Exhibit 99.1
AGREEMENT AND PLAN OF
MERGER
AGREEMENT AND PLAN OF MERGER (this
“Agreement”), dated as of February 9, 2007, among KKR
Financial Corp., a Maryland corporation (the
“Corporation”), KKR Financial Holdings LLC, a Delaware
limited liability company and a wholly-owned subsidiary of the
Corporation (the “LLC”), and KKR Financial Merger
Corp., a Maryland corporation and wholly-owned subsidiary of the
LLC (the “Merger Corp.”).
RECITALS
WHEREAS, the Corporation has adopted
an overall restructuring plan (the “Conversion
Transaction”) to cause the Corporation to become a subsidiary
of the LLC and to undertake certain related transactions;
and
WHEREAS, the Conversion Transaction
contemplates, among other things, the merger of the Merger Corp.
with and into the Corporation (the “Merger”), with the
stockholders of the Corporation having their shares of common stock
converted into the right to receive shares representing limited
liability company interests in the LLC, all pursuant to this
Agreement; and
WHEREAS, for federal income tax
purposes it is intended that the Merger (as hereinafter defined)
qualify as a tax-deferred contribution of the common stock of the
Corporation to the LLC within the meaning of Section 721 of the
Internal Revenue Code of 1986, as amended (the “Code”);
and
WHEREAS, the Board of Directors of
the Corporation, the Board of Directors of the LLC and the Board of
Directors of the Merger Corp. each has determined that the Merger
is advisable and in the best interests of each such corporation or
limited liability company, as the case may be, and its stockholders
or members, as the case may be, and have approved the Merger on the
terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of
the foregoing, the parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME; EFFECTS OF
MERGER
1.1 The Merger.
Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3) and in accordance
with the Maryland General Corporation Law (the “MGCL”),
the Merger Corp. shall be merged with and into the Corporation and
the separate corporate existence of the Merger Corp. shall
thereupon cease and the Corporation shall be the surviving entity
of the Merger (sometimes hereinafter referred to as the
“Surviving Corporation”) and the separate existence of
the Corporation will continue unaffected by the Merger.
1.2 The Closing.
Subject to the terms and conditions of this Agreement,
the closing of the Merger (the “Closing”) shall take
place at such time, date and place as the parties may agree but in
no event prior to the satisfaction or waiver, where permitted, of
the conditions set forth in Section 3.1 hereof. The date on which
the Closing occurs is hereinafter referred to as the “Closing
Date.”
1.3 Effective
Time. Subject to the terms and conditions of this
Agreement, following the Closing, the parties hereto shall, at such
time as they deem advisable, cause (i) articles of merger (the
“Articles of Merger”) to be executed and filed with the
State Department of Assessments and Taxation of
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Maryland and make all other filings
or recordings required by Maryland law in connection with the
Merger. The Merger shall become effective upon the acceptance of
the Articles of Merger for record by the State Department of
Assessments and Taxation of Maryland or at such other time as the
Corporation and the Merger Corp. shall agree and specify in the
Articles of Merger in accordance with the MGCL (the
“Effective Time”).
1.4 Effects of
Merger. The Merger shall have the effects
specified in the MGCL and this Agreement.
ARTICLE II
EFFECT ON CAPITAL STOCK
2.1 Effect on
Capital Stock. At the Effective Time, by virtue of
the Merger and without any further action on the part of the
Corporation, the LLC or the Merger Corp. or their respective
stockholders or holders of shares, as the case may be, the
following shall occur:
(a)
Each share of common stock, par value $0.01 per share, of the
Corporation (“Corporation Common Stock”) issued and
outstanding immediately prior to the Effective Time shall be
converted into the right to receive one validly issued and fully
paid share representing a limited liability company interest in the
LLC (“LLC Share”).
(b)
Except as provided in Section 2.1(d), all shares of Corporation
Common Stock shall no longer be outstanding and shall be canceled
and retired and shall cease to exist. At the Effective Time, each
certificate (“Certificate”) representing shares of
Corporation Common Stock immediately prior to the Effective Time
shall thereafter only represent the right to receive (i) the
consideration payable in respect of such shares under Section
2.1(a), and (ii) an amount equal to any dividend or other
distribution pursuant to Section 2.3(c).
(c)
Each LLC Share issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the LLC or the holder of such shares, cease
to be outstanding, shall be canceled and retired without payment of
any consideration therefor and shall cease to exist.
(d)
Each share of common stock of the Merger Corp. issued and
outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation. Each
certificate representing ownership of shares of the common stock of
the Merger Corp. shall represent ownership of such shares of
capital stock of the Surviving Corporation.
2.2 Amended and
Restated 2004 Stock Incentive Plan.
(a)
At the Effective Time, each option granted by the Corporation to
purchase shares of Corporation Common Stock (each, a
“Corporation Option”) pursuant to the Amended and
Restated 2004 Stock Incentive Plan which is outstanding and
unexercised immediately prior to the Effective Time shall cease to
represent a right to acquire shares of Corporation Common Stock and
shall be converted automatically into an option to purchase LLC
Shares, and the LLC shall assume each such Corporation Option
(hereinafter, “Assumed Option”) subject to the terms of
the Amended and Restated 2004 Stock Incentive Plan and the
agreement evidencing the grant thereunder of such Assumed Option;
provided, however, that (i) the number of LLC Shares purchasable
upon exercise of such Assumed Option shall be equal to the number
of shares of Corporation Common Stock that were purchasable under
such Corporation Option immediately prior to the Effective Time and
(ii) the per share exercise price under such Assumed Option
shall
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be the per share exercise price
under the Corporation Option to which the Assumed Option
relates.
(b)
At the Effective Time, all Share Restrictions (as hereinafter
defined), including all repurchase and forfeiture rights held by
the Corporation, with respect to each share of Restricted Stock (as
hereinafter defined) shall be and hereby are assigned to the LLC,
and the LLC Shares issued upon the conversion of the shares of
Restricted Stock in the Merger shall continue to be unvested and
subject to the same Share Restrictions which applied to such shares
of Restricted Stock immediately prior to the Effective Time. The
LLC Certificates representing the LLC Shares issued upon the
conversion of the shares of Restricted Stock shall accordingly be
marked with appropriate legends noting such Share Restrictions. The
Corporation shall take all actions necessary to ensure that, from
and after the Effective Time, the LLC (or its assignee) shall be
entitled to exercise the rights held by the Corporation immediately
prior to the Effective Time with respect to all Share Restrictions.
For purposes of this Agreement, (i) a share of “Restricted
Stock” means each outstanding share of Corporation Common
Stock issued under the Amended and Restated 2004 Stock Incentive
Plan or otherwise which is subject to any Share Restrictions and
(ii) “Share Restrictions” means all repurchase,
cancellation, forfeiture, vesting and other conditions or
restrictions applicable to a share of Restricted Stock.
2.3 Surrender of
Certificates.
(a)
As of the Effective Time, the LLC shall deposit, or shall cause to
be deposited, with American Sock Transfer & Trust Company, the
transfer agent and registrar for the LLC Shares and the exchange
agent for purposes of the Merger (the “Exchange
Agent&
