<PAGE> 1
As filed with the Securities and Exchange Commission on April 2, 1996
=====================================================================
File No. 33-______
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
(Check appropriate box or boxes)
/x/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No.______
/ / Post-Effective Amendment No. ______
ALLIED CAPITAL LENDING CORPORATION
------------------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER
C/O ALLIED CAPITAL ADVISERS, INC.
1666 K STREET, N.W., 9TH FLOOR
WASHINGTON, D.C. 20006-2803
------------------------------------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
(NUMBER, STREET, CITY, STATE, ZIP CODE)
(202) 331-1112
-------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
DAVID GLADSTONE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ALLIED CAPITAL ADVISERS, INC.
1666 K STREET, N.W., 9TH FLOOR
WASHINGTON, D.C. 20006-2803
------------------------------------
NAME AND ADDRESS OF AGENT FOR SERVICE
(NUMBER, STREET, CITY, STATE, ZIP CODE)
COPY TO:
STEVEN B. BOEHM, ESQUIRE
SUTHERLAND, ASBILL & BRENNAN
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2404
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the registration statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box: /x/
It is proposed that this filing will become effective (check appropriate box)
/ / when declared effective pursuant to section 8
/ / This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is - .
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Per Aggregate Offering Amount of
Being Registered Registered Share Price Registration Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$1.00 par value 722,410 $14.625(1) $10,565,246.25(1) $3,643.19(2)
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended (the "1933
Act"), based on the average of the high and low prices per share on March 28,
1996 on the Nasdaq National Market.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE> 2
CROSS REFERENCE SHEET
Pursuant to Rule 495(a) under the Securities Act of 1933 Showing the
Location of Information Required by Form N-2 in Part A (Prospectus), Part B
(Statement of Additional Information), and Part C (Other Information) of the
Registration Statement
<TABLE>
<CAPTION>
ITEM OF FORM N-2 CAPTION OR LOCATION IN PROSPECTUS
- ---------------- ------------------------------------------------
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<S> <C> <C>
1. Outside Front Cover Outside Front Cover Page
2. Inside Front and Outside Back Cover Page Outside Front Cover Page
3. Fee Table and Synopsis Summary; Fees and Expenses; Available
Information
4. Financial Highlights Financial Highlights; Management's Discussion
and Analysis of Financial Condition and
Results of Operations
5. Plan of Distribution The Offer
6. Selling Shareholders (Not Applicable)
7. Use of Proceeds Use of Proceeds
8. General Description of the Registrant The Company; Public Trading and Net Asset
Value Information; Financial Statements
9. Management Management; Custodian, Transfer and Dividend
Paying Agent and Registrar
10. Capital Stock, Long-Term Debt, and Other Authorized Classes of Securities; Description of
Securities Common Stock; The Company
11. Defaults and Arrears on Senior Securities (Not Applicable)
12. Legal Proceedings (Not Applicable)
13. Table of Contents of the Statement of Table of Contents of the Statement of Additional
Additional Information Information
<CAPTION>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<S> <C> <C>
14. Cover Page Outside Front Cover Page
15. Table of Contents Table of Contents
16. General Information and History Not Applicable
17. Investment Objective and Policies The Company
18. Management Management
19. Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
20. Investment Advisory and Other Services Investment Advisory and Other Services
21. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
22. Tax Status Tax Status
23. Financial Statements Financial Statements
<CAPTION>
PART C: OTHER INFORMATION
<S> <C> <C>
24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Marketing Arrangements (Not Applicable)
26. Other Expenses of Issuance and Other Expenses of Issuance and Distribution
Distribution
27. Persons Controlled by or Under Common Persons Controlled by or Under Common Control
Control
28. Number of Holders of Securities Number of Holders of Securities
29. Indemnification Indemnification
30. Business and Other Connections of Business and Other Connections of Investment
Investment Adviser Adviser
31. Location of Accounts and Records Locations of Accounts and Records
32. Management Services Management Services
33. Undertakings Undertakings
</TABLE>
<PAGE> 3
PART A
INFORMATION REQUIRED IN A PROSPECTUS
<PAGE> 4
PROSPECTUS
628,183 SHARES
ALLIED CAPITAL LENDING CORPORATION
COMMON STOCK
------------
Allied Capital Lending Corporation (the "Company") is issuing to the
stockholders of record of the outstanding shares of its common stock at the
close of business on TBD, 1996 ("the Record Date") non-transferable rights (the
"Subscription Rights"). Each stockholder of the Company will be issued one
Subscription Right for each whole share of the Company held as of the Record
Date, and will be entitled to subscribe for and purchase from the Company up to
one (1) authorized but heretofore unissued share of the Company's common stock
for each five (5) Subscription Rights held (the "Primary Subscription"),
aggregating a total of 628,183 shares of common stock. Shares of common stock
of the Company offered through this Prospectus are referred to as the "Shares."
No certificates or other physical rights will be distributed. Stockholders who
fully exercise their Subscription Rights will be entitled to the additional
privilege of subscribing for, subject to certain limitations and subject to
allocation or increase, any Shares not acquired by exercise of Subscription
Rights (the "Over-Subscription Privilege"). The Primary Subscription and the
Over-Subscription Privilege collectively comprise the "Offer." The Company may,
at its sole discretion, increase the number of Shares subject to subscription
by up to 15%, or up to 94,227 Shares, for an aggregate total of 722,410 Shares
available under the Offer. No fractional Subscription Rights will be issued and
no fractional Shares will be issued upon exercise of Subscription Rights.
Subscription Rights are non-transferable and will not be admitted for trading
or quotation on any exchange and therefore may not be purchased or sold. Only
persons who are stockholders of the Company on the Record Date may subscribe.
Beneficial owners whose shares are held of record by Cede & Co., nominee for
The Depository Trust Company ("DTC"), or by any other depository or nominee are
also eligible to participate. The Company may offer and sell any Shares not
sold in the Offer, including any or all of the Shares, to certain other
investors. See "The Offer--Sales of Shares Subsequent to the Offer," page __.
Stockholder inquires should be directed to Shareholder Communications
Corporation, the Information Agent and Offering Coordinator, at (800) 221-5724
ext. 331.
THE SUBSCRIPTION PRICE PER SHARE WILL BE 95% OF THE AVERAGE OF THE LAST
REPORTED SALE PRICE OF A SHARE OF COMMON STOCK ON THE NASDAQ NATIONAL MARKET
("NASDAQ") ON THE DATE OF EXPIRATION OF THE OFFER (THE "PRICING DATE") AND EACH
OF THE FOUR PRECEDING BUSINESS DAYS. SEE "THE OFFER," PAGE __. The Offer will
dilute the voting power of the common stock owned by stockholders who do not
fully exercise their Subscription Rights. Stockholders who do not fully
exercise their Subscription Rights should expect, upon completion of the Offer,
to own a smaller proportional interest in the Company than before the Offer.
Allied Capital Corporation (Allied I), which owns approximately 28% of the
Company's outstanding common stock, will not participate in this Offer and
therefore those shares have not been registered.
THE OFFER WILL EXPIRE AT 5:00 P.M. EASTERN TIME, ON TBD, 1996 (THE "EXPIRATION
DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN.
The Company, a Maryland corporation, is a closed-end, management investment
company that has elected to be regulated as a business development company
("BDC"). The outstanding shares of the Company are quoted on the Nasdaq
National Market under the symbol "ALCL." Allied Lending is a small business
lending company ("SBLC") approved by the U.S. Small Business Administration
("SBA"). Its business consists of making loans to small businesses. The
Company's investment adviser is Allied Capital Advisers, Inc. ("Advisers"), a
registered investment adviser whose principal office is located at 1666 K
Street, N.W., Ninth Floor, Washington, D.C. 20006-2803. Advisers' telephone
number is (202) 331-1112.
The investment objective of the Company is to achieve a high level of current
income by investing in loans at least partially guaranteed by the SBA, as well
as loans made in conjunction with such loans, and other loans.
FOR THE RISKS OF LEVERAGE, SEE "THE COMPANY--RISK FACTORS--LEVERAGE," PAGE __.
This Prospectus sets forth concisely the information about the Company that a
prospective investor ought to know before investing. It should be retained for
future reference. Additional information on the Company has been filed with the
U.S. Securities and Exchange Commission (the "Commission") and is available
without charge upon written or oral request at the address or telephone number
listed above. As indicated at some points in this Prospectus, certain
information in the Statement of Additional Information is incorporated in this
Prospectus by reference. See page ___of this Prospectus for the table of
contents of the Statement of Additional Information.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Estimated Subscription Estimated Estimated Proceeds to
Price(1) Sales Load(2) the Company(3)(4)
-------- ------------- -----------------
<S> <C> <C> <C>
Per Share $ $ $
Total(5) $ $ $
</TABLE>
The date of this Prospectus and of the Statement of Additional Information is
TBD, 1996.
(Footnotes on the following page)
<PAGE> 5
(Footnotes from previous page)
(1) The Estimated Subscription Price is computed as 95% of the average of
the last reported sale price of the Company's common stock on Nasdaq
on TBD, 1996 and each of the four preceding business days.
(2) In connection with the Offer, the Company will pay to certain
broker-dealers soliciting the exercise of Subscription Rights
solicitation fees equal to 2.5% of the Subscription Price for each
Share issued as a result of their soliciting efforts. The Company has
agreed to indemnify such broker-dealers against certain liabilities
under the Securities Act of 1933, as amended. See "The
Offer--Soliciting Fees," page ___.
(3) Before deduction of offering costs incurred related to this offering,
payable by the Company, estimated at $__________.
(4) Funds received prior to the final due date of the Offer will be
deposited into a segregated interest-bearing bank account (which
interest will be paid to the Company) pending proration and
distribution of Shares.
(5) Assumes all Subscription Rights are exercised at the Estimated
Subscription Price. Pursuant to the Over-Subscription Privilege and
the sale of Shares to certain other investors upon completion of the
Offer, the Company may, at its sole discretion, increase the number of
Shares subject to the Offer by up to 15%. If the Company increases the
number of Shares subject to Subscription by 15%, the aggregate maximum
Estimated Subscription Price, Estimated Sales Load and Estimated
Proceeds to the Company will be $_____________, $______ and
$_________, respectively.
2
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements appearing elsewhere in this Prospectus.
The Company Allied Capital Lending Corporation (the "Company")
is a closed-end investment management company which
has elected to be regulated as a business
development company (a "BDC") and is managed by
Allied Capital Advisers, Inc. ("Advisers"). See
"Management --Investment Adviser" page _____. The
Company's business includes making loans to small
businesses that are partially guaranteed by the U.S.
Small Business Administration ("SBA") and as such,
it is a small business lending company ("SBLC").
The Company participates either, directly or through
its Subsidiary, in two SBA programs - the Section
7(a) Loan Program and the Section 504 Loan Program.
The Company also generates companion loans to
accompany the Section 7(a) loans, which are not
guaranteed by the SBA.
Investment Objective The investment objective of the Company is to
achieve a high level of current income by investing
in loans at least partially guaranteed by the SBA,
as well as loans made in conjunction with such
loans, or other loans. See "The Company--Business
of the Company" page__.
Investment As a BDC, the Company's consolidated portfolio
Considerations includes loans to small privately held companies
that involve a high degree of business and
financial risk. As an SBLC, the Company is subject
to regulation by the SBA, and as a result is exposed
to the business risks of changes in government
regulations that may have an adverse impact on the
Company.
Securities Offered and The Company is offering to stockholders of record as
Summary of of the close of business on tbd, 1996 (the "Record
Distribution Date") the right to subscribe for an aggregate of
628,183 Shares of common stock of the Company. Each
such stockholder is being issued one (1)
Subscription Right for each full share of common
stock owned on the Record Date. No fractional
Subscription Rights will be issued. The Subscription
Rights entitle a stockholder to acquire at the
Subscription Price (as defined in this Prospectus)
one (1) Share for each five (5) Subscription Rights
held. Subscription Rights may be exercised at any
time during the Subscription Period, which
commences on tbd, 1996 and ends at 5:00 p.m.,
Eastern Time, on tbd, 1996 (the "Expiration Date")
unless extended as described herein. The part of
the Offer pursuant to which a stockholder is
entitles to purchase up to one (1) Share for each
five (5) Subscription Rights held at the
Subscription Price is referred to as the "Primary
Subscription."
Over-Subscription In addition, any stockholder who fully exercises all
Subscription Rights is entitled to subscribe for Shares which were
Privilege not otherwise subscribed for pursuant to the
Primary Subscription (the "Over-Subscription
Privilege"). Shares acquired through the
Over-Subscription Privilege are subject to allotment
or increase, which is more fully discussed below
under "The Offer--Over- Subscription Privilege,"
page __.
The existence of the Over-Subscription Privilege
and the Company's discretionary ability to increase
by up to 15% the number of Shares subject to the
Offer will result in further dilution to those
3
<PAGE> 7
stockholders who fully exercise their Subscription
Rights to subscribe for Shares pursuant to the
Primary Subscription but who do not fully exercise
their Over-Subscription Privilege.
Soliciting Fees In connection with the Offer, the Company has agreed
to pay to broker-dealers who have solicited
beneficial owners whose shares of the Company's
stock are held by broker-dealers in nominee name,
fees equal to 2.5% of the Subscription Price per
Share for each Share issued upon the exercise of
Subscription Rights as a result of their soliciting
efforts. See "The Offer--Soliciting Fees," page __.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
<S> <C>
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tbd, 1996
Subscription Period . . . . . . . . . . . . . . . . . . . . . . . . . tbd, 1996*
Expiration Date of the Offer . . . . . . . . . . . . . . . . . . . . . tbd, 1996*
Pricing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tbd, 1996*
Subscription Forms and Payment for Shares Due+ . . . . . . . . . . . . tbd, 1996*
Notices of Guaranteed Delivery Due+ . . . . . . . . . . . . . . . . . tbd, 1996*
Subscription Forms pursuant to Notices of Guaranteed Delivery Due . . tbd, 1996*
Confirmation to Participants . . . . . . . . . . . . . . . . . . . . . tbd, 1996*
Payment pursuant to Notices of Guaranteed Delivery Due . . . . . . . . tbd, 1996*
Final Collections or Rebates for Shares Due . . . . . . . . . . . . . tbd, 1996*
</TABLE>
* Unless the Offer is extended to a date not later than tbd, 1996.
+ A stockholder exercising Subscription Rights must deliver to the Subscription
Agent by the Expiration Date either (1) a Subscription Form and payment for
Shares or (2) a Notice of Guaranteed Delivery.
Sales of Shares Following the completion of the Offer, the Company
Subsequent to the Offer may offer and sell Shares not sold pursuant to the
Offer to other investors. See "The Offer--Sales of
Shares Subsequent to the Offer," page __.
Principal Trading Nasdaq National Market under the symbol "ALCL." See
Market "Public Trading and Net Asset Value Information,"
page __.
4
<PAGE> 8
FEES AND EXPENSES
<TABLE>
<S> <C>
Shareholder Transaction Expenses
Sales Load (as a percentage of offering price) 2.50%(1)
Dividend Reinvestment Plan Fees none(2)
Annual Expenses (as a percentage of consolidated net assets
attributable to common shares(3))
Investment Advisory Fees 3.85%(4)
Interest Payments on Borrowed Funds 4.75%(5)
Other Expenses 1.06%(6)
----
Total Annual Expenses 9.66%(7)
====
</TABLE>
- ----------
(1) Broker-dealers that have executed and delivered a Soliciting Dealer
Agreement and have solicited the exercise of Subscription Rights will
receive fees of 2.5% of the Subscription Price per Share for each Share
issued as a result of their soliciting efforts. These fees will be borne
by the Company and indirectly by all of the Company's stockholders,
including those who do not exercise their Subscription Rights. In the
event that Shares are sold otherwise than through the Offer, a
corresponding supplement to this Prospectus will disclose any additional
sales load.
(2) The expenses of the Dividend Reinvestment Plan are included in the
Company's stock record expenses, a component of "Other Expenses." The
Company has no cash purchase plan.
(3) "Consolidated net assets attributable to common shares" equals net
assets (i.e., total assets less total liabilities) as of December 31,
1995 plus the anticipated net proceeds of the Offer.
(4) Pursuant to Commission requirements, "Investment Advisory Fees" in this
table are presented as a percentage of consolidated net assets
attributable to common shares; however, the Company's investment
advisory fees are determined using a formula based on total assets. The
fees payable pursuant to the investment advisory agreement (see
"Management--Investment Adviser," page __) are calculated as 0.625% per
quarter (2.5% per annum) of the quarter-end value of the Company's
consolidated total assets, less its consolidated Interim Investments
(i.e., short- term U.S. government agency securities or repurchase
agreements collateralized thereby), cash and cash equivalents plus
0.125% per quarter (0.5% per annum) of the quarter-end value of
consolidated Interim Investments, cash and cash equivalents. The
percentage in the table assumes that none of the Company's consolidated
total assets are in the form of Interim Investments, cash or cash
equivalents. The "Investment Advisory Fees" percentage was calculated as
consolidated total assets at December 31, 1995 plus the anticipated net
proceeds of the Offer, multiplied by 2.5%, divided by consolidated net
assets attributable to common shares. This percentage for the year ended
December 31, 1995 was 3.47% (which excluded the anticipated net proceeds
of the Offer). At December 31, 1995, approximately 5% of the Company's
consolidated total assets were in the form of Interim Investments, cash
and cash equivalents. See "The Company--Business of the Company," page
__.
(5) The "Interest Payments on Borrowed Funds" percentage is based on
estimated interest payments for the year ended December 31, 1996 divided
by consolidated net assets attributable to common shares. The estimated
interest payments for the year ended December 31, 1996 assume that the
outstanding borrowings of $18.9
5
<PAGE> 9
million at December 31, 1995 will remain outstanding for the full year
and additional borrowings will be made throughout the year. This
percentage for the year ended December 31, 1995 was 2.58% (which
excluded the anticipated net proceeds of the Offer). See "The
Company--Risk Factors--Risks of Leverage," page __.
(6) The "Other Expenses" percentage is based on estimated amounts for the
year ending December 31, 1996 divided by consolidated net assets
attributable to common shares. This percentage for the year ended
December 31, 1995 was 1.58% (which excluded the anticipated net proceeds
of the Offer).
(7) "Total Annual Expenses" as a percentage of consolidated net assets
attributable to common shares are higher than the total annual expenses
of most closed-end management investment companies due to the Company's
consolidated outstanding borrowings of $18.9 million at December 31,
1995, which significantly reduces the consolidated net assets
attributable to common shares on which the "Total Annual Expenses"
percentage is required, by the Commission, to be calculated for
presentation in the table. If the "Total Annual Expenses" percentage
were calculated instead as a percentage of consolidated total assets,
"Total Annual Expenses" would be 6.28% of consolidated total assets on a
pro forma basis after giving effect to the anticipated net proceeds of
the present rights offering.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses over the indicated
period on a $1,000 investment, assuming a 5% annual return
on total assets and 6.28% (as a percentage of consolidated
total assets) of total annual expenses . . . . . . . . $120 $305 $486 $917
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the above table, including the example, is to assist the
investor in understanding the various costs and expenses that an investor in
the Company will bear either directly or indirectly.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), with respect to the shares
of common stock offered by this Prospectus, which includes this Prospectus plus
additional information. The Company also files reports, proxy statements and
other information with the Commission under the Securities Exchange Act of
1934. Such reports, proxy statements, and other information can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at certain of
the Commission's Regional Offices located in Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661, and Suite 1300, 7 World Trade Center, New
York, New York 10006. Copies of these materials can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company also furnishes annual reports to stockholders, which include annual
financial information that has been audited and reported on, with an opinion
expressed, by independent accountants, and quarterly unaudited summary
financial information. See "Reports and Independent Accountants," page __.
FINANCIAL HIGHLIGHTS
The following condensed consolidated financial information of the Company
should be read in conjunction with the consolidated financial statements and
notes thereto included in this Prospectus. Such consolidated financial
statements as of and for the years ended December 31, 1991, 1992, 1993, 1994
and 1995 have been audited by the firm of Matthews, Carter and Boyce,
independent accountants, whose opinion thereon appears at page ____. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," page __.
6
<PAGE> 10
SUMMARY BALANCE SHEET INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------
1991 1992 1993 1994 1995(5)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Assets
Investments, at value . . . . . . . $10,509 $12,241 $21,793 $32,771 $47,147
Cash and cash equivalents . . . . . 444 2,654 10,998 1,297 3,020
Excess servicing asset . . . . . . 1,328 1,372 1,605 2,700 3,828
Other assets . . . . . . . . . . . 2,646 1,153 557 851 1,485
------- ------- ------- ------- -------
Total assets . . . . . . . . . $14,927 $17,420 $34,953 $37,619 $55,480
======= ======= ======= ======= =======
Liabilities
Notes payable, bank . . . . . . . . $ 0 $ 0 $ 0 $ 3,130 $18,914
Note payable, parent . . . . . . . 4,292 7,860 0 0 0
Repurchase Agreements . . . . . . . 2,761 0 0 0 0
Investment advisory fee payable . . 0 0 67 230 330
Other liabilities . . . . . . . . . 2,274 4,055 1,931 1,471 3,352
------- ------- ------- ------- -------
Total liabilities . . . . . . . 9,327 11,915 1,998 4,831 22,596
------- ------- ------- ------- -------
Shareholders' Equity
Common stock and additional paid-in 5,500 5,500 33,048 33,069 33,252
capital . . . . . . . . . . . . . .
Net unrealized depreciation on
investments . . . . . . . . . . . . (355) (180) (112) (164) (155)
Undistributed (distributions in
excess of)
accumulated earnings . . . . . . 455 185 19 (117) (213)
------- ------- ------- ------- -------
Total shareholders' equity . . 5,600 5,505 32,955 32,788 32,884
------- ------- ------- ------- -------
Total liabilities and
shareholders' equity . . $14,927 $17,420 $34,953 $37,619 $55,480
======= ======= ======= ======= =======
</TABLE>
7
<PAGE> 11
SUMMARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------------
1991(1) 1992(1) 1993 1994 1995(5)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Investment Income
Interest . . . . . . . . . $4,738 $1,380 $2,260 $3,716 $5,966
Premium income . . . . . . 3,205 1,958 2,196 2,349 2,090
------ ------ ------ ------ ------
Total investment income 7,943 3,338 4,456 6,065 8,056
------ ------ ------ ------ ------
Operating Expenses
Investment advisory fee . . 0 0 572 811 1,140
Interest expense . . . . . 2,645 414 707 75 959
Other operating expenses . 967 913 233 301 519
------ ------ ------ ------ ------
Total expenses . . . . 3,612 1,327 1,512 1,187 2,618
------ ------ ------ ------ ------
Net investment income . 4,331 2,011 2,944 4,878 5,438
Net realized losses on
investments (85) (217) (338) (295) (195)
------ ------ ------ ------ ------
Net investment income before
net unrealized appreciation
(depreciation) on
investments 4,246 1,794 2,606 4,583 5,243
Net unrealized appreciation
(depreciation) on investments (111) 174 68 (52) 9
------ ------ ------ ------ ------
Net increase in net assets
resulting from operations $4,135 $1,968 $2,674 $4,531 $5,252
====== ====== ====== ====== ======
Per Share Amounts
Net investment income . . . $1.82 $0.84 $1.14 $1.12 $1.24
Net realized losses and net
unrealized appreciation
(depreciation) on investments $(0.08) $(0.01) $(0.11) $(0.08) $(0.04)
Net increase in net assets
resulting from operations $1.74 $0.83 $1.03 $1.04 $1.20
Net asset value . . . . . . $2.35 $2.31 $7.54 $7.50 $7.50
Dividends declared (prior to
Initial Public Offering) (4) $1.50 $0.87 $1.02(2)
Dividends declared (subsequent to
Initial Public Offering) (4) $0.08(3) $1.08 $1.22
</TABLE>
- ---------
(1) Prior to the Company's initial public offering, which was consummated
in November 1993, the Company's former sole stockholder, Allied
Capital Corporation ("Parent"), and board of directors approved an
increase in the authorized shares and a stock split effected in the
form of a stock dividend to the Parent. All per share data for prior
years presented have been restated to reflect the stock split.
(2) 1993 is based on 2,380,000 shares outstanding prior to the initial
public offering, and dividends for the nine months ended September 30,
1993. 1991 excludes a return of capital paid to the Company's former
Parent.
(3) 1993 is based on 4,368,420 shares outstanding subsequent to the
initial public offering, and dividends for the three months ended
December 31, 1993.
8
<PAGE> 12
(4) Amount represents the total of the regular quarterly dividends and the
year-end extra distribution declared by the Company based on the
actual shares outstanding on the record date for each dividend so
paid.
(5) In April 1995, ACLC Limited Partnership ("Subsidiary") was formed so
the Company could participate in the SBA Section 504 Loan Program and
originate other types of small business loans. The Company is the
general partner and has 99% limited partnership interest in the
Subsidiary. Accordingly, the consolidated financial statements of the
Company include the accounts of the Company and this majority-owned
Subsidiary beginning in 1995.
QUARTERLY FINANCIAL HIGHLIGHTS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1995
---- ----
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4
------ ------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total investment
income . . . . . . $1,137 $1,512 $1,537 $1,879 $1,827 $1,771 $2,327 $2,131
Net investment income $873 $1,213 $1,242 $1,550 $1,394 $1,231 $1,580 $1,233
Net increase in net
assets resulting
from operations $856 $1,228 $1,306 $1,141 $1,345 $1,248 $1,402 $1,257
Per share . . . . . $0.20 $0.28 $0.30 $0.26 $0.31 $0.29 $0.32 $0.29
</TABLE>
9
<PAGE> 13
SENIOR SECURITIES
(at end of fiscal year, consolidated)
Certain information about the various classes of senior securities issued by
the Company and its consolidated subsidiary is set forth in the following
table. The shaded areas indicate information which the Commission expressly
does not require to be disclosed for certain types of senior securities.
<TABLE>
<CAPTION>
Total Amount
Outstanding Asset Average
Exclusive of Coverage Market Value
Class and Year Treasury Securities Per Unit(1) Per Unit(2)
-------------- --------------------- ----------- -----------
<S> <C> <C> <C>
Bank Loan
(Unsecured Revolving
Line of Credit)
1986 $ 0 $ 0 N/A
1987 2,000,000 1,396 N/A
1988 5,000,000 1,355 N/A
1989 0 0 N/A
1990 0 0 N/A
1991 0 0 N/A
1992 0 0 N/A
1993 0 0 N/A
1994 0 0 N/A
1995 1,055,000 2,739 N/A
Bank Loans
(Secured Revolving
Lines of Credit)
1986 0 0 N/A
1987 0 0 N/A
1988 0 0 N/A
1989 0 0 N/A
1990 0 0 N/A
1991 0 0 N/A
1992 0 0 N/A
1993 0 0 N/A
1994 3,130,000 11,475 N/A
1995 17,859,000 2,739 N/A
Reverse Repurchase
Agreements (3)
1986 21,173,000 1,772 N/A
1987 30,759,000 1,396 N/A
1988 34,321,000 1,355 N/A
1989 29,386,000 1,681 N/A
1990 28,361,000 1,785 N/A
1991 2,761,000 4,583 N/A
1992 0 0 N/A
1993 0 0 N/A
1994 0 0 N/A
1995 0 0 N/A
</TABLE>
10
<PAGE> 14
(1) The asset coverage ratio for a class of senior securities representing
indebtedness is calculated as the Company's consolidated total assets
less all liabilities and indebtedness not represented by senior
securities, divided by senior securities representing indebtedness.
This asset coverage ratio is multiplied by $1,000 to determine the
Asset Coverage Per Unit.
(2) Not applicable, as no class of senior securities of the Company has
been registered for public trading.
(3) U.S. government agency-guaranteed loans sold under agreements to
repurchase. This category of senior securities is not subject to the
asset coverage requirements of the Investment Company Act of 1940, as
amended (the "1940 Act") pursuant to a "no action" letter from the
Commission staff.
PUBLIC TRADING AND NET ASSET VALUE INFORMATION
Shares of the Company's common stock are traded on the Nasdaq National Market
under the symbol ALCL. The following table sets forth, for the periods
indicated, high and low bid prices and average net asset values per common
share. The Nasdaq bid quotations represent prices between dealers, do not
include retail markups, markdowns or commissions, and may not necessarily
represent actual transactions. As the table below indicates, the Company's
common stock has historically traded at prices in excess of net asset value.
<TABLE>
<CAPTION>
Bid Price Premium
Average to Average
Net Asset Net Asset Value
Value Per Per Common Share
Bid Price Range Common During Period
------------------ Share ------------------
During
Fiscal Year Ended December 31 High Low Period High Low
----------------------------- ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C>
1994
1st Quarter . . . . . . . . $15.75 $14.25 $7.52 109% 89%
2nd Quarter . . . . . . . . $15.25 $12.50 $7.50 103% 67%
3rd Quarter . . . . . . . . $14.25 $13.00 $7.53 89% 73%
4th Quarter . . . . . . . . $14.25 $9.75 $7.53 89% 29%
1995
1st Quarter . . . . . . . . $12.75 $9.50 $7.53 69% 26%
2nd Quarter . . . . . . . . $12.00 $13.25 $7.55 59% 75%
3rd Quarter . . . . . . . . $13.00 $12.00 $7.57 72% 59%
4th Quarter . . . . . . . . $13.25 $12.00 $7.55 75% 59%
1996
1st Quarter . . . . . . . . $12.625 $14.50 * * *
</TABLE>
*The last determined consolidated net asset value per share was $7.50 as of
December 31, 1995. The bid price premium on that date was 77%. Because the
Company's net asset value is determined quarterly as of the end of each
calendar quarter, and such determination is not yet available for the quarter
ended March 31, 1996, the average net asset value and the high/low bid price
premiums cannot be calculated.
The last sale price for a share of the Company's common stock on Nasdaq on
March 29, 1996 was $14.50.
11
<PAGE> 15
THE OFFER
TERMS OF THE OFFER
The Company is offering to its stockholders of record on the Record Date the
right to subscribe for Shares. Each Record Date stockholder is being issued one
(1) Subscription Right for each share of common stock owned on the Record Date.
The number of Subscription Rights to be issued to each stockholder will be
rounded down to the nearest whole number of shares and no fractional
Subscription Rights will be issued. The Subscription Rights entitle a
stockholder to acquire, pursuant to the Primary Subscription at the
Subscription Price, one (1) Share for each five (5) Subscription Rights held.
Subscription Rights may be exercised at any time during the Subscription
Period, which commences on TBD, 1996, the date of this Prospectus, and ends as
of 5:00 p.m., Eastern Time, on TBD, 1996 (the "Expiration Date"), unless
extended by the Company until 5:00 p.m. Eastern Time on a date no later than
TBD, 1996.
In addition, any stockholder who fully exercises all Subscription Rights issued
to him is entitled to subscribe for Shares which were not otherwise subscribed
for pursuant to the Primary Subscription. Shares acquired through this
Over-Subscription Privilege are subject to allocation or increase, which is
more fully discussed below under "Over- Subscription Privilege."
Subscription Rights are exercisable through a subscription form ("Subscription
Form") which will be provided to all eligible stockholders. No certificates or
other physical rights will be issued or distributed.
The Subscription Rights and the Over-Subscription Privilege are
non-transferable. Therefore, only the underlying Shares, and not the
Subscription Rights, will be admitted for quotation on the Nasdaq National
Market.
OVER-SUBSCRIPTION PRIVILEGE
If some stockholders do not exercise all of the Subscription Rights issued to
them, then any Shares for which a Subscription Form and payment have not been
received from stockholders in the Primary Subscription will be offered by means
of the Over-Subscription Privilege to those stockholders who have exercised all
of the Subscription Rights issued to them and who wish to acquire additional
Shares. Stockholders who exercise all of the Subscription Rights issued to them
should also indicate on the Subscription Form how many Shares they wish to
acquire through this Over-Subscription Privilege. There is no limit to the
number of Shares that may be requested through the Over- Subscription
Privilege. If sufficient Shares remain in excess of those for which
Subscription Rights are exercised in the Primary Subscription, then all
requests for additional Shares, pursuant to the Over-Subscription Privilege,
will be honored in full.
If sufficient Shares are not available to honor all requests for additional
Shares, pursuant to the Over-Subscription Privilege, in full, then the Company
may, in its sole discretion, issue up to an additional 15% of the Shares
available through the Offer in order to honor such over-subscriptions. All
requests to purchase Shares pursuant to the Over- Subscription Privilege are
subject to allocation. To the extent that there are not sufficient Shares to
honor all over- subscriptions, the available Shares will be allocated pro rata
among those stockholders who over-subscribe based on the number of Subscription
Rights originally issued to them by the Company, so that the number of Shares
issued to stockholders who subscribe through the Over-Subscription Privilege
will be generally in proportion to the number of shares of the Company's common
stock owned by them on the Record Date. The percentage of remaining Shares each
over-subscribing stockholder may acquire may be rounded up or down to result in
delivery of whole Shares. The allocation process may involve a series of
allocations in order to ensure that the total number of Shares available for
over-subscriptions are distributed on a pro rata basis.
THE SUBSCRIPTION PRICE
The Subscription Price per Share is 95% of the average of the last reported
sale price of a share of the Company's
12
<PAGE> 16
common stock on Nasdaq on the date of expiration of the Offer (the "Pricing
Date") and each of the four preceding business days. Since the Expiration Date
of the Offer coincides with the Pricing Date, stockholders exercising their
Subscription Rights will not know the Subscription Price per Share at the time
they exercise their Subscription Rights. It may be more or less than the
Estimated Subscription Price of $______ per Share. See "Confirmation of
Purchase," page ___.
SUBSCRIPTION PERIOD
The Offer commences on TBD, 1996 and expires at 5:00 p.m., Eastern Time, on
TBD, 1996, unless extended by the Company until 5:00 p.m. Eastern Time on a
date no later than TBD, 1996. The Subscription Rights and the Over-
Subscription Privilege will expire on the Expiration Date and may not be
exercised after that date. All Subscription Forms must be received by the
Subscription Agent no later than the Expiration Date, unless Subscription is
effected through a notice of guaranteed delivery, as described herein.
Net asset value per common share at December 31, 1995 was $7.50. The Company
has, as required by the Commission's registration form for the Offer,
undertaken to suspend the Offer until it amends this Prospectus if, subsequent
to the effective date of the Company's registration statement, the Company's
net asset value declines more than 10% from its consolidated net asset value
last determined prior to the effective date. Accordingly, the Company will
notify stockholders of any such decline. A subscribing stockholder will have no
right to cancel such subscriptions or rescind a purchase after the Subscription
Agent has received payment, except that Subscription Forms and payments
received during any period that the Offer is suspended as described above will
be returned to the stockholder for resubmission once such suspension has ended.
The Company is requesting brokers, banks, trust companies and other nominees
(collectively "Nominees") to transmit a copy of this Prospectus and of the
Subscription Form, with a return envelope, to each person who is a beneficial
owner of shares of the common stock held of record by Nominees as of the Record
Date. Nominees will be responsible for tabulating subscriptions received from
such beneficial owners, and remitting to the Subscription Agent one
Subscription Form and the total aggregate Subscription Price of all shares for
which a Nominee's beneficial owners are subscribing. The Company will pay such
Nominees their usual and customary charges for transmitting issuer
communications to stockholders.
PURPOSE OF THE OFFER
The Board of Directors of the Company has concluded that additional capital
should be raised for the Company through an offering of its common stock. The
Company has determined that new investment opportunities exist, but the Company
lacks the liquidity to take full advantage of them. This additional capital
will increase the Company's equity base and allow the Company to continue to
grow by leveraging against it. Because the Company, as a regulated investment
company within the meaning of Subchapter M of the Internal Revenue Code, as
amended, must distribute essentially all of its income to its stockholders each
year to avoid unfavorable federal income tax consequences, the Company cannot
increase its equity base by retaining net income and must instead raise
additional capital to achieve this goal.
The Company's directors have voted unanimously to authorize the Offer. Three of
the Company's directors who voted to authorize the Offer are affiliated with
Advisers and, therefore, could benefit indirectly from the Offer. Five
directors are not "interested persons" of the Company within the meaning of the
1940 Act. Advisers may also benefit from the Offer, and any sale of common
stock subsequent to the Offer, because its fee is based on the total
consolidated assets of the Company. See "Management--Investment Adviser, "page
__. It is not possible to predict precisely the amount of additional
compensation Advisers might receive as a result of the Offer because it is not
known how many Shares will be subscribed for and because the proceeds of the
Offer will be invested in additional portfolio securities, which may fluctuate
in value.
The Company may, in the future and at its discretion, from time to time, choose
to make additional rights offerings for a number of shares and on terms which
may or may not be similar to this Offer.
13
<PAGE> 17
DILUTIVE EFFECT
The Company expects that the Offer will not result in a reduction of the net
asset value per share of the Company's common stock because the stock has
historically traded, and continues to trade as of the date of this Prospectus,
at a price that represents a premium over net asset value. Accordingly, the
price of shares sold in the Offer are expected to exceed their net asset value.
See "Public Trading and Net Asset Value Information," page ___. Any stockholder
who chooses not to participate in the Offer, however, should expect to own a
smaller proportional interest in the Company following the expiration of the
Offer.
The Company may offer and sell any Shares which are not subscribed for through
the Primary Subscription or the Over-Subscription Privilege, following
expiration of the Offer, to certain other investors. The Company undertakes to
update this Prospectus before any such sales are consummated. The existence of
the Over-Subscription Privilege and the Company's discretionary ability to
increase the number of Shares subject to the Offer will result in additional
dilution of interest and voting rights to current stockholders beyond such
dilution resulting from stockholders' non- participation in the Primary
Subscription. See "Sales of Shares Subsequent to the Offer," page __.
SOLICITING FEES
In connection with the Offer, the Company has agreed to pay to certain
broker-dealers that have executed and delivered a Soliciting Dealer Agreement
fees equal to 2.5% of the Subscription Price per Share for all Shares issued as
a result of their soliciting efforts. Shareholder Communications Corporation
will provide offering coordinator services, including coordination among
soliciting broker-dealers. See "Expenses of the Offer," page___.
SUBSCRIPTION AGENT
The Subscription Agent for the Offer is American Stock Transfer & Trust
Company, 40 Wall Street, 46th Floor, New York, New York 10005, which will
receive, for its administrative, processing, invoicing and other services as
Subscription Agent, a fee of $____ and reimbursement for all out-of-pocket
expenses related to the Offer. The Subscription Agent is also the transfer
agent for the Company's common stock. Stockholders may contact the
Subscription Agent at (718) 921-8200.
Stockholders should mail or deliver Subscription Forms and acceptable forms of
payment for Shares to the Subscription Agent in time to be received no later
than 5:00 p.m. Eastern Time on the Expiration Date by one of the following
methods at the following address:
BY FIRST CLASS MAIL
BY EXPRESS MAIL OR OVERNIGHT COURIER
BY HAND
American Stock Transfer & Trust Company
Corporate Reorganization Department
40 Wall Street, 46th Floor
New York, New York 10005
DELIVERY TO AN ADDRESS OTHER THAN THE ABOVE WILL NOT CONSTITUTE DELIVERY FOR
PURPOSES OF THE OFFER.
IT IS STRONGLY SUGGESTED THAT STOCKHOLDERS USE A DELIVERY METHOD WHICH WILL
GUARANTEE DELIVERY BY THE EXPIRATION DATE AND WHICH WILL PROVIDE A RETURN
RECEIPT TO THE SENDER. NEITHER THE SUBSCRIPTION AGENT NOR THE COMPANY WILL BE
RESPONSIBLE FOR SUBSCRIPTION FORMS OR PAYMENTS THAT ARE NOT SO DELIVERED.
14
<PAGE> 18
INFORMATION AGENT AND OFFERING COORDINATOR
Shareholder Communications Corporation ("SCC") will act as the Information
Agent and Offering Coordinator for the Offer, and as such, will distribute
materials and be available to answer questions any stockholders may have
regarding the Offer. For acting as Information Agent for the Offer, SCC will
receive a fee of $________; for acting as Offering Coordinator, SCC will
receive a fee of $____. SCC will also be reimbursed for all out-of-pocket
expenses in connection with the Offer. SCC may be contacted at:
Shareholder Communications Corporation
17 State Street, 27th and 28th Floors
New York, New York 10004
Telephone: (800) 221-5724, extension 331
Stockholders may also contact their respective brokers, banks, trust companies
or other record holder for additional information with respect to the Offer.
HOW TO SUBSCRIBE
Subscription Rights may be exercised by stockholders whose shares of the
Company's common stock are held in their own name ("Record Owners") by
completing the enclosed Subscription Form and delivering it to the Subscription
Agent, together with the required payment for the Shares as described below
under "Payment for Shares." Stockholders whose shares are held by a Nominee
must exercise their Subscription Rights by contacting their Nominees, who can
arrange, on a stockholder's behalf, to guarantee delivery of a properly
completed and executed Subscription Form and payment for the Shares. A fee may
be charged by the Nominee for this service. Subscription Forms must be
received by the Subscription Agent prior to 5:00 p.m. Eastern Time on the
Expiration Date unless the Offer is extended. If Subscription is to be effected
by means of a Notice of Guaranteed Delivery, then Subscription Forms are due
not later than three (3) business days following the expiration of the Offer,
and full payment for the Shares is due not later than ten (10) business days
following the Confirmation Date. See "Payment for Shares," below.
PAYMENT FOR SHARES
Stockholders who acquire Shares pursuant to the Primary Subscription or the
Over-Subscription Privilege may choose between the following methods of
payment:
(1) If, prior to 5:00 p.m. Eastern Time on the Expiration Date, unless
extended, the Subscription Agent has received a Notice of Guaranteed
Delivery, by telegram or otherwise, from a Nominee guaranteeing
delivery of (a) payment of the full Subscription Price for the Shares
subscribed for pursuant to the Primary Subscription and any additional
Shares subscribed for through the Over- Subscription Privilege and (b)
a properly completed and executed Subscription Form, the subscription
will be accepted by the Subscription Agent. The Subscription Agent
will not honor a Notice of Guaranteed Delivery if a properly completed
and executed Subscription Form is not received by the Subscription
Agent by the close of business on the third (3rd) business day after
the Expiration Date, unless the Offer is extended, and full payment
for the Shares is not received by it by the close of business on the
tenth (10th) business day after the Confirmation Date (as defined
below).
(2) Alternatively, a Record Owner may send payment for the Shares acquired
pursuant to the Primary Subscription, together with the Subscription
Form, to the Subscription Agent based on the Estimated Subscription
Price of $____ per Share. To be accepted, such payment, together with
the Subscription Form, must be made payable to "Allied Capital Lending
Corporation" and received by the Subscription Agent prior to 5:00 p.m.
Eastern Time on the Expiration Date,
15
<PAGE> 19
unless the Offer is extended. All payments by a stockholder must be
made in United States dollars either by money order or check and drawn
on a bank located in the United States of America.
Nominees who elect to effect participation in the Offer through DTC
may be subject to certain additional procedural requirements.
Nominees should contact DTC directly for more information.
IF THE SECOND METHOD DESCRIBED ABOVE IS USED, EACH SUBSCRIPTION FORM MUST BE
ACCOMPANIED BY FULL PAYMENT IN ORDER TO BE ACCEPTED.
CONFIRMATION OF PURCHASE
Within eight business days following the expiration of the Offer (the
"Confirmation Date"), a confirmation will be sent by the Subscription Agent to
each stockholder (or, if shares are held by a Nominee, on the Record Date, to
such Nominee) showing: (i) the number of Shares acquired through the Primary
Subscription; (ii) the number of Shares, if any, acquired through the
Over-Subscription Privilege; (iii) the per Share and total Subscription Price
for the Shares; and (iv) the amount payable by the stockholder to the Company
or any excess to be refunded by the Company to the stockholder, in each case
based on the Subscription Price as determined on the Pricing Date.
In the case of any stockholder who exercises a right to acquire Shares through
the Over-Subscription Privilege, any excess payment which would otherwise be
refunded to the Stockholder will be applied by the Company toward payment for
Shares acquired through exercise of the Over-Subscription Privilege. Any
further payment required from a stockholder must be received by the
Subscription Agent within ten (10) business days after the Confirmation Date,
and any excess payment to be refunded by the Company to a stockholder will be
mailed by the Subscription Agent to the stockholder within ten (10) business
days after the Confirmation Date.
Issuance and delivery of certificates for the Shares subscribed for are subject
to collection of checks and actual payment through any Notice of Guaranteed
Delivery.
If a stockholder who acquires Shares through the Primary Subscription or
Over-Subscription Privilege does not make payment of all amounts due, the
Company reserves the right to: (i) apply any payment actually received by it
toward the purchase of the greatest number of whole Shares which could be
acquired by such stockholder upon exercise of the Primary Subscription or
Over-Subscription Privilege; (ii) find other purchasers for such subscribed for
and unpaid Shares; or (iii) exercise any and all other rights or remedies to
which it may be entitled.
DELIVERY OF SHARES
Stockholders who have any shares held in the Company's Dividend Reinvestment
Plan, which is administered by the Company's transfer agent (the "Plan"), will
have any Shares acquired, either pursuant to the Primary Subscription or to the
Over-Subscription Privilege, credited to their accounts in the Plan. Stock
certificates will not be issued for Shares credited to Plan accounts unless
specifically requested.
For Record Owners other than Plan participants, stock certificates for all
Shares acquired will be mailed promptly after full payment for the Shares
subscribed for has cleared, and no later than 30 days after the Expiration Date
of the Offer.
Stockholders whose shares are held of record by a Nominee on their behalf will
have the Shares they acquire credited to the account of such Nominee.
In the event that the Offer does not result in all Shares being fully
subscribed for after allocating Shares pursuant to the Over-Subscription
Privilege, the Company may offer the remaining Shares to certain other
investors. See "Sales of Shares Subsequent to the Offer," page__ .
16
<PAGE> 20
A SAMPLE CALCULATION OF A SUBSCRIPTION
Assume, for example, that you own 1,000 shares of the Company's common stock as
of the Record Date. Dividing that number by five gives you 200. Assuming
that you elect to exercise all of your Subscription Rights pursuant to the
Primary Subscription, in the first blank of the Subscription Form enter ___
Shares and fill in the total estimated subscription price for the Shares,
which is ___ multiplied by $____, the Estimated Subscription Price per share,
which totals $____. If you choose to subscribe for additional Shares pursuant
to the Over-Subscription Privilege, enter the number of additional Shares you
wish to purchase on the next line of the Subscription Form, and again
calculate the estimated subscription price by multiplying the number of
additional Shares by $_____. Assuming you decide to purchase ___ shares
pursuant to the Over-Subscription Privilege, enter __ Shares and $_____ on the
second line. Then enter the total amount due, $_____, on the third line of the
Form. After otherwise completing and signing the form, send it to the
Subscription Agent (or your Nominee if your shares are held by a Nominee) with
an acceptable form of payment for this total amount.
The Company will, in any event, accept your Primary Subscription to the extent
of the __ shares. Depending on the number of Shares subscribed for by other
stockholders, the Company may also accept your over-subscription to the extent
of the additional __ shares for which you have subscribed or some smaller
number, possibly as small as zero, and will confirm to you in writing how many
Shares you have been allocated in total. If your over-subscription is accepted
for some number of Shares that is smaller than the requested number, the
Subscription Agent will, after the close of the Subscription Period, send you a
check for the amount, without interest, of your subscription in excess of the
amount for which your subscription has been accepted. If the Subscription Price
is lower than the Estimated Subscription Price of $____ per share, you will
receive a refund; if the Subscription Price is higher than the Estimated
Subscription Price, you will be notified of the additional amount due. You will
then, in due course, receive a certificate for the number of Shares for which
your subscription has been accepted, or otherwise be credited for the Shares if
your Shares are held in the Company's Dividend Reinvestment Plan or by a
Nominee.
Stockholders who are Record Owners. Stockholders who are Record Owners can
choose between either option described under "Payment for Shares," page ___.
If only a short amount of time is remaining prior to the Expiration Date,
option (1) will permit delivery of the Subscription Form and payment after the
Expiration Date.
Stockholders Whose Shares Are Held Through A Nominee. Stockholders whose
shares are held by a Nominee such as a broker, bank or trust company, must
contact the Nominee to exercise their Subscription Rights. In that case, the
Nominee may complete the Subscription Form on behalf of the stockholder and
arrange for proper payment by one of the methods described under "Payment for
Shares."
Nominees. Nominees should notify the respective beneficial owners of shares as
soon as possible to ascertain such beneficial owners' intentions and to obtain
instructions with respect to the Subscription Rights. If the beneficial owner
so instructs, the Nominee should complete the Subscription Form and submit it
to the Subscription Agent, together with the proper payment described under
"Payment for Shares."
SALES OF SHARES SUBSEQUENT TO THE OFFER
The Company may, by means of a post-effective amendment to the registration
statement of which this Prospectus is a part, offer and sell any
unsubscribed-for shares to banks, insurance companies, pension funds and other
institutional investors and to certain individuals ("Additional Offerees") in
any state in which the offer and sale to such persons may be made consistent
with applicable law. The Company may solicit and accept subscriptions from any
Additional Offerees for any Shares offered hereby which were not validly
subscribed for by stockholders. It is anticipated that, in general, offers and
sales to Additional Offerees, if any, will be made on substantially the same
terms as those described above for offers and sales made pursuant to the Offer,
although the price of Shares sold to
17
<PAGE> 21
Additional Offerees is expected to differ based on then-prevailing market
conditions. Any material differences in the terms of sales to Additional
Offerees from those made pursuant to the Offer would be described in a
supplement to this Prospectus.
EXPENSES OF THE OFFER
In connection with the Offer, the Company has agreed to pay to certain
broker-dealers who have executed and delivered a Soliciting Dealer Agreement
fees equal to 2.5% of the Subscription Price per Share for Shares issued as a
result of their soliciting efforts. The Company will also pay all other
applicable expenses, including but not limited to the normal charges of brokers
and other Nominees for transmitting offering materials, which will include
Prospectuses, Subscription Forms, and return envelopes, to the beneficial
owners of the shares held by them of record.
USE OF PROCEEDS
The Company anticipates that proceeds of the Offering will be used, in
accordance with the Company's investment objective, to achieve a high level of
current income by making loans at least partially guaranteed by the SBA, as
well as loans made in conjunction with such loans, and other loans. The Company
anticipates that substantially all of the proceeds of the offering will be
invested in the manner described above within one year, and in any event within
two years.
THE COMPANY
ORGANIZATION
The Company was incorporated in 1976 and is engaged in the business of making
loans to small businesses, including loans that are partially guaranteed by the
SBA pursuant to the Section 7(a) Loan Program. The Company is a closed- end
management investment company that elected in 1993 to be regulated as a BDC
under the 1940 Act. The Company is also a small business lending company
("SBLC") approved by the SBA. In April 1995, the Company formed the Subsidiary
in order to participate in the SBA 504 Loan Program and make other small
business loans. The Company is the general partner and a 99% limited partner
of the Subsidiary. Advisers serves as the investment adviser of the Company.
Prior to consummation of the Company's initial public offering in November
1993, the Company was a wholly owned subsidiary of Allied Capital Corporation
("Allied I"). After that date, Allied I continued to hold a significant number
of the Company's shares, but has undertaken to divest itself of such shares by
December 31, 1998 through public offerings, private placements, distributions
to Allied I stockholders or otherwise. Accordingly, Allied I will not
participate in the Offer. In late December 1994, Allied I declared a special
dividend payable in shares of the Company's stock held by Allied I (which was
paid in early January 1995), which resulted in the distribution of an aggregate
of 335,086 of the Company's shares to the stockholders of Allied I. That
distribution reduced Allied I's ownership of the Company's shares to 1,244,914
shares, or approximately 28% of the Company's shares then outstanding. Allied
I has not made or declared any other distributions that are payable with
Company stock held by Allied I. Allied I's holdings of the Company's shares
represented approximately 28% of the Company's shares outstanding at December
31, 1995.
The Company is anticipating a reorganization of its corporate structure and is
in the process of seeking exemptive relief from the Commission for the new
structure. Under the new structure the Company will become a holding company
with two wholly owned subsidiaries ("Subsidiary I" and "Subsidiary II"). The
Company will transfer its SBLC license and all Section 7(a) loans and related
assets to Subsidiary I in return for 100% of Subsidiary I's stock. The Company
will contribute its 99% limited partnership interest in its Subsidiary and all
of its loans and
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<PAGE> 22
related assets to Subsidiary II in return for 100% of its stock. Simultaneously
with this transaction, Subsidiary II will purchase the 1% limited partnership
interest of the Subsidiary not owned by the Company from the limited partner at
a nominal purchase price.
BUSINESS OF THE COMPANY
The business of the Company is to make loans to small businesses. It does this
primarily through participation in two SBA programs _ the Section 7(a) Loan
Program and the Section 504 Loan Program. It also generates companion loans to
accompany the Section 7(a) loans.
The Section 7(a) Loan Program
Pursuant to Section 7(a) of the Small Business Act of 1958, as amended, the SBA
guarantees 80% of any qualified loan up to $100,000 regardless of maturity, and
75% of any such loan over $100,000 regardless of maturity, to a maximum
guarantee of $750,000 for any one borrower. SBA regulations define qualified
small businesses generally as businesses with no more than $5 million in annual
sales and no more than 500 employees.
In December 1994, in a move unexpected by the Company, the SBA temporarily
altered its regulations concerning the Section 7(a) Loan Program and announced
that it would place a loan size cap of $500,000 on the loans that it would
guarantee under the Section 7(a) Loan Program. In late 1995, the SBA altered
the regulations again and restored the maximum guarantee of $750,000 for any
one borrower, thus effectively raising the maximum loan size with a 75%
guarantee to $1 million. The SBA's 1994 reduction in the maximum loan size
under the Section 7(a) Loan Program had no significant impact on the Company's
results of operations for 1995 because the Company had a substantial backlog of
loans already approved under prior rules; however, the frequency of regulatory
changes in 1994 and 1995 prompted the Company to reevaluate its lending
programs and expand its operations with additional small business loan
programs. The Company continues to explore other financial products and is
actively pursuing entry into other loan programs to diversify its portfolio.
The SBA designates certain participants in the Section 7(a) Loan Program as
"Preferred Lenders" in designated markets which allows the Company to make 7(a)
loans without SBA credit approval, thus speeding up the process of loan
approval and disbursements. As of December 31, 1995, the Company was a
Preferred Lender in the Washing ton, DC area and in Richmond, Virginia. In
February 1996, the Company was granted Preferred Lender status by the SBA in 45
additional regional markets.
The SBA also designates certain participants in the Section 7(a) Loan Program
as "Certified Lenders." Applications for loan guarantees submitted by
Certified Lenders receive expedited processing by the SBA. The SBA has
designated the Company as a Certified Lender in all markets in which it is a
Preferred Lender.
As permitted by SBA regulations, the Company systematically sells to investors,
without recourse, the guaranteed portion of its loans. Under legislation
adopted in 1993, a fee at the rate of 0.4% per annum on the outstanding
principal balance of such loans sold in the secondary market was payable to the
SBA. Such loan sales by the Company generally take place approximately three
months after the closing of the loan and, under current market conditions, are
made at a price of around 110% of the principal amount of the portion of the
loan sold. In October 1995, the SBA amended its regulations and raised the
annual fee on the guaranteed portion of loans approved by the SBA after October
12, 1995 to 0.5% per annum regardless of sale to the secondary market. The SBA
also is entitled to a fee of 50% of any cash premium in excess of 10% received
on loan sales. The Company continues to service sold loans for a normal
servicing fee of approximately 0.4% per annum of the outstanding principal
amount of such loans. To the extent that the Company receives any higher
servicing fee, the value of such additional fee is recorded as an
excess servicing asset. At December 31, 1995, the Company was servicing
approximately $144 million aggregate principal amount of loans, of which
approximately 67% had been sold to investors.
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<PAGE> 23
The Company requires capital to make loans, to carry those loans for
approximately three months until sale occurs, and to carry the unguaranteed,
unsold portion of the principal amount of the loans to maturity. For the
purpose of carrying the guaranteed portions of such loans pending their sale,
the Company has obtained lines of credit aggregating $17 million from a
commercial bank as of December 31, 1995 that expire in July 1996. The Company
is in the process of revising these lines of credit.
Section 7(a) loans may be made to qualifying small businesses for the purposes
of acquiring real estate, purchasing machinery or equipment or to provide
working capital. Such loans made to acquire real estate may have maturities of
up to 25 years; loans made for the purpose of purchasing machinery and
equipment may have maturities of up to 15 years; loans made to provide working
capital may have maturities of up to seven years. These loans are secured by a
mortgage or other lien on the assets of the borrower and, frequently, of its
principals. The Company generally does not make unsecured working capital
loans. In all cases, the principals of the small businesses must personally
guarantee the payment of interest on and principal of the loans.
The Company may, from time to time, concentrate its loans in particular
industries, but the Company does not intend to concentrate its loans in any
industry. At December 31, 1995, the Company had in its portfolio or was
servicing loans to, among others, hotels and motels, restaurants,
manufacturers, retail shops, food stores, professional services, laundries and
cleaners, home furnishings concerns, gasoline stations, business services
firms, recreational services providers, automobile exhaust repair shops,
personal services providers and automotive repair concerns.
The interest rate on loans recently made by the Company generally is at a
variable rate, which is generally 2.75% per annum above the prime rate, as
published in The Wall Street Journal or other financial newspaper, adjusted
monthly.
All loans are payable in equal monthly installments of principal and interest
from the dates on which the loans are made (or the first day of the month
following any month in which there occurs an interest rate adjustment) to their
respective maturities.
504 Loan Program and Companion Loans
As part of the Company's efforts to diversify its lending activities, during
1995 it began participating, through its Subsidiary, in the SBA 504 Loan
Program. Under the SBA 504 Loan Program, qualified small businesses can
purchase or build real estate with favorable long-term debt. Loans made under
this program are structured such that the borrower provides at least 10% of the
project cost in equity, the Company (through its Subsidiary) provides 50% of
the project cost in an unguaranteed 20-year adjustable rate first mortgage loan
and a local certified development company ("CDC") provides a 20-year fixed rate
second mortgage loan for the remaining 40% of the project cost. Both types of
loans are fully amortizing and the total project cost can be as large as $2.5
million.
In addition to partnering with local CDCs to finance projects that require up
to $2.5 million in financing, during 1995, through its Subsidiary, the Company
also began providing companion or "piggyback" loans ("companion loans") in
conjunction with traditional SBA 7(a) loans. For this type of financing, the
Company provides an unguaranteed first mortgage loan for up to 50% of the real
estate value and a second mortgage loan through the Section 7(a) Loan Program
with a 75% SBA guarantee. The total of the two loans is generally 80% or less
of the appraised value of the real estate. The Company now also partners with
local banks by providing second mortgage loans that are partially guaranteed by
the SBA in conjunction with the banks' conventional first mortgage loans to
qualifying small businesses.
The Company finances its SBA 504 loans and companion loans with a line of
credit that the Subsidiary has with an investment bank. As of December 31,
1995, this line of credit had a $20 million capacity of which $4.5 million had
been borrowed. The interest rate on this line of credit is equal to the London
Inter-Bank Overnight Rate (LIBOR) plus 2% per annum, and the facility expires
September 27, 1996.
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<PAGE> 24
Loan Generation
The Company has made arrangements with certain financial consulting
organizations, or "regional associates," to refer to the Company potential
loans to small businesses in certain designated territories. Any prospective
loan referred to the Company by any regional associate is reviewed by the
Company's portfolio manager and its credit committee and is not closed unless
approved or ratified by the Board of Directors of the Company and, in the case
of Section 7(a) loans, by the SBA. If and when a loan referred by a regional
associate is closed, such organization is compensated by an origination fee
calculated using a formula agreed upon by the Company and such regional
associate. The origination fees currently paid by the Company to its regional
associates range from 0.5% to 5% of the principal amount of each loan made by
the Company that was referred by the respective regional associate. The
regional associates from time to time may assist the Company in monitoring any
loans referred by them or otherwise made in their territories. For those
services, the regional associates are compensated with a fixed fee per visit.
The Company's Operation as a BDC
As a BDC, the Company may not acquire any assets other than "Qualifying Assets"
unless, at the time the acquisition is made, Qualifying Assets represent at
least 70% of the value of the Company's total assets. The principal categories
of Qualifying Assets relevant to the business of the Company are the following:
(1) Securities purchased in transactions not involving any public offering
from the issuer of such securities, which issuer is an eligible
portfolio company. An eligible portfolio company is defined as any
issuer that is organized and has its principal place of business in
the United States and does not have any class of publicly traded
securities with respect to which a broker may extend margin credit.
(2) Cash, cash items, Government securities, or high quality debt
securities maturing in one year or less from the time of investment.
In addition, to treat securities described in (1) above as a Qualifying Asset
for the purpose of the 70% test, a BDC must make available to the issuer of
those securities significant managerial assistance. Making available
significant managerial assistance means, among other things, any arrangement
whereby the BDC, through its directors, officers or employees, offers to
provide, and, if accepted, does provide, significant guidance and counsel
concerning the management, operations or business objectives and policies of a
portfolio company. Managerial assistance is made available to the portfolio
companies by the Company's officers and the investment officers of Advisers who
manage the Company's investments. Each portfolio company is assigned for
monitoring purposes to an investment officer and is contacted and counseled if
it appears to be encountering business or financial difficulties. The Company
also provides management assistance and counseling on a continuing basis to any
portfolio company that requests it, whether or not difficulties are perceived.
The Company's officers and directors are highly experienced in providing this
type of managerial assistance to small businesses. The Company may not change
the nature of its business so as to cease to be, or withdraw its election as, a
BDC unless authorized by vote of a majority (as defined in the 1940 Act), of
the Company's shares. As a BDC, the Company is entitled to borrow money and
issue senior securities representing indebtedness as long as its indebtedness
representing senior securities has asset coverage to the extent of at least
200%.
RISK FACTORS
The purchase of the Shares offered by this Prospectus involves a number of
significant risk and other factors relating to the structure and investment
objective of the Company. As a result, there can be no assurance that the
Company will achieve its investment objective. AN INVESTMENT IN THE SHARES
WILL NOT BE SUITABLE FOR PERSONS WHO DO NOT INTEND, OR HAVE THE RESOURCES, TO
HOLD THEM AS A LONG-TERM INVESTMENT.
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Government Appropriations and SBA Regulation. The Company's business remains
largely dependent upon two government-sponsored, SBA-administered Loan
Programs, the Section 7(a) Loan Program and the Section 504 Loan Program. The
Sections 7(a) and 504 Loan Programs are regulated by the SBA pursuant to laws
passed by Congress. There is no assurance that the government appropriations
for these programs or for the operations of the SBA will be continued. In
addition, both programs are subject to changes in law or regulation at any time
that could have an adverse impact on the Company's operations with regard to
the programs.
Risks of default. Loans to small businesses involve a high risk of default.
Such loans are not rated by any statistical rating organization. Small
businesses usually have smaller product lines and market shares than larger
companies and therefore may be more vulnerable to competition and general
economic conditions. These businesses typically depend for their success on
the management talents and efforts of one person or a small group of persons
whose death, disability or resignation would adversely affect the business.
Because these businesses frequently have highly leveraged capital structures,
reduced cash flow resulting from economic downturns can severely impact the
businesses' ability to meet their obligations. The portions of Section 7(a)
loans to be retained by the Company do not benefit directly from any SBA
guarantees; in an event of default, however, the Company and the SBA typically
cooperate in collateral foreclosure or other work-out efforts and share in any
resulting collections. The Section 504 loans and the companion loans are not
guaranteed in any part by the SBA and as a result carry a higher risk of loss
from an event of default.
Premium refund. Under its regulations, the SBA has the right to repurchase the
guaranteed portions of loans at any time, though the Company is not aware of
any instance in which the SBA has exercised that right. Conversely, the
Company has the right to require the SBA to repurchase any loan on which two
monthly payments have not been made in the months in which they are due. If
such delinquency occurs within the first three months after the Company has
sold the guaranteed portion of a loan and the late payments are not made up
within 275 days after the loan sale, the Company must refund any premium that
it has received on the sale when the loan is repurchased from the secondary
market. Moreover, under its guaranty the SBA will pay only the principal of
the guaranteed amount and interest thereon for up to 120 days.
Illiquidity of loans. SBLCs are required by SBA regulations to retain, in
their own portfolios and until maturity, the unguaranteed portions of the loans
made by them. The Company may attempt at some time in the future to obtain the
SBA's consent to the sale of such loans, but there is no assurance that such
consent, if sought, will be forthcoming or that a market for such loans could
be found even if such consent were obtained.
Interest rate fluctuations. Since all loans made by the Company are currently
being made at variable rates of interest, the return on the Company's
investment in them could decline if market interest rates were to decline from
their current levels. New loans are being made on the basis of interest rates,
which, being variable, may become unduly burdensome or otherwise come to appear
unattractive to some borrowers as market rates increase. Moreover, rising
interest rates may tend to reduce the premium that the Company receives on
resales of the guaranteed portions of loans. Thus, any substantial increase in
market interest rates could result in greater rates of prepayments of or
defaults on outstanding loans and might tend to inhibit the expansion of the
Company's business or otherwise reduce its profitability.
Competition. There are several other SBLCs (which by regulation are non-banks)
as well as a large number of banks that participate in the SBA's guaranteed
loan program. All of these participants compete for the business of eligible
borrowers. From time to time, these competitors will offer loans at a lower
rate of interest than the 2.75%-above- prime maximum rate permitted by the SBA,
which is the rate at which the Company generally offers loans. However, such
lower cost loans are generally offered with shorter maturities than those which
the Company is prepared to offer for its loans. Moreover, unlike SBLCs such as
the Company, banks are frequently under regulatory constraints on the types of
loans that they are able to offer. Also, many participants in the guaranteed
loan program do not have the same degree of expertise as does the Company in
tailoring loans to meet the SBA's requirements and, accordingly, the Company is
frequently in a position to obtain funding for the borrower more rapidly than
many other participants.
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The Company has not to date perceived competition to be a significant negative
factor in the volume of loans that it is able to make or the rate of interest
that it is able to charge for such loans. There is no assurance, however, that
increased competition may not become a negative factor in the future.
In addition, pursuant to the 1940 Act, the Company is limited as to the amount
of indebtedness it may have. The Company must maintain an asset coverage of at
least 200% for senior securities representing indebtedness, accordingly, the
Company may be at a competitive disadvantage with regard to other lenders or
financial institutions that may be able to achieve greater leverage at a lower
cost.
Market price disparities. Shares of closed-end investment companies frequently
trade at a discount from net asset value, but there are examples of companies,
including the Company, as well as Allied I and Allied Capital Corporation II,
which are also managed by Advisers, the shares of which have historically
traded at a premium to net asset value. This characteristic of shares of
closed-end investment companies is separate and distinct from the risk that a
company's net asset value per share will decline. It is not possible to
predict whether the Shares offered hereby will trade at, above, or below net
asset value.
Risks of leverage. The Company (including the Subsidiary) intends to continue
to borrow funds from and issue senior debt securities to banks or other lenders
up to the limit permitted by the 1940 Act. Such additional borrowings, unless
fully offset by redemptions or repurchases of the Company's outstanding senior
securities, will cause the Company to be fully leveraged with respect to its
common stock. When such borrowings occur, the providers of these funds will
have fixed dollar claims on the Company's consolidated assets superior to the
claims of the holders of the Company's common stock. Any increase in the value
of the Company's consolidated investments would cause its consolidated net
asset value attributable to common shares to increase more sharply than it
would had the borrowings or preferred stock financings not occurred. Decreases
in the value of the consolidated investments below their value at the time of
acquisition, however, would cause the Company's consolidated net asset value
attributable to common shares to decline more sharply than it would if the
senior funds had not been borrowed or otherwise obtained. Similarly, any
increase in the Company's consolidated rate of income in excess of consolidated
interest payable on the borrowed funds or dividends payable on the preferred
stock would cause its net income to increase more than it would without the
leverage, while any decrease in consolidated rate of income would cause net
income to decline more sharply than it would had the funds not been borrowed or
otherwise obtained for investment. Moreover, the costs of borrowing may exceed
the income from the portfolio securities purchased with the borrowed funds, and
a decline in net asset value may result if the investment performance of the
additional securities purchased fail to cover the cost to the Company. Such a
decline in net asset value could negatively affect the Company's ability to
make common stock dividend payments. Also, if asset coverage for debt
securities declines to less than 200 percent (200%), the Company may be
required to sell a portion of its investments when it may be disadvantageous to
do so.
Leverage is thus generally considered a speculative investment technique. The
ability of the Company to achieve its investment objective may depend in part
on its ability to achieve additional leverage on favorable terms by borrowing
from banks, or other lenders, and there can be no assurance that such
additional leverage can in fact be achieved.
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<PAGE> 27
The Company had outstanding the following sources of financing as of December
31, 1995:
<TABLE>
<CAPTION>
ANNUAL RATE OF ANNUAL PORTFOLIO
INTEREST PAYMENTS RETURN TO COVER
AMOUNT ----------------------------------- INTEREST
CLASS OUTSTANDING INITIAL AS OF DEC. 31, 1995 PAYMENTS (1)
--------------------------- ----------- ----------- ------------------- -----------------
<S> <C> <C> <C> <C>
Unsecured line of credit $1,055,000 9% 8.75% .37%
Secured lines of credit . $17,859,000 7.875% - 8.122% 7.75% - 7.95% 3.85%
</TABLE>
(1) The "Annual Portfolio Return to Cover Interest Payments" ("Annual Return")
is calculated as estimated 1996 annual interest payments per class of
financing, divided by total assets at December 31, 1995. The total Annual
Return needed to cover all classes of financing outstanding as of December
31, 1995 combined is 4.22%.
Bank Loans. At December 31, 1995, the Company had an unsecured revolving line
of credit agreement with a bank which permits the Company to borrow up to $2
million with interest payable monthly at the a variable rate of the Wall Street
Journal prime rate plus 0.25% per annum, requires payment of a quarterly
facility fee of 0.375% per annum on the unused portion of the line, and expires
July 26, 1996. Principal payments are not required until the loan's maturity.
At December 31, 1995, the Company had a secured revolving line of credit
agreement with a commercial bank which permits the Company to borrow up to $15
million with interest payable monthly at one-month LIBOR plus 2.2% per annum.
The agreement requires payment of a quarterly facility fee of 0.375% per annum
on the unused portion of the line, and expires July 26, 1996. Principal
payments are not required until the loan's maturity.
The financial covenants of these lines of credit agreements require the Company
have net worth in excess of total liabilities. The Company may not permit
total intangible assets (i.e., excess servicing asset) to exceed $5 million.
Also, the liquidity ratio (defined as cash plus the guaranteed portion of loans
available for sale divided by the unsecured obligations) must be greater than
1.5 to 1.
At December 31, 1995, the Company's Subsidiary had a secured revolving line of
credit agreement with an investment bank which allows the Subsidiary to borrow
up to $20 million with interest payable monthly at one-month LIBOR plus 2% per
annum, requires payment of a quarterly facility fee of 0.15% per annum on the
unused portion of the line, and expires September 27, 1996. Principal payments
are not required until the loan's maturity.
The financial covenants of this credit agreement require the Subsidiary to
maintain a debt to equity ratio of less than 0.7 to 1, and the Company's common
stock to have a minimum market value of $38.2 million. The Subsidiary must
maintain a debt coverage ratio (as defined in the agreement) of at least 2 to
1.
Illustration. The following table is provided to assist the investor in
understanding the effects of leverage. The figures appearing in the table are
hypothetical, and the actual return may be greater or less than those appearing
in the table.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Assumed return on portfolio
(net of expenses) . . -12% -10% -5% 0% 5% 10% 12%
Corresponding return to
common stockholders . -26.30% -22.93% -14.49% -6.06% 2.38% 10.81% 14.19%
</TABLE>
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<PAGE> 28
Loss of Pass-Through Tax Treatment. The Company may cease to qualify for
pass-through tax treatment if it is unable to comply with the diversification
requirements contained in Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The Company may also cease to qualify as a regulated
investment company and therefore to qualify for pass-through treatment, or be
subject to a 4% excise tax, if it fails to make certain distributions. Under
the 1940 Act, the Company will not be permitted to make distributions to
stockholders unless it meets certain asset coverage requirements with respect
to money borrowed and senior securities issued. See "Tax Status" in the
Statement of Additional Information. Non-availability of pass-through tax
treatment would have a materially adverse effect on the total return, if any,
obtainable from an investment in the Company's shares.
MANAGEMENT
BOARD OF DIRECTORS
The business of the Company is managed under the supervision of its Board of
Directors. For details concerning the persons who make up the Board of
Directors ("Board") at the date of the Prospectus, see the Statement of
Additional Information under the caption "Management" Four of the members of
the Board are "interested persons," as the term is defined in the 1940 Act;
three are officers of the Company as well as of its investment adviser, and one
is an officer of a registered broker-dealer. Five of the Board members are
non-interested persons, as that term is defined in the 1940 Act and hereinafter
referred to as "non-interested directors."
The responsibilities of the Board of Directors include, among other things, the
approval or ratification of every loan and other investment to be made by the
Company, the quarterly valuation of the Company's assets, and the approval of
the terms of the Company's borrowing or other leverage arrangements.
The Board, and particularly the non-interested directors, must also, at least
annually, approve the investment advisory agreement with the Company's
investment adviser and, annually and subject to stockholder ratification,
appoint the Company's independent accountants.
The audit and compensation committees of the Board of Directors, comprised
exclusively of non-interested directors, respectively review with the
independent accountants the scope of the annual audit and the contents of the
audited financial statements and determine option awards to the officers under
the Company's incentive stock option plan. Under that plan, options on a total
of 504,860 shares may be granted. Of the authorized options, the stock option
plan committee has to date awarded a number of options, of which a total of
493,290 options were outstanding, a total of 259,974 options were exercisable,
and a total of 11,570 options were available for grant at December 31, 1995.
For details of the stock option plan, see the Statement of Additional
Information under the caption "Management--Stock Options."
The members of the Board of Directors are each compensated by fees at
the rate of $1,000 per meeting of the Board of the Company or each separate
(i.e., not held on the same day as a full Board meeting) meeting of a committee
of such Board which the member attends unless such separate meeting occurs on
the same day as a Board meeting, in which case directors receive $500 for
attendance at such meeting. The Company's stock option plan permits a one-time
grant of options to each member of the board of directors who is not an
employee of Advisers to purchase 10,000 shares of the Company's common stock.
On December 26, 1995, such options were granted at $15.00 per share. The
exercise price of those grants was the minimum provided under the Company's
stock option plan.
INVESTMENT ADVISER
Advisers is the investment adviser of the Company pursuant to an investment
advisory agreement. Under that agreement, Advisers manages the loans made by
the Company, subject to the supervision and control of the Board of Directors
of the Company, and evaluates, structures, closes and monitors those loans made
by the Company. The Company will not make any loan or other investment that
has not been recommended by Advisers. Except as
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<PAGE> 29
to those investment decisions that require specific approval by the Company's
Board, Advisers has the authority to effect loans and sales of portions of
loans for the Company's account. Advisers also serves as the investment
adviser of Allied I, Allied Capital Corporation II ("Allied II"), Allied
Capital Commercial Corporation ("Allied Commercial"), Business Mortgage
Investors, Inc. ("BMI"), Allied Venture Partnership and Allied Technology
Partnership. Some of the directors and officers of Advisers are also directors
and officers of the Company.
The current agreement provides that the Company will pay all of its own
operating expenses, except those specifically required to be borne by Advisers.
The expenses paid by Advisers include the compensation of its officers and the
cost of office space, equipment, and other personnel necessary for day-to-day
operations. The expenses that are paid by the Company include the Company's
share of transaction costs (including legal and auditing) incident to the
acquisition and disposition of investments, regular legal and auditing fees and
expenses, the fees and expenses of the Company's directors, the costs of
printing and distributing proxy statements and other communications to
stockholders, the costs of promoting the Company's stock, and the fees and
expenses of the Company's custodian and transfer agent. The Company, rather
than Advisers, is also required to pay expenses associated with litigation and
other extraordinary or non-recurring expenses with respect to its operations
and investments, as well as expenses of required and optional insurance and
bonding. Advisers is, however, entitled to retain for its own account any fees
paid by or for the account of any company, including a portfolio company, for
special investment banking or consulting work performed for that company which
is not related to the Company's such investment transaction or follow-on
managerial assistance. Advisers will report to the Board of Directors not less
often than quarterly all fees received by Advisers from any source whatever and
whether, in its opinion, any such fee is one that Advisers is entitled to
retain under the provisions of the current agreement. In the event that any
member of the Board of Directors should disagree, the matter will be
conclusively resolved by a majority of the Board of Directors, including a
majority of the independent Directors. If the Company uses the services of
attorneys or paraprofessionals on the staff of Advisers for the Company's
corporate purposes in lieu of outside counsel, the Company will reimburse
Advisers for such services at hourly rates calculated to cover the cost of such
services, as well as for incidental disbursements by Advisers in connection
with such services.
As compensation for its services to and the expenses paid for the account of
the Company, Advisers is entitled to be paid quarterly, in arrears, a fee equal
to 0.625% per quarter of the quarter-end value of the Company's total assets
(other than interim investments and cash) and 0.125% per quarter of the
quarter-end value of the Company's interim investments and cash. Such fees on
an annual basis equal approximately 2.5% of the Company's total assets (other
than interim investments and cash) and 0.5% of the Company's interim
investments and cash. For the purposes of calculating the fee, the values of
the Company's assets are determined as of the end of each calendar quarter. The
quarterly fee is paid as soon as practicable after the values have been
determined.
26
<PAGE> 30
AUTHORIZED CLASSES OF SECURITIES
Pursuant to the Company's Articles of Incorporation, the following are the
authorized classes of securities of the Company and its Subsidiary as of
December 31, 1995:
<TABLE>
<CAPTION>
(4)
Amount
(3) Outstanding
(2) Amount Held by Exclusive of
(1) Amount Registrant or Amounts Shown
Title of Class Authorized for Its Account Under (3)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Company
Common Stock................. 20,000,000 0 4,384,921
The Subsidiary
(ACLC Limited Partnership) (a):
Limited Partnership Interest N/A 99% 1%
</TABLE>
(a)The Company is the general partner of the Subsidiary.
DESCRIPTION OF COMMON STOCK
GENERAL
The authorized capital stock of the Company is twenty million (20,000,000)
shares with a par value of $0.0001. All of such shares were initially
classified as common stock, of which 4,384,921 shares were outstanding as of
December 31, 1995. All shares of common stock have equal rights as to earnings,
assets, dividends, and voting privileges and, when issued, will be fully paid
and nonassessable. Shares of common stock have no preemptive, conversion, or
redemption rights and are freely transferable. In the event of liquidation,
each share of common stock is entitled to its proportion of the Company's
assets after debts, expenses, and liquidation of preferred stock. Each share is
entitled to one vote and does not have cumulative voting rights, which means
that holders of a majority of the shares, if they so choose, could elect all of
the directors, and holders of less than a majority of the shares would, in that
case, be unable to elect any director. Allied I owned approximately 28% of the
Company's outstanding shares of common stock at December 31, 1995. On matters
requiring a vote of the Company's stockholders, Allied I has agreed to vote
its shares only in the same proportion as the shares voted by the Company's
public stockholders. The Company holds annual stockholders' meetings.
The Board of Directors may classify and reclassify any unissued shares of
capital stock by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms or conditions of redemption
or other rights of such shares of capital stock.
DIVIDENDS AND DISTRIBUTIONS
The Company intends to distribute substantially all of its net investment
income to stockholders quarterly, generally on the last day of March, June,
September and December of each year. Quarterly dividends were declared in
February, May, August and November 1995 and paid on March 29, June 28,
September 29, and December 29, 1995 at a rate of $0.27, $0.2825, $0.29 and
$0.30, per share, respectively. The Board of Directors also declared an extra
distribution in the fourth quarter of $0.0775 per share, which was paid to
stockholders on January 31, 1996, for a total distribution for 1995 equal to
$1.22 per share.
27
<PAGE> 31
Distributions made by the Company are taxable to stockholders as ordinary
income or capital gains; however stockholders not subject to tax on income will
not be required to pay tax on amounts distributed to them by the Company.
Stockholders will receive notification from the Company at the end of the year
as to the amount and nature of the income or gains distributed to them for that
year. The distributions from the Company may be subject to the alternative
minimum tax under the provisions of the Code.
If the Company's investments do not generate sufficient income to make
distributions or dividend payments as determined by the Board of Directors,
then the Company may determine to liquidate a portion of its portfolio to fund
the distribution. Such payments may include a tax basis return of capital to
the stockholder, which, in turn, would reduce the stockholder's cost basis in
the investment and have other tax consequences. Stockholders should consult
their tax advisers for further guidance.
REINVESTMENT PLAN
The Company has adopted an "opt-out" dividend reinvestment plan pursuant to
which the Company's transfer agent, acting as reinvestment plan agent, will
automatically reinvest all distributions in additional whole and fractional
shares for the accounts of all stockholders of record. Stockholders may change
enrollment status in the reinvestment plan at any time by contacting either the
plan agent or the Company. A stockholder's ability to participate in the
reinvestment plan may be limited according to how the stockholder's shares are
registered. Beneficial owners holding shares in street name may be precluded
from participation by the Nominee. Stockholders who would like to participate
in the reinvestment plan usually must have the shares registered in their own
name.
Under the reinvestment plan, the Company may issue new shares unless the market
price of the outstanding shares is less than 110% of their contemporaneous net
asset value. Alternatively, the transfer agent may, as agent for the
participants, buy shares in the market. Newly issued shares for reinvestment
plan purposes will be valued at the average of the reported closing bid prices
of the outstanding shares on the last five trading days prior to and including
the payment date of the distribution, but not less than 95% of the opening bid
price on such date. The price in the case of shares bought in the market will
be the average actual cost of such shares, including any brokerage commissions.
There are no other charges payable in connection with the reinvestment plan.
Any distributions reinvested under the plan will nevertheless remain taxable to
the stockholders.
Any stockholder who has questions about the reinvestment plan may call the
Company at (202) 973-6343 and ask for Investor Relations, or contact American
Stock Transfer & Trust Company, the plan agent, 40 Wall Street, 46th floor, New
York, New York 10005, telephone (718) 921-8200.
REPORTS AND INDEPENDENT ACCOUNTANTS
For the year ended December 31, 1995, the independent accountants engaged to
audit the Company's consolidated financial statements is the firm of Matthews,
Carter and Boyce, which has been the Company's independent accountants since
inception. The selection of independent accountants by the Company's
non-interested directors will be subject to annual ratification by stockholders
at the Company's annual meeting. The consolidated financial statements of the
Company included in this Prospectus are included in reliance on the authority
of Matthews, Carter and Boyce as experts in auditing and accounting.
CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT AND REGISTRAR
The Company's investments are held under a custodian agreement by The Riggs
National Bank of Washington, D.C. at 808 17th Street, N.W., Washington, D.C.
20006, which also provides record keeping services. American Stock Transfer &
Trust Company, 40 Wall Street, 46th floor, New York, New York 10005, acts as
the Company's transfer, dividend paying, and reinvestment plan agent and
registrar.
28
<PAGE> 32
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
CHANGE OF NAME . . . . . . . . . . . . . . . . . . . . . B-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . B-
Directors and Officers . . . . . . . . . . . . . . . . B-
Compensation . . . . . . . . . . . . . . . . . . . . . B-
Stock Options . . . . . . . . . . . . . . . . . . . . . B-
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . B-
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . B-
Investment Advisory Agreement . . . . . . . . . . . . . B-
Custodian Services . . . . . . . . . . . . . . . . . . B-
Accounting Services . . . . . . . . . . . . . . . . . . B-
BROKERAGE ALLOCATION AND OTHER PRACTICES . . . . . . . . B-
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . B-
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During 1995, Allied Capital Lending Corporation (the Company) expanded its
product lines to small businesses as a result of the changes made to the U. S.
Small Businesses Administration (SBA) guaranteed loan program during December
1994. These changes in the SBA guaranteed loan program reduced the maximum
loan size allowable under the program from $1 million to $500,000. The Company
reacted quickly to the change in regulations and developed additional products
for small businesses by utilizing the SBA 504 certified development company
loan program, and by offering companion senior loans with SBA 7(a) guaranteed
loans.
Because the Company had a substantial backlog of guaranteed loans at December
31, 1994 that had been approved by the SBA prior to the 1994 regulation
changes, and because of the development of new products, the Company was able
to achieve its 1995 loan origination goals. In late 1995, the SBA again
revised its guaranteed loan program and increased the maximum loan guarantee to
$750,000. Thus, the Company is now able to once again provide up to a $1
million loan with a 75% government guarantee. This change should benefit the
Company's loan origination activity prospectively.
The Company originated $48.2 million in new loans during 1995, a 10% increase
over new loan originations of $43.9 million in 1994. Net of loan sales,
repayments and changes in portfolio valuation, the Company increased its total
loans to small businesses by $14.4 million or 44% during 1995 compared to 1994.
At December 31, 1995, loans to small businesses totaled 85% of the Company's
total assets, compared to 87% at December 31, 1994.
The Company financed this growth in new loans through borrowings under the
Company's credit facilities.
During 1995, the Company modified a credit facility it has with a bank,
consisting of a secured and unsecured line of credit. The secured line of
credit was increased from $13 million to $15 million and the interest rate was
changed from the Wall Street Journal floating prime rate to LIBOR plus 2.2% per
annum. As of December 31, 1995, the Company was paying an interest rate of
7.95% per annum, as compared to an interest rate of 8.5% per annum at December
31, 1994 per annum, and had total borrowings under this facility equal to $13.3
million. This line of credit is used to finance loans made under the SBA 7(a)
guaranteed loan program.
The unsecured line of credit has a borrowing limit of $2 million and bears
interest at the Wall Street Journal prime rate plus 0.25%. As of December 31,
1995 and 1994, the Company was paying an interest rate of 8.75% per
29
<PAGE> 33
annum, and had total borrowings under the facility equal to $1.1 million at
December 31, 1995. The Company's credit facility expires on July 31, 1996;
however, the Company is currently renegotiating the terms of this credit
facility with its bank and believes the credit facility will be renewed with
similar terms.
During September 1995, the Company, through its subsidiary, entered into a
credit agreement whereby the subsidiary could borrow up to $20 million in order
to finance its loans closed under the SBA 504 program and companion loans
closed in conjunction with guaranteed loans. This credit agreement bears
interest at LIBOR plus 2% and expires in September 1996. As of December 31,
1995, the Company was paying interest ranging from 7.75% to 7.93% per annum and
had total borrowings under this agreement equal to $4.5 million.
Management plans to continue to use leverage to finance the growth of the
Company, however as a business development company (BDC), the Company must
maintain 200% asset coverage for indebtedness representing senior securities,
which will limit the Company's ability to borrow. It is management's belief
that the Company will have access to the capital resources necessary to expand
and develop its business. The Company may seek to obtain funds through
additional equity offerings or debt financings. The Company anticipates that
adequate cash will be available to make new loans, fund its operating and
administrative expenses, satisfy debt service obligations and pay dividends in
1996.
RESULTS OF OPERATIONS
Comparison of 1995 to 1994.
For the year ended December 31, 1995, the net increase in net assets resulting
from operations was $5.2 million or $1.20 per share as compared to $4.5 million
or $1.04 per share for the year ended December 31, 1994, which represented a
16% increase. The net increase in net assets resulting from operations, which
includes ordinary investment income, realized gains and losses, and unrealized
appreciation and depreciation in the portfolio, increased primarily due to
continued growth in the Company's portfolio of loans to small businesses.
The Company's investments consist primarily of loans to small, privately held
companies. These types of investments, by their nature, carry a high degree of
business and financial risk. The Company thus obtains a high level of
collateral to secure these loans and seeks to achieve a level of current income
from its investments in these businesses commensurate with the risks assumed.
Loans in the portfolio generally carry variable interest rates up to the prime
rate plus 2.75% per annum. Given these variable rates, the interest income on
the portfolio will fluctuate with the changes in the prime interest rate. The
Company had a net increase in total investments of $14.4 million in 1995 which
should result in improved investment income in future years, with the degree of
such improvement dependent upon prime interest rate fluctuations.
Interest income increased by $2.3 million in 1995 over 1994 to $6 million. This
increase was directly related to the net increase in invested assets of $14.4
million during the year. Premium income from the sale of loans in 1995
decreased 11% to $2.1 million as compared to $2.3 million in the prior year.
Overall total investment income increased by $2 million in 1995 or 33%.
Investment advisory fees increased by $329,000 or 41% to $1.1 million in 1995
due to the growth of investments and other assets, upon which the investment
advisory fee is based. The Company pays investment advisory fees at an
approximate annual rate of 2.5% on invested assets and 0.5% on cash and cash
equivalents.
In total, all other expenses increased by $1.1 million to $1.5 million for 1995
as compared to $376,000 for 1994. This increase in other expenses is primarily
due to the increase in interest expense of $884,000 to $959,000 in 1995
compared to $75,000 in 1994 as a result of the Company leveraging its
portfolio. Total borrowings increased from $3.1 million at December 31, 1994
to $18.9 million at December 31, 1995.
30
<PAGE> 34
Costs of stockholder services increased by $94,000 to $148,000 in 1995. The
Company had a special stockholders meeting in 1995 to expand the Company's
investment objective and policies. The Company also incurred higher
stockholder costs because Allied Capital Corporation (former Parent), the
Company's former Parent, distributed 335,086 shares of the Company's common
stock to the former Parent's stockholders in lieu of a cash dividend in January
1995, thus increasing the number of the Company's stockholders. Other
operating expenses increased $85,000 to $201,000 in 1995 from $116,000 in 1994
due to increased costs of operations resulting from growth.
Total dividends from taxable income for 1995 equaled $1.22 per share. Taxable
income was greater than the net increase in net investment income before net
unrealized appreciation on investments because of certain timing differences in
the recognition of income for federal income tax purposes.
Comparison of 1994 to 1993.
For the year ended December 31, 1994, the net increase in net assets resulting
from operations was $4.5 million as compared to $2.7 million for the year ended
December 31, 1993, a 69% increase. The net increase in net assets resulting
from operations, which includes ordinary investment income, realized gains and
losses, and unrealized appreciation and depreciation in the portfolio,
increased primarily due to continued growth in the Company's portfolio of loans
to small businesses and increases in the prime interest rate.
Interest income increased $1.5 million or 64% in 1994 to $3.7 million. This
increase was both a function of the net increase in total investments of $11
million during the year and the rise in the prime interest rate during the
year. At December 31, 1993, the prime rate was 6% per annum, and as a result
the Company's approximate lending rate was 8.75% per annum. At December 31,
1994, the prime rate had risen to 8.5% per annum, causing the Company's
approximate lending rate to increase to 11.25% per annum. Premiums on the sale
of loans stayed relatively constant during 1994 at $2.3 million even though
total loans sold in 1994 were $37 million as compared to $23 million sold in
1993. The rise in interest rates during 1994 had the effect of depressing loan
sale premiums in the secondary market during certain periods throughout the
year; however, this effect was mitigated by the increase in yield on the
portfolio. Overall total investment income increased by $1.6 million in 1994 or
36%.
The Company completed its first full year of operating as a public company in
1994. In 1993, the Company operated as a subsidiary of the former Parent for
almost eleven months of the year preceding the initial public offering in
November 1993. As a result, the change in expense levels between 1994 and 1993
are mostly due to the change in operations of a separate public company.
Investment advisory fees increased by $239,000 or 42% to $811,000 in 1994. This
was due to the fact that for a majority of 1993, the Company's total assets
were approximately $22 million, and as a result of new capital generated by the
initial public offering, assets during 1994 were approximately $36 million, an
overall increase in assets of approximately $14 million or 64%. The Company
paid investment advisory fees at an approximate annual rate of 2.5% on invested
assets, and 0.5% on cash and cash equivalents.
In total, other operating expenses and interest expense declined in 1994 by
$564,000 primarily due to the fact that for much of 1993 the Company had
outstanding loans from the former Parent of approximately $10 million which
generated interest expense totaling $707,000. Upon the completion of the
initial public offering, these loans were repaid, and the Company's borrowings
in 1994 under its new credit facilities were at substantially lower levels,
causing 1994 interest expense to be only $75,000.
Total quarterly dividends and the annual extra dividend from taxable income for
1994 were $1.08 per share. Taxable income was greater than the net investment
income before net unrealized depreciation on investments because of certain
timing differences in the recognition of income for federal income tax purposes
versus financial reporting purposes.
31
<PAGE> 35
ALLIED CAPITAL LENDING CORPORATION AND SUBSIDIARY
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet-December 31, 1995 and 1994 . . . . . . . . . . . . . . . F- 2
Consolidated Statement of Operations--For the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . F- 3
Consolidated Statement of Changes in Net Assets--For the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . F- 4
Consolidated Statement of Cash Flows--For the Years Ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . F- 5
Consolidated Statement of Investments in Small Business Concerns--
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F- 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . F- 7
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . F-12
</TABLE>
F-1
<PAGE> 36
Consolidated Balance Sheet
Allied Capital Lending Corporation
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
December 31,
(in thousands, except number of shares) 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments at Value:
Loans receivable (cost: 1995 _ $46,451; 1994 _ $32,935) $ 46,223 $ 32,771
Loans held for sale (cost: 1995 _ $851; 1994 _ $0) 924 -
------------------------------
Total investments 47,147 32,771
Cash and cash equivalents 3,020 1,297
Accrued interest receivable 732 451
Excess servicing asset 3,828 2,700
Other assets 753 400
------------------------------
Total assets $ 55,480 $ 37,619
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
Liabilities:
Notes payable $ 18,914 $ 3,130
Dividends and distributions payable 340 262
Accounts payable and accrued expenses 3,012 1,209
Investment advisory fee payable 330 230
------------------------------
Total liabilities 22,596 4,831
------------------------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.0001 par value, 20,000,000 shares
authorized; 4,384,921 and 4,370,400 shares issued
and outstanding at December 31, 1995 and 1994 - -
Additional paid-in capital 33,252 33,069
Net unrealized depreciation on investments (155) (164)
Distributions in excess of accumulated earnings (213) (117)
------------------------------
Total shareholders' equity 32,884 32,788
------------------------------
Total liabilities and shareholders'equity $ 55,480 $ 37,619
==============================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 37
Consolidated Statement Of Operations
Allied Capital Lending Corporation
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
(in thousands, except per share amounts) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income:
Interest $ 5,966 $ 3,716 $ 2,260
Premium income 2,090 2,349 2,196
------------------------------------------
Total investment income 8,056 6,065 4,456
------------------------------------------
Operating Expenses:
Investment advisory fee 1,140 811 572
Interest expense 959 75 707
Legal and accounting fees 170 131 124
Stockholder services 148 54 -
Other operating expenses 201 116 109
------------------------------------------
Total expenses 2,618 1,187 1,512
------------------------------------------
Net investment income 5,438 4,878 2,944
Net realized losses on investments (195) (295) (338)
------------------------------------------
Net investment income before net unrealized
appreciation (depreciation) on investments 5,243 4,583 2,606
Net unrealized appreciation (depreciation) on investments 9 (52) 68
------------------------------------------
Net increase in net assets resulting from operations $ 5,252 $ 4,531 $ 2,674
==========================================
Earnings per share $ 1.20 $ 1.04 $ 1.03
==========================================
Weighted average number of shares and
share equivalents outstanding 4,376 4,368 2,587
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 38
Consolidated Statement Of Changes In Net Assets
Allied Capital Lending Corporation
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
(in thousands, except per share amounts) 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase in Net Assets Resulting from Operations:
Net investment income $ 5,438 $ 4,878 $ 2,944
Net realized losses on investments (195) (295) (338)
Net unrealized appreciation (depreciation) on investments 9 (52) 68
------------------------------------------
Net increase in net assets resulting from operations 5,252 4,531 2,674
Distributions to Stockholders from:
Net investment income (5,339) (4,718) (2,772)
Capital Share Transactions:
Sale of common stock in initial public offering - - 27,548
Issuance of common shares in lieu of cash distributions 183 20 -
------------------------------------------
Net increase in net assets resulting from capital share
transactions 183 20 27,548
Total increase (decrease) in net assets 96 (167) 27,450
Net assets at beginning of year 32,788 32,955 5,505
==========================================
Net assets at end of year $ 32,884 $ 32,788 $ 32,955
==========================================
Net asset value per share $ 7.50 $ 7.50 $ 7.54
==========================================
Shares outstanding at end of year 4,385 4,370 4,368
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 39
Consolidated Statement Of Cash Flows
Allied Capital Lending Corporation
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
(in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations $ 5,252 $ 4,531 $ 2,674
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by operating activities:
Premium income (2,090) (2,349) (2,196)
Amortization of loan discounts and fees (286) (362) (188)
Net realized losses on investments 195 295 338
Net unrealized (appreciation) depreciation on investments (9) 52 (68)
Changes in assets and liabilities:
Accrued interest receivable (281) (227) (8)
Excess servicing asset (1,128) (1,094) (233)
Other assets (353) (67) 604
Accounts payable and accrued expenses 1,803 (372) (411)
Investment advisory fee payable 100 163 67
-----------------------------------------
Net cash provided by operating activities 3,203 570 579
-----------------------------------------
Cash Flows from Investing Activities:
Loan originations (48,213) (43,853) (30,482)
Proceeds from the sale of loans 31,816 32,509 20,992
Collection of principal 4,211 2,728 1,702
-----------------------------------------
Net cash used in investing activities (12,186) (8,616) (7,788)
-----------------------------------------
Cash Flows from Financing Activities:
Dividends and distributions paid (5,078) (4,785) (4,135)
Proceeds from issuance of common stock _ _ 27,548
Payment of long term debt _ _ (7,860)
Net borrowings under revolving lines of credit 15,784 3,130 _
-----------------------------------------
Net cash provided by (used in) financing activities 10,706 (1,655) 15,553
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 1,723 (9,701) 8,344
Cash and cash equivalents, beginning of year 1,297 10,998 2,654
-----------------------------------------
Cash and cash equivalents, end of year $ 3,020 $ 1,297 $ 10,998
=========================================
Supplemental Disclosure of Cash Flow Information
Noncash investing and financing activities:
Issuance of common shares in lieu of cash distributions $ 183 $ 20 $ _
=========================================
Interest paid $ 849 $ 70 $ 744
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 40
Consolidated Statement Of Investments In Small Business Concerns
Allied Capital Lending Corporation
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
NUMBER PERCENT OF
TYPE OF BUSINESS OF LOANS COST VALUE PORTFOLIO
(in thousands, except number of loans and percentages)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Autoexhaust Repair 38 $ 237 $ 215 *
- ---------------------------------------------------------------------------------------------------------------------------
Automotive Repair 29 819 819 2
- ---------------------------------------------------------------------------------------------------------------------------
Bakeries 5 88 88 *
- ---------------------------------------------------------------------------------------------------------------------------
Car Washes 3 621 621 1
- ---------------------------------------------------------------------------------------------------------------------------
Contractors 5 439 439 1
- ---------------------------------------------------------------------------------------------------------------------------
Day Care Centers 8 1,710 1,710 4
- ---------------------------------------------------------------------------------------------------------------------------
Food Stores 11 1,849 1,844 4
- ---------------------------------------------------------------------------------------------------------------------------
Gasoline Stations 24 8,530 8,530 18
- ---------------------------------------------------------------------------------------------------------------------------
Hobbies and Games 9 41 41 *
- ---------------------------------------------------------------------------------------------------------------------------
Home Furnishings 14 532 532 1
- ---------------------------------------------------------------------------------------------------------------------------
Hotels and Motels 43 11,559 11,559 25
- ---------------------------------------------------------------------------------------------------------------------------
Laundries and Cleaners 57 480 473 1
- ---------------------------------------------------------------------------------------------------------------------------
Manufacturing 54 5,596 5,583 12
- ---------------------------------------------------------------------------------------------------------------------------
Personal Services 14 1,125 1,162 2
- ---------------------------------------------------------------------------------------------------------------------------
Professional Services 17 779 779 2
- ---------------------------------------------------------------------------------------------------------------------------
Restaurants 62 3,935 3,874 8
- ---------------------------------------------------------------------------------------------------------------------------
Retail Shops 36 2,225 2,222 5
- ---------------------------------------------------------------------------------------------------------------------------
Wholesalers 7 952 951 2
- ---------------------------------------------------------------------------------------------------------------------------
Miscellaneous Businesses 84 5,785 5,705 12
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 520 $ 47,302 $ 47,147
===========================================================================================================================
</TABLE>
* Less than 1%.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 41
Notes To Consolidated Financial Statements
Allied Capital Lending Corporation
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
Organization. Allied Capital Lending Corporation (the Company) is a closed-end
management investment company that has elected to be regulated as a business
development company under the Investment Company Act of 1940. The Company is
an authorized small business lending company and engages in the business of
originating loans to qualified small businesses throughout the United States.
The Company raised net proceeds of approximately $27,500,000 in equity through
an initial public offering (IPO) in November 1993. Prior to the IPO, the
Company was a wholly owned subsidiary of Allied Capital Corporation (former
Parent). As of December 31, 1995, Allied Capital Corporation owned
approximately 28 percent of the Company's outstanding common stock.
The Company has an investment advisory agreement with Allied Capital Advisers,
Inc. (Advisers), whereby Advisers manages the investments of the Company
subject to the supervision and control of the Company's board of directors.
Certain directors and officers of Advisers are also directors and officers of
the Company.
Basis of Presentation. In April 1995, ACLC Limited Partnership (subsidiary)
was formed so the Company could participate in the U.S. Small Business
Administration (SBA) 504 loan program and originate other types of small
business loans. The Company is the general partner and has a 99 percent
interest in the subsidiary. Accordingly, the consolidated financial statements
of the Company include the accounts of the Company and this majority owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments. Loans receivable and the related excess servicing
asset are valued by the Company's board of directors. Generally, the board of
directors considers the fair value of the loans receivable to approximate their
carrying value or amortized cost. Unrealized depreciation is recorded by the
Company when the board of directors determines that significant doubt exists as
to the ultimate realization of the loan.
Loans that are held for sale are valued by the board of directors based upon
the net proceeds which the Company may reasonably expect to receive for the
sale of the guaranteed portion of the loan assuming such transaction occurred
on the valuation date. The Company designates and classifies the guaranteed
portion of a current loan as a security held for sale once the loan has been
fully disbursed and held for at least 90 days.
Interest Income. Interest income is recorded on the accrual basis to the
extent that such amounts are expected to be collected. Interest income also
includes servicing fees on loans sold to the secondary market less the
amortization of any excess servicing asset.
Premium Income. Premium income represents the differential in the value
attributable to the sale of the guaranteed portion of a loan to the secondary
market over the carrying amount of the loan.
Realized Losses and Unrealized Appreciation or Depreciation on Investments.
Realized losses result when a loan is written off as uncollectible. Unrealized
appreciation or depreciation reflects the difference between cost and value.
Distributions to Stockholders. Distributions to stockholders are recorded on
the ex-dividend date.
Federal Income Taxes. The Company's objective is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies. The Company annually distributes all of its taxable
income to its stockholders; therefore, a federal income tax provision is not
required.
Dividends declared by the Company in December that are payable to stockholders
of record on a specified date in such month, but paid during January of the
following year, are treated as if the distribution was received by the
stockholder on December 31 of the year declared.
Earnings Per Share. Earnings are defined as net investment income, net
realized losses on investments and net unrealized appreciation or depreciation
on investments. The computation of earnings per share is based on the weighted
average number of shares and share equivalents outstanding during the period.
F-7
<PAGE> 42
Notes To Consolidated Financial Statements
Allied Capital Lending Corporation
Cash and Cash Equivalents. Cash equivalents consist of highly liquid
investments with insignificant interest rate risk and original maturities of
three months or less at the acquisition date. At December 31, cash and cash
equivalents consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------
(in thousands) 1995 1994
- ----------------------------------------------------
<S> <C> <C>
Cash $ 214 $ 0
Repurchase agreements 2,806 1,297
------------------------
Total $ 3,020 $ 1,297
========================
- ----------------------------------------------------
</TABLE>
On December 31, 1995, the Company had purchased $2,806,000 of overnight
repurchase agreements collateralized by U.S. government securities under
agreements to resell on January 2, 1996.
Incentive Stock Option Plan. Statement of Financial Accounting Standards No.
123, issued in October 1995, established new accounting standards for
stock-based compensation plans and is effective for fiscal years beginning
after December 15, 1995. This new standard will have no material impact on the
Company's financial statements.
Reclassifications. Certain reclassifications have been made to the 1994 and
1993 financial statements to conform with the 1995 financial statement
presentation.
NOTE 3. INVESTMENTS
The Company and its subsidiary originate loans to qualified small businesses
under and in conjunction with the SBA 7(a) and 504 programs, respectively.
Under the SBA 7(a) program, the Company originates loans that are guaranteed by
the SBA and are collateralized, generally with first liens on real estate
and/or personal property of the borrower. The SBA guarantees repayment between
75 percent and 80 percent of up to a $1,000,000 face amount and a maximum of
three months of accrued interest on the guaranteed portion of the loans
originated. The Company generally sells the guaranteed portion of its loans
into the secondary market, and retains the rights to service such loans. The
loans generally provide for an annual variable rate of interest equal to the
then prevailing prime rate, as reported in the Wall Street Journal, plus 2.75
percent. The Wall Street Journal prime interest rate was 8.5 percent at
December 31, 1995 and 1994. The loans generally have a term of seven to 25
years and may be prepaid without penalty. The principal balance of the sold
portions of such loans serviced by the Company is approximately $97,000,000 and
$82,000,000 at December 31, 1995 and 1994, respectively.
The subsidiary originates real estate loans to qualified small businesses
pursuant to the SBA 504 program and originates companion loans to SBA 7(a)
guaranteed loans. Under the SBA 504 loan program, small businesses can
purchase or build real estate with very favorable long-term debt. Loans the
subsidiary finances through the 504 program are structured such that the
entrepreneur provides at least 10 percent of the project cost in equity, the
subsidiary provides 50 percent of the project cost in a 20-year floating rate
first mortgage, and a local certified development company (CDC) provides a
20-year fixed rate second mortgage loan for the remaining 40 percent of the
project cost. Both loans are fully amortizing and the subsidiary loan provides
for an annual variable rate of interest equal to the then prevailing prime
rate, as reported in the Wall Street Journal, plus up to 2.75 percent. The
subsidiary also may originate senior loans secured by real estate as a
companion loan to the SBA 7(a) guaranteed loans. The companion loan is similar
in terms to the SBA 7(a) guaranteed loan with the exception that the companion
loan is senior in debt priority to the SBA 7(a) guaranteed loan, and carries no
government guarantee.
At December 31, 1995 and 1994, loans with a cost basis of $3,835,000 and
$979,000 were not performing and were not accruing interest.
At December 31, total investments consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(in thousands) 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
At amortized cost:
Guaranteed portion under
7(a) program $ 10,275 $ 11,808
Unguaranteed portion under
7(a) program 33,223 21,127
504 program and companion loans 3,804 _
--------------------------
Total $ 47,302 32,935
==========================
At value:
Guaranteed portion under
7(a) program $ 10,275 $ 11,808
Unguaranteed portion under
7(a) program 33,068 20,963
504 program and companion loans 3,804 _
--------------------------
Total $ 47,147 $ 32,771
==========================
- --------------------------------------------------------------------
</TABLE>
F-8
<PAGE> 43
Notes To Consolidated Financial Statements
Allied Capital Lending Corporation
For federal income tax purposes the unrealized depreciation for all securities,
based on cost, and the aggregate cost of total investments as of December 31,
1995 were $155,000 and $47,302,000, respectively.
NOTE 4. EXCESS SERVICING ASSET
When the Company sells the guaranteed portion of a SBA 7(a) loan it originates
into the secondary market, it retains the unguaranteed portion and the right to
service the entire loan. The Company recognizes premium income equal to the
difference between the amount received from the purchaser and the carrying
principal amount of the guaranteed portion sold plus the value of the servicing
rights retained in excess of a normal servicing fee (excess servicing asset).
The value of the excess servicing asset at the transaction date is based on
various factors including premiums realized on comparable transactions in the
secondary market and comparable market bids with normal servicing rates on SBA
loans.
NOTE 5. INVESTMENT ADVISORY AGREEMENT
The Company has entered into an investment advisory agreement with Advisers,
which is approved at least annually by the board of directors or by vote of the
holders of a majority of the outstanding shares of the Company. The agreement
may be terminated at any time on sixty days' notice, without penalty, by the
Company's board of directors or by a vote of the holders of a majority of the
Company's outstanding shares and will terminate automatically in the event of
its assignment.
The Company pays all operating expenses, except those specifically required to
be borne by Advisers. The expenses paid by Advisers include the compensation
of the Company's officers and the cost of office space, equipment and other
personnel required for the Company's day-to-day operations. The expenses that
are paid by the Company include the Company's share of transaction costs
incident to investment activities, legal and accounting fees, the fees and
expenses of the Company's independent directors and the fees of its
officer-directors, the costs of printing and mailing proxy statements and
reports to stockholders, costs associated with promoting the Company's stock,
and the fees and expenses of the Company's custodian and transfer agent. The
Company is also required to pay expenses associated with litigation and other
extraordinary or non-recurring expenses, as well as expenses of required and
optional insurance and bonding. All fees paid by or for the account of an
actual or prospective portfolio borrower in connection with an investment are
treated as commitment fees and are received by the Company, rather than by
Advisers. Advisers is entitled to retain for its own account any fees paid by
or for the account of a company, including a portfolio company, for special
investment banking or consulting work performed for that company which is not
related to such investment transaction or management assistance.
As compensation for its services to and the expenses paid for the account of
the Company, Advisers is paid, quarterly in arrears, a fee equal to 0.625
percent per quarter of the quarter-end value of the Company's consolidated
total assets, less interim investments, cash and cash equivalents plus 0.125
percent per quarter of the quarter-end value of consolidated interim
investments, cash and cash equivalents. These fees on an annual basis
approximate 2.5 percent on consolidated invested assets, and 0.5 percent on
consolidated interim investments, cash and cash equivalents. Advisory fees for
1993 included the Company's pro rata share of the former Parent's investment
advisory fee and other costs of approximately $505,000.
NOTE 6. DIVIDENDS AND DISTRIBUTIONS
The Company's board of directors declared and the Company paid dividends of
$0.30 per share for the fourth quarter, $0.29 per share for the third quarter,
$0.2825 per share for the second quarter and $0.27 per share for the first
quarter of 1995. The Company's board of directors also declared an extra
distribution in the fourth quarter of $0.0775 per share, which was paid to
stockholders on January 31, 1996, for a total distribution in 1995 equal to
$1.22 per share.
The distributions of taxable income declared by the board of directors for
1995, 1994 and 1993 were considered ordinary income for federal income tax
purposes.
The 1995 distributions of $1.22 per share were comprised of cash payments and
issuance of the Company's shares pursuant to the Company's dividend
reinvestment plan in the amounts of $1.18 and $0.04, per share, respectively.
The 1994 distributions of $1.08 per share were comprised of cash payments and
issuance of the Company's common shares pursuant to the Company's dividend
reinvestment plan in the amounts of $1.07 and $0.01, per share, respectively.
1993 distributions were paid in cash.
F-9
<PAGE> 44
Notes To Consolidated Financial Statements
Allied Capital Lending Corporation
NOTE 7. NOTES PAYABLE
The Company has a $15,000,000 secured line of credit with a bank. The interest
rate associated with this line of credit is equal to LIBOR plus 2.2 percent per
annum, payable monthly. As of December 31, 1995 and 1994, the Company was
paying interest at 7.95 percent and 8.5 percent per annum, respectively, on the
amount outstanding under this line. The line of credit requires a quarterly
facility fee of 0.375 percent per annum on the unused portion of the line of
credit. As of December 31, 1995, the Company had outstanding borrowings under
the secured line of credit equal to $13,335,000.
The Company has a $2,000,000 unsecured line of credit with a bank, which bears
interest at the Wall Street Journal prime rate plus 0.25 percent per annum,
payable monthly, and expires July 31, 1996. As of December 31, 1995 and 1994,
the Company was paying interest at 8.75 percent per annum, on the amount
outstanding under this line. The line of credit requires a quarterly facility
fee of 0.375 percent per annum on the unused portion of the line of credit. As
of December 31, 1995, the Company had outstanding borrowings under the
unsecured line of credit equal to $1,055,000.
Both the secured and unsecured lines of credit expire on July 31, 1996.
The subsidiary has a credit agreement whereby the subsidiary can borrow up to
$20,000,000 in order to finance its loans to small business concerns. This
credit agreement bears interest at a rate equal to LIBOR plus 2 percent per
annum, payable monthly, and expires on September 27, 1996. As of December 31,
1995, the subsidiary was paying interest ranging from 7.75 to 7.93 percent per
annum on the amount outstanding under this line. The agreement requires a
quarterly facility fee of 0.15 percent per annum on the unused portion of the
line. As of December 31, 1995, the subsidiary had outstanding borrowings under
this agreement equal to $4,524,000.
NOTE 8. SHAREHOLDERS' EQUITY
The Company has a dividend reinvestment plan (the Plan). Stockholders of
record are automatically enrolled in the Plan, and the Plan is considered an
"opt-out" plan. The Company may instruct the stock transfer agent to buy
shares in the open market or to issue new shares. When the Company issues new
shares, the price is equal to the average of the closing sales prices reported
for the shares for the five days on which trading in the shares takes place
immediately prior to and including the dividend payment date. During 1995 and
1994, the Company issued 14,536 and 1,980 new shares pursuant to the Plan at an
average price of $12.60 per share and $10.63 per share, respectively.
The Company has an incentive stock option plan (ISO plan) which provides for
the granting of stock options or shares to the Company's officers. The number
of shares of the Company's stock available for option under the plan total
504,860. Options may be granted under the plan at a price not less than the
market value of the underlying shares on the date of the grant and in any event
not less than the original offering price of the Company's shares ($15) and are
exercisable over a ten-year period. The ISO plan also permits a one-time grant
of options to each member of the board of directors who is not an employee of
the investment adviser to purchase 10,000 shares of the Company's common stock.
Holders of ten percent or more of the Company's stock must exercise their
options within a five year period.
Officers of the Company may borrow from the Company the funds necessary to
exercise vested options. There were no loans outstanding at December 31, 1995
or 1994.
F-10
<PAGE> 45
Notes To Consolidated Financial Statements
Allied Capital Lending Corporation
A summary of the activity in the ISO plan is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Options outstanding at January 1, 283,310 266,640 _
Options granted 266,646 50,000 266,640
Options exercised _ _ _
Options canceled (56,666) (33,330) _
-----------------------------------------
Options outstanding at December 31, 493,290 283,310 266,640
=========================================
Options available for grant 11,570 221,550 26,860
Options exercisable 259,974 153,318 79,992
-----------------------------------------
Option prices per share:
Granted $ 15.00 $ 15.00 $ 15.00
Exercised $ _ $ _ $ _
Canceled $ 15.00 $ 15.00 $ _
-----------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
The Company had total loan commitments outstanding at December 31, 1995 to
various qualified small businesses totaling $33,000,000.
In connection with the sale of the guaranteed portion of loans in 1992, the
Internal Revenue Service may assert that these transactions subject the Company
to a liability for income taxes of up to $845,000 for that year. If the
Internal Revenue Service in the future asserts such a claim, management and tax
counsel believe that the Company has valid defenses for the position that such
transactions do not subject the Company to a liability for additional income
taxes; however, the Company has an agreement with the former Parent pursuant to
which the Company is indemnified against such liability if asserted.
NOTE 10. CONCENTRATIONS OF CREDIT RISK
The Company and the subsidiary place their cash in financial institutions and
at times, cash held in checking accounts may be in excess of the FDIC insurance
limit.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
NOTE 11. QUARTERLY FINANCIAL HIGHLIGHTS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts) 1995
QTR 1 QTR 2 QTR 3 QTR 4
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total investment income $ 1,827 $ 1,771 $ 2,327 $ 2,131
Net investment income $ 1,394 $ 1,231 $ 1,580 $ 1,233
Net increase in net assets resulting from operations $ 1,345 $ 1,248 $ 1,402 $ 1,257
Per share $ 0.31 $ 0.29 $ 0.32 $ 0.29
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1994
- -----------------------------------------------------------------------------------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
<S> <C> <C> <C> <C>
Total investment income $ 1,137 $ 1,512 $ 1,537 $ 1,879
Net investment income $ 873 $ 1,213 $ 1,242 $ 1,550
Net increase in net assets resulting from operations $ 856 $ 1,228 $ 1,306 $ 1,141
Per share $ 0.20 $ 0.28 $ 0.30 $ 0.26
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Quarterly amounts for 1994 have been reclassified to conform with
classifications used in the financial statements for 1995.
- --------------------------------------------------------------------------------
F-11
<PAGE> 46
Report Of Independent Accountants
Allied Capital Lending Corporation
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
ALLIED CAPITAL LENDING CORPORATION
We have audited the consolidated balance sheet of Allied Capital Lending
Corporation as of December 31, 1995 and 1994, including the consolidated
statement of investments in small business concerns as of December 31, 1995 and
the related consolidated statements of operations, changes in net assets and
cash flows for each of the three years in the period ended December 31, 1995
and the selected per share data presented as financial highlights for each of
the five years in the period ended December 31, 1995. These financial
statements and per share data are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and per share data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and per
share data are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included the examination or confirmation of
securities owned at December 31, 1995 and 1994. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and selected per share data referred
to above present fairly, in all material respects, the financial position of
Allied Capital Lending Corporation as of December 31, 1995 and 1994, and the
consolidated results of their operations, changes in net assets and cash flows
for each of the three years in the period ended December 31, 1995, and the
selected per share data for each of the five years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
As explained in Note 2, the consolidated financial statements include
securities valued at $47,147,000 as of December 31, 1995 and $32,771,000 as of
December 31, 1994, (85% and 87%, respectively, of total assets) whose values
have been estimated by the Board of Directors in the absence of readily
ascertainable market values. We have reviewed the procedures used by the Board
of Directors in arriving at its estimate of value of such securities and have
inspected underlying documentation, and, in the circumstances, we believe the
procedures are reasonable and the documentation appropriate. However, because
of the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the securities existed, and the differences could be material.
MATTHEWS, CARTER AND BOYCE
McLean, Virginia
February 2, 1996
F-12
<PAGE> 47
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE COMPANY'S INVESTMENT ADVISER OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary . . . . . . . . . . . . . . . . . . . . . .
Fees and Expenses . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . .
Public Trading and Net Asset Value
Information . . . . . . . . . . . . . . . . . . .
The Offer . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . .
The Company . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . .
Authorized Classes of Securities . . . . . . . . .
Description of Common Stock . . . . . . . . . . . .
Reports and Independent Public . . . . . . . . . .
Accountants . . . . . . . . . . . . . . . . . . .
Custodian, Transfer and Dividend Paying
Agent and Registrar . . . . . . . . . . . . . . .
Table of Contents of Statement of . . . . . . . . .
Additional Information . . . . . . . . . . . . .
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . F-1
</TABLE>
================================================================================
================================================================================
628,183 SHARES
ALLIED CAPITAL
LENDING CORPORATION
COMMON STOCK
------------------
PROSPECTUS
TBD, 1996
------------------
================================================================================
<PAGE> 48
PART B
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 49
628,183 SHARES
ALLIED CAPITAL LENDING CORPORATION
COMMON STOCK
---------------
STATEMENT OF ADDITIONAL INFORMATION
TBD, 1996
This Statement of Additional Information is not a prospectus. It should be read
with the prospectus dated TBD, 1996 relating to this offering (the
"Prospectus"), which may be obtained by calling the Company at (202) 331-1112
and asking for Investor Relations or contacting Shareholder Communications
Corporation at (800) 221-5724, extension 331. Terms not defined herein have the
same meaning as given to them in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page in the Location
Statement of Related
of Additional Disclosure in
Information the Prospectus
------------- --------------
<S> <C>
CHANGE OF NAME . . . . . . . . . . . . . . . . . . . . . . . . B-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . B-
Directors and Officers . . . . . . . . . . . . . . . . . . B-
Compensation . . . . . . . . . . . . . . . . . . . . . . . B-
Stock Options . . . . . . . . . . . . . . . . . . . . . . B-
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . B-
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . B-
Investment Advisory Agreement . . . . . . . . . . . . . . B-
Custodian Services . . . . . . . . . . . . . . . . . . . . B-
Accounting Services . . . . . . . . . . . . . . . . . . . B-
BROKERAGE ALLOCATION AND OTHER PRACTICES . . . . . . . . . . . B-
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . B-
</TABLE>
<PAGE> 50
CHANGE OF NAME
The Company changed its name from "Allied Lending Corporation" to "Allied
Capital Lending Corporation" in September 1993.
MANAGEMENT
DIRECTORS AND CERTAIN OFFICERS
The directors and certain officers of the Company are listed below together
with their respective positions with the Company and a brief statement
of their principal occupations during the past five years and any positions
held with affiliates of the Company:
<TABLE>
<CAPTION>
Position(s) Held
Name, Address (1) and With the
Age Company Principal Occupation(s) During Past Five (5) Years
--- ------- --------------------------------------------------
<S> <C> <C>
David Gladstone* Chairman of the Board Employed by Allied I or Advisers since 1974; Chairman and
(Age 53) & Chief Executive and Chief Executive Officer of Allied I, Allied II, Allied
Officer (2) Commercial, and Advisers; Director, President, and Chief Officer Executive
Officer of BMI and Allied Capital Mortgage Corporation ("Allied Mortgage");
Director of The Riggs National Corporation; Trustee of The George Washington
University.
George C. Williams*(3) Vice Chairman Employed by the Allied I or Advisers since 1959; Vice
(Age 69) of the Board (2) Chairman of Allied I, Allied II, Allied Commercial, and
Advisers; Chairman of BMI and Allied Mortgage.
Katherine C. Marien* Director, President & Employed by Advisers since 1992; Executive Vice President
(Age 47) Chief Operating Officer of Allied I, Allied II, Allied Commercial, BMI and Advisers; Executive Vice
President of the Company from 1992 to 1994; Financial Consultant with Wilks &
Schwartz Broadcasting from 1990 to 1992; Financial Consultant to USA Mobile
Communications, Inc. from 1991 to 1992; Senior Vice President of Communications
Equity Associates from 1989 to 1991.
Jon W. Barker Director Associate with Grubb & Ellis (commercial real estate firm)
(Age 52) since 1993; Vice President of Shannon & Luchs Company (commercial real estate
firm) from 1979 to 1993. He served as a director of the Company since 1993.
Eleanor Deane Bierbower Director (2) Financial consultant since 1992; Managing Partner of Deane
(Age 39) Investment Company L.P. since 1992; Chief Credit Officer of Palmer National
Bank from 1988 to 1992. She has served as a director of the Company since
1993.
</TABLE>
B-2
<PAGE> 51
<TABLE>
<S> <C> <C>
Robert V. Fleming II Director (2) Principal of Hoskinson Davis & Fleming (real estate firm)
(Age 42) since 1984; Member of the Board of Consultants of The Riggs National Bank of
Washington, D.C.; Trustee of the National Child Research Center; Member of the
Associates Board of National Rehabilitation Hospital. He has served as a
director of the Company since 1993.
Anthony T. Garcia * Director Senior Vice President of Lehman Brothers Inc., where he
(Age 39) has been employed since 1985; Director of Allied Capital Commercial
Corporation. He has served as a director of the Company since 1993.
Arthur H. Keeney III Director President, Chief Executive Officer, Chairman of the
(Age 52) Executive Committee and Director of The East Carolina Bank since 1995; Vice
President and General Manager of The OMG Company (manufacturer of electronic
training devices) from 1994 to 1995; Recruiting Consultant with Don Richards
and Associates, Inc. (personnel services provider) from 1993 to 1994; Executive
Director of the American Foundation for Urologic Disease from 1991 to 1993;
Executive Vice President at Signet Bank from 1983 to 1991. He has served as a
director of the Company since 1995.
Frank L. Langhammer Director (2) Vice President and Chief Financial Officer, Overseas Private
(Age 51) Investment Company since 1995; Vice President and Chief Financial Officer,
Perpetual Corporation 1993 to 1995; Executive Vice President of The Riggs
National Bank of Washington, DC 1982 to 1993.
G. Cabell Williams III(3) Executive Vice Employed by Advisers since 1981; Director, Chief
(Age 41) President Operating Officer and President of Allied I; Executive Vice President of
Allied II, Allied Commercial, Advisers and BMI.
Jon A. DeLuca Executive Vice Employed by Advisers since 1994; Executive Vice
(Age 33) President, President, Treasurer, and Chief Financial Officer,
Treasurer, & Chief of Allied I, Allied II, Allied Commercial, BMI, Allied
Financial Officer Mortgage and Advisers. Manager of Entrepreneurial Services at Coopers &
Lybrand from 1986 to 1994.
Thomas R. Salley General Counsel Employed by Advisers since 1988; General Counsel and
(Age 38) & Secretary Secretary of Allied I, Allied II, Allied Commercial,
BMI, Allied Mortgage and Advisers.
Joan M. Sweeney Executive Vice Employed by Advisers since 1993; President and Chief
(Age 36) President Operating Officer of Advisers; Executive Vice President of Allied II, Allied
Commercial, Allied Lending, Allied Mortgage and BMI; Senior Manager at Ernst &
Young from 1990 to 1993.
</TABLE>
- -------------------------------
* "Interested persons" as defined in the 1940 Act.
(1) Unless otherwise indicated, the address of directors and certain officers
of the Company is 1666 K Street, N.W., 9th Floor, Washington, DC 20006-2803.
(2) Member of the Executive Committee, which is intended, during intervals
between meetings of the Board of Directors, to exercise all powers of the Board
in the management and direction of the business and affairs of the Company,
except where action by the Board is required by applicable law.
(3) George C. Williams is the father of G. Cabell Williams III.
B-3
<PAGE> 52
COMPENSATION
The Company has no employees and does not pay any cash compensation to any of
its officers, other than directors' fees to those of its officers who are also
directors. All of the Company's officers are employed by Advisers, the
Company's investment adviser, which pays their cash compensation. The Company,
from time to time, grants stock options to its officers under the Company's
Stock Option Plan.
During 1995, each director received a fee of $1,000 for each meeting of
the Board of Directors of the Company or each separate committee meeting
attended. The members of the Board of Directors are each compensated by fees at
the rate of $1,000 per meeting of the Board of the Company or each separate
meeting (i.e., one not held on the same day as a full Board meeting) of a
committee of the Board which the member attends, unless such separate meeting
occurs on the same day as a Board meeting, in which case directors receive $500
for attendance at such meeting. The Company's stockholders approved a one-time
grant of options to each member of the Board of Directors who is not an
employee of the investment adviser to purchase 10,000 shares of the Company's
common stock pursuant to the Company's Stock Option Plan. On December 26,
1995, such options were granted at $15.00 per share. The exercise price of
those grants was the minimal provided under the Company's Stock Option Plan.
The following table sets forth certain details of compensation paid to
directors during 1995, as well as compensation paid for serving as a director
of the two other BDCs managed by Advisers.
COMPENSATION TABLE
------------------
<TABLE>
<CAPTION>
Aggregate Pension Or Estimated Total Compensation
Compensation From Retirement Benefits Annual From the Company and
the Accrued as Part of Benefits Upon Other BDCs Managed
Name and Position Company(1) Company Expenses Retirement by Advisers (2)
--------------------- ---------------- ---------------- ------------ ---------------------
<S> <C> <C> <C> <C>
David Gladstone $9,000 $0 $0 $25,000
Chairman of the Board and
Chief Executive Officer
George C. Williams 9,000 0 0 24,000
Vice Chairman of the
Board
Katherine C. Marien 4,000 0 0 4,000
Director, President and Chief
Operating Officer
Jon W. Barker 10,000 0 0 10,000
Director
Eleanor Deane Bierbower 8,000 0 0 8,000
Director
Robert V. Fleming II 10,000 0 0 10,000
Director
Anthony T. Garcia 7,000 0 0 7,000
Director
Frank L. Langhammer 9,000 0 0 9,000
Director
Arthur H. Keeney III 7,000 0 0 7,000
Director
</TABLE>
- -----------------------------------
(1) Consists only of directors' fees.
(2) Includes amounts paid as compensation for services as directors by Allied
I and Allied II, the other BDCs whose assets are managed by Advisers.
B-4
<PAGE> 53
SUMMARY COMPENSATION TABLE
--------------------------
Under Commission rules applicable to BDCs, the Company is required to set forth
certain information regarding compensation paid from the Company during the
last three fiscal years to its Chief Executive Officer and the four other most
highly compensated officers. However, the Company has no employees and does
not pay any cash compensation to any of its officers (other than directors'
fees to those of its officers who are also directors). All of the Company's
officers are employed by Advisers, which pays all of their cash compensation.
The following chart summarizes the grants of options by the Company to the
named executive officers during the past three fiscal years including the
securities underlying those options, and any long term incentive plan ("LTIP")
payouts.
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards Payouts
------ -------
Securities
Restricted Restricted Underlying
Names and Principal Position Year Stock Award(s) Options LTIP Payouts
----------------------------- ---- -------------- ------- ------------
<S> <C> <C> <C> <C>
David Gladstone 1993 $0 66,660 $0
Chairman and Chief Executive 1994 0 0 0
Officer 1995 0 19,998 0
George C. Williams 1993 $0 13,332 $0
Vice Chairman 1994 0 0 0
1995 0 0 0
John M. Scheurer 1993 $0 6,666 $0
Executive Vice President 1994 0 0 0
1995 0 6,666 0
G. Cabell Williams III 1993 $0 13,332 $0
Executive Vice President 1994 0 0 0
1995 0 6,666 0
Joan M. Sweeney 1993 $0 13,332 $0
Executive Vice President 1994 0 0 0
1995 0 6,666 0
</TABLE>
B-5
<PAGE> 54
STOCK OPTIONS
-------------
The following table sets forth, for the Company's Chief Executive Officer and
the four most highly compensated officers of Advisers, who are also officers of
the Company, the details relating to option grants in 1995 and the potential
realizable value of each grant, as prescribed to be calculated by the
Commission.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
Potential realizable
Percent of value at assumed annual
Number of total options rates of stock price
securities granted to Exercise appreciation over 10-year term(1)
underlying employees price per Expiration ------------------------------
Name options granted in 1995 share date 5% 10%
---- --------------- ------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
David Gladstone 19,998 9.7% $15.00 02/15/05 $58,351 $270,596
George C. Williams 0 N/A N/A N/A N/A N/A
John M. Scheurer 6,666 3.2% $15.00 02/15/05 $19,450 $90,199
G. Cabell Williams III 6,666 3.2% $15.00 02/15/05 $19,450 $90,199
Joan M. Sweeney 6,666 3.2% $15.00 02/15/05 $19,450 $90,199
</TABLE>
- --------------------------
(1) Potential realizable value is net of the option exercise price but before
any tax liabilities that may be incurred. These amounts represent certain
assumed rates of appreciation, as mandated by the Commission. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the shares, overall market conditions, and the continued
employment of the option holder. The potential realizable value may not
necessarily be realized.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 15, 1996, there were 4,385,829 shares of the Company's common stock
outstanding. The following table sets forth certain information regarding the
shares of the Company's common stock beneficially owned by the two persons
known by the Company to own beneficially more than 5% of the Company's common
stock, as well as all executive officers as a group:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage
of Beneficial Owner Owned Of Class
------------------- ----- --------
<S> <C> <C>
Allied Capital Corporation(Maryland) (1) 1,244,914 (2) 28%
1666 K Street, NW, Ninth Floor
Washington, DC 20006
Liberty Investment Management 329,243 (3) 7.5%
2502 Rocky Point Drive, Suite 500
Tampa, FL 33607
All directors and executive officers 195,574 4.3%
as a group (13 in number) (4)
</TABLE>
(1) Allied Capital Corporation has agreed to vote its shares on all matters only
in the same proportion as the shares voted by the Company's public
stockholders.
(2) Shares owned of record
(3) Shares owned beneficially
(4) Included in the total number of shares beneficially owned are 159,984 shares
underlying unexercised stock options that are exercisable within 60 days of
March 1, 1996, and 5,000 shares owned by the Allied Employee Stock Ownership
Plan, for which David Gladstone and George C. Williams are co-trustees and
share voting power.
B-6
<PAGE> 55
INVESTMENT ADVISORY AND OTHER SERVICES
Subject to the supervision and control of its Board of Directors, the
investments of the Company are managed by Allied Capital Advisers, Inc., a
publicly owned investment adviser located at 1666 K Street, N.W., 9th Floor,
Washington, D.C. 20006-2803, telephone (202) 331-1112. Advisers is registered
with the Commission under the Investment Advisers Act of 1940. The shares of
Advisers are traded on the Nasdaq National Market (symbol: ALLA).
Advisers currently has thirty-eight (38) investment and other professionals, as
well as thirty-four (34) other employees. David Gladstone and George C.
Williams have 55 years of combined experience in making the types of
investments proposed to be made by the Company. Mr. Gladstone holds an MBA
degree from the Harvard Business School and worked for Price Waterhouse and ITT
Corporation before joining the Allied Capital organization in 1974. He is the
author of Venture Capital Handbook and Venture Capital Investing, both
published by Simon & Schuster/Prentice Hall. Mr. Williams is a past President
of the National Association of Small Business Investment Companies and has
lectured as a resident executive at the McIntyre School of Commerce at the
University of Virginia.
All investments of the Company must be approved by a credit committee composed
of the senior investment officers of Allied Advisers, including David
Gladstone, George C. Williams, and Katherine C. Marien. Additionally, the
Board of Directors reviews and approves every investment made by the Company.
David Gladstone, George C. Williams, and Katherine C. Marien are interested
persons and affiliated persons, as those terms are defined in the 1940 Act, of
the Company and its investment adviser.
Advisers is at this time a party to investment advisory agreements with the
Company and with Allied I and Allied II both business development companies
which, directly or through one or more small business investment company
subsidiaries, specialize in making loans with equity features to and equity
investments in small business concerns. Advisers is the general partner of a
private limited partnership which itself is the general partner of two
privately funded venture capital limited partnerships, Allied Venture and
Allied Technology, engaging in the same business as the Allied I and Allied II
but no longer making new investments. Advisers serves as the investment
adviser to those two limited partnerships. All of these entities co-invest
with one another. In addition, Advisers is the investment manager of Allied
Commercial, a publicly held real estate investment trust (a "REIT"), and the
co-manager of BMI, a privately held REIT. Allied Commercial and BMI participate
with one another in buying interest-paying business loans secured by real
estate. At December 31, 1995, total assets under Advisers' management
approximated $671 million.
INVESTMENT ADVISORY AGREEMENT
In May 1995, the Company's stockholders approved a new investment advisory
agreement with Advisers (the "current agreement"). The current agreement will
remain in effect from year to year as long as its continuance is approved at
least annually by the Board of Directors, including a majority of the
disinterested directors, or by the vote of the holders of a majority, as
defined in the 1940 Act, of the outstanding voting securities of the Company.
The current agreement may, however, be terminated at any time on sixty (60)
days' notice, without the payment of any penalty, by the Board of Directors or
by vote of a majority of the Company's outstanding voting securities, as
defined, and will terminate automatically in the event of its assignment.
Advisers is the investment adviser of the Company pursuant to an investment
advisory agreement. Under that agreement, Advisers manages the loans made by
the Company, subject to the supervision and control of the Board of Directors
of the Company, and evaluates, structures, closes and monitors those loans made
by the Company. The Company will not make any loan or other investment that
has not been recommended by Advisers. Except as to those investment decisions
that require specific approval by the Company's Board, Advisers has the
authority to effect loans and sales of portions of loans for the Company's
account. Advisers also serves as the investment adviser of Allied I, Allied
Capital Corporation II ("Allied II"), Allied Capital Commercial Corporation
("Allied Commercial"), Business Mortgage Investors, Inc. ("BMI"), Allied
Venture Partnership and Allied Technology Partnership. Some of the directors
and officers of Advisers are also directors and officers of the Company.
B-7
<PAGE> 56
The current agreement provides that the Company will pay all of its own
operating expenses, except those specifically required to be borne by Advisers.
The expenses paid by Advisers include the compensation of its officers and the
cost of office space, equipment, and other personnel necessary for day-to-day
operations. The expenses that are paid by the Company include the Company's
share of transaction costs (including legal and auditing) incident to the
acquisition and disposition of investments, regular legal and auditing fees and
expenses, the fees and expenses of the Company's directors, the costs of
printing and distributing proxy statements and other communications to
stockholders, the costs of promoting the Company's stock, and the fees and
expenses of the Company's custodian and transfer agent. The Company, rather
than Advisers, is also required to pay expenses associated with litigation and
other extraordinary or non-recurring expenses with respect to its operations
and investments, as well as expenses of required and optional insurance and
bonding. Advisers is, however, entitled to retain for its own account any fees
paid by or for the account of any company, including a portfolio company, for
special investment banking or consulting work performed for that company which
is not related to the Company's such investment transaction or follow-on
managerial assistance. Advisers will report to the Board of Directors not less
often than quarterly all fees received by Advisers from any source whatever and
whether, in its opinion, any such fee is one that Advisers is entitled to
retain under the provisions of the current agreement. In the event that any
member of the Board of Directors should disagree, the matter will be
conclusively resolved by a majority of the Board of Directors, including a
majority of the independent Directors. If the Company uses the services of
attorneys or paraprofessionals on the staff of Advisers for the Company's
corporate purposes in lieu of outside counsel, the Company will reimburse
Advisers for such services at hourly rates calculated to cover the cost of such
services, as well as for incidental disbursements by Advisers in connection
with such services.
As compensation for its services to and the expenses paid for the account of
the Company, Advisers is entitled to be paid quarterly, in arrears, a fee equal
to 0.625% per quarter of the quarter-end value of the Company's total assets
(other than interim investments and cash) and 0.125% per quarter of the
quarter-end value of the Company's interim investments and cash. Such fees on
an annual basis equal approximately 2.5% of the Company's total assets (other
than interim investments and cash) and 0.5% of the Company's interim
investments and cash. For the purposes of calculating the fee, the values of
the Company's assets are determined as of the end of each calendar quarter. The
quarterly fee is paid as soon as practicable after the values have been
determined.
Because of the Company's practice of selling a significant portion of the loans
that it originates, the Company believes that the fees to Advisers provided for
by the existing advisory agreement are comparable to the fees paid by other
investment companies, notwithstanding the efforts and resources devoted by
Advisers to evaluating, structuring, closing and servicing the types of private
investments in which the Company specializes.
CUSTODIAN SERVICES
Under a Custodian Agreement, The Riggs National Bank of Washington, D.C., whose
principal business address is 808 17th street, N.W., Washington, D.C. 20006,
holds all securities of the Company, provides record keeping services, and
serves as the Company's custodian.
ACCOUNTING SERVICES
The firm of Matthews, Carter and Boyce is the independent accountant for the
Company for the year ending December 31, 1995. Its business address is: 8200
Greensboro Drive, Suite 1000, McLean, Virginia 22102-3864. Their phone number
is (703) 761-4600. Matthews, Carter and Boyce is also the independent
accountant for the Company's subsidiary.
Matthews, Carter and Boyce, or its predecessor, has served as the Company's
independent accountants since its inception and has no financial interest in
the Company. The expense recorded during the fiscal year ended December 31,
1994, for the professional services provided to the Company by Matthews, Carter
and Boyce consisted of fees for audit services (which included the audit of the
consolidated financial statements of the Company and its Subsidiary and
review of the filings by the Company of reports and registration statements
with the Commission, the SBA or other regulatory authorities) and for non-audit
services (the fees for the latter aggregating approximately 17% of the total
fees). The non-audit services, which were arranged for by management without
prior consideration by the Board of Directors, consisted of non-audit related
consultation and the preparation of tax returns for the Company and its
Subsidiary.
B-8
<PAGE> 57
TAX STATUS
The Company, which has elected to be treated as a "business development
company" under the 1940 Act, has qualified and expects to continue to qualify
as a regulated investment company ("RIC") under the Internal Revenue Code of
1986, as amended ("Code"). As such, the Company is not subject to Federal
income tax on that part of its investment company taxable income (consisting
generally of net investment income, net gains from certain foreign currency
transactions, and net short-term capital gain, if any) and any net capital gain
(the excess of net long-term capital gain over net short-term capital loss)
that it distributes to its shareholders. It is the Company's intention to
distribute substantially all such income and gains.
The "Distribution Requirement," in order to qualify for that treatment, is that
the Company must distribute to its shareholders for each taxable year at least
90% of its investment company taxable income. The Company must also meet the
following additional requirements: (1) The Company must derive at least 90% of
its gross income each taxable year from dividends, interest, payments with
respect to securities loans, and gains from the sale or other disposition of
securities or foreign currencies, or other income (including gains from
options, futures, or forward contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) The
Company must derive less than 30% of its gross income each taxable year from
gains (without including losses) on the sale or other disposition of
securities, or any of the following, that were held for less than three months
- - options, futures, or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures, or forwards thereon)
that are not directly related to the Company's principal business of investing
in securities (or options and futures with respect thereto) ("Short-Short
Limitation"); (3) At the close of each quarter of the Company's taxable year,
at least 50% of the value of its total assets must be represented by cash and
cash items, U.S. Government securities, securities of other RIC's, and other
securities that, with respect to any one issuer, do not exceed 5% of the value
of the Company's total assets and that do not represent more than 10% of the
outstanding voting securities of the issuer; and (4) At the close of each
quarter of the Company's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
securities or the securities of other RIC's) of any one issuer.
The Company will be subject to a nondeductible 4% excise tax on amounts not
distributed to shareholders on a timely basis. The Company intends to make
sufficient distributions to avoid this 4% excise tax.
The Company, formerly a wholly owned subsidiary of Allied I, originates loans
which are partially guaranteed by the SBA. The Company then sells the
guaranteed portion of these loans in the secondary market.
The Internal Revenue Service may assert that these transactions subject the
Company to a liability for income taxes of up to $845,000 for the year ended
December 31, 1992. Allied I has agreed to indemnify the Company for this
potential liability. Management believes that the Company has valid defenses
for the position that such transactions do not subject the Company to a
liability for additional income taxes.
Although the Company presently does not expect to do so, it is authorized to
borrow funds and to sell assets in order to satisfy its distribution
requirements. However, under the 1940 Act, the Company will not be permitted
to make distributions to stockholders while the Company's debt obligations and
other senior securities are outstanding unless certain "asset coverage" tests
are met. Moreover, the Company's ability to dispose of assets to meet its
distribution requirements may be limited by other requirements relating to its
tax status as a RIC, including the Short-Short Limitation and the
diversification requirements. If the Company disposes of assets in order to
meet its distribution requirements, it may make such dispositions at times
which, from an investment standpoint, are not advantageous.
B-9
<PAGE> 58
If the Company fails to satisfy the Distribution Requirement or otherwise fails
to qualify as a RIC in any taxable year, it will be subject to tax in such year
on all of its taxable income, regardless of whether the Company makes any
distributions to its stockholders. In addition, in that case, all of the
Company's distributions to its stockholders will be characterized as ordinary
income (to the extent of the Company's current and accumulated earnings and
profits). In contrast, as explained below, if the Company qualifies as a RIC,
a portion of its distributions may be characterized as long-term capital gain
in the hands of stockholders.
Dividends paid by the Company from net investment income, the excess of net
short-term capital gain over net long- term capital loss, and original issue
discount or certain market discount income will be taxable to stockholders as
ordinary income to the extent of the Company's current or accumulated earnings
and profits. Distributions paid by the Company from the excess of net
long-term capital gain over net short-term capital loss will be taxable as
long-term capital gains regardless of the stockholder's holding period for his
or her shares.
To the extent that the Company retains any net capital gain, it may designate
such retained gain as "deemed distributions" and pay a tax thereon for the
benefit of its stockholders. In that event, the stockholders will be required
to report their share of retained net capital gain on their tax returns as if
it had been distributed to them and report a credit for the tax paid thereon by
the Company. The amount of the deemed distribution net of such tax would be
added to the stockholder's cost basis for his shares. Since the Company
expects to pay tax on net capital gain at the regular corporate tax rate of 35%
and the maximum rate payable by individuals on net capital gain is 28%, the
amount of credit that individual stockholders may report would exceed the
amount of tax that they would be required to pay on net capital gain.
Stockholders who are not subject to federal income tax or tax on capital gains
should be able to file a Form 990T or other appropriate form that allows them
to recover the excess taxes paid on their behalf.
Any dividend declared by the Company in October, November, or December of any
calendar year, payable to stockholders of record on a specified date in such a
month and actually paid during January of the following year, will be treated
as if it had been received by the stockholders on December 31 of the year in
which the dividend was declared.
Investors should be careful to consider the tax implications of buying shares
just prior to a distribution. Even if the price of the shares includes the
amount of the forthcoming distribution, the stockholder generally will be taxed
upon receipt of the distribution and will not be entitled to offset the
distribution against the tax basis in his shares.
A stockholder may recognize taxable gain or loss if he sells or exchanges his
shares. Any gain arising from (or, in the case of distributions in excess of
earnings and profits, treated as arising from) the sale or exchange of shares
generally will be a capital gain or loss except in the case of dealers or
certain financial institutions. This capital gain or loss normally will be
treated as a long-term capital gain or loss if the stockholder has held his
shares for more than one year; otherwise, it will be classified as short-term
capital gain or loss. However, any capital loss arising from the sale or
exchange of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received
with respect to such shares and, for this purpose, the special rules of Section
246(c)(3) and (4) of the Code generally apply in determining the holding period
of shares. Net capital gain of noncorporate taxpayers is currently subject to
a maximum federal income tax rate of 28% while other income may be taxed at
rates as high as 39.6%. Corporate taxpayers are currently subject to federal
income tax on net capital gain at the maximum 35% rate also applied to ordinary
income. Tax rates imposed by states and local jurisdictions on capital gain
and ordinary income may differ.
The Company may be required to withhold U.S. federal income tax at the rate of
31% of all taxable dividends and distributions payable to stockholders who fail
to provide the Company with their correct taxpayer identification number.
Withholding from dividends and distributions also is required for shareholders
who otherwise are subject to backup withholding. Backup withholding is not an
additional tax, and any amounts withheld may be credited against a
stockholder's U.S. federal income tax liability.
B-10
<PAGE> 59
Federal withholding taxes at a 30% rate (or a lesser treaty rate) may apply to
distributions to stockholders that are nonresident aliens or foreign
partnerships, trusts, or corporations. Foreign investors should consult their
tax advisors with respect to the possible U.S. federal, state, and local tax
consequences and foreign tax consequences of an investment in the Company.
The Company will send to each of the stockholders, as promptly as possible
after the end of each fiscal year, a notice detailing, on a per share and per
distribution basis, the amounts includible in such stockholder's taxable income
for such year as ordinary income and as long-term capital gain. In addition,
the federal tax status of each year's distributions generally will be reported
to the Internal Revenue Service.
The foregoing is only a general summary of some of the important Federal income
tax considerations generally affecting the Company and its shareholders. No
attempt is made to present a complete explanation of the Federal tax treatment
of the Company's activities. Potential investors are urged to consult their
own tax advisers for more detailed information and for information regarding
any applicable state, local, or foreign taxes.
B-11
<PAGE> 60
PART C
OTHER INFORMATION
<PAGE> 61
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
1. FINANCIAL STATEMENTS
The following financial statements of Allied Capital Lending Corporation (the
"Registrant" or "Company") are included in the Prospectus (Part A of this
Registration Statement):
Consolidated Balance Sheet -- December 31, 1995 and 1994
Consolidated Statement of Operations -- For the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statement of Changes in Net Assets -- For the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows -- For the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statement of Investments in Small Business Concerns -- December
31, 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. EXHIBITS
a. Amended and Restated Articles of Incorporation of the Registrant (1)
b. By-Laws of the Registrant, as amended (6)
c. None
d.1. Specimen certificate of Registrant's Common Stock, par value $1.00, the
rights of holders of which are defined in Exhibits a and b **
d.2. Form of Subscription Form by which stockholders of Registrant's common
stock may exercise their non- transferable Subscription Rights and
Over-Subscription Privileges **
e. Registrant's Dividend Reinvestment Plan (1)
f. None
g. Investment Advisory Agreement between Registrant and Allied Capital
Advisers, Inc. ("Advisers") (2)
h. Form of Soliciting Dealer Agreement between the Registrant and Dealers **
i. Registrant's Incentive Stock Option Plan, as amended (5)
C-1
<PAGE> 62
j. Custodian Agreement between The Riggs National Bank of Washington, D.C.,
and the Registrant, dated February 27, 1989 **
k.1. Tax Indemnification Agreement dated November 12, 1993 between the
Registrant and Allied Capital Corporation (3)
k.2. Promissory notes, dated August 31, 1995, and July 26, 1995, between the
Company and The Riggs National Bank of Washington, DC. (7)
k.3. Promissory note, dated September 27, 1995, between ACLC Limited
Partnership and Lehman Commercial Paper, Inc. (8)
k.4. Form of agreement between the Company and its regional associates (4)
k.5. Form of Offering Coordinator/Information Agent Agreement between the
Registrant and Shareholder Communications Corporation **
k.6. Form of Subscription Agency Agreement between the Registrant and American
Stock Transfer & Trust Company **
l. Opinion of the firm of Sutherland, Asbill & Brennan, as to the legality
of the common stock being registered, and Consent to the use of such
Opinion **
m. None
n. Consent of Matthews, Carter and Boyce, independent accountants **
o. None
p. None
q. None
r. Financial Data Schedule *
s. Powers of Attorney of certain signatories of this registration statement*
- --------------
* Filed herewith.
** To be filed with pre-effective amendment to this registration
statement.
(1) Incorporated by reference to such document filed as an exhibit of the
same number to the Company's registration statement on Form N-2 (No.
33-68836).
(2) Incorporated by reference to Exhibit A to the Company's definitive
proxy statement of relating to its annual meeting of stockholders held
on May 9, 1995.
(3) Incorporated by reference to Exhibit _____ of the same number to the
Form 10-K filed by Allied Capital Corporation for the year ended
December 31, 1993.
(4) Incorporated by reference to an exhibit to Amendment No. 1 to the
Company's registration statement on Form N-2 (No. 33-68836).
C-2
<PAGE> 63
(5) Incorporated by reference to Exhibit B to the Company's definitive
proxy statement of relating to its annual meeting of stockholders held
on May 20, 1994.
(6) Incorporated by reference to Exhibit 3(ii) of the same number filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(7) Incorporated by reference to Exhibit 10(d) of the same number filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(8) Incorporated by reference to Exhibit 10(e) of the same number filed
with the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
ITEM 25. MARKETING ARRANGEMENTS
The Company has no marketing arrangements to be disclosed pursuant to this
Item.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the distribution of the securities being
offered hereby, other than underwriting discounts and commissions, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee . . . . . . $3,643
NASD Filing Fee . . . . . . . . . . . . . . . . . . . . . . . .
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . . . .
Information Agent's Fees and Expenses . . . . . . . . . . . . .
Transfer Agent's and Registrar's Fees and Expenses . . . . . .
Expenses of Nominees . . . . . . . . . . . . . . . . . . . . .
Printing and Conversion Expenses . . . . . . . . . . . . . . .
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . .
Accountant's Fees and Expenses . . . . . . . . . . . . . . . .
------
Total . . . . . . . . . . . . . . . . . . . . . . . . $3,643
======
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
<TABLE>
<S> <C>
Allied Capital Lending Corporation (the Registrant)* - Maryland
Subsidiary:
ACLC Limited Partnership - Maryland 99%
Allied Capital Corporation(1)* - Maryland
Subsidiaries:
Allied Investment Corporation - Maryland 100%
Allied Capital Financial Corporation - Maryland 100%
Allied Development Corporation - District of Columbia 100%
Allied Capital Corporation II* - Maryland
Subsidiaries:
Allied Investment Corporation II - Maryland 100%
Allied Financial Corporation II - Maryland 100%
</TABLE>
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<PAGE> 64
<TABLE>
<S> <C>
Allied Capital Commercial Corporation* - Maryland
Subsidiaries:
ALCC Holdings, Inc. - Maryland 100%
ALCC Acceptance Corporation - Maryland 100%
Business Mortgage Investors, Inc.* - Maryland
Subsidiaries:
BMI Holdings, Inc. - Maryland 100%
BMI Acceptance Corporation - Maryland 100%
Allied Capital Funding, L.L.C.** - Delaware
Allied Capital Mortgage Corporation* - Maryland
Allied Capital Advisers, Inc. - Maryland
Subsidiary:
Allied Capital Property Corporation - Maryland 100%
</TABLE>
- ---------------
* Each of these entities is, like the Registrant, advised by Advisers. By
so including these entities herein, the Registrant does not concede that
it and such other entities are controlled by Advisers.
** The members of Allied Capital Funding, L.L.C. are ALCC Acceptance
Corporation and BMI Acceptance Corporation.
(1) Allied Capital Corporation owned 1,244,914 shares, or approximately 28% of
the Company's outstanding common stock, at March 29, 1996. The Registrant
does not concede that it is controlled by Allied I. On matters requiring a
vote of the Company's stockholders, Allied I has agreed to vote its shares
only in the same proportion as the shares voted by the Company's public
stockholders.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table presents the number of record holders of each class of
securities of the Company outstanding as of December 31, 1995:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
- -------------- --------------
<S> <C>
Common Stock 1,700*
Prime + .25% Unsecured Revolving Line of Credit 1
LIBOR + 2% to 2.2% Secured Revolving Lines of Credit
(The Company and ACLC Limited Partnership) 1
</TABLE>
* Estimate. The Company estimates that there are a total of 7,800 beneficial
owners of its common stock.
ITEM 29. INDEMNIFICATION
The Annotated Code of Maryland, Corporations and Associations, Section 2-418
provides that a Maryland corporation may indemnify any director of the
corporation and any person who, while a director of the corporation,
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<PAGE> 65
is or was serving at the request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, or other enterprise or employee
benefit plan, made a party to any proceeding by reason of service in that
capacity unless it is established that the act or omission of the director was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty; or the director
actually received an improper personal benefit in money, property or services;
or, in the case of any criminal proceeding, the director had reasonable cause
to believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the proceeding, but if the
proceeding was one by or in the right of the corporation, indemnification may
not be made in respect of any proceeding in which the director shall have been
adjudged to be liable to the corporation. Such indemnification may not be made
unless authorized for a specific proceeding after a determination has been
made, in the manner prescribed by the law, that indemnification is permissible
in the circumstances because the director has met the applicable standard of
conduct. On the other hand, the director must be indemnified for expenses if
he has been successful in the defense of the proceeding or as otherwise ordered
by a court. The law also prescribes the circumstances under which the
corporation may advance expenses to, or obtain insurance or similar cover for,
directors.
The law also provides for comparable indemnification for corporate officers and
agents.
The Articles of Incorporation of the Company provide that its directors and
officers shall, and its agents in the discretion of the Board of Directors may,
be indemnified to the fullest extent permitted from time to time by the laws of
Maryland. The Company's By-Laws also, however, provide that the Company may not
indemnify any director or officer against liability to the Registrant or its
security holders to which he might otherwise be subject by reason of such
person's willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office unless a determination is
made by final decision of a court, by vote of a majority of a quorum of
directors who are disinterested, non-party directors or by independent legal
counsel that the liability for which indemnification is sought did not arise
out of such disabling conduct.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described above, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person in the successful
defense of an action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of the
court of the issue.
The Registrant, in conjunction with its investment adviser and other entities
managed thereby, carries liability insurance for the benefit of its directors
and officers on a claims-made basis of up to $2,500,000, subject to a $200,000
retention and the other terms thereof.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Advisers, the investment adviser of the Registrant, is engaged in the business
of identifying, evaluating, structuring, closing, and monitoring the
investments made by the Registrant as well as other public and private entities
engaged in small business finance. Certain information about the activities of
each director or executive officer of Allied Capital Advisers, Inc., at any
time during the past two fiscal years is set forth below:
C-5
<PAGE> 66
<TABLE>
<CAPTION>
NAME AND PRINCIPAL ADDRESS* OF
EACH COMPANY WITH WHICH THE
NAMED PERSON HAS HAD ANY CONNECTION
NAME AND THE NATURE OF SUCH CONNECTION
- ---- -----------------------------------------------------------------
<S> <C>
David Gladstone Chairman of the Board and Chief Executive Officer, Allied Capital Advisers, Inc., Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation, and Allied Capital
Commercial Corporation; Director, President and Chief Executive Officer, Business Mortgage Investors, Inc.
and Allied Capital Mortgage Corporation; Director, The Riggs National Corporation, 808 17th Street, N.W.,
Washington, DC 20006; Trustee of the George Washington University, TK, Washington, DC TK.
George C. Williams Vice Chairman of the Board, Allied Capital Advisers, Inc., Allied Capital Corporation, Allied Capital
Corporation II, Allied Capital Lending Corporation, and Allied Capital Commercial Corporation; Chairman,
Business Mortgage Investors, Inc. and Allied Capital Mortgage Corporation; Director, Golden Eagle/Satellite
Archery, Inc., 1111 Corporate Drive, Farmington, NY 14425;
Brooks H. Browne Director, Allied Capital Advisers, Inc.; President, Environmental Enterprises Assistance Fund, 1901 N.
Moore Street, Suite 1004, Arlington, VA 22209.
Robert E. Long Director, Allied Capital Advisers, Inc.; Chairman and Chief Executive Officer, Business Network News, Inc.,
99 Canal Center Plaza, Suite 220, Alexandria, VA 22314; Director, American Heavy Lift Shipping Company, 365
Canal Street, New Orleans, LA 70130; Global Travel, Inc., 1911 N. Fort Meyer Drive, Arlington, VA 22209,
CSC Scientific, Inc., 8315 Lee Highway, Fairfax, VA 22031; Outer Seal Building Products, Inc., 5114 College
Avenue, College Park, MD 20740; Business News Network, Inc., 99 Canal Center Plaza, Suite 220, Alexandria,
VA 22314; and Ambase Corporation, 51 Weavers Street, Greenwich, CT 06831.
William L. Walton Director, Allied Capital Advisers, Inc.; Director and President, Education Partners, Inc.; Director,
Odyssey Publishing Co.; Chairman, Success Lab, Inc.; and President, Language Odyssey (all located at 401 N.
Michigan Avenue, Suite 3370, Chicago, IL 60611).
Joan M. Sweeney Director, President, and Chief Operating Officer, Allied Capital Advisers, Inc.; Executive Vice President,
Allied Capital Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation, Allied
Capital Commercial Corporation, Business Mortgage Investors, Inc. and Allied Capital Mortgage Corporation.
William F. Dunbar Executive Vice President, Allied Capital Advisers, Inc.; President and Chief Operating Officer, Allied
Capital Corporation II; Executive Vice President, Allied Capital Corporation, Allied Capital Commercial
Corporation, Allied Capital Lending Corporation, and Business Mortgage Investors, Inc.
Katherine C. Marien Executive Vice President, Allied Capital Advisers, Inc.; President and Chief Operating Officer, Allied
Capital Lending Corporation; Executive Vice President, Allied Capital Corporation, Allied Capital
Corporation II, Allied Capital Commercial Corporation, and Business Mortgage Investors, Inc.
John M. Scheurer Executive Vice President, Allied Capital Advisers, Inc.; President and Chief Operating Officer, Allied
Capital Commercial Corporation; Executive Vice President, Allied Capital Corporation, Allied Capital
Corporation II, Allied Capital Lending Corporation and Allied Capital Mortgage Corporation; Executive Vice
President and Chief Operating Officer, Business Mortgage Investors, Inc.
</TABLE>
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<PAGE> 67
<TABLE>
<S> <C>
George Stelljes III Executive Vice President, Allied Capital Advisers, Inc.; Senior Vice President, Allied Capital Corporation,
Allied Capital Corporation II, Allied Capital Commercial Corporation, Allied Capital Lending Corporation,
and Business Mortgage Investors, Inc.; Director, Total Foam, Inc., 80 Rowe Avenue, Unit B, Milford, CT
06460; Visu-Com, Inc., 1207 Bernard Drive, Baltimore, MD 21203; and Centennial Media Corporation, 6061 S.
Willow Drive, Suite 232, Englewood, CO 80111.
G. Cabell Williams III Executive Vice President, Allied Capital Advisers, Inc.; President and Chief Operating Officer, Allied
Capital Corporation; Executive Vice President, Allied Capital Corporation II, Allied Capital Commercial
Corporation, Allied Capital Lending Corporation and Business Mortgage Investors, Inc. Director, President,
and Treasurer, Broadcast Holdings, Inc., 1025 Vermont Avenue, N.W., Suite 1030, Washington, DC 20005 and
Georgetown Broadcasting Company, Inc., 1416 Highmarket Street, Georgetown, SC 29442; Director, Garden Ridge
Corporation, 19411 Atrium Place, Suite 170, Houston, TX 77084; Director, Environmental Enterprises
Assistance Fund, 1901 N. Moore Street, Suite 1004, Arlington, VA 22209.
Jon A. DeLuca Senior Vice President, Treasurer and Chief Financial Officer, Allied Capital Advisers, Inc., Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Lending Corporation, Allied Capital Commercial
Corporation, Business Mortgage Investors, Inc. and Allied Capital Mortgage Corporation. Manager,
Entrepreneurial Services, Coopers & Lybrand (1986-1994).
Thomas R. Salley General Counsel and Secretary, Allied Capital Advisers, Inc., Allied Capital Corporation, Allied Capital
Corporation II, Allied Capital Lending Corporation, Allied Capital Commercial Corporation, Business
Mortgage Investors, Inc. and Allied Capital Mortgage Corporation.
</TABLE>
- ----------------------
* The business address of Allied Capital Advisers, Inc., Allied Capital
Corporation, Allied Capital Corporation II, Allied Capital Lending
Corporation, Allied Capital Commercial Corporation, Business Mortgage
Investors, Inc., and Allied Capital Mortgage Corporation is c/o Allied
Capital Advisers, Inc., 1666 K Street, N.W., Ninth Floor, Washington, D.C.
20006-2803.
ITEM 31. LOCATIONS OF ACCOUNTS AND RECORDS
All of the accounts and records of the Registrant, including all the accounts,
books and documents required to be maintained by Section 31(a) of the 1940 Act
and the rules thereunder, are maintained by Allied Capital Advisers, Inc., 1666
K Street, N.W., Ninth Floor, Washington, D.C. 20006-2803.
ITEM 32. MANAGEMENT SERVICES
Other than with its investment adviser, the Registrant is not a party to any
contract pursuant to which any person performs management-related services to
the Registrant.
ITEM 33. UNDERTAKINGS
1. The Registrant undertakes to suspend the offering of shares until the
Prospectus is amended if: (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than ten
percent from its net asset value as of the effective date of the
Registration Statement; or (2) the net asset value increases to an amount
greater than its net proceeds as stated in the Prospectus.
2. Not Applicable.
C-7
<PAGE> 68
3. The Registrant undertakes in the event that the securities being
registered are to be offered to existing stockholders pursuant to
warrants or rights, and any securities are to be offered to the public,
to supplement the prospectus, after the expiration of the subscription
period, to set forth the results of the subscription offer, the
transactions by underwriters during the subscription period, the amount
of unsubscribed securities to be purchased by underwriters, and the terms
of any subsequent reoffering thereof. The Registrant further undertakes
that if any public offering by the underwriters of the securities being
registered is to be made on terms differing from those set forth on the
cover page of the prospectus, the Registrant shall file a post-effective
amendment to set forth the terms of such offering.
4. a. The Registrant undertakes to file, during any period in which offers
or sales are being made, a post-effective amendment to this
registration statement:
(1) To include any prospectus required by Section 10(a)(3) of the
1933 Act;
(2) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
b. The Registration undertakes that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof; and
c. The Registrant undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
5. Not Applicable.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.
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<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Washington, DC, on the 2nd day of
April, 1996.
ALLIED CAPITAL LENDING CORPORATION
By:/s/ David Gladstone
-------------------
David Gladstone
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
----------------------- ---------------------------------- --------
<S> <C>
* Chairman of the Board and Chief
--------------------------------- Executive Officer (Principal --------
David Gladstone Executive Officer) and Director
* Vice Chairman of the Board and
--------------------------------- Director --------
George C. Williams
* President and Chief Operating
--------------------------------- Officer and Director --------
Katherine C. Marien
* Director
--------------------------------- --------
Jon W. Barker
* Director
--------------------------------- --------
Eleanor Deane Bierbower
* Director
--------------------------------- --------
Robert V. Fleming II
* Director
--------------------------------- --------
Anthony T. Garcia
* Director
--------------------------------- --------
Frank L. Langhammer
* Director
--------------------------------- --------
Arthur H. Keeney III
* Executive Vice President,
--------------------------------- Treasurer and --------
Jon A. DeLuca Chief Financial Officer
Principal Accounting Officer)
(Principal Financial Officer and
* By: /s/ David Gladstone
-------------------------
</TABLE>
David Gladstone, Attorney-in-Fact and Agent, on the 2nd day of April, 1996,
pursuant to the Powers of Attorney filed on the 2nd day of April, 1996 as
Exhibit S to the initial registration statement.
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<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
----------
<S> <C>
r. Financial Data Schedule *
s. Powers of Attorney of Certain
Signatories of this Registration
Statement *
</TABLE>
C-10
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED
CAPITAL LENDING CORPORATION AND SUBSIDIARY'S CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF OPERATIONS, CHANGES IN NET ASSETS AND CASH FLOWS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCORPORATED BY REFERENCE IN FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 47,302
<INVESTMENTS-AT-VALUE> 47,147
<RECEIVABLES> 732
<ASSETS-OTHER> 753
<OTHER-ITEMS-ASSETS> 6,848
<TOTAL-ASSETS> 55,480
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,596
<TOTAL-LIABILITIES> 22,596
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,252
<SHARES-COMMON-STOCK> 4,385
<SHARES-COMMON-PRIOR> 4,370
<ACCUMULATED-NII-CURRENT> (213)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (155)
<NET-ASSETS> 32,884
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,966
<OTHER-INCOME> 2,090
<EXPENSES-NET> 2,618
<NET-INVESTMENT-INCOME> 5,438
<REALIZED-GAINS-CURRENT> (195)
<APPREC-INCREASE-CURRENT> 9
<NET-CHANGE-FROM-OPS> 5,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,339
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 14,536
<NET-CHANGE-IN-ASSETS> 96
<ACCUMULATED-NII-PRIOR> (117)
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,140
<INTEREST-EXPENSE> 959
<GROSS-EXPENSE> 2,618
<AVERAGE-NET-ASSETS> 32,836
<PER-SHARE-NAV-BEGIN> 7.50
<PER-SHARE-NII> 1.24
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> 1.22
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.50
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 7,892
<AVG-DEBT-PER-SHARE> 1.80
</TABLE>
<PAGE> 1
POWER OF ATTORNEY
The undersigned Director and officer of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints Katherine C. Marien and Jon A. DeLuca and each of them (with full
power to each of them to act alone), his true and lawful attorney-in-fact and
agent, with full power of substitution to each, for him and on his behalf and
in his name, place, and stead, to execute and file any of the documents
referred to below relating to registration under the Securities Act of 1933, as
amended (the "1933 Act"), of the offer and sale of shares of common stock newly
issued or reissued by the Company. Such documents shall include, but shall not
be limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 29th day of March, 1996.
/s/David Gladstone
------------------
David Gladstone
<PAGE> 2
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 29th day of March, 1996.
/s/George C. Williams
---------------------
George C. Williams
<PAGE> 3
POWER OF ATTORNEY
The undersigned Director and officer of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone and Jon A. DeLuca and each of them (with full power to
each of them to act alone), her true and lawful attorney-in-fact and agent,
with full power of substitution to each, for her and on her behalf and in her
name, place, and stead, to execute and file any of the documents referred to
below relating to registration under the Securities Act of 1933, as amended
(the "1933 Act"), of the offer and sale of shares of common stock newly issued
or reissued by the Company. Such documents shall include, but shall not be
limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his substitutes being empowered to act with or
without the others or other, and to have full power and authority to do or
cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand,
this 29th day of March, 1996.
/s/Katherine C. Marien
----------------------
Katherine C. Marien
<PAGE> 4
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 31st day of March, 1996.
/s/Jon W. Barker
----------------
Jon W. Barker
<PAGE> 5
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), her true and lawful
attorney-in-fact and agent, with full power of substitution to each, for her
and on her behalf and in her name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand,
this 31st day of March, 1996.
/s/Eleanor Deane Bierbower
--------------------------
Eleanor Deane Bierbower
<PAGE> 6
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 29th day of March, 1996.
/s/Anthony T. Garcia
--------------------
Anthony T. Garcia
<PAGE> 7
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 29th day of March, 1996.
/s/Robert V. Fleming II
-----------------------
Robert V. Fleming II
<PAGE> 8
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 29th day of March, 1996.
/s/Arthur H. Keeney III
-----------------------
Arthur H. Keeney III
<PAGE> 9
POWER OF ATTORNEY
The undersigned Director of Allied Capital Lending
Corporation, a Maryland corporation (the "Company"), hereby constitutes and
appoints David Gladstone, Katherine C. Marien, and Jon A. DeLuca and each of
them (with full power to each of them to act alone), his true and lawful
attorney-in-fact and agent, with full power of substitution to each, for him
and on his behalf and in his name, place, and stead, to execute and file any of
the documents referred to below relating to registration under the Securities
Act of 1933, as amended (the "1933 Act"), of the offer and sale of shares of
common stock newly issued or reissued by the Company. Such documents shall
include, but shall not be limited to, registration statements on any form or
forms under the 1933 Act, and any and all amendments and supplements thereto,
with all exhibits and all instruments necessary or appropriate in connection
therewith, each of said attorneys-in-fact and agents and his or her substitutes
being empowered to act with or without the others or other, and to have full
power and authority to do or cause to be done in the name and on behalf of the
undersigned each and every act and thing requisite and necessary or appropriate
with respect thereto to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may do or cause to be done by
virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 1st day of April, 1996.
/s/Frank L. Langhammer
----------------------
Frank L. Langhammer
<PAGE> 10
POWER OF ATTORNEY
The undersigned officer of Allied Capital Lending Corporation,
a Maryland corporation (the "Company"), hereby constitutes and appoints David
Gladstone and Katherine C. Marien and each of them (with full power to each of
them to act alone), his true and lawful attorney-in-fact and agent, with full
power of substitution to each, for him and on his behalf and in his name,
place, and stead, to execute and file any of the documents referred to below
relating to registration under the Securities Act of 1933, as amended (the
"1933 Act"), of the offer and sale of shares of common stock newly issued or
reissued by the Company. Such documents shall include, but shall not be
limited to, registration statements on any form or forms under the 1933 Act,
and any and all amendments and supplements thereto, with all exhibits and all
instruments necessary or appropriate in connection therewith, each of said
attorneys-in-fact and agents and his or her substitutes being empowered to act
with or without the others or other, and to have full power and authority to do
or cause to be done in the name and on behalf of the undersigned each and every
act and thing requisite and necessary or appropriate with respect thereto to be
done in and about the premises in order to effectuate the same, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, may do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand,
this 29th day of March, 1996.
/s/Jon A. DeLuca
----------------
Jon A. DeLuca
