1372807--5/28/2010--Kohlberg_Capital

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{investment, property, distribution}

{tax, income, asset}

{loan, real, estate}

{debt, indebtedness, cash}

{control, financial, internal}

{cost, contract, operation}

{capital, credit, financial}

{competitive, industry, competition}

{regulation, change, law}

{personnel, key, retain}

{financial, litigation, operation}

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{loss, insurance, financial}

Risks Related to Our Business We have a limited operating history. We are dependent upon senior management for our future success, and if we are unable to hire and retain qualified personnel or if we lose any member of our senior management team, our ability to achieve our investment objective could be significantly harmed. We operate in a highly competitive market for investment opportunities. If we are unable to source investments effectively, we may be unable to achieve our investment objective. There is a risk that we may not make distributions. We may have difficulty paying our required distributions if we recognize income before or without receiving cash equal to such income. We may incur losses as a result of first loss agreements into which we or Katonah Debt Advisors may enter in connection with warehousing credit arrangements which we put in place prior to raising a CLO Fund and pursuant to which we agree to reimburse credit providers for a portion of losses (if any) on warehouse investments. Any unrealized losses we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution. We may experience fluctuations in our quarterly and annual operating results and credit spreads. We are exposed to risks associated with changes in interest rates and spreads. Because we have outstanding indebtedness, we are exposed to additional risks, including the typical risks associated with leverage. The debt we incur could increase the risk of investing in our Company. The agreements governing our Facility and the related funding and servicing agreement contain various covenants that limit our discretion in operating our business and also include certain financial covenants. In addition, our lenders have declared a Termination Date under the LFSA. If we are not able to amend, refinance or renew our debt on terms acceptable to us or if we receive an unfavorable outcome from the legal action we are taking regarding the LFSA, our operations could be adversely affected. Following a default under the LFSA relating to our Facility, we may not have the ability to manage the assets securing the Facility, which may adversely impact our liquidity and operations. If market constraints further prevent us from obtaining additional debt or equity capital, our liquidity could be adversely affected, our business prospects could be negatively impacted, we could lose key employees and our operating results could be negatively affected. Because we intend to distribute substantially all of our income and net realized capital gains to our stockholders, we will need additional capital to finance our growth. Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval. Our businesses may be adversely affected by litigation and regulatory proceedings, including those that are currently pending. Risks Related to Our Investments Our investments may be risky, and you could lose all or part of your investment. Our portfolio investments for which there is no readily available market, including our investment in Katonah Debt Advisors and our investments in CLO Funds, are recorded at fair value as determined in good faith by our Board of Directors. As a result, there is uncertainty as to the value of these investments. We are subject to additional risks in light of the restatement of our prior period financial statements. We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we may invest a significant portion of our assets in a relatively small number of issuers, which subjects us to a risk of significant loss if any of these issuers defaults on its obligations under any of its debt instruments or as a result of a downturn in the particular industry. Economic recessions or downturns could negatively impact our portfolio companies and harm our operating results. Defaults by our portfolio companies could harm our operating results. When we are a debt or minority equity investor in a portfolio company, which generally is the case, we may not be in a position to control the entity, and its management may make decisions that could decrease the value of our investment. Prepayments of our debt investments by our portfolio companies could negatively impact our operating results. Our portfolio companies may incur debt that ranks equal with, or senior to, our investments in such companies. There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims. Our investments in equity securities involve a substantial degree of risk. The lack of liquidity in our investments may adversely affect our business. We may not receive all or a portion of the income we expect to continue to receive from Katonah Debt Advisors. We may not receive any return on our investment in the CLO Funds in which we have invested and we may be unable to raise additional CLO Funds. Risks Related to Our Operation as a BDC Our ability to enter into transactions with our affiliates is restricted. Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. Changes in the laws or regulations governing our business, or changes in the interpretations thereof, and any failure by us to comply with these laws or regulations, could negatively affect the profitability of our operations. If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy. If we are unable to qualify as a RIC under Subchapter M of the Code, we will be subject to corporate-level U.S. federal income tax, which will adversely affect our results of operations and financial condition.

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1372807--5/28/2010--Kohlberg_Capital_CORP