Document:

Exhibit 10.8

 

	
   

  	
  August 12, 2004

  

 

Mr. Saturnino S. Fanlo

Chief Executive Officer

KKR Financial Corp.

9 West 57th Street

New York, NY  10019

 

 

Dear Mr. Fanlo:

 

Reference is made to that
certain Management Agreement, dated as of August 12, 2004, by and between
KKR Financial Corp. and KKR Investment Advisors LLC (the “Management
Agreement”).  During the Initial Term
and any Automatic Renewal Term of the Management Agreement, KKR Investment
Advisors LLC shall not, and shall cause its Affiliates to not, raise, sponsor
or advise any new investment fund, company or vehicle (including any real
estate investment trust) that invests primarily in domestic mortgage-backed
securities; provided that for purposes of the foregoing limitation, any
portfolio company of any private equity fund controlled by Kohlberg Kravis
Roberts & Co. L.P. shall not be deemed to be an entity under common
control with KKR Financial Advisors LLC.

 

In the event of a breach
of this Letter Agreement by KKR Investment Advisors LLC, KKR Financial Corp.
shall be entitled to injunctive relief, in addition to any other remedy
available at law or equity.  Capitalized
terms used but not defined in this Letter Agreement have the meanings ascribed
to such terms in the Management Agreement.

 

If the foregoing accurately
reflects your understanding of our agreement, please execute this Letter
Agreement below.

 

[Remainder of page is
intentionally left blank]

 

 

	
   

  	
  KKR FINANCIAL ADVISORS LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
        /s/ DAVID A
  NETJES

  	
   

  
	
   

  	
  Name:

  	
  David A. Netjes

  
	
   

  	
  Its:

  	
  Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  Accepted and agreed to as of

  	
   

  
	
  the date first written above:

  	
   

  
	
   

  	
   

  
	
  KKR FINANCIAL CORP.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
        /s/ SATURNINO S.
  FANLO

  	
   

  
	
  Name:

  	
  Saturnino S. Fanlo

  
	
  Its:

  	
  Chief Executive Officer

  
								

 

2Exhibit 10.9

 

 

	
  

  	
  

  

 

CREDIT AGREEMENT

 

dated as of

 

June 16, 2005

 

among

 

KKR FINANCIAL CORP.

 

KKR TRS HOLDINGS, INC.

 

 

The Lenders Party Hereto

 

and

 

JPMORGAN CHASE BANK, N.A.

as Administrative Agent

 

CITIGROUP GLOBAL MARKETS INC.

as Syndication Agent

 

 

J.P. MORGAN SECURITIES INC. and

CITIGROUP GLOBAL MARKETS INC.

as Joint Bookrunners and Lead Arrangers

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.1.

  	
  Defined
  Terms

  	
   

  
	
  SECTION 1.2.

  	
  Classification
  of Loans and Borrowings

  	
   

  
	
  SECTION 1.3.

  	
  Terms
  Generally

  	
   

  
	
  SECTION 1.4.

  	
  Accounting
  Terms; GAAP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  THE CREDITS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.1.

  	
  Commitments

  	
   

  
	
  SECTION 2.2.

  	
  Loans
  and Borrowings

  	
   

  
	
  SECTION 2.3.

  	
  Requests
  for Borrowings

  	
   

  
	
  SECTION 2.4.

  	
  Funding
  of Borrowings

  	
   

  
	
  SECTION 2.5.

  	
  Interest
  Elections

  	
   

  
	
  SECTION 2.6.

  	
  Termination
  and Reduction of Commitments

  	
   

  
	
  SECTION 2.7.

  	
  Repayment of
  Loans; Evidence of Debt

  	
   

  
	
  SECTION 2.8.

  	
  Prepayment
  of Loans

  	
   

  
	
  SECTION 2.9.

  	
  Fees

  	
   

  
	
  SECTION 2.10.

  	
  Interest

  	
   

  
	
  SECTION 2.11.

  	
  Alternate
  Rate of Interest

  	
   

  
	
  SECTION 2.12.

  	
  Increased
  Costs

  	
   

  
	
  SECTION 2.13.

  	
  Break
  Funding Payments

  	
   

  
	
  SECTION 2.14.

  	
  Taxes

  	
   

  
	
  SECTION 2.15.

  	
  Payments
  Generally; Pro Rata Treatment; Sharing of Set-offs

  	
   

  
	
  SECTION 2.16.

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
   

  
	
  SECTION 2.17.

  	
  Concerning
  Joint and Several Liability of the Borrowers

  	
   

  
	
  SECTION 2.18.

  	
  Contribution

  	
   

  
	
  SECTION 2.19.

  	
  Collateral
  Security

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  III

  	
  REPRESENTATIONS
  AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.1.

  	
  Organization;
  Powers

  	
   

  
	
  SECTION 3.2.

  	
  Authorization;
  Enforceability

  	
   

  
	
  SECTION 3.3.

  	
  Governmental
  Approvals; No Conflicts

  	
   

  
	
  SECTION 3.4.

  	
  Financial
  Condition; No Material Adverse Change

  	
   

  
	
  SECTION 3.5.

  	
  Properties

  	
   

  
	
  SECTION 3.6.

  	
  Litigation
  and Environmental Matters

  	
   

  
	
  SECTION 3.7.

  	
  Compliance
  with Laws and Agreements

  	
   

  
	
  SECTION 3.8.

  	
  Investment
  and Holding Company Status

  	
   

  
	
  SECTION 3.9.

  	
  Taxes

  	
   

  
	
  SECTION 3.10.

  	
  ERISA

  	
   

  
	
  SECTION 3.11.

  	
  Disclosure

  	
   

  
	
  SECTION 3.12.

  	
  Solvency

  	
   

  
	
  SECTION 3.13.

  	
  No
  Burdensome Restrictions

  	
   

  
	
  SECTION 3.14

  	
  Borrowing
  Base Report

  	
   

  
								

 

 

	
  ARTICLE
  IV

  	
  CONDITIONS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.1.

  	
  Effective
  Date

  	
   

  
	
  SECTION 4.2.

  	
  Each
  Credit Event

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  V

  	
  AFFIRMATIVE
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.1.

  	
  Financial
  Statements; Ratings Change and Other Information

  	
   

  
	
  SECTION 5.2.

  	
  Notices
  of Material Events

  	
   

  
	
  SECTION 5.3.

  	
  Existence;
  Conduct of Business

  	
   

  
	
  SECTION 5.4.

  	
  Payment
  of Obligations

  	
   

  
	
  SECTION 5.5.

  	
  Maintenance
  of Properties; Insurance

  	
   

  
	
  SECTION 5.6.

  	
  Books
  and Records; Inspection Rights

  	
   

  
	
  SECTION 5.7.

  	
  Compliance
  with Laws

  	
   

  
	
  SECTION 5.8.

  	
  Use
  of Proceeds

  	
   

  
	
  SECTION 5.9.

  	
  Notice
  of Dispositions

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VI

  	
  NEGATIVE
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.1.

  	
  Indebtedness

  	
   

  
	
  SECTION 6.2.

  	
  Liens

  	
   

  
	
  SECTION 6.3.

  	
  Fundamental
  Changes

  	
   

  
	
  SECTION 6.4.

  	
  Investments,
  Loans, Advances, Guarantees and Acquisitions

  	
   

  
	
  SECTION 6.5.

  	
  Restricted
  Payments

  	
   

  
	
  SECTION 6.6.

  	
  Transactions
  with Affiliates

  	
   

  
	
  SECTION 6.7.

  	
  Restrictive
  Agreements

  	
   

  
	
  SECTION 6.8.

  	
  Financial
  Covenants

  	
   

  
	
  SECTION 6.9.

  	
  Dispositions

  	
   

  
	
  SECTION 6.10.

  	
  Management
  Fees; Compensation

  	
   

  
	
  SECTION 6.11.

  	
  Fiscal
  Year

  	
   

  
	
  SECTION 6.12.

  	
  Margin
  Regulations; Securities Laws

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VII

  	
  EVENTS
  OF DEFAULT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII

  	
  THE
  ADMINISTRATIVE AGENT

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  IX

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.1.

  	
  Notices

  	
   

  
	
  SECTION 9.2.

  	
  Waivers;
  Amendments

  	
   

  
	
  SECTION 9.3.

  	
  Expenses;
  Indemnity; Damage Waiver

  	
   

  
	
  SECTION 9.4.

  	
  Successors
  and Assigns

  	
   

  
	
  SECTION 9.5.

  	
  Survival

  	
   

  
	
  SECTION 9.6.

  	
  Counterparts;
  Integration; Effectiveness

  	
   

  
	
  SECTION 9.7.

  	
  Severability

  	
   

  
	
  SECTION 9.8.

  	
  Right
  of Setoff

  	
   

  
	
  SECTION 9.9.

  	
  Governing
  Law; Jurisdiction; Consent to Service of Process

  	
   

  
	
  SECTION 9.10.

  	
  WAIVER
  OF JURY TRIAL

  	
   

  
	
  SECTION 9.11.

  	
  Headings

  	
   

  
	
  SECTION 9.12.

  	
  Confidentiality

  	
   

  
	
  SECTION 9.13.

  	
  USA
  PATRIOT Act

  	
   

  
	
  SECTION 9.14.

  	
  Interest
  Rate Limitation

  	
   

  

 

2

 

SCHEDULES:

Schedule 2.1 — Commitments

Schedule 3.6 — Disclosed Matters

Schedule 6.1 — Existing Indebtedness

Schedule 6.2 — Existing Liens

Schedule 6.7 — Existing Restrictions

 

EXHIBITS:

Exhibit A — Form of Assignment
and Assumption

Exhibits B -1,
B-2, B-3—Forms of Opinions of Borrowers’ Counsel

Exhibit C — Borrowing
Base

Exhibit D — Form
of Borrowing Base Report

 

3

 

CREDIT
AGREEMENT dated as of June 16, 2005, among KKR FINANCIAL CORP., a Maryland
corporation, KKR TRS HOLDINGS, INC., a Delaware corporation, the LENDERS party
hereto, and JPMORGAN CHASE BANK, N.A., as Administrative Agent.

 

The parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS

 

SECTION 1.1.        Defined
Terms.  As used in this Agreement,
the following terms have the meanings specified below:

 

“ABR”, when used in
reference to any Loan or Borrowing, refers to whether such Loan, or the Loans
comprising such Borrowing, are bearing interest at a rate determined by reference
to the Alternate Base Rate.

 

“Adjusted LIBO Rate”
means, with respect to any Eurodollar Borrowing for any Interest Period, an
interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to (a) the LIBO Rate for such Interest Period multiplied by
(b) the Statutory Reserve Rate.

 

“Administrative Agent”
means JPMorgan Chase Bank, N.A., in its capacity as administrative agent for
the Lenders hereunder.

 

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

 

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

 

“Alternate Base Rate”
means, for any day, a rate per annum equal to the greater of (a) the Prime
Rate in effect on such day, and (b) the Federal Funds Effective Rate in
effect on such day plus 1⁄2 of 1%. 
Any change in the Alternate Base Rate due to a change in the Prime Rate
or the Federal Funds Effective Rate shall be effective from and including the
effective date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.

 

“Applicable Percentage”
means, with respect to any Lender, the percentage of the total Commitments
represented by such Lender’s Commitment. 
If the Commitments have terminated or expired, the Applicable
Percentages shall be determined based upon the Commitments most recently in
effect, giving effect to any assignments.

 

“Applicable Rate” means, for any day,
with respect to any Eurodollar Revolving Loan, 1.00% per annum.

 

“Approved Fund” has
the meaning assigned to such term in SECTION 9.4.

 

“Assignment and
Assumption” means an assignment and assumption entered into by a Lender and
an assignee (with the consent of any party whose consent is required by SECTION
9.4), and

 

 

accepted by the
Administrative Agent, in the form of Exhibit A hereto or any
other form approved by the Administrative Agent.

 

“Availability Period”
means the period from and including the Effective Date to but excluding the
earlier of the Maturity Date and the date of termination of the Commitments.

 

“Balance Sheet Date”
means December 31, 2004.

 

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

 

“Borrowers” means
collectively, KKR Financial and KKR TRS.

 

“Borrowing” means
Revolving Loans of the same Type, made, converted or continued on the same date
and, in the case of Eurodollar Loans, as to which a single Interest Period is
in effect.

 

“Borrowing Base” has
the meaning assigned to such term on Exhibit  C hereto.

 

“Borrowing Base Report”
means a report signed by a Financial Officer of each of the Borrowers and in
substantially the form of Exhibit D hereto.

 

“Borrowing Request”
means a request by a Borrower for a Borrowing in accordance with SECTION 2.3.

 

“Business Day” means
any day that is not a Saturday, Sunday or other day on which commercial banks
in New York City are authorized or required by law to remain closed; provided
that, when used in connection with a Eurodollar Loan, the term “Business Day”
shall also exclude any day on which banks are not open for dealings in dollar
deposits in the London interbank market.

 

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

 

“Change in Control”
means (a) the acquisition of ownership, directly or indirectly, beneficially or
of record, by any Person or group (within the meaning of the Securities
Exchange Act of 1934 and the rules of the Securities and Exchange Commission
thereunder as in effect on the date hereof), of Equity Interests representing
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding Equity Interests of KKR Financial; (b) occupation of a majority
of the seats (other than vacant seats) on the board of directors of KKR
Financial by Persons who were neither (i) nominated by the board of directors
of KKR Financial nor (ii) appointed by directors so nominated; or (c) the
acquisition of direct or indirect Control of KKR Financial by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules
of the Securities and Exchange Commission thereunder as in effect on the date
hereof).  It is understood and agreed
that KKR Financial Advisors LLC does not Control KKR Financial solely for
purposes of this definition.

 

“Change in Law” means
(a) the adoption of any law, rule or regulation after the date of this
Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement or (c) compliance by any Lender (or, for purposes of
SECTION 2.12(b), by any lending office of such Lender or by such Lender’s
holding

 

 

company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.

 

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

 

“Collateral” means
all of the property, rights and interests of the Borrowers and their respective
Subsidiaries that are or are intended to be subject to the Liens created by the
Security Documents.

 

“Commitment” means,
with respect to each Lender, the commitment of such Lender to make Revolving
Loans hereunder, expressed as an amount representing the maximum aggregate
amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment
may be (a) reduced from time to time pursuant to SECTION 2.6 and (b) reduced or
increased from time to time pursuant to assignments by or to such Lender
pursuant to SECTION 9.4.  The initial
amount of each Lender’s Commitment is set forth on Schedule  2.1,
or in the Assignment and Assumption pursuant to which such Lender shall have
assumed its Commitment, as applicable. 
The initial aggregate amount of the Lenders’ Commitments is
$250,000,000.

 

“Consolidated Net Worth”
means, as of any date of determination, the excess of Consolidated Total Assets
over Consolidated Total Liabilities.

 

“Consolidated Tangible
Net Worth” means, as of any date of determination, the excess of Consolidated
Total Assets over Consolidated Total Liabilities, and less the sum
(without duplication) of the following (in each case, to the extent included in
the Consolidated Total Assets):

 

(a)           the
total book value of all assets of KKR Financial and its Subsidiaries properly
classified as intangible assets under GAAP, including such items as good will,
the purchase price of acquired assets in excess of the fair market value
thereof, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the foregoing; plus

 

(b)           all
amounts representing any write-up in the book value of any assets of KKR
Financial or its Subsidiaries resulting from a revaluation thereof subsequent
to the Balance Sheet Date, excluding
adjustments to translate foreign assets and liabilities for changes in foreign
exchange rates made in accordance with Financial Accounting Standards Board
Statement No. 52.

 

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

 

 

“Consolidated Total
Liabilities” means, as of any date of determination, all liabilities of KKR
Financial and its Subsidiaries determined on a consolidated basis in accordance
with GAAP and classified as such on the consolidated balance sheet of KKR
Financial and its Subsidiaries and all
other Indebtedness of KKR Financial and its Subsidiaries, whether or not so
classified.

 

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

 

“Custody Agreement”
means the Custody Agreement of even date herewith, among the Borrowers and the
Administrative Agent and in form and substance reasonably satisfactory to the
Administrative Agent.

 

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

 

“Default” means any
event or condition which constitutes an Event of Default or which upon notice,
lapse of time or both would, unless cured or waived, become an Event of
Default.

 

“Disclosed Matters”
means the actions, suits and proceedings and the environmental matters
disclosed in Schedule 3.6.

 

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

 

“dollars” or “$”
refers to lawful money of the United States of America.

 

“Effective Date”
means the date on which the conditions specified in SECTION 4.1 are satisfied
(or waived in accordance with SECTION 9.2).

 

“Eligible Specified
Financial Asset” has the meaning assigned to such term on Exhibit  C
hereto.

 

“Environmental Laws”
means all laws, rules, regulations, codes, ordinances, orders, decrees,
judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by any Governmental Authority, relating in any way to the
environment, preservation or reclamation of natural resources, the management,
release or threatened release of any Hazardous Material or to health and safety
matters (to the extent relating to the environment or Hazardous Materials).

 

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

 

 

“Equity Interests “
means shares of capital stock, partnership interests, membership interests in a
limited liability company, beneficial interests in a trust or other equity
ownership interests in a Person, and any warrants, options or other rights
entitling the holder thereof to purchase or acquire any such equity interest.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended from time to time.

 

“ERISA Affiliate”
means any trade or business (whether or not incorporated) that, together with
any Borrower, is treated as a single employer under SECTION 414(b) or (c)
of the Code or, solely for purposes of SECTION 302 of ERISA and SECTION 412 of
the Code, is treated as a single employer under SECTION 414 of the Code.

 

“ERISA Event” means
(a) any “reportable event”, as defined in SECTION 4043 of ERISA or
the regulations issued thereunder with respect to a Plan (other than an event
for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an “accumulated funding deficiency” (as defined in
SECTION 412 of the Code or SECTION 302 of ERISA), whether or not
waived; (c) the filing pursuant to SECTION 412(d) of the Code or
SECTION 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (d) the incurrence by any
Borrower or any of its ERISA Affiliates of any liability under Title IV of
ERISA with respect to the termination of any Plan; (e) the receipt by any
Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (f) the incurrence by any Borrower or any of
its ERISA Affiliates of any liability with respect to the withdrawal or partial
withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by any
Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from any Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.

 

“Eurodollar”, when
used in reference to any Loan or Borrowing, refers to whether such Loan, or the
Loans comprising such Borrowing, are bearing interest at a rate determined by
reference to the Adjusted LIBO Rate.

 

“Event of Default”
has the meaning assigned to such term in Article VII.

 

“Excluded Taxes”
means, with respect to the Administrative Agent, any Lender, or any other
recipient of any payment to be made by or on account of any obligation of any
Borrower hereunder, (a) income or franchise taxes imposed on (or measured by)
its net income by the United States of America, or by the jurisdiction under
the laws of which such recipient is organized or in which its principal office
is located or, in the case of any Lender, in which its applicable lending
office is located, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which any
Borrower is located, (c) any estate, inheritance or gift taxes imposed with
respect to the Obligations, (d) in the case of a Foreign Lender (other than an
assignee pursuant to a request by any Borrower under SECTION 2.16(b)), any
withholding tax that is imposed on amounts payable to such Foreign Lender at
the time such Foreign Lender becomes a party to this Agreement (or designates a
new lending office) or is attributable to such Foreign Lender’s failure to
comply with SECTION 2.14(e), except to the extent that the assignor of any
Obligation to such Foreign Lender was entitled, at the time of such assignment
(or such Foreign Lender was entitled immediately prior to designating the new
lending office), to receive additional amounts from any Borrower with respect
to such withholding tax pursuant to SECTION 2.14(a), or (e) due to any
combination of the circumstances described in clauses (a) through (d) above.

 

 

“Federal Funds Effective
Rate” means, for any day, the weighted average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
that is a Business Day, the average (rounded upwards, if necessary, to the next
1/100 of 1%) of the quotations for such day for such transactions received by
the Administrative Agent from three Federal funds brokers of recognized
standing selected by it.

 

“Fee Letter” means
that certain fee letter dated as of
June 16, 2005 among each of the Borrowers, the Administrative Agent and
J.P. Morgan Securities Inc.

 

“Financial Officer”
means a chief financial officer, principal accounting officer, treasurer or
controller of any Borrower.

 

“Financing SPE” means
any bankruptcy-remote
special purpose Subsidiary formed by any Borrower or an Affiliate and which is,
or is established for the purpose of becoming, an issuer in a Securitization.

 

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

 

“GAAP” means
generally accepted accounting principles in the United States of America.

 

“Governmental Authority”
means the government of the United States of America, any other nation or any
political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.

 

“Guarantee” of or by
any Person (the “guarantor”) means any obligation, contingent or
otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, and including any
obligation of the guarantor, direct or indirect, (a) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Indebtedness
or other obligation or to purchase (or to advance or supply funds for the
purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary obligor
to pay such Indebtedness or other obligation or (d) as an account party in
respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary course of
business.

 

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

 

“Indebtedness” of any
Person means, without duplication, (a) all obligations of such Person for
borrowed money or with respect to Swap Agreements, Repurchase Agreements or
deposits or

 

 

advances of any kind,
(b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person upon which
interest charges are customarily paid, (d) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of
the deferred purchase price of property or services (excluding current accounts
payable incurred in the ordinary course of business), (f) all Indebtedness
of others secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured
thereby has been assumed, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person,
(i) all obligations, contingent or otherwise, of such Person as an account
party in respect of letters of credit and letters of guaranty and (j) all
obligations, contingent or otherwise, of such Person in respect of bankers’
acceptances.  The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such
Person is liable therefor as a result of such Person’s ownership interest in or
other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.

 

“Indemnified Taxes”
means Taxes other than Excluded Taxes.

 

“Interest Election
Request” means a request by any Borrower to convert or continue a Borrowing
in accordance with SECTION 2.5.

 

“Interest Payment Date”
means (a) with respect to any ABR Loan, the last day of each March, June,
September and December (or, if such day is not a Business Day, the next
succeeding Business Day), and (b) with respect to any Eurodollar Loan, the last
day of the Interest Period applicable to the Borrowing of which such Loan is a
part and, in the case of a Eurodollar Borrowing with an Interest Period of more
than three months’ duration, each day prior to the last day of such Interest
Period that occurs at intervals of three months’ duration after the first day
of such Interest Period.

 

“Interest Period”
means with respect to any Eurodollar Borrowing, the period commencing on the
date of such Borrowing and ending on the numerically corresponding day in the
calendar month that is one, two, three or six months thereafter, as any
Borrower may elect; provided, that (i) if any Interest Period would end
on a day other than a Business Day, such Interest Period shall be extended to
the next succeeding Business Day unless, in the case of a Eurodollar Borrowing
only, such next succeeding Business Day would fall in the next calendar month,
in which case such Interest Period shall end on the next preceding Business Day
and (ii) any Interest Period pertaining to a Eurodollar Borrowing that
commences on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last calendar month
of such Interest Period.  For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.

 

“KKR Financial” means
KKR Financial Corp., a Maryland corporation.

 

“KKR TRS” means KKR
TRS Holdings, Inc., a Delaware corporation.

 

“Lead Arrangers”
means J.P. Morgan Securities Inc. and Citigroup Global Markets Inc.

 

“Lenders” means the
Persons listed on Schedule 2.1 and any other Person that
shall have become a party hereto pursuant to an Assignment and Assumption,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Assumption.

 

 

“LIBO Rate” means,
with respect to any Eurodollar Borrowing for any Interest Period, the rate
appearing on Page 3750 of the Dow Jones Market Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided on
such page of such Service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
dollar deposits in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for dollar deposits with a maturity comparable to such
Interest Period.  In the event that such
rate is not available at such time for any reason, then the “LIBO Rate”
with respect to such Eurodollar Borrowing for such Interest Period shall be the
rate at which dollar deposits of $5,000,000 and for a maturity comparable to
such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period.

 

“Lien” means, with
respect to any asset, (a) any mortgage, deed of trust, lien, pledge,
hypothecation, encumbrance, charge or security interest in, on or of such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call
or similar right of a third party with respect to such securities.

 

“Loan Documents”
means this Agreement, the Fee Letter, the Custody Agreement and the Security
Documents.

 

“Loans” means the
loans made by the Lenders to the Borrowers pursuant to this Agreement.

 

“Management Agreement”
means that certain Management Agreement dated as of August 12, 2004, between
KKR Financial and KKR Financial Advisors LLC.

 

“Margin Stock” means “margin
stock” or “margin security” as such terms are defined in Regulation U and
Regulation X.

 

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

 

“Material Indebtedness”
means Indebtedness (other than the Loans) of any one or more of each of the
Borrowers and their respective Subsidiaries in an aggregate principal amount
exceeding $25,000,000.  For purposes of
determining Material Indebtedness, the “principal amount” of the obligations of
any Borrower or any Subsidiary in respect of any Swap Agreement or Repurchase
Agreement at any time shall be the maximum aggregate amount (giving effect to
any netting agreements) that such Borrower or such Subsidiary would be required
to pay if such Swap Agreement or Repurchase Agreement were terminated at such
time.

 

“Maturity Date” means
June 15, 2006.

 

“Moody’s” means Moody’s
Investors Service, Inc.

 

 

“Multiemployer Plan”
means a multiemployer plan as defined in SECTION 4001(a)(3) of ERISA.

 

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

 

“Other Taxes” means
any and all present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies arising from any payment made
hereunder or from the execution, delivery or enforcement of, or otherwise with
respect to, this Agreement.

 

“Participant” has the
meaning set forth in SECTION 9.4.

 

“PBGC” means the
Pension Benefit Guaranty Corporation referred to and defined in ERISA and any
successor entity performing similar functions.

 

“Perfection Certificate”
has the meaning set forth in the Security Agreement.

 

“Permitted Encumbrances”
means:

 

(a)           Liens imposed by law for taxes that
are not yet due or are being contested in compliance with SECTION 5.4;

 

(b)           landlords’, carriers’, warehousemen’s,
mechanics’, materialmen’s, repairmen’s and other like Liens imposed by law,
arising in the ordinary course of business and securing obligations that are
not overdue by more than 30 days or are being contested in compliance with
SECTION 5.4;

 

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

 

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

 

(e)           judgment liens in respect of
judgments that do not constitute an Event of Default under clause (k) of
Article VII;

 

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

 

(g)           Liens
in favor of the Administrative Agent pursuant to the Custody Agreement; and

 

 

(h)           in
relation to any of the Collateral, rights of setoff and recoupment and senior
Liens, in each case in favor of any depositary bank or securities intermediary
for account fees and charge backs in the ordinary course of its maintaining the
deposit account or securities account.

 

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

 

“Permitted Investments”
means:

 

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

 

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

 

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

 

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

 

(e)            money market funds that (i) comply with
the criteria set forth in Securities and Exchange Commission Rule 2a-7 under
the Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by
Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

 

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

 

“Plan”  means any employee pension benefit plan
(other than a Multiemployer Plan) subject to the provisions of Title IV of
ERISA or SECTION 412 of the Code or SECTION 302 of ERISA, and in
respect of which any Borrower or any ERISA Affiliate is (or, if such plan were
terminated, would under SECTION 4069 of ERISA be deemed to be) an “employer”
as defined in SECTION 3(5) of ERISA.

 

“Prime Rate” means
the rate of interest per annum publicly announced from time to time by JPMorgan
Chase Bank as its prime rate in effect at its principal office in New York
City; each change in the Prime Rate shall be effective from and including the
date such change is publicly announced as being effective.

 

“Related Borrowing Base Information” means,
with respect to any “Specified Financial Asset” as defined in Exhibit C, or
Participation Interest therein, included or to be included in the Borrowing
Base, (a) the category of the Specified Financial Asset as referred to in
clauses (a) through (k) of the definition and, if a Participation Interest is
applicable, the participating interest, (b) the identification of all primary
and secondary material obligors obligated on the Specified Financial Asset, (c)
the CUSIP number, if any, corresponding to such Eligible Specified Financial
Asset, (d) the principal

 

 

amount of the loan, debt or other monetary obligation
in which the Borrower has an interest, (e) the scheduled maturity of the loan,
debt or other monetary obligation and (f) the type of collateral securing the
loan, debt or other monetary obligation.

 

“Register” has the
meaning set forth in SECTION 9.4.

 

“REIT” means a
domestic trust or corporation that qualifies as a real estate investment trust
under the provisions of Sections 856, et
seq., of the Code.

 

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

 

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

 

“Required Lenders”
means, at any time, (a) if there are fewer than three (3) Lenders on such date,
all of the Lenders and (b) if there are three or more Lenders on such date, the
Lenders having Revolving Credit Exposures and unused Commitments representing
more than 50% of the sum of the total Revolving Credit Exposures and unused
Commitments at such time.

 

“Restricted Payment”
means any dividend or other distribution (whether in cash, securities or other
property) with respect to any Equity Interests in any Borrower or any
Subsidiary, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any such
Equity Interests in any Borrower or any option, warrant or other right to
acquire any such Equity Interests in any Borrower.

 

“Revolving Credit
Exposure” means, with respect to any Lender at any time, the sum of the
outstanding principal amount of such Lender’s Revolving Loans at such time.

 

“Revolving Loan”
means a Loan made pursuant to SECTION 2.3.

 

“Secured Indebtedness”
means secured Indebtedness incurred by any Borrower or any Subsidiary in the
course of its business as such business is described in KKR Financial’s Form
S-11 filed with the Securities and Exchange Commission on June 9, 2005,
including any such Indebtedness incurred pursuant to or in connection with any
loan warehouse agreement, Repurchase Agreement, Swap Agreement, collateralized
bond obligation, collateralized loan obligation, collateralized debt obligation
or Securitization.

 

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

 

“Security Agreement”
means the Security Agreement of even date herewith, among the Borrowers and the
Administrative Agent and in form and substance reasonably satisfactory to the
Administrative Agent.

 

 

“Security Documents”
means the Security Agreement and all other instruments and documents, including
without limitation, Uniform Commercial Code financing statements , required to
be executed or delivered pursuant to any Security Document.

 

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

 

“S&P” means
Standard & Poor’s.

 

“Statutory Reserve Rate”
means a fraction (expressed as a decimal), the numerator of which is the number
one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by the Board to which
the Administrative Agent is subject with respect to the Adjusted LIBO Rate for
eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Board).  Such
reserve percentages shall include those imposed pursuant to such
Regulation D.  Eurodollar Loans
shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D or any comparable regulation. 
The Statutory Reserve Rate shall be adjusted automatically on and as of
the effective date of any change in any reserve percentage.

 

“subsidiary” means,
with respect to any Person (the “parent”) at any date, any corporation,
limited liability company, partnership, association or other entity the
accounts of which would be consolidated with those of the parent in the parent’s
consolidated financial statements if such financial statements were prepared in
accordance with GAAP as of such date, as well as any other corporation, limited
liability company, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the
equity or more than 50% of the ordinary voting power or, in the case of a
partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent
or by the parent and one or more subsidiaries of the parent.

 

“Subsidiary” means
any subsidiary of any of the Borrowers.

 

“Swap Agreement” means any agreement with respect to any swap,
forward, future or derivative transaction or option or similar agreement
involving, or settled by reference to, one or more rates, currencies,
commodities, equity or debt instruments or securities, or economic, financial
or pricing indices or measures of economic, financial or pricing risk or value
or any similar transaction or any combination of these transactions; provided
that no phantom stock or similar plan providing for payments

 

 

only on account of services
provided by current or former directors, officers, employees or consultants of
any of the Borrowers or the Subsidiaries shall be a Swap Agreement.

 

“Syndication
Agent” means Citigroup Global Markets Inc.

 

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

 

“Taxes” means any and
all present or future taxes, levies, imposts, duties, deductions, charges or
withholdings imposed by any Governmental Authority.

 

“Transactions” means
the execution, delivery and performance by each of the Borrowers of this
Agreement and the other Loan Documents to which it is a party, the borrowing of
Loans, the use of the proceeds thereof and all other transactions contemplated
by this Agreement and the other Loan Documents.

 

“Type”, when used in
reference to any Loan or Borrowing, refers to whether the rate of interest on
such Loan, or on the Loans comprising such Borrowing, is determined by
reference to the Adjusted LIBO Rate or the Alternate Base Rate.

 

“Withdrawal Liability”
means liability to a Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are defined in
Part I of Subtitle E of Title IV of ERISA.

 

SECTION 1.2.        Classification of Loans and Borrowings. 
For purposes of this Agreement, Loans may be classified and referred to
by Type (e.g., a “Eurodollar Loan”).  Borrowings also may be classified and
referred to by Type (e.g., a “Eurodollar Borrowing”).

 

SECTION 1.3.        Terms Generally. 
The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. 
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person’s successors and assigns, (c) the words “herein”, “hereof”
and “hereunder”, and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words “asset” and “property” shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.

 

SECTION 1.4.        Accounting Terms; GAAP. 
Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as
in effect from time to time; provided that, if any of the Borrowers
notifies the Administrative Agent that such Borrower requests an amendment to
any provision hereof to eliminate the effect of any change occurring after the
date hereof in GAAP or in the application thereof on the operation of such
provision (or if the Administrative Agent notifies the Borrowers that the
Required Lenders request an amendment to

 

 

any provision hereof for
such purpose), regardless of whether any such notice is given before or after
such change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.

 

ARTICLE II

THE CREDITS

 

SECTION 2.1.        Commitments. 
(a)  Subject to the terms and
conditions set forth herein, each Lender agrees to make Revolving Loans to the
Borrowers from time to time during the Availability Period in an aggregate
principal amount that will not result in (i) such Lender’s Revolving Credit
Exposure exceeding such Lender’s Commitment or (ii) the sum of the total
Revolving Credit Exposures exceeding the lesser of (A) the total Commitments at
such time and (B) the Borrowing Base at such time.  Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrowers may borrow, prepay and
reborrow Revolving Loans.

 

(b)           The Borrowing Base on any date may
include an asset to be purchased by any Borrower with the proceeds of a
Revolving Loan to be made on that date so long as (i) the Administrative Agent
has been directed by such Borrower to pay the proceeds of such Revolving Loan
directly to the seller of the asset, (ii) the seller is to deliver the asset to
such Borrower before or against payment by such Borrower, (iii) the seller has
been directed by such Borrower to deliver the asset to the Administrative Agent
or its nominee or, if the delivery is not possible or practical, in such other
manner as is reasonably acceptable to the Administrative Agent to satisfy the
requirements of clauses (a), (b) and (c) of the definition of “Eligible
Specified Financial Asset” in Exhibit C and (iv) any other applicable
conditions set forth in Article IV for the making of such Revolving Loan have
been satisfied as of that date.

 

SECTION 2.2.        Loans and Borrowings. 
 Each Revolving Loan shall be made as part of a Borrowing
consisting of Revolving Loans made by the Lenders ratably in accordance with
their respective Commitments.  The
failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the
Commitments of the Lenders are several and no Lender shall be responsible for
any other Lender’s failure to make Loans as required.

 

(a)           Subject to SECTION 2.11, each Borrowing
shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrowers
may request in accordance herewith.  Each
Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the
Borrowers to repay such Loan in accordance with the terms of this Agreement.

 

(b)           At the commencement of each Interest
Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than
$5,000,000.  At the time that each ABR
Borrowing is made, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $5,000,000; provided
that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Commitments. 
Borrowings of more than one Type may be outstanding at the same time; provided
that there shall not at any time be more than a total of 10 Eurodollar
Borrowings outstanding.

 

(c)           Notwithstanding any other provision of
this Agreement, the Borrowers shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.

 

 

SECTION 2.3.        Requests for Borrowings. 
To request a Borrowing, the applicable Borrower or, as the case may be,
Borrowers shall notify the Administrative Agent of such request by telephone
(a) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New
York City time, three Business Days before the date of the proposed
Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, on the Business Day of the proposed
Borrowing.  Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request
in a form approved by the Administrative Agent and signed by the applicable
Borrower or, as the case may be, the Borrowers. 
Each such telephonic and written Borrowing Request shall specify the
following information in compliance with SECTION 2.2:

 

(i)            the aggregate amount of the requested
Borrowing;

 

(ii)           the date of such Borrowing, which shall
be a Business Day;

 

(iii)          whether such Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing;

 

(iv)          in the case of a Eurodollar Borrowing,
the initial Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term “Interest Period”;

 

(v)           the location and number of the applicable
Borrower’s or, as the case may be, the Borrowers’ account(s) to which funds are
to be disbursed, which shall comply with the requirements of SECTION 2.4; and

 

(vi)          in the event that an asset to be
purchased with the proceeds of such Borrowing is to be included in the
Borrowing Base as of the date of the Borrowing solely pursuant to Section
2.1(b), a description of the arrangements made with a view to satisfying the
conditions referred to in clauses (i), (ii) and (iii) of Section 2.1(b).

 

If no election as to the Type of Borrowing is
specified, then the requested Borrowing shall be an ABR Borrowing.  If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the applicable Borrower or
as the case may be, the Borrowers, shall be deemed to have selected an Interest
Period of one month’s duration.  Promptly
following receipt of a Borrowing Request in accordance with this SECTION, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender’s Loan to be made as part of the requested Borrowing.

 

SECTION 2.4.        Funding of Borrowings.  (a)
Each Lender shall make each Loan to be made by it hereunder on the proposed
date thereof by wire transfer of immediately available funds by 12:00 noon, New
York City time, to the account of the Administrative Agent most recently
designated by it for such purpose by notice to the Lenders.  The Administrative Agent will make such Loans
available to the applicable Borrower or, as the case may be, the Borrowers by
promptly crediting the amounts so received, in like funds, to the account or
accounts of the Borrowers or maintained with the Administrative Agent in New
York City and designated by the applicable Borrower, or as the case may be, the
Borrowers in the applicable Borrowing Request.

 

(b)           Unless the Administrative Agent shall
have received notice from a Lender prior to the proposed date of any Borrowing
that such Lender will not make available to the Administrative Agent such
Lender’s share of such Borrowing, the Administrative Agent may assume that such
Lender has made such share available on such date in accordance with paragraph
(a) of this SECTION and may,

 

 

in reliance upon such
assumption, make available to the applicable Borrower or, as the case may be,
the Borrowers a corresponding amount.  In
such event, if a Lender has not in fact made its share of the applicable
Borrowing available to the Administrative Agent, then the applicable Lender and
the applicable Borrower or, as the case may be, the Borrowers severally agree
to pay to the Administrative Agent forthwith on demand such corresponding
amount with interest thereon, for each day from and including the date such
amount is made available to the applicable Borrower or, as the case may be, the
Borrowers to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrowers,
the interest rate applicable to ABR Loans. 
If such Lender pays such amount to the Administrative Agent, then such
amount shall constitute such Lender’s Loan included in such Borrowing.

 

SECTION 2.5.        Interest Elections.  (a)
Each Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request.  Thereafter, the applicable Borrower or, as
the case may be, the Borrowers may elect to convert such Borrowing to a
different Type or to continue such Borrowing and, in the case of a Eurodollar
Borrowing, may elect Interest Periods therefor, all as provided in this
SECTION.  The Borrowers may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing.

 

(b)           To make an election pursuant to this
SECTION, the Borrower or, as the case may be, the Borrowers shall notify the
Administrative Agent of such election by telephone by the time that a Borrowing
Request would be required under SECTION 2.3 if the Borrower or, as the case may
be, the Borrowers were requesting a Borrowing of the Type resulting from such
election to be made on the effective date of such election.  Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery
or telecopy to the Administrative Agent of a written Interest Election Request
in a form approved by the Administrative Agent and signed by the applicable
Borrower or, as the case may be, the Borrowers.

 

(c)           Each telephonic and written Interest
Election Request shall specify the following information in compliance with
SECTION 2.2:

 

(i)            the Borrowing to which such Interest
Election Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);

 

(ii)           the effective date of the election made
pursuant to such Interest Election Request, which shall be a Business Day;

 

(iii)          whether the resulting Borrowing is to be
an ABR Borrowing or a Eurodollar Borrowing; and

 

(iv)          if the resulting Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto after giving effect to
such election, which shall be a period contemplated by the definition of the
term “Interest Period”.

 

If any such Interest Election Request requests a Eurodollar Borrowing
but does not specify an Interest

 

 

Period, then the applicable Borrower or, as the case may be, the
Borrowers shall be deemed to have selected an Interest Period of one month’s
duration.

 

(d)           Promptly following receipt of an Interest
Election Request, the Administrative Agent shall advise each Lender of the
details thereof and of such Lender’s portion of each resulting Borrowing.

 

(e)           If the applicable Borrower fails or, as
the case may be, the Borrowers fail to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing.  Notwithstanding any
contrary provision hereof, if an Event of Default has occurred and is
continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Borrowers, then, so long as an Event of Default is
continuing (i) no outstanding Borrowing may be converted to or continued as a
Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.

 

SECTION 2.6.        Termination and Reduction of Commitments.  (a)
Unless previously terminated, the Commitments shall terminate on the Maturity
Date.

 

(b)           The Borrowers may at any time terminate,
or from time to time reduce, the Commitments; provided that (i) each
reduction of the Commitments shall be in an amount that is an integral multiple
of $100,000 and not less than $500,000 and (ii) the Borrowers shall not
terminate or reduce the Commitments if, after giving effect to any concurrent
prepayment of the Loans in accordance with SECTION 2.8, the sum of the
Revolving Credit Exposures would exceed the total Commitments.

 

(c)           The Borrowers shall notify the
Administrative Agent of any election to terminate or reduce the Commitments
under paragraph (b) of this SECTION at least three Business Days prior to the
effective date of such termination or reduction, specifying such election and
the effective date thereof.  Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof.  Each
notice delivered by the Borrowers pursuant to this SECTION shall be
irrevocable; provided that a notice of termination of the Commitments
delivered by the Borrowers may state that such notice is conditioned upon the
effectiveness of other credit facilities, in which case such notice may be
revoked by the Borrowers (by notice to the Administrative Agent on or prior to
the specified effective date) if such condition is not satisfied.  Any termination or reduction of the
Commitments shall be permanent.  Each
reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.

 

SECTION 2.7.        Repayment of Loans; Evidence of Debt.  (a)
The Borrowers hereby unconditionally, and jointly and severally, promise to pay
to the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Revolving Loan on the Maturity Date.

 

(b)           Each Lender shall maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness of
the Borrowers to such Lender resulting from each Loan made by such Lender,
including the amounts of principal and interest payable and paid to such Lender
from time to time hereunder.

 

(c)           The Administrative Agent shall maintain
accounts in which it shall record (i) the amount of each Loan made
hereunder, the Type thereof and the Interest Period applicable thereto,
(ii) the amount of any principal or interest due and payable or to become
due and payable from the Borrowers to

 

 

each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent hereunder
for the account of the Lenders and each Lender’s share thereof.

 

(d)           The entries made in the accounts
maintained pursuant to paragraph (b) or (c) of this SECTION shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of any Lender or the Administrative
Agent to maintain such accounts or any error therein shall not in any manner
affect the joint and several obligation of the Borrowers to repay the Loans in
accordance with the terms of this Agreement.

 

(e)           Any Lender may request that Loans made by
it be evidenced by a promissory note.  In
such event, the Borrowers shall prepare, execute and deliver to such Lender a
promissory note payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) and in a form approved by
the Administrative Agent.  Thereafter,
the Loans evidenced by such promissory note and interest thereon shall at all
times (including after assignment pursuant to SECTION 9.4) be represented by
one or more promissory notes in such form payable to the order of the payee
named therein (or, if such promissory note is a registered note, to such payee
and its registered assigns).

 

SECTION 2.8.        Prepayment of Loans.  (a)
The Borrowers shall have the right at any time and from time to time to prepay
any Borrowing in whole or in part, subject to prior notice in accordance with
paragraph (c) of this SECTION.

 

(b)           If at any time the sum of the total
Revolving Credit Exposures exceeds the lesser of (i) the total Commitments at
such time and (ii) the Borrowing Base at such time, then within one Business
Day after the Administrative Agent’s demand therefor either (A) the Borrowers
shall pay the amount of such excess to the Administrative Agent for application
to the Loans or (B) the Borrowers shall grant to the Administrative Agent a
security interest in additional assets of the Borrowers for inclusion in the
Borrowing Base and sufficient to eliminate such excess.

 

(c)           The Borrowers shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 11:00 a.m., New York City time, two Business Days before the date of
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 11:00 a.m., New York City time, one Business Day before the date of
prepayment.  Each such notice shall be irrevocable
and shall specify the prepayment date and the principal amount of each
Borrowing or portion thereof to be prepaid; provided that, if a notice
of prepayment is given in connection with a conditional notice of termination
of the Commitments as contemplated by SECTION 2.6, then such notice of
prepayment may be revoked if such notice of termination is revoked in
accordance with SECTION 2.6.  Promptly
following receipt of any such notice relating to a Borrowing, the
Administrative Agent shall advise the Lenders of the contents thereof.  Each partial prepayment of any Borrowing
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in SECTION 2.2.  Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by SECTION 2.10.

 

SECTION 2.9.        Fees.  (a) The
Borrowers agree to pay to the Administrative Agent for the account of each
Lender a commitment fee, which shall accrue at the rate of 1/4 of 1% on the
daily amount of the unused portion of the Commitment of such Lender during the
period from and including June 16, 2005 to but excluding the date on which such
Commitment terminates.  Accrued
commitment fees shall be payable in arrears on the last day of March, June,
September and December of each year and on the date on which the Commitments
terminate (or, if any such day is not a Business Day, the next succeeding
Business Day), commencing on the first such date to occur after the date
hereof.  All commitment fees

 

 

shall be computed on the
basis of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).

 

(b)           The Borrowers agree to pay to each of
J.P. Morgan Securities Inc. and the Administrative Agent, for its own account,
fees payable in the amounts and at the times set forth in the Fee Letter.

 

(c)           All fees payable hereunder shall be paid
on the dates due, in immediately available funds, to the Administrative Agent
for distribution, in the case of commitment fees, to the Lenders.  Fees paid shall not be refundable under any
circumstances.

 

SECTION 2.10.      Interest.  (a) The Loans
comprising each ABR Borrowing shall bear interest at the Alternate Base
Rate.

 

(b)           The Loans comprising each Eurodollar
Borrowing shall bear interest at the Adjusted LIBO Rate for the Interest Period
in effect for such Borrowing plus the Applicable Rate.

 

(c)           Notwithstanding the foregoing, if any
principal of or interest on any Loan or any fee or other amount payable by any
Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as
well as before judgment, at a rate per annum equal to (i) in the case of
overdue principal of any Loan, 2% plus the rate otherwise applicable to such
Loan as provided in the preceding paragraphs of this SECTION or (ii) in the
case of any other amount, 2% plus the rate applicable to ABR Loans as provided
in paragraph (a) of this SECTION.

 

(d)           Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and, in the case
of Revolving Loans, upon termination of the Commitments; provided that
(i) interest accrued pursuant to paragraph (c) of this SECTION shall be payable
on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an ABR Revolving Loan prior to the end of the Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Revolving Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.

 

(e)           All interest hereunder shall be computed
on the basis of a year of 360 days, except that interest computed by reference
to the Alternate Base Rate at times when the Alternate Base Rate is based on
the Prime Rate shall be computed on the basis of a year of 365 days (or 366
days in a leap year), and in each case shall be payable for the actual number
of days elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate, Adjusted
LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.

 

SECTION 2.11.      Alternate Rate of Interest. 
If prior to the commencement of any Interest Period for a Eurodollar
Borrowing:

 

(a)           the Administrative Agent determines
(which determination shall be conclusive absent manifest error) that adequate
and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or
the LIBO Rate, as applicable, for such Interest Period; or

 

(b)           the Administrative Agent is advised by
the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as
applicable, for such Interest Period will not adequately and fairly reflect

 

 

the cost to such Lenders
(or Lender) of making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;

 

then the Administrative Agent shall give
notice thereof to the Borrowers and the Lenders by telephone or telecopy as
promptly as practicable thereafter and, until the Administrative Agent notifies
the Borrowers and the Lenders that the circumstances giving rise to such notice
no longer exist, (i) any Interest Election Request that requests the conversion
of any Borrowing to, or continuation of any Borrowing as, a Eurodollar
Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a
Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing; provided
that if the circumstances giving rise to such notice affect only one Type of
Borrowings, then the other Type of Borrowings shall be permitted.

 

SECTION 2.12.      Increased
Costs.  (a) If any Change in Law
shall:

 

(i)            impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate); or

 

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

 

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

 

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

 

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

 

(d)           Promptly after any Lender has determined
that it will make a request for compensation pursuant to SECTION 2.12, such
Lender shall notify the Borrowers thereof. 
Failure or delay on the part of any Lender to demand compensation
pursuant to this SECTION shall not constitute a waiver of such Lender’s right
to demand such compensation; provided that the Borrowers shall not be
required to compensate a Lender pursuant to this SECTION for any increased
costs or reductions incurred more than 180 days prior to the date that such
Lender notifies the Borrowers of the Change in Law giving rise to such
increased costs or reductions and of such Lender’s intention to claim
compensation therefor;

 

 

provided further that, if the Change in
Law giving rise to such increased costs or reductions is retroactive, then the
180-day period referred to above shall be extended to include the period of
retroactive effect thereof.

 

SECTION 2.13.      Break
Funding Payments.  In the event of
(a) the payment of any principal of any Eurodollar Loan other than on the last
day of an Interest Period applicable thereto (including as a result of an Event
of Default), (b) the conversion of any Eurodollar Loan other than on the last
day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under SECTION 2.8(b) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto as a result of a request by the Borrowers
pursuant to SECTION 2.16, then, in any such event, the Borrowers shall
compensate each Lender for the loss, cost and expense attributable to such
event.  In the case of a Eurodollar Loan,
such loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable
to such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of
a comparable amount and period from other banks in the eurodollar market.  A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
SECTION shall be delivered to the Borrowers and shall be conclusive absent
manifest error.  The Borrowers shall pay
such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.

 

SECTION 2.14.      Taxes.  (a) Any and all payments by or on account of
any obligation of the Borrowers hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided
that if any Borrower shall be required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this SECTION) the Administrative
Agent or any Lender (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) such Borrower
shall make such deductions and (iii) such Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with
applicable law.

 

(b)           In addition, each Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

 

(c)           The Borrowers shall indemnify the
Administrative Agent and each Lender, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent or any such Lender, as the case may be, on or with
respect to any payment by or on account of any obligation of the Borrowers
hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this SECTION) and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority.  A certificate as to the amount of such
payment or liability delivered to the Borrowers by a Lender, or by the
Administrative Agent on its own behalf or on behalf of a Lender, shall be
conclusive absent manifest error.

 

 

(d)           As soon as practicable after any payment
of Indemnified Taxes or Other Taxes by any Borrower to a Governmental
Authority, such Borrower shall deliver to the Administrative Agent the original
or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other
evidence of such payment reasonably satisfactory to the Administrative Agent.

 

(e)           Any Foreign Lender that is entitled to an
exemption from or reduction of withholding tax under the law of the jurisdiction
in which any Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to the
Borrowers (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrowers as will permit such payments to be made without withholding or at a
reduced rate.

 

(f)            If the
Administrative Agent or a Lender determines, in its sole discretion, that it
has received a refund of any Taxes or Other Taxes as to which it has been
indemnified by the Borrowers or with respect to which the Borrowers have paid
additional amounts pursuant to this SECTION 2.14, it shall pay over such refund
to the Borrowers (but only to the extent of indemnity payments made, or
additional amounts paid, by the Borrowers under this SECTION 2.14 with respect
to the Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of the Administrative Agent or such Lender and without
interest (other than any interest paid by the relevant Governmental Authority
with respect to such refund); provided, that the Borrowers, upon the request of
the Administrative Agent or such Lender, agree to repay the amount paid over to
the Borrowers (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the Administrative Agent or such Lender in
the event the Administrative Agent or such Lender is required to repay such
refund to such Governmental Authority. This SECTION shall not be construed to
require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to the Borrowers or any other Person.

 

SECTION 2.15.      Payments Generally; Pro Rata Treatment;
Sharing of Set-offs.  (a) The Borrowers shall make each payment
required to be made by it hereunder (whether of principal, interest or fees, or
of amounts payable under SECTION 2.12, SECTION 2.13, SECTION 2.14, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue,
New York, New York, and except that payments pursuant to SECTION 2.12, SECTION
2.13, SECTION 2.14 and SECTION 9.3 shall be made directly to the Persons
entitled thereto.  The Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt
thereof.  If any payment hereunder shall
be due on a day that is not a Business Day, the date for payment shall be
extended to the next succeeding Business Day, and, in the case of any payment
accruing interest, interest thereon shall be payable for the period of such
extension.  All payments hereunder shall
be made in dollars.

 

(b)           If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of
principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties.

 

 

(c)           If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Revolving Loans resulting in such Lender
receiving payment of a greater proportion of the aggregate amount of its
Revolving Loans and accrued interest thereon than the proportion received by
any other Lender, then the Lender receiving such greater proportion shall
purchase (for cash at face value) participations in the Revolving Loans of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Revolving Loans; provided
that (i) if any such participations are purchased and all or any portion of the
payment giving rise thereto is recovered, 
such participations shall be rescinded and the purchase price restored
to the extent of such recovery, without interest, and (ii) the provisions of
this paragraph shall not be construed to apply to any payment made by any
Borrower pursuant to and in accordance with the express terms of this Agreement
or any payment obtained by a Lender as consideration for the assignment of or
sale of a participation in any of its Loans to any assignee or participant,
other than to any Borrower or any Subsidiary or Affiliate thereof (as to which
the provisions of this paragraph shall apply). 
Each Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against such
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of such Borrower in the
amount of such participation.

 

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

 

(e)           If any Lender shall fail to make any
payment required to be made by it pursuant to SECTION 2.4(b) or SECTION
2.15(d), then the Administrative Agent may, in its discretion (notwithstanding
any contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender’s
obligations under such Sections until all such unsatisfied obligations are
fully paid.

 

SECTION 2.16.      Mitigation Obligations; Replacement of Lenders.  (a)
If any Lender requests compensation under SECTION 2.12, or if any Borrower
is required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to SECTION 2.14, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would eliminate or
reduce amounts payable pursuant to SECTION 2.12 or SECTION 2.14, as the case
may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender in any material respect.  The
Borrowers hereby agree to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.

 

(b)           If any Lender requests compensation under
SECTION 2.12, or if any Borrower is required to pay any additional amount to
any Lender or any Governmental Authority for the account of

 

 

any Lender pursuant to
SECTION 2.14, or if any Lender defaults in its obligation to fund Loans
hereunder, then such Borrower may, at its sole expense and effort, upon notice
to such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in SECTION 9.4), all its interests, rights and obligations under this
Agreement to an assignee that shall assume such obligations (which assignee may
be another Lender, if a Lender accepts such assignment); provided that
(i) such Borrower shall have received the prior written consent of the
Administrative Agent, which consent shall not unreasonably be withheld, (ii)
such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or such Borrower (in the
case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under SECTION 2.12 or payments required
to be made pursuant to SECTION 2.14, such assignment will result in a
reduction in such compensation or payments. 
A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or
otherwise, the circumstances entitling any Borrower to require such assignment
and delegation cease to apply.

 

SECTION 2.17.  Concerning
Joint and Several Liability of the Borrowers.

 

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

 

(b)           Each of the
Borrowers, jointly and severally, hereby irrevocably and unconditionally
accepts, not merely as a surety but also as a co-debtor, joint and several
liability with the other Borrower, with respect to the payment and performance
of all of the Obligations (including, without limitation, any Obligations
arising under this SECTION 2.17), it being the intention of the parties hereto
that all the Obligations shall be the joint and several obligations of each of
the Borrowers without preferences or distinction among them.

 

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

 

(d)           The
Obligations of each of the Borrowers under the provisions of this SECTION 2.17
constitute the full recourse Obligations of each of the Borrowers enforceable
against each such Person to the full extent of its properties and assets,
irrespective of the validity, regularity or enforceability of this Credit
Agreement or the other Loan Documents or any other circumstance whatsoever.

 

(e)           Except as
otherwise expressly provided herein, each Borrower hereby waives promptness,
diligence, presentment, demand, protest, notice of acceptance of its joint and
several liability, notice of any and all advances of the Loans made under this
Credit Agreement and any promissory note issued hereunder, notice of occurrence
of any Default or Event of Default (except to the extent notice is expressly
required to be given pursuant to the terms of this Credit Agreement or any of
the other Loan Documents), or of any demand for any payment under this Credit
Agreement, notice of any action at any time taken or omitted by the
Administrative Agent or the Lenders under or in respect of any of the
Obligations hereunder, any requirement of diligence and, generally, all
demands, notices and other formalities of every kind in connection with this
Credit Agreement and the other Loan Documents. 
Each

 

 

Borrower hereby waives all defenses which may be
available by virtue of any valuation, stay, moratorium law or other similar law
now or hereafter in effect, any right to require the marshaling of assets of
the Borrowers and any other entity or Person primarily or secondarily liable
with respect to any of the Obligations, and all suretyship defenses
generally.  Each Borrower hereby assents
to, and waives notice of, any extension or postponement of the time for the
payment, or place or manner for payment, compromise, refinancing, consolidation
or renewals of any of the Obligations hereunder, the acceptance of any partial
payment thereon, any waiver, consent or other action or acquiescence by the
Administrative Agent and the Lenders at any time or times in respect of any
default by any Borrower in the performance or satisfaction of any term,
covenant, condition or provision of this Credit Agreement and the other Loan
Documents, any and all other indulgences whatsoever by the Administrative Agent
and the Lenders in respect of any of the Obligations hereunder, and the taking,
addition, substitution or release, in whole or in part, at any time or times,
of any security for any of such Obligations or the addition, substitution or
release, in whole or in part, of any Borrower or any other entity or Person
primarily or secondarily liable for any Obligation.  Such Borrower further agrees that its
Obligations shall not be released or discharged, in whole or in part, or
otherwise affected by the adequacy of any rights which the Administrative Agent
or any Lender may have against any collateral security or other means of
obtaining repayment of any of the Obligations, the impairment of any collateral
security securing the Obligations, including, without limitation, the failure
to protect or preserve any rights which any Administrative Agent or any Lender
may have in such collateral security or the substitution, exchange, surrender,
release, loss or destruction of any such collateral security, any other act or
omission which might in any manner or to any extent vary the risk of such
Borrower, or otherwise operate as a release or discharge of such Borrower, all
of which may be done without notice to such Borrower.  If for any reason the other Borrower has no
legal existence or is under no legal obligation to discharge any of the
Obligations, or if any of the Obligations have become irrecoverable from the
other Borrower by reason of such other Borrower’s insolvency, bankruptcy or
reorganization or by other operation of law or for any reason, this Credit Agreement
and the other Loan Documents to which it is a party shall nevertheless be
binding on such Borrower to the same extent as if such Borrower at all times
had been the sole obligor on such Obligations. 
Without limiting the generality of the foregoing, each Borrower assents
to any other action or delay in acting or failure to act on the part of the
Administrative Agent and the Lenders, including, without limitation, any
failure strictly or diligently to assert any right or to pursue any remedy or
to comply fully with applicable laws or regulations thereunder which might, but
for the provisions of this SECTION 2.17, afford grounds for terminating,
discharging or relieving such Borrower, in whole or in part, from any of its
obligations under this SECTION 2.17, it being the intention of each Borrower
that, so long as any of the Obligations hereunder remain unsatisfied, the
obligations of such Borrower under this SECTION 2.17 shall not be discharged
except by performance and then only to the extent of such performance.  The Obligations of each Borrower under this
SECTION 2.17 shall not be diminished or rendered unenforceable by any winding
up, reorganization, arrangement, liquidation, reconstruction or similar
proceeding with respect to any reconstruction or similar proceeding with
respect to any other Borrower, or any of the Lenders.  The joint and several liability of the
Borrowers hereunder shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
ownership, membership, constitution or place of formation of any Borrower or
the Lenders.  Each of the Borrowers
acknowledges and confirms that it has itself established its own adequate means
of obtaining from the other Borrower on a continuing basis all information
desired by such Borrower concerning the financial condition of the other
Borrower and that each such Borrower will look to the other Borrower and not to
the Administrative Agent or any Lender in order for such Borrower to keep adequately
informed of changes in the other Borrower’s respective financial conditions.

 

(f)            The
provisions of this SECTION 2.17 are made for the benefit of the Lenders and the
Administrative Agent and their respective permitted successors and assigns, and
may be enforced by it or them from time to time against either or both of the
Borrowers as often as occasion therefor may arise and without requirement on
the part of the Lenders, the Administrative Agent or such successor or

 

 

assign first to marshal any of its or their claims or
to exercise any of its or their rights against the other Borrower or to exhaust
any remedies available to it or them against the other Borrower or to resort to
any other source or means of obtaining payment of any of the Obligations
hereunder or to elect any other remedy. 
The provisions of this SECTION 2.17 shall remain in effect until all of
the Obligations shall have been paid in full or otherwise fully satisfied.  If at any time, any payment, or any part
thereof, made in respect of any of the Obligations, is rescinded or must
otherwise be restored or returned by any Lender or any Administrative Agent
upon the insolvency, bankruptcy or reorganization of any of the Borrowers, or
otherwise, the provisions of this SECTION 2.17 will forthwith be reinstated in
effect, as though such payment had not been made.

 

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

 

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

 

SECTION 2.18.  Contribution.  (a) To the extent that any Borrower shall
make a payment under SECTION 2.17 of all or any of the Obligations (other than
Loans made to that Borrower for which it is primarily liable) (a “Guarantor
Payment”) that, taking into account all other Guarantor Payments then
previously or concurrently made by any other Borrower, exceeds the amount that
such Borrower would otherwise have paid if each Borrower had paid the aggregate
Obligations satisfied by such Guarantor Payment in the same portion that such
Borrower’s “Allocable Amount” (as defined below) (as determined immediately
prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of
each of the Borrowers as determined immediately prior to the making of such
Guarantor Payment, then, following indefeasible payment in full in cash of the
Obligations and termination of the Commitments, such Borrower shall be entitled
to receive contribution and indemnification payments from, and be reimbursed
by, the other Borrower for the net amount of such excess, pro rata based upon
their respective Allocable Amounts in effect immediately prior to such
Guarantor Payment.

 

(b)           As of any
date of determination, the “Allocable Amount” of any Borrower shall be
equal to the maximum amount of the claim that could then be recovered from such
Borrower under SECTION 2.18 without rendering such claim voidable or avoidable
under Section 548 of Chapter 11 of

 

 

the Bankruptcy Code or under any applicable state
Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law.

 

(c)           This SECTION
2.18 is intended only to define the relative rights of Borrowers and nothing
set forth in this SECTION 2.18 is intended or shall impair the obligations of the
Borrowers, jointly and severally, to pay any amounts as and when the same shall
become due and payable in accordance with the terms of this Credit Agreement,
including SECTION 2.17.  Nothing
contained in this SECTION 2.18 shall limit the liability of any Borrower to pay
the Revolving Loans made directly or indirectly to that Borrower and accrued
interest, fees and expenses with respect thereto for which such Borrower shall
be primarily liable.

 

(d)           The parties
hereto acknowledge that the rights of contribution and indemnification of any
Borrower under this SECTION 2.18 shall constitute assets of such Borrower.

 

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

 

SECTION 2.19.  Collateral Security.  The Obligations shall be secured by a
perfected first priority security interest (subject only to Permitted
Encumbrances entitled to priority under applicable law) in all of the Borrowers’s
interest in the Collateral, whether now owned or hereafter acquired, as
described in the Security Documents to which any of the Borrowers is a party.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Each of the Borrowers
represents and warrants to the Lenders that:

 

SECTION 3.1.        Organization; Powers. 
Each of the Borrowers and its Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority to carry on its business as
now conducted and, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, is qualified to do business in, and is in good standing in, every
jurisdiction where such qualification is required.

 

SECTION 3.2.        Authorization; Enforceability. 
The Transactions are within each of the Borrowers’ corporate powers and
have been duly authorized by all necessary corporate and, if required, stockholder
action.  This Agreement has been duly
executed and delivered by each of the Borrowers and constitutes a legal, valid
and binding obligation of each of the Borrowers, enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors’ rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law.

 

SECTION 3.3.        Governmental Approvals; No Conflicts. 
The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental
Authority, except (i) for the filing of Uniform Commercial Code financing
statements and (ii) such as have been obtained or made and are in full force
and effect or where the failure to obtain such would not have a Material
Adverse Effect, (b) will not violate any applicable law or regulation or the
charter, by-laws or other organizational documents of any of the Borrowers or any
of their Subsidiaries or any order

 

 

of any Governmental
Authority which violation would have a Material Adverse Effect, (c) will not
violate or result in a default under any indenture, agreement or other
instrument binding upon any of the Borrowers or any of their respective
Subsidiaries or its assets, or give rise to a right thereunder to require any
payment to be made by any of the Borrowers or any of their Subsidiaries in each
case, where the same would have a Material Adverse Effect, and (d) will not
result in the creation or imposition of any Lien on any asset of any of the
Borrowers or any of their Subsidiaries other than the Liens created pursuant to
the Loan Documents.

 

SECTION 3.4.        Financial Condition; No Material Adverse
Change.  (a) KKR Financial has heretofore furnished to
the Lenders its consolidated balance sheet and statements of income,
stockholders equity and cash flows (i) as of and for the fiscal year ended
December 31, 2004, reported on by Deloitte & Touche LLP, independent public
accountants, and (ii) as of and for the fiscal quarter and the portion of the
fiscal year ended March 31, 2005, certified by its chief financial
officer.  Such financial statements
present fairly, in all material respects, the financial position and results of
operations and cash flows of KKR Financial and its consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.

 

(b)           Since December 31, 2004, there has been
no material adverse change in the business, assets, operations or condition,
financial or otherwise, of the Borrowers and their Subsidiaries, taken as a
whole.

 

SECTION 3.5.        Properties.  (a)  Each of the Borrowers and each of their
Subsidiaries has good title to, or valid leasehold, easement or other property
interests in, all its real and personal property necessary to its business,
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes and except where the failure to have such title would
not have a Material Adverse Effect.

 

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

 

SECTION 3.6.        Litigation and Environmental Matters.  (a)
There are no actions, formal investigations, suits or proceedings by or before
any arbitrator or Governmental Authority pending against or, to the knowledge
of any of the Borrowers, threatened against or affecting any of the Borrowers
or any of their Subsidiaries (i) as to which there is a reasonable
possibility of an adverse determination and that, if adversely determined,
could reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect (other than the Disclosed Matters) or (ii) that
involve this Agreement, any other Loan Document or the Transactions.

 

(b)           Except for the Disclosed Matters and
except with respect to any other matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, none of the Borrowers nor any of their Subsidiaries (i) has failed
to comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law,
(ii) has become subject to any Environmental Liability, (iii) has
received notice of any claim with respect to any Environmental Liability or
(iv) knows of any basis that could reasonably be expected to result in any
Environmental Liability.

 

 

(c)           Since the date of this Agreement, there
has been no change in the status of the Disclosed Matters that, individually or
in the aggregate, has resulted in, or could reasonably be expected to result
in, a Material Adverse Effect.

 

SECTION 3.7.        Compliance with Laws and Agreements. 
Each of the Borrowers and each of its Subsidiaries is in compliance with
all laws, regulations and orders of any Governmental Authority applicable to it
or its property and all indentures, agreements and other instruments binding
upon it or its property, except where the failure to do so, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.  No Default has occurred and is
continuing.

 

SECTION 3.8.        Investment and Holding Company Status. 
None of the Borrowers nor any of their Subsidiaries is (a) 
required to register as or is an “investment company” as defined in, or subject
to regulation under, the Investment Company Act of 1940 or (b) a “holding
company” as defined in, or subject to regulation under, the Public Utility
Holding Company Act of 1935.

 

SECTION 3.9.        Taxes.  Each of the
Borrower and each of its Subsidiaries has timely filed or caused to be filed
all Tax returns and reports required to have been filed and has paid or caused
to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
such Borrower or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.

 

SECTION 3.10.      ERISA.  No ERISA
Event has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events for which liability is reasonably expected to
occur, could reasonably be expected to result in a Material Adverse
Effect.  The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did
not, as of the date of the most recent financial statements reflecting such
amounts, exceed by more than $25,000,000 the fair market value of the assets of
such Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of
Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed by more than
$25,000,000 the fair market value of the assets of all such underfunded Plans.

 

SECTION 3.11.      Disclosure.  Each of the
Borrowers has disclosed to the Lenders all agreements, instruments and
corporate or other restrictions to which it or any of its Subsidiaries is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect.  None of the reports, financial
statements, certificates or other written information furnished by or on behalf
of any of the Borrowers to the Administrative Agent or any Lender in connection
with the negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contained any material
misstatement of fact as of the date furnished or omitted as of the date
furnished to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading; provided
that, with respect to projected financial information, each of the Borrowers
represents only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.

 

SECTION 3.12.      Solvency.  Each of the
Borrowers is and, after consummation of the Transactions, will be Solvent.

 

SECTION 3.13.      No Burdensome Restrictions. 
None of the Borrowers is a party to any agreement or instrument or
subject to any other obligation or any charter or corporate restriction or any

 

 

provision of any
applicable law, rule or regulation which, individually or in the aggregate,
would have or would be reasonably expected to have a Material Adverse Effect.

 

SECTION 3.14.      Borrowing Base Report. 
The most recent Borrowing Base Report delivered by the Borrowers
accurately reflects the Borrowing Base on and as of the date of such Borrowing
Base Report and all Related Borrowing Base Information set forth therein is
true and correct in all material respects on and as of the date of such
Borrowing Base Report.

 

ARTICLE IV

 

CONDITIONS

 

SECTION 4.1.        Effective Date.  The
obligations of the Lenders to make Loans hereunder shall not become effective
until the date occurring on or before June 30, 2005, on which each of the
following conditions is satisfied (or waived in accordance with SECTION 9.2):

 

(a)           The Administrative Agent (or its counsel)
shall have received from each party hereto either (i) a counterpart of
this Agreement and each of the other Loan Documents signed on behalf of such
party or (ii) written evidence satisfactory to the Administrative Agent (which
may include telecopy transmission of a signed signature page of this Agreement
and the other Loan Documents) that such party has signed a counterpart of this
Agreement and each of the other Loan Documents.

 

(b)           The Administrative Agent shall have
received a favorable written opinion (addressed to the Administrative Agent and
the Lenders and dated the Effective Date) of each of (i) the in-house general
counsel for the Borrowers, substantially in the form of Exhibit  B-1
hereto (ii) Sidley Austin Brown & Wood LLP, counsel for the Borrowers,
substantially in the form of Exhibit  B-2 hereto, and (iii) Hunton
& Williams LLP, counsel for KKR Financial, substantially in the form of Exhibit
B-3 hereto, and in each case, covering such other matters relating to
the Borrowers, this Agreement, the other Loan Documents or the Transactions as
the Required Lenders shall reasonably request. 
The Borrowers hereby request such counsel to deliver such opinions.

 

(c)           The Administrative Agent shall have
received such documents and certificates as the Administrative Agent or its
counsel may reasonably request relating to the organization, existence and good
standing of each of the Borrowers, the authorization of the Transactions and
any other legal matters relating to the Borrowers, this Agreement, the other
Loan Documents or the Transactions, all in form and substance reasonably
satisfactory to the Administrative Agent and its counsel.

 

(d)           The Administrative Agent shall have
received a certificate, dated the Effective Date and signed by the President, a
Vice President or a Financial Officer of each of the Borrowers, confirming
compliance with the conditions set forth in paragraph (a) of SECTION 4.2.

 

(e)           The Administrative Agent shall have
received evidence, in form and substance reasonably satisfactory to the
Administrative Agent, that the Security Documents are effective to create in
favor of the Administrative Agent a legal, valid and enforceable first (except
for Permitted Encumbrances entitled to priority under applicable law) security
interest in and Lien upon the Collateral. 
All filings, recordings, deliveries of instruments and other actions
necessary or desirable in the opinion of the Administrative Agent to protect
and preserve such security interests shall have been duly effected.

 

(f)            The Administrative Agent shall have
received from each of the Borrowers and each of their Subsidiaries a completed
and fully executed Perfection Certificate and the results of Uniform Commercial
Code searches (and the equivalent thereof in all applicable foreign
jurisdictions) with respect

 

 

to the Collateral,
indicating no Liens other than Liens permitted by SECTION 6.2 and otherwise in
form and substance reasonably satisfactory to the Administrative Agent.

 

(g)           The Administrative Agent shall have
received agency and control account agreements, in form and substance
reasonably satisfactory to the Administrative, in respect of each depository
institution designated by the Administrative Agent with which any of the
Borrowers maintains a depository account and comprised in the Collateral.

 

(h)           The Administrative Agent and the Lenders
shall have received financial statements of the type described in SECTION
5.1(a) for the 2004 fiscal year ended of the Borrowers and financial statements
of the type described in SECTION 5.1(b) for the fiscal quarter of the Borrowers
ended March 31, 2005.

 

(i)            The Administrative Agent shall have
received evidence, in form and substance reasonably satisfactory to the
Administrative Agent, that all governmental and third party approvals necessary
in connection with the financing contemplated by this Agreement and the
continuing operations of each of Borrowers and each of their Subsidiaries shall
have been obtained and be in full force and effect.

 

(j)            The Administrative Agent, the Syndication
Agent and the Lead Arrangers shall have received all fees and other amounts due
and payable on or prior to the Effective Date under the Fee Letter or any other
Loan Document, including, to the extent invoiced, reimbursement or payment of
all out-of-pocket expenses required to be reimbursed or paid by the Borrowers
hereunder.

 

The Administrative Agent shall notify the
Borrowers and the Lenders of the Effective Date, and such notice shall be
conclusive and binding.  Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or
waived pursuant to SECTION 9.2) at or prior to 3:00 p.m., New York City time,
on June 30, 2005 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).

 

SECTION 4.2.        Each Credit Event.  The
obligation of each Lender to make a Loan on the occasion of any Borrowing is
subject to the satisfaction of the following conditions:

 

(a)           The representations and warranties of
each of the Borrowers set forth in this Agreement shall be true and correct in
all material respects on and as of the date of such Borrowing, except to the
extent such representations and warranties relate solely to an earlier date, in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date.

 

(b)           The Administrative Agent shall have
received a current Borrowing Base Report dated within three (3) Business Days
of the drawdown date of such Loan or such more recent Borrowing Base Report as
the Administrative Agent or any Lender shall reasonably request.

 

(c)           At the time of and immediately after
giving effect to such Borrowing no Default shall have occurred and be
continuing.

 

(d)           No law, regulation or order of any
Governmental Authority shall prohibit, enjoin or restrain any Lender from
making such Borrowing, as reasonably determined by such Lender.

 

(e)           In
the event that an asset to be purchased with the proceeds of a Borrowing made
on the date of the Borrowing is to be included in the Borrowing Base as of the
date of the Borrowing

 

 

solely
pursuant to Section 2.1(b), the Administrative Agent shall have received
evidence reasonably satisfactory to it that the conditions referred to in
clauses (i), (ii) and (iii) of Section 2.1(b) have been satisfied.

 

Each Borrowing shall be deemed to constitute
a representation and warranty by each of the Borrowers on the date thereof as
to the matters specified in paragraphs (a) and (c) of this SECTION.

 

ARTICLE V

 

AFFIRMATIVE COVENANTS

 

Until the Commitments have
expired or been terminated and the principal of and interest on each Loan and
all other Obligations payable hereunder shall have been paid in full, each of
the Borrowers covenants and agrees with the Lenders that:

 

SECTION 5.1.        Financial Statements; Ratings Change and
Other Information.  The Borrowers will furnish to the
Administrative Agent and each Lender:

 

(a)           within 90 days after the end of each
fiscal year of the Borrowers, the audited consolidated balance sheet of KKR
Financial and its Subsidiaries and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such year, setting
forth in each case in comparative form the figures for the previous fiscal
year, all reported on by Deloitte & Touche LLP or other independent public
accountants of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of KKR Financial and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied;

 

(b)           within 45 days after the end of each
of the first three fiscal quarters of each fiscal year of the Borrowers, the
consolidated balance sheet of KKR Financial and related statements of
operations, stockholders’ equity and cash flows as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth
in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of KKR Financial and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;

 

(c)           concurrently with any delivery of
financial statements under clause (a) or (b) above, a certificate of
a Financial Officer of the Borrowers (i) certifying as to whether a
Default has occurred and, if a Default has occurred, specifying the details
thereof and any action taken or proposed to be taken with respect thereto,
(ii) setting forth reasonably detailed calculations demonstrating
compliance with SECTION 6.8 and (iii) stating whether any change in
GAAP or in the application thereof which is material in any respect to the
Borrowers’ financial statements has occurred since the date of the audited
financial statements referred to in SECTION 3.4 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate;

 

(d)           concurrently with any delivery of
financial statements under clause (a) above, a certificate of the
accounting firm that reported on such financial statements stating whether they
obtained knowledge during the course of their examination of such financial
statements of any Default (which certificate may be limited to the extent
required by accounting rules, guidelines or practices);

 

 

(e)           promptly after the same become publicly
available, copies of all periodic and other reports, proxy statements and other
materials filed by any of the Borrowers or any of their Subsidiaries with the
Securities and Exchange Commission, or any Governmental Authority succeeding to
any or all of the functions of said Commission, or with any national securities
exchange, or distributed by any of the Borrowers to its shareholders generally,
as the case may be;

 

(f)            simultaneously
upon with the posting of any financial statement, report, proxy statement and
other materials on the Edgar System maintained on the internet by the
Securities and Exchange Commission, written notice to the Administrative Agent
and each Lender of such posting, with notice to the Administrative Agent or any
Lender of such posting of any financial statements referred to in clause (a),
(b) and (c) above being sufficient to constitute delivery of such financial
statements to the Administrative Agent or such Lender for purposes of such
clauses;

 

(g)           promptly
after the same becomes available, but in any event within ten (10) Business
Days after the end of each calendar month or at such
earlier time as the Administrative Agent may reasonably request, a Borrowing
Base Report setting forth the Borrowing Base as at the end of such calendar
month or other date so requested by the
Administrative Agent;

 

(h)           on
a weekly basis, an update as to the values of all publicly quoted Eligible
Specified Financial Assets contained in the Borrowing Base (such update to include
any events of which any of the Borrowers is aware, based upon facts and
circumstances known to it, that affect the value of any such assets or
investments in any material respect);

 

(i)            on
a monthly basis, an update as to the values of all Eligible Specified Financial
Assets contained in the Borrowing Base, the “Value” for which was determined
pursuant to clause (d) of the definition thereof on Exhibit C, based on
valuations provided by a third party appraiser satisfactory to the
Administrative Agent (such update to include any events of which any of the
Borrowers is aware, based upon facts and circumstances known to it, that affect
the value of any such assets or investments in any material respect);

 

(j)            no
later than two (2) Business Days before the initial inclusion of any Eligible
Specified Financial Asset in the Borrowing Base, a Borrowing Base Report
containing all of the Related Borrowing Base Information in respect of such
Eligible Specified Financial Asset; and

 

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

 

SECTION 5.2.        Notices of Material Events. 
Each of the Borrowers will furnish to the Administrative Agent and each
Lender prompt written notice of the following:

 

(a)           the occurrence of any Default;

 

(b)           the filing or commencement of any action,
suit or proceeding by or before any arbitrator or Governmental Authority
against or affecting any of the Borrowers or any Affiliate thereof that could
reasonably be expected to result in a Material Adverse Effect;

 

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

 

 

(d)           any other development that results in, or
could reasonably be expected to result in, a Material Adverse Effect.

 

Each notice delivered under this SECTION
shall be accompanied by a statement of a Financial Officer or other executive
officer of such Borrower setting forth the details of the event or development
requiring such notice and any action taken or proposed to be taken with respect
thereto.

 

SECTION 5.3.        Existence; Conduct of Business. 
Each of the Borrowers will, and will cause each of its Subsidiaries to,
do or cause to be done all things necessary to preserve, renew and keep in full
force and effect its legal existence and the rights, licenses, permits,
privileges and franchises necessary to the conduct of its business; provided
that the foregoing shall not prohibit any merger, consolidation, liquidation or
dissolution permitted under SECTION 6.3. 
Without limiting the generality of the foregoing, KKR Financial will do
all things necessary to maintain its status as a REIT.

 

SECTION 5.4.        Payment of Obligations.  Each of the
Borrowers will, and will cause each of its Subsidiaries to, pay its
obligations, including Tax liabilities, that, if not paid, could result in a
Material Adverse Effect before the same shall become delinquent or in default,
except where (a) the validity or amount thereof is being contested in good
faith by appropriate proceedings, (b) such Borrower or such Subsidiary has set
aside on its books adequate reserves with respect thereto in accordance with
GAAP and (c) the failure to make payment pending such contest could not
reasonably be expected to result in a Material Adverse Effect.

 

SECTION 5.5.        Maintenance of Properties; Insurance. 
Each of the Borrowers will, and will cause each of its Subsidiaries to,
(a) keep and maintain all property necessary to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and (b) maintain, with financially sound and reputable insurance
companies, insurance in such amounts and against such risks as are customarily
maintained by companies engaged in the same or similar businesses operating in
the same or similar locations.

 

SECTION 5.6.        Books and Records; Inspection Rights. 
Each of the Borrowers will, and will cause each of its Subsidiaries to,
keep proper books of record and account in accordance with GAAP.  Each of the Borrowers will, and will cause
each of its Subsidiaries to, permit any representatives designated by the
Administrative Agent or any Lender, upon reasonable prior notice, to visit and
inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested (subject to reasonable requirements of confidentiality).

 

SECTION 5.7.        Compliance with Laws.  Each of the
Borrowers will, and will cause each of its Subsidiaries to, comply with all
laws, rules, regulations and orders of any Governmental Authority applicable to
it or its property, including all Environmental Laws, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect.

 

SECTION 5.8.        Use of Proceeds.  The proceeds
of the Loans will be used only for working capital requirements and other
general corporate purposes consistent with KKR Financial’s Form S-11 filed with
the Securities and Exchange Commission on June 9, 2005.  No part of the proceeds of any Loan will be
used, whether directly or indirectly, for any purpose that entails a violation
of any of the Regulations of the Board, including Regulations T, U and X.

 

SECTION 5.9.        Notices of Dispositions. 
Subject to the provisions of SECTION 6.9, the Borrowers shall deliver to
the Administrative Agent and the Lenders written notice not less than five (5)
Business Days prior to any Disposition of any assets of any of the Borrowers or
any of their Subsidiaries

 

 

not included in the
Collateral in a single transaction or series of related transactions, for
consideration having a value in excess of 10% of Consolidated Total Assets
before giving effect to such transaction or series of related
transactions.  In addition,
simultaneously with delivery of any such notice, the Borrowers shall deliver to
the Administrative Agent a certificate of a financial officer certifying that
the Borrowers are in compliance with this Agreement and the other Loan
Documents both on a historical basis and on a pro forma basis, exclusive of the
property sold or transferred.

 

ARTICLE VI

 

NEGATIVE COVENANTS

 

Until the Commitments have
expired or terminated and the principal of and interest on each Loan and all
other Obligations payable hereunder have been paid in full, each of the
Borrowers covenants and agrees with the Lenders that:

 

SECTION 6.1.        Indebtedness. 
None of the Borrowers will, nor will permit any of its Subsidiaries to,
create, incur, assume or permit to exist any Indebtedness, except:

 

(a)           Indebtedness created hereunder;

 

(b)           Indebtedness existing on the date hereof
and set forth in Schedule 6.1, including extensions,
renewals or refinancings of any such Indebtedness so long as (i) the terms and
conditions of such extensions, renewals or refinancings of such Indebtedness do
not, in the Administrative Agent’s reasonable judgment, materially impair the
prospects of repayment of the Obligations by the Borrowers or impair any
Borrower’s creditworthiness and (ii) such extensions, renewals or refinancings
of such Indebtedness do not result in an increase in the principal amount of
such Indebtedness so extended, renewed or refinanced or add any Borrower as
liable with respect thereto if such Borrower was not liable with respect to the
original Indebtedness;

 

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

 

(d)           Guarantees by any Borrower of
Indebtedness of any Subsidiary and by any Subsidiary of Indebtedness of any
Borrower or any other Subsidiary;

 

(e)           Indebtedness
pursuant to Swap Agreements (including any total rate of return Swap Agreements);

 

(f)            Other
Secured Indebtedness;

 

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

 

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

 

(i)            Indebtedness
arising from the occasional honoring by a bank or other financial

 

 

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

 

(j)            other
unsecured Indebtedness in an aggregate principal amount not exceeding
$10,000,000 at any time outstanding.

 

SECTION 6.2.        Liens.  None of the
Borrowers will, nor will permit any of its Subsidiaries to, create, incur,
assume or permit to exist any Lien on any property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:

 

(a)           Permitted Encumbrances;

 

(b)           any Lien pursuant to any Loan Document;

 

(c)           any Lien on any property or asset of any
of the Borrowers or any Subsidiary existing on the date hereof and set forth in
Schedule 6.2; provided that (i) such Lien shall not
apply to any other property or asset of any Borrower or any Subsidiary and (ii)
such Lien shall secure only those obligations which it secures on the date
hereof (and any extensions, renewals and refinancings of such obligations
permitted under SECTION 6.1);

 

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

 

(e)           Liens
on any property or asset not included in the Borrowing Base that secures any
Swap Agreement (including any total rate of return Swap Agreement) or any other
Secured Indebtedness or any related obligation incurred in connection with the
transactions contemplated thereby.

 

SECTION 6.3.        Fundamental Changes.  (a)
None of the Borrowers will, nor will permit any of its Subsidiaries to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of
(in one transaction or in a series of transactions) all or substantially all of
its assets, or all or substantially all of the stock of any of its Subsidiaries
(in each case, whether now owned or hereafter acquired), or liquidate or
dissolve, except that, if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing (i) any
Subsidiary may merge into any Borrower in a transaction in which such Borrower
is the surviving corporation, (ii) any Subsidiary may merge into any
Subsidiary in a transaction in which the surviving entity is a Subsidiary,
(iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its
assets to a Borrower or to another Subsidiary, (iv) any Subsidiary may
liquidate or dissolve if the Borrower which is the parent of such Subsidiary
determines in good faith that such liquidation or dissolution is in the best
interests of such Borrower and is not materially disadvantageous to the
Lenders; provided that any such merger involving a Person that is not a
wholly owned Subsidiary immediately prior to such merger shall not be permitted
unless also permitted by SECTION 6.4, and (v) any Financing SPE may sell,
transfer, lease or otherwise dispose of (in one transaction or in a series of
related transactions) all or substantially all of its assets in connection with
a Securitization, provided that the proceeds of such Securitization in
excess of the amount such Financing SPE is required to pay to any

 

 

holder of any debt
obligation or equity interests issued by such Financing SPE pursuant to the
terms of such Securitization are paid to a Borrower promptly thereafter.

 

(b)           None of the Borrowers will, nor will
permit any of its Subsidiaries to, engage to any material extent in any
business other than businesses of the type conducted by such Borrower and its
Subsidiaries on the date of execution of this Agreement, businesses reasonably
related thereto or that is a reasonable extension, development or expansion
thereof.

 

SECTION 6.4.        Investments, Loans, Advances, Guarantees and
Acquisitions.  None of the Borrowers will, nor will permit
any of its Subsidiaries to, purchase, hold or acquire (including pursuant to
any merger with any Person that was not a wholly owned Subsidiary prior to such
merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit,
except:

 

(a)           Permitted Investments;

 

(b)           investments by any Borrower or any
Subsidiary existing as of May 31, 2005;

 

(c)           loans or advances made by any Borrower to
any Subsidiary and made by any Subsidiary to any Borrower;

 

(d)           Guarantees of or constituting
Indebtedness permitted by SECTION 6.1;

 

(e)           investments
in any Financing SPE, including any Financing SPE established after the date
hereof, for the purpose of facilitating a Securitization; and

 

(f)            other
investments (including total rate of return Swap Agreements and other Swap
Agreements) made by any Borrower or any Subsidiary in the course of such
Borrower’s or such Subsidiary’s business and consistent with KKR Financial’s
business as described in its Form S-11 filed with the Securities and Exchange
Commission on June 9, 2005.

 

SECTION 6.5.        Restricted Payments. 
None of the Borrowers will, nor will permit any of its Subsidiaries to,
declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, except (a) any Borrower may make Restricted Payments with
respect to its Equity Interests payable solely in additional shares of its
common stock, (b) Subsidiaries (including, without limitation, KKR TRS) may
declare and pay dividends ratably with respect to their Equity Interests, (c)
any Borrower may make Restricted Payments pursuant to and in accordance with
stock option plans or other benefit plans for management or employees of such
Borrower and its Subsidiaries, and (d) so long as no event constituting a
Default under SECTION 7.1(b), 7.1(h) or 7.1(k) or Event of Default has occurred
or is continuing or would occur after giving effect to the making of any
Restricted Payment that would otherwise be permitted under this clause (d), KKR
Financial may make Restricted Payments in the form of dividends in an aggregate
amount not to exceed 100% of its taxable income computed without giving effect
to net operating loss carryforwards and nonrecurring items (including, but not
limited to, stock-based compensation expense and bad debt write-offs).

 

SECTION 6.6.        Transactions with Affiliates. 
None of the Borrowers will, nor will permit any of its Subsidiaries to,
sell, lease or otherwise transfer any property or assets to, or purchase, lease
or otherwise acquire any property or assets from, or otherwise engage in any
other transactions with, any of

 

 

its Affiliates, except
(a) in the ordinary course of business at prices and on terms and conditions
not less favorable to such Borrower or such Subsidiary than could be obtained
on an arm’s-length basis from unrelated third parties, (b) transactions between
or among any Borrower and its wholly owned Subsidiaries not involving any other
Affiliate, (c) transactions for which KKR Financial or such Subsidiary is
obligated under the Management Agreement and (d) any Restricted Payment
permitted by SECTION 6.5.

 

SECTION 6.7.        Restrictive Agreements.  None of the
Borrowers will, nor will permit any of its Subsidiaries to, directly or
indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of any Borrower or any Subsidiary to create, incur or permit to exist
any Lien upon any of its property or assets, or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares
of its capital stock or to make or repay loans or advances to any Borrower or
any other Subsidiary or to Guarantee Indebtedness of any Borrower or any other
Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement or any other
Loan Document or upon any Financing SPE by any lender thereto or investor
therein, (ii) the foregoing shall not apply to restrictions and conditions
existing on the date hereof identified on Schedule  6.7 (but shall
apply to any extension or renewal of, or any amendment or modification
expanding the scope of, any such restriction or condition), (iii) the foregoing
shall not apply to customary restrictions and conditions contained in
agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be
sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing
shall not apply to restrictions or conditions imposed by any agreement relating
to secured Indebtedness permitted by this Agreement if such restrictions or
conditions apply only to the property or assets securing such Indebtedness and
(v) clause (a) of the foregoing shall not apply to customary provisions in
leases and other contracts restricting the assignment thereof.

 

SECTION 6.8.        Financial Covenants.

 

(a)           Consolidated Net Worth. 
The Borrowers shall not permit Consolidated Net Worth at any time to be
less than the sum of (i) $675,000,000 plus (ii) an amount equal to 75%
of the proceeds of any issuance by any Borrower or its Subsidiaries after the
date hereof of Equity Interests of any Borrower or any Subsidiary (other than
issuances to KKR Financial or a wholly-owned Subsidiary of KKR Financial),
including upon any conversion of debt securities of any Borrower into such
Equity Interests.

 

(b)           Leverage Ratio. 
The Borrowers shall not permit the ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth at any time to exceed the ratio
of 12.50 to 1.00.

 

(c)           Effect
of Financing SPEs.  For purposes of
the Borrowers’ compliance with the financial covenants set forth in this
Section, compliance shall be measured both in accordance with GAAP and also as
if any Financing SPE owned by any Borrower or a Subsidiary were consolidated
with such Borrower or such Subsidiary if the consolidation is not required by
GAAP.

 

SECTION 6.9.        Dispositions.  None of the Borrowers will, nor
will permit any of its Subsidiaries to, make any Disposition or enter into any
agreement to make any Disposition, except (a) Dispositions of obsolete or worn
out property, whether now owned or hereafter acquired, in the ordinary course
of business, (b) Dispositions to another Borrower or another Subsidiary, (c)
Dispositions of assets other than Collateral in the course of the Borrower’s or
any Subsidiary’s business and consistent with KKR Financial’s business as
described in its Form S-11 filed with the Securities and Exchange Commission on
June 9, 2005, and (d) Dispositions of Collateral to the extent permitted by the
Security Documents.

 

 

SECTION 6.10.      Management Fees; Compensation. 
None of the Borrowers will, nor will permit any of its Subsidiaries to,
pay management fees, incentive fees or to otherwise increase the compensation
payable to KKR Financial Advisors LLC pursuant to the Management Agreement, in
excess of those fees and compensation levels in effect as of the Effective
Date, without the prior written consent of the Administrative Agent (not to be
unreasonably withheld).

 

SECTION 6.11.      Fiscal Year.  None of the Borrowers shall, nor shall permit any Subsidiary to,
change its fiscal year for accounting or tax purposes from a period consisting
of the 12-month period ending on December 31 of each calendar year.

 

SECTION 6.12.      Margin
Regulations; Securities Laws.  None of the Borrowers shall use all or any
portion of the proceeds of any credit extended under this Agreement to purchase
or carry Margin Stock.

 

ARTICLE VII

 

EVENTS OF DEFAULT

 

SECTION 7.1.        Events of Default. 
If any of the following events (“Events of Default”) shall occur:

 

(a)           the Borrowers shall fail to pay any
principal of any Loan when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment thereof or
otherwise;

 

(b)           the Borrowers shall fail to pay any
interest on any Loan or any fee or any other amount (other than an amount referred
to in clause (a) of this Article) payable under this Agreement, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of three Business Days;

 

(c)           any representation or warranty made or
deemed made by or on behalf of any Borrower in or in connection with this
Agreement or any other Loan Document or any amendment or modification hereof or
thereof or waiver hereunder or thereunder, or in any report, certificate,
financial statement or other document furnished pursuant to or in connection
with this Agreement, any other Loan Document or any amendment or modification
hereof or thereof or waiver hereunder or thereunder, shall prove to have been
incorrect when made or deemed made;

 

(d)           any Borrower shall fail to observe or
perform any covenant, condition or agreement contained in SECTION 5.2, SECTION
5.3 (with respect to such Borrower’s existence) or SECTION 5.8 or in ARTICLE
VI;

 

(e)           any Borrower shall fail to observe or
perform any covenant, condition or agreement contained in this Agreement (other
than those specified in clause (a), (b) or (d) of this Article) or any other
Loan Document, and such failure shall continue unremedied for a period of 30
days after notice thereof from the Administrative Agent to the Borrowers (which
notice will be given at the request of the Required Lenders);

 

(f)            any Borrower shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and payable
(with all applicable grace periods having expired);

 

 

(g)           any event or condition occurs that
results in any Material Indebtedness becoming due prior to its scheduled
maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both, but after all applicable grace periods have expired) the
holder or holders of any Material Indebtedness or any trustee or agent on its
or their behalf to cause any Material Indebtedness to become due, or to require
the prepayment, repurchase, redemption or defeasance thereof, prior to its
scheduled maturity; provided that this clause (g) shall not apply
to secured Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;

 

(h)           an involuntary proceeding shall be
commenced or an involuntary petition shall be filed seeking
(i) liquidation, reorganization or other relief in respect of any Borrower
or any Subsidiary or its debts, or of a substantial part of its assets, under
any Federal, state or foreign bankruptcy, insolvency, receivership or similar
law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any Borrower
or any Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for 60 days
or an order or decree approving or ordering any of the foregoing shall be
entered;

 

(i)            any Borrower or any Subsidiary shall
(i) voluntarily commence any proceeding or file any petition seeking
liquidation, reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of this
Article, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any
Borrower or any Subsidiary or for a substantial part of its assets,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting
any of the foregoing;

 

(j)            any Borrower or any Subsidiary shall
become unable, admit in writing its inability or fail generally to pay its
debts as they become due;

 

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

 

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

 

(m)          KKR Financial Advisors LLC shall cease to
(i) serve as manager and adviser to the Borrowers or (ii) be an Affiliate of
Kohlberg Kravis Roberts & Co. L.P.;

 

(n)           KKR Financial fails to maintain its
status as a REIT under the Code; or

 

(o)           a Change in Control shall occur;

 

then, and in every such event (other than an
event with respect to a Borrower described in clause (h) or (i) of this
Article), and at any time thereafter during the continuance of such event, the
Administrative Agent may, and at the request of the Required Lenders shall, by
notice to the Borrowers, take either or both of the following actions, at the
same or different times:  (i) terminate the Commitments, and
thereupon the Commitments shall terminate immediately, and (ii) declare
the Loans

 

 

then
outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to
be due and payable), and thereupon the principal of the Loans so declared to be
due and payable, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by each of the Borrowers; and in case of any
event with respect to a Borrower described in clause (h) or (i) of this
Article, the Commitments shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
other Obligations, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each of the Borrowers.

 

SECTION 7.2.        Distribution of Collateral Proceeds. 
In the event that, following the occurrence or during the continuance of
any Event of Default, the Administrative Agent or any Lender, as the case may
be, receives any monies in connection with the enforcement of any the Security
Documents, or otherwise with respect to the realization upon any of the
Collateral, such monies shall be distributed for application as follows:

 

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

 

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

 

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

 

(d)           Fourth, the excess, if any, shall be
returned to the Borrowers or to such other Persons as are entitled thereto.

 

ARTICLE VIII

 

THE ADMINISTRATIVE AGENT

 

Each of the Lenders hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof,
together with such actions and powers as are reasonably incidental thereto.

 

 

The bank serving as the
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not the Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
any Borrower or any Subsidiary or other Affiliate thereof as if it were not the
Administrative Agent hereunder.

 

The Administrative Agent
shall not have any duties or obligations except those expressly set forth
herein.  Without limiting the generality
of the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing, (b) the Administrative Agent shall not have any duty to
take any discretionary action or exercise any discretionary powers (including,
without limitation, with respect to the inclusion of any asset of the Borrowers
in the Borrowing Base), except discretionary rights and powers expressly
contemplated hereby that the Administrative Agent is required to exercise in
writing as directed by the Required Lenders (or such other number or percentage
of the Lenders as shall be necessary under the circumstances as provided in
SECTION 9.2), and (c) except as expressly set forth herein, the Administrative
Agent shall not have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the any of the Borrowers or
any of their Subsidiaries that is communicated to or obtained by the bank
serving as Administrative Agent or any of its Affiliates in any capacity.  The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as
shall be necessary under the circumstances as provided in SECTION 9.2) or in
the absence of its own gross negligence or wilful misconduct.  The Administrative Agent shall be deemed not
to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrowers or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or
in connection with this Agreement or any other Loan Document, (ii) the
contents of any Borrowing Base Report, certificate, report or other document
delivered hereunder or in connection herewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or
genuineness of this Agreement, any other Loan Document or any other agreement,
instrument or document executed in connection herewith or therewith or included
in the Collateral, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.

 

The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any Borrowing Base Report, notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person.  The Administrative Agent also may rely upon
any statement made to it orally or by telephone and believed by it to be made
by the proper Person, and shall not incur any liability for relying
thereon.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrowers), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

 

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

 

 

Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this
paragraph, the Administrative Agent may resign at any time by notifying the
Lenders and the Borrowers.  Upon any such
resignation, the Required Lenders shall have the right, in consultation with
the Borrowers, to appoint a successor. 
If no successor shall have been so appointed by the Required Lenders and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent which shall be a bank with an office in New York, New
York, or an Affiliate of any such bank. 
Upon the acceptance of its appointment as Administrative Agent hereunder
by a successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder.  The fees payable
by the Borrowers to a successor Administrative Agent shall be the same as those
payable to its predecessor unless otherwise agreed among the Borrowers and such
successor.  After the Administrative
Agent’s resignation hereunder, the provisions of this Article and SECTION 9.3
shall continue in effect for the benefit of such retiring Administrative Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as
Administrative Agent.

 

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

 

In case of the pendency of
any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the any of the Borrowers or any of its Subsidiaries, the Administrative Agent
(irrespective of whether the principal of any Loan shall then be due and
payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent shall have made any demand on any Borrower)
shall be entitled and empowered, by intervention in such proceeding or
otherwise (a) to file and prove a claim
for the whole amount of the principal and interest owing and unpaid in respect
of the Loans and all other Obligations that are owing and unpaid and to file
such other documents as may be necessary or advisable in order to have the
claims of the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders
and the Administrative Agent and their respective agents and counsel and all
other amounts due the Lenders and the Administrative Agent allowed in such
judicial proceeding, and (b) to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent.  Nothing contained
herein shall be deemed to authorize the Administrative Agent to authorize or
consent to or accept or adopt on behalf of any Lender any plan of
reorganization, arrangement, adjustment or composition affecting the
Obligations or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.In
case one of more Events of Default have occurred and shall be continuing, and
whether or not acceleration of the Obligations shall have occurred, the
Administrative Agent shall, if (a) so requested by the Required Lenders and (b)
the Lenders have provided to the Administrative Agent such additional
indemnities and assurances against expenses and liabilities as the
Administrative Agent may reasonably

 

 

request, proceed to enforce
the provisions of the Security Documents authorizing the sale or other
disposition of all or any part of the Collateral and exercise all or any such
other legal and equitable and other rights or remedies as it may have in
respect of such Collateral.  The Required
Lenders may direct the Administrative Agent in writing as to the method and the
extent of any such sale or other disposition, the Lenders hereby agreeing to
indemnify and hold the Administrative Agent, harmless from all liabilities
incurred in respect of all actions taken or omitted in accordance with such directions,
provided that the Administrative Agent need not comply with any such
direction to the extent that the Administrative Agent reasonably believes the
Administrative Agent’s compliance with such direction to be unlawful or
commercially unreasonable in any applicable jurisdiction.

 

The Lenders irrevocably
authorize the Administrative Agent, at its option and in its discretion, (a) to
release any Lien on any property granted to or held by the Administrative Agent
under any Loan Document (i) upon termination of the total Commitments and
payment in full of all Obligations (other than contingent indemnification
obligations), (ii) that is sold or to be sold as part of or in connection with
any sale permitted hereunder or under any other Loan Document, or (iii) subject
to SECTION 9.2, if approved, authorized or ratified in writing by the Required
Lenders and (b) to subordinate any Lien
on any property granted to or held by the Administrative Agent under any Loan
Document to the holder of any Lien on such property that is permitted by
SECTION 6.2(b).  Upon request by the
Administrative Agent at any time, the Required Lenders will confirm in writing
the Administrative Agent’s authority to release or subordinate its interest in
particular types or items of property.

 

Anything
herein to the contrary notwithstanding, none of the Syndication Agent, Joint
Bookrunners or Lead Arrangers listed on the cover page hereof shall have any
powers, duties or responsibilities under this Agreement or any of the other
Loan Documents, except in its capacity, as applicable, as the Administrative
Agent or a Lender hereunder.

 

The
Administrative Agent shall furnish to each of the Lenders one copy of any
written analysis or report prepared by an external third party and obtained by
the Administrative Agent for the purposes of clause (d) of the definition of “Value”
set forth on Exhibit  C attached hereto.

 

ARTICLE IX

 

MISCELLANEOUS

 

SECTION 9.1.        Notices.  (a) Except in
the case of notices and other communications expressly permitted to be given by
telephone (and subject to paragraph (b) below), all notices and other
communications provided for herein shall be in writing and shall be delivered
by hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy, as follows:

 

(i)            if to any of the Borrowers, to such
Borrower at KKR Financial Corp., Four Embarcadero Center, Suite 2050, San
Francisco, CA 94111, Attention of Treasurer  (Telecopy
No. 415-391-3077), with a copy to General Counsel (Telecopy: 415-391-3077);

 

(ii)           if to the Administrative Agent, to
JPMorgan Chase Bank, N.A., 270 Park Avenue, 15th Floor New York
10017, Attention of Bill Castro, with a copy to JPMorgan Chase Bank, N.A. 270
Park Avenue, 22nd Floor New York 10017, Attention of Marybeth
Mullen, Managing Director (Telecopy No. 212-270-1511); and

 

 

(iii)          if to any other Lender, to it at its
address (or telecopy number) set forth in its Administrative Questionnaire.

 

(b)           Notices and other communications to the
Lenders hereunder may be delivered or furnished by electronic communications
pursuant to procedures approved by the Administrative Agent; provided that the
foregoing shall not apply to notices pursuant to Article II unless otherwise
agreed by the Administrative Agent and the applicable Lender.  The Administrative Agent or any Borrower may,
in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it;
provided that approval of such procedures may be limited to particular notices
or communications.

 

(c)           Any party hereto may change its address
or telecopy number for notices and other communications hereunder by notice to
the other parties hereto.  All notices
and other communications given to any party hereto in accordance with the
provisions of this Agreement shall be deemed to have been given on the date of
receipt.

 

SECTION 9.2.        Waivers; Amendments.  (a) No
failure or delay by the Administrative Agent or any Lender in exercising any
right or power hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power.  The rights and remedies of the Administrative
Agent and the Lenders hereunder are cumulative and are not exclusive of any
rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or consent to any departure by any of the Borrowers therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of
this SECTION, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent or any Lender may have
had notice or knowledge of such Default at the time.

 

(b)           Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by each of the Borrowers and the Required
Lenders or by each of the Borrowers and the Administrative Agent with the
consent of the Required Lenders; provided that no such agreement shall
(i) increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan, or any interest thereon, or any
fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment,
without the written consent of each Lender affected thereby, (iv) change
SECTION 2.15(b) or SECTION 2.15(c) in a manner that would alter the pro rata
sharing of payments required thereby, without the written consent of each
Lender, (v) other than pursuant to a transaction permitted by the terms of this
Agreement, release all or substantially all of the Collateral (excluding, if
any Borrower or any Subsidiary of a Borrower becomes a debtor under the federal
Bankruptcy Code, the release of “cash collateral”, as defined in SECTION 363(a)
of the federal Bankruptcy Code pursuant to a cash collateral stipulation with
the debtor approved by the Required Lenders), without the written consent of
each Lender, or (vi) change any of the provisions of this SECTION or the
definition of “Required Lenders” or any other provision hereof specifying the
number or percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, without the
written consent of each Lender; provided  further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent hereunder without the prior written consent of the
Administrative Agent.

 

 

SECTION 9.3.        Expenses; Indemnity; Damage Waiver.  (a)
The Borrowers jointly and severally agree to pay (i) all reasonable out-of-pocket
expenses incurred by the Administrative Agent and its Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), and (ii) all
out-of-pocket expenses incurred by the Administrative Agent or any Lender,
including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its
rights under this SECTION, or in connection with the Loans made hereunder,
including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans.

 

(b)           The Borrowers jointly and severally agree
to indemnify the Administrative Agent and each Lender, and each Related Party
of any of the foregoing Persons (each such Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result of
(i) the execution or delivery of this Agreement and the other Loan
Documents or any agreement or instrument contemplated hereby or thereby, the
performance by the parties hereto of their respective obligations hereunder and
under the other Loan Documents or the consummation of the Transactions or any
other transactions contemplated hereby or thereby, (ii) any Loan or the
use of the proceeds therefrom, (iii) any actual or alleged presence or
release of Hazardous Materials on or from any property owned or operated by any
of the Borrowers or any of their Subsidiaries, or any Environmental Liability
related in any way to any of the Borrowers or any of their Subsidiaries, or
(iv) any actual or prospective claim, litigation, investigation or proceeding
relating to any of the foregoing, whether based on contract, tort or any other
theory and regardless of whether any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable judgment
to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.

 

(c)           To the extent that the Borrowers fail to
pay any amount required to be paid by them to the Administrative Agent under
paragraph (a) or (b) of this SECTION, each Lender severally agrees to pay to
the Administrative Agent such Lender’s Applicable Percentage (determined as of
the time that the applicable unreimbursed expense or indemnity payment is
sought) of such unpaid amount; provided that the unreimbursed expense or
indemnified loss, claim, damage, liability or related expense, as the case may
be, was incurred by or asserted against the Administrative Agent in its
capacity as such.

 

(d)           To the extent permitted by applicable
law, none of the Borrowers shall assert, and each of the Borrowers hereby
waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or
actual damages) arising out of, in connection with, or as a result of, this
Agreement or any agreement or instrument contemplated hereby, the Transactions,
any Loan or the use of the proceeds thereof.

 

(e)           All amounts due under this SECTION shall
be payable promptly after written demand therefor.

 

(f)            Unless
an Event of Default shall have occurred and be continuing, the Borrowers shall
be entitled to assume the defense of any action for which indemnification is
sought hereunder with counsel of its choice at its expense (in which case the
Borrowers shall not thereafter be responsible for the fees and expenses of any
separate counsel retained by an Indemnitee except as set forth below);
provided,

 

 

however, that
such counsel shall be reasonably satisfactory to each such Indemnitee.  Notwithstanding the Borrowers’ election to assume
the defense of such action, each Indemnitee shall have the right to employ
separate counsel and to participate in the defense of such action, and the
Borrowers shall bear the reasonable fees, costs and expenses of such separate
counsel if (i) the use of counsel chosen by the Borrowers to represent such
Indemnitee would present such counsel with a conflict of interest; (ii) the
actual or potential defendants in, or targets of, any such action include the
Borrowers and such Indemnitee and such Indemnitee shall have reasonably
concluded that there may be legal defenses available to it that are different
from or additional to those available to the Borrowers; (iii) the Borrowers
shall not have employed counsel reasonably satisfactory to such Indemnitee to
represent it within a reasonable time after notice of the institution of such
action; or (iv) the Borrowers shall authorize such Indemnitee to employ
separate counsel at the Borrowers’ expense. 
The Borrowers will not be liable under this Agreement for any amount
paid by an Indemnitee to settle any claims or actions if the settlement is
entered into without the Borrowers’ consent, which consent may not be
unreasonably withheld or delayed.

 

SECTION 9.4.        Successors and Assigns.  (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted
hereby, except that (i) none of the Borrowers may assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by any Borrower without
such consent shall be null and void) and (ii) no Lender may assign or otherwise
transfer its rights or obligations hereunder except in accordance with this
SECTION.  Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby,
Participants (to the extent provided in paragraph (c) of this SECTION) and, to
the extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.

 

(b)           (i) Subject to the conditions set forth
in paragraph (b)(ii) below, any Lender may assign to one or more assignees all
or a portion of its rights and obligations under this Agreement (including all
or a portion of its Commitment and the Loans at the time owing to it) with the prior
written consent (such consent not to be unreasonably withheld) of:

 

(A) the Borrowers, provided that no
consent of the Borrowers shall be required for an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred
and is continuing, any other assignee; and

 

(B) the Administrative Agent, provided
that no consent of the Administrative Agent shall be required for an assignment
of any Revolving Commitment to an assignee that is a Lender with a Revolving
Commitment immediately prior to giving effect to such assignment or an
Affiliate of the assignor if the Affiliate is, directly or through one or more
intermediaries, 100% owned by or under common 100% ownership with the assignor;

 

(ii)           Assignments shall be subject to the
following additional conditions:

 

(A)          except in the case of an assignment to a
Lender or an Affiliate of a Lender or an assignment of the entire remaining
amount of the assigning Lender’s Commitment or Loans, the amount of the
Commitment or Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$5,000,000 unless each of the Borrowers and the Administrative Agent otherwise
consent, provided that no

 

 

such consent of the Borrowers shall be required if an
Event of Default under clause (a), (b), (h) or (i) of Article VII has occurred
and is continuing;

 

(B)           each partial assignment shall be made as
an assignment of a proportionate part of all the assigning Lender’s rights and
obligations under this Agreement;

 

(C)           the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Assumption,
together with a processing and recordation fee of $3,500; provided, however,
that the payment of such processing and recordation fee shall not be required
in the case of an assignment by an Affiliate of the Syndication Agent to
another Affiliate of the Syndication Agent if such Affiliate is, directly or
through one or more intermediaries, 100% owned by or under common 100%
ownership with the Syndication Agent; and

 

(D)          the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

 

For the purposes of this
SECTION 9.4(b), the term “Approved Fund” has the following meaning:

 

“Approved Fund” means
any Person (other than a natural person) that is engaged in making, purchasing,
holding or investing in bank loans and similar extensions of credit in the
ordinary course of its business and that is administered or managed by (a) a
Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an
entity that administers or manages a Lender.

 

(iii)          Subject to acceptance and recording
thereof pursuant to paragraph (b)(iv) of this SECTION, from and after the
effective date specified in each Assignment and Assumption the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Assumption, have the rights and obligations of a Lender
under this Agreement, and the assigning Lender thereunder shall, to the extent
of the interest assigned by such Assignment and Assumption, be released from
its obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the assigning Lender’s rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of SECTION 2.12, SECTION 2.13, SECTION 2.14 and
SECTION 9.3).  Any assignment or transfer
by a Lender of rights or obligations under this Agreement that does not comply
with this SECTION 9.4 shall be treated for purposes of this Agreement as a sale
by such Lender of a participation in such rights and obligations in accordance
with paragraph (c) of this SECTION.

 

(iv)          The Administrative Agent, acting for this
purpose as an agent of the Borrowers, shall maintain at one of its offices a
copy of each Assignment and Assumption delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”).  The entries in the Register shall be
conclusive, and each of the Borrowers, the Administrative Agent and the Lenders
may treat each Person whose name is recorded in the Register pursuant to the
terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. 
The Register shall be available for inspection by

 

 

any Borrower and any Lender, at any reasonable time
and from time to time upon reasonable prior notice.

 

(v)           Upon its receipt of a duly completed
Assignment and Assumption executed by an assigning Lender and an assignee, the
assignee’s completed Administrative Questionnaire (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) of this SECTION and any written consent to such
assignment required by paragraph (b) of this SECTION, the Administrative Agent
shall accept such Assignment and Assumption and record the information
contained therein in the Register.  No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.

 

(c)           (i) Any Lender may, without the consent
of the Borrowers or the Administrative Agent, sell participations to one or
more banks or other entities (a “Participant”) in all or a portion of
such Lender’s rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided that
(A) such Lender’s obligations under this Agreement shall remain unchanged,
(B) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (C) each of the
Borrowers, the Administrative Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender’s
rights and obligations under this Agreement. 
Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or
instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the
first proviso to SECTION 9.2(b) that affects such Participant.  Subject to paragraph (c)(ii) of this SECTION,
the Borrower agrees that each Participant shall be entitled to the benefits of
SECTION 2.12, SECTION 2.13, and SECTION 2.14 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this SECTION.  To the extent permitted by
law, each Participant also shall be entitled to the benefits of SECTION 9.8 as
though it were a Lender, provided such Participant agrees to be subject to
SECTION 2.15(c) as though it were a Lender.

 

(ii)           A Participant shall not be entitled to
receive any greater payment under SECTION 2.12, SECTION 2.13 or SECTION 2.14
than the applicable Lender would have been entitled to receive with respect to
the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrower’s prior written
consent.  A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
SECTION 2.14 unless the Borrowers are notified of the participation sold
to such Participant and such Participant agrees, for the benefit of the
Borrowers, to comply with SECTION 2.14(e) as though it were a Lender.

 

(d)           Any Lender may at any time pledge or
assign a security interest in all or any portion of its rights under this
Agreement to secure obligations of such Lender, including without limitation
any pledge or assignment to secure obligations to a Federal Reserve Bank, and
this SECTION shall not apply to any such pledge or assignment of a security
interest; provided that no such pledge or assignment of a security
interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.

 

SECTION 9.5.        Survival.  All
covenants, agreements, representations and warranties made by any of the
Borrowers herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties

 

 

hereto and shall survive
the execution and delivery of this Agreement and the making of any Loans,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Administrative Agent or any Lender may have had
notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
fee or any other amount payable under this Agreement is outstanding and unpaid
and so long as the Commitments have not expired or terminated.  The provisions of SECTIONS 2.15, 2.16, 2.17
and 9.03 and Article VIII shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the
repayment of the Loans, the expiration or termination of the Commitments or the
termination of this Agreement or any provision hereof.

 

SECTION 9.6.        Counterparts; Integration; Effectiveness. 
This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.  This Agreement and any separate letter
agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. 
Except as provided in SECTION 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.

 

SECTION 9.7.        Severability. 
Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

 

SECTION 9.8.        Right of Setoff. 
If an Event of Default shall have occurred and be continuing, each
Lender and each of its Affiliates is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other obligations at any time owing by such Lender or
Affiliate to or for the credit or the account of any of the Borrowers or any of
their Subsidiaries against any of and all the obligations of any of the
Borrowers now or hereafter existing under this Agreement held by such Lender,
irrespective of whether or not such Lender shall have made any demand under
this Agreement and although such obligations may be unmatured.  The rights of each Lender under this SECTION
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.

 

SECTION 9.9.        Governing Law; Jurisdiction; Consent to
Service of Process.  (a) This Agreement shall be construed in
accordance with and governed by the law of the State of New York.

 

(b)           Each of the Borrowers hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement, or for recognition or enforcement
of any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the
extent permitted by law, in such Federal court. 
Each of the

 

 

parties hereto agrees
that a final judgment in any such action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.  Nothing in this
Agreement shall affect any right that the Administrative Agent or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
against any of the Borrowers or any of their properties in the courts of any
jurisdiction.

 

(c)           Each of the Borrowers hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement in any court referred to in paragraph (b) of this SECTION.  Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

 

(d)           Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in
SECTION 9.1.  Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

 

SECTION 9.10.      WAIVER OF JURY TRIAL. 
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY
OTHER THEORY).  EACH PARTY HERETO
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.

 

SECTION 9.11.      Headings.  Article and
SECTION headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not affect the
construction of, or be taken into consideration in interpreting, this
Agreement.

 

SECTION 9.12.      Confidentiality. 
Each of the Administrative Agent and the Lenders agrees to maintain the
confidentiality of the Information (as defined below), except that Information
may be disclosed (a) to its and its Affiliates’ directors, officers,
employees and agents, including accountants, legal counsel and other advisors
who have a need to know such Information in connection with the Transactions
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep
such Information confidential), (b) to the extent requested by any
regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or the enforcement
of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this SECTION, to (i) any assignee of or
Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement or (ii)  any actual or prospective counterparty (or
its advisors) to any swap or derivative transaction relating to any of the
Borrowers and any of their obligations, (g) with the consent of the Borrowers
or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this SECTION or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Borrowers which source, to the knowledge of the
Administrative Agent or such Lender, did not have an obligation of
confidentiality with respect to such Information.  For the purposes

 

 

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

 

SECTION 9.13.      USA PATRIOT Act. 
Each Lender hereby notifies the Borrowers that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”), it is required to obtain, verify and
record information that identifies each of the Borrowers, which information
includes the name and address of each of the Borrowers and other information
that will allow such Lender to identify each of the Borrowers in accordance
with the Act.

 

SECTION 9.14.      Interest Rate Limitation. 
Notwithstanding anything herein to the contrary, if at any time the
interest rate applicable to any Loan, together with all fees, charges and other
amounts which are treated as interest on such Loan under applicable law
(collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum
Rate”) which may be contracted for, charged, taken, received or reserved by
the Lender holding such Loan in accordance with applicable law, the rate of
interest payable in respect of such Loan hereunder, together with all Charges
payable in respect thereof, shall be limited to the Maximum Rate and, to the
extent lawful, the interest and Charges that would have been payable in respect
of such Loan but were not payable as a result of the operation of this SECTION
shall be cumulated and the interest and Charges payable to such Lender in
respect of other Loans or periods shall be increased (but not above the Maximum
Rate therefor) until such cumulated amount, together with interest thereon at
the Federal Funds Effective Rate to the date of repayment, shall have been
received by such Lender.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
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

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