Document:

Exhibit
4.3

KKR FINANCIAL HOLDINGS LLC, as Issuer

KKR FINANCIAL CORP., as
Guarantor

REGISTRATION RIGHTS
AGREEMENT

July 23, 2007

REGISTRATION
RIGHTS AGREEMENT

THIS REGISTRATION RIGHTS
AGREEMENT (the “Agreement”) is made and entered into as of July
23, 2007, by and among KKR Financial Holdings LLC, a limited liability company
organized under the laws of the State of Delaware (the “Company”), KKR
Financial Corp., a Maryland Corporation (the “Guarantor”), and Citigroup
Global Markets Inc., a New York corporation (the “Initial Purchaser”).

In order to induce the Initial Purchaser to enter into
the Purchase Agreement dated July 17, 2007 (the “Purchase Agreement”) by and
among the Company, the Guarantor and the Initial Purchaser, the Company and the
Guarantor have agreed to provide the registration rights set forth in this
Agreement.  The execution of this
Agreement is a condition to the closing under the Purchase Agreement.  The terms “herein,” “hereof,” “hereto,” “hereinafter”
and similar terms, as used in this Agreement, shall in each case refer to this
Agreement as a whole and not to any particular section, paragraph, sentence or
other subdivision of this Agreement.

The Company and the Guarantor agree with the Initial
Purchaser (i) for its benefit as Initial Purchaser and (ii) for the benefit of
the beneficial owners (including the Initial Purchaser) from time to time of
the Registrable Securities (as defined herein) (each of the foregoing a “Holder”
and, together, the “Holders”), as follows:

1.             Definitions.  Capitalized terms used herein without
definition shall have the respective meanings set forth in the Purchase
Agreement.  As used in this Agreement,
the following terms shall have the following meanings:

(a)           “Additional Filing Deadline Date” has
the meaning set forth in Section 2(e) hereof.

(b)           “additional interest” has the meaning
set forth in Section 2(e) hereof.

(c)           “Additional Interest Accrual Period”
has the meaning set forth in Section 2(e) hereof.

(d)           “Additional Interest Amount” has the
meaning set forth in Section 2(e) hereof.

(e)           “Additional Interest Payment Date”
means each January 15 and July 15 of each year.

(f)            “Affiliate” means, with respect to
any specified person, an “affiliate,” as defined in Rule 144, of such person.

(g)           “Amendment Effectiveness Deadline Date”
has the meaning set forth in Section 2(d) hereof.

(h)           “Business Day” has the meaning set
forth in the Indenture.

(i)            “Claim” has the meaning set forth in
Section 9(o) hereof.

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(j)            “Common Shares” means the shares
representing limited liability company interests in the Company and any other
equity interests that may constitute “Common Shares” for purposes of the Indenture,
including the Underlying Common Shares.

(k)           “Conversion Rate” has the meaning
ascribed to it in the Indenture.

(l)            “Effectiveness Deadline Date” has
the meaning set forth in Section 2(a) hereof.

(m)          “Effectiveness Period” means a period
(subject to extension pursuant to Section 3(i) hereof) that terminates when
there are no Registrable Securities outstanding.

(n)           “Event” has the meaning set forth in
Section 2(e) hereof.

(o)           “Event Date” has the meaning set
forth in Section 2(e) hereof.

(p)           “Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the SEC
promulgated thereunder.

(q)            “Filing Deadline Date” has the
meaning set forth in Section 2(a) hereof.

(r)             “Form S-3” means the Registration
Statement on Form S-3 under the Securities Act.

(s)           “Guarantee”  means the guarantee, on a senior unsecured basis, by the
Guarantor of the Company’s payment obligations on the Notes pursuant to the
Indenture.

(t)            “Holder” has the meaning set forth
in the preamble hereto.

(u)           “Holder Information” has the meaning
set forth in Section 6(b) hereof.

(v)           “Indemnifying Party” has the meaning
set forth in Section 6(c) hereof.

(w)          “Indenture” means the Indenture, dated
as of July 23, 2007, among the Company, the Guarantor and the Trustee, pursuant
to which the Notes are being issued.

(x)            “Initial Purchaser” has the meaning
set forth in the preamble hereto.

(y)           “Initial Shelf Registration Statement”
has the meaning set forth in Section 2(a) hereof.

(z)            “Issue Date” means July 23, 2007.

(aa)         “Managing Underwriters” has the meaning
set forth in Section 8(a) hereof.

(bb)         “Material Event” has the meaning set
forth in Section 3(i) hereof.

(cc)         “NASD Rules” has the meaning set forth
in Section 3(r) hereof.

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(dd)         “Notes” means the 7.000% Convertible
Senior Notes due 2012 of the Company to be purchased pursuant to the Purchase
Agreement.

(ee)         “Notice and Questionnaire” means a
written questionnaire containing substantially the information called for by
the “Form of Selling Securityholder Notice and Questionnaire” attached as
Appendix A to the Offering Memorandum of the Company, dated July 17, 2007,
relating to the Notes.

(ff)           “Notice Holder” means, on a given
date, any Holder that has delivered a Notice and Questionnaire to the Company
on or prior to such date, provided not all of such Holder’s Registrable
Securities that have been registered for resale pursuant to a Notice and
Questionnaire have been sold in accordance with a Shelf Registration Statement.

(gg)         “Option Purchase Date” has the meaning
ascribed to it in the Indenture.

(hh)         “Proceeding” has the meaning set forth
in Section 6(c) hereof.

(ii)           “Prospectus” means the prospectus
included in any Shelf Registration Statement (including, without limitation, a
prospectus that discloses information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 415
under the Securities Act), as amended or supplemented by any amendment or
prospectus supplement, including post-effective amendments and any prospectus
filed with respect to any Shelf Registration Statement pursuant to Rule 424
under the Securities Act, and all materials incorporated by reference or deemed
to be incorporated by reference in such Prospectus.

(jj)           “Purchase Agreement” has the meaning
set forth in the preamble hereof.

(kk)         “Record Date” means, (i) January 1,
with respect to an Additional Interest Payment Date that occurs on January 15
and (ii) July 1, with respect to an Additional Interest Payment Date that
occurs on July 15.

(ll)           “Record Holder” means, with respect
to an Additional Interest Payment Date relating to a Registrable Security for
which any Additional Interest Amount has accrued, a Notice Holder that was the
holder of record of such Registrable Security at the close of business on the
Record Date relating to such Additional Interest Payment Date.

(mm)       “Registrable Securities” means the Notes,
the Guarantee and the Underlying Common Shares until the earliest of:

(i)            the date on which such security has been
effectively registered under the Securities Act and disposed of in accordance
with the Registration Statement relating thereto;

(ii)           the date on which such security may be
resold without restriction by a holder that is not an affiliate of the Company
pursuant to Rule 144(k) or any successor provision thereto;

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(iii)          the date on which such security has been
publicly sold pursuant to Rule 144 or any successor provision thereto; and

(iv)          the date on which such security ceases to be
outstanding.

(nn)          “Registration Expenses” has the
meaning set forth in Section 5 hereof.

(oo)         “Registration Statement” means any
registration statement, under the Securities Act, of the Company that covers
any of the Registrable Securities pursuant to this Agreement, including the
Prospectus, amendments and supplements to such registration statement,
including post-effective amendments, all exhibits and all materials
incorporated by reference or deemed to be incorporated by reference in such
registration statement, Prospectus, amendment or supplement.

(pp)          “Rule 144” means Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC.

(qq)         “Rule 144A” means Rule 144A under the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC.

(rr)           “SEC” means the Securities and
Exchange Commission.

(ss)         “Securities Act” means the Securities
Act of 1933, as amended, and the rules and regulations promulgated by the SEC
thereunder.

(tt)           “Shelf Registration Statement” means
the Initial Shelf Registration Statement, any Subsequent Shelf Registration
Statement and any WKSI Shelf.

(uu)         “Subsequent Shelf Registration Statement”
has the meaning set forth in Section 2(b) hereof.

(vv)         “Subsequent Shelf Registration Statement
Effectiveness Deadline Date” has the meaning set forth in Section 2(d)
hereof.

(ww)       “Suspension Notice” has the meaning set
forth in Section 3(i) hereof.

(xx)          “Suspension Period” has the meaning
set forth in Section 3(i) hereof.

(yy)         “TIA” means the Trust Indenture Act of
1939, as amended.

(zz)          “Trustee” means Wells Fargo Bank,
N.A., the trustee under the Indenture.

(aaa)       “Underlying Common Shares” means the
Common Shares issuable upon conversion of the Notes.

(bbb)      “WKSI Shelf” has the meaning set forth in
Section 2(a) hereof.

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2.             Shelf Registration.

(a)           The Company and the Guarantor shall prepare
and file, or cause to be prepared and filed, with the SEC, as soon as
practicable but in any event by the date (the “Filing Deadline Date”)
that is two hundred forty-five (245) days after the Issue Date, a Registration
Statement (the “Initial Shelf Registration Statement”) for an offering
to be made on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act (which Registration Statement may be an automatic Shelf
Registration Statement if the Company shall then be a “well-known seasoned
issuer” in accordance with the Securities Act (any such Registration Statement,
a “WKSI Shelf”)) registering the resale from time to time by Holders thereof of
all of the Registrable Securities.  The
Company and the Guarantor may satisfy the foregoing obligation by designating
as the Initial Shelf Registration Statement for the purposes of this Agreement
no later than the Filing Deadline Date a previously filed WKSI Shelf.  The Initial Shelf Registration Statement
shall be on  Form S-3 or another
appropriate form and shall provide for the registration of such Registrable
Securities for resale by such Holders in accordance with any reasonable and
customary method of distribution elected by the Holders.  The Company and Guarantor shall use their
commercially reasonable efforts to (i) if the Shelf Registration Statement is
not a WKSI Shelf, cause the Initial Shelf Registration Statement to become
effective under the Securities Act as promptly as practicable but in any event
by the date (the “Effectiveness Deadline Date”) that is two hundred
seventy (270) days after the Issue Date or otherwise make available a WKSI
Shelf for use by Holders by such date and (ii) keep the Initial Shelf
Registration Statement (or any Subsequent Shelf Registration Statement)
continuously effective under the Securities Act until the expiration of the
Effectiveness Period.  If the obligations
hereunder are satisfied by the filing of a Shelf Registration Statement
relating to the Registrable Securities, at the time the Initial Shelf
Registration Statement becomes effective under the Securities Act, each Holder
that became a Notice Holder on or prior to the date that is ten (10) Business
Days prior to such time of effectiveness shall be named as a selling
securityholder in the Initial Shelf Registration Statement and the related
Prospectus in such a manner as to permit such Holder to deliver such Prospectus
to purchasers of Registrable Securities in accordance with applicable law.  If the Company shall satisfy its obligations
hereunder through the designation of a WKSI Shelf as the Initial Shelf Registration
Statement for purposes of this Agreement, each Holder that became a Notice
Holder on or prior to the date that is ten (10) Business Days prior to the date
of the Prospectus thereunder first made available for use by Notice Holders
shall be named as a selling securityholder in such Prospectus in such a manner
as to permit such Holder to deliver such Prospectus to purchasers of
Registrable Securities in accordance with applicable law.  The Company shall issue a release through a
reputable national newswire service of its filing of (or intention to designate
a WKSI Shelf as) the Initial Shelf Registration Statement and of either the
anticipated effective date thereof or, if the Company shall satisfy its
obligations under this Agreement through the designation or filing of a WKSI
Shelf as the Initial Shelf Registration Statement, the date on which the
Company will first make available a Prospectus under such WKSI Shelf for use by
Notice Holders.

(b)           Subject to Section 3(i) below, if any Shelf
Registration Statement ceases to be effective under the Securities Act for any
reason at any time during the

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Effectiveness Period, the Company and the
Guarantor shall use commercially reasonable efforts to promptly cause such
Shelf Registration Statement to become effective under the Securities Act (including
obtaining the prompt withdrawal of any order suspending the effectiveness of
such Shelf Registration Statement), and in any event shall, within thirty (30)
days of such cessation of effectiveness, (i) amend such Shelf Registration
Statement in a manner reasonably expected to obtain the withdrawal of any order
suspending the effectiveness of such Shelf Registration Statement or (ii) file
an additional Registration Statement (a “Subsequent Shelf Registration
Statement”) for an offering to be made on a delayed or continuous basis
pursuant to Rule 415 of the Securities Act registering the resale from time to
time by Holders thereof of all securities that are Registrable Securities as of
the time of such filing.  If a Subsequent
Shelf Registration Statement is filed, the Company and the Guarantor shall use
their commercially reasonable efforts to (A) cause such Subsequent Shelf
Registration Statement to become effective under the Securities Act as promptly
as practicable after such filing, but in no event later than the Subsequent
Shelf Registration Statement Effectiveness Deadline Date and (B) keep such
Subsequent Shelf Registration Statement (or another Subsequent Shelf
Registration Statement) continuously effective until the end of the
Effectiveness Period.  Any such
Subsequent Shelf Registration Statement shall be on Form S-3 or another
appropriate form and shall provide for the registration of such Registrable
Securities for resale by such Holders in accordance with any reasonable and
customary method of distribution elected by the Holders.

(c)           The Company shall supplement and amend any
Shelf Registration Statement if required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement, if required by the Securities Act or, if
necessary to facilitate the resale of Registrable Securities by Holders, as
reasonably requested by an Initial Purchaser or by the Trustee on behalf of the
Holders of the Registrable Securities covered by such Shelf Registration
Statement.

(d)           (i) 
Each Holder of Registrable Securities agrees that, if such Holder wishes
to sell Registrable Securities pursuant to a Shelf Registration Statement and
related Prospectus, it will do so only in accordance with this Section 2(d) and
Section 3(i).  Each Holder of Registrable
Securities wishing to sell Registrable Securities pursuant to a Shelf
Registration Statement and related Prospectus agrees to deliver a completed and
executed Notice and Questionnaire to the Company prior to any attempted or
actual distribution of Registrable Securities under a Shelf Registration
Statement.  From and after the date the
Initial Shelf Registration Statement becomes effective under the Securities Act,
or in the event the Company designates a WKSI Shelf as a Registration Statement
for purposes of this Agreement, from and after the date of the Prospectus
thereunder first made available for use by Notice Holders, the Company and the
Guarantor shall, as promptly as reasonably practicable after the date such
Holder became a Notice Holder, and in any event, subject to clause (B) below,
within the later of (x) ten (10) Business Days after such date or (y) ten (10)
Business Days after the expiration of any Suspension Period that either (I) is
in effect when such Holder became a Notice Holder or (II) is put into effect
within five (5) Business Days after the date such Holder became a Notice
Holder,

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(A)          if required by applicable law, file with the
SEC a supplement to the related Prospectus or a post-effective amendment to the
Shelf Registration Statement or file with the SEC a Subsequent Shelf
Registration Statement and any necessary supplement or amendment to any
document incorporated therein by reference and file any other required document
with the SEC so that such Notice Holder is named as a selling securityholder in
a Shelf Registration Statement and the related Prospectus in such a manner as
to permit such Notice Holder to deliver a Prospectus to purchasers of the
Registrable Securities in accordance with applicable law; provided, the
Company and the Guarantor shall not be required to file more than three (3)
supplements to the Prospectus, two (2) amendments to the Shelf Registration
Statement or one (1) new Shelf Registration Statement during any fiscal
quarter;

(B)           if, pursuant to Section 2(d)(i)(A), the
Company shall have filed a post-effective amendment to the Shelf Registration
Statement or filed a Subsequent Shelf Registration Statement, the Company shall
use commercially reasonable efforts to cause such post-effective amendment or
Subsequent Shelf Registration Statement, as the case may be, to become
effective under the Securities Act as promptly as practicable, but in any event
by the date (the “Amendment Effectiveness Deadline Date,” in the case of
a post-effective amendment) that is thirty (30) days after the date such
post-effective amendment, is required by this Section 2(d) to be filed with the
SEC and by the date (the “Subsequent Shelf Registration Statement
Effectiveness Deadline Date,” in the case of a Subsequent Shelf
Registration Statement) that is sixty (60) days after the date such Subsequent
Shelf Registration Statement is required by this Section 2(d) to be filed with
the SEC;

(C)           the Company shall provide such Notice Holder
a reasonable number of copies of any documents filed pursuant to clause (A)
above, it being understood and agreed that delivery of an electronic copy of
any such documents shall satisfy the Company’s obligation hereunder unless the
Notice Holder notifies the Company that it wishes to receive paper copies;

(D)          the Company shall notify such Notice Holder
as promptly as practicable after the effectiveness under the Securities Act of
any post-effective amendment or Subsequent Shelf Registration Statement filed
pursuant to clause (A) above;

(E)           if such Holder became a Notice Holder during
a Suspension Period, or a Suspension Period is put into effect within five (5)
Business Days after the date such Holder became a Notice Holder, the Company
shall so inform such Notice Holder and shall take the actions set forth in
clauses (A), (B), (C) and (D) above within ten (10) Business Days

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after expiration of such Suspension Period in accordance with Section
3(i); and

(F)           if, under applicable law, the Company has
more than one option as to the type or manner of making any such filing (and
each option is of a substantially similar burden in terms of time and expense
to the Company), the Company shall make the required filing or filings in the
manner or of a type that is reasonably expected to result in the earliest
availability of a Prospectus for effecting resales of Registrable Securities.

(ii)           Notwithstanding anything contained herein to
the contrary, the Company shall be under no obligation to name any Holder that
is not a Notice Holder as a selling securityholder in any Shelf Registration
Statement or related Prospectus; provided, however, that any
Holder that becomes a Notice Holder (regardless of when such Holder became a
Notice Holder) shall be named as a selling securityholder in a Shelf
Registration Statement or related Prospectus in accordance with the
requirements of this Section 2(d) or Section 2(a), as applicable.

(e)           The parties hereto agree that the Holders of
Registrable Securities will suffer damages, and that it would not be feasible
to ascertain the extent of such damages with precision, if:

(i)            the Initial Shelf Registration Statement
has not been filed with the SEC on or prior to the Filing Deadline Date or a
WKSI Shelf shall not have been designated as the Initial Shelf Registration
Statement for purposes of this Agreement by such date;

(ii)           the Initial Shelf Registration Statement has
not become effective under the Securities Act on or prior to the Effectiveness
Deadline Date or a Prospectus under a WKSI Shelf has not been made available to
Notice Holders by such date;

(iii)          subject to the provisions of Section
2(d)(i)(A), either a supplement to a Prospectus, a post-effective amendment or
a Subsequent Shelf Registration Statement is required to be filed with the SEC
and fails to be filed with the SEC within the prescribed period and in the
manner set forth in Section 2(d) (the date such filing is required to be made
being an “Additional Filing Deadline Date”) or, in the case of a
post-effective amendment or a Subsequent Shelf Registration Statement, such
post-effective amendment or Subsequent Registration Statement does not become
effective under the Securities Act by the Amendment Effectiveness Deadline Date
or the Subsequent Shelf Registration Statement Effectiveness Deadline Date, as
the case may be;

(iv)          the Initial Shelf Registration Statement or
any Subsequent Registration Statement is filed with the SEC and becomes
effective under the Securities Act but shall thereafter cease to be effective
or a WKSI Shelf is

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designated as a Registration Statement for purposes of the Agreement
and thereafter ceases to be effective (without being succeeded immediately by a
new Registration Statement that is filed and immediately becomes effective
under the Securities Act) or usable for the offer and sale of Registrable
Securities in the manner contemplated by this Agreement (other than as a result
of a requirement to file a post-effective amendment or prospectus supplement to
the Registration Statement in order to make changes to the information in the
Prospectus regarding selling securityholders or the plan of distribution) for a
period of time (including any Suspension Period) which shall exceed thirty (30)
days in the aggregate in any three (3) month period or ninety (90) days in the
aggregate in any twelve (12) month period; or

(v)           any Registration Statement or amendment
thereto, at the time it becomes effective under the Securities Act, or any
Prospectus relating thereto, at the time it is filed with the SEC or, if later,
at the time the Registration Statement to which such Prospectus relates becomes
effective under the Securities Act, shall fail to name each Holder as a selling
securityholder in such a manner as to permit such Holder to sell its
Registrable Securities pursuant to such Registration Statement and Prospectus
in accordance with applicable law, which Holder was entitled, pursuant to the
terms of this Agreement, to be so named.

Each of the events of a type described in any of the
foregoing clauses (i) through (v) are individually referred to herein as an “Event,”
and

(V)           the Filing Deadline Date, in the case of
clause (i) above,

(W)         the Effectiveness Deadline Date, in the case
of clause (ii) above,

(X)          the Additional Filing Deadline Date, the
Amendment Effectiveness Deadline Date or the Subsequent Shelf Registration
Statement Effectiveness Deadline Date, as the case may be, in the case of
clause (iii) above,

(Y)           the date on which the duration of the
ineffectiveness or unusability of the Shelf Registration Statement exceeds the
number of days permitted by clause (iv) above, in the case of clause (iv)
above, and

(Z)           the date the applicable Registration
Statement or amendment thereto shall become effective under the Securities Act,
or the date the applicable Prospectus is filed with the SEC or, if later, the
time the Registration Statement to which such Prospectus relates becomes
effective under the Securities Act, as the case may be, in the case of clause
(v) above,

are each herein referred to as an “Event Date.”  Events shall be deemed to continue until the
following dates with respect to the respective types of Events:

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(A)          the date the Initial Shelf Registration
Statement is filed with the SEC or the date a WKSI Shelf is designated as the
Initial Shelf Registration Statement for purposes of this Agreement, in the
case of an Event of the type described in clause (i) above;

(B)           the date the Initial Shelf Registration
Statement becomes effective under the Securities Act or the date as of which a
Prospectus under a WKSI Shelf is first made available to Notice Holders, in the
case of an Event of the type described in clause (ii) above;

(C)           the date a supplement to a Prospectus, a
post-effective amendment or a Subsequent Shelf Registration Statement,
whichever is required, is filed with the SEC (in the case of a supplement) or
becomes effective under the Securities Act (in the case of a post-effective
amendment or a Subsequent Shelf Registration Statement), in the case of an
Event of the type described in clause (iii) above;

(D)          the date the Registration Statement becomes
effective and usable again or the date a Subsequent Shelf Registration
Statement is filed with the SEC pursuant to Section 2(b) and becomes effective,
in the case of an Event of the type described in clause (iv) above; or

(E)           the date a supplement to the Prospectus is
filed with the SEC, or the date a post-effective amendment to the Registration
Statement becomes effective under the Securities Act, or the date a Subsequent
Shelf Registration Statement becomes effective under the Securities Act, which
supplement, post-effective amendment or Subsequent Shelf Registration
Statement, as the case may be, names as selling securityholders, in such a
manner as to permit them to sell their Registrable Securities pursuant to the
Registration Statement and Prospectus supplement in accordance with applicable
law, all Holders entitled as herein provided to be so named, in the case of an
Event of the type described in clause (v) above.

Accordingly, commencing on (and including) the day
following any Event Date and ending on (but excluding) the next date on which
there are no Events that have occurred and are continuing (an “Additional
Interest Accrual Period”), the Company agrees to pay, as additional
interest (“additional interest”) and not as a penalty, an amount (the “Additional
Interest Amount”) at the rate described below, payable periodically on each
Additional Interest Payment Date to Record Holders, to the extent of, for each
such Additional Interest Payment Date, the unpaid Additional Interest Amount
that has accrued to (but excluding) such Additional Interest Payment Date (or,
if the Additional Interest Accrual Period shall have ended prior to such
Additional Interest Payment Date, on the next Additional Interest Payment
Date). 

The Additional Interest Amount shall accrue at a rate
per annum equal to one quarter of one percent (0.25%) for the first 90-day
period beginning on, and including, the day following an Event Date and
thereafter at a rate per annum equal to one half of one

 10
 

percent (0.50%) of the aggregate principal amount of
the Notes of which such Record Holders were holders of record at the close of
business on the applicable Record Date (it being understood that in no event
will additional interest accrue at a rate per annum that exceeds 0.50%); provided,
however, that:

(I)            unless there shall be a default in the
payment of any Additional Interest Amount, no Additional Interest Amounts shall
accrue as to any Registrable Security from and after the earlier of (x) the
date such security is no longer a Registrable Security, (y) the date, and to
the extent, such Note is converted in accordance with the Indenture and (z) the
expiration of the Effectiveness Period;

(II)           only those Holders (or their subsequent
transferees) failing to be named as selling securityholders in the manner
prescribed in Section 2(e)(v) above shall be entitled to receive any Additional
Interest Amounts that have accrued solely with respect to an Event of the type
described in Section 2(e)(v) above (it being understood that this clause (II)
shall not impair any right of any Holder to receive Additional Interest Amounts
that have accrued with respect to an Event other than an Event of the type
described in Section 2(e)(v) above);

(III)         only those Holders (or their subsequent
transferees) whose delivery of a Notice and Questionnaire gave rise to the
obligation of the Company, pursuant to Section 2(d)(i), to file and, if
applicable, make effective under the Securities Act the supplement, post-effective
amendment or Subsequent Shelf Registration Statement pursuant to in Section
2(e)(iii) above shall be entitled to receive any Additional Interest Amounts
that have accrued solely with respect to an Event of the type described in
Section 2(e)(iii) above (it being understood that this clause (III) shall not
impair any right of any Holder to receive Additional Interest Amounts that have
accrued with respect to an Event other than an Event of the type described in
Section 2(e)(iii) above);

(IV)         only those Holders (or their subsequent
transferees) that delivered a Notice and Questionnaire pursuant to Section
2(d)(i) shall be entitled to receive  any
Additional Interest Amounts that have accrued solely with respect to an Event
of the type described in Section 2(e)(v) above (it being understood that this
clause (IV) shall not impair any right of any Holder to receive Additional
Interest Amounts that have accrued with respect to an Event other than an Event
of the type described in Section 2(e)(v) above); and

(V)           if a Note ceases to be outstanding during an
Additional Interest Accrual Period for which an Additional Interest Amount
would be payable with respect to such Note, then the Additional Interest Amount
payable hereunder with respect to such Note shall be prorated on the basis of
the number of full days such Note is outstanding during such Additional
Interest Accrual Period.

Except as provided in the final paragraph of this
Section 2(e), (i) the rate of accrual of the Additional Interest Amount with
respect to any period shall not exceed the rate provided

 11
 

for in this Section 2(e) notwithstanding the
occurrence of multiple concurrent Events and (ii) following the cure of all
Events requiring the payment by the Company of Additional Interest Amounts to
the Holders pursuant to this Section, the accrual of Additional Interest
Amounts shall cease (without in any way limiting the effect of any subsequent
Event requiring the payment of Additional Interest Amounts by the
Company).  All installments of additional
interest shall be paid by wire transfer of immediately available funds to the
account specified by the Notice Holder or, if no such account is specified, by
mailing a check to such Notice Holder’s address shown in the register of the
registrar for the Notes or for the Underlying Common Shares, as the case may
be.

All of the Company’s obligations set forth in this
Section 2(e) that are outstanding with respect to any Registrable Security at
the time such Registrable Security ceases to be a Registrable Security shall
survive until such time as all such obligations with respect to such security
have been satisfied in full (notwithstanding termination of this Agreement
pursuant to Section 9(n)).

The parties hereto agree that the additional interest
provided for in this Section 2(e) constitutes a reasonable estimate of the
damages in respect of the Notes that may be incurred by Holders of the Notes by
reason of an Event, including, without limitation, the failure of a Shelf
Registration Statement to be filed, become effective under the Securities Act,
amended or replaced to include the names of all Notice Holders or available for
effecting resales of Registrable Securities in accordance with the provisions
hereof and shall constitute the sole remedy of Holders for monetary damages
hereunder.

If any Additional Interest Amounts are not paid when
due, then, to the extent permitted by law, such overdue Additional Interest
Amounts, if any, shall bear interest, compounded semi-annually, until paid at
the rate of interest payable with respect to overdue amounts on the Notes
pursuant to the Indenture.

(f)            The Trustee shall be entitled, on behalf of
Holders, to seek any available remedy for the enforcement of this Agreement,
including for the payment of any Additional Interest Amount.

(g)           The Company represents and agrees that,
unless it obtains the prior consent of the Holders of a majority of the
Registrable Securities that are registered under the Shelf Registration
Statement at such time or the consent of the Initial Purchaser in connection
with any underwritten offering of Registrable Securities, and each Holder
represents and agrees that, unless it obtains the prior consent of the Company
and the Initial Purchaser, it will not make any offer relating to the
Registrable Securities that would constitute an “issuer free writing
prospectus,” as defined in Rule 433 (an “Issuer Free Writing Prospectus”), or
that would otherwise constitute a “free writing prospectus,” as defined in Rule
405, required to be filed with the SEC. 
The Company represents that any Issuer Free Writing Prospectus, when
taken together with the information in the Shelf Registration Statement and the
Prospectus, will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 12
 

3.             Registration
Procedures.  In connection with the
registration obligations of the Company and the Guarantor under Section 2
hereof, the Company shall:

(a)           Prepare and file with the SEC a Shelf
Registration Statement or Shelf Registration Statements on Form S-3 or any
other appropriate form under the Securities Act available for the sale of the
Registrable Securities by the Holders thereof in accordance with the intended
method or methods of distribution thereof, and use its commercially reasonable
efforts to cause each such Shelf Registration Statement to become effective
under the Securities Act and remain effective under the Securities Act or
otherwise designate a WKSI Shelf as the Registration Statement for purposes of
this Agreement and make a Prospectus thereunder available to the Notice Holders
as provided herein; provided, that, before filing any Shelf Registration
Statement or Prospectus or any amendments or supplements thereto with the SEC,
the Company shall furnish to the Initial Purchaser and one counsel designated
for the Holders and for the Initial Purchaser 
copies of all such documents proposed to be filed and reflect in each such
document when so filed with the SEC such comments as the Initial Purchaser or
such counsel reasonably shall propose within three (3) Business Days of the
delivery of such copies to the Initial Purchaser and such counsel.

(b)           Prepare and file with the SEC such
amendments and post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement continuously effective until
the expiration of the Effectiveness Period; cause the related Prospectus to be
supplemented by any required Prospectus supplement and, as so supplemented, to
be filed with the SEC pursuant to Rule 424 (or any similar provisions then in
force) under the Securities Act; and comply with the provisions of the
Securities Act applicable to them with respect to the disposition of all
securities covered by each Shelf Registration Statement during the
Effectiveness Period in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.

(c)           As promptly as practicable, give notice to
the Notice Holders, the Initial Purchaser and counsel for the Holders and for
the Initial Purchaser:

(i)            when any Prospectus, Prospectus supplement,
Shelf Registration Statement or post-effective amendment to a Shelf
Registration Statement has been filed with the SEC and, with respect to a Shelf
Registration Statement or any post-effective amendment, when the same has
become effective under the Securities Act;

(ii)           of any request, following the effectiveness
of a Shelf Registration Statement under the Securities Act, by the SEC or any
other governmental authority for amendments or supplements to such Shelf
Registration Statement or the related Prospectus or for additional information;

(iii)          of the issuance by the SEC or any other
governmental authority of any stop order suspending the effectiveness of any
Shelf Registration Statement or the initiation or threatening of any
proceedings for that purpose;

 13
 

(iv)          of the receipt by the Company or its legal
counsel of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose;

(v)           after the effective date of any Shelf
Registration Statement filed with the SEC pursuant to this Agreement, of the
occurrence of (but not the nature of or details concerning) a Material Event;
and

(vi)          of the determination by the Company that a
post-effective amendment to a Shelf Registration Statement or a Subsequent
Shelf Registration Statement will be filed with the SEC, which notice may, at
the discretion of the Company (or as required pursuant to Section 3(i)), state
that it constitutes a Suspension Notice, in which event the provisions of
Section 3(i) shall apply.

(d)           Use commercially reasonable efforts to (i)
prevent the issuance of, and, if issued, to obtain the withdrawal of, any order
suspending the effectiveness of a Shelf Registration Statement and (ii) obtain
the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction in which they have been qualified for sale, in either case at the
earliest possible moment, and provide prompt notice to each Notice Holder and
each Initial Purchaser, and counsel for the Holders and for the Initial
Purchaser, of the withdrawal or lifting of any such order or suspension.

(e)           If requested by any Initial Purchaser or any
Notice Holder, as promptly as practicable incorporate in a Prospectus
supplement or a post-effective amendment to a Shelf Registration Statement such
information as such Initial Purchaser, such Notice Holder or counsel for the
Holders and for the Initial Purchaser shall determine to be required to be
included therein by applicable law and make any required filings of such
Prospectus supplement or such post-effective amendment; provided, however,
that the Company shall not be required to take any actions under this Section
3(e) that, in the written opinion of its counsel, are not in compliance with
applicable law.

(f)            As promptly as practicable, furnish to each
Notice Holder, counsel for the Holders and for the Initial Purchaser and each
Initial Purchaser, without charge, at least one (1) conformed copy of each
Shelf Registration Statement and each amendment thereto, including financial
statements but excluding schedules, all documents incorporated or deemed to be
incorporated therein by reference and all exhibits (unless requested in writing
to the Company by such Notice Holder, such counsel or such Initial Purchaser).

(g)           During the Effectiveness Period, deliver to
each Notice Holder, counsel for the Holders and for the Initial Purchaser and
each Initial Purchaser, in connection with any sale of Registrable Securities
pursuant to a Shelf Registration Statement, without charge, as many copies of
the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement thereto
as such Notice Holder or such Initial Purchaser may reasonably

 14
 

request; and the Company hereby consents (except during such periods
that a Suspension Notice is outstanding and has not been revoked) to the use of
such Prospectus and each amendment or supplement thereto by each Notice Holder,
in connection with any offering and sale of the Registrable Securities covered
by such Prospectus or any amendment or supplement thereto in the manner set
forth therein.

(h)           Prior to any public offering of the
Registrable Securities pursuant to a Shelf Registration Statement, use its
commercially reasonable efforts to register or qualify or cooperate with the
Notice Holders in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Notice Holder reasonably requests
in writing (which request may be included in the Notice and Questionnaire); use
its commercially reasonable efforts to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period in connection with such Notice Holder’s offer and sale of Registrable
Securities pursuant to such registration or qualification (or exemption
therefrom) and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of such Registrable
Securities in the manner set forth in the relevant Shelf Registration Statement
and the related Prospectus; provided, however, that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it is not then so qualified, or (ii) take any action that
would subject it to general service of process in suits, other than those
arising out of the offering or sale of Registrable Securities or arising in
connection with this Agreement, in any jurisdiction where it is not now so
subject.

(i)            Upon: (A) the occurrence or existence of
any pending corporate development (a “Material Event”) that, in the
reasonable discretion of the Company, makes it appropriate to suspend the
availability of any Shelf Registration Statement and the related Prospectus;
(B) the issuance by the SEC of a stop order suspending the effectiveness of any
Shelf Registration Statement or the initiation of proceedings with respect to
any Shelf Registration Statement under Section 8(d) or 8(e) of the Securities
Act; or (C) the occurrence of any event or the existence of any fact as a
result of which any Shelf Registration Statement shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any Prospectus shall contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,

(i)            in the case of clause (A) or (C) above,
subject to the next sentence, as promptly as practicable, prepare and file, if
necessary pursuant to applicable law, a post-effective amendment to such Shelf
Registration Statement or a supplement to such Prospectus or any document
incorporated therein by reference or file any other required document that
would be incorporated by reference into such Shelf Registration Statement and
Prospectus so that such Shelf Registration Statement does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements

 15
 

therein not misleading, and so that such Prospectus does not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, as thereafter
delivered to the purchasers of the Registrable Securities being sold
thereunder, and, in the case of a post-effective amendment to a Shelf
Registration Statement, subject to the next sentence, use its commercially
reasonable efforts to cause it to become effective under the Securities Act as
promptly as practicable, and

(ii)           give notice to the Notice Holders and
counsel for the Holders and for the Initial Purchaser and to each Initial
Purchaser that the availability of the Shelf Registration Statement is
suspended (a “Suspension Notice”) (and, upon receipt of any Suspension
Notice, each Notice Holder agrees not to sell any Registrable Securities
pursuant to such Shelf Registration Statement until such Notice Holder’s
receipt of copies of the supplemented or amended Prospectus provided for in
clause (i) above or until such Notice Holder is advised in writing by the
Company that the Prospectus may be used).

The Company and the Guarantor shall use their
commercially reasonable efforts to ensure that the use of the Prospectus may be
resumed (x) in the case of clause (A) above, as soon as, in the reasonable
discretion of the Company, such suspension is no longer appropriate, (y) in the
case of clause (B) above, as promptly as is practicable, and (z) in the case of
clause (C) above, as soon as, in the reasonable judgment of the Company, the
Shelf Registration Statement does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and the Prospectus
does not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.  The period during which the availability of
the Shelf Registration Statement and any Prospectus may be suspended (the “Suspension
Period”) without the Company incurring any obligation to pay additional
interest pursuant to Section 2(e) shall not exceed thirty (30) days in the
aggregate in any three (3) month period or ninety (90) days in the aggregate in
any twelve (12) month period.  The
Effectiveness Period shall be extended by the number of days from and including
the date of the giving of the Suspension Notice to and including the date on
which the Notice Holder received copies (which shall be deemed to be the
earlier of three business days after such documents have been mailed or the
date of actual receipt thereof) of the supplemented or amended Prospectus
provided in clause (i) above, or the date on which it is advised in writing by
the Company that the Prospectus may be used and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such Prospectus.

(j)            Make available for inspection upon written
request given at least three (3) Business Days prior to such inspection and
during normal business hours by representatives for the Notice Holders and any
underwriters participating in any disposition pursuant to any Shelf
Registration Statement and any broker-dealers, attorneys and accountants
retained by such Notice Holders or any such underwriters, all relevant
financial and other records and pertinent corporate documents and properties of

 16

the Company and its subsidiaries, and cause the appropriate officers,
directors and employees of the Company and its subsidiaries to make available
for inspection during normal business hours all relevant information reasonably
requested by such representatives for the Notice Holders, or any such
underwriters, broker-dealers, attorneys or accountants in connection with such
disposition, in each case as is customary for similar “due diligence”
examinations; provided, however, that such persons shall, at the Company’s
request, first agree in writing with the Company that any information that is
reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons and shall be used solely for the purposes of
exercising rights under this Agreement, unless (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of governmental or regulatory authorities, (ii) disclosure
of such information is required by law (including any disclosure requirements
pursuant to federal securities laws in connection with the filing of any Shelf
Registration Statement or the use of any Prospectus referred to in this
Agreement) or necessary to defend or prosecute a claim brought against or by
any such persons (e.g., to establish a “due diligence” defense), (iii) such
information becomes generally available to the public other than as a result of
a disclosure or failure to safeguard by any such person or (iv) such
information becomes available to any such person from a source other than the
Company and such source is not bound by a confidentiality agreement or is not
otherwise under a duty of trust to the Company; provided  further,
that the foregoing inspection and information gathering shall, to the greatest
extent possible, be coordinated on behalf of all the Notice Holders and the
other parties entitled thereto by the counsel, referred to in Section 5, for
the Holders in connection with Shelf Registration Statements.

(k)           Comply with all applicable rules and
regulations of the SEC; and make generally available to its securityholders
earnings statements (which need not be audited) satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.

(l)            If Notice Holders are entitled to have
certificates representing Registrable Securities registered in their names,
cooperate with each Notice Holder to facilitate the timely preparation and
delivery of certificates representing Registrable Securities sold pursuant to a
Shelf Registration Statement, which certificates shall not bear any restrictive
legends, and cause such Registrable Securities to be in such denominations as
are permitted by the Indenture and registered in such names as such Notice
Holder may request in writing at least two (2) Business Days prior to any sale
of such Registrable Securities.

(m)          Provide a CUSIP number for all Registrable
Securities covered by a Shelf Registration Statement not later than the
effective date of the Initial Shelf Registration Statement or the date on which
a Prospectus under a WKSI Shelf is first made available to Notice Holders and
provide the Trustee and the transfer agent for the Common Shares with
certificates for the Registrable Securities that are in a form eligible for
deposit with The Depository Trust Company.

(n)           Cooperate and assist in any filings required
to be made with the National Association of Securities Dealers, Inc.

 17
 

(o)           Take all actions and enter into such
reasonable and customary agreements (including, if requested, an underwriting
agreement in customary form) as are necessary, or reasonably requested by the
Holders of a majority of the Registrable Securities being sold, in order to
expedite or facilitate disposition of such Registrable Securities; and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration:

(i)            the Company shall make such representations
and warranties to the Holders of such Registrable Securities and the
underwriters, if any, in form, substance and scope as would be customarily made
by the Company to underwriters in similar offerings of securities;

(ii)           the Company shall obtain opinions of counsel
of the Company and updates thereof (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the Managing Underwriters,
if any, and to the counsel to the Holders of the Registrable Securities being
sold) addressed to each selling Holder and the underwriters, if any, covering
the matters that would be customarily covered in opinions requested in sales of
securities or underwritten offerings;

(iii)          the Company shall obtain “comfort letters”
and updates thereof from the Company’s independent registered public accounting
firm (and, if necessary, any other independent registered public accounting
firm of any subsidiary of the Company or of any business acquired by the
Company for which financial statements are, or are required to be, included in
any Shelf Registration Statement) addressed to the underwriters, if any, and
the selling Holders of Registrable Securities (to the extent consistent with
Statement on Auditing Standards No. 72 of the American Institute of Certified
Public Accounts), such letters to be in customary form and covering matters of
the type that would customarily be covered in “comfort letters” to underwriters
in connection with similar underwritten offerings;

(iv)          the Company shall, if an underwriting
agreement is entered into, cause any such underwriting agreement to contain
indemnification provisions and procedures substantially equivalent to the
indemnification provisions and procedures set forth in Section 6 hereof with
respect to the underwriters and all other parties to be indemnified pursuant to
said Section; and

(v)           the Company shall deliver such documents and
certificates as may be reasonably requested and as are customarily delivered in
similar offerings to the holders of a majority of the Registrable Securities
being sold and to the Managing Underwriters, if any;

the above to be done at
each closing under any underwriting or similar agreement as and to the extent
required thereunder.

 18
 

(p)           Cause the Indenture to be qualified under
the TIA not later than the effective date of the Initial Shelf Registration
Statement; and, in connection therewith, cooperate with the Trustee to effect
such changes to the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and execute, and use its
commercially reasonable efforts to cause the Trustee to execute, all documents
as may be required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so qualified in
a timely manner.

(q)           Cause the Underlying Common Shares to be
listed on the New York Stock Exchange or on such other securities exchange on
which the Common Shares are then listed or trading.

(r)            In the event that any broker-dealer
registered under the Exchange Act shall underwrite any Registrable Securities
or participate as a member of an underwriting syndicate or selling group or “participate
in a public offering” (within the meaning of the Conduct Rules (the “NASD
Rules”) of the National Association of Securities Dealers, Inc.) thereof,
whether as a Holder of such Registrable Securities or as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or
otherwise, the Company will assist such broker-dealer in complying with the
requirements of such NASD Rules, including, without limitation, by: (i) if such
NASD Rules, including NASD Rule 2720, shall so require, engaging a “qualified
independent underwriter” (as defined in NASD Rule 2720) to participate in the
preparation of the Shelf Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof
and, if any portion of the offering contemplated by such Shelf Registration
Statement is an underwritten offering or is made through a placement or sales
agent, to recommend the yield or price, as the case may be, of such Registrable
Securities; (ii) indemnifying any such qualified independent underwriter to the
extent of the indemnification of underwriters provided in Section 6 hereof; and
(iii) providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the NASD Rules.

4.             Holder’s
Obligations.  Each Holder agrees, by
acquisition of the Registrable Securities, that it shall not be entitled to
sell any of such Registrable Securities pursuant to a Shelf Registration
Statement or to receive a Prospectus relating thereto, unless such Holder has
furnished the Company with a Notice and Questionnaire as required pursuant to
Section 2(d) hereof (including the information required to be included in such
Notice and Questionnaire) and the information set forth in the next sentence.
Each Notice Holder agrees promptly to furnish to the Company all information required
to be disclosed in order to make the information previously furnished to the
Company by such Notice Holder not misleading and any other information
regarding such Notice Holder and the distribution of such Registrable
Securities as the Company may from time to time reasonably request. Any sale of
any Registrable Securities by any Holder shall constitute a representation and
warranty by such Holder that the information relating to such Holder and its
plan of distribution is as set forth in the Prospectus delivered by such Holder
in connection with such disposition, that such Prospectus does not as of the
time of such sale contain any untrue statement of a material fact relating to
or provided by such Holder or its plan of distribution and that such Prospectus
does not as of the time of such sale omit to state any material fact relating
to or provided by such Holder or its plan of distribution necessary

 19
 

in order to make
the statements in such Prospectus, in the light of the circumstances under
which they were made, not misleading.

5.             Registration
Expenses.  The Company shall bear all
fees and expenses incurred in connection with the performance by the Company
and the Guarantor of their obligations under Section 2 and Section 3 of this
Agreement whether or not any of the Shelf Registration Statements are filed or
have become effective under the Securities Act. Such fees and expenses (“Registration
Expenses”) shall include, without limitation, (i) all registration and
filing fees and expenses (including, without limitation, fees and expenses (x)
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. and (y) of compliance with federal securities laws and
state securities or Blue Sky laws (including, without limitation, reasonable
fees and disbursements of one counsel for the Holders in connection with Blue
Sky qualifications of the Registrable Securities under the laws of such
jurisdictions as the Notice Holders of a majority of the Registrable Securities
being sold pursuant to a Shelf Registration Statement may designate)) not to
exceed $10,000, (ii) all printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities in a form eligible
for deposit with The Depository Trust Company and printing Prospectuses), (iii)
all duplication and mailing expenses relating to copies of any Shelf
Registration Statement or Prospectus delivered to any Holders hereunder, (iv)
all fees and disbursements of counsel for the Company, (v) all fees and
disbursements of the Trustee and its counsel and of the registrar and transfer
agent for the Common Shares, and (vi) Securities Act liability insurance
obtained by the Company in its sole discretion. 
In addition, the Company shall pay its own internal expenses (including,
without limitation, all salaries and expenses of officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the fees and expenses incurred in connection with the listing
by the Company of the Registrable Securities on any securities exchange or
quotation system on which similar securities of the Company are then listed and
the fees and expenses of any person, including, without limitation, special
experts, retained by the Company.

6.             Indemnification,
Contribution.

(a)           The Company and the Guarantor jointly and
severally agree to indemnify, defend and hold harmless each Initial Purchaser,
each Holder, each person (a “Controlling Person”), if any, who controls
any Initial Purchaser or Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and the respective officers,
directors, partners, employees, representatives and agents of any Initial
Purchaser, the Holders or any Controlling Person, from and against any loss,
damage, expense, liability, claim or any actions in respect thereof (including
the reasonable cost of investigation) which such indemnified party may incur or
become subject to under the Securities Act, the Exchange Act or otherwise, as
incurred, insofar as such loss, damage, expense, liability, claim or action
arises out of or is based upon any untrue statement or alleged untrue statement
of a material fact contained in any Shelf Registration Statement or Prospectus,
including any document incorporated by reference therein, or in any amendment
or supplement thereto or in any preliminary prospectus, or arises out of or is
based upon any omission or alleged omission to state a material fact required
to be stated in any Shelf Registration Statement or in any amendment or
supplement thereto or necessary to make the statements therein not misleading,
or arises 

 20
 

out of or is based upon any omission or alleged omission to state a
material fact necessary in order to make the statements made in any Prospectus
or in any amendment or supplement thereto or in any preliminary prospectus, in
the light of the circumstances under which such statements were made, not
misleading, or arises out of or is based upon any omission or alleged omission
to state a material fact necessary in order to make the statements made in any
Issuer Free Writing Prospectus or in any amendment or supplement thereto, in
the light of the circumstances under which such statements were made, not
misleading, and the Company shall reimburse, as incurred, the indemnified
parties for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, damage, expense,
liability, claim or action in respect thereof; provided, however,
that the Company shall not be required to provide any indemnification pursuant
to this Section 6(a) in any such case insofar as any such loss, damage,
expense, liability, claim or action arises out of or is based upon any untrue
statement or omission or alleged untrue statement or omission of a material
fact contained in, or omitted from, and in conformity with information
furnished in writing by or on behalf of the Initial Purchaser or a Holder to
the Company expressly for use in, any Shelf Registration Statement or any
Prospectus or any Issuer Free Writing Prospectus; provided  further
that, with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus relating to a Shelf
Registration Statement, the indemnity agreement contained in this Section 6(a)
shall not inure to the benefit of any Holder from whom the person asserting any
such losses, damages, expenses, liabilities, claims or actions purchased the
Registrable Securities concerned, to the extent that a prospectus relating to
such Registrable Securities was required to be delivered by such Holder under
the Securities Act in connection with such purchase and any such loss, damage,
expenses, liability, claim or action of such Holder results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Registrable Securities to such person, at or
prior to the written confirmation of the sale of such Registrable Securities to
such person, a copy of the final prospectus provided the Company had previously
furnished sufficient copies of such final prospectus to such Holder in a timely
manner as to reasonably permit such Holder to send or give a copy of such final
prospectus to such person at or prior to the written confirmation of such sale;
provided  further, however, that this indemnity agreement
will be in addition to any liability which the Company may otherwise have to
such indemnified party.

(b)           Each Holder, severally and not jointly, agrees
to indemnify, defend and hold harmless the Company and the Guarantor, and their
respective directors, officers, employees and any person who controls the
Company and the Guarantor within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act from and against any loss, damage,
expense, liability, claim or any actions in respect thereof (including the
reasonable cost of investigation) which such indemnified party may incur or
become subject to under the Securities Act, the Exchange Act or otherwise,
insofar as such loss, damage, expense, liability, claim or action arises out of
or is based upon any untrue statement or alleged untrue statement of a material
fact contained in, and in conformity with information (the “Holder Information”)
furnished in writing by or on behalf of such Holder to the Company expressly
for use in, any Shelf Registration Statement or Prospectus or Issuer Free
Writing Prospectus, or arises out of or is based

 21
 

upon any omission or alleged omission to state a material fact in
connection with such Holder Information required to be stated in any Shelf
Registration Statement or Prospectus or Issuer Free Writing Prospectus or
necessary to make such Holder Information not misleading; and, subject to the
limitation set forth in the immediately preceding clause, each Holder shall
reimburse, as incurred, the Company, as applicable, for any legal or other
expenses reasonably incurred by the Company, the Guarantor or any such
controlling person in connection with investigating or defending any loss,
damage, expense, liability, claim or action in respect thereof.  This indemnity agreement will be in addition
to any liability which such Holder may otherwise have to the Company, the Guarantor
or any of its controlling persons.  In no
event shall the liability of any selling Holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds received
by such Holder upon the sale, pursuant to the Shelf Registration Statement, of
the Registrable Securities giving rise to such indemnification obligation.

(c)           If any action, suit or proceeding (each, a “Proceeding”)
is brought against any person in respect of which indemnity may be sought
pursuant to either Section 6(a) or Section 6(b), such indemnified party shall
promptly notify the person against whom such indemnity may be sought (the “Indemnifying
Party”) in writing of the institution of such Proceeding and the
Indemnifying Party shall assume the defense of such Proceeding; provided,
however, that the omission to so notify such Indemnifying Party shall
not relieve such Indemnifying Party from any liability which it may have to
such indemnified party or otherwise. 
Such indemnified party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless the employment of such counsel shall
have been authorized in writing by such Indemnifying Party in connection with
the defense of such Proceeding or such Indemnifying Party shall not have
employed counsel to have charge of the defense of such Proceeding within thirty
(30) days of the receipt of notice thereof or such indemnified party shall have
reasonably concluded upon the written advice of counsel that there may be one
or more defenses available to it that are different from, additional to or in
conflict with those available to such Indemnifying Party (in which case such
Indemnifying Party shall not have the right to direct that portion of the defense
of such Proceeding on behalf of the indemnified party), in any of which events
such reasonable fees and expenses shall be borne by such Indemnifying Party and
paid as incurred (it being understood, however, that such Indemnifying Party
shall not be liable for the expenses of more than one separate counsel in any
one Proceeding or series of related Proceedings together with reasonably
necessary local counsel representing the indemnified parties who are parties to
such action).  An Indemnifying Party
shall not be liable for any settlement of such Proceeding effected without the
written consent of such Indemnifying Party, but if settled with the written
consent of such Indemnifying Party, such Indemnifying Party agrees to indemnify
and hold harmless an indemnified party from and against any loss or liability
by reason of such settlement. 
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an Indemnifying Party to reimburse such indemnified
party for fees and expenses of counsel as contemplated by the second sentence
of this paragraph, then such Indemnifying Party agrees that it shall be liable
for any settlement of any Proceeding effected without its written consent if
(i) such settlement is entered into more than sixty (60) Business Days

 22
 

after receipt by such Indemnifying Party of the aforesaid request, (ii)
such Indemnifying Party shall not have fully reimbursed such indemnified party
in accordance with such request prior to the date of such settlement and (iii)
such indemnified party shall have given such Indemnifying Party at least thirty
(30) days’ prior notice of its intention to settle.  No Indemnifying Party shall, without the
prior written consent of any indemnified party, effect any settlement of any
pending or threatened Proceeding in respect of which such indemnified party is
or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional
release of such indemnified party from all liability on claims that are the
subject matter of such Proceeding and does not include an admission of fault or
culpability or a failure to act by or on behalf of such indemnified party.

(d)           If the indemnification provided for in this
Section 6 is unavailable to an indemnified party under Section 6(a) or Section
6(b), or insufficient to hold such indemnified party harmless, in respect of
any losses, damages, expenses, liabilities, claims or actions referred to
therein, then each applicable Indemnifying Party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, damages, expenses, liabilities,
claims or actions (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and by the Holders
or the Initial Purchaser, on the other hand, from the offering of the
Registrable Securities or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company, on the one hand, and of the Holders or the
Initial Purchaser, on the other hand, in connection with the statements or
omissions which resulted in such losses, damages, expenses, liabilities, claims
or actions, as well as any other relevant equitable considerations.  The relative fault of the Company, on the one
hand, and of the Holders or the Initial Purchaser, on the other hand, shall be
determined by reference to, among other things, whether the untrue statement or
alleged untrue statement of a material fact or omission or alleged omission
relates to information supplied by the Company or by the Holders or the Initial
Purchaser and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.  The amount paid or payable by a party as a
result of the losses, damages, expenses, liabilities, claims and actions
referred to above shall be deemed to include any reasonable legal or other fees
or expenses reasonably incurred by such party in connection with investigating
or defending any Proceeding.

(e)           The Company, the Holders and the Initial
Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 6 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in Section 6(d) above.  Notwithstanding the provisions of this
Section 6, no Holder shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities giving
rise to such contribution obligation and sold by such Holder were offered to
the public exceeds the amount of any damages which it has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.  No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the

 23
 

Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.  The Holders’ respective obligations to
contribute pursuant to this Section 6 are several in proportion to the
respective amount of Registrable Securities they have sold pursuant to a Shelf
Registration Statement, and not joint. 
The remedies provided for in this Section 6 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.

(f)            The indemnity and contribution provisions
contained in this Section 6 shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation
made by or on behalf of any Holder or any Initial Purchaser or any person
controlling any Holder or any Initial Purchaser, or the Company, or the Company’s
officers or directors or any person controlling the Company and (iii) the sale
of any Registrable Security by any Holder.

7.             Information
Requirements.

(a)           Each of the Company and the Guarantor
covenants that, if at any time before the end of the Effectiveness Period it is
not subject to the reporting requirements of the Exchange Act, it will
cooperate with any Holder of Registrable Securities and take such further
action as any Holder of Registrable Securities may reasonably request in
writing (including, without limitation, making such representations as any such
Holder may reasonably request), all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitations of the exemptions provided by Rule
144, Rule 144A, Regulation S and Regulation D under the Securities Act and
customarily taken in connection with sales pursuant to such exemptions. Upon
the written request of any Holder, the Company shall deliver to such Holder a
written statement as to whether the Company and the Guarantor have complied
with the reporting requirements of the Exchange Act, unless such a statement
has been included in the most recent report of the Company or the Guarantor, as
the case may be, filed with the SEC pursuant to Section 13 or Section 15(d) of Exchange
Act.

(b)           The Company shall file the reports required
to be filed by it under the Exchange Act and shall comply with all other
requirements set forth in the instructions to Form S-3 in order to allow it to
be eligible to file registration statements on Form S-3.

8.             Underwritten
Registrations.

(a)           If any of the Registrable Securities covered
by the Shelf Registration Statement are to be offered and sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering (“Managing Underwriters”)
shall be selected by the holders of a majority of such Registrable Securities
to be included in such offering.

(b)           No person may participate in any
underwritten registration hereunder unless such person (i) agrees to sell such
person’s Registrable Securities on the basis

 24
 

reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.

(c)           In no event shall the resale of any of the
Registrable Securities take the form of an underwritten offering without the
express written consent of the Company.

9.             Miscellaneous.

(a)           Remedies.  The Company acknowledges and agrees that any
failure by it to comply with its obligations under this Agreement may result in
material irreparable injury to the Initial Purchaser and the Holders for which
there is no adequate remedy at law, that it will not be possible to measure
damages for such injuries precisely and that, in the event of any such failure,
any Initial Purchaser or any Holder may obtain such relief as may be required
to specifically enforce the Company’s obligations under this Agreement.  The Company further agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.  Notwithstanding the foregoing
two sentences, this Section 9(a) shall not apply to the subject matter referred
to in and contemplated by Section 2(e).

(b)           No Conflicting Agreements.  The Company is not, as of the date hereof, a
party to, nor shall it, on or after the date of this Agreement, enter into, any
agreement with respect to its securities that conflicts with the rights granted
to the Holders in this Agreement.  The
Company represents and warrants that the rights granted to the Holders
hereunder do not in any way conflict with the rights granted to the holders of
the Company’s securities under any other agreements.  The Company will not take any action with
respect to the Registrable Securities which would adversely affect the ability
of any of the Holders to include such Registrable Securities in a registration
undertaken pursuant to this Agreement. 
The Company represents and covenants that it has not granted, and shall
not grant, to any of its security holders (other than the Holders in such
capacity) the right to include any of its securities in any Shelf Registration
Statement filed pursuant to this Agreement.

(c)           Amendments and Waivers.  The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of a
majority of outstanding Registrable Securities; provided, however,
that, no consent is necessary from any of the Holders in the event that this
Agreement is amended, modified or supplemented in order to comply with
applicable law following any change in applicable law after the date hereof or
for the purpose of curing any ambiguity, defect or inconsistency that does not
adversely affect the rights of any Holders; provided  further,
that the consent of each Holder of a Note affected thereby shall be required in
order to amend the obligation of the Company to pay additional interest in
accordance with the provisions of this Agreement.  Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders 

 25
 

of Registrable Securities whose securities are being sold pursuant to a
Shelf Registration Statement and that does not directly or indirectly affect
the rights of other Holders of Registrable Securities may be given by Holders
of at least a majority of the Registrable Securities being sold by such Holders
pursuant to such Shelf Registration Statement; provided, however,
that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.  Each Holder of
Registrable Securities outstanding at the time of any such amendment,
modification, supplement, waiver or consent or thereafter shall be bound by any
such amendment, modification, supplement, waiver or consent effected pursuant
to this Section 9(c), whether or not any notice, writing or marking indicating
such amendment, modification, supplement, waiver or consent appears on the
Registrable Securities or is delivered to such Holder.

(d)           Notices.  All notices and other communications provided
for or permitted hereunder shall be made in writing by hand delivery, by telecopier,
by courier guaranteeing overnight delivery or by first-class mail, return
receipt requested, and shall be deemed given (A) when made, if made by hand
delivery, (B) upon confirmation, if made by telecopier, (C) one (1) Business
Day after being deposited with such courier, if made by overnight courier or
(D) on the date indicated on the notice of receipt, if made by first-class
mail, to the parties as follows:

(i)            if to a Holder, at the most current address
given by such Holder to the Company in a Notice and Questionnaire or any
amendment thereto;

(ii)           if to the Company and the Guarantor, to:

KKR Financial Holdings
LLC

555 California Street, 50th Floor

San Francisco, California 94104

Attention: General Counsel

Telecopy No.:  415-391-3330

with a copy to:

Hunton & Williams LLP

Riverfront Plaza, East Tower

951 East Byrd Street

Richmond, Virginia 23219

Attention: George Howell

(iii)          if to the Initial Purchaser, to:

Citigroup Global Markets Inc.

390 Greenwich Street

4th Floor

New York, New York 
10013

Attention: General
Counsel

 26
 

with a copy to:

Sidley Austin LLP

555 California Street 

20th Floor

San Francisco, CA 94104

Attention: Eric S.
Haueter, Esq.

or to such other address
as such person may have furnished to the other persons identified in this
Section 9(d) in writing in accordance herewith.

(e)           Majority of Registrable Securities.  For purposes of determining what constitutes
holders of a majority of Registrable Securities, as referred to in this
Agreement, a majority shall constitute a majority in aggregate principal amount
of Registrable Securities, treating each relevant holder of shares of
Underlying Common Shares of the Notes as a holder of the aggregate principal
amount of Notes in respect of which such Common Shares was issued.

(f)            Approval of Holders.  Whenever the consent or approval of Holders
of a specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its “affiliates” (as such term is
defined in Rule 405 under the Securities Act) (other than the Initial Purchaser
or subsequent Holders of Registrable Securities, if the Initial Purchaser or
such subsequent Holders are deemed to be such affiliates solely by reason of
their holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

(g)           Third Party Beneficiaries.  The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantor, on the one hand, and the Initial Purchaser, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the
rights of Holders hereunder. The Trustee shall be entitled to the rights
granted to it pursuant to this Agreement.

(h)           Successors and Assigns.  Any person who purchases any Registrable
Security from any Initial Purchaser or from any Holder shall be deemed, for
purposes of this Agreement, to be an assignee of such Initial Purchaser or such
Holder, as the case may be.  This
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of each of the parties hereto and shall inure to the
benefit of and be binding upon each Holder of any Registrable Security.

(i)            Counterparts. This Agreement may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be original and
all of which taken together shall constitute one and the same agreement.

 27
 

(j)            Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

(k)           Governing Law. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

(l)            Severability.  If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated thereby, and the parties hereto
shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction, it being
intended that all of the rights and privileges of the parties shall be
enforceable to the fullest extent permitted by law.

(m)          Entire Agreement.  This Agreement is intended by the parties
hereto as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and the
registration rights granted by the Company and the Guarantor with respect to
the Registrable Securities. Except as provided in the Purchase Agreement, there
are no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein, with respect to the registration rights granted by
the Company and the Guarantor with respect to the Registrable Securities.  This Agreement supersedes all prior
agreements and undertakings among the parties with respect to such registration
rights.  No party hereto shall have any
rights, duties or obligations other than those specifically set forth in this
Agreement.

(n)           Termination.  This Agreement and the obligations of the
parties hereunder shall terminate upon the end of the Effectiveness Period,
except for any liabilities or obligations under Section 4, Section 5 or Section
6 hereof and the obligations to make payments of and provide for additional
interest under Section 2(e) hereof to the extent such additional interest
accrues prior to the end of the Effectiveness Period and to the extent any
overdue additional interest accrues in accordance with the last paragraph of
such Section 2(e), each of which shall remain in effect in accordance with its
terms.

If the Guarantor is released from its
Guarantee, the Guarantor shall be automatically and unconditionally released
and discharged from all of its obligations under this Agreement (other than (i)
obligations and liabilities which may have arisen prior to the time of such
release and discharge and (ii) any obligation set forth in Section 6 hereof to
the extent such obligation arises out of any untrue statement or alleged untrue
statement or omission or alleged omission or suit, action or proceeding which
occurred prior to such release) without any further action required on the part
of the Company, the Guarantor or any other Person.

(o)           Submission to Jurisdiction.  Except as set forth below, no claim,
counterclaim or dispute of any kind or nature whatsoever arising out of or in
any way

 28
 

relating to this Agreement (“Claim”) may be commenced,
prosecuted or continued in any court other than the courts of the State of New
York located in the City and County of New York or in the United States
District Court for the Southern District of New York, which courts shall have
jurisdiction over the adjudication of such matters, and each of the  Company and the Guarantor hereby consents to
the jurisdiction of such courts and personal service with respect thereto. Each
of the Company and the Guarantor hereby consents to personal jurisdiction,
service and venue in any court in which any Claim arising out of or in any way
relating to this Agreement is brought by any third party against any Initial
Purchaser. Each of the Company and the Guarantor agrees that a final judgment
in any such Proceeding brought in any such court shall be conclusive and
binding upon the Company or the Guarantor, as applicable, and may be enforced
in any other courts in the jurisdiction of which the Company or the Guarantor,
as applicable, is or may be subject, by suit upon such judgment.

[The Remainder of This Page Intentionally Left Blank;
Signature Page Follows]

 29
 

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

	
  

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
  KKR FINANCIAL
  HOLDINGS LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Andrew J. Sossen

  	
   

  
	
   

  	
   

  	
  Name: Andrew J. Sossen

  
	
   

  	
   

  	
  Title: General Counsel

  
	
   

  	
   

  	
  and Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  KKR FINANCIAL
  CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Jeffrey B. Van Horn

  	
   

  
	
   

  	
   

  	
  Name: Jeffrey B. Van Horn

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

 30
 

Accepted and agreed to as
of the date

first above written:

	
  CITIGROUP GLOBAL MARKETS
  INC.

  
	
   

  
	
   

  
	
  By:

  	
    /s/ Guy SeeboHm

  	
   

  
	
   

  	
  Name: Guy Seebohm

  
	
   

  	
  Title: Director - ECM

  	
   

  
				

 

 31Exhibit
4.1

	
  

  	
  

  	
  FILE COPY

  

 

STOCK
OPTION GRANT CERTIFICATE

Clarient, Inc., a
Delaware corporation (the “Company”), hereby grants to the grantee named below
(“Grantee”) an option (this “Option”) to purchase the total number of shares
shown below of Common Stock of the Company (the “Shares”) at the exercise price
per share set forth below, subject to all of the terms and conditions on the
reverse side of this Stock Option Grant Certificate and the 1996 Equity
Compensation Plan, as amended and restated (the “Plan”). Unless otherwise
defined herein, capitalized terms used herein shall have the meanings ascribed
to them in the Plan. The terms and conditions set forth on the reverse side
hereof and the terms and conditions of the Plan are incorporated herein by
reference. This Stock Option Grant Certificate shall constitute the “Agreement”
for this Option as such term is used in the Plan.

	
  Grant Date:

  	
  June 19, 2006

  
	
   

  	
   

  
	
  Type of Option:

  	
  Non-qualified Stock Option

  
	
   

  	
   

  
	
  Shares Subject to Option:

  	
  150,000

  
	
   

  	
   

  
	
  Exercise Price Per Share:

  	
  $0.90

  
	
   

  	
   

  
	
  Term of Option:

  	
  10 years

  
			

 

Shares subject to
issuance under this Option do not become exercisable until the first
anniversary of the grant, and then become exercisable on and after the dates
indicated below:

	
  June 19, 2007

  	
   

  	
  25

  	
  %

  
	
  June 20, 2007 to June
  19, 2010

  	
   

  	
  Monthly

  	
   

  
	
  June 19, 2010

  	
   

  	
  100

  	
  %

  

 

This Option shall be
exercisable throughout the Term as to all Shares for which it has become
exercisable as provided above.

In witness whereof, this
Stock Option Grant Certificate has been executed by the Company by a duly
authorized officer as of the date specified hereon.

Clarient, Inc.

 

	
  By:

  	
  /s/ Ronald A. Andrews

  	
   

  
	
   

  	
  Ronald A. Andrews

  	
   

  

 

Grantee hereby
acknowledges receipt of a copy of the Prospectus containing information about
the Plan, represents that Grantee has read the Prospectus and understands the
terms and provisions of the Plan, and accepts this Option subject to all the
terms and conditions of the Plan and this Stock Option Grant Certificate.
Grantee acknowledges that the grant and exercise of this Option, and the sale
of Shares obtained through the exercise of this Option, may have tax
implications that could result in adverse tax consequences to the Grantee and that
Grantee is not relying on the Company for any tax, financial or legal advice
and will consult a tax adviser prior to such exercise or disposition.

 

	
  /s/ James Agnello

  	
   

  
	
  James Agnello

  

 

1.             Option Expiration.   The Option shall automatically
terminate upon the happening of the first of the following events:

(a)           The expiration of the three year
period after the Grantee ceases to be a member of the Board of Directors of the
Company for any reason other than as provided below in subparagraphs (b)
through (e);

(b)           The expiration of the one-year period
after the Grantee ceases to be employed by or to be a member of the Board of
Directors of the Company on account of the Grantee’s disability (as defined in
the Plan);

(c)           The expiration of the one-year period
after the Grantee’s employment terminates as a result of death while employed
by or to be a member of the Board of Directors of the Company or within three
months after the Grantee’s termination of employment or service as described in
subparagraph (a) above;

(d)           The date on which the Grantee ceases
to be employed by or to be a member of the Board of Directors of the Company as
a result of a termination by the Company for cause (as defined in the Plan); or

(e)           The expiration of the three-year
period after the Grantee’s employment or service terminates as a result of
retirement on or after the Grantee’s fifty-fifth birthday and a minimum of five
years of employment or three years of Board service.

Notwithstanding the foregoing,
in no event may the Option be exercised after the expiration of the Term of
Option specified on the reverse side. Any portion of the Option that is not
vested at the time the Grantee ceases to be employed by or to be a member of
the Board of Directors of the Company shall immediately terminate. In the event
a Grantee ceases to be employed by or to be a member of the Board of Directors
of the Company as a result of a termination by the Company for cause, the
Grantee shall automatically forfeit all shares underlying any exercised portion
of an Option for which the Company has not yet delivered the share certificates
upon refund by the Company of the exercise price paid by the Grantee for such
shares.

2.             Exercise Procedures.

(a)           Subject to the provisions of this
Stock Option Grant Certificate and the Plan, the Grantee may exercise part or
all of the vested Option by giving the Company written notice of intent to
exercise in the manner provided in Paragraph 11 below, specifying the number of
Shares as to which the Option is to be exercised. On the delivery date, the
Grantee shall pay the exercise price (i) in cash, (ii) with the prior consent
of the Committee, by delivering Shares of the Company (duly endorsed for
transfer or accompanied by stock powers signed in blank) which shall be valued
at their fair market value on the date of delivery, or (iii) by such other
method as the Committee may approve, including payment through a broker in
accordance with procedures permitted by Regulation T of the Federal Reserve
Board. The Board may impose from time to time such limitations as it deems
appropriate on the use of Shares of the Company to exercise the Option.

(b)           The obligation of the Company to
deliver Shares upon exercise of the Option shall be subject to all applicable
laws, rules, and regulations and such approvals by governmental agencies as may
be deemed appropriate by the Board, including such actions as Company counsel
shall deem necessary or appropriate to comply with relevant securities laws and
regulations. The Company may require that the Grantee (or other person
exercising the Option after the Grantee’s death) represent that the Grantee is
purchasing Shares for the Grantee’s own account and not with a view to or for
sale in connection with any distribution of the Shares, or such other
representation as the Board deems appropriate. All obligations of the Company
under this Stock Option Grant Certificate shall be subject to the rights of the
Company as set forth in the Plan to withhold amounts required to be withheld
for any taxes, if applicable. Subject to Committee approval, the Grantee may
elect to satisfy any income tax withholding obligation of the Company with
respect to the Option by having Shares withheld with a fair market value equal
to the federal (including FICA), state and local tax liabilities with respect
to the exercise of the Option, based on the minimum statutory tax rates
applicable to supplemental wages.

3.             Change of Control.    In the
event of a “Change of Control,” all of the unvested portion of the Option shall
vest immediately. “Change in Control” is defined to mean the issuance, sale or
transfer (including a transfer as a result of death, disability, operation of
law or otherwise) in a single transaction or group of related transactions to
any entity, person or group (other than Safeguard Scientifics, Inc. and/or its
affiliates) of the beneficial ownership of newly issued, outstanding or
treasury shares of the capital stock of the Company having 50% or more of the
combined voting power of the Company’s then outstanding securities entitled to
vote for at least a majority of the authorized number of directors of the
Company, or any merger, consolidation, sale of all or substantially all of the
assets or other comparable transaction as a result of which all or
substantially all of the assets and business of the Company are acquired
directly or indirectly by another entity which prior to the acquisition was not
an affiliate of the Company (as defined in the regulations of the Securities
and Exchange Commission under the Securities Act of 1933), other than any such
merger, consolidation, sale or other transaction which results in the Company’s
voting securities outstanding immediately before the transaction continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the Company or the person that, as a result of the transaction,
controls, directly or indirectly, the Company or owns, directly or indirectly,
all or substantially all of the Company’s assets or otherwise succeeds to the
business of the Company (the Company or such person, the “Successor Entity”))
directly or indirectly, at least 50% of the combined voting power of the
Successor Entity’s outstanding voting securities immediately after the
transaction. Group shall have the same meaning as in Section 13(d) of the
Securities Exchange Act of 1934, and “affiliate” shall have the same meaning as
in Rule 405 of the Securities Exchange Commission adopted under the Securities
Act of 1933.

4.             Restrictions on Exercise. Only the Grantee may
exercise the Option during the Grantee’s lifetime. After the Grantee’s death,
the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of the Grantee, or by the person who
acquires the right to exercise the Option by will or by the laws of descent and
distribution, to the extent that the Option is exercisable pursuant to this
Stock Option Grant Certificate. Notwithstanding the foregoing, the Committee
may provide, at or after grant, that a Grantee may transfer non-qualified stock
options pursuant to a domestic relations order or to family members or other
persons or entities on such terms as the Committee may determine.

5.             Grant Subject to Plan Provisions. This grant is
made pursuant to the Plan, the terms of which are incorporated herein by
reference, and in all respects shall be interpreted in accordance with the Plan.
The grant and exercise of the Option are subject to the provisions of the Plan
and to interpretations, regulations and determinations concerning the Plan
established from time to time by the Committee in accordance with the
provisions of the Plan, including, but not limited to, provisions pertaining to
(i) rights and obligations with respect to withholding taxes, (ii) the
registration, qualification or listing of the Shares, (iii) capital or other
changes of the Company, and (iv) other requirements of applicable law. The
Committee shall have the authority to interpret and construe the Option
pursuant to the terms of the Plan, and its decisions shall be conclusive as to
any questions arising hereunder.

6.             No Employment Rights. The grant of the Option
shall not confer upon the Grantee any right to be retained by or in the employ
of the Company and shall not interfere in any way with the right of the Company
to terminate the Grantee’s employment or service at any time. The right of the
Company to terminate at will the Grantee’s employment or service at any time
for any reason is specifically reserved. No policies, procedures or statements
of any nature by or on behalf of the Company (whether written or oral, and
whether or not contained in any formal employee manual or handbook) shall be
construed to modify this Grant Letter or to create express or implied
obligations to the Grantee of any nature.

7.             No Stockholder Rights. Neither the Grantee, nor
any person entitled to exercise the Grantee’s rights in the event of the
Grantee’s death, shall have any of the rights and privileges of a stockholder
with respect to the Shares subject to the Option until certificates for Shares
have been issued upon the exercise of the Option.

8.             No Disclosure. The Grantee acknowledges that the
Company has no duty to disclose to the Grantee any material information
regarding the business of the Company or affecting the value of the Shares
before or at the time of a termination of the Grantee’s employment or service,
including without limitation any plans regarding a public offering or merger
involving the Company.

9.             Assignment and Transfers. The rights and
interests of the Grantee under this Stock Option Grant Certificate may not be
sold, assigned, encumbered or otherwise transferred except, in the event of the
death of the Grantee, by will or by the laws of descent and distribution. In
the event of any attempt by the Grantee to alienate, assign, pledge,
hypothecate, or otherwise dispose of the Option or any right hereunder, except
as provided for in this Stock Option Grant Certificate, or in the event of the
levy or any attachment, execution or similar process upon the rights or
interests hereby conferred, the Company may terminate the Option by notice to
the Grantee, and the Option and all rights hereunder shall thereupon become
null and void. The rights and protections of the Company hereunder shall extend
to any successors or assigns of the Company and to the Company’s parents,
subsidiaries, and affiliates. This Stock Option Grant Certificate may be
assigned by the Company without the Grantee’s consent.

10.           Applicable Law. The validity,
construction, interpretation and effect of this instrument shall be governed by
and determined in accordance with the laws of the State of Delaware.

11.           Notice. Any notice to the
Company provided for in this instrument shall be addressed to the Company in
care of the Chief Financial Officer at the Company’s headquarters and any
notice to the Grantee shall be addressed to such Grantee at the current address
shown on the payroll of the Company, or to such other address as the Grantee
may designate to the Company in writing. Any notice shall be delivered by hand,
sent by telecopy or enclosed in a properly sealed envelope addressed as stated
above, registered and deposited, postage prepaid, in a post office regularly
maintained by the United States Postal Service.

12.           Antidilution. If the
outstanding shares of Common Stock of the Company are changed into a different
number or kind of shares of Company stock (i) by reason of a stock dividend,
recapitalization , stock split or reverse stock split, (ii) by reason of a
merger, reorganization or consolidation in which the outstanding shares of
Common Stock of the Company are converted into a different number or kind of
shares of Company stock (iii) by reason of a reclassification, change in par
value or (iv) by reason of any other extraordinary or usual event affecting the
outstanding Common Stock as a class without the Company’s receipt of
consideration, or if the value of outstanding shares of Company’s Common Stock
I substantially reduced as a result of a spin-off or the Company’s payment of
an extraordinary dividend or distribution, then unless such event would change
results in the termination of this Option, the Company shall make an
appropriate and proportionate adjustment in the number and class shares subject
in this Option. If the outstanding shares of Common Stock of the Company are
converted into or exchanged for cash, property or securities not issued by the
Company as a result of a reorganization, merger, consolidation or sale of
assets of the Company, then, unless provision is made in writing in connection
with such transaction for the assumption of the Option or the substitution for
the Option of a new option covering the securities of a successor entity, or a
parent or subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices, this Option shall become exercisable to purchase, in
lieu of the Shares subject hereto, the cash, property of securities that would have
been received by the Grantee with respect to the Shares then subject to this
Option if this Option has been exercised immediately before the consummation of
such transaction. Any fractional shares resulting from any such adjustment
shall be eliminated by rounding any portion of a share equal to .5 or greater
up, and any portion of a share equal to less than .5 down, in each case to the
nearest whole number.

 

	
  

  	
  

  	
  FILE COPY

  

 

STOCK
OPTION GRANT CERTIFICATE

Clarient, Inc., a Delaware
corporation (the “Company”), hereby grants to the grantee named below (“Grantee”)
an option (this “Option”) to purchase the total number of shares shown below of
Common Stock of the Company (the “Shares”) at the exercise price per share set
forth below, subject to all of the terms and conditions on the reverse side of
this Stock Option Grant Certificate and the 1996 Equity Compensation Plan, as
amended and restated (the “Plan”). Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to them in the Plan. The
terms and conditions set forth on the reverse side hereof and the terms and
conditions of the Plan are incorporated herein by reference. This Stock Option
Grant Certificate shall constitute the “Agreement” for this Option as such term
is used in the Plan.

	
  Grant Date:

  	
  June 19, 2006

  
	
   

  	
   

  
	
  Type of Option:

  	
  Non-qualified Stock Option

  
	
   

  	
   

  
	
  Shares Subject to Option:

  	
  150,000

  
	
   

  	
   

  
	
  Exercise Price Per Share:

  	
  $0.90

  
	
   

  	
   

  
	
  Term of Option:

  	
  10 years

  
			

 

Shares subject to
issuance under this Option do not become exercisable until the first
anniversary of the grant, and then become exercisable on and after the dates indicated
below:

	
  June 19, 2008

  	
   

  	
  25

  	
  %

  
	
  June 20, 2008 to June
  19, 2011

  	
   

  	
  Monthly

  	
   

  
	
  June 19, 2011

  	
   

  	
  100

  	
  %

  

 

This Option shall be
exercisable throughout the Term as to all Shares for which it has become
exercisable as provided above.

In witness whereof, this
Stock Option Grant Certificate has been executed by the Company by a duly
authorized officer as of the date specified hereon.

Clarient, Inc.

 

	
  By:

  	
  /s/ Ronald A. Andrews

  	
   

  
	
   

  	
  Ronald A. Andrews

  	
   

  

 

Grantee hereby
acknowledges receipt of a copy of the Prospectus containing information about
the Plan, represents that Grantee has read the Prospectus and understands the
terms and provisions of the Plan, and accepts this Option subject to all the
terms and conditions of the Plan and this Stock Option Grant Certificate.
Grantee acknowledges that the grant and exercise of this Option, and the sale
of Shares obtained through the exercise of this Option, may have tax
implications that could result in adverse tax consequences to the Grantee and
that Grantee is not relying on the Company for any tax, financial or legal
advice and will consult a tax adviser prior to such exercise or disposition.

 

	
  /s/ James Agnello

  	
   

  
	
  James Agnello

  

 

1.             Option Expiration.
The Option shall automatically terminate upon the happening of the first of the
following events:

 

(a)           The expiration of the three year
period after the Grantee ceases to be a member of the Board of Directors of the
Company for any reason other than as provided below in subparagraphs (b)
through (e);

(b)           The expiration of the one-year period
after the Grantee ceases to be employed by or to be a member of the Board of
Directors of the Company on account of the Grantee’s disability (as defined in
the Plan);

(c)           The expiration of the one-year period
after the Grantee’s employment terminates as a result of death while employed
by or to be a member of the Board of Directors of the Company or within three
months after the Grantee’s termination of employment or service as described in
subparagraph (a) above;

(d)           The date on which the Grantee ceases
to be employed by or to be a member of the Board of Directors of the Company as
a result of a termination by the Company for cause (as defined in the Plan); or

(e)           The expiration of the three-year
period after the Grantee’s employment or service terminates as a result of
retirement on or after the Grantee’s fifty-fifth birthday and a minimum of five
years of employment or three years of Board service.

Notwithstanding the
foregoing, in no event may the Option be exercised after the expiration of the
Term of Option specified on the reverse side. Any portion of the Option that is
not vested at the time the Grantee ceases to be employed by or to be a member
of the Board of Directors of the Company shall immediately terminate. In the
event a Grantee ceases to be employed by or to be a member of the Board of
Directors of the Company as a result of a termination by the Company for cause,
the Grantee shall automatically forfeit all shares underlying any exercised
portion of an Option for which the Company has not yet delivered the share certificates
upon refund by the Company of the exercise price paid by the Grantee for such
shares.

2.             Exercise Procedures.

(a)           Subject to the provisions of this
Stock Option Grant Certificate and the Plan, the Grantee may exercise part or
all of the vested Option by giving the Company written notice of intent to
exercise in the manner provided in Paragraph 11 below, specifying the number of
Shares as to which the Option is to be exercised. On the delivery date, the
Grantee shall pay the exercise price (i) in cash, (ii) with the prior consent
of the Committee, by delivering Shares of the Company (duly endorsed for
transfer or accompanied by stock powers signed in blank) which shall be valued
at their fair market value on the date of delivery, or (iii) by such other
method as the Committee may approve, including payment through a broker in
accordance with procedures permitted by Regulation T of the Federal Reserve Board.
The Board may impose from time to time such limitations as it deems appropriate
on the use of Shares of the Company to exercise the Option.

(b)           The obligation of the Company to
deliver Shares upon exercise of the Option shall be subject to all applicable
laws, rules, and regulations and such approvals by governmental agencies as may
be deemed appropriate by the Board, including such actions as Company counsel
shall deem necessary or appropriate to comply with relevant securities laws and
regulations. The Company may require that the Grantee (or other person
exercising the Option after the Grantee’s death) represent that the Grantee is
purchasing Shares for the Grantee’s own account and not with a view to or for
sale in connection with any distribution of the Shares, or such other
representation as the Board deems appropriate. All obligations of the Company
under this Stock Option Grant Certificate shall be subject to the rights of the
Company as set forth in the Plan to withhold amounts required to be withheld
for any taxes, if applicable. Subject to Committee approval, the Grantee may
elect to satisfy any income tax withholding obligation of the Company with
respect to the Option by having Shares withheld with a fair market value equal
to the federal (including FICA), state and local tax liabilities with respect
to the exercise of the Option, based on the minimum statutory tax rates
applicable to supplemental wages.

3.             Change of Control. In the event of a “Change of
Control,” all of the unvested portion of the Option shall vest immediately. “Change
in Control” is defined to mean the issuance, sale or transfer (including a
transfer as a result of death, disability, operation of law or otherwise) in a
single transaction or group of related transactions to any entity, person or
group (other than Safeguard Scientifics, Inc. and/or its affiliates) of the
beneficial ownership of newly issued, outstanding or treasury shares of the
capital stock of the Company having 50% or more of the combined voting power of
the Company’s then outstanding securities entitled to vote for at least a
majority of the authorized number of directors of the Company, or any merger,
consolidation, sale of all or substantially all of the assets or other
comparable transaction as a result of which all or substantially all of the
assets and business of the Company are acquired directly or indirectly by
another entity which prior to the acquisition was not an affiliate of the
Company (as defined in the regulations of the Securities and Exchange
Commission under the Securities Act of 1933), other than any such merger, consolidation,
sale or other transaction which results in the Company’s voting securities
outstanding immediately before the transaction continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
Company or the person that, as a result of the transaction, controls, directly
or indirectly, the Company or owns, directly or indirectly, all or
substantially all of the Company’s assets or otherwise succeeds to the business
of the Company (the Company or such person, the “Successor Entity”)) directly
or indirectly, at least 50% of the combined voting power of the Successor
Entity’s outstanding voting securities immediately after the transaction. Group
shall have the same meaning as in Section 13(d) of the Securities Exchange Act
of 1934, and “affiliate” shall have the same meaning as in Rule 405 of the
Securities Exchange Commission adopted under the Securities Act of 1933.

4.             Restrictions on Exercise. Only the Grantee may
exercise the Option during the Grantee’s lifetime. After the Grantee’s death,
the Option shall be exercisable (subject to the limitations specified in the
Plan) solely by the legal representatives of the Grantee, or by the person who
acquires the right to exercise the Option by will or by the laws of descent and
distribution, to the extent that the Option is exercisable pursuant to this
Stock Option Grant Certificate. Notwithstanding the foregoing, the Committee
may provide, at or after grant, that a Grantee may transfer non-qualified stock
options pursuant to a domestic relations order or to family members or other
persons or entities on such terms as the Committee may determine.

5.             Grant Subject to Plan Provisions. This grant is
made pursuant to the Plan, the terms of which are incorporated herein by reference,
and in all respects shall be interpreted in accordance with the Plan. The grant
and exercise of the Option are subject to the provisions of the Plan and to
interpretations, regulations and determinations concerning the Plan established
from time to time by the Committee in accordance with the provisions of the
Plan, including, but not limited to, provisions pertaining to (i) rights and
obligations with respect to withholding taxes, (ii) the registration,
qualification or listing of the Shares, (iii) capital or other changes of the
Company, and (iv) other requirements of applicable law. The Committee shall
have the authority to interpret and construe the Option pursuant to the terms
of the Plan, and its decisions shall be conclusive as to any questions arising
hereunder.

6.             No Employment Rights. The grant of the Option
shall not confer upon the Grantee any right to be retained by or in the employ
of the Company and shall not interfere in any way with the right of the Company
to terminate the Grantee’s employment or service at any time. The right of the
Company to terminate at will the Grantee’s employment or service at any time
for any reason is specifically reserved. No policies, procedures or statements
of any nature by or on behalf of the Company (whether written or oral, and
whether or not contained in any formal employee manual or handbook) shall be
construed to modify this Grant Letter or to create express or implied
obligations to the Grantee of any nature.

7.             No Stockholder Rights. Neither the Grantee, nor
any person entitled to exercise the Grantee’s rights in the event of the
Grantee’s death, shall have any of the rights and privileges of a stockholder
with respect to the Shares subject to the Option until certificates for Shares
have been issued upon the exercise of the Option.

8.             No Disclosure. The Grantee acknowledges that the
Company has no duty to disclose to the Grantee any material information
regarding the business of the Company or affecting the value of the Shares
before or at the time of a termination of the Grantee’s employment or service,
including without limitation any plans regarding a public offering or merger
involving the Company.

9.             Assignment and Transfers. The rights and
interests of the Grantee under this Stock Option Grant Certificate may not be
sold, assigned, encumbered or otherwise transferred except, in the event of the
death of the Grantee, by will or by the laws of descent and distribution. In
the event of any attempt by the Grantee to alienate, assign, pledge,
hypothecate, or otherwise dispose of the Option or any right hereunder, except
as provided for in this Stock Option Grant Certificate, or in the event of the
levy or any attachment, execution or similar process upon the rights or interests
hereby conferred, the Company may terminate the Option by notice to the
Grantee, and the Option and all rights hereunder shall thereupon become null
and void. The rights and protections of the Company hereunder shall extend to
any successors or assigns of the Company and to the Company’s parents,
subsidiaries, and affiliates. This Stock Option Grant Certificate may be
assigned by the Company without the Grantee’s consent.

10.           Applicable Law. The validity,
construction, interpretation and effect of this instrument shall be governed by
and determined in accordance with the laws of the State of Delaware.

11.           Notice.   Any notice to the Company provided for in
this instrument shall be addressed to the Company in care of the Chief
Financial Officer at the Company’s headquarters and any notice to the Grantee
shall be addressed to such Grantee at the current address shown on the payroll
of the Company, or to such other address as the Grantee may designate to the
Company in writing. Any notice shall be delivered by hand, sent by telecopy or
enclosed in a properly sealed envelope addressed as stated above, registered
and deposited, postage prepaid, in a post office regularly maintained by the
United States Postal Service.

12.           Antidilution.  If the outstanding shares of Common Stock of
the Company are changed into a different number or kind of shares of Company
stock (i) by reason of a stock dividend, recapitalization, stock split or
reverse stock split, (ii) by reason of a merger, reorganization or
consolidation in which the outstanding shares of Common Stock of the Company
are converted into a different number or kind of shares of Company stock (iii)
by reason of a reclassification, change in par value or (iv) by reason of any
other extraordinary or usual event affecting the outstanding Common Stock as a
class without the Company’s receipt of consideration, or if the value of
outstanding shares of Company’s Common Stock I substantially reduced as a
result of a spin-off or the Company’s payment of an extraordinary dividend or
distribution, then unless such event would change results in the termination of
this Option, the Company shall make an appropriate and proportionate adjustment
in the number and class shares subject in this Option. If the outstanding
shares of Common Stock of the Company are converted into or exchanged for cash,
property or securities not issued by the Company as a result of a
reorganization, merger, consolidation or sale of assets of the Company, then,
unless provision is made in writing in connection with such transaction for the
assumption of the Option or the substitution for the Option of a new option
covering the securities of a successor entity, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of shares and
prices, this Option shall become exercisable to purchase, in lieu of the Shares
subject hereto, the cash, property of securities that would have been received
by the Grantee with respect to the Shares then subject to this Option if this
Option has been exercised immediately before the consummation of such
transaction. Any fractional shares resulting from any such adjustment shall be
eliminated by rounding any portion of a share equal to .5 or greater up, and
any portion of a share equal to less than .5 down, in each case to the nearest
whole number.

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