly provided otherwise in this Agreement or the Indenture.  To the extent not inconsistent with the
foregoing, the Collateral Manager shall follow its customary standards,
policies and procedures in performing its duties hereunder and under the
Indenture.  The Collateral Manager shall
not be bound to follow any amendment to the Indenture until it has received
written notice of such amendment and a copy thereof from the Issuer or the
Trustee; provided, however, that the Collateral Manager shall not
be bound by any amendment to the Indenture that materially affects the
obligations of the Collateral Manager unless the Collateral Manager shall have
consented thereto.  The Issuer agrees
that it shall not permit any amendment to the Indenture that materially affects
the obligations of the Collateral Manager to become effective unless the
Collateral Manager has been given prior written notice of such amendment and
has consented thereto;

2

(b)           The Collateral Manager shall select
all Collateral to be acquired or sold by the Issuer pursuant to the Indenture
in accordance with the criteria set forth therein, and in so doing shall take
into consideration, among other things, the payment obligations of the Issuer
under the Indenture;

(c)           The Collateral Manager shall monitor
the Collateral and prepare for the Issuer all reports, schedules and other data
which the Issuer is required to prepare and deliver under the Indenture,
substantially in the form and containing all information required thereby and
in sufficient time for the Issuer to review such required reports, schedules
and data and to deliver them to the parties entitled thereto under the
Indenture; in providing the foregoing service, the Collateral Manager shall
monitor any Hedge Agreements and direct the Trustee on behalf of the Issuer in
respect of all actions to be taken thereunder by the Issuer; the Collateral
Manager shall be responsible for obtaining to the extent reasonably available
any information concerning whether a Collateral Debt Security has become a
Defaulted Security and for providing to any Rating Agency, in the event that
such Rating Agency is requested by the Issuer to provide an estimate with
respect to its Rating of a security, any information reasonably available and
necessary for any such Rating Agency to provide such estimate;

(d)           The Collateral Manager, subject to and
in accordance with the provisions of the Indenture, shall direct the Trustee
(i) to dispose of any or all of the Collateral Debt Securities or Eligible
Investments, or other securities received in respect thereof in the open market
or otherwise, or (ii) to acquire, as security for the Notes in substitution for
or in addition to any one or more Collateral Debt Securities or Eligible
Investments included in the Collateral, one or more Substitute Collateral Debt
Securities or Eligible Investments, and may, as agent and attorney-in-fact of
the Issuer, take or require the Trustee to take the following actions with
respect to any Collateral Debt Security or Eligible Investment:

(i)            retain
such Collateral Debt Security or Eligible Investment;

(ii)           dispose
of such Collateral Debt Security or Eligible Investment in the open market or
otherwise;

(iii)          if
applicable, tender such Collateral Debt Security or Eligible Investment pursuant
to an Offer;

(iv)          if
applicable, consent to or reject any proposed amendment, modification or waiver
pursuant to an Offer;

(v)           retain
or dispose of any securities or other property received pursuant to an Offer;

(vi)          waive
any default with respect to any Collateral Debt Security;

(vii)         vote
to accelerate the maturity of any Collateral Debt Security; or

 

3

 

(viii)        exercise
any other rights or remedies with respect to any Collateral Debt Security or
Eligible Investment as provided in the related Underlying Instruments or take
any other action consistent with the terms of the Indenture;

(e)           Upon disposition of any Collateral
Debt Security or Eligible Investment (or any security or property received in
exchange therefor), and upon receipt of Scheduled Distributions, the Collateral
Manager shall direct the Trustee to apply the proceeds of such disposition or
such Scheduled Distributions (i) in accordance with the Indenture, to the
purchase of Substitute Collateral Debt Securities or Eligible Investments, or
(ii) as otherwise required or permitted by the Indenture;

(f)            The Collateral Manager will manage
the Collateral with the objective that there be sufficient funds available on
each Payment Date in accordance with the Priority of Payments (i) to pay
interest on the Notes in a timely manner and (ii) to repay principal of the
Notes in full no later than their respective Stated Maturity;

(g)           The Collateral Manager shall cause
any purchase or sale of any Collateral Debt Security to be conducted on an arm’s
length basis;

(h)           The Collateral Manager shall provide
to the Independent accountants appointed pursuant to Article 10 of the
Indenture all reports, data and other information (including, without
limitation, any letters of representation) that such accountants may reasonably
require in connection with such appointment;

(i)            The Collateral Manager and the
Issuer shall each take such other action, and furnish such certificates,
opinions and other documents, as may be reasonably requested by the other party
hereto in order to effectuate the purposes of this Agreement and to facilitate
compliance with applicable laws and regulations and the terms of this
Agreement;

(j)            The Collateral Manager shall notify
the Issuer and the Rating Agencies of any change in the organizational
structure of the Collateral Manager within a reasonable time after any such
change;

(k)           In providing services hereunder, the
Collateral Manager may employ third parties, including its Affiliates, to render
advice (including investment advice) and assistance; provided, however,
that the Collateral Manager shall not be relieved of any of its duties
hereunder regardless of the performance of any services by third parties; and

(l)            It is the intention of the parties
hereto that the activities of the parties undertaken pursuant to this Agreement
will not cause the Issuer to be treated as engaged in the conduct of a trade or
business within the United States of America.

3.             Brokerage.

The Collateral Manager shall seek to obtain, in
accordance with reasonable and customary business practices and in compliance
with the Securities Exchange Act of 1934, as amended, and applicable laws, the
best prices and execution for all orders placed with respect to the Collateral,
considering all circumstances.  Subject
to the objective of obtaining best prices

 

4

 

and execution, the
Collateral Manager may, in the allocation of business, take into consideration
research and other brokerage services furnished to the Collateral Manager or
its Affiliates by brokers and dealers which are not Affiliates of the
Collateral Manager.  Such services may be
furnished to the Collateral Manager or its Affiliates in connection with its
other advisory activities or investment operations.  Transactions may be executed as part of
concurrent authorizations to purchase or sell the same investment for other
accounts served by the Collateral Manager or its Affiliates.  When these concurrent transactions occur, the
objective of the Collateral Manager (and any of its Affiliates involved in such
transactions) shall be to allocate the executions among the accounts in an
equitable manner.

In addition to the foregoing and subject to the
objective of obtaining best prices and execution and to the extent permitted by
applicable law, the Collateral Manager may, on behalf of the Issuer, direct the
Trustee to acquire any and all of the Eligible Investments from, or sell
Collateral Debt Securities or other Collateral to, its Affiliates or any other
firm.

4.                                       Additional Activities of the Collateral
Manager.

Nothing herein shall prevent the Collateral Manager or
any of its Affiliates from engaging in any business, or from rendering services
of any kind to the Issuer and its Affiliates, the Trustee, the Holders or
beneficial owners of the Securities or any other Person or entity; provided,
that such services are not provided pursuant to its role as Collateral Manager
hereunder.  Without prejudice to the
generality of the foregoing, directors, officers, shareholders, members,
managers, employees and agents of the Collateral Manager or its Affiliates may,
among other things, and subject to any limits specified in the Indenture:

(a)           serve as directors (whether
supervisory or managing), partners, officers, shareholders, members, managers,
employees, agents, nominees or signatories for the Issuer, its Affiliates or
any issuer of any obligations included in the Collateral, to the extent
permitted by their Governing Instruments, as from time to time amended, or by
any resolutions duly adopted by the Issuer, its Affiliates or any issuer of any
obligations included in the Collateral, pursuant to their respective Governing
Instruments;

(b)           receive fees for services of any
nature rendered to the issuer of any obligations included in the Collateral;

(c)           be retained to provide services to
the Issuer or its Affiliates that are unrelated to this Agreement, and be paid
therefor;

(d)           be a secured or unsecured creditor
of, or hold an equity interest in, the Issuer, its Affiliates or any issuer of
any obligation included in the Collateral;

(e)           purchase from or sell to the Issuer
any obligation included in the Collateral while acting in the capacity of
principal or agent, in compliance with the provisions of  the Indenture;

(f)            make a market in any Collateral Debt
Securities or in the Securities; and

 

5

(g)           serve as a member of any “creditors’
committee” or informal workout group with respect to any obligation included in
the Collateral.

It is understood that the Collateral Manager and its
Affiliates may engage in any other business and furnish investment management
and advisory services to others, including Persons which may have investment
policies similar to those followed by the Collateral Manager with respect to
the Collateral and which may own securities or obligations of the same class,
or which are the same type, as the Collateral Debt Securities or the Eligible
Investments or other securities of the issuers of the Collateral Debt
Securities.  The Collateral Manager will
be free, in its sole discretion, to make recommendations to others, or effect
transactions on behalf of itself or for others, which may be the same as or
different from those effected with respect to the Collateral.

Nothing contained in this Agreement shall prevent the
Collateral Manager or any of its Affiliates, acting either as principal or
agent on behalf of others, from buying or selling, or from recommending to or
directing any other account to buy or sell, at any time, securities or
obligations of the same kind or class, or securities or obligations of a
different kind or class of the same issuer, as those directed by the Collateral
Manager to be purchased or sold hereunder. 
It is understood that, to the extent permitted by applicable law, the
Collateral Manager, its Affiliates, and any officer, director, stockholder,
partner, member, manager or employee of the Collateral Manager or any such
Affiliate or any member of their families or a Person or entity advised by the
Collateral Manager may have an interest in a particular transaction or in
securities or obligations of the same kind or class, or securities or
obligations of a different kind or class of the same issuer, as those whose
purchase or sale the Collateral Manager may direct hereunder.

Unless the Collateral Manager determines in its
reasonable business judgment that such purchase or sale may be appropriate, the
Collateral Manager may refrain from directing the purchase or sale hereunder of
securities or obligations of (i) Persons of which the Collateral Manager, its
Affiliates or any of its or its Affiliates’ officers, directors, partners,
members, managers or employees are directors or officers, (ii) Persons for
which the Collateral Manager or any of its Affiliates act as financial adviser
or underwriter or (iii) Persons about which the Collateral Manager or any of
its Affiliates have information which the Collateral Manager deems confidential
or non-public or otherwise might prohibit it from trading such securities or
obligations in accordance with applicable law. 
The Collateral Manager shall not be obligated to utilize with respect to
the Collateral any particular investment opportunity of which it becomes aware.

5.             Conflicts
of Interest.

In addition to the requirements of Sections 12.5 and
15.1 of the Indenture, the Collateral Manager shall not acquire on behalf of
the Issuer or direct the Trustee to acquire an obligation to be included in the
Collateral from the Collateral Manager or any of its Affiliates as principal or
sell an obligation included in the Collateral to the Collateral Manager or any
of its Affiliates as principal unless (a) the Issuer shall have received from
the Collateral Manager such information relating to such acquisition or
disposition as it shall reasonably require and (b) the Issuer acting with the
consent of two-thirds of the Holders of Subordinated Notes shall have approved
such acquisition or disposition and Section 2(g) shall apply to any such acquisition
or

 

6

 

sale.  The Collateral Manager shall not, without the
prior written consent of the Board of Directors, purchase any Collateral Debt
Security for inclusion in the Collateral directly from any account or portfolio
for which the Collateral Manager serves as investment adviser or sell directly
any Collateral Debt Security to any account or portfolio for which the
Collateral Manager serves as investment adviser and Section 2(g) shall apply to
any such acquisition or sale.

6.             Records.

The Collateral Manager shall maintain appropriate
books of account and records relating to services performed hereunder, and such
books of account and records shall be accessible for inspection by a
representative of the Issuer, the Trustee, the Holders and the Independent
accountants appointed by the Collateral Manager on behalf of the Issuer
pursuant to Article 10 of the Indenture at any time during normal business
hours and upon not less than three Business Days’ prior notice.

7.             Obligations
of the Collateral Manager.

The Collateral Manager shall use reasonable efforts to
ensure that no action is taken by it, and shall not intentionally or with
reckless disregard take any action, which would (a) materially adversely affect
the Issuer or the Co-Issuer for purposes of Cayman Islands law, United States
federal or state law or any other law which, in the judgment of the Collateral
Manager, made in good faith or as advised by the Issuer, is applicable to the
Issuer, (b) not be permitted under the Issuer’s Memorandum of Association or
Articles of Association, (c) violate in any material respect any law, rule or
regulation of any governmental body or agency having jurisdiction over the
Issuer or the Co-Issuer, including, without limitation, any Cayman Islands or
United States federal, state or other applicable securities law, (d) require
registration of the Issuer  or the
Co-Issuer or the pool of Collateral as an “investment company” under the
Investment Company Act of 1940, as amended (the “Investment Company Act”),
(e) adversely affect the Trustee in any material respect, (f) result in the
Issuer or the Co-Issuer violating in any material respect the terms of the
Indenture, (g) adversely affect the interests of the Holders in any material
respect (other than as permitted hereunder or under the Indenture) or (h)
subject the Issuer to U.S. federal or state income taxation.

If the Collateral Manager is ordered to take any such
action by the Issuer, the Collateral Manager shall promptly notify the Issuer,
the Trustee and the Rating Agencies of the Collateral Manager’s judgment that
such action would have one or more of the consequences set forth above and need
not take such action unless (i) the action would not have the consequences set
forth in clause (c) above and (ii) the Issuer again requests the Collateral
Manager to do so and the Trustee and the Holders of a Majority of the
Securities Outstanding have consented thereto in writing.  Notwithstanding any such request, the
Collateral Manager need not take such action unless arrangements satisfactory
to it are made to insure or indemnify the Collateral Manager from any liability
it may incur as a result of such action.

Notwithstanding the foregoing, the Collateral Manager,
its members, managers, directors, officers, and employees shall not be liable
to the Issuer, the Trustee, the Holders or any Person, except as provided in
Section 10 of this Agreement.

 

7

8.             Compensation.

(a)           In
consideration of the performance of the obligations of the Collateral Manager
hereunder and under the Indenture, the Collateral Manager shall be entitled to
receive, at the times set forth in the Indenture and subject to the conditions
and the priority of distribution provisions thereof, to the extent funds are
available therefor, the Senior Collateral Management Fee.  Such Collateral Management Fee will be
calculated on the basis of the actual number of days elapsed in the applicable
Due Period divided by 360.

The Collateral Manager, in its sole discretion, may
elect to defer payment of all or any portion of any Collateral Management Fee
on any Payment Date by providing notice to the Trustee of such election on or
before the Determination Date preceding such Payment Date (such amounts, the “Current
Deferred Management Fee”).  After
such Payment Date, the Current Deferred Management Fee will be added to the
aggregate amount of Current Deferred Management Fees deferred by the Collateral
Manager minus the aggregate amount of all such fees paid to the Collateral
Manager on a prior Payment Date (such amount, the “Cumulative Deferred
Management Fee”).  The Collateral
Manager may elect to receive payment of all or any portion of the Cumulative
Deferred Management Fee, subject to and in accordance with the Priority of
Payments, by providing notice to the Trustee of such election and the amount of
such Deferred Management Fees to be paid on or before the Determination Date
preceding such Payment Date.

(b)           The
Collateral Manager shall be responsible for ordinary expenses incurred in the
performance of its obligations under this Agreement; provided, however,
that (i) the expenses of employing outside lawyers or consultants in connection
with any Collateral Debt Security, (ii) the expenses of employing outside
lawyers to provide advice with respect to Cayman Islands law and U.S. tax law
in connection with the performance of the Collateral Manager’s obligations
hereunder and (iii) the reasonable expenses of exercising observation rights
(including through a representative) pursuant to Section 18 hereof shall be
reimbursed by the Issuer to the extent funds are available therefor in
accordance with and subject to the limitations contained in the Indenture.

(c)           If
this Agreement is terminated, the Collateral Manager’s Fee shall be prorated
for any partial periods between Payment Dates during which this Agreement was
in effect and shall be due and payable on the first Payment Date following the
date of such termination subject to the Priority of Payments.

9.             Benefit
of the Agreement.

The Collateral Manager agrees that its obligations
hereunder shall be enforceable at the instance of the Administrator, on behalf
of the Issuer, the Trustee, on behalf of the Holders, or the requisite percentage
of Holders as provided in the Indenture.

10.           Limits of Collateral Manager
Responsibility; Indemnity.

(a)           Notwithstanding any other provision
of this Agreement, the Collateral Manager assumes no responsibility under this
Agreement other than to render the services called for hereunder and under the
terms of the Indenture applicable to it in good faith

 

8

 

and subject to the
standard of conduct described in the next succeeding sentence and shall not be
responsible for any action or inaction of the Issuer or the Trustee in
declining to follow any advice, recommendation or direction of the Collateral
Manager.  The Collateral Manager, its
members, managers, directors, officers, stockholders, partners, employees,
Affiliates and agents shall not be liable to the Issuer, the Trustee, the
Holders, the Hedge Counterparties or any other Person for any acts or omissions
by the Collateral Manager, its members, managers, directors, officers,
stockholders, partners, employees, Affiliates or agents under or in connection
with this Agreement or the terms of the Indenture applicable to it, or for any
decrease in the value of the Collateral, except that the Collateral Manager
shall be liable for acts or omissions constituting bad faith, willful
misconduct or gross negligence in the performance, or reckless disregard, of
the obligations of the Collateral Manager hereunder and under the terms of the
Indenture applicable to it.  Subject
always to Section 31 hereof, the Issuer shall indemnify and hold harmless (the
Issuer in such case, the “Indemnifying Party”) the Collateral Manager,
its members, managers, directors, officers, stockholders, partners, employees,
Affiliates and agents (other than the Collateral Manager and any Affiliate in
its capacity as a Holder) (such parties collectively in such case, the “Indemnified
Parties”) from and against any and all expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever (including
reasonable attorneys’ and accountants’ fees and expenses), in respect of or
arising from any acts or omissions of any Indemnified Party in the performance
of the Collateral Manager’s duties under this Agreement and the Indenture and
not constituting bad faith, willful misconduct, gross negligence or reckless
disregard of the Collateral Manager’s obligations hereunder.

(b)           An Indemnified Party shall (or with
respect to an Indemnified Party other than the Collateral Manager, the
Collateral Manager shall cause such Indemnified Party to) promptly notify the
Indemnifying Party if the Indemnified Party receives a complaint, claim,
compulsory process or other notice of any loss, claim, damage or liability
giving rise to a claim for indemnification under this Section 10, but failure
so to notify the Indemnifying Party (i) shall not relieve such Indemnifying
Party from its obligations under paragraph (a) above unless and to the extent
that it did not otherwise learn of such action or proceeding and to the extent
such failure results in the forfeiture by the Indemnifying Party of substantial
rights and defenses and (ii) shall not, in any event, relieve the Indemnifying
Party for any obligations to any Person entitled to indemnity pursuant to
paragraph (a) above other than the indemnification obligations provided for in
paragraph (a) above.

 

9

(c)           With respect to any claim made or
threatened against an Indemnified Party, or compulsory process or request
served upon such Indemnified Party for which such Indemnified Party is or may
be entitled to indemnification under this Section 10, such Indemnified Party
shall (or with respect to an Indemnified Party other than the Collateral
Manager, the Collateral Manager shall cause such Indemnified Party to), at the
Indemnifying Party’s expense:

                (i)            give
written notice to the Indemnifying Party of such claim within 10 days after
such claim is made or threatened, which notice shall specify in reasonable
detail the nature of the claim and the amount (or an estimate of the amount) of
the claim;

                                                                                                                                 (ii)          provide the Indemnifying Party such
information and cooperation with respect to such claim as the Indemnifying
Party may reasonably require, including, but not limited to, making appropriate
personnel available to the Indemnifying Party at such reasonable times as the
Indemnifying Party may request;

                                                                                                                                (iii)          cooperate and take all such steps as
the Indemnifying Party may reasonably request to preserve and protect any
defense to such claim;

                                                                                                                                (iv)          in the event suit is brought with
respect to such claim, upon reasonable prior notice, afford to the Indemnifying
Party the right, which the Indemnifying Party may exercise in its sole
discretion and at its expense, to participate in the investigation, defense and
settlement of such claim;

                                                                                                                                 (v)          neither incur any material expense to
defend against nor release or settle any such claim or make any admission with
respect thereto (other than routine or incontestable admissions or factual
admissions the failure to make which would expose such Indemnified Party to
unindemnified liability) without the prior written consent of the Indemnifying
Party; provided, that the Indemnifying Party shall have advised such
Indemnified Party that such Indemnified Party is entitled to be indemnified hereunder
with respect to such claim; and

                                                                                                                                (vi)          upon reasonable prior notice, afford
to the Indemnifying Party the right, in its sole discretion and at its sole
expense, to assume the defense of such claim, including, but not limited to,
the right to designate counsel reasonably satisfactory to the Indemnified Party
and to control all negotiations, litigation, arbitration, settlements,
compromises and appeals of such claim; provided, that if the
Indemnifying Party assumes the defense of such claim, it shall not be liable
for any fees and expenses of counsel for any Indemnified Party incurred
thereafter in connection with such claim except that if such Indemnified Party
reasonably determines that counsel designated by the Indemnifying Party has a
conflict of interest, such Indemnifying Party shall pay the reasonable fees and
disbursements of one counsel (in addition to any local counsel) separate from
its own counsel for all Indemnified Parties in connection with any one action
or

 

10

separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances; and provided  further, that
prior to entering into any final settlement or compromise, such Indemnifying Party
shall seek the consent of the Indemnified Party and use its best efforts in the
light of the then prevailing circumstances (including, without limitation, any
express or implied time constraint on any pending settlement offer) to obtain
the written consent of such Indemnified Party as to the terms of settlement or
compromise.  If an Indemnified Party does
not consent to the settlement or compromise within a reasonable time under the
circumstances, the Indemnifying Party shall not thereafter be obligated to
indemnify the Indemnified Party for any amount in excess of such proposed
settlement or compromise.

(d)           No Indemnified Party shall, without
the prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed, settle or compromise any claim giving rise to
a claim for indemnity hereunder, or permit a default or consent to the entry of
any judgment in respect thereof, unless such settlement, compromise or consent
includes, as an unconditional term thereof, the giving by the claimant to the
Indemnifying Party of a release from liability substantially equivalent to the
release given by the claimant to such Indemnified Party in respect of such
claim.

(e)           In the event that any Indemnified
Party waives its right to indemnification hereunder, the Indemnifying Party
shall not be entitled to appoint counsel to represent such Indemnified Party
nor shall the Indemnifying Party reimburse such Indemnified Party for any costs
of counsel to such Indemnified Party.

11.           No
Partnership or Joint Venture.

The Issuer and the Collateral Manager are not partners
or joint venturers with each other and nothing herein shall be construed to
make them such partners or joint venturers or impose any liability as such on
either of them.  The Collateral Manager’s
relation to the Issuer shall be deemed to be solely that of an independent
contractor.

12.                                 Term; Termination.

(a)           This Agreement shall commence as of
the date first set forth above and shall continue in force until the first of
the following occurs: (i) the liquidation of the Collateral and the final
distribution of the proceeds of such liquidation to the Holders; or (ii) the
termination of this Agreement in accordance with subsection (b) of this Section
12 or Section 14 of this Agreement.

(b)           This Agreement may be terminated
without cause by the Collateral Manager, and the Collateral Manager may resign,
upon 90 days’ prior written notice to the Issuer; provided, however,
that no such termination or resignation shall be effective until the date as of
which a successor Collateral Manager shall have agreed in writing to assume all
of the Collateral Manager’s duties and obligations pursuant to this Agreement
and such assumption has become effective.

 

11

(c)           This Agreement shall be automatically
terminated in the event that the Administrator, in consultation with the Board
of Directors and the Collateral Manager, determines in good faith that the
Issuer or the Co-Issuer or the pool of Collateral has become required to
register as an investment company under the provisions of the Investment
Company Act by virtue of any action taken by the Collateral Manager, and the
Issuer notifies the Collateral Manager thereof.

(d)           If this Agreement is terminated pursuant
to this Section 12, such termination shall be without any further liability or
obligation of either party to the other, except as provided in Sections 10, 15
and 31 of this Agreement, which provisions shall survive the termination of
this Agreement.

(e)           Upon any removal or resignation of
the Collateral Manager while the Securities are Outstanding, the Issuer, acting
through its Board of Directors, shall appoint as successor Collateral Manager
an institution which (i) has demonstrated an ability to professionally and
competently perform duties similar to those imposed upon the Collateral Manager
hereunder, (ii) is legally qualified and has the capacity to act as Collateral
Manager hereunder, as successor to the Collateral Manager under this Agreement in
the assumption of all responsibilities, duties and obligations of the
Collateral Manager hereunder and under the applicable terms of the Indenture
and (iii) shall not cause the Issuer or the Co-Issuer or the pool of Collateral
to become required to register as an “investment company” under the provisions
of the Investment Company Act.

No such termination or
removal shall be effective until a successor Collateral Manager has been
approved by Holders of a Majority of the Controlling Class Outstanding after
the issuance by the Issuer of a notice naming and describing the qualifications
of the successor Collateral Manager to the Holders of the Securities and the
appointment has become effective.  Such
successor Collateral Manager must be ready and able to assume the duties of the
Collateral Manager within 40 days after the date of such notice of resignation
or removal of the Collateral Manager.  If
no successor Collateral Manager shall have been appointed or an instrument of
acceptance by a successor Collateral Manager shall not have been delivered to
the Collateral Manager (a) within 30 days after designation of the successor
Collateral Manager by the Issuer and the issuance of notice regarding the
successor Collateral Manager to the Holders of the Securities, or (b) within 50
days after the date of notice of resignation or removal of the Collateral
Manager, the resigning or removed Collateral Manager may petition any court of
competent jurisdiction for the appointment of a successor Collateral Manager
without the approval of the Holders of the Notes.  No compensation payable to any successor
Collateral Manager from payments on the Collateral shall be greater than that
permitted by the Indenture.  The Issuer,
the Trustee, the Collateral Manager and the successor Collateral Manager shall
take such action consistent with this Agreement and the terms of the Indenture
applicable to the Collateral Manager, as shall be necessary to effectuate any
such succession.

13.           Delegation;
Assignments.

Except with respect to those responsibilities
delegated pursuant to the Collateral Administration Agreement, the
responsibilities of the Collateral Manager under this Agreement shall not be
delegated by the Collateral Manager, in whole or in part, without the prior
written

12

consent of the Issuer and
the Holders of a Majority of Securities Outstanding; provided, however,
that the Collateral Manager may delegate or assign its responsibilities to any
Affiliate, having available to it the services of substantially the same
investment management team as the Collateral Manager; provided, however,
that such delegation or assignment shall not relieve the Collateral Manager of
its responsibilities hereunder unless and until such responsibilities have been
assumed by the Affiliate.  Any assignment
of this Agreement to any Person, in whole or in part, by the Collateral Manager
shall be deemed null and void unless such assignment is consented to in writing
by the Issuer and the Holders of a Majority of the Controlling Class
Outstanding (such consent not to be unreasonably withheld).  Any assignment consented to by the Issuer and
such Holders shall bind the assignee hereunder in the same manner as the
Collateral Manager is bound.  In
addition, the assignee shall execute and deliver to the Issuer and the Trustee
an appropriate agreement naming such assignee as Collateral Manager.  Upon the execution and delivery of such a
counterpart by the assignee, the Collateral Manager shall be released from
further obligations pursuant to this Agreement, except with respect to its
obligations under Section 10 of this Agreement arising prior to such assignment
and except with respect to its obligations under Sections 15 and 31 hereof.  This Agreement shall not be assigned by the
Issuer without the prior written consent of the Collateral Manager and the
Trustee, except in the case of assignment by the Issuer to (i) an entity which
is a successor to the Issuer permitted under the Indenture, in which case such
successor organization shall be bound hereunder and by the terms of said
assignment in the same manner as the Issuer is bound thereunder or (ii) the
Trustee as contemplated by the Granting Clauses and Section 15.1 of the
Indenture.  In the event of any
assignment by the Issuer, the Issuer’s successor shall execute and deliver to
the Collateral Manager such documents as the Collateral Manager shall consider
reasonably necessary to effect fully such assignment.  No change in control of the Collateral Manager,
including any change in control resulting from a direct or indirect transfer or
hypothecation of voting securities of the Collateral Manager that constitutes
an “assignment” within the meaning of the Investment Advisers Act of 1940, as
amended (the “Advisers Act”), shall be treated as an assignment for
purposes of this Agreement.

14.           Termination
by the Issuer for Cause.

This Agreement may be terminated by the Issuer, and
the Collateral Manager may be removed, for cause upon 15 Business Days’ written
notice to the Collateral Manager and the Trustee with the affirmative vote of
the Holders of a Majority of all Securities Outstanding voting collectively or
the affirmative vote of a Majority of the Class A Notes, so long as the Class A
Notes are Outstanding; provided, that in determining whether the Holders
of the requisite percentage of Securities have given such vote, Securities
owned by the Collateral Manager or any Affiliate thereof shall be disregarded
and deemed not to be Outstanding.  No
such termination or removal shall be effective until the date as of which a
successor Collateral Manager appointed pursuant to Section 12(e) shall have
agreed in writing to assume all of the Collateral Manager’s duties pursuant to
this Agreement.  For purposes of
determining “cause” with respect to termination of this Agreement pursuant to
this Section, such term shall mean any one of the following events:

(a)           any of the Collateral Manager or any
of its Affiliates that provide material investment management related services
or personnel to the Collateral Manager pursuant to a contractual obligation
between the Collateral Manager and such Affiliate

 

13

(collectively, the “Related
Companies”) is wound up or dissolved or there is appointed over any of the
Related Companies or a substantial portion of its assets a receiver,
administrator, administrative receiver, trustee or similar officer; or any of
the Related Companies (i) ceases to be able to, or admits in writing its
inability to, pay its debts as they become due and payable, or makes a general
assignment for the benefit of, or enters into any composition or arrangement
with, its creditors generally; (ii) applies for or consents (by admission of
material allegations of a petition or otherwise) to the appointment of a
receiver, trustee, assignee, custodian, liquidator or sequestrator (or other
similar official) of any of the Related Companies or of any substantial part of
its properties or assets, or authorizes such an application or consent, or
proceedings seeking such appointment are commenced without such authorization,
consent or application against any of the Related Companies and continue
undismissed for 60 days; (iii) authorizes or files a voluntary petition in
bankruptcy, or applies for or consents (by admission of material allegations of
a petition or otherwise) to the application of any bankruptcy, reorganization,
arrangement, readjustment of debt, insolvency or dissolution, or authorizes
such application or consent, or proceedings to such end are instituted against
any of the Related Companies without such authorization, application or consent
and are approved as properly instituted and remain undismissed for 60 days or
result in adjudication of bankruptcy or insolvency; or (iv) permits or suffers
all or any substantial part of its properties or assets to be sequestered or
attached by court order and the order remains undismissed for 60 days;

(b)           the occurrence of a payment Event of
Default under Sections 5.1(a), 5.1(b) or 5.1(d) of the Indenture as the result
of any action or failure to act by the Collateral Manager;

(c)           an act by any of the Related
Companies, or any of their investment personnel actively involved in managing
the portfolio of the Issuer, that constitutes fraud or criminal activity in the
performance of its obligations under this Agreement or in the conduct of its
asset management business, or any of the Related Companies being indicted for a
criminal offense materially related to its asset management business;

(d)            the Collateral Manager violates any
material provision of this Agreement or any terms of the Indenture applicable
to it, such violation has a material effect on the Holders of the Senior Notes,
and (if such violation is capable of being cured) such violation is not cured
within 45 days after the Collateral Manager gives or receives written notice of
such violation in accordance with the notification provisions of the Indenture;
or

(e)           the failure of any representation,
warranty, certification or statement made or delivered by the Collateral
Manager in or pursuant to this Agreement to be correct in any material respect
when made, such failure has a material adverse effect on the Holders of Senior
Notes and is not remedied for a period of 45 days after the Collateral Manager
gives or receives written notice of such violation in accordance with the
notification provisions of the Indenture.

If any of the events
constituting “cause” as specified in this Section 14 shall occur, the
Collateral Manager shall give prompt written notice thereof to the Issuer, the
Trustee, the Rating Agencies and the Holders upon the Collateral Manager’s
becoming aware of the occurrence of such event.

 

14

 

15.                                 Action Upon Termination.

(a)           From and after the effective date of
termination of this Agreement, the Collateral Manager shall not be entitled to
compensation for further services hereunder, but shall be paid all compensation
accrued to the date of termination, as provided in Section 8 hereof, and shall
be entitled to receive any amounts owing under Sections 7 and 10 hereof.  Upon termination, the Collateral Manager
shall as soon as practicable:

(i)            deliver to the Issuer all property
and documents of the Trustee or the Issuer or otherwise relating to the
Collateral then in the custody of the Collateral Manager; and

(ii)           deliver to the Trustee an account
with respect to the books and records delivered to the Trustee or the successor
Collateral Manager appointed pursuant to Section 12(e) hereof.

Notwithstanding such termination, the Collateral
Manager shall remain liable for its acts or omissions hereunder as described in
Section 10 arising prior to termination and for any expenses, losses, damages,
liabilities, demands, charges and claims of any nature whatsoever (including
reasonable attorneys’ fees) in respect of or arising out of a breach of the
representations and warranties made by the Collateral Manager in Section 16(b)
hereof or from any failure of the Collateral Manager to comply with the
provisions of this Section 15.

(b)           The Collateral Manager agrees that,
notwithstanding any termination, it shall reasonably cooperate in any
Proceeding arising in connection with this Agreement, the Indenture or any of
the Collateral (excluding any such Proceeding in which claims are asserted
against the Collateral Manager or any Affiliate of the Collateral Manager) upon
receipt of appropriate indemnification and expense reimbursement.

16.                                 Representations and Warranties.

(a)           The Issuer hereby represents and
warrants to the Collateral Manager as follows:

                                                                                                                                  (i)          The Issuer has been duly incorporated
and is validly existing under the laws of the Cayman Islands, has the full
corporate power and authority to own its assets and the securities proposed to
be owned by it and included in the Collateral and to transact the business in
which it is presently engaged and is duly qualified under the laws of each
jurisdiction where its ownership or lease of property or the conduct of its
business requires, or the performance of its obligations under this Agreement,
the Indenture, the Hedge Agreements or the Securities would require, such
qualification, except for failures to be so qualified, authorized or licensed
that would not in the aggregate have a material adverse effect on the business,
operations, assets or financial condition of the Issuer.

                                                                                                                                 (ii)          The Issuer has and at the time of
execution of the respective agreements or issue of Securities shall have full
corporate power and

 

15

 

authority to
execute, deliver and perform this Agreement, the Indenture, the Hedge
Agreements and the Securities and all obligations required hereunder or
thereunder and (A) has taken all necessary action to authorize this Agreement
on the terms and conditions hereof and the execution, delivery and performance
of this Agreement, and (B) by the Closing Date will have taken all necessary
action to authorize the Indenture, the Hedge Agreements and the Securities on
the terms and conditions thereof and will have taken all necessary action to
authorize the execution, delivery and performance of the Indenture, the Hedge
Agreements and the Securities and the performance of all obligations imposed
upon it hereunder and thereunder.  No
consent of any other Person including, without limitation, stockholders and
creditors of the Issuer, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority, other than those that may be required under state
securities or “blue sky” laws and those that have been or shall be obtained in
connection with the Indenture and the issuance of the Securities, is required
by the Issuer in connection with this Agreement, the Hedge Agreements or the
Securities or the execution, delivery, performance, validity or enforceability
of this Agreement, the Hedge Agreements or the Securities or the obligations
imposed upon it hereunder or thereunder. 
This Agreement constitutes, and each instrument or document required
hereunder or thereunder, when executed and delivered hereunder or thereunder,
shall constitute, the legally valid and binding obligation of the Issuer
enforceable against the Issuer in accordance with its terms, subject, as to
enforcement, to (a) the effect of bankruptcy, insolvency or similar laws
affecting generally the enforcement of creditors’ rights, as such laws would
apply in the event of any bankruptcy, receivership, insolvency or similar event
applicable to the Issuer and (b) general equitable principles (whether
enforceability of such principles is considered in a proceeding at law or in
equity).

                                                                                                                                (iii)          The execution, delivery and
performance of this Agreement and the documents and instruments required
hereunder do not violate any provision of any existing law or regulation
binding on the Issuer, or any order, judgment, award or decree of any court,
arbitrator or governmental authority binding on or applicable to the Issuer, or
the Governing Instruments of, or any securities issued by, the Issuer or of any
mortgage, indenture, lease, contract or other agreement, instrument or
undertaking to which the Issuer is a party or by which the Issuer or any of its
assets is or may be bound, the violation of which would have a material adverse
effect on the business, operations, assets or financial condition of the
Issuer, and do not result in or require the creation or imposition of any lien
on any of its property, assets or revenues pursuant to the provisions of any
such mortgage, indenture, lease, contract or other agreement, instrument or
undertaking (other than the lien of the Indenture).

                                                                                                                                (iv)          The Issuer is not in violation of its
Governing Instruments or in breach or violation of or in default under the
Indenture or any contract or agreement to which it is a party or by which it or
any of its assets may be bound, or any applicable statute or any rule,
regulation or order of any court, government agency or body having jurisdiction
over the Issuer or its properties, the breach or

 

16

 

violation of which
or default under which would have a material adverse effect on the validity or
enforceability of this Agreement or the performance by the Issuer of its duties
hereunder.

                                                                                                                                (v)           True and complete copies of the
Indenture and the Issuer’s Governing Instruments have been delivered to the
Collateral Manager.

The Issuer agrees to
deliver a true and complete copy of each and every amendment to the documents
referred to in Section 16(a)(v) above to the Collateral Manager as promptly as
practicable after its adoption or execution.

(b)           The Collateral Manager hereby
represents and warrants to the Issuer as follows:

                                                                                                                                  (i)          The Collateral Manager is a limited
liability company duly organized and validly existing and in good standing
under the laws of the State of Delaware and has full power and authority to own
its assets and to transact the business in which it is currently engaged and is
duly qualified as a limited liability company and is in good standing under the
laws of each jurisdiction where its ownership or lease of property or the
conduct of its business requires, or the performance of this Agreement would
require such qualification, except for those jurisdictions in which the failure
to be so qualified, authorized or licensed would not have a material adverse
effect on the business, operations, assets or financial condition of the
Collateral Manager or on the ability of the Collateral Manager to perform its
obligations under, or on the validity or enforceability of, this Agreement and
the provisions of the Indenture which are applicable to the Collateral Manager.

                                                                                                                                 (ii)          The Collateral Manager has full power
and authority to execute, deliver and perform this Agreement and all
obligations required hereunder and under the provisions of the Indenture which
are applicable to the Collateral Manager, and the Collateral Manager has taken
all necessary action to authorize this Agreement on the terms and conditions
hereof and the execution, delivery and performance of this Agreement and all
obligations required hereunder and under the terms of the Indenture which are
applicable to the Collateral Manager.  No
consent of any other Person, including, without limitation, creditors of the
Collateral Manager, and no license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required by the Collateral Manager in connection
with this Agreement or the execution, delivery, performance, validity or
enforceability of this Agreement or the obligations required hereunder or under
the terms of the Indenture which are applicable to the Collateral Manager.  This Agreement has been, and each instrument
and document required hereunder or under the terms of the Indenture shall be,
executed and delivered by a duly authorized officer of the Collateral Manager,
and this Agreement constitutes, and each instrument and document required
hereunder or under the terms of the Indenture when executed and delivered by
the

 

17

 

Collateral Manager
shall constitute, the legally valid and binding obligation of the Collateral
Manager enforceable against the Collateral Manager in accordance with its terms,
subject, as to enforcement, to (a) the effect of bankruptcy, insolvency or
similar laws affecting generally the enforcement of creditors’ rights, as such
laws would apply in the event of any bankruptcy, receivership, insolvency or
similar event applicable to the Collateral Manager and (b) general equitable
principles (whether enforceability of such principles is considered in a
proceeding at law or in equity).

                                                                                                                                (iii)          The execution, delivery and
performance of this Agreement and the Indenture applicable to the Collateral
Manager and the documents and instruments required hereunder or under the terms
of the Indenture do not violate any provision of any existing law or regulation
binding on or applicable to the Collateral Manager, or any order, judgment,
award or decree of any court, arbitrator or governmental authority binding on
the Collateral Manager, or the Governing Instruments of, or any securities
issued by the Collateral Manager or of any mortgage, indenture, lease, contract
or other agreement, instrument or undertaking to which the Collateral Manager
is a party or by which the Collateral Manager or any of its assets is or may be
bound, the violation of which would have a material adverse effect on the
business operations, assets or financial condition of the Collateral Manager or
its ability to perform its obligations under this Agreement and do not result
in or require the creation or imposition of any lien on any of its property,
assets or revenues pursuant to the provisions of any such mortgage, indenture,
lease, contract or other agreement, instrument or undertaking.

                                                                                                                                (iv)          There is no charge, investigation,
action, suit or proceeding before or by any court pending or, to the knowledge
of the Collateral Manager, threatened that, if determined adversely to the
Collateral Manager, would have a material adverse effect upon the performance
by the Collateral Manager of its duties under, or on the validity or
enforceability of this Agreement or the provisions of the Indenture applicable
to the Collateral Manager.

                                                                                                                                 (v)          The Collateral Manager is not in
violation of its Governing Instruments or in breach or violation of or in
default under any contract or agreement to which it is a party or by which it
or any of its property may be bound, or any applicable statute or any rule,
regulation or order of any court, government agency or body having jurisdiction
over the Collateral Manager or its properties, the breach or violation of which
or default under which would have a material adverse effect on the validity or
enforceability of this Agreement or the provisions of the Indenture applicable
to the Collateral Manager hereunder, or the performance by the Collateral
Manager of its duties hereunder or thereunder.

                                                                                                                                (vi)          The Sections entitled “The Collateral
Manager” (other than under “General”) and any information describing the
Collateral Manager contained in the Preliminary Offering Memorandum dated as of
February 10, 2005 prepared in connection with the offering of the Securities
(such information,

 

18

 

the “Collateral
Manager Information”) do not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant in
connection with the offer and sale of securities of such registrant registered
under the Securities Act.  Within such
scope of disclosure, however, as of the date of the Preliminary Offering
Memorandum, the Collateral Manager Information stated therein accurately
restates the information provided by the Collateral Manager and was true in all
material respects and did not omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading.

                                                                                                                                (vii)         The Sections entitled “The Collateral
Manager” (other than under “General”) and any information describing the
Collateral Manager contained in the Final Offering Memorandum prepared in
connection with the offering of the Notes (such information, also “Collateral
Manager Information”) do not purport to provide the scope of disclosure
required to be included in a prospectus with respect to a registrant in
connection with the offer and sale of securities of such registrant registered
under the Securities Act.  Within such
scope of disclosure, however, as of the Closing Date, the Collateral Manager
Information stated therein accurately restates the information provided by the
Collateral Manager and is true in all material respects and does not omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

                                                                                                17.               Non-Exclusivity.

The services of the
Collateral Manager to the Issuer are not to be deemed exclusive and the
Collateral Manager shall be free to render collateral management or management
services to other Persons (including Affiliates, investment companies and
clients having objectives similar to those of the Issuer).

18.               Observation Rights.

The Issuer covenants and
agrees to notify timely the Collateral Manager of each meeting of the Board of
Directors of the Issuer and each solicitation of written consents from the
Board of Directors, to provide timely any materials distributed to the Board of
Directors in connection with such meeting or solicitation and to afford a
representative of the Collateral Manager the opportunity to be present at each
such meeting, in person or by telephone at the option of the Collateral Manager
as to communicate with the Board of Directors with respect to any such
solicitation.

                                                                                                19.                  Notices.

Unless expressly provided otherwise herein, all
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing (including by telecopy) and shall be deemed
to have been duly given, made and received when delivered against receipt or
upon actual receipt of registered or certified mail, postage prepaid, return

 

19

 

receipt requested, or, in
the case of telecopy notice, when received in legible form, addressed as set
forth below:

(a)           If
to the Issuer:

KKR Financial CLO
2005-1, Ltd.

c/o Maples Finance
Limited

P.O. Box 1093GT,
Queensgate House

113 South Church
Street

George Town

Grand Cayman

Cayman Islands

Telephone:            (345) 945-7099

Telecopy:              (345) 945-7100

Attention:              Directors

with copies to:

Maples and Calder

P.O. Box 309GT,
Ugland House

South Church
Street

George Town

Grand Cayman

Cayman Islands

Telephone:            (345) 949-8066

Telecopy:              (345) 949-8080

Attention:              Mark
Rawlins

Morgan Stanley & Co. Incorporated

1585 Broadway

New York, NY 
10036

Telephone:            (212)
761-2548

Telecopy:              (212)
507-8218

Attention:              Sue
Portelli

 

(b)           If to the Collateral Manager:

KKR Financial Advisors II, LLC

c/o KKR Financial Corp.

Four Embarcadero Center, Suite 2050

San Francisco, CA 
94111

Telephone:            (415)
315-3620

Telecopy:              (415)
391-3077

Attention:              Chief
Operating Officer

 

20

 

with
a copy to:

KKR Financial Corp.

Four Embarcadero Center, Suite 2050

San Francisco, CA  94111

Telephone:            (415)
315-3620

Telecopy:              (415)
391-3077

Attention:              General
Counsel

 

                                                (c)           If to the Trustee:

                                                                JPMorgan
Chase Bank, N.A.

                                                                600
Travis Street, 50th Floor

                                                                Houston,
Texas  77002

                                                                Telephone:
           (713) 216-4181

                                                                Telecopy:              (713) 216-2101

                                                                Attention:              Institutional Trust Services — KKR
Financial CLO 2005-1, Ltd.

 

 

                                                (d)           If to Moody’s:

 

                                                                Moody’s
Investors Service

                                                                99
Church Street

                                                                New
York, New York  10007

                                                                Telephone:            (212) 553-0300

                                                                Telecopy:              (212) 553-0355

                                                                Attention:              CBO/CLO Monitoring — KKR Financial
CLO 2005-1

 

                                                (e)           If to S&P:

 

                                                                Standard
& Poor’s

                                                                55
Water Street, 41st Floor

                                                                New
York, New York  10041

                                                                Telephone:            (212) 438-2000

                                                                Telecopy:              (212) 438-2664

                                                                Attention:              Asset-backed CBO/CDO Surveillance

 

                                                (f)            If to the Holders:

 

                                                                At
their respective addresses as set forth in the Security Register.

 

                                                (g)           If to the Hedge Counterparties:

 

                                                                At
their respective addresses set forth in the relevant Hedge Agreements.

 

21

 

 

Either party may alter the address or telecopy number
to which communications or copies are to be sent by giving notice of such
change of address in conformity with the provisions of this Section 19 for the
giving of notice.

20.           Binding Nature of Agreement;
Successors and Assigns.

This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns as provided herein.

21.           Entire
Agreement; Amendments.

This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter
hereof.  The express terms hereof control
and supersede any course of performance and/or usage of the trade inconsistent
with any of the terms hereof.  This
Agreement may not be modified or amended other than by an agreement in writing
executed by the parties hereto and satisfaction of any additional requirements
with respect to such amendments as set forth in the Indenture.  Notice of any such amendment shall be
provided to the Rating Agencies.

22.           Conflicts
with the Indenture.

In the event that this Agreement requires any action
to be taken with respect to any matter and the Indenture requires that a
different action be taken with respect to such matter, and such actions are
mutually exclusive, the provisions of the Indenture in respect thereof shall
control.

23.           Subordination.

The Collateral Manager agrees that the payment of all
amounts to which it is entitled pursuant to this Agreement shall be
subordinated to the extent set forth in, and the Collateral Manager agrees to
be bound by the provisions of, Articles 5, 11, 13 and 15 of the Indenture as if
the Collateral Manager were a party to the Indenture and each of the Collateral
Manager and the Issuer hereby consents to the assignment of this Agreement as
provided in Section 15.1 of the Indenture.

24.           Governing
Law.

THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK.

25.           Indulgences
Not Waivers.

Neither the failure nor any delay on the part of any
party hereto to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or

22

 

further exercise of the
same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence.  No waiver shall be
effective unless it is in writing and is signed by the party asserted to have
granted such waiver.

26.           Costs
and Expenses.

The reasonable costs and expenses (including the fees
and disbursements of counsel and accountants) incurred by the Collateral
Manager in connection with the negotiation and preparation of and the execution
of this Agreement, and all matters incident thereto, shall be borne by the
Collateral Manager.

27.           Titles
Not to Affect Interpretation.

The titles of paragraphs and subparagraphs contained
in this Agreement are for convenience only, and they neither form a part of
this Agreement nor are they to be used in the construction or interpretation
hereof.

28.           Execution
in Counterparts.

This Agreement may be executed in any number of
counterparts by facsimile or other written form of communication, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same
instrument.  This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.

29.           Provisions
Separable.

In case any provision in this Agreement shall be
invalid, illegal or unenforceable as written, such provision shall be construed
in the manner most closely resembling the apparent intent of the parties with
respect to such provision so as to be valid, legal and enforceable; provided,
however, that if there is no basis for such a construction, such
provision shall be ineffective only to the extent of such invalidity,
illegality or unenforceability and, unless the ineffectiveness of such
provision destroys the basis of the bargain for one of the parties to this
Agreement, the validity, legality and enforceability of the remaining
provisions hereof or thereof shall not in any way be affected or impaired
thereby.

30.           Number
and Gender.

Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.

 

23

 

31.           Limited Recourse; Non-Petition.

                Notwithstanding
any other provision of this Agreement, the obligations of the Issuer hereunder
are limited recourse obligations of the Issuer, payable solely from the
Collateral and only to the extent of funds available from time to time in
accordance with the Priority of Payments, and following exhaustion of such
amounts, any claims of the Collateral Manager hereunder shall be extinguished
and shall not thereafter revive.  The
Collateral Manager further agrees (i) not to take any action in respect of any
claims hereunder against any officer, director, employee, administrator or
shareholder of the Issuer and (ii) not to institute against, or join any other
Person in instituting against, the Issuer or the Co-Issuer any bankruptcy,
reorganization, arrangement, insolvency, moratorium or liquidation proceedings
or other proceedings under Cayman Islands, U.S. federal or state bankruptcy or
similar laws until at least one year and one day or, if longer, the applicable
preference period then in effect, after payment in full of all Notes issued
under the Indenture; provided, however, that nothing in this
clause (ii) shall preclude, or be deemed to estop, the Collateral Manager (A)
from taking any action prior to the expiration of the applicable preference
period in (x) any case or proceeding voluntarily filed or commenced by the
Issuer or the Co-Issuer, as the case may be, or (y) any involuntary insolvency
proceeding filed or commenced against the Issuer or the Co-Issuer, as the case
may be, by a Person other than the Collateral Manager, or (B) from commencing
against the Issuer or the Co-Issuer or any properties of the Issuer or the
Co-Issuer any legal action which is not a bankruptcy, reorganization, arrangement,
insolvency, moratorium or liquidation proceeding.

 

24

 

IN WITNESS WHEREOF, the parties hereto have executed
this Collateral Management Agreement as of the date first written above.

	
   

  	
  KKR FINANCIAL ADVISORS II, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DAVID A. NETJES

  
	
   

  	
   

  	
  Name: David A. Netjes

  
	
   

  	
   

  	
  Title: Chief Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KKR FINANCIAL CLO 2005-1, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ HUGH THOMPSON

  
	
   

  	
   

  	
  Name: Hugh Thompson

  
	
   

  	
   

  	
  Title: Director

  

 

25

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00086-of-00352.parquet"}]]